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Monday, December 14, 2015

Curiously enough, the Managing Director being the disciplinary authority prepared his report and referred the matter to the Board of Directors to consider the draft charges, enquiry report, representation filed by the officer concerned and his finding, for taking an appropriate decision in the case. Not only that, when the case was placed before the Board for taking a final decision, he participated in the said meeting and a decision was taken by the Board of Directors to dismiss the appellant from service. In our considered opinion, such a procedure adopted by the disciplinary authority and the appellate authority is absolutely erroneous in law.=the procedure adopted by the respondents in removing the appellant from service is erroneous and suffers from serious discrimination and bias. Further, the Enquiry Officer conducted the enquiry without following the procedure and without giving sufficient opportunity to the delinquent to place his case. Enquiry is also vitiated in law.

                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 1217 OF 2011

Brij Bihari Singh                                  Appellant(s)


Bihar State Financial Corporation
and                                                                   others

                               J U D G M E N T

|                                                         |
|M.Y. Eqbal, J.:                                          |

      The appellant was working on the post of Assistant General Manager  in
the Bihar State Financial Corporation (in short, “the Corporation”). At  the
direction of State Government, vide  letter  dated  20th  March,  1993,  the
Managing Director of the Corporation, who  is  the  Disciplinary  Authority,
put the appellant under suspension and  initiated  disciplinary  proceedings
on the following charges:-
“1. He recommended release of Rs. 4.33 lakhs to M/s. Koshi Jute  Mills  Pvt.
Ltd., Supaul against purchased machines  without  deducting  the  stipulated
promoter's margin money, which is evident from the fact that the  promoter's
margin money was deducted in totality at the time of subsequent  release  of
Rs.7.80 lakhs to the concern on 19.12.90.

2. He intentionally and in utter violence of delegated powers  released  Rs.
7.80 lakhs to the concern (M/s. Koshi  Jute  Mills  Pvt.  Ltd.,  Supaul)  on
19.12.90 at his own for  which  he  was  not  the  competent  authority  for
disbursing such amount at his own. This irregular act  of  his  is  a  grave
misconduct for his wrongful gain.

3. While making release of Rs. 7.80 lakhs to the concern  (M/s.  Koshi  Jute
Mills Pvt. Ltd., Supaul) in utter violation of delegated powers, he did  not
retain the 15% retention money according to  stipulated  conditions  in  the
Sanction Order and mutual agreement between the  promoter  and  the  machine

4. While making release to the aforesaid concern he deliberately  suppressed
the facts regarding observations of the Vigilance and Grievance  Cell  dated
22.12.89 and mentioned that the  dealing  of  machine  supplier  is  genuine
whereas observations of Vigilance and Grievance Cell duly  approved  by  the
M.D. available in the loan file shows  that  the  machine  supplier  is  not
refunded and that of his connivance with the promoter.

5. He deliberately ignored the  further  observations  of  the  Vigilance  &
Grievance Cell duly approved by M.D. to inspect  the  site  of  the  machine
supplier immediately and made release to the aforesaid concern.

6. He deliberately received the payment of  Car  Allowance  for  the  period
from 9.3.88 to 1.10.88 without having a car in  his  name  during  aforesaid

7. He purchased land  at  Patliputra  Colony,  Patna  from  Dr.  Bindeshwari
Prasad Singh through three different  absolute  sale  deeds  (Registered  at
Calcutta) showing himself as false profession without disclosing the  source
of fund arranged.”

2.    After serving the aforesaid memorandum of charges upon  the  appellant
some additional charges were served, which are also set out below :-

“He himself examined the proposal of  Delhi  based  fake  promoter  of  M/s.
Divine Cycle (P)  Ltd.,  Industrial  Area,  Fatwah  on  promoter's  personal
guarantee and placed the proposal with recommendation before the  Board  for
sanction of loan to the Company when the residential addresses of  promoters
were incomplete and official address was subsequently found fake. He  should
have examined the proposal before recommending the case to the  Board  which
he did not do so as a result the promoter managed to grab the fund from  the
Corporation and left the unit abandoned.  Thus  due  to  his  negligence  of
duties in processing of the loan proposal the Corporation has been put to  a
huge financial loss.

He, with an ulterior motive did not  inform  H.O.  after  getting  the  site
jointly inspected with BICICO representative in Feb. '83 that the  unit  was
running  in  a  rented  premises  other  than  that  of  mortgaged  to   the
Corporation and deliberately did not take any action  against  the  promoter
which proves his connivance with  the  promoter  of  the  company  to  cause
wrongful loss to the Corporation.”

