Supreme Court Upholds Dismissal in Bank Misconduct Case: State Bank of India vs. M.J. James (2021)

Introduction

Date of the Judgment: 16 November 2021

Citation: Civil Appeal No. 8223 of 2009

Judges: L. Nageswara Rao, J. and Sanjiv Khanna, J.

Can an employee insist on being represented by a union of any bank in a disciplinary proceeding, or is the right restricted to unions of the bank where they were employed? The Supreme Court addressed this question in a case concerning a former manager of the Bank of Cochin, whose services were terminated following allegations of misconduct. The core issue revolved around the interpretation of the Bank of Cochin Service Code, specifically regarding the right to representation during disciplinary inquiries. The judgment was delivered by a two-judge bench comprising Justice L. Nageswara Rao and Justice Sanjiv Khanna, with the majority opinion authored by Justice Sanjiv Khanna.

Case Background

Mr. M.J. James, while working as a bank manager at the Quilon branch of the Bank of Cochin from February 1978 to September 1982, was accused of misconduct. The charges, detailed in a memorandum dated 09.02.1984, alleged that he had sanctioned advances in violation of Head Office instructions, causing financial loss to the bank. Mr. James denied these charges, asserting that the bank’s business had substantially grown under his management. He claimed that he was instructed by the former Chairman, Mr. E.K. Andrew, to grant advances without hesitation, and that the then Director, Mr. C.B. Joseph, was personally involved and recommended many of the advances. He also contended that the bank lacked a clear system of delegation of financial powers and that he was led to believe he had adequate powers, with the advances to be ratified later. Despite these explanations, an inquiry was initiated against him.

Timeline

Course of Proceedings

The Single Judge of the High Court of Kerala at Ernakulam allowed the writ petition filed by Mr. James, primarily on the grounds that the inquiry officer had wrongly rejected his request to be represented by the organizing secretary of the All-India Confederation of Bank Organizations, Kerala Unit. The Single Judge held that this denial amounted to a violation of natural justice. However, the Single Judge also noted that the charges against Mr. James constituted ‘gross misconduct’. The Division Bench of the High Court upheld this decision, agreeing that Clause 22(ix)(a) of Chapter VIII of the Bank of Cochin Service Code was violated. The Division Bench interpreted the clause to mean that the union/association referred to therein was not only regarding employees of the Bank of Cochin itself, but would include employees’ union/association of other banks as well. The High Court further noted that the principles of natural justice were incorporated in the Service Code, which the authorities were bound to follow strictly. The Division Bench also concluded that prejudice was caused to Mr. James because an experienced lawyer conducted the inquiry and the presenting officer was also a lawyer.

Legal Framework

The core of this case hinges on the interpretation of Clause 22(ix)(a) of Chapter VIII of the Bank of Cochin Service Code, which states:

“ix. The procedure in such cases shall be as follows:

(a) An employee against whom disciplinary action is proposed or likely to be taken shall be given a charge sheet clearly setting forth the circumstances appearing against him and a date shall be fixed for an enquiry, sufficient time being given to him to prepare and give his explanation as also to produce any evidence that he may wish to tender in his defence. He shall be permitted to appear before the officer conducting the enquiry, to cross examine any witness and produce other evidence in his defence. He shall also be permitted to be defended by a representative of a registered Union/Association of bank employees or with the Bank’s permission, by a lawyer. He shall also be given a hearing as regards the nature of the proposed punishment in case any charge is established against him.”

Additionally, Clause 2(e) of the Service Code defines ‘bank’ as “the Bank of Cochin Limited.” The Supreme Court also considered the principles of natural justice and the importance of fair representation in disciplinary proceedings.

Arguments

Arguments of the Appellants (State Bank of India):

• The appellants argued that the High Court erred in interpreting Clause 22(ix)(a) of the Service Code. They contended that the term “bank employees” should be read in conjunction with the definition of “bank” in Clause 2(e), which explicitly refers to the Bank of Cochin Limited. Therefore, the representative should be from a union/association of the Bank of Cochin, not any other bank.
• They relied on the principle that the right to representation in domestic inquiries is not absolute and can be regulated by rules and regulations.
• The appellants further argued that the respondent did not suffer any prejudice due to the denial of representation by Mr. F.B. Chrysostom because the respondent actively participated in the inquiry and did not avail the opportunity to be represented by an employee of Bank of Cochin.
• They also highlighted the delay of over four years in filing the appeal and the respondent’s conduct during the inquiry, including his abrupt walkout without signing the order sheet.

