Day: February 9, 2020

State Of Punjab & Ors vs Rafiq Masih (White Washer) on 18 December, 2014
Bench: Jagdish Singh Khehar, Arun Mishra

                                                            "REPORTABLE"

                    IN THE SUPREME COURT OF INDIA

                    CIVIL APPELLATE JURISDICTION

                   CIVIL APPEAL NO. 11527  OF 2014
              (Arising out of SLP(C) No.11684 of 2012)

State of Punjab and others etc. …
Appellants

                               versus

Rafiq Masih (White Washer) etc. … Respondent(s)

                                WITH

                           J U D G M E N T

Jagdish Singh Khehar, J.

1. Leave granted.
2. All the private respondents in the present bunch of cases, were given monetary benefits, which were in excess of their entitlement. These benefits flowed to them, consequent upon a mistake committed by the concerned competent authority, in determining the emoluments payable to them. The mistake could have occurred on account of a variety of reasons; including the grant of a status, which the concerned employee was not entitled to; or payment of salary in a higher scale, than in consonance of the right of the concerned employee; or because of a wrongful fixation of salary of the employee, consequent upon the upward revision of pay-scales; or for having been granted allowances, for which the concerned employee was not authorized. The long and short of the matter is, that all the private respondents were beneficiaries of a mistake committed by the employer, and on account of the said unintentional mistake, employees were in receipt of monetary benefits, beyond their due.
3. Another essential factual component in this bunch of cases is, that the respondent-employees were not guilty of furnishing any incorrect information, which had led the concerned competent authority, to commit the mistake of making the higher payment to the employees. The payment of higher dues to the private respondents, in all these cases, was not on account of any misrepresentation made by them, nor was it on account of any fraud committed by them. Any participation of the private respondents, in the mistake committed by the employer, in extending the undeserved monetary benefits to the respondent-employees, is totally ruled out. It would therefore not be incorrect to record, that the private respondents, were as innocent as their employers, in the wrongful determination of their inflated emoluments.
4. The issue that we have been required to adjudicate is, whether all the private respondents, against whom an order of recovery (of the excess amount) has been made, should be exempted in law, from the reimbursement of the same to the employer. For the applicability of the instant order, and the conclusions recorded by us hereinafter, the ingredients depicted in the foregoing two paragraphs are essentially indispensable.
5. Merely on account of the fact, that the release of these monetary benefits was based on a mistaken belief at the hands of the employer, and further, because the employees had no role in the determination of the employer, could it be legally feasible, for the private respondents to assert, that they should be exempted from refunding the excess amount received by them? Insofar as the above issue is concerned, it is necessary to keep in mind, that the following reference was made by a Division Bench of two Judges of this Court, for consideration by a larger Bench: “In view of an apparent difference of views expressed on the one hand in Shyam Babu Verma and Ors. vs. Union of India & Ors. (1994) 2 SCC 521 and Sahib Ram Verma vs. State of Haryana (1995) Supp. 1 SCC 18; and on the other hand in Chandi Prasad Uniyal and Ors. vs. State of Uttarakhand & Ors. (2012) 8 SCC 417, we are of the view that the remaining special leave petitions should be placed before a Bench of Three Judges. The Registry is accordingly directed to place the file of the remaining special leave petitions before the Hon’ble the Chief Justice of India for taking instructions for the constitution of a Bench of three Judges, to adjudicate upon the present controversy.”

(emphasis is ours) The aforesaid reference was answered by a Division Bench of three Judges on 8.7.2014. While disposing of the reference, the three-Judge Division Bench, recorded the following observations in paragraph 7: “7. In our considered view, the observations made by the Court not to recover the excess amount paid to the appellant-therein were in exercise of its extra-ordinary powers under Article 142 of the Constitution of India which vest the power in this Court to pass equitable orders in the ends of justice.”

(emphasis is ours) Having recorded the above observations, the reference was answered as under:

“12. Therefore, in our opinion, the decisions of the Court based on different scales of Article 136 and Article 142 of the Constitution of India cannot be best weighed on the same grounds of reasoning and thus in view of the aforesaid discussion, there is no conflict in the views expressed in the first two judgments and the latter judgment.

13. In that view of the above, we are of the considered opinion that reference was unnecessary. Therefore, without answering the reference, we send back the matters to the Division Bench for its appropriate disposal.”

(emphasis is ours)

6. In view of the conclusions extracted hereinabove, it will be our endeavour, to lay down the parameters of fact situations, wherein employees, who are beneficiaries of wrongful monetary gains at the hands of the employer, may not be compelled to refund the same. In our considered view, the instant benefit cannot extend to an employee merely on account of the fact, that he was not an accessory to the mistake committed by the employer; or merely because the employee did not furnish any factually incorrect information, on the basis whereof the employer committed the mistake of paying the employee more than what was rightfully due to him; or for that matter, merely because the excessive payment was made to the employee, in absence of any fraud or misrepresentation at the behest of the employee.
7. Having examined a number of judgments rendered by this Court, we are of the view, that orders passed by the employer seeking recovery of monetary benefits wrongly extended to employees, can only be interfered with, in cases where such recovery would result in a hardship of a nature, which would far outweigh, the equitable balance of the employer’s right to recover. In other words, interference would be called for, only in such cases where, it would be iniquitous to recover the payment made. In order to ascertain the parameters of the above consideration, and the test to be applied, reference needs to be made to situations when this Court exempted employees from such recovery, even in exercise of its jurisdiction under Article 142 of the Constitution of India. Repeated exercise of such power, “for doing complete justice in any cause” would establish that the recovery being effected was iniquitous, and therefore, arbitrary. And accordingly, the interference at the hands of this Court.
8. As between two parties, if a determination is rendered in favour of the party, which is the weaker of the two, without any serious detriment to the other (which is truly a welfare State), the issue resolved would be in consonance with the concept of justice, which is assured to the citizens of India, even in the preamble of the Constitution of India. The right to recover being pursued by the employer, will have to be compared, with the effect of the recovery on the concerned employee. If the effect of the recovery from the concerned employee would be, more unfair, more wrongful, more improper, and more unwarranted, than the corresponding right of the employer to recover the amount, then it would be iniquitous and arbitrary, to effect the recovery. In such a situation, the employee’s right would outbalance, and therefore eclipse, the right of the employer to recover.
9. The doctrine of equality is a dynamic and evolving concept having many dimensions. The embodiment of the doctrine of equality, can be found in Articles 14 to 18, contained in Part III of the Constitution of India, dealing with “Fundamental Rights”. These Articles of the Constitution, besides assuring equality before the law and equal protection of the laws; also disallow, discrimination with the object of achieving equality, in matters of employment; abolish untouchability, to upgrade the social status of an ostracized section of the society; and extinguish titles, to scale down the status of a section of the society, with such appellations. The embodiment of the doctrine of equality, can also be found in Articles 38, 39, 39A, 43 and 46 contained in Part IV of the Constitution of India, dealing with the “Directive Principles of State Policy”. These Articles of the Constitution of India contain a mandate to the State requiring it to assure a social order providing justice – social, economic and political, by inter alia minimizing monetary inequalities, and by securing the right to adequate means of livelihood, and by providing for adequate wages so as to ensure, an appropriate standard of life, and by promoting economic interests of the weaker sections.
10. In view of the afore-stated constitutional mandate, equity and good conscience, in the matter of livelihood of the people of this country, has to be the basis of all governmental actions. An action of the State, ordering a recovery from an employee, would be in order, so long as it is not rendered iniquitous to the extent, that the action of recovery would be more unfair, more wrongful, more improper, and more unwarranted, than the corresponding right of the employer, to recover the amount. Or in other words, till such time as the recovery would have a harsh and arbitrary effect on the employee, it would be permissible in law. Orders passed in given situations repeatedly, even in exercise of the power vested in this Court under Article 142 of the Constitution of India, will disclose the parameters of the realm of an action of recovery (of an excess amount paid to an employee) which would breach the obligations of the State, to citizens of this country, and render the action arbitrary, and therefore, violative of the mandate contained in Article 14 of the Constitution of India.
11. For the above determination, we shall refer to some precedents of this Court wherein the question of recovery of the excess amount paid to employees, came up for consideration, and this Court disallowed the same. These are situations, in which High Courts all over the country, repeatedly and regularly set aside orders of recovery made on the expressed parameters.

(i). Reference may first of all be made to the decision in Syed Abdul Qadir v. State of Bihar, (2009) 3 SCC 475, wherein this Court recorded the following observation in paragraph 58:

“58. The relief against recovery is granted by courts not because of any right in the employees, but in equity, exercising judicial discretion to relieve the employees from the hardship that will be caused if recovery is ordered. But, if in a given case, it is proved that the employee had knowledge that the payment received was in excess of what was due or wrongly paid, or in cases where the error is detected or corrected within a short time of wrong payment, the matter being in the realm of judicial discretion, courts may, on the facts and circumstances of any particular case, order for recovery of the amount paid in excess. See Sahib Ram v. State of Haryana, 1995 Supp. (1) SCC 18, Shyam Babu Verma v. Union of India, (1994) 2 SCC 521, Union of India v. M. Bhaskar, (1996) 4 SCC 416, V. Ganga Ram v. Director, (1997) 6 SCC 139, Col. B.J. Akkara (Retd.) v. Govt. of India, (2006) 11 SCC 709, Purshottam Lal Das v. State of Bihar, (2006) 11 SCC 492, Punjab National Bank v. Manjeet Singh, (2006) 8 SCC 647 and Bihar SEB v. Bijay Bahadur, (2000) 10 SCC 99.”

(emphasis is ours) First and foremost, it is pertinent to note, that this Court in its judgment in Syed Abdul Qadir’s case (supra) recognized, that the issue of recovery revolved on the action being iniquitous. Dealing with the subject of the action being iniquitous, it was sought to be concluded, that when the excess unauthorised payment is detected within a short period of time, it would be open for the employer to recover the same. Conversely, if the payment had been made for a long duration of time, it would be iniquitous to make any recovery. Interference because an action is iniquitous, must really be perceived as, interference because the action is arbitrary. All arbitrary actions are truly, actions in violation of Article 14 of the Constitution of India. The logic of the action in the instant situation, is iniquitous, or arbitrary, or violative of Article 14 of the Constitution of India, because it would be almost impossible for an employee to bear the financial burden, of a refund of payment received wrongfully for a long span of time. It is apparent, that a government employee is primarily dependent on his wages, and if a deduction is to be made from his/her wages, it should not be a deduction which would make it difficult for the employee to provide for the needs of his family. Besides food, clothing and shelter, an employee has to cater, not only to the education needs of those dependent upon him, but also their medical requirements, and a variety of sundry expenses. Based on the above consideration, we are of the view, that if the mistake of making a wrongful payment is detected within five years, it would be open to the employer to recover the same. However, if the payment is made for a period in excess of five years, even though it would be open to the employer to correct the mistake, it would be extremely iniquitous and arbitrary to seek a refund of the payments mistakenly made to the employee. In this context, reference may also be made to the decision rendered by this Court in Shyam Babu Verma v. Union of India (1994) 2 SCC 521, wherein this Court observed as under: “11. Although we have held that the petitioners were entitled only to the pay scale of Rs 330-480 in terms of the recommendations of the Third Pay Commission w.e.f. January 1, 1973 and only after the period of 10 years, they became entitled to the pay scale of Rs 330-560 but as they have received the scale of Rs 330-560 since 1973 due to no fault of theirs and that scale is being reduced in the year 1984 with effect from January 1, 1973, it shall only be just and proper not to recover any excess amount which has already been paid to them. Accordingly, we direct that no steps should be taken to recover or to adjust any excess amount paid to the petitioners due to the fault of the respondents, the petitioners being in no way responsible for the same.”

(emphasis is ours) It is apparent, that in Shyam Babu Verma’s case (supra), the higher pay- scale commenced to be paid erroneously in 1973. The same was sought to be recovered in 1984, i.e., after a period of 11 years. In the aforesaid circumstances, this Court felt that the recovery after several years of the implementation of the pay-scale would not be just and proper. We therefore hereby hold, recovery of excess payments discovered after five years would be iniquitous and arbitrary, and as such, violative of Article 14 of the Constitution of India.

(ii). Examining a similar proposition, this Court in Col. B.J. Akkara v. Government of India, (2006) 11 SCC 709, observed as under: “28. Such relief, restraining back recovery of excess payment, is granted by courts not because of any right in the employees, but in equity, in exercise of judicial discretion to relieve the employees from the hardship that will be caused if recovery is implemented. A government servant, particularly one in the lower rungs of service would spend whatever emoluments he receives for the upkeep of his family. If he receives an excess payment for a long period, he would spend it, genuinely believing that he is entitled to it. As any subsequent action to recover the excess payment will cause undue hardship to him, relief is granted in that behalf. But where the employee had knowledge that the payment received was in excess of what was due or wrongly paid, or where the error is detected or corrected within a short time of wrong payment, courts will not grant relief against recovery. The matter being in the realm of judicial discretion, courts may on the facts and circumstances of any particular case refuse to grant such relief against recovery.”

(emphasis is ours) A perusal of the aforesaid observations made by this Court in Col. B.J. Akkara’s case (supra) reveals a reiteration of the legal position recorded in the earlier judgments rendered by this Court, inasmuch as, it was again affirmed, that the right to recover would be sustainable so long as the same was not iniquitous or arbitrary. In the observation extracted above, this Court also recorded, that recovery from employees in lower rung of service, would result in extreme hardship to them. The apparent explanation for the aforesaid conclusion is, that employees in lower rung of service would spend their entire earnings in the upkeep and welfare of their family, and if such excess payment is allowed to be recovered from them, it would cause them far more hardship, than the reciprocal gains to the employer. We are therefore satisfied in concluding, that such recovery from employees belonging to the lower rungs (i.e., Class-III and Class-IV – sometimes denoted as Group ‘C’ and Group ‘D’) of service, should not be subjected to the ordeal of any recovery, even though they were beneficiaries of receiving higher emoluments, than were due to them. Such recovery would be iniquitous and arbitrary and therefore would also breach the mandate contained in Article 14 of the Constitution of India.

(iii). This Court in Syed Abdul Qadir v. State of Bihar (supra) held as follows:

“59. Undoubtedly, the excess amount that has been paid to the appellant teachers was not because of any misrepresentation or fraud on their part and the appellants also had no knowledge that the amount that was being paid to them was more than what they were entitled to. It would not be out of place to mention here that the Finance Department had, in its counter- affidavit, admitted that it was a bona fide mistake on their part. The excess payment made was the result of wrong interpretation of the Rule that was applicable to them, for which the appellants cannot be held responsible. Rather, the whole confusion was because of inaction, negligence and carelessness of the officials concerned of the Government of Bihar. Learned counsel appearing on behalf of the appellant teachers submitted that majority of the beneficiaries have either retired or are on the verge of it. Keeping in view the peculiar facts and circumstances of the case at hand and to avoid any hardship to the appellant teachers, we are of the view that no recovery of the amount that has been paid in excess to the appellant teachers should be made.”

(emphasis is ours) Premised on the legal proposition considered above, namely, whether on the touchstone of equity and arbitrariness, the extract of the judgment reproduced above, culls out yet another consideration, which would make the process of recovery iniquitous and arbitrary. It is apparent from the conclusions drawn in Syed Abdul Qadir’s case (supra), that recovery of excess payments, made from employees who have retired from service, or are close to their retirement, would entail extremely harsh consequences outweighing the monetary gains by the employer. It cannot be forgotten, that a retired employee or an employee about to retire, is a class apart from those who have sufficient service to their credit, before their retirement. Needless to mention, that at retirement, an employee is past his youth, his needs are far in excess of what they were when he was younger. Despite that, his earnings have substantially dwindled (or would substantially be reduced on his retirement). Keeping the aforesaid circumstances in mind, we are satisfied that recovery would be iniquitous and arbitrary, if it is sought to be made after the date of retirement, or soon before retirement. A period within one year from the date of superannuation, in our considered view, should be accepted as the period during which the recovery should be treated as iniquitous. Therefore, it would be justified to treat an order of recovery, on account of wrongful payment made to an employee, as arbitrary, if the recovery is sought to be made after the employee’s retirement, or within one year of the date of his retirement on superannuation.

(iv). Last of all, reference may be made to the decision in Sahib Ram Verma v. Union of India, (1995) Supp. 1 SCC 18, wherein it was concluded as under:

“4. Mr. Prem Malhotra, learned counsel for the appellant, contended that the previous scale of Rs 220-550 to which the appellant was entitled became Rs 700-1600 since the appellant had been granted that scale of pay in relaxation of the educational qualification. The High Court was, therefore, not right in dismissing the writ petition. We do not find any force in this contention. It is seen that the Government in consultation with the University Grants Commission had revised the pay scale of a Librarian working in the colleges to Rs 700-1600 but they insisted upon the minimum educational qualification of first or second class M.A., M.Sc., M.Com. plus a first or second class B.Lib. Science or a Diploma in Library Science. The relaxation given was only as regards obtaining first or second class in the prescribed educational qualification but not relaxation in the educational qualification itself.

5. Admittedly the appellant does not possess the required educational qualifications. Under the circumstances the appellant would not be entitled to the relaxation. The Principal erred in granting him the relaxation. Since the date of relaxation the appellant had been paid his salary on the revised scale. However, it is not on account of any misrepresentation made by the appellant that the benefit of the higher pay scale was given to him but by wrong construction made by the Principal for which the appellant cannot be held to be at fault. Under the circumstances the amount paid till date may not be recovered from the appellant. The principle of equal pay for equal work would not apply to the scales prescribed by the University Grants Commission. The appeal is allowed partly without any order as to costs.”

(emphasis is ours) It would be pertinent to mention, that Librarians were equated with Lecturers, for the grant of the pay scale of Rs.700-1600. The above pay parity would extend to Librarians, subject to the condition that they possessed the prescribed minimum educational qualification (first or second class M.A., M.Sc., M.Com. plus a first or second class B.Lib. Science or a Diploma in Library Science, the degree of M.Lib. Science being a preferential qualification). For those Librarians appointed prior to 3.12.1972, the educational qualifications were relaxed. In Sahib Ram Verma’s case (supra), a mistake was committed by wrongly extending to the appellants the revised pay scale, by relaxing the prescribed educational qualifications, even though the concerned appellants were ineligible for the same. The concerned appellants were held not eligible for the higher scale, by applying the principle of “equal pay for equal work”. This Court, in the above circumstances, did not allow the recovery of the excess payment. This was apparently done because this Court felt that the employees were entitled to wages, for the post against which they had discharged their duties. In the above view of the matter, we are of the opinion, that it would be iniquitous and arbitrary for an employer to require an employee to refund the wages of a higher post, against which he had wrongfully been permitted to work, though he should have rightfully been required to work against an inferior post.

12. It is not possible to postulate all situations of hardship, which would govern employees on the issue of recovery, where payments have mistakenly been made by the employer, in excess of their entitlement. Be that as it may, based on the decisions referred to herein above, we may, as a ready reference, summarise the following few situations, wherein recoveries by the employers, would be impermissible in law:

(i) Recovery from employees belonging to Class-III and Class-IV service (or Group ‘C’ and Group ‘D’ service).

(ii) Recovery from retired employees, or employees who are due to retire within one year, of the order of recovery.

(iii) Recovery from employees, when the excess payment has been made for a period in excess of five years, before the order of recovery is issued.

(iv) Recovery in cases where an employee has wrongfully been required to discharge duties of a higher post, and has been paid accordingly, even though he should have rightfully been required to work against an inferior post.

(v) In any other case, where the Court arrives at the conclusion, that recovery if made from the employee, would be iniquitous or harsh or arbitrary to such an extent, as would far outweigh the equitable balance of the employer’s right to recover.

13. We are informed by the learned counsel representing the appellant- State of Punjab, that all the cases in this bunch of appeals, would undisputedly fall within the first four categories delineated hereinabove. In the appeals referred to above, therefore, the impugned orders passed by the High Court of Punjab and Haryana (quashing the order of recovery), shall be deemed to have been upheld, for the reasons recorded above.
14. The appeals are disposed of in the above terms.

…………………………………J.

(Jagdish Singh Khehar) …………………………………J.

(Arun Mishra) New Delhi;

December 18, 2014.

Shanti Kumar Panda vs Shakutala Devi on 3 November, 2003
Author: R Lahoti
Bench: R.C. Lahoti, Ashok Bhan.
CASE NO.:
Appeal (civil) 10906 of 1996

PETITIONER:
Shanti Kumar Panda

RESPONDENT:
Shakutala Devi

DATE OF JUDGMENT: 03/11/2003

BENCH:
R.C. LAHOTI & ASHOK BHAN.

JUDGMENT:
J U D G M E N T R.C. LAHOTI, J.

Shanti Kumar Panda, the appellant before us lodged a complaint with Station Officer, Line Bazar, Jaunpur, whereupon the police filed a report before the Sub-Divisional Magistrate (S.D.M.) Sadar, Jaunpur, who made a preliminary order under Section 145(1) of the Code of Criminal Procedure, 1973 (hereinafter referred to as ‘the Code’, for short) recording his satisfaction that a dispute, likely to cause a breach of the peace, exists concerning the shop, which is the subject matter of dispute (hereinafter referred to as ‘the shop’, for short) between the appellant and one Kamta Prasad (not a party in this appeal) and requiring both of them to attend his court and put in the written statements of their respective claims as respects the fact of actual possession of the shop. The learned S.D.M. also found that the case was one of emergency and therefore he directed the shop to be attached under Section 146(1) of the Code. The preliminary order under Section 145(1) and the order of attachment under Section 146(1) were both made on 16.5.92. Kamta Prasad appeared and stated that he had nothing to do with the shop and the owner of the property, who was also in possession thereof, was one Shakuntala Devi (respondent No.1 herein, hereinafter referred to as ‘the respondent’, for short). Kamta Prasad also submitted that the appellant had deliberately not impleaded the respondent as a party to the proceedings as he was in collusion with the police and wanted to deprive Shakuntala Devi of her lawful possession over the shop. Shakuntala Devi, on becoming aware of the proceedings (obviously on the information provided by Kamta Prasad), moved an application before the learned S.D.M. stating that she was a party interested in the subject matter of dispute and as she was in peaceful possession of the shop, she ought to have been joined as party to the proceedings and as that not done, she prayed for her impleadment and an opportunity of being heard.

The learned S.D.M. kept the application filed by the respondent pending till 6.7.92 when the proceedings were directed to be disposed of by a final order. No opportunity was allowed to the respondent to join in the proceedings and to file her own claims as to the possession of the shop. The learned S.D.M. held that the appellant was in possession over the disputed shop on the date of the passing of the preliminary order as also in the two months prior thereto. Having made that declaration the learned S.D.M. directed that until the rights were determined by the competent court, the shop shall be released in favour of Shanti Kumar Panda, the appellant.

Shakuntala Devi, the respondent and Kamta Prasad both preferred revision petitions against the order of the learned S.D.M. By order dated 27.2.93 the learned Additional Sessions Judge directed the revision to be dismissed by holding that the order of the learned S.D.M. did not suffer from any infirmity. Both these orders were put in issue by the respondent and Kamta Prasad by filing a petition under Article 226 of the Constitution in the High Court which too was dismissed on 6.12.93. One of the reasons which has prevailed with the High Court for dismissing the petition is that the respondent had already approached the Civil Court and the jurisdiction of the Civil Court having been invoked, which was an efficacious alternative remedy available to the respondent, it was not appropriate for the High Court to entertain the writ petition and exercise its jurisdiction under Article 226 of the Constitution.

Soon after the decision by the learned Additional Sessions Judge on 27.2.93, Shakuntala Devi, the respondent, filed civil suit No.283 of 1993 based on title, seeking a permanent preventive injunction against Shanti Kumar Panda, the appellant herein. Kamta Prasad who alone was impleaded by the respondent as the party in the proceedings under Sections 145/146 of the Code was not impleaded as a party in the civil suit filed by the respondent Shakuntala Devi, inasmuch as the impleadment of Kamta Prasad who was not claiming any interest and not even possession over the shop was considered to be unnecessary. The respondent also sought for an ad-interim preventive injunction so as to protect her possession over the shop. By order dated 5.8.95 the learned Civil Judge allowed the application filed by the respondent and directed the appellant to remain restrained from interfering with the possession of the respondent over the shop. The learned Civil Judge also directed a court officer to go at the site of the shop and after opening the locks to put the respondent in possession of the shop. It would be relevant to note some of the observations, pungent to some extent, made by the learned Civil Judge during the course of his order. The learned Civil Judge observed that the proceedings under Sections 145/146 of the Code had proceeded in the absence of the respondent who was not even allowed an opportunity of being heard though she was the real person claiming possession and also title over the shop. The learned Judge said – “She was not even offered the opportunity of being heard. The real fact is that after the death of Smt. Tapesara the anti social elements conspired to grab her house and shop and under that conspiracy the sister of Tapesara, i.e., Shakuntala Plaintiff whose possession was over the disputed house and shop wanted to eject her forcibly and the administration fully helped in evicting the plaintiff from her house and shop..it is clear that the plaintiff was in possession and still she is in possession. Merely by taking advantage of the condition of the plaintiff the Sub-Inspector and the S.D.M. under the proceeding under Section 145 Cr.P.C. got locked the shop and house and the plaintiff is again entitled to live therein. If it is not so any one could take possession of any one’s house in collusion with the administration. The day it is done that day will become a symbol of injustice in the societyThe one who is not a party to the proceeding under Section 145 Cr.P.C. the finding given under Section 145 Cr.P.C. is not binding on him.”

The appellant preferred a miscellaneous appeal. The learned District Judge, vide his order dated 15.11.95, allowed the same and set aside the order dated 5.8.95 passed by the learned Civil Judge. The principal reason which has prevailed with the learned District Judge was that the proceedings under Section 145 of the Code having terminated in favour of Shanti Kumar Panda, the appellant, the trial court was not justified in issuing the order of injunction unless and until the order of the learned S.D.M. was superseded by a decree of the Civil Court and that no injunction can be granted when the disputed property is in custodia legis.

The respondent preferred a petition under Article 227 of the Constitution. The High Court has allowed the petition, set aside the order of the learned District Judge and restored the order passed by the learned Civil Judge. Feeling aggrieved by the order of the High Court this appeal has been preferred by special leave.

Mr. Sunil Gupta, the learned Senior Counsel appearing for the appellant, has forcefully urged, placing reliance on the phraseology employed by the Parliament in drafting Section 145 of the Code, that once an order under Sections 145 and/or 146 of the Code has been passed, finally terminating proceedings thereunder, then it is only a decree for eviction passed by a Civil Court in a suit based on title filed by the party unsuccessful before the learned S.D.M. which would supersede the order passed by the Magistrate, which order continues to remain in operation and ought to be respected not only by the parties thereto but also by the Civil Court. In other words, he submitted that an order of temporary injunction inconsistent with the order of the Magistrate under Sections 145/146 of the Code or superseding it cannot be passed by the Civil Court.

Mr. Jayant Bhushan, the learned Senior Counsel, who initially represented the respondent before being designated as senior advocate, appeared at the time of hearing and submitted that though he was not instructed to appear yet he is available to assist the Court to place the correct legal position in spite of his having given up the brief to the respondent. We appreciate the gesture shown by him. He has adopted a line of reasoning opposite to the one adopted by Mr. Sunil Gupta and has supported the order of the trial court restored by the High Court. The rival submissions made before us raise certain important issues touching the value and efficacy of the final order passed under Sections 145/146 of the Code in the proceedings wherein that order is called in question.

Sections 145 and 146 of the Code, insofar as they are relevant for our purpose are extracted and reproduced hereunder:

“145. Procedure where dispute concerning land or water is likely to cause breach of peace. (1) Whenever an Executive Magistrate is satisfied from a report of a police officer or upon other information that a dispute likely to cause a breach of the peace exists concerning any land or water or the boundaries thereof, within his local jurisdiction, he shall make an order in writing, stating the grounds of his being so satisfied, and requiring the parties concerned in such dispute to attend his Court in person or by pleader, on a specified date and time, and to put in written statements of their respective claims as respects the fact of actual possession of the subject of dispute.

(2) & (3) *** *** (4) The Magistrate shall then, without reference to the merits or the claims of any of the parties to a right to possess the subject of dispute, pursue the statements so put in, hear the parties, receive all such evidence as may be produced by them, take such further evidence, if any, as he thinks necessary, and, if possible, decide whether any and which of the parties was, at the date of the order made by him under sub-section (1), in possession of the subject of dispute :

Provided that, if it appears to the Magistrate that any party has been forcibly and wrongfully dispossessed, within two months next before the date on which the report of a police officer or other information was received by the Magistrate, or after that date and before the date of his order under sub-

section (1), he may treat the party so dispossessed as if that party had been in possession on the date of his order under sub-

section (1).

(5) Nothing in this section shall preclude any party so required to attend, or any other person interested, from showing that no such dispute as aforesaid exists or has existed; and in such case the Magistrate shall cancel his said order, and all further proceedings thereon shall be stayed, but, subject to such cancellation, the order of the Magistrate under sub-section (1) shall be final.

