Holding

The Board has no contractual, statutory or equitable obligation to absorb the employees; legitimate expectation is not a enforceable right.

Summary

The appellants were employees of a co‑operative society that was liquidated and its undertaking merged with the Bihar Electricity Board. The Board did not take over the employees, and the appellants filed writ petitions seeking their absorption. The High Court dismissed the petitions and the appeal was upheld. The Supreme Court examined whether the Board had any contractual, statutory or equitable duty to absorb the employees, and whether the doctrine of legitimate expectation could be invoked. It held that no contract or statutory provision required absorption, and that legitimate expectation is not a legal right and could not be claimed by strangers without a recognized relationship. Consequently, the Board had no obligation to absorb the employees and the appeal was dismissed.

Issues considered

Whether the Bihar Electricity Board is contractually bound to absorb the employees of the liquidated co‑operative society.
Whether any provision of the Electricity Act, 1910 or other statutes imposes a statutory duty on the Board to take over the employees.
Whether the doctrine of legitimate expectation or principles of fairness in action can compel the Board to absorb the employees.
Whether equitable considerations can create an obligation on the Board to regularise the employees' service.

Legislation cited

Electricity Act, 1910s. 3, s. 4, s. 5, s. 6, s. 7, s. 7A
Electricity (Supply) Act, 1948s. 78A
Industrial Disputes Act, 1947s. 25-F

Subjects

Service lawElectricity ActLegitimate expectationAbsorption of employeesStatutory obligationContractual obligationIndustrial Disputes ActAdministrative lawEquitable considerations

Judgment

A RAM PRA VESH SINGH AND ORS.

STATE OF BIHAR AND ORS.

B
SEPTEMBER 22, 2006

[B.P. SINGH AND R. V. RA VEENDRAN, JJ.]
-
Service law:

Electricity Act, 1910-Section 3-Absorption of services-Liquidation
C of a Society and absorption of its undertakings with Electricity Board-Non-
absorption of its employees-Challenged-Obligation of Board to absorb
services of the employees-Heid: There was no obligation on the part of the
Board to absorb the services of the employees either on contractual, statutory
or equitable considerations-The natural consequence of transfer of an
D undertaking, unless there is specific provision for continuation of the service
of the employees, is termination of employment and employer's liability to pay
compensation-Industrial Disputes Act, 1947-Section 25-FF.

Administrative law-Principle of legitimate Expectation-Nature and
Scope of--Held: legitimate Expectation is not a legal right-It is an
E expectation of a benefit, relief or remedy that may ordinarily flow from a
promise or established practice-The expectation should be legitimate,
reasonable, logical and valid-It is a concept fashioned by courts for judicial
review of administrative action-It is procedural in character-Even when
it is made out, does not always entitle the expectant to a relief-Public
interest, change in policy, conduct of the expectant or any other valid or
F bonafide reason given by the decision maker, may be sufficient to negate the
legitimate Expectation-The doctrine based on established practice cannot
be invoked by a total stranger unconnected with the authority.

A co-operative society was liquidated and merged with Bihar Electricity
G Board. Since the Board did not absorb the services of the employees of the
Society, the appellantHmployees thereof filed Writ Petition before High Court
seeking direction to the Board to absorb them. The Petition was dismissed by
Single Judge of High Court. The judgment was upheld by Division Bench of
High Court dismissing the Letters Patent Appeal of the appellants.

H 512
RAM PRA VESH SINGH v. ST ATE OF BIHAR 513
The question for consideration before this Court was whether there was A
any obligation on the part of the Board-either contractual or statutory, or on
equitable considerations-to absorb the services of the appellants ?

Appellants interalia contended that they had legitimate expectation in
view of the facts that previously, when the Board had taken over the
undertakings of the erstwhile licensees, it also took over the services of their B
employees; that in some cases, Supreme Court had directed absorption in
similar circumstances.

Dismissing the appeal, the Court

HELD: I. The Board neither entered into any contract with the society, C
nor gave any assurance to the Society or its employees to absorb the employees
of the society into its service. Therefore, there is no contractual obligation
on the part of the Board to absorb the services of the appellants. (522-B]

2. None of the provisions of Electricity Act, 1910 required the purchaser
of the undertaking to take over the services of the employees of the Society. D
The appellants have not been able to show any other statutory provision which
entitles them to seek absorption by the Board. Hence, there is no statutory
obligation to absorb them into Board's service. (522-E(

3.1. Legitimate expectation is not a legal right. It is an expectation of a
benefit, relief or remedy, that may ordinarily flow from a promise or E
established practice. The term 'established practice•· refers to a regular,
consistent predictable and certain conduct, process or activity of the decision-
making authority. The expectation should be legitimate, that is, reasonable,
logical and valid. Any expectation which is based on sporadic or casual or
random acts, or which is unreasonable, illogical or invalid cannot be a
legitimate expectation. Not being a right, it is not enforceable as such. It is a F
concept fashioned by courts, for judicial review of administrative action. It is
procedural in character based on the requirement of a higher degree of
fairness in administrative action, as a consequence of the promise made, or
practice established. As a ground for relief, the efficacy of the doctrine is
rather weak as its slot is just above 'fairness in action' but far below
'promissory estoppel'. It may only entitle an expectant: (a) to an opportunity G
to show cause before the expectation is dashed; or (b) to an explanation as to
the cause for denial. In appropriate cases, courts may grant a direction
requiring the Authority to follow the promised procedure or established
practice. A legitimate expectation, even when made out, docs not always entitle
the expectant to a relief. Public interest, change in policy, conduct of the H
514 SUPREME COURT REPORTS [2006] SUPP. 6 S.C.R.

