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....g in view the guidelines issued by the IBA. "Memorandum" dated 26.12.2000 was submitted by the Deputy Managing Director and the Corporate Development Officer for according approval to the proposals contained in the Memorandum as also for adopting the scheme as Annexure 'B' to the Memorandum. 4. The basis of Memorandum dated 26.12.2000, was the advice by IBA vide letter dated 31.8.2000 in which it was pointed out that they deliberated with the Government of India, Ministry of Finance (Banking Division), at its meeting with the Finance Minister, with Chief Executives of public sector banks on 13.6.2000. The human resource and manpower planning in public sector banks were reviewed, and a Committee was constituted to examine the issues concerned to public sector banks and to suggest suitable remedial measures. The Committee considered the economic reforms set in motion in the year 1990, the high establishment cost and low productivity in public sector banks. It was felt that the banks convert their human resource into assets compatible with the business strategies through a variety of measures. The data available indicated that 43% of the employees in public sector banks were ....
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.... of ex gratia. 6. The heart and soul of the scheme were that benefits to be given on completion of 15 years of service. The eligibility for benefits was provided to those who had completed 15 years of service as on 31.12.2000. 7. The SBI submitted that it reserved a right under the scheme to modify, amend or cancel it or any of the clauses and to give effect to it from any date deemed fit. The Deputy Managing Director-cum-CDO was the competent authority for the purpose. As specific queries were raised, a clarification was issued by the Deputy Managing Director on 15.1.2001, in which about a query whether an employee on completing 15 years of pensionable service as on the relevant date of retirement, would be entitled to pensionary benefits, in response, para 6(c) of the scheme was reiterated, and it was also mentioned that as per the existing rules, employees who had not completed 20 years of pensionable service, were not eligible for pension. 8. The clarification issued by the Deputy General Manager was not in the form of modification or amendment of the scheme. The Deputy General Manager in clarification quoted the provisions and simply stated the position of a Rule that the p....
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....e Pension Fund Rules. Though the amendments in Pension Fund Rules were made effective with effect from 31.3.2001, and the age of retirement had been raised from 58 years to 60 years, w.e.f. 22.5.1998, this had necessitated increase in age for admission to Pension Fund to 58 years specified in Rule 22(i)(a) of the Rules so that the employees who have retired/are retiring on attaining the age of 60 years after completing ten years of pensionable service on or after 22.5.1998 are eligible for pension. (d) The Central Board of the SBI in its meeting held on 30.1.2001 accorded approval to the amendment in Rules 8 and 22(i)(a) of the Rules as set out in Annexure 1. The Trustees of the SBI Employees' Pension Fund in their meeting on 30.10.2001 adopted the amended rules. Consequently, a Circular was issued on 8.11.2001. The amendment was given effect from 31.3.2001, the date on which it was notified, though it was adopted by the Trustees of the SBI Trust Pension Fund in October 2001. (e) A Division Bench of the High Court held Respondent-employee, as per Rules on 17.3.2001, the date on which his offer was accepted, was eligible to get the pension. On 31.3.2001, the amended Rules were....
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....re than 19 years and ten months of service on 31.3.2001, therefore, the first part of Clause one of Rule 22 is not applicable. Further, the third part of Clause (a) is not applicable as he has completed ten years of service but not attained the age of 60 years. The case of the employee was covered under the second part of Clause (a) of Rule 22, which enabled the member to get a pension if an employee in the service of the bank on or after 1.11.1993, and completed ten years pensionable service and attained 58 years age. The employee applied in terms of the Pension Rules prevailing in January 2001. Alternatively, if an employee was in service of the bank on or after 1.11.1993, having completed ten years of pensionable service and on attaining the age of 58 years, shall be entitled to a pension. Thus, he fulfilled the requirement of second part of Clause (a) of Rule 22 as he was in service of the bank on 1.11.1993 and completed ten years of pensionable service, and the age of 58 years, therefore, in terms of Rule 22, he was entitled to pension as well as leave encashment dues along with interest at the rate of 9 percent per annum. 12. On behalf of the bank, it was submitted that VRS ....
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....s on completion of 20 years of service. Thus, there cannot be any comparison of SBI employees with the employees of other nationalised banks. The clarification dated 11.01.2000 has also been relied on by the bank. Now more than 19 years have passed and to grant a pension to all those who have retired, w.e.f. 1.4.2001 would cast a huge financial liability on the bank. 14. It was submitted on behalf of the employees that the decision rendered by the High Court is appropriate. No case for interference is made out in appeals. The very essence of the VRS was the admissibility of pension on completion of 15 years of service and other benefits. Once the scheme was adopted and approved by the Central Board of SBI, the clarification could not have been made to the detriment of employees. The clarification did not have effect of the amendment, modification, or cancellation of the VRS scheme as approved and adopted by Board. The amendment in the Pension Regulations of 1995 was carried out by other public sector banks with retrospective effect in 2002, though the scheme was floated and implemented in the year 2000-2001. However, the benefits were extended on the strength of the VRS scheme eve....
