The Chartered Bank, Bombay vs The Chartered Bank Employees' Union

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 14 of 1959

Decision Date: 4 April 1960

Coram: K.N. Wanchoo, P.B. Gajendragadkar, K.C. Das Gupta

The case titled The Chartered Bank, Bombay versus The Chartered Bank Employees’ Union was decided by the Supreme Court of India on 4 April 1960. The judgment was authored by Justice K N Wanchoo, with Justices P B Gajendragadkar and K C Das Gupta forming the bench. The parties were the Chartered Bank, Bombay as the petitioner and the Chartered Bank Employees’ Union as the respondent. The decision is reported in 1960 AIR 919 and 1960 SCR (3) 441 and is cited in later decisions such as R 1963 SC 411, R 1963 SC 601, R 1965 SC 917, APL 1965 SC 1496, R 1966 SC 1672, F 1972 SC 1343, RF 1973 SC 2634, RF 1975 SC 661, and RF 1980 SC 1896. The dispute concerned an industrial matter arising under the All India Industrial Tribunal (Bank Disputes) Award, 1953, particularly paragraphs 521 and 522(1), relating to the withdrawal of a guarantee by the chief cashier for an assistant cashier and the termination of the assistant cashier’s service without an enquiry.

The cash department of the appellant bank operated under a system in which a chief cashier oversaw approximately thirty assistant cashiers. Each assistant cashier was employed only after being introduced and guaranteed by the chief cashier. Established practice required that at the close of each business day, when the cash was locked under the chief cashier’s supervision, all assistant cashiers be present so that the cash could be verified before being secured. Despite repeated reminders, an assistant cashier identified as “C” habitually left the bank without the chief cashier’s permission before the cash was checked and locked. The chief cashier reported C’s conduct to the bank’s management, withdrew his personal guarantee for C, and warned that retaining C would jeopardise the security of the cash department. Consequently, the bank terminated C’s employment pursuant to paragraph 522(1) of the 1953 Bank Award, doing so without conducting any enquiry.

The industrial tribunal that examined the dispute held that the termination was in fact a dismissal for misconduct and that the bank should have followed the disciplinary procedure prescribed in paragraph 521 of the award. The tribunal declared the termination illegal and improper, ordering C’s reinstatement with full back wages and other benefits. The Supreme Court, however, held that the bank’s termination of the assistant cashier’s services was proper. The Court emphasized that an employer cannot dismiss a permanent employee merely by notice and cannot claim that the tribunal lacks jurisdiction over the circumstances of such termination. Even in dismissals, the Court observed, the requirement of bona‑fides on the part of the employer is essential.

The Court explained that when a termination of service is undertaken as a colourable exercise of authority, or when it stems from victimisation or an unfair labour practice, the industrial tribunal has the power to interfere with that termination. It further noted that a termination which is capricious, arbitrary or unduly harsh may serve as strong evidence of victimisation or an unfair labour practice. In the case presently before it, the security of the Bank identified as the “442 Bank” was at issue, and the Court held that if the Bank chose to avoid the dispute between the Chief Cashier and the employee designated as C and instead relied on paragraph 522(1) of the Bank Award to dismiss C, such action could not be characterised as a colourable use of the power conferred by paragraph 522(1). The Court also observed that it is not mandatory for the Bank to apply the disciplinary procedure outlined in paragraph 521 of the Bank Award in every circumstance where misconduct is alleged. This principle was supported by the earlier decision of Buckingham and Carnatic Company Ltd. v. Workers’ of the Company, reported in 1952 L.A.C. 490, which the Court approved. The judgment proceeded under civil appellate jurisdiction in Civil Appeal No. 14 of 1959, filed by special leave against the award dated 21 February 1958 of the Central Government Industrial Tribunal, Nagpur at Bombay, referenced as CGIT No. 12 of 1957. Counsel for the appellant and respondents were instructed, and the judgment was delivered on 4 April 1960 by Justice Wanchoo. The appellant was The Chartered Bank, Bombay, hereafter referred to as the Bank, and the dispute concerned the dismissal of one Colsavala, the respondent, who served as an assistant cashier. The Bank’s cash department operates under a chief cashier who supervises approximately thirty assistant cashiers. The chief cashier must provide security for the cash operations, and consequently each assistant cashier is employed through the chief cashier’s personal guarantee, making the chief cashier solely liable to the Bank for any cash shortages, while no security is demanded from the assistants. Accordingly, a long‑standing practice required that at the close of business, when cash is to be locked under the chief cashier’s supervision, all assistant cashiers be present to verify the cash before it is sealed. Assistant cashiers may depart only after obtaining the chief cashier’s permission prior to the cash being locked. On 4 January 1957, the chief cashier reported to management that the respondent had repeatedly left the Bank without such permission before the cash was checked and locked, despite a departmental circular dated 24 December 1956 reminding all assistant cashiers of the established practice.