A expectant or any other valid or bonafide reason given by the decision-maker,
may be sufficient to negative the 'legitimate expectation'. 1523-B-FI

Union of India'" Hindustan De1•elopment Corporation, (199313 SCC
499; Punjab Communication Ltd. v. Union of India. (1999( 4 SCC 727;
Secretwy, State of Karnataka v. Umadevi, (2006( 4 SCC I and Confederation
B of Ex-servicemen Associations v. Union of India, JT (2006) 8 SC 547, referred
to.
3.2. The doctrine of legitimate expectation based on established practice
(as contrasted from legitimate expectation based on.a promise), can be invoked
only by someone who has dealings or transactions or negotiations with an
C authority, on which such established practice has a bearing, or by someone
who has a recognized legal relationship with the authority. A total stranger
unconnected with the authority or a person who had no previous dealings with
the authority and who has not entered into any transaction or negotiations
with the authority, cannot invoke the doctrine of legitimate expectation, merely
D on the ground that the authority has a general obligation to act fairly.
1523-G; 524-AI

3.3. What trai.spired several decades ago when the Board commenced
its operations and when its finances were sound, cannot have any bearing on
its action in the year l 995. The position of the Board vis-a-vis the Society in
E l 995 was completely different from the position of the Board vis-a-vis the
several ex-licensees when the Board took over their undertakings several
decades ba.:k. This does not attract the principle of legitimate expectation.
1527-CI

3.4. The assumption that whenever an undertaking is taken over,
F transferred or purchased, the transferee or purchaser should continue the
services of the employees of the erstwhile owner of the undertaking, is not
sound. In fact, statutory provisions seem to indicate otherwise. Section 25-FF
of the Industrial Disputes Act, 1947 provides that where the ownership or
management of an undertaking is transferred, whether by agreement or by
operation of law, from the employer in relation to that undertaking to a new
G employer, every workman who has been in continuous service for not less
than one year in that undertaking immediately before such transfer shall be
entitled to notice and compensation in accordance with the provisions of
Section 25-F, as if the workman had been retrenched, except in the cases
mentioned in the proviso thereto. Therefore, the natural consequence of a
1-1 transfer of an undertaking, unless there is a specific provision for
RAM PRA VESH SINGH v. STATE OF BIHAR 515
continuation of the service of the workmen, is termination of employment of A
its employees, and the employer's liability to pay compensation in accordance
with Section 25F.1527-FI

Anakapa/le Co-operative Agricultural and Industrial Society Ltd. v.
Workmen, AIR (1963) SC 1489, followed.
B
3.5. The Board had never agreed nor decided to take services of any of
the employees of the Society. In fact, it is not even the case of the appellants
that the Board had at any point of time held out any promise or assurance to
absorb their services. When the licence of the Society was revoked, the State
Government appointed a Committee to examine the question whether the Board
can take over the services of the employees of the Society. The Committee no C
doubt recommended that the services of eligible and qualified employees should
be taken over. But thereafter the State Government considered the
recommendation and rejected the same, apparently due to the precarious
condition of the Board which itself was in dire financial straits, and was
contemplating retrenchment of its own employees. At all events, any decision D
by the State Government either to recommend or direct the absorption of the
Society's employees was not binding on the Board, as it was a matter where
it could independently take a decision. It is also not in dispute that for more
than two decades or more, before 1995, the Board had not taken over the
employees of any private licensee. There was no occasion for consideration
of such a course. Hence, it cannot be said that there was any regularity or E
predictability or certainty in action which can lead to a legitimate expectation.
1528-C-E)
3.6. It is also possible that this Court in exercise of its jurisdiction under
Article 142, on the facts of a given case, might have directed that the persons,
whose services had been terminated on account of closure of an F
instrumentality of the State, be continued in the service of Government
Departments or other Government Corporations. Any direction given on
special facts, in exercise of jurisdiction under Article 142, is not a binding
precedent. 1529-A-BI

Secretary, State of Karnataka v. Umadevi, 120061 4 sec 1, relied on. G
G. Govinda Rajulu v. Andhra Pradesh State Construction Corporation
ltd., 119861 Supp. SCC 651, distinguished.
3. 7. The appellants are not entitled to relief based on the principle of
fairness in action, on equitable considerations. The question for consideration H
516 SUPREME COURT REPORTS [2006) SUPP. 6 S.C.R.

A in this appeal is not about the rights of the employees of the Society vis-a-vis
the Society or the State Government. It is with regard to a specific question
as to whether they can seek absorption under the Board. The Board has no
obligation towards the employees of the previous owner of the undertaking.
[529-C; 533-Cf

B Secretary, State of Karnataka v. Umadevi, [2006[ 4 SCC I and Bhola
Nath Mukherjee v. Government of West Bengal, [1997[ I SCC 562, relied on.

Gurmai/ Singh v. State uf Punjab, [1991[ I SCC 189 and Kapi/a
Hingorani v. State of Bihar, [2003[ 6 SCC I, distinguished.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4119 of2004.
c
From the Final Order dated 30.9.2002 of the High Court of Judicature at
Patna in LP.A. No. 1030 of2002.

P.S. Mishra, Gaurav Agrawal, Upendra Mishra, Dhruv Kr. Jha and
Prashant Kumar for the Appellants.
D
Kailash Vasdev, Navin Prakash, Nishakant Pandey, Gopal Singh and
Chander Shek;iar Ashri for the Respondents.

The Judgment of the Court was delivered by

RA VEENDRAN, J. Appellants who were the employees of Futwah
E Phulwarisharif Gramya Vidyut Sahakari Samiti Ltd., a co-operative society
under liquidation, have challenged the order dated 30.9.2002 passed by the
Patna High Court, dismissing their appeal (LP.A. No. I030/2002) against the
order dated 24.2.2002 passed by a Single Judge rejecting their writ petitions.

