Case Note & Summary
This writ petition under Article 226 of the Constitution of India was filed by a trade union representing 55 employees of Solapur Nagari Audyogic Sahakari Bank Limited, challenging an order dated 25 June 2012 passed by the Commissioner for Co-operative Societies, Maharashtra State, which recalled an earlier order dated 3 April 2012 that had approved payment of compensation. The bank, registered under the Maharashtra Co-operative Societies Act, 1960, faced financial crisis from 2001, leading to the Reserve Bank of India cancelling its banking licence on 4 November 2011 under Section 22 of the Banking Regulation Act, 1949, after a failed revival opportunity. Consequently, on 11 November 2011, the bank was placed under liquidation and a liquidator was appointed. Before the licence cancellation, the bank had floated a Voluntary Retirement Scheme (VRS) which was approved by the management on 25 October 2011, offering one month's salary for minimum services plus ten months' salary as extra compensation. Facing threats of termination, 55 employees, represented by the petitioner union, opted for VRS with effect from 1 November 2011. Their applications were accepted but the compensation was not paid. After liquidation, the scheme was formally approved by the Commissioner on 19 January 2012, and subsequently, on 3 April 2012, the Commissioner approved three proposals submitted by the liquidator, including payment of compensation to these 55 employees. However, on 25 June 2012, the Commissioner recalled the 3 April 2012 order, inter alia, informing the liquidator that only employees in service on the date of the winding up order were entitled to compensation, and since the 55 employees had opted for VRS four days prior, they could not be considered as in service. The union contended that the employer-employee relationship does not get severed merely by acceptance of VRS until full payment of benefits, and that the Commissioner's determination of this status was perfunctory. The High Court accepted the petitioner's arguments, finding the recall order illegal and unjustified. The impugned order was set aside and the earlier direction to pay compensation was restored.
Headnote
A) Service Law - Voluntary Retirement Scheme - Continuation of employment relationship - Until full compensation and benefits under a Voluntary Retirement Scheme are paid, the employer-employee relationship does not come to an end - The Court held that the Commissioner's finding that the employees were not in service on the date of winding up because they had accepted VRS four days earlier was erroneous, as the relationship subsists until dues are cleared (Paras 17-18).
B) Administrative Law - Review/Recall of Orders - Improper exercise of power - The Commissioner-Co-operative Societies, while dealing with claims of employees in a liquidated co-operative bank, cannot perfunctorily determine contested issues of service status without proper application of mind - The impugned recall order dated 25 June 2012 was held to be mechanical and illegal (Paras 16-18).
Issue of Consideration
Whether the Commissioner for Co-operative Societies could recall his earlier order approving payment of compensation to employees who had opted for voluntary retirement before the bank's liquidation, on the ground that they were not in service on the date of winding up. Whether the employer-employee relationship had ceased before full payment under the Voluntary Retirement Scheme.
Final Decision
The High Court allowed the writ petition, quashing and setting aside the impugned order dated 25 June 2012 as illegal and based on perfunctory determination. The court directed the respondents to release payment of compensation to the 55 employees as per the earlier order dated 3 April 2012.
Law Points
- Employer-employee relationship does not end upon acceptance of Voluntary Retirement unless full benefits and compensation are paid
- Recall of administrative order without proper application of mind is arbitrary and unjust
- Employees who have opted for Voluntary Retirement before liquidation are entitled to compensation on par with other serving employees
Case Details
2017 LawText (BOM) (03) 3
WRIT PETITION NO. 3627 OF 2013
S.C. Dharmadhikari, B.P. Colabawalla
Mr. Neel Helekar (for Petitioner), Ms. Sushma Bhende (for Respondent No.1), Mr. R. V. Govilkar i/b Mr. Suhas S. Inamdar (for Respondent No.2)
Sahakari Bank Karmachari Sangh
The Commissioner-Co-operative Societies State of Maharashtra and Solapur Nagari Audyogic Sahakari Bank Limited (through liquidator)
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Nature of Litigation
Writ Petition under Article 226 of the Constitution of India challenging an order recalling approval for payment of compensation to employees who opted for voluntary retirement before bank liquidation.
Remedy Sought
The petitioner, a trade union, sought a writ of mandamus directing the respondents to release payment of compensation as per the earlier order dated 3 April 2012, and to quash the impugned order dated 25 June 2012.
Filing Reason
The Commissioner for Co-operative Societies recalled his earlier order approving payment of compensation to 55 employees who had taken voluntary retirement, on the ground that they were not in service on the date of winding up of the bank.
Previous Decisions
The Commissioner initially approved payment of compensation to the employees on 3 April 2012, but subsequently recalled it on 25 June 2012.
Issues
Whether the Commissioner could recall the order approving payment of compensation to employees who had taken voluntary retirement before the bank's liquidation on the ground that they were not in service on the date of winding up.
Whether the employer-employee relationship subsists until full payment under the voluntary retirement scheme is made.
Whether the impugned order was passed without proper application of mind and is arbitrary.
Submissions/Arguments
The petitioner argued that the employer-employee relationship does not end merely by acceptance of the Voluntary Retirement Scheme until all benefits and compensation thereunder are fully paid; therefore, the employees were still in service on the date of winding up.
It was contended that the Commissioner had no jurisdiction to perfunctorily decide the issue of termination of service and that the recall order was based on an erroneous understanding of law.
The respondents defended the recall order, stating that the employees had already obtained voluntary retirement before the winding up order and were therefore not entitled to compensation as serving employees.
Ratio Decidendi
The employer-employee relationship does not come to an end upon mere acceptance of a Voluntary Retirement Scheme until the full benefits and compensation stipulated under the scheme are actually paid. An administrative authority cannot mechanically or perfunctorily determine a contested issue such as the continuance of employment without proper application of mind and fair hearing.
Judgment Excerpts
the employees were granted only one months' salary for minimum services and plus ten months' salary as extra compensation
the impugned order is contrary to law in as much as once the Liquidator proceeded on the footing that all employees and serving the bank have to be treated on par and none can be selected or given a march over the other for disbursement of the compensation, then, the three proposals approved earlier ought to have been allowed to be implemented
So long as the benefits and flowing from the scheme are not extended nor the amounts thereunder fully paid, it cannot be said that the employer-employee relationship had come to an end.
Procedural History
The bank faced financial difficulties, RBI cancelled its licence on 4-11-2011 under Section 22 of the Banking Regulation Act, 1949. On 11-11-2011, the Commissioner placed the bank under liquidation. Before licence cancellation, the bank introduced a VRS; 55 employees opted for retirement w.e.f. 1-11-2011 but compensation was not paid. On 19-1-2012, the Commissioner approved the VRS. On 3-4-2012, the Commissioner approved three proposals for payment to employees, including these 55. On 25-6-2012, the Commissioner recalled the order dated 3-4-2012 for these 55 employees, stating they were not in service on the winding up date. The union filed the present writ petition challenging the recall order.
Acts & Sections
- Banking Regulation Act, 1949: 22, 35-A
- Deposit Insurance and Credit Guarantee Corporation Act, 1961:
- Constitution of India: Article 226
- Maharashtra Co-operative Societies Act, 1960:
- Bombay Relations Act, 1946:
