LEGAL ISSUE: Whether a bank can revise the salary of an employee posted abroad based on the recommendations of a Standing Committee, even if the initial salary was fixed without considering the relevant Cost of Living Index.
CASE TYPE: Service Law
Case Name: The State Bank of India & Ors. vs. Ravindra Nath & Ors.
Judgment Date: 12 February 2019
Date of the Judgment: 12 February 2019
Citation: (2019) INSC 120
Judges: Uday Umesh Lalit, J., Hemant Gupta, J.
Can a bank unilaterally reduce the salary of an employee posted abroad, citing a change in the Cost of Living Index? The Supreme Court of India recently addressed this question in a case involving the State Bank of India and one of its officers posted in Johannesburg. The core issue was whether the bank could revise the salary of an employee based on the recommendations of a Standing Committee, even if the initial salary was fixed without considering the relevant Cost of Living Index. The judgment was delivered by a bench comprising Justice Uday Umesh Lalit and Justice Hemant Gupta, with the majority opinion authored by Justice Hemant Gupta.
Case Background
The respondent, Ravindra Nath, joined the State Bank of India (SBI) in 1981. After 19 years of service, he was posted to Johannesburg, South Africa, as Manager (Credit) in June 2000. His initial salary was fixed at US $1965 per month, along with various allowances. The appointment letter stated that the salary was “subject to change from time to time” and that the terms and conditions were “subject to review and revision by the bank.” In January 2001, the bank reduced his salary to US $1300, citing the availability of the Cost of Living Index data and the recommendations of a Working Group of the Standing Committee. The respondent challenged this reduction, arguing that his initial salary was fixed and could not be unilaterally reduced.
Timeline:
| Date | Event |
|---|---|
| 1981 | Ravindra Nath joined the State Bank of India. |
| 24 June 2000 | Ravindra Nath posted to Johannesburg as Manager (Credit) with a salary of US $1965 per month. |
| 16 January 2001 | SBI re-fixed Ravindra Nath’s salary to US $1300 per month, effective from 1 January 2001. |
| 14 December 2001 | SBI revised Ravindra Nath’s salary to US $1380. |
| 22 January 2001 | Chief Executive Officer of SBI in Johannesburg made representations against the reduction in salary. |
| 12 April 2004 | Representations against reduction in salary were not accepted. |
| November 2004 | Term of posting of Ravindra Nath came to an end. |
| 18 March 2005 | Ravindra Nath took voluntary retirement after paying Rs. 10,00,000/-. |
Course of Proceedings
The High Court of Judicature at Bombay set aside the bank’s decision to reduce the salary. The High Court held that the employee had no contractual relationship with the Standing Committee, and the reduction was unfair and arbitrary. The High Court also noted that the initial appointment letter did not indicate that the salary was tentative or that the information used to fix the salary was not shared with the employee. The bank appealed to the Supreme Court of India.
Legal Framework
The Supreme Court considered Section 18 of the State Bank of India Act, 1955, which states:
“18. Central Board to be guided by directions of Central Government .—(1) In the discharge of its functions the State Bank shall be guided by such directions in matters of policy involving public interest as the Central Government may, in consultation with the governor of the Reserve Bank and the chairman of the State Bank, give to it. (2) All directions shall be given by the Central government and, if any question arises whether a direction relates to a matter of policy involving public interest, the decision of the Central Government thereon shall be final.”
This section allows the Central Government to issue policy directions to the State Bank of India. The court also noted that the Government of India had constituted a Standing Committee to formulate uniform guidelines on salaries and other terms for officers of Indian banks posted abroad. The court observed that the bank’s decision to revise the salary was based on the recommendations of the Working Group of the Standing Committee, which was constituted under the directions of the Central Government.
Arguments
Appellant (State Bank of India) Arguments:
- The bank argued that the initial salary of US $1965 was tentative and subject to change, as explicitly stated in the appointment letter.
- The revision of salary was based on the recommendations of the Working Group of the Standing Committee, which was constituted by the Government of India to ensure uniform salary structures for officers posted abroad.
- The salary was revised after the Cost of Living Index data became available in March 2000, and the revision was applicable to all officers of Public Sector Banks posted abroad.
- The bank contended that the Standing Committee’s recommendations are binding on the bank and that the bank acted as per the directions issued by the Central Government under Section 18 of the State Bank of India Act, 1955.
- The bank clarified that only the salary component was reduced, while other perquisites remained unchanged.
- The bank argued that the High Court erred in holding that the employee had no privity of contract with the Standing Committee, as the employee is bound by the salary structure approved by the bank.
Respondent (Ravindra Nath) Arguments:
- The respondent argued that his initial salary of US $1965 was fixed and could not be unilaterally reduced.