2. Prior to 1976, Bihar State Electricity Board (for short, 'the Board') was
F supplying electricity to the rural areas surrounding Patna. In the year 1976,
the Bihar Government, the Board and Rural Electrification Corporation brought
into existence a society registered under the Bihar Co-operative Societies Act.
known as the Futwah - PhulwarisharifGramya Vidyut Sahakari Samiti Ltd. (for
short 'the Society') to implement a REC Scheme for better distribution of
G electricity to rural areas. The state government granted a licence dated 24.8.1976
to the society under section 3 of the Indian Electricity Act, 1910 (·Act' for
short) to supply electricity to the Futwah and Phulwari Sharif Blocks, for a
period of20 years, with options to the licencee to extend the period of licence.

3. By letter dated 23.4.1993, the Board recommended to the State
H Government, to revoke the licence granted to the Society and merge the
RAMPRAVESHSINGihSTATEOFBIHAR[RAVEENDRAN, J.] 517

Society with the Board, assigning three reasons : (i) The purpose for which A
the Society was created no longer existed. (ii) The Society was drawing
electricity from multiple points in the Board's distribdtion network, making it
difficult to ascertain the actual quantity of electricity drawn by the Society.
(iii) The financial position and management of the Society was in a very bad
shape and huge arrears were due from the Society to the Board, in spite of B
Board supplying it to the Society at 7 paise per unit (as against the Board's
cost price of 90 to 115 paise per unit).

4. The State Government, after considering the matter, issued a
notification dated 25.4.1995, in exercise of its power under sections 4 and 5
of the Act revoking the licence dated 24.8.1976 granted to the Society. The C
State Government also constituted a Committee to evaluate the assets of the
society which had to be transferred to the Board. The Committee was also
required to consider whether it would be useful for the Board to absorb some
of the employees of the Society. At a Meeting held on 18.9.1995 (as per
Minutes drawn up on I0.11.1995), the said Committee made the following
suggestions : D
(a) The Society should be liquidated in view of the cancellation of
the licence;
(b) The Liquidator of the Society should realize the amounts due to
the Society and also invite claims from creditors of the Society E
for settlement of claims;
(c) The amounts due in regard to the electricity supplied up to the
date of cancellation (25.4.1995) should be credited to the Society,
and the amounts due for electricity supplied thereafter should be
received by the Board;
F
(d) The accounts relating to the income and expenditure of the
Society and the Board be maintained separately, from the date of
cancellation of licence, so that they could settle the accounts
between them; and
(e) The Board should consider taking work from the employees of G
the society and pay salary to them. The Board may also consider
absorbing the eligible employees of the Society after examining
whether they were qualified for the posts and were duly appointed
and whether their pay-fixation has been properly done.

5. The State Government by letter dated 2.1.1996 requested the Board H
518 SUPREME COURT REPORTS (2006) SUPP. 6 S.C.R.

A to implement the suggestion of the Committee relating to the employees of
the socitty that the Board should take work from the employees of the society
and pay their salaries, and also consider the absorption of eligible employees.
Some assurance was also held out in l 996 on the floor of the Legislature that
the Board will be persuaded to take over the undertaking of the society with
B its employees. However, thereafter, the State Government took a decision that
the assets and liabilities of the society should be transferred to the Board,
but not the services of the employees of the Society. The said decision was
communicated by the Secretary, Energy Department to the Secretary,
Cooperative Department and the Board, by letter dated 24.2.1997.

C 6. In view of the rejection of the proposal for absorption of services of
employees of the Society by the Board, several representations were sent by
the Administrator of the Society to the State government to absorb the
services of the employees of the society. The Administrator of the Society
also furnished a list of employees of the Society with particulars of designations
and educational and technical qualifications to the State Government. The
D number of employees is 225 ranging from Engineers to Class IV employees.
The said list was forwarded by the State Government to the Board on 14.7.1999
with a request to ascertain the existing vacancies in the Board. There were
some more correspondence relating to the suggestions from various quarters,
for absorption of the suitable and fit employees of the Society by the Board.
E 7. But foe Board did not absorb the services of the employees of the
Society. Therefore, the employees of the society (appellants) filed CWJC
Nos.1503 of2000 and 14394 of200 I seeking a direction to the Board to absorb
them in equivalent posts with continuity of service and also pay their arrears
of salaries, allowances and other dues. They contended that they had a right,
p both in law and in equity, as also a 'legitimate expectation' to be absorbed
into the services of the Board, for the following reasons :

(a) The Committee constituted by the State Government had
recommended that the Board should take work from the employees
of the society and ultimately absorb them;
G (b) The employees of the society have a 'legitimate expectation' that
they should be absorbed by the Board for the following reasons:
(i) Initially several private companies were generating and
distributing electricity in the State. When the Board was
constituted, the undertakings of all those private companies were
H
RAMPRAVESHSINGHv.STATEOFBIHAR[RAVEENDRAN. J.] 519
taken over and their employees were all absorbed in the services A
of the Board.
(ii) Whenever the undertaking of any company or institution was
taken over by any statutory body or corporation, the services of
employees of such undertaking are also normally taken over.
(iii) When an 'undertaking' is purchased, in the absence of an B
intention to the contrary, all the assets and liabilities, as also the
services of all employees are transferred to the purchaser and
therefore the Board cannot refuse to absorb them.
(iv) When certain departments were abolished by the State of
Bihar, this Court and the High Court had passed several orders C
directing absorption of the retrenched employees in other
departments of the state government.
(v) The society was constituted by the Board and the state
government to discharge the functions which were earlier being
carried on by the Board. The licence granted to the society to D
distribute electricity was subsequently revoked on the
recommendation of the Board. The Board has expressed its
readiness to take over the undertaking of the Society. The Board
has in fact taken over the assets of the Society and discharging
the functions of the society without any interruption, on E
revocation of the Society's licence on 25.4.1995.
(vi) The Board had extracted some work from the employees of
the society from 25.4.1995 till May, 1996.
(c) There are large number of vacancies in the Board in various
categories of posts and there would be no difficulty for absorption F
of their services by the Board.
(d) All the employees of the society have crossed the maximum age
limit for seeking fresh employment and if they were not absorbed
by the Board, they will be deprived of their livelihood.
(e) The society was an instrumentality of the State Government and G
the Board, and answered the definition of 'State' within the
meaning of that expression in Article 12 of the Constitution of
India. When the undertakings of such instrumentality of the state
was taken over by another instrumentality of the State, 'fairness
in action' which is one of the hallmarks of a 'State' require that H
520 SUPREME COURT REPORTS [20061 SUPP. 6 S.C.R.

