Amarjit Singh vs Punjab National Bank And Others on 4 March, 1986

Equivalent citations: 1987 61 CompCas 153 Delhi, 1987 (54) FLR 261, (1986) IILLJ 354
Del
Author: H Anand
Bench: H Anand, S Bhandare

JUDGMENT H.L. Anand, J.

1. This petition article 226 of the Constitution by a former general manager of the U.K.
branches of a nationalised bank, concurrently in-charge of its European operations, assails
the purported termination of his service by the Bank on the ground of "loss of confidence" in
him, as a sequel to and as part of a shake up in the higher echelons of the Bank in the wake
of the largest bankruptcy of an Asian business house in the U. K., and failure of certain other
accounts, allegedly exposing the Bank to the risk of loss of millions of pounds, and raises
some interesting, as indeed, difficult questions of law, in relation to service in public sector,
as indeed, interaction between the principles of industrial jurisprudence and administrative
law following recent constitutional developments in the treatment of public sector
undertaking as instrumentalities of the State under article 12 of the Constitution. Some of the
questions that the petition raises are perhaps not appropriate for determination by a Court in
the exercise of its power of judicial control of administrative action, but rather pose a serious
challenge to the law-makers as to the appropriate legal frame for public sector industrial,
commercial, banking and other undertakings having regard to the claim of job security, both
of the lower as well as the higher levels, on the one hand, and the overriding claim of
productivity, efficiency, discipline and integrity, in the operations of the public sector, on the
other.

2. How far are the principles known to the traditional "law of master and servant" still
relevant in industrial jurisprudence in India ? What are the areas in which an employer may
still dispense with the services of an employee in industrial law, without inviting the legal or
judicial odium that the action was illegal, amounts to dismissal or removal, or is an act of
victimisation, or constitutes an unfair labour practice, or could not be taken without giving to
the employee a reasonable opportunity of being heard ? Where does one draw the line
between permissible "termination simplicities" and an action which is stigmatic or punitive ?
How far is a service regulation in a public sector undertaking conferring an unfettered power
to terminate the service of an officer, without assigning any reason, valid in the context
of article 14 of the Constitution ? Is every action, which is not "termination simplicities" an
act of misconduct or are there any neutral areas between the two ? Is "loss of confidence" or
lack of faith in an employee, based on reasonable belief and induced by facts, circumstances
or material, stigmatic even without a specific charge of misconduct ? Are there different tests
in the matter in industrial jurisprudence and in administrative law ? How are the principles of
natural justice applicable to employment in the public sector and are the requirements any
different in sensitive industries or undertakings or in relation to officers in responsible and
sensitive position ? What, if any, is the interaction between a "justified action" and the denial
of reasonable opportunity of being heard in taking such an action ? What are the cases in
which the vice of denial of opportunity could be cured by a post-decisional hearing, remedial
in nature, without demolishing the order ? Do the officers of public undertakings enjoy wider
protection than their counterparts in the private sector and even their subordinates at lower
levels ? What is the impact of treatment of public sector undertakings, as instrumentalities of
the State on the employment relations and in their day to day operations and is there an
alternative legal frame for public sector undertakings, which may strike a reasonable balance
between the claims of job security, on the one hand, and the claim of effective and flexible
administration of the sector, on the other? (636) Is it possible to dispense with the
principles of natural justice or other wholesome principles evolved in industrial
jurisprudence, or administrative law, on account of overriding compulsions of "public
interest"? What is the distinction between service under the "law of master and servant" and
"service under the State" on the basis of status in the matter of relief of reinstatement ? Is the
concept of "right to the post" or service appropriate in service under the public sector even
where article 311 of the Constitution may be inapplicable ? If for some reason, it is possible
to deny the relief of reinstatement even on an order of termination being voided, are there
any principles which may regulate the grant of compensation and/or damages in lieu of
reinstatement ? Are the circumstances in which or the reasons for which the service of an
officer is dispensed with a relevant of compensation, etc., to which he may be entitled ?
These are some of the questions that the rival contentions pose for this Court's determination
or perhaps partly for the consideration of the legislative wing of the State in the present legal
structure of the public sector.

3. The following facts and circumstance provide the necessary historical backdrop to the
various questions and controversies. Amarjit Singh, the petitioner, who is still in his forties,
joined the Punjab National Bank Ltd., then a banking company, in 1966, as a probationary
officer and, after completion of training, held various posts in the said banking company and
eventually in the Punjab National Bank, an acquired Bank, for short, the Bank, on the
nationalisation of some of the banking companies. The petitioner apparently had an
outstanding record of service because he held various posts in the Bank and rose to the
position of its general manager. In 1980, apparently because of his outstanding performance,
as claimed by the petitioner, he was selected to head the Bank's U.K. operations. By the end
of 1981, he had been promoted as assistant general manager at London and, according to the
petitioner, he had superseded a number of regional managers in that promotion. By the end
of 1982, the petitioner was promoted as deputy general manager and here, again, according
to the petitioner, it was on account of his outstanding performance at London and once again
superseding quite a few assistant general managers. In 1983 again, allegedly because of his
excellent performance as in-charge of international operations of the Bank at London, the
petitioner was promoted as general manager, which is described by the petitioner as an out of
turn promotion. It was during his tenure as such general manager that a crisis overtook the
Bank as indeed the petitioner, following the collapse and consequential bankruptcy of a
businessman of Indian origin, one Rajinder Sethia, whose business concerns, including the
Essal Commodities Ltd., had over the years gained considerable notoriety in international
trading, notably with Nigeria. The bankruptcy, which is described as the largest bankruptcy
in the U.K., is said to have its genesis in political upheaval in Nigeria. Sethia and his
business concerns had large dealings with the branches of the Indian banks in the U.K.,
including that of the Bank. During his tenure in London the petitioner had been dealing with
the said accounts, as indeed, with certain other accounts, which allegedly also ran "into
difficulties". It is alleged that Sethia and his associates had, in collusion with certain officers
of the Bank, defrauded the Bank leading to irregularities in loans granted by the branches of
the nationalised banks in London to the Essal Commodities group of companies. Sethia was
arrested by the Central Bureau of Investigation on 1st March, 1985, following an alert from
the Interpol as a sequel to the report lodged with Scotland Yard police in London. Earlier, in
November, 1984, Essal Commodities Ltd. was put into compulsory liquidation by a Court in
London and its managing director, Rajinder Sethia, was declared bankrupt in January, 1985.
On 14th March, 1985, the chairman and managing director of the Bank made a
recommendation to the board of the Bank that the services of the petitioner be terminated in
accordance with the account he had not proved "worthy of the confidence reposed in him".
This is how the recommendation runs :

"Shri Amarjit Singh was posted as chief manager of branch office, London, with effect from
30th June, 1980. Subsequently, he has been promoted to the higher position. He is now
working as general manager of the Bank at head office. On the recommendation of Shri A. J.
Singh, the Board had sanctioned certain credit facilities to various companies in the U.K.

Some of the accounts have run into difficulties and the details of the same have been put up
before the Board in our various notes from time to time. Shri Amarjit Singh, who was overall
in-charge of the Bank's international operations in London, has been indiscreet in extending
facilities to various borrowers despite the fact that there was reliable information that these
companies had run into financial difficulties.

Shri Amarjit Singh has not proved worthy of the confidence reposed in him. The credit and
reputation of the Bank has suffered due to these transactions and actions taken by him. There
is no scope for delay in taking action against him if the interests of the Bank are to be
safeguarded. On consideration of all the facts and circumstances of the case, and also having
regard to the various factors stated in the notes already placed before the Board from time to
time, we are of the opinion that Shri A. J. Singh has rendered himself unworthy of reposing
any confidence and we cannot consistently, with the interests of the Bank, retain him in
service any more. We, therefore, recommend that the services of Shri A. J. Singh be
terminated in accordance with law. He will be entitled to all benefits as accrue to him on
simple termination in accordance with the rules and regulations.

4. The board accepted the recommendation and resolved on the same date that the services of
the petitioner be terminated in accordance with the law and the regulations applicable to him.
This is how the resolution runs :

"Board took due notice of note dated 14th March, 1985, of the Chairman and Managing
Director. Having regard to the facts emerged from the note and after full discussion of every
aspect of the matter, the Board decided that the service of Amarjit Singh be terminated in
accordance with the law and the regulations applicable to him. It was further resolved that
the power in this regard be delegated specifically to the Chairman and Managing Director."

5. The Chairman and Managing Director of the Bank without any loss of time carried out the
decision of the Board and purported to terminate the services of the petitioner for "loss of
confidence" by a communication of the said date. This is how the letter runs : (624)

"Shri Amarjit Singh, 14th March, 1985.

General Manager,
H.O. New Delhi.

Please not that the Bank has decided to terminate your services
for loss of confidence. A Cheque No. PZT 318840 dated 14th March,
1985, for Rs. 15,975 (Rupees fifteen thousand nine hundred and
seventy-five only) being three months' emoluments in lieu of
notice is enclosed. You will also be entitled to all other
benefits as accrue to you on simple termination in accordance
with the rules and regulations.

Your services, therefore, stand terminated with immediate effect.

Please not that you are no more in our service. Any transaction
entered into by you hereafter on behalf of the Bank, would be
unauthorised. We do hope that you will not enter into any such
transaction.

You may collect your dues from the Personnel Division during the
working hours.
Encl. a/a

Sd/-

Chairman & Managing Director."

6. It appears that the winding up of Essal Commodities Ltd., and following that the
bankruptcy of Rajinder Sethia, his arrest, and circumstances leading thereto caused
considerable concern and flutter at home. The matter was raised in Parliament on 1st April,
1985, and according to the report of the proceedings published in the Indian Press, including
the Times of India, in its issue of 2nd April, 1985, a calling attention motion was tabled by
certain Members of Parliament belonging to different political parties and during discussion
of the motion allegations were levelled against the Government for "shielding the guilty". In
reacting to the allegations, the Minister of State for Finance allegedly assured the Lok Sabha
that, "the severest possible action would be taken against the persons found guilty in the
irregularities in loans granted by three nationalised banks in London to the Essal group of
companies, headed by Rajendra Sethia". The Hon'ble Minister had allegedly admitted that
there "had been irregularities in some nationalised banks sanctioning loans to a London
based company" and that the "collusions among the Bank officials was suspected."
Allegations had also been made that the Chairman of the Bank would not have taken the risk
"without being assured of protection" and that "vast sums of black money in Sethia's
possession were used by the ruling party during the recent elections". An allegation has also
been made that "a former Minister and Member of the late Prime Minister Indira Gandhi's
secretariat had links with Rajindra Sethia." The Hon'ble Minister stated that "the Government
had taken a most serious view of the matter" and action had been initiated against the
"officers involved in the irregularities and malpractices", and, inter alia, pointed out that the
petitioner has been arrested by the C.B.I., which "was currently investigating the whole
case". It is not disputed that the petitioner was arrested on allegations of complicity in the
conspiracy to cheat the Bank and is presently on bail.

7. The present petition was filed on 9th April, 1985, and on 29th May, 1985, charge-sheet
was submitted by the C.B.I., in a criminal court in Delhi against Rajinder Sethia and the
petitioner for offences under section 120B, read with sections 420, 467, 468 and 471, I.P.C.,
and substantive offences under section 420/471 read with section 467, I.P.C., on the basis of
the First Information Report registered on 1st March, 1985, on the allegations that Rajinder
Sethia had entered into a criminal conspiracy with his own employees, as well as with certain
officials of the branches of the Bank, and two other nationalised Banks, and other institutions
based at U.K., with the object of defrauding the Banks to the tune of millions of Pound
Sterling and that Sethia dishonestly induced these Banks to extend loans and in respect of
alleged contracts with a Nigerian company and other African bodies which did not have
sufficient foreign reserves and that the said loans were obtained by making false
representations about the value of the assets held by Sethia. It was further alleged that Sethia
on interrogation disclosed that "apart from other bills, he in conspiracy with accused, Amarjit
Singh, then General Manager of the Branch of the Punjab National Bank at London had also
submitted false and forged bills of 10.4 million of U.S. dollars drawn on in house company
based at Hong Kong." It was further alleged that following the financial reversals of Essal
Commodities Ltd., Sethia and the petitioner entered into a criminal conspiracy in the latter
part of 1983 with some unknown persons "to defraud the Bank on the strength of false and
forged bills of exchange supported by false shipping documents purporting to show the
shipments of granulated sugar to Nigeria" and that in pursuance of the said conspiracy, the
petitioner "dishonestly allowed an advance of U.S. $ 7.646 millions against 25% cash margin
to the Essal Commodities Ltd., knowing or having reasons to believe that aforesaid bills and
its supporting documents of shipping were false and forged". It is further alleged in the
charge-sheet that the accused, Sethia, and the petitioner have committed offences punishable
under sections 120B read with sections 420, 467, 468 and 471 of the I.P.C., and also
substantive offences punishable under secs. 420 and 471 read with section 467, I.P.C.