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....air and arbitrary. Once the scheme was floated and approved, the bank being State within the purview of Article 12 of the Constitution of India, it would not be permissible for it to discriminate and act unfairly. The VRS constituted an independent contract and was binding upon the bank. The benefits could not have been taken away from eligible employees who accepted VRS, which was implemented by the bank for its benefit to induct new skills as well as to rationalise the workforce. Thus, appeals being bereft of merit, deserve dismissal. 15. The main question is whether, under the scheme as approved and adopted by the Central Board of SBI, the pension is admissible to the employees on completion of 15 years of permanent service. Connected question is whether employees have been denied benefit of pension unfairly and arbitrarily contrary to the essential terms of the scheme. 16. Firstly, it is necessary to consider the nature of the package, which was accepted in the resolution by the Central Board of Directors of SBI in its meeting dated 27.12.2000. As already mentioned, exercise was done in order to rationalise the workforce as it was felt that banks were overstaffed. The IBA adv....
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....from these centers. f) As against the average of 43% of employees in Public Sector Banks in the 46+ age group, we have 47% of the employees in this age group. Of this, 1/5th are in the age group of 56 and above. To put it simply, 21,824 employees will reach the age of superannuation and retire by March 2005. In the light of the above-mentioned factors, it will be seen that the manpower of the Bank will undergo major changes in the ensuing years in number and deployment. Further, considering the variety of business the Bank undertakes, and its special role in the banking sector, over-emphasis on quantitative parameters would be inappropriate. An approach paper on Manpower Planning is placed at Annexure-'A'. Considering the various aspects of Manpower Planning, we are of the view that the Voluntary Retirement Scheme should be employed as a moderate tool to right-size the manpower in State Bank of India. In the light of aforesaid, it is clear that the VRS scheme was devised as a tool to reduce overstaffing. The memorandum submitted to the Central Board contained the following significant aspects: "Keeping in view the above, the IBA guidelines and the feedback received....
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....ng as under: Ex-gratia Rs. 1300.00 crores Leave encashment Rs. 180.00 crores Additional Provision for Gratuity Rs. 140.00 crores Additional Provision for Persion Rs. 480.00 crores (These estimates may undergo a change on receipt of clarification from Government of India as to the components of 'Pay' for the purpose of Ex-gratia) A provision was made for the pension. The bank reserved the right to modify, amend or cancel any or all the clauses. The Deputy Managing Director and CDO would be the competent authority. Following is the relevant Clause regarding modification of the scheme: MODIFICATION OF THE SCHEME Bank reserves the right to modify, amend or cancel any or all the clauses of the Scheme and to give effect thereto from any date it may deem fit. The Dy. Managing Director and CDO would be the Competent Authority for the purpose. The effective date of retirement was 31.3.2001. The relevant Clause is extracted hereunder: EFFECTIVE DATE OF RETIREMENT While the SBIVRS will be open to employees from 15th January 2001 to 31st January 2001 (both days included), the retirement under SBIVRS is proposed to be given effect from 31st March 2001. 17. The....
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.... General of Income-tax, as the case may be, is not required for VRS. 3. Income-tax shall be deducted at source in respect of ex-gratia exceeding Rs. 5.00 lakhs or such other ceiling as may be prescribed under the Income-tax Act. 4. Only completed years of service will be reckoned for arriving at the minimum eligible service. Subject to this, fraction of service of six months and above will be reckoned as one year for the purpose of calculating the ex-gratia. 5. While exercising discretion to decline applications for VRS or to make exceptions in the case of employees categorised as ineligible for VRS, the decision should not be discriminatory among employees who are similarly placed and the reasons therefor should be recorded. 6. The competent authority for accepting VRS for the various categories/class of employee should be clearly laid down by the Board of Directors. 7. Banks should ensure compliance with requirements under labour legislations before giving effect to the Scheme. 18. IBA's letter dated 31.8.2000 makes clear the salient features of the VRS scheme that all permanent employees with 15 years of service were eligible to retire. Ineligible persons have als....
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....s contained in the Memorandum as also for adopting the stated approach to manpower planning and introduction SBIVRS in terms of the provisions contained in the Scheme at Annexure 'B' of the Memorandum. Copies of the Memorandum were placed before the Directors present at the Meeting. APPROVED" (SEAL) 20. Annexure 'B' to the memorandum contained the VRS. The VRS was prepared in view of the guidelines of the IBA. The amount of ex gratia and other benefits specified in the scheme under clauses 5/6 of the scheme are extracted hereunder: 5. Amount of Ex-gratia: The staff members whose request for retirement under SBIVRS has been accepted by Competent Authority will be paid an amount of ex-gratia of 60 days' salary (pay plus stagnation increments plus dearness allowance) for each completed year of service (for this purpose fraction of service of six months and above will be taken as one year and accordingly service of less than six months will not be counted) or salary for the number of months service is left, whichever is less. Fraction of a month, if any, will be ignored. 'Relevant Date' means the date on which the employee ceases to be in servic....
