The article is written by Soumya Lenka. The article concerns itself with the background of the Ajoy Kumar Banerjee vs. Union of India case, the pertinent facts of the case, the arguments on behalf of petitioners and respondents and the court’s reasoning while delivering the verdict.
Table of Contents
Introduction
The landmark case of Ajoy Kumar Banerjee vs. Union of India (1984) concerns itself with the concept of excessive delegation. Delegated legislation is a peculiar concept of constitutional and administrative law. The impugned verdict removed several ambiguities with regard to the concept and hence served as a watershed case in Indian constitutional law jurisprudence. The case is set in the post-nationalisation era. After the passing of the General Insurance Business (Nationalisation) Act, 1972, the general insurance business in India was nationalised. The case revolves around Section 16 of the General Insurance Business (Nationalisation Act)1972.
The article sheds light on the allegations of the employees of the newly merged insurance company against the unilateral exercise of power by the Central government. It was alleged that using Section 16 of the General Insurance Business Nationalisation Act, the central government tried to change the terms and conditions of the service of the employees going beyond the scope of its powers, which constitutes a clear case of excessive delegation. The article also deals with the contentions of the state and the court’s reasoning in delivering the verdict.
Background of the case
Prior to 1972,106 insurance companies, both Indian and foreign, existed in the Indian market, and it was a very cluttered ecosystem. The General Insurance Business Nationalisation Act was passed in the year 1972 in furtherance of the General Business (Emergency Provisions Act), 1971.
The legislation was intended to facilitate the objective of nationalisation. By the Nationalisation Act, it was intended that the cluttered market of the insurance business in India be decluttered. By decluttering the emerging insurance market, the concentration of the wealth in the few hands will be restrained and this will vindicate the principle of equal distribution of wealth and income.
Hence, the Act provided for the acquisition and transfer of shares of private Indian insurance companies and undertakings for the benefit of the common good r to facilitate proper regulation of the insurance sector of India. Further, the Act was intended to implement the constitutional principle as enshrined under Article 39(c) of the Indian Constitution.
Section 16 of the General Business Nationalisation Act of 1972 provided that the Central Government may pass any notification or frame one or more schemes for the merger of companies and the associated legal incidents for more efficient carrying on of general insurance business.
This may include a scheme for change of the Memorandum of Association as well as the Articles of Association of the acquired company. In pursuance of the power conferred to the Central government in Section 16(1) of the Act, the Central government passed four merger schemes in 1973, and four insurance giants, namely Oriental Fire and General Insurance Company Ltd., National Insurance Company Ltd., New India Assurance Company Ltd., and United India Insurance Company Ltd were merged into one general insurance company and were allowed to carry on their business as a single entity.
The Merger scheme was titled New India Assurance Company Limited (Merger) Scheme, 1973. It was framed as the then Central government was of the opinion that such a scheme would ensure the efficient functioning of the national insurance companies and bringing them under the umbrella of one entity, namely New India Assurance Company Limited, would facilitate the purpose of decluttering of the insurance market that the parent legislation vindicated for.
Facts of Ajoy Kumar Banerjee vs. Union of India (1984)
In the year 1974, the Central government yet again came up with a ‘scheme’ called the General Insurance (Nationalisation and Revision of Pay Scales and other Conditions of Service of Supervisory, Clerical and Subordinate Staff) Scheme 1974. The passing of the said scheme can be marked as the friction point and can be called the initiation of the dispute.
The New scheme envisaged to govern and regulate the terms and conditions of service of the general insurance employees and the pay scales relating thereto. The scheme provided that the new pay scale would remain in continuance till the 31st of December 1976 unless and until expressly modified by any notification, regulation, or scheme of the Central government.
The employees of the newly emerged insurance company were not happy with the pay scales, dearness allowance and several other terms and conditions as per the new scheme. They submitted their grievances to the authorities through their associations to the General Insurance Corporation of India.
They demanded vehemently for a revision of the pay scales, dearness allowances and alterations in other terms and conditions of the scheme. Several negotiations were held between the Unions, Associations, and the authorities, but no outcome was obtained.
The Labour Ministry of the government of India envisaged a conciliation mechanism under the Industrial Disputes Act, 1947 to solve the burning dispute between the management and the employees, stating that there was a failure in the amicable settlement of the employer-employee tussle. But here also, no settlement was reached, and a failure report was forwarded to the Ministry of Labour.
The backstory stretches a bit further. Following the tussle and no amicable solution being reached between the employers and the employees, the Board of Directors of the New Assurance India Limited approved a new promotion policy.
The new promotion policy put forth several changes to the pay scales as well as the terms and conditions of service and was again detested by the employees. Negotiations again took place between the employees and the management, and it was alleged by the employees that the central government is only vested with the power to change or alter or put forth any modifications to the pay scales and terms and conditions of the service of the employees under the General Insurance Act and the company has no authority to do the same.
