1989 (8) TMI 364 - SC - Indian Laws

Supreme Court Nullifies Circular, Emphasizes Representative Board & Govt. Discretion in Bank Director Appointments

All India Bank Officers' Confederation and Ors. Versus Union of India and Ors.

All India Bank Officers' Confederation and Ors. Versus Union of India and Ors. - 1989 AIR 2045, 1989 (3) SCR 850, 1989 (4) SCC 90, 1989 (3) JT 389, 1989 ... Issues Involved:1. Validity of the Circular dated 23-8-1982.2. Interpretation of Clause 3 of the Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1980.3. Compliance of the Circular with Section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.4. Representative nature of the Board of Directors.5. Discretion of the Central Government in appointing Directors.Issue-wise Detailed Analysis:1. Validity of the Circular dated 23-8-1982:The petitioners, representing a Central Trade Union and its office-bearers, challenged the Circular dated 23-8-1982 issued by the Ministry of Finance. They argued that the Circular was contrary to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and the Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1980. The Circular stated that the Central Government was no longer bound to appoint Directors from a panel of names submitted by the respective Association representing the majority of non-workmen-employees. The Court declared the Circular ultra vires the Act and the Scheme, rendering it null and void.2. Interpretation of Clause 3 of the Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1980:Clause 3 of the Scheme was scrutinized to determine whether it allowed the Central Government to appoint any officer as a Director without considering the panel submitted by the Association. The Court noted that the Scheme was intended to provide a truly representative Board of Directors. The consistent practice before the Circular was to appoint Directors from a panel of names submitted by the majority association of non-workmen-employees. The Court found that the Central Government's new interpretation, which allowed the appointment of any officer irrespective of their association, was incorrect and out of harmony with the legislative intent and constitutional principles.3. Compliance of the Circular with Section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970:Section 9 of the Act empowers the Central Government to make a scheme for the constitution of the Board of Directors, including representatives of employees and other specified categories. The Court emphasized that the discretion granted to the Central Government in appointing Directors must be exercised reasonably to reflect the true intent of the legislature. The Circular's approach of appointing any officer without considering the panel was found to be inconsistent with the Act's objective of a representative Board.4. Representative nature of the Board of Directors:The Court highlighted that the Act aimed to nationalize banks to serve the national policy and objectives. The Board of Directors was intended to be truly representative, reflecting the interests of employees, depositors, farmers, workers, and artisans. The Court asserted that employees, being well-organized and motivated, should ideally be represented through election. The Circular's approach undermined this representative character by allowing appointments without considering the employees' choice.5. Discretion of the Central Government in appointing Directors:While the Central Government has discretion in choosing the mode of appointment (election or nomination), the Court clarified that this discretion is not unrestricted. The Central Government must exercise its discretion reasonably to ensure the best form of representation for each category. The Court rejected the argument that the Government could avoid election even when it was appropriate and feasible. The Court suggested that the Government could amend the Scheme to improve the election process but must continue the practice of appointing from the panel until such amendments are made.Conclusion:The Supreme Court declared the Circular dated 23-8-1982 ultra vires the Act and the Scheme, nullifying it. The Court emphasized the need for a truly representative Board of Directors and the reasonable exercise of the Central Government's discretion in appointing Directors. The decision reinforced the importance of democratic selection and representation in the management of nationalized banks.