State Bank of India v. Edirisinghe and others
STATE BANK OF INDIAV.EDIRISINGHE AND OTHERSSUPREME COURTRANASINGHE, C.J.,
G.P.S. DE. SILVA, J.,
SC. APPEAL NO. 36/87SC.SPL. LA NO. 19/87CA APPLICATION NO. 1070/80MARCH 04, 05 AND 07, 1991.
Industrial Dispute – Writ of certiorari – Award of Arbitrator made on reference undersection 4(1) of Industrial Disputes Act – Award of pension – Gratuity – Encashment ofleave – Revision of salary – Power of Arbitrator.
The 3rd Respondent was employed by the Appellant-Bank as an Accountant andresigned with effect from 1.5.75. After his resignation he claimed:
A monthly pension for life of Rs. 1015/-;
Encashment of unutilised leaves;
Revision of salary and allowances with effect from 1.1.70 in terms of Staff CircularNo. 15 of 31.3.75.
The Minister of Labour referred these cfisputes to arbitration by the 1st respondentunder section 4(1) of the Industrial Disputes Act. The 1st respondent on 5.6.81awaded;
A pension at Rs. 1000/- per month with effect from 1.5.1979;
In the event of the award of pension being held to be unlawful;
Gratuity in a sum of Rs. 26,390/-
A sum of Rs. 16,800/- as 'encashment of leave'
A sum of Rs. 24,805/- as ‘revision of salary and allowances.'
The Bank applied for a Writ of Certiorari to quash the award to the Court ofAppeal.The Court of Appeal affirmed the award of the pension but quashed the awardsrespecting encashment of leave and revision of salary and allowances.
The Bank appealed to the Supreme Court and the 3rd respondent also filed a cross-appeal respectively against the orders of the Supreme Court.
The main contention is that an arbitrator's discretionary power to make a just andequitable order is circumscribed by the terms of employment unlike the powers of aPresident of the Labour Tribunal, the arbitrator not being appointed by the JucKdalService Commission.
Sri Lanka Law Reports
(1991) 1 Sri LR.
(Ranasinghe CJ and Ramanathan J dissenting) The award of pension was justand equitable and should stand.
(Unanimously) The quashing of the awards respecting encashment of leave andrevision of salaiy and allowances should stand.
Per Tambiah J:
“An Industrial Arbitrator is not tied down and fettered by the terms of contract ofemployment between the employer and the workman. He can create new rightsand introduce new obligatories between the parties*.
“The effect of the award is to introduce terms which become implied terms ofthe contract.
The Industrial Arbitrator creates a new contract for the future, a Judge enforcesthe rights and liabilities arising out of an existing contract An Industrial Arbitratorsettles disputes by dictating new conditions of employment to come into force inthe future when he cannot get the parties to agree on them; a Judge determinesthe existing rights and liabilities of the parties.
Cases referred to:
United Workers Union V. Devanayagam 69 NLR 289, 296.
Ceylon Bank Employees Union V. Yatawara 64 NLR 49, 63
Hayleys Ltd. V. De Silva 64 NLR 130
Hayleys Ltd. V. Crossette Tambiah 69 NLR 248
Walker Sons & Co. Ltd. V. Fry and others 68 NLR 73.
Waterside Workers' Federation of Australia V. J.E. Alexander Ltd. (1918) 25 CLR462, 463.
Federated Saw Mill V. James Moore & Son Proprietary Ud. (1909) 8 CLR 521
Brown & Co. V. Ratnayake & 3 others Bar Association Law Journal Vol. 1, PV1p. 230, 231, 232
Thirunavakarasu V. Siriwardena & Others 1981, SULR 186, 191, 193
Peiris V. Podisingho 78 CLW 46, 48
Heath & Co. (Ceylon) Ltd. V. Kariyawasam 71 NLR 382.
Lewis Brown & Co. Ltd. V. Periyapperuma 81 CLW 30, 32
APPEAL from Judgement of the Court of Appeal in application for writ of certiorari.
K.N. Choksy, P.C. with Ronald Perera and Brito Muthunayagam for the appellant
H.L. De Silva P.C. with M. Bastiansz, Mrs. Premila Seneviratne, P.M. Ratnawardena
and Janaka Siva for the respondents.
Cur. adv. vult
CAState Bank of India v. Edirisinghe and others (Ranasinghe, C.J.,)399
o3 May 1991RANASINGHE, C.J.,
The Appellant-Bank is a branch of the State Bank of India and carrieson its business of banking in Colombo, Sri Lanka.
The 3rd Respondent had been employed by the Appellant-Bank, asan Accountant, until his resignation with effect from 1.5.75.
After his resignation from the Appellant-Bank the 3rd Respondent filedan application, in terms of provisions of the Industrial Disputes Act,claiming: that he be paid a monthly pension of Rs. 1015/- for life witheffect from 1.5.75; that he be paid in respect of the leave which hewas entitled to but which he had not utilised during the period ofemployment under the Appellant-Bank: that he was entitled to arevision of salary and allowances with effect from 1.1.70 in terms ofthe Staff Circular No. 15 of 31.3.1975.
The aforesaid matters in dispute between the Appellant-Bank and the3rd Respondent, were then referred to the 1st Respondent by theMinister of Labour by virtue of the powers vested in him under theprovisions of section 4(1) of the Industrial Disputes Act, for arbitration.
After inquiry the 1st Respondent made his Award, dated 5th June1981, directing that the 3rd Respondent be paid: a pension at the rateof Rs. 1000/- per month for life with effect from 1.5.79, and that, infoe event of such Award for pension being subsequently held to bewrongful by a higher tribunal, he be paid a gratuity of Rs. 26,390/-: asum of Rs. 16,800/- on account of "encashment of leave": a sum ofRs. 24,805/- on account of "Revision of salary and allowances."