3.    It appears that one officer of the State Government on deputation  was
made Enquiry Officer, who conducted the enquiry in respect of the  aforesaid
charges and submitted enquiry  report  holding  that  the  majority  of  the
charges have been proved.  Consequently, 2nd show cause notice was given  to
the appellant which was duly responded.  The appellant was then directed  to
be personally present for hearing and then the  Managing  Director,  instead
of  passing  final  order,  recommended  the  Board  of  Directors  of   the
Corporation for the punishment to be imposed upon the appellant. On  receipt
of the said recommendation, the Board finally passed an order  of  dismissal
of the appellant from service.

4.    The appellant assailed  the  order  of  dismissal  by  filing  a  writ
petition being CWJC No.3528 of 1994, which was eventually dismissed  by  the
learned Single Judge of the High Court.  The said  judgment  and  order  was
finally upheld by the Division Bench of the High  Court  in  Letters  Patent
Appeal No.51 of 1998.

5.    Mr. Sunil Kumar, learned senior counsel appearing  for  the  appellant
assailed the impugned judgment of the High Court and the order of  dismissal
of the appellant mainly on the  following grounds:-
“I.   The departmental proceeding was conducted by the  Enquiry  Officer  by
merely perusing the files without representing officer presenting  the  case
on behalf of the employer and without recording any evidence in  support  of
the charges.

II.   The Enquiry Officer in  the  departmental  proceedings  submitted  his
report merely by perusing the files without the charges being proved by  the

III.  There is a serious violation of principles of natural justice for  the
reason inter alia that the presenting officer neither presented the case  of
the employer nor led any oral  or  documentary  evidence.  The  Disciplinary
Authority, instead of passing a final order on the basis of  enquiry  report
and the explanation submitted by the appellant, recommended the case to  the
Board for taking a final  decision.   The  Board,  which  is  the  appellate
authority usurp the power of  the  Disciplinary  Authority  and  passed  the
order of punishment.”

6.    Before we decide the legality and propriety of the order of  dismissal
passed by the respondent, we would like to refer relevant provisions of  the
Regulations  called  the   Bihar   State   Financial   Corporation   (Staff)
Regulations, 1965.  Regulations 39 and 40 read as under:-
“39.   Penalties:-  (i)  Without  prejudice  to  the   provisions   of   the
Regulations, an employee who commits a breach  of  the  regulations  of  the
Corporation or who displays  negligence, inefficiency or  indolence  or  who
knowingly does anything detrimental to the interest of  the  Corporation  or
in conflict with its instructions or who commits a breach of  discipline  or
is guilty of any other act of misconduct or who is convicted of  a  criminal
offence shall be liable to any  or all of the following penalties:-
Withholding or postponement of increment or promotion including stoppage  at
an efficiency bar, if any,
Reduction to a lower post or grade or to a lower stage  in  his  incremental
Recovery from pay of the whole or part of any pecuniary loss caused  to  the
Corporation by the employee,
Discharge, or
Compulsory retirement

(ii)  No employee shall be subjected to the penalties in clauses  (b),  (c),
(d), (e), (f), (g), (h) or (i) of sub-regulation (i) except by an  order  in
writing signed by the Managing Director and no such order  shall  be  passed
without the charge or charges being formulated in writing and given  to  the
said employ so that he shall have reasonable opportunity to answer  them  in
writing or in person, as he prefers, and in  the  latter  case  his  defence
shall be  taken  down  in  writing  and  read  to  him,  provided  that  the
requirements or this Regulation may be waived if the facts on the  basis  of
which action is to be taken have been established  in  a  Court  of  Law  or
where the  employee has absconded or  where  it  is  for  any  other  reason
impracticable to communicate with  him  or  where  there  is  difficulty  in
observing them and the requirements can be waived without injustice  to  the
employee.  In every case where all  or  any  of  the  requirements  of  this
Regulation are waived, the  reasons  for  so  doing  shall  be  recorded  in

(iii)  An employee may, before the initiation of any proceeding  under  sub-
regulation (ii) or pending the  completion  of  such  proceeding  be  placed
under suspension by the Managing Director. During such suspension  he  shall
receive subsistence allowance equal to two thirds  of  his  substantive  pay
plus the dearness allowance, provided that if no penalty under  any  of  the
clauses (b), (c), (d), (e), (f), (g), (h) or (i) of  sub-regulation  (i)  is
imposed, the employee shall be paid the difference between  the  subsistence
allowance and the emoluments which he  would  have  received  but  for  such
suspension for the period while he was  under  suspension  and  that,  if  a
penalty is imposed on him under the said clauses, no order shall  be  passed
which shall have the effect of compelling him  to  refund  such  subsistence
allowance. The period during which an employee is  under  suspension  shall,
if he is not dismissed from the service, be treated as on duty for  specific
purpose, i.e. as the Managing Director may direct.

