Holding

The Central Government validly exercised its power under Section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 to frame the Placement Scheme, which is legislative, non‑arbitrary, non‑irrational, and not retrospective.

Summary

The New Bank of India, a loss‑making nationalised bank, was merged with Punjab National Bank under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980. The Central Government, in consultation with the Reserve Bank of India, framed a Placement Scheme to determine the inter‑se seniority of the transferor bank’s employees, fixing a 2:1 ratio for service credit in promotion calculations. The employees of both banks challenged the scheme as arbitrary, irrational and violative of Article 14, and argued that it altered their conditions of service without hearing and was retrospective. The Supreme Court held that under clause 5(4) of the Amalgamation Scheme and Section 9 of the Acquisition Act the Government had the power to frame such a scheme, that the scheme was legislative, not arbitrary or irrational, and that it did not alter service conditions nor required a hearing. The scheme was also held not to be retrospective. The Court dismissed the appeals.

Issues considered

Whether the Placement Scheme fixing a 2:1 service‑credit ratio exceeds the Central Government's power under clause 5(4) of the Amalgamation Scheme read with Section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980.
What grounds, if any, permit a court to interfere with a scheme framed under the Acquisition Act.
Whether the Placement Scheme is arbitrary, irrational, or based on extraneous considerations.
Whether the Placement Scheme operates retrospectively.
Whether a scheme made under Section 9 of the Acquisition Act is a legislative scheme.

Legislation cited

Banking Regulation Act, 1949s. 45
Constitution of Indias. Article 14

Subjects

Bank amalgamationPlacement schemeSection 9Article 14SeniorityService credit ratioLegislative schemeArbitrarinessIrrationalityRetrospective effectCourt interference

Judgment

A NEW BANK OF INDIA EMPLOYEES UNION AND ANR.
v.
UNION OF INDIA AND ORS.

MARCH 13, 1996
B
(K. RAMASWAMY AND G.B. PATTANAIK, JJ.]

Banking Companies (Acquisition and Transfer of Undertakings) Act,
1980/New Bank of lndia(Amalgamation and Transfer of Undertakings)
C Scheme, 1993/New Bank of India Detennination of Placement of Employees
(Officers and Workmen) of New Bank of India in Punjab National Bank
Scheme, 1993.

S.9/clauses 4.5/clauses 3.4(a)(iii), 4(b )(ii)-Amalgamation of New
Bank of India with Punjab National Bank-Redeployment of employees of
D transferor bank in transferee bank and detemiination of their seniority with
employees of transferee bank-Employees of transferor bank made employees
of tran;feree bank on same tenns and conditions with same rights to pension,
gratuity etc. as would have been admissible to them had they continued in •
transferor bank-For detennination of seniority and in matter of promotion
computation of years of service rendered, made in ratio of 2: 1, i.e., two years
E of se1vice in transferor bank as equivalent to one year of service in transferee
bank-Held provisions of Placement Scheme neither arbitra1y nor irration-
al-Central Government competent to make the Scheme-Scheme made
under s.9 of the Act is a legislative one-Expression 'placement'-Mean-
ing-Explained.
F
Constitution of India.

A1ticle 14-0auses 4(a)(iii) and 4(b)(ii) of New Bank of India (Deter-
mination of Placemellt of Employees (Officers and Workmen) of New Bank
of India in Punjab National Bank) Scheme, 1993-For detennination of
G seniority and in matter of promotion computation of years of service rendered
by employees of transferor bank, made in ratio of 2: 1 i.e. two years of service
in transferor bank as equivalent to one year of service in transferee
bank-Held, neither irrational nor arbitrary.

H Words and Phrases :
322
NEW BANK OF INDIA EMPLOYEES UNION v. U .0.1. 323

'Placement'-Meaning of in the context of clause 5(4) of New Bank of A
India (Amalgamation and Transfer of Undertaking) Scheme, 1995.

The New Bank of India, a nationalised Bank, incurred financial loss
to such an extent and its financial position was so unsatisfactory that it
was not practicable to run the Bank. The Reserve Bank of India advised B
the merger of it into another stronger nationalised bank. The Central
Government, .~xercising its powers under Section 9 of the Banking Com-
panies (Acquisition and Transfer of Undertakings) Act, 1980, and in
consultation with the Reserve Bank of India framed the New Bank of India
" ..( (Amalgamation and Transfer of Undertaking) Scheme, 1993 whereunder
the New Bank of India (transferor bank) was amalgamated with the C
Pun~ab National Bank (transferee bank) with all consequential effects.

I
. By virtue of Clause 5 of the Amalgamation Scheme, the Board of
Directors of the Transferor bank stood dissolved and its employees be·
came the employees of the transferee bank on the same terms and condi· D,
tions and with the same rights to pension, gratuity and other matters as
would have been admissible to them if the transfer of undertakings had
rrot taken place. For placement of the employees of the transferor bank,
the Central Government, exercising powers under clause 5(4) of the Amal-
gamation Scheme read wiih Section 9 of the Acquisition_ Act, and in
consultation with the Reserve Bank of India, framed the New Bank of India E
(Determination of Placemerrt of Employees (Officers and Workmen) of the
New Bank of India in Punjab National Bank) Scheme, 1993 which came
into operation with effect from 4.9.1993. Clause 4(a)(iii) of the Placement
Scheme, dealing with the procedure for computation of years of service
rendered in the transferor Bank for the purpose_ of determining the F
minimum length of service for promotion from subordinate cadre to
clerical cadre in the transferee Bank, and clause·4(b)(ii) dealing with the
guidelines for determination of seniority fitment or for promotion to the
next grade or scale of an officer of the transferor Bank in the transferee
bank, provided that for the above purposes years of service rendered in
the transferor Bank would be computed in the ratio of 2:1 i.e. 2 years of G
service in the transferor-bank as equivalent to one year of service in the
~ transferee bank.

The workman and officers of the transferee bank challenged clauses
4(a)(iii) and 4(b)(ii) of the Placement Scheme by filing writ petitions H
324 SUPREME COURT REP ORTS [1996] 3 S.C.R.

A before the High Court. The employees of the transferee bank also filed writ
petitions in the High Court challenging the Placement Scheme as arbitrary .~

and violative of Article 14 of the Constitution. Their case was that by virtue
of the principle of seniority indicated in the Placement Scheme their
seniority had been altered to their disadvantage. The High Court upheld
B the provisions of the Scheme and dismissed the writ petitions. Aggrieved,
the writ petitioners filed the present appeals.

It was contended for the workmen of the transferor bank that
promotion of an employee from one cadre to another cadre being a
condition of service which under Clause S(2) of the Amalgamation Scheme . '
C could have been altered only by the transferee bank, the Central Govern-
ment exceeded its jurisdiction in the matter of determining the placement
of the employees of the transferor bank as well as their inter se seniority
as it altered the conditions of service; that there was no justification for
fixing the ratio of 2:1 under clauses 4(a)(iii) and 4(b)(ii) of the Placement
Scheme when both the banks were nationalised banks and the recruitment
D in both the banks was through a process of selection by the recruitment
board and therefore the ratio or 2:1 was irrational and arbitrary. For the \,
ollicers of the Transferor bank, it was also contended that the factors •
which were considered by the Central Government to reduce the seniority
of the ollicers of the transferor bank could not be considered to be germane
E factors and, therefore, the decision contained in clause 4(b)(ii) of the
placement scheme was irrational and arbitrary.

Dismissing the appeals, this Court

HELD : 1.1. By virtue of clause 5(4) of the New Bank of India
F (Amalgamation and Transfer of Undertaking) Scheme, 1993 read with s.9
of the Banking Companies (Acquisition and Transfer of Undertakings)
Act, 1980 the Central Government had the power to frame the New Bank
of India (Determination of Placement of Employees (Officers and
Workmen) of the New Bank of India in Punjab National Bank) Scheme,
G 1993 for placement of the employees of the transferor bank in the trans-
feree bank and for determination of their inter se seniority with the
employees of the transferee bank. [342-G]

2.1. When a scheme is framed amalgamating two hanks, it is not
possible for the Central Government to take the details of the service
H conditions in account and that is why it provided that the employees of the
t
•
NEWBANKOFINDIAEMPLOYEESUNJONv. U.0.1. 325

transferor bank wonld become the employees of the transferee bank on tlie A
same terms and conditions, with the same rights to pension, gratuity and
other matters which would have been admissible to them had they con-
tinued as the employees of the transferor bank. But as regards their place-
ment and inter-se seniority vis-a-vis the employees of the transferee bank,
the Scheme itself stipulated that in consultation with the Reserve Bank of
India the Central Government after taking relevant factors into considera- B
ti on may frame the Scheme. It is in exercise of this power that the placement
scheme has been framed and under the Placement Scheme what has been
intended is that for determination of the inter-Se seniority and in the matter
of promotion from subordinate cadre to the clerical cadre and from the
clerical cadre to the officers cadre while the computation of years of service C
rendered is taken into account, the computation shall be made in the ratio
of 2:1 i.e. two years of service in the transferor bank would be considered
e<1uivalent to one year of service in the transferee bank. This computation
is <inly one time computation. [342-A-E]