8. The petition challenges the order of purported termination, inter alia, on the ground that it
is "arbitrary", "against the principles of natural justice" in that it gives no reasons as to why
the services of the petitioner had been terminated, and as to the reasons for loss of confidence
in the petitioner; that the petitioner was not given an opportunity to make a representation
against the impugned action; that the letter of termination does not state the rule or regulation
pursuant to which the action had been taken against the petitioner; that assuming that there
was any rule or regulation empowering the Bank to terminate the services of the petitioner,
such a regulation is wholly arbitrary in nature and would suffer from the vice of hostile
discrimination; and that the order of termination is violative of the petitioner's rights
under article 14 of the Constitution. In support of the case of the petitioner, the petitioner
relied on the resent decision of the Supreme Court in the cases of Workmen of Hindusthan
Steel Ltd. v. Hindustan Steel Ltd., [1985] 66 FJR 376, West Bengal State Electricity Board v.
Desh Bandhu Ghosh, [1985] 66 FJR 471, and certain other cases. On 10th April, 1985, a
Division Bench of this Court issued notice to the respondents to show cause why the petition
be not admitted and the Division Bench noted that counsel for the petitioner relied on the
recent decision of the Supreme Court in the case of West Bengal State Electricity Board,
[1985] 66 FJR 471. Subsequently, the petitioner sought and was granted leave to amend the
petition so as to raise specific pleas that regulation 20, pursuant to which the services of the
petitioner had been terminated, was ultra vires article 14 of the Constitution and was,
therefore, liable to be struck down on the basis of the decision of the Supreme Court in the
case of West Bengal State Electricity Board, [1985] 66 FJR 471. The Bank did not file its
reply to the show-cause notice but apparently because the case prima facie appeared to be
covered in respect of some of the questions and controversies by a recent decision of the
Supreme Court in the case of West Bengal State Electricity Board, [1985] 66 FJR 471, The
Division Bench then dealing with the matter granted "Rule D.B.", directed the Bank to file
the return and ordered that the matter be listed in the category of After Notice Miscellaneous
Matters, apparently with a view to expeditious disposal. On 17th May, 1985, while dealing
with the petitioner's application for stay of the operation of the impugned order, the Division
Bench directed that the petitioner will be entitled to retain the accommodation allotted to him
in London, as per regulations of the Bank on the petitioner's undertaking that he will vacate
the premises on or before a specified date. A consent order was also made in terms of which
the petitioner was to be paid an amount equivalent to his salary up to that date till the
disposal of the petition. It was, however, made clear that the amount was being paid subject
to the parties. The return and rejoinder, however, could not be filed within the time allowed
by the Court nor could the matter be heard and disposed of as had apparently been
anticipated by the Bench dealing with the matter at the preliminary stages. The petition was
accordingly ordered to be listed as a regular matter and parties were allowed to file further
affidavits, and indeed, a large number of documents
9. In the return to the rule filed on behalf of the Bank it was stated that the services of the
petitioner were terminated for "loss of confidence". According to the Bank, the petitioner
was occupying a sensitive position in the Bank in which he could commit the Bank to
transactions running into crores of rupees and, as a matter of fact, "did enter into several
transactions which have put the Bank in a very difficult position and which may lead the
Bank into loss of crores of rupees." It was further alleged that "the Bank could not repose any
confidence" in the petitioner and consequently "could not retain him in service having regard
to the sensitive position he held and the way he had acted in advancing loans and facilities
while working as general manager of the Bank". It was contended that "the decision to
terminate his service was bona fide and there are sufficient reasons to lead the Bank to lose
confidence in the petitioner". It was further pointed out that "during the investigation carried
out by the Central Bureau of Investigation in the affairs of the Sethia Accounts and conduct
of the petitioner, the Central Bureau of Investigation has taken over most of the documents
which would show the involvement of the petitioner in such affairs" and "these documents
would be very much relevant to determine the guilt of the petitioner, if any, during a
domestic inquiry if such an inquiry is launched against him". It was further pointed out that
"in the absence of such material documents, it would not be possible for the respondent Bank
either to conduct a domestic inquiry into the affairs or to prove conclusively that the
petitioner was involved in transactions for which disciplinary action in terms of the rules
could be taken against him". A further contention was raised that some investigation had also
been carried out by the Scotland Yard Police in London and they also took possession of
some of the bills, and vouchers because of which also "an inquiry by the Bank has become
difficult". It was claimed that on the basis of the "various investigations/inspections carried
out by the team of experts of the respondent Bank", it was clear that the petitioner was
"responsible for most of the transactions/irregularities whereby the Bank is likely to be put to
heavy loss, amounting to several crores of rupees and that too in foreign currency". Action
against the petitioner, it is claimed, was, therefore, "fully justified". It is further alleged that
"in addition to the Sethia Account/Essal Commodities Account, there have been number of
irregularities, observed in the conduct of the business at the London branch of the Bank by
the petitioner" and that "such irregularities, which do not form part of the investigations
either by the Central Bureau of Investigation, or Scotland Yard, are serious enough to
warrant the discharge of services of the petitioner from the respondent Bank." It was claimed
that, in any event, it would not be a proper case where this Court should exercise its
discretionary jurisdiction under article 226 of the Constitution and that, in any case, this was
"not a proper case for reinstatement of the petitioner having regard to the sensitive position
he held and the dangers to which the Bank would be exposed should he be retained in
service".

10. It was, however, not disputed that the "Reserve Bank of India had carried out inspection
during the year 1984" in the alleged irregularities in the affairs of the London branch in
relation to the dealings with Essal Commodities and Rajindra Sethia. But it was pointed out
that in addition to these accounts there were other irregularities pointed out by the to these
accounts there were other irregularities pointed by the Reserve Bank, but "the head office of
the respondent-Bank had, however, initiated no definite action on the basis of the said report,
though it does transpire that the Board of the respondent-Bank, from time to time, had issued
directives and instructions to the London Branch office headed by petitioner and to the
petitioner himself not to indulge in the irregularities and to carry out the business of the Bank
in accordance with sound banking principles". The deponent further points out that the
investigation carried out by the Central Bureau of Investigation has since resulted in a
charge-sheet being filed against Sethia and the petitioner and that the Bank had "also carried
out its own investigations and on the basis of the said report, it was found that not only there
were irregularities in the accounts of Essal Commodities group of companies, owned by
Sethia, but there were many other irregularities committed in the other accounts also during
the tenure of the petitioner's posting in London". The details of these accounts are set out in
annexure-I to the affidavit. It was further pointed out that "the affairs of the Bank were really
brought to a bad shape by the conduct of petitioner" and that it was "on account of all these
things that the respondent-Bank felt that the petitioner should not be depended upon and that
it could not repose any confidence in the petitioner and his services were terminated
accordingly." It was further pointed out that the services of the then Chairman-cum-
Managing Director of the Bank were also terminated in February, 1985, by the Government
of India and that the new Chairmen and Managing Director who took over in February, 1985,
"had reviewed the entire situation" implying thereby that the action taken against the
petitioner was the result of such a view, and that it was the present Chairman and Managing
Director, who on a review, submitted a note for the consideration of the Board, on the basis
of which the Board resolved to terminate the services of the petitioner. It was, however,
denied that the action was arbitrary, capricious or without force of law. The petitioner,
according to the Bank, had no "fundamental right" to remain in service and "having regard to
the totality of the circumstances, the Bank could not possibly retain him in service and had to
terminate his services for loss of confidence". The return lists a number of "irregularities in
the conduct of the affairs of the London Branch and it is pointed out that the petitioner had
himself given instructions that the Essal Commodities group could only be handled by him
personally. The return points out that the termination was based on loss of confidence and
"that even after the termination of services of the petitioner, irregularities which have come
to the notice of the Bank clearly make the petitioner unworthy of service in the Bank". It is
further contended that the Bank, as an employer, "has bona fide exercised its power to
dispense with the service of the petitioner", that the Bank had the "inherent power", as an
employer, to dispense with the services of its employees holding position of confidence and
the power was derived from the regulations. It was further urged that the petitioner
"occupying a very high, responsible and sensitive position in the Bank, had to maintain
highest order of honesty, integrity and due care and caution, in the conduct of the business of
the Bank". It was urged that the power given to the appropriate authority under the
regulations was "neither arbitrary, nor capable of vicious discrimination". The Bank sought
to distinguish the decision of the Supreme Court in the case of West Bengal Electricity
Board, [1985] 66 FJR 471, and urged that, in any event, the highest court, in its earlier
decisions, had upheld the right of the employer to terminate the services of an employee on
account of "loss of confidence" and that the impugned order conformed to the requirements
spelt out in those decisions. It was further urged that the Bank, being part of the sensitive
area in the public sector, the requirements of "public interest" should prevail and the private
interest of a top executive of a Bank who would have ample alternative opportunities for
employment should not be allowed to prevail over public interest and even if a case is made
out for interference, the court "could always award damages rather than specific performance
of a contract of service", except in areas covered by article 311 of the Constitution of India or
of cases of workmen covered by industrial law.

11. In this rejoinder to the return, the petitioner, by and large, reiterated the averments made
in the petition. It was further pointed out that there was no and there could be no actual loss
of confidence and that the petitioner had been made a "scapegoat" and that the termination of
services on account of loss of confidence was merely a "camouflage" or "colorable exercise
of power" and in view of the fact that there was "at no point of time any grounds which
would justify the impugned action". The petitioner, it was urged, was at the "threshold of
promotion" and was entitled to be considered even for the "highest position" in the Bank. It
was claimed that this was probably "not to the liking of other senior officers" and
accordingly they "conspired to throw him out of service in a most high-handed, arbitrary and
contumacious manner". It was further pointed out that in the actual managerial hierarchy in
London the duties of the petitioner as general manager were not confined to the business of
the Bank in London alone, but his jurisdiction extended to international operations and that is
why he was simultaneously designated as General manager (International Operations) and it
was, therefore, not the duty or responsibility of the petitioner to supervise the day-to-day
operations of the London branch of the Bank. It was further pointed out that the day-to-day
operations of the London branch of the Bank and its work were looked after, controlled and
supervises by various person appointed as managers for specific functions. Dealing with the
allegations of investigations carried out by the C.B.I., it was pointed out that if the petitioner
had been charged with any offence, then it was incumbent on the Bank to wait for the
outcome of the proceedings, or to have initiated internal departmental action in case there
was justification to initiate such action and that it was not open to the Bank to terminate the
services of the petitioner without holding any departmental inquiry or without awaiting the
outcome of the proceedings. Dealing with the averments that the relevant records were in the
custody of the C.B.I., the petitioner contends that it was open to the Bank to obtain photo
copies, if it so desired, for purposes of departmental proceedings. It was further urged that
the action was "arbitrary and harsh", in view of the Bank's admitted position that it would not
be possible either to conduct a domestic inquiry or to prove conclusively in such an enquiry
that the petitioner was involved in the transactions in terms of the disciplinary action taken
against him. It was further urged that the relevant records are in the possession of the Bank
and it was merely a flimsy excuse and afterthought to say that the Bank was not in
possession of the documents and were, therefore, unable to hold any inquiry against the
petitioner. It was further urged that the FIR made no mention of the petitioner and the mere
investigation was in sufficients to hold the petitioner responsible for the alleged
irregularities. It was further pointed out that several audits had been conducted and no
serious irregularities were either discovered or pointed out during and in respect of the period
when the petitioner was in charge of the U.K. branches. It was further pointed out that the
alleged irregularities pertaining to Essal Commodities Ltd. had become abnormal
transactions due to "peculiar and unforeseen circumstances which developed in Nigeria". It is
pointed out that most of the businessmen with whom Indian banks had dealings had been
doing business in Africa for many years and had grown big out of the profits made in that
continent. It was further pointed out that because of the oil boom, Nigeria had been happily
able to meet its financial commitments till the end of 1982 when the oil prices began to drift
downwards leading to a fall in the reserves of that country. This led to stringent restrictions
by the Nigerian Government into imports in that country leading to considerable difficulties,
which in turn shook the world financial markets.