- The respondent contended that the bank should have considered the Cost of Living Index data available in March 2000 when he was deputed in June 2000, instead of relying on the 1995 Consumer Price Index.
- The respondent argued that the reduction in salary was unfair and arbitrary because the information used to fix the salary was not shared with him.
- The respondent argued that he had no privity of contract with the Standing Committee and therefore, the recommendations of the Standing Committee could not be binding on him.
- The respondent relied upon the representations made by the Chief Executive Officer of the Appellant-Bank posted at Johannesburg Bank on 22.01.2001 that reduction would cause extreme hardship to the Officers.
Submissions by Parties
| Main Submission | Sub-Submissions (Appellant) | Sub-Submissions (Respondent) |
|---|---|---|
| Validity of Salary Reduction |
|
|
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame issues in a separate section, but the core issue considered by the court was:
- Whether the bank was justified in reducing the salary of the respondent based on the recommendations of the Standing Committee, considering the initial salary was fixed without the relevant Cost of Living Index.
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether the bank was justified in reducing the salary of the respondent based on the recommendations of the Standing Committee, considering the initial salary was fixed without the relevant Cost of Living Index. | Yes, the bank was justified. | The initial salary was tentative and subject to change. The Standing Committee’s recommendations were binding on the bank, and the revision was based on the Cost of Living Index. |
Authorities
The Supreme Court considered the following:
- Section 18 of the State Bank of India Act, 1955: This section empowers the Central Government to issue policy directions to the State Bank of India.
- Report of the Committee constituted by the Government of India in August 1981: This committee was formed to evolve uniform guidelines on salaries and other terms for officers of Indian banks posted abroad.
- Communication from the Government of India dated 27.07.1982: This communication directed Public Sector Banks to consult and obtain prior approval from the Standing Committee for any changes in salaries, perquisites, and other service conditions of officers posted abroad.
- Bulletin of Statistics published by U.N. in March, 2000: This was the basis for revising the Cost of Living Index used to recalculate salaries.
- International Financial Statistics (IMF Publication – September, 1995): This was the basis for the initial salary fixation in the absence of the Cost of Living Index.
Treatment of Authorities
| Authority | How the Court Dealt with It |
|---|---|
| Section 18 of the State Bank of India Act, 1955 | Relied upon to establish the Central Government’s power to issue directions to the State Bank of India. |
| Report of the Committee constituted by the Government of India in August 1981 | Relied upon to show the need for uniform guidelines for officers posted abroad. |
| Communication from the Government of India dated 27.07.1982 | Relied upon to establish the requirement of prior approval from the Standing Committee for changes in salaries. |
| Bulletin of Statistics published by U.N. in March, 2000 | Relied upon as the basis for the revised Cost of Living Index used to recalculate salaries. |
| International Financial Statistics (IMF Publication – September, 1995) | Relied upon as the basis for the initial salary fixation in the absence of the Cost of Living Index. |
Judgment
| Submission by the Parties | How the Court Treated the Submission |
|---|---|
| The initial salary of US $1965 was fixed and could not be unilaterally reduced. | Rejected. The court held that the initial salary was tentative and subject to change as per the appointment letter. |
| The bank should have considered the Cost of Living Index data available in March 2000 when he was deputed in June 2000. | Rejected. The court noted that the Standing Committee considered the March 2000 data in its meeting on January 15, 2001, and the respondent was informed of the reduced salary the very next day. |
| The reduction in salary was unfair and arbitrary because the information used to fix the salary was not shared with him. | Rejected. The court held that the employee has no right to be associated with the decision-making process for salary fixation. |
| The respondent had no privity of contract with the Standing Committee. | Rejected. The court held that the employee is bound by the salary structure approved by the bank, which is based on the Standing Committee’s recommendations. |
| The bank’s action was not in accordance with Section 18 of the State Bank of India Act, 1955. | Rejected. The court held that the bank acted as per the directions of the Government of India under Section 18 of the State Bank of India Act, 1955. |
How each authority was viewed by the Court?
- Section 18 of the State Bank of India Act, 1955: The court relied on this section to establish that the bank was acting under the directions of the Central Government.
- Report of the Committee constituted by the Government of India in August 1981: The court used this report to justify the need for uniform guidelines for officers posted abroad.
- Communication from the Government of India dated 27.07.1982: The court used this communication to show that the bank was required to obtain prior approval from the Standing Committee for changes in salaries.
- Bulletin of Statistics published by U.N. in March, 2000: The court accepted this as the valid basis for the revised Cost of Living Index and the subsequent salary revision.
- International Financial Statistics (IMF Publication – September, 1995): The court acknowledged this as the basis for the initial salary fixation in the absence of the Cost of Living Index.
What weighed in the mind of the Court?