(6) (a) If the Magistrate decides that one of the parties was, or should under the proviso to sub-section (4) be treated as being, in such possession of the said subject, he shall issue an order declaring such party to be entitled to possession thereof until evicted therefrom in due course of law, and forbidding all disturbance of such possession until such eviction; and when he proceeds under the proviso to sub-section (4), may restore to possession the party forcibly and wrongfully dispossessed.

(b) The order made under this sub-section shall be served and published in the manner laid in sub-section (3).”

146. Power to attach subject of dispute and to appoint receiver. (1) If the Magistrate at any time after making the order under sub-section (1) of Section 145 considers the case to be one of emergency, or if he decides that none of the parties was then in such possession as is referred to in Section 145, or if he is unable to satisfy himself as to which of them was then in such possession of the subject of dispute, he may attach the subject of dispute until a competent Court has determined the rights of the parties thereto with regard to the person entitled to the possession thereof :

Provided that in the event of a receiver being subsequently appointed in relation to the subject of dispute by any Civil Court, the Magistrate

(a) shall order the receiver appointed by him to hand over the possession of the subject of dispute to the receiver appointed by the Civil Court and shall thereafter discharge the receiver appointed by him.

(b) may make such other incidental or consequential orders as may be just.

Possession is nine points in law. One purpose of the enforcement of the laws is to maintain peace and order in society. The disputes relating to property should be settled in a civilized manner by having recourse to law and not by taking the law in own hands by members of society. A dispute relating to any land etc. as defined in sub-section (2) of Section 145 having arisen, causing a likelihood of a breach of the peace, Section 145 of the Code authorizes the Executive Magistrate to take cognizance of the dispute and settle the same by holding an enquiry into possession as distinguished from right to possession or title. The proceedings under Sections 145/146 of the Code have been held to be quasi-civil, quasi-criminal in nature or an executive on police action. The purpose of the provisions is to provide a speedy and summary remedy so as to prevent a breach of the peace by submitting the dispute to the Executive Magistrate for resolution as between the parties disputing the question of possession over the property. The Magistrate having taken cognizance of the dispute would confine himself to ascertaining which of the disputing parties was in possession by reference to the date of the preliminary order or within two months next before the said date, as referred to in proviso to sub- section (4) of Section 145, and maintain the status quo as to possession until the entitlement to possession was determined by a court, having competence to enter into adjudication of civil rights, which an Executive Magistrate cannot. The Executive Magistrate would not take cognizance of the dispute if it is referable only to ownership or right to possession and is not over possession simpliciter; so also the Executive Magistrate would refuse to interfere if there is no likelihood of breach of the peace or if the likelihood of breach of peace though existed at a previous point of time, had ceased to exist by the time he was called upon to pronounce the final order so far as he was concerned.

There is a difference between a case where the subject-matter of dispute is not attached by the Executive Magistrate under Section 146(1) and the case where it is so attached. Under sub-section (1) of Section 145 a preliminary order taking cognizance of the dispute having been passed, the Magistrate would under sub-section (4) decide who was in possession of the disputed property on the date of the passing of the preliminary order. Consistently with such finding, a declaration by Magistrate in favour of such party would follow under sub-section (6) entitling it to retain possession over such property until evicted therefrom in due course of law. And until such eviction all disturbances in its possession shall be forbidden. If any party is found to have been forcibly or wrongfully dispossessed within two months next before the date on which the report of a police officer or other information setting the Magistrate in motion was received by him or between such date and the date of order under sub-section (1), then the party dispossessed has to be fictionally treated as one in possession on the date of preliminary order under sub-section (1). The declaration of entitlement to possession under proviso to sub- section (4) read with sub-section (6) shall be made in favour of such party and the party found to have been so dispossessed forcibly and wrongfully may also be restored into possession. The declaration having been made, it would be for the unsuccessful party to approach the competent court and secure such order as would enable his entering into possession and evicting the party successful in proceedings under Section 145.

What is an eviction “in due course of law” within the meaning of sub-section (6) of Section 145 of the Code? Does it mean a suit or proceedings directing restoration of possession between the parties respectively unsuccessful and successful in proceedings under Section 145 or any order of competent court which though not expressly directing eviction of successful party, has the effect of upholding the possession or entitlement to possession of the unsuccessful party as against the said successful party. In our opinion, which we would buttress by reasons stated shortly hereinafter, ordinarily a party unsuccessful in proceedings under Section 145 ought to sue for recovery of possession seeking a decree or order for restoration of possession. However, a party though unsuccessful in proceedings under Section 145 may still be able to successfully establish before the competent court that it was actually in possession of the property and is entitled to retain the same by making out a strong case demonstrating the finding of the Magistrate to be apparently incorrect.

In a case where attachment has been made under Section 146(1) of the Code, it is not necessary for the unsuccessful party to seek the relief of possession from the court; a mere adjudication of rights would suffice inasmuch as the attached property is held custodia legis by the Magistrate for and on behalf of the party who would be successful from the competent court by establishing his right to possession over the property.

Mr. Sunil Gupta, the learned Senior Counsel for the appellant submitted, reading literally the sub-section (6) of Section 145 of the Code, that declaration of the successful party “to be entitled to possession thereof until evicted therefrom in due course of law, and forbidding all disturbance of such possession until such eviction” means that the Parliament intended to confer a binding efficacy on the Magistrate’s order not only qua the parties to the proceedings but also qua all concerned to respect and abide by the order of the Executive Magistrate and such order and the possession of the successful party protected thereunder shall continue to survive and hold valid and good unless at the final adjudication of civil rights the competent court has directed the party successful in proceedings before the Magistrate to be evicted, whence and whence alone that party shall lose possession and bound to hand over the same to the party successful in the Civil Court.

It is well-settled that a decision by a Criminal Court does not bind the Civil Court while a decision by the Civil Court binds the Criminal Court (See Sarkar on Evidence, Fifteenth Edition, page

845). A decision given under Section 145 of the Code has relevance and is admissible in evidence to show :- (i) that there was a dispute relating to a particular property; (ii) that the dispute was between the particular parties; (iii) that such dispute led to the passing of a preliminary order under Section 145(1) or an attachment under Section 146(1), on the given date, and (iv) that the Magistrate found one of the parties to be in possession or fictional possession of the disputed property on the date of the preliminary order. The reasoning recorded by the Magistrate or other findings arrived at by him have no relevance and are not admissible in evidence before the competent court and the competent court is not bound by the findings arrived at by the Magistrate even on the question of possession through, as between the parties, the order of the Magistrate would be evidence of possession. The finding recorded by the Magistrate does not bind the Court. The competent court has jurisdiction and would be justified in arriving at a finding inconsistent with the one arrived at by the Executive Magistrate even on the question of possession. Sections 145 and 146 only provide for the order of the Executive Magistrate made under any of the two provisions being superseded by and giving way to the order or decree of a competent court. The effect of the Magistrate’s order is that burden is thrown on the unsuccessful party to prove its possession or entitlement to possession before the competent court.

In Bhinka & Ors. Vs. Charan Singh , AIR 1959 SC 960, this Court held that the Magistrate does not purport to decide a party’s title or right to possession of the land but expressly reserves that question to be decided in due course of law. His order is a temporary order irrespective of the rights of the parties, which will have to be agitated and adjudicated upon by a competent forum and in the manner provided by law. The life of the said order is coterminous with the passing of a decree by a Civil Court and the moment a Civil Court makes an order of eviction, it displaces the order of the Criminal Court. The orders under Section 145 of the Code are thus merely police orders and do not decide any question of title.

We would like to clarify that in the case of Bhinka and Ors. (supra) the question what is a competent court, did not arise for determination; nor did the question as to what is the weight and value to be assigned to or what is the efficacy of the order of the Magistrate in a subsequent suit or proceeding initiated before a competent court directly arise for consideration. This we say because it is also well- settled that Sections 145 and 146 nowhere specifically provide for the order of the Magistrate being subject to and superseded by only a decree of ‘Civil Court’. The words ‘competent court’ used in Section 146 (1), in the context in which they have been used, only mean “any court which has jurisdictional competence to decide the question of title or rights to the property or entitlement to possession based on right or title to the property though the court is not necessarily a Civil Court”. The words ‘until evicted therefrom in due course of law’ as occurring in sub-section (6) of Section 145′ mean the eviction of the party successful before the Magistrate, consequent upon the adjudication of title or right to possession by a competent court; that does not necessarily mean a decree of eviction. The party unsuccessful before the Magistrate may dispute the correctness of the finding arrived at by the Magistrate and is at liberty to show before the competent court that it had not dispossessed the successful party or that it is the unsuccessful party and not the successful party who was actually in possession and the finding to the contrary arrived at by the Magistrate was wholly or apparently erroneous and unsustainable in law.

In Jhunamal alias Devandas Vs. State of Madhya Pradesh & Ors. , (1988) 4 SCC 452, this Court has held that a concluded order under Section 145, Cr.P.C., made by the Magistrate of competent jurisdiction should not be set at naught merely because the unsuccessful party has approached the civil Court. An order made under Section 145, Cr.P.C., deals only with the factum of possession of the party as on a particular day. It confers no title to remain in possession of the disputed property. The order is subject to decision of the civil Court. The unsuccessful party therefore must get relief only in the civil Court. He may move the civil court with a properly constituted suit. He may file a suit for declaration and prove a better right to possession. The civil Court has jurisdiction to give a finding different from that which the Magistrate has reached. Here again we may hasten to add that the expression ‘civil court’ used by this Court in Jhunamal’s case (supra) means competent court and not necessarily a civil court as commonly understood.

At what stage may the competent court arrive at a finding inconsistent with the one given by the Magistrate? Is it correct to say that the finding recorded by the Magistrate can be dislodged only at the time of and by passing a final decree terminating the suit? Or, whether the competent court can, depending on the facts and circumstances of a given case, arrive at a finding different from the one recorded by the Magistrate even at the state of interlocutory order such as one of injunction or appointment of receiver during the pendency of the suit?

We have already indicated hereinabove the extent of relevance of an order under Sections 145/146 of the Code in a subsequent civil action between the parties. In a civil action between different parties the finding of a criminal court cannot be treated as binding except to the extent of being evidence of the factum of a particular judgment having been delivered by the particular criminal court on a particular date as already indicated hereinabove. In Anil Behari Ghosh Vs. Smt. Latika Bala Dassi & ors., AIR 1955 SC 566 this Court has held that in a proceeding for revocation of a grant of probate under Section 263 of the Succession Act the previous judgment of the Criminal Court convicting the son of the murder of his father and sentencing him to transportation for life is not admissible in evidence of the fact that the son was the murderer of the testator. That is a question to be decided on evidence. The judgment of the Criminal Court is relevant only to show that there was such trial resulting in such conviction and sentence of the son to transportation for life.

The order of the magistrate under Section 145/146 of the Code is not only an order passed by Criminal Court but is also one based on summary enquiry. The competent Court in any subsequent proceedings is free to arrive at its own findings based on the evidence adduced before it on all the issues arising for decision before it. At the stage of judgment by Civil Court the order of the magistrate shall be of almost no relevance except for the purpose of showing that an enquiry held by the magistrate had resulted into the given declaration being made on a particular date. The competent Court would be free to record its own findings based on the material before it even on the question of possession which may be inconsistent with or contrary to the findings arrived at by the magistrate.

At the stage of passing an interlocutory order such as on an application for the grant of ad interim injunction under Rule 1 or 2 of Order 39 of the CPC, the competent Court shall have to form its opinion on the availability of a prima facie case, the balance of convenience and the irreparable injury __ the three pillars on which rests the foundation of any order of injunction. At that stage material in the shape of affidavits, documents and pleadings is placed before the Court for its consideration. The order of the Executive Magistrate may also be placed before it, who having held an enquiry, though summary in nature, has arrived at a finding on the question of possession which the Code intends to be sustained unless the Court of competent jurisdiction by its judicial order supersedes the finding or the effect of such finding and till then all disturbances in possession of the successful party are intended by the Code to be forbidden. The Civil Court shall also respect such order and will be loath to arrive at an interim arrangement inconsistent with the one made by the Executive Magistrate. However, this is far from holding that the Civil Court does not have jurisdiction to make an order of injunction inconsistent with the order of the Executive Magistrate. The jurisdiction is there but the same shall be exercised not as a rule but as an exception. There may be cases such as one where the order of the Executive Magistrate can be shown to be without jurisdiction, palpably wrong or containing self-contradictory findings. For example, the Magistrate may have made an order treating the party dispossessed beyond two months to be as in possession. There may be cases where in spite of the order made by the Executive Magistrate based on the evidence adduced before it, the competent court, based on the material produced before such Court, may be inclined to hold that prima facie a very strong case for retaining or placing one of the parties in possession of the suit property is made out or where it will be totally unjust or inequitable to continue one party in possession of the property as ordered by the Executive Magistrate. In such exceptional situations, the competent court (which will mostly be a civil court) may have jurisdiction for granting an order of injunction in departure from the findings recorded and the declaration made by the Executive Magistrate under Section 145 of the Code of Criminal Procedure. The order under Section 146 of the Code would not pose a problem of that magnitude. Inasmuch as the property is under attachment and is placed in the hands of a receiver the Civil Court can comfortably examine whether it would be just and expedient to continue with the attachment and with the same receiver or to appoint another receiver or to make some other interim arrangement during the pendency of the civil suit.

For the purpose of legal proceedings initiated before a competent court subsequent to the order of an Executive Magistrate under Sections 145/146 of the Code of Criminal Procedure, the law as to the effect of the order of the Magistrate may be summarized as under:-

(1) The words ‘competent court’ as used in sub-section (1) of Section 146 of the code do not necessarily mean a civil court only. A competent court is one which has the jurisdictional competence to determine the question of title or the rights of the parties with regard to the entitlement as to possession over the property forming subject matter of proceedings before the Executive Magistrate;

(2) A party unsuccessful in an order under Section 145(1) would initiate proceedings in a competent court to establish its entitlement to possession over the disputed property against the successful party. Ordinarily, a relief of recovery of possession would be appropriate to be sought for. In legal proceedings initiated before a competent court consequent upon attachment under Section 146(1) of the Code it is not necessary to seek relief of recovery of possession. As the property is held custodia legis by the Magistrate for and on behalf of the party who would ultimately succeed from the court it would suffice if only determination of the rights with regard to the entitlement to the possession is sought for. Such a suit shall not be bad for not asking for the relief of possession.

(3) A decision by a criminal court does not bind the civil court while a decision by the civil court binds the criminal court. An order passed by the Executive Magistrate in proceedings under Sections 145/146 of the Code is an order by a criminal court and that too based on a summary enquiry. The order is entitled to respect and weight before the competent court at the interlocutory stage. At the stage of final adjudication of rights, which would be on the evidence adduced before the court, the order of the Magistrate is only one out of several pieces of evidence.

(4) The Court will be loath to issue an order of interim injunction or to order an interim arrangement inconsistent with the one made by the Executive Magistrate. However, to say so is merely stating a rule of caution or restraint, on exercise of discretion by Court, dictated by prudence and regard for the urgent/emergent executive orders made within jurisdiction by their makers; and certainly not a tab on power of Court. The Court does have jurisdiction to make an interim order including an order of ad- interim injunction inconsistent with the order of the Executive Magistrate. The jurisdiction is there but the same shall be exercised not as a rule but as an exception. Even at the stage of passing an ad-interim order the party unsuccessful before the Executive Magistrate may on material placed before the Court succeed in making out a strong prima facie case demonstrating the findings of the Executive Magistrate to be without jurisdiction, palpably wrong or self-inconsistent in which or the like cases the Court may, after recording its reasons and satisfaction, make an order inconsistent with, or in departure from, the one made by the Executive Magistrate. The order of the court final or interlocutory, would have the effect of declaring one of the parties entitled to possession and evicting therefrom the party successful before the Executive Magistrate within the meaning of sub-section (6) of Section 145.

In the present case, the trial Court has felt strongly against the police action taken under Section 145(1) of the Code. This can clearly be inferred from the observations contained in the order of the learned Civil Judge. The plaintiff-respondent herein was not allowed in spite of her efforts to participate in the proceedings under Section 145. The party proceeded against by the Executive Magistrate was not interested in contesting the proceedings. The first Appellate Court has not recorded any disagreement with the observations made by the learned Civil Judge but has proceeded on a different reasoning which reasoning has been found to be erroneous by the High Court. The High Court has agreed with the view taken by the learned Civil Judge. We do not think that any case for interference with the order of the High Court is made out.

The appeal is dismissed. No order as to the costs.

Before :- Sanjay Kishan Kaul and K.M. Joseph, JJ.

Civil Appeal Nos. 1970-1975 of 2009. D/d. 5.2.2020.

D. Raghu And Others – Appellants

Versus

R. Basaveswarudu And Others Etc. – Respondents

With

Civil Appeal Nos. 1976 of 2009.

For the Appellants :- Praveen Agrawal, Abhijit Sengupta, Advocates.

For the Respondents :- K.Radhakrishnan, Sr.Adv., Ms. Sunita Rani Singh for B. Krishna Prasad, P.S.Patwalia, Sr.Adv., Devadatt Kamat, Sr.Adv., Rajesh Inamdar, Javedur Rahman, Aditya Bhat, Ali Asghar Rahim, Rauf Rahim, Sridhar Potaraju, Ms. Shweta Parihar, Ms. Shiwani Tushir, Ms. G.Ushasri, Vishnu Tulasi Menon, T. V. Ratnam, V. N. Raghupathy, Mrs. Anjani Aiyagari, Advocates.

JUDGMENT

K.M. Joseph, J. – Civil Appeal Nos. 1970-1975 of 2009 and Civil Appeal No. 1976 of 2009, having been heard together, and as there are certain common issues, they are being disposed of by the following common Judgment.

2. In Civil Appeal Nos. 1970-1975 of 2009, the controversy revolves around the entitlement to promotion to the post of Inspector of Central Excise. In Civil Appeal No. 1976 of 2009, on the other hand, the controversy relates to the right to be promoted to the post of U.D. Clerk and Tax Assistant in the Central Excise Department. Both these cases arise out of Original Applications (O.A.s) filed before the Central Administrative Tribunal (CAT), Hyderabad and the Orders of the Tribunal in the cases being questioned in a batch of Writ Petitions. As far as Civil Appeal Nos. 1970-1975 of 2009 are concerned, the CAT allowed O.A. 1362 of 2002 and directed the appellants in Civil Appeal Nos. 1970- 1975 of 2009 to be considered for promotion to the post of Inspectors. They were originally recruited as Data Entry Operators (DEOs) Grade ‘A’ and had been working as Data Entry Operators Grade ‘B’ from the year 2000. In short, the appellants, as applicants before the Tribunal, had called in question the legality of Notice dated 05.11.2002 seeking to confine the promotion to the post of Inspector, to category of Tax Assistant, Upper Division (UD) Clerk, Stenographer Grade-II, etc., with certain years of experience, for promotion. Six Writ Petitions came to be filed, including by the Union of India and the official respondents, challenging the said verdict by which the appellants were also directed to be considered. A Division Bench of the High Court proceeded to consider the matter. Justice G. Bikshapathy wrote an opinion allowing the Writ Petitions, setting aside the Order of the Tribunal. The other learned Judge, who constituted the Division Bench, wrote a separate concurring Judgment, and thus, the Writ Petitions came to be allowed. What is found by the High Court is that the Writ Petitioners were having a legal right, under the erstwhile Rules which were made in the year 1979, to be considered for promotion to the vacancies which arose prior to the Rules which came to be made with effect from 07.12.2002 in regard to the post of Inspector. The High Court also found that it was only when the Rules were made in the year 2003 that the restructuring in the Department, to which the Cabinet gave its approval on 19.07.2001, came into effect. Regarding vacancies arising after 07.12.2002, it was left undecided.

3. As far as Civil Appeal No. 1976 of 2009 is concerned, it arises from O.A. 1040 of 2003, again decided by the CAT, Hyderabad.

4. The impugned Order of the High Court reveals that the High Court allowed the Writ Petition filed against the Order of the Tribunal following the Judgment of the High Court in the Writ Petitions which formed the subject matter of the controversy relating to Inspectors and which is the subject matter of Civil Appeal Nos. 1970-1975 of 2009. In other words, following the principle that the vacancies must be filled-up in accordance with the extant Rules, the court found that promotions to the post of U.D. Clerk and Tax Assistant must be effected on the basis of the rights crystal-lized under the 1979 Rules, as amended.

A LOOK AT THE RULES

THE 1979 RULES REGARDING POST OF INSPECTOR

5. In 1979, the Rules known as the Central Excise and Land Customs Department Group ‘C’ Posts Recruitment Rules, 1979, came to be enacted (in short, ‘the 1979 Rules’). The Rules were made under Article 309 of the Constitution of India. In the said Rules, apart from the post of Inspector (Senior Grade)(inter alia) with a scale of pay of L 550-25-750-E.B.-30-900, which is shown as a post to be filled-up by promotion, there is the post of Inspector (Ordinary Grade). It is this post which has generated the controversy in Civil Appeal Nos. 1970-1975 of 2009.

6. The Method of Recruitment is mentioned as follows:

a)75 per cent by Direct Recruitment;
b) 25 per cent by Promotion. Column 12, which relates to the Grade from which Feeder Category for promotion is shown as follows:

THE ELECTRONIC DATA PROCESSING DISCIPLINE (GROUP-E TECHNICAL POST) RECRUITMENT RULES, 1992

7. On 03.04.1992, Rules were made regulating the method of recruitment for Group ‘C’ (Technical Post) in the Electronic Data Processing Discipline of the field formations of the Central Board of Excise and Customs (CBEC). The posts included the post of Data Entry Operator Grade ‘A’, Data Entry Operator Grade ‘B’ and the post of Data Entry Operator Grade ‘C’. Under Rule 5 under the heading “Initial Constitution”, persons appointed on regular basis as Key Punch Operator, Terminal Operator and Lower Division Clerk performing the duties of Terminal Operator before the commencement of these Rules were to be deemed to have been appointed as Data Entry Operator Grade ‘A’ and to rank en-block senior to those appointed after the commencement of these Rules. The post of Data Entry Operator Grade ‘A’ was to be filled-up by Direct Recruitment. The educational qualification was shown as 12th Standard Pass or equivalent. The post of Data Entry Operator Grade ‘B’ was to be filled-up by promotion, failing which, by transfer on deputation. As far as promotion is concerned, Data Entry Operators Grade-A, with six years Regular Service in the Grade, were rendered eligible for being considered for promotion. As far as Data Entry Operators Grade ‘C’ is concerned, again the post was to be filled-up by promotion, failing which, by transfer on deputation, Data Entry Operators Grade ‘B’, with 3 years Regular Service, were declared eligible for being considered for promotion as Data Entry Operator Grade ‘C’. There is also the post of Data Entry Operator Grade ‘D’, to be filled-up by promotion, failing which, by transfer on deputation. Data Entry Operator Grade ‘C’, with four years regular service, was Feeder Category for promotion as Data Entry Operator Grade ‘D’.

THE 1996 AMENDMENT TO THE 1979 RULES

8. On 12.07.1996, the 1979 Rules came to be amended. Under the said amendment, the post of Tax Assistant was included. 1497 posts were shown as the number of posts, subject to variation dependent on workload. The scale of pay was indicated as L 1350-30-1440- 40-1800-E.B.-50-2200. The post was to be filled-up by promotion. The Feeder Category was to be U.D. Clerk, with three years regular service in the Grade, subject to their passing of Departmental Examination, with minimum marks of 40 per cent and above, in each paper.

THE CENTRAL EXCISE AND LAND CUSTOMS DEPARTMENT INSPECTOR (Group ‘C’ POSTS) RECRUITMENT RULES, 2002

9. By Notification dated 29.11.2002, Rules were made in supersession of the 1979 Rules. The Rules are called the Central Excise and Land Customs Department Inspector (Group ‘C’ posts) Recruitment Rules, 2002 (hereinafter referred to as ‘Inspector Rules, 2002’, for short). The Rules were to come into force on the date of publication in the Official Gazette. It is not in dispute that the publication of the Gazette is effected on 07.12.2002.

10. In regard to the post of Inspector (Central Excise), under Column 11, viz., Method of Recruitment, the Rules proclaim that 66.23 per cent is to be filled-up by Direct Recruitment and 33.13 per cent is to be filled-up by promotion. Column 12 is significant and we refer to the same. It reads as follows:

CORRIGENDUM DATED 2 4 T H APRIL, 2003 TO INSPECTOR RULES, 2002
11. Under the same, in Clause (a) of Column 12, which we have already extracted, for the word “restructured” in third line, it was to be read as “pre-structured”. The result of this amendment is that Clause (a) under Column 12 of the Inspector Rules, 2002, was to be read as by selection of those candidates working in the “pre-structured cadres”.

THE CENTRAL EXCISE AND CUSTOMS DEPARTMENT SENIOR TAX ASSISTANT (GROUP ‘C’ POSTS) RECRUITMENT RULES, 2003(in short S.T.A. Rules, 2003)

12. The Rules made on 16.01.2003, came into force on the date of publication of the Gazette and the publication was effected on 20.01.2003. Rule 5, around which debate ensued before us, reads as follows:

“5. Initial constitution.-(i)All the persons appointed on the regular basis at the time of commencement of these rules to the Grade of Assistant, Tax Assistant, Upper Division Clerk (Special Pay), Data Entry Operator Grade ‘B’ and ‘C’ shall be deemed to have been appointed as Senior Tax Assistants under these rules. The service rendered by them before commencement of these rules shall be taken into account for deciding the eligibility for promotion to the next higher grade.
(ii) Assistants(Rs. 5000-8000) and Data Entry Operator Grade ‘C’ (Rs. 5000-8000) are being re-designated as Senior Tax Assistants in the same scale of pay. Therefore, the Assistants and Data Entry Operator Grade ‘C’ shall be placed en-block senior to the other categories. However, their inter-se-placement shall be done according to the date from which they had actually been appointed to these grades on regular basis subject to the condition that their inter se placement in their respective category shall not be altered.
(iii) The Data Entry Operator Grade ‘B’ (4500-7000) and Tax Assistants (4500-7000) have been placed in their higher scale of 5000-8000 and they shall be placed below the Assistant and Data Entry Operator Grade ‘C’ and their inter-se placement shall be fixed in accordance with the date of regular appointment to the respective grade subject to the condition that their inter-se placement in respective category shall not be disturbed.
(iv) Upper Division Clerk with special pay shall be placed below Assistant, Data Entry Operator Grade ‘C’, Data Entry Operator Grade ‘B’ Tax Assistants.
(v) The present employees would be required to pass the required or suitable departmental examination, as specified by the Competent Authority, from time to time, in Computer Application and relevant procedures within two years falling which they would not be eligible for further increments.”
THE CENTRAL EXCISE AND CUSTOMS DEPARTMENT TAX ASSISTANT (GROUP ‘C’ POSTS) RECRUITMENT RULES, 2003

13. Lastly, we may notice the Central Excise and Customs Department Tax Assistant (Group ‘C’ Posts) Recruitment Rules, 2003, hereinafter referred to as the 2003, Tax Assistant Rules. Rules are seen to be made on 02.05.2003 and they came into force on their publication in the Official Gazette on 05.05.2003. Rule 4 alone is relevant for our purpose.

“4. Initial Constitution.-(1) The person appointed on regular basis and holding the post of Upper Division Clerk and Data Entry Operator Grade A on the commencement of these rules shall deemed to have been appointed as Tax Assistant under these rules and the service rendered by such persons in the respective posts before commencement of these rules shall be taken into account as regular service rendered on the post of Tax Assistant for the purpose of promotion etc.
(2) The person holding the post of Data Entry Operator Grade -A appointed under these rules as Tax Assistant shall, within two years from the date of such appointment as Tax Assistant, pass the Departmental Examination as conducted by the competent authority, falling which he shall not be entitled to get any further increment.
(3) Any person, who holds a post of Lower Division Clerk on regular basis and falls within the seniority list as determined by the appointing authority at the commencement of these rules shall, on passing the Departmental Computer Proficiency examination conducted by the appointing authority, be deemed to have been promoted with effect from date of passing such examination on the post of Tax Assistant.
(4) The Upper Division Clerks and Data Entry Operator Grade – A shall be placed en-block senior and, their inter se placement shall be fixed in accordance with the date of regular appointment to the respective grade subject to the condition that their inter se placement in the respective grade shall not distributed.
(5) Lower Division Clerks shall be placed below Upper Division Clerks and Data Entry Operator Grade – A.”
14. The Method of Recruitment is Direct Recruitment in regard to 90 per cent of the vacancies and 10 per cent posts to be filled-up by promotion. Feeder categories, in regard to promotion, are shown as Lower Division Clerks, Head Hawaldars, who had rendered seven years of service in the Grade on regular basis and who possesses certain qualifications which are mentioned therein.

IN-BETWEEN THE RULES

15. On 11.03.1988, one-third of the posts of U.D. Clerks came to be abolished and a Grade of Tax Assistant came to be created. Tax Assistants also became part of the Feeder Cadre to the post of Inspector, inter alia. On 05.08.1988, Central Board of Excise and Customs (CBEC) clarified, inter alia, that Tax Assistants, with two years’ experience in the Grade or five years’ combined service in U.D. Clerk and Tax Assistant, were to be eligible for promotion. Stenographers, Women Searchers, Draftsmen, etc., were also declared eligible for promotion as Inspector. They are the old Tax Assistants and not to be confused with the Tax Assistants under the 2003 Rules.