12. The petitioner sought to explain the peculiar requirements of international banking by
branches of Indian banks and contended that there were unusual factors which placed a
"major constraint" on the nature of business undertaken by the branches of Indian banks
abroad. It was further pointed out that the foreign branches of Indian banks operated with
limited margins of 2 to 3% but, in spite of that, the profits of the London branch of the Bank
for the year 1983 were more than the entire business of the Bank in India and almost 33% of
those profits were generated out of Essal Commodities account. The petitioner pointed out
certain other difficulties in international banking which made it difficult for the banker to
collect the details of personal assets of the directors of a borrowing company like it is done in
India. Reference was also made to another factor peculiar to international banking, namely,
the time element and it was pointed out that, unlike in India, where banks could take a longer
time to decided about a request for a credit because of the limited options of the borrower, in
international borrowing such time was not possible because in international market the
borrower had very wide options, and the credit decisions have to be made on the spot within
a period of hours rather than months, thereby laying a very heavy responsibility on the chief
executive of the Banks, to take bona fide decisions without any support from the head office.
This, according to the petitioner, called for a more pragmatic approach in dealing with the
borrowers.

13. In the supplementary affidavit filed on behalf of the Bank, it was explained that the
averments in the counter-affidavit and the particular transactions detailed in annexure-I to it,
were based on the "records of the Bank" and the "reports of investigations made in the matter
by the officers of the Bank". It was further stated that it was wrong to assume on the part of
petitioner that there had been no losses caused to the Bank because of the "irregular
transactions entered into by the petitioner or during his tenure in different accounts" and the
affidavit points to the instance of Hinterland Holdings Ltd., where it is alleged that the loss
of 1.8 crores has already been caused to the Bank and that there were other instances also
where due to the irregular transactions, the losses are likely to be caused, the extent of which
could not be immediately ascertained. It is further pointed out that the ex post facto sanction
of the Board to any transaction does not by itself absolve the branch manager of his
responsibility because the Board does not go into the details of individual transactions and
that under the book of Instructions even if a loan is ultimately sanctioned by the Board, it is
still the responsibility of the concerned officer to see that the same is based on proper
documents and is given after completing all formalities. It is denied that the purported action
of termination was a mere camouflage or a colorable exercise of the power by the bank and it
is claimed that the Board of the Bank had unanimously decided to terminate the services of
the petitioner after fully considering the case and after due deliberations. The claim of the
petitioner that he was entitled to be promoted as chairman of the Bank was described as
"figment of imagination" and it is pointed out that the post was not a regular promotion post
and the appointment was made by the Government of India, Ministry of Finance. It was
further pointed out that the Bank had no foreign branches except in the U.K. and the
petitioner was responsible for the functioning of the said branches and that the international
operations of the bank were looked after by the International Banking Division at the Head
Office. The petitioner, according to the Bank, was overall in-charge of and head of the Bank
in U.K. and all the day-to-day working of the branches had to be done under his control and
supervision. It is further pointed out that "most of the irregularities which had been pointed
out in the counter-affidavit against the petitioner relate to the period prior to 1984 and the
petitioner was solely responsible for them". It is claimed that the Bank had "inherent powers
to dispense with the services of any officer who has been found to be wanting in integrity or
is guilty of serious irregularities" and that the termination of service of the petitioner was
valid under the terms of contract. It is claimed that the Bank "as a management need not wait
till the conclusion of criminal prosecution launched" against the petitioner, and that the
"Bank either can initiate departmental enquiry where it is possible to do so or take recourse
to a simple termination of services on the basis of records available to it". It is further
claimed that "the petitioner who was working in such a high position enjoying wide financial
powers having misused the same, his services were rightly terminated in the interest of the
Bank". It is pointed out that in addition to the irregularities in the various accounts pointed
out in annexure-I to the counter-affidavit, "there were further pointed out in the inspection
carried our by the R.B.I. also." It is further pointed our that for the purpose of the present
petition, the irregularities pointed our in the counter-affidavit disclose sufficient material for
loss of confidence even without taking into account the Nigerian Bills in relation to which
investigation was still in progress. It is further pointed out that the Nigerian situation "had no
relevance to the present proceedings". It is further pointed our that the operations of the Essal
Commodities Ltd., in relation to their business with Nigeria were still under investigation by
the appropriate authority and "the bank has not merely based its action on the basis of these
transactions" and the impugned action had been taken "taking into account the various other
transactions listed in annexure-I to the counter-affidavit and keeping in view the overall
picture of the functioning of the London Branch". The Bank denies the allegation that in
international banking, it was neither possible not practical to collect the details about the
creditworthiness of borrowers and claims that in developed countries, particularly in the
U.K., it was far more easy to collect the details about financial position of the borrowers and
the directors of the companies because of the better information and communication systems.
It is denied that 33% of the London Branch profits were generated out of the Essal
Commodities Account and it is pointed out that, as a matter of fact, "the profit itself is
generated by increasing the parties' liability towards the Bank". It is contended that the
international banking business has to be carried on "keeping in view the interest of the Bank
and within the norms laid down for the purpose". It is claimed that the petitioner himself by
his conduct had proved unworthy of confidence reposed in him and the Bank has suffered
serious loss of reputation and otherwise resulting in the investigation of the affairs of the
bank by the C.B.I., and the Scotland Yard Police which raided the London Branch giving
adverse publicity to the Bank and bad name to it. It is further claimed that it has not only
brought a bad name to the Bank but also to "the banking system in India and country as a
whole", and such a situation could have been avoided "if the petitioner had taken proper care
in running the London branches". It is further claimed that the irregularities pointed out by
the Reserve Bank inspection team were of "general nature" which could not reveal the
specific irregularities which have been listed in annexure-I to the counter-affidavit. These
had taken place during the years 1981 to 1983 and "were discovered subsequently" but that
"does not absolve the petitioner of his responsibility". The affidavit reiterates the allegations
made in the counter-affidavit under different heads to bring out the irregularities said to have
been committed in the operations of the Bank for which the petitioner was responsible. It is
pointed out that it was the responsibility of the branch managers to take steps both at the pre-
sanction and post-sanction stage of protect the interests of the Bank and that, in any event, all
the irregularities mentioned in annexure-I to the counter-affidavit primarily "relate to the
petitioner's own actions". The position of Essal Commodities Account, it is asserted, "is not
at all relevant and does not call for any comments from the Bank". All the irregularities
mentioned in the annexure-I, according to the Bank, "conclusively establish that the
petitioner had forfeited his right to continue in the service of the Bank by his own conduct
and proved unworthy of reposing any confidence in him". It is further pointed out that
reference to Essal Commodities Account is "totally extraneous" as that account was not "at
all in issue in the present proceedings". It is further claimed that the action taken against the
petitioner was bona fide, in accordance with the terms and conditions of service of the
petitioner and could not be considered to be illegal or ultra vires and the Bank, as an
employer, was fully empowered to terminate the services of a person so highly placed as the
petitioner "who had involved himself in such grave and irregular transactions and that the
Bank, being a financial institution, had to have officers of highest integrity whose bona fides
could not be suspected and even if there was the slightest suspicion, such person would not
be fit to the retained in the service of the Bank."

14. Parties filed large number of documents, forming part of the records of the Bank, or
based on such records. Some of these documents were enclosed with the various affidavits
filed by the parties. A large number of documents were filed subsequent to the filing of the
affidavits and in the course of hearing of the matters. While some of these documents were
intended to reinforce the rival contentions of the parties on the principal question as to the
validity of the order of termination of services of the petitioner and certain other questions
incidental thereto, bulk of the remaining documents were filed by the Bank, either to
"justify" the impugned action, apart from its validity, or to satisfy this Court that even though
there may be a vice attaching to the manner in which the impugned order was made, there
was sufficient material on the basis of which the management of the Bank could be
reasonably and bona fide satisfied as to the "loss of confidence" in the petitioner. Some of
the documents were intended to bring on record that the Bank had material not only to base
the impugned order, when it was made, but which may justify the order on the basis of
irregularities allegedly committed by the petitioner, of which the disclosures were made in
the course of Bank's investigations subsequently. These documents were also intended to
show the bona fides of the Bank and its willingness that this Court may hear the petitioner
with reference to the material so as to cure the vice, if any, in the order in that it was made
without giving a reasonable opportunity to the petitioner of being heard. The material placed
on record was also intended to satisfy this Court that, having regard to such material, the
petitioner would not be entitled to any relief from this Court, even if he succeeded in the
challenge to the impugned order. On the other hand, documents placed on record and relied
upon by the petitioner were intended to contest these claims of the Bank even while
contesting the right of the Bank to justify the action on the merits in the present proceedings
as well as to use this Court as the forum for a post-decisional hearing, as it were, or to
prejudice the mind of the Court with regard to the relief to which the petitioner may be
entitled. We allowed the parties to place these documents on record and, for reasons which
we would hereinafter give, we declined to allow the parties to address us on the question as
to the "justification" of the order, on the basis of any material or to convert the proceedings
in the Court as a forum for post-decisional hearing. Some of the facets of the questions in
controversy appeared to the settled by the Supreme Court but since a strong plea was made
before us, on behalf of the Bank, that these decisions deserved reconsideration and certain
matters were due to come up before the highest Court in which such reconsideration may
come up, we heard learned counsel for the parties at considerable length in the context of the
law, as it stood even before these decisions. We also heard learned counsel for the parties on
some of the larger questions as to the nature and importance of public sector, in general, and
the nationalised banking sector, in particular, as to the extent to which principles enunciated
in the "law of master and servant", the law relating to "service under the State", principles of
administrative law, and the principles forming part of the industrial jurisprudence could be
applied to matters arising in service in the public sector in relation to the level of officers, to
which the petitioner belonged. We also heard learned counsel for the parties as to the
possible impact of the constitutional developments that have taken place in the interpretation
of article 12 of the Constitution of India, as to the interaction between the various principles
enunciated in relation to different categories of employment, both in the matter of
determining the validity of an order of termination and as to the nature of relief which could
be given in such cases. Learned counsel also addressed us on the question of quantification
of compensation and/or damages, in case the petitioner was successful in the challenge but
was denied, for some reason, the relief of reinstatement. There was also considerable
controversy before us as to the relevance of the large body of decisions, arising both in the
service under the State, on the one hand, and the industrial law, on the other, in the treatment
of service in the public sector. As is usual in a precedent-oriented legal system, learned
counsel for the parties were liberal in citing precedents from different branches of law in
support of rival contentions.

15. For a proper appreciation of the various questions in controversy between the parties, in
their proper perspective, it would be useful to examine some of the constitutional provisions
which can be said to be the genesis for the establishment of the public sector and determine
its true role and importance as also the scheme and some of the provisions of the Banking
Regulation Act, 1949, the Banking Companies (Acquisition and Transfer of Undertakings)
Act, 1970, and the relevant Service Regulations applicable to the petitioner.