The employee associations alleged that the company has operated beyond its permissible limits and has transgressed its powers, and hence, the promotion policy is to be struck down. Yet again, negotiations took place and no such significant outcome was achieved.
In 1978, the General Insurance company revised the promotion policy after several rounds of negotiations between the unions and the management. The employees were not satisfied with the revised scheme, and this promotion policy became the locus of the petition.
The revised scheme exacerbated the tussle a bit further. The scheme reduced the age of retirement. The employees who joined the company on or after the 1st of January 1979 would retire at 58 years, and those who had joined before would retire at 60 years of age.
The employee unions were highly unsatisfied with this condition of the revised scheme. Hence, the petitioners, being highly aggrieved by the said notification, moved to the Supreme Court under Article 32 of the Indian Constitution, challenging the notification to be unconstitutional.
Further, the petitioners challenged that the impugned notification is illegal as the Central Government has no power to issue it under Section 16 of the General Insurance Business Nationalisation Act and such as the notification framing the contentious promotion policy scheme is ultra vires Section 16(1) of the General Insurance Business (Nationalisation) Act 1972 and is patently arbitrary and is to be set aside.
Issues raised in Ajoy Kumar Banerjee vs. Union of India (1984)
The main issues with regard to the petition were:
- Whether the Government and the respondents within the contours of law to introduce the 1980 scheme?
- If they have that power, have they exercised it in any arbitrary and whimsical manner to deny to the petitioners any fundamental rights and whether they have been discriminated against?
- Was there any violation of Article 14 and Article 19 of the employees concerning the new alterations to the terms and conditions of the service of the employees?
- Whether the Legislature has the undoubted right to alter a law already promulgated through subsequent legislation or not?
- Whether a special law may be altered, abrogated or repealed by a later general law by an express provision or not?
Arguments of the parties
Petitioners
The petitioners’ contentions can be summarised in a threefold manner-
Firstly, the petitioners contended that once the merger of the insurance companies took place as a consequence of the four merger schemes (forming the New Assurance Company Limited), there could be no further schemes related to alterations in pay scales and other terms and conditions of service of the employees of the newly merged company are concerned.
Such a scheme was not within the powers of the central government as per the General Insurance Business Nationalisation Act, 1972. It was contended that as per Section 16 of the Act, the Central government is only authorised to bring forth schemes which can only concern itself with any reorganisation of the insurance business or any merger or acquisition and nothing more.
But the General Insurance (Nationalisation and Revision of Pay Scales and other Conditions of Service of Supervisory, Clerical and Subordinate Staff) Scheme, 1974 did not deal with any reorganisation, merger or acquisition but rather tried to interfere with other facets which the central government is not empowered under the said Section to deal with. The petitioners contended that the only legally valid scheme under the parent legislation of 1972 is the four merger schemes, as evident from the preamble of the Act.
Secondly, coming to the question of delegated authority, the petitioners contended that under the Banking Regulation Act, 1949 and the Life Insurance Act,1956, there were powers to frame regulations independently of reorganisation, but there were no such powers conferred by the General Insurance Business Nationalisation Act, 1972.
Hence, the 1974 notification from which the whole dispute arises is without the authority of law. Further, the petitioners contended that the scheme under Section 16 or any of its clauses provides for merger acquisition or reorganisation and no other change.
The Central government is nevertheless authorised to change the terms and conditions of service of the employees, but only by giving prior notice to the employees regarding the same under Section 9A of the Industrial Disputes Act, 1947.
The procedure is that after the notice has been served before the employees, there would be negotiations between the employees and the authorities and only after an amicable settlement and after the arrival of a consensus between the employees and the employers can a notification with the proposed negotiated revisions be passed.
So it was contended that the entire procedure has been sidelined, and hence, the central government has erred in passing such a notification, which is patently arbitrary. Further, it was violative of Article 14 of the Indian Constitution as there was no intelligible differentia and reasonable nexus with the proposed change as there seems no plausible reason for altering the age of retirement of the employees .
Further, it was contended that in doing so the state does not even pay heed to the plausible repercussions that the new employees would have to face due to this erroneous and arbitrary notification and hence the change was prima facie discriminatory.
Thirdly, It was further contended that the revised scheme of promotion of the company is patently arbitrary as the same stems from the illegal notification of the government, which is arbitrary. Hence, something that stems from arbitrariness is not sustainable in the eyes of law.
Further, the promotion policy, which changed the retirement age of the similarly situated members without any reason from 60 years to 58 years, is violative of the fundamental principle of equality as envisaged and guaranteed under Article 14 of the Indian Constitution.