16. The next crucial development took place in the following background. The Data Entry Operators performed essentially technical functions and the very concept was linked with the object of bringing about computer-ization in the Department. As noticed the initial constitution consisted of Key Punch Operators, Terminal Operators and Lower Division Clerks performing duties of Terminal Operators, who were deemed to have been appointed as Data Entry Operator Grade ‘A’. The Data Entry Operators began to complain that promotional avenues for Data Entry Operator Grade ‘A’, which is the entry post, was limited to promotions as Data Entry Operators Grade ‘B’, ‘C’ and at the top of the pyramid, Data Entry Operator Grade ‘D’. Persons working in the Ministerial Cadre, including U.D. Clerks, Stenographers, etc., were eligible under the 1979 Rules, for being promoted to the Executive Post, viz., the post of Inspector, inter alia. Data Entry Operators complained that they would stagnate in the post of Data Entry Operator for years without promotion. It would appear that the post of Data Entry Operator Grade ‘D’ is not available in all the Commissioner-ates and only certain Commissioner-ates had the post of Grade ‘D’. It is pursuant to this simmering discontent being noticed apparently that the Union Cabinet decided to go in for cadre restructuring in the Central Excise and Customs Department. Since, much may turn on the purport of the said decision, articulated in letter dated 19.07.2001, we advert to the same:

“I am directed to say that the Central Government has approved the restructuring of Customs & Central Excise Department. As a result of restructuring there has been a change in the number of nomenclature of the various grades/ posts. The revised number and designation of the various posts at different level in Customs and Central Excise Department has been indicated in Annexure – I.
2. All the post at different levels as per Annexure-I stand sanctioned with immediate effect. Wherever there is a reduction in the number of posts at any level, such reduction will be effective after the existing incumbents of the posts are promoted to the higher level or the post fall vacant on account of retirement etc. The number of categories of the post other than those referred to in Annexure ‘I’ have been kept in their existing strengths and in their existing pay scales only.
3. No direct recruitment may be made to various grades for the year 2001-2002 without approval of Ministry/ Department as the Cabinet has approved a one time relaxation for filling of all vacancies by promotion in all Cadres.
4. The formation-wise distribution of post at different levels will be notified separately.
5. The details of the other Posts that have been included in the restructuring have not been proposed to be altered on the scale or strengths are indicated in Annexure -II.
6. The Cadres/ Post which have not been included in the Restructuring Proposal are indicated in Annexure – III.
7. This issue in pursuance to the approval conveyed vide Cabinet Secretariat note No. 28/CM/2001 (1) dated 16.07.2001.

Yours faithfully

Sd/-

(K.C. Jain)

Dy. Secretary to the Govt. of India

ANNEXURE – I

REVISED NUMBER OF POSTS AT DIFFERENT LEVELS IN THE CUSTOMS AND CENTRAL EXCISE DEPARTMENT ON RESTRUCTURING

NOTES:
1.The posts in the grade of Supdts. Also include of S.I.O., A.A.D.I.O. of various directorates (S.I. No.).
2.The posts in the grade of inspector also include the post of P.O. and Examiner and intelligence Officer (S.I. No. 10).
3.The post in the grade of A.O. also include the post of A.C.A.O. and E.A.O. (Sl. No. 12).
4.The existing post in the cadres of Asst., Tax Asst., UDC (Sp Pay), DEO Gr. (C) and DEO Gr.(B) have been merged into an re-designated as Sr. Tax Asst. (Sl. No. 19).
2.The posts in the grade of inspector also include the post of P.O. and Examiner and intelligence Officer (S.I. No. 10).
5.The existing posts in the cadres of UDC, DEO(A) and LDC (except 717 posts of LDC for the promotion of Group D) have been merged and re-designated as Tax Asstt. (New) (S.I. No. 20)
6.The cadre of O.S. has been abolished and the post have been merged in the posts of A.O. (Sl. No. 19)
7.Other posts which exists in the department and are not reflected in the above table have been kept in existing strengths in the existing pay scales only.
8.Details of Others posts are given in Annexure II (Sl. No. 15, 25,30 & 33).

Sd…

(K.C.Jain)

Dy. Secretary to Govt. of India”

17. On 10.09.2001, the CBEC directed a freeze on promotion. It reads as follows:

“New Delhi, the 10.09.01

To,
All Chief Commissioners/Commissioners of
Customs and Central Excise,
All Directors Generals/Directors of
Customs and Central Excise
Narcotics Commissioner, C.B.N. Gwalior
Subject: Holding of DPC for promotion to the grade of Group ‘B’ & ‘C’ in C.B.E.C. Department – reg.
Sir,
I am directed to say that the issue of holding of DPCs in respect of Group ‘B’ & ‘C’ posts as well as making direct recruitment to the various posts pending distribution of posts of various field formations is being undertaken by the Implementation Cell in Pursuant to sanction issued by Board’s letter F.No.A- 11019/72/99-Ad.IV dated 19.07.2001 conveying the approval of the Cabinet to the restructuring of Customs and Central Excise Department has been considered by the Board.
2. It is felt that if the DPCs for group ‘B’ & ‘C’ are conducted by the cadre authorities it may lead to widening of imbalances in promotion prospects or create imbalances. The Board have, therefore, decided that the holding of DPC of group ‘B’ & ‘C’ post may be frozen and no DPC may be held for Group ‘B’ & ‘C’ post till the distribution of posts under various level is completed and instructions are issued by the Board in this regard.
3. As you are aware that Board have already imposed a ban for filling up of posts of LDCs and Sepoys vide their letter F.No. A-11012/27/2000-Ad. IV dated 10.04.2001, it is reiterated that these instructions may be strictly adhered to and it is further stated that no direct recruitment may be made to any grade till further orders of the Board/ Department of Revenue.
4. The receipt of this letter may please by acknowledged.

Yours faithfully,

SD/-

(Y.P. Vashishat)

Under Secretary to the Govt. of India”

18. Thereafter, there is communication dated 19.09.2001, which will be adverted to later on. 19. It is necessary to note what is alleged to be an Order of the CBEC, lifting the ban on promotion, dated 03.01.2002:

“New Delhi, the 3rd Jan, 2002

To,
All Chief Commissioners/ Commissioners of
Customs and Central Excise,
All Directors Generals/ Directors of
Customs and Central Excise.
Narcotics Commissioner, C.B.N. Gwalior
Subject: Holding of DPC for promotion to the grade of Group ‘B’ & ‘C’ in C.B.E.C. Department – reg.
Sir,
I am directed to refer to Board’s letter of even number dated 10.9.2001 imposing a ban on holding of DPCs for Group ‘B’ & ‘C’ posts. The Board have received representations against the aforesaid ban on promotions.
2. The matter has been considered by the Board and it has been decided that where ever the DPC, have already been held, the panel prepared by the DPCs may be given effect and the resultant vacancies in the feeder cadre may also be filled up. Where the DPCs have not been held, the DPCs may be held on the basis of pre-revised strength i.e. the strength existing before the cadre restructuring and the resultant vacancies may be filled up.
3. Action may be taken on priority basis under intimation to the Board.

Yours faithfully,

SD/-

(Y.P. Vashishat)

Under Secretary to the Govt. of India”

20. The communication dated 05.06.2002 by the CBEC purporting to allocate posts to each zone, and communicating the sanctioned strength, needs to be noticed:

“F. No. A-11013/4/2002-Ad.IV
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs

Dated: 05th June, 2002

To All Chief Commissioners of Central Excise and Customs,
All Chief Commissioners of Customs,
All Chief Commissioners of Customs (Preventive),
All Directors General, All Directors.
Chief Departmental Representative, CEGAT Chairman, Settlement Commission.
Subject: Allocation of posts in Group ‘A’, ‘B’, ‘C’ and ‘D’ amongst various Zones/Commissionerates and Directorates Gen. / Directorates – reg.
Sir,
I am directed to refer to Ministry’s letter F. No A- 11019/72/99-Ad.IV dated 19th July 2001, notifying the revised sanctioned strength at different levels in the Central Excise & Customs department consequent to approval of cadre restructuring of Central Excise and Customs departments by the Union Cabinet.
2. I am further directed to say that the allocation of staff to the Zones / Commissioner-ate / Directorates Gen. / Directorates at different levels has been decided by the Board and approved by the Government has been detailed in the enclosed Folder. The allocation indicated herein supersedes all earlier allocations in respect of the Cadres/Categories in the enclosed folder. The number and categories of posts in the Central Excise & Customs department other than those referred to in the enclosed Folder remains unaltered.
3. Separate staff strength has been allocated for the offices of Chief Commissioner, Commissioner (Appeals) and Commissioner (Adjudication) for which no separate staff had been allocated till now. The staff allocated to these formations has been shown along with the allocation to the Commissioner-ate in which city it is located. The model adopted for the allocation is indicated in Annexure – IV of the enclosed folder.
4. I am also directed to request all Chief Commissioners and other Heads of Department to carefully study the details of re-organization of the Customs and Central Excise formations and bring to the notice of the Board any discrepancies or any aspects that may require review or may not have been taken into account, to enable necessary corrective steps may be taken at an early date with the approval of appropriate authority.
5. I am further directed to say that the sanctioned strength now indicated supersedes all previous sanction issued so far. The sanctioned strength now indicated will accordingly form your sanctioned strength of Group ‘A’, ‘B’, ‘C’ & ‘D’ posts. As indicated in the preceding paras, the Chief Commissioners are requested to study the allocation of posts within their respective jurisdiction and send proposal which are considered necessary within the overall sanctioned strength provided to the Commissioner-ates within their jurisdiction.
6. I am also directed to inform that the Cadre Control which is presently vested with respective Commissioners in particular Zones will continue to vest with them for the present in order to ensure that there is no dislocation in the cadre management at the field level. Switch over of cadre control from Commissioners to Chief Commissioners would be effected from a date to be specified after the new formations come into existence.
7. It has been decided to extend the ban on direct recruitment imposed, in terms of para 3 of Deptt’s letter F. No. A-11019/72/99 Ad.IV dated 19.07.2001 up-to 31.12.2002. However, the ban would be applicable only to the posts that have been included in the cadre restructuring. It has also been decided that the ban on direct recruitment would not apply to compassionate ground appointments made with the approval of the Board.
8. The Detailed instructions/ orders/ Recruitment Rules governing the manner of filling up of the vacancies at all levels will be issued separately. No vacancy in respect of the posts included in the cadre restructuring should be filled up till such time as further orders are issued.

Yours faithfully

Encls.: As above

(Y.P.Vashishat)

Under Secretary to the Govt. of India”

21. Still further, on 19.09.2002, the CBEC initiated process for filling-up of vacancies based on the post restructuring strength and permitting convening of Departmental Promotion Committees (DPCs) where the revised Recruitment Rules stood circulated. It was, however, clarified that promotion orders would be issued only on the directions of the Ministry. That ban on Direct Recruitment was to continue. The Order reads as follows:

“New Delhi, Dated 19th September, 2002

To
All Chief Commissioner of Central Excise,
All Chief Commissioner of Customs,
All Chief Commissioners of Customs (Preventive),
All Director General,
All Directors,
The Chief Department Representative CEGAT
The Chairman, Settlement Commission.
Sir,
Subject: Filling up of posts in Group B, C and D – reg.
I am directed to refer to Ministry’s letter F.No.A-11013/4/2002-Ad. IV dated 05.06.2002 on he allocation of posts in Group ‘A’, ‘B’, ‘C’ and ‘D’ amongst various Commissioner-ates and Director-aes General/ Directorates. So far as Group ‘A’ posts suitable action is being taken by the Board. As for remaining posts, you have already been advised o hold DPCs for promotion to the grade of Superintendents of Central Excise, Superintendents of Customs (Prev) vide our letter no. F.A.600/11/23-2002-Ad. III B dated 26th June, 2002 and to the grade of AO/ACAO/EOA Group ‘B’ vide letter F.No.A.32012/3/2002- Ad.IIB dated 15th July, 2002. The cadre of O.S. is to be merged with the cadre of A.O. and all the existing O.S. are only to re-designated as Administrative Officer. Since the pay scale of both he cadres is same, the re-designation can be done by an administrative order.
2. It has now been decided to initiate the process of filling up of vacancies that has arisen on account of cadre restructuring in all remaining cadres up to Grade ‘B’. You are directed to ensure that DPCs are converted in respect of all grades where Recruitment Rules except for change in the number of posts, as also grades where revised Recruitment Rules have been circulated. You may accordingly hold DPCs immediately for filling up vacancies in various grades, and ensure that by 30th September, 2002 the lists are kept ready. It is clarified that promotion orders may be issued only on receipt of further directions from the Ministry.
3. The ban imposed on direct recruitment in terms of para-3 of letter F.No.A.11019/72/99-Ad.IV dated 19.07.2001 is applicable up to 31.12.2002. IT is clarified that this ban applies only to the posts that have arisen in the cadre restructuring and that the ban will not apply to posts in the lower grades which are not to be filled by promotion, and can only be filled up by promotion, and can only be filled up by Direct Recruitment. Requisite steps for filling up Direct Recruitment posts may also be initiated immediately in accordance with existing instructions on the subject so as to ensure that Direct Recruitment vacancies can immediately be filled up after 31.12.2002 of Board’s letter of 05.06.2002.
3. Further, in suppression of the instruction contained in para 7 & 8 of Board’s letter of 05.06.2002 the Commissioners are also permitted to make compassionate ground appointments as well as inter Commissioner-ate transfers, with the approval of Chief Commissioners, in accordance with existing instructions on the subject. The instructions contained in paras (7) & (8) of Board’s letter of even no. dated 05.06.2002 stand modified to this extent.

Yours faithfully,

(NISHA MALHOTRA)

Jt. Secy. (Admn.)”

22. The communication dated 28.10.2002 is the next development. It reads as follows:

“Dated 28th October, 2002

To
All Chief Commissioner of Customs & Central Excise
Subject: Draft Recruitment Rules – Circulation of reference and necessary action-Reg.
Sir,
Please find enclosed Draft Recruitment Rules for Group ‘C’ Posts of Inspector (Central Excise & Land Customs), Inspector (Examiner), Inspector (Preventive Officer) & Senior Tax Assistant as approved by the Ministry. Notifications, notifying these Rules will be issued shortly. Meanwhile you may initiate the necessary action to start the process for DPC etc. You may, however, await issue of notifications before issue of any orders of promotions based on these Rules.
Draft of the Recruitment Rules of Tax Assistants will also be sent shortly as they are being finalized in consultation with law Ministry.

Yours faithfully,

Sd……

(B.K. Gupta)

O.S.D. (Admn.) CBEC

Enclosures: As above”
23. On 06.11.2002, the Draft Recruitment Rules for Tax Assistant came to be forwarded with the caveat that promotion orders be not issued until the Rules were notified:

“Dated 6th November, 2002

To
All Chief Commissioner of Customs & Central Excise
Sir,
Subject: Draft Recruitment Rules – Circulation of reference and necessary action-Reg.
—

In continuation of this office letter dated 28.10.2002 forwarding of Draft Recruitment Rules of Group “C” Post of Inspector (Central Excise and land Customs), Inspector (Examiner), Inspector (Preventive Officer) & Senior Tax Assistant, please find enclosed Draft Recruitment Rules for Tax Assistant (Group “C”) as approved by the Ministry. The Notification for notifying these Rules will be issued shortly. Meanwhile you may get circulated these Draft Rules to all the Commissioner-ates, initiate the necessary action to start the process for DPC etc. Confirm the issue of Notification notifying these Rules before issue of any order based on these Rules.
Yours faithfully

Enclosures: As above

(B.K. Gupta)

O.S.D. (Admn.) CBEC”

24. On 14.11.2002, the CBEC permitted issuance of promotion orders subject to certain conditions:

“New Delhi the 14th November 2002

To
All Chief Commissioner
All Director General
All Director under CBEC
Subject : Cadre restructuring of Customer and Central Excise – regarding promotion in the Grade ‘B’, ‘C’ and ‘D’ posts.
Sir,
I am directed to refer to Minister’s letter F. No. A-11013/01/2002-Ad-IV dated 19th September, 2002 regarding holding of DPC’s in all grade where Recruitment Rules Exits, us also in grades where revised recruitment rules have been circulated. In terms of Para 2 of the said letter, it was directed to hold the DPC’s by 30th September, 2002 and keep the list ready for issue. It was also clarified that promotion orders may only be issued on receipt of further directions from Ministry.
2. In view of the above, you are requested to issue the promotion orders in respect of remaining Group ‘B’, ‘C’ and ‘D’ posts as stated below:-
(i) promotion orders in respect of Sepoy, Havaldar, Head Havaldar, Tax Assistant, Senior Tax Assistant and Inspector of Central Excise/Preventive Officer/Examiner of Customs may be issued on the basis of Recruitment Rules after allotment of GSR No by the Government of India Press. Wherever not yet allotted.
(ii) DPC in respect of Appraisers and Administrative Officer may be held on the basis of existing Recruitment Rules and promotion orders may be issued.
(iii)DPC in respect of remaining grades except DOS L-II may be held on the basis of existing Recruitment Rules and Promotion orders may be issued by 25.11.2002.
(iv) Promotion in the grade of DOS L-II may be made only after the new recruitment rules are circulated by the Ministry.

Yours faithfully

(Angra Ram)

Under Secretary to the Government of India”

25. Thereafter, as already noticed, the Inspector Rules, 2002 came to be notified on 07.12.2002. We may further notice that the Senior Tax Assistant (STA) Rules came to be notified on 20.01.2003. On 21.04.2003, the following decision was taken by the CBEC:

“New Delhi, the 21st April, 2003

To,
All Chief Commissioners of Central Excise,
All Chief Commissioners of Customs,
All Director Generals,
All Commissioner of Central Excise/Customs/Directors under CBEC
Subject: Cadre Restructuring of Customs and Central Excise – Fixation of date of Existence of restructured cadres-reg.
Madam,
I am directed to say that clarification have been sought by field formations regarding the date of existence of restructured cadres. The matter has been examined in the Board and it has been decided that the restructured cadres would come into existence from the dates on which the new/amended rules are notified. Accordingly
(a) The restructured cadre of Inspector (Central excise), Inspector (Preventive Office) and Inspector (Examiner) came into effect on and from 07.12.2002 i.e., the date of publication of Recruitment Rules.
(b) The restructured cadre of Senior Tax Assistant came into existence on and from 20.01.2003 i.e. the date of publication of Recruitment Rule.

Yours faithfully,

SD/-

(Y.P. VASHISHAT)

Under Secretary to the Govt. of India”

THE SPATE OF LITIGATION

26. The position, as noticed, led to a scenario where the erstwhile Data Entry Operators Grade ‘B’ and ‘C’, who came to be re-designated as Senior Tax Assistants (STAs) and who were not invited to participate in the promotional exercise for the post of Inspector, launched litigation in various Tribunals across the country.

THE PROCEEDING IN THE CHANDIGARH TRIBUNAL

27. O.A.1221 of 2002 came to be filed before the Tribunal at Chandigarh. The applicants were Data Entry Operators Grade ‘A’, who were promoted in the year 2000 as Data Entry Operators Grade ‘B’. They contended that they being Data Entry Operators Grade ‘B’, were deemed to have been appointed as Senior Tax Assistants and were eligible to be considered for the post of Inspector. They were also placed in the higher Grade of L 5000 to 8000 and were senior to the U.D. Clerks. The applicants Complained that though they were eligible to be considered for promotion to the post of Inspector, Central Excise along with the candidates of the pre-structured cadre, they were not being considered. The Tribunal found merit in the contention of the applicants and held as follows:

“10. There is no doubt that the Data Entry Operators Grade B have now been re-designated as Senior Tax Assistants Recruitment Rules, 2002. It is also very clearly mentioned in the notification in para 4(i) that the service rendered by them before commencement of these rules shall be taken into consideration for deciding the eligibility for promotion to the next higher grade. According to the Inspector Recruitment Rules, 2002, under Clause (b)(i) of schedule to these rules, Senior Tax Assistants with 2 years regular service are eligible for consideration for promotion. In other words, Data Entry Operators Grade b with 2 years service as Data Entry Operator and/or Senior Tax Assistants are eligible promotion. There is no such condition in the Recruitment Rules, that the categories of employees covered under clause (b) under column 12 of the schedule are required to put in 2 years of service exclusively as Senior Tax Assistant. Their past service as Data Entry Operators is also required to be taken into consideration. In fact the respondents are relying on the provision made in Note 1 under col.12 to emphasize that the Senior Tax Assistants will be considered for promotion only after 2 years from the date of restructured cadres come into existence. Note 1 reads as under:
Note 1: Promotion under clause (a) above shall be operative only for a period of two years from the date or which the restructured cadres mentioned under clause (b) above come into existence.”
A close reading of the above Note would reveal that it is in respect of employees covered under Clause (a) and is not relevant to the employees under Clause (b). It is therefore, wrong to interpret the provision made in the above Note that Data Entry Operators (now re-designated as Sr.Tax Assistants) are not eligible for promotion for a period of 2 years. In fact, Senior Tax Assistant have been given higher grade of L 5000-8000 and they are senior to the UDCs according to the Senior Tax Assistant Recruitment Rules, 2002, while UDCs have been considered for promotion for the post of Inspector, there does not appear to be any justification for denying senior Tax assistants their legitimate right for consideration for promotion.
11. Note 2 under col.12 specifically provides that the candidates shall be required to pass such written test as may be determined by the Central Board of Excise and Customs from time to time. The judgment in the case of Madan Singh & ors (supra) cited by the learned counsel for the applicant is, therefore, distinguishable to the extent that the departmental examination is prescribed in the relevant rules in the instant case. Senior Tax Assistants are, therefore, required to pass the written test before they are considered for promotion to the post of Inspector as has been done in the case of other categories employees. As Sr. Tax Assistants are senior to UDCs, they should also have been given an opportunity to appear in the departmental written examination and if they had passed, they should have been considered for promotion to the post of Inspector. Non-consideration of Sr. Tax Assistants for promotion is, therefore, in violation of the relevant Rules.”
28. On the basis of the aforesaid discussion, the Tribunal directed applicants to be considered for promotion as Inspector, in terms of the relevant Rules, considering the service rendered by them as Data Entry Operator Grade ‘B’, after giving them an opportunity to appear in the departmental examination, as provided in Note 2 in the Schedule to the Inspector Rules, 2002, inter alia.

29. The next, in the chronological order, is the Order dated 29.08.2003 passed by the CAT at Bombay. This decision went against the reasoning adopted by the Chandigarh Bench, which we have already noted. However, the High Court of Bombay, by its Judgment dated 07.10.2003, allowed the Writ Petitions filed against Order dated 29.08.2003. The High Court found the reasoning of the Chandigarh Bench appealed to it. No doubt, it related to filling-up the post of Inspector (Customs). The Special Leave Petition filed against the Judgment of the High Court of Bombay came to be dismissed on 09.02.2004 by this Court. In the interregnum, CAT, Madras, by Orders dated 04.09.2003 and 12.09.2003, adopted the view accepted by the Chandigarh Bench. Finally, CAT, Ahmedabad also, by its decision dated 07.05.2004, accepted the view propounded by the CAT, Chandigarh.

THE LITIGATION BEFORE US ORIGINAL APPLICATION NO. 1362 OF 2002

30. The applicants, as already noticed, are the appellants in the Civil Appeal Nos. 1970-1975 of 2009. They approached the Tribunal on the following allegations, inter alia. They had been appointed as Data Entry Operator Grade ‘A’ between October, 1993 to March, 1994. On completion of six years’ service, they came to be promoted as Data Entry Operator Grade ‘B’. After completing the desired computerization, they were entrusted with regular work relating to the Executive Side. This included technical work, statistics, preventive audit and other legal work. They claimed that they were at par with the existing Tax Assistants. After the Fifth Central Pay Commission, they stood equated with the Tax Assistants. There were grievances raised relating to promotional avenues not being on par as between the Data Entry Operators and the Tax Assistants. There was reference made to the Order dated 19.07.2001. It was pointed out that the official respondent had communicated the Draft Recruitment Rules, which contained “an unconscionable condition”. The unconscionable condition referred to was the incorporation of Clause (a) that those working as Tax Assistants with two years of service, etc., were given preference for promotion over the restructured categories. They contended that Order dated 19.07.2001 had already come into force. They pointed out that there was no meaning in considering the pre-structured Cadre of Tax Assistants and U.D. Clerks, etc., after the restructuring [Apparently, they felt aggrieved by the invitation to the Tax Assistants and U.D. Clerks, based on the provisions contained under 2002 Rules (Column 12, Clause (a))]. The proposed promotion was dubbed as an attempted backdoor entry. It was only the restructured Cadre of Senior Tax Assistant (STA) alone, which was eligible for promotion as Inspector. The pre-structured Cadre should not be allowed to steal a march over the applicants, who were already placed in the higher scale. The unconscionable part of the Rules was dubbed as violative of Articles 14 and 16 of the Constitution of India. In the grounds, they attacked Note 1 to 2002 Rules found in Column 12. The Note was alleged to have given “leverage to the Tax Assistants and the U.D. Clerks and Stenographers to count their pre-structured service”. Being new Cadre, they could not have required period of two years under the restructured Cadre. The Draft Recruitment Rules were impugned as being issued with “malafide intention” for creating avenues for the “ineligible Lower Division Cadre”. It is also contended that Draft Rules had not been finalised, and only after finalisation, the matter could be proceeded with.

31. The reliefs sought were as follows:

“(a) to set aside the intimation letters C.No.II/3/21/2002 Con. Sec. C.No. II/3/16/2003-Con. Sec. & C.No. II/03/52/2002 Estt. All dated 5.11.2002 conducting physical Test/interviews, in the absence of finalization of draft recruitment rules, on the basis of the unconscionable conditions stipulated in the draft recruitment rules for the purpose of promoting the in-eligible candidates, depriving the applicants from their due promotion to the posts of inspector of Customs and Central Excise, declaring the same as arbitrary, illegal, unwarranted, misconceived, frivolous and in violation of Articles 14 & 16 of the Constitution of India.
(b)to set aside that part of recruitment rules communicated vide F.No. A 12018/48/2000-Ad. III-B dated 28.10.2002 of R-1, incorporating certain unconscionable conditions under Clause (a), as confirmed vide Gazette of India Notification dated 29.11.2002 and note(1) of clause (b) of column 12 of Group ‘C’ Recruitment Rules 2002, for eligibility condition for promotion to the cadre of inspector of Customs and Central Excise, providing illegal opportunities to the cadres that were existing prior to the restructured cadre when the restructured process has already been affected w.e.f. 19.7.2001, giving leverage to the ineligible candidates to march over the eligible candidates of DEOs Grade ‘B’ cadre for promotion to the cadre of Inspector of Customs and Central Excise, declaring that part of the said draft rules as arbitrary, illegal, un-warranted, misconceived, malafide and against the principles of natural justice and in violation of Articles 14 & 16 of the Constitution of India;
(c) to declare that the applicants who were working as DEOs in Gr. ‘B’ in the scale 4500-7000 even before re-structuring deemed to have been merged into the cadre of Sr. Tax Assistants in the scale of 5000-8000 as enumerated under the restructured scheme communicated vide R-1 Letter F. No. A-11019/72/99 Ad. IV dated 19.7.2001 communicating the approval of restructuring by the Ministry with immediate effect enclosing Annex. I therewith showing the cadres and the strength, duly directing the respondents to consider the cases of the applicants for promotion to the cadre of Inspectors, Customs and Central Excise, by way of 100% promotion under one time relaxation scheme on par with those Assistants, DEO Grade ‘C’, Tax Assistants, DEO Grade ‘B’ and UDC(Special Pay), who were re-designated as Senior Tax Assistants under the restructuring of cadres who are only to be considered for promotion to the cadre of Inspectors of Central Excise & Customs; with all consequential benefits; and be pleases to pass such other and further order, or orders as the Hon’ble Tribunal may deem fit and proper in the circumstances of the case.”
32. In the reply by the official respondents, it was, inter alia, pointed out as follows:

The post of Inspector was covered by 1979 Rules. Feeder categories were, as we had noted earlier. There was, in other words, reference to the 1979 Rules as amended in 1996. Regarding the Order dated 19.07.2001, the stand of the Government was that it was only approval of the Ministry for restructuring process. It was contended that it was incorrect to say that the new Cadre of Senior Tax Assistants and Tax Assistants were created from 19.07.2001. The restructuring became effective only after the formulation of the Recruitment Rules. The Order dated 19.07.2001 was silent as regards mode of restructuring and the process after merger. In regard to the claim of the appellants of parity with U.D. Clerks, it was pointed out that the appellants could not compare themselves with the U.D. Clerks for promotion as Inspector. The initial scale of Data Entry Operator Grade ‘A’ (Entry Post) was L 1150-1500 prior to the Fifth Central Pay Commission, whereas, the pay of U.D. Clerk was L 1200-2040. The educational qualification required for being an U.D. Clerk was Graduation. For a Data Entry Operator Grade ‘A’, on the other hand, the educational qualification was pass in the Intermediate Course. It was further contended that the nature of duty was also different. The U.D. Clerks were selected on staff selection conducted on all- India basis. The Data Entry Operators Grade ‘A’ were employed through Employment Exchanges. As far as conditions in Column 12, which were challenged by the applicants, viz., the requirement of two years’ service, which was dubbed as unconscionable, it was contended that the condition relating to two years’ service was necessary to cover fair process for different categories. The Cadre of Inspector was a basic work force. Promotions were effected on the basis of promotion to the post of Superintendent, on all-India basis, leading to large number of vacancies in the post of Inspector. In the Andhra Pradesh zone, there were 242 vacancies of Inspector. The applicants, it was contended, did not fall in the feeder categories. The contention of the applicants that they were doing various other works, was denied and it was contended that the Data Entry Operators were basically doing the work of data entry and when they were doing the other work, the nature of work was typing on computers.

