whether the respondent­employees are entitled to pension on completion of 15 years of service as per the State Bank of India Voluntary Retirement Scheme (for short, “the VRS framed in 2000”).

1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.2463 OF 2015
ASSISTANT GENERAL MANAGER,
STATE BANK OF INDIA & ORS. … APPELLANTS
VERSUS
RADHEY SHYAM PANDEY … RESPONDENT
WITH
CIVIL APPEAL NOS.2287­2288 OF 2010
CIVIL APPEAL NOS.5035­5037 OF 2012
CIVIL APPEAL NO.10813 OF 2013
J U D G M E N T
ARUN MISHRA, J.

  1. The question involved is whether the respondent­employees are
    entitled to pension on completion of 15 years of service as per the
    State Bank of India Voluntary Retirement Scheme (for short, “the VRS
    framed in 2000”).
  2. The matter has been referred to larger Bench due to conflict of
    opinion between the Judges as to the admissibility of pension under
    the VRS.
    2
  3. After obtaining approval of the Government of India, the Indian
    Bank Association (IBA) evolved a Voluntary Retirement Scheme. The
    Central Board of Directors of the State Bank of India (in short ‘the
    SBI’) adopted and approved the scheme in its meeting held on
    27.12.2000 for implementing the VRS for the employees of the bank
    by retiring them on completion of 15 years of service with the benefit
    provided in the scheme. The scheme had been drawn up, keeping in
    view the guidelines issued by the IBA. “Memorandum” dated
    26.12.2000 was submitted by the Deputy Managing Director and the
    Corporate Development Officer for according approval to the proposals
    contained in the Memorandum as also for adopting the scheme as
    Annexure ‘B’ to the Memorandum.
  4. The basis of Memorandum dated 26.12.2000, was the advice by
    IBA vide letter dated 31.8.2000 in which it was pointed out that they
    deliberated with the Government of India, Ministry of Finance
    (Banking Division), at its meeting with the Finance Minister, with
    Chief Executives of public sector banks on 13.6.2000. The human
    resource and manpower planning in public sector banks were
    reviewed, and a Committee was constituted to examine the issues
    concerned to public sector banks and to suggest suitable remedial
    measures. The Committee considered the economic reforms set in
    3
    motion in the year 1990, the high establishment cost and low
    productivity in public sector banks. It was felt that the banks convert
    their human resource into assets compatible with the business
    strategies through a variety of measures. The data available indicated
    that 43% of the employees in public sector banks were in the 46 + age
    group, and only 12% were in the 25­35 age group. It was felt that this
    pattern has severe implications for the banks regarding mobility,
    training, development of skills, and succession plans for higher­level
    positions. The workforce was in excess. In order to remedy the
    situation, the Committee placed before the Government two schemes,
    viz., Sabbatical Leave, and a Voluntary Retirement Scheme. The IBA
    vide letter dated 13.7.2000 sought no objection from the Government
    for circulating the schemes to the banks for consideration and
    adoption by their Boards. The Government conveyed on 29.8.2000
    that it did not have any objection for adopting and implementing the
    scheme by the respective Board of Directors. It advised that the banks
    may adopt these schemes for sabbatical leave and voluntary
    retirement based on the essential features of the schemes given in the
    annexure to the letter. The scheme provided eligibility for all
    permanent employees with 15 years of service. It provided for amount
    of ex gratia and other benefits accepted by the Government of India
    which were to be provided (i) gratuity as per the Gratuity Act/service
    4
    gratuity, as the case may be; (ii) pension (including commuted value of
    pension)/bank’s contribution towards provident fund; and (iii) leave
    encashment as per rules.
  5. After the Central Board of SBI approved the proposals contained
    in the memorandum on 27.12.2000, a circular was issued on
    29.12.2000 in which it was mentioned that the IBA advised that as the
    Committee constituted by the Finance Ministry recommended
    introduction of a VRS in order to rationalise the manpower, the
    Government of India has no objection for adopting and implementing
    the VRS. It was clearly stated in the Circular dated 29.12.2000 that
    the Central Board of Directors accorded approval for adopting and
    implementing the SBI voluntary Retirement Scheme drawn up,
    “keeping in view the guidelines issued by the IBA.” Copy of the scheme
    was placed as Annexure B. The scheme was open from 15.1.2001 till
    31.1.2001. Specimen applications and other related forms inter alia for
    pension were also circulated, which formed part of the circular. The
    circular also made it clear that gratuity, provident fund contribution
    as per the Provident Fund Rules, pension in terms of the SBI
    Employees’ Pension Fund Rules, leave encashment to be provided
    beside the amount of ex gratia.
    5
  6. The heart and soul of the scheme were that benefits to be given
    on completion of 15 years of service. The eligibility for benefits was
    provided to those who had completed 15 years of service as on
    31.12.2000.
  7. The SBI submitted that it reserved a right under the scheme to
    modify, amend or cancel it or any of the clauses and to give effect to it
    from any date deemed fit. The Deputy Managing Director­cum­CDO
    was the competent authority for the purpose. As specific queries were
    raised, a clarification was issued by the Deputy Managing Director on
    15.1.2001, in which about a query whether an employee on
    completing 15 years of pensionable service as on the relevant date of
    retirement, would be entitled to pensionary benefits, in response, para
    6(c) of the scheme was reiterated, and it was also mentioned that as
    per the existing rules, employees who had not completed 20 years of
    pensionable service, were not eligible for pension.
  8. The clarification issued by the Deputy General Manager was not
    in the form of modification or amendment of the scheme. The Deputy
    General Manager in clarification quoted the provisions and simply
    stated the position of a rule that the pensionable service was 20 years.
    The communication was clarificatory and did not have the effect of
    modifying the SBI VRS scheme as approved and adopted.
    6
    9.(a) Radhey Shyam Pandey questioned the refusal of the bank to pay
    pension, vide communication dated 26.9.2006 in the writ application
    filed in the High Court at Allahabad. He retired on 31.3.2001 under
    the SBI VRS. On 18.3.2001, the bank accepted the offer of the
    employee to retire him voluntarily. He was aged 59 years three months
    and had nine months service still to go before attaining the age of
    superannuation. On 31.3.2001, when the VRS became effective, he
    had put in 19 years, nine months, and 18 days of pensionable service.
    He had to retire on completion of 60 years, and would have put in a
    little more than 20 years of pensionable service.
    (b) The High Court held that the case of the employee fell under the
    Second Part of Rule 22(i)(a). He was in service of the bank on and after
    11.11.1993 and completed ten years of pensionable service, and
    further, he attained the age of 58 years before the date he retired. The
    High Court opined that the clarification was not part of the VRS
    scheme. The employee retired outside rule as per the contractual
    retirement scheme. The contract had to prevail. In Pension Fund
    Rules, Clause (a) in Rule 22(i) was inserted to give the employees the
    benefit of pension after ten years of pensionable service even if they
    had joined late. The High Court found that the matter was covered by
    Rule 22(i)(a). The admissible benefit cannot be denied. If a contracting
    7
    party is entitled to take benefit of a permissible clause, then it cannot
    be denied to him.
    (c) In the Chairman, State Bank of India & Ors. v. Mihir Kumar Nandi
    & Anr. (C.A. Nos. 5035­5037/2012), a Division Bench of the High
    Court of Calcutta dismissing the intra­court appeal, affirmed the order
    of the learned Single Judge and directed to make the payment of
    pension. The employee was appointed on 21.5.1988. He opted for VRS
    on 15.1.2001. The acceptance was conveyed on 17.3.2001 by which
    he was informed that he would be relieved of his duties on 31.3.2001.
    Vide letter dated 2.8.2001, the employee was granted a pension at the
    rate of Rs.1024 per month. However, vide communication dated
    30.8.2001, the pension payment order, together with payment of
    commuted value, was stopped in view of the amendment of Rule 22 of
    the Pension Fund Rules. Though the amendments in Pension Fund
    Rules were made effective with effect from 31.3.2001, and the age of
    retirement had been raised from 58 years to 60 years, w.e.f.
    22.5.1998, this had necessitated increase in age for admission to
    Pension Fund to 58 years specified in Rule 22(i)(a) of the Rules so that
    the employees who have retired/are retiring on attaining the age of 60
    years after completing ten years of pensionable service on or after
    22.5.1998 are eligible for pension.
    8
    (d) The Central Board of the SBI in its meeting held on 30.1.2001
    accorded approval to the amendment in Rules 8 and 22(i)(a) of the
    Rules as set out in Annexure 1. The Trustees of the SBI Employees’
    Pension Fund in their meeting on 30.10.2001 adopted the amended
    rules. Consequently, a Circular was issued on 8.11.2001. The
    amendment was given effect from 31.3.2001, the date on which it was
    notified, though it was adopted by the Trustees of the SBI Trust
    Pension Fund in October 2001.
    (e) A Division Bench of the High Court held respondent­employee,
    as per rules on 17.3.2001, the date on which his offer was accepted,
    was eligible to get the pension. On 31.3.2001, the amended rules were
    published, which took away the existing right to get the pension. In
    VRS Scheme, it was mentioned that the pension would be payable in
    accordance with the rules as on 31.3.2001. The employee had no
    means of knowing about the future amendment of the Pension Rules,
    which would be detrimental to his interest. If he had known the fact,
    then he would not have opted for the scheme. The silence maintained
    by the employer in such a situation amounted to a fraud on its part.
    The High Court relied upon section 17 of the Contract Act and
    Illustration (d) to section 19 of the Contract Act. The High Court
    further held that it was the duty of the employer to disclose that there
    would be a future amendment on the last date of their service by
    9
    which their right to pension would be taken away. The same cannot
    but be said to be unfair and arbitrary. Thus, the High Court held that
    action is violative of Article 14 of the Constitution of India. The
    employee is entitled to the relief of pension along with interest.
  9. Ramesh Prasad Nigam (supra) had joined the services in 1984 in
    the clerical cadre and was confirmed on 2.3.1985. He had applied for
    VRS, having completed 15 years of service and 57 years of age. The
    clarification was internal circulation. It was not within the knowledge
    of employees; as such, he was entitled to the pension.
  10. (a) In C.A. Nos.2287­88/2010, M.P. Hallan joined the services of
    the bank on 18.5.1981 as a clerk. The acceptance under VRS was
    communicated on 17.3.2001. On 27.3.2001, he applied to withdraw
    his request made under VRS as retirement was w.e.f. 31.3.2001. The
    Bank declined application on 18.4.2001 on the ground that the last
    date of withdrawal of the application was 15.2.2001. The employee
    claimed pension under Pension Fund Rules in terms of SBI
    Employees’ Pension Fund Rules (hereinafter referred to as ‘Pension
    Rules’). By writing a letter on 12.4.2001, the claim of the employee for
    withdrawal of application for voluntary retirement, pension, and leave
    encashment was again declined on 4.7.2001. Thereafter, he filed a writ
    petition in the High Court of Punjab & Haryana.
    10
    (b) The High Court rejected the claim concerning the withdrawal
    from VRS. As the last date for withdrawal was over, and acceptance
    had been communicated, however, considering Rule 22 of the Pension
    Rules, the High Court opined that as the employee completed more
    than 19 years and ten months of service on 31.3.2001, therefore, the
    first part of clause one of Rule 22 is not applicable. Further, the third
    part of clause (a) is not applicable as he has completed ten years of
    service but not attained the age of 60 years. The case of the employee
    was covered under the second part of clause (a) of Rule 22, which
    enabled the member to get a pension if an employee in the service of
    the bank on or after 1.11.1993, and completed ten years pensionable
    service and attained 58 years age. The employee applied in terms of
    the Pension Rules prevailing in January 2001. Alternatively, if an
    employee was in service of the bank on or after 1.11.1993, having
    completed ten years of pensionable service and on attaining the age of
    58 years, shall be entitled to a pension. Thus, he fulfilled the
    requirement of second part of clause (a) of Rule 22 as he was in
    service of the bank on 1.11.1993 and completed ten years of
    pensionable service, and the age of 58 years, therefore, in terms of
    Rule 22, he was entitled to pension as well as leave encashment dues
    along with interest at the rate of 9 percent per annum.
    11
  11. On behalf of the bank, it was submitted that VRS 2000
    stipulated that the pension in terms of SBI Pension Fund Rules on the
    relevant date, i.e., 31.3.2001, was to be provided. In other words, in
    case the employee was entitled to a pension in terms of Pension Rules
    and not otherwise. A provision was added in Rule 22(1) of the Pension
    Rules in the year 1986, accordingly, the pension was to be granted in
    all cases relating to voluntary retirement on completion of 20 years of
    service. The employees opting for the SBI­VRS would be governed only
    by Rule 22(i)(c) as it falls under the category of voluntary retirement.
    Under Rule 22(iii), a member who has been permitted to retire under
    clause 22(i)(c) shall be entitled to a proportionate pension, which is on
    completion of 20 years of pensionable service. Eligibility clause 3 has
    nothing to do with the admissibility of the pension. It was further
    submitted that the employees who completed ten years of pensionable
    service and were 60 years of age were entitled to pension; while
    employees under the VRS on completion of 15 years would not get
    pension and for that 20 years’ service was necessary, the submission
    of employees that it would be discriminatory is based on incorrect
    premise. There is no challenge to the SBI Pension Rules or SBI­VRS.
    The bank provided the pensionable service period of 10 years on
    attaining the age of 60 years in terms of reservation policy. The bank
    appoints late entrants like ex­servicemen who, after serving in Armed
    12
    Forces, join the bank and are left only with about ten years of service
    before they attain the age of superannuation. It is to grant benefit to
    such a particular category of employees that a period of 10 years on
    attaining the age of superannuation of 60 years was provided in Rule
    22(i)(a).
  12. The appellants further submitted that 20 years’ period is
    provided in case of voluntary retirement to ensure that an employee
    on whom the bank has spent a considerable amount during training,
    works for a substantial period before he seeks retirement. It is a
    uniform policy followed by the bank. Regulation 28 was amended in
    2002 providing for 15 years of service. It applies to the employees who
    are governed by the Bank Employees’ Pension Regulations, 1995.
    These regulations do not apply to SBI employees as the SBI Pension
    Rules govern them. SBI employees are entitled to Provident Fund,
    gratuity and pension in terms of the Rules on completion of 20 years
    of service. Thus, there cannot be any comparison of SBI employees
    with the employees of other nationalised banks. The clarification dated
    11.01.2000 has also been relied on by the bank. Now more than 19
    years have passed and to grant a pension to all those who have
    retired, w.e.f. 1.4.2001 would cast a huge financial liability on the
    bank.
    13
  13. It was submitted on behalf of the employees that the decision
    rendered by the High Court is appropriate. No case for interference is
    made out in appeals. The very essence of the VRS was the
    admissibility of pension on completion of 15 years of service and other
    benefits. Once the scheme was adopted and approved by the Central
    Board of SBI, the clarification could not have been made to the
    detriment of employees. The clarification did not have effect of the
    amendment, modification, or cancellation of the VRS scheme as
    approved and adopted by Board. The amendment in the Pension
    Regulations of 1995 was carried out by other public sector banks with
    retrospective effect in 2002, though the scheme was floated and
    implemented in the year 2000­2001. However, the benefits were
    extended on the strength of the VRS scheme even before amending the
    Regulations of 1995. The SBI adopted the Scheme in toto and Pension
    Rule 22 providing eligibility of 20 years applies only to those cases
    where employees seek retirement in the ordinary course of completion
    of 10 years or 20 years, as the case may be. The VRS was taken in the
    specific scheme providing eligibility and benefits on completion of 15
    years of service, and that constituted a concluded contract. It was not
    open to the bank to alter the terms. In case the bank’s submission is
    accepted, it would lead to a situation that employees who have already
    reached the age of superannuation, would have been entitled to take
    14
    VRS. The bank has misled the employees, and the action could not be
    said to be fair. Once an offer was accepted and after that to amend the
    rules or not to amend the rules till 31.3.2000 depended on exercise of
    power by SBI which may have the effect to deprive the pension when
    the option was not available even to withdraw the offer as it was the
    last day of the employment. Rule 22 was amended, that too with
    retrospective effect. Thus, the employees who joined service after
    retirement from other services, have completed the age of 58 years and
    were in employment as on 1.11.1993 were entitled to a pension. They
    have also been deprived of the benefit of pension, which would have
    been otherwise available to them. In case pension was not to be paid,
    it was not a profitable bargain for them to forego pension only for ex
    gratia benefit. It was incumbent upon the SBI to amend the Rule, in
    case it was necessary to do so. Otherwise, also, the meaning of the
    expression “pension” to be paid as per rules was that proportionate
    pension to be awarded to the employees with 15 years’ service who
    were eligible for benefits granted as specified in the circular and the
    VRS scheme. The clarification issued on 11.1.2000 only pointed out
    the provisions of the VRS scheme as well as the existing position of the
    rule. It could not have effect to take away the benefit in any manner
    which became available to the employees of obtaining the pension on
    completion of 15 years of permanent pensionable service. On the one
    15
    hand, employees who served for ten years and attained the age of
    superannuation were entitled to pension and to deprive the same to a
    permanent employee who rendered the service for 15 years, would be
    per se discriminatory, unfair and arbitrary. Once the scheme was
    floated and approved, the bank being State within the purview of
    Article 12 of the Constitution of India, it would not be permissible for
    it to discriminate and act unfairly. The VRS constituted an
    independent contract and was binding upon the bank. The benefits
    could not have been taken away from eligible employees who accepted
    VRS, which was implemented by the bank for its benefit to induct new
    skills as well as to rationalise the workforce. Thus, appeals being
    bereft of merit, deserve dismissal.
