Supreme Court Protects Basic Pay on Absorption: Eastern Coalfields Ltd. vs. Prativa Biswas (2017)

Introduction

Date of the Judgment: 11 October 2017
Citation: Not Available in the source.
Judges: Hon’ble Mr. Justice Arun Mishra and Hon’ble Mr. Justice Mohan M. Shantanagoudar.

Can a company reduce an employee’s basic salary when they are absorbed from another organization, despite assurances that their pay would be protected? The Supreme Court of India recently addressed this critical question in a case involving employees of the Coal Mines Welfare Organisation who were absorbed into Eastern Coalfields Limited (ECL). The core issue was whether the employees’ basic pay could be reduced during the absorption process, even if their total emoluments remained the same or increased due to allowances. This judgment was delivered by a bench comprising Hon’ble Mr. Justice Arun Mishra and Hon’ble Mr. Justice Mohan M. Shantanagoudar.

Case Background

The respondents in this case were previously employed at the Central Hospital, Kalla, which was under the Coal Mines Welfare Organisation, an entity maintained by the Ministry of Steel, Mines & Coal, Coal Department of the Government of India. On 1st August 1985, the hospital was transferred to Eastern Coalfields Limited (ECL), a subsidiary of Coal India Limited (CIL). This transfer was officially communicated on 24th December 1986. Subsequently, the respondents opted for absorption into ECL. A meeting on 25th July 1986, between a Joint Secretary to the Government of India and an official of Southern Coalfields Ltd., decided that employees would be offered fitment in National Coal Wage Agreement (NCWA) scales, ensuring no drop in total emoluments. Option forms were issued on 24th December 1986, with assurances of pay protection. A circular by CIL stated that basic pay and dearness allowance up to 31st December 1986, would be considered for fixation in appropriate scales, effective from 1st January 1987. The fitment was intended to ensure no loss of pay for the employees.

Timeline:

Course of Proceedings

The respondents initially filed a writ petition (WP No.2663/1993) in the High Court, challenging a decision dated 21st January 1992, and seeking protection of their salaries and other emoluments. The High Court, in its order dated 29th August 2002, directed ECL to verify individual cases and ensure that no employee received a lesser amount after the fitment, with any shortfall to be adjusted personally with retrospective effect from 1st January 1987. Subsequently, ECL issued an order on 20/21 May 2003, which reduced the basic salary of the employees while increasing the total emoluments through allowances. Aggrieved, the respondents filed a fresh writ petition, which was dismissed by a single bench. However, the Division Bench allowed the employees’ appeal, directing ECL to refix the pay scales without reducing the basic pay, with retrospective effect from the date of joining ECL, and to pay all admissible financial benefits, including arrears. This order of the Division Bench was challenged by ECL in the Supreme Court.

Legal Framework

The case revolves around the terms and conditions of the transfer of employees from the Coal Mines Welfare Organisation to ECL. Key aspects include:

• ✓ The decision made on 25th July 1986, that fitment would be offered in NCWA scales, ensuring no drop in total emoluments.
• ✓ The circular issued by CIL stating that basic pay and dearness allowance up to 31st December 1986, would be considered for fixation in appropriate scales, effective from 1st January 1987.
• ✓ The option form dated 24th December 1986, which provided two options:
  • ✓ Option 1: Absorption into company pay scales with the assurance that total emoluments as of 31st December 1986, would be protected, and employees would be placed in appropriate revised scales/grades.
  • ✓ Option 2: Retention of existing government pay scales and service conditions.
• ✓ Office Order dated 9th January 1987, which provided for protection of salary.

The core of the dispute lies in the interpretation of “pay protection.” The employees argued that their basic pay should not be reduced, while ECL contended that protection was only for total emoluments, which could be achieved by increasing allowances even if the basic pay was reduced. The Supreme Court had to interpret the terms of the option form and the assurances given to the employees during the transfer.

Arguments

Appellants’ (Eastern Coalfields Ltd.) Arguments:

• ✓ The appellants argued that the assurance was only for the protection of total emoluments, not the basic pay.
• ✓ They contended that the pay fixation was done in a manner that the total emoluments drawn on 1st January 1987, were more than what the employees were drawing on 31st December 1986.
• ✓ The appellants asserted that the pay scales could vary once the ECL pay scales were opted for, and the reduction in basic salary was compensated by other emoluments.
• ✓ They argued that the decision of the High Court in the first round of litigation had been complied with.
• ✓ The appellants relied on the decisions of the Supreme Court in High Court Employees Welfare Organisation vs. State of West Bengal 2007 (3) SCC 637 and State Bank of India vs. K.B. Upadhyay and Ors. 2003(11) SCC 646.

Respondents’ (Prativa Biswas & Ors.) Arguments:

• ✓ The respondents argued that the basic principle of fitment upon absorption had been violated.
• ✓ They contended that the salary drawn was to be protected, and it had not been.
• ✓ The respondents argued that the order of the Single Bench in the first round of litigation, decided on 29th August 2002, had been violated by the communication dated 20/21.5.2003.
• ✓ They relied on the decision of the Supreme Court in K. Gopinathan vs. Union of India 1992(4) SCC 701, and the option form, which indicated that the salary was to be protected and overall emoluments could not be less than what was drawn on 31st December 1986.
• ✓ The respondents emphasized that the option form clearly stated that the basic pay was to be protected.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the primary issue before the Court was:

• ✓ Whether the basic pay of the respondents could be reduced upon their absorption into Eastern Coalfields Limited (ECL), given the assurances of pay protection and the terms of the option form.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• ✓ K. Gopinathan vs. Union of India 1992(4) SCC 701 – The Supreme Court held that basic pay could not be reduced upon absorption.
• ✓ State Bank of India vs. K.B. Upadhyay and Ors. 2003(11) SCC 646 – The Supreme Court held that the total emoluments are to be protected and not necessarily the scale of pay.
• ✓ High Court Employees Welfare Organisation vs. State of West Bengal 2007 (3) SCC 637 – The Supreme Court discussed fitment in revised pay scales and ensuring total emoluments are not reduced.

