Supreme Court Upholds Sealed Cover Procedure for Promotions: State Bank of India vs. C.K. Karunakaran (30 September 2021)

Date of the Judgment: 30 September 2021
Citation: Civil Appeal No. 6821 of 2009
Judges: Hon’ble Mr. Justice Sanjay Kishan Kaul and Hon’ble Mr. Justice M.M. Sundresh
Can a bank withhold a promotion if disciplinary proceedings were initiated against an employee, even if the employee was later only given a minor penalty? The Supreme Court of India addressed this issue in a case concerning the State Bank of India’s promotion policy. The Court examined whether the bank was correct in not giving effect to a promotion that was kept in a sealed cover due to pending disciplinary proceedings, which ultimately resulted in a minor penalty of censure. The judgment was delivered by a two-judge bench comprising Hon’ble Mr. Justice Sanjay Kishan Kaul and Hon’ble Mr. Justice M.M. Sundresh, with the opinion authored by Hon’ble Mr. Justice Sanjay Kishan Kaul.

Case Background

The respondent, C.K. Karunakaran, was an employee of the State Bank of India (appellant) in the Middle Management Grade Scale-II. His promotion to Middle Management Grade Scale-III was considered in November 1984. An Interview Committee recommended his promotion. However, on 28 January 1985, the disciplinary authority decided to initiate departmental action against him. The respondent was asked for an explanation on 18 February 1985, and a charge-sheet was issued on 4 November 1985. Due to these pending disciplinary proceedings, the promoting authority, after considering the Interview Committee’s recommendations, issued a select list on 23 August 1985, but the respondent’s result was kept in a sealed cover. The charge-sheet resulted in a minor penalty of censure on 28 July 1987. Consequently, the promotion was not given effect to. The respondent’s departmental appeal against the censure was dismissed on 13 December 1988.

Timeline

Course of Proceedings

The respondent filed an appeal before the Appellate Authority on 26 November 1990, which was rejected. Subsequently, the respondent filed Writ Petition O.P. No. 8947/1992 before the High Court of Kerala at Ernakulam. The High Court directed the bank to consider the respondent’s case, ignoring the sealed cover procedure. The learned Single Judge allowed the Writ Petition on 30 May 2003, stating that the ex-post facto decision of imposing censure could not be used to deny the promotion. The Division Bench dismissed the appeal on 17 October 2008. The State Bank of India then appealed to the Supreme Court.

Legal Framework

The State Bank of India (Supervising Staff) Service Rules, specifically Section 2 dealing with ‘disciplinary and appeal’ in paragraph 49, identifies ‘censure’ as the first of the minor penalties. The bank’s Staff Circular No. 118 outlines the ‘Sealed Cover Procedure’. The circular states that this procedure applies to officers against whom disciplinary proceedings have been contemplated, provided there is a prima facie case; officers against whom disciplinary proceedings are in progress; and officers who have been placed under suspension. The circular further specifies that if departmental proceedings end with a minor penalty like censure, the recommendations of the Selection Committee in favor of the employee, kept in the sealed cover, will not be given effect to. Instead, the employee’s case may be considered for promotion in the next promotion cycle.

The relevant part of the Circular is as under:-

“3.Keeping in view the principles of natural justice and with a view to maintaining uniformity in this regard. It has been decided to introduce the ‘Sealed Cover Procedure’ in respect of officers in the Bank with effect from the 1st March 1983 on the lines followed by the Government and the following guidelines are laid down for the purpose:
i)The ‘Sealed Cover Procedure’ would be applicable in respect of promotion/confirmation of the following categories of officers:-
(a) Officers against whom disciplinary proceedings have been contemplated provided there is a prima facie case against the officer
(b) Officers against whom disciplinary proceedings are in progress and
(c) Officer who have been placed under suspension.”

“iv) Where the department proceedings have ended with the imposition of a minor penalty, viz. censure, recoveries of pecuniary loss to the Bank withholding of increments of pay and withholding of promotion the accommodation of the Selection Committee in favour of the employees, kept in the sealed cover, will not be given effect to. But the case of the employees concerned may be considered at the time of next promotions immediately after the conclusion of the departmental proceedings, if the employee is selected for promotion, he may be promoted in the usual manner alongwith others if the penalty, is that of ‘ensure’ or ‘recovery of pecuniary loss’. But in the case of employees, who have been awarded the minor penality of ‘withholding of increments’ or ‘withholding of promotion’, promotion of the officers concerned can be made only after the expiry of the period of his penalty.”

Arguments

Appellant’s Arguments:

• The State Bank of India argued that it followed the sealed cover procedure as per its Staff Circular No. 118.
• The bank contended that since disciplinary proceedings were contemplated against the respondent, his case fell under sub-clause (a) of Clause (i) of para 3 of the circular.
• According to sub-clause (iv) of the circular, if departmental proceedings end with a minor penalty like censure, the sealed cover would not be given effect to. Instead, the employee’s case would be considered for promotion in the next cycle.
• The appellant cited the judgments in State of M.P. & Anr. Vs. I.A. Qureshi [1998 (9) SCC 261] and Union of India & Ors. Vs. A.N. Mohanan [2007 (5) SCC 425], stating that even a minor penalty like censure prevents the implementation of the sealed cover recommendation.
• The bank argued that the respondent’s case was considered for promotion after the conclusion of the departmental proceedings and he was promoted subsequently, which was in accordance with the rules.

