B. Babu Rajendran v Kerala Financial Corporation and State of Kerala

**C.R.** IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU FRIDAY, THE 24TH DAY OF MARCH 2017/3RD CHAITHRA, 1939 WP(C).No. 9208 of 2012 (A) --------------------------- PETITIONER: ----------- B.BABU RAJENDRAN ASHOK BHAVAN(VRA 60), NEAR DISTRICT HOSPITAL, KOLLAM BY ADVS.SRI.S.SUDHEESHKAR SRI.BENNY JOSEPH RESPONDENTS: -------------- 1. KERALA FINANCIAL CORPORATION, VELLAYAMBALAM, THIRUVANANTHAPURAM-33, REP.BY ITS MANAGING DIRECTOR-695033. 2. STATE OF KERALA, REP.BY PRINCIPAL SECRETARY (FINANCE)SECRETARIAT, THIRUVANANTHAPURAM-695001. R1 BY ADV. SRI.VENUGOPAL M.R., SC, KFC R BY GOVERNMENT PLEADER SMT.A.C.VIDHYA THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 24-03-2017, ALONG WITH WPC. 22999/2013, WPC. 28132/2015, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WPC No.9208 of 2012 APPENDIX ## PETITIONER'S EXHIBITS |EXT.P1-|THE TRUE COPY OF THE MEMORANDUM OF SETTLEMENT FOR| |---|---| ||REVISION OF PAY AND ALLOWANCES AND ALLIED MATTERS| ||FOR STAFF AND OFFICERS DTD 27/7/2007.| |EXT.P2:-|THE TRUE COPY OF THE ORDER NO 3798/2007 DTD 26/11/2007.| |EXT.P3:-|THE COPY OF THE PAY FIXATION STATEMENT OF THE PERIOD| ||01/07/2001 TO 30/6/2006.| |EXT.P4:-|THE TRUE COPY OF THE REPRESENTATIN BEFORE THE IST| ||RESPONDENT DTD 20/4/2009.| |EXT.P5:-|THE TRUE COPY OF THE INFORMATIONSUPPLIED BY THE| ||INFORMATION OFFICER OF THE IST RESPONDENT CORPORTION| ||DTD 8/9/2009.| |EXT.P6:-|THE TRUE COPY OF THE LETTER DTD 6/6/2008 ISSUED TO THE| ||IST RESPONDENY BY THE KFC PROFESSIONALS FOURM.| |EXT.P7:-|THE TRUE COPY OF THE JUDGMENT IN WPC NO 32362/2009 DTD| ||12/11/2009.| |EXT.P8:-|THE TRUE COPY OF THE JUDGMENT IN WA NO 2616/2009 DTD| ||19/11/2009| |EXT.P9:-|THE TRUE COPY OF THE ORDER NO PSL/788/2010 DTD 27/2/2010| ||ISSUED BY THE IST RESPONDENT.| |EXT.P10:-|THE TRUE COPY OF THE REVIEW PETITON BEFORE THE IST| ||RESPONDENT.| RESPONDENTS' EXHIBITS EXT.R1(a) TRUE COPY OF THE FINANCIAL STATEMENT(BALANCE SHEET) AS ON 31.3.2008. EXT.R1(b) TRUE COPY OF THE MINUTES SIGNED BY THE UNION REPRESENTATIVES. TRUE COPY css/ P.S.TO JUDGE ## **C.R.** ## **Dama Seshadri Naidu, J.** --------------------------------------------------------WPC Nos.9208 of 2012, 28132 of 2015 and 22999 of 2013 ----------------------------------------------------------- Dated this the 24[th] day of March, 2017 ## **JUDGMENT** ## **Facts:** The petitioners in all the three writ petitions are the employees of the Kerala Financial Corporation, the second respondent. They retired on various dates in different years between 2006 and 2010. While in service, they worked in different cadres. 2. As part of the employer's periodical pay revision, its Managing Director, authorized by the Board of Directors (“the Board”), negotiated with all the employeeorganizations and arrived at Ext.P1 settlement on 27.7.2007: The employees’ pay and allowances were revised for the period from 1.7.2001 to 30.6.2011. 3. The Ext.P1 reveals that the pay revision would take WPC No.9208/2012 & conn.cases 2 effect from 29.8.2008, but the allowances would be paid only prospectively; that is, from 1.8.2007. In clause-C of Ext.P1, dealing with miscellaneous matters, the management and the employees agreed that the benefit of settlement “will be extended to the employees who joined the Corporation after 1.7.2001 and who are on the rolls of the Corporation on the date of agreement, 28.7.2007.” 4. Later, the Corporation issued Ext.P2 office order proposing to implement Ext.P1 pay revision. Faced with problems in implementing the pay revision, the Corporation had another round of negotiations with all the representatives of the employees-organizations which were initially parties to Ext.P1. After the parleys, they recorded Ext.P3 minutes of the meeting, which reveal that both parties agreed to partially modify the Ext.P1 pay revision. 5. Principal among the modified terms is the Corporation’s decision to pay only 50% arrears of the revised pay for the period from 1.7.2001 to 30.6.2006. But, WPC No.9208/2012 & conn.cases 3 for the balance period, i.e., from 1.7.2006 to 30.6.2011, it must be in full. The petitioners, now retired, are aggrieved by this partial modification. ## **WP (C) No.9208 of 2012:** 6. To begin with, the petitioner in WPC No.9208 of 2012 initially filed WP (C) No.32362 of 2009 questioning Ext.P3 modification to Ext.P1 pay revision. A learned Single Judge held that the modification was consensual. The employees who benefited from the Ext.P1 pay revision should also be bound by Ext.P3 modification, for both had been negotiated and agreed to by the same employeerepresentatives. In the intra-court appeal (W.A. No.2616 of 2009), the learned Division Bench noticed that there had already been an employee’s representation pending before the Board. 