The Appellant-Bank thereupon applied to foe Court of Appeal for awrit of certiorari to quash foe said Award made by foe 1st Respondent.The Court of Appeal, by its judgment dated 30.1.87, held that foeaward of a pension for life in a sum of Rs. 1000/- was just andequitable, but that foe award of a sum of Rs. 16,800/- under foe head"encashment of leave" and the award of a sum of Rs. 24,805/- onaccount of revision of salary and allowances could not besubstantiated. Therefore, whilst refusing a writ to quash foe Awardrelating to foe pension, foe Court of Appeal issued a writ of certiorariquashing foe Award in respect of foe other two items of payments.
Sri Lanka Law Reports
The Appellant-Bank has now appealed to this Court – to have thejudgment of the Court of Appeal awarding the said pension set aside.The 3rd Respondent has also filed an appeal • S.C. Appeal No. 37of 1387 – against the said judgment of the Court of Appeal settingaside the Order of the Arbitrator awarding the two aforesaid sums ofmoney as encashment of leave and revision of salary.
After the said appeal was filed, this matter was, upon an applicationmade by learned Counsel for the Appellant-Bank directed, in termsof the provisions of Article 132(3) (iii), to be heard by a Bench ofseven judges as it was submitted that the contention of the Appellant-Bank — that the 1st Respondent has, in making a monetary award,exercised a power which is considered "a traditional exercise of judicialpower' that such judicial power could be exercised only by an officerappointed by the Judicial Service Commission: that the 1stRespondent, not having been so appointed by the Judicial ServiceCommission, has thus acted in excess of his jurisdiction — requiresa re-consideration of the correctness of the majority Judgment of thePrivy Council in the case of United Workers Union Vs. Devanayagam,(1).
When this matter was being argued before this Court, learnedPresident's Counsel for the Appellant-Bank did however, indicate tothis Court that he was not pressing the submission that an Arbitrator,contemplated by the provisions of the Industrial Disputes Act, is anofficer who is required to be appointed by the Judicial ServiceCommission. Even so, this Court, as presently constituted, proceededwith the hearing of this appeal as what has been directed to be heardby this Bench is the entirety of the appeal of the Appellant-Bank, andnot a particular question of law only.
The main contention of learned President's Counsel for the Appellant-Bank is that the Arbitrator's discretion in regard to the making of ajust and equitable order, is circumscribed by the terms of employment,that the Arbitrator cannot make an order which is contrary to the termsof employment that such power is granted only to a President of aLabour Tribunal, who has expressly been given the power, under theprovisions of section 31(B)(4) to grant relief or redress which is evencontrary to the terms of any contract of service between the employeeand his employer that, in any event, the grant of a pension in thecircumstances of this case, having regard to the provisions of thePension Rules, B4, is not "a just and equitable* order.
State Bank of India v. Edirisinghe and others (Ranasinghe, C.J..)
Even though Rule 38 of the Rules governing the service of officersof the Appellant-Bank, 'R8‘ provides that the compulsory age ofretirement be fifty five, yet according to *R1* a local employee whohas completed twenty five years of service under the Appellant-Bankwould become "entitled to a pension." Such pension, however, will"accrue" only upon the retirement of such employee. Retirement whichwill result in such accrual is dependent upon such retirement beingsanctioned by the Appellant-Bank. It was in the background of theseprovisions in the Pension Rules ‘R1‘ that the 3rd respondent hadwritten the letters A14 and A15, dated 30.3.75 and 2.4.75 respectively,requesting that he be allowed to retire or, in the alternative, be treatedas having resigned with effect from 1.5.75. The Appallent-Bank's replyA16, dated 30.4.75, advising the 3rd Respondent of the acceptanceof the 3rd Respondent's resignation amounts to a refusal on the partof the Appellant-Bank to sanction the retirement of the 3rdRespondent. If such refusal is shown to be altogether unjustified, then,would an order made by one, who is vested with the power to makea just and equitable order, granting that which should have beengranted by the employer constitute an act contrary to the terms ofthe employment? In the view I take, as set out later, of the judgmentof the Court of Appeal and of the Award of the 1st Respondent, itseems to me to be not necessary, for the purposes of this appeal,to consider what impact, if any, the absence of a provision comparableto section 31(B)(4) of the Industrial Disputes Act would have on thenature and the scope of the powers of an Arbitrator to make a ‘justand equiable order" in respect of an employee who had beenemployed on the basis of a contract of service.
The 1st Respondent's decision to award a pension is based mainlyupon his view that the refusal of the Appellant-Bank to grant the 3rdRespondent sanction to retire was wholly unjustifiable andunreasonable, and that consequently a retinal situation had arisen. TheCourt of Appeal in affirming the decision of the 1st Respondent toaward a pension has founded its decision principally upon thecircumstance that the 3rd Respondent had a justifiable apprehension,in regard to the ability of the Appellant-Bank to continue its businessin Sri Lanka, which had instilled in the mind of the 3rd Respondentan uncertainty in regard to the continuity of his own employment withthe Appellant-Bank. The Court of Appeal has also taken the view: thatthe statements made in the letter A14 by the 3rd Respondent basedupon "recent legislation" was "a factually correct statement": that,though exemptions were given later, they were given "after thetermination of the Respondents service."
402Sri Lanka Law Reports(1991) 1 Sri LR.