16. Freedom from foreign domination was a legitimate goal of the national movement. Its
achievement was, however, the beginning of a further struggle, aimed at translating political
freedom into social, economic and political justice, equality of status and of opportunity and
to promote among the people of India, fraternity, assuring the dignity of the individual.
These high ideals found their echo in the Preamble to the Constitution and was a people's
commitment to secure to all its citizens socio-economic justice. It was pursuant to these
commitments that the Directive Principles of State Policy laid down certain fundamental
principles to be observed in the governance of the country and imposed on the State the duty
to apply these principles in making the laws as to translate into socio-economic reality the
political emancipation of the country. Article 38 enjoined the State to strive to promote the
welfare of the people by securing and protecting as effectively as it may a social order in
which justice, social, economic and political shall inform all the institutions of the national
life. It further enjoined the State to strive to minimise the inequalities in income, and to
endeavor to eliminate inequalities in status, facilities and opportunities. Article 39 similarly
enjoined the State to direct its policy towards securing the citizens' right to an adequate
means to livelihood; that the ownership and control of the material resources of the
community are so distributed as best to subserve the common good; that the operation of the
economic system does not work to the common detriment. Article 43 enjoined the State to
endeavor to secure by suitable legislation or economic organisation or in any other way to all
workers, work, a living wage, conditions of work ensuring a decent standard of life and full
enjoyment of leisure and social and cultural opportunities. Article 19 of the Constitution,
which deals with the fundamental rights, including right to practise any profession, or to
carry on any occupation, trade or business, specifically preserved the operation of any
existing law in so far as it imposed or prevented the State from making any law imposing, in
the interests of public order or morality, reasonable restrictions on the exercise of the right,
inter alia, in relation to carrying on by the State or by a Corporation owned or controlled by
the State of any trade, business, industry or service, whether to the exclusion, complete or
partial of citizens or otherwise. Article 305 which deals with trade and commerce, similarly
protected any legislative act of the State relating to any of these matters. The Constitutional
scheme, therefore, envisaged a regime of mixed economy and that is how by the Industrial
Policy Resolution of 1948, an important role was assigned to the public sector with a view to
ensure accelerated development in industrial, agricultural and other sectors so as to achieve
these objectives enshrined in the Constitution. Public sector was, therefore, given a place of
primacy in the economic order visualised by the Constitution and was rightly described in
the Industrial Policy Resolution as representing the "commanding height of the economy".
There was a clear distinction between the role of and the motivation for the private and the
public sectors in the national economy. Private sector tends to look to the immediate
corporate gains rather than the larger national purpose of accelerated development. The role
of the public sector is particularly indispensable in large core areas of the economy where,
for a variety of business reasons, private sector enterprises would be reluctant to enter. In
course of time, the major banking sector, which was until then part of the private sector,
though subjected to social control, was brought into the public sector by the nationalisation
of major banking companies. This was intended to ensure funding for the public sector as
also for other priority sectors since capital was a major input in any industrial activity, and
there were areas where, on account of intensive capital involvement or long gestation
periods, private sector funding would perhaps not find its operations profitable. The growth
of public sector has, therefore, to be viewed in the context a depleted economy into a vibrant
economic order which may make the constitutional promises meaningful and real rather than
illusory. The growth of the public sector in different fields, including banking has, however,
not kept pace with the evolution of the proper legal frame for the operation of the sector,
particularly, in the matter of its personnel relations. There was also a drastic change in the
context in the sixties on account of growing tendency to interpret article 12 of the
Constitution so as to bring public sector enterprises, whether in the form of statutory bodies,
joint stock companies, societies or otherwise, within the umbrella of the "State". This had
obvious consequences in the operations of the public sector and in the treatment of service
under the sector. The problem has apparently accentuated over the years because there has
been no intergrated policy with regard to the application to employment in this sector of the
principles enunciated over the years in relation to service under the State and industrial
adjudication. As in the other sectors, there were confliction pulls of discipline, on the one
hand, and job security, on the other. These claims have not apparently been reconciled by
State action thus leaving the field open for the judicial wing of the State to deal with the
service problems in the public sector in the light of the existing law of master and servant,
industrial adjudication, service under the State and administrative law.

17. The Banking Regulation Act, 1949, which before its amendment in 1965, was known as
the Banking Companies Act, is an Act to consolidate and amend the law relating to banking.
Prior to the amendment, the Preamble used the expression "banking company" which was
substituted by the amendment to "banking", inter alia, because the provisions of the Act were
extended in that year to the co-operative societies. Section 5(c) of the Act defines "banking
company" to mean "any company which transacts the business of banking in India". Section
5(d), however, defines the expression "company" to mean "any company as defined
in section 3 of the Companies Act, 1956; and includes a foreign company within the meaning
of section 591 of that Act". Section 10 of the Act contains a prohibition of employment of
managing agents and restrictions on certain forms of employment by a banking company and
provides that no banking company shall employ or continue the employment of any person
who is or at any time has been, adjudicated insolvent, or has suspended payment or has
compounded with his creditors, or who is, or has been, convicted by a criminal court of an
offence involving moral turpitude. Section 36AA of the Act deals with the power of Reserve
Bank to remove managerial and other persons from office and provides that where the
Reserve Bank is banking company being conducted in a manner detrimental to the interests
of the depositors or for securing the proper management of any banking company it is
necessary so to do, the Reserve Bank may, for reasons to be recorded in writing by order,
remove from office, with effect from such date as may be specified in the order, any
chairman, director, chief executive officer, by whatever name called or other officer or
employee of the banking company. Sub-section (2) of this section, however, enjoins that no
order under sub-section (1) shall be made unless the chairman or has been given "a
reasonable opportunity of making a representation to the Reserve Bank against the proposed
order." Proviso to sub-section (2), further provides that if in the opinion of the Reserve Bank,
any delay would be detrimental to the interests of the banking company or its depositors, the
Reserve Bank may at the time of giving the opportunity aforesaid or at any time thereafter,
by order direct that, pending the consideration of the representation aforesaid, the chairman
or, as the case may be, director or chief executive officer or employee, shall not with effect
from the date of such order, -

(a) act as such chairman or director or chief executive officer or other officer or employee of
the banking company;
(b) in any way, whether directly or indirectly, be concerned with, or take part in the
management of, the banking company.

Sub-section (3) of this section further provides that any person against whom an order of
removal has been made under sub-section (1) may, within 30 days from the date of
communication to him of the order, prefer an appeal to the Central Government, and the
decision of the Central Government on such appeal, and subject thereto, the order made by
the Reserve Bank shall be final and shall not be called in question in any Court.

The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, is an Act to
provide for the acquisition and transfer of the undertakings of certain banking companies,
having regard to their size, resources, coverage and organisation, in order to control the
heights of the economy and to meet progressively and serve better, the needs of development
of the economy in conformity with national policy and objectives and for matters connected
therewith or incidental thereto. This is the Act under which the undertakings of major private
banking companies were taken over. Section 3 of this Act provides for establishment of
corresponding new banks and business thereof on the takeover. Section 4 vests the
undertaking of existing banks in the corresponding new banks. Section 5 sets out the general
effect of vesting. Section 11 provides that for the purpose of the Income-tax Act, 1961, every
corresponding new bank shall be deemed to be an Indian company and a company in which
the public are substantially interested. Section 19 empowers the board of directors of the
corresponding new bank to make regulations not inconsistent with the provisions of the Act
after consultation with the Reserve Bank and with the previous sanction of the Central
Government for all matters for which provision is expedient for the purpose of giving effect
to the provisions of the Act, and in particular, in relation to ......

(d) the conditions or limitations subject to which the corresponding new bank may appoint
advisers, officers, or other employees and fix their remuneration and other terms and
conditions of service;

(e) the duties and conduct of advisers, officers or other employees of the corresponding new
bank.

18. It further provides that until any regulation is made under the section, the articles of
association of the existing bank and every regulation, rule, bye-law or order made by the
existing bank shall, if in force at the commencement of the Act, be deemed to be the
regulations made under the Act and shall have effect accordingly.

19. In exercise of the powers conferred by section 19 of the Banking Companies (Acquisition
and Transfer of Undertakings) Act, 1970, the board of directors made in consultation with
the Reserve Bank of India and with the previous sanction of the Central Government, Punjab
National Bank (Officers) Service Regulations, 1979, Punjab National Bank Officer
Employees and (Conduct) Regulations, 1977, and Punjab National Bank Officer Employees
(Discipline & Appeal) Regulations, 1977. While these regulations and certain other
guidelines contained in circulars are printed in a compilation in black cover and described on
behalf of the petitioner as the "black book", the service regulations and discipline and appeal
regulations are also separately printed, the first of which is in a white cover and described by
the Bank as the "white book". The nomenclature "black" and "white", however, do not
represent the conflicting perceptions of the parties with regard to the validity or the nature of
the impugned order but is merely coincidental. The service regulations apply to all officers of
the Bank by virtue of regulation 2(1) but by virtue of sub-regulation (2) of this regulation, an
officer during his tenure of service outside India and employees engaged in any country
outside India and serving there are excepted from the operation of these regulations. Chapter
II of the Service Regulations deals with grades and categorisation of posts and according to
regulation (4) in this Chapter, there are 4 grades with different scales of pay being, the top
executive grade, senior management grade, middle management grade and junior
management grade. Chapter III deals with fitment of existing officers and promotees in the
new grades and scales of pay. Chapter IV deals with appointments and termination.
Regulation 15 deals with probation while regulation 16 deals with confirmation. Sub-
regulation (3) of regulation 16 provides that where during the period of probation, competent
authority is of opinion that the officer is not fit for confirmation, his services may be
terminated by one month's notice or payment of one month's emoluments in lieu thereof.
Regulation 17 deals with promotion and regulation 18 deals with seniority. Regulation 19
provides for age of retirement. Sub-regulation (1) in this regulation provides that the age of
retirement of an officer employee shall be as determined by the Board in accordance with the
guidelines issued by the Government from time to time. Regulation 20 deals with
termination of service and runs thus :

"20. (1) Subject to sub-regulation (3) of regulation 16 the Bank may terminate the services of
any officer by giving him three months' notice in writing or by paying him three months'
emoluments in lieu thereof :

(2) No officer shall resign from the service of the Bank otherwise than on the expiry of three
months from the service on the Bank of a notice in writing of such resignation :

Provided further that the competent authority may reduce the period of three months, or
remit the requirement of notice."

20. Chapter V deals with various allowances. Chapter VI deals with perquisites. Chapter VII
deals with leave. Chapter VIII deals with reimbursement of expenses on travel. Chapter IX
deals with terminal benefits. Regulation 45 in this Chapter deals with provident fund and
regulation 46 deals with gratuity. This is how regulation 46 runs :

"46(1) Every officer shall be eligible for gratuity on :

(a) retirement,

(b) death,
(c) disablement rendering him unfit for further service as certified by a medical officer
approved by the Bank, or

(d) resignation after completing ten years of continuous service.

(2) The amount of gratuity payable to an officer shall be one month's pay for every
completed year of service, subject to a maximum of 15 month's pay :

Provided that where an officer has completed more than 30 years of service, he shall be
eligible by way of gratuity for an additional amount at the rate of one-half of a month's pay
for each completed year of service beyond thirty years.

Clarification : In view of the above, officers whose services have been terminated in the
following cases are not eligible for gratuity :

- Removal from service which shall not be a disqualification for future employment.

- Dismissal which shall ordinarily be a disqualification for future employment."

21. Chapter X deals with transferability of officers and Chapter XI deals with certain
miscellaneous matters. The board of directors appointed "competent authority" to exercise
powers under the various regulations and these authorities are given in a Schedule which is
part of the annexure to the regulations in the black book. The Schedule gives the regulation,
the subject it deals with and the competent authority in relation to the matter. On page 102, at
serial No. 6, in the entry with regard to regulation 20, dealing with termination of services, in
the subject column, is mentioned termination of services and under it are the words "junior
management grade". In the column relating to competent authority, opposite to this is the
Deputy General Manager. Column 2 against regulation 20 does not mention any of the
officer who are above junior management grade, i.e., the middle management grade, the
senior management grade and the top executive grade.

22. The Punjab National Bank Employees (Discipline and Appeal) Regulations, 1977, deal
with the disciplinary matters and regulation 3 defines appellate authority, disciplinary
authority, competent authority and certain other terms. Regulation 4 deals with penalties and
provides that the following are the penalties which may be imposed on an officer employee
for acts of misconduct or for any other good or sufficient reasons. Then are listed certain
minor penalties and "major penalties". This is followed by an Explanation which excepts
from the expression "penalties" certain actions. These include "termination of service" and
"termination of employment of permanent officer employee". Exception (vii) deals with
termination of service, exception (viii) deals with retirement and exception (ix) deals with
termination of employment of a permanent officer. Exceptions (vii) (viii) and (ix) run thus :

"(vii) termination of service :-

(a) of an officer employee appointed on probation, during or at the end of the period of
probation, in accordance with the terms of his appointment, or the rules, or the orders
governing such probations;

(b) of an officer employee appointed in a temporary capacity otherwise than under a contract
of agreement, on the expiration of the period for which he was appointed, or earlier in
accordance with the terms of his appointment;

(c) of an officer employee appointed under a contract or agreement, in accordance with the
terms of such contract or agreement; and

(d) of an officer employee on abolition of post;

(viii) retirement of an officer employee on his attaining the age of superannuation in

accordance with the rules and orders governing such superannuation;

(ix) termination of employment of a permanent officer employee by giving 3 months' notice

or on payment of 3 months' pay and allowances in lieu of notice.