2.2. In frami11g the Placement Scheme and determining the ratio of D
2:1 in clauses 4(a)(iii) and 4(b)(ii) the appropriate authorities have taken

,.... relevant and germane materials into consideration and the said provisions
cannot be termed as arbitrary and irrational. The financial loss sustained
by the transferor bank had brought the bank to a virtual collapse, but the
Reserve Bank of India having taken a sympathetic view of the matter, E
instead of advising winding up of the bank and its liquidation, advised for
its merger with a stronger nationalised bank, and on amalgamation, the
scheme of placement of the employees was evolved. The ratio 2:1 was fixed
in the Placement Scheme in consultation with the Reserve Bank of India
and after a comparative study of the business of the two banks, the higher
productivity and larger measure of responsibility and higher average busi- F
ness per branch of the transferee bank as compared to the transferor bank
and all other germane considerations; the total number of employees and
rate of promotion in both the banks as well as the impact if the entire length
of servii::e is taken into account and one time reduced level is taken into
account. [352-D; 351-H; 352-A-B; 354-B-C)
G
3.1. TI1e expression 'Placement' in Clause 5(4) of the Amalgamation
Scheme must be construed to mean redeployment of the employees; fitment
of these employees in a grade or rank or cadre in the transferee bank and
inter-se seniority of these employees vis-a-vis the employees of the transferee
bank in the cadre or grade. [340-F] H
326 SUPREME COURT REPORTS (1996] 3 S.C.R.

A 3.2. Neither the placement Scheme in any way altered the conditions
of service of the employees of the transferor bank nor did it require any
opportunity of hearing to be given to the employees of the transferor bank
before framing the Scheme. In view of the provisions of the Acquisition
Act, clause 5(4) of the Amalgamation Scheme and clauses 4(a)(iii) &
4(b) (ii) of the Placement Scheme, it is clear that the Central Government
B did retain the power to frame the placement Scheme which is essential for
determination of the placement of the employees of the transferor bank
and the inter-se seniority vis-a-vis the employees of the transferee bank and
for framing such scheme it was not necessary to afford an opportunity of
hearing to the employees of the transferor bank, as there has been no
C charge in conditions of their service. (339-G; 340-H; 342-F-H] • •

K.I. Shephard & Ors. Etc. Etc. v. Union of India & Ors., (1988) 1 SCR
and H.L. Trehan v. Union of India, (1988] Suppl. 3 SCR 923, held inap-
plicable.

D 4.1. No scheme of amalgamation can be fool proof and a Court would
be entitled to interfere only when it comes to the conclusion that either the
scheme is arbitrary or irrational or has been framed on some extraneous
consideration. (343-B-C)

E 4.2. In view of the legal position of the Placement Scheme, more
particularly clauses 4(a)(iii) and 4(b)(ii), and on consideration of the
opinion rendered by the Reserve Bank of India, the Scheme is neither
arbitrary nor irrational but, on the other hand, is a just scheme evolved
by the Central Government after due consultation with the Reserve Bank
of India; and Court cannot interfere with such a Scheme. [348-F]
F
Remve Bank of India v. N.C. Pa/iwal, [1976] 4 SCC 838; Tamil Nadu
Education Depa1tmem Ministerial and General Subordinate Se1vices Associa-
tion & Ors v. State of Tamil Nadu & 01», [1980] 3 SCC 97 and S.C. Sachdev
& Anr. v. Union of India, [1981] l SCR 971, relied on.

G
V. T. Khanzodoe and Others v. Reseive Bank of India and A11r., [1982]
2 sec 7, referred to.

Ca11ara Bank v. M.S. Jasra & Ors., (1992] 2 SCC 484; K. Madhavan and
Anr. Etc. v. Union of India & Ors., [1988] 1 SCR 121 and Tej Narain Tiwary
H v. State of Bihar & Ors., [1993) 2 Supply. SCC 623, held inapplicable.
";
I

NEWBANKOFINDIAEMPLOYEESUNIONv. U.0.1. [PAITANAIK.J.] 327

5. A Scheme framed under Section 9 of the Banking companies Ac- A
quisition and Transfer of Undertaking Act, 1980, is a legislative one. The
High Court was in error in holding that Scheme not to be a legislative one.
Under Section 9 of the Acquisition Act, every scheme framed by the Central
Government has to be laid before each Houses of Parliament for a total
period of30 days; and the Parliament has the power to agree to the Scheme
and to make any modification therein or to decide that the scheme should B
not be made. The essential distinction between the provisions of s.45 of the
Banking Regulation Act, and those of s.9 of the Acquisition Act is that
under the former the Scheme framed has merely to be placed before the
Parliament whereas under the latter the scheme becomes effective only
after the same is placed before both the Honses of Parliament and after the C
Parliament agrees to the scheme and/or makes such modification therein
as it fit. [353-H; 354-A; 353-E-H]

K.I. Shephard & Ors. Etc. Etc. v. Union of India & Ors., [1988] 1 SCR
188, distinguished.
D
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 4247-50
of 1996.

From the Judgment and Order dated 5.5.95 of the Punjab & Haryana
High Court in C.W.P. No. 236 of 1994.
E
V.R. Reddy, Additional Solicitor General, P.P. Rao, D.S. Tewatia,
H.N. Salve, Jitendra Sharma, D.S. Chauhan, Santosh Srivastava, R.
Vasudevan, for Lawyers Inn, Ashok Mathur, Ms. Madhu Tawatia, Ranbir
Yadav, O.C. Mathur, Ms. Meera Mathur, for JBD., S.K. Mehta, Dhruv
Mehta, Fazlin Anam, R.K. Kapoor, P. Varma, S.K. Srivastava, Anis Ahmed
Khan, H.S. Parihar, Kuldeep S. Parihar, Ms. Gunwant Dara, Ms Minakshi F
Vij, P. Gaur, Rakesh Luthra, Gopal Singh, Arun K. Sinha, B.K. Pal, Mrs.
Shashi !Gran, S.N. Terdol V.G. Pragasam, K. L. Prasad and AN. Bardaiyar
for the Appearing parties.

The Judgment of the Court was delivered by G
PATTANAIK, J. Leave granted.

These four appeals by WdY of Special Leave deal with one and the
same scheme of amalgamation of the New Bank of India (hereinafter called
as the "Transferor Bank") with the Punjab National Bank (hereinafter H
328 SUPREME COURT REPORTS [1996] 3 S.C.R.

A called the "Transferee Bank"). The employees of the Transferor Bank filed
Writ Petitions, one by the officers and another by the workmen challenging
clause 4(a)(iii) and clause 4 (b)(ii) of the Scheme dated 8th December, . _._.
1993 called the New Bank of· India (Determination of Placement of
Employee (officers and workmen) of the New Bank of India in Punjab
National Bank) Scheme, 1993 (hereinafter called the "Placement
B
Scheme"). The aforesaid scheme had been framed by the Government of
India in exercise of the powers conferred by Section 9 of the Banking
companies (Acquisition and Transfer of Undertaking Act 1980)
(hereinafter referred to as "the Acquisition Act"). The employees of the
Transferee Bank also filed Writ Petitions in the High Court of Punjab &
~
c Haryana challenging the Placement Scheme on the ground that the
<

seniority of the employees of the Transferee Bank has been altered to their
disadvantage on account of the principle of seniority indicated in the
'Placement Scheme and the said Scheme is arbitrary and violative of Article
14 of the Constitution of India. The Division Bench of the Punjab &
Haryana High Court dismissed all the Writ Petitions and upheld the
D
provisions of the Placement Scheme and hence these appeals by the
Workmen and Officers of the Transferor Bank as well as by the employees
of the Transferee Bank.
.,..
•
Under the provisions of the Acquisition Act of 1980, 14 banks in the
E country were nationalised including the Transferee Bank. The New Bank
of India Limited was a Private Bank which was taken over by the Central
Govt. Under the provisions of the Acquisition Act of 1980 on 15.4.1980.
The said New Bank of India incurred financial loss to such an extent and
its financial position was so unsatisfactory that its capital and deposits
F completely stood eroded and the Bank declared a loss of Rs. 11.52 crores
in the year 1991-92. The Reserve Bank of India which is the monitoring &
authority and advisor to the Government of India, on consideration of the
fmancial position of the New Bank of India suggested that it would sub-
serve public interest if the said New Bank of India is merged with another
stronger Nationalised Bank. The Government of India finally decided to
G exercise the powers under Section 9 of the Acquisition Act and in consult-
ation with the reserve Bank of India decided to amalgamate the Transferor
Bank with the Transferee Bank and for the aforesaid purpose brought into 0
existence a scheme dated 4th September, 1993 called the New Bank of
India (Amalgamation and Transfer of undertaking) Scheme 1993
H (hereinafter called "The Amalgamation Scheme"). Under the aforesaid
NEWBANKOFJNDIAEMPLOYEES UNJONv. U.0.J. [PATI'ANAIK,J.] 329

amalgamation Scheme, the undertakings of the Transferor Bank stood A
transferred to and vested in the Transferee Bank and the effect of such
vesting was that all assets. rights, powers, authorities and privileges and all
property movable and immovable, cash balance, capital, reserve funds,
investments and all other rights and interests in, or arising out of such
property as were immediately before the commencement of the Scheme in B
the ownership, possession, power or control of the transferor bank in
relation to the undertakings, whether within or outside India, and all books
of accounts, registers, records and all other documents of whatever nature
relating thereto and shall also be deemed to include all borrowings,
liabilities and obligations of whatever kind then subsisting of the transferor
bank in relation to the undertakings deemed to have been transferred to C
and vested in the transferee bank. Clause 4 of the aforesaid Amalgamation
Scheme is extracted hereinbelow in extenso :