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....I. When gauged in terms of the proposals of the IBA, the essential feature was that an employee was entitled to get pension on completion of 15 years of service. The meaning of the expression "pension" in terms of the Rules would be proportionate pension on completion of 15 years of service as per the terms of calculation provided in Rule 23 of the Pension Rules. VRS is an independent contract and the background in which it was floated, pension on completion of 15 years of service was an essential part of the scheme of VRS 2000, as approved by the Government and floated by the IBA and adopted by all the Banks, and Pension Rules were to be amended accordingly. 22. The Government of India suggested to the IBA to amend Regulation 29 of the Regulations of 1995 so that the employees do not lose the benefit of pension, the IBA may work out modalities and suggest amendments, if any, required to be made in the Pension Regulations to ensure that the employees get the benefit of pension. The letter dated 5.9.2000 of Government of India is extracted hereunder: F. No. 4/8/4/2000-IR Government of India, Ministry of Finance, Department of Economic Affairs (Banking Division) New Delh....
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....eiterated. Payment of pension to an employee retiring under VRS would be governed by Rules on the relevant date, i.e., 31.3.2001. At the same time, the position of the existing Rule was indicated that those employees who had not completed 20 years of pensionable service were not eligible for a pension. It was not clarified what was the meaning and purport of para 6(c) of the scheme. It was not mentioned that an employee would not be entitled to pension on 15 years of service as per the scheme approved by the Government of India and floated by the IBA and adopted by the Central Board of SBI. The above clarification being in form of opinion, could not be said to have caused a modification, amendment, or cancellation of any of the clauses of VRS or resolution passed by the Board, nor it was so stated. It was necessary to state that on completion of 15 years of service, employees would not be paid pension. The existing Rule position was known to everybody, whereas the scheme was framed for providing pension on completion of 15 years of service. 25. Rule 22 of the Pension Rules of SBI as it existed up to 9.3.2001 and amended are extracted hereunder: Existing Rule 22(i). A member sh....
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....e age of 60 years. 27. Rule 22(1)(c) was incorporated in the Pension Fund Rules w.e.f. 20.9.1986 when the bank decided inter alia to introduce VRS on completion of 20 years of service. The unamended Rule 22(i)(a) provided the normal age of retirement to be 58 years. Thereafter, as per the guidelines issued by the Government on 22.5.1998, the age of retirement was increased from 58 to 60 years. Accordingly, Rule 22(i) (a) was proposed to be amended on 30.1.2001, and instead of 58 years, the age of retirement of 60 years was to be incorporated. On 28.5.1998, the Executive Committee of the Central Board of SBI pending amendment to the related service Rules adopted the age of retirement as 60 years. The amendment was notified on 31.3.2001 and approved by the Trustees of the SBI Employees' Pension Fund on 30.10.2001. 28. Similar scheme of VRS concerning nationalised banks was implemented according to the decision of the Government of India. In Punjab & Sind Bank, it was to remain open from 1.12.2000 to 31.12.2000; Punjab National Bank: 1.11.2000 to 30.11.2000; Bank of India: 15.11.2000 to 14.12.2000; Union Bank of India: 1.12.2000 to 31.12.2000; United Bank of India: 1.1.2001 to 3....
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....yees who completed 20 years of service by adding 5 years of qualifying service. Regulations 29(1) and 29(5) applicable to the said banks are extracted hereunder: 29. Pension on voluntary retirement.--(1) On or after the 1st day of November 1993 at any time, after an employee has completed twenty years of qualifying service he may, by giving notice of not less than three months in writing to the appointing authority retire from service: Provided that this Sub-regulation shall not apply to an employee who is on deputation or on study leave abroad unless after having been transferred or having returned to India he has resumed charge of the post in India and has served for a period of not less than one year: Provided further that this Sub-regulation shall not apply to an employee who seeks retirement from service for being absorbed permanently in an autonomous body or a public sector undertaking or company or institution or body, whether incorporated or not to which he is on deputation at the time of seeking voluntary retirement: Provided that this Sub-regulation shall not apply to an employee who is deemed to have retired in accordance with Clause (1) of Regulation 2. x x x ....
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....se the workforce and skill. Hence a Committee was constituted by the Central Government. In pursuance of report of the Committee, a policy decision was taken to frame the VRS. The scheme applied to employees who, on the date of the application, completed 15 years of service. The employees specified therein were otherwise not eligible to seek voluntary retirement on completion of 15 years under the rules/regulations. Under the scheme floated by the other banks, identical reliefs were admissible, as in SBI VRS. The Scheme of Punjab National Bank is extracted hereunder: 7. x x x "Amount of ex gratia An employee seeking voluntary retirement under the Scheme will be entitled to the ex gratia amount mentioned below in para (a) or (b), whichever is less: (a) 60 days' salary (pay plus stagnation increments plus special pay plus dearness relief) for each completed year of service; OR (b) salary for the number of months of service left; Other benefits An employee seeking voluntary retirement under the Scheme will be eligible for the following benefits in addition to the ex gratia amount mentioned in para 6 above of this Scheme: (i) Gratuity as per the Payment of Gratuity ....