On 24 December 1956 the Bank issued a departmental circular reminding assistant cashiers of the established procedure in the bank. The circular specified that no assistant cashier, including the respondent, could leave the premises without the Chief Cashier’s permission before the cash was checked and locked tip. Consequently the Chief Cashier declared that he could no longer guarantee the respondent and warned that unless the respondent’s service was terminated, his conduct would jeopardise the security of the cash department. Because the Bank was unwilling to alter the existing system in the cash department, management resolved to discharge the respondent. The discharge was to be carried out under paragraph 522(1) of the All India Industrial Tribunal (Bank Disputes) Award of March 1953, which the Bank thereafter called the Bank Award. The Bank also stated that it could not find any other department in which to employ the respondent. Accordingly, on 29 March 1957 the Bank notified the respondent that, since the Chief Cashier had withdrawn the guarantee covering his employment, the Bank was unable to continue employing him. The notice complied with the requirements of paragraph 522(1), and the Bank paid the respondent the sum due to him, including retrenchment compensation, before terminating his service. Following this termination, the Bank’s workmen raised a dispute, and the Central Government referred the matter to the Industrial Tribunal. The referral alleged wrongful termination of Shri N. D. Colsavala by the Chartered Bank, Bombay, and sought any relief to which he might be entitled. The respondent contended that he had been employed by the Bank since 1 September 1937, serving honestly and efficiently as an assistant cashier in the cash department. He claimed that the previous Chief Cashier, who was the father of the present Chief Cashier, had become hostile toward him from 1943 because the respondent had demanded his legitimate overtime and leave dues, which the former Chief Cashier refused to grant. The former Chief Cashier refused to grant those dues. The respondent further asserted that his appointment letter did not require him to provide any security or to obtain any guarantee. He also claimed that even if the Chief Cashier had given a guarantee to the Bank, the respondent was neither concerned with nor aware of such a guarantee. According to the respondent, he was not given any opportunity to contest the reasons for the withdrawal of the guarantee by the Chief Cashier, nor was he asked to provide security or a fidelity bond, even if the guarantee had been withdrawn. The respondent therefore maintained that the discharge on the grounds asserted by the Bank was entirely illegal, wrongful, and unjustified. He claimed that he was entitled either to reinstatement or, in the alternative, to full compensation for the loss of his employment. The Bank, for its part, argued that it was entitled to terminate the respondent’s service under paragraph 522(1) of the Bank Award. It further contended that it was not required to state the reasons for such termination, and that those reasons were beyond the tribunal’s inquiry.

In the present dispute the Bank argued that the Tribunal should not be permitted to examine the reasons for the respondent’s termination because the Bank had relied on paragraph 522(1) of the Bank Award, which it said allowed termination without the need to state causes, and that such reasons were not subject to inquiry by the Tribunal. The Bank further asserted that the respondent was not dismissed as a punishment for misconduct; rather, his service was terminated under paragraph 522(1) because the Chief Cashier had withdrawn the guarantee that had underpinned his employment, making it impossible for the Bank to continue employing him. The Bank added that it was not required to transfer the respondent to another department and, even if it wished, the respondent’s training, experience, ability and service record did not qualify him for work in any other department of the Bank.

The Tribunal, however, held that the use of the procedure set out in paragraph 522(1) – which provides for termination “in cases not involving disciplinary action for misconduct” by giving three months’ notice or payment in lieu of notice – did not bar the Tribunal from investigating the reasons for the termination or from assessing the legality and propriety of the Bank’s action. The Tribunal clarified that paragraph 522(1) does not give the Bank an unfettered power to dismiss a permanent employee at will, and that the Tribunal remains free to examine the bona fides and justifiability of the dismissal. Upon reviewing the circumstances surrounding the respondent’s termination, the Tribunal concluded that, in reality, the dismissal amounted to a termination for misconduct. Specifically, the Tribunal found that the respondent had repeatedly disobeyed the Chief Cashier’s orders by leaving the Bank without prior permission before the cash had been checked and reconciled, constituting insubordination and persistent disobedience. Because the Bank failed to follow the disciplinary procedure prescribed in paragraph 521 of the Bank Award before terminating the respondent’s service, the Tribunal declared the dismissal illegal and improper. Consequently, the Tribunal ordered that the respondent be reinstated with full back wages and all other benefits to which he was entitled.