Legal Provisions:

• ✓ Terms and conditions of transfer of staff of Coal Mines Welfare Organisation (CMWO).
• ✓ Option form dated 24th December 1986, particularly Option No. 1.
• ✓ Office Order dated 9th January 1987, regarding protection of salary.

Judgment

How each authority was viewed by the Court?

• ✓The Supreme Court relied on K. Gopinathan vs. Union of India [1992(4) SCC 701]* to emphasize that basic pay cannot be reduced upon absorption.
• ✓ The Court distinguished State Bank of India vs. K.B. Upadhyay and Ors. [2003(11) SCC 646]*, noting that the intention in this case was to protect both pay and emoluments.
• ✓The Court also distinguished High Court Employees Welfare Organisation vs. State of West Bengal [2007 (3) SCC 637]*, stating that the decision was about fitment in revised pay scales and not about reducing basic pay.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the following factors:

• ✓ The clear terms of the option form, which explicitly stated that the total emoluments drawn by the employees as on 31st December 1986, would be protected, and that they would be placed in the company’s appropriate revised scales of pay/grade.
• ✓ The assurance given to the employees that their pay would be protected upon absorption.
• ✓ The fact that the basic pay was reduced while calculating the total emoluments, which was not in line with the assurance given to the employees.
• ✓ The previous order of the Single Bench of the High Court, which had attained finality, and had clearly directed that the pay could not be reduced.
• ✓ The principle that basic pay cannot be reduced upon absorption, as established in K. Gopinathan vs. Union of India [1992(4) SCC 701]*.

Fact:Law Ratio

The Court gave slightly more weight to the legal principles and precedents while also considering the factual matrix of the case.

Logical Reasoning:

The Court rejected the argument that only total emoluments needed protection, emphasizing that the basic pay was also specifically protected. The Court reasoned that the basic pay was to be protected in the revised pay scales from 1.1.1987 or from the subsequent date from which general revision takes place for the coal-mining workers. The Court also noted that the total emoluments drawn by the employees as on 31st December 1986, would be protected, and that they would be placed in the company’s appropriate pay scales/grades. Thus, there was a dual protection, one for the basic salary, and another for the emoluments. The ECL had wrongly confused both the issues by overall taking the fixation by the inclusion of the emoluments. The Court also noted that the previous order of the Single Bench of the High Court, which had attained finality, and had clearly directed that the pay could not be reduced. The Court also distinguished the cases cited by the appellants, stating that they were not applicable to the facts of the present case.

The Supreme Court’s decision was a unanimous one, with both judges concurring on the judgment. The Court held that the reduction of basic pay was arbitrary and violated the order of the Single Bench dated 26th August 2002. The Court emphasized that there was a dual protection for both basic pay and total emoluments, which was ignored by ECL. The Court also observed that the fitment was made in violation of the order as well as the provisions of option form and even subject to conditions on which the absorption had been made.

The Court quoted the following from the judgment:

“It was clearly in contravention of the order passed by the Single Bench, in the previous Writ Application, on 29.8.2002.”

“When the pay scales were converted to and paid in the Coal India Limited, respondents’ pay drawn could not have been reduced, inasmuch as pay protection had been assured to them and in view of aforesaid order that attained finality and pay fixation was to be made in the manner that total emoluments drawn were not less.”

“Salary protection was to be ensured, it could not have been reduced apart from emoluments. There was dual protection; that was unfortunately ignored and overlooked by the ECL in spite of the clear and categorical order passed by the Single Bench in the writ application of 1993, which order had attained finality, and had not been questioned by any of the parties.”

Key Takeaways

• ✓ Basic pay of employees cannot be reduced upon absorption into a new company if the terms of absorption guarantee protection of existing pay and emoluments.
• ✓ Both basic pay and total emoluments are to be protected, not just total emoluments.
• ✓ Companies must adhere to the assurances given to employees during the transfer or absorption process.
• ✓ Previous orders of the court must be complied with in letter and spirit.
• ✓ This judgment clarifies the principle that basic pay is distinct from total emoluments and that both are protected upon absorption.
• ✓ The judgment reinforces the importance of clear and unambiguous terms in employment contracts and absorption agreements.

Directions

The Supreme Court directed that the benefits be extended forthwith to all the employees who were absorbed, whether continuing today or have been retired, and to the legal representatives of deceased employees, within a period of two months. The Court also directed that compliance be reported to the Court.

Specific Amendments Analysis

There were no specific amendments discussed in this judgment.

Development of Law

The ratio decidendi of this case is that when employees are absorbed into a new company, and there are assurances of pay protection, both the basic pay and the total emoluments must be protected. The basic pay cannot be reduced even if the total emoluments are maintained or increased through allowances. This judgment reinforces the principle that basic pay is a distinct component of an employee’s salary and has to be protected independently. This is a clarification of the position of law, where the court has held that both basic pay and total emoluments are to be protected, and not just the total emoluments.

Conclusion

The Supreme Court dismissed the appeal of Eastern Coalfields Ltd., affirming the Division Bench’s decision that the basic pay of the employees could not be reduced upon their absorption into ECL. The Court emphasized that both basic pay and total emoluments were to be protected, and the reduction in basic pay was in violation of the assurances given to the employees and the previous order of the High Court. This judgment reinforces the principle that companies must adhere to the terms of absorption and ensure that employees’ pay is protected as promised.