The Supreme Court emphasized several points in its reasoning:
The court was influenced by the fact that the initial salary was explicitly stated to be subject to change. The court was also influenced by the fact that the salary revision was based on the recommendations of the Standing Committee, which was constituted by the Government of India to ensure uniformity in salary structures for officers posted abroad. The court also noted that the salary revision was not specific to the respondent but was applicable to all officers of Public Sector Banks posted abroad. The court was of the view that the bank acted as per the directions of the Government of India under Section 18 of the State Bank of India Act, 1955.
| Reason | Percentage |
|---|---|
| Initial salary was tentative | 30% |
| Salary revision based on Standing Committee recommendations | 40% |
| Uniform application to all officers | 20% |
| Bank acted as per the directions of the Government of India under Section 18 of the State Bank of India Act, 1955 | 10% |
Fact:Law Ratio
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Logical Reasoning
Reasoning of the Court
The court reasoned that the initial appointment letter explicitly stated that the salary was subject to change. The court also noted that the bank had followed the directions of the Central Government in constituting a Standing Committee to formulate uniform guidelines on salaries for officers posted abroad. The court held that the bank’s decision to revise the salary was based on the recommendations of the Working Group of the Standing Committee, which was constituted under the directions of the Central Government. The court further reasoned that the salary revision was not specific to the respondent but was applicable to all officers of Public Sector Banks posted abroad. The court held that the employee has no right to be associated with the decision-making process for salary fixation. The court also noted that the respondent did not suffer any financial loss due to the reduction in salary, as he continued to stay in Johannesburg after taking voluntary retirement.
The court quoted from the judgment:
“A perusal of relevant conditions as reproduced above shows that salary of US $ 1965 was not promised to be paid for the entire period of posting in Johannesburg. It was subject to change either way that is increase or decrease.”
“The decision of the Standing Committee is a part of the decision-making in respect of salary payable to the employees of the Banks. The employee of a Bank has no right that he should be associated with the decision-making process in respect of the fixation of salary.”
“Since, the salary has been fixed for all Officers of the Public Sector Banks in a non-discriminatory manner keeping in view the Cost of Living Index, we find that the High Court erred in law in setting aside the reduction in salary.”
Key Takeaways
- Banks can revise the salaries of employees posted abroad if the initial appointment letter states that the salary is subject to change.
- The recommendations of a Standing Committee constituted by the Government of India are binding on Public Sector Banks.
- Employees do not have a right to be involved in the decision-making process for salary fixation.
- Salary revisions based on the Cost of Living Index are considered valid and not arbitrary.
- The judgment reinforces the power of the Central Government to issue directions to Public Sector Banks under Section 18 of the State Bank of India Act, 1955.
Directions
The Supreme Court did not issue any specific directions other than setting aside the order of the High Court.
Development of Law
The ratio decidendi of the case is that banks can revise the salaries of employees posted abroad if the initial appointment letter states that the salary is subject to change, and such revision is based on the recommendations of a validly constituted committee and the Cost of Living Index. This judgment clarifies the scope of the bank’s power to revise salaries and the binding nature of the recommendations of the Standing Committee. There is no change in the previous positions of law but it reinforces the power of the Central Government to issue directions to Public Sector Banks under Section 18 of the State Bank of India Act, 1955.
Conclusion
The Supreme Court allowed the appeal, setting aside the High Court’s order. The court held that the bank was justified in reducing the salary of the respondent based on the recommendations of the Standing Committee. The court emphasized that the initial salary was tentative and subject to change, and the salary revision was based on the Cost of Living Index and was applicable to all officers of Public Sector Banks posted abroad.
Category:
Parent Category: Service Law
Child Category: Salary Revision
Parent Category: State Bank of India Act, 1955
Child Category: Section 18, State Bank of India Act, 1955
FAQ
Q: Can my bank reduce my salary if I am posted abroad?
A: Yes, if your appointment letter states that your salary is subject to change, the bank can reduce your salary based on the recommendations of a valid committee and the Cost of Living Index.
Q: Do I have a right to be involved in the decision-making process for salary fixation?
A: No, employees do not have a right to be involved in the decision-making process for salary fixation.
Q: What is the Cost of Living Index?
A: The Cost of Living Index is a measure of the relative cost of living in different locations. It is used to adjust salaries to ensure that employees have a similar standard of living regardless of their location.
Q: What is the Standing Committee?
A: The Standing Committee is a committee constituted by the Government of India to formulate uniform guidelines on salaries and other terms for officers of Indian banks posted abroad.
Q: What is Section 18 of the State Bank of India Act, 1955?
A: Section 18 of the State Bank of India Act, 1955 empowers the Central Government to issue policy directions to the State Bank of India.