23. Regulation 5 deals with authority to institute disciplinary proceedings and impose
penalties. Regulation 6 lays down the procedure for imposing major penalties and sets our an
elaborate procedure for the purpose. Regulation 7 deals with action on the inquiry report.
Regulation 8 provides for procedure for imposing minor penalties. Regulation 12 deals with
suspension. Regulation 17 deals with appeals. Regulation 18 provides for review. Regulation
19 provides for consultation with Central Vigilance Commission. Schedule to the regulations
sets our the disciplinary authority, the appellate authority and reviewing authority in relation
to officer in different grades, deputy general manager and general manager. The disciplinary
authority is the executive committee, the appellate authority is the chairman and the
reviewing authority is the board of directors of the Bank.

24. The Punjab National Bank Officer Employees (Conduct) Regulations, 1977, lay rules of
conduct for officer employees. Regulation 3 is general and reads thus :

"3(1) Every officer employee shall, at all times take all possible steps to ensure and protect
the interests of the Bank and discharge his duties with utmost integrity, honesty, devotion
and diligence and do nothing which is unbecoming of a bank officer.

(2) Every officer employee shall maintain good conduct and discipline and show courtesy
and attention to all persons in all transactions and negotiations.

(3) No officer employee shall, in the performance of his official duties or in the exercise of
powers conferred on him, act otherwise than in his best judgment except when he is acting
under the direction of his official superior.
(4) Every officer employee shall take all possible steps to ensure the integrity and devotion to
duty of all persons for the time being under his control and authority."

25. Regulation 4 deals with observance of secrecy. Regulation 5 deals with employment of
members of family of Bank officers in firms enjoying the bank's clientele. Regulation 6 deals
with taking up outside employment. Regulation 7 deals with contribution to newspapers,
radio, etc. Regulation 8 deals with demonstrations. Regulation 9 deals with membership of
associations. Regulation 10 regulates the giving of evidence. Regulation 11 deals with public
demonstrations. Regulation 12 deals with any attempt to bring influence to bear upon any
superior authority. Regulation 13 deals with absence from duty. Regulation 14 deals with
acceptance of gifts. Regulation 15 deals with lending and borrowings by the officers or
members of their families. Regulation 16 deals with advance drawal of salary. Regulation 17
deals with subscriptions. Regulation 18 deals with speculations in stock and shares and
regulation 19 deals with indebtedness. While regulation 20 deals with movable and
immovable and valuable property, regulation 21 restricts the right to have recourse to any
court or to the press for vindication of an official act. Regulation 22 imposes restrictions
regarding marriage. Regulation 23 deals with consumption of intoxicating drinks and drugs.
Regulation 24 provides that breach of any of the provisions of these regulations would be
deemed to constitute misconduct and runs thus :-

"24. A breach of any of the provisions of these regulations shall be deemed to constitute a
misconduct punishable under the Punjab National Bank officer Employees (Discipline and
Appeal) Regulations, 1977."

26. Whether the impugned order of termination of service of the petitioner is ex facie
stigmatic, or not, is the first question that calls for decision. In answering this question, what
is determinative is the language of the order and its effect. What is relevant for such a
consideration is how a third person, who is not aware of the circumstances antecedent to or
subsequent to the order, would look at it and what effect it would have on his mind. The
subjective perception of the aggrieved officer, the circumstances and the reasons on which it
had in fact been made, the justification for it and the intention of the employer or his
motivation for it, are wholly irrelevant for a determination of this question. The question
must also be distinguished from the ancillary question, if an order of termination is punitive,
either in the sense that it deprives the officer of an office or employment to which he may
have a right, or otherwise causes him monetary loss in emoluments, or deprives him of any
status to which he was entitled by virtue of the office. In this limited sense, an order may be
stigmatic in that it expressly or impliedly carries a stigma or a blot on the character, conduct,
capacity or capability of an officer, even though not made with the intention either to punish
him or to condemn him and in exercise of bona fide management function in the belief that
such an order is justified or otherwise reasonable from in the point of view of the employer
or of public interest. The Bank purported to terminate the services of the petitioner because
of "loss of confidence". The order does not amplify if the loss of confidence had relation to
his character, conduct, capacity or capability or all or some of these attributes. When an
employer loses confidence in an officer's integrity, capability or capacity, it no doubt implies
the "loss" of the employer in the sense that he loses an officer who may hitherto have been
useful but this loss is really illusory because the loss of confidence of an employer in an
employee is primarily a "loss" of the employee because this loss leads to the employee losing
a job, which meant a certain status, monetary benefits and a reputation."Loss of confidence"
may, to an extent, be a subjective opinion of an employer and is important because normally
"master servant relationship" is based on trust and confidence, both in integrity of an
employee, as also his ability or capacity but loss of confidence is not fully subjective and, by
the very nature of things, must be based on some objective incident, facts, events, material or
circumstances, which operated on the mind of the employer or in the case of an institution,
on the mind of officer or officers, who were called upon to evaluated the situation, which
may have the potential to justify a conclusion of loss of confidence. To that extent, therefore,
loss of confidence of an employer is both subjective and objective. When an employer,
therefore, says, in terms, in the order of termination that the termination has its genesis in the
loss of confidence, it, of necessity, carries a stigma and an order which in terms uses that
expression, is ex facie stigmatic and that is how a third person reading the order would react
to it irrespective of what may or may not have led to it. It certainly implies that the officer is
not worthy of credit, confidence or trust or, to put it differently, is unworthy of trust and
confidence and has lost his credibility. Perceptions may vary and another employer may
nevertheless repose confidence in such an employee but there can be no escape from the
conclusion that such an order does imply a blot on the character or ability or capacity of an
employee or on one of these or all of these.

27. If the impugned order is ex facie stigmatic, the further question if it is stigmatic in the
context of the circumstances antecedent to it or subsequent thereto, would really not survive.
It was, however, urged on behalf of the Bank that at the point of time when the order was
made, the industrial jurisprudence was at the stage of development which considered such an
order as not amounting to dismissal, removal or punitive termination and as being innocent
order of "termination simplicities" which an employer could legitimately make in accordance
with the terms and conditions of service or in conformity with the appropriate Regulations or
Standing Orders, as the case may be, pursuant to its legitimate power of internal management
of the establishment by virtue of being an employer, as it were in the regime of "law relating
to master and servant". The impugned order is, however, stigmatic in nature even if it be
assumed that it is not ex facie stigmatic and it be further conceded that the termination on the
ground of "loss of confidence" is not tantamount to dismissal or removal for misconduct. It is
well settled that in determining a challenge to the validity of an order which purports to be an
order of termination simpliciter the language of the order is not determinative and the court
has the power, as indeed, the obligation to go behind the order and examine the
circumstances antecedent and subsequent to the impugned order. When the present order is
viewed in that context, there is hardly any doubt left that the order is condemnatory of the
petitioner, either with reference to his integrity or his conduct in relation to his duties or his
ability to carry out his duties or all or some of these. It is not disputed that the impugned
order had its genesis in the irregularities said to have been committed by the petitioner in
sanctioning credit facilities to a number of companies in the U.K., including companies
belonging to Essal Commodities Group, owned by one Rajindra Sethia, and the action
against the petitioner was a fall-out of the failure of these companies to meet their
commitments leading to the bankruptcy of Rajindra Sethia and investigation, first by the
Scotland Yard Police, and later by the Central Bureau of Investigation, into the allegations of
conspiracy between the petitioner and the said Sethia to defraud the Bank leading to the
arrest of Sethia, as also of the petitioner. It is also not in dispute that in his recommendation
to the Board the Chairman and Managing Director pointed out that on the recommendation
of the petitioner, the Board has sanctioned certain credit facilities to various companies in the
U.K. and that "some of the accounts had run into difficulties" and that the petitioner had been
"indiscreet" as overall in charge of the Bank's international operations in extending facilities
to various borrowers "despite the fact that there was reliable information that these
companies had run into financial difficulties". It was further pointed out that on consideration
of all the facts and circumstances of the case and also having regard to the various factors
stated in the notes already placed before the board, the petitioner had "rendered himself
unworthy of reposing any confidence" and "could not consistently with the interest of the
Bank be retained in its service any more". It is also not in dispute that subsequent to their
termination of the services of the petitioner, the CBI has filed a charge-sheet against the
petitioner and the said Sethia on allegations of conspiracy to defraud the Bank besides
allegations of substantive offences under sections 420, 467, 468, and 471 in relation to the
conduct of the business of the Bank by the petitioner. It is also not in dispute that, according
to the Bank, subsequent disclosures have brought out further irregularities said to have been
committed by the petitioner in relation to other accounts which reinforce the belief of the
Bank that the petitioner was "not a fit person to be retained in the service". In the return to
the rule filed on behalf of the Bank, it is alleged that the petitioner was occupying a sensitive
position in the Bank in which he committed the Bank into transactions running into crores of
rupees and, as a matter of fact, did enter into several transaction which have put the Bank "in
a very difficult position and may lead to loss of crores of rupees". It was further pointed out
that during the investigation carried out by the CBI in the affairs of Sethia's account and the
conduct of the petitioner the CBI had taken over most of the documents which would show
the "involvement of the petitioner in the affairs and the documents would be relevant to
determine the guilt of the petitioner" even in a domestic inquiry if such an inquiry could be
launched against the petitioner. It is further disclosed that on the basis of various
investigations, inspections carried out by the team of experts of the Bank, it was clear that
the "petitioner was responsible for most of the transactions and irregularities whereby the
Bank was likely to be put to heavy loss amounting to several crores of rupees and that too in
foreign currency." It is further pointed out that in addition to the Essal Commodities
Account, there had been a "number of irregularities observed in the conduct of the business
by the London branch of the Bank by the petitioner and that such irregularities which did not
form part of the investigations either by the CBI or Scotland Yard Police would have
justified the action taken by the Bank against the petitioner". It was further pointed out that
the investigation carried out by the CBI have since resulted in a charge-sheet being filed
against Sethia and the petitioner and that the Bank has also carried out its own investigation
and on the basis of the said investigation it was found that not only there were irregularities
in the account of Essal Commodities Group of Companies owned by Sethia but there were
many other irregularities committed in the other accounts during the tenure of the petitioner's
posting in London. The affidavit filed by way of the return sets out in annexure A the details
of these transactions. It was further pointed out that the affairs of the Bank had really been
brought to a "bad shape by the conduct of the petitioner" and "it was on account of these
factors that the Bank felt that the petitioner could not be depended upon and that is why his
services were terminated." It was further urged that the petitioner was occupying very high
and sensitive position and had "to maintain highest order of honesty, integrity and caution in
the conduct of the business of the Bank", implying thereby that the petitioner failed to
maintain it. A recital of the circumstances antecedent and subsequent to the impugned order
hardly leaves any doubt in the mind of any one that the order, even if assumed on its
language to be innocent, was not only stigmatic but highly condemnatory of the conduct of
the petitioner in the discharge of his duties as an officer of the Bank, and was a sequel to
grave allegations of complicity in defrauding the Bank, of irregularities in allowing credit
facilities, which have caused or are likely to cause loss to the Bank running into phenomenal
figures and he was, therefore, not a fit person to be retained in the service of the Bank.

28. If the impugned order is, therefore, stigmatic either on the face of it or in any event, in
the context of the circumstances antecedent and subsequent to it, it would be liable to be
voided on the simple ground that such an order could not have been made without giving to
the petitioner a reasonable opportunity of being heard on the principle of audi alteram
partem, to which the petitioner was entitled in view of the admitted position that the Bank is
an instrumentality of State within the meaning of article 12 of the Constitution, and,
therefore, bound to company with the requirements of the said principle.

29. A number of contentions were, however, raised on behalf of the Bank in an attempt to
save the order from being struck down.