  14. The main question is whether, under the scheme as approved
    and adopted by the Central Board of SBI, the pension is admissible to
    the employees on completion of 15 years of permanent service.
    Connected question is whether employees have been denied benefit of
    pension unfairly and arbitrarily contrary to the essential terms of the
    scheme.
  15. Firstly, it is necessary to consider the nature of the package,
    which was accepted in the resolution by the Central Board of Directors
    of SBI in its meeting dated 27.12.2000. As already mentioned, exercise
    16
    was done in order to rationalise the workforce as it was felt that banks
    were overstaffed. The IBA advised the SBI regarding the issues
    confronting the public sector banks. In the memorandum submitted to
    the Central Board of Directors of SBI, the following facts were
    mentioned as to the adoption of Scheme in right earnest and
    requirement of manpower planning:
    “The data available with IBA indicates that 43% of employees
    in Public Sector Banks are in the 46+ age group, and only 12%
    are in the 25­35 age group. This pattern has serious
    implications for the Banks with reference to mobility, training,
    development of skills, and succession plans for higher­level
    positions. This, coupled with excess manpower wherever it
    exists, would come in the way of induction of new skills and
    proper career progression.
    The Committee has recommended the introduction of a
    Voluntary Retirement Scheme that would assist the Banks in
    their effort to optimise their human resources and achieve a
    balanced age and skills profile in keeping with their business
    strategies. IBA has advised that the Government of India has
    conveyed that they have no objection to the banks’ placing
    before their respective Boards of Director’s proposals for
    adopting and implementing the Voluntary Retirement Scheme.
    It has been advised that Banks may adopt the scheme after
    obtaining their Boards’ approval and implement it in right
    earnest.” (emphasis supplied)
    “a) The high establishment costs of the Bank vis­à­vis the
    foreign banks and new private sector banks have been a
    matter of concern. The percentage of staff expenses to total
    expenses in the Bank is 21.85 against the percentage of 7.66
    and 3.04 for foreign banks and new private sector banks,
    respectively. Even if we compare it with other Public Sector
    Banks, our ratio is adverse.
    d) With the computerisation of accounting and other work at a
    large number of branches, manpower, which was needed for
    balancing of books, is now rendered surplus. This indicates an
    imperative need to rationalize the manpower at these
    branches. While we have already initiated steps for the
    productive redeployment of staff at these branches through
    shift banking and seven­day banking, there still exists scope
    for improvement in this area. Most of these branches are
    situated in metropolitan and urban centers. Incidentally, the
    17
    experience of other banks in respect of voluntary retirement
    schemes shows that a maximum number of applications have
    been received from these centers.
    f) As against the average of 43% of employees in Public Sector
    Banks in the 46+ age group, we have 47% of the employees in
    this age group. Of this, 1/5th are in the age group of 56 and
    above. To put it simply, 21,824 employees will reach the age of
    superannuation and retire by March 2005.
    In the light of the above­mentioned factors, it will be seen
    that the manpower of the Bank will undergo major changes in
    the ensuing years in number and deployment. Further,
    considering the variety of business the Bank undertakes, and
    its special role in the banking sector, over­emphasis on
    quantitative parameters would be inappropriate. An approach
    paper on Manpower Planning is placed at Annexure­‘A’.
    Considering the various aspects of Manpower Planning, we
    are of the view that the Voluntary Retirement Scheme should
    be employed as a moderate tool to right­size the manpower in
    State Bank of India.”
    In the light of aforesaid, it is clear that the VRS scheme was
    devised as a tool to reduce overstaffing. The memorandum submitted
    to the Central Board contained the following significant aspects:
    “Keeping in view the above, the IBA guidelines and the
    feedback received from other Banks, the draft ‘SBI Voluntary
    Retirement Scheme (SBIVRS)’ is prepared and placed for
    approval at Annexure­‘B.’
    It is proposed to introduce SBIVRS for employees who have
    as on 31­12­2000, completed 40 years of age or 15 years of
    service as approved by the Government of India and conveyed
    by IBA. In terms of the IBA scheme, the Banks’ Boards may
    specify any other category as ineligible. We propose to exclude
    the Watch and Ward staff as these positions cannot be
    reduced. We also propose to exclude highly skilled and
    qualified staff from the Scheme.
    SBIVRS will be voluntary in nature. The decision to seek
    retirement under the Scheme rests with the employee only.
    The management will retain the discretion as to whether to
    accept or not the request for voluntary retirement under the
    Scheme. We have to ensure that while, on the one hand, our
    Bank benefits by the rightsizing of the staff strength, on the
    18
    other, any sudden exodus of a very large number of staff does
    not destabilise the normal operations of the Bank. Considering
    the attractive features of the Scheme, in terms of ex­gratia
    payment, etc., a large number of applications are expected.
    However, the Bank will have to control the outflow according
    to its requirements. Towards this end, it will be necessary to
    retain the discretion with the management of the Bank to limit
    the number of employees allowed to retire in each category of
    staff to be covered under SBIVRS, and we propose to retain
    such discretion.”
    (emphasis supplied)
    It was proposed to introduce a VRS for employees who on
    31.12.2000, completed 15 years of service as approved by the
    Government of India and conveyed by IBA. So, it assumes significance
    that what was approved and conveyed, in terms of the IBA scheme,
    the Banks’ Boards were permitted to specify any other category as
    ineligible. The SBI considering its requirement proposed to exclude the
    Watch and Ward staff as these positions could not be reduced. It was
    also proposed to exclude the highly skilled and qualified staff from the
    scheme.
    Funds outlay was also proposed in the memorandum submitted
    to the Central Board as under:
    “FUNDS OUTLAY
    As per the estimate received from Bank’s actuary, an outlay of
    approximately Rs. 2100 crores would be required for the
    implementation of SBIVRS if 10% of the employees opt for
    retirement. The break­up being as under:
    Ex­gratia Rs. 1300.00 crores
    Leave encashment Rs. 180.00 crores
    Additional Provision for Gratuity Rs. 140.00 crores
    Additional Provision for Pension Rs. 480.00 crores
    (These estimates may undergo a change on receipt of
    19
    clarification from Government of India as to the components of
    ‘Pay’ for the purpose of Ex­gratia)”
    A provision was made for the pension. The bank reserved the
    right to modify, amend or cancel any or all the clauses. The Deputy
    Managing Director and CDO would be the competent authority.
    Following is the relevant clause regarding modification of the scheme:
    “MODIFICATION OF THE SCHEME
    Bank reserves the right to modify, amend or cancel any or all
    the clauses of the Scheme and to give effect thereto from any
    date it may deem fit. The Dy. Managing Director and CDO
    would be the Competent Authority for the purpose.”
    The effective date of retirement was 31.3.2001. The relevant
    clause is extracted hereunder:
    “EFFECTIVE DATE OF RETIREMENT
    While the SBIVRS will be open to employees from 15th January
    2001 to 31st January 2001 (both days included), the retirement
    under SBIVRS is proposed to be given effect from 31st March
    2001.”
  16. The letter dated 31.8.2000 annexed to memorandum submitted
    to the Central Board of the SBI is also of utmost significance in order
    to understand what was accepted by the Central Board. The relevant
    portion of the letter dated 31.8.2000 of IBA is extracted hereunder:
    “Attention is invited to letter DO No. 11/1/99­IR dated
    22.05.2000, addressed to the Chief Executive of public sector
    banks by the Government of India, Ministry of Finance
    (Banking Division), wherein banks have been advised to carry
    out detailed manpower planning in order to adopt measures to
    have optimum human resource at various levels in keeping
    with the business strategies and requirements of each bank.
    At the meeting the Finance Minister had with Chief Executives
    of public sector banks on 13th June 2000, the human resource
    and man­power planning in public sector banks were
    reviewed, and a Committee was constituted to examine the
    issues confronting public sector banks in that regard and
    20
    suggest suitable remedial measures.”
    “In order to remedy this situation with the urgency that
    circumstances demand, the Committee has placed before the
    Government two schemes, viz., Sabbatical Leave and a
    Voluntary Retirement Scheme that would assist the banks in
    their effort to optimise their human resource and achieve a
    balanced age and skills’ profile in keeping with their business
    strategies. Salient features of the two schemes are given in the
    Annexure.
    IBA, vide its letter dated 13th July 2000, has sought no
    objection from the Government for circulating the schemes to
    the Banks for consideration and adoption by their Boards. The
    Government have conveyed to us that they have no objection
    to the banks’ placing the two schemes before their respective
    Board of Directors for adopting and implementing the above
    schemes. It has been advised that the Banks may adopt these
    schemes for sabbatical and voluntary retirement based on the
    essential features of the schemes given in the Annexure, after
    obtaining their Board’s approval and implement them in right
    earnest.” (emphasis supplied)
    “Banks are also requested to take special note of the following:
  17. Section 10(10C) of the Income Tax Act read with Rule 2BA.
  18. As per the amendments brought in by the Finance Act 2000,
    so long as the bank complies with the rules framed under
    Section 10(10C), prior approval from the Chief Commissioner
    or Director General of Income­tax, as the case may be, is not
    required for VRS.
  19. Income­tax shall be deducted at source in respect of ex­gratia
    exceeding Rs.5.00 lakhs or such other ceiling as may be
    prescribed under the Income­tax Act.
  20. Only completed years of service will be reckoned for arriving at
    the minimum eligible service. Subject to this, fraction of
    service of six months and above will be reckoned as one year
    for the purpose of calculating the ex­gratia.
  21. While exercising discretion to decline applications for VRS or
    to make exceptions in the case of employees categorised as
    ineligible for VRS, the decision should not be discriminatory
    among employees who are similarly placed and the reasons
    therefor should be recorded.
  22. The competent authority for accepting VRS for the various
    categories/class of employee should be clearly laid down by
    the Board of Directors.
    21
  23. Banks should ensure compliance with requirements under
    labour legislations before giving effect to the Scheme.”
  24. IBA’s letter dated 31.8.2000 makes clear the salient features of
    the VRS scheme that all permanent employees with 15 years of service
    were eligible to retire. Ineligible persons have also been specified. In
    unqualified terms, it was mentioned in the annexures that such
    employees would be entitled to the amount of ex gratia of 60 days’
    salary for each completed year of service or salary for the number of
    months service is left, whichever is less. Other benefits admissible
    were gratuity, pension including the commuted value of pension,
    bank’s contribution towards provident fund, and leave encashment as
    per rules. Thus, scheme was to grant pension to all such employees
    who opted for VRS on completion of 15 years of service and other
    benefits as specified in the scheme. The Government of India,
    Ministry of Finance, Department of Economic Affairs, (Banking
    Division), that it communicated approval vide letter dated 29.8.2000
    to IBA, it was sent to the SBI also, the same is extracted hereunder:
    “F. No. 11/1/99­IR (Vol.II)
    Government of India
    Ministry of Finance
    Department of Economic Affairs
    (Banking Division)
    New Delhi, dated the 29th August 2000
    To
    The Chairman
    Indian Banks‘ Association
    MUMBAI
    22
    Sub:­ Human Resource Management and Manpower Planning
    in Public Sector Banks­Introduction of a Voluntary Retirement
    Scheme/Scheme for Sabbatical Leave.
    Sir,
    I am directed to refer to IBA’s letter No. PD/ACAP/GOVT/521
    dated 13th July 2000 sending therewith a copy of the interim
    report of the Committee on Human Resource Management in
    Public Sector Banks and requesting for no objection from the
    Government for circulating to banks Voluntary Retirement
    Scheme and Scheme for granting Sabbatical Leave for
    consideration and adoption by their Boards, and to say that
    Government has no objection to the proposals contained
    therein.
  25. The draft circular letter sent by IBA has been slightly
    modified. Copy of the modified draft is enclosed herewith.
  26. It is requested that a copy of the circular issued to the
    banks may please be sent to Banking Division for record.
    Yours faithfully
    Sd/­ (U.P. SINGH)
    DIRECTOR (IR)”
  27. The agenda submitted on 27.12.2000 for consideration of the
    Central Board of SBI along with resolution are extracted as under:
    “AGENDA NO.3
    Man­ Power Planning and SBI Voluntary Retirement Scheme
    (SBI VRS)
    Submitted Memorandum dated the 26th December 2000 by
    the Deputy Managing Director & Corporate Development
    Officer, recommending that for the reasons stated therein,
    approval be accorded for the proposals contained in the
    Memorandum as also for adopting the stated approach to
    manpower planning and introduction SBIVRS in terms of the
    provisions contained in the Scheme at Annexure ‘B‘ of the
    Memorandum.
    Copies of the Memorandum were placed before the Directors
    present at the Meeting.
    ‘‘APPROVED”
    (SEAL)
    23
  28. Annexure ‘B’ to the memorandum contained the VRS. The VRS
    was prepared in view of the guidelines of the IBA. The amount of ex
    gratia and other benefits specified in the scheme under clauses 5/ 6 of
    the scheme are extracted hereunder:
    “5. Amount of Ex­gratia:
    The staff members whose request for retirement under SBIVRS
    has been accepted by Competent Authority will be paid an
    amount of ex­gratia of 60 days‘ salary (pay plus stagnation
    increments plus dearness allowance) for each completed year
    of service (for this purpose fraction of service of six months
    and above will be taken as one year and accordingly service of
    less than six months will not be counted) or salary for the
    number of months service is left, whichever is less. Fraction of
    a month, if any, will be ignored.
    ‘Relevant Date‘ means the date on which the employee ceases
    to be in service of the Bank as a consequence of the
    acceptance of the Bank as a consequence of the acceptance of
    the request for voluntary retirement under the Scheme. For
    the purpose of calculation of ex­gratia, 60 days‘ salary
    mentioned in the Scheme is to be taken as equivalent to 2
    months‘ salary (with reference to salary for the month in which
    employee is relieved from service on Voluntary Retirement.
    Income Tax shall be deducted at source in respect of ex­gratia
    exceeding Rs. 5.00 lakhs or such other ceiling as may be
    prescribed under the Income Tax Act on the relevant date.“
    The benefits were as under:
    “6. Other benefits
    (a) Gratuity as payable under the extant instructions on the
    relevant date.
    (b) Provident Fund contribution as per State Bank of India
    Employees‘ Provident Fund Rules as on relevant date.
    (c) Pension in terms of State Bank of India Employees‘ Pension
    Fund Rules on the relevant date (including commuted value of
    pension).
    (d) Encashment of balance of Privilege Leave, as applicable, on the
    relevant date.
    24
    (e) Respective facilities extended to officers/others such as
    retention of accommodation, telephone, car, continuation of
    housing loan, etc. will be extended to officers. Others retiring
    under SBIVRS as per present dispensations, at the discretion
    of Competent Authority. However, in such cases of retention of
    physical facilities, 50% of the amount of ex­gratia payable will
    be released only after the employee surrenders the facility. No
    interest, however, will be paid for the amount so withheld. All
    other outstanding loans/advances will have to be repaid before
    date of retirement under SBIVRS, failing which the amount of
    ex­gratia and other terminal benefits payable to the employee
    will be appropriated towards the outstanding loans/advances;
    and the balance only will be payable to the employee.”
  29. Most significantly, the scheme of the IBA, accepted by the Board
    on 27.12.2000, was for providing pension on completion of 15 years of
    service. The pension specified in clause 6 of scheme was to be worked
    out in terms of the Pension Fund Rules including the commuted value
    of the pension. It was not mentioned in the VRS adopted by the SBI
    that the person on completion of 15 years would not be entitled to the
    benefit of pension. On the other hand, proposal of IBA, as approved by
    the Government of India, was accepted in toto by SBI. When gauged in
    terms of the proposals of the IBA, the essential feature was that an
    employee was entitled to get pension on completion of 15 years of
    service. The meaning of the expression “pension” in terms of the rules
    would be proportionate pension on completion of 15 years of service as
    per the terms of calculation provided in Rule 23 of the Pension Rules.