ORDER OF THE TRIBUNAL IN O.A. NO. 1362 OF 2002

33. After setting out the pleadings, noting the contentions and also the orders passed by the Central Administrative Tribunal, Chandigarh, the Madras Bench and also the Division Bench of the Bombay High Court, the Tribunal proceeded to enter the following findings, inter alia:

a. The above decisions referred, viz., by the Tribunals and the Bombay High Court, were found to have been rendered on careful considerations of the Rules notified on 29.11.2002. The Tribunal agreed with the interpretation.
b. The Tribunal proceeded to, therefore, express its inability to accept the contention of the respondents that the action initiated by sending the impugned intimation letter dated 05.11.2002, confining the consideration of selection for promotion to the post of Inspector only to candidates in the pre-structured Cadre, was in accordance with the provisions of the Rules.
34. It is further held that the further contention of the respondents that the 1979 Rules entitled them to fill-up the vacancies, could not be accepted, since the restructuring of the cadres had coming to effect on 19.7.2001 itself.

35. The existing Assistants, Tax Assistants, U.D. Clerks (Special Pay), DEOs Grade ‘B’ and ‘C’ were found to have been merged and re-designated as Senior Tax Assistants (STAs). It was found that the restructuring cadres came into effect from the date of issue of letter dated 19.07.2001. Therefore, any further promotions to be effected from restructured cadres was to be only in accordance with the Rules promulgated under Article 309, viz., the Inspector Recruitment Rules, 2002. It was done in the supersession of the 1979 Rules. It was found that the Authorities were not justified in resorting to fillup the existing vacancies in 242 posts in the Cadre of Inspector by following the old Rules of 1979 which were superseded by the new Rules, by initiating the process of selection before the new Rules, came to be notified in the Gazette after the date of restructuring of cadres came into force i.e. on 19.07.2001, thereby confining the selection only to the pre-structured category. The Tribunal did not agree with the contention of the respondents that the restructuring of the Cadre came into force only with effect from 16.01.2003 (apparently the date of publication of the Senior Tax Assistant (STA) Rules). The contention of the appellants was accepted that the appellants must be deemed to have been absorbed into the Cadre of Senior Tax Assistants in the scale of pay L 5000-8000 under the restructured scheme with effect from 19.07.2001. Therefore, for the purpose of promotion to the Cadre of Inspector, appellants became eligible for consideration under the new Rules framed which came into force with effect from 07.12.2002. Therefore, the Authorities were to consider the appellants for promotion to the cadre of Inspector of Central Excise and Customs based on the new Rules and not on the basis of the old Rules prevailing in respect of pre-structured cadres. Rejecting the contention of the respondents that the restructuring did not come into effect on 19.07.2001, as the Rules relating to all the restructured cadres were formulated subsequently, it was further found that since in Rule 5 of the Senior Tax Assistant Rules, it has been clarified that the service rendered by them before the amendment of the Rules was to be taken into consideration for promotion to the next higher cadre, it was found that in view of the said Rules, the Senior Tax Assistants could take into consideration their service as Data Entry Operator Grade ‘B’, and therefore, Data Entry Operator Grade ‘B’ with two years’ service in the said post was eligible for promotion. There was no condition in Clause (b) that the employees were to put in two years’ service exclusively as Senior Tax Assistants. It is further found as follows:

“The learned counsel for the applicants has also relied upon a decision of the Supreme Court reported in 1998 SCC (L&S) page 1075 in the case of Rajasthan Public Service Commission v. Chanan Ram and another, in support of his contention that on cadre restructuring coming into force, the earlier cadres stand abolished. He further submitted that after merging of various cadres into restructured cadre of Senior Tax Assistant, the uniformity of restructured cadre of Senior Tax Assistant alone would be eligible for promotion to the cadre of Inspector of Customs and Central Excise. It is also pointed out by him that it is incumbent on the part of the respondents to work out the placement of the categories mentioned under sub para (3)of para 4 of the Re-cruitments rules of Senior Tax Assistants for working out the inter se seniority from among the integrated cadres and basing on such seniority, promotion to the cadre of Inspector of Customs and Central Excise has to taken place. According to him, even for the one time measure standard relaxation by way of 100% by promotion to the cadre of Inspector of Excise, the method shown in the recruitment rules of Senior Tax Assistants for the purpose of inter se seniority placement of various cadres has to be followed and promotion to the next higher cadre of Inspector of Central Excise has to be given on the basis of such integrated seniority list as per sub-para (3) of Para 4 of the said recruitment rules. We agree with the above contentions of the learned counsel for the applicants, since we have taken the view that with effect from 19.7.2001 the restructuring of Senior Tax Assistants came into force ad all the earlier cadres of Assistant, Tax Assistant/ UDC (Spl. Pay), DEOs Gr. B and C have been merged and re-designated as Senior Tax Assistant, the promotion from the said cadre to the next cadre of Inspector of Customs and Central Excise is to be considered only on the basis of the new recruitment rules which came into force. In this view of the matter, we find that all the applicants became eligible for consideration for promotion to the post of Inspector of Customs and Central Excise and the service rendered by them in the predesignated cadre for two years is also to be taken into consideration.
The learned Standing Counsel for the respondents submitted that the selection process initiated on 5.11.2002 for promotion to the post of Inspector of Central Excise and Customs from the other categories of employees other than the DEOs Gr.B and Gr.C has been finalised and the existing vacancies were filled up. Since it is now found that the applicants are also eligible for consideration for the promotion to the said post, we find it necessary to dispose of this O.A. by directing the official respondents to consider the cases of the applicants also for promotion to the post of Inspector of Customs and Central Excise in terms of the relevant rules, taking into consideration the service rendered by them as DEO Gr.B after giving them an opportunity to appear in the Departmental Examination as notified in Note 2 in the schedule to the Inspector Recruitment Rules 2002 and in case they are successful and are finally selected as Inspectors, as per Rules, they should be promoted as Inspectors and assign suitably seniority vis-a-vis other categories of staff who have already been promoted.
In the result, this O.A. is allowed in part. The respondents are directed to consider the cases of the applicants for promotion to the post of Inspector of Customs and Central Excise in terms of the relevant recruitment rules taking into consideration the service rendered by them as Data Entry Operators Gr. B after giving them opportunity to appear in the departmental examination as provided in Note 2 in the schedule to the Inspector. Recruitment Rules, 2002. In case, they are successful and are finally selected as Inspectors, as per rules, they should be promoted as Inspectors and assigned suitably seniority vis-a-vis other categories of staff who have already been promoted by the revision of seniority as per the provisions of Rule 5 of Rules relating to recruitment of Grade C Senior Tax Assistants in the Central Excise and Customs Department. The declaration sought for by the applicants in para 8(C) of the O.A. is granted as prayed for.”
36. As already noticed, the High Court came to the conclusion that the decision dated 19.07.2001 was an approval, in principle, for the restructuring. The restructuring came into force with effect from the date on which Statutory Rules in 2003 were framed. It was further found that in regard to the existing vacancies, the erstwhile Rules of 1979 held the field and governed the parties.

37. We heard learned Counsel for the parties. Shri C.U. Singh, learned Senior Counsel, led the arguments on behalf of the appellants. We also heard Shri P.S. Patwalia, learned Senior Counsel on behalf of the party respondents and Shri K. Radhakrishnan, learned Senior Standing Counsel on behalf of the Government of India besides Shri Sridhar Potaraju, learned Counsel on behalf of some of the party respondents. 38. The learned Senior Counsel for the appellants, undoubtedly, after referring to the Rules and the Government decisions, contended that this is a clear case where the High Court was in error in proceeding on the basis that the vacancies must be filled-up on the basis of the 1979 Rules. He pointed out that the principle enunciated in Y.V. Rangaiah and others v. J. Sreenivasa Rao and others, (1983) 3 SCC 284 is, by no means, a universal or unexceptionable norm. The decision was rendered in the special facts of the case. He drew our attention to the body of case law flowing from this Court, which has enunciated the principle that despite the fact that there exists Statutory Rules and unfilled vacancies, it is very much open to the Government, when it is mulling change, to take a conscious decision, though supported by reasons, to leave vacancies unfilled and to take a call at a relevant point of time.

39. As regards the effect of 2002 Rules and the 2003 STA Rules, it was the contention of Shri C.U. Singh that the Court may bear in mind the backdrop in which the restructuring came about as persons who were appointed as Data Entry Operators were found stagnating in comparison to their colleagues working in the ministerial cadre. Perceiving merit in their genuine grievances, the Government decided to completely restructure. It is accordingly that certain categories, which included Data Entry Operator Grade ‘B’ and ‘C’, were designated as Senior Tax Assistants. This is evidenced by the proceedings dated 19.07.2001. The restructuring attained completeness from the said decision, as correctly found by the Tribunal. The Order of the Tribunal has not been properly appreciated by the High Court, it is complained. Our attention has been drawn to the view taken by the Chandigarh Bench and the High Court of Bombay, in particular. It is further impressed upon us that this Court lend its seal of approval to the view expressed by the High Court of Bombay. He pointed out, thus, that the Tribunal at Chandigarh, Madras, High Court of Bombay and the Tribunal at Ahmedabad, have spoken in one voice about the rights of the erstwhile cadre of Data Entry Operators to be treated as Senior Tax Assistants. They were entitled to count their previous service also for the purpose of calculating the period of two years’ service as required in the 2002 Inspector Rules for promotion.

40. Per contra, the learned Senior Counsel Shri P.S. Patwalia, K. Radhakrishnan, Senior Standing Counsel and Shri Sridhar Potaraju, learned Counsel stoutly defended the Order of the High Court. It is their contention that quite apart from the fact that in terms of the principle laid down in Y.V. Rangaiah (supra) that existing vacancies should be filled-up under the old Rules, the Data Entry Operators were not in the feeder categories for promotion as Inspector under the 1979 Rules in 2002. They come into Feeder Category for promotion only when the Rules were framed in the year 2002, which was brought into force on 07.12.2002. Even proceeding under the said Rules, Shri P.S. Patwalia would point out that they would have to gain experience and work for two years as STA and they were certainly not eligible for being considered when the Government decided to fill the vacancies on 05.11.2002. Therefore, apart from the principle enunciated in Y.V. Rangaiah (supra), they would make the mark in terms of the Rules only on completion of two years’ service from January 2003 as Senior Tax Assistants. Our Attention is drawn to 2002 Inspector Rules to point out that what is required under the said Rules is that the Senior Tax Assistants, with two years Regular Service in the Grade, alone, would be eligible. Having regard to the pay-scale of a Senior Tax Assistant, it is not open to the appellants to contend that the requirement of Regular Service in the Grade, would be fulfilled, by taking into consideration the previous service rendered by them in the erstwhile Cadre of Data Entry Operator. It is also contended that the Memorandum dated 19.07.2001 also embodies a decision, in principle, in this regard. Our attention is drawn to Memorandums dated 05.06.2002 and 28.10.2002. It is only on issuance of the Rules that the restructuring happened. The Rules were brought into force in the year 2003. It is further contended that all the Data Entry Operators Grade ‘A’, ‘B’ and ‘C’ continued as such and were only re-designated as Tax Assistants or Senior Tax Assistants upon the enforcement of the 2003 Rules and not before. The pay-scale of Senior Tax Assistants was L 5000-8000. The appellants belonging to Data Entry Operator Grade ‘B’ did not draw the pay-scale of a Senior Tax Assistant, though, the Grade of Data Entry Operator Grade ‘C’ was same as that of the STA. Reliance was placed on the Memorandum of the Government of India dated 21.04.2003, which categorically states that restructured Cadre of STA came into force only on 20.01.2003.

41. Under the 2002 Inspector Rules, there is a clear scheme. The earlier Ministerial Staff, who were eligible for promotion under the repealed Rules, continued to remain eligible under the 2002 Rules. The eligibility was for a period of two years. The period of two years started from the day on which the restructured cadres came into force. For the first two years, the earlier Ministerial Staff were eligible. During that period, the Rules contemplated that the restructured Cadres would acquire eligibility. Rule 5 of the 2003 STA Rules is sought to be explained away by pointing out, it would only mean that if any of the Ministerial Staff, who had been Tax Assistants/U.D. Clerks (Special Pay), who came into the restructured Cadre of Senior Tax Assistants, fall short of two years or five years under Part 12(a) of the 2002 Inspector Rules, then, their previous service, as also service after restructuring, would count towards their eligibility. In this regard, he drew our attention to Note 1 of the 2002 Rules. Distinction is sought to be drawn between Rule 5 of the Senior Tax Assistant Rules, 2003 and Rule 4 of the Tax Assistant Rules, 2003. The Grade of Senior Tax Assistant is higher than the Grade of Data Entry Operator Grade ‘B’, both in terms of status and pay-scale.

42. Thus, it is contended that the service rendered by the Officers, prior to there being restructuring, could not be counted for the purpose of Clause (12) (b) of the 2002 Inspector Rules. As regards the question as to whether there was a ban on appointment, it is contended that though, initially a ban was imposed vide Memorandum dated 10.09.2001 by Memorandum dated 03.01.2002, the ban was clearly lifted. It is contended that the letter dated 05.06.2002 extended the ban relating to Direct Recruitment but it did not affect letter dated 03.01.2002, which had removed the ban. Reliance is also placed on letter dated 28.10.2002. It is contended also that since there was no ban during the period 2001-2002 and 2002-2003, and seeking to draw support from the O.M. dated 08.09.1998, which provides for a model calendar for holding of DPCs, the principle in Y.V. Rangaiah (supra), is pressed into service. It is pointed out that promotions had already been made on the basis of the impugned judgment of the High Court and resultant vacancies were also filled-up by implementation Orders dated 26.09.2005, 17.05.2006 and 19.07.2006. Even the erstwhile Data Entry Operator Grade ‘B’, re-designated as Senior Tax Assistants, have been promoted as Inspectors. Many of the contesting parties have further been promoted as Superintendents. The judgment of the High Court of Bombay has not been implemented. The Order of the CAT, Chandigarh Bench, is sought to be faulted. It is pointed out that the Draft Recruitment Rules dated 28.10.2002 were taken as Final Recruitment Rules and the entire judgment proceeds on the said basis. It also failed to examine the scope of Clauses (a) and (b) in Column 12 as also the Note below Column 12 of the 2002 Inspector Rules. The High Court of Bombay also did not refer to and consider the effect of the 2002 Rules.

43. The Data Entry Operators were not in the category on 01.01.2001, for the Recruitment Year 2001-2002 and, on 01.01.2002, for the Recruitment Year 2002- 2003, and therefore, they were not eligible.

AMENDMENT OF LAW AND FILLING-UP OF OLD VACANCIES

44. The appellants would point out that it is not a universal principle that vacancies must be filled-up in accordance with the unamended Rules. He would point out that the view taken by this Court, in this regard, may be noticed.

45. In Y.V. Rangaiah (supra), this Court was dealing a case under the Andhra Pradesh Registration and Subordinate Service Rules. The Rule in question, inter alia, contemplated preparation of a panel every year in September. That apart, the Government also issued very clear instructions, which emphasised prompt preparation of panels being essential for increasing administrative efficiency and filling of vacancies without delay. Instead of filling-up vacancies on the 01.09.1976, there was delay and the panel came to be drawn-up in 1977 by which time an amendment to the Rules purported to take away rights of the Lower Division Clerks for promotion and the Feeder Category was sought to be confined to the U.D. Clerks. It was in the said factual context that the court proceeded to lay down as follows:

“9. Having heard the counsel for the parties, we find no force in either of the two contentions. Under the old rules a panel had to be prepared every year in September. Accordingly, a panel should have been prepared in the year 1976 and transfer or promotion to the post of Sub- Registrar Grade II should have been made out of that panel. In that event the petitioners in the two representation petitions who ranked higher than Respondents 3 to 15 would not have been deprived of their right of being considered for promotion. The vacancies which occurred prior to the amended rules would be governed by the old rules and not by the amended rules. It is admitted by counsel for both the parties that henceforth promotion to the post of Sub- Registrar Grade II will be according to the new rules on the zonal basis and not on the State-wide basis and, therefore, there was no question of challenging the new rules. But the question is of filling the vacancies that occurred prior to the amended rules. We have not the slightest doubt that the posts which fell vacant prior to the amended rules would be governed by the old rules and not by the new rules.”
46. It suffices, for our purpose, to note that the view taken by the Court, in the said case, came to be followed in subsequent judgments, viz., P. Ganeshwar Rao and others v. State of A.P. and others, (1988) Supp. SCC 740; P. Mahendran and others v. State of Karnataka and others, (1990) 1 SCC 411; A.A. Calton v. Director of Education, (1983) 3 SCC 33 and N.T. Devin Katti and others v. Karnataka Public Service Commission and others, (1990) 3 SCC 157.

47. On the other hand, there is another line of decisions which is relied upon by the appellants. Very briefly, the principle is this: Despite availability of vacancies, if the Appointing Authority consciously takes a decision to keep unfilled the vacancies for good reasons, the Rules, as on the day of consideration of the matters relating to promotion, would govern the situation.

48. The representative of this view would be the decision by the Bench of three Judges in K. Ramulu (Dr.) and another v. (Dr.) S. Suryaprakash Rao and others, (1997) 3 SCC 59 and P. Ganeshwar Rao (supra). In K. Ramulu (Dr.) (supra), the Government had taken a decision to amend the Rules in question. It also took a conscious decision not to fill the vacancies till the amendment. For the years 1995-1996, there was no panel prepared. Essentially on the said facts, this Court held as follows:

“12. The same ratio was reiterated in Union of India v. K.V. Vijeesh [(1996) 3 SCC 139 : 1996 SCC (L&S) 683] (SCC paras 5 and 7). Thus, it could be seen that for reasons germane to the decision, the Government is entitled to take a decision not to fill up the existing vacancies as on the relevant date. Shri H.S. Gururaja Rao, contends that this Court in Y.V. Rangaiah v. J. Sreenivasa Rao [(1983) 3 SCC 284 : 1983 SCC (L&S) 382] had held that the existing vacancies were required to be filled up as per the law prior to the date of the amended Rules. The mere fact that Rules came to be amended subsequently does not empower the Government not to consider the persons who were eligible prior to the date of amendment. It is seen that the case related to the amendment of the Rules. Prior to the amendment of the Rules two sources were available for appointment as Sub-Registrar, namely, UDCs and LDCs. Subsequently, Rules came to be amended taking away the right of the LDCs for appointment as Sub-Registrar. When the vacancies were not being filled up in accordance with the existing Rules, this Court had pointed out that prior to the amendment of the Rules, the vacancies were existing and that the eligible candidates were required to be considered in accordance with the prevailing Rules. Therefore, the mere fact of subsequent amendment does not take away the right to be considered in accordance with the existing Rules. As a proposition of law, there is no dispute and cannot be disputed. But the question is whether the ratio in Rangaiah case [(1983) 3 SCC 284 : 1983 SCC (L&S) 382] would apply to the facts of this case. The Government therein merely amended the Rules, applied the amended Rules without taking any conscious decision not to fill up the existing vacancies pending amendment of the Rules on the date the new Rules came into force. It is true, as contended by Mr H.S. Gururaja Rao, that this Court has followed the ratio therein in many a decision and those cited by him are P. Ganeshwar Rao v. State of A.P. [1988 Supp SCC 740 : 1989 SCC (L&S) 123 : (1988) 8 ATC 957], P. Mahendran v. State of Karnataka [(1990) 1 SCC 411 : 1990 SCC (L&S) 163 : (1990) 12 ATC 727], A.A. Calton v. Director of Education [(1983) 3 SCC 33 : 1983 SCC (L&S) 356], N.T. Devin Katti v. Karnataka Public Service Commission [(1990) 3 SCC 157 : 1990 SCC (L&S) 446 : (1990) 14 ATC 688], Ramesh Kumar Choudha v. State of M.P. [(1996) 11 SCC 242 : (1996) 7 Scale 619] In none of these decisions, a situation which has arisen in the present case had come up for consideration. Even Rule 3 of the General Rules is not of any help to the respondent for the reason that Rule 3 contemplates making of an appointment in accordance with the existing Rules.
13. It is seen that since the Government have taken a conscious decision not to make any appointment till the amendment of the Rules, Rule 3 of the General Rules is not of any help to the respondent. The ratio in the case of Ramesh Kumar Choudha v. State of M.P. [(1996) 11 SCC 242 : (1996) 7 Scale 619] is also not of any help to the respondent. Therein, this Court had pointed out that the panel requires to be made in accordance with the existing Rules and operated upon. There cannot be any dispute on that proposition or direction issued by this Court. As stated earlier, the Government was right in taking a decision not to operate Rule 4 of the General Rules due to their policy decision to amend the Rules. He then relies on para 14 of the unreported judgment of this Court made in Union of India v. S.S. Uppal [(1996) 2 SCC 168 : 1996 SCC (L&S) 438 : (1996) 32 ATC 668] . Even that decision is not of any help to him. He then relies upon the judgment of this Court in Gajraj Singh v. STAT [(1997) 1 SCC 650 : (1996) 7 Scale 31] wherein it was held that the existing rights saved by the repealed Act would be considered in accordance with the Rules. The ratio therein is not applicable because the existing Rules do not save any of the rights acquired or accruing under the Rules. On the other hand, this Court had pointed out (in Scale para 23) thus: (SCC pp. 664-65, para 22)
“Whenever an Act is repealed it must be considered, except as to transactions past and closed, as if it had never existed. The effect thereof is to obliterate the Act completely from the record of Parliament as if it had never been passed; it never existed except for the purpose of those actions which were commenced, prosecuted and concluded while it was an existing law. Legal fiction is one which is not an actual reality and which the law recognises and the court accepts as a reality. Therefore, in case of legal fiction the court believes something to exist which in reality does not exist. It is nothing but a presumption of the existence of the state of affairs which in actuality is non-existent. The effect of such a legal fiction is that a position which otherwise would not obtain is deemed to obtain under the circumstances. Therefore, when Section 217(1) of the Act repealed Act 4 of 1939 w.e.f. 1-7-1989, the law in Act 4 of 1939 in effect came to be non-existent except as regards the transactions, past and closed or saved.””
49. In Deepak Agarwal and another v. State of U.P. and others, (2011) 6 SCC 725, one of the two appellants was a Statistical Officer. The other one was a Technical Officer. The Rules prior to their amendment included them in the Feeder Category for the promotion to the post of Deputy Excise Commissioner. The amendment, by which they stood deprived of their right to be considered for promotion, was made considering work experience, duties and qualifications of Statistical Officer and Technical Officers rendering them unfit to be considered for the higher post. The question, which fell for consideration, was posed in paragraph 18 as follows:

“18. The short question that arises for consideration is as to whether the appellants were entitled to be considered for promotion on the post of Deputy Excise Commissioner under the 1983 Rules, on the vacancies, which occurred prior to the amendment in the 1983 Rules on 17-5-1999.”
50. This Court noticed that there was no statutory duty cast on the State to complete the selection process within a prescribed period. It further noted the statutory provision enabling the State to leave a particular post unfilled. It was still further found that the promotion to the vacancies had been made under the amended Rules. The principle laid down in Y.V. Rangiah (supra) came to be distinguished in the following words:

“24. We are of the considered opinion that the judgment in Y.V. Rangaiah case [(1983) 3 SCC 284 : 1983 SCC (L&S) 382] would not be applicable in the facts and circumstances of this case. The aforesaid judgment was rendered on the interpretation of Rule 4(a)(1)(i) of the Andhra Pradesh Registration and Subordinate Service Rules, 1976. The aforesaid Rule provided for preparation of a panel for the eligible candidates every year in the month of September. This was a statutory duty cast upon the State. The exercise was required to be conducted each year. Thereafter, only promotion orders were to be issued. However, no panel had been prepared for the year 1976. Subsequently, the Rule was amended, which rendered the petitioners therein ineligible to be considered for promotion. In these circumstances, it was observed by this Court that the amendment would not be applicable to the vacancies which had arisen prior to the amendment. The vacancies which occurred prior to the amended Rules would be governed by the old Rules and not the amended Rules.”
51. Still further, we may notice the following statement of the law contained hereunder:

“26. It is by now a settled proposition of law that a candidate has the right to be considered in the light of the existing rules, which implies the “rule in force” on the date the consideration took place. There is no rule of universal or absolute application that vacancies are to be filled invariably by the law existing on the date when the vacancy arises. The requirement of filling up old vacancies under the old rules is interlinked with the candidate having acquired a right to be considered for promotion. The right to be considered for promotion accrues on the date of consideration of the eligible candidates. Unless, of course, the applicable rule, as in Y.V. Rangaiah case [(1983) 3 SCC 284 : 1983 SCC (L&S) 382] lays down any particular time-frame, within which the selection process is to be completed. In the present case, consideration for promotion took place after the amendment came into operation. Thus, it cannot be accepted that any accrued or vested right of the appellants has been taken away by the amendment.”
52. This Court proceeded to follow the judgment in K. Ramulu (Dr.) (supra).

53. In M.I. Kunjukunju and others v. State of Kerala and others, (2015) 11 SCC 440, the Court proceeded to lay down that when Recruitments Rules were amended with retrospective effect, pending process of selection, the selection must proceed in accordance with amended Rules. The Court, inter alia, took the view that a candidate, on making an application to the post pursuant to the advertisement, do not acquire any vested right of selection (See paragraph 19).

54. In State of Tripura and others v. Nikhil Ranjan Chakraborty and others, (2017) 3 SCC 646, the Court, following Deepak Agarwal (supra), took the view that a candidate only has a right to be considered in the light of the extant Rules, on the date of which, the consideration for promotion takes place and there is no Rule of an absolute application that vacancies must invariably be filled-up under the existing law when they arose. We may only refer to paragraph 9:

“9. The law is thus clear that a candidate has the right to be considered in the light of the existing rules, namely, “rules in force on the date” the consideration takes place and that there is no rule of absolute application that vacancies must invariably be filled by the law existing on the date when they arose. As against the case of total exclusion and absolute deprivation of a chance to be considered as in Deepak Agarwal [Deepak Agarwal v. State of U.P., (2011) 6 SCC 725 : (2011) 2 SCC (L&S) 175] in the instant case certain additional posts have been included in the feeder cadre, thereby expanding the zone of consideration. It is not as if the writ petitioners or similarly situated candidates were totally excluded. At best, they now had to compete with some more candidates. In any case, since there was no accrued right nor was there any mandate that vacancies must be filled invariably by the law existing on the date when the vacancy arose, the State was well within its rights to stipulate that the vacancies be filled in accordance with the Rules as amended. Secondly, the process to amend the Rules had also begun well before the Notification dated 24-11- 2011.”
ANALYSIS

55. The post of Inspector, which is at the centre stage of the controversy in Civil Appeal Nos. 1970- 1975 of 2009, is mentioned as the post of Inspector (Ordinary Grade) in the 1979 Rules. The Feeder Category, in regard to the post of Inspector, was:

a.Upper Division Clerks with five years’ service;
b.Upper Division Clerks with 13 years of total service as Upper Division Clerk and Lower Division Clerk, taken together subject to the condition that they have a minimum of two years’ service in the Grade of Upper Division Clerk;
c.Stenographers (Senior Grade) with two years’ service;
d.Stenographers (Senior Grade) or Stenographers (Ordinary Grade) with twelve years’ service as Stenographer/Upper Division Clerk and Lower Division Clerk, if any, taken together subject to a minimum of two years’ service as Stenographers (Ordinary Grade) or Upper Division Clerk Grade;
e.The next category, eligible was, Women Searchers with seven years’ service in the Grade;
f.Draftsmen with seven years’ service in the Grade.
56. Later on, by an amendment, the post of Tax Assistant was created out of the Cadre of Upper Division Clerks (This must be referred to as the old Cadre of Tax Assistants in contrast with the Cadre of Tax Assistants as a result of restructuring and by Rules dated 03.05.2003). The old Tax Assistants were also, by virtue of Order dated 19.03.1988, rendered eligible for consideration as Inspector.

57. On the other hand, the Data Entry Operators, a Cadre, which was thought of and created to bring about computerization in the Excise and Customs Department, came into being and came to be governed by the Rules made in the year 1992. There were four Grades. The Entry Grade was Data Entry Operator Grade ‘A’, and Data Entry Operator Grade ‘A’ with six years’ service, could aspire for promotion as Data Entry Operator Grade ‘B’. Likewise, Data Entry Operator Grade ‘B’ could aspire to be entitled as Data Entry Operator Grade ‘C’. At the top of the pyramid, was the post of Data Entry Operator Grade ‘D’.