30. In the first instance, it was urged that in industrial jurisprudence, the right of an employer
to terminate the service of an employee for "loss of confidence" in accordance with the terms
and conditions of service or in terms of the standing orders, if any, or rules and regulations
applicable to the service, if any, is immune from challenge if the employer has acted in a
bona fide manner, there is no specific charge of misconduct and there are no allegations of
unfair labour practice or victimisation. It was contended that the historical background in
which the order was made would on any reckoning justify an employer's loss of confidence
in the petitioner and it could not, therefore, be said that the petitioner was being victimised or
the Bank was indulging in any unfair labour practice. Reliance was placed on regulation 20
of the Service Regulations besides the terms of the letter of appointment as the foundation
for the power to make an order of "termination simplicities". It was also urged that even
though there has been investigation by the officers of the Bank, as indeed, by the Scotland
Yard Police and the Central Bureau of Investigation and a challan has been filed against the
petitioner and the co-accused, the Bank has at no stage made an allegation of any specific
misconduct or proceeded against the employee for such misconduct under the service
regulations. It was, therefore, urged that the impugned order of termination was within the
permissible area of management action against an employee for justified loss of confidence
which would not attract the principle of audi alteram partem, inter alia, because by the order
or by the process leading to the order, no adverse determination of misconduct is sought to
be arrived at.
31. This contention, though seemingly quite attractive, suffers from a number of infirmities
and fallacies. In the traditional concept of service in the master and servant regime, there
was, at one time, an unfettered right of the master to dispense with the service of the servant
without assigning any reason and such a provision was invariably in the contract of service
itself. This concept, which was a product of a different employment environment and of
"freedom from bondage" for the employee and of the employer to have a choice in the matter
of his employee has, over the years, been undergoing modification, even in the country of its
origin under the pressure of growing unemployment leading to new concepts of "good and
sufficient cause" for termination, as also to departure in the matter of specific enforcement of
the contract of service : Hill v. C. A. Parsons and Co. Ltd., [1971] 3 All ER 1345 (CA). In
the realm of industrial jurisprudence, the right to terminate service has been subjected to a
variety of restrictions, having regard to the peculiar nature of industrial law, which does not
merely enforce existing rights and obligations but is capable of substituting employment
relations and create new rights and obligations which may be wholly foreign to the
contractual rights and obligations. A variety of principles have been evolved in industrial
jurisprudence with a view to ensure humane conditions of service, proper conditions of work,
a fair wage, job security and freedom from victimisation, mala fide action and unfair labour
practices, for a class of working people not only in their interest but also larger public
interest and the interest of industrial peace to ensure unimpeded production with a view to
ensure accelerated industrial development. Although these principles have come to be
established over the years, the race between "job security", on the one hand, and right to
dispense with the service of an inconvenient employee, on the other, has not abated and in
this the genius of the legal profession found its opportunity to introduce innovative ideas to
resurrect the right to "hire and fire" in less repulsive garb, and for reasons which are couched
in seemingly innocent expressions like "loss of confidence" or "lack of faith". Concepts like
"loss of confidence" and "lack of faith" were at one time considered relevant in industrial law
whenever a question arose before various forums in that branch of the law as to the right to
reinstatement and in a variety of situations, the plea that even if the termination was bad, the
victim should not be put back in service or he should not be "thrust" on an "unwilling
employer" if it posed a problem of "security" or there were reasons to believe that the
employer had otherwise "lost confidence" or had "no faith" in the integrity or ability or
capacity of an employee."Loss of faith" did not have any other relevance. In some cases,
however, the right to terminate on the basis of "loss of faith" was no doubt upheld by the
highest court, as indeed, certain other courts in the peculiar facts of those cases without
having to comply with the requirement of an enquiry where, for example, there was no
specific charge against an employee or a specific act of misconduct was not or could not be
alleged or, even if commission of an act of misconduct was proved, the employee took a
generous view of the matter and instead of dismissing the employee after a regular enquiry,
chose to merely dispense with his services. Thus, in the case of Jabalpur Electric Supply
Company Ltd., , it was held by the Supreme Court that on the terms of the order, only
reasonable view to take was that it was made on the ground that the employer has lost
confidence in the employee and the order was in fact and in law an order of discharge as
distinct from an order of dismissal or suspension. It must, however, be pointed out that in this
case, the authorities had been satisfied on the basis of the inquiry that an act of misconduct
for which the employee was liable to be dismissed had been proved but they decided to take
a "merciful view" of his conduct in view of his previous clean record. It was in this context
that the Supreme Court held that this was a case in which the employer had "acted fairly an
even generously in terminating the services of the employee rather than dismiss him". In the
case of Workmen of Sudder Office, [1971] 41 FJR 142, an inquiry appeared to have been
made by the manager and, ultimately, an order was passed that the charges had been proved
to the satisfaction of the management and that the latter had lost confidence in the workman.
In the case of Air India v. Rebello, [1972] 41 FJR 436, the Supreme Court was concerned
with a limited question whether the action of termination was for misconduct, as
contemplated by section 33(1)(b) or section 33(2)(b) and held that termination under
regulation 48 of the regulations of Air India did not amount to termination for misconduct, as
envisaged in section 33(1)(b) and 33(2)(b). In the case of Johnson Pumps, , the Supreme
Court reviewed the earlier decisions referred to above and pointed out that it had gone into
these decisions at length to disabuse the impression that a new "defense mechanism to
protect termination of service simplicities" viz., loss of confidence, had been propounded in
the earlier rulings and expressed the view that it did not agree "that any such innovation has
been made". It was pointed out that the Air India case (supra) may seem to support the "no
confidence" doctrine but a "closer study contradicts and such view". But, in none of these
cases, the question as to the stigmatic nature of the reason for termination was either
canvassed or decided. These decisions would not, therefore, be any authority for the
proposition as if termination on account of "loss of confidence" was a new category, as it
were, or a new weapon in the armoury of the employer to get rid of an employee, either
because the allegations of misconduct could not be proved or because the pursuit of the
allegations may prove to be counter-productive or delay the course of removal. These
decisions were never intended to convert "loss of confidence", which was at best a shield of
defense for the employer against a plea of reinstatement, into a weapon of offence. If the
termination on ground of loss of confidence could successfully pass the muster of industrial
jurisprudence, it would perhaps be unnecessary for any employer to proceed against an
employee for misconduct and get involved in inordinately dilatory procedures. Every
employer would be happy to merely get rid of the employee on the ground of "loss of
confidence" because in most situations an act of misconduct would, of necessity, involve
"loss of confidence" or faith either in one or the other of the attributes, which an employee
must have to be acceptable to an employer. It is, therefore, not surprising that more recent
decisions have looked upon termination on ground of "loss of confidence" as being bad on
the ground that it was stigmatic, and would, therefore, call for an enquiry, even though not
amounting to a specifically defined misconduct under the Standing Orders or rules and
regulations. It is, therefore, not surprising that a contrary view was taken by the Supreme
Court in the case of Pan Am, [1986] 68 FJR 128 that it was difficult to agree with the finding
of the Labour Court that when service is terminated on the basis of "loss of confidence", the
order does not amount to one with stigma and does not warrant a proceeding contemplated
by law preceding termination. It was further pointed out that "want of confidence" in an
employee does point to an "adverse factor" in his character as the true meaning of the
allegation is that the employee has failed to behave up to the expected standard of conduct,
which has given rise to a situation involving loss of confidence and that, in any view of the
matter, this amounts to a dereliction on the part of the workman" and, therefore, the stand
taken by the management that termination for loss of confidence does not amount to a stigma
has to be repelled. The earlier decisions would, therefore, be not of any assistance in
reinforcing this contention. It is, not doubt, true that the earlier decisions were not referred to
in the more recent decisions of the Supreme Court but even if these had been referred to, the
result would not have been any different because the principle seems to be so clear. There is
not doubt a dissenting voice in the case of Manohar P. Kharkar, [1981] II LLJ 459, but that
decision of the Bombay High Court does not appear to us to be good law, and we say so with
respect. But that part, there is another fallacy in the argument that the employment relations
between the petitioner and the Bank would be regulated either by the law of master and
servant or by industrial jurisprudence. The petitioner is in the service of the State and even
though article 311 is not applicable to the petitioner, the principles of service under the State
would be applicable because the service of the petitioner is in the nature of a status service.
The principles of industrial jurisprudence would not be attracted because the petitioner does
not belong to that class of employees who are protected by that branch of law. If the
relationship would be regulated by administrative law, an obvious question be if the order of
termination ex facie or otherwise is stigmatic and if it is stigmatic, it would have to be struck
down because it would not be open to the State to stigmatise any of its officers without
giving him an opportunity of being heard.

32. While dealing with the claim of job security, the application of the principles of
administrative law, the protection of the principle of audi alteram partem, learned counsel for
the Bank raised an interesting point. According to the learned counsel, job security could be
legitimately claimed by employees at "lower levels" in private sector primarily because they
are in a weaker bargaining position and the avenues of employment are scarce. Claim for job
security, according to him, by highly placed officer, like the petitioner, could have no place
in the scheme of things. Otherwise, it would lead to a peculiar anomaly that the officers of
public sector banking institutions, as indeed, in public sector employment generally, would
have much greater job security than their counterparts in private sector, who could not
invoke the principles of industrial jurisprudence for their protection and would have to fall
back on what contract of service assured to them. It was further urged that even the award
staff, i.e., the staff working in the banks, whether banking companies or the acquired banks,
who are covered by what is known as Sastri award, and which has now become incorporated
in what is known as "bipartite settlement" between the various banking institutions, and their
workmen, are subjected to the power of the banks to terminate their services on three months'
notice or pay in lieu thereof in terms of the award and would not be entitled to get any relief
from the industrial tribunal if they chose to challenge such termination. It was, therefore,
urged that the protection sought by the petitioner would put the class of officers, to which the
petitioner belonged, at a higher pedestal in the matter of job security than even the Award
staff, who are comparatively low paid and are at the lower rungs of the ladder. This is an
argument of despair. The protection that the petitioner claims is a direct consequence of the
acquisition of the banking companies and the result of judicial interpretation of article 12 of
the Constitution in terms of which the acquired banks have been held to be instrumentalities
of the State. Once these institutions are instrumentalities of the State, their actions have to be
equated to State action, with the result that to be valid, these actions must conform to the
constitutional, statutory policy and other constraints arising our of a host of principles
evolved in administrative law or otherwise in an anxiety to ensure the maintenance of rule of
law and to prevent State action from being arbitrary, unfair, unjust or unreasonable. These
principles, as indeed, constraints are intended not so much to protect the victims as to contain
State action within prescribed limits. Principles of industrial jurisprudence were conceived to
protect the weaker sections of the working class. The constitutional and other constraints, as
indeed, the principles of administrative law were conceived to ensure the regime of rule of
law. The protection of the employees in the service of the State or others who are affected by
State action is the result of these constraints. If the banking institutions are, therefore,
instrumentalities of the State, their actions have to be tested at the known touchstone,
irrespective of the status or position of the persons who may be sought to be affected by the
action. He may be an ordinary employee, he may be a highly placed officer, it may be an
institution, it may be a multi-national company or a business tycoon. The judicial control of
administrative action does not recognise any of these distinction in the application of these
principles unless there is something in the Constitution or the statute which created these
bodies, which may exempt them from the operation of these constraints. If, therefore, the so-
called anomaly is the result of extension of the meaning of the word "State", to the banking
institution, it would be for the authorities concerned to consider if, having regard to the
employment relations or the claim of flexibility in operations, the banking institution in the
public sector, or public sector generally, should have a different legal structure so that they
are equated in all matters with their counterparts in the private sector and are relieved from
the constitutional and other shackles in a system which is subjected to the rule of law and,
therefore, the principles evolved in administrative law to keep State action within the
circumscribed limits.

33. If there was no right to terminate the services of the petitioner for "loss of confidence"
without giving him a reasonable opportunity of being heard, the further question if regulation
20 empowered the Bank to terminate the services of any officer would hardly survive. There
was, however, considerable argument with regard to the import, scope and validity of
regulation 20. We have, therefore, thought it proper to consider this aspect of the matter as
well.

