R. M. JOSHI v. RESERVE BANK OF INDIA — 1980 DIGILAW 91 (DEL)

V. S. DESHPANDE, C. J ( 1 ) THE question referred to the Full Bench, in view of apparent lack of agreement among certain decisions of this court, is whether the "reserve Bank: of India (Staff) Regulations, 1948" are statutory in character or not. ( 2 ). The background of the reference is that certain direct recruits in Grade A in the service of the Reserve Bank have filed writ petition Nos. 876 and 1029 of 1974 for enforcing against the Reserve Bank and the promotees certain alleged rights based on the right of equality guaranteed by the Constitution and by the Staff Regulations. The preliminary objection taken by the Bank is that the writ petitions are not maintainable as the obligations alleged to be binding on the Bank and sought to be enforced by the writ petitions are purely contractual in nature. The Staff Regulations framed administratively by the Bank have at their end Form A, which is a declaration to be bound by the Staff Regulations in the following words : "i hereby declare that I have read and understood the Reserve Bank of India (Staff) Regulations 1948, and I hereby subscribe and agree to be bound by the said Regulations. "this declaration is signed by each of the petitioners. The nature of the service of the petitioners is, therefore, contractual and rights arising from such a contract cannot be enforced by way of a writ petition under Article 226 of the Constitution. ( 3 ). The question whether the Staff Regulations are statutory or contractual may be one of fact, but the rights which flow from the relationship between the petitioners and the Bank may still be constitutional and not merely contractual the former being still enforceable under Article 226 of the Constitution. As pointed out in Roshan Lal Tandon v. Union of India, (1968) I SCR 185 (1) at 195, "the origin of Government service is contractual. . . . But once appointed to his post or office the Government servant acquires a status. " If the employer is a "public authority", the meaning of which is discussed in 30 Halsbury s Laws of England, Third Edition, pages 682 onwards, the question whether the status of its employees is contractual or statutory would depend on the provisions of the statute constituting the said authority. " If the employer is a "public authority", the meaning of which is discussed in 30 Halsbury s Laws of England, Third Edition, pages 682 onwards, the question whether the status of its employees is contractual or statutory would depend on the provisions of the statute constituting the said authority. As observed in Ved Prakash Malhotra v. State Bank of India and another, ILR (1974) I Delhi 660 (2) at 664, referring to J. C. Sachdev v. Reserve Bank of India, (1973) 11 LLJ 204 (3), at 217, the Reserve Bank is "a State" under Article 12 of the Constitution. Of course, the State or a public authority may appoint its employees in the exercise of any of the three following powers, namely, (1) statutory, (2) cxccusive and (3) contractual. ( 4 ). The distinction between these three powers may be borne in mind. Exercise of a statutory power is almost always expressed to flow from a statute or a subordinate legislation. Its preamble would be "in exercise of the power conferred by section or rule the following rules or regulations or a scheme is made". Executive instructions are, on the other hand, published and circulated as. memoranda or letters which are dated and generally issued by a designated official. Contracts by the Government are entered into in accordance with the form laid down in Article 299 of the Constitution and with some formality even by other public authorities. ( 5 ). Administrative instructions themselves can have a basis either in the exercise of executive power or in the exercise of the power to enter into contracts. Generally speaking, a contract is entered into with one person at a time, whether it is an individual or a Corporation or a statutory body. When, however, seveial persons belonging to a class are sought to be bound by the exercise of such executive power, an additional precaution is taken, sometimes to secure the agreement of the persons sought to be bound in writing. The result is that the administrative instructions would be deemed to be the terms of the contract and the written agreement by each of the employees would turn them into as many contracts as there are employees. The result is that the administrative instructions would be deemed to be the terms of the contract and the written agreement by each of the employees would turn them into as many contracts as there are employees. Contracts of adhesion are accordingly resorted to by the Government in evolving standards forms of contract as also by the Railways and other authorities which deal with numerous persons on an equal footing. While, in one sense each of these numerous persons enters into contract with the public authority, the terms of all these contracts are the same. In a more real sense, therefore, the terms should be regarded as being framed in exercise of the executive power of the public authority. The principle embodied in Article 73 of the Constitution is that the extent of the executive power of the Government is co-extensive with the extent of its legislative power. This principle applies to the authority constituted by the statute and entrusted with the task of working or enforcing the provisions of the statute. It is not always necessary that rules should be framed under the statute. For, even without framing rules, the designated authority can work and enforce the provisions of the Act executively. Such power is derived from the act even in the absence of rules and would be legal if it carries out the