40.   Right to appeal:- (i) An  employee  shall   have  a  right  of  appeal
against any order  passed  by  the  competent  authority  which  injuriously
affects his interests.
(ii)     No appeal shall lie after the expiration of  sixty  days  from  the
date of receipt of the order against which the appeal is preferred.”

7.    Perusal of Regulations 39 and 40 would show the manner  and  procedure
for conducting departmental enquiry.   Regulation  40  confers  a  statutory
right of appeal to the employee against an order  passed  by  the  competent
authority which injuriously affects his interest.

8.    It is well settled that a person who is required to  answer  a  charge
imposed should know not only the accusation but also the testimony by  which
the accusation is supported.  The delinquent must be given  fair  chance  to
hear the evidence  in  support  of  the  charge  and  to  cross-examine  the
witnesses who prove the charge.  The delinquent must also be given a  chance
to rebut the evidence led against him.  A departure  from  this  requirement
violates the principles of  natural  justice.   Furthermore,  the  materials
brought on record pointing out the guilt are required to be proved.  If  the
enquiry report is based  on  merely  ipse  dixit  and  also  conjecture  and
surmises cannot be sustained in law.

9.    In the case of State of U.P. vs. Saroj Kumar Sinha, (2010) 2 SCC  772,
this Court held:-
“28. An inquiry officer acting in  a  quasi-judicial  authority  is  in  the
position of  an  independent  adjudicator.  He  is  not  supposed  to  be  a
representative  of  the  department/disciplinary  authority/Government.  His
function is to examine the evidence presented by  the  Department,  even  in
the absence of the delinquent official to see as to whether  the  unrebutted
evidence is sufficient to hold that the charges are proved. In  the  present
case the aforesaid procedure has not been observed. Since no  oral  evidence
has been examined the documents have not been proved,  and  could  not  have
been taken into consideration to conclude that the charges have been  proved
against the respondents.
29. Apart from the above, by virtue of Article 311(2)  of  the  Constitution
of India the departmental enquiry had to be  conducted  in  accordance  with
the rules of natural justice. It is a basic  requirement  of  the  rules  of
natural justice that an employee be given a reasonable opportunity of  being
heard in any proceedings which may culminate in punishment being imposed  on
the employee.
30. When a departmental enquiry is conducted against the government  servant
it cannot be treated as a casual  exercise.  The  enquiry  proceedings  also
cannot be conducted with a closed  mind.  The  inquiry  officer  has  to  be
wholly unbiased. The rules of natural justice are required  to  be  observed
to ensure not only that justice is done but is manifestly seen to  be  done.
The object of rules of natural  justice  is  to  ensure  that  a  government
servant is treated fairly in proceedings which may culminate  in  imposition
of punishment including dismissal/removal from service.”

10.   In the instant case, the  disciplinary  proceeding  was  conducted  in
gross violation of Regulation 39 of the  said  Regulations  inasmuch  as  no
reasonable opportunity was given to the delinquent  to  place  his  case  in
defence.  The Regulation imposed a duty on the Authority to give a  personal
hearing to the delinquent.

11.   A right of appeal has been provided  by  Regulation  40  of  the  said
Regulations against any order passed by the  competent  Authority.   In  the
instant case as  noticed  above,  the  Disciplinary  Authority,  instead  of
exercising  the  power  as  Disciplinary  Authority   imposing   punishment,
referred his recommendations to the appellate authority,  namely,  Board  of
Directors for taking a decision and the Board  of  Directors  exercised  the
power of Disciplinary Authority and imposed punishment of dismissal  thereby
deprived the appellant from moving the appellate authority against the  said
order.  Such exercise of power is wholly arbitrary and discriminatory.

12.    Curiously  enough,  the  Managing  Director  being  the  disciplinary
authority prepared his report and  referred  the  matter  to  the  Board  of
Directors to consider the  draft  charges,  enquiry  report,  representation
filed by the officer concerned and his finding, for  taking  an  appropriate
decision in the case.  Not only that, when the case was  placed  before  the
Board for taking a final decision, he participated in the said  meeting  and
a decision was taken by the Board of  Directors  to  dismiss  the  appellant
from service.  In our considered opinion, such a procedure  adopted  by  the
disciplinary authority and the appellate authority is  absolutely  erroneous
in law.