58. It is seen from the above that the Data Entry Operators were not eligible to be considered for promotion as Inspector. The post of Inspector is a Group ‘C’ post. The Data Entry Operators were also Group ‘C’ but in the technical branch. The Upper Division Clerks, Stenographers, Women Searchers, Draftsmen, etc., who constituted the feeder categories, were holding posts in the Ministerial Category. The post of Inspector was a Group ‘C’ post in the Executive Category. The holders of the post in the Ministerial Cadre were in the Feeder Category for promotion to the Executive post but holders of posts of Data Entry Operators, though a Group ‘C’ post, but being in the technical side, they constituted a different and separate Cadre. There was no avenue for them to get further promotions by getting promoted as an Inspector.

59. According to the Data Entry Operators, they were actually, after the period of computer-ization was over, doing various other works and had gained experience which entitled them to be considered for promotion as Inspector. This issue apparently engaged the attention of the Government. Government Decided to bring about restructuring. Accordingly, the decision regarding restructuring is seen captured in the proceedings dated 19.07.2001. As to what is the effect of the same, will be the heart of the controversy. Hence, we deem it appropriate to dissect the said proceedings in detail.

60. The Order dated 19.7.2001, recites that Government has approved restructuring. It is further stated that as a result of the restructuring, there has been a change in number and nomenclature of the various Grades and posts. The revised pay and designation of the various posts at different levels, in both the Customs and Central Excise Departments, has been indicated in Annexure-1. The post of Inspector is at Serial No.10. It refers to the post of Inspector, Preventive Officer and Examiner. The existing pay is shown as L 5500-9000. The restructured post has been shown as Inspector. The pay-scale remains the same. The sanctioned strength is shown as 18053. The Notes are significant and they read as follows:

“Notes:
1.The posts in the grade of Superintendents also include posts of SIO, AAD, IO of various directorates (Sl. No. 7).
2.The posts in the grade of Inspectors also include the posts of P.O. and Examiner and Intelligence Officers (Sl. No. 10).
3.The posts in the grade of AO also include the posts of ACAO and EAO (Sl. No. 12)
4.The existing posts in the cadres of Asst., Tax Asstt. UDC (Sp Pay), DEO Gr(C) and DEO Gr (B) have been merged into and re-designated as Sr. Tax Asstt (Sr. No. 19).
5.The existing posts in the cadres of UDC, DEO(A) and UDC (except 717 posts of LDC for the purpose of promotion of Group D) have been merged and re-designated as Tax Asstt. (neew) (Sl No. 20).
6.The cadre of OS has been abolished and the posts have been merged in the posts of A.O. (Sl. No. 12).
7.Other posts which exist in the department and are not reflected in the above table have been kept in their existing strength in the existing pay scales only.
8.Details of other posts are given in Annexure II (Sl. No. 15, 25, 30 and 33).”
61. No doubt, at Serial No.4, the expression used in existing posts ‘have been’ merged into and re-designated as Senior Tax Assistant (New).

62. The post of Senior Tax Assistant is shown as ‘New’ with a pay-scale of L 5000-8000. The sanctioned strength is shown as 3152. So also, the post of Tax Assistant is shown as ‘New’. The sanctioned strength is shown as 5525. The pay-scale is L 4000-6000. Coming back to the body of the communication, it is stated that all the posts at different levels, as per Annexure-1, stand sanctioned with immediate effect. It is next stated that whenever there is a reduction in the number of posts at any level, such reduction will be effective after the existing incumbents are promoted to the higher level or the post falls vacant on account of retirement, etc. For the year 2001-2002, no Direct Recruitment was to be made without approval of the Ministry/Department as the Cabinet had approved a one-time relaxation for filling-up of all the vacancies by promotion in all the cadres. Next, it is stated that the formation-wise distribution of posts, at different levels, will be notified separately. The other posts included in the restructuring proposal but where there is no proposal for alteration of the scale or strength, were included in Annexure-2. The post of Inspector does not figure in Annexure-2.

63. At first blush, on a perusal of the decision, as embodied in the communication dated 19.07.2001, the view, we may tentatively take, would be that Government has not only approved the restructuring, but it has intended it to be effective. It is not in dispute that the post of Inspector was formerly the post of Inspector/Preventive Officer/Appraiser. In place of these three posts, there was only to be the post of Inspector. In terms of the sanctioned strength, it is common case that there was formerly in excess of 22000 posts of Inspector. The number of posts, in fact, came down to 18053 as a result of restructuring. The restructuring has also resulted in abolishing of certain posts, as for instance, the post of O.S.. Certain posts came to be merged and new posts have emerged. Of interest to us, in resolving the dispute, are the cadres of Assistant, Tax Assistant, U.D. Clerk (Special Pay), Data Entry Operator Grade ‘C’ and Grade ‘B’, which merged, and the post of Senior Tax Assistant, emerged. In place of the enumerated posts, as above, it was contemplated that the post of Senior Tax Assistant will take their place. The existing posts of U.D. Clerk, Data Entry Operator Grade ‘A’ also underwent a merger and, in their place, emerged the post of Tax Assistant (New).

64. A perusal of the proceeding dated 19.07.2001 also drives home the point that the posts in different levels, consequent upon restructuring, have been articulated in Annexure-1. What is more, they stood sanctioned with immediate effect. These circumstances, undoubtedly, do point to the restructuring exercise being not one only in principle but also to have effect immediately. Even more, in this direction, is the further decision that as a result of restructuring, there has been reduction in the number of posts and if there is a person, holding the post, the restructuring in the form of reduction, was not to come into force except after the person holding the post was to either retire or he was promoted to the next higher post. An illustration would clarify the point. As noticed, prior to the restructuring, there were more than 22000 posts of Inspector. The number of posts of Inspector was reduced to a little over 18000. What would happen to the persons who were holding the posts of Inspector in excess of 18000, is, what is provided in the order. The person holding the posts of Inspector, in excess of the reduced sanctioned strength, would continue to hold the post till either retirement or he was promoted, where-after, the post would die a natural death. The expression used in Note 4 also indicates that the posts were merged and re-designated. Undoubtedly, these aspects do provide circumstances for us to hold that the decision of the Cabinet, as provided in the communication dated 19.07.2001, was not just a principle set in motion towards achieving the target of actual restructuring, but it itself exhaustively brought about the restructuring per se.

65. The next letter is dated 25.07.2001. Therein addressing all Chief Commissioners of Customs/Central Excise and Commissioner-ate besides Director Generals, it is stated that the cadre restructuring proposal has been approved. In addition to the communication, a number of activities had to be initiated, including the issuance of Customs and Excise notifications, indicating jurisdiction and also distribution of posts in various Grades among the Commissioner-ates and Customs House. An implementation Cell was constituted consisting of seven members. The next communication is dated 10.9.2001. It reads as follows:

“I am directed to say that the issue of holding of DPCs in respect of Group ‘B’ & ‘C’ posts as well as making direct recruitment to the various posts pending distribution of posts of various field formations is being undertaken by the Implementation Cell in pursuant to sanction issued by Board’s letter F.No. A-11019/72/99-Ad.IV dated 19.07.2001 conveying the approval of the Cabinet to the restructuring of Customs and Central Excise Department has been considered by the Board.
2. It is felt that if the DPCs for group ‘B’ & ‘C’ are conducted by the cadre authorities it may lead to widening of imbalances in promotion prospects or create imbalances. The Board have, therefore, decided that the holding of DPC of group ‘B’ & ‘C’ post may be frozen and no DPC may be held for group ‘B’ & ‘C’ post till the distribution of posts under various level is completed and instructions are issued by the Board in this regard.
3. As you are aware that Board have already imposed a ban for filling up of post of LDC and Sepoys vide their letter F.No.A-11012/27/2000-Ad.IV dated 10.04.2001. It is reiterated that these instructions may be strictly adhered to and it is further stated that no direct recruitment may be made to any grade till further orders of the Board/ Department of Revenue.
4. The receipt of this letter may please be acknowledged.”

(Emphasis supplied)

66. It may be noticed that by the said letter the holding of DPC for Group ‘B’ and Group ‘C’ posts was frozen till the distribution of posts under various levels was completed and instructions were received. The next communication is dated 19.09.2001.

“As you are aware, some reports have earlier been called from the field formations by this Directorate with regard to sanctioned and working strength of different cadres and additional requirements, if any, keeping in view the model structure of the new Commissioner-ates which was circulated (copy again enclosed for ready reference). It is observed that either reports have not been received of where received, there are some deficiencies. Many commissioner-ates have still projected requirements of OS, UDCs, Examiners, DEO etc. which cadres have already been merged into new cadres and will not exist under the new dispensation. Similarly some of the Commissioner-ates have accepted the model structure without considering the actual requirement. As stated in earlier communications, the model structure indicates average requirement for one Commissioner-ate and it may not be possible to apply it across the board. Airport and Preventive Customs Commissioner-ates may not require 19 or 12 Appraisers whereas they may need more Supdts. and Inspectors than indicated in the model structure. It is therefore, necessary to adjudge the actual requirement of staff of different cadres keeping in view the quantum and nature of work handled by the particular Commissioner-ates and the principles governing the cadre restructuring proposals which envisage the deptt. To be officer-oriented, technology driven with reduced manual processing of documents by greater use of computers and reducing interface with tax-payers. This means a reduction in man-power in general.
2. It is, therefore, requested that precise information in the proforma I to III annexed to this letter may please be provided. Proforma I relates to existing sanctioned strength prior to cadre review for each cadre. In case, any cadre which is existing but has been left out in the proforma the same may be added at the end of proforma. This proforma has to be in reference to cadres existing prior to the cadre restricting exercise. Proforma II seeks information on actual requirement of staff of each cadre which will exist after the coming into effect of the cadre restructuring proposal. While providing information in this proforma the following points should be carefully considered:
(i) Since new Zones are being created by bifurcating or trifurcating the existing Zone, the staff proposed in this proforma will be for the same overall jurisdiction for which staff indicated in proforma I was sanctioned. Any deviation may please be indicated as footnote to this proforma. This means where one zone has been divided into three zones, the staff strength of cadres not affected by the restructuring exercise would remain same for all three zones i.e. total strength of such cadre in three zones would be equal of strength in earlier combined zone.
(ii) Requirement in this proforma should be in the reference to cadres which will exist henceforth. For example, requirement of Sr. Tax Assistants should be adjudged with reference to the work earlier handled by Tax Assistants, Special Pay UDCs, DEOs Grade B and C as all these cadres have been merged into the cadre of Sr. Tax Assistants. Similarly requirement of AOs should include the requirement for work earlier handled by OS as the cadre of OS has been merged with cadre of AO. Similarly, all POs/Examiners/Inspectors will be designated as Inspector only. A chart showing the merger/abolition of cadres and increase/decrease in the no. of posts is enclosed.
(iii) While indicating requirements for the Zone, it may be ensured that where no. of posts have been reduced the requirement of staff has to reduce proportionally for the Zone. For example, the number of Inspector level posts having been reduced from 21222 to 18053, the Zones’ sanctioned strength has also to be reduced in the same ratio. Similarly where posts have been increased (for example, superintendents and Appraisers), the requirement can be increased proportionately. In case of any deviation required in any Zone in this regard, full justification should be provided in a separate note. Since total no. of posts in any cadre cannot be more than posts approved for the country as a whole, the Chief Commissioners should consider the requirements projected work carefully. It may please be noted that purpose of this exercise is to allocate the staff already sanctioned to Zones/Commissioner-ates and not to consider sanction of additional staff. Proposals for additional staff should not therefore be made while furnishing the information.
(iv) Staff required for the Chief Commissioners’ office and for Commissioner(Appeal)/Adjn. should also be adjudged keeping in view the modern tools of administration available.
(v) Wherever requirement of any cadre for the new Zones/Commissioner-ates exceeds the staff managing the same jurisdiction at present, the proposal for additional staff should be supported by the study conducted by the S.I.U. If in any formation S.I.U. has recommended reduction in staff, the same should also be indicated.
3. Proforma III seeks information on staff sanctioned and required for handling Customs work falling in the jurisdiction of Central Excise Commissioner-ates under the proposals for re-organization forwarded by the Chief Commissioners. Requirement of staff projected must be supported by the statistics of work being handled by the Customs Division/ICD/CFS etc. The staff sanctioned/required this work should not be included in the data provided in proforma I and II and a confirmation to this effect recorded in the proforma. However, if no staff has been sanctioned for customs work earlier and the work was being managed by staff sanctioned for Central Excise work, this may be indicated in this proforma and staff sanctioned should be included in proforma I with suitable remarks. The staff required should be only with reference to designations which will be functional after implementation of the proposal.
4. In respect of each Commissioner-ate, the name of the cadre controlling Commissioner-ate should also be informed along-with details of cadres controlled by them.
5. Since giving effect to the proposal of restructuring including promotions etc., is dependant on the information being sought, you are requested to ensure that carefully compiled information complete in all respects is made available within a week’s time.”
The chart is omitted.
67. On 03.01.2002, the following communication is seen sent:

“I am directed to refer to Board’s letter of even number dated 10.09.2001 imposing a ban on holding of DPCs for Group ‘B’ & ‘C’ posts. The Board have received representations against the aforesaid ban on promotions.
2. The matter has been considered by the Board and it has been decided that wherever the DPCs may also be filled up. Where the DPCs have not been held, the DPCs may be held on the basis of re-revised strength i.e. the strength existing before the cadre restructuring and the resultant vacancies may be filled up.
3. Action may be taken on priority basis under intimation to the Board.”
68. In proceeding dated 02.04.2002, promotion was effected to the post of Tax Assistant from the post of U.D. Clerk. According to Shri C.U. Singh, this was by way of filling-up the posts in terms of Order dated 03.01.2002. Further proceedings to be noticed is dated 05.06.2002. Therein reference is made to 19.07.2001 while notifying the revised sanctioned strength at different levels consequent to approval of cadre restructuring. It is further stated that the allocation of staff to the zones Commissioner-ates, Director General and Directorate at different levels has been decided by the Board and approved by the Government as detailed in the enclosed folder. The allocation superseded all earlier Notifications in respect of Cadre categories in the enclosed folder separately. All the Chief Commissioners and other Head of Departments were required to carefully study the detail of reorganisation of the formation and to bring to the notice of the Board any discrepancy that may require review or may not have been taken into account for corrective action. Cadre control was to vest to the respective Commissioners in the particular zones and it is further stated that the ban on direct recruitment was to continue till 31.12.2002. The ban was to applicable only to posts including in the cadre restructuring. Finally, in paragraph 8, it is stated as follows:

“The detailed instructions/orders/ recruitment rules governing the manner of filling up of the vacancies at all levels will be issued separately. No vacancy in respect of the posts included in the cadre restructuring should be filled up till such time as further orders are issued.”

(Emphasis supplied)

69. It may be noted at once that though there is case for the respondents that the ban on restructuring was lifted by letter dated 03.01.2002, such contention appears to be categorically belied by the prohibition against filling-up of any vacancy in respect of posts included in the cadre restructuring, till such time, as further orders are issued. Though vacancies may have arisen, which could be filled-up under the 1979 Rules, this appears to be a case where a conscious decision was taken not to fill-up the vacancies in the wake of the restructuring process which was undertaken by the Government. Though a contention is taken that the post of Inspector is not part of the cadre restructuring, we are of the view that there may not be merit in the said contention. The post of Inspector emerged as re-designated post in place of the erstwhile post of Inspector/Preventive Officer/Appraiser. More importantly, that it was a part of the restructuring, is clear from the fact that the number of posts fell from a little over 22000 to a little over 18000. Therefore, the post of Inspector was a post which can be treated as included in cadre restructuring. The taboo against filling-up of the vacancy, is clearly reflected in the communication dated 05.06.2002. On 26.6.2002, urgent direction is issued to hold DPC to the post of Superintendent of Central Excise and Superintendent of Customs. Therein, it is, inter alia, stated as follows:

“I am further directed to say that while drawing up the panel for promotion to the cadre of Superintendents of Central Excise from the Grade of Inspectors of Central Excise and Superintendents of Customs (Preventive) from the grade of Preventive Officers, the vacancies arising on account of the cadre restructuring scheme as also regular vacancies arising on account of retirement etc., during the year 2002- 2003 may be taken into account after observing the procedure for DPC etc. However, posts indicated in the cadre restructuring scheme shall be filled up only after necessary orders are issued by the Ministry in this regard.
I am also directed to draw your attention to this Ministry’s letter F.No.A. 32012/9/89-Ad.II B dated 26.06.1990 (Copy enclosed) and to say that this year orders of promotion instead of being issued on the last working day of June may issued on the 1st working day of July 2002.”
70. The next letter to notice is the letter dated 19.09.2002. Therein, after referring to letter dated 26.06.2002, it is stated that it was decided to initiate the process for filling-up vacancies that have arisen on account of cadre restructuring in all remaining cadres up to Grade ‘B’. It was directed to ensure that apparently DPC was convened in respect of all Grades for the change of number of posts, as also Grades, where revised Recruitment Rules have been circulated. On 23.09.2002, promotion orders in respect of Superintendents were allowed to be issued. On 28.10.2002, the Draft Recruitment Rules for Group ‘C’ post of Inspector and Senior Tax Assistant was communicated to all Chief Commissioners, both, Customs and Central Excise. It was further stated that Notifications notifying the Rules will be issued shortly. Direction was given to start the process of DPC. Thus, it could be said that by the issuance of this communication, the Government decided to proceed with the recruitment by promotion to the post of Inspector.

71. A perusal of the communication dated 28.10.2002, reveals the following:

All chief Commissioners were favoured with Draft Recruitment Rules for the Group ‘C’ post of Inspector (Central Excise and Land Customs), Inspector (Examiner) and Inspector (Preventive Officers). Besides the Draft Recruitment Rules for the post of Senior Tax Assistant, as approved by the Ministry, was also dispatched to the Chief Commissioners. It is specifically stated that the Notifications, notifying the Rules, will be issued shortly. The Chief Commissioners were told that they may initiate necessary action to process for DC (apparently DPC). The next sentence is of crucial significance. It reads as follows:
“You may however await issue of notification before issue of any order of promotion based on these Rules.”
72. This communication establishes further, the following aspects:

Restructuring the post of Inspector, contemplated under the order dated 19.07.2001, had not yet come into being. This is because there is reference to the post of Inspector (Central Excise & Customs), Inspector (Examiner) and Inspector (Preventive Officer). If the post of Inspector, as contemplated under the Order dated 19.07.2001, had already come into existence with the issuance of the Order dated 19.07.2001, there was no occasion to continue to refer to pre-designated posts from which the post of Inspector emerged.
73. Still further, what was obviously contemplated was that the post of Inspector was to be filled-up after the process of restructuring was over. In other words, the Rules relating to Inspector and the Rules relating to recruitment of Senior Tax Assistants, was to be brought into force simultaneously. This conclusion appears inevitable from the circumstance that the Chief Commissioners were directed to await issuance of Notification notifying the Rules before orders of promotions were issued based on the Rules which were the Draft Recruitment Rules. It is not indicated in the Order dated 28.10.2002 that promotion to the post of Inspector was to be made under 1979 Rules. What was, in fact, contemplated was that the process, viz., the holding of the DPC for the post of Inspector, was to begin and operation-alised under the Draft Rules but the actual orders of promotion were to be issued only after the Rules were actually brought into force. The Draft Recruitment Rules for the Tax Assistant was also sent by letter dated 06.11.2002. By letter dated 14.11.2002, it is directed as follows:

“I am directed to refer to Minister’s letter F.No.A-11013/01/2002-Ad-IV dated 19th September 2002 regarding holding of DPC’s in all grade where Recruitment Rules exist, as also in grades where revised recruitment rules have been circulated. In terms of Para 2 of the said letter, it was directed to hold the DPC’s by 30th September, 2002 and keep the list ready for issue. It was also clarified that promotion orders may only be issued on receipt of further directions from Ministry.
2. In view of the above, you are requested to issue the promotion orders in respect of remaining Group ‘B’, ‘C’ and ‘D’ posts as sated below:-
(i) promotion orders in respect of Sepoy, Havaldar, Head Havaldar, Tax Assistant, Senior Tax Assistant and Inspector of Central Excise/Preventive Officer/ Examiner of Customs may be issued on the basis of Recruitment Rules after allotment of GSR No by the Government of India Press, Wherever not yet allotted.
(ii) DPC in respect of Appraisers and Administrative Officer may be held on the basis of existing Recruitment Rules and promotion orders may be issued.
(iii) DPC in respect of remaining grades except DOS L-II may be held on the basis of existing Recruitment Rules and Promotion orders may be issued by 25.11.2002.
(iv) Promotion in the grade of DOS L-II may be made only after the new recruitment rules are circulated by the Ministry.”

(Emphasis supplied)

74. In the Order dated 14.11.2002, it is specifically, inter alia, ordered that promotion orders in respect of the post of Inspector (Central Excise)/Preventive Officer/Examiner of Customs may be issued on the basis of the Recruitment Rules after the allotment of GSR Number by the Government of India Press. Thus, the green signal was given to go ahead with the issuance of promotion order for the post of Inspector, inter alia, based on the Recruitment Rules, after the allotment of the GSR, which means the Notification of the Rules.

75. What actually happened was, however, as follows:

The Inspector Rules and the Senior Tax Assistant Rules were not published and brought into force on the same date. The Inspector Rules came to be finalised and published on 29.11.2002. It is brought into force on 07.12.2002. The STA Rules, though published on 16.01.2003, was brought into force on 20.01.2003.
WHEN CADRE RESTRUCTURING TOOK PLACE

76. The next question, however, which would arise as to when was the cadre restructuring actually effectuated. In this regard, we have already noticed the contents of the communication dated 19.07.2001. We have also pointed out the circumstances which tends to indicate that not only the Cabinet took a decision to bring about restructuring in the Central Excise and Customs Department in principle but evidencing an actual sanctioning of posts with immediate effect in various cadres. We have also noticed how the Government has provided that in case of reduction in strength, as a result of the restructuring, persons holding posts in excess of the revised and reduced strength, were permitted to continue till their promotion or retirement, etc.. We have noticed the language used in Note 4 also. The time is now ripe for us to have a look at the Statutory Rules. The contention of the respondents and the finding of the High Court is that restructuring came into effect only with the issuance of the Statutory Rules in the case of Senior Tax Assistants on 16.01.2003, which was published in the Official Gazette on 20.1.2003. Therefore, the actual restructuring became a reality only on 20.01.2003, runs the argument of the respondents.

77. Inspector Rules, 2002 came into force on 07.12.2002. The Senior Tax Assistant Rules came into force with effect from 20.01.2003. In Column 12 to the Schedule to the 2002 Inspector Rules, which deals with how promotion is to be effected; Clause (a) contains, apparently, those categories, which were among the feeder categories under the 1979 Rules. In fact, Clause (a) itself recites by selection from those candidates working in the pre-restructured cadre. No doubt, the words ‘pre-structured’ is added by Corrigendum in 2003. Clause (b) provides for selection from those candidates working in the restructured cadre. The third Feeder Category is to operate, failing the method of recruitment specified under clause(b). It is apposite that we notice, at this juncture, Note 1. For the purpose of convenience, it is recapitulated again. It reads as follows:

78. It is strenuously argued before us on behalf of the respondents that Note 1 reveals the Legislative intent that the feeder categories, mentioned in Clause (a), would be given the right exclusive in nature, thereby excluding those categories in Clause (b). This exclusive right, it is pointed out, was to last only for a period of two years. We may shift focus also to the STA Rules of 2003. We may advert to it as much may turn on its purport:

“5. Initial constitution.-(i) All the persons appointed on the regular basis at the time of commencement of these rules to the Grade of Assistant, Tax Assistant, Upper Division Clerk (Special Pay), Data Entry Operator Grade B’ and ‘C’ shall be deemed to have been appointed as Senior Tax Assistants under these rules. The service rendered by them before commencement of these rules shall be taken into account for deciding the eligibility for promotion to the next higher grade.
(ii) Assistants (Rs. 5000-8000) and Data Entry Operator Grade ‘C’ (Rs. 5000-8000) are being re-designated as Senior Tax Assistants in the same scale of pay. Therefore, the Assistants and Data Entry Operator Grade ‘c’ shall be placed en-block senior to the other categories. However, their inter-se placement shall be done according to the date from which they had actually been appointed to these grades on regular basis subject to the condition that their inter se placement in their respective category shall not be altered.
(iii) The Data Entry Operator Grade ‘B’ (4500-7000) and Tax Assistants (4500- 7000) have been placed in their higher scale of 5000-8000 and they shall be placed below the Assistant and Data Entry Operator Grade ‘C’ and their inter-se-placement shall be fixed in accordance with the date of regular appointment to the respective grade subject to the condition that their inter-se-placement in respective category shall not be disturbed.
(iv) Upper Division Clerk with special pay shall be placed below Assistant, Data Entry Operator Grade ‘C’, Data Entry Operator Grade ‘B’ Tax Assistants.
(v) The present employees would be required to pass the required or suitable departmental examination, as specified by the Competent Authority, from time to time, in Computer application and relevant procedures within two years falling which they would not be eligible for further increments.”
79. We may notice that under the 2003 STA Rules, Rule 5 contemplated the initial constitution of the Cadre of Senior Tax Assistants. It was to consist of the former categories of Tax Assistant, U.D. Clerk (Special Pay), Data Entry Operator Group ‘B’ and ‘C’. The future method of recruitment was by way of 100 per cent promotion from Tax Assistants, as provided in Column 12 of the said Rules. It is also necessary to notice Rule 4 of the Tax Assistant Rules 2003, which was brought into force with effect from 05.05.2003.

“4. Initial constitution:- (1) The person appointed on regular basis and holding the post of Upper Division Clerk and Data Entry Operator Grade A on the commencement of these rules shall deemed to have been appointed as Tax Assistant under these rules and the service rendered by such persons in the respective posts before commencement of these rules shall be taken into account as regular service rendered on the post of Tax Assistant for the purpose of promotion etc.
(2) The person holding the post of Data Entry Operator Grade-A appointed under these rules as Tax Assistant, shall, within two years, from the date of such appointment as Tax Assistant, pass the Departmental Examination as conducted by the competent authority, failing which he shall not be entitled to get any further increment.
(3) Any person, who holds a post of Lower Division Clerk on regular basis and falls within the seniority list as determined by the appointing authority at the commencement of these rules shall, on passing the Departmental Computer Proficiency examination conducted by the appointing authority, be deemed to have been promoted with effect from date of passing such examination on the post of Tax Assistant.
(4)The Upper Division Clerks and Data Entry Operator Grade -A shall be placed en-block senior, and their inter se placement shall be fixed in accordance with the date of regular appointment to the respective grade subject to the condition that their inter se placement in the respective grade shall not be disturbed.
(5) Lower Division Clerks shall be placed below Upper Division Clerks and Data Entry Operator Grade -A.”
80. The dispute, as to when the restructuring was completed, must be resolved on a conspectus of the decision dated 19.07.2001 and the subsequent decisions, as expressed in communications which we have adverted to, and the combined effect of all these Rules.

81. Now, turning back to Note 1 to the 2002 Inspector Rules, we notice that promotion under Clause (a) was to be operative for a period of two years from the date on which the restructured Cadre in Clause (b) comes into existence. If the interpretation sought to be placed by the appellants is accepted, and we are to hold that the restructured cadre of Senior Tax Assistant came into force with effect from 19.07.2001, the result would be that promotion under Clause (a) would be limited by a period of two years from 19.07.2001. In other words, no promotion could be ordered from the Feeder Category mentioned in Clause (a) in Column 12 of the 2002 Inspector Rules after 18.07.2003. This also means that promotions could be, therefore, effected during the period commencing from 19.07.2001. This produces the anomalous result that promotions are to be countenanced under the 2002 Rules, retrospectively from 19.07.2001. What is more, according to the appellants, promotions were banned during the period. This, in our view, completely militates against the idea that the restructured Cadre came into being from 19.07.2001. We are not oblivious and we have indeed expressly articulated the circumstances from communication dated 19.07.2001 which pro-bablised the appellant’s contention that restructuring became a reality from 19.07.2001. But, we, at this juncture, must also notice that the actual distribution of posts in different formations was postponed. It may not be in apposite, at this juncture, to also notice another factual aspect. There is a definite case for the respondents that the Data Entry Operator Grade ‘B’ and ‘C’ continued as such and they were only re-designated as Senior Tax Assistant or Tax Assistant on the enforcement of the 2003 Rules and not before such enforcement. In fact, it was also not seriously disputed before us that this was indeed the case on the ground. We may also find light from the STA Rules. Rule 5 declares that “all the persons appointed on regular basis at the commencement of the Rules in the Grade of Assistant, Tax Assistant, U.D. Clerk (Special Pay), Data Entry Operator Grade ‘B’ and Grade ‘C’, shall be deemed to have been appointed as Senior Tax Assistant under these Rules”. No doubt, the Rule contemplated that the persons to be deemed to have been appointed as Senior Tax Assistant under the 2003 Rules, were the categories, which we have already indicated. What is more relevant is, they are referred to as the persons appointed at the commencement of “these Rules”. The words used are “persons appointed”. The intention appears to be to indicate that the persons were appointed and working on the commencement of the Rules, which is on 20.01.2003. It is those persons, who were referred to by the designation, which were the posts which were held by them prior to the restructuring. In other words, appellants, who were working as Data Entry Operator Grade ‘B’, upon being promoted in the year 2000, were indeed persons who were appointed on regular basis as Data Entry Operator Grade ‘B’ as on 20.01.2003, when the Rules, admittedly, were brought into force.