The Bank challenged this order before the Supreme Court, arguing principally that the Tribunal’s view – that any instance of misconduct mandates disciplinary action under paragraph 521 and therefore renders paragraph 522(1) redundant – was erroneous. The Bank further contended that, given the unique arrangement in the cash department where the Chief Cashier personally guarantees all assistant cashiers, the Bank did not wish to become involved in the dispute between the Chief Cashier and the respondent. After the guarantee was withdrawn, the Bank acted under paragraph 522(1) without assigning blame to either party. The Bank maintained that paragraph 522(1) was expressly intended to address situations of this nature that may arise within a banking concern.

In the present dispute, the Bank chose not to involve itself in the quarrel between the Chief Cashier and the respondent. Because the Chief Cashier had withdrawn his guarantee with respect to the respondent, the Bank decided to act under paragraph 522(1) of the Bank Award without assigning blame to either party. It was submitted that paragraph 522(1) of the Bank Award is intended specifically to address situations such as the one that may arise in a banking concern. Consequently, the primary issue for determination was the extent of the Bank’s authority to act under paragraph 522(1), especially given the unusual circumstances prevailing in the Bank’s cash department. Chapter XXI of the Bank Award examined the arrangements applicable to cash departments of banks concerning the provision of security. Paragraphs 417 and 418 of that chapter summarise the prevailing practices in different banks and identify three possible arrangements: (i) each individual staff member provides security personally; (ii) the chief cashier furnishes a guarantee covering all cashiers employed under his supervision; and (iii) where a treasurer system is in operation, the treasurer signs a contract with the bank, recommends individuals for cash‑department employment, and assures their fidelity, after which the bank formally appoints them. The tribunal erred in concluding that the system in operation at the Bank was unique to that institution and was omitted from the Bank Award. It is clear that the Bank follows the second type of arrangement identified in the Bank Award, namely that the Chief Cashier provides a guarantee for all employees who work under his direction. The Bank Award also observes that, in general, a Chief Cashier may collect security deposits from his subordinate staff; however, this is not an absolute requirement, and in the present Bank the Chief Cashier does not, in fact, collect any security from his subordinates. Under this arrangement the Bank relies upon the security furnished by the Chief Cashier and his personal guarantee concerning the conduct of the employees under his supervision. It is untenable to suggest that the respondent was unaware of this mode of operation. The Bank submitted the respondent’s employment application, which was addressed directly to the Chief Cashier rather than to the Bank’s general management; this fact supports the Bank’s argument that cash‑department personnel are appointed on the Chief Cashier’s recommendation and under his guarantee. Moreover, the Bank’s assertion that no cash‑department employee departs the premises without prior permission until the cash has been verified and secured does not appear doubtful, as such a practice is essential to preserving the security of the cash department. Consequently, when the Bank received the Chief Cashier’s report dated 4 January 1957, it was required to determine, given the particular circumstances of the case, the appropriate course of action to be taken.

In the circumstances presented by the Chief Cashier’s report dated 4‑1‑1957, the Bank faced two alternative courses of action. It could have instituted disciplinary proceedings against the respondent under paragraph 521 of the Bank Award, or it could have proceeded under paragraph 522(1) of the same award. The Bank contended that it preferred not to become embroiled in the dispute between the Chief Cashier and the respondent; consequently, when the Chief Cashier withdrew his personal guarantee for the respondent, the Bank asserted that it acted in good faith by invoking paragraph 522(1) and therefore did not need to resort to disciplinary action under paragraph 521. The Court noted, however, that an employer cannot simply dismiss a permanent employee by giving notice and then claim that an industrial tribunal lacks jurisdiction to examine the circumstances of such termination. Numerous standing orders contain provisions that are analogous to paragraph 522(1), and the breadth of an employer’s power under such clauses has been the subject of frequent scrutiny by labour tribunals. In the case of Buckingham and Carnatic Company Ltd. v. Workers of the Company, the Labour Appellate Tribunal considered a dismissal effected by notice or by payment of wages in lieu of notice without assigning any reason. The Tribunal held that even in such cases the requirement of bona‑fides is indispensable; if the termination is a colourable use of the power, or if it stems from victimisation or an unfair labour practice, the tribunal possesses jurisdiction to intervene and to set aside the dismissal. Moreover, the Tribunal observed that a termination which is capricious, arbitrary, or unduly harsh when measured against the normal standards of a reasonable person may constitute evidence of victimisation or unfair practice. The present opinion adopts this view, affirming that the tribunal may interfere when service is terminated simpliciter under a contract, a standing order, or an award such as the Bank Award. To reach such a conclusion, the tribunal must examine all of the circumstances that led to the termination, and the employer cannot refuse to disclose those circumstances. The form of the termination order, by itself, does not determine the true nature of the dismissal; it may merely serve as a façade for a dismissal on grounds of misconduct. Accordingly, the tribunal is always free to look beyond the formal wording and assess the substantive reality. If, for example, the tribunal concludes that an order appearing on its face to be a termination simpliciter actually conceals a dismissal for misconduct, it may set aside the order as a colourable exercise of power. Applying these principles, the Court proceeded to evaluate the Bank’s action in the present case.