    VRS is an independent contract and the background in which it was
    floated, pension on completion of 15 years of service was an essential
    25
    part of the scheme of VRS 2000, as approved by the Government and
    floated by the IBA and adopted by all the Banks, and Pension Rules
    were to be amended accordingly.
  30. The Government of India suggested to the IBA to amend
    Regulation 29 of the Regulations of 1995 so that the employees do not
    lose the benefit of pension, the IBA may work out modalities and
    suggest amendments, if any, required to be made in the Pension
    Regulations to ensure that the employees get the benefit of pension.
    The letter dated 5.9.2000 of Government of India is extracted
    hereunder:
    “F. No. 4/8/4/2000­IR
    Government of India,
    Ministry of Finance,
    Department of Economic Affairs
    (Banking Division)
    New Delhi, 5­9­2000
    To
    The Personnel Advisor,
    Indian Banks’ Association,
    Mumbai
    Sub.: Amendment to Regulation 29 of the Pension Regulations.
    Sir,
    I am directed to refer to this Division’s Letter No. 11/1/99 IR
    dated 29­8­2000, conveying the Government’s no objection for
    circulation of Voluntary Retirement Scheme in public sector
    banks. The Scheme, inter alia, provides that employees with
    15 years of service or 40 years of age shall be eligible to take
    voluntary retirement under the Scheme. As per the provisions
    contained in Regulation 29 of the Pension Regulations, an
    employee can take voluntary retirement after 20 years of
    qualifying service and thereafter becomes eligible for pension.
    Thus, employees having rendered 15 years of service or
    completing 40 years of age but not having completed 20 years
    26
    of service shall not be eligible for pensionary benefits on taking
    voluntary retirement under the Scheme.
    In order to ensure that such employees do not lose the benefit
    of pension, IBA may work out modalities and suggest
    amendments, if any, required to be made in the Pension
    Regulations to ensure that these employees also get the benefit
    of pension.
    Yours faithfully,
    sd/­
    (U.P. Singh)
    Director (IR)”
  31. SBI issued a circular on 10.1.2001 with respect to the
    withdrawal of the application submitted under the scheme. It was
    decided that the employee could withdraw the application on or before
    15.2.2001 by making a written request.
  32. Clarification was issued on 15.1.2001 to a query raised, whether
    or not the employees on completing 15 years of pensionable service
    would be entitled to pensionary benefits. Following is a relevant
    portion:
    “3. Whether or not the employees, completing 15 years of
    pensionable service as on relevant date (date of retirement
    under SBIVRS), will be entitled for pension benefits?
    In this connection, we invite a reference to para 6(c) of the
    Scheme forwarded under the cover of Staff Circular letter No.
    CDO/81 dated 30/12/2000. The payment of pension to the
    employee retiring under SBIVRS would be governed by State
    Bank of India Employees Pension Fund Rules on the relevant
    date (including commuted value of pension). However, as per
    existing rules, employees who have not completed 20 years of
    Pensionable Service are not eligible for pension.”
    It is clear from answer that the staff circular dated 30.12.2000
    was reiterated. Payment of pension to an employee retiring under VRS
    would be governed by rules on the relevant date, i.e., 31.3.2001. At
    27
    the same time, the position of the existing rule was indicated that
    those employees who had not completed 20 years of pensionable
    service were not eligible for a pension. It was not clarified what was
    the meaning and purport of para 6(c) of the scheme. It was not
    mentioned that an employee would not be entitled to pension on 15
    years of service as per the scheme approved by the Government of
    India and floated by the IBA and adopted by the Central Board of SBI.
    The above clarification being in form of opinion, could not be said to
    have caused a modification, amendment, or cancellation of any of the
    clauses of VRS or resolution passed by the Board, nor it was so stated.
    It was necessary to state that on completion of 15 years of service,
    employees would not be paid pension. The existing rule position was
    known to everybody, whereas the scheme was framed for providing
    pension on completion of 15 years of service.
  33. Rule 22 of the Pension Rules of SBI as it existed up to 9.3.2001
    and amended are extracted hereunder:
    Existing Rule
    “22(i) A member shall be entitled to a pension under these
    rules on retiring from the Bank’s service­
    (a) After having completed 20 years’ pensionable service provided
    that he has attained the age of 50 years or if he is in the
    service of the Bank on or after 01.11.93, after having
    completed ten years pensionable service provided that he has
    attained the age of 58 years.
    (b) After having completed twenty years’ irrespective of the age he
    shall have attained if he shall satisfy the authority competent
    to sanction his retirement by approved medical certificate or
    28
    otherwise that he is incapacitated for further active service;
    (c) After having completed twenty years pensionable service,
    irrespective of the age he shall have attained at his request in
    writing;
    (d) After twenty­five years’ pensionable service.“
    Amended Rule
    “22(i) A member shall be entitled to a pension under these
    rules on retiring from the Bank’s service­
    (a) After having completed twenty years’ pensionable service
    provided that he has attained the age of fifty years or if he is in
    the service of the Bank on or after 01.11.93, after having
    completed 10 years, pensionable service provided that he has
    attained the age of fifty­eight years or if he is in the service of
    the bank on or after 22.05.1998. After having completed ten
    years, pensionable service provided that he has attained the
    age of sixty years.
    (b) After having completed twenty years’ pensionable service,
    irrespective of the age he shall have attained if he shall satisfy
    the authority competent to sanction his retirement by
    approved medical certificate or otherwise that he is
    incapacitated for further active service;
    (c) After having completed twenty years pensionable service,
    irrespective of the age he shall have attained at his request in
    writing;
    (d) After twenty­five years’ pensionable service.”
  34. It is clear from Rule 22 that pension is admissible to an
    employee thus:
    1) After having completed 20 years’ pensionable service provided
    that he has attained the age of 50 years; or
    2) If he is in the service of the Bank on or after 01.11.1993, after
    having completed 10 years pensionable service provided that he
    has attained the age of 50 years; or
    3) If he is in the service of the Bank on or after 22.05.1998, after
    having completed 10 years pensionable service provided that he
    has attained the age of 60 years.
    29
  35. Rule 22(1)(c) was incorporated in the Pension Fund Rules w.e.f.
    20.9.1986 when the bank decided inter alia to introduce VRS on
    completion of 20 years of service. The unamended rule 22(i)(a)
    provided the normal age of retirement to be 58 years. Thereafter, as
    per the guidelines issued by the Government on 22.5.1998, the age of
    retirement was increased from 58 to 60 years. Accordingly, Rule 22(i)
    (a) was proposed to be amended on 30.1.2001, and instead of 58
    years, the age of retirement of 60 years was to be incorporated. On
    28.5.1998, the Executive Committee of the Central Board of SBI
    pending amendment to the related service rules adopted the age of
    retirement as 60 years. The amendment was notified on 31.3.2001
    and approved by the Trustees of the SBI Employees’ Pension Fund on
    30.10.2001.
  36. Similar scheme of VRS concerning nationalised banks was
    implemented according to the decision of the Government of India. In
    Punjab & Sind Bank, it was to remain open from 1.12.2000 to
    31.12.2000; Punjab National Bank: 1.11.2000 to 30.11.2000; Bank of
    India: 15.11.2000 to 14.12.2000; Union Bank of India: 1.12.2000 to
    31.12.2000; United Bank of India: 1.1.2001 to 31.1.2001. In SBI, the
    said scheme was adopted by the Central Board on 27.12.2000.
    30
  37. The State Bank of India was constituted under the SBI Act,
  38. The nationalised banks were taken over in terms of the Banking
    Companies (Acquisition and Transfer of Undertakings) Act, 1970.
    Under the Act of 1970, the Punjab National Bank (Employees) Pension
    Regulations, 1995, were framed. Regulation 28, provided pension on
    attaining the age of superannuation, and Regulation 29 provided
    pension on voluntary retirement on completion of 20 years of
    qualifying service. Regulation 29(5), applicable to the banks mentioned
    above, provided that the qualifying service of an employee retiring
    voluntarily under the Regulation shall be increased by a period not
    exceeding five years, subject to the condition that the total qualifying
    service rendered by such employee shall not exceed 33 years.
  39. The VRS 2000 came up for consideration before this Court in
    Bank of India & Ors. v. O.P. Swarnakar & Ors., (2003) 2 SCC 721 in
    the context of Regulation 29(5) of Regulations, 1995. The Court held
    that the scheme is contractual and provided for pensionary benefits on
    completion of 15 years of service. The decision was followed in HEC
    Voluntary Retd. Employees Welfare Society v. Heavy Engineering
    Corporation Ltd., (2006) 3 SCC 708.
  40. Due to introduction of Scheme, Regulation 28 of Regulations of
    1995 was proposed to be amended. It was amended in the year 2002
    31
    with a retrospective effect from 1.9.2000. By way of amendment, a
    proviso has been inserted in Regulation 28 thus:
    “28. Superannuation pension.—Superannuation pension shall
    be granted to an employee who has retired on his attaining the
    age of superannuation specified in the Service Regulations or
    Settlements.”
    “Provided that pension shall also be granted to an employee
    who opts to retire before attaining the age of superannuation,
    but after having served for a minimum period of 15 years in
    terms of any scheme that may be framed for the purpose by
    the Bank’s Board with the concurrence of the Government.”
    (emphasis supplied)
  41. The employees who opted for VRS on completion of 15 years of
    service within the specified period in 2000/2001, were given the
    benefit of pension. The Regulations came to be amended in 2002 with
    the retrospective effect. However, the benefit under Regulation 29(5)
    was not extended to the optees/employees who completed 20 years of
    service by adding 5 years of qualifying service. Regulations 29(1) and
    29(5) applicable to the said banks are extracted hereunder:
    “29. Pension on voluntary retirement.—(1) On or after the 1st
    day of November 1993 at any time, after an employee has
    completed twenty years of qualifying service he may, by giving
    notice of not less than three months in writing to the
    appointing authority retire from service:
    Provided that this sub­regulation shall not apply to an
    employee who is on deputation or on study leave abroad
    unless after having been transferred or having returned to
    India he has resumed charge of the post in India and has
    served for a period of not less than one year:
    Provided further that this sub­regulation shall not apply to
    an employee who seeks retirement from service for being
    absorbed permanently in an autonomous body or a public
    sector undertaking or company or institution or body, whether
    incorporated or not to which he is on deputation at the time of
    seeking voluntary retirement:
    32
    Provided that this sub­regulation shall not apply to an
    employee who is deemed to have retired in accordance with
    clause (1) of Regulation 2.
    x x x
    (5) The qualifying service of an employee retiring voluntarily
    under this Regulation shall be increased by a period not
    exceeding five years, subject to the condition that the total
    qualifying service rendered by such employee shall not in any
    case exceed thirty­three years and it does not take him beyond
    the date of superannuation.”
  42. The scheme in question came up for consideration in O.P.
    Swarnakar & Ors. (supra), in which SBI was one of appellants in C.A.
    Nos.3561­65/2002, the appeals were decided by this Court by a
    common judgment. It noted that reference to pension as per rules was
    made for computation of pension, and the employees who had
    completed 15 years of service were to be extended the benefit of VRS
    2000 along with pension and other benefits. IBA wrote a letter dated
    11.12.2000 to all public sector banks for amending Pension
    Regulations, 1995. The IBA mentioned that pension was to be paid to
    the employees as per VRS 2000. They would be eligible for pro­rata
    pension; as such, Regulation 28 be amended. The employees who
    applied for voluntary retirement after having rendered 15 years’
    service, under a special/ad hoc scheme formulated with the specific
    approval of the Government and the Board of Directors would be
    eligible for pro­rata pension for the period of service rendered as if they
    were to retire on attaining the age of superannuation on that date. The
    letter made it clear that the Government of India approved the pension
    33
    to be given on completion of 15 years of service. The scheme was for
    extending the benefit of pension to the employees retiring on
    completion of 15 years of permanent service, and the Government of
    India also desired that the IBA advised banks to make necessary
    amendments to their pension regulations, as mentioned in the
    Annexure. Thus, the essence of the VRS scheme was the benefit of
    pro­rata pension as per the rules on completion of 15 years of
    pensionable service.
  43. It is apparent that the very fulcrum of the scheme was a felt
    need for inducting new workforce, with adequate knowledge of new
    skills such as modern technology, foreign exchange, venture capital, ecommerce, money management, etc. as pointed out by the Ministry of
    Finance in its letter dated 22.5.2000. The banks were overstaffed and
    for effective management and manpower planning, the desirability of
    introducing VRS was felt in order to rationalise the workforce and
    skill. Hence a Committee was constituted by the Central Government.
    In pursuance of report of the Committee, a policy decision was taken
    to frame the VRS. The scheme applied to employees who, on the date
    of the application, completed 15 years of service. The employees
    specified therein were otherwise not eligible to seek voluntary
    retirement on completion of 15 years under the rules/regulations.
    Under the scheme floated by the other banks, identical reliefs were
    34
    admissible, as in SBI VRS. The Scheme of Punjab National Bank is
    extracted hereunder:
    “7. x x x “Amount of ex gratia
    An employee seeking voluntary retirement under the
    Scheme will be entitled to the ex gratia amount mentioned
    below in para (a) or (b), whichever is less:
    (a) 60 days’ salary (pay plus stagnation increments plus
    special pay plus dearness relief) for each completed year of
    service;
    OR
    (b) salary for the number of months of service left;
    Other benefits
    An employee seeking voluntary retirement under the
    Scheme will be eligible for the following benefits in addition to
    the ex gratia amount mentioned in para 6 above of this
    Scheme:
    (i) Gratuity as per the Payment of Gratuity Act, 1972 or
    gratuity payable under the Service Rules, as the case may be,
    as per existing rules.
    (ii)(a) Pension (including commuted value of pension) as per
    PNB (Employees) Pension Regulations, 1995.
    OR
    (b) Bank’s contribution towards PF as per existing rules.
    (iii) Leave encashment as per existing rules.”
    (emphasis supplied)
  44. The eligibility criteria in all the schemes, including SBI VRS,
    clearly provided that employees who completed 15 years of service and
    particular age shall be eligible to apply. The benefits to which they
    were entitled, were culled out. In other banks, the pension was as per
    Pension Regulation, 1995. Thus, on eligibility of an employee,
    admissibility of the available reliefs in Scheme followed i.e., the
    amount of ex gratia and other benefits, including pension, were to be
    paid as provided in the scheme. Otherwise, there was no purpose of
    retiring an employee with 15 years of service as they were not eligible
    35
    for retirement as per the rules before completion of 20 years of service
    in all nationalised banks as well as SBI. A reference to the
    admissibility of the pension as per rules/ regulations was made in all
    the VRS to mean that proportionate pension shall be admissible as
    provided in rules, this Court has noted it in O.P. Swarnakar (supra),
    thus:
    “49. An offer indisputably can be made to a group of persons
    collectively which is capable of being accepted individually, but
    the question which has to be posed and answered is as to
    whether having regard to the service jurisprudence; the
    principles of the Indian Contract Act would be applicable in
    the instant case. It is the specific case of the “banks” that the
    Schemes had been floated by way of contract. It does not have
    any statutory flavour. Reference to the Pension Scheme framed
    under the Regulations was made for computation of the
    pension.”
    (emphasis supplied)
  45. Significantly in O.P. Swarnakar (supra), this Court observed that
    employees must have proceeded to apply for VRS on the basis even
    though they have merely completed 15 years of service, which was not
    a qualifying service, under the Pension Regulations of Bank, they
    would be entitled to benefits in terms of the VRS scheme. The Court
    observed thus:
    “89. Furthermore, a large number of employees have
    withdrawn their offer only when a proviso was sought to be
    added to Regulation 28 aforementioned. In terms of the
    Scheme the employees, who expected to get benefits of subregulation (4) of Regulation 29 would be deprived therefrom. It
    is not in this dispute that the qualifying period for receiving
    pension was 20 years. Only upon completion of 20 years, in
    terms of the statutory regulation contained in Regulation 29,
    an employee could opt for voluntary retirement, and in terms
    36
    thereof, he would be entitled to the benefits specified therein.
    The said Regulations had specifically been mentioned for the
    purpose of computation, which would include invocation of
    sub­regulation (4) of Regulation 29, providing for relaxation of
    5 years towards the qualifying period. The employees must
    have proceeded on the basis that despite the fact that they
    have merely rendered 15 years of service, which was not a
    qualifying service under the Regulations, they would be
    entitled to the pensionary benefits in terms of the Scheme. By
    introducing the proviso to Regulation 28 pension was sought
    to be made pro rata in place of full pension.”