82. We find further support for the view that the appellants became Senior Tax Assistant upon Rules being brought into force from the further limbs of Rule 5. Sub-Rules (ii), (iii) and (iv) deal with the issue of inter se seniority of the different erstwhile restructured categories from which the designated category of Senior Tax Assistant was born. Those Assistants, who were drawing salary of pay scale of 5000-8000, and Data Entry Operator Grade ‘C’, drawing the same pay scale, were re-designated as Senior Tax Assistants in the same scale. They were to rank at the top of the seniority list of the newly created posts of Senior Tax Assistants. Just below them were put the categories of Data Entry Operator Grade ‘B’ and Tax Assistants, both drawing the pay scale of 4500-7000, and they have been placed in the higher pay scale of 5000-8000 and they were to be placed below the Data Entry Operator Grade ‘C’. Similarly, at the bottom of the pyramid, there is the post of Upper Division Clerk with special pay, who were to be placed below all the above categories as aforesaid.

83. We also bear in mind that the language used in Note 1, in Column 12 of the 2002 Inspector Rules. It provides that the promotion in Clause (a) was to be operative for a period of two years from the date on which the restructured cadres, mentioned under Clause (b) above, comes into existence. Had it been the case where the restructured cadre in Clause (b) had already come into existence, by virtue of order dated 19.07.2001, the Law Giver would have used language indicating the past tense. The Law Giver, thus, contemplated that the restructured cadre in Clause (b), which includes cadre of Senior Tax Assistants, had not come into existence and it was to come into existence. It came into existence, indeed, in the future, viz., on 20.01.2003.

84. We are, thus, of the view that on a consideration of the Government Orders and, more importantly, the Statutory Rules that the conclusion appears to be inevitable that restructured cadre actually came into force in the cadre of Senior Tax Assistant with the Rules being brought into force on 20.01.2003. Quite apart from the fact that this is the legal interpretation that flows, we are also supported by the fact on the ground that the appellants appeared to continue till after the Rules were brought into force with the designation as Data Entry Operators Grade ‘B’.

A perusal of Rule 5(v) of the STA Rules 2003 would also show reference to ‘present employees’ and they were to pass the departmental examination ‘within two years’. Failure was to result in their being rendered ineligible for future increments. Certainly, the period of two years would commence only from 20.01.2003. If so, the ‘present employees’, including the appellants continued as Data Entry Operator Grade ‘B’ till 20.01.2003. The view that the STA Cadre emerged only on 20.01.2003, is supported by official understanding, as reflected in proceedings dated 21- 04-2003. The principle of contemporanea ex-positio is apposite in the facts.

APPELLANTS RIGHTS AS SENIOR TAX ASSISTNATS ON RESTRUCTURING

85. Having found that restructuring was effective from the date of the promulgation of the Statutory Rules in case of Senior Tax Assistant w.e.f. 20.01.2003, and also having found that there was a ban on carrying out promotions under the earlier Rules, as evident from a perusal of communications dated 10.09.2001, 03.01.2002 and 05.06.2002, and thus, it manifested a conscious decision on the part of the Government not to fill the vacancies in accordance with the earlier Recruitment Rules, viz., 1979 Rules, the question arises as to what is the nature of the right which the appellants had. It must be remembered that the appellants filed the Original Application before the Tribunal taking exception to the Notice dated 05.11.2002. Now, let us analyse the reasoning of the Tribunal with reference to the case set up by the parties. The case of the appellants must be understood as follows:

• The restructured cadre has come into existence on 19.07.2001.
• Promotion to the post of Inspector could be made only from the restructured cadres while so the draft recruitment rules came to be issued on 28.10.2002.
86. In the said Rules, preference was sought to be given to the pre-structured cadres, which included the old tax assistants with a certain number of years. It was Clause (a) to Column 12 of the 2002 Inspector Rules, which was alleged as unconscionable and violative of Articles 14 and 16 of the Constitution of India. It was the further complaint that Note 1 in Column 12 of the 2002 Inspector Rules was also flawed insofar as the persons in the pre-structured cadre, viz., those falling in Clause (a), were enabled to steal a march by being promoted, taking into consideration their service in the new Grade in the restructured Cadre for the eligibility for promotion under Clause (a). The only Cadre, which was eligible for promotion after the order dated 19.07.2001, was the restructured Cadre, including the Cadre of Senior Tax Assistants, ran the argument.

87. The Tribunal proceeded on the basis that the restructuring became complete with the issuance of the order dated 19.07.2001. It must be noted that the Original Application came to be filed on 19.11.2002 at a time when the Inspector Rules had not even been finalized as the Rules came to be finalized only on 29.11.2002 and, in fact, brought into force till later on 07.12.2002. Undoubtedly, the Note contemplated, giving persons in Clause (a), viz., those falling in the pre-restructured cadre, the benefit of taking into consideration the service rendered in the restructured Cadre, for being promoted as Inspector. The persons falling in the restructured Cadre, were not conferred with such advantage. However, by the time the Original Application came to be heard, the Senior Tax Assistants Rules 2003 came into force with effect from 20.01.2003. Under Rule 5 of the 2003 Rules, the persons working as Data Entry Operator Grade ‘B’, inter alia, stood re-designated as Senior Tax Assistants and they were also given the benefit of reckoning the past service and calculating the qualification of experience of two years under the Inspector Rules, 2002. In fact, the Tribunal has also taken note of the 2003 Rules. Both the persons in the pre-structured cadre and those in the restructured cadres, were, by virtue of Note 1 to Column 12 to the 2002 Rules and Rule 5(i) of the Senior Tax Assistants Rules 2003, respectively, were given the benefit of counting service as provided therein. The Tribunal, in fact, has gone on to find that the Senior Tax Assistants under Rule 5(i) of the 2003 Rules were entitled to reckon their service as Data Entry Operator Grade ‘B’ for eligibility for promotion as Inspector. The Tribunal goes on to find that the unified restructured cadre of Senior Tax Assistants alone would be eligible for promotion as Inspector. The integrated seniority is to be worked out in terms of Rule 5 of the 2003 Senior Tax Assistant Rules. This is based on the premise that with effect from 19.07.2001, the restructuring of Senior Tax Assistant came into force and all the earlier Cadres stood merged. We notice also the following findings by the Tribunal:

The Tribunal noticing the contention of the respondents that the selection process initiated on 05.11.2002 has been finalized from categories other than of the employees i.e. Data Entry Operator Grade ‘B’ and ‘C’ and the existing vacancies were filled-up, it was, thereafter, found by the Tribunal as it is now found that the appellants were also eligible, the Original Application was to be disposed of by directing the appellants be considered eligible for promotion after considering the service rendered by them as Data Entry Operator Grade ‘B’. The Original Application was accordingly disposed of directing the appellants be considered for promotion based on the years of service on the post of Data Entry Operator Grade ‘B’ after allowing them to appear for the examination contemplated in Note 2 under the 2002 Inspector Rules. The further relief granted was to direct to promote them if they were successful and to fix the seniority based on Rule 5. The declaration which was sought for by the appellants in paragraph 8(c) of the Original Application, which we have already extracted, was granted.
88. Thus, the Original Application has been allowed in part. It is necessary to notice that the effect of granting the said relief and also the effect of not granting the reliefs in paragraph 8(b). Granting of the Relief 8(c) would mean that this Court would also have to accept that under the 2002 Inspector Rules, it is only the restructured Cadre, which would be entitled for promotion to the cadre of Inspector. To put it differently, the persons falling in Category (a), which corresponds to feeder categories, under the 1979 Rules, would not be entitled for promotion as Inspector.

89. It is now necessary to look at their prayer, i.e., 8(b) and the effect of not granting any relief thereunder. Prayer 8(b) was sought by the appellants to set aside the Recruitment Rules communicated vide 28.10.2002, as confirmed vide Gazette of India Notification dated 29.11.2002, incorporating the unconscionable conditions under Clause (a) and Note 1 of Column 12 of the 2002 Inspector Recruitment Rules. This prayer is also based on the restructuring process, having effect from 19.07.2001. The Tribunal has not granted the relief in paragraph 8(b) of the Original Application. This means that the persons in Category (a) of Column 12 of the Inspector Rules, cannot be affected. The result is that it exposes the fallacy in grant of Relief 8(c). In fact, there are two basic flaws. In the first place, as we have noticed, the restructuring did not come into effect on issue of communication dated 19.07.2001. The restructuring came into effect only with the issuance of Rules, for reasons, which we would have already explained. This by itself takes away the entire basis of the Tribunal’s Order. Secondly, the Tribunal has not declared the Statutory Rule infirm, which was the specific relief sought for by the appellants in Relief 8(b). In other words, Clause (a) of Column 12 and the Note, in the 2002 Inspector Rules impugned on the one hand, continues on the Statute Book, whereas, the declaration is purportedly granted under paragraph 8(c), which necessarily involves declaring that only persons re-designated under the restructured cadres in Clause (b) as Senior Tax Assistants, inter alia, would be entitled to be considered for promotion as Inspector of Central Excise and Customs. In fact, the Order of the Tribunal at Chandigarh also did not involve granting any exclusive right to the persons in the restructured Cadre falling in Clause (b). The decision of the Bombay High Court also does not reflect any such reasoning. It is well-settled that when Statutory Rules are challenged, they are upheld, or if warranted, declared ultra vires or read down, if possible. The Order of the Tribunal is specific that what is granted, is the relief contained in paragraph 8(c) of the Original Application. Resultantly, Clauses (a) and (b) continued to be on the Statute Book. The Tribunal has rather allowed the Original Application partly and found that the appellants are also entitled to be considered for promotion as Inspector. In Arriving at this conclusion, the Tribunal has drawn support undoubtedly from the views expressed by the Central Administrative Tribunal, Chandigarh, the Central Administrative Tribunal, Madras and the High Court of Bombay.

WHETHER STA COULD ADD SERVICE AS DATA ENTRY OPERATORS AND WHETHER PERSONS IN CLAUSE (A) HAD AN EXCLUSIVE RIGHT FOR TWO YEARS?

90. What is to be the eligibility condition flowing from the requirement in Clause (b) that Senior Tax Assistants should have put in two years’ service in the Grade. It is the contention of the respondents that what is contemplated by the Law Giver is that only persons mentioned in Clause (a) to Column 12, who were incidentally persons, who fell in the feeder category under the 1979 Rules, are to be considered for filling-up vacancies for a period of two years, and it is therefore their contention that the right of persons mentioned in Clause (b) arises only after the expiry of two years, and till then, the persons, who are qualified in Clause (a), are alone to be considered during these two years. It is also seen that the use of the word ‘Grade’ is referred to, to contend that appellants, who were working as Data Entry Operator Grade ‘B’, were not in the same Grade, in terms of the pay-scale to which they became entitled upon the restructuring coming into effect w.e.f 20.01.2003. In other words, appellants, who were on a lower pay-scale than the Senior Tax Assistants, and thus only after 20.01.2003, when the actual restructuring became a reality, the appellants would commence working in the Grade, meaning the post with the scale of pay attached to the post of Senior Tax Assistant.

91. On the other hand, the case of the appellants is that a perusal of the Rule 5 of Senior Tax Assistant Recruitment Rules, 2003, would show that the appellants were entitled to take into consideration the service which was rendered by them prior to 2003. We also notice another aspect, viz., there is the case for the respondents that Note 1 to Column 12 contemplates that the service rendered by persons, falling in Clause (a) in the restructured cadre, could be considered for the purpose of calculating the period required under Column 12. Therefore, an attempt is made to contend that the provisions of Rule 5 must also be understood in the said vein. Let us look at the issue with concrete examples:

(i) An U.D. Clerk is eligible to be considered for promotion as Inspector under Clause (a). He has to, however, put in certain number of years.
(ii) The U.D. Clerk, who has less than requisite service as on 20.01.2003, in order that he be considered for promotion as an eligible person under Clause (a), it is quite clear that he can add the service after 20.01.2003 as Senior Tax Assistant to the previous service and make a claim for being considered. The latter part of Note 1 to Column 12, in our view, is only to clothe persons falling in Clause (a) with the right to add the service in the restructured Cadre. But that is not to say that Rule 5 of the Senior Tax Assistant Recruitment Rules, 2003, has the same object.
92. Coming back to the issue, as to whether a person falling within the four walls of Rule 5 of the 2003, Rules can stake a claim for counting the previous service prior to 20.01.2003, we are of the view that the appellants are right that they are entitled to count the previous service. The words used in Rule 5 are unambiguous and clear. In this regard, we must also deal with the yet another contention based on the differences between Rule 5 of the Senior Tax Assistant Recruitment Rules, 2003 and Rule 4 of the Tax Assistant Rules, 2003. It may be true that there is some difference but, in our view, the words used differently in the two provisions, are not meant to take away the right, which was conferred on persons who were on restructuring to be designated as Senior Tax Assistants and Tax Assistants.

93. In Rule 5, what is contemplated is that the service rendered by Data Entry Operators Grade ‘B’ and ‘C’, inter alia, before commencement of the Rules is to be taken about for eligibility for promotion to the next higher grade. No doubt, in Rule 4, of the Tax Assistant Rules, the Rule Maker has become more articulate. They have referred to the words like ‘respective post’, before commencement of Rules and ‘regular service’ which expressions are conspicuous by their absence in Rule 5 of the Senior Tax Assistant Rules. Better wisdom prevailed on the Law Giver in the course of few months to attain clarity in thought and expression but we would not be gleaning the intention of the Law Giver, if we were oblivious to the context and the object with which the entire exercise of restructuring was carried out. They would also amount to introducing an element of discrimination between the Senior Tax Assistants and the Tax Assistants in the conferring of benefits. Of foremost importance is that the view we have taken is warranted by even the plain words used in Rule 5. Rule 5 clearly indicates that the service which was rendered by a Data Entry Operator Grade ‘B’ and ‘C’, inter alia, prior to the commencement of the Rules, would be considered for promotion. This leaves us in no doubt that the intention was to allow the Data Entry Operator both Grade ‘B’ and ‘C’, inter alia, to tag their previous service that is prior to 20.01.2003 for the purpose of calculating the requisite period of service under the 2002 Inspector Rules. It would appear that what was contemplated was that the Inspector Rules and the STA Rules would be brought into force at the same time. If it had so happened, the following consequences would have followed. Not only would STA would be a feeder category but STA would have been able to count their previous service as Data Entry Operator Grade ‘B’, inter alia. Still further, under Note 1, promotion under Clause (a), was to be operative for a period of two years, from the date the restructured cadre, under Clause (b), was to come into existence. Apart from indicating that the restructured cadre ‘was to come into force’ and, therefore, it had not come into force as on 19.07.2001 as contended by the Data Entry Operators, the promotion from Clause (a) being predicated on the point of time when the restructured cadre came into force, if the STA Rules were also brought into force from 07.12.2002, the service rendered by persons under the restructured Grade could have been availed of by persons in Clause (a) from 07.12.2002.

94. As regards the argument that under the 2002 Inspector Rules, persons in Clause (a) were given an exclusive right to be promoted for a period of two years, we see little merit in the same. Clause (c) of Column 12 provides for promotion from the categories thereunder, in the absence of persons falling in Clause (b). No such rider is found in Clause (b). If the STA Rules had been brought into force on 07.12.2002, then, it is clear that adding two years as Data Entry Operator Grade ‘B’, the appellants would certainly be eligible, particularly, keeping in mind the intent in Order dated 28.10.2002. There can be doubt that nothing stands in the way of appellants and others similarly situated being considered from 20.01.2003 by adding the service as Data Entry Operator Grade ‘B’. Both, persons in Clause (a) and persons in Clause (b), subject to being possessed of qualifications, could compete for the vacancies. The right of those in Clause (a), would come to an end from 19.01.2005.

95. The effect of STA Rules, 2003 coming into force only on 20.01.2003 qu a vacancies that existed prior to 20.01.2003, the effect of promotion made from other categories, and the direction by the Tribunal to consider appellants for promotion and apply Rules as to seniority.

96. There can be no doubt that the STA Rules came into effect on 20.01.2003. The restructured cadre of STA became a reality from 20.01.2003.

97. The problem, however, arises as what is to be done qua vacancies of Inspector which were purportedly filled-up as on 20.01.2003 pursuant to Notice dated 05.11.2002 which was impugned in O.A. 1362 of 2002. The Tribunal has not interfered with the notice dated 05.11.2002 but it has found that it was not in accordance with the Rules (apparently Inspector Rules 2002 which superseded the 1979 Rules). But this is again premised on the restructuring becoming a reality with effect from 19.07.2001. This, we have found to be erroneous.

98. The Tribunal notices the contention of respondents that selection has been finalised for categories other than Data Entry Operator Grades ‘B’ and ‘C’ and existing vacancies were filled-up. Thereafter, the Tribunal, on the basis that it found appellants were also eligible, directed appellants to be considered taking into consideration their service as Grade ‘B’ and with opportunity to take the exam. If they were found successful and selected as Inspector, suitable seniority was to be assigned based on Rule 5.

99. Here, it is necessary to notice that persons in Clause (a), under the 2002 Rules, could be promoted for a period of two years from the date the restructured categories under Clause (b) came into force. Thus, the promotion involving 2002 Rules from Clause (a) could be for a two year from 20.01.2003 as the restructured category came into force only on 20.01.2003, even according to the respondents. Thus, for both categories in Clauses (a) and (b) (STAs), their eligibility under 2002 Rules, commenced only from 20.01.2003.

100. If so, the question would be the effect of promotion already made as noted by the Tribunal itself. As on 05.11.2002, the 1979 Rules governed promotions. The status of the draft Recruitment Rules is no longer res integra. While, promotion can be based on draft Recruitment Rules, it cannot be done, if the draft Rules are in the teeth of existing Statutory Rules. In this regard, we may notice the following discussion in Union of India through Govt. of Pondicherry and another v. V. Ramakrishnan and others, 2005(8) SCC 394 :

“28. Valid rules made under proviso appended to Article 309 of the Constitution operate so long the said rules are not repealed and replaced. The draft rules, therefore, could not form the basis for grant of promotion, when Rules to the contrary are holding the field. It can safely be assumed that the principle in Abraham Jacob; (1998) 4 SCC 65 : 1998 SCC (L&S) 995, Vimal Kumari; (1998)4 SCC 114: 1998 SCC(L&S) 1018 and Gujarat Kishan Mazdoor Panchayat; (2003)4 SCC 712 : 2003 SCC (L&S) 565 that draft rules can be acted upon, will apply where there are no rules governing the matter and where recruitment is governed by departmental instructions or executive orders under Article 162 of the Constitution.”
101. The Tribunal granted relief by giving the declaration under 8(c), which we have found unwarranted. The High Court has found that regarding the vacancies prior to 07.12.2002, it is to be filled-up as per the 1979 Rules.

102. Thus, it is clear that vacancies were filled- up as per notice dated 05.11.2002 from persons falling under Clause (a), who corresponded to the feeder category in the 1979 Rules. The appellants have not laid any challenge to the Order of the Tribunal.

103. It is to be remembered that the ban on direct recruitment was to come to an end on 31.12.2002. There were 242 vacancies of Inspectors in Hyderabad Commissioner-ate. It is true that under letter dated 28.10.2002, and even read with letter dated 14.11.2002, what was contemplated was promotion under the draft Recruitment Rules for Inspector and STA. Promotion orders were to be made only after GSR Number were made for the Draft Rules, meaning thereby, after it was finalised. They were intended, as already found, to be operated at the same time, thus, rendering both categories in Clauses (a) and (b), to be considered. We are of the view that having regard to the fact that vacancies were not filled-up, as can be seen from communications dated 10.09.2001 and 05.06.2002, in the light of the restructuring that took place in the Department, it would appear that a conscious decision was taken to not fill-up the vacancies arising from the restructuring based on 1979 Rules. Instead, communication dated 28.10.2002 clearly would show that the vacancies were to be filled-up, based on the proposed new Recruitment Rules. This being the case, the High Court was in error in proceeding on the basis that the principle in Y.V. Rangaiah (supra) would apply.

104. Till 07.12.2002, the STA was not even in Feeder Category. We have also held that the STA Cadre is born on 20.01.2003. There is a case for the respondents that the ban on direct recruitment (which is also a method of appointment) was to come to an end. There was a need to have Inspectors in a larger number of vacancies. The STA Cadre could not have been used to fill the vacancies. The finding that from 19.07.2001, the restructured Cadre came into being, is unsustainable. In such circumstances, though it may be true, intention was to fill-up the vacancies after both sets of Rules were operational-ised, promotions were made. As to whether it is legal, the answer can be that promotion, as per extant Rules, given in vacancies prior to the new Rules, is recognized. This is not a case where the Authority was denying promotion to vacancies based on the earlier Rules. We also notice that based on such promotion, further promotions have been given. The appellants were directed to be considered for vacancies, which were filled-up after. We cannot, in the circumstances, be persuaded to hold that the Tribunal was right in directing the respondents to revise the seniority qua promotion made earlier.

LEGALITY AND CORRECTNESS OF HIGH COURT DIRECTING VACANCIES TO BE FILLED WHICH EXSISTED PRIOR TO 07.12.2002

105. The High Court has left open the question about entitlement to promotion to vacancies after 07.12.2002. It has directed all vacancies, which are prior to 07.12.2002, to be filled-up as per the 1979 Rules. While, we agree that the STA cadre was born on 20.01.2003, clearly, the whole purpose was to simultaneously operate the Rules, both relating to Inspector and STAs. This would have resulted in STA being considered with the experience they had as Data Entry Operator Grade ‘B’ also. This, as already noticed, was a case where the Authority clearly intended to fill-up the vacancies of Inspector under the new Recruitment Rules. However, the vacancies, which were filled-up, cannot be subjected to a review based on Rules relating to seniority in Rules 5(i) of the STA Rules, based on promotion orders on dates, when on the dates, on which the vacancies stood filled-up, the appellants were not even in the cadre.

106. But the High Court was not right in directing filling-up of vacancies prior to 07.12.2002, based on the 1979 Rules, as after the 2003 Rules came into force, going by the intention of the Authority, the right to promotion would be based on the new Rules, even if the vacancies arose prior to the new Rules. That is to say, when the High Court disposed of the matter, if any vacancy remained to be filled-up in the Cadre of Inspector, then, as the STA Rules had come into existence on 20.01.2003, the STAs armed with the right to add service as Data Entry Operator Grade ‘B’, were entitled to be considered. However, it is here that the impact of the matter, having been pending in this Court for more than a decade, and, in the meantime, the judgment being implemented and further promotions being made, cannot be lost sight of, even in an Appeal, which is maintained by grant of Special Leave, as in this case. It is open to the Court to decline to interfere. We bear in mind the principles laid down by this Court in Taherakhatoon (D) By Lrs. v. Salambin Mohammad, (1999) 2 SCC 635 and would not disturb the direction to fill-up the vacancies which arose prior to 07.12.2002, as directed.

VACANCIES OF INSPECTOR WHICH AROSE AFTER 07.12.2002

107. As noted, the High Court has left open the question about entitlement to vacancies after 07.12.2002. The STA rules came into force on 20.01.2003. The restructured cadre of STA came into force on that said day. We have already found that STAs are entitled to count their previous service as Data Entry Operators Grade ‘B’ for the purpose of promotion under 2002 Inspector Rules. Even, persons in Clause (a) of the 2002 Inspector Rules, would be entitled to be considered for promotion under 2002 Rules from the date on which the restructured cadre in Clause (b) came into force. Thus, both persons in Clauses (a) and (b)(STA Cadre) became entitled to be considered for promotion under the two sets of Rules with effect from 20.01.2003. Certainly, the appellants having worked as Data Entry Operator Grade ‘B’ are entitled to add the period of service as Data Entry Operators Grade ‘B’. Thus, vacancies of Inspector, to be filled-up by promotion, must be filled-up by considering both on the basis of the seniority, under Rule 5 of the 2003 STA Rules. The appellants would be entitled also to be considered for promotion based on the same on the basis of the entitlement, as aforesaid.

CIVIL APPEAL NO. 1976 OF 2009

108. The appellants challenge the common judgment passed by the High Court in Writ Petition No. 2378 of 2005 and Writ Petition No. 45 of 2005. The appellants filed this Appeal with the leave of the Court as they were not parties to the Writ Petitions. The Writ Petitioners, two each in the two Writ Petitions, were the four applicants (hereinafter referred to as ‘the applicants’) in O.A. 1040 of 2003 filed before the CAT, Hyderabad.

109. The case in brief, set up by the four applicants before the Tribunal, was as follows:

Applicant nos. 1 and 2 were appointed as Lower Division Clerk (L.D.) and they were working as such. Applicant nos. 3 and 4 were appointed as L.D. Clerks and were working as U.D. Clerks. Applicant nos. 1 and 2 set the claim for promotions as U.D. Clerk under the Recruitment Rules of 1979. Applicant nos. 3 and 4, on the other hand, claimed promotion as Tax Assistant under the said Rules. There is reference to the various orders, which we have already referred to in connection with the post of Inspector, including order dated 19.07.2001. It is the further case that the respondents who, it may be noted, were official respondents, had conducted DPC for all other cadres upto Inspectors and issued promotion orders. Only with regard to the post of Inspector, promotion orders were not issued before 31.12.2002 in view of the stay passed in O.A. 1362 of 2002. The stay was vacated on 31.12.2002 and the promotion orders were issued on the same day. It is further stated that promotions were given to the extent of 214 on 31.12.2002. Due to the delay, U.D. Clerks were not being considered for promotion as Tax Assistants and L.D. Clerks for U.D. Clerks. There is discrimination. Meanwhile, new Recruitment Rules, i.e., STA Rules 2003 and Tax Assistant Rules 2003, which we have already referred to, have come into force in the process of restructuring and re-designating of the posts. The said Rules are prospective in nature. The old Rules prevailed till the new Rules came into force. Even if the DPC is conducted after 31.12.2002, the vacancies that will be considered would be only those which have arisen on or before 31.12.2002. The restructuring cannot take away the accrued rights. They sought promotion as per the old Rules. A direction was sought to promote them under the Rules as U.D. Clerks and Tax Assistants from the date of their eligibility and availability of vacancies with all consequential benefits.
110. In their reply, the stand taken by the respondents to the O.A. was as follows, inter alia:

Since restructuring was directed, it was further directed that no vacancy included in the restructuring, should be filled-up. The STA Rules 2003 and the Tax Assistant Rules 2003 came into force. On the publication of the said Notification of the STA Rules of 2003 on 20.01.2003, further promotions were regulated as per the Notification. Under the Tax Assistant Rules 2003, under Section 4, all the U.D. Clerks were deemed to have been re-designated as Tax Assistants and their promotions have to be regulated further in the said cadre only. As far as L.D. Clerks were concerned, under the 2003 Tax Assistant Rules, on passing departmental examination, they were to be deemed to have been promoted as Tax Assistants. Thus, the stand was that Applicant nos. 1 and 2 would, on passing departmental examination under the 2003 Rules, become Tax Assistant, whereas, Applicant nos. 3 and 4, who were U.D. Clerks, were deemed to have been appointed as Tax Assistants in the very same pay-scale and they have to work out the promotions under the said cadre. Delay was attributed to court cases. It was denied that Department has not followed instructions in Order dated 19.07.2002 as all the vacancies, which arose before the restructuring, were duly filledup under the old Rules. It is lastly pointed out that the chain vacancies in the Inspector cadre, upon filling up the post of 373 posts of Superintendent, were filled-up by following the Recruitment Rules notified on 29.11.2002 superseding the earlier Recruitment Rules. Filling-up of the post was done by from those candidates working in the pre-structured cadre. The consideration of the pre-structured cadre was to be operative for two years from the date on which the restructured cadre came into force. The said promotions were part of restructuring following the amended Rules. The Draft Recruitment Rules were also notified for the restructured Cadre and, as such, the contention of the applicants that the said promotions were done following the earlier Rules and as such they were entitled to be considered based on the earlier Recruitment Rules, was pointed as untenable and liable to be rejected (Thus, it may be noted that the stand taken in this O.A. by the official respondents was the persons who were promoted as Inspectors, were give promotions in terms of their being part of the pre-structured cadre). The Tribunal dismissed the O.A. by Order dated 10.12.2004 after noticing the contentions and noticing the arguments based on Y.V. Rangaiah (supra) among the other decisions and found that there is no case for grievance. Noticing that with regard to one of the grievances, viz., need to pass ministerial staff examination, it was already redressed by deleting this requirement for promotion as Senior Tax Assistant. Through proceedings dated 04.06.2001, the further contention relating to seniority was also dealt with by noticing that since the date of their entry into the feeder cadre would be one of the relevant factors and it had not been finalised, the applicants could represent against the seniority. It also drew support from another order passed by Tribunal in two other O.A.s dated 15.10.2004 (O.A.s 834-835 of 2009) and found that the issue involved was one and the same and agreed with it. It was found that the applicants had been placed on the higher pay-scale.
111. The High Court, in the two Writ Petitions, filed by the four Applicants, allowed the same drawing support from the judgment rendered in the case relating to the Inspectors and it found that promotions to the post of U.D. Clerk and Tax Assistant was to be made as per the old Rules in respect of the vacancies which arose prior to 05.05.2003. Substantially, the contention, appellants have taken, is based on Dr. Ramulu (supra). The contention is also that the intention and the conscious decision of the Government was not to fillup any vacancies by way of 100 per cent promotions until the amended Recruitment Rules were notified in the Official Gazette. There is also a case for the appellants that the order of the High Court runs counter to the judgment of the Bombay High Court and the orders of the Tribunal which we have already referred to in connection with other cases.