13.   In the case of  Surjit Ghosh vs. United Commercial Bank, AIR  1995  SC
1053, this Court in  similar circumstances, observed:-
“5. ……..It is true that when  an  authority  higher  than  the  disciplinary
authority itself imposes the punishment, the  order  of  punishment  suffers
from no illegality when no appeal is provided to  such  authority.  However,
when an appeal is provided to the higher  authority  concerned  against  the
order of the disciplinary authority or of a lower authority and  the  higher
authority passes an order of punishment, the employee concerned is  deprived
of the remedy of appeal which is a substantive right given  to  him  by  the
Rules/Regulations. An employee cannot be deprived of his substantive  right.
What is further, when there is a provision of appeal against  the  order  of
the disciplinary authority and when the appellate or  the  higher  authority
against whose order  there  is  no  appeal,  exercises  the  powers  of  the
disciplinary authority  in  a  given  case,  it  results  in  discrimination
against the employee concerned. This is particularly so when  there  are  no
guidelines in the Rules/Regulations as to when the higher authority  or  the
appellate  authority  should  exercise  the  powers  of   the   disciplinary
authority. The higher or appellate authority  may  choose  to  exercise  the
power of the disciplinary authority in some cases  while  not  doing  so  in
other cases. In such cases, the right  of  the  employee  depends  upon  the
choice  of  the  higher/appellate  authority  which  patently   results   in
discrimination between an employee and employee. Surely,  such  a  situation
cannot savour of legality. Hence we are of  the  view  that  the  contention
advanced on behalf of the respondent-Bank that when an  appellate  authority
chooses to exercise the power of disciplinary authority, it should  be  held
that there is no right of appeal provided under the  Regulations  cannot  be
The result, therefore, is that the present order of dismissal  suffers  from
an inherent defect and has to be set aside.”

14.   In Amar Nath Chowdhury vs.  Braithwaite and  Company  Ltd.  and  Ors.,
(2002) 2 SCC 290, a similar case came for consideration before  this  Court.
In that case, the appellant who was an employee of Braithwaite  and  Company
Ltd., a Government of  India  undertaking,  was  subjected  to  disciplinary
proceedings.   The  enquiry  committee   submitted   its   report   to   the
disciplinary authority who was the  Chairman-cum-Managing  Director  of  the
Company.  The disciplinary authority passed  an  order  of  removal  of  the
appellant from service.  The appellant moved the Board of Directors who  was
the appellate authority.  When the appeal was taken up  by  the  Board,  the
said Chairman-cum-Managing Director participated in the deliberation of  the
meeting of the Board which heard and dismissed the appeal.  On these  facts,
this Court held that the proceeding of the Board was vitiated on account  of
participation of  the  disciplinary  authority  while  deciding  the  appeal
preferred by the appellant.  Similar view has been  taken  in  the  case  of
Institute of Chartered Accountants  of  India  vs.   L.K.  Ratna  and  Ors.,
(1986) 4 SCC 537.

15.    In  the  case  of  K.  Chelliah  vs.  Chairman   Industrial   Finance
Corporation of India and Anr., AIR 1973 Mad. 122, an employee  of  the  IFCI
was dismissed from service.  The decision  to  terminate  the  employee  was
taken up by  the  Chairman  who  was  also  a  Member  of  the  Board  which
considered the appeal.  The High Court held that the entire  proceeding  was
vitiated by non-observance of principles of natural justice.

16.   After giving our anxious consideration in the matter, we  are  of  the
definite view that the procedure adopted by the respondents in removing  the
appellant from service is erroneous and suffers from serious  discrimination
and bias.  Further,  the  Enquiry  Officer  conducted  the  enquiry  without
following the procedure and without giving  sufficient  opportunity  to  the
delinquent to place his case.  Enquiry is also vitiated in law.

17.   For the  reason  aforesaid,  we  find  that  the  appeal  deserves  to
succeed.  The orders passed by the  Board  of  Directors  and  the  impugned
judgments passed by the High Court are liable to be set aside.   The  matter
is, therefore, sent back to the Disciplinary Authority to proceed  from  the
stage of the enquiry afresh and pass a reasoned  order  in  accordance  with
law after giving full opportunity of hearing to the appellant.  Needless  to
say if the appellant is aggrieved by the final order that may be  passed  by
the Disciplinary Authority, he shall have  a  right  to  appeal  before  the
appellate authority.

                                                                (M.Y. Eqbal)

                                                               (C. Nagappan)
New Delhi
November 20, 2015

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