    (emphasis supplied)
  46. In O.P. Swarnakar & Ors. (supra), it was held that the scheme
    was not a part of statutory regulations. It was in the realm of contract.
    That being so, the Central Government did not need to place the same
    before Parliament; and secondly, if the same was a regulation, the
    laying­down rule is merely directory and not mandatory. This Court
    relied upon the decisions in Jan Mohd. Noor Mohd. Bagban v. State of
    Gujarat, AIR 1966 SC 385 and Atlas Cycle Industries Ltd. v. State of
    Haryana; 1979 (2) SCC 196 and held that the scheme could not be
    said to be bad in law, thus:
    “124. Firstly, the Scheme is not a part of the statutory
    regulation. It was in the realm of contract. That being, so it
    was not necessary for the Central Government to place the
    same before Parliament.
  47. Secondly, even if the same was a regulation, the layingdown rule is merely a directory one and not mandatory.
  48. In Jan Mohd. case, AIR 1966 SC 385, the law is stated in
    the following terms: (AIR pp. 394­95, para 18)
    “18. Finally, the validity of the rules framed under Bombay
    Act 22 of 1939 was canvassed. By Section 26(1) of the Bombay
    Act, the State Government was authorised to make rules for
    the purpose of carrying out the provisions of the Act. It was
    provided by sub­section (5) that the rules made under Section
    26 shall be laid before each of the Houses of the Provincial
    37
    Legislature at the session thereof next following and shall be
    liable to be modified or rescinded by a resolution in which both
    Houses concur, and such rules shall, after notification in the
    Official Gazette, be deemed to have been modified or rescinded
    accordingly. It was urged by the petitioner that the rules
    framed under Bombay Act 22 of 1939 were not placed before
    the Legislative Assembly or the Legislative Council at the first
    session, and therefore they had no legal validity. The rules
    under Act 22 of 1939 were framed by the Provincial
    Government of Bombay in 1941. At that time, there was no
    Legislature in session, the Legislature having been suspended
    during the emergency arising out of World War II. The session
    of the Bombay Legislative Assembly was convened for the first
    time after 1941 on 20­5­1946, and that session was prorogued
    on 24­5­1946. The second session of the Bombay Legislative
    Assembly was convened on 15­7­1946, and that of the
    Bombay Legislative Council on 3­9­1946 and the rules were
    placed on the Assembly Table in the second session before the
    Legislative Assembly on 2­9­1946 and before the Legislative
    Council on 13­9­1946. Section 26(5) of Bombay Act 22 of 1939
    does not prescribe that the rules acquired validity only from
    the date on which they were placed before the Houses of
    Legislature. The rules are valid from the date on which they
    are made under Section 26(1). It is true that the Legislature
    has prescribed that the rules shall be placed before the Houses
    of Legislature, but failure to place the rules before the Houses
    of Legislature does not affect the validity of the rules, merely
    because they have not been placed before the Houses of the
    Legislature. Granting that the provisions of sub­section (5) of
    Section 26 by reason of the failure to place the rules before the
    Houses of Legislature were violated, we are of the view that
    sub­section (5) of Section 26 having regard to the purposes for
    which it is made, and in the context in which it occurs, cannot
    be regarded as mandatory. The rules have been in operation
    since the year 1941, and by virtue of Section 64 of Gujarat Act
    20 of 1964, they continue to remain in operation.”
  49. In Atlas Cycle Industries’ case, (1979) 2 SCC 196, the
    same view has been reiterated.
  50. We, therefore, are of the opinion that the Scheme in
    question cannot be said to be bad in law.”
  51. The Court concerning the provision of withdrawal held that the
    relevant clause of the scheme created an enforceable right in case the
    State Bank failed to adhere to its preferred policy.
    38
  52. In our opinion, the reference in the SBI VRS to the admissible
    benefits, like pension shall be as per the pension rules, was for the
    purpose of computation of pension. It is apparent from a reading of
    the scheme that proportionate pension was admissible to employees
    as noted in para 49 of O.P. Swarnakar & Ors. (supra). A similar
    expression was used in the schemes of nationalised banks also. This
    Court has noted expression in the scheme that pension as per rules to
    mean for computation of pension. The formula for computation for a
    pension is provided in Rule 23 of the SBI Pension Rules.
  53. It is of utmost significance that the Central Board in its meeting
    dated 27.12.2000 accorded approval “for the proposals contained in
    the Memorandum.” A bare perusal of the memorandum makes it clear
    that the letter of IBA dated 31.8.2000 was enclosed as part of the
    memorandum submitted to the Central Board. In the memorandum, it
    was mentioned “that the Government of India conveyed that they had
    no objection to the banks’ placing before their respective Boards of
    Director’s proposals for adopting and implementing the Voluntary
    Retirement Scheme. It advised that Banks may ‘adopt’ the scheme
    after obtaining their Boards’ approval and implement it in ‘right
    earnest’.” The memorandum also contained that the employees who
    completed 15 years of service were to be the beneficiaries of VRS as
    approved by the Government of India and conveyed by the IBA. The
    39
    approval by Government of India and scheme, conveyed by IBA, was to
    provide for the benefit of pension on completion of 15 years of service.
    The same was an essential condition of the scheme. The Annexure,
    which was part of the memorandum, provided inter alia the benefit of
    pension, including the commuted value of pension without any rider of
    completion of 20 years period of service. Once SBI accepted the
    proposals contained in the memorandum, when we gauge the scheme
    in the light of the subject matter of the memorandum which was
    unconditionally approved, it became clear and beyond the pale of
    doubt that in VRS (Annexure B) inasmuch as the expression to
    provide the benefit of pension as per rules was only for providing the
    proportionate pensionary benefit of the qualifying service on and above
    15 years, rendered by an employee.
  54. The IBA advised the banks for amending the rules. The
    Government of India, Ministry of Finance, also issued a letter dated
    5.9.2001 to the Bank to amend the rules. There was a proposal to
    amend the rules. After the scheme was implemented in 2000, the
    nationalised banks, including the Punjab National Bank, amended
    their rules in 2002 with retrospective effect. However, the fact remains
    the VRS schemes were implemented by banks governed by the
    Banking Companies Act, 1970, by making payment of pension though
    Regulation 28 of Regulation of 1995 provided for 20 years of qualifying
    40
    service at the relevant time. Once a particular scheme of VRS, based
    on the recommendations of Committee formed by Government of
    India, was formulated and floated by IBA. In all fairness, it was
    required to be implemented in right earnest in that form in which it
    was approved and adopted by the Board of Directors of SBI on
    27.12.2000. In case the Board of Directors were of the opinion that the
    scheme was not acceptable to them, they could have rejected it or
    could have stated they reject the proposal for paying pension on
    completion of 15 years of service which was the essence of a scheme
    formed to reduce workforce of Bank and for achieving other objectives.
    Nonetheless, on the contrary, resolution dated 27.12.2000 indicates
    that the proposals of IBA/Government was approved unconditionally.
    Thus, in case it was so necessary to amend the pension rules as done
    by other banks, it was incumbent upon the State Bank of India to
    amend its rules either after implementation of the scheme as was done
    by other banks or before giving effect to VRS.
  55. It is also significant to mention that SBI accepted the scheme as
    approved by the Government and floated by IBA. In case SBI had
    declined to accept or wanted to modify, it was necessary for it to take
    approval of Government of India as to its scheme. As per section 49,
    the Central Government has the power to make rules. Section 50 deals
    with the power of Central Government to make regulations. Section
    41
    50(1) provides that the Central Board, after consultation with the
    Reserve Bank of India and with the previous sanction of the Central
    Government, can make Regulations. Under Section 50(2)(o), the
    Regulations can be made by the Central Board with the previous
    sanction of the Central Government with respect to superannuation
    pension and other funds for the benefit of the employees of the State
    Bank. Section 50(2)(o) reads:
    “50. Power of Central Board to make regulations.—(1) The
    Central Board may, after consultation with the Reserve Bank and
    with the previous sanction of the Central Government [by
    notification in the Official Gazette,] make regulations, not
    inconsistent with this Act and the rules made thereunder, to
    provide for all matters for which provision is expedient for the
    purpose of giving effect to the provisions of this Act.
    (2) In particular, and without prejudice to the generality of the
    foregoing power, such regulations may provide for—
    x x x
    (o) the establishment and maintenance of superannuation
    pension, provident or other funds for the benefit of the employees
    of the State Bank or of the State Bank or of the dependents of
    such employees or for the purposes of the State Bank, and the
    granting of superannuation allowances, annuities and pensions
    payable out of any such fund;]”
  56. Thus, it is apparent that the Central Board of SBI could not have
    framed a scheme different than the one approved by the Central
    Government on its own, nor could have implemented it without
    approval of the Central Government. In case it wanted to modify or
    amend the scheme, as approved by the Government of India, it was
    incumbent upon it to send its modified scheme to the Central
    42
    Government for approval. No scheme for VRS could have been framed
    without approval of the Government of India. In fact, the Central
    Board accepted the proposal of IBA, as approved by the Government of
    India. In case SBI’s stand is accepted, its scheme would have been
    valid as no modification could have been made without approval of the
    Government of India. In fact, no such modification was made, as held
    above.
  57. Once it approved the Scheme SBI being an instrumentality of
    State under Article 12, is bound by the principle of fairness and
    representation made that it accepted the contents of memorandum
    and the scheme floated by IBA and invited the applications based on
    approving the memorandum which contained proposal of pension on
    rendering 15 years of permanent pensionable service, it could not later
    on wriggle out of its obligation taking a rigmarole by claiming shelter
    of the Rules or by not amending the Rules or by issuing a clarification
    which was fanciful, irrational and contrary to the spirit of the
    resolution of the Board. It would amount to an unfair and
    unreasonable action to deprive the employees of the benefit of pension
    because of the decision taken by the Central Board of Directors.
  58. SBI is bound by resolution of Central Board of Directors.
    The Scheme was with the approval of the Government of India and
    43
    accepted, implemented by all the banks in true spirit except by SBI. It
    cannot be permitted to act unfairly by virtue of having superior
    bargaining power by issuing vague clarification to the detriment of the
    economic interest of the employees. Clarification did not have the
    effect of re­writing or superseding the resolution of the Central Board
    nor effect of making modifications in the resolution passed by the
    Central Board of the SBI.
  59. The VRS scheme was not floated by the SBI on its own volition.
    It was pursuant to an exercise that was undertaken by the IBA in view
    of the recent developments of modern technology considering the age
    group of the employees in the bank, the need to have a new skill, and
    to rationalise the manpower; a decision was taken. It was decided at
    the Government level to provide pension after completion of 15 years
    of service as a special measure, the banks were bound to implement it
    in that manner or not at all. The Central Board of Directors of the SBI
    accepted the VRS proposal of Government and IBA without any
    reservation of not providing pension along with other benefits, as
    mandated in the VRS scheme. The action of the instrumentality of the
    State cannot be violative of Article 14. It cannot be permitted to act
    arbitrarily. Articles 15 and 16 provide for equality and provide for an
    umbrella against discrimination.
    44
  60. Though the Deputy General Manager was authorised by the
    Central Board of Directors to amend, modify or cancel the VRS. The
    Rules were amended by other banks later in 2002. It was not stated in
    answer to the query that under the VRS scheme, a person who has
    rendered 15 years of qualifying service would not be entitled to a
    pension. Nor it was so stated in resolution dated 27.12.2000 of the
    Central Board of SBI. That apart, Deputy General Manager tried to
    interpret VRS scheme in isolation without considering what was
    approved by the Board. Not only the scheme but also the
    memorandum have to be read together to understand resolution of
    Board. Once the memorandum containing the IBAs proposal of
    providing pension was approved in absolute terms, the clarification
    could not be of any value to dilute the otherwise clear and
    unambiguous resolution of the Board of Directors. The Deputy
    General Manager did not have any such wide and arbitrary power to
    defeat the claim of the employees for pension on completion of 15
    years of permanent service, which was their right. The action of
    D.G.M. could not be said to be in accordance with the resolution. The
    pension was the essence of the scheme, depriving it could not be said
    to be authorised, such action can only be termed as unfair and
    unreasonable and patently violative of Articles 14, 16, and 21 of the
    Constitution of India.
    45
  61. Yet another aspect which cannot be lost sight is that the bank
    mentioned in the scheme that the benefit would be admissible as per
    the rule which prevails on the appointed day, i.e., 31.3.2001. Thus, it
    is apparent that when VRS scheme was floated, it was in
    contemplation of amendment of rules which was suggested by the IBA
    and the Government of India in its communication dated 5.9.2001 so
    that employees were not deprived of the benefit of pension.
  62. The question arises in case the bank accepts the proposal of
    VRS, and does not alter its rules, can employees be deprived of the
    benefit of pension in such an unconscionable manner over an event on
    which they had no control. It would be nothing, but an outcome of
    unfair and arbitrary act in case the SBI never intended to act upon the
    scheme it ought not to have accepted it, and once it approved VRS, it
    was incumbent upon it to amend its rule, if necessary, as was done by
    other banks in 2002 after scheme worked out in the year 2000. Even
    otherwise once it accepted the proposal of the Government of India, it
    would be violative of provisions of Articles 14 and 16 to permit it to
    wriggle out of its obligation under the guise that the bank did not
    amend its rules or pension was not admissible as per existing rules,
    mainly when the scheme provided for eligibility for pension on
    completion of 15 years, that formed independent contract. If the bank
    46
    is permitted to get rid of the scheme due to Rule position, then the
    scheme itself would become void and unenforceable. Bank cannot act
    in a fanciful manner, particularly with respect to retirement under
    VRS which was contractual and deny benefit of pension, a right
    accrued to the employees for receiving the pension in view of the
    memorandum and the resolution passed by the Central Board of
    Directors adopting memorandum and the SBI­VRS.
  63. (a). The rights under contract cannot be taken away, and they
    become enforceable by a court of law. Bank cannot be permitted to
    make a representation and later on wriggle out of its obligation. It is
    not permissible to make a “misrepresentation”. Under section 19 of
    the Contract Act, when consent is obtained by coercion, fraud, or
    ‘misrepresentation,’ the agreement is voidable at the option of the
    aggrieved party. In Central Inland Water Transport Corporation Ltd. &
    Anr. v. Brojo Nath Ganguly & Anr., (1986) 3 SCC 156, this Court
    considered the contract of employment between the Central Inland
    Water Transport Corporation and its employees and also the rules. In
    that context, observed thus:
    “75. Under Section 19 of the Indian Contract Act, when
    consent to an agreement is caused by coercion, fraud or
    misrepresentation, the agreement is a contract voidable at the
    option of the party whose consent was so caused. It is not the
    case of either of the contesting respondents that there was any
    coercion brought to bear upon him or that any fraud or
    misrepresentation had been practiced upon him. Under
    Section 19­A, when consent to an agreement is caused by
    47
    undue influence, the agreement is a contract voidable at the
    option of the party whose consent was so caused and the court
    may set aside any such contract either absolutely or if the
    party who was entitled to avoid it has received any benefit
    thereunder, upon such terms and conditions as to the court
    may seem just. Sub­section (1) of Section 16 defines “Undue
    influence” as follows:
    “16. ‘Undue influence’ defined.—(1) A contract is said to be
    induced by ‘undue influence’ where the relations subsisting
    between the parties are such that one of the parties is in a
    position to dominate the will of the other and uses that
    position to obtain an unfair advantage over the other.”
    The material provisions of sub­section (2) of Section 16 are as
    follows:
    “(2) In particular and without prejudice to the generality of
    the foregoing principle, a person is deemed to be in a position
    to dominate the will of another—
    (a) where he holds a real or apparent authority over the
    other ….”
    We need not trouble ourselves with the other sections of the
    Indian Contract Act except Sections 23 and 24. Section 23
    states that the consideration or object of an agreement is
    lawful unless inter alia the court regards it as opposed to
    public policy. This section further provides that every
    agreement of which the object or consideration is unlawful is
    void. Under Section 24, if any part of a single consideration for
    one or more objects, or anyone or any part of any one of
    several considerations for a single object is unlawful, the
    agreement is void. The agreement is, however, not always void
    in its entirety for it is well settled that if several distinct
    promises are made for one and the same lawful consideration,
    and one or more of them be such as the law will not enforce,
    that will not of itself prevent the rest from being enforceable.
    The general rule was stated by Willes, J., in Pickering v.
    Ilfracombe Ry. Co. (1868) LR 3 CP 235 (at p. 250) as follows:
    “The general rule is that, where you cannot sever the illegal
    from the legal part of a covenant, the contract is altogether
    void; but where you can sever them, whether the illegality be
    created by statute or by the common law, you may reject the
    bad part and retain the good.”