7. So, without adverting to the merits, the learned Division Bench set aside the impugned judgment and directed the Board to consider the petitioner's WPC No.9208/2012 & conn.cases 4 representation expeditiously. As the record further reveals, the Board did consider the petitioner's pending representation, but rejected it. Thus, the petitioner in WPC No.9208 of 2012 is before this Court assailing Ext.P9 order of rejection passed by the employer. **WP (C) No.22999 of 2013 and WP (C) No.28132 of 2015:** 8. As to the petitioners in these writ petitions, they initially filed Ext.P4 set of objections before the Managing Director and, later, they approached the Lok Ayukta. After prosecuting the matter, awhile, the petitioners withdrew their case from the Lok Ayukta, with liberty to approach an appropriate forum. Thus, they are before this Court impugning Ext.P3. ## **Submissions:** ## **Petitioners’:** 9. Sri Ahzar, the learned counsel for the petitioners in WP (C) No.22999 of 2013 and WP (C) No.28132 of 2015, WPC No.9208/2012 & conn.cases 5 has strenuously contended that the employer has no power to alter Ext.P1 pay revision, which already stood accepted through Ext.P2 order. According to him, even on consensus, involving the representatives of the service organizations, the employer could not have disturbed the settled terms of the agreement; that is, Ext.P1. 10. In elaboration, Sri Ahzar would contend that Ext.P3 creates two classes of employees: (1) those who retired on or before 2006, and (2) those who continued to be in service beyond 2006. According to him, the former would get only 50% arrears, whereas the latter would get 100% arrears for the period beyond 2006. 11. Sri Ahzar has further drawn my attention to Ext.P6 in WP (C) No.28132 of 2015 to contend that in the office order issued recently on 13.6.2013, the Corporation had agreed to consider paying the pay-revision arrears in full for the period 2001 to 2006, too. 12. Drawing my attention to the fact that the WPC No.9208/2012 & conn.cases 6 employer had cited financial difficulty as the reason, Sri Ahzar tried to demonstrate with the help of the Corporation’s annual balance sheets that the Corporation is in the pink of its financial health: It is one of the very few profit making public-sector undertakings. In that context, he has submitted that the Corporation’s execuse not to pay the arrears in full because of financial stringency rings shallow. 13. Sri Sudheeshkar S., the learned counsel for the petitioner in WP (C) No.9208 of 2012, has adopted Sri Ahzar’s submissions in the other two writ petitions. In addition, he has also submitted that the Board rejected the petitioner's representation through Ext.P9, mainly guided by the decision rendered by the learned Single Judge earlier, though the very judgment was set aside by a learned Division Bench, later. ## **Corporation’s:** 14. On the other hand, Sri M. R. Venugopal, the learned Standing Counsel for the Corporation, has submitted WPC No.9208/2012 & conn.cases 7 _—_ that Ext.P1 was a tentative proposal an outcome of negotiations involving all the stakeholders. He has further submitted that the Board is the apex decision making authority under Regulation 8 (11) of the Kerala Financial Corporation Staff Regulations, 1966. Unless the Board ratifies the Ext.P1, according to the learned Standing Counsel, it does not become final and binding. 15. The learned Standing Counsel took me through the Corporation’s counter affidavit in WP (C) No.9208 of 2012. As seen from it, the Corporation in its meeting held on 24.11.2007 acknowledged that all the employeeorganizations have unanimously agreed to separately discuss and decide the quantum of arrears, the mode, and the time of their payment for the period from 1.7.2001 to 31.7.2007. It was keeping in view, according to him, the Corporation’s financial position and performance. Only in that context was the Ext.P2 office order was issued on 26.11.2007, asserts the learned Standing Counsel. WPC No.9208/2012 & conn.cases 8 16. In elaboration, the learned Standing Counsel has submitted that all