Arguments of the Respondent (M.J. James):

• The respondent argued that Clause 22(ix)(a) of the Service Code, by not using the article “the” before “bank employees,” implies that the representative could be from any registered bank employees’ union/association.
• He contended that the denial of representation by a person of his choice violated principles of natural justice, thus invalidating the inquiry.
• The respondent also argued that the charges against him, even if proven, amounted to minor misconduct and not gross misconduct as held by the Single Judge.
• He claimed that he was denied a fair opportunity to defend himself and that the inquiry was not conducted properly.

Innovativeness of the argument: The respondent’s argument that the absence of the article “the” before “bank employees” in Clause 22(ix)(a) of the Service Code implied that the representative could be from any bank employees’ union was a novel interpretation, but it was ultimately rejected by the Supreme Court.

Issues Framed by the Supreme Court

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

✓ Whether the High Court was correct in holding that Clause 22(ix)(a) of the Service Code was violated when the respondent was not allowed to be defended by a representative of a bank employees’ union/association other than the Bank of Cochin.

The sub-issue was whether the denial of representation by a representative of the respondent’s choice amounted to a violation of natural justice and whether prejudice was caused to the respondent.

Treatment of the Issue by the Court

Authorities

Cases Relied Upon by the Court:

On Interpretation of Definition Clauses:

• Nahalchand Laloochand Private Ltd. v. Panchali Coop. Housing Society Ltd., (2010) 9 SCC 536 (Supreme Court of India)
• Bhagwati Developers Pvt. Ltd. v. Peerless General Finance and Investment Co. Ltd. & Anr., (2013) 9 SCC 584 (Supreme Court of India)

On Right to Representation in Domestic Inquiries:

• Crescent Dyes and Chemicals Ltd. v. Ram Naresh Tripathi, (1993) 2 SCC 115 (Supreme Court of India)
• National Seeds Corporation Ltd. v. K.V. Rama Reddy, (2006) 11 SCC 645 (Supreme Court of India)

On Procedural Fairness and Natural Justice:

• Dharampal Satyapal Ltd. v. Deputy Commissioner of Central Excise, Gauhati and Others, (2015) 8 SCC 519 (Supreme Court of India)
• A.K. Kraipak and others v. Union of India and Others, (1969) 2 SCC 262 (Supreme Court of India)

On Prejudice and Relief:

• State Bank of Patiala and Others v. S.K. Sharma, (1996) 3 SCC 364 (Supreme Court of India)
• M.C. Mehta v. Union of India and Others, (1999) 6 SCC 237 (Supreme Court of India)
• S.L. Kapoor v. Jagmohan and Others, (1980) 4 SCC 379 (Supreme Court of India)
• State of U.P. v. Sudhir Kumar Singh and Others, (2020) SCC Online SC 847 (Supreme Court of India)

On Delay and Laches:

• Ram Chand and Others v. Union of India and Others, (1994) 1 SCC 44 (Supreme Court of India)
• State of U.P. and Others v. Manohar, (2005) 2 SCC 126 (Supreme Court of India)
• Union of India and Others v. Tarsem Singh, (2008) 8 SCC 648 (Supreme Court of India)
• Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh and Others, (1979) 2 SCC 409 (Supreme Court of India)
• U.P. Jal Nigam and Another v. Jaswant Singh and Another, (2006) 11 SCC 464 (Supreme Court of India)
• M/s Dehri Rohtas Light Rly. Co. Ltd. v. District Board, Bhojpur and Others, (1992) 2 SCC 598 (Supreme Court of India)
• State of Maharashtra v. Digambar, (1995) 4 SCC 683 (Supreme Court of India)

On Acquiescence:

• Prabhakar v. Joint Director, Sericulture Department and Another, (2015) 15 SCC 1 (Supreme Court of India)
• Gobinda Ramanuj Das Mohanta v. Ram Charan Das and Suyamal Das, AIR 1925 Cal 1107 (Calcutta High Court)
• M/S Vidyavathi Kapoor Trust v. Chief Commissioner Tax (1992) 194 ITR 584
• Krishan Dev v. Smt. Ram Piari AIR 1964 HP 34

On Good Administration:

• R. (on the application of Parkyn) v. Restormel BC [2001] EWCA Civ 330
• R. v. Monopolies and Mergers Commission Ex p. Argyll Group [1986] 1 W.L.R. 763

Legal Provisions Considered by the Court:

• Clause 22(ix)(a) of Chapter VIII of the Bank of Cochin Service Code
• Clause 2(e) of the Bank of Cochin Service Code
• Section 36 of the Industrial Disputes Act, 1947

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court relied on Nahalchand Laloochand Private Ltd. v. Panchali Coop. Housing Society Ltd. [(2010) 9 SCC 536] and Bhagwati Developers Pvt. Ltd. v. Peerless General Finance and Investment Co. Ltd. & Anr. [(2013) 9 SCC 584] to emphasize the importance of definition clauses in statutory interpretation, stating that the defined word carries the same meaning unless the context suggests otherwise.
• The Court cited Crescent Dyes and Chemicals Ltd. v. Ram Naresh Tripathi [(1993) 2 SCC 115] and National Seeds Corporation Ltd. v. K.V. Rama Reddy [(2006) 11 SCC 645] to clarify that the right to representation in domestic inquiries is not an absolute right and can be regulated by rules and regulations.
• The Court referred to Dharampal Satyapal Ltd. v. Deputy Commissioner of Central Excise, Gauhati and Others [(2015) 8 SCC 519] to highlight the importance of procedural fairness in arriving at correct decisions.
• The Court cited A.K. Kraipak and others v. Union of India and Others [(1969) 2 SCC 262] to emphasize that the principles of natural justice are flexible and their application depends on the facts of each case.
• The Court relied on State Bank of Patiala and Others v. S.K. Sharma [(1996) 3 SCC 364] to distinguish between ‘adequate opportunity’ and ‘no opportunity at all’, and to explain that the prejudice exception operates more specifically in the latter case.
• The Court referred to M.C. Mehta v. Union of Indiaand Others [(1999) 6 SCC 237], S.L. Kapoor v. Jagmohan and Others [(1980) 4 SCC 379], and State of U.P. v. Sudhir Kumar Singh and Others [(2020) SCC Online SC 847] to discuss the divergence of legal opinion on the need to show prejudice in cases of breach of natural justice.
• The Court cited Ram Chand and Others v. Union of India and Others [(1994) 1 SCC 44], State of U.P. and Others v. Manohar [(2005) 2 SCC 126], and Union of India and Others v. Tarsem Singh [(2008) 8 SCC 648] to address the issue of delay and laches in filing the appeal.
• The Court used Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh and Others [(1979) 2 SCC 409] to define abandonment as an intentional act to acknowledge.
• The Court relied on U.P. Jal Nigam and Another v. Jaswant Singh and Another [(2006) 11 SCC 464], M/s Dehri Rohtas Light Rly. Co. Ltd. v. District Board, Bhojpur and Others [(1992) 2 SCC 598], and State of Maharashtra v. Digambar [(1995) 4 SCC 683] to explain the doctrine of laches and acquiescence.
• The Court cited Prabhakar v. Joint Director, Sericulture Department and Another [(2015) 15 SCC 1], Gobinda Ramanuj Das Mohanta v. Ram Charan Das and Suyamal Das [AIR 1925 Cal 1107], M/S Vidyavathi Kapoor Trust v. Chief Commissioner Tax [(1992) 194 ITR 584], and Krishan Dev v. Smt. Ram Piari [AIR 1964 HP 34] to define acquiescence.
• The Court referred to R. (on the application of Parkyn) v. Restormel BC [[2001] EWCA Civ 330] and R. v. Monopolies and Mergers Commission Ex p. Argyll Group [[1986] 1 W.L.R. 763] to state that relief should not be granted if it is likely to cause substantial hardship or prejudice or be detrimental to good administration.