In order to resolve the dispute, the Court first examined the action taken by the Bank against the respondent. The claim filed by the workmen did not contain any allegation of victimisation or of an unfair labour practice. Subsequently, the respondent submitted an affidavit to the tribunal in which he asserted that the Bank had acted with malice in removing him from service. However, that affidavit failed to explain how the Bank’s management, as distinct from the Chief Cashier, possessed any reason to act maliciously toward the respondent. Moreover, the tribunal’s record did not contain any finding that the Bank’s decision to terminate the respondent’s service was made in bad faith, amounted to an unfair labour practice, or constituted victimisation. Despite the absence of such findings, the tribunal ordered reinstatement on the ground that a disciplinary proceeding should have been instituted and that this step had not been taken. In one portion of its award, the tribunal observed that, had it been established that the Bank had employed a colourable exercise of power to make the order under paragraph 522(1) of the Bank Award, such an order would not be sustainable. Yet the tribunal made no specific finding that the action in the present case was a colourable exercise of the power under paragraph 522(1). The respondent, however, argued that, even without an explicit finding, the overall tenor of the award indicated that the tribunal considered the Bank’s action to be colourable, as it emphasized that disciplinary action should have been taken. The Court, in reading the award, understood that the tribunal’s view was that whenever an allegation potentially constituting misconduct is made against a bank employee, the procedure prescribed by paragraph 521 must invariably be followed, and that paragraph 522(1) could never be invoked; consequently, the tribunal refrained from concluding that the Bank’s action was a colourable exercise of the power under paragraph 522(1). Counsel for the respondents nevertheless maintained before the Court that the Bank’s action was, in any event, a colourable exercise of the power under paragraph 522(1), prompting the Court to examine that issue itself. The Court accepted that there was indeed some allegation made by the Chief Cashier that might amount to misconduct. If the Court were satisfied that the respondent’s termination was genuinely predicated on that misconduct and that the form of the order merely served to circumvent a proper enquiry under paragraph 521, then there would be no basis for interfering with the tribunal’s order. Nevertheless, the Court noted that this case was unusual because it arose within a distinctive system operating in the cash department of the Bank, a system that gave the Chief Cashier unconditional responsibility for the department’s security and for any loss that might occur, thereby rendering the matter particularly complex.

In this case the Court explained that the Chief Cashier of the Bank provided security for the entire operation of the cash department and accepted unconditional responsibility for any loss that might occur in that department. The Court noted that appointments in the cash department were made on the recommendation of the Chief Cashier, and that the Chief Cashier gave a personal guarantee for each employee and was unconditionally liable to the Bank for any shortage that might arise. The Court recorded that the Bank subsequently received a report from the Chief Cashier in which the Chief Cashier withdrew his guarantee with respect to the respondent, and that this withdrawal affected the security of the cash department. The Court observed that, faced with that report, the Bank chose not to become involved in the dispute between the Chief Cashier and the respondent and instead invoked paragraph 522(1) of the Bank Award to terminate the respondent’s service. The Court held that this action could not be described as a colourable exercise of the power under paragraph 522(1). The Court reasoned that the Bank may have honestly concluded that, because it could not alter the cash‑department system, it had no alternative but to dispense with the respondent’s employment under paragraph 522(1) without examining the merits of the conflict between the Chief Cashier and the respondent. In the unusual circumstances of the cash department, the Court stated that the use of the power under paragraph 522(1) was therefore not colourable. The Court further observed that the Bank’s failure to offer the respondent alternative employment did not lead to a finding of colourable use of power, because the Bank could legitimately claim that, as a specialised institution, it was unable to place an employee who had worked in the same department for twenty years into a different department. Accordingly, the Court concluded that the termination of the respondent’s service was not a colourable exercise of the power under paragraph 522(1). The Court added that the reference in the discharge notice to the withdrawal of the Chief Cashier’s guarantee did not alter the character of the termination, since the purpose of that reference was merely to avoid the appearance that the termination was wholly capricious or arbitrary, and not to show that it was made in good faith. Consequently, the Court allowed the appeal, set aside the tribunal’s order that had reinstated the respondent with full back wages and other benefits, and declined to award any costs. The appeal was therefore allowed.