A the rights of the employees are protected by providing ror their
absorption in an appropriate manner.

The State Government, in its counter, while denying the claim of the writ
petitioners, however, admitted that in August, 200 I, it had taken a decision
that when the prohibition against recruitment in the Board is lifted and
B appointments are made in future, preference should be given to the eligible
employees of the society if necessary by granting relaxation of the age limit.

8. A learned single Judge of the High Court rejected the said contentions
and consequently, dismissed the writ petitions by order dated 24.2.2002. He
held:
c
(i) The state government had not given any specific direction to the
Board to absorb the services of the employees of the society. Any
decision taken by the state government that as and when prohibition
against recruitment was lifted and appointments were to be made, the
Board should give preference to the eligible employees of the society,
D was not by itself a direction to the Board. At all events, having regar-1
to section 78A of the Electricity (Supply) Act, 1948 the State
Government can issue direction only in regard to matters of policy,
but could not issue a direction to appoint or absorb any employee of
the society in its service as that would amount to encroachment of
E Board's power under section 15 of the Act - vide Rakesh Ranjan
Verma v. State of Bihar, [19512] Suppl. 2 SCC 343.

(ii) Even if the society was to be considered as an instrumentality of
the State, that would not assist the appellants to contend that the
society was an extension of the Board, nor cast any obligation on the
F Board to absorb the employees of the society. When the licence
granted under section 3 of the Act was revoked and the undertaking
of the Society (licencee) was agreed to be purchased by Board, the
provisions of the Act governed the matter and those provisions did
not enable the appellants to claim any right of being absorbed in the
services of the Board.
G
(iii) The fact that the Board took over the undertakings of the private
companies which were generating and distributing electrical power till
then, along with the services of the employees of such private
undertakings, did not have any relevance to the appellants' claim for
absorption. The undertakings and services of employees of the
H
RAMPRAVESHSINGHv.STATEOFBIHAR[RAVEENDRAN, J.] 521
erstwhile licencees were taken over several decades ago when the A
Board was constituted and when the Board was financially and
administratively in a completely different position. As the financial
position of the Board was presently precarious due to various
circumstances, in particular, setting up of Jharkhand State Electricity
Board following the reorganization of the state of Bihar and as the B
Board itself was considering retrenchment of large number of its
existing employees, it cannot be compelled to take over the services
of the employees of the society in the absence of any legal right in
the appellants.

(iv) It could not direct absorption on equitable grounds. Any equitable C
consideration of the claim of the appellants cannot ignore the financial
position of the Board, howsoever sympathetically the court may view
the plight of the appellants. The s~ate government, being interested
in the welfare of the employees of the society had considered several
alternatives to rehabilitate the employees of the Society. In the course
of exploring the various alternatives, information was sought by the D
Government, views were expressed and assurances were made on the
floor of the House, to explore the possibility of the Board absorbing
the services of the employees of the society. But that did not create
any right in the employees of the society to seek employment from
the Board. Jn the absence of any specific (iecision by the Board or E
ass1>rance by the Board to absorb the services of the appellants, the
principle of 'legitimate expectation' was not attracted.

(v) Having regard to Sections 7 and 7A of the Act, when the
undertaking of a licensee was purchased by the Board, there was no
obligation on the part of the Board to absorb the employees of the F
erstwhile licensee.

9. The Letters Patent Appeal filed by the appellants against the said
decision of the learned single Judge was dismissed by a Division Bench by
a brief order dated 30.9.2002, both on .the ground of limitation and on merits,
thereby affirming the decision of the learned single judge. The said order is G
challenged in this appeal. On the contentions urged, the following question
arises for our consideration :-

Whether there is any obligation on the part of the Board - either
contractual or statutory, or on equitable considerations - to absorb
the services of the appellants? H
522 SUPREME COURT REPORTS (2006) SUPP. 6 S.C.R.

A Contractual Obligation :

10. The licence granted to the society under section 3 of the Indian
Electricity Act, 1910 was revoked by the State Government on 25.4.1995. It is
no doubt true that on such revocation, the Board took over the entire activities
of the society relating to distribution of power to the licensed areas. The
B Board also gave its concurrence to purchase the undertaking of the society.
But the Board neither entered into any contract with the society, nor gave any
assurance to the Society or its employees to absorb the employees of the
society into its service. Therefore, obviously, there is no contractual obligation
on the part of the Board to absorb the services of the appellants.
c Statutory Obligation :

11. Section 3 of the Act dealt with grant of licence by the State
Governmnet to any person to supply energy in any specified area. Section
4 dealt with revocation of such licences. The provisions that wou Id have
D effect when a licence was revoked, were listed in section 5. Section 6 gave
.the option to the Electricity Board and the State Government to purchase the
undertaking of a licensee, in the circumstances mentioned therein. Section 7
provided for vesting of the undertaking of the licensee sold to a purchaser
under section 5 or 6. Section 7A provided for determination of the purchase
price. None of these provisions of the Act required the purchaser of the
E undertaking to take over the services of the employees of the Society. The
appellants have not been able to show any other statutory provision which
entitles them to seek absorption by the Board. Hence, there is no statutory
obligation to absorb them into Board's service.