"4. General effect of vesting :

(1) The undertakings of the transferor bank shall be deemed to D
include all assets, rights, powers anthorities and privileges and all
property, movable and immovable, cash balances, capital, reserve
funds, investments and all other rights and interests in, or arising
out of ; such property as were immediately before the commence-
ment of this Scheme in the ownership, possession, power or control E
of the transferor bank in relation to the undertakings, whether
within or outside India, and all books of accounts, registers,
records and all other documents of whatever nature relating there-
to and shall also be deemed to include all borrowings, liabilities
and obligations of whatever kind then subsisting of the transferor
bank in relation to the undertakings. F
(2) Where any property is held by the transferor bank under
any lease the transferee bank shall on and from the date of
commencement of this scheme be deemed to have become the
lessee in respect of such property as if the lease in relation to such G
property had been granted to the transferee bank and thereupon
all the rights under such lease shall be deemed to have been
transferred to, and vested in, the transferee bank;

Provided that on the expiry of the term 6f any lease referred
to in this sub-clause such lease shall, if so desired by the transferee H
330 SUPREME COURT REPORTS [1996] 3 S.C.R.

A bank, be renewed on the same terms and conditions on which the
lease was held by the transferor bank immediately before the date
of commencement of this Scheme."

Under clause 5 of the said Amalgamation Scheme the Board of Directors
of the Transferor Bank stood dissolved and the officers and employees of
B the Transferor Bank became the officer and employee of the Transferee
Bank on the same terms and conditions with the same rights to pension,
gratuity and other matters as would have been admissible to those
employees if the undertakings of the transferor bank had not been trans-
ferred to and vested in the transferee bank subject to those facilities being
). '
C available at the time of the transfer to the similarly placed employee of the
transferee bank.

Clause 5(4) of the aforesaid Amalgamation Scheme authorises the
Central Bank to make another scheme in consultation with the Reserve
D Bank of India for determining the placement of the employees of the
transferor bank including the determination of their inter-se senority vis-a-
vis the employees of the transferee bank. The aforesaid clause 5(4) of the
Amalgamation Scheme is extracted in extenso :

"5(4) The Central Goverriment shall, as soon as possible after
E the commencement of this Scheme, make a Scheme is consultation
with Reserve Bank of India for determining the placement of the
employees of the transferor bank including the determination of
their inter-se seniority vis-a-vis the employees of the transferee
bank. While making the Scheme the Central Government shall take
account of relevant factors such as experience of the employee of
F
the transferor bank."

In exercise of the aforesaid power conferred upon the Central
Government under clause 5(4) of the Amalgamation scheme read with
Section 9 of the Acquisition Act the Central Government did frame the
G Placement Scheme on 8th December, 1993 the legality of which had been
challenged both by the employees of the Transferor Bank as well as the
employees of the Transferee Bank.

Clause 1(2) of the placement Scheme stipulates that the Scheme shall
H be deemed to have come into force with effect from 4th September, 1993.
NEW BANK OF INDIA EMPLOYEES UNIONv. U.0.1. [PATIANAIK, J.] 331

Clause 4 of the aforesaid Placement Scheme deals with the senority A
of officers and employees of the Transferor Bank vis-a- vis employees of
the Transferee Bank.

Clause 4(a)(iii) of the Placement Scheme deals with the procedure
for computation of years of service rendered in the transferor bank for B
the purpose of determining the minimum length of service for promotion
from subordinate cadre to clerical cadre in the transferee bank and Clause
4(b) (ii) provides the guidelines for the determination of seniority on fit-
ment or for promotion to the next grade or scale of an officer of the
transferor bank in the transferee bank. Since both these provisions have
been challenged by the employees and officers of the transferor bank as C
well as the employees of the transferee bank it would be worthwhile to
extract the aforesaid provisions in extenso :

"4(a)(iii) The procedure for computation of years of service
rendered in the transferor bank for the purpose of determining D
the minimum length the service for promotion from subordinate
..;i cadre to clerical cadre as also from the clerical cadre to officer
cadre and also for the purpose of posting in the posts carrying
special allowance, shall be computed in the ratio 2: 1, that is, two
years of service in transferor bank as equivalent to one year of
service in the transferee bank. For this purpose total service in the E
respective cadre of the. workmen employees, that is clerical or
sub-staff in which the official is placed at the time of transfer, shall
be reckoned but fractions of a month shall be ignored, for example,
if workman employee has rendered two years and nine months
service in the clerical/sub-staff cadre, as the case may be, in the F
transferor bank at the time of amalgamation with transferee bank,
it shall be reckoned as equal to one year and four months service
in the clerical or sub-staff cadre, as the case may be, in the
transferee bank.

4(b)(ii) For the purpose of seniority on fitment or for promo- G
tion to the next grade or scale, the service rendered by an officer
in the transferor bank shall be computed, after amalgamation, in
the ratio of 2:1, that is two years of service in the transferor bank
as equivalent to one year service in the transferee bank. For this
purpose, total service in the scale in which an officer is transferred H
332 SUPREME COURT REPORTS [1996] 3 S.C.R.

A shall be reckoned but fractions of month shall be ignored. For
example if an officer has rendered two years nine months service
in Scale-II in the transferor bank at the time of amalgamation with
the transferee bank, it shall be reckoned as equal to one year and
four months, service in Scale-II in the transferee bank."

B The Division Bench of the High Court came to the conclusion that :

(i) The scheme making process under Section 9 of the Acquisition
Act is not legislative in nature and, therefore, the Placement Scheme is not
law.
c (ii) The power under Section 9 of the Acquisition Act is wide enough
to amalgamat the New Bank (The Transferor Bank) with any another
banking institution including the one taken over under the Acquisition Act
of 1970.

D (iii) Once the Central Government has the power to amalgamate the
Transferor Bank with the transferee Bank it has to provid for the initial
placement of the employees and the scheme framed for the purpose cannot
be said to be without jurisdiction. •
E (iv) The Placement Scheme does not interupt services of the
employees of the transferor bank nor does it alter their terms and condi-
tions of employees to their prejudice;

(v) The Placement Scheme providing for the services of the
employees of the transferor bank in the respective cadre at the time of
F merger in the transferee bank to be counted in the ratio of 2: 1 cannot be
said to be discriminatory when the profitivity in terms of business of the
two banks the volume of business handled by the employees of the two

-
banks, the promotion effected in scales 3 to 7 by the New Bank of India
just before its merger with the Punjab National Bank, the rate of promotion
of the employees in the two banks when compared are taken into account. '
G The High C.ourt also came to the conclusion that on account of acute
financial position of the transferor bank when it was open to the Central
Government to close down the bank, the Government in consultation with
the Reserve Bank of India decided not to take the extreme step of closing
the bank and, on the other hand, decided to merge the same with the
H stronger Punjab National Bank, the scheme of amalgamation and place-
NEWBANKOFJNDIAEMPLOYEESUNIONv. U.0.1. [PATIANAIK,J.] 333

ment has to be examined from the point of view of wider public interest A
,;. , and unless it is positively established that any clause thereof is arbitrary or
irrational the Court should not interfere with the same.

Mr. P .P. Rao, the learned senior advocate appearing for the
workmen of the transferor bank contended that clause 5(4)of the Amal-
gamation Scheme authorises the Central Government to make a further B
scheme for determining the placement of the employees of the transferor
bank as well as for determination of their inter-se seniority vis-a-vis the
employees of the transferee bank where as clause 4(a)(iii) of the Placement
Scheme provides the procedure for computation of years of service
rendered in the transferor bank for the purpose of determining the .mini- C
mum length of service for promotion from subordinate-Cadre to the clerical
cadre as also from clerical cadre of the officer cadre which is beyond the
competence of the Central Government. In other words. Mr. Rao con-
tended that the promotion of an employee from one cadre to the other is
condition of service of an employee which under clause 5(2) of the Amal-
gamation Scheme could have been duly altered only by the transferee bank D
and the Central Govermnent exceeded its jurisdiction in the garb of
•· determining the placement of the employees of the transferor bank as well
as their inter-se seniority in altering the condition of service. Mr. Rao
further urged that even if clause 5(4) of the Amalgamation Scheme would
be held to authorise the Central GovernmeI)t to frame a scheme as E
provided in clause 4(a)(iii) of the Placement Scheme but the same is
vitiated since no relevant materials have been considered by the Central
Government and there is no justification for fixing the ratio of 2:1 i.e. 2
years of service in the transferor bank is equivalent to one year of service
in the transferee bank particularly when both the banks are nationalised F
banks and the recruitment of service in both the banks is through a process
of selection by the Recruitment Board. According to Mr. Rao, the
aforesaid computation in the ratio of 2:1 in clause 4( a)(iii) of the Placement
Scheme is irrational and arbitrary and therefore, should be struck down.
Mr. Rao lastly urged. that in any view of the matter the retrospective
operation of the scheme which came into force on 8th December, 1993 and G
was given retrospective effect with effect from 4th September, 1993 is on
the face of it bad in law as by an executive order the conditions of service
of an employee conld not have been altered retrospectively.

