Jabalpur Electric Supply Co vs Sambhu Prasad Srivastava and Others

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 432 of 1961

Decision Date: 27 July, 1962

Coram: K.C. Das Gupta, P.B. Gajendragadkar, J.R. Mudholkar

In the matter titled Jabalpur Electric Supply Co. versus Sambhu Prasad Srivastava and Others, the decision was rendered on 27 July 1962 by a Bench consisting of Justice K. C. Das Gupta, Justice P. B. Gajendragadkar and Justice J. R. Mudholkar of the Supreme Court of India. The case was cited as 1966 AIR 1288 and 1963 SCR (3) 453. The issue addressed concerned the validity of the delegation by an industrial company of disciplinary powers, specifically the powers to appoint, dismiss, suspend or otherwise terminate the services of employees, as provided in clauses 19 and 20 of the company’s Standing Orders. The appellant, Jabalpur Electric Supply Co., maintained its head office in Calcutta and generated electricity for distribution in the city of Jabalpur. By clause 10 of a power of attorney dated 26 June 1957, the company authorised its Resident Engineer at Jabalpur to act on its behalf, subject to the Standing Orders then in force, with the authority to appoint, dismiss, suspend or terminate any employee of the company at the Jabalpur location.

The dispute arose when the respondent, Sambhu Prasad Srivastava, was charge‑sheeted and, after an inquiry conducted by the Resident Engineer, was discharged from the proceedings. The respondent then applied to the Assistant Labour Commissioner, who ordered his reinstatement without any break in service and directed that back wages not be paid. Both parties appealed this order before the State Industrial Court. The Court, on revision applications filed by the appellant and the respondent, held that the Resident Engineer lacked the authority to conduct the inquiry and to issue a discharge order, and therefore declined to interfere with the Assistant Labour Commissioner’s decision. Both parties subsequently filed writ petitions under Article 226 of the Constitution before the Madhya Pradesh High Court. The High Court opined that the powers of dismissal and suspension contained in clause 19 of the Standing Orders, and the general right to discharge an employee contained in clause 20, had not been properly delegated to the Resident Engineer, and consequently allowed the respondent’s claim for back wages. On appeal, the Supreme Court observed that the delegation of power effected by the power of attorney was valid under law and encompassed both the powers specified in clause 19 and clause 20 of the Standing Orders. The Court found no statutory or Articles of Association restriction prohibiting such delegation, and concluded that the company could lawfully delegate these powers to meet the exigencies of its business. The opening words of clause 10 of the power of attorney did not preclude the delegate from exercising the powers, provided that the delegate did not exceed the authority that the company itself possessed under the Standing Orders. The judgment was entered as Civil Appeal No. 432 of 1961, an appeal by special leave from the High Court judgment dated 15 May 1959 in Miscellaneous Petition Nos. 301 of 1958 and 83 of 1959. Counsel for the appellant and respondents were designated accordingly, and the judgment was delivered on 27 July 1962.

Delivered by Justice Das Gupta, the judgment first identified the central issue of the appeal as whether, under a company’s Standing Orders that empower the company to take disciplinary action against an employee in the manner prescribed, that power may be lawfully delegated to any of the company’s officers. The appellant was a company incorporated under the Indian Companies Act, with its registered office at 12, Mission Row, Calcutta, and it was engaged in the generation and distribution of electricity at Jabalpur. The company’s Jabalpur operations were supervised by a Resident Engineer. By a power of attorney dated 26 June 1957, the appellant company appointed Mr. Leonard Shell Macleod, who was the Resident Engineer at Jabalpur, as “the company’s true and lawful attorney for and in the name of the Company to do, exercise and perform all or any of the acts, matters, discretions and things” set out in eleven clauses. Clause ten of that instrument stipulated that, “subject to the Standing Orders from time to time given by the Company, to appoint, dismiss, suspend or terminate the services of any of the employees of the Company at Jabalpur.” On 12 November 1957, respondent Sambhu Prasad Srivastava was served with a charge‑sheet signed by Mr. Macleod, alleging that he had replaced thirteen coils of V.I.R. cable in the company’s stores with an equal number of coils of the same type obtained from the local market. Srivastava replied that, when the shortage of the thirteen coils became apparent on the eve of the audit, he had protested to his subordinates who handled those articles, and he maintained that his actions were intended to serve the best interests of the company and were free of any dishonest intention. An enquiry was subsequently conducted by the Resident Engineer, and on 16 January 1958 the Resident Engineer issued a letter to Srivastava stating, in essence, that after careful consideration of the charge‑sheet dated 12 November 1957 and the investigations that followed, and after an interview with the company’s Chief Engineer, Mr J. W. Fawcett, on the morning of 15 January 1958, the company found it necessary to terminate Srivastava’s services. The letter informed him that his employment was discharged with immediate effect and that he should appear at the company’s office on 17 January to receive the final settlement of his dues. Srivastava then applied to the Assistant Labour Commissioner of Jabalpur, alleging that the order contravened the provisions of the C. P. & Berar Industrial Tribunal Settlement Act and the company’s Standing Orders, on the ground that the authority to hold an enquiry under the Standing Orders was vested solely in the Managing Director. He further contended that, although the order was framed as a discharge, it effectively amounted to a dismissal, and that clauses fourteen, eighteen, nineteen and twenty of the Standing Orders had been violated.