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....f the Scheme the employees, who expected to get benefits of Sub-regulation (4) of Regulation 29 would be deprived therefrom. It is not in this dispute that the qualifying period for receiving pension was 20 years. Only upon completion of 20 years, in terms of the statutory Regulation contained in Regulation 29, an employee could opt for voluntary retirement, and in terms thereof, he would be entitled to the benefits specified therein. The said Regulations had specifically been mentioned for the purpose of computation, which would include invocation of Sub-regulation (4) of Regulation 29, providing for relaxation of 5 years towards the qualifying period. The employees must have proceeded on the basis that despite the fact that they have merely rendered 15 years of service, which was not a qualifying service under the Regulations, they would be entitled to the pensionary benefits in terms of the Scheme. By introducing the proviso to Regulation 28 pension was sought to be made pro rata in place of full pension. (emphasis supplied) 37. In O.P. Swarnakar and Ors. (supra), it was held that the scheme was not a part of statutory regulations. It was in the realm of contract. That being ....
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....mbay Act 22 of 1939 does not prescribe that the Rules acquired validity only from the date on which they were placed before the Houses of Legislature. The Rules are valid from the date on which they are made Under Section 26(1). It is true that the Legislature has prescribed that the Rules shall be placed before the Houses of Legislature, but failure to place the Rules before the Houses of Legislature does not affect the validity of the rules, merely because they have not been placed before the Houses of the Legislature. Granting that the provisions of Sub-section (5) of Section 26 by reason of the failure to place the Rules before the Houses of Legislature were violated, we are of the view that Sub-section (5) of Section 26 having regard to the purposes for which it is made, and in the context in which it occurs, cannot be regarded as mandatory. The Rules have been in operation since the year 1941, and by virtue of Section 64 of Gujarat Act 20 of 1964, they continue to remain in operation. 127. In Atlas Cycle Industries' case, (1979) 2 SCC 196, the same view has been reiterated. 128. We, therefore, are of the opinion that the Scheme in question cannot be said to be bad in ....
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....only for providing the proportionate pensionary benefit of the qualifying service on and above 15 years, rendered by an employee. 41. The IBA advised the banks for amending the rules. The Government of India, Ministry of Finance, also issued a letter dated 5.9.2001 to the Bank to amend the rules. There was a proposal to amend the rules. After the scheme was implemented in 2000, the nationalised banks, including the Punjab National Bank, amended their Rules in 2002 with retrospective effect. However, the fact remains the VRS schemes were implemented by banks governed by the Banking Companies Act, 1970, by making payment of pension though Regulation 28 of Regulation of 1995 provided for 20 years of qualifying service at the relevant time. Once a particular scheme of VRS, based on the recommendations of Committee formed by Government of India, was formulated and floated by IBA. In all fairness, it was required to be implemented in right earnest in that form in which it was approved and adopted by the Board of Directors of SBI on 27.12.2000. In case the Board of Directors were of the opinion that the scheme was not acceptable to them, they could have rejected it or could have stated t....
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....an the one approved by the Central Government on its own, nor could have implemented it without approval of the Central Government. In case it wanted to modify or amend the scheme, as approved by the Government of India, it was incumbent upon it to send its modified scheme to the Central Government for approval. No scheme for VRS could have been framed without approval of the Government of India. In fact, the Central Board accepted the proposal of IBA, as approved by the Government of India. In case SBI's stand is accepted, its scheme would have been valid as no modification could have been made without approval of the Government of India. In fact, no such modification was made, as held above. 44. Once it approved the Scheme SBI being an instrumentality of State Under Article 12, is bound by the principle of fairness and representation made that it accepted the contents of memorandum and the scheme floated by IBA and invited the applications based on approving the memorandum which contained proposal of pension on rendering 15 years of permanent pensionable service, it could not later on wriggle out of its obligation taking a rigmarole by claiming shelter of the Rules or by not....
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....ve to be read together to understand resolution of Board. Once the memorandum containing the IBAs proposal of providing pension was approved in absolute terms, the clarification could not be of any value to dilute the otherwise clear and unambiguous resolution of the Board of Directors. The Deputy General Manager did not have any such wide and arbitrary power to defeat the claim of the employees for pension on completion of 15 years of permanent service, which was their right. The action of D.G.M. could not be said to be in accordance with the resolution. The pension was the essence of the scheme, depriving it could not be said to be authorised, such action can only be termed as unfair and unreasonable and patently violative of Articles 14, 16, and 21 of the Constitution of India. 48. Yet another aspect which cannot be lost sight is that the bank mentioned in the scheme that the benefit would be admissible as per the Rule which prevails on the appointed day, i.e., 31.3.2001. Thus, it is apparent that when VRS scheme was floated, it was in contemplation of amendment of Rules which was suggested by the IBA and the Government of India in its communication dated 5.9.2001 so that emplo....