Mr. Arora, the learned counsel appearing for the officers of the H
334 SUPREME COURT REPORTS (1996] 3 S.C.R.

A transferor bank apart from reiterating the stand taken by Mr. Rao sub-
mitted that the factors which were given to be the relevant factors for the '·~
decision by the Government to reduce the seniority of the officers of the
transferor bank as indicated in paragraph 6 of their counter affidavit filed
before the High Court by no stretch of imagination can be considered to
B be germane factors and, therefore, the decision contained in clause 4(b)(ii)
of the placement Scheme must be struck down as irrational and arbitrary.
He further contended that the merger of a small bank with a stronger bank
cannot be held to be a ground for reducing the years of service of an
employee of a transferor bank and such reduction of service is wholly
C arbitrary. Mr. Arora, learned counsel also contended that there has been
no iota of material in the counter affidavit filed before the High Court that
the rate of promotion was much faster in the transferor bank as compared
to the transferee bank. And further the finding of the High Court that the
officers of the transferee bank will be junior to the officers of the New
D Bank of India if the entire credit is given to the services rendered in the
transferor bank is a finding based on no evidence. Learned Additional
Solicitor General replying to the contentions raised by the learned counsel
for the appellants submitted that the framing of the Amalgamation Scheme •
framed by the Central Government in exercise of powers under Section 9
of the Acquisition Act had not brought in a total fusion and was in a
E transitory stage and clause 5( 4) of the said Amalgamation Scbeme
authorised the Central Government to make a scheme of placement in
consultation with the Reserve Bank of India. The expression "Placement"
in clause 5(4) of the Amalgamation Scheme conceives of fitment of an
employee in a cadre or grade; position he occupies in the grade which in
F other words, would be his seniority, and redeployment of his service in the
grade. The Placement Scheme framed by the government more particularly
clause 4(a)(iii) as well as 4(b)(ii) achieves the aforesaid objective and is
squarely within the powers conferred upon the Central Government under
clause 5(4) of the Amalgamation Scheme. So far as the considerations
G which weighed with the Central Government to take the ratio of 2:1,
learned Additional Solicitor General placed before us the relevant para-
graphs of the counter affidavit of the Reserve Bank of India as well as the
Union Government and also produced before us a chart indicating the
impact of the ratio being 2:1 as well as the impact of it the entire service
H of an employee under transferor bank is taken into account and contended
NEWBANKOFINDIAEMPLOYEES UNIONv. U.O.l. [PAITANAIK,J.] 335

that if the latter course would ha:'e been taken then for years to come no· A
,,.. . employee of the Punjab National Bank, namely, the transferee bank would
have got any opportunity of getting promotion to the higher cadre. He also
further contended that when the Reserve Bank of India which monitors all
these Nationalised Banks was consulted and the said Reserve Bank of India
decided to have the ratio of 2:1 after considering several germane factors B
it cannot be said to be arbitrary or irrational as contended by the learned
counsel appearing for the appellants. Mr. Reddy learned Additional
Solicitor General also contended that the provisions of clause 4(a)(iii) &
4(b)(ii) is merely one time exercise and the said provision has been made
after due consultation with the Reserve Bank of India and after taking into
consideration several important factors, like, respective manpower of the c
two banks, respective tenure of promotion in two banks, respective business
of two banks and the fact that there has been a large scale promotion in
the transferor bank just before the amalgamation. According to Mr. Reddy
no scheme governing service matters can be foolproof and some section or
other of the employee is bond to feel aggrieved on the score of its D
expectations being falsified or remaining to be fulfilled as has been held by
this Court in the case of V. T. Khanzoda & Ors. v. Reserve Bank of India &
Ors., [1982] 2 SCC 7. Therefore, unless the persons aggrieved establish
arbitrariness, irrationality, perversity or malafide the scheme cannot be
held to be unconstitutional. E

Mr. Reddy cited before us several decisions of this Court indicating
the parameters for interference by the Court when validity of similar
scheme is assailed and submitted that the impugned scheme more par-
ticularly clauses 4(a)(iii) & 4(b )(ii) of the Placement Scheme infact strikes F
a just balance between the conflicting claims of the employees of the
transferor bank and the employees of the transferee bank and the said
provision can neither be held to be arbitrary and irrational and therefore
the Court shonld not interfere with the same.

Mr. Reddy lastly submitted that the conclusion of the High Court G
"''-' that the scheme making process is not legislative in nature is wholly
erroneous.

Mr. Salve, the learned senior counsel, appearing for the Reserve
Bank of India contended that when the New Bank of India was sustaining H
336 SUPREME COURT REPORTS (1996] 3 S.C.R.

A loss and would have been otherwise wound up, the Reserve Bank of India
advised the Union Government to merge the same with a stronger bank so
that the employees will not suffer. While advising amalgamation the
.....
Reserve Bank of India also considered the relevant factors for determina-
tion of the inter se seniority of the employees and after due deliberations
came to the conclusion of accepting the ratio of 2:1 at the stage of
B placement of promotion which advice was ultimately accepted by the
Central Government. According to Mr. Salve all materials having been duly
considered advice having been given to the Union Government which
advice was ultimately accepted, the contentions of arbitrariness and ir-
rationality raised by the counsel appearing for the appellants is nothing but
C an imaginary grievance and not established through any positive data and,
therefore, the Court should refrain from interfering with the Amalgamation
Scheme as well as the Placement Scheme more particularly the ratio of 2:1.

Mr. Sharma, the learned counsel appearing for the employees of the
transferee bank, on the other hand contended, that the Scheme works out
D harshly against the employees of the transferee bank and the benefits
conferred upon the employees of the transferor bank under the Scheme
should not be given to them.

In view of the rival submissions the following questions really arise
E for our consideration :

1. Is the Placement Scheme framed by the Central Government
which provides for the ratio of 2:1 for the purpose of promotion of the
employees of the Transferor Bank is beyond the power of the Central
Government as conferred under Clause 5(4) of the Amalgamation Scheme
F read with Section 9 of the Acquisition Act?

2. What are the powers of the Court to examine such schemes and
on what grounds the Court can interfere with such a Scheme?

G 3. Whether framing the Placement Scheme and determining the ratio
of 2:1 in Clauses 4(a)(iii) and 4(b)(ii), relevant and germane materials had
been taken into account or the provisions can be held to be arbitrary and
irrational?

4. Can the placement Scheme by any stretch of imagination can be
H said to be retrospective in nature?
NEWBANKOFIND!i\.EMPLOYEESUNIONv. U.0.1. (PAITANAIK,J.] 337

5. Was the High Court correct in coming to the conclusion that the A
scheme making process under Section 9 of the Acquisition Act is not
,.,. . legislative in nature?

So far as the first question is concerned Mr. Rao appearing for the
appellants elaborated his submission by contending that no doubt Section B
9 of the Acquisition Act confers power on the Central Govt to make a
scheme for Amalgamation of one bank with the other after consultation
with the Reserve Bank of India and in exercise of that power the Central
Government did frame the Scheme of Amalgamation which was published
,.. on 4th September, 1993. Under the said Amalgamation Scheme the under-
taking of the New Bank of India stood vested in Punjab National Bank on c
the commencement of the Scheme itself and the effect of such vesting has
been indicated in clause 4 of the Amalgamation Scheme. Under Clause
5(2) of the said Scheme the officer and employees of the transferor bank
became officer and employees of the transferee bank and they shall hold
their office or service in the transferee bank on the same terms and D
conditions and with the same rights, pension, gratuity and other matters as
would have been admissible to him if the undertakings of the transferor
"i
bank had not been transferred to and vested in the transferee bank until
'
the terms and conditions are duly altered by the transferee bank.

E
According to Mr. Rao the aforesaid provision makes it clear that the
employees of the transferor bank would continue to be the employees of
the transferee bank on the same terms and conditions which they were
enjoying under their erstwhile employer, namely, the transferor bank, until
and unless the terms and conditions are duly altered by the transferee bank.
In .that view of the matter the Union Government had no power to frame F
~
'.
clauses 4(a)(iii) & 4(b )(ii) of the Placement Scheme and thereby jeopardise
the chances of promotion of the employees of the transferor bank in the
transferee bank to their detriment and .altering their conditions of service.
According to Mr. Rao promotion and seniority are two different concept
and clause 5(4) of the Amalgamation Scheme had merely authorised the G
Central Government to make another Scheme, a subsidiary one after
~ consultation with the Reserve Bank of India for determining the placement
of the employees of the transferor bank and for· determining their inter-se
seniority vis-a-vis the employees of the transferee bank. Promotion by no
stretch of imagination can be included within the purview of clause 5(4) of H
338 SUPREME COURT REPORTS [1996] 3 S.C.R.