In this case the employee argued that the notice issued by the Company, which was labeled as an order for discharge, was in reality an order of dismissal and that clauses fourteen, eighteen, nineteen and twenty of the Standing Orders had been breached. The Company, in its reply, contended that the Resident Engineer possessed authority under a power of attorney to conduct an enquiry and to take disciplinary action against an employee, and that any action taken by the Resident Engineer should be regarded legally as an action of the Company itself. The Company further asserted that none of the provisions of the Standing Orders had been violated. The Assistant Labour Commissioner, on 10 September 1958, issued an order directing the reinstatement of the employee without any interruption in his service, but he refused to award back wages. The State Industrial Court, hearing applications from both the Company and the employee, held that the discharge notice was, in substance, a dismissal order; it observed that the alleged misconduct had not been proved and concluded that the Resident Engineer lacked the authority to hold an enquiry and to issue a discharge order. The Court declined to disturb the order of the Assistant Labour Commissioner and dismissed both revisional applications. Subsequently both parties approached the Madhya Pradesh High Court seeking relief under article 226 of the Constitution. The High Court ruled that the powers granted by clause nineteen of the Standing Orders could not be delegated to the Resident Engineer, and it further held that the general right reserved to the Company under clause twenty was intended to be exercised directly by the Company and was not covered by the delegation contained in clause ten of the power of attorney. The Court also considered that the order issued by the Resident Engineer was not made under clause twenty of the Standing Orders. Consequently, the High Court refused to set aside the reinstatement order, dismissed the Company’s application under article 226, and allowed the employee’s application, concluding that the Assistant Labour Commissioner possessed no discretion regarding the award of back wages and was obliged to order payment of back wages once reinstatement was ordered. Before addressing whether the Company could delegate its disciplinary powers, the Court found it necessary to determine whether the order in question was issued under clause nineteen or clause twenty of the Standing Orders. Clause eighteen defines offenses such as theft, fraud or dishonesty in connection with the Company’s business or property as misconduct. Clause nineteen prescribes the penalties for misconduct, stating that an employee who, after examination of the employee and the facts, is found guilty of misconduct may be summarily dismissed without notice or compensation, or may be suspended for a period not exceeding fourteen days; any dismissal or suspension order must be in writing, signed by an officer duly authorised for that purpose, must briefly state the reasons for the order, and must be preceded by a written notice to the employee describing the alleged misconduct and giving the employee an opportunity to present evidence in his defence. Clause twenty, in contrast, does not address dismissal or suspension but provides that the Company retains a general right to discharge an employee not only for proven misconduct but also when the employer has lost confidence in the employee.