34. Regulation 20 has been reproduced above and empowers the Bank to terminate the
services of any officer by giving him three months' notice in writing or by paying him three
months' emoluments in lieu thereof. A contention was raised on behalf of the petitioner that
the class of officers to which the petitioner belongs are outside the mischief of this
regulation. There is not substance in this contention. True, regulation 3(d) defines
"competent authority" as the authority designated for the purpose by the Board. It is equally
true that the Board has appointed different authorities as competent authorities to exercise
powers under the various provisions of the regulations. These are set out in annexure-I to the
regulations in the compilation known as the "black book". The covering page points out that
the power in respect of matters, other than those included in the Schedule shall continue to be
exercised by the authorities "as at present". The Schedule that follows mentions only the
"junior management grade" under regulation 20 and the authority designated is the "deputy
general manager". According to the petitioner, the Schedule must be construed so as to
confine the operation of regulation 20 to the grades specifically mentioned in the Schedule.
There is no warrant for such a construction. Regulation 20 clearly empowers the Bank to
terminate the services of any officer. The only exceptions are the officers, to whom the
regulation does not apply, and that is given in sub-regulation (2) of regulation 2, including
officers during his tenure of service outside India. It is nobody's case that when the action
was taken against the petitioner, he was still serving outside India. The regulation could be
amended only by a regulation similarly made and it is common case that the regulations are
made in exercise of powers conferred by section 19 read with sub-section (2) of section 12 of
the Banking Companies (Acquisition and Transfer of Undertakings) Act by the Board in
consultation with the Reserve Bank of India and with the previous sanction of the Central
Government. The regulations could be amended only in the same manner and not otherwise.
The process by which the Bank designated authority was not a permissible manner to amend
the regulation. The designation of a competent authority was tantamount to a delegation of
power to the designated authority and if no delegation is made because no authority is
designated in relation to officers belonging to other grades, the only effect would be that the
power is retained where it belonged and that is what is made clear in the opening page of the
Schedule which is on page 99 of the compilation. The power to deal with officers of higher
grade vested only in the Bank and that would mean the board of directors of the Bank.
Subject, therefore, to the other questions, referred to hereinabove and to be dealt with
hereafter, it could not be said that the category of officers, to which the petitioner belonged,
were outside the mischief of these regulations.

35. The regulation is, however, of no avail even if the services of the petitioner could be
legitimately terminated on the ground on which they purported to have been done. If
regulation 20 empowered the Bank to terminate the services of an officer without casting any
stigma, then obviously the present order is outside the regulation and the regulation could not
have been invoked. If the regulation was wide enough in its amplitude to empower the Bank
to make an order of termination, which is ex facie or otherwise stigmatic, or punitive in
nature or has other adverse consequences for an officer, then such a regulation would have to
be read subject to the implied duty to hear the officer on the principle of audi alteram partem,
and as that principle has not been followed, it vitiates the order on the ground that it had been
made without complying with an implied requirement, which must be read into the
regulation.

36. Lastly, if regulation 20 is claimed to be a foundation to terminate the service of any

officer "for any reason" or "without assigning any reason" then it would have to be struck
down because it would then suffer from the vice of arbitrariness and go the way somewhat
similar regulations did in a series of decisions of the Supreme Court culminating in the
decision in the case of West Bengal Electricity Board, [1985] 66 FJR 471, on the ground that
the regulation confers an unregulated and uncanalised power to terminate the services of any
officer, including a permanent officer, who may have rendered years of service, without
assigning any reason whatsoever and without complying with any of the procedural
safeguards. The regulation would, therefore, be ultra vires article 14, as indeed, be
incompatible with the concept of right to a post should that concept be applicable to service
in the public sector in the same way in which the concept is applicable to service under the
State generally. It is, however, unnecessary for us, in the present case, to annual the
regulation because the impugned order has been held to be bad on other grounds. It is also
unnecessary to consider or to rule on the on the latter aspect of this question since arguments
were not addressed on this facet of the problem and also because this facet certainly
represents quite a grey area, partly because service in the public sector is outside article
311 of the Constitution, even though it is quite possible to construe the scheme and the
provisions of the various service regulations in the Bank, as indeed, in other public sector
organisations, as conferring virtually a right to the post on confirmation, even independently
of article 311 of the Constitution. This, however, is a matter which would perhaps deserve
further consideration and an authoritative decision and, in any event, would have to be taken
into account in any exercise to determine what should be the proper legal structure for the
public sector organisations in the country so as to strike a reasonable balance between a
claim to job security, on the one hand, and of discipline and need for flexible operations in
the interest of accelerated development, on the other.

37. Secondly, it was urged that the principle of audi alteram partem should be held to have
been impliedly excluded because it was not "reasonably practical" for the Bank to hold an
enquiry or otherwise give an opportunity to the petitioner of being heard as the surrounding
circumstances had created such emergent conditions and the nature of the industry was such
that the order brooked no delay and had to be made without any loss of time otherwise
serious repercussions would have been caused and public interest would have suffered. It
was urged that the circumstances leading to the order had caused a flutter in the international
banking circles besides having a serious fall our at home where the matter was raised on a
call attention motion in Parliament reflecting the grave concern of the people with regard to
the conduct of the affairs of a number of banking institutions aboard involving the country in
losses to the tune of crores in foreign exchange besides bringing a bad name to the banking
operations in the public sector generally. The situation, it was urged, called for stern and
immediate action. It was further urged that the records of the Bank in relation to transactions
with the Essal Group of Companies had been taken into custody either by the Scotland Yard
Police or by the Central Bureau of Investigation. Investigations by these agencies were in
progress. The prosecution of the borrower, as indeed, the officer concerned with the fraud
was than imminent and a prosecution has since been filed. It was, therefore, urged that no
worthwhile enquiry could have been conducted by the management in that kind of situation.
It was further urged that even if the petitioner had been suspended pending enquiry, the
suspension would have been a long-drawn affair in view of the like hood of the trial and the
time likely to be taken in its conclusion and the continued suspension of the petitioner for an
indefinite period would, besides being objectionable, have involved the Bank in phenomenal
amounts that would have to be paid by way of subsistence allowance during the period.
Reliance was placed on the observations of the Supreme Court in the case of Tulsi Ram
Patel, [1985] II LLJ 206, and it was urged that even though article 311 with which the court
was concerned in that case was, in terms inapplicable, the present case would squarely fall
within the principle on which the provision is based.

38. It is no doubt true that banking is a sensitive industry and the situation which emerged in
the face of the disclosures of fraud of a Bank must have been disquieting, calling for
introspection and appropriate action. It is equally true that the claim of public interest is no
doubt paramount and could not be ignored in dealing with a public sector institution. It is
also beyond doubt that the allegations leading to the order, the police investigations
following the disclosures, the bankruptcy and the arrest of the borrower and the phenomenal
amounts which were said to be involved become a matter of public controversy causing a
reflection on the manner in which the Bank was functioning, besides threatening to cause a
political crisis at home, where allegations of involvement of political leadership of the
Ministry at certain levels, were reportedly made in Parliament. None of these were, however,
sufficient to justify either the exclusion of or noncompliance with the principle of audi
alteram partem. The principle is well established and has been held to be immutable, even
though it is recognised that its operation may be excluded either by an express statutory
provision or by a necessary intendment from such a provision and compliance with it may
even be dispensed with in grave emergencies where the purpose of proceedings may be
frustrated if the principle is complied with. There is also no doubt that even where the
principle is applicable, it may suffer situational modifications in the extent of its application
and there is no hard and fast rule with regard to the manner or extent of an enquiry or
opportunity, which may be tailored to the peculiar needs of an emergent situation. But,
neither the exclusion not the situational modification are to be readily inferred. The principle
has been held to be too valuable and salutary to be sacrificed at the altar of administrative
expediency and even public interest except in rare situations. Fraud of banks by the
borrowers with or without the collusion of its officers is not an unknown phenomenon in the
world of banking. There have been frauds in the past of similar or lesser magnitude at home
and abroad. These has to be dealt with an accordance with law. The situation did not
constitute an emergency of the type which could justify the principle being sacrificed. The
situation did not pose any threat to the banking system or even the Bank concerned. If may
have exposed the way certain accounts were being dealt with. A variety of remedial actions
could be taken to deal with the situation. The officer or officers concerned who were
suspected could be removed from sensitive positions and even suspended if the urgency was
to mollify public sentiments at home. There certainly were other ways to deal with it. The
offer of resignation of the political leadership of the ministry concerned is one of the known
methods in a country with established democratic traditions. That is no condemnation of the
political leadership either because it is purely symbolic and, if anything, raises the stature of
the persons concerned that he acted in the highest democratic traditions. The fair name or
career of a senior officer of the Bank could not be sacrificed merely to mollify public
sentiments. Such hasty action against a public servant could cause grave injustice besides
exposing the State action to criticism, legal challenge and even ridicule. It is obviously not
possible to arrive at a conclusion overnight as to whether a particular officer was involved
and deserved to be removed or had otherwise acted in a manner which may call for
termination of his services. A feeling that an officer had been asked to go mainly or partly to
satisfy agitation in public mind could also cause widespread frustration in the service which
has to man these organisations and whose successful operation, partly if not wholly, is
dependent on the proper discharge of their functions and duties. The plea that it was not
reasonably practical to hold the enquiry also does not hold good. If there were difficulties,
the extent of enquiry could be subjected to modification in the face of the situation that
emerged. The observations of the Supreme Court in the case of Tulsi Ram Patel, [1985] II
LLJ 206, were made in the context of a constitutional provision which not only enabled the
Government to dispense with the enquiry in a certain situation but even prohibited it. It is not
possible to extend that principle to any other case where there is no statutory or other
provision which may enable the authority to dispense with the compliance of the principle.
If, according to the Bank, action against the petitioner could be justified not only with
reference to the allegations, forming subject-matter of the investigation and the trial, but also
de hors these allegations and on the basis of a number of other irregularities, surely there was
no practical difficulty in holding an enquiry. It may be useful to remember in this context
that section 36AA of the Banking Regulation Act provides that where the Reserve Bank is
satisfied that in the public interest or for preventing the affairs of a banking company being
conducted in a manner detrimental to the interests of the depositors or for securing the proper
management of any banking company, it is necessary so to do, the Reserve Bank may, for
reasons to be recorded in writing by order, remove from the office the Chairman, the Chief
Executive Officer or any other officer or employee of a banking company. Sub-section (2) of
this section enjoins that no order under the section shall be made unless the officer concerned
had been "given a reasonable opportunity of making a representation to the Reserve Bank
against the proposed order". Proviso to sub-section (2) further provides that if in the opinion
of the Reserve Bank, any delay would be detrimental to the interests of the banking company
or its depositors, the Reserve Bank may at the time of giving an opportunity or at any time
thereafter, by order direct that pending the consideration of the representation, the officer
concerned shall not act or directly or indirectly be concerned with or take part in the
management of the banking company. Sub-section (3) of this section provides for an appeal
against the order to the Central Government. This provision is, no doubt, not applicable to
banks in the public sector because having regard to the definition of the term "banking
companies" in section 5 of the Act, the acquired banks are not banking companies but the
section is a legislative recognition that the principle of audi alteram partem must be complied
with even in the case of a banking company and even where the Reserve Bank is satisfied
that to remove an officer is in public interest or necessary to prevent the affairs of a company
being conducted in a manner detrimental to the interests of the depositors or to secure proper
management of the banking company. It is, therefore, not possible to hold that the
surrounding circumstances justified either the exclusion of or non-compliance with the
principle.

39. Thirdly, it was urged that having regard to the circumstances in which the order had to be
made and the sensitive nature of the industry, a post-decisional hearing, remedial in nature,
would meet the ends of justice and the impugned order be maintained till the conclusion of
such a hearing when it would get substituted by the fresh order that may be made after giving
to the petitioner such opportunity as may, in the circumstances, by practical. Support for this
course was sought from the decision of the Supreme Court in the case of Maneka Gandhi, .