Equitable cor.siderations :
F
12. Realising that the appellants had no contractual or statutory right,
learned counsel for the appellants sought to derive support for the claim on
equitable considerations, by placing reliance on an amalgam of the principles
relating to legitimate expectation, fairness in action and natural justice,
G reiterating the contentions urged before the High Court.
13. It may be true that when the Board took over the undertakings of
the erstwhile private licencees several decades ago, it also took over the
services of the employees of such private licensees. It is also possible that
this Court in exercise of its jurisdiction under Article 142, on the facts of a
H given case, might have directed that the persons, whose services had been
RAMPRAVESHSINGHv.STATEOFBIHAR[RAVEENDRAN, J.) 523
.tenninated on account of closure of an instrumentality of the State, be continued A
in the service of Government Departments or other Government Corporations.
It may also be true that certain enactments providing for transfer of
undertakings in pursuance of nationalization or otherwise, had also provided
... for continuation/transfer of the services of the employees of the undertakings
to the transferee. But these do not. attract the principle of 'legitimate B
expectation' .

14. What is legitimate expectation? Obviously, it is not a legal right. It
is an expectation of a benefit, relief or remedy, that may ordinarily flow from
a promise or established practice. The tenn 'established practice' refers to a
regular, consistent predictable and certain conduct, process or activity of the C
decision-making authority. The expectation should be legitimate, that is,
reasonable, logical and valid. Any expectation which is based on sporadic or
casual or random acts, or which is unreasonable, illogical or invalid cannot
be a legitimate expectation. Not being a right, it is not enforceable as such.
It is a concept fashioned by courts, for judicial review of administrative
action. It is procedural in character based on the requirement of a higher D
degree of fairness in administrative action, as a consequence of the promise
made, or practice established. In short, a person can be said to have a
'legitimate expectation' of a particular treatment, if any representation or
promise is made by an authority, either expressly or impliedly, or ifthe regular
and consistent past practice of the authority gives room for such expectation E
in the nonnal course. As a ground for relief, the efficacy of the doctrine is
rather weak as its slot is just above 'fairness in action' but far below 'promissory
estoppel'. It may only entitle an expectant : (a) to an opportunity to show
cause before the expectation is dashed; or (b) to an explanation as to the
cause for denial. In appropriate cases, courts may grant a direction requiring F
the Authority to follow the promised procedure or established practice. A
legitimate expectation, even when made out, does not always entitle the
expectant to a relief. Public interest, change in policy, conduct of the expectant
or any other valid or bonafide reason given by the decision-maker, may be
sufficient to negative the 'legitimate expectation'.
G
The doctrine of legitimate expectation based on established practice (as
contrasted from legitimate expectation based on a promise), can be invoked
only by someone who has dealings or transactions or negotiations with an
authority, on which such established practice has a bearing, or by someone
who has a recognized legal relationship with the authority. A total stranger
unconnected with the authority or a person who had no previous dealings H
524 SUPREME COURT REPORTS (2006) SUPP. 6 S.C.R.

A with the authority and who has not entered into any transaction or negotiations
with the authority, cannot invoke the doctrine of legitimate expectation, merely
on the ground that the authority has a general obligation to act fairly.

15. In Union of India v. Hindustan Development Corporation, [ 1993] 3
SCC 499, this Court explained the nature and scope of the doctrine of·Jegitimate
...
B expectation' thus :

"For legal purposes, the expectation cannot be the same as anticipation.
It is different from a wish, a desire or a hope nor can it amount to a
claim or demand on the ground of a right. However earnest and
sincere a wish, a desire or a hope may be and however confidently
c one may look to them to be fulfilled, they by themselves cannot
amount to an assertable expectation and a mere disappointment does
not attract legal consequences. A pious hope even leading to a moral
obligation cannot amount to a legitimate expectation. The legitimacy
qf an expectation can be inferred only if it is founded on the sanction
D of law or custom or an established procedure followed in regular
and natural sequence. Again it is distinguishable from a genuine
expectation. Such expectation should be justifiably legitimate and
protectable. Every such legitimate expectation does not by itself
fructifY into a right and therefore it does not amount to a right in
the conventional sense. "
E
[Emphasis supplied]

This Court also explained the remedies flowing by applying the principle
of legitimate expectation :
F " ... .it is generally agreed that legitimate expectation gives the applicant
sufficient locus standi for judicial review and that the doctrine of
legitimate expectation is to be confined mostly to right of a fair
hearing before a decision which results in negativing a promise or
withdrawing an undertaking is taken. The doctrine does not give
G scope to claim relief straightaway from the administrative authorities
as no crystallized right as such is involved. The protection of such
legitimate expectation does not require the fulfillment of the expectation
where an overriding public interest requires otherwise. In other words
where a person's legitimate expectation is not fulfilled by taking a
particular decision then decision-maker should justify the denial of
H such expectation by showing some overriding public interest. Therefore
RAM PRA VESH SINGH v.STA TE OF BIHAR (RA VEENDRAN, J.] 525

A
even if substantive protection of such expectation is contemplated
that does not grant an absolute right to a particular person. It simply

- ensures the circumstances in which that expectation may be denied
or restricted. A case of legitimate expectation would arise when a
body by representation or by past practice aroused expectation
which it would be within its powers to fulfil. The protection is limited B
to that extent and a judicial review can be within those limits. But as
discussed above a person who bases his claim on the doctrine of
legitimate expectation, in the first instance, must satisfy that there is
a foundation and thus has locus standi to make such a claim. In
considering the same several factors which give rise to such legitimate C
expectation must be present. The decision taken by the authority must
be found to be arbitrary, unreasonable and not taken in public interest.
If it is a question of policy, even by way of change of old policy, the
courts cannot interfere with a decision. In a given case whether there
are such facts and circumstances giving rise to a legitimate expectation,
it would primarily be a question of fact. If these tests are satisfied and D
if the court is satisfied that a case of legitimate expectation is made
out then the next question would be whether failure to give an
opportunity of hearing before the decision affecting such legitimate
expectation is taken, has resulted in failure of justice and whether on
that ground the decision should be quashed. If that be so then what E
should be the relief is again a matter which depends on several
factors." (emphasis supplied).