112. Under the 1979 Rules, on the basis of an amendment, the post of Tax Assistant (old) was incorporated by GSR 314 dated 12.07.1996. Thereunder, post of Tax Assistant (old) was included in the 1979 Rules. Promotion to the post was to be from the post of U.D. Clerk with three years’ service subject to their passing a departmental exam with minimum marks of 40 per cent. There are other rights given to Senior Clerks under the Note. We have already extracted the Tax Assistant Rules 2003. It is the appellants case that it is established law that vacancies created due to cadre restructuring shall be filled in accordance with new Recruitment Rules. There is reference, in fact, to order dated 26.09.2005, implementing the orders of the High Court.

113. Under the 1979 Rules, the post of U.D. Clerk was to be filled-up 50 per cent from direct recruitment and 50 per cent by promotion. One of the feeder categories was L.D. Clerks with seven years’ service which was relax-able up to five years. The second Feeder Category was Women Searchers recruited prior to 09.05.1975 with five years’ combined service as Women Searcher and L.D. Clerk and who have passed departmental or promotional exam.

114. It may be noted that the 1979 Rules, insofar as it related to the post of U.D. Clerks and Tax Assistants, continued to remain in force even after the promulgation of the Inspector Rules, 2002 and the Senior Tax Assistant Rules. It is when the Tax Assistant Rules were made in supersession of the 1979 rules so far as it related to the post of U.D. Clerk and L.D. Clerk that the 1979 Rules ceased to apply. Thus, 1979 Rules continued to be in force in regard to the post of U.D. Clerk and L.D. Clerk till 05.05.2003.

115. Under the 2003 Tax Assistant Rules, brought into force w.e.f. 05.05.2003, as contended by the official respondents before the Tribunal, the persons working as U.D. Clerks, were to be established as initial cadre of Tax Assistants. So also, the L.D. Clerks, upon passing the examination, were to become Tax Assistants. The posts of U.D. Clerk and L.D. Clerk are Group ‘C’ posts. No doubt, the ban, which was imposed on direct recruitment, was to continue till 31.12.2002 (See Order dated 19.09.2002). By Order dated 28.10.2002, which we have already extracted, the draft Recruitment Rules for Inspector and Senior Tax Assistants was communicated and the process was to be set in motion and promotion was to await the issue of Notification.

116. As far as the post of Tax Assistant is concerned, by the order dated 06.11.2002, all the Chief Commissioners were forwarded the draft Recruitment rules for Tax Assistants which was approved by the Ministry. The Commissioners were to initiate necessary action for the process of DPC, etc. The issue of any order passed under the draft Tax Assistant Recruitment Rules was to await issue of Notification of the said Rules. However, on 14.11.2002, it ordered, inter alia, that DPC in the remaining Grades except DOSL-222 may be held on the basis of the existing Recruitment Rules and the promotion orders issued by 25.11.2002.

117. As far as the post of L.D. Clerks and old Tax Assistants is concerned, the vacancies, which existed as on 06.11.2002, were to be filled-up under the existing Recruitment Rules (See letter dated 14.11.2002). The orders were to be issued by 25.11.2002. By 25.11.2002, the Tax Assistant Rules were not even finalised, leave alone brought into force. The Tax Assistant Rules came into force only by publication on 03.05.2003 and brought into force two days thereafter, i.e., on 05.05.2003. Going by letter dated 14.11.2002, the principle that vacancies must be filled-up in accordance with the existing Rules, would appear to apply. The intention of the Authority would also appear to be the same as is evident from Clause (3) of Order date 14.11.2002.

118. In such circumstances, there is no scope for any ambiguity and we are unable to find fault with the order of the High Court.

SUMMARY OF CONCLUSIONS IN C.A. NOS.1970-1975 OF 2009

119. Summary of Conclusions in C.A. Nos. 1970-1975 of 2009, is as follows:

1)Promotion to the post of Inspector was governed by the 1979 Rules till 07.12.2002.
2) Under the 1979 Rules, Data Entry Operators were not among the feeder categories for promotion as Inspector.
3)By 19.07.2001, Cabinet approved restructuring of certain posts including the post of Inspector. The number of posts of Inspector fell from a little over 22000 to a little over 18000. Thereunder, the post of Data Entry Operator Grade ‘B’ among other categories, were merged and the cadre of Senior Tax Assistants emerged. However, the restructured cadre of Senior Tax Assistants, did not come into being.
4) The restructured Cadre of Senior Tax Assistants was born with the bringing into force of the Senior Tax Assistant Rules 2003, on 20.01.2003. Data Entry Operators Grade ‘B’, among other categories, were re-designated as Senior Tax Assistants under Rule 5.
5) The Inspector Rules 2002, was brought into force on 07.12.2002 superseding the 1979 Rules relating to Inspectors.
6) The post of Senior Tax Assistant, which was not among the feeder categories under the 1979 Rules, became one of the feeder categories for promotion as Inspector, under Inspector Rules, 2002 under Clause (b) of Column 12.
7) There was a ban of promotion to the posts of Inspector. This is clear from communications dated 10.09.2001, 03.01.2002 and 05.06.2002. The communication dated 28.10.2002 read with communication dated 14.11.2002, establish that the Draft Recruitment Rules which were finalized on 29.11.2002 and brought into force on 07.12.2002 as far as Inspectors are concerned and Draft Recruitment Rules finalized and brought into force on 20.01.2002 as far as Senior Tax Assistants are concerned, were to be basis for promotion to the post of Inspector. As per Order dated 28.10.2002, Departmental Promotion Committee (DPC), was to operate, based on the draft rules but no promotion orders were to be issued till the draft rules were finalized. With order dated 04.11.2002 even the promotion orders were permitted. The authority apparently contemplated simultaneous bringing into force of the Inspector Rules and the STA Rules.
8)The High Court was in error in holding that it has to be necessarily held that the vacancies which arose prior to the revised Recruitment Rules coming into force has to be filled-up under then existing Rules (the 1979 Rules) relying upon case law including Y.V. Rangaiah (supra). There was a conscious decision taken to not fill-up vacancies based on the restructuring, and what is more, letters dated 28.10.2002 and 14.11.2002 show that promotion to the post of Inspector was to be effected based on the new recruitment rules.
9) It is while so, that in the Hyderabad Commissioner-ate, by Notice dated 05.11.2002, persons falling under Clause (a) of Column 12 of the ‘Draft Inspector Rules’ who also corresponded to the feeder categories under the ‘extant’ Statutory Rules, the 1979 Rules, alone were called for selection as Inspector.
10) The benefit of reckoning service under Note 1 to categories in Clause (a) would be available only after the restructuring came into effect which was on 20.01.2003. This also indicates that the powers that be contemplated simultaneous operation of the ‘Inspector Rules’ and the Senior Tax Assistant Rules.
11) However, the Inspector Rules and the Senior Tax Assistant Rules were enforced with a gap of about six weeks.
12) The appellants even proceeding on the basis that they were to be treated as Senior Tax Assistant as on 07.12.2002, were not having the two years’ experience required under the 2002 Inspector Rules.
13) With the 2003 Senior Tax Assistant Rules brought into force on 20.01.2003 under Rule 5(1), the appellants who were working as Data Entry Operators Grade ‘B’ could take into consideration their service as Data Entry Operators Grade ‘B’ for reckoning the period of two years stipulated under the 2002 Inspector Rules. In this regard, the finding of the Tribunal is correct. Appellants in O.A. have stated that they were promoted as Data Entry Operator Grade ‘B’ in April 2000. If so, their service as such would count and even as on 07.12.2002, they would have 2 years’ service as contemplated under the 2002 Rules. As on 20.01.2003, certainly, they would be eligible to be considered for promotion as Inspectors.
14) The Tribunal not having granted prayer 8(b), the Draft Recruitment Rules, 2002 relating to Inspectors as finalized which was impugned remained intact. The Tribunal clearly erred in granting the declaration, as sought for in paragraph 8(c), recognizing exclusive right to the restructured Cadre.
15) The restructuring Order under letter dated 19.07.2001, fructified and became complete and effective relating to the post of Senior Tax Assistant only on 20.01.2003. The findings to the contrary by the Tribunal stood correctly set aside by the High Court.
16) The Tribunal has not interfered with the promotion already granted to persons drawn from the categories other than the Senior Tax Assistant pursuant to Notice dated 05.11.2002.
17) Ban of Direct Recruitment was to end on 31.12.2002. In respect of promotion made earlier and not interfered with, the Tribunal could not have directed review of seniority based on later promotions as Inspector. The appellants cannot be given seniority based on later promotions qua promotions given, which cannot be termed illegal, when as on the date of earlier promotions, appellants were not even in the cadre. Promotion from Senior Tax Assistant could have been made only 20.01.2003 at the earliest. Even the categories in Clause (a) could have been promoted under the 2002 Inspector Rules, vide Note 1 only for two years starting from the date the restructured Cadre in Clause (b) come into force, i.e., 20.01.2003.
18) We reject the contention that persons in Clause (a) of Column 12 of the Rules, who were also in the feeder categories for promotion under 1979 Rules, had an exclusive right to be considered for promotion for a period of two years.
19) While promotions can be made based on Draft Recruitment Rules, it cannot be so made, if the Draft Rules are in the teeth of existing Statutory Rules [V. Ramakrishnan and others (supra)]. In this case, however, under Orders dated 28.10.2002 and 14.11.2002, what was contemplated was processing by DPC under the Draft Recruitment Rules and issue of the promotions orders after the Draft Rules were finalized.
20) However, till 07.12.2002, under the 1979 Rules, being also feeder categories under the said rules, those in Clause (a) Column 12, 2002 Inspector Rules could be promoted. While it may be contrary to what was contemplated by the Central Authority (as evident from letters dated 28.10.2002 and 14.11.2002) promotions were made, which could not be termed illegal. Even the Tribunal has not set aside the promotions.
21) The High Court has directed the filling-up of vacancies prior to 07.12.2002 as per the 1979 Rules. In this regard, having regard to the fact that the vacancies were not filled-up as per the ban, as can be seen from 10.09.2001 and 05.06.2002, and it was specifically contemplated under letter dated 28.10.2002 that vacancies arising from restructuring be filled-up, as per the new Recruitment Rules, the principle in Y.V. Rangaiah (supra) may not apply and it was the Rules as on date of filling-up the vacancies, that would count. As on the date of the High Court Order, the STA Rules 2003, had come into force on 20.01.2003. Thus, vacancies existing prior to 07.12.2002 and which were not filled-up, must be filled-up by considering STA (Appellants) including their service as Data Entry Operators Grade ‘B’.
22) But it is here that the impact of the matter remaining pending, and in the meantime, implementation of the judgment and what is more, further promotions being made cannot be lost sight of. We bear in mind the principle laid down in Taherakhatoon (D) By Lrs. (supra) and would not disturb the directions to fill-up vacancies which arose prior to 07.12.2002, as directed.
23) However, in case of vacancies of Inspector, which arose after 07.12.2002, the appellants would, undoubtedly, have a right to be considered as explained hereinbefore. In regard to such vacancies, the matter must be looked into and seniority fixed, based on Rule 5 of the STA Rules. The persons working in Clause (a) are also entitled to be considered for a period of two years from 20.01.2003 under the Inspector Rules to be considered for promotion.
RELIEF IN CIVIL APPEAL NOS. 1970-1975 OF 2009

120. Civil Appeals Nos. 1970-1975 of 2009 are disposed of as follows:

The restructured cadre of Senior Tax Assistants came into force on 20.01.2003. Appellants are not entitled to have seniority determined in respect of vacancies of Inspector which arose prior to 07.12.2002. The appellants are eligible to be considered for promotion from 20.01.2003 and they are entitled to add their service as Data Entry Operator Grade ‘B’ for the purpose of the 2002 Inspector Rules and considered for vacancies to be filled by promotion, which arose after 07.12.2002. The persons in Clause (a) under Column 12 of the 2002 Rules, are also entitled to be considered for two years from 20.01.2003. Seniority is to be considered based on Rule 5 of the STA Rules. The exercise, as above, if not carried out already shall be carried out. Further promotions based on the above will be granted. However, we direct that the promotions shall be notional where promotions have already been effected, however, entitling the parties to seniority and pensionary benefits. The above exercise shall be completed at the earliest.
121. Civil Appeal No. 1976 of 2009 will stand dismissed.

122. There shall be no order as to costs in all the appeals.

Before :- Uday Umesh Lalit and Dinesh Maheshwari, JJ.

Review Petition (C) D. No. 46265 of 2019 in Civil Appeal No. 5397 of 2010. D/d. 5.2.2020.

M/s. Natesan Agencies (Plantations) – Petitioners

Versus

State rep. by The Secretary to Govt. Environment & Forest Department – Respondents

For the Petitioners :- V. Ramasubramanian, Advocate.

ORDER

Delay Condoned.

2. Put in a nutshell, the relevant background aspects of this matter are as follows: The appellant firm had taken the land in question on lease for a period of 5 years (from 01.07.1972 to 30.06.1977) from its owner, Sri Nanamamalai Jeer Mutt, Nanguneri, for plantation and co-related purposes. By the notification dated 06.03.1976 issued under the Wild Life (Protection) Act, 1972, the land in question was proposed to be included in the wild life sanctuary. However, a fresh long-term lease for a period of 25 years (from 01.07.1977 to 30.06.2002) was made in favour of the appellant. The appellant and the Mutt attempted to get the land in question excluded from the sanctuary but remained unsuccessful. On the other hand, proceedings for award of compensation in relation to the land in question remained under contemplation. However, instead of making any award, the collector issued the order dated 19.11.1993, excluding the land in question from the limits of wild life sanctuary. Being aggrieved by such exclusion, the Mutt and the appellant filed a writ petition before the High Court, which was allowed by the Single Judge but then, the Division Bench of High Court, in its judgment dated 18.09.1997, did not approve the order so passed by the Single Judge and, while acknowledging the power of the Government to withdraw from the notification, dismissed the writ petition but left it open for the appellant and the Mutt to approach the appropriate forum in relation to their claim for damages. Thereafter, on 08.06.1998, the appellant instituted the civil suit for damages against the State while alleging that it had been prevented from using the land in question from the year 1976 to the year 1993.

3. The civil suit so filed by the appellant was decreed by the learned Single Judge of the High Court but, the Division Bench reversed the decree and dismissed the suit by way of its judgment and decree dated 26.02.2007 in OSA Nos. 193 of 2002 and 178 of 2003.

4. Having examined the matter in its totality, this Court found that after issuance of the notification dated 06.03.1976 and inclusion of the subject land therein, there was no occasion for the appellant acquiring any further right in the land after expiry of the term of lease on 30.06.1977 and hence, the alleged second lease for a period of 25 years was of no effect; and the appellant had no right to claim damages from the State. It was also found that there was nothing on record to suggest that appellant was prevented by the State from going inside the forest and collecting usufructs and hence, there was no basis for the appellant to maintain an action for damages.

5. The question of limitation, though left unanswered by the Division Bench of High Court, was also examined by this Court and it was found that in the earlier proceeding, the appellant sought exclusion of the land from sanctuary and asserted that State ought to take the land and pay compensation whereas the claim in the present suit was founded on the ground that the plaintiff had suffered loss due to the proceedings under Wild Life (Protection) Act, 1972 and then, due to exclusion of the land in question from acquisition. It was, therefore, found that the relief claimed in the present suit was different and matter-in-issue was not the same as that of the earlier proceeding and hence, the appellant was not entitled to the benefit of Section 14 of the Limitation Act.

6. Having examined the record and the grounds stated, we are unable to find any error apparent on the face of the record calling for review of the judgment dated 20.08.2019.

7. The review petition is, therefore, dismissed

Before :- S. Abdul Nazeer and Deepak Gupta, JJ.

Civil Appeal No. 1042 of 2020 (@special Leave Petition (Civil) No. 20393 of 2018). D/d. 6.2.2020.

Canara Bank – Appellants

Versus

M/s United India Insurance Co. Ltd. & Ors. – Respondents

With

Civil Appeal No. 1043-1051 of 2020 (@special Leave Petition (Civil) No. 24774-24782 of 2018), Civil Appeal No. 1052-1059 of 2020 (@special Leave Petition (Civil) No. 25957-25964 of 2018), Civil Appeal No. 1060-1071 of 2020 (@special Leave Petition (Civil) No. 25137-25148 of 2018), Civil Appeal No. 1072-1081 of 2020 (@special Leave Petition (Civil) No. 25235-25244 of 2018), Civil Appeal No. 1082-1090 of 2020 (@special Leave Petition (Civil) No. 25535-25543 of 2018), Civil Appeal No. 1091-1097 of 2020 (@special Leave Petition (Civil) No. 25325-25331 of 2018), Civil Appeal No. 1098-1106 of 2020 (@special Leave Petition (Civil) No. 26077-26085 of 2018), Civil Appeal No. 1107-1117 of 2020 (@special Leave Petition (Civil) No. 26494-26504 of 2018), Civil Appeal No. 1118-1126 of 2020 (@special Leave Petition (Civil) No. 25714-25722 of 2018), Civil Appeal No. 1127-1133 of 2020 (@special Leave Petition (Civil) No. 25343-25349 of 2018), Civil Appeal No. 1134-1203 of 2020 (@special Leave Petition (Civil) No. 31449-31518 of 2018).

For the Appearing Parties :- P.P.Malhottra, Sr.Adv., Vineet Malhotra, Mohit Paul, Vishal Gohri, Ms. Sunaina Phul, Shubhendu Kaushik, Sabarish Subramanian, Raghunatha Sethupathy, Prabu Ramasubramanian, Vishnu Unnikrishnan, K. Paari Vendhan, Mohit Paul, Rajesh Kumar-I, Anant Gautam, Ms. Sakshi Gaur, Ms. Khushboo Aggarwal, Sorabh Dahiya, Vibhu Sharma, Anmol Mehta, Deepak Anand, Advocates.

JUDGMENT

Deepak Gupta, J. – Leave granted.

2. All these appeals are being decided by one common judgment since they arise out of a common order dated 08.06.2018 of the National Consumer Disputes Redressal Commission, New Delhi, hereinafter referred to as `the National Commission’.

3. Briefly stated the facts of the case are that most of the claimants, hereinafter referred to as `the farmers’, had grown Byadgi Chilli Crop during the year 2012-2013. Some of the farmers had some other crops. These farmers had stored their agricultural produce in a cold store run by a partnership firm under the name and style of Sreedevi Cold Storage, hereinafter referred to as `the cold store’. These farmers also obtained loans from Canara Bank, hereinafter referred to as `the Bank’. The loan was advanced by the Bank to each one of the farmers on security of the agricultural produce stored in the cold store. The cold store was insured with the United India Insurance Company Limited, hereinafter referred to as `the insurance company’. A fire took place in the cold store on the night intervening 13.01.2014 and 14.01.2014. The entire building of the cold store and the entire stock of agricultural produce was destroyed.

4. After the fire, the cold store, which had taken out a comprehensive insurance policy, raised a claim with the insurance company but the claim of the cold store was repudiated by the insurance company mainly on the ground that the fire was not an accidental fire. The farmers had also issued notice to the insurance company in respect of the plant, machinery and building but this claim was repudiated by the insurance company on the additional ground that the farmers had no locus standi to make the claim as the insured was the cold store and not the farmers. It was further pleaded that Condition No.8 of the insurance policy had been violated, and that there was no privity of contract between the farmers and the insurance company. Since the claims of the farmers were either rejected or not answered, they filed claim petitions against the cold store, the Bank and the insurance company in which the primary relief claimed was the value of the agricultural produce as on the date of fire and interest thereupon and each of the farmers also claimed damages of L 1,00,000/- per head. There were 91 claim petitions filed and in most of them the agricultural produce was Byadgi Chilli. In a few petitions, the agricultural produce was Dabbi Chilli, Guntur Chilli, Bengal Gram, Coriander (Dhania), Jwar etc. However, this will not have any material impact on the decision of these cases. The details containing the name of the claimants, the nature of the produce, number of bags and quantity thereof, rate, and number of kilograms have been set out in Para 7 of the judgment of the National Commission which we are not reproducing for the sake of brevity.

5. In the claims filed it was pleaded that the cold store while levying the general charges had also charged the insurance premium paid by it. It would be pertinent to mention that a tripartite agreement had been entered into by each one of the farmers while taking a loan from the Bank and hypothecating the agricultural produce which was stored in the cold store. The farmer, the Bank, and the cold store were parties to the tripartite agreement. The cold store issued a warehouse receipt giving the particulars of the crop stored, the value thereof and also the date of the tripartite agreement. For the period in question i.e. from 2012-2013 till the occurrence of fire, the cold store was admittedly insured with the insurance company. The plant and machinery of the cold store was insured for L 5 crores and the stocks were insured for L 30 crores.

6. The case of the farmers was that in terms of the tripartite agreement, the cold store had got the stocks insured from the insurance company. The fire was an accidental fire and, therefore, in terms of the policy, the insurance company was liable to pay the amount of value of the agricultural produce stored with the cold store as on the date of fire and was also liable to pay interest on the amount payable. The insurance company resisted the complaint mainly on the ground that the `farmers’ were not `consumers’ within the meaning of Consumer Protection Act, 1986, hereinafter referred to as `the Act’. It was also claimed that there was no privity of contract between the farmers and the insurance company because the policy was taken by the cold store and not by the farmers. It was alleged that the entire story of loans was a false story. On merits, any conceivable objection which could be taken was taken. The insurance company went to the extent of denying that the claimants were farmers or they had produced the agricultural produce or that they had stored it in the cold store. It was also alleged that the Bank was negligent as it did not take any step to recover the amount due for more than two years. The case of the insurance company is that nobody in his right mind would store agricultural produce for such a long period of time. Therefore, the very genuineness of the tripartite agreement was challenged. The other main ground taken was that the fire was not an accident and there was no spontaneous combustion on account of electrical short circuit. According to the insurance company, there was an element of arson involved and the cold store seems to have been deliberately set on fire.

7. The stand of the cold store was that the fire was accidental and that since the stock was insured, the amount was payable by the insurance company. The Bank supported the claim of the farmers with the caveat that the amount should be paid to it so that it could set it off against the loans advanced to the farmers.

8. The Karnataka State Consumer Disputes Redressal Commission at Bangalore, hereinafter referred to as `the State Commission’ vide judgment dated 28.04.2017 held that the farmers had proved that the fire took place on account of electrical short circuit and no element of human intervention or use of kerosene was found. The State Commission also found that as per the tripartite agreement entered into between the farmers, the Bank and the cold store, it was mandatory for the cold store to insure the goods so hypothecated by the farmers with the Bank. The insurance company was held liable to pay the amount to the farmers. The State Commission assessed the value of the goods by taking the value as reflected in the warehouse receipts issued at the time of taking of loan and did not accept the plea of the farmers that they should get the market value of the goods as on the date of fire. The Bank was also held deficient in service. The cold store and the insurance company were held jointly and severely liable and were directed to pay the value of the agricultural produce hypothecated with the Bank to the farmers/claimants as on the date of tripartite agreement together with the interest at the rate of 14% per annum payable from six months from the date of the incident till the date of realisation. One complaint being Complaint No.597 of 2015 was dismissed. In some of the complaints, the Bank was also held jointly and severely liable to pay the costs of L 10,000/- whereas in a large number of cases the complaint against the Bank was dismissed.

9. Aggrieved by the aforesaid judgment dated 28.04.2017 of the State Commission, an appeal was filed before the National Commission. By the impugned judgment, the National Commission concurred with the findings of the State Commission and held that the farmers are consumers. It held that the insurance company was aware of the fact that the goods were held in trust. It further held that there is no evidence to show that the fire was not an accidental fire or that the fire had been started by the owner of the cold store. However, it partly allowed the appeal of the insurance company and reduced the interest from 14% per annum to 12% per annum. The farmers had also filed appeal claiming that in terms of the insurance policy they should have been paid the value of the goods as on the date of fire. However, this claim was rejected basically on the ground that the farmers had failed to show that the chilli and/or other produce stored is of the same class and characteristics as reflected in the Variety-wise Periodic Report of the Bengaluru Market for different commodities. As far as the appeals filed by the Bank were concerned, the National Commission held that in the peculiar facts of the case where the farmers had suffered substantial losses, the principal amount of loan advanced by the Bank would be remitted by the insurance company to the Bank but the other amount i.e. interest and damages, would be given to the farmers. It was also held that there was no deficiency of service on behalf of the Bank and the costs imposed on the Bank in some of the cases were set aside.

10. Before this Court, appeals have been filed by the insurance company, the farmers, the cold store and the Bank.

11. We have heard Shri P.P. Malhotra, learned senior counsel appearing for the insurance company, Dr. Rajeev Dhavan and Shri Gopal Shankaranarayanan, learned senior counsel appearing for the farmers, Shri Sajan Poovayya, learned senior counsel appearing for the cold store and Shri Dhruv Mehta, learned senior counsel appearing for the Bank.

Appeals of the Insurance Company

12. Shri P.P. Malhotra, learned senior counsel appearing for the insurance company raised several issues for consideration of this Court. One of the contentions raised by him is that the fire in question was not an accidental fire. It is also contended that the farmers were not consumers and therefore the consumer fora have no jurisdiction to decide the dispute. He next contends that there is no privity of contract between the farmers and the insurance company. According to him, a contract of insurance is to be strictly construed between the parties to the contract. He submits that there was no insurable interest of the farmers and the tripartite agreement entered between the Bank, the farmers and the cold store was never disclosed to the insurance company. He further submits that there is non-disclosure of important facts by the cold store (insured) and, as such, the insurance company is not liable. He also urged that the liability of the insurance company is excluded by virtue of General Exclusion Clause 5 and General Condition no.1 and General Condition no.8 of the insurance policy.

Whether the fire was an accident?

13. As far as this issue is concerned, both the State Commission and the National Commission have come to the conclusion that the fire was an accidental fire and occurred due to a short circuit. These are pure findings of fact which, in our view, cannot be challenged in these proceedings. However, since lengthy arguments were addressed by Shri P. P. Malhotra in this behalf, we shall deal with the same. At the outset, we may note that the electrical inspector, the police investigation team and the forensic science laboratory (FSL) have all come to the conclusion that the fire took place due to a short circuit. The concluding portion of the report of the FSL reads as follows:-

“From the above examination, the following observations have been made
1. Presence of combustible materials like thermocol (which are used to insulate the walls) pillars, wooden partitions and the grains stored inside the building could have enhanced the spread of fire.
2. The congested space in the building might have accelerated the smoldering fire.
3. The fire might have originated at the sixth floor front side of the building. But it was not possible to locate the exact place of origin of fire since the complete building was involved in fire.
4. An electrical short circuit may have initiated the fire.”
The insurance company relies upon the findings given by a company namely Truth Labs and those of Rank Surveyors Private Limited, which read as follows:-

“Based on a thorough and in-depth inspection of the incident site, forensic examinations, field investigations, documentary evidence analysis and personal evidence obtained, it is concluded that the fire occurred in M/s. Sree Devi Cold Storage, Billary on the intervening night of 13/14th January 2014.
a. Was not due to spontaneous combustion on account of bacterial/chemical fires.
b. Was not due to electrical failure caused by short circuit.
c. And was on account of extraneous ignitable fire accelerants such as kerosene used deliberately for ignition, initiation, propagation and burning of stocks in the cold storage through human intervention.
d. Based on the motive, means and opportunity to carry out such malicious acts the possibility of the involvement of management in such a nefarious act cannot be ruled out.”
14. We may note that it is not disputed that in the construction of the cold store, the temperature was maintained by insulating the walls of the cold store. Bitumen (coal tar) and Thermocol were used for providing insulation. The FSL found that in a fire which takes place in a building where such material is used for construction, hydro carbons would obviously be present. On the other hand, M/s. Truth Labs mainly relied upon the presence of hydro carbons to come to the conclusion that the fire had not occurred spontaneously and on account of electrical short circuit but occurred on account of extraneous ignitable fire accelerants such as kerosene. The conclusions of M/s. Truth Labs were based on some inspection and chemical analysis carried out by a team headed by Dr. R. Srinivas. Admittedly, this report of Dr. R. Srinivas was never furnished to the parties nor was placed before the State Commission. Interestingly, when Mr. G. V. H. V. Prasad, Director of M/s. Truth Labs was put a specific query whether the walls of the ground floor and the top floor and the inside portion of the cold store along with 169 pillars were constructed by sandwiching bitumen and thermocol between the concrete in order to raise the level of insulation, he replied that `he was not aware of how the Cold Storage was built’. This clearly shows the shoddy manner in which M/s. Truth Labs conducted the investigation. There can be no proper investigation of a fire if the investigating agency does not even try to find out what is the nature of construction of the building which has been destroyed in the fire. M/s. Truth Labs has clearly stated that the observation that fire took place on account of extraneous ignitable fire accelerants, is based on the chemical analysis report which shows presence of hydro carbons in the debris. It is apparent that M/s. Truth Labs, for reasons best known to it, did not analyse the material used for construction because if it had done so, it would have realised that hydro carbons would be present when thermocol or bitumen are burnt. Thermocol is basically a rigid plastic foam material which is derived from petroleum and natural gas by-products. Bitumen is a semi-solid hydrocarbon product produced from crude oil. Both thermocol and bitumen are derivatives of petroleum products and hence are hydrocarbons by their very nature. Therefore, presence of hydrocarbons would be natural when a fire takes place. The presence of hydro carbon could not lead to a conclusion that kerosene oil had been used to ignite the fire.