Ratio Decidendi:

The Supreme Court held that the term “bank employees” in Clause 22(ix)(a) of the Bank of Cochin Service Code must be interpreted in conjunction with the definition of “bank” in Clause 2(e), which explicitly refers to the Bank of Cochin Limited. Therefore, an employee is only entitled to be represented by a representative of a union/association of employees of the Bank of Cochin and not any other bank. The Court also held that the denial of representation by a representative of the employee’s choice does not automatically amount to a violation of natural justice if the employee is given sufficient opportunity to participate in the inquiry and is not prejudiced by the denial. The Court further held that the delay in filing the appeal and the conduct of the respondent during the inquiry indicated acquiescence to the dismissal.

Final Order

The Supreme Court allowed the appeal filed by the State Bank of India, setting aside the judgment of the High Court of Kerala. The Court upheld the dismissal order passed by the Chairman of the Bank of Cochin against Mr. M.J. James. The Court also held that the respondent’s appeal was filed after an unreasonable delay and that he had acquiesced to the dismissal.

Case Flowchart

Critical Analysis

Strengths of the Judgment:

• Clear Interpretation: The Supreme Court provided a clear and unambiguous interpretation of Clause 22(ix)(a) of the Service Code, emphasizing the importance of adhering to the definition clauses within a document.
• Emphasis on Procedural Fairness: While upholding the dismissal, the Court reiterated the importance of procedural fairness and natural justice in disciplinary proceedings. However, it also clarified that the right to representation is not absolute and can be regulated by rules.
• Balancing Act: The Court struck a balance between the need for fair procedure and the practicalities of maintaining discipline in an organization. It emphasized that the respondent was given sufficient opportunity to defend himself and that no prejudice was caused by the denial of representation.
• Consideration of Delay: The Court appropriately considered the delay in filing the appeal and the respondent’s conduct during the inquiry, thus preventing abuse of the legal process.
• Reliance on Precedents: The Court’s judgment was well-supported by a thorough analysis of relevant precedents, which strengthened its legal reasoning.

Weaknesses of the Judgment:

• Narrow Interpretation: The Court’s strict interpretation of the Service Code may appear narrow to some, as it did not give much weight to the argument that the absence of the article “the” before “bank employees” could suggest a broader interpretation.
• Potential for Inequity: While the Court focused on procedural fairness, it could be argued that denying representation by a person of the employee’s choice might create a sense of inequity, especially if the employee feels that the union of their own bank may not be as supportive.
• Limited Scope of Natural Justice: The Court’s interpretation of natural justice might be seen as limited, as it focused more on the opportunity to participate in the inquiry rather than the employee’s right to choose a representative.
• Acquiescence Argument: The Court’s reliance on the acquiescence argument could be seen as a way to avoid addressing the merits of the case after a long delay, which might not be satisfactory to all.

Potential Impact:

• Precedent for Disciplinary Proceedings: This judgment sets a precedent for disciplinary proceedings in the banking sector and other organizations, emphasizing that the right to representation is not absolute and can be regulated by rules.
• Interpretation of Service Rules: It reinforces the importance of adhering to the definition clauses within service rules and regulations.
• Balance of Rights and Discipline: The judgment highlights the need to balance the rights of employees with the need to maintain discipline in the workplace.
• Caution Against Delay: It serves as a caution against undue delay in challenging disciplinary actions, as such delays may be interpreted as acquiescence.

Conclusion:

The Supreme Court’s judgment in State Bank of India vs. M.J. James provides valuable insights into the interpretation of service rules and the application of principles of natural justice in disciplinary proceedings. While the judgment has its strengths in terms of clarity and adherence to legal precedents, it also has certain limitations, particularly in its narrow interpretation of the Service Code and its emphasis on procedural compliance over the employee’s choice of representation. The judgment underscores the importance of clear and unambiguous rules, as well as the need for employees to act promptly in challenging disciplinary actions. Overall, the judgment provides a balanced approach to the complex issues involved in disciplinary proceedings, emphasizing both the rights of employees and the need for organizational discipline.