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....the case of either of the contesting Respondents that there was any coercion brought to bear upon him or that any fraud or misrepresentation had been practiced upon him. Under Section 19-A, when consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused and the court may set aside any such contract either absolutely or if the party who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions as to the court may seem just. Sub-section (1) of Section 16 defines "Undue influence" as follows: 16. 'Undue influence' defined.--(1) A contract is said to be induced by 'undue influence' where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. The material provisions of Sub-section (2) of Section 16 are as follows: (2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another-- (a) where he holds a real or appa....
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....ideas of freedom of contract in modern times, 25th Edn., Vol. 1, para 4, Chitty observed: 79. In this connection, it is useful to note what Chitty has to say about the old ideas of freedom of contract in modern times. The relevant passages are to be found in Chitty on Contracts, 25th Edn., Vol. I, in paragraph 4, and are as follows: These ideas have to a large extent lost their appeal today. 'Freedom of contract,' it has been said, 'is a reasonable social ideal only to the extent that equality of bargaining power between contracting parties can be assumed, and no injury is done to the economic interests of the community at large.' Freedom of contract is of little value when one party has no alternative between accepting a set of terms proposed by the other or doing without the goods or services offered. Many contracts entered into by public utility undertakings and others take the form of a set of terms fixed in advance by one party and not open to discussion by the other. These are called 'contracts d'adhesion' by French lawyers. Traders frequently contract, not on individually negotiated terms, but on those contained in a standard form of contract ....
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....scionable term as to avoid any unconscionable result. In the Comments given under that section, it is stated at page 107: Like the obligation of good faith and fair dealing (§ 205), the policy against unconscionable contracts or terms applies to a wide variety of types of conduct. The determination that a contract or term is or is not unconscionable is made in the light of its setting, purpose and effect. Relevant factors include weaknesses in the contracting process like those involved in more specific Rules as to contractual capacity, fraud and other invalidating causes; the policy also overlaps with Rules which render particular bargains or terms unenforceable on grounds of public policy. Policing against unconscionable contracts or terms has sometimes been accomplished by adverse construction of language, by manipulation of the Rules of offer and acceptance or by determinations that the Clause is contrary to public policy or to the dominant purpose of the contract. Uniform Commercial Code § 2-302 Comment 1 .... A bargain is not unconscionable merely because the parties to it are unequal in bargaining position, nor even because the inequality results in an allocati....
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....s suggested that the judicial and legislative trend during the last 30 years in both civil and common law jurisdictions has almost brought the wheel full circle. Both courts and parliaments have provided greater protection for weaker parties from harsh contracts. In several jurisdictions this included a general power to grant relief from unconscionable contracts, thereby providing a launching point from which the courts have the opportunity to develop a modern doctrine of unconscionability. American decisions on Article 2.302 of the UCC have already gone some distance into this new arena...." The expression "laesio enormis" used in the above passage refers to "laesio ultra dimidium vel enormis" which in Roman law meant the injury sustained by one of the parties to an onerous contract when he had been overreached by the other to the extent of more than one-half of the value of the subject-matter, as for example, when a vendor had not received half the value of property sold, or the purchaser had paid more than double value. The maxim "pacta sunt servanda" referred to in the above passage, means "contracts are to be kept. (emphasis supplied) This Court held that due to inequality ....
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....d the defense of the indemnifier that the indemnity Clause did not cover the negligence of the indemnified. It was in Lloyds Bank Ltd. v. Bundy (1974) 3 All ER 757 that Lord Denning first clearly enunciated his theory of "inequality of bargaining power." He began his discussion on this part of the case by stating (at page 763): There are cases in our books in which the courts will set aside a contract, or a transfer of property, when the parties have not met on equal terms, when the one is so strong in bargaining power and the other so weak that, as a matter of common fairness, it is not right that the strong should be allowed to push the weak to the wall. Hitherto those exceptional cases have been treated each as a separate category in itself. But I think the time has come when we should seek to find a principle to unite them. I put on one side contracts or transactions which are voidable for fraud or misrepresentation or mistake. All those are governed by settled principles. I go only to those where there has been inequality of bargaining power, such as to merit the intervention of the court. (emphasis supplied) He then referred to various categories of cases and ultimately....
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....en doing has been to assess the relative bargaining power of the publisher and the songwriter at the time the contract was made and to decide whether the publisher had used his superior bargaining power to exact from the songwriter promises that were unfairly onerous to him. Your Lordships have not been concerned to inquire whether the public have in fact been deprived of the fruit of the song writer's talents by reason of the restrictions, nor to assess the likelihood that they would be so deprived in the future if the contract were permitted to run its full course. It is, in my view, salutary to acknowledge that in refusing to enforce provisions of a contract whereby one party agrees for the benefit of the other party to exploit or to refrain from exploiting his own earning power, the public policy which the court is implementing is not some 19th century economic theory about the benefit to the general public of freedom of trade, but the protection of those whose bargaining power is weak against being forced by those whose bargaining power is stronger to enter into bargains that are unconscionable. Under the influence of Bentham and of laissez faire the courts in the 19th c....