16. In Punjab Communication Ltd v. Union of India, [ 1999] 4 SCC 727, this
Court observed :
F
"The principle of legitimate expectation is still at a stage of
evolution. The principle is at the root of the rule of law and requires
regularity, predictability and certainty in the Governments dealings
with the public .... The procedural part of it relates to a representation
that a hearing or other appropriate procedure will be afforded before
the decision is made." G
"However, the more important aspect is whether the decision maker
can sustain the change in policy by resort to Wednesbury• principles
of rationality or whether the court can go into the question whether
the decision-maker has properly balanced the legitimate expectation as
against the need for a change ..... In sum, this means that the judgment H
526 SUPREME COURT REPORTS [2006] SUPP. 6 S.C.R.

A whether public interest overrides the substantive legitimate expectation
of individuals will be for the decision-maker who has made the change
in the policy. The choice of the policy is for the decision-maker and
not for the court. The legitimate substantive expectation merely permits
the court to find out if the change in policy which is the cause for
defeating the legitimate expectation is irrational or perverse or one
B which no reasonable person could have made:·

17. Recently. a Constitution Bench of this Court in Secretary, State of
Karnataka v. Umadevi, [2006] 4 SCC I referred to the circumstances in which
the doctrine of legitimate expectation can be invoked, thus :
c "The doctrine can be invoked if the decisions of the administrative
authority affect the person by depriving him of some benefit or
advantage which either (i) he had in the past been permitted by the
decision-maker to enjoy and which he can legitimately expect to be
permitted to continue to do until there have been communicated to
D him ~ome rational grounds for withdrawing it on which he has been
given an oprortunity to comme11t: or (ii) he has received assurance
from the decision-maker that they will not be withdrawn without
giving him first an opportunity of advancing reasons for contending
that they should not be withdrawn."

E Another Constitution Bench, referring to the doctrine, observed thus in
Confederation of Ex-servicemen Associations v. Union of India, JT (2006) 8
SC 547:

"No doubt, the doctrine has an important place in the development
of Administrative Law and particularly law relating to 'judicial review'.
F Under the said doctrine, a person may have reasonable or legitimate
expectation of being treated in a certain way by an administrative
authority even though he has no right in law to receive the benefit.
In such situation, if a decision is taken by an administrative authority
adversely affecting his interests. he may have justifiable grievance in
G the light of the fact of continuous receipt of the benefit, legitimate
expectation to receive the benefit or privilege which he has enjoyed
all throughout. Such expectation may arise either from the express
promise or from consistent practice which the applicant may reasonably
expect to continue.''
H ·'In such cases. therefor.:. the Coun may not insist an administrative
RAMPRAVESHSINGHv.STATEOFBIHARfRAVEENDRAN, J.] 527
authority to act judiciaf£v but may still insist it to act fairly. The. A
doctrine is based on the principle that good administration demands
observance of reasonableness and where it has adopted a particular
practice for a long time even in absence of a provision of law, it
should adhere to such practice without depriving its citizens of the
benefit enjoyed or privilege exercised." B
18. Let us now examine whether the principles of legitimate expectation
can have any application in this case. What transpired several decades ago
when the Board commenced its operations and when its finances were sound,
cannot have any bearing on its action in the year 1995. The position of the
Board vis-a-vis the Society in 1995 was completely different from the position C
of the Board vis-a-vis the several ex-licensees when the Board took over their
., undertakings several decades back. Further, the assumption that whenever an
u~dertaking is taken over, transferred or purchased, the transferee or purchaser
should continue the services of the employees of the erstwhile owner of the
undertaking, is not sound. Jn fact, statutory provisions seem to indicate D
otherwise. Section 25-FF of the Industrial Disputes Act, 1947 provides that
where the ownership or management of an undertaking is transferred, whether
by agreement or by operation of law, from the employer in relation to that
undertaking to a new employer, every workman who has been in continuous
service for not less than one year in that undertaking immediately before such
transfer shall be entitled to notice and compensation in accordance with the E
provisions of Section 25-F, as ifthe workman ha~ been retrenched, except in
the cases mentioned in the proviso thereto. Therefore, the natural consequence
of a transfer of an undertaking, unless there is a specific provision for
continuation of the service of the workmen, is termination of employment of
its employees, and the employer's liability to pay compensation in accordance F
with Section 25F. In Anakapa/le Co-operative Agricultural and Industrial
Society Ltd. v. Workmen, AIR (1963) SC 1489, a Constitution Bench of this
Court rejected the contention of the employees that, on transfer of the
undertaking, the employees of the undertaking should be absorbed by the
purchaser/transferee of the undertaking. This Court held :
G
"This double benefit in the form of payment of compensation and
immediate re-employment cannot be said to be based on any
considerations of fair play or justice. Fair play and justice obviously
mean fair play and social justice to both the parties. It would, we
think, not be fair that the vendor should pay compensation to his H
employees on the ground that the transfer brings about the termination
528 SUPREME COURT REPORTS (2006] SUPP. 6 S.C.R.

