Supreme Court Upholds Disqualification Criteria for Bank Employee Directors: Federation of Bank of India Staff Unions vs. Union of India (2019)

Date of the Judgment: March 01, 2019

Citation: 2019 INSC 175

Judges: Abhay Manohar Sapre, J., Indu Malhotra, J.

Can the government set different eligibility rules for different types of employees when they are nominated as directors on a bank’s board? The Supreme Court of India addressed this question in a case concerning the nomination of employee directors in nationalized banks. The core issue revolved around whether it was fair to have different disqualification criteria for worker/employee directors compared to officer/employee directors. The judgment was delivered by a two-judge bench comprising Justice Abhay Manohar Sapre and Justice Indu Malhotra, with Justice Sapre authoring the opinion.

Case Background

The Federation of Bank of India Staff Unions (Appellant No. 1), a registered trade union, and one of its officers (Appellant No. 2) challenged a decision by the Union of India (Respondent No. 1) regarding the nomination of a worker/employee director to the Board of Directors of the Bank of India (Respondent No. 2). The Bank had requested a panel of three names from the union for the position of “Workman Director.” The union submitted a panel of three names on June 8, 2009. However, the Central Government rejected this panel on October 10, 2009, stating that all three candidates had less than three years of service remaining before retirement, which, according to the government, disqualified them from being nominated.

The appellants argued that the disqualification criteria for worker/employee directors, specifically the requirement of having at least three years of residual service, was discriminatory because no such criteria existed for officer/employee directors. They sought a writ of mandamus to compel the government to consider the original panel and, alternatively, to strike down Clause 3(2)(iii) of the Nationalized Banks (Management and Miscellaneous Provisions) Scheme, 1970, which contained the contested disqualification criteria, as unconstitutional.

Timeline:

Course of Proceedings

The appellants, feeling aggrieved by the Central Government’s rejection of their panel, filed a writ petition in the High Court of Bombay at Goa. They sought the quashing of the government’s communication dated October 10, 2009, and a direction to consider the original panel sent on June 8, 2009. They also sought a declaration that Clause 3(2)(iii) of the Scheme, 1970, was unconstitutional. The High Court dismissed the writ petition, upholding the validity of the clause, which led to the present appeal before the Supreme Court.

Legal Framework

The case is governed by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980 (referred to as “the Act”), which empowers the Central Government to make schemes for carrying out the provisions of the Act. Section 9(3) of the Act outlines the composition of the Board of Directors, including:

• Section 9(3)(e) of the Act: “one director, from among such of the employees of the corresponding new bank who are workmen under clause (s) of section 2 of the Industrial Disputes Act, 1947 (14 of 1947), to be nominated by the Central Government in such manner as may be specified in a scheme made under this section;”
• Section 9(3)(f) of the Act: “one director, from among the employees of the corresponding new bank who are not workmen under clause (s) of section 2 of the Industrial Disputes Act, 1947 (14 of 1947), to be nominated by the Central Government after consultation with the Reserve Bank;”

The Central Government framed the Nationalized Banks (Management and Miscellaneous Provisions) Scheme, 1970, under Section 9(1) of the Act. Clause 3 of the Scheme deals with the constitution of the Board of Directors, and Clause 3(2)(iii) specifies the disqualifications for a worker/employee to be nominated as a director:

• Clause 3(2)(iii) of the Scheme: “A workman of a Nationalised Bank shall be disqualified for being nominated as a director unless— (a) he is and has been, serving for a continuous period of not less than five years in the Nationalised Bank, and (b) he is of such age that there is no likelihood of his attaining the age of superannuation during his terms of office as director.”

The appellants contended that the disqualification under Clause 3(2)(iii)(b) of the Scheme, which requires a minimum residual service period for worker/employee directors, was discriminatory as no such condition applied to officer/employee directors, violating Article 14 of the Constitution.

Arguments

The appellants argued that there was no rational basis for having different disqualification criteria for worker/employee directors and officer/employee directors. They contended that the requirement of a minimum residual service period for worker/employee directors, as per Clause 3(2)(iii)(b) of the Scheme, was discriminatory and violated Article 14 of the Constitution, which guarantees equality before the law. They submitted that once an employee is nominated to the Board of Directors, no distinction should be made between them based on their category.