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....Ltd. v. Roy Bowles Transport Ltd. (1973) QB 400, I suggested that an exemption or limitation Clause should not be given effect if it was unreasonable, or if it would be unreasonable to apply it in the circumstances of the case. I see no reason why this should not be applied today, at any rate in contracts in standard forms where there is inequality of bargaining power. (g). Courts have to construe the contracts according to the tenor. In this regard, in Brojo Nath Ganguly (supra), the Court considered the question thus: 87. In Photo Production Ltd. v. Securicor Transport Ltd. (1980) AC 827, a case before the Unfair Contract Terms Act, 1977, was enacted, the House of Lords upheld an exemption Clause in a contract on the Defendants' printed form containing standard conditions. The decision appears to proceed on the ground that the parties were businessmen and did not possess unequal bargaining power. The House of Lords did not, in that case, reject the test of reasonableness or fairness of a Clause in a contract where the parties are not equal in bargaining position. On the contrary, the speeches of Lord Wilberforce, Lord Diplock, and Lord Scarman would seem to show that the H....
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....ult of situations not of their creation. Other legal systems also permit judicial review of a contractual transaction entered into in similar circumstances. For example, Section 138(2) of the German Civil Code provides that a transaction is void "when a person" exploits "the distressed situation, inexperience, lack of judgmental ability, or grave weakness of will of another to obtain the grant or promise of pecuniary advantages ... which are obviously disproportionate to the performance given in return". The position, according to the French law, is very much the same. (h). In Brojo Nath Ganguly (supra), it was pointed out what court should do in such a matter thus: 89. Should then our courts not advance with the times? Should they still continue to cling to outmoded concepts and outworn ideologies? Should we not adjust our thinking caps to match the fashion of the day? Should all jurisprudential development pass us by, leaving us floundering in the sloughs of 19th-century theories? Should the strong be permitted to push the weak to the wall? Should they be allowed to ride roughshod over the weak? Should the courts sit back and watch supinely while the strong trample underfoot t....
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....reasonable bargains between parties possessing wholly disproportionate and unequal bargaining power. These cases can neither be enumerated nor fully illustrated. The court must judge each case on its own facts and circumstances. (i). The Court in Brojo Nath Ganguly (supra) held that the contract, which affected a large number of persons if they are unconscionable, unfair, and unreasonable, the contract is voidable. The court would not compel each person with whom the party with superior bargaining power had contracted to go to court to adjudge the contract voidable and would result in a multiplicity of litigation. It observed: 91. Is a contract of the type mentioned above to be adjudged voidable or void? If it was induced by undue influence, then Under Section 19-A of the Indian Contract Act, it would be voidable. It is, however, rarely that contracts of the types to which the principle formulated by us above applies are induced by undue influence as defined by Section 16(1) of the Indian Contract Act, even though at times they are between parties one of whom holds a real or apparent authority over the other. In the vast majority of cases, however, such contracts are entered int....
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....olicy, however, is not the policy of a particular government. It connotes some matter which concerns the public good and the public interest. The concept of what is for the public good or in the public interest or what would be injurious or harmful to the public good or the public interest has varied from time to time. As new concepts take the place of old, transactions which were once considered against public policy are now being upheld by the courts, and similarly, where there has been a well-recognized head of public policy, the courts have not shirked from extending it to new transactions and changed circumstances and have at times not even flinched from inventing a new head of public policy. There are two schools of thought-- "the narrow view" school and "the broad view" school. According to the former, courts cannot create new heads of public policy, whereas the latter countenances judicial law-making in this area. The adherents of "the narrow view" school would not invalidate a contract on the ground of public policy unless that particular ground had been well-established by authorities. Hardly ever has the voice of the timorous spoken more clearly and loudly than in these ....
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..... Macaulay (1974) 1 WLR 1308, however, establishes that where a contract is vitiated as being contrary to public policy, the party adversely affected by it can sue to have it declared void. The case may be different, where the purpose of the contract is illegal or immoral. In Kedar Nath Motani v. Prahlad Rai, AIR 1960 SC 213, reversing the High Court and restoring the decree passed by the trial court declaring the Appellants' title to the lands in suit and directing the Respondents who were the Appellants' benamidars to restore possession, this Court, after discussing the English and Indian law on the subject, said: (at page 873): The correct position in law, in our opinion, is that what one has to see is whether the illegality goes so much to the root of the matter that the Plaintiff cannot bring his action without relying upon the illegal transaction into which he had entered. If the illegality be trivial or venial, as stated by Williston and the Plaintiff is not required to rest his case upon that illegality, then public policy demands that the Defendant should not be allowed to take advantage of the position. A strict view, of course, must be taken of the Plaintiff....