A the Amalgamation Scheme. In this view of the matter the impugned clause
of the Placement Scheme, namely, clause 4(a)(iii) & 4(b)(ii) computing the
ratio of 2:1 for the purpose of determining the minimum length of service ."
for promotion from subordinate cadre to clerical cadre and also from
clerical cadre to officer cadre is wholly without jurisdiction and an arbitrary
B exercise of power by the Central Government. Mr. Rao contends that the
right of promotion of the employees of the transferor bank remains fully
protected under clause 5(2) .of the Amalgamation Scheme and it can only
be duly altered by the transferee bank and that right cannot be taken away
by the Central Government in framing a scheme in the garb of determina-
C tion of inter se seniority. In this connection Mr. Rao has also advanced an
argument that in the minimum, before introducing the scheme and altering
the service conditions, the employees should have been given atleast an
opportunity of hearing. Mr. Rao placed reliance on the decisions of this
Court in the case of Kl. Shephard & Ors. Etc. Etc. v. Union of India & Ors.,
D [1988 1 SCR 188 which was approved and followed in the case of H.L.
Terhan v. Union of India, [1988) Suppl. 3 SCR 923. In the Shephard's case
(supra) when some private banks were amalgamated with Punjab National
Bank, Canara Bank and State Bank of India in terms of separate schemes
drawn under Section 45 of the Banking Regulation Act, 1949, some of the '
employees of the amalgamated banks were excluded from employment in
E the transferee banks and such exclusion was made without giving the
employees an opportunity of being heard. When the matter had been
challenged before the Kerala High. Court, the learned Single Judge of the
High Court had proposed a post amalgamation hearing but that had been
vacated by the Division Bench of the High Court. In that context this Court
F had held that even a post decisional bearing will not meet the ends of
justice and there is no justification to throw out the employees from their
employment without giving them an opportunity of representation and
giving an opportunity of representation is a condition precedent to the
action taken. We fail to understand how this decision is of any assistance
G to the appellants. In that particular case on account of certain charges
against the employees of the private banks they were not given employment
in the transferee bank and, therefore, this Court had observed that before
excluding them from consideration they had a right to be heard. In the
present case none of the employees of the transfer or bank had been
H exc!uded from absorption in the transferee bank, on the other hand an
\
't-
NEWBANKOFINDIAEMPLOYEESUNIONv. U.0.1. (PATIANAIK,J.) 339

option was asked for and thereafter by operation of the Amalgamation .A
Scheme, the employees of the transferor bank have become the employees
.; . of the transferee bank and, therefore, question of giving them opportunity
of hearing does not arise. In Trehan's case (supra) the question for con-
sideration was whether there can be deprivation or curtailment of any
existing right or benefit enjoyed by government servant without complying B
with the rules of natural justice by giving the servant concerned an oppor-
tunity of being heard. In that particular case the Caltex Oil Refinery (India)
Ltd., a government company (for short 'Cori!'), which was acquired by the
.Government of India under the provisions of the Caltex (Acquisition of
Shares of Caltex Refining (India) Ltd.) Act. 17 of 1977, the Board of
c
Directors of Cori! had issued a circular indicating the perquisite admissible
to the.Management staff should be rationalised in the.manner stated in the
circular. That circular was challenged by the employees of Corils on the
ground that it curtails the existing rights and advantages and such circular
should not have been therefore, issued without affording an opportunity of
hearing. The High Court had quashed that circular accepting the conten- D
tion of the. employees and on appeal this Court confirmed the decision of
Ji
the High Court and following the earlier view expressed in Shephard's case
• (supra) held that there can be no deprivation or curtailment of any existing
right, advantage or benefit enjoyed by government servant without comply-
ing with the rules of natural justice by giving the government servant
concerned an opportunity of being heard. We fail to understand how this E
decision also is applicable to the present case where Section 9 of the
Acquisition Act authorises Central Government to make a Scheme of
Amalgamation of two banks and in exercise of that power the Central
Government after consulting the Reserve Bank of India framed the Amal-
~ gamation Scheme and retained to itself the power to frame another scheme F
' ' for placement and seniority of the employees of the transferor bank vis-a-
vis the employees of the transferee bank and in accordance with that power
framed the Placement Scheme. In our considered opinion, neither the
Placement Scheme in any way alters the conditions of service of the
employees of the transferor bank nor does it reqnire any opportunity of
hearing to be given to the employees of the transferor bank before framing
G
of the Placement scheme. Mr. Rao also placed reliance on the decision of
~ this Court in the case of Canara Bank v. M.S. Jasra & Ors., (1992 2 SCC
484. In the aforesaid case the question for consideration was, when some
private banks are amalgamated with the Nationalised bank under the
provisions of Banking Regulation Act 1949 can the employees of the H
340 SUPREME COURT REPORTS (1996] 3 S.C.R.

A private banks claim to be governed by an age of superannuation of the
transferor bank or they would be governed by the terms and conditions of
service applicable to the employees of corresponding ranks or status of the ...
transferee bank. This court answered the question by holding that the
employees would be governed by the terms and conditions of service of
employees of the corresponding rank of the transferee bank and therefore,
B
their claim to continue in service upto 60 years is unsustainable. Analysing
the provisions of the Banking Regulation Act 1949 and referring to proviso
(ii) to clause (i) of Sub Section (5) of Section 45 of the said Act this Court
held that the employees of the transferor bank would be entitled to the
terms and conditions of service with the employees of the corresponding
C rank and status of the transferee bank were availing of and therefore the
High Court was in error in allowing the claim of the employees of the
transferor bank. In our considered opinion this decision is of the assistance
to the point which arises for consideration in the present case. Firstly, the
provisions of Banking Regulation Act 1949 has no application in the case
D in hand. Secondly, the point in controversy in the case in hand is different
than the point in controversy in that case. Thirdly, Section 9 of the
Acquisition Act confers power on the Central Bank to frame the Scheme
of Amalgamation and in exercise of that power to Amalgamation Scheme
had been framed which came into force on 4th September 1993 and under
clause 5(4) thereof Central Government had retained power to frame the
E Scheme for placement and inter-se seniority between the employees of the
transferor bank with the transferee bank and in accordance with that power
the impugned scheme of placement had been framed. The question for
consideration therefore, is whether the Central Government had the power
to frame the impugned Placement Scheme? As has been noticed earlier
F the expression 'placement' in clause 5(4) of the Amalgamation Scheme
must be construed to mean re-deployment of the employees' fitment of
those employees in a grade or rank or cadre in the transferee bank and
inter-se seniority of those employees vis-a-vis the employees of the trans-
feree bank in the cadre or grade. If this meaning is given to the expression
'Placement' in Section S(4) of the Amalgamation Scheme and then the
G impugned provision of clause 4(a)(iii) and 4(b)(ii) are considered it is

H
difficnlt for us to accept the contention of Mr. Rao that it alters the
conditions of service of the employees of the transferor bank and beyond
the power of the Central Govt. It wo.uld be appropriate for us at this stage
at the cost of repeatition to extract clause 5(4) of the Amalgamation
Scheme as well as Clauses 4(a)(iii) & 4(b)(ii) of the Placement Scheme.
-
NEWBANKOFINDIAEMPLOYEESUNIONv. U.O.I. IPATIANAIK,J.l 341

"5(4) The Central Government shall, as soon as possible after A
the commencement of this Scheme, make a Scheme in consultation
with Reserve Bank of India for determining the placement of the
..! '
employees of the transferor bank including the determination of
their inter-se seniority vis-a-vis the employees of the transferee
bank. While making the Scheme the Central Government shall take B
account of relevant factors such as experience of the employee of
the transferor bank."·

"4(a)(iii) The procedure for computation of years of service
rendered in the transferor bank for the purpose of determining C
the minimum length of service for promotion from subordinate
cadre to clerical cadre as also from the clerical cadre to officer
cadre and also for the purpose of posting in the posts carrying
special allowance, shall be computed in the ratio 2:1 that is two
years of service in transferor bank as equivalent to one year of
service in the transferee bank. For this purpose, total service in D
the respective cadre of the workmen employees, that is clerical
or sub-staff in which the official is placed at the time of transfer,
shall be reckoned but fractions of a month shall be ignored, for
example, if a workman employee has rendered two years and nine
months service in the clerical/sub-staff cadre, as the case may be, E
in the transferor bank at the time of amalgamation with transferee
bank, it shall be reckoned as equal to one year and four months
service in the clerical or sub-staff cadre, as the case may be, in the
transferee bank."