A consideration of the Government Gazettes tendered to this Court—dated 8.8.74 and 18.12.74, by learned President's Counsel for theAppellant-Bank, and dated 29.5.70, by learned President's Counsel forthe 3rd Respondent — and also the provisions of sections 3 and 85of the Act No. 30 of 1988, clearly show that, at the time thedocuments A14 and A15 were written on the 30.3.75 and 2.4.72, therewas no provision of law which endangered the continuance of thebusiness of the Appellant-Bank in Sri Lanka, and that, at the time thesaid letters were written, there was no justification for the 3rdRespondent to have entertained any fears in this behalf. Theprovisions of the Companies (Special Provisions) Law No. 10 of 1974,were brought into operation, according to the Gazette (Extraordinary)No. 123/7 of 8.8.1974, only from 1.1.75. The “direction of exemption*issued under Sec. 3(1) of the said Law No. 10 of 1974 was publishedin the Gazette (Extraordinary) dated 18.12.74. The revocation of thesaid exemptions, dated 21.5.90, was published in the Gazette(Extraordinary) only on 21.5.90, after Act No. 30 of 1988 had comeinto operation.
The Court of Appeal has thus misdirected itself in regard to this matter.The 1st Respondent himself does not seem to have considered thesedocuments and the legal position arisen therefrom in determining thisaspect of the case.
Furthermore, Rule 14 of the said Pension Rules, 'R1‘ gives theAppellant-Bank the power, even where it has granted a pension, towithdraw such pension at its discretion if at any time thereafter suchemployee finds employment in another Bank without previouslyobtaining the sanction of the Appellant-Bank. Admittedly, the 3rdRespondent has, after he resigned from the Appellant-Bank, foundemployment in another Bank, it seems to me that this was a relevantconsideration to be taken into account in deciding whether the awardof a pension, in such circumstances, is "just and equitable."
A Writ of Certiorari would lie, inter ala, where there is an error of lawapparent on the face of the reoord—Ceylon Bank Employees Union Vs.Yatawara, (2). Hayleys Ltd., Vs. De Silva (3); Hayleys Ltd., Vs. R.W.Crossette Tambiah (4): De Smith: Judicial Review of AdministrativeAction (4th Ed) p.136, 404, 407
I therefore, allow the appeal of the Appellant-Bank, and set aside thejudgment of the Court of Appeal which affirms the 1st RespondentsAward relating to the aforesaid pension.
CAState Bank of India v. Eairisinghe and others (Ranasinqhe, C.J.,)403
The grant of the gratuity referred to above was not challanged bylearned President’s Counsel for the Appellant-Bank: and accordinglythe grant of a gratuity in a sum of Rs. 26,390/- to the 3rd Respondentis affirmed.
The Court of Appeal has, as stated earlier, quashed the award madeunder the heading of "encashment of leave." It would seem that,although the Appellant-Bank had not granted the 3rd respondent,during his period of employment, the leave the 3rd Respondent wasentitled to and had in fact applied for before the dispute arose, yet,the 3rd Respondent could have made use of that leave before heactually resigned. The 3rd Respondent, however, was enxious torelinquish his employment under the Appellant-Bank as quickly aspossible and had not even given the three months notice oftermination of service which he was required to give in terms of hiscontract of service. This aspect of the matter does not seem to havebeen considered by the 1st Respondent in deciding whether the grantof a sum of money under this head was “just and equitable".
I am, therefore, of opinion that the order made by the Court of Appeal,that this particular direction of the 1st Respondent be quashed, shouldbe affirmed.
The Court of Appeal has also quashed the grant made by the 1stRespondent in respect of the claim made by the 3rd Respondentunder the heading of "Revision of salary and allowances". The positionof the Appellant-Bank has been that such revision was confined onlyto the Staff Officers of the Appellant-Bank in India and not to officersin Sri Lanka. Although such a distinction would seem to offend againstthe universally accepted principle of equal pay for work of equal value,yet, a consideration of the document A9 shows that a distinction hadbeen made because the Sri Lankan officers had been afforded certainbenefits not extended to their Indian counterparts. Here again thisparticular document A9 does not seem to have received the attentionof the 1st Respondent in deciding whether a grant in favour of the3rd Respondent, under this heading, would be "just and equitable."
In this view of the matter, I am of opinion that the judgment of theCourt of Appeal quashing the Award of the 1st Respondent under thishead should also be affirmed.
For the reasons set out above, I make order, in this appeal, directingthat a Writ of Certorari do issue quashing the aforesaid Award of the
404Sri Lanka Law Reports(1991) 1 Sri LR.
1st Respondent granting a monthly pension of Rs. 1000/- for life.
Having regard to all the circumstances I direct that the parties do beartheir own costs of appeal, both of this Court and of the Court ofAppeal.
RAMANATHAN, J.,- I agree with the Judgment of My Lord the ChiefJustice.
These appeals were listed to be heard by a Bench of 7 Judges asthe question involved in S.C. Appeal No. 36/87 is one of general andpublic importance. The question involved is whether an Arbitratorappointed by the Minister of Labour in terms of s. 4 (1) of theIndustrial Disputes Act to hear and determine an industrial disputereferred to him be appointed by the Judicial Service Commission. Mr.Choksy, P.C., who appeared for the appellant in S.C. AppealNo. 36/87, however, informed this Court that he was not pursuing thispoint.
The statement of matters in dispute dated 5.4.1977 furnished to theArbitrator by the Commissioner of Labour states as follows:—
The matters in dispute between Mr. C. Gunawardena and theState Bank of India are —
whether the refusal and or failure of the State Bank of Indiato pay Mr. C. Gunawardena a pension of Rs. 1,015/- for lifewith effect from 1st May, 1975, is justified and to what reliefhe is entitled; and
whether the following claims of Mr. C. Gunawardena againstthe State Bank of India —
that he be paid in lieu of unutilised leave;
that he was entitled to a revision of salary andallowances with effect from 01st January, 1970, in termsof Staff Circular No. 15 of 31st March, 1975,
are justified and to what relief he is entitled to."