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....nst redundancy, and that he knows his terms of service. The public has been protected against economic pressure by such measures as the Rent Acts, the Supply of Goods (Implied Terms) Act, the Consumer Credit Act, and other similar enactments. These legislative provisions will override any contrary terms which the parties may make for themselves. Further, the legislature has intervened in the Restrictive Trade Practices Act, 1956, and the Fair Trading Act, 1973 to promote competition in industry and to safeguard the interests of consumers. This intervention is specially necessary today when most contracts entered by ordinary people are not the result of individual negotiation. It is not possible for a private person to settle the terms of his agreement with a British Railways Board or with a local electricity authority." The 'standard form' contract is the rule. He must either accept the terms of this contract in toto or go without. Since, however, it is not feasible to deprive oneself of such necessary services, the individual is compelled to accept on those terms. In view of this fact, it is quite clear that freedom of contract is now largely an illusion. 52. (a). It has ....
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....contracting parties through the imposition of conditions. Thus, regarding the government, as a private entrepreneur, threatens to impair constitutional rights. The government, unlike a private individual, is limited in its ability to contract by the Constitution. The federal contracting power is based upon the Constitution's authorisation of these acts 'necessary and proper' to the carrying out of the functions which it allocates to the national government. Unless the objectives sought by terms and conditions in government contracts requiring the surrender of rights are constitutionally authorised, the conditions must fall as ultra vires exercise of power. Again at page 1603, it is further emphasised thus: When conditions limit the economic benefits to be derived from dealings with the government to those who forego the exercise of constitutional rights, the exclusion of those retaining their rights from participation in the enjoyment of these benefits may be violative of the prohibition, implicit in the due process Clause of Fifth Amendment and explicit in the equal protection Clause of the Fourteenth Amendment against unreasonable discrimination in the governmenta....
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....y to situations in which the weaker party is in a position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them. It will also apply where a man has no choice, or rather no meaningful choice, but to give his assent to a contract or to sign on the dotted line in a prescribed or standard form or to accept a set of Rules as part of the contract, however unfair, unreasonable and unconscionable a Clause in that contract or form or Rules may be. This principle, however, will not apply where the bargaining power of the contracting parties is equal or almost equal or where both parties are businessmen, and the contract is a commercial transaction. 287. In today's complex world of giant corporations with their vast infrastructural organisations the State through its instrumentalities and agencies has been entering into almost every branch of industry and commerce and field of service, there can be myriad situations which result in unfair and unreasonable bargains between parties possessing wholly disproportionate and unequal bargaining power. These cases can neither be enumerated nor fully illustrated. The ....
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....d legislative or executive action would plainly be arbitrary, and the guarantees of equality Under Article 14 would be breached. Wherever, therefore, there is arbitrariness in State action, whether it be of legislature or of the executive or of an "authority" Under Article 12, Article 14, "immediately springs into action and strikes down such State action." In fact, the concept of reasonableness and non-arbitrariness pervades the entire constitutional scheme and is a golden thread which runs through the whole of the fabric of the constitution. 302. Article 14 is the general principle, while Article 311(2) is a special provision applicable to all civil services under the State. Article 311(2) embodies the principles of natural justice, but proviso to Clause (2) of Article 311 excludes the operation of principles of natural justice engrafted in Article 311(2) as an exception in the given circumstances enumerated in three clauses of the proviso to Article 311(2) of the Constitution. Article 14 read with Articles 16(1), and 311 are to be harmoniously interpreted that the proviso to Article 311(2) excludes the application of the principles of natural justice as an exception; and the a....
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....1(2) which are in pari materia with Regulation 9(b) of the Regulations also considered their validity in the light of Article 14 and held thus: (SCR p. 731) Therefore, we are satisfied that the challenge to the validity of the impugned Rules on the ground that they contravene Article 14 must also succeed. This was on the test of reasonable classification as the principle then was applied. Subba Rao, J. (as he then was) in a separate but concurring judgment, apart from invalidating the Rule Under Article 311(2) also held that the Rule infringed Article 14 as well, though there is no elaborate discussion in that regard. But, Das Gupta, J. considered elaborately on this aspect and held: (SCR p. 770) Applying the principle laid down in the above case to the present Rule, I find on the scrutiny of the Rule that it does not lay down any principle or policy for guiding the exercise of discretion by the authority who will terminate the service in the matter of selection or classification. Arbitrary and uncontrolled power is left in the authority to select at its will any person against whom action will be taken. The Rule thus enables the authority concerned to discriminate between tw....
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.... discretion, when conferred upon executive authorities, must be confined within defined limits. The Rule of law from this point of view means that decisions should be made by the application of known principles and Rules and, in general, such decisions should be predictable, and the citizen should know where he is. If a decision is taken without any principle or without any rule, it is unpredictable, and such a decision is the antithesis of a decision taken in accordance with the Rule of law. (See Dicey: Law of the Constitution, 10th edn., Introduction cx.) 'Law has reached its finest moments,' stated Douglas, J. in United States v. Wunderlich 342 US 98, 'when it has freed man from the unlimited discretion of some ruler .... Where discretion is absolute, man has always suffered.' It is in this sense that the Rule of law may be said to be the sworn enemy of caprice. Discretion, as Lord Mansfield stated it in classic terms in the case of John Wilkes (1770) 4 Burr 2528, 'means sound discretion guided by law. It must be governed by rule, not by humour: it must not be arbitrary, vague and fanciful'". (emphasis supplied) (g). The Court emphasised that the decis....