-f F
• 4(b)(ii) Far the purpose of seniority on fitment or for promo-
tion to the next grade or scale, the service rendered by an officer
in the transferor bank shall be computed, after amalgamation, in
the ratio of 2:1, that is, two years of service in the transferor bank .
as equivalent to one year service in the transferee bank. For this
purpose, total service in the scale in which an officer is transferred G
shall be reckoned but fractions of a month shall be ignored. Far
example, if an officer has rendered two years nine months service
in Scale II in the transferor bank at the time of amalgamation with
the transferee bank, it shall be reckoned as equal to one year and
four months service in Scale II in the transferee bank." H
-~
'
342 SUPREME COURT REPORTS [1996] 3 S.C.R.

A When the Central Government decided to amalgamate two banks it has to
make a scheme after consulting the Reserve Banlc of India under Section
9 of the Acquisition Act. In the case in hand Amalgamation became
. ·,.
necessary as the transferor bank was incurring heavy loss and without the
amalgamation it would have been totally wound up. When a scheme is
B framed amalgamating two banks, it is not possible for the Central Govern-
ment to take the details of the service condition in account and that is why
it provided that the employees of the transferor bank would become the
employees of the transferee bank on the same terms and conditions, with
the same right' to pension, gratuity and other matters which would have
C been admissible to them if they would have continued as the employees of
the transferor bank. But so far as the question of their placement and
inter-se seniority vis-a-vis the employees of the transferee banlc, the Scheme
itself stipulated that in consultation with the Reserve Banlc of India the
Central Government after taking relevant factors into consideration may
D frame the Scheme. It is in exercise of this power the placement scheme has
been framed and under the Placement Scheme what has been intended is
that for determination of the inter-se seniority and in the matter of promo-
tion from subordinate cadre to the clerical cadre and from the clerical
cadre to the officers cadre while the computation of years of service
rendered is taken into account, the computation shall be made in the ratio
E of 2:1 i.e. two years of service. in the transferor bank would be considered
equivalent to one year of service in the transferee bank. This computation
is only one time computation and whether such decision has been take-n
after taking the relevant factors into account will be considered by us when
the question of arbitrariness etc. is considered. But on examining the
F provisions of the Acquisition Act as well as the provisions of Clause 5(4)
of the Amalgamation Scheme framed in exercise of power under Section
9 of the Acquisition Act and the impugned clauses of the Placement
Scheme we have no hesitation to come to the conclusion that the Central
Govt. did retain the power to frame the Placement Scheme in question
G which is essential for determination of the placement of the employees of
the transferor bank and the inter-se seniority vis-a-vis the employees of the
transferee bank and for framing such scheme it was not necessary to afford
an opportunity of hearing to the employees of the transferor bank, as in
our view there has been no change on conditions of their service. In this
H view of the matter we answer the first question by holding that the Central
NEWBANKOFINDIAEMPLOYEESUNIONv. U.0.1.[PATIANAIK,J.j 343

Government has the power to frame the subsequent scheme which has A
· been termed by us in this judgment as the Placement Scheme for the
A. placement of the employees of the transferor bank in the transferee bank
and for the determination of their inter-se seniority with the employees of
the transferee bank.
B
Coming down to the second question the legal position is fairly
settled that no scheme of amalgamation can be fool proof and a Court
would be entitled to interfere only when it comes to the conclusion that
either the scheme is arbitrary or irrational or has been framed on some
extraneous consideration. Learned Additional Solicitor General, Mr.
Reddy appearing for the respondents in this context contended that the c
only enquiry which the Court can make is whether the provisions of this
scheme is arbitrary and irrational so that it results no inequality of oppor-
tunities amongst employees belonging to the same class. In support of this
contention he placed strong reliance on the decision of this Court in the
case of Reserve Bank of India v. N.C. Paliwal, [1976] 4 SCC 838. In that D
case the Reserve Bank had 5 different department which were broadly
,,)( divided into two groups called the General Department and the Specialised
Department and each department was treated as a separate wing for the
purpose of determining seniority and promotion of the employees within
the group. The employees of the Specialised departments were having E
greater opportunities for confirmation and promotion as compared to the
employees of the General Department. On account of this disparity the
employees of the General Department claimed for equalisation of their
chance of their confirmation and promotional opportunity by having a
combined seniority list of all employees irrespective of the departments to
--+
.. which they belong. Ultimately the Reserve Bank of India introduced a
F
Scheme called Optee Scheme. In May 1972 the Reserve Bank issued
another scheme called combined Seniority Scheme which provided for
integration of clerical staff of the general departments with the clerical staff
of the specialised departments and it also made provision for determina-
tion of inter-se seniority. The validity of the said scheme had been cha!- G
lenged on the ground that the Scheme is violative of the Constitutional
~~ principle of equality and must be held to be discriminatory. This Court
negativing the aforesaid contentions held that the integration of different
cadres into one cadre cannot be said to involve any violation of equality
clause. Examining the question of rule of seniority adopted by the com- H
344 SUPREME COURT REPORTS [1996] 3 S.C.R.

A bined Seniority Scheme the Court further observed :

"Now there can be no doubt that it is open to the State lay ..,,,.
down any rule which it thinks appropriate for determining seniority
in service and it is not competent to the court to strike down such
rule on the ground that in its opinion another rule would have been
B better or more appropriate. The only enquiry which the court can
make is whether the rule laid down by the State is arbitrary and
irrational so that it results in inequality of opportunity amongst
employees belonging to the same class. Now, here, employees from
non-clerical cadres were being absorbed in the clerical cadre and,
c therefore, a rule for determining their seniority vis-a-vis those
already in the clerical cadre had to be devised. Obviously, if the
non-clerical service rendered by the employees from non clerical
cadres were wholly ignored, it would have been most unjust to
them. Equally, it would have been unjust to employees in the
clerical cadre, if the entire non clerical service of those coming
D from non clerical cadres were taken into account, for non clerical
service cannot be equated with clerical service and the two cannot
be treated on the same footing. The Reserve Bank, therefore,
decided that one third of the non clerical service rendered by
employees coming from non clerical cadres should be taken into
account for the purpose of determining seniority. This rule at-
E tempted to strike a just balance between the conflicting claims of
non clerical and clerical staff and it cannot be condemned as
arbitrary of discriminatory''.

Learned Additional Solicitor General also relied upon another
F decision of this Court in the case of Tamil Nadu Education Departmellt
Ministerial and General Subordil!ate Services Associatioll & Ors. v. State of
Tamil Nadu & Ors., [1980] 3 Supreme Court Cases 97. In the aforesaid case
the District Board Schools were taken over by the Government of Tamil
Nadu and after such taking over the issue of merger of the staff confronted
G the government. At the time of taking over Government decided to keep
the absorbed personnel as a separate service in the education department.
This dicotomy between the staff of district schools and the Government
Schools gave rise to heart burning and the Government therefore, con-
sidered afresh the question of integration of two services, the Government
schools' servants were being called the "A" Wing staff and the staff of the
H former District Board Schools were being referred to as 'B' Wing staff.
.~
-\

NEWBANKOFINDIAEMPLOYEESUNIONv. U.0.1. [PATIANAIK,J.] 345

Finally after examining the matter of integration in great detail and taking A
into account the number of personnel indifferent categories of both the
_/
wings and promotional opportunities for them, the government adopted a
formula to integrate the two wings and to equalise their service conditions
to the extent possible by issuing the circular which was challenged by the
employees and the 'A' wing on the ground that it is capricious and
arbitrary. The government decision in question fJXed the ratio between two B
wings in the matter of promotion and fixed the principle of computation
of service in determining the seniority. This Court on examining the ratio
fixed by the government order held "The ratio of 5:3 and 3:2 respectively
were prescribed for the ministerial staff and teaching staff, taking realistic

•
note of the total numbers in the two equivalent group viz., quondam
District Board servants and relative government school staff. This is not an
c
irrational criterion ·when coalescence of two streams springing from two
sources occurs. 11

The Court further observed :
D
"Counsel for the respondents explain that when equated groups from
;.: different sources are brought together quota-rota expedient' are practical
' devices familiar in the field. Bearing in mind the strength of the District
Board staff to be included, the ratio is rational. May be, a better formula
could be evolved, but the conrt cannot substitute its wisdom for
government's, save to see that unreasonable perversity, malafide manipula- E
tion, indefensible arbitrariness and like infirmities do not defile the equa-
tion for integration. We decline to demolish the order on this ground.
Curial therapeutics can heal only the pathology of unconstitutionlity, not
every injury."
-1
(
The court also examined the principle of fixation of seniority and F
held:

'The more serious charge is that length of service for fixing seniority
has inflicted manifest injustice on the 'A' wing i.e. regular government staff
being born in arbitrariness and fed on ma/a /ides. It is fair to state the
generalities and then proceed to particularities. Here we must realise that G
.f( _ all the schools having been taken over the State directly the personnel had
to be woven into the basic fabric. Some relevant formula had to be
furnished for this purpose so that the homogenisation did not unfairly
injure one group or the other. In 1970 government chose not to integrate
_ but to keep apart Later, this policy was given up. We cannot, as court, H
346 SUPREME COURT REPORTS (1996] 3 S.C.R.