intention of the provisions of the Act and if these provisions intend that they should be enforced by the said authority. ( 6 ). The Reserve Bank of India Act, 1934 constitutes the Bank. Section 17 of the Act describes the function of the Bank. Sub-section (16) of section 17 empowers the Bank generally to do all things as may be incidental to or consequential upon the exercise of its powers or the discharge of its duties under the Act. Carrying or. banking business, establishing banking offices and performing other functions necessarily implies that the Bank would be appointing employees for carrying on this work. The authority to appoint the staff is thus inferrable from section 17, particularly sub-section (16) thereof. Section 58 (1) empowers the Central Board of the Bank, with the previous sanction of the Central Government, to make regulations for the purpose of giving effect to the provisions of the Act. The authority to appoint the staff is thus inferrable from section 17, particularly sub-section (16) thereof. Section 58 (1) empowers the Central Board of the Bank, with the previous sanction of the Central Government, to make regulations for the purpose of giving effect to the provisions of the Act. Certain regulations, such as "reserve Bank of India Employees Provident Fund Regulations", have actually been framed winder section 58 by the Central Board of the Bank. But the preamble to these Regulations expressly says that they are framed in exercise of the powers conferred by clause (3) of sub-section (2) of section 58 of the Act. with the previous sanction of the Central Government. On the other hand. . the "reserve Bank of India (Staff) Regulations. 1948" have no such preamble. On the contrary, the preamble of these regulations is : "whereas it is necessary to revise the regulations defining the terms and conditions of service of the staff of the Reserve Bank of India, the Central Board of the Bank hereby make the following regulations. " The difference between the two preambles is significant. The first expressly states its source of power as the statute. The second, preamble does not refer to any statutory source of power. It also docs not say that the previous sanction of the Central Government is obtained. On the other hand, it says that the object of the Staff Regulations is to define the terms and conditions of service of the staff. As observed by the Full Bench in Indian Institute of Technology v. Mangat Singh, ILR (1973) II Delhi 6 (4) at 9, "employment is originally and still basically a contract between the employer and the employee. This bilateral relationship is, however, often found to be superseded partly or wholly by status which is contrasted with contract. Status is determined extripsically by law and not by agreement between parties. Status may supersede contract by affecting either of the two partics to it. namely, the master or the servant. " ( 7 ). It may be at once said that the evidence on record points to the Staff Regulations being executive and contractual and not statutory. Status is determined extripsically by law and not by agreement between parties. Status may supersede contract by affecting either of the two partics to it. namely, the master or the servant. " ( 7 ). It may be at once said that the evidence on record points to the Staff Regulations being executive and contractual and not statutory. The petitioners rely upon a letter, dated 21st January, 1949 by Shri C. D. Deshmukh, the then Governor of the Reserve Bank of India, staling that under section 58 of the Reserve Bank of India Act the Certral Board of the Bank is empowered to provide by regulations for certain matters and that certain sets of regulations were made by the Board with the approval of the Central Government. In the list of its Regulations. Reserve Bank of India (Staff) Regulations arc also mentioned. The reference is perhaps to the Staff Regulations of 1941, which was also executive and contractual. It is to be borne in mind that the Governor of the Bank in 1949 could have no personal knowledge about the sources of power in the exercise of which these various Regulations were framed from the year 1936 onwards. His letter was apparently based on the office information. In respect of the Staff Regulations this information is shown to be wrong. The Bank has filed four documents which show that the Staff Regulations were not statutory nor were they framed after the previous approval of theCentral Government. On 30th January, 1941 the then Chief Accountant of the Bank wrote to the Secretary of the Central board that according to his understanding the Staff Regulations were not framed under section 58 nor was the approval of the Central Government obtained for framing them. Since the Regulations embody the terms of the contract between the Bank and its employees even a unilateral change in these Regulations by the Bank would not have been possible but for the power expressly reserved by the Bank to make such changes (vide Regulation 4 ). The Same Shri Deshmukh as the then Secretary of the Central Board of the Bank answered that the Staff Regulations were not framed on the authority of anything in section 58, but are merely standardized terms of contract. The Same Shri Deshmukh as the then Secretary of the Central Board of the Bank answered that the Staff Regulations were not framed on the authority of anything in section 58, but are merely standardized terms of contract. Again on 16th May, 1949 the Ministry of Finance inquired from the Bank if the sanction of the Central Government had been taken io frame the Staff Regulations of 1948. The Bank replied that no sanction had been taken since no sanction was necessary as the Regulations had not been framed under