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....t to amend the Rule and act unfairly and make the entire contract unreasonable based on misrepresentation. It was open to the Board of Directors to reject the proposal. Once it accepted the proposal to make payment of pension on completion of 15 years of service as proposed in the memorandum, though the scheme is tried to be interpreted by the SBI that pension was to be admissible as provided in the Rule that refers to proportionate pension as noted by this Court in O.P. Swarnakar and Ors., (supra), and what was decided by Government of India/IBA, was not taken away rather adopted by the Central Board of Directors. The scheme of contractual nature has to be read in the context and in the backdrop of facts and what has been resolved by the Board of Directors. There is no ambiguity with respect to the admissibility of pension when the memorandum and the scheme are read together. In case of ambiguity and even if two interpretations are possible in the backdrop of facts of the case, one in favour of the employees has to be adopted and so-called clarification dated 11.1.2000 even if considered in the manner so as to deny the benefit of pension, has to be held to be unenforceable, illega....
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.....2000. Para 2 of the letter dated 29.12.2000 of SBI Deputy Managing Director-cum-SDO is extracted hereunder: 2. Accordingly, the Central Board of Directors, in its meeting held on 27.12.2000, has accorded approval for adopting and implementing the Voluntary Retirement Scheme for the employees of the Bank, namely "SBI Voluntary Retirement Scheme (SBIVRS)." The Scheme "SBIVRS" has been drawn up, keeping in view the guidelines issued by IBA. A copy of the Scheme is placed at Annexure 'B'. (emphasis supplied) 56. As noted in O.P. Swarnakar and Ors., (supra), the case of bank itself was that it was a contractual scheme. The expression "pension" as per Rules was only for the purpose of working out the proportionate pension. It was clearly decided to open the scheme to employees who have put in 15 years of service. It was not provided in the scheme that the incumbent was required to render a pensionable service of 20 years as per the Rules in order to acquire eligibility for the pension. The submission made on behalf of SBI is too tenuous to be accepted. It was observed in para 89 of O.P. Swarnakar and Ors., (supra) quoted above that the employee must have proceeded on the ba....
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.... was not given to them on the ground that the benefit of VRS was available to incumbents having completed 15 years of service as provided in amended Regulation 28, and Regulation 29 was not applicable. This Court held that the benefit of VRS was available to the employees having completed 15 years of service, but the additional benefit which was available on completion of 20 years of service was also admissible as provided in Regulation 29(5). 59. While considering the aforesaid similar scheme of VRS, this Court observed with respect to the construction of the contract on the basis of the import of the words. The intention of the parties must be ascertained from the language they have used and considered in the light of surrounding circumstances, and the meaning cannot be changed by a course of conduct adopted by the parties in acting under it. This Court in K. Mohandas (supra) held thus: 28. The true construction of a contract must depend upon the import of the words used and not upon what the parties choose to say afterwards. Nor does subsequent conduct of the parties in the performance of the contract affect the true effect of the clear and unambiguous words used in the contr....
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....y clear therein that the employees seeking voluntary retirement will be eligible for pension as per the Pension Regulations? If the intention was not to give pension as provided in Regulation 29 and particularly Sub-regulation (5) thereof, they could have said so in the Scheme itself. After all, much thought had gone into the formulation of VRS 2000, and it came to be framed after great deliberations. The only provision that could have been in mind while providing for pension as per the Pension Regulations was Regulation 29. Obviously, the employees, too, had the benefit of Regulation 29(5) in mind when they offered for voluntary retirement as admittedly Regulation 28, as was existing at that time, was not applicable at all. None of Regulations 30 to 34 was attracted. (emphasis supplied) 61. In K. Mohandas (supra) the Court considered the argument that Regulation 28 would be applicable only for providing 15 years of eligibility as provided by way of amendment of Regulation of 1995, and held that as the banks are "State" within the meaning of Article 12, it would be an arbitrary action on their part to deny the benefit of Section 29(5), and there has to be harmonious construction....
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....with the eligibility criteria. Once VRS was formulated and adopted by the SBI in toto, it constituted a complete contractual package in itself. 62. As urged on behalf of SBI if Section 23 of the Contract Act is applied, then how it is helpful to the bank, is not understandable. In case it is held that the very scheme was opposed to the law/rules, the entire scheme would fall down. Once it adopted the scheme, invited applications and the employees acted upon it and retired on the basis of the scheme, they cannot be left in lurch. In case its submission is accepted, the Scheme becomes violative of Section 23 of Contact Act, the bank would have to suffer the consequences of striking down of the very scheme and would be required to reinstate the employees and to pay them the salary and other benefits. However, SBI accepted the scheme, it was incumbent upon it to bring the Rules in consonance with the similar VRS scheme as was done by other banks. The SBI accepted the scheme on 27.12.2000 without any ifs and buts. Thus, the anomaly was the outcome of the bank's inaction to propose and make amendment of rules. In such a scenario, the action of SBI is violative of Articles 14, 16 and....