CAState Bank of India v. Edirisinghe and others (Tambiah, J.)
The 3rd Respondent, Mr. Gunawardena, was first employed by theState Bank of India on 01st December 1949, as a ProbationaryAssistant On 25th September, 1963, he was appointed a Staff Officerin the 3rd Grade of officers and on 23rd April, 1971, was promotedto the 2nd Grade of Staff Officers with effect from 01st August, 1970.On 09th October, 1973, he was promoted to the 1st Grade of StaffOfficers with effect from 01st September, 1973. With effect from 01stJanuary, 1975, he was designated Accountant, in which position therewere only 2 officers superior to him, namely, the Agent and the Sub-Agent.
On 30th March, 1975, the 3rd Respondent addressed a letter to Mr.T.R. Varadachary, Managing Director, State Bank of India, Bombay,in these terms:—
"Dear Mr. Varadachary,
I am venturing to write to you on this matter on the advice ofthe Branch Agent, Mr. H.R.A. da Cunha.
I have been offered a very senior post in the Hatton National BankLtd., and I would like to accept it. I have already completed 25years of pensionable service with the State Bank of India on 1stDecember, 1974. I shall be glad if the Bank would exercise itsoption under Rule 37 of the Rules governing the Service ofOfficers in the Imperial Bank of India and permit me to retire fromthe Bank's service as from the 1st of May, 1975.
As you may be aware, there are very limited opportunities for mefor advancement in seivice at this Branch. I have also enumeratedto Mr. da Cunha the various reasons which prompted me to makethis decision after careful thought. The principal one is the factthat in view of the recent legislation requiring the Bank toincorporate itself in Sri Lanka. I have no guarantee of thecontinued existence of this Bank in Sri Lanka. In feet, in the matterof the revision of salary scales of Staff Officers, Grades I, II, andHI on 26th March, 1971, the adverse decision taken vis-a-vis mewas due to my being a Ceylonese officer in an organisation mainlystaffed by Indians and to the fact that my pension rights underthe Thalgodapitiya Award would be in excess of pension drawnby other Indian Officers.
406Sri Lanka Law Reports(1991) 1 Sri L ft
In the event of the Bank being unwilling to extend the benefit ofRule 37 to me, I shall be most grateful if you would sanction thepayment to me of a suitable gratuity in lieu of a pension inconsideration of my long and devoted service.
I regret having to trouble you on a matter such as this, but dueto the limited time available to me to indicate acceptance of theoffer made by the Hatton National Bank Ltd., I shall thank you toadvise Mr. da Cunha and me, by cable if possible, of yourwillingness to release me and the quantum of relief which you mayconsider appropriate in the circumstances.
I am very grateful to the management of the Bank for the excellenttraining afforded me as a probationer, the kindness and courtesyshown to me as an officer, and the appreciation of my servicesby your promotion of me to the First Grade of Officers."
On 02nd April, 1975, the 3rd Respondent addressed a 2nd letter tothe Managing Director, State Bank of India, Bombay, as follows:—
Retirement from Service
I have already completed 25 years of pensionable service in theBank on 1st December, 1974, and I shall be glad if the Bankwould permit me to retire from its service under Rule 37 of theRules governing the Service of Officers in the Imperial Bank ofIndia.
In this connection I have to state that I have been offered a seniorappointment with the Hatton National Bank Ltd. In the event ofthe Bank being unwilling to extend the benefit of Rule 37 to me,
I shall be most grateful if you would sanction the payment to meof a suitable gratuity in lieu of a pension.
In terms of Rule 30 of the Rules governing the service of officersin the Imperial Bank of India, I am required to give 3 monthsnotice or termination of service. I shall be glad if you will kindlywaive this requirement and accept in lieu thereof the unavailedleave due to me as at date and grant me the encashment of theexcess leave available. In the event of the Bank not permittingme to retire from its service, please treat this as my letter of
CAState Bank of India v. Edirisinghe and others (Tambiah, J.)407
resignation as from 1st May, 1975.*
On 30th April, 1975, the Bank's Agent in Colombo replied as follows:—Dear Sir,
Resignation from Service
With reference to your letter of the 2nd April, and with referenceto paragraph 3 thereof, we have to advise that your resignationfrom the Bank's service has been accepted as at the close ofbusiness on date, and the three months' notice period requiredhas been set off against the unavaifed of ordinary leave due toyou as desired by you.
We wish you a happy future.*
At the time the 3rd Respondent ceased employment as from01.5.1975, he was about 48 years of age and had completed about25 1/2 years service.
The Arbitrator made his Award on 05th June, 1981. He took the viewthat the 3rd Respondent has satisfied Rule 15 of the Imperial Bankof India Pension and Guarantee Fund (R1) which states: "Noemployee on the staff in India (which by reason of Rule 2 includesCeylon) shall be entitled to pension until he shall have completedtwenty five years' service."
Twenty five years' service alone was not enough for the payment ofpension, he said. The Bank must sanction his retirement as Rule 11says: "The retirement of all officers of the Bank shall be subject tothe sanction of the Executive Committee of the Central Board. Anyofficer or other employee who shall leave the service without thesanction as required by this Rule shall forfeit all claims upon the fundfor pension."