15. The National Commission has also dealt in detail with this issue and has come to the conclusion that M/s. Truth Labs visited the burnt cold store on two occasions and collected samples on both the occasions. It, however, decided to send 12 samples collected only in the second visit for analysis. Interestingly, the controlled samples were collected from a plastic bag containing (fresh unaffected) chillies found in the burnt stock of the affected premises. The controlled samples did not show presence of hydro carbons and hence, the assumption that the presence of hydro carbons in the remaining samples was not relatable to thermocol and tar. There is no explanation why the samples taken on the first visit were not sent for analysis. It is also difficult to believe that in a building which has been totally gutted in a fire, there would be one plastic bag containing (fresh unaffected) chillies found in the burnt stock. It is possible that these unburnt chillies may have been introduced later on. Therefore, we cannot place any reliance on the report of M/s. Truth Labs.

16. In any event, neither in the report of M/s. Truth Labs nor in the other reports by the insurance company is there anything to show that the insured had set the cold store on fire. Whether the fire took place by a short circuit or any other reason, as long as insured is not the person who caused the fire, the insurance company cannot escape its liability in terms of the insurance policy. We reject the contention of the insurance company that the fire was ignited by the use of kerosene and hence it is not liable.

Rule of Strict Interpretation

17. It has been submitted on behalf of the insurance company that the terms of the insurance policy should be construed strictly and since only the insurance company and the cold store (insured) were parties to the contract of insurance, the insurance company will not be liable to pay any claim to the farmers. Various authorities were cited by both sides.

18. In United India Insurance Co. Ltd. v. Harchand Rai Chandan Lal, (2004) 8 SCC 644 this Court held as follows:-

“9….It is settled law that terms of the policy shall govern the contract between the parties, they have to abide by the definition given therein and all those expressions appearing in the policy should be interpreted with reference to the terms of policy and not with reference to the definition given in other laws. It is a matter of contract and in terms of the contract the relation of the parties shall abide and it is presumed that when the parties have entered into a contract of insurance with their eyes wide open, they cannot rely on the definition given in other enactment….”
19. Reliance was placed on Raghunath Rai Bareja v. Punjab National Bank, (2007) 2 SCC 230wherein it was held:

“58. We may mention here that the literal rule of interpretation is not only followed by judges and lawyers, but it is also followed by the layman in his ordinary life. To give an illustration, if a person says “this is a pencil”, then he means that it is a pencil; and it is not that when he says that the object is a pencil, he means that it is a horse, donkey or an elephant. In other words, the literal rule of interpretation simply means that we mean what we say and we say what we mean. If we do not follow the literal rule of interpretation, social life will become impossible, and we will not understand each other. If we say that a certain object is a book, then we mean it is a book. If we say it is a book, but we mean it is a horse, table or an elephant, then we will not be able to communicate with each other. Life will become impossible. Hence, the meaning of the literal rule of interpretation is simply that we mean what we say and we say what we mean.”
20. Reliance was also placed on the following paragraph in Suraj Mal Ram Niwas Oil Mills (P) Ltd. v. United India Insurance Co. Ltd., (2010) 10 SCC 567:

“26. Thus, it needs little emphasis that in construing the terms of a contract of insurance, the words used therein must be given paramount importance, and it is not open for the court to add, delete or substitute any words. It is also well settled that since upon issuance of an insurance policy, the insurer undertakes to indemnify the loss suffered by the insured on account of risks covered by the policy, its terms have to be strictly construed to determine the extent of liability of the insurer. Therefore, the endeavour of the court should always be to interpret the words in which the contract is expressed by the parties.”
21. The principles relating to interpretation of insurance policies are well settled and not in dispute. At the same time, the provisions of the policy must be read and interpreted in such a manner so as to give effect to the reasonable expectations of all the parties including the insured and the beneficiaries. It is also well settled that coverage provisions should be interpreted broadly and if there is any ambiguity, the same should be resolved in favour of the insured. On the other hand, the exclusion clauses must be read narrowly. The policy and its components must be read as a whole and given a meaning which furthers the expectations of the parties and also the business realities. According to us, the entire policy should be understood and examined in such a manner and when that is done, the interpretation becomes a commercially sensible interpretation. As far as the present case is concerned, if we read the tripartite agreement along with the terms of the policy it is obvious that the Bank insisted that the stock be insured. The farmers were told that they would pay the premium. The cold store while fixing the rent obviously factored the premium into the rent. It was obvious that the intention of the parties was that they would be compensated by the insurance company in case of any untoward loss.

Whether the farmers are consumers and the issue of privity of contract

22. One of the main grounds of attack to the judgments of both the State Commission and the National Commission on behalf of the insurance company is that the farmer is not a consumer insofar as the insurance company is concerned. The contention is based on the ground that the insurance policy is admittedly only between the insurance company and the cold store. It is further urged by Shri Malhotra that the claim of the cold store for damage to the building, plants and machinery was repudiated by the insurance company on 16.09.2015. The cold store has not challenged the repudiation. Thereafter, all the complaints have been filed through one counsel which indicates that they have been orchestrated by the cold store itself. It is also submitted that the tripartite agreement is not relevant as far as the insurance company is concerned since the insurance company is not a signatory to the tripartite agreement. It is further contended that the coverage for the goods was only for the goods owned by the cold store and not by the farmers who are in the nature of third parties. It is contended that in some cases the tripartite agreement has not even been signed by the Bank.

23. On the other hand, on behalf of the farmers, it is submitted that they paid rent to the cold store which included the element of insurance. It is submitted that the crops were given on contractual bailment to the cold store for a valuable consideration and, therefore, the cold store held the goods as a bailee on behalf of the farmers. It is also submitted that in terms of the tripartite agreement, the cold store was bound to take out an insurance policy and the crops and the premises were separately insured and the insurance was renewed every time for a period of 3 years. It is also submitted that insurance company was aware that the insurance policy had been taken for the benefit of the real owners i.e. farmers.

24. To decide these issues, it would be apposite to refer to the definition of `consumer’ under Section 2(d) of the Act, which reads as follows:-

“2 Definitions. – (1) In this Act, unless the context otherwise requires,-
xxx xxx xxx
(d) “consumer” means any person who, –
(i) buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment, when such used is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or
(ii) hires or avails of any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person…;”
25. The definition of consumer under the Act is very wide and it not only includes the person who hires or avails of the services for consideration but also includes the beneficiary of such services who may be a person other than the person who hires or avails of services.

26. Taking the issue of privity of contract, we are of the considered view that as far as the Act is concerned, it is not necessary that there should be privity of contract between the insurance company and the claimants. The definition of consumer under Section 2(d) quoted hereinabove is in 2 parts. Sub-clause (i) of Section 2(1)(d) deals with a person who buys any goods and includes any user of such goods other than the person who buys such goods as long as the use is made with the approval of such person. Therefore, the definition of consumer even in the 1st part not only includes the person who has purchased but includes any user of the goods so long as such user is made with the approval of the person who has purchased the goods. As far as the definition of the consumer in relation to hiring or availing of services is concerned, the definition, in our view, is much wider. In this part of the section, consumer includes not only the person who has hired or availed of the services but also includes any beneficiary of such services. Therefore, an insured could be a person who hires or avails of the services of the insurance company but there could be many other persons who could be the beneficiaries of the services. It is not necessary that those beneficiaries should be parties to the contract of insurance. They are the consumers not because they are parties to the contract of insurance but because they are the beneficiaries of the policy taken out by the insured.

27. The definition of consumer under the Act is very wide and it includes beneficiaries who can take benefit of the insurance availed by the insured. As far as the present case is concerned, under the tripartite agreement entered between the Bank, the cold store and the farmers, the stock of the farmers was hypothecated as security with the Bank and the Bank had insisted that the said stock should be insured with a view to safeguard its interest. We may refer to the penultimate clause of the tripartite agreement which reads as follows:-

“WHEREAS the Third Party has agreed to insure the produce/goods stored in the cold storage to indemnify the produce in case of any casualty or accident by any means to cover the risk and also to cover the loan amount to avoid loss at the cost of the Second Party till the release order or repayment of the loan amount.”
28. The aforesaid clause in unambiguous terms binds the cold store to insure the goods, to indemnify the produce, to cover the risk and cover the loan amount. This insurance policy has to be taken at the cost of the second party which is the farmer. Therefore, there can be no manner of doubt that the farmer is a beneficiary under the policy. The farmer is, therefore, definitely a consumer and we uphold the orders of both the Commissions that the complaint under the Act is maintainable.

29. Shri Malhotra in support of his argument relied upon the judgement of this Court in M. C. Chacko v. The State Bank of Travancore, Trivandrum, (1969) 2 SCC 343 wherein the appellant as Manager of High Land Bank, Kottayam, had an overdraft account with the Bank. The father of the appellant had executed letters of guarantee in favour of Bank agreeing to pay the amounts due to the Bank under the overdraft agreement subject to a limit of L 20,000/-. The Court held:-

“10. Even if it be granted that there was an intention to create a charge, the Kottayam Bank not being a party to the deed could enforce the charge only if it was a beneficiary under the terms of the contract, and it is not claimed that the Bank was a beneficiary under the deed Ext. D-1. The suit against M.C. Chacko must therefore be dismissed.”
30. We are of the view that this judgment has no relevance to the case before us. This Court held that the Kottayam Bank was not only not a party to the deed but was also not a beneficiary under the contract. In our opinion, the Consumer Protection Act clearly provides that a beneficiary of the services, other than the insured is a consumer under the Act.

General Exclusion Clause No.5

31. It has been urged that there is violation of Clause 5 of the policy under the heading of General Exclusion wherein losses of certain types have not been covered. The said clause reads as follows:-

“5. Loss, destruction or damage to bullion or unset precious stones, any curios or works of art for an amount exceeding L 10000/- goods held in trust or on commission, manuscripts, plans, drawings, securities, obligations or documents of any (illegible) stamps, coins or paper money, cheques, books of accounts or other business books, computer systems records, explosives unless otherwise expressly stated in the policy.”
32. The argument raised by Shri Malhotra is that since the goods were held in trust by the cold store, the insurance company is not liable. We are not at all impressed with this argument. This is not a case where the goods were deposited only on the basis of trust. The goods were kept in the cold store on payment of rent by the farmer. This is not a case envisaged under Exclusion Clause 5 quoted hereinabove. These goods were also not held on commission. Shri Rajeev Dhavan, learned senior counsel appearing for the farmers submits that the relationship between the farmer and the cold store was of bailor and bailee. He submits that the crops were given on contractual bailment to the cold store for consideration.

33. In the present case, as pointed out above, the farmer had agreed to pay consideration to the cold store and, therefore, the goods were not held in trust per se but the goods were held by cold store as bailee of the goods for consideration. The possession of the farm produce was handed over by the bailor, i.e. farmer to the cold store i.e. the bailee, in terms of the contract. There may be inter se rights and liabilities between the farmer and the cold store but it cannot be said that the goods were held `in trust’. The goods were also not held `on commission’. No commission was payable and only rental was paid. Therefore, we reject this argument on behalf of the insurance company.

General Condition Nos. 1 & 8:

34. Shri Malhotra has placed reliance on Condition Nos. 1 & 8 of Part B of the General Conditions of the Insurance Policy:-

“(B) GENERAL CONDITIONS:
1. This policy shall be voidable in the event of misrepresentation, mis-description or nondisclosure of any material particular.
xxx xxx xxx
8. If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof or if any fraudulent means or devices are used by the insured or anyone acting on his behalf to obtain any benefit under the policy or if the loss or damage be occasioned by the willful act, or with the connivance of the insured, all benefits under this policy shall be forfeited.”
35. The contention of Shri Malhotra is that the insurance company was not informed by the Bank, the cold store or the farmers that the farm produce or the insured goods belong to the farmers and therefore the policy is voidable. At the outset, we may note that misrepresentation or misdescription only makes the policy voidable. The insurance company never chose to declare the policy void for 3 long years when it was in existence and, at this stage, cannot be permitted to wriggle out of its liability by taking this objection. Even otherwise, we are of the view that the submission made on behalf of the insurance company is without any substance. The policies of insurance clearly show that the premises was separately insured for L 5 crores and the stock in trade were insured for L 30 crores. This insurance was taken not only for the year when the fire took place but was renewed for 3 long years. The insurance policy had an Agreed Bank Clause which reads as follows:-

“(1) AGREED BANK CLAUSE:
It is hereby declared and agreed:-
(i) That upon any monies becoming payable under this policy the same shall be paid by the company to the bank and such part of any monies so paid as may relate to the interests of other parties insured hereunder shall be received by the Bank as Agents for such other parties.
(ii) That the receipts of the Bank shall be complete discharge of the company thereon and shall be binding on all the parties insured hereunder.”
36. The aforesaid clause itself clearly indicates that it was agreed by the insurance company that upon any amount being payable under the policy in question, the same would be paid to the Bank and the amount so paid “may relate to the interests of other parties”. The said amount would be received by the Bank as agent for other parties. Therefore, the insurance policy itself envisaged that there were interest of other parties and not only the Bank and the insured. Therefore, it was for the insurance company to verify and find out who was the owner of the goods. It could not presume that all the goods belong to the cold store. The assumption of the insurance company that it had insured the goods belonging to the cold store itself has no factual basis. It is a well-known fact that cold stores are constructed in such a way that there are many compartments in the cold store. Any person can deposit a small or large amount of goods to be kept in cold store. Normally, it is the goods of third parties which are stored in a cold store and, therefore, we are dealing with a policy of insurance whereby the premises and the stock and goods in a cold store have been insured. The natural corollary would be that the insurance company should have known that the goods belong to the third parties. From the policy of insurance, we find that in respect of description of risk, the insurance covers “Stock of Guntur Chillies/Byadigi Chillies/Other variety Chillies, Jawar Seeds, Bengal Garam, Red Gram, Tambrind, Coriander Seeds & Other pulses.”

37. This stock in trade was covered for a sum of L 30 crores and premium was charged accordingly. A prudent insurance company before issuing a policy of such a heavy amount, must or at least should have ascertained the value and the nature of the goods. The insurance company before us is one of the largest nationalised insurance companies and a presumption has to be drawn that it must have verified the details before insurance policy was issued. If verification had been done by a visit to the cold store, it could have been easily found out who are the owners of the stock. In case, the insurance company has chosen not to verify the stock it cannot take advantage of its own negligence. The principle of uberrima, fides has no application because the cold store had declared all necessary facts. The bank clause clearly indicated that the goods were hypothecated/pledged to the Bank. Therefore, the insurance company now cannot turn around and claim that the names of the owners were not supplied to it at the time of insurance. We also cannot lose sight of the fact that the insurance policy was renewed at least twice. Therefore, the policy was in existence for 3 years and it is in the 3rd year that the fire took place. If the insurance company chooses not to even write a letter to the insured or take any steps to verify the value of the goods and ownership of the goods, it cannot now turn around and urge that it was not aware about the nature or ownership of the goods.

Fraudulent Claim

38. The insurance company also contends that the whole scheme is fraudulent and that no farmer in his right senses would store agricultural produce for such a long time. This argument is totally baseless.

39. Byadgi Chilli is the major component of the goods that were stored in the cold store. It is a very famous variety of chilli and is produced in two types – dabbi and kaddi. One of the main uses of this chilli is not only as an item of food but as an item to extract red colour pigment which is used in the manufacture of lipsticks, nail polishes, and other cosmetics etc. The material extracted is called oleoresin, which is a red oil extracted from the pods. Many cold stores have been constructed in the area where this chilli is grown because if these chillies are stored at a low temperature of 4 to 6 degree Celsius, the colour and purity is maintained and it also increases the amount of oleoresin which can be extracted from chilli by about 30% to 40%. As such the farmers took a commercial decision to store the chillies because after storing it, the value would go higher.

40. The insurance company also urged that some of the tripartite agreements are not signed by the officials of the Bank. It is urged that this shows that the agreements cannot be relied upon. We are not at all in agreement with this submission. As long as the parties to the tripartite agreement i.e. the Bank, the farmer and the cold store, are not disputing the correctness of the agreement, there is no reason why we should not accept the same to be a genuine document.

Non-disclosure of material facts:

41. It has been urged on behalf of the insurance company that while submitting the proposal form on 21.03.2013, the cold store had not listed out the names of the parties who had an insurable interest including the financial institutions. It is, therefore, submitted that the cold store deliberately did not disclose the fact that the produce belonged to the farmers. Shri Malhotra placed reliance on the judgment in Satwant Kaur Sandhu v. New India Assurance Co. Ltd., (2009) 8 SCC 316 wherein it was held that:

“25. The upshot of the entire discussion is that in a contract of insurance, any fact which would influence the mind of a prudent insurer in deciding whether to accept or not to accept the risk is a “material fact”. If the proposer has knowledge of such fact, he is obliged to disclose it particularly while answering questions in the proposal form. Needless to emphasise that any inaccurate answer will entitle the insurer to repudiate his liability because there is clear presumption that any information sought for in the proposal form is material for the purpose of entering into a contract of insurance.”
42. At the outset, we may mention that the initial insurance policy was taken in the year 2011, if not earlier, and that proposal form was very material. The same has not been produced by the insurance company before us. Thereafter, it was only renewal of the policy. Furthermore, if a column is left blank, again the insurance company should have asked the insured to fill in the column. There is no wrong information given in the proposal form though it may be true that all the requisite information was not supplied. The column requires listing out the parties who have an insurable interest including financial institutions. Since the policy had a bank clause, the name of Canara Bank should have been mentioned in column 5. That was not there. If the insurance company while accepting the proposal form does not ask the insured to clarify any ambiguities then the insurance company after accepting the premium cannot now urge that there was a wrong declaration made by the insured. In case the insured had written that there were no persons who had an insurable interest, the position may have been different but leaving out the column blank does not mean that there was some misdeclaration of facts. We are, therefore, clearly of the view that the judgment of this Court in Satwant Kaur Sandhu’s case (supra) is not applicable to the facts of the present case.

43. As already held above, the insurance company itself could have also taken some initiative in the matter. To make a contract void the non-disclosure should be of some very material fact. No doubt, it would have been better if the Bank and the insured had given at least 1 tripartite agreement to the insurance company but, in our view, in the peculiar facts of this case, not disclosing the tripartite agreement or the names of the owners cannot be said to be such a material fact as to make the policy void or voidable. We are clearly of the view that there is no fraudulent claim made. There is no false declaration made and neither is the loss and damage occasioned by any wilful act or connivance of the insured.

44. In view of the above discussion, we are clearly of the view that the insurance company under the insurance policy is liable to indemnify the cold store with regard to the value of goods and since the farmers are the beneficiaries, they are entitled to get the amount payable under the policy. However, this will obviously be subject to the bank clause which we have already referred to above.

Appeal of the Bank

45. The Bank has raised objections to the interest portion of the amount being given to the farmers. Otherwise it supports the case of the farmers. Reliance has been placed on the bank clause already quoted above and it is submitted that the direction of the National Commission to pay the interest to the farmers is against the Agreed Bank Clause in terms of which the money is to be paid to the Bank till the outstandings of the Bank are covered. Shri Dhruv Mehta, learned senior counsel for the Bank submits that since the farmers are claiming benefit of the policy, they cannot urge that the bank clause is not applicable. It is further submitted by him that the National Commission has to decide questions on the basis of legal considerations and equitable considerations or equity has no role to play in such matters. On the other hand, it has been urged by Dr. Rajeev Dhavan that the bank clause is only a processual clause.

46. We cannot accept the submission of Dr. Dhavan that the bank clause lays down only a process. The insurance policy is a contract and the amount has to be paid as per the terms of the contract. In our view, the National Commission could not have ordered that the interest on the amount payable to the farmers should not be paid to the Bank till the liabilities of the Bank are paid out. Arguments have been addressed before us that this Court may exercise its power under Article 142 of the Constitution of India to ensure that justice is done to the farmers. We feel that there is no need to invoke the jurisdiction under Article 142 because even after paying off the dues of the Bank, some amount of the value of the goods along with interest thereupon will be payable to the farmers.

Whether there was a deficiency in service on the part of the Bank

47. It was urged on behalf of the insurance company that there is deficiency of service by the Bank and, in fact, it was argued that the Bank connived with the farmers because it did not get the valuation of the products done properly and further, it took no steps to sell the agricultural produce after one year which liberty it had in terms of the tripartite agreement. We find no force in this argument. As already pointed out above, the value of Byadgi chillies which was the major agricultural produce stored in the cold store rises the longer it is kept in the cold store. Therefore, the Bank could have taken a commercial decision not to sell the produce because the product was not deteriorating in any manner and its value was not diminishing.

48. The State Commission had held that there was deficiency on behalf of the Bank in rendering services but the National Commission held otherwise. We are of the view that the Bank was remiss to a limited extent. When the Bank issues loans against the hypothecation of goods, as in the present case, and insists that the goods should be insured to safeguard its outstandings then a duty lies upon the Bank to inform the insurance company of the policy. If both the Bank and the insurance company had done what would be expected of good financial institutions, there would have been no needless litigation. The matter has dragged to this stage only because the names of the farmers were not mentioned in the policy or because the tripartite agreement was not handed over to the insurance company. The Bank, as a prudent financial institution, should have insisted that the tripartite agreement should also be handed over to the insurance company. Therefore, we feel that there is some level of deficiency on behalf of the Bank.

49. In view of the aforesaid, we feel that the Bank cannot claim interest at the contractual rate and is not entitled to claim interest at the contractual rate because the farmers have been driven through a long drawn litigation which could have been easily avoided if the Bank had itself sent the copy of the tripartite agreement to the insurance company or insisted that the insured should send the same to the insurance company. We accordingly hold that the Bank cannot claim interest at the contractual rate. We are therefore, of the view that the Bank would be entitled to charge simple interest right from the date of grant of loan at the rate of 12% per annum.

The amount of claim payable:

50. The farmers in their appeal have claimed that in terms of the policy of insurance the value of the goods was to be assessed on the date of fire and the value was not to be assessed as mentioned on the date when the goods were stored in the cold store. In this regard, we may make reference to the opening portion of the insurance policy wherein the insurance company has agreed to insure the goods. Relevant portion of the insurance policy reads as follows:-

“IN CONSIDERATION of the insured named in the schedule hereto having paid to the United India Insurance Company Limited (hereinafter called the Company) the full premium mentioned in the said schedule. The Company Agrees (Subject to the conditions and exclusions contained herein or endorsed or otherwise expressed hereon) that if after payment of the premium the property insured described in the said schedule or any part of such property be destroyed or damaged by any of the perils specified hereunder during the period of insurance named in the said schedule or of any subsequent period in respect of which the insured shall have paid and the Company shall have accepted the premium required for the renewal of the policy, the Company shall pay to the insured the value of the property at the time of the happening of its destruction or the amount of such damage or at its option reinstate or replace such property or any part thereof.”
51. The highlighted portion of the aforesaid clause leaves no manner of doubt that the insurance company in consideration of the premium received had agreed to either reinstate the goods or replace the same or pay to the insured the value of the property at the time of happening of its destruction or damage. The State Commission and the National Commission had rejected the claim of the farmers in this regard on the ground that the variety-wise periodic report of the Bengaluru market, produced by the farmers, showed that the range between minimum and maximum price for Byadgi and Guntur chillies etc. is very vast and to arrive at an average price would mean construing that all the chillies are of standard quality. According to the National Commission, this would be a speculative exercise based on the assumption that the entire quantity of chillies is of the same class and characteristic.

52. At the time when the farmers deposited the goods with the cold store there were handed over warehouse receipts which not only gave identity of the agricultural produce but also reflected the quantity of the agricultural produce and its market value on the date when this produce was stored in the cold store. However, the quality of the produce is not reflected in the warehouse receipts.

53. Though we hold that in terms of the clause discussed above the insurance company is liable to pay the value of the goods as on the date of the fire, we feel that the National Commission was right when it came to the conclusion that it was not possible to award an amount based on the variety-wise periodic report of the Bengaluru market. This is the only evidence produced by the farmers and brought to our notice to support their contention. The National Commission is right that the difference between minimum price for which this product was sold during the period 14.12.2013 to 14.01.2014 and the maximum price for the same agricultural produce during this period is so high that without exactly knowing what was the quality of agricultural produce, it would not be possible to ascertain what was the price on the date of fire. To give an example, Byadgi chillies have a price range of L 3,200 per quintal to L 17,300 per quintal i.e. L 32 per kilogram to L 173 per kilogram. There is no way for any Court to determine what the exact price would have been without having the benefit of the quality of produce. Unfortunately, even in the warehouse receipts there is no gradation or reflection of the quality of the produce.

54. We, therefore, affirm the decision of the National Commission that the value of the goods as reflected in the warehouse receipts should be taken to be the value on the date of fire. We may add that this value is not very different from the median value for most of the products. We rely upon the value given in the warehouse receipts because that was the value which was given by the farmers, not knowing that their product is going to be burnt, and was accepted by the cold store, which must have known the value of the product in the local market and accepted by the Bank, which on the basis of such surety advanced the loan.

55. In view of the aforesaid discussion, we are of the view that the Bank shall be entitled to recover the principal amount advanced by it to each one of the farmers along with the simple interest at the rate of 12% per annum from the date of advancing of loan till repayment thereof. The insurance company is liable to pay the value of goods as reflected in the warehouse receipts of each farmer along with simple interest at the rate of 12% per annum from the date of fire till payment of the amount. The dues of the Bank till the date of fire will have to be first determined and, thereafter, the excess will be payable to the farmer along with the interest.

56. To clarify the issue we take the example of the first farmer-Thippa Reddy at Sr. No.1, in whose Account No.1425844005736, the loan of L 10,00,000/- was sanctioned on 30.08.2011. The insurance company has worked out his outstanding on the date of incident at L 13,57,307/- whereas the value of the goods was 2,00,2000 as per the warehouse receipt. If we calculate simple interest at the rate of 12% per annum on L 10,00,000/- from 30.08.2011 till 14.01.2014, it works out to L 2,84,712/-approximately. Obviously, if the farmer has paid any amount towards the loan that will also have to be adjusted but for the sake of clarification, we are assuming that no amount has been paid. Therefore, with effect from 14.01.2014, the insurance company shall be liable to pay interest on 10,00,000/- at the rate of 12% per annum to the Bank and shall also be liable to pay a sum of L 7,17,288/- along with interest at the rate of 12% per annum from 14.01.2014 till payment to the farmer.

57. In view of the above, we dispose of the appeals with the following directions:

1. That the insurance company shall be liable to pay to each one of the farmers the value of his goods to be assessed as per the rate mentioned on the warehouse receipts when the goods were stored in the Cold Store in terms of our direction given hereinabove along with interest at the rate of 12% per annum from the date of fire till payment or deposit thereof.

2. That the Canara Bank shall file certified statements of accounts before the Karnataka State Consumer Disputes Redressal Commission showing the principal amount of loan advanced to each farmer and the amount due to the Bank by calculating simple interest @ 12% p.a. up to 13.01.2014 i.e. payable by 14.01.2014 after adjusting the payments which the Bank may have received in the loan account.

3. The Bank in the statement of accounts shall also set out the amount due with the aforesaid rate of interest up to 30.04.2020.

4. The aforesaid statement be filed before the State Commission on or before 02.03.2020.

5. That thereafter, the State Commission in each appeal shall determine the amount payable to the farmer by calculating it in terms of the clarification given above i.e. after adjusting the amount due to the Bank as on 14.01.2014. This exercise be completed on or before 31.03.2020.

6. Out of the aforesaid amount, the Insurance Company shall pay the amount of loan along with simple interest at the rate of 12% per annum from the date of advancement of loan to the date of payment directly to the Bank.

7. Thereafter, the insurance company shall deposit the amount payable to the farmers with the State Commission on or before 30.04.2020.

58. All appeals are disposed of in the aforesaid terms. No order as to costs. Pending application(s), if any, shall also stand(s) disposed of.