A quarrel if administrative policy is revised. The wisdom of yesterday may
obsolesce into the folly of today, even as the science of old may sour into
the superstition now, and vice versa. Nor can we predicate ma/afides or
ulterior motive merely because Assembly interpellations have ignited
rethinking or, as hinted by counsel, that the Education Minister's sensitivity
is due to his having been once District Board teacher. Democratic proces-
B ses - both these are part of such process - are not anathema to judges and
we cannot knock down the order because government have responded to
the Question Hour or re-examined the decision at the instance of a
sensitive minister .11

At this stage it would also be appropriate to notice yet another
C decision of this Court in the case V.T. Khanzodoe and Others v. Reserve
Bank of India andAnr., (1982] 2 Supreme Court Cases 7 in which case the
Court was examining again the principle evolved by the Reserve Bank of
India for a combined seniority for different groups of employees with
retrospective effect. The Court observed :
D
"Combined seniority has been recommended by two special commit-
tees, whose reports reflect the expertise and objectivity which was brought
to bear on their sensitive task. It is clear that inter-group mobility and
common seniority are a safe and sound solution to the conflicting demands
of officers belonging to Group I on one hand and those of groups II and
E III on the other. Private interest of employees of public under takings
cannot override public interest and an effort has to be made to harmonize
the two considerations. No scheme governing service matters can be
foolproof and some section or the other of employees is bound to feel
aggrieved on the score of its expectations being falsified or remaining to
be fulfilled. Arbitrariness, irrationality, perversity and mala fides will of
F course render any scheme unconstitutional but the fact that the scheme
does not satisfy the expectations of every employees is not evidence of
these."

In S.C. Sachdev & Anr. v. Union of India, (1981] 1 SCR 971 a
G particular provision of the Recruitment Rules of 1969 was being challenged
as an arbitrary. The said provision provided that UDCs drawn from Audit
offices must put in 10 years of service for acquiring eligible for promotion
where other UDCs are eligible for promotion in putting in 5 years of
service. Rejecting the contention of the appellant this Court held;

H "Considering the history leading to the formation of the new or-
NEWBANKOFINDIAEMPLOYEESUNIONv. U.0.1. [PATIANAIK, J.] 347

ganisation, SBCO-ICO, the distinction made between the two classes of A
UDCs, in the context of the length of their service for the purposeo of
promotion is not arbitrary or unreasonable~ The staff of the Audit Offices
which was engaged in the Savings Banks' work might well have faced
retrenchment. Instead of subjecting them to that hardship, they were given
the option of joining the new organisation. Experience-wise also, there B
would appear to be fair justification for requiring them to put in longer
service in the new organisation before they are eligible for promotion to
the higher grade. The challenge has therefore to be repelled."
•
The facts of this case are somewhat akin to the facts of the present
case. Mr. Rao, learned counsel appearing for the appellants on the other C
hand, urged that the subsequent scheme framed for placement of the
employees must be held to be arbitrary as there is no rational for wiping
of the past service of the employees of the transferor bank. Relying upon
the decision of this Court in.the case of K. Madhavan andAnr. Etc. v. Union
of India & Ors., [1988] 1 SCR 421 the learned counsel urged that the entire D
period of service rendered by the employees of the transferor bank can be
taken into account for the purpose of their seniority after amalgamation.
In the aforesaid case petitioner Madhavan was a permanent officer in the
grade of Deputy Commandant. On 14.6.76 it has been found to be
equivalent to the grade of S.P. in the CBI. When Madhavan's services were
taken over by the CBI the question arose whether his past service shall be E
taken into account for determining his seniority in the CBI and in that
contest this Court has observed that his entire period of service should be
taken into account. In our considered opinion this decision is of no
assistance to the appellanl in the present case where a particular scheme
was required to be framed after amalgamation of the services of the F
transferor bank with the transferee bank and in that scheme certain
provisions have been made as to how the employees of the transferor bank
would be fitted in the transferee bank.

Mr. Rao, learned counsel also placed reliance on another decision
of this Court in the case of Tej Narain Tiwary v. State of Bihar & Ors., G
[1993] 2 Suppl. Supreme Court Cases 623) in support of his contention that
in a case of amalgamation the entire past service of the employee should
be taken into account. In that case the appellant Narain Tiwary had been
appointed by the Bihar Scho.ol Examination Board as Special Officer in
August 1969. The said post was abolished with effect from April 1, 1971. H
348 SUPREME COURT REPORTS [1996] 3 S.C.R.

A He filed a suit and obtained injunction against the abolition of post and
termination of his services. In the course of litigation a compromise had
been arrived at between the Board and the appellant wherein he was
appointed as a Sectional Head Officer and his pay as a Special Officer
."
was also protected. The Board, therefore, passed an order on March 20,
1972 appointing the appellant as a Sectional Head Officer in the general
B cadre. In the seniority list of Sectional Officers prepared by the Board the
appellant had been shown above respondent no. 5 and he had been granted
promotion to the post of Asst!. Secretary. The respondent No. 5 therefore,
filed a Writ Petition challenging the seniority list. The High Court came to
the conclusion that the post of Sectional Officer occupied by the appellant
C not being a cadre post the services rendered by the appellant as Special
officer cannot be taken into account for his seniority in the cadre of
Sectional Officer. This Court in appeal reversed the judgment of the High
Court and held that the compromise entered into between the parties and
the order of March 20, 1972 is capable of being interpreted as an order of
D amalgamation of the ex cadre post of Special Officer with the cadre of
Sectional officer and consequently the appellant would get his seniority
from the date of his appointment as a Special Officer. In coming to this
conclusion the Court also relied upon the results and orders of the Board
itself. We fail to understand how this case can be of any assistance to the
appellants in the present case.
E
In view of the legal position as discussed above, and on examining
the provisions of the Placement Scheme more particularly Clauses 4(a)(iii)
& 4(b)(ii) and on consideration of the opinion rendered by the Reserve
Bank of India we have no hesitation to come to the conclusion that the said
Scheme is neither arbitrary nor irrational and on the other had a just
F
scheme evolved by the Union Government after due consultation with the
Reserve Bank of India and Court cannot interfere with such a Scheme.

Coming to the third question the answer would obviously <lepend
G upon the relevant materials considered both by the Reserve Bank of India
as well as by the Union Government before framing of the Placement
Scheme. At the outset it may be noted that most important function of the
Reserve Bank of India is to regulate the Banking system generally it is ~ :A.
usually described as a Bankers Bank. The Reserve Bank of India has been
given certain advisory and regolatory functions. It advices government and
H other banks on financial and banking matter. The provisions of the Reserve
NEWBANKOFINDIAEMPLOYEESUNIONv. U.0.1. [PATIANAIK,J.) 349

Bank of India Act shows that a bank has been created as a Central Bank A
with powers of supervision, advice and inspection over banks particularly
those desiring that they be included in the Second Schedule or those
scheduled already. The Reserve Bank safeguards the economy and finan-
cial stability of the country. We have set out the functions of the Reserve
Bank of India because the Placement Scheme which is being impugned in B
the present case by the employees of the transferor bank had been framed
in due consultation with the Reserve Bank of India and the said Reserve
Bank has filed affidavits indicating the broad consideration on which the
ratio 2:1 has been fixed. The Union of India in its affidavit filed in this
Court, sworn to by the Under Secretary in the Ministry of Finance, Banking
Division stated thus : C

'Central Government after taking into consideration the complete
date and entire material on record of the case and in consultation with
Reserve Bank of India decided that the Service rendered in erstwhile New
Bank of India by employees/Officers in grade/scale in which they were D
placed at the time of amalgamation had to be computed in the ratio of 2:1
and that to only for the purpose of computing eligibility for consideration
for promotion to next grade/scale and/or for the purpose of postings on a
post carrying special allowance. For all other purpose, the service rendered
by the employees of erstwhile New Bank of India has to be treated at par E
with the service rendered by the employees of New Bank of India in PNB.
It is relevant to mention that New Bank of India was small in size both in
regard to its branches and also in terms of its deposits and business etc. A
comparison of the erstwhile New Bank of India and the Punjab National
Bank in terms of productivity, volume of business, staff strength, time taken
for promotion etc. as indicated below would reveal that the employees of. F
Punj11b National Bank were having higher productivity per employee and
higher level of responsibilities, house keeping and higher average business
per branch. As compared to this the promotional avenues available to them
were less. On account of the merger, if the number of years of services
were equated between the employees of erstwhile New Bank of India and G
Punjab National Bank, it would happen that the employees with longer
years of service of Punjab National Bank would become junior to the
employees with lesser period of service in the corresponding grades" ·

The Reserve Bank of India in its affidavit in this Court have stated thus : H
350 SUPREME COURT REPORTS (1996] 3 S.C.R.
,
A "New Bank of India Limited was nationalised and constituted as New
Bank of India in 1980 under the provisions of the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1980. It was a bank . "'
comparatively small in size with 591 branches and deposits of Rs. 2362.33
crores as at the end of March, 1993.