The Arbitrator also considered Rule 38 of the Rules governing theservice of officers of the Imperial Bank of India (A62) which states:"All officers shall retire at fifty-five years of age or upon the completionof thirty years' service whichever occurs first Provided that the CentralBank or its Committee may extend the period of service of an officerbeyond thirty years should such extension be deemed desirable in theinterests of the Bank, subject however to the age limit of fifty-five yearswhich shall be an over-riding limit." He considered other instances
408Sri Lanka Law Reports(1991) 1 Sri L ft
where Bank employees were allowed to retire before they reached 55years of age or before completing 30 years service. One R.H. Danielhad completed only 25 years service and not 30 years. On 24thMarch, 1975, he sought the Bank’s permission to retire on medicalgrounds. Under Rule 19(ii) of document (R1), a Bank employee retiringafter 20 years service, irrespective of age, was entitled to pension ifhe could satisfy the Bank by an approved medical certificate orotherwise that he is incapacitated for further active service. The Bankreferred him to the Bank's Doctor to examine him and report whetherhe is incapacitated for further service. The Doctor reported that hewas treated for rheumatic arthritis, was suffering from nervous tensionand joint pains and that he was not incapacitated but needed somerest and recommended 2 months leave. He again wrote to the Bankstating that he was not fit to carry on his duties efficiently and to treathim as a special case and permit him to retire. The Bank on 01stJuly, 1975, accepted his application to retire as a special case. TheBank did not act under Rule 37 of document (A62) and call upon himto retire upon completion of 25 years service.
Similarly one S.A. Paul had 25 years service and was under the ageof 50 years. On 21st November, 1967, he wrote to the Bank seekingpermission to retire and added that he was compelled to retire fromthe Bank's service as the education of the children made it necessaryfor him to be with his family who were residing in Jaffna. The Bankpermitted him to retire and sanctioned a monthly pension for life. Soalso, the Bank sanctioned the retirement of two other officers, oneCleghera, who had 20 years service and one Jeffrey who had 14years service in the Bank.
Having considered other instances where permission to retire had beensanctioned in the absence of specified requirements, the Arbitatorstated that there is a clear practice at the Bank of permitting officersto retire before reaching the mandatory age of 55 years and beforecompleting the mandatory period of service of 30 years. He concludedthat in refusing to sanction the retirement of the 3rd respondent, theBank had exercised its discretion unreasonably and maliciously andheld that the 3rd Respondent was entitled to a pension and awardedhim a pension at the rate of Rs. 1,000/- per month for life with effectfrom 01st May, 1975. The Arbitrator also concluded that there werecircumstances in the instant case which amounted to a retiral situationcarrying with it the eligibility for the payment of gratuity and held thatif the award of pension was subsequently held to be wrong by a higherTribunal, the 3rd Respondent be paid a gratuity of Rs.26,390/- .
CAState Bank of India v. Edtrisinghe and others (Tambiah, J.)409
On the question of payment in lieu of unutilised leave, the Arbitratorheld that the 3rd Respondent had a right to encash his leave in termsof Circular (A36) and this right had been denied to him by the Bank.He held that the 3rd Respondent was entitled to the total leave of 8months and 20 days. Setting off 2 months against notice, payment isdue for 6 months and 20 days. At the rate of Rs. 2,520/- per month,the Arbitrator awarded him a sum of Rs. 16,800/-.
As regards the 3rd Respondents entitlement to revision of salary, theArbitrator held that in terms of Circular No. 15 of 31.3.71 (A1A) hewas entitled to Rs. 24,805/- for toe period 1.1.70 to 20.4.75.
The appellant then applied to the Court of Appeal for a writ of certiorarito quash the award of toe Arbitrator. The Court of Appeal was ofopinion that the Rules that govern the instant case were Rules 11and 15 of the Pension Rules (R1): that there is a relevantcircumstance in toe 3rd Respondent's letter of 30th March, 1975, whichthe Bank ought to have considered, but did not, before it exercisedits discretion to withhold permission to retire, namely, that in view ofthe recent legislation requiring the Bank to incorporate itself in SriLanka, the 3rd Respondent had no guarantee of the continuedexistence of the Bank in Sri Lanka. The Court of Appeal held thatthe award of Rs. 1,000/-, per month for life was a just and equitableorder and refused to quash toe award of pension; and that as theaward of pension was upheld, the award of gratuity is no longerapplicable.
As regards the claim for revision of salary, the Court of Appeal heldthat the Arbitrator had erred in acting on toe contents of Circular (1A1)alone, and that he had not addressed his mind to toe correspondencebetween the 3rd Respondent and the Bank. The 3rd Respondent on20th July, 1971, wrote to the Bank and stated that the Staff CircularNo. 15 dated 31st March, 1971 (1A1) does not indicate that therevised pay scales of staff officers are applicable only in India, andthat he be paid the revised salary scales. The Bank on 03rd April,1972 (A9), in reply, slated that the salary revisions are applicable onlyto the staff officers of the Bank in India, and added "with the benefitof higher bonus and the Bank's contributions to Provident Fund at 10%in your case, as against 5% of toe officers of your grade in India,your overall emoluments are by and large, already better than thoseof your counterparts in India. Your retirement benefits are also higherand the formula in vogue in Ceylon for calculating the pension payable
Sri Lanka Law Reports
(1991) 1 Sri L ft
permits larger pension to officers in Ceylon than to their counterpartsin India." By a further letter of 20th July, 1971 (A1C) the 3rdRespondent was informed that the Board of Directors of the Bank inIndia had resolved that the salary proposals were not applicable tostaff officers of the Bank at Colombo who were not India-based. The3rd Respondent himself has accepted these terms by his letter to theBank dated 05.11.1968. In the view of the Court of Appeal, thedocuments (A9) and (A10) represent the general policy of the Bankfor the revision of salaries of its nationals which is not within thepurview of the Arbitrator to reject and that officers in Colombo enjoyeddifferent terms and conditions. The award under the head of 'revisionof salary’ was accordingly quashed.