A of their services. and the vendee should be asked to take them back
on the ground that the principles of social justice require him to do
so .... and in that sense, the said compensation is distinguishable from
gratuity. Therefore, if the transferor is by statute required to pay
retrenchment compensation to his workmen, it would be anomalous to
suggest that the workmen who received compensation are entitled to
B claim immediate reemployment in the concern at the hands of the
transferee."

I9. The Board had never agreed nor decided to take services of any of
the employees of the Society. In fact, it is not even the case of the appellants
C that the Board had at any point of time held out any promise or assurance
to absorb their services. When the licence of the Society was revoked, the
State Government appointed a Committee to examine the question whether the.
Board can take over the services of the employees of the Society. The
Committee no doubt recommended that the services of eligible and qualified
employees should be taken over. But thereafter the State Government
D considered the recommendation and rejected the same. apparently due to the
precarious condition of the Board which itself was in dire financial straits, and
was contemplating retrenchment of its own employees. At all events, any
decision by the State Government either to recommend or direct the absorption
of the Society's employees was not binding on the Board, as it was a matter
E where it could independently take a decision. It is also not in dispute that for
more than two decades or more, before I 995, the Board had not taken over
the employees of any private licencee. There was no occasion for consideration
of such a course. Hence, it cannot be said that there was any regularity or
predictability or certainty in action which can lead to a legitimate expectation.

F 20. The appellant next submitted that this Court, in some cases, has
directed absorption in similar circumstances. Reliance is placed on the decision
in G. Govinda Rajulu v. Andhra Pradesh State Construction Corporation
Ltd, [I 986) Supp SCC 65 I. We extract below the entire judgment :

"We have carefully considered the matter and after hearing learned
G counsel for the parties, we direct that the employees of the Andhra
Pradesh State Construction Corporation Limited whose services were
sought to be terminated on account of the closure of the Corporation
shall be continued in service on the same terms and conditions either
in the government departments or in the government corporations.
The writ petition is disposed of accordingly. There is no order as to
H costs."
RAM PRAVESH SINGH v.STA TE OFBIHAR [RA VEENDRAN, J.] 529

The '.enor of the said order, which is not preceded by any reasons or A
consideration of any principle, demonstrates that it was an order made under
Article 142 of the Constitution on the peculiar facts of that case. Law declared
by this Court is binding under Article 141. Any direction given on special
facts, in exercise of jurisdiction under Article 142, is not a binding precedent.
Therefore, the decision in Govindaraju/11 cannot be the basis for claiming B
relief similar to what was granted in that case. A similar contention was
negatived by the Constitution Bench in Umadevi (supra) :

"The fact that in certain cases, the Court directed regularization of the
employees involved in those cases cannot be made use of to found
a claim based on legitimate expectation." C
21. We will now consider the contention that the appellants are entitled
to relief based on the principle of fairness in action, on equitable considerations.
Learned counsel for the appellants relied on two decisions of this Court in
support of his contention - Gurmai/ Singh v. State of Punjab, [1991] I SCC
189 and Kapi/a Hingorani v. State of Bihar, [2003] 6 SCC I]. D
22. The observations in Gurmail Singh (supra) on which reliance is
placed are extracted below :

"This is where, as here, the transferor and/or transferee is a State or
a State instrumentality, which is required to act fairly and not arbitrarily E
(see the recent pronouncement in Mahabir Auto Stores v. Indian Oil
Corporation, (1990] 3 SCC 752 and the court has a say as to whether
the terms and conditions on which it proposes to hand over or take
over an industrial undertaking embody the requisite of "fairness in
action" and could be upheld. We think that, certainly, in such
circumstances it will be open to this Court to review the arrangement F
between the State Government ~'!.d the Corporation and issue
appropriate directions. Indeed, ·such directions could be issued even
if the elements of the -t~ansfer in the present case fall short of a
complete succession to the business or undertaking of the State by
the Corporation, as the principle sought to be applied is a G
constitutional principle flowing from the contours of Article 14 of the
Constitution which the State and Corporation are obliged to adhere
to."

"It was very fair on the part of the State Government to decide that,
as the tubewells would be operated by the Corporation, it would be H
530 SLIPREME COURT RE PORTS [2006J SUPP. 6 S.C.R.

A prudent to run them with the help of the appellants rather than recruit
new staff therefore and that the government should bear the burden
of any losses which the Corporation might incur as a result of running
the tubewells. But having gone thus far, we are unable to see why the
government stopped short of giving the appellants the benefit of their
past services with the government when thus absorbed by the
B Corporation. Such a step would have preserved to the appellants their
rightful dues and retirement benefits. The conduct of the government
in depriving the appellants of substantial benefits which have accrued
to them as a result of their long service with the government, although
the tubewells continue to be run at its cost by a Corporation wholly
c owned by it, is something which is grossly unfair and inequitable.
This type of attitude designed to achieve nothing more than to deprive
the employees of some benefits which the~· had earned, can be
understood in the case of a private employer but comes ill from a State
Government and smacks of arbitrariness. Acting as a model employer,
which the State ought to be, and having regard to the long length of
D service of most of the appellants, the State, in our opinion, should
have agreed to bear the burdt>n of giving the appellants credit for their
past service with the government. That would not have affected the
Corporation or its employees in any way except - to a limited extent
indicated below - and, at the same time, it would have done justice
E to the appellants. We think, therefore, that this is something which the
State ought to be c.lirected to do."

''But in a case where one or both of the parties is a State instrumentality,
having obligations under the Constitution, the court has a right of
judicial review over all aspects of transfer of the undertaking. It is
F open to a court, in suc;h a situation, to give appropriate directions to
ensure that no injustice results from the changeover."