The respondents argued that the two categories of employees—worker/employee and officer/employee—are distinct and cannot be treated equally. They pointed out that worker/employees are governed by the Industrial Disputes Act, 1947, while officer/employees are governed by separate service rules. They contended that the legislature has the power to prescribe different qualifications and disqualifications for different categories of employees, and that Article 14 of the Constitution applies only to equals, not unequals. They also argued that the nominee worker/employee has a right to be appointed as a Director only if they fulfill the qualifications laid down in Clause 3(2)(iii) of the Scheme.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether Clause 3(2)(iii) of the Nationalized Banks (Management and Miscellaneous Provisions) Scheme, 1970, is legal and valid, or whether it is ultra vires the Constitution.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Court considered the following legal provisions:

• Section 9(3)(e) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980: This section provides for the nomination of a director from among the employees who are workmen.
• Section 9(3)(f) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980: This section provides for the nomination of a director from among the employees who are not workmen.
• Clause 3(2)(i), (ii), and (iii) of the Nationalized Banks (Management and Miscellaneous Provisions) Scheme, 1970: These clauses deal with the nomination and disqualification of worker/employee directors.
• Article 14 of the Constitution of India: Guarantees equality before the law and equal protection of the laws.

Judgment

How each authority was viewed by the Court?

• The Court relied on Section 9(3)(e) and (f) of the Act* to highlight the distinction between the two categories of employees, i.e., worker/employee and officer/employee.
• The Court interpreted Clause 3(2)(iii) of the Scheme* to mean that the Central Government can prescribe different disqualification criteria for different categories of employees.
• The Court held that Article 14 of the Constitution* applies inter se equals and not inter se unequals, and that the worker/employee and officer/employee categories are not equals.

What weighed in the mind of the Court?

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

• The distinct nature of worker/employee and officer/employee categories, as defined under the Industrial Disputes Act, 1947, and separate service rules respectively.
• The legislative power to prescribe different qualifications and disqualifications for different categories of employees.
• The understanding that Article 14 of the Constitution applies to equals and not unequals.
• The need to ensure that nominees fulfill the qualifications laid down in Clause 3(2)(iii) of the Scheme.

The Court reasoned that the two categories of employees are not equal, and thus, different criteria could be prescribed for them. It emphasized that the legislature has the power to decide on qualifications and disqualifications for different categories of employees. The Court also noted that Article 14 of the Constitution applies to equals and not to unequals. The Court stated, “There lies a distinction between the worker and the officer. The former, i.e., worker is defined under Section 2(s) of the Industrial Disputes Act, 1947 and is governed by that Act whereas the latter, i.e., officer is not governed by the Industrial Disputes Act but is governed by separate service rules.” Further, the Court observed, “Article 14 of the Constitution applies inter se two equals and not inter se unequals. The case at hand falls under the latter category and, therefore, reliance placed on the principle enshrined under Article 14 of the Constitution by the appellants is wholly misplaced.” Finally, the Court concluded, “the nominee worker/employee has only a right under the Act to be appointed as Director from the category of worker/employee in terms of Section 9 (3)(e) of the Act provided the concerned nominee whose name is recommended by the Union fulfills the qualifications laid down in Clause 3(2)(iii) of the Scheme but not beyond it.”

Key Takeaways

• The Supreme Court upheld the validity of Clause 3(2)(iii) of the Nationalized Banks (Management and Miscellaneous Provisions) Scheme, 1970.
• The Court affirmed that different disqualification criteria can be prescribed for worker/employee directors and officer/employee directors due to their distinct nature.
• Article 14 of the Constitution applies to equals and not to unequals, and the two categories of employees are not considered equal in this context.

Directions

No specific directions were given by the Supreme Court in this judgment.

Development of Law

The ratio decidendi of this case is that the classification between worker/employee and officer/employee is valid, and therefore, different disqualification criteria can be prescribed for them. This judgment clarifies that Article 14 of the Constitution does not prohibit the legislature from prescribing different qualifications and disqualifications for different categories of employees, especially when those categories are not considered equal.

Conclusion

The Supreme Court dismissed the appeal, upholding the High Court’s decision and affirming the validity of Clause 3(2)(iii) of the Nationalized Banks (Management and Miscellaneous Provisions) Scheme, 1970. The Court held that the differential treatment of worker/employee and officer/employee directors in terms of disqualification criteria is not discriminatory and does not violate Article 14 of the Constitution. This judgment reinforces the principle that the legislature has the power to prescribe different qualifications and disqualifications for different categories of employees.