As regards the award of Rs. 16,300/- on account of encashment ofleave, the Court of Appeal held that the claim cannot be substantiated.The Arbitrator had acted on the contents of the Circular (A36) alone.He has not considered the other evidence in the case which showsthat the Circular was not applicable to him and that accumulated leaveto the credit of an officer lapsed at the time of cessation of office.Accordingly, tee award of Rs. 16,300/- on account of encashment ofleave was quashed.
Mr. Choksy, P.C., for the Bank submitted as follows:—
(i) The arbitrator has held that the 3rd Respondent is contractuallyand legally entitled to a pension in terms of Rule 15 of thePension Rules (R1). Rule 15 should not be read per se but beread along with Rule 13 which states that ‘pensions shall beginto accrue on the first day succeeding that of retirement . . .’Pension accrues on retirement and retirement is a sine qua nontor pension. The 3rd Respondent by his letter dated 02nd April1975, requested the Bank to permit him to retire under Rule 37of the Service Rules (A62) and in case the Bank not permittinghim to retire, to treat this letter as one of resignation. The Bankopted for resignation. Upon resignation, the 3rd Respondent wasnot entitled to pension.
(ii) Under Rule 38 of the Service Rules (A62), a person was entitledto retire if he was 55 years of age or completed 30 years service.The 3rd Respondent did not qualify tor retirement under Rule 38as he was 48 years of age and had only 25 1/2 years service.
CAState Bank of India v. Edirisinghe and others (Tambiah, J.)411
Though he had 20 years service, he did not qualify for retirementunder Rule 19 (i) of the Pension Rules as,he had not attainedthe age of 50 years nor under Rule 19 (ii) as he was notincapacitated. Nor did the 3rd Respondent qualify for retirementunder Rule 19 (iii) of the Pension Rules as he had not attainedthe age of 55 years nor permanently incapacitated by bodily ormental infirmity. The 3rd Respondent was not entitled to pensionas he was not qualified to retire from service of the Bank.
The Service Rule (A62) and the Pension Rules (R8) constitutedpart of the contract of service of the 3rd Respondent. Under theseRules the 3rd Respondent was not entitled to pension. TheArbitrator is bound by the terms of the contract of employment.A Labour Tribunal can vary the terms of contract of employmentas s. 31 (B) (4) of the Industrial Disputes Act gives the power toa Labour Tribunal to grant any relief or redress notwithstandinganything to the contrary in any contract of service between aworkman and his employer. There was no such provision asregards Industrial Arbitrators. If the terms of the contract ofemployment are silent on the question of retirement and pension,the Arbitrator can create new terms which would then becomeimplied terms in the contract of employment between an employerand a workman in terms of s. 19 of the Industrial Disputes Act.
The Court of Appeal gave a reason, which the Arbitrator did notgive, as to why the Bank ought to have considered favourably the3rd Respondent's application to retire, namely, in view of therecent legislation requiring the Bank to incorporate itself under theCompanies Ordinance, the 3rd Respondent entertained anapprehension that the Bank would cease to do business in SriLanka and there was uncertainty in'his mind regarding his futureemployment. There was no reason and basis for suchapprehension. S. 2 (b) of the Companies (Special Provisions) Law,No. 19 of 1974, enacted that on and after toe 01st of September,1974, no Company shall carry on any undertaking in Sri Lankaunless such Company is incorporated under the CompaniesOrdinance or is an exempted Company. On the 08to of August,1974, the Minister of Foreign and Internal Trade altered theappointed date to 01st of January, 1975. In terms of s. 3 (i) ofthe said Law, by a "direction of exemption" published inGovernment Gazette No. 142/9 of 18th December, 1974, toe
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Minister exempted certain categories of Companies and certainspecified Companies which had applied for exemption, and alsoany foreign Company not falling within the abovementionedcategories of Companies or specified Companies from theapplication of the provisions of s. 2. The 3rd Respondents letterto the Bank wherein he stated that he had apprehension aboutthe continued existence of the Bank in Sri Lanka in view of LawNo. 19 of 1974 was written after the 18th of December, 1974,i.e., on 30th March, 1975. The 3rd Respondent had an unjustifiedfear or apprehension. The Court of Appeal has misdirected itselfwhen it stated that there is a relevant circumstance which theBank ought to have considered in exercising its discretion towithhold permission to retire.
In the letter dated 30th March, 1975, the 3rd Respondent statedthat he had been offered a very senior post in the Hatton NationalBank and that he would like to accept it Rule 14 of the PensionRules (R1) requires that if an officer entitled to pension wishesto accept employment at any other Bank within 2 years of thedate of retirement, he must obtain the previous sanction of theExecutive Committee of the Central Board. If he contravenes thisRule it in competent for the Bank to withdraw his pension in wholeor in part It is a good banking practice to insist on such a rule.The Bank may have taken into consideration the fact that the 3rdRespondent was taking up employment in another Bank in refusingpermission to retire. The Court of Appeal has not considered theprovisions of Rule 14.
The principal submission of Mr. Choksy, P.C. is that an Arbitrator isfettered and constrained by the terms of contract of employment andcannot depart from them.
Under s. 17 (i) of the Industrial Disputes Act, when an industrialdispute is referred under s. 4 (1) to an Arbitrator for settlement byarbitration, he is required to make all such inquiries into the disputeas he may consider necessary, hear such evidence as may betendered by the parties to the dispute, and thereafter make suchaward as may appear to him just and equitable. The dominant dutyimposed on an Arbitrator is, therefore, to make an award that appearsto him 'just and equitable”. Text Book writers and Judges of this Courthave discussed the extent of the power of an Arbitrator and the kind oforders he can make.