the employee-organizations that participated in the discussions leading to the Ext.P1 also agreed for the modifications as have been reflected in Ext.P3 minutes. According to him, the petitioners having accepted the negotiated settlement in the first instance should also accept the second negotiated modifications: the Ext.P3. To support his contentions, the learned Standing Counsel has relied on _Kerala State Electricity Board v Raghukumar[1]_ and _KFC Officer's Association and another v Kerala Financial Corporation[2] ._ 17. Heard the learned counsel for the petitioners, the learned Government Pleader, and the learned Standing Counsel for the Kerala Financial Corporation, besides perusing the record. ## **Issue:** 18. The Corporation undertook a periodic pay > 1 2012(1) KLT 199 > 2 2007(2) KLT Suppl.10 WPC No.9208/2012 & conn.cases 9 revision; it involved all the stake holders—the representatives of the employee-unions; it arrived at a particular pattern of pay revision, said to be tentative; it later held another round of negotiations with the same employee-representatives; and now has come up with a few modifications to the pay revision. Can the Corporation renege on its first-agreed pay revision? ## **Discussion:** 19. Indeed, the Corporation’s Managing Director did hold his parleys with the employee-representatives for arriving at a mutually agreeable pay-revision settlement; the outcome is Ext.P1. Through Ext.P2, the Corporation expressed its intent to implement Ext.P1. Later, as it claims to have realized the practical difficulties in implementing the Ext.P1, the Corporation, once again, negotiated with the same stakeholders as were parties to Ext.P1. And they all agreed to a modified pay revision: Ext.P3. The question we may have to answer is, is Ext.P1 pay revision final and WPC No.9208/2012 & conn.cases 10 binding, so as to render its modification a breach of contract? The concomitant question needs to be answered is, has Ext.P1 attained finality? 20. Pay or salary to an employee is more a recompense than a reward for the services the employee renders. Mostly, the duties the employees discharge may remain unchanged, but not the pay they receive. As the time passes, assuming all else to be static, we still have to bear in mind the inflationary trends chipping away at the employees’ buying capacity: Despite the pay-cheque showing the same figures, the employee gets less salary by the passing month. Though, the employer hooks the employee’s salary to inflation-index by paying dearness allowance, it is, however, not a complete answer. Nor is it a satisfactory solution. 21. That apart, stagnation either in rank or in pay leaves its deleterious mark on the employee’s performance and productivity, too. A brooding sense of ennui affects the WPC No.9208/2012 & conn.cases 11 employee’s morale. So, the periodic pay-revision. 22. Pondering over the imperatives involved in the pay-fixation, the Supreme Court in _Delhi Veterinary Association v. Union of India[3]_ has observed that, in an egalitarian society based on planned economy, it is imperative that there should be an evolution and implementation of a scientific national policy of incomes, wages and prices which would be applicable not merely to Government services but also to the other sectors of the national economy. As far as possible, the needs of a family unit have to be borne in mind in fixing the wage scales. The 'needs' are not static. They include adequate nutrition, medical facilities, clothing, housing, education, cultural activities etc. 23. _Delhi Veterinary Association_ further observes that any provision made while fixing the pay-scales for the development of a society of healthy and well educated 3 AIR 1984 SC 1221 WPC No.9208/2012 & conn.cases 12 children irrespective of the economic position of the parents is only an investment and not just an item of expenditure. In these days of galloping inflation, care should also be taken “to see that what is fixed today as an adequate payscale does not become inadequate within a short period by providing an automatic mechanism for the modification of the pay-scale.” ## 24. After elaborating on the nuances of pay-fixation, _Delhi Veterinary Association_ went onto observe thus: 6. At the same time while fixing the pay scales, the paying capacity of the Government, the total financial burden which has to be borne by the general public, the disparity between the income of Government