It was further contended and argued by the petitioners that the terms and conditions of service, including the pay scales and the dearness allowances, were a result of a bilateral agreement between the employees and the authorities and could not be changed unilaterally by the central government. Article 19(1)(g) of the Indian Constitution professes for freedom of profession, occupation, trade or business and as the employees have not been consulted or their opinion was not taken into consideration before the notification, hence the same stands violative of Article 19(1)(g) of the Indian Constitution.
Respondent
It was contended by the state that the state was well within the contours of law in issuing the 1974 notifications revising the pay scales and the terms and conditions of the service of the employees.
Further, it was contended that the revision of pay scales and the alterations that were made to the terms and conditions of the service of the employees provided some additional benefits to the employees and was to facilitate the employees’ rights.
The respondents, namely, the Union of India as well as the General Insurance Company, contended that in comparison with other employees in governmental sectors, the employees of the general insurance companies get a lucrative salary, and hence, it was quite necessary to put a check on the perks and emoluments of the employees.
Such a reduction in pay scales was in furtherance of the Nationalisation policy. It was contended by the respondents that the employees of these general insurance companies were high-income holders, and it was imperative for the central government to put a check on their lucrative pay scales so as to facilitate a better functioning of the Insurance industry.
Judgment in Ajoy Kumar Banerjee vs. Union of India (1984)
The court, while interpreting Section 16 of the General Insurance Business Act, said that Clause (g) of Section 16 is to be evaluated as it gives powers to the central government to promulgate or pass any scheme for the rationalisation or revision of pay scales or other terms and conditions of the service.
The court carefully went into the intricacies of the interpretative scope of clause (g) of Section 16 of the Act to find out the true scope of the provision. Further, the court went into the interpretative scope of clause (g) of Section 16. Section 16(j) provides powers to the central government to frame a scheme for such incidental, consequential and supplemental matters necessary to give full effect and facilitate the true purpose of the Scheme.
Here, the court exercised judicial powers by interpreting the above two provisions, i.e. section 16 (g) and section 16 (j), in conjunction with section 16 (6) of the Act. Section 16 (6) authorises the central government to, by notification, add, amend or vary any scheme framed under Section 16.
The court, while interpreting the said provision in consonance with the other two, held that the main issue over here is whether the Central government is authorised to frame a scheme like that of 1980 whenever it feels that there is a need for rationalisation and revision of pay scales to facilitate efficiency and change in other terms and conditions of service so as to smoothen the functioning of the government-controlled nationalised insurance business.
Here, the court also took into consideration the fact that Section 16 (1)(g) and Section 16 (1)(j) read with Section 16 (6) nowhere authorises central government to come up with a scheme other than one connected with the merger and acquisition of one insurance company with the other insurance company or formation of one single insurance company by an amalgamation of two or more small insurance entities.
But the central government scheme of 1980 deals with the revision of pay scales, and the alterations that were made in the scheme to the terms and conditions of service had nothing to do with the merger, acquisition, or amalgamation of two or more insurance businesses to facilitate the purpose of nationalisation. Hence, the central government is not authorised to pass such a notification as that of 1980 because that would be beyond the contours of law and would be an abuse of the process of law.
The court held that any particular provision is to be interpreted in a particular way concerning the events that led to its inclusion in the statutes and the backdrop behind its inculcation into the statutory framework in general. The court was of the view that a statute has to be read as a whole and not separately.
Each provision has to be construed in light of the adjoining and associated provisions. The court held that if, on a combined reading of the provisions of a statute, the words are intelligible enough and give a clear and full meaning devoid of irregularity and ambiguity, the judiciary or the legislature is not empowered to interpret the same or cut down its amplitude which would be beyond the scope and objective of the legislation.
The court held that the Preamble and Section 16 have to be read into consonance, and on serious reading, it becomes evident that Section 16 and the powers contained therein are an exercise of the delegated authority by the central government.
The court held that on a combined reading of the Preamble, Section 16, and the power of delegated authority conferred to the central government through the General Insurance Business Nationalisation Act, 1972, the powers of the central government are limited to pass schemes only for the merger or amalgamation of one or more insurance companies with one another to facilitate the purpose of nationalisation and that the power of the delegated authority has a bar on it.
It cannot be exercised by the central government in a manner other than for the purpose of merger or amalgamation of two or more insurance companies, facilitating the purpose of nationalisation. But in the impugned case, the Central government has acted in an erroneous manner outside the scope of the act by passing the 1974 notification as well as the 1980 circular which does not in any way vindicate the purpose of nationalisation and rather tries to alter the pay scales and other terms and conditions of service of the employees.