    (emphasis supplied)
    (b). In Brojo Nath Ganguly (supra), this Court considered the concept
    of unconscionable bargain and as to actions showing no regard for
    conscience; irreconcilable with what is right or reasonable, observed
    thus:
    48
    “76. Under which head would an unconscionable bargain fall?
    If it falls under the head of undue influence, it would be
    voidable but if it falls under the head of being opposed to
    public policy, it would be void. No case of the type before us
    appears to have fallen for decision under the law of contracts
    before any court in India nor has any case on all fours of a
    court in any other country been pointed out to us. The word
    “unconscionable” is defined in the Shorter Oxford English
    Dictionary, Third Edition, Volume II, page 2288, when used
    with reference to actions, etc. as “showing no regard for
    conscience; irreconcilable with what is right or reasonable.” An
    unconscionable bargain would, therefore, be one which is
    irreconcilable with what is right or reasonable.”
    (emphasis supplied)
    (c). Chitty on Contracts was referred in Brojo Nath Ganguly (supra)
    about the old ideas of freedom of contract in modern times, 25th Edn.,
    Vol. 1, para 4, Chitty observed:
    “79. In this connection, it is useful to note what Chitty has to
    say about the old ideas of freedom of contract in modern
    times. The relevant passages are to be found in Chitty on
    Contracts, 25th Edn., Vol. I, in paragraph 4, and are as
    follows:
    “These ideas have to a large extent lost their appeal today.
    ‘Freedom of contract,’ it has been said, ‘is a reasonable social
    ideal only to the extent that equality of bargaining power
    between contracting parties can be assumed, and no injury is
    done to the economic interests of the community at large.’
    Freedom of contract is of little value when one party has no
    alternative between accepting a set of terms proposed by the
    other or doing without the goods or services offered. Many
    contracts entered into by public utility undertakings and
    others take the form of a set of terms fixed in advance by one
    party and not open to discussion by the other. These are called
    ‘contracts d’adhesion’ by French lawyers. Traders frequently
    contract, not on individually negotiated terms, but on those
    contained in a standard form of contract settled by a trade
    association. And the terms of an employee’s contract of
    employment may be determined by agreement between his
    trade union and his employer, or by a statutory scheme of
    employment. Such transactions are nevertheless contracts
    notwithstanding that freedom of contract is to a great extent
    lacking.
    Where freedom of contract is absent, the disadvantages
    to consumers or members of the public have, to some extent,
    been offset by administrative procedures for consultation, and
    49
    by legislation. Many statutes introduce terms into contracts
    which the parties are forbidden to exclude, or declare that
    certain provisions in a contract shall be void. And the courts
    have developed a number of devices for refusing to implement
    exemption clauses imposed by the economically stronger party
    on the weaker, although they have not recognized in
    themselves any general power (except by statute) to declare
    broadly that an exemption clause will not be enforced unless it
    is reasonable. Again, more recently, certain of the judges
    appear to have recognized the possibility of relief from
    contractual obligations on the ground of ‘inequality of
    bargaining power.'”
    What the French call “contracts d’adhesion,” the American call
    “adhesion contracts” or “contracts of adhesion.” An “adhesion
    contract” is defined in Black’s Law Dictionary. 5th Edn., at
    page 38, as follows:
    “Adhesion contract.—Standardized contract form offered to
    consumers of goods and services on essentially ‘take it or leave
    it’ basis without affording consumer realistic opportunity to
    bargain and under such conditions that consumer cannot
    obtain desired product or services except by acquiescing in
    form contract. Distinctive feature of adhesion contract is that
    weaker party has no realistic choice as to its terms. Not every
    such contract is unconscionable.”
  64. The position under the American law is stated in
    Reinstatement of the Law — Second as adopted and
    promulgated by the American Law Institute, Volume II which
    deals with the law of contracts, in Section 208 at page 107, as
    follows:
    Ҥ 208. Unconscionable Contract or Term
    If a contract or term thereof is unconscionable at the
    time the contract is made a court may refuse to enforce the
    contract, or may enforce the remainder of the contract without
    the unconscionable term, or may so limit the application of
    any unconscionable term as to avoid any unconscionable
    result.”
    In the Comments given under that section, it is stated at page
    107:
    “Like the obligation of good faith and fair dealing (§ 205),
    the policy against unconscionable contracts or terms applies to
    a wide variety of types of conduct. The determination that a
    contract or term is or is not unconscionable is made in the
    light of its setting, purpose and effect. Relevant factors include
    weaknesses in the contracting process like those involved in
    more specific rules as to contractual capacity, fraud and other
    invalidating causes; the policy also overlaps with rules which
    render particular bargains or terms unenforceable on grounds
    of public policy. Policing against unconscionable contracts or
    terms has sometimes been accomplished by adverse
    construction of language, by manipulation of the rules of offer
    50
    and acceptance or by determinations that the clause is contrary
    to public policy or to the dominant purpose of the contract.
    Uniform Commercial Code § 2­302 Comment 1 …. A bargain is
    not unconscionable merely because the parties to it are
    unequal in bargaining position, nor even because the
    inequality results in an allocation of risks to the weaker party.
    But gross inequality of bargaining power, together with terms
    unreasonably favourable to the stronger party, may confirm
    indications that the transaction involved elements of deception
    or compulsion, or may show that the weaker party had no
    meaningful choice, no real alternative, or did not in fact assent
    or appear to assent to the unfair terms.”
    (emphasis supplied)
    There is a statute in the United States called the Universal
    Commercial Code, which applies to contracts relating to sales
    of goods. Though this statute is inapplicable to contracts not
    involving sales of goods, it has proved very influential in what
    is called in the United States, “non­sales” cases. It has many
    times been used either by analogy or because it was felt to
    embody a generally accepted social attitude of fairness going
    beyond its statutory application to sales of goods. In the
    Reporter’s Note to said Section 208, it is stated at p. 112:
    “It is to be emphasized that a contract of adhesion is not
    unconscionable per se, and that all unconscionable contracts
    are not contracts of adhesion. Nonetheless, the more
    standardised the agreement and the less a party may bargain
    meaningfully, the more susceptible the contract or a term will be
    to a claim of unconscionability.”
    (emphasis supplied)
    The position has been thus summed up by John R. Peden in
    ‘The Law of Unjust Contracts’ published by Butterworths in
    1982, at pages 28­29:
    “… Unconscionability represents the end of a cycle
    commencing with the Aristotelian concept of justice and the
    Roman law laesio enormis, which in turn formed the basis for
    the medieval church’s concept of a just price and
    condemnation of usury. These philosophies permeated the
    exercise, during the seventeenth and eighteenth centuries, of
    the Chancery court’s discretionary powers under which it
    upset all kinds of unfair transactions. Subsequently the
    movement towards economic individualism in the nineteenth
    century hardened the exercise of these powers by emphasising
    the freedom of the parties to make their own contract. While
    the principle of pacta sunt servanda held dominance, the
    consensual theory still recognized exceptions where one party
    was overborne by a fiduciary, or entered a contract under
    duress or as the result of fraud. However, these exceptions
    were limited and had to be strictly proved.
    It is suggested that the judicial and legislative trend during
    the last 30 years in both civil and common law jurisdictions
    has almost brought the wheel full circle. Both courts and
    51
    parliaments have provided greater protection for weaker
    parties from harsh contracts. In several jurisdictions this
    included a general power to grant relief from unconscionable
    contracts, thereby providing a launching point from which the
    courts have the opportunity to develop a modern doctrine of
    unconscionability. American decisions on Article 2.302 of the
    UCC have already gone some distance into this new arena….”
    The expression “laesio enormis” used in the above passage
    refers to “laesio ultra dimidium vel enormis” which in Roman
    law meant the injury sustained by one of the parties to an
    onerous contract when he had been overreached by the other
    to the extent of more than one­half of the value of the subjectmatter, as for example, when a vendor had not received half
    the value of property sold, or the purchaser had paid more
    than double value. The maxim “pacta sunt servanda” referred
    to in the above passage, means “contracts are to be kept.”
    (emphasis supplied)
    This Court held that due to inequality of bargaining power,
    unreasonable terms, unreasonable favour to the stronger party may
    involve an element of deception or compulsion, or may show that the
    weaker party had no meaningful choice. The Court in Brojo Nath
    Ganguly (supra) also observed that in the sphere of the law of
    contract, the test of reasonableness or fairness has emerged. Even an
    unreasonable clause cannot be enforced as that would be
    unconscionable.
    Here the reasonable construction in the matter is that the
    pension is clearly admissible as per the resolution passed by the
    Central Board of Directors of SBI, which is sought to be denied, it was
    for SBI to amend Rules. Such an action would be unconscionable, and
    courts cannot be said to be powerless in such a situation to enforce
    the SBI VRS with an obligation to make payment of pension.
    52
    (d). This Court considered the enforcement of unreasonable
    contracts and enforceability thereof in Brojo Nath Ganguly (supra)
    thus:
    “83. Yet another theory which has made its emergence in
    recent years in the sphere of the law of contracts is the test of
    reasonableness or fairness of a clause in a contract where
    there is inequality of bargaining power. Lord Denning, MR,
    appears to have been the propounder, and perhaps the
    originator —at least in England, of this theory. In Gillespie
    Brothers & Co. Ltd. v. Roy Bowles Transport Ltd., (1973) QB
    400, where the question was whether an indemnity clause in a
    contract, on its true construction, relieved the indemnifier
    from liability arising to the indemnified from his own
    negligence, Lord Denning said (at pages 415­416):
    “The time may come when this process of ‘construing’ the
    contract can be pursued no further. The words are too clear to
    permit of it. Are the courts then powerless? Are they to permit
    the party to enforce his unreasonable clause, even when it is so
    unreasonable, or applied so unreasonably, as to be
    unconscionable? When it gets to this point, I would say, as I
    said many years ago:
    ‘there is the vigilance of the common law which, while
    allowing freedom of contract, watches to see that it is not
    abused’: John Lee & Son (Grantham) Ltd. v. Railway Executive,
    (1949) 2 All ER 581.
    It will not allow a party to exempt himself from his liability at
    common law when it would be quite unconscionable for him to
    do so.”
    (emphasis supplied)
    In the above case, the Court of Appeal negatived the defense of
    the indemnifier that the indemnity clause did not cover the
    negligence of the indemnified. It was in Lloyds Bank Ltd. v.
    Bundy (1974) 3 All ER 757 that Lord Denning first clearly
    enunciated his theory of “inequality of bargaining power.” He
    began his discussion on this part of the case by stating (at
    page 763) :
    “There are cases in our books in which the courts will set aside
    a contract, or a transfer of property, when the parties have not
    met on equal terms, when the one is so strong in bargaining
    power and the other so weak that, as a matter of common
    fairness, it is not right that the strong should be allowed to push
    the weak to the wall. Hitherto those exceptional cases have
    been treated each as a separate category in itself. But I think
    the time has come when we should seek to find a principle to
    53
    unite them. I put on one side contracts or transactions which
    are voidable for fraud or misrepresentation or mistake. All
    those are governed by settled principles. I go only to those
    where there has been inequality of bargaining power, such as
    to merit the intervention of the court.”
    (emphasis supplied)
    He then referred to various categories of cases and ultimately
    deduced therefrom a general principle in these words (at page
    765):
    “Gathering all together, I would suggest that through all
    these instances there runs a single thread. They rest on
    ‘inequality of bargaining power.’ By virtue of it, the English law
    gives relief to one who, without independent advice, enters into
    a contract on terms which are very unfair or transfers property
    for a consideration which is grossly inadequate, when his
    bargaining power is grievously impaired by reason of his own
    needs or desires, or by his own ignorance or infirmity, coupled
    with undue influences or pressures brought to bear on him by
    or for the benefit of the other. When I use the word ‘undue,’ I
    do not mean to suggest that the principle depends on proof of
    any wrongdoing. The one who stipulates for an unfair
    advantage may be moved solely by his own self­interest,
    unconscious of the distress he is bringing to the other. I have
    also avoided any reference to the will of the one being
    ‘dominated’ or ‘overcome’ by the other. One who is in extreme
    need may knowingly consent to a most improvident bargain,
    solely to relieve the straits in which he finds himself. Again, I do
    not mean to suggest that every transaction is saved by
    independent advice. But the absence of it may be fatal. With
    these explanations, I hope this principle will be found to
    reconcile the cases.”
    (emphasis supplied)
    (e). The Court clearly held that the contracts, which are the outcome
    of misrepresentation, cannot be enforced, and inequality of bargaining
    power merit the intervention of the court. In A. Schroeder Music
    Publishing Co. Ltd. v. Macaulay (formerly Instone) (1974) 1 WLR 1308,
    Lord Diplock made the following observations at pp. 1315­16 thus:
    “84. …. “My Lords, the contract under consideration in this
    appeal is one whereby the respondent accepted restrictions
    upon the way in which he would exploit his earning power as a
    songwriter for the next ten years. Because this can be
    54
    classified as a contract in restraint of trade the restrictions
    that the respondent accepted fell within one of those limited
    categories of contractual promises in respect of which the
    courts still retain the power to relieve the promisor of his legal
    duty to fulfill them. In order to determine whether this case is
    one in which that power ought to be exercised, what your
    Lordships have in fact been doing has been to assess the
    relative bargaining power of the publisher and the songwriter
    at the time the contract was made and to decide whether the
    publisher had used his superior bargaining power to exact
    from the songwriter promises that were unfairly onerous to
    him. Your Lordships have not been concerned to inquire
    whether the public have in fact been deprived of the fruit of the
    song writer’s talents by reason of the restrictions, nor to
    assess the likelihood that they would be so deprived in the
    future if the contract were permitted to run its full course.
    It is, in my view, salutary to acknowledge that in refusing to
    enforce provisions of a contract whereby one party agrees for
    the benefit of the other party to exploit or to refrain from
    exploiting his own earning power, the public policy which the
    court is implementing is not some 19th century economic
    theory about the benefit to the general public of freedom of
    trade, but the protection of those whose bargaining power is
    weak against being forced by those whose bargaining power is
    stronger to enter into bargains that are unconscionable. Under
    the influence of Bentham and of laissez faire the courts in the
    19th century abandoned the practice of applying the public
    policy against unconscionable bargains to contracts generally,
    as they had formerly done to any contract considered to be
    usurious; but the policy survived in its application to penalty
    clauses and to relief against forfeiture and also to the special
    category of contracts in restraint of trade. If one looks at the
    reasoning of 19th­century judges in cases about contracts in
    restraint of trade one finds lip service paid to current economic
    theories, but if one looks at what they said in the light of what
    they did, one finds that they struck down a bargain if they
    thought it was unconscionable as between the parties to it and
    upheld it if they thought that it was not.
    So I would hold that the question to be answered as respects
    a contract in restraint of trade of the kind with which this
    appeal is concerned is: ‘Was the bargain fair?’ The test of
    fairness is, no doubt, whether the restrictions are both
    reasonably necessary for the protection of the legitimate
    interests of the promisee and commensurate with the benefits
    secured to the promisor under the contract. For the purpose of
    this test, all the provisions of the contract must be taken into
    consideration.”
    (f). A term which exempts the stronger party from his ordinary
    common law liability should not be given effect except when it is
    55
    reasonable, as observed in Levison v. Patent Steam Carpet Co. Ltd.,
    (1949) 2 All ER 581 at 584 relied upon in Brojo Nath Ganguly (supra)
    thus:
    “85. The observations of Lord Denning, M.R., in
    Levison v. Patent Steam Carpet Co. Ltd. are also useful
    and require to be quoted. These observations are as
    follows (at page 79) :
    “In such circumstances as here the Law Commission in
    1975 recommended that a term which exempts the stronger
    party from his ordinary common law liability should not be
    given effect except when it is reasonable: see The Law
    Commission and the Scottish Law Commission Report,
    Exemption Clauses, Second Report (1975) (August 5, 1975),
    Law Com. No. 69 (H.C. 605), pp. 62, 174; and there is a Bill
    now before Parliament, which gives effect to the test of
    reasonableness. This is a gratifying piece of law reform: but I
    do not think we need wait for that Bill to be passed into law.
    You never know what may happen to a Bill. Meanwhile, the
    common law has its own principles ready to hand. In Gillespie
    Bros. & Co. Ltd. v. Roy Bowles Transport Ltd. (1973) QB 400, I
    suggested that an exemption or limitation clause should not be
    given effect if it was unreasonable, or if it would be
    unreasonable to apply it in the circumstances of the case. I see
    no reason why this should not be applied today, at any rate in
    contracts in standard forms where there is inequality of
    bargaining power.”