40. The principle of audi alteram partem enjoins a reasonable opportunity of being heard
prior to the decision and if the opportunity is to be reasonable, effective and real, it must be
an opportunity before the authority arrives at its conclusion. A post-decisional hearing would
not ordinarily be a substitute for a pre-decisional hearing and may in ordinary circumstances
degenerate into a mere exercise in public relations since prejudice is already caused by the
decision and a fresh decision on the merits by the same authority in the sense of being a
complete review of the circumstances unaffected by the decision already taken would be
hard to imagine. An order made in violation of the principle has been held to be a nullity and
must, therefore, ordinarily be demolished even if there are extraordinary circumstances
which may justify a post-decisional hearing to remove the vice of the order because the
existence of the order because the existence of the order itself may be an obstacle in the way
of an effective and fair reconsideration of the matter by the authority concerned. There are,
however, exceptional cases of post-decisional hearing, remedial in nature, which may
remove the vice of the order if appropriate safeguards are built into the manner in which the
opportunity is to be given but that is not the normal rule. Otherwise, it would have the effect
of virtually emasculating the principle, for, them in every case, a plea of post-decisional
hearing would be raised in defense to an action which is void for non-compliance with the
requirements of the principle. There are cases which do not involve any stigma though
prejudicially affecting rights or interests but the authority is open to conviction and is willing
to reconsider the matter in the light of what the person affected may have to say. There may
also be cases where the order, though made in violation of the principle, has not been carried
out. There may yet be another class of cases where by virtue of the order, drastic changes
have taken place and to demolish the order for violation of the principle may create serious
difficulties or otherwise vitally affect public interest. Lastly, there may be cases in which a
concession is made or parties agree to such a remedial measure. The decision in the case of
Maneka Gandhi, , was based on a concession. The post-decisional hearing in the case of
Swadeshi Cotton Mills, [1981] 58 FJR 190, was because by virtue of the order, a number of
industrial undertakings had already been taken over and to demolish the order before a post-
decisional hearing would have meant considerable dislocation involving the State into a
considerable expenditure besides impeding industrial production. The present case is one of a
stigma and a stigma is not removed until the order is demolished. If the petitioner succeeds,
it would made very little difference to the Bank if the order is demolished or is kept intact
even if there is to be a post-decisional hearing. The post-decisional hearing in the present
case may also involve a number of difficulties. The decision was taken at the highest level.
The personnel of the Board has no doubt since undergone changes but nevertheless the
decision having been taken at the highest level, any review of the matter while the order
subsists would merely be an exercise in futility. The Bank has also taken a rigid stand in the
proceedings following the impugned order. But it is unnecessary to take this aspect of the
matter any further in view of the order we propose to make, which would provide ample
opportunity to the Bank to hold an enquiry, if it so chooses. If the petitioner is to be believed,
with all that has happened, the petitioner may not be interested in resumption of the
relationship between the petitioner and the Bank. It is, therefore, neither possible not
necessary in the peculiar circumstances of this case to adopt the course of post-decisional
hearing, remedial in nature, without demolishing the order.

41. That takes us to the consideration of another innovative argument urged on behalf of the
Bank. It was urged, and to our mind, with considerable justification that when the order was
made, some of the decisions of the Supreme Court upholding to the right of management in
industrial law in certain circumstances to terminate the service of a workman on the ground
of want of confidence without an enquiry held the field and the decision of the Supreme
Court in the case of Pan Am, [1986] 68 FJR 128, in which termination on the ground of want
of confidence was struck down as stigmatic even in industrial law came subsequent to the
impugned order. It is, therefore, urged that the order having been valid, in the state of the law
that then obtained, the management should be given an opportunity in the present
proceedings to justify the order on the material then available to the management or on the
material presently placed before this court. Such a procedure, it was urged, would be
compatible with the principle embodied in section 11-A of the Industrial Disputes Act. If the
management, according to the counsel, was denied the opportunity to justify the action in the
present proceedings in the case of a highly placed officer, when the management would have
been entitled to justify the action before the Industrial Tribunal in relation to an ordinary
workman, the officer employee of a Bank would thereby be put in a more advantageous
position than its award staff. It is no doubt true that both before and after the incorporation
of section 11-A in the Industrial Disputes Act, an employer could justify an adverse action
against an employee even if it was illegal because of the manner in which the action was
taken and whatever doubts remained as to the modalities of such justification were removed
by the incorporation of section 11-A which, inter alia, widens the scope of the power of an
Industrial Tribunal or Court to moderate even the punishment apart from returning a finding
that the action though illegal was, on the material before the management, justified. But this
is the position that obtains in industrial law. It has no parallel application in administrative
law, where justification for an order is not a defense to the illegality in the manner in which
the order is made. In administrative law, the justification for an order does not cure the vice
attaching to the order because of the violation of the principles of natural justice. It is not for
the Court in administrative law to substitute its decision for that of the authorities. In
administrative law, as indeed, in law relating to service under the State, employment is not a
mere matter of contract but of status and where an employee is deprived of status to which he
is entitled, he is ordinarily restored to that status if the order was made without complying
with the constitutional or statutory constraints or the principles evolved in administrative law
to ensure that an employee was not dealt with otherwise than in a just and fair manner. It is
not possible to engraft on the administrative law the procedure made applicable in industrial
law though the contention on the part of the Bank does point to a direction that the law may
perhaps take in even administrative law in relation to service in the public sector as distinct
from service under the State generally. Moreover, the scope of the present proceedings is too
limited to admit of an enquiry into the circumstances leading to the impugned order nor is
the petition under article 226 an appropriate occasion for this Court to go into serious and
complicated controversies of fact which are bound to be involved if the Bank is to be
allowed to justify its action whether on the basis that the petitioner had committed gross
irregularities in the discharge of his duties or was party to any conspiracy to defraud the
Bank or had otherwise acted in a manner which may be tantamount to misconduct or as to
the justification for the decision of lack of confidence in the petitioner. For the same reason,
it is not possible to hold that the hearing of the present petition by this Court was a sufficient
substitute for any hearing to which the petitioner may be entitled, a contention for which
support was sought on behalf of the Bank from the observations of the Supreme Court in the
case of Bombay Slum Dwellers, . We have our doubts if this contention was seriously raised.
There is an obvious distinction between the case of a squatter who does not have a semblance
of a right or interest but is merely clamouring for some alternative place to provide him
shelter and the case of a high-powered bank executive in public sector with meritorious
service over a decade with the prospect of continuing in service in still higher positions for
more than a decade being stigmatised without affording a reasonable opportunity of being
heard. We do not understand the decision of the Supreme Court as laying down any rule of
universal application. The observations of the Supreme Court must be seen in the context in
which they were made.

42. But, in spite of the way we have looked at the various questions in controversy, there is
no denying the fact of the acute discomfort of public sector undertakings in general and of
the public sector banking in particular in conducting their business relations generally and
their employment relations in particular in the face of the new challenge arising our of the
recent constitutional developments and the consequential operation of administrative law to
service in the public sector. It is well known that State action is not confined today to the
traditional areas of governance but extends to much wider fields hitherto unknown, of
industry, commerce, and even trade, in competition with as also to the exclusion of the
private sector in view of the constitutional mandate to ensure economic justice to the people
as well as pursuant to the pressure of welfares and the need to accelerate the pace of
development. There is undoubtedly a distinction between the motivation for the private
sector and the public sector. In private sector operations motivation factor is the profit and
that is why private sector, by and large, is interested in immediate corporate gains and in
spite of all the exhortations, there is very little sign of the private sector either accepting any
social responsibility or moderating its activities in larger public interest. Public sector, on the
other hand, has to function in the wider perspective of public interest and for long-term gains
to ensure accelerated development. Public sector had to enter the core areas, as indeed,
certain other fields in industry because the private sector would be reluctant to enter these
fields either because of their capital intensive nature or because of unusually long gestation
period or for a variety of other reasons which made these fields unremunerative or
uneconomic for the private sector. There are also vital differences between the two sectors in
the manner in which they operate. Private sector activity is result-oriented while the public
sector operations are rule-oriented, partly on account of Government control and partly on
account of its existing legal structure. Public sector is also handicapped in its operations both
with the public, as indeed, in their employment relations because of constitutional, statutory
and policy constraints and these difficulties have certainly accentuated by the recent
constitutional developments treating these public sector bodies as instrumentalities of the
State. With the multifarious constraints under which the public sector institutions have to
function, they are bound to feel handicapped in a variety of ways. There are conflicting
claims of flexibility in business, as indeed rigidity born of rule regime. There are also
conflicting claims of job security as well as of discipline, efficiency and productivity. Job
security alone ensures fearless action. Insecurity certainly breeds the psychosis of "making
hay while the sun shines" but too much security can also lead to complacency, indifference
and even inefficiency. It may also in some situations be disruptive of discipline. These
conflicting claims have to be reconciled because none of the claims can be sacrificed at the
altar of the other. The interaction between industrial law, which is applicable to the private
sector in relation to a certain level of employment, and the principles of administrative law,
or law relating to services under the States, also creates some anomalies and some of these
have been thrown up in the present case. These constitute loose ends which need to be tied
up. All these point to an urgent need for a thorough review of the present legal frame of the
public sector organisations in different industries with a view to evolve not only a fresh legal
structure for the public sector but also a new work culture and a workable employed force,
the need for flexibility in operations and the paramount public interest.

43. That leaves for consideration the question as to the relief. Ordinarily, a stigmatic order of
termination in service under the State must be demolished and the aggrieved officer restored
to the status to which he was entitled as if the order had not been made. In industrial
parlance, it is reinstatement but in matters relating to service under the State, on the
demolition of the order, the reinstatement follows as a matter of course. This Court, however,
has ample power under article 226 of the Constitution to moderate relief in a fit case where
the consequential reinstatement may not be appropriate, as in the present case. The petitioner
may perhaps be justified in his claim that he was made a scapegoat and for a bright officer
who had served the Bank more than a decade and had more than a decade to go in higher
responsibility had been shabbily treated merely because the Bank felt that there was a need to
satisfy agitated public mind or because there may be uproar in Parliament following the
disclosures that a public sector Bank had been defrauded to the tune of millions of pounds.
There has been no enquiry and the petitioner was not given a reasonable opportunity of being
heard and it is, therefore, not possible for this Court at this stage to apportion any blame but
there can be no denial of the fact that whether or not the petitioner was responsible, there
were objective conditions and circumstances which led the Bank to make a drastic order.
There was no personal animus against the petitioner nor were there allegations of factual
mala fides. The Bank at the highest level expressed the view that they had lost confidence in
the petitioner. The petitioner is being tried on grave allegations of conspiracy and fraud in
relation to the conduct of the business of the Bank by the petitioner. It may be too early to
say as to what the outcome of the trial may be. It does, however, lend an element of
uncertainty and the reinstatement of the petitioner in the existing circumstances may also
cause embarrassment to the Bank. It would, therefore, be not proper to compel the Bank to
take the petitioner back into service even though the Bank should be given the option for the
reasons we are hereinafter indicating. With all that had happened the petitioner himself may
also not be keen to go back into the institution which, according to the petitioner, had treated
the petitioner so shabbily in spite of what he claimed to be a meritorious record of service
and with a still brighter future ahead of him. He is still in his early forties and could perhaps
make better else where if he has the talent, integrity, and the promise that he claims in
abundant measure. There was some argument before us with regard to the quantum of
compensation if the relief of reinstatement was denied to the petitioner. Neither of the
parties, however, quantified the compensation. If the amount we propose to award by way of
compensation in lieu of reinstatement is considered too high for the Bank, the Bank would
perhaps like to consider if it would be worth its while to take the petitioner back into service
and to deal with him in accordance with law rather than pay the amount. It is, therefore,
proper to give the option to the Bank to take the petitioner back and to deal with him in
accordance with law should it be inclined to do so in spite of a number of difficulties,
including the pendency of a criminal trial. If the petitioner is, therefore, to be denied the
relief of reinstatement and the Bank does not exercise the option to take him back to proceed
against him, it would be reasonable that the petitioner is suitably compensated without
imposing too much burden on a public sector banking institution. In awarding any
compensation to the petitioner, it would be necessary to take into account a variety of factors,
including the controversies in the wake of which the action was taken by the Bank. These
controversies were obviously not of the making of the Bank, whatever may have been the
role of the petitioner in bringing about the situation that led to the order.

44. Having regard to all the circumstances, the petition succeeds, the rule nisi is made
absolute and the impugned order of termination of service of the petitioner is quashed. The
petitioner would, however, not be entitled to reinstatement as of right. It would be optional
for the Bank to take the petitioner back in service as if the impugned order had not been
made with liberty to proceed against the petitioner in accordance with law. If the petitioner is
taken back, the petitioner would also be entitled exercise to all the benefits consequential on
such reinstatement. The Bank may exercise this option within four weeks from today. If the
Bank does not exercise the option, the petitioner would be entitled to salary for the entire
period from the date of the impugned order till today and to all the terminal benefits. He
would also be entitled to compensation in lieu of reinstatement, which, having regard to all
the circumstances, is assessed at Rs. 1 lakh. The amount due to the petitioner, including the
said compensation, would be paid to the petitioner within six weeks. The amount received by
the petitioner under the terms of the interim order of this Court would stand adjusted towards
the salary dues of the petitioner for the period. The petitioner would also have his costs.
Counsel's fee is assessed at Rs. 7,500.