section 58. ( 8 ). As a question of fact, therefore, the Staff Regulations were not statutory. They were promulgated in exercise of executive power. Even without a formal agreement of each employee to be bound by them, these executive instructions embodying conditions of service would have been binding on the employees on the ground that they were the implied terms of the contract of the employees because they existed on the inception of the employment and were impliedly accepted by each of the employee. A fortiori the written agreement by each of the employee to be bound by the agreement makes it a contract between the employer and the employee. The mere fact, however, that the Staff Regulations are not statutory does not always mean that any attempt to enforce them would be based on a contract and as such the proper subject matter of a suit and not of a writ petition under Article 226 of the Constitution. The reason is that a standardized contract of service with the State or a public authority by a large class of employees stands on a different footing from an ordinary contract between two individuals or even a contract by an individual with the Government. The State and the public authority arc not free like an ordinary employer to deal with such a standardized class of their employees. They are under constitutional and statutory obligations. It is these fetters on the powers of the employer that give a status other than contractual to the employees of the State or a public authority. It, therefore, depends on the nature of the rights sought to be enforced by the employees of the State or public authority, whether the particular right is contractual or statutory or constitutional. ( 9 ). It, therefore, depends on the nature of the rights sought to be enforced by the employees of the State or public authority, whether the particular right is contractual or statutory or constitutional. ( 9 ). An example of a contractual employee seeking to enforce a merely contractual right is the decision in V. P. Malhotra s case (supra ). Since neither Article 311 of the Constitution nor any provision of the State Bank of India Act nor any statutory subordinate legislation framed thereunder was available to the petitioner in that case, the security of tenure was denied to him. ( 10 ). Executive instructions may be of two kinds. If they are for the guidance of Government departments in the internal administration, then outside persons dealing with these departments cannot derive lights from such instructions G. J. Femandez v. State of Mysore, (1967) 3 SCR 636 (5), and Chairman, Ramappa Gundappa Sahakari Samyakta Besava Sangha Ltd. v. State of Mysore, (1974) 2 SCC 221 (6 ). On the other hand, even administrative instructions may create rights and obligations between the Government and thfc civil servants [union of India v. K. P. Joseph, (1973) I SCC 194 (7), S. N. Karkhanis and others v. Union of India and others, (1974) 4 SCC 360 (8), and State of Uttar Pradesh v. Chandra Mohan Nigam and others, AIR 1977 SC 2411 ] (9 ). The reason is that these executive instrauctions are regarded not merely as conditions of service contract but rather the incidents of status of public servants. If constitutional rights are claimed by the petitioners, the contractual origin of these conditions of service will not come in the way. ( 11 ). For instance, the right of equality guaranteed by Articles 14 and 16 of the Constitution will prevent the authority which is "the State" under Article 12 of the Constitution from contravening the said fundamental right. It will not then matter that the conditions of service are contractual. The State in dealing with different classes of its employees cannot say that it is not bound by the fundamental rights of its employees merely because the employment originates in a contract and may be governed by conditions of service which are in the form of a contract. It will not then matter that the conditions of service are contractual. The State in dealing with different classes of its employees cannot say that it is not bound by the fundamental rights of its employees merely because the employment originates in a contract and may be governed by conditions of service which are in the form of a contract. The question whether a servant of "the State" (used in the sense of Article 12) or of statutory authority can enforce his rights against the employer under Article 226 depends upon whether his right is based not only on contract but also on the Constitution or a statute. Once he is able to show that either a statutory or constitutional provision is contravened by the State he would be able to maintain the writ petition under Article 226 of the Constitution and would be granted relief thereunder. On the other hand, if no constitutional or statutory protection is enjoyed by him, then his right would remain merely contractual and it cannot be enforced under Article 226 of the Constitution. ( 12 ). Our answer to the reference therefore ; s that while the Reserve Bank of India (Staff) Regulations are not statutory in character and are contractual, the question whether the writ petitions are maintainable would depend on whether the petitioners have the right to equality under the Constitution or any other constitutional rights and whether any such right is contravened by the action of the Bank. If a constitutional or statutory right is contravened, the writ petition cannot be resisted on the ground that the contravention also relates to the terms of a service contract. For, to the extent of the constitutional and statutory protection enjoyed by the petitioners the nature, of the relevant terms of service which enjoy such protection is more a matter of status than of contract.