    (g). Courts have to construe the contracts according to the tenor. In
    this regard, in Brojo Nath Ganguly (supra), the Court considered the
    question thus:
    “87. In Photo Production Ltd. v. Securicor Transport
    Ltd. (1980) AC 827, a case before the Unfair Contract
    Terms Act, 1977, was enacted, the House of Lords upheld
    an exemption clause in a contract on the defendants’
    printed form containing standard conditions. The
    decision appears to proceed on the ground that the
    parties were businessmen and did not possess unequal
    bargaining power. The House of Lords did not, in that
    case, reject the test of reasonableness or fairness of a
    clause in a contract where the parties are not equal in
    bargaining position. On the contrary, the speeches of
    Lord Wilberforce, Lord Diplock, and Lord Scarman would
    56
    seem to show that the House of Lords in a fit case would
    accept that test. Lord Wilberforce, in his speech, after
    referring to the Unfair Contract Terms Act, 1977, said (at
    page 843) :
    “This Act applies to consumer contracts and those based
    on standard terms and enables exception clauses to be applied
    with regard to what is just and reasonable. It is significant that
    Parliament refrained from legislating over the whole field of
    contract. After this Act, in commercial matters generally, when
    the parties are not of unequal bargaining power, and when
    risks are normally borne by insurance, not only is the case for
    judicial intervention undemonstrated, but there is everything
    to be said, and this seems to have been Parliament’s intention,
    for leaving the parties free to apportion the risks as they think
    fit and for respecting their decisions.”
    (emphasis supplied)
    Lord Diplock said (at page 850­51):
    “Since the obligations implied by law in a commercial
    contract are those which, by judicial consensus over the years
    or by Parliament in passing a statute, have been regarded as
    obligations which a reasonable businessman would realise that
    he was accepting when he entered into a contract of a particular
    kind, the court’s view of the reasonableness of any departure
    from the implied obligations which would be involved in
    construing the express words of an exclusion clause in one
    sense that they are capable of bearing rather than another, is
    a relevant consideration in deciding what meaning the words
    were intended by the parties to bear.”
    (emphasis supplied)
    Lord Scarman, while agreeing with Lord Wilberforce, described
    (at page 853) the action out of which the appeal before the
    House had arisen as “a commercial dispute between parties
    well able to look after themselves” and then added: “In such a
    situation what the parties agreed (expressly or impliedly) is
    what matters, and the duty of the courts is to construe their
    contract according to its tenor.”
  65. As seen above, apart from judicial decisions, the United
    States and the United Kingdom have statutorily recognised, at
    least in certain areas of the law of contracts, that there can be
    unreasonableness (or lack of fairness, if one prefers that
    phrase) in a contract or a clause in a contract where there is
    inequality of bargaining power between the parties although
    arising out of circumstances not within their control or as a
    result of situations not of their creation. Other legal systems
    also permit judicial review of a contractual transaction entered
    into in similar circumstances. For example, Section 138(2) of
    the German Civil Code provides that a transaction is void
    “when a person” exploits “the distressed situation,
    inexperience, lack of judgmental ability, or grave weakness of
    57
    will of another to obtain the grant or promise of pecuniary
    advantages … which are obviously disproportionate to the
    performance given in return”. The position, according to the
    French law, is very much the same.”
    (h). In Brojo Nath Ganguly (supra), it was pointed out what court
    should do in such a matter thus:
    “89. Should then our courts not advance with the times?
    Should they still continue to cling to outmoded concepts
    and outworn ideologies? Should we not adjust our
    thinking caps to match the fashion of the day? Should all
    jurisprudential development pass us by, leaving us
    floundering in the sloughs of 19th­century theories?
    Should the strong be permitted to push the weak to the
    wall? Should they be allowed to ride roughshod over the
    weak? Should the courts sit back and watch supinely
    while the strong trample underfoot the rights of the
    weak? We have a Constitution for our country. Our
    judges are bound by their oath to “uphold the
    Constitution and the laws.” The Constitution was enacted
    to secure to all the citizens of this country social and
    economic justice. Article 14 of the Constitution
    guarantees to all persons equality before the law and the
    equal protection of the laws. The principle deducible from
    the above discussions on this part of the case is in
    consonance with right and reason, intended to secure
    social and economic justice and conforms to the mandate
    of the great equality clause in Article 14. This principle is
    that the courts will not enforce and will, when called
    upon to do so, strike down an unfair and unreasonable
    contract, or an unfair and unreasonable clause in a
    contract, entered into between parties who are not equal
    in bargaining power. It is difficult to give an exhaustive
    list of all bargains of this type. No court can visualize the
    different situations which can arise in the affairs of men.
    One can only attempt to give some illustrations. For
    instance, the above principle will apply where the
    inequality of bargaining power is the result of the great
    disparity in the economic strength of the contracting
    parties. It will apply where the inequality is the result of
    circumstances, whether of the creation of the parties or
    not. It will apply to situations in which the weaker party
    is in a position in which he can obtain goods or services
    or means of livelihood only upon the terms imposed by
    the stronger party or go without them. It will also apply
    58
    where a man has no choice, or rather no meaningful
    choice, but to give his assent to a contract or to sign on
    the dotted line in a prescribed or standard form or to
    accept a set of rules as part of the contract, however
    unfair, unreasonable and unconscionable a clause in
    that contract or form or rules may be. This principle,
    however, will not apply where the bargaining power of the
    contracting parties is equal or almost equal. This
    principle may not apply where both parties are
    businessmen, and the contract is a commercial
    transaction. In today’s complex world of giant
    corporations with their vast infrastructural organizations
    and with the State through its instrumentalities and
    agencies entering into almost every branch of industry
    and commerce, there can be myriad situations which
    result in unfair and unreasonable bargains between
    parties possessing wholly disproportionate and unequal
    bargaining power. These cases can neither be
    enumerated nor fully illustrated. The court must judge
    each case on its own facts and circumstances.”
    (i). The Court in Brojo Nath Ganguly (supra) held that the contract,
    which affected a large number of persons if they are unconscionable,
    unfair, and unreasonable, the contract is voidable. The court would
    not compel each person with whom the party with superior bargaining
    power had contracted to go to court to adjudge the contract voidable
    and would result in a multiplicity of litigation. It observed:
    “91. Is a contract of the type mentioned above to be adjudged
    voidable or void? If it was induced by undue influence, then
    under Section 19­A of the Indian Contract Act, it would be
    voidable. It is, however, rarely that contracts of the types to
    which the principle formulated by us above applies are
    induced by undue influence as defined by Section 16(1) of the
    Indian Contract Act, even though at times they are between
    parties one of whom holds a real or apparent authority over
    the other. In the vast majority of cases, however, such
    contracts are entered into by the weaker party under pressure
    of circumstances, generally economic, which results in
    inequality of bargaining power. Such contracts will not fall
    within the four corners of the definition of “undue influence”
    given in Section 16(1). Further, the majority of such contracts
    are in a standard or prescribed form or consist of a set of
    59
    rules. They are not contracts between individuals containing
    terms meant for those individuals alone. Contracts in
    prescribed or standard forms or which embody a set of rules
    as part of the contract are entered into by the party with
    superior bargaining power with a large number of persons who
    have far less bargaining power or no bargaining power at all.
    Such contracts which affect a large number of persons or a
    group or groups of persons, if they are unconscionable, unfair,
    and unreasonable, are injurious to the public interest. To say
    that such a contract is only voidable would be to compel each
    person with whom the party with superior bargaining power
    had contracted to go to court to have the contract adjudged
    voidable. This would only result in multiplicity of litigation,
    which no court should encourage and would also not be in the
    public interest. Such a contract or such a clause in a contract
    ought, therefore, to be adjudged void. While the law of
    contracts in England is mostly judge­made, the law of
    contracts in India is enacted in a statute, namely, the Indian
    Contract Act, 1872. In order that such a contract should be
    void, it must fall under one of the relevant sections of the
    Indian Contract Act. The only relevant provision in the Indian
    Contract Act, which can apply is Section 23, when it states
    that “The consideration or object of an agreement is lawful,
    unless … the court regards it as … opposed to public policy.”
    (j). The Court also considered the “public policy”. The same is not the
    policy of a particular Government. It connotes some matter which
    concerns the public good and the public interest. Action has to be
    subservient to public policy. This Court in the context of Contract Act
    and Public Policy made the following observations:
    “92. The Indian Contract Act does not define the
    expression “public policy” or “opposed to public policy.”
    From the very nature of things, the expressions “public
    policy,” “opposed to public policy,” or “contrary to public
    policy” are incapable of precise definition. Public policy,
    however, is not the policy of a particular government. It
    connotes some matter which concerns the public good
    and the public interest. The concept of what is for the
    public good or in the public interest or what would be
    injurious or harmful to the public good or the public
    interest has varied from time to time. As new concepts
    take the place of old, transactions which were once
    considered against public policy are now being upheld by
    the courts, and similarly, where there has been a well­
    60
    recognized head of public policy, the courts have not
    shirked from extending it to new transactions and
    changed circumstances and have at times not even
    flinched from inventing a new head of public policy. There
    are two schools of thought— “the narrow view” school
    and “the broad view” school. According to the former,
    courts cannot create new heads of public policy, whereas
    the latter countenances judicial law­making in this area.
    The adherents of “the narrow view” school would not
    invalidate a contract on the ground of public policy
    unless that particular ground had been well­established
    by authorities. Hardly ever has the voice of the timorous
    spoken more clearly and loudly than in these words of
    Lord Davey in Janson v. Driefontein Consolidated Gold
    Mines Ltd.: “Public policy is always an unsafe and
    treacherous ground for legal decision.” That was in the
    year 1902. Seventy­eight years earlier, Burrough, J., in
    Richardson v. Mellish, (1824­34) All ER 258, described
    public policy as “a very unruly horse, and when once you
    get astride it you never know where it will carry you.” The
    Master of the Rolls, Lord Denning, however, was not a
    man to shy away from unmanageable horses and in
    words which conjure up before our eyes the picture of the
    young Alexander the Great taming Bucephalus, he said
    in Enderby Town Football Club Ltd. v. Football Assn. Ltd.
    (1971) Ch 591: “With a good man in the saddle, the
    unruly horse can be kept in control. It can jump over
    obstacles.” Had the timorous always held the field, not
    only the doctrine of public policy but even the Common
    Law or the principles of Equity would never have evolved.
    Sir William Holdsworth in his “History of English Law,”
    Volume III, page 55, has said:
    “In fact, a body of law like the common law, which has
    grown up gradually with the growth of the nation, necessarily
    acquires some fixed principles, and if it is to maintain these
    principles, it must be able, on the ground of public policy or
    some other like ground, to suppress practices which, under
    ever new disguises, seek to weaken or negative them.”
    It is thus clear that the principles governing public policy must
    be and are capable, on proper occasion, of expansion or
    modification. Practices which were considered perfectly normal
    at one time have today become obnoxious and oppressive to
    public conscience. If there is no head of public policy which
    covers a case, then the court must in consonance with public
    conscience and in keeping with public good and public interest
    declare such practice to be opposed to public policy. Above all,
    in deciding any case which may not be covered by authority,
    our courts have before them the beacon light of the Preamble
    to the Constitution. Lacking precedent, the court can always
    61
    be guided by that light and the principles underlying the
    Fundamental Rights and the Directive Principles enshrined in
    our Constitution.
  66. The normal rule of Common Law has been that a party
    who seeks to enforce an agreement which is opposed to public
    policy will be non­suited. The case of A. Schroeder Music
    Publishing Co. Ltd. v. Macaulay (1974) 1 WLR 1308, however,
    establishes that where a contract is vitiated as being contrary
    to public policy, the party adversely affected by it can sue to
    have it declared void. The case may be different, where the
    purpose of the contract is illegal or immoral. In Kedar Nath
    Motani v. Prahlad Rai, AIR 1960 SC 213, reversing the High
    Court and restoring the decree passed by the trial court
    declaring the appellants’ title to the lands in suit and directing
    the respondents who were the appellants’ benamidars to
    restore possession, this Court, after discussing the English
    and Indian law on the subject, said: (at page 873) :
    “The correct position in law, in our opinion, is that what
    one has to see is whether the illegality goes so much to the
    root of the matter that the plaintiff cannot bring his action
    without relying upon the illegal transaction into which he had
    entered. If the illegality be trivial or venial, as stated by
    Williston and the plaintiff is not required to rest his case upon
    that illegality, then public policy demands that the defendant
    should not be allowed to take advantage of the position. A
    strict view, of course, must be taken of the plaintiff’s conduct,
    and he should not be allowed to circumvent the illegality by
    resorting to some subterfuge or by misstating the facts. If,
    however, the matter is clear and the illegality is not required to
    be pleaded or proved as part of the cause of action, and the
    plaintiff recanted before the illegal purpose was achieved, then,
    unless it be of such a gross nature as to outrage the
    conscience of the court, the plea of the defendant should not
    prevail.”
    The types of contracts to which the principle formulated by us
    above applies are not contracts which are tainted with illegality
    but are contracts which contain terms which are so unfair and
    unreasonable that they shock the conscience of the court.
    They are opposed to public policy and require to be adjudged
    void.”
  67. This Court also considered the law of contract and its
    interpretation in changing times in Delhi Transport Corporation v.
    D.T.C. Mazdoor Congress & Ors., (1991) Supp 1 SCC 600 thus:
    62
    “279. In paragraph 4 of Chitty on Contracts (25th edn., vol. 1)
    it is stated that “freedom of contract is a reasonable social
    ideal only to the extent that equality of bargaining power
    between contracting parties can be assumed and no injury is
    done to the economic interest of the community at large.”
  68. In Anson’s Law of Contract at pages 6 and 7 stated the
    scope of freedom of contract in the changing circumstances
    thus:
    “Today the position is seen in a very different light. Freedom
    of contract is a reasonable social ideal only to the extent that
    equality of bargaining power between contracting parties can
    be assumed, and no injury is done to the economic interests of
    the community at large. In the more complicated social and
    industrial conditions of a collectivist society, it has ceased to
    have much idealistic attraction. It is now realised that
    economic equality often does not exist in any real sense and
    that individual interests have to be made to subserve those of
    the community hence there has been a fundamental change
    both in our social outlook and in the policy of the legislature
    towards contract and the law today interferes at numerous
    points with the freedom of the parties to make what contract
    they like. The relation between employers and employed, for
    example, have been regulated by statutes designed to ensure
    that the employee’s condition of work are safe, that he is
    properly protected against redundancy, and that he knows his
    terms of service. The public has been protected against
    economic pressure by such measures as the Rent Acts, the
    Supply of Goods (Implied Terms) Act, the Consumer Credit
    Act, and other similar enactments. These legislative provisions
    will override any contrary terms which the parties may make
    for themselves. Further, the legislature has intervened in the
    Restrictive Trade Practices Act, 1956, and the Fair Trading Act,
    1973 to promote competition in industry and to safeguard the
    interests of consumers. This intervention is specially necessary
    today when most contracts entered by ordinary people are not
    the result of individual negotiation. It is not possible for a
    private person to settle the terms of his agreement with a
    British Railways Board or with a local electricity authority.”
    The ‘standard form’ contract is the rule. He must either accept
    the terms of this contract in toto or go without. Since,
    however, it is not feasible to deprive oneself of such necessary
    services, the individual is compelled to accept on those terms.
    In view of this fact, it is quite clear that freedom of contract is
    now largely an illusion.”
  69. (a). It has been emphasised in D.T.C. (supra) that the period of
    contract is to be reasonable and the employee has a right to know the
    63
    conditions of work and he is properly protected against redundancy.
    Approving decision in Central Inland Water Transport Corporation Ltd.
    & Anr. v. Brojo Nath Ganguly & Anr. (1983) 3 SCC 156 Court held
    thus:
    “282. In Brojo Nath case (1986) 3 SCC 156, Madon, J.
    elaborately considered the development of law relating to
    unfair or unreasonable terms of the contract or clauses thereof
    in extenso, and it is unnecessary for me to traverse the same
    grounds once over. The learned Judge also considered the
    arbitrary, unfair, and unbridled power on the anvil of
    distributive justice or justness or fairness of the procedure
    envisaged therein. The relevant case law in that regard was
    dealt with in extenso in the light of the development of law in
    the Supreme Court of United States of America and the House
    of Lords in England and in the continental countries. To avoid
    needless burden on the judgment, I do not repeat the same
    reasoning. I entirely agree with the reasoning, and the
    conclusions reached therein on all these aspects.”