Hence, the same is devoid of the sanction of law, and hence, the notifications of 1974 and 1980 are legally not valid. Using the delegated authority or power in the manner which led to the 1974 scheme and the 1980 notification would be beyond the state’s authority.
The court held that delegated authority is a peculiar concert of administrative as well as constitutional law. The scheme of 1980, as well as that of 1974, are glaring examples of the use of delegated authority by the legislature. But the interesting part to note is whether the legislature has exceeded its authority or not.
The court held that the unlimited right of delegation is not inherent in the legislature itself. The court held that as there is no unlimited right of delegation on the central government, the government in the impugned case has transgressed the limits of its authority because the scheme of the 1972 Act read as a whole does not confer any power on the government to come up with a scheme for the revision of pay scales or alterations of the terms and conditions of the service of the employees.
The court reiterated that Section 16 of the Act and the provisions provide for the revision of pay scales and the alterations in perks, emoluments and terms and conditions of the service, but when read with the preamble of the act, the whole scheme becomes quite evident that indeed a scheme can be passed for such purpose but only when there has been a merger or amalgamation of two or more insurance companies for the purpose of nationalisation.
So, a scheme for revision of pay scales and other alterations can nevertheless be formulated but subject to the condition that the same can only be passed if the main motive behind such revisions and alterations is to facilitate smooth merger and amalgamation of the companies.
As in the impugned case, there has been no merger and amalgamation, and the central government is not authorised to pass any notification or scheme to give effect to the same. Hence, the 1974 notification as well as the 1980 notification are bad laws and lack legal sanction.
The court asserted the contention of the petitioners that the scheme of the Act of 1972 is not similar to the scheme of the Banking Regulations Act or the Life Insurance Act. The court held that the enactments provided the authority to the central government to frame legislations or regulations independent of the reorganisations.
However, there is no power conferred on the central government by Section 16 of the General Insurance Business (Nationalisation) Act 1972. The scheme to be followed if at all there is a necessity to come up with a scheme or notification for the revision of pay scale or alteration in the terms and conditions of the service conditions of the employees is by taking the procedure envisaged under Section 9 A of the Industrial Disputes Act, 1947.
Section 9 A of the Industrial Disputes Act, 1947 states that if such a scheme is thought of or considered by the legislature, it needs to be communicated to the employees and the unions by a notice, and not only that will suffice. Negotiations have to be carried out between the employee organisations and the authorities, and the employee organisations have to arrive at a consensus with the authorities, and then a revised scheme, bill or notification is to be passed, taking into consideration the negotiated terms and conditions. Then only such a scheme for revision of pay scales and alterations of the terms and conditions of service, emoluments and perks will have legal validity.
Coming to the point of Article 14, Article 19 and the scheme being constitutionally invalid, the court held that it is prima facie unnecessary to delve into the constitutional validity of the scheme of 1980. It held that Article 14 is not absolute, and there are reasonable restrictions to the same.
Hence, the legislature can make a law conferring certain benefits to a few persons or individuals and excluding others, but such a classification needs to be reasonable and not arbitrary and must fulfil a reasonable purpose.
To summarise, the court held that the scheme of 1980 and the 1974 scheme were bad in law as the legislature did not have the legal competence to enact them considering the overall scheme of the 1972 Act and hence are not to be held valid and are to be struck down.
Conclusion
Delegated authority and its powers are limited and have to be interpreted considering the provision of the statute from which such powers get conferred, excessive delegation is not an inherent power of the legislature and also that the legislature that frames a law is in itself bound by the limits that it has set in the law and is barred from going beyond the limits.
The case is a landmark case regarding bringing new insights into the concept of delegated legislation. The case makes a clear statement to the legislature that it has a limit and cannot go beyond the limit of its authority, and gives a great example of the concrete and solid separation of powers that Indian democracy stands on. It makes it evident that an act or a piece of legislation is to be understood and studied considering the background which led to its enactment, and each of its provisions has to be construed in consonance with the other provisions of the statute.
Frequently Asked Questions (FAQs)
The case of Ajoy Kumar Banerjee vs. Union of India concerns itself with which concept of administrative law?
The case revolves around the concept of delegated legislation.
The case is set in the aftermath of which significant event in the Indian Economy?
The case follows the aftermath of Nationalisation.
Which Section of the General Insurance Business Nationalisation Act, 1972, is in question in the impugned case?
Section 16 of the Act, which deals with the powers of the Central government with regard to revision in pay scales and alteration in terms and conditions of the service, has been dealt with in the impugned case.
References
- https://main.sci.govs.in/jonew/judis/9576.pdf
- https://heinonline.org/HOL/LandingPage?handle=hein.journals/calcut135&div=4&id=&page=
- https://mphc.govs.in/ilr/assets/pdf_docs/2008/ILR_April_2008.pdf
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.