These observ~tions have to be understood in the background of the facts of
that case. The appellants therein were tubewell operators in the Public Works
Department (PWD) of the State Government. The State took a decision to
G transfer all tubewells to a Corporation wholly owned and managed by the
State and as a consequence all the permanent posts with reference to the
Tubewell Circle in the PWD were abolished. Notices were served in terms of
Section 25 F of the Industrial Disputes Act. When those notices were
challenged, they were set aside on the ground that they were not in consonance
H with clause[.:] of Section 25F. The State Government issueri fresh notices of
RAM PRAVESH SING I-Iv.STA TE OFBIHAR [RA VEENDRAN . .I.] 531
termination and they were also set aside by the High Court on the ground A
that they did not conforin to clause (b] of Section 25F. Thereafter. the State
Government served fresh notices terminating the services in accordance with
Section 25F for the third time. The third round notices were also challenged.
But the High Court upheld the notices of retrenchment. The order of the High
Court was challenged before this Court. During the pendency of the long B
drawn litigation, the newly formed Corporation decided to take over their
services by extending them the same scale of Pay. which they were getting
when they were in the employ of the State Government. Therefore, the only
grievance that survived for consideration before this Court related to appellants
therein being treated as fresh appointees on the dates of their respective
appointment by the corporation, thereby denying them the benefit of their C
past service and seniority. It is in the context of examining the said grievance,
this Court made the aforesaid observations. As noticed above. retrenchment
under Section 25-FF was found to be valid. The Corporation had voluntarily
taken over the services of the retrenched employees. The question whether
the transferee or the purchaser of the undertaking should absorb the services
of the employees of the previous employer was not in issue and therefore, D
the said decision is of no assistance. On the other hand, what may be relevant
are the following observations of the Constitution Bench in Uma Devi (supra):

"Obvious(~'. the State is also controlled by economic considerations
and financial implications of any public employment. The viability of E
the department or the instrumentality of the project is also of equal
concern for the State. The State works out the scheme taking into
consideration the financial implications and the economic aspects.
Can the court impose on the State a financial burden of this nature
by insisting on regularization or pennanence in employment, when
those employed temporarily are not needed pennanently or regularly? F
As an example, we can envisage a direction to give permanent
employment to all those who are being temporarily or casually employed
in a public sector undertaking. The burden may become so heavy by
such a direction that the undertaking itself may collapse under its own
weight. It is not as if this had not happened. So, the court ought not G
to impose a financial burden on the State by such directions, as such
directions may turn counterproductive."

23. The decision in Kapila Hingorani (supra) is an interim order in a
public interest litigation. In the State of Bihar, various Government companies
and public sector undertakings had not paid salaries to their workmen and H
532 SUPREME COURT REPORTS (2006] SUPP. 6 S.C.R.

A other employees for a long time, resulting in deaths and suicides of several
employees. The petitioner therein wanted the State to bear the responsibility
for payment of salaries. The State resisted the petition on the footing/
contending that the liabilities of the company cannot be passed on to the
State by taking recourse to the doctrine of lifting the veil or otherwise. This
B Court issued certain interim directions for disposal of all liquidation proceedings
in regard to the Government companies in question and appointment of a
Committee to scrutinize (ascertain) the assets and liabilities of the company.
This Court also directed the State Government to deposit a sum of Rs.50
crores before the High Court for disbursement of salaries to the employees.
During the course of the said interim order, this Court observed as follows:
c "The government companies/public sector undertakings being "States"
would be constitutionally liable to respect life and liberty of all persons
in terms of Article 21 of the Constitution of India. They, therefore,
must do so in cases of their own employees. The Government of the
State of Bihar for all intent and purport is the sole shareholder.
D Although in law, its liability towards the debtors of the company may
be confined to the shares held by it but having regard to the deep
:md pervasive control it exercises over the government companies; in
the matter of enforcement of human rights and/or rights of the citizen
to life and liberty, the State has also an additional duty to see that the
rights of employees of such corporations are not infringed.
E
The right to exercise deep and pervasive control would in its tum
make the Government of Bihar liable to see that the life and liberty
clause in respect of the employees is fully safeguarded. The
Government of the State ofBihar, thus, had a constitutional obligation
to protect the life and liberty of the employees of the govemment-
F owned companies/ corporations who are the citizens of India. It had
an additional liability having regard to its right of extensive supervision
over the affairs of the company."

The said observations made in an interim order with reference to the
G State's obligations will not be of any avail to seek employment under the
Board. We are not concerned in these appeals about the rights of the employees
of the Society vis-a-vis the Society or the State Government. We are concerned .
,
with a specific question as to whether they can seek absorption under the
Board. We may in this behalf refer to the decision of this Court in Bhola Nath
Mukherjee v. Government of West Bengal, (1997] I SCC 562 relating to
H transfer of a licensee's undertaking to a State Electricity Board, as a
RAM PRAVESH SINGH v. STATE OF BIHAR [RA VEENDRAN, J.] 533
consequence of revocation of the licence. In that case the Board initially A
allowed the employees of the erstwhile licensee to continue in its service but
subsequently introduced terms which rendered them fresh appointees from
the date of take over of the undertaking. The question that arose for
consideration was whether the employees were entitled to compensation
under Section 25FF of the Act; and whether the liability for payment of such B
compensation under Section 25 FF of the Act was on the transferor or the
Board. This Court held that employees had no right to claim any retrenchment
compensation from the Board, nor did they have any right to claim to be in
continuous employment on the same terms and conditions, after the purchase
of the undertaking by the Board. The said decision clearly recognises that the
Board has no obligation towards the employees of the previous owner of the C
undertaking.

24. We therefore find no reason to interfere with the order of the High
Court. The appeal is dismissed.

K.K.T. Appeal dismissed. D