    (b). This Court in D.T.C. (supra) with respect to the alteration of
    Government contracts and the right of the State to impose
    unconstitutional conditions, observed:
    “283. The problem also could be broached from the angle
    whether the State can impose unconstitutional conditions as
    part of the contract or statute or rule etc. In (1959­60) 73
    Harvard Law Review, in the Note under the caption
    ‘Unconstitutional Condition’ at pages 1595­96 it is postulated
    that the State is devoid of power to impose unconstitutional
    conditions in the contract that the power to withhold largesse
    has been asserted by the State in four areas i.e. (1) regulating
    the right to engage in certain activities; (2) administration of
    government welfare programme; (3) government employment;
    and (4) procurement of contracts. It was further adumbrated
    at pages 1602­03 thus:
    “The sovereign’s constitutional authority to choose those with
    whom it will contract for goods and services is, in effect, a
    power to withhold the benefits to be derived from economic
    dealings with the government. As government activity in the
    economic sphere increases, the contracting power enables the
    government to control many hitherto unregulated activities of
    64
    contracting parties through the imposition of conditions. Thus,
    regarding the government, as a private entrepreneur, threatens
    to impair constitutional rights. The government, unlike a
    private individual, is limited in its ability to contract by the
    Constitution. The federal contracting power is based upon the
    Constitution’s authorisation of these acts ‘necessary and
    proper’ to the carrying out of the functions which it allocates to
    the national government. Unless the objectives sought by
    terms and conditions in government contracts requiring the
    surrender of rights are constitutionally authorised, the
    conditions must fall as ultra vires exercise of power.”
    Again at page 1603, it is further emphasised thus:
    “When conditions limit the economic benefits to be derived
    from dealings with the government to those who forego the
    exercise of constitutional rights, the exclusion of those
    retaining their rights from participation in the enjoyment of
    these benefits may be violative of the prohibition, implicit in
    the due process clause of Fifth Amendment and explicit in the
    equal protection clause of the Fourteenth Amendment against
    unreasonable discrimination in the governmental bestow of
    advantages. Finally, disabling those exercising certain rights
    from participating in the advantages to be derived from
    contractual relations with the government may be a form of
    penalty lacking in due process. To avoid invalidation for any of
    the above reasons, it must be shown that the conditions
    imposed are necessary to secure the legitimate objectives of
    the contract, ensure its effective use, or protect society from
    the potential harm which may result from the contractual
    relationship between the government and the individual.”
  70. Professor Guido Calabresi of Yale University Law School
    in his “Retroactivity, Paramount Power and Contractual
    Changes” (1961­62) 71 Yale Law Journal 1191, stated that the
    government can make contracts that are necessary and proper
    for carrying out any of the specific clauses of the Constitution
    or power to spend for general welfare. The Federal Government
    has no power, inherent or sovereign, other than those
    specifically or explicitly granted to it by the Constitution. At
    page 1197, it is further stated thus:
    “The government acts according to due process standards for
    the due process clause is quite up to that task without the
    rule. Alterations of government contracts are not desirable in a
    free country even when they do not constitute a ‘taking’ of
    property or impinge on questions of fundamental fairness of
    the type comprehended in due process. The government may
    make changes, but only if war or commerce require them and
    not on the broader and more ephemeral grounds that the
    general welfare would be served by the change. Any other rule
    would allow the government to welch almost at will.”
    x x x
    65
  71. In Brojo Nath case (supra, after elaborate consideration of
    the doctrine of “reasonableness or fairness” of the terms and
    conditions of the contract vis­a­vis the relative bargaining
    power of the contracting parties this Court laid down that the
    principles deducible from the discussion made therein is in
    consonance with right or reason intended to secure socioeconomic justice and conform to mandate of the equality
    clause in Article 14. The principle laid was that courts will not
    enforce and will, when called upon to do so, strike down an
    unfair and unreasonable contract or an unfair and
    unreasonable clause in a contract, entered into between
    parties who are not equal in bargaining power …. It will apply
    to situations in which the weaker party is in a position in
    which he can obtain goods or services or means of livelihood
    only upon the terms imposed by the stronger party or go
    without them. It will also apply where a man has no choice, or
    rather no meaningful choice, but to give his assent to a
    contract or to sign on the dotted line in a prescribed or
    standard form or to accept a set of rules as part of the
    contract, however unfair, unreasonable and unconscionable a
    clause in that contract or form or rules may be. This principle,
    however, will not apply where the bargaining power of the
    contracting parties is equal or almost equal or where both
    parties are businessmen, and the contract is a commercial
    transaction.
  72. In today’s complex world of giant corporations with their
    vast infrastructural organisations the State through its
    instrumentalities and agencies has been entering into almost
    every branch of industry and commerce and field of service,
    there can be myriad situations which result in unfair and
    unreasonable bargains between parties possessing wholly
    disproportionate and unequal bargaining power. These cases
    can neither be enumerated nor fully illustrated. The court
    must judge each case on its own facts and circumstances.”
    (emphasis supplied)
    The Court held that there can be myriad situations which result in
    unfair and unreasonable bargains, which are the outcome of an
    unequal bargaining power. Each case has to be seen on its own facts
    and circumstances.
    (c). In D.T.C. (supra), the Court also held that Article 14 sheds light
    on public policy to curb arbitrariness thus:
    66
    “294. In Basheshar Nath v. CIT, AIR 1959 SC 149, S.R. Das,
    C.J. held that Article 14 is founded on a sound public policy
    recognised and valued in all States, and it admonishes the
    State when it disregards the obligations imposed upon the
    State.
  73. In E.P. Royappa v. State of Tamil Nadu, (1974) 4 SCC 3,
    Bhagwati, J. (as he then was) held that Article 14 is the genus
    while Article 16 is a specie. Article 16 gives effect to the
    doctrine of equality in all matters relating to public
    employment. The basic principle which, therefore, informs
    both Articles 14 and 16 is equality and inhibition against
    discrimination. “Equality is a dynamic concept with many
    aspects and dimensions, and it cannot be “cribbed, cabined
    and confined” within traditional and doctrinaire limits. From a
    positivistic point of view, equality is antithetical to
    arbitrariness. In fact, equality and arbitrariness are sworn
    enemies; one belongs to the rule of law in a republic while the
    other, to the whim and caprice of an absolute monarch. Where
    an act is arbitrary, it is implicit in it that it is unequal both
    according to political logic and constitutional law and is
    therefore violative of Article 14, and if it affects any matter
    relating to public employment, it is also violative of Article 16.
    Articles 14 and 16 strike at arbitrariness in State action and
    ensure fairness and equality of treatment. In Maneka Gandhi
    case (1978) 1 SCC 248, it was further held that the principle of
    reasonableness, which legally as well as philosophically, is an
    essential element of equality or non­arbitrariness pervades
    Article 14 like a brooding omnipresence. In Ramana case
    (1979) 3 SCC 489, it was held that it is merely a judicial
    formula for determining whether the legislative or executive
    action in question is arbitrary and therefore constituting
    denial of equality. If the classification is not reasonable and
    does not satisfy the two conditions, namely, rational relation
    and nexus, the impugned legislative or executive action would
    plainly be arbitrary, and the guarantees of equality under
    Article 14 would be breached. Wherever, therefore, there is
    arbitrariness in State action, whether it be of legislature or of
    the executive or of an “authority” under Article 12, Article 14,
    “immediately springs into action and strikes down such State
    action.” In fact, the concept of reasonableness and nonarbitrariness pervades the entire constitutional scheme and is
    a golden thread which runs through the whole of the fabric of
    the constitution.
  74. Article 14 is the general principle, while Article 311(2) is
    a special provision applicable to all civil services under the
    State. Article 311(2) embodies the principles of natural justice,
    but proviso to clause (2) of Article 311 excludes the operation
    of principles of natural justice engrafted in Article 311(2) as an
    exception in the given circumstances enumerated in three
    67
    clauses of the proviso to Article 311(2) of the Constitution.
    Article 14 read with Articles 16(1), and 311 are to be
    harmoniously interpreted that the proviso to Article 311(2)
    excludes the application of the principles of natural justice as
    an exception; and the applicability of Article 311(2) must,
    therefore, be circumscribed to the civil services and be
    construed accordingly. In respect of all other employees
    covered by Article 12 of the Constitution, the dynamic role of
    Article 14 and other relevant articles like Article 21 must be
    allowed to have full play without any inhibition, unless the
    statutory rules themselves, consistent with the mandate of
    Articles 14, 16, 19 and 21 provide, expressly such an
    exception.”
    (emphasis supplied)
    (d). Arbitrariness in State action whether of the legislature or the
    executive or of an authority under Articles 12, 14 and 21 comes into
    play to strike down such an action. The Court in D.T.C. (supra) held
    thus:
    “303. Article 19(1)(g) empowers every citizen the right to
    avocation or profession etc. which includes right to be
    continued in employment under the State unless the tenure is
    validly terminated consistent with the scheme enshrined in the
    fundamental rights of the Constitution. Therefore, if any
    procedure is provided for deprivation of the right to
    employment or right to the continued employment till the age
    of superannuation as is a source to right to livelihood, such a
    procedure must be just, fair and reasonable. This Court in
    Fertilizer Corporation Kamgar Union (Regd.), Sindri v. Union of
    India (1981) 1 SCC 568, held that Article 19(1)(g) confers a
    broad and general right which is available to all persons to do
    works of any particular kind and of their choice. Therefore,
    whenever there is arbitrariness in State action — whether it be
    of the legislature or of the executive or of an authority under
    Article 12, Articles 14 and 21 spring into action and strikes
    down such an action. The concept of reasonableness and nonarbitrariness pervades the entire constitutional spectrum and
    is a golden thread which runs through the whole fabric of the
    Constitution. Therefore, the provision of the statute, the
    regulation or the rule which empowers an employer to
    terminate the services of an employee whose service is of an
    indefinite period till he attains the age of superannuation, by
    serving a notice or pay in lieu thereof must be conformable to
    the mandates of Articles 14, 19(1)(g) and 21 of the
    Constitution. Otherwise, per se, it would be void. In Moti Ram
    Deka case, AIR 1964 SC 600, Gajendragadkar, J. (as he then
    68
    was) after invalidating the Rules 149(3) and 148(3) under
    Article 311(2) which are in pari materia with Regulation 9(b) of
    the Regulations also considered their validity in the light of
    Article 14 and held thus: (SCR p. 731)
    “Therefore, we are satisfied that the challenge to the
    validity of the impugned Rules on the ground that they
    contravene Article 14 must also succeed.”
    This was on the test of reasonable classification as the
    principle then was applied. Subba Rao, J. (as he then was) in a
    separate but concurring judgment, apart from invalidating the
    rule under Article 311(2) also held that the rule infringed
    Article 14 as well, though there is no elaborate discussion in
    that regard. But, Das Gupta, J. considered elaborately on this
    aspect and held: (SCR p. 770)
    “Applying the principle laid down in the above case to the
    present Rule, I find on the scrutiny of the Rule that it does not
    lay down any principle or policy for guiding the exercise of
    discretion by the authority who will terminate the service in
    the matter of selection or classification. Arbitrary and
    uncontrolled power is left in the authority to select at its will
    any person against whom action will be taken. The rule thus
    enables the authority concerned to discriminate between two
    railway servants to both of whom Rule 148(3) equally applied
    by taking action in one case and not taking it in the other. In
    the absence of any guiding principle in the exercise of the
    discretion by the authority, the Rule has, therefore, to be
    struck down as contravening the requirements of Article 14 of
    the Constitution.”
  75. In Ramana case (1979) 3 SCC 489, it has been held
    that: (SCC p. 504, para 10)
    “It is indeed unthinkable that in a democracy governed by
    the rule of law, the executive government or any of its officers
    should possess arbitrary power over the interests of the
    individual.”
    The procedure adopted should match with what justice
    demands. History shows that it is always subtle and insidious
    encroachments made ostensibly for a good cause that
    imperceptibly but surely erode the foundations of liberty.”
    (emphasis supplied)
    (e). An employer cannot act in a manner that is in the negation of just,
    fair, and reasonable procedure. The Court held:
    “329. I am, therefore, inclined to hold that the courts,
    though, have no power to amend the law by process of
    interpretation but do have power to mend it so as to be in
    69
    conformity with the intendment of the legislature.
    Doctrine of reading down is one of the principles of
    interpretation of statute in that process. But when the
    offending language used by the legislature is clear,
    precise, and unambiguous, violating the relevant
    provisions in the Constitution, resort cannot be had to
    the doctrine of reading down to blow life into the void law
    to save it from unconstitutionality or to confer
    jurisdiction on the legislature. Similarly, it cannot be
    taken aid of to emasculate the precise, explicit, clear and
    unambiguous language to confer arbitrary, unbridled and
    uncanalised power on an employer which is a negation to
    just, fair and reasonable procedure envisaged under
    Articles 14 and 21 of the Constitution and to direct the
    authorities to record reasons, ( sic) unknown or
    unintended procedure, in the manner argued by the
    learned counsel for the appellants.” (emphasis supplied)
    (f). In D.T.C. (supra) this Court also relied upon S.G. Jaisinghani v.
    Union of India, AIR 1967 SC 1427 :
    “331. x x x “In this context it is important to
    emphasise that the absence of arbitrary power is the first
    essential of the rule of law upon which our whole
    constitutional system is based. In a system governed by
    rule of law, discretion, when conferred upon executive
    authorities, must be confined within defined limits. The
    rule of law from this point of view means that decisions
    should be made by the application of known principles
    and rules and, in general, such decisions should be
    predictable, and the citizen should know where he is. If a
    decision is taken without any principle or without any
    rule, it is unpredictable, and such a decision is the
    antithesis of a decision taken in accordance with the rule
    of law. (See Dicey: Law of the Constitution, 10th edn.,
    Introduction cx.) ‘Law has reached its finest moments,’
    stated Douglas, J. in United States v. Wunderlich 342 US
    98, ‘when it has freed man from the unlimited discretion
    of some ruler …. Where discretion is absolute, man has
    always suffered.’ It is in this sense that the rule of law
    may be said to be the sworn enemy of caprice. Discretion,
    as Lord Mansfield stated it in classic terms in the case of
    John Wilkes (1770) 4 Burr 2528, ‘means sound discretion
    guided by law. It must be governed by rule, not by
    humour: it must not be arbitrary, vague and fanciful’”.
    (emphasis supplied)
    70
    (g). The Court emphasised that the decision has to be predictable
    and it cannot be uncertain. The decision has to be taken by
    application of known principles and rules. The exercise of power
    cannot be whimsical or capricious. This Court in D.T.C. (supra) held:
    “332. In an appropriate case where there is no sufficient
    evidence available to inflict by way of disciplinary
    measure, penalty of dismissal or removal from service
    and to meet such a situation, it is not as if that the
    authority is lacking any power to make rules or
    regulations to give a notice of opportunity with the
    grounds or the material on records on which it proposed
    to take action, consider the objections and record reasons
    on the basis of which it had taken action and
    communicate the same. However, scanty the material
    may be, it must form foundation. This minimal procedure
    should be made part of the procedure lest the exercise of
    the power is capable of abuse for good as well as for
    whimsical or capricious purposes for reasons best known
    to the authority and not germane for the purpose for
    which the power was conferred. The action based on
    recording reasoning without communication would
    always be viewed with suspicion. Therefore, I hold that
    conferment of power with wide discretion without any
    guidelines, without any just, fair or reasonable procedure
    is constitutionally anathema to Articles 14, 16(1), 19(1)(g)
    and 21 of the Constitution. Doctrine of reading down
    cannot be extended to such a situation.” (emphasis
    supplied)
  76. On the basis of aforesaid principles, it is apparent that once the
    Central Board of Directors accepted the memorandum for making
    payment of pension, in case it was not accepting the proposal in the
    memorandum, it ought to have said clearly that it was not ready to
    accept the proposals of the Government and the IBA and rejects the
    same. Once it approved the proposals referred to in the memorandum,
    71
    which were on the basis of IBA’s letter and Government of India’s
    decision it was bound to implement it in true letter and spirit. By
    accepting the same, binding obligation was created upon the SBI to
    make payment of pension on completion of 15 years of service. It
    cannot invalidate its own decision by relying on fact it failed to amend
    the rule, whereas other Banks did it later on with retrospective effect.