Respondent’s Arguments:

• The respondent argued that since the sealed cover procedure was adopted, it should have been given effect to after the period of censure was over.
• The respondent contended that the ex-post facto decision of imposing censure should not be a reason to deny the benefit of promotion.

Issues Framed by the Supreme Court

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

• Whether the State Bank of India was justified in not giving effect to the promotion of the respondent, which was kept in a sealed cover, due to the imposition of a minor penalty of censure following disciplinary proceedings.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• State of M.P. & Anr. Vs. I.A. Qureshi [1998 (9) SCC 261] – Supreme Court of India: This case held that once a minor penalty is imposed, the sealed cover recommendation cannot be opened, and the employee can only be considered for promotion prospectively.
• Union of India & Ors. Vs. A.N. Mohanan [2007 (5) SCC 425] – Supreme Court of India: This case opined that awarding censure is a blame-worthy factor, and the findings of the sealed cover are not to be acted upon.

Legal Provisions:

• State Bank of India (Supervising Staff) Service Rules: Specifically, Section 2 dealing with ‘disciplinary and appeal’ in paragraph 49, which lists ‘censure’ as the first ‘minor penalty’.
• Staff Circular No. 118 of the State Bank of India: This circular outlines the ‘Sealed Cover Procedure’ and its applicability.

Judgment

How each authority was viewed by the Court?

• The Court relied on State of M.P. & Anr. Vs. I.A. Qureshi [1998 (9) SCC 261]* to support its view that a minor penalty prevents the implementation of the sealed cover recommendation.
• The Court relied on Union of India & Ors. Vs. A.N. Mohanan [2007 (5) SCC 425]* to support its view that a censure is a blame-worthy factor, and the sealed cover should not be acted upon.
• The Court cited the State Bank of India (Supervising Staff) Service Rules to show that censure is a minor penalty.
• The Court cited Staff Circular No. 118 of State Bank of India to explain the Sealed Cover Procedure.

What weighed in the mind of the Court?

The Court’s decision was primarily influenced by the existing rules and precedents. The Court emphasized the importance of adhering to the bank’s internal circular and the established legal position that even a minor penalty like censure can prevent the implementation of a sealed cover recommendation for promotion. The Court’s reasoning was based on the following points:

• The bank’s Staff Circular No. 118 clearly outlines the procedure for sealed cover cases, and the respondent’s situation fell squarely within its ambit.
• The imposition of a minor penalty, such as censure, is a valid reason to not give effect to the sealed cover, as per the circular.
• The judgments in State of M.P. & Anr. Vs. I.A. Qureshi [1998 (9) SCC 261] and Union of India & Ors. Vs. A.N. Mohanan [2007 (5) SCC 425] support the view that a minor penalty prevents the implementation of the sealed cover.
• The Court noted that the respondent was subsequently promoted, which aligns with the bank’s policy of considering such cases in the next promotion cycle.

The Court’s reasoning was primarily based on the legal interpretation of the bank’s internal rules and existing precedents. The factual aspects of the case, while relevant, were secondary to the legal framework.

The Supreme Court overturned the High Court’s decision, stating: “In view of the aforesaid position, we are of the view, that the impugned orders of learned Single Judge dated 30.5.2003 and the Division Bench dated 17.10.2008 cannot be sustained and are set aside and the appeal is allowed.” The Court further noted, “the respondent having earned his promotion albeit belatedly as stated aforesaid, is a possible reason why he may not have joined the present proceedings.” The Court also observed, “the sealed cover was not given effect in terms of the aforesaid rules.”

Key Takeaways

• Organizations can withhold promotions if disciplinary proceedings are pending, and a minor penalty is imposed, even if a promotion was initially recommended.
• The sealed cover procedure is valid, and its implementation depends on the outcome of disciplinary proceedings.
• Employees who receive a minor penalty like censure may not be entitled to promotions held in a sealed cover, but their cases should be considered in the next promotion cycle.

Directions

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

Development of Law

The ratio decidendi of this case is that if disciplinary proceedings are contemplated against an employee and a minor penalty like censure is imposed, the sealed cover procedure will not be given effect to. The employee’s case will be considered in the next promotion cycle. This judgment reinforces the existing legal position on sealed cover procedures and the effect of minor penalties on promotion prospects, without introducing any new legal principles.

Conclusion

The Supreme Court’s judgment in State Bank of India vs. C.K. Karunakaran upholds the validity of the sealed cover procedure in promotion cases when disciplinary proceedings are pending. The Court clarified that even a minor penalty like censure is sufficient to prevent the implementation of a promotion held in a sealed cover. The judgment emphasizes the importance of adhering to internal rules and established legal precedents, ensuring that organizations can maintain discipline and fairness in their promotion processes. The Court allowed the appeal of the bank.