employees and the income of those who are not in Government service and the net amount available for Government at the current taxation level, which appears to be very high when compared with other countries in the world, for developmental purposes after paying the salaries and allowances to the Government servants have also to be borne in mind. These are, however, not exhaustive of the various matters which should be considered while fixing the pay-scales. There may be many other including geographical considerations. ## **The Employer’s Discretion:** ## 25. In the realms of service law, it is well established WPC No.9208/2012 & conn.cases 13 that recommendations by a pay commission or of any other analogous authority do not bind the employer; the suggestions by the expert body like pay commission are, at best, recommendatory. But once the employer accepts the recommendations, it is bound to implement them. 26. That said, we should also acknowledge that an employer’s implementing the recommendations selectively or partially—in an arbitrary manner—to benefit one section of employees at the expense of another also negates the principle of fairness. If employer is the State or its instrumentality, that action falls foul of articles 14 and 16 of the Constitution of India. Thus, neither discriminatory nor arbitrary can an employer's action be, affecting the employees’ rights—the pay revision being no exception. 27. Since myriad factors influence the employer's policy of pay revision, it is pure and simple an executive function in which the court does not have much of a say. Nor has it, for that matter, any expertise to direct the WPC No.9208/2012 & conn.cases 14 employer to revise the pay in a particular manner. That accepted, it still stands to reason to hold that a periodic pay revision is the employees’ legitimate expectation. 28. Once an expert body recommends, the employer usually accepts the recommendations. It may, as well, refuse to be bound by them. Then, it needs to assign sufficient reasons why it refuses to act. In other words, the employer's action must be informed by reason and the decision must bear out that employer applied its mind. Therefore, the inevitable conclusion is that the scope of judicial review vis-à-vis the pay revision is limited. 29. As to the retrospective pay revision, it is essentially an employer’s prerogative. But I hasten to add. This prerogative or privilege cannot be whimsical—unguided or misdirected. The employer could as well take into consideration the establishment's financial condition, the proposal’s viability, and other kindred factors before it decides to accept or reject the recommendations either WPC No.9208/2012 & conn.cases 15 partly or fully. 30. Here, the Managing Director, authorised by the Board, negotiated, as the Ext.P1 evidences. Later, as the Board felt that the implementation of Ext.P1 was fraught with difficulties, it once again authorised the Managing Director to re-negotiate the pay revision with the employees’ representatives. He did. 31. Ext.P3 came out of the renegotiations. All the employees’ representatives have agreed that the retrospective benefits sought to be extended to the employees could be limited. As seen, Regulation 8(ii) of the Kerala Financial Corporations Staff Regulations, 1966, empowers the Board to “fix from time to time the number of posts in all categories and the pay scales of the Officers and other employees.” Because of the powers conferred on the Board under Regulation 8(ii), I reckon, unless the Board agrees to implement the recommendations or the negotiated settlement concerning a pay revision, we cannot WPC No.9208/2012 & conn.cases 16 say that the pay revision has become final and it binds the Corporation. So we cannot say that the Ext.P1 has attained finality. 32. The Corporation employed the same mechanism to have the Ext.P3 as it did to have the Ext.P1. So, in my view, the Ext.P3 equally binds. The petitioners’ having agreed to take benefit under Ext.P1 and having authorised their representatives to represent them before the employer, they cannot turn around and disown Ext.P3, which, too, is a product of bilateral negotiations. In these circumstances, this Court finds no legal ground to compel the employer by way of a mandamus to implement Ext.P1, by ignoring Ext.P3. As a result, I dismiss these writ petitions. No order on costs. **Sd/- Dama Seshadri Naidu Judge** css/ true copy P.S.TO JUDGE