B 6. The Reserve Bank of India as the Central Bank of the country, has
been monitoring on a continual basis the performance of the various public
sector banks. It was brought to the notice of the Government by Reserve
Bank of India that the financial position of New Bank of India as revealed
by the Annual Financial Review conducted by Reserve Bank of India as
C on 31st March 1992 was extremely unsatisfactory. The losses of the bank
including loan losses were estimated at Rs. 306.90 crore which exceeded
the provisions, reserves and paid up capital of the bank amounting to Rs.
242.78 crore. The deposits of New Bank of India had thus been eroded to
the extent of Rs. 64.12 crore. The said evaluation of Reserve Bank of India
did not take into account the depreciation in Government and other
D securities estimated at Rs. 25.52 crore which had not been provided for.
The bank had declared a loss of Rs. 41.52 crore in its published accounts
for the year 1991 -92.

7. The Reserve Bank of India brought to the notice of the Govern-
E ment various deficiencies in the working of the bank. Some of these are set
out below:

(i) The calibre and quality of officials in the senior management
cadre was inadequate.

F (ii) The supervision and control exercised by the Head Office over
the controlling offices and the branches was unsatisfactory. The internal
working of the branches was also far from satisfactory.

(iii) Funds management had been a weak area. The bank had been
G lending much beyond what its scares resources would permit, relying
heavily on market borrowings. With the constraints on resources the bank
would fmd it difficult to service even its existing borrowers. - •

(iv) The bank had not been able to bring about any improvement in
credit management despite repeated advice. The appraisal of credit
H proposals showed several deficiencies. Discretionary powers had not been
NEW BANK OF INDIA EMPLOYEES UNIONv. U.0.1. [PATIANAIK, J.] 351

exercised properly by the functionaries at various levels including the top A
executives. Adhoc/spot sanctions/excess drawals had been allowed fre-
,i , quently. The post disbursement supervision of advances was also unsatis-
factory.

(v) The bank was saddled with substantial load of sticky advances
amounting to Rs. 438.66 crore as on 31/3/1992 which formed 39.2% of the B
total advances.

(vi) The Bank did not comply with the minimum capital requirement
under the provisions of the Reserve Bank of India Act. It was prima facie
a fit case de-scheduling the bank; C
(vii) The bank was not in a position to pay the depositors in full as
and when their claims accrue and its methods of operation were far from
satisfactory. Under the policy followed with reference to private sector
banks, this would be a fit case for compulsory merger, as it did not satisfy
even the requirements under Section 22 of the Banking Regulation Act, D
1949 for carrying on banking business although the said provisions do not
)i apply to nationalised banks.

8. The Reserve Bank of India was of the view that the possibility of
New Bank of India earning reasonable profits in the near future and
making up the gap in provisions and emerging as a strong and viable unit E
was remote. It was doubtful whether the bank would be in a position to
recover_or regularise and bring down the high level of sub-standard advan-
ces to any significant extent. If the bank was to remain as a separate unit,
financial assistance of substantial maghitude would have to be given to it.
, -( But the extremely weak senior management structure of the bank as well F
as the deficiencies in its lower sections did not infuse confidence that even
with such assistance, the management would be able to remove the weak-
nesses in its working and making it a viable unit in the near future".

The appellants, however, strongly relied upon the fact that both the
banks being nationalised banks and the recruitment to both the banks being G
through the same Selection Board, there is no justification for treating the
services of the e,mployees of the transferor bank on 2: 1 basis after amal-
gamation for the purpose of promotion. In our considered opinion the
contention of the appellant is wholly unsustainable. As has been stated
earlier, the financial loss sustained by the transferor bank had brought the H
352 SUPREME COURT REPORTS [1996] 3 S.C.R.

A bank to a virtual collapse. It is at that point of time the Reserve Bank on
consideration having taken a sympathetic view of the matter and instead of
advising winding up of the bank and its liquidation advised for its merger ><
with a stronger bank and the Government of India ultimately accepted the
advise of the Reserve Bank. On its amalgamation necessary provisions were
required to be made for the placement of the employees of the transferor
B bank with the employees of the transferee bank. At that stage the bank as
well as the Union Government considered the total volume of business of
both the banks, the rate of promotion in both the banks, the number of
employees in both the banks, as well as the impact if the entire length of
service of the employees of the transferor bank is taken into account or
c one time reduced level is taken into account and finally evolved the scheme
of placement and modalities for promotion. Having considered the neces-
sary averments made in the affidavits filed by the Union Government ,as
well as by the Reserve Bank of India we are of the considered opinion that
in framing the Placement Scheme and determining the ratio of 2:1 in
clauses 4(a)(iii) & 4(b)(ii) the appropriate authorities have taken relevant
D
and germane materials into consideration and the said provision cannot be
termed as arbitrary and irrational.
~

So far as the fourth question is concerned we do not find any
substance of Mr. !ho's argument that the Placement Scheme is retrospec-
E tive in nature. As we have discussed earlier, on deciding to amalgamate the
two banks in exercise of power under Section 9 of the Acquisition Act the
Union Government framed the scheme of amalgamation and notified the
same on 4th September, 1993. But in that scheme excepting making the
employees of the transferor bank as employees of the transferee bank, the
other questions like their inter-se seniority and fitments in the cadre of the 't
F
transferee bank had not been decided. On the other hand clanse 5(4) of
the Amalgamation Scheme left the matter open for being evolved at a later
stage and the complete fusion between the employees of the two banks
came onl) on the subsequent scheme being framed, which scheme was
evolved after due deliberations on the relevant materials. The scheme
G therefore, necessarily have to be given effect with effect from the date of
amalgamation and the same cannot be held to be retrospective in nature
as contended by Mr. Rao. - ,A

The only other question which remains for consideration is whether
H the conclnsion of the High Court that the scheme making process under
NEW BANK OF INDIA EMPLOYEES UNJONv. U.0.1. [PATIANAIK, J.] 353

Section 9 of the Acquisition Act is not legislative is correct in law. In view A
of our conclusions on the four questions formulated, this question is not of
... much relevance but since the High Court has recorded a conclusion and
the learned Additional Solicitor General and Shri Saive advanced the
argument we think it appropriate to answer this question also. The High
Court relied upon the decision in Sapherd's case (supra) and came to hold
B
that the provisions of Section 45 of the Banking Regulation Act being in
parimateria with Section 9 of the Banking Companies Acquisition and
Transfer of Undertakings Act, 1980, and the scheme framed under Section
45 of the Banking Regulation Act having been held by this Court to be not
legislative, the scheme framed under the Acquisition Act as in the present
case, must also be held to be not legislative one. It is undisputed that in c
Sephard's case (supra) the amalgamation was of a private bank with a
nationalised bank and the provisions of the Banking Regulation Act, l.949
applied. This Court in Sephard's case (supra) on examining Section 45(11)
of the Banking Regulation Act 1949 came to hold that merely because a
scheme framed is required to be laid before both the Houses of Parliament D
after the same has been sanctioned by the Central Government the Scheme
cannot be held to be legislative in nature. But in our considered opinion
'JI
the High Court has failed to notice the fundamental distinction between
• the provisions of Section 45 of the Bank in Regulation Act and Section 9
of the Acquisition Act. Under Section 9 of the Acquisition Act under E
which Act the impugned scheme has been framed, every scheme framed
by the Central Government has to be laid before each Houses of Parlia-
ment for a total period of 30 days and the Parliament has the power to
agree to the Scheme and making any modification or in giving to a decision
thai the scheme should not be made and it is only thereafter the Scheme
'( has the effect either in the modified form or does not agree. The essential F
/> distinction between the two provisions therefore, is that whereas under the
Banking Regulation Act the Scheme framed has merely to placed before
the Parliament and nothing further but under the Acquisition Act the
..., scheme becomes effective only after the same is placed .before both the
Houses of Parliament and after the Parliament makes such modification G
and agrees to the scheme. In this view of the matter the decision of this
Court in Sephard's case (supra) has no application to a scheme framed

--- under the provisions of the Acquisition Act and in our considered opinion,
a scheme framed under Section 9 of the Banking Companies Acquisition
and Transfer of Undertakings Act, 1980, is a legislative· one. The High H
354 SUPREME COURT REPORTS (1996] 3 S.C.R.

A Court was in error in holding the scheme not to be a legislative one.
Mr. Sharma, the learned senior counsel appearing for the appellant,
the Punjab National Bank Employees Federation urged that the ratio of
2:1 fixed under the Placement Scheme infact works out gross injustice. The
interest of the employees of the Punjab National bank should not be
B jeopardised by bringing the employees of the New Bank of India and no
credit should be given to the employees of the New Bank of India for tb~ir
past services rendered. We do not find any force in the aforesaid conten-
tion and, as discussed earlier, the ratio of 2:1 was fixed in the Placement
Scheme in consultation with the Reserve Bank of Jr,dia and after a com-
C parative study of the business of the two banks, the rate of promotion, the
higher productivity and larger measure of responsibility and higher average
business per branch of the Punjab National Bank as compared to the New
Bank of India and all other germane considerations. The submission of Mr.
Sharma, therefore, is rejected.

D In the premise, as aforesaid, all the appeals are dismissed but in the
circumstances, there will be no order as to costs.

R.P. Appeals dismissed.