    They cannot invalidate otherwise valid decision by virtue of exclusive
    superior power to amend or not to amend the rule and act unfairly
    and make the entire contract unreasonable based on
    misrepresentation. It was open to the Board of Directors to reject the
    proposal. Once it accepted the proposal to make payment of pension
    on completion of 15 years of service as proposed in the memorandum,
    though the scheme is tried to be interpreted by the SBI that pension
    was to be admissible as provided in the rule that refers to
    proportionate pension as noted by this Court in O.P. Swarnakar &
    Ors., (supra), and what was decided by Government of India/IBA, was
    not taken away rather adopted by the Central Board of Directors. The
    scheme of contractual nature has to be read in the context and in the
    backdrop of facts and what has been resolved by the Board of
    Directors. There is no ambiguity with respect to the admissibility of
    pension when the memorandum and the scheme are read together. In
    case of ambiguity and even if two interpretations are possible in the
    72
    backdrop of facts of the case, one in favour of the employees has to be
    adopted and so­called clarification dated 11.1.2000 even if considered
    in the manner so as to deny the benefit of pension, has to be held to
    be unenforceable, illegal and contrary to law.
  77. It is apparent from the eligibility clause of the VRS scheme that
    eligibility is provided for the employees having 15 years of pensionable
    service and they will be entitled for benefits as provided in the scheme.
    The eligibility clause, when read with clauses providing the benefit,
    i.e., clauses 5 and 6 of the scheme, leaves no room for any doubt and
    makes it clear that employees with 15 years of service were treated as
    eligible to claim the benefit of the scheme floated by SBI. It was not
    the provision in the VRS scheme that incumbents having completed
    20 years of service would be entitled for pensionary benefits. The
    scheme was carved out specially for attracting the employees by
    providing pension and other benefits to eligible persons like ex gratia,
    gratuity, pension and leave encashment. Deprivation of pension would
    make them ineligible for the benefits and would run repugnant to the
    eligibility clause.
  78. The submission raised on behalf of the SBI that the draft scheme
    nowhere stipulated that 15 years’ service would be the eligibility or
    that on completion of 15 years’ service, the incumbent would be
    73
    eligible for pension, is factually incorrect. It is apparent from the
    material circumstances, documents, and correspondence that the
    decision was taken at all levels including the one by the Central Board
    of Directors of SBI, that the benefit of pension was to be given to the
    employees on completion of 15 years of service. In that perspective,
    vagueness of scheme of SBI, if any, can be of no advantage as it is
    clear beyond the pale of doubt that pension was heart and soul of the
    scheme with ex gratia on completion of 15 years of service. It is due to
    the reason that the benefit was to be accorded to the incumbents
    having completed 15 years of service, Regulation 28 as applicable to
    other nationalised banks was proposed to be modified as reflected in
    the letter of IBA dated 11.12.2000 and Government of India letter
    dated 5.9.2000. Later on, the regulation was amended in 2002 after
    the scheme had already been implemented in right earnest. There was
    not even an iota of doubt that VRS was to give benefits to all eligible
    employees having completed 15 years of service. It was apparent from
    the letter dated 29.12.2000 of SBI that the guidelines of IBA were
    approved by the Central Board of Directors in its meeting dated
    27.12.2000. Para 2 of the letter dated 29.12.2000 of SBI Deputy
    Managing Director­cum­SDO is extracted hereunder:
    “2. Accordingly, the Central Board of Directors, in its
    meeting held on 27.12.2000, has accorded approval for
    adopting and implementing the Voluntary Retirement
    Scheme for the employees of the Bank, namely “SBI
    74
    Voluntary Retirement Scheme (SBIVRS).” The Scheme
    “SBIVRS” has been drawn up, keeping in view the
    guidelines issued by IBA. A copy of the Scheme is placed
    at Annexure ‘B’.”
    (emphasis supplied)
  79. As noted in O.P. Swarnakar & Ors., (supra), the case of bank
    itself was that it was a contractual scheme. The expression “pension”
    as per rules was only for the purpose of working out the proportionate
    pension. It was clearly decided to open the scheme to employees who
    have put in 15 years of service. It was not provided in the scheme that
    the incumbent was required to render a pensionable service of 20
    years as per the rules in order to acquire eligibility for the pension.
    The submission made on behalf of SBI is too tenuous to be accepted.
    It was observed in para 89 of O.P. Swarnakar & Ors., (supra) quoted
    above that the employee must have proceeded on the basis of 15 years
    of service then they were entitled to pensionary benefits.
    The Court further observed in O.P. Swarnakar & Ors., (supra)
    that the scheme is enforceable thus:
    “92. However, the case of the State Bank of India stands
    slightly on a different footing. Firstly, the State Bank of India
    had not amended the Scheme. It, as noticed hereinbefore, even
    permitted withdrawal of the applications after (sic by) 15th
    February. The Scheme floated by the State Bank of India
    contained a clause (clause 7) laying down the mode and
    manner in which the application for voluntary retirement shall
    be considered. The relevant clause, as referred to hereinbefore,
    creates an enforceable right. In the event the State Bank failed
    to adhere to its preferred policy, the same could have been
    specifically enforced by a court of law. The same would,
    therefore, amount to some consideration.”
    75
  80. While construing a contract, the language and surrounding
    circumstances of the overall scheme, memorandum and letters are to
    be read conjointly to find out whether any departure made by the
    Board of Directors in its Resolution dated 27.12.2000 is of pivotal
    significance. In this case, the decision was taken by it of approval of
    the IBA scheme as proposed. Its binding effect cannot be changed on
    the basis what parties choose to say afterward, nor they can be
    permitted to wriggle out. The contract is required to be read as a
    whole. It is apparent on a bare reading that optees will be eligible for
    proportionate pension under the Pension Regulations of the bank and
    therefore, the bank bears the risk of lack of clarity, if any.
  81. In Bank of India & Anr. v. K. Mohandas & Ors., (2009) 5 SCC 313
    wherein several other banks were also parties, the question arose as to
    the nature of VRS, 2000. The Court noted the objectives, the
    amendment made in Regulation 28 in 2002, providing for 15 years of
    service. The scheme was open in November­December, 2000 and in
    Union Bank of India in January, 2001. The employees claimed that
    those who completed 20 years of service, were entitled to the benefit of
    provisions contained in Regulation 29(5) of Employees’ Pension
    Regulations, 1995 applicable to the said banks. They claimed having
    completed the qualifying service of 20 years under Regulation 29, were
    entitled for 5 years’ increase in the service tenure subject to the
    76
    maximum of 33 years which was not given to them on the ground that
    the benefit of VRS was available to incumbents having completed 15
    years of service as provided in amended Regulation 28, and Regulation
    29 was not applicable. This Court held that the benefit of VRS was
    available to the employees having completed 15 years of service, but
    the additional benefit which was available on completion of 20 years of
    service was also admissible as provided in Regulation 29(5).
  82. While considering the aforesaid similar scheme of VRS, this
    Court observed with respect to the construction of the contract on the
    basis of the import of the words. The intention of the parties must be
    ascertained from the language they have used and considered in the
    light of surrounding circumstances, and the meaning cannot be
    changed by a course of conduct adopted by the parties in acting under
    it. This Court in K. Mohandas (supra) held thus:
    “28. The true construction of a contract must depend upon
    the import of the words used and not upon what the parties
    choose to say afterwards. Nor does subsequent conduct of the
    parties in the performance of the contract affect the true effect
    of the clear and unambiguous words used in the contract. The
    intention of the parties must be ascertained from the language
    they have used, considered in the light of the surrounding
    circumstances and the object of the contract. The nature and
    purpose of the contract is an important guide in ascertaining
    the intention of the parties.
  83. In Ottoman Bank of Nicosia v. Ohanes Chakarian, Lord
    Wright made these weighty observations: (AIR p. 29)
    “… that if the contract is clear and unambiguous, its true
    effect cannot be changed merely by the course of conduct
    adopted by the parties in acting under it.”
    77
  84. In Ganga Saran v. Firm Ram Charan Ram Gopal AIR 1952
    SC 9, a four­Judge Bench of this Court stated: (AIR p. 11, para
    6)
    “6. … Since the true construction of an agreement must
    depend upon the import of the words used and not upon what
    the parties choose to say afterwards, it is unnecessary to refer
    to what the parties have said about it.”
  85. It is also a well­recognised principle of construction of a
    contract that it must be read as a whole in order to ascertain
    the true meaning of its several clauses and the words of each
    clause should be interpreted so as to bring them into harmony
    with the other provisions if that interpretation does no violence
    to the meaning of which they are naturally susceptible. (North
    Eastern Railway Co. v. Lord Hastings, 1900 AC 260)”
  86. With respect to lack of clarity in the scheme, this Court in K.
    Mohandas (supra) relied on maxim verba chartarum fortius accipiuntur
    contra proferentem to hold that banks who were responsible for
    formulation of the terms in the contractual Scheme, bear the risk of
    lack of clarity. Thus, the benefit has to be given to the employees by
    making interpretation against the banks. The Court held :
    “32. The fundamental position is that it is the banks who were
    responsible for formulation of the terms in the contractual
    Scheme that the optees of voluntary retirement under that
    Scheme will be eligible to pension under the Pension
    Regulations, 1995, and, therefore, they bear the risk of lack of
    clarity, if any. It is a well­known principle of construction of a
    contract that if the terms applied by one party are unclear, an
    interpretation against that party is preferred (verba chartarum
    fortius accipiuntur contra proferentem).
  87. What was, in respect of pension, the intention of the banks
    at the time of bringing out VRS 2000? Was it not made
    expressly clear therein that the employees seeking voluntary
    retirement will be eligible for pension as per the Pension
    Regulations? If the intention was not to give pension as
    provided in Regulation 29 and particularly sub­regulation (5)
    thereof, they could have said so in the Scheme itself. After all,
    much thought had gone into the formulation of VRS 2000, and
    78
    it came to be framed after great deliberations. The only
    provision that could have been in mind while providing for
    pension as per the Pension Regulations was Regulation 29.
    Obviously, the employees, too, had the benefit of Regulation
    29(5) in mind when they offered for voluntary retirement as
    admittedly Regulation 28, as was existing at that time, was not
    applicable at all. None of Regulations 30 to 34 was attracted.”
    (emphasis supplied)
  88. In K. Mohandas (supra) the Court considered the argument that
    Regulation 28 would be applicable only for providing 15 years of
    eligibility as provided by way of amendment of Regulation of 1995, and
    held that as the banks are “State” within the meaning of Article 12, it
    would be an arbitrary action on their part to deny the benefit of
    section 29(5), and there has to be harmonious construction to the
    scheme and Pension Regulations, thus:
    “35. We are afraid; it would be unreasonable if amended
    Regulation 28 is made applicable, which had not seen the light
    of the day and which was not the intention of the banks when
    the Scheme was framed. The banks in the present batch of
    appeals are public sector banks and are “State” within the
    meaning of Article 12 of the Constitution and their action even
    in contractual matters has to be reasonable, lest, as observed
    in O.P. Swarnakar (2003) 2 SCC 721, it must attract the wrath
    of Article 14 of the Constitution.
  89. Any interpretation of the terms of VRS 2000, although
    contractual in nature, must meet the test of fairness. It has to
    be construed in a manner that avoids arbitrariness and
    unreasonableness on the part of the public sector banks who
    brought out VRS 2000 with an objective of rightsizing their
    manpower. The banks decided to shed surplus manpower. By
    formulation of the special scheme (VRS 2000), the banks
    intended to achieve their objective of rationalising their force
    as they were overstaffed. The special Scheme was, thus,
    oriented to lure the employees to go in for voluntary
    retirement. In this background, the consideration that was to
    pass between the parties assumes significance and a
    harmonious construction to the Scheme, and the Pension
    Regulations, therefore, has to be given.
    79
  90. The amendment to Regulation 28 can, at best, be said to
    have been intended to cover the employees with 15 years of
    service or more but less than 20 years of service. This
    intention is reflected from the communication dated 5­9­2000
    sent by the Government of India, Ministry of Finance,
    Department of Economic Affairs (Banking Division) to the
    Personnel Advisor, Indian Banks’ Association.”
    (emphasis supplied)
    It opined that the amendment to Regulation 28 of 1995
    Regulation intended to cover 15 years of service, i.e., employees with
    15 years of service who have not completed 20 years of service. A
    similar action to amend the Rule was required to be taken by the SBI,
    but it failed to take it after having floated a similar scheme. It kept it
    uncertain what would be the position of the rule as on the appointed
    date, i.e., 31.3.2001. Be that as it may. But it was crystal clear that
    the incumbent with 15 years of service was eligible for the benefit as
    provided in the scheme itself. The benefit clause has to be read with
    the eligibility criteria. Once VRS was formulated and adopted by the
    SBI in toto, it constituted a complete contractual package in itself.
  91. As urged on behalf of SBI if section 23 of the Contract Act is
    applied, then how it is helpful to the bank, is not understandable. In
    case it is held that the very scheme was opposed to the law/rules, the
    entire scheme would fall down. Once it adopted the scheme, invited
    applications and the employees acted upon it and retired on the basis
    of the scheme, they cannot be left in lurch. In case its submission is
    accepted, the Scheme becomes violative of Section 23 of Contact Act,
    80
    the bank would have to suffer the consequences of striking down of
    the very scheme and would be required to reinstate the employees and
    to pay them the salary and other benefits. However, SBI accepted the
    scheme, it was incumbent upon it to bring the rules in consonance
    with the similar VRS scheme as was done by other banks. The SBI
    accepted the scheme on 27.12.2000 without any ifs and buts. Thus,
    the anomaly was the outcome of the bank’s inaction to propose and
    make amendment of rules. In such a scenario, the action of SBI is
    violative of Articles 14, 16 and 21 of the Constitution. The situation
    created by itself is not going to benefit the bank to lend support to
    arbitrary action. The bank was bound to extend the benefits by
    amending the rules, if necessary, to salvage the situation for itself.
    Breach of law has been committed by the SBI itself, its action is
    arbitrary and it cannot be permitted to take advantage of its own
    wrong.
  92. The pension cannot be dealt with arbitrarily and cannot be
    denied in an unfair manner. The concept of pension was considered
    in D.S. Nakara & Ors. v. Union of India, (1983) 1 SCC 305. The right to
    a pension can be enforced through the court, it observed :
    “20. The antequated notion of pension being a bounty, a
    gratuitous payment depending upon the sweet will or grace of
    the employer not claimable as a right and, therefore, no right
    to pension can be enforced through Court has been swept
    under the carpet by the decision of the Constitution Bench in
    81
    Deokinandan Prasad v. State of Bihar (1971) 2 SCC 330
    wherein this Court authoritatively ruled that pension is a right
    and the payment of it does not depend upon the discretion of
    the Government but is governed by the rules and a
    government servant coming within those rules is entitled to
    claim pension. It was further held that the grant of pension
    does not depend upon anyone’s discretion. It is only for the
    purpose of quantifying the amount having regard to service
    and other allied matters that it may be necessary for the
    authority to pass an order to that effect but the right to receive
    pension flows to the officer not because of any such order but
    by virtue of the rules. This view was reaffirmed in State of
    Punjab v. Iqbal Singh, (1976) 2 SCC 1.
  93. In the course of transformation of society from feudal to
    welfare and as socialistic thinking acquired respectability.
    State obligation to provide security in old age, an escape from
    undeserved want was recognised and as a first step pension
    was treated not only as a reward for past service but with a
    view to helping the employee to avoid destitution in old age.
    The quid pro quo was that when the employee was physically
    and mentally alert, he rendered unto master the best,
    expecting him to look after him in the fall of life. A retirement
    system, therefore, exists solely for the purpose of providing
    benefits. In most of the plans of retirement benefits, everyone
    who qualifies for normal retirement receives the same amount
    (see Retirement Systems for Public Employees by Bleakney, p.
    33).”
    This Court observed that the principal aim of the socialist State
    as envisaged in the Preamble is to eliminate inequality. The basic
    framework of socialism is to provide security in the fall of life to the
    working people and especially provides security from the cradle to the
    grave when employees have rendered service in heydays of life, they
    cannot be destituted in old age, by taking action in an arbitrary
    manner and for omission to complete obligation assured one. Though
    there cannot be estoppel against the law but when a bank had the
    power to amend it, it cannot take shelter of its own inaction and SBI
    82
    ought to have followed the pursuit of other banks and was required to
    act in a similar fair manner having accepted the scheme.
  94. Resultantly, we are of the opinion that the employees who
    completed 15 years of service or more as on cut­off date were entitled
    to proportionate pension under SBI VRS to be computed as per SBI
    Pension Fund Rules. Let the benefits be extended to all such similar
    employees retired under VRS on completion of 15 years of service
    without requiring them to rush to the court. However, considering the
    facts and circumstances, it would not be appropriate to burden the
    bank with interest. Let order be complied with and arrears be paid
    within three months, failing which amount to carry interest at the rate
    of 6 per cent per annum from the date of this order. The appeals are
    accordingly disposed of. No costs.
    …………………………J.
    (Arun Mishra)
    ………………….……..J.
    (M.R. Shah)
    New Delhi; …….…………………..J.
    March 2, 2020. (B.R. Gavai)