The order for dismissal or suspension under the Standing Orders had to be signed by an officer duly authorized for that purpose and had to state briefly the reason on which it was based. The Court emphasized that no order of dismissal or suspension could be made unless the employee was informed in writing of the misconduct alleged against him and was given an opportunity to produce evidence in his defence. Clause 20, unlike Clause 19, did not deal with dismissal or suspension; instead it provided that “the Company has at all times a general right to discharge an employee from service not only for proved misconduct but also when the employer has lost confidence in the employee.” Clause 21 dealt with the requirement to give a notice of censure for certain acts or omissions. An examination of these provisions showed that an order of dismissal under Clause 19 required a special procedure and, once made, the employee was not entitled to any compensation. The Court then turned to the order dated 16 January 1958. Although the order did not expressly mention Clause 20, it did not state that the employee had been found guilty of misconduct. Rather, it declared that “the Company does not find it possible to retain (this employee’s) services” and referred to investigations in the case against him and to an interview he had with the chief Engineer, Mr J W Fawcett, on the morning of 15 January 1958. The Court held that the only reasonable interpretation of this order was that it was made under Clause 20 on the ground that the employer had lost confidence in the employee, and that it was, in fact and in law, an order of discharge distinct from an order of dismissal or suspension. The Court observed that the Resident Engineer who conducted the enquiry may have been satisfied that an act of misconduct for which dismissal could have been imposed had been proved, but that, taking into account the employee’s previously clean record, the Engineer chose a merciful approach and acted under Clause 20 of the Standing Orders instead of proceeding under Clause 19. The Court therefore found that the employer had acted fairly and even generously in terminating the employee’s service under Clause 20. The remaining issue was whether the Resident Engineer possessed the authority to act under Clause 20. The employee’s argument, which the High Court had accepted, was that only the Company itself could take action under Clause 20 and that the Resident Engineer, in his capacity as Resident Engineer, was not competent to do so. The Court noted that Clause 20 empowered the Company, not the Resident Engineer per se, to discharge an employee on the ground of lost confidence. However, in the present case the order of discharge was not made by the Resident Engineer in his official capacity as Resident Engineer; consequently, the Court concluded that the order was not invalid on that ground.

In making the order of discharge, the Resident Engineer acted under a power of attorney that had been executed in his favour on June 26, 1957. Clause 10 of that power of attorney conferred upon him the authority “subject to the Standing Orders from time to time given by the Company to appoint, dismiss, suspend or terminate the services of any of the employees of the Company at Jabalpur.” Both the Company’s power under element 19 of the Standing Orders to dismiss or suspend an employee and its power under element 20 to discharge an employee were expressly encompassed within clause 10 of the power of attorney. Consequently, if there existed no legal prohibition against delegating those powers to the Resident Engineer, the exercise of clause 20 in the present case by the Resident Engineer would, in law, be equivalent to an exercise of that power by the Company itself. The Court found no such legal bar to delegation.

The Court observed that when a Company must exercise its managerial powers, it is not required that all shareholders convene to do so; instead, the manner in which the Company regulates its business is dictated by its Articles of Association. It was acknowledged that the Articles of Association of the Jabalpur Electric Supply Co. contain no provision preventing the delegation of the Company’s disciplinary powers to any of its officers. Accordingly, under law, the Company may delegate its functions in accordance with the practical necessities of the business and the provisions of its Articles. Given that the Company’s head office was situated in Calcutta while the principal business operations were conducted in Jabalpur, the Court found that the business exigencies justified delegating the Company’s power to take disciplinary action against its employees to a responsible official such as the Resident Engineer. Whether the Company might have operated without such delegation was deemed irrelevant to the present dispute. The delegation had been effected, and, on neither a principled nor statutory basis, could it be said to contravene any legal provision. Moreover, the phrase “subject to the Standing Orders from time to time given by the Company” that introduces clause 10 does not invalidate the delegation; rather, it merely limits the delegate to exercising only those powers that the Company itself may exercise under the Standing Orders. No reasonable interpretation of those words can suggest that the delegate is barred from exercising the powers altogether, because the Standing Orders expressly grant those powers to the Company itself.

In this case the Court observed that the delegate was authorised to take action under clause 19 or clause 20 of the Standing Orders, and that the delegate could exercise those powers under clause 10 of the power of attorney in exactly the same manner as the Company itself could. Accordingly, the Court held that the order of discharge issued by the Resident Engineer was made pursuant to a power that had been validly delegated to him. The Court further found that no breach of the Standing Orders occurred as a result of that discharge. On this basis the Court disagreed with the findings of the High Court and the lower courts.

The Court therefore allowed the appeal, set aside the order passed by the High Court and directed that the appellant’s application under article 226 of the Constitution be allowed. The Court also set aside the order dated 10 September 1958 made by the Assistant Labour Commissioner, which had ordered the reinstatement of the respondent, Sambhu Prasad Srivastava. No costs were awarded to either party. The appeal was consequently allowed.