CAState Bank of India v. Edirisinghe and others (Tambiah, J.)413
Ludwig Teller in his *Labour Disputes and Collective Bargaining" (Voi 1, p.356) states:—
"Industrial Arbitration may involve the extension of an existing agreementor the making of a new one or in general the creation of newobligations or modification of old ones, while commercial arbitrationgenerally concerns itself with interpretation of existing obligations anddisputes relating to existing agreement"
In Walker Sons & Co. Ud., v. Fry & others (5) the whole Court consistingof 5 judges held that an Arbitrator to whom an industrial dispute is referredby the Minister under s. 4 (1) of the Industrial Disputes Act or by theCommissioner of Labour under s. 3 (1) (d) is not a judicial officer and doesnot therefore, require to be appointed by the Judicial Service Commission.Sansoni, CJ., pp. 84,85) discussing the distinction between an Arbitrator'sfunction and a Judge's function cited with approval certain dicta in thejudgment in Waterside Workers' Federation of Australia v. J.E AlexanderUd. (6) and in Federated Saw MSI v. James Moore & Son ProprietaryLtd. (7)
"An Industrial Dispute is a claim by one of the disputants that existingrelation should be altered, and by the other that the claim should notbe conceded. It is therefore a claim for new rights, and the duty of anarbitrator is to determine whether the new rights ought to be concededin whole or in part.. .The arbitral function is ancillary to the legislativefunction, and provides the factum upon which the law operates to createthe right or duty. The judicial function is an entirely separate branch,and first ascertains whether the alleged right or duty exists in law, and,if it binds it, then proceeds if necessary to enforce the law . . .Thearbitrator will have to decide, not what agreement was made, but whatis to be made in regard to the future. If, however, ihe dispute is as towhat shall in the future be the mutual rights and responsbiities of theparties . . .thus creating new rights and obligations . . .then thedetermination is essentially of a legislative character.. .If the disputeis industrial, it is not an ordinary legal dispute, le., it is not a disputeas to what are the rights and liabilities of the parlies with respect tothe past or existing facts. It necessarity looks to the future."
Sansoni, J. proceeded to say (p.84):
"The distinction between the two functions (arbitral and jucBdal) is plainto see. The Industrial Arbitrator creates a new contract for the future,
414Sri Lanka Law Reports(1991) 1 Sri LR.
a judge enforces the rights and liabilities arising out of an existingcontract An Industrial Arbitrator settles disputes by dictating newconditions of employment to come into force in the future where hecannot get the parlies to agree on them; a judge determines theexisting rights and Eablities of the parlies."
In Brown & Co. v. Ratnayake & 3 Others (8) Rodrigo, J. said:
"The function of an arbitral power in relation to industrial disputes is toascertain and declare what in the opinion of an arbitrator ought to bethe respective rights and liabilities of the parlies in relation to each other,as distinct from the rights and labilities of the parlies as they exist atthe moment the proceedings ate instituted . . .A just and equitableaward is not an ultimate finding as to whether the employer is justifiedin terminating the employment of the employee in the sense that theemployer had not committed any breach of the terms of his contractof employment with the employee . . .The omission of the word"wrongful* in the Industrial Disputes Act in respect of applications forrelief is detiberate and significant, for an application for relief can ariseif the termination is in accordance with the terms of his contract andnot in breach of them and the arbitrator can order what he considersto be just and equitable even though that is in excess of his legal rights. . .In their natural and ordinary meaning what it (just and equitableorder) means is due justice between the parties to the application. Thatis the dominating duly of the arbitrator and the only object of the order*.
In Thirvnavakarssu v. Siriwardene & Others (9) Wanasundera, J., said:
"There are some differences between dvti law arbitration and industrialarbitration. An industrial arbitrator has much wider powers both asregards the scope of the inquiry and the kind of orders he can makethan an arbitrator in the civil law. In short we can fairly say thatarbitration under the industrial law is intended to be even more liberal,informal and flexible than commercial arbitration . . .What the awardseeks to do is to resolve the dispute by formulating a new set of termsand conditions, which are fair and reasonable to both parties, andimposing such terms on the parties so that these terms and conditionswill supercede the original position of the parties and provide a newrelationship that would henceforth guide the conduct of the parties.These terms and conditions are statutorily made implied terms of thecontract of employment"
State Bank of India v. Edirisinghe and others (Tambiah, J.)
From the above observations which I have quoted, it is dear that anIndustrial Arbitrator is not tied down and fettered by the terms of contractof employment between the employer and the workman. He can createnew rights and introduce new obligaitons between the parties.
Mr. Choksy, P.C., relied on s. 31 (B) (4) of the Industrial Disputes Act whichempowered a Labour Tribunal to grant relief or redress to a workmannotwithstanding anything to the contrary in the contract of service, betweenhim and the employer. He said there is no such provision in the Act asregards Industrial Arbitrators. But one must not lose sight of s. 19 of theAct which states that an award of an Arbitrator in force shall be bincSngbn the parlies and the terms of the award shall be implied terms in thecontract of employment between the employer and the workman. As waspointed out by Wanasundera, J., in Thirunavukarasu's case (supra) what theaward seeks to do is to create new terms and conditions which arestatutorily made implied terms of the contract of employment The effect ofthe award is to introduce terms which become implied terms of the oontractI also see that s. 33 (i) (e) enables an Arbitrator in his award to make anorder as to the payment by an employer of a pension, the amount of suchpension and its duration. The submission of Mr. Choksy that the Arbitratoris bound and fettered by the terms erf contract of employment is untenable.
As was pointed out by the majority judgment of the Privy Council in theUnited Engineering Workers Union v. Devanayagam (1) “the award has tobe one which appears to the arbitrator just and equitable. No other criterionis laid down. He is given an unfettered discretion to do what they think isright and fair."
The test of a just and equitable order is that those qualities would beapparent to any fair minded person reading that order (per de Kretser, J.,in Peiria v. Podisingho (10).)
At the time the 3rd Respondent ceased employment he was about 48 yearsof age and had completed about 25 1/2 years service. From 1949 to 1975,he had rendered loyal and meritorious service. Mr. ERA da Cunha, thethen Agent for the State Bank of India, Colombo Branch, stated in evidencethat he was an efficient officer and rendered loyal and faithful service tothe Bank.
According to the Arbitrator, there were other officers allowed to retire beforethey reached 55 years of age or before completing 30 years service K.S.Daniel, S.A. Paul, Cleghom and Jeffrey.
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Mr. Choksy, P.C., submitted that Daniel was allowed to retire on medicalgrounds. The man was sick and the Bank accepted his application to retireas a special case and the Arbitrator has not considered this aspect of hiscase. But the point to be noted is that the Bank did not cal upon him toretire under Rule 37 of document (A62). Nor could it be said that hesatisfied the Bank that he was incapacitated within the meaning of Rule19 (ii) or (iij) of document (R1) and therefore the Bank aflowsd him to retire,because the Doctor reported that he was not incapacitated but needed twomonths rest The correspondence makes it dear that he sought permissionto retire and the Bank permitted or sanctioned his retirement under Rule11 of (R1).
As regards G.A. Paul, Mr. Choksy, P.C., submitted that his conduct at theIndian Club in Colombo gave cause for concern whether he could continueto work at the Bank. He was involved in the misappropriation of funds.The Bank seized the opportunity and permitted him to retire. The Arbitrator,he said, has not considered this item of evidence. Here again the Bankdid not act under Rule 37 of document (A62) and cal upon him to retireby reason of his conduct The ostensible reason Paul gave was that theeducation of his children required him to reside with his family in Jaffna.The correspondence shows that he asked for permission to retire and theBank permitted or sanctioned his retirement under Rule 15 of document(R1).
It seems to me, that both cases, of Daniel and Paul, are referable only toRule 15 of document (R1).
It would appear that in CleghOm's case, when he was Agent in Colombo,his supervision was found wanting as there was a fraud of Rs. 126,000/*.He was tansferred to Madras and when the Bank was nationalised andthe Imperial Bank of India was seconded by the State Bank of India, hisapplication to retire was allowed. But the point is that Cleghom with 20years service and Jeffrey with 14 years service and both under 55 yearsof age were given permission to retire by the Bank. It, therefore, appearsto me that despite Rule 38 in the Service Rules (A52), in practice the Bankhas sanctioned the retirement of officers before they reached the mandatoryage of 55 years and before reaching the mandatory service of 30 years.
Mr. Choksy, P.C., argued that the 3rd Respondent had an unjustifiableapprehension and fear as regards his future employment because the Bankwas an exempted Company by reason of the Gazette Notification. OnMarch 30, 1975, after the Gazette Notification, the 3rd Respondent wrote
CAState Bank of India v. Edirisinghe and others (Tambiah, J.)417
to the Managing Director of the Bank in India seeking permission to retire.He stated that he was writing this letter on the advice of the Bank Agent,Mr. da Cunha, and had discussed with him the various reasons whichmade him write this letter. He stated that the principal reason was the “factthat in view of the recent legislation requiring the Bank to incorporate itselfin Sri Lanka, I have no guarantee of the continued existence of this Bankin Sri Lanka" The Bank in its reply on 30th April, 1975, did not put himright and say that it was an exempted Company by reason of the GazetteNotification. Mr. da Cunha was questioned about toe Foreign Companies(Special Provisions) Act and was asked toe question, "The State Bank ofIndia decided not to get incorporated". His answer was "As far as Iremember we had no choice, we had to get incorporated or pack up. Asa later development I remember the Governor of the Central Bank statedthat Banks (Foreign) need not be incorporated." No reference was madeby him to the Gazette Notification. His knowledge was derived from toeGovernor of the Central Bank. Obviously toe Bank was unaware of toeexistence of toe Gazette Notification. For toe first time, in this Court areference was made to toe Gazette Notification.
This being toe evidence in the case, I cannot fault toe Court of Appeal fortaking toe view that the 3rd Respondent had fears about his futureemployment in view of the provisions of Law No. 19 of 1974, as that washis impression at the relevant time.
The final submission of Mr. Choksy, P.C. was that toe Bank may havehad good reason to refuse permission to retire as the 3rd Respondent wastaking up employment in another Bank.
In toe forefront of his letter, toe 3rd Respondent frankly disclosed that hewas desirous of accepting employment at another Bank and due to toelimited time given him to accept toe new appointment, he requested anearly reply. There was no reply. In his second letter of 02nd April 1975,he reiterated that he has been offered employment in another Bank andconcluded that if permission to retire was not granted, to treat his letter asone of resignation. The Bank to its reply advised him that his resignationhas been accepted and ended "We wish you a happy future". At no stagedid the Bank cfisapprove of his conduct in accepting employment to anotherBank nor think it would be inimical to its interests. On toe contrary, theBank wished him happiness to toe future. Mr. H.Lde Silva, P.C. informedus, and this was not denied by Mr. Choksy, P.C., that after he ceased
418Sri Lanka Law Reports(1991) 1 Sri L.R.
employment, the State Bank of India had used his services as a Consultant.There is no merit in this submission.
Considering the fact that the 3rd Respondent had rendered the Bank25 1/2 yeans of efficient and loyal service, and also taking into considerationother instances where officers, less deserving, have been permitted to retire,though not qualified to do so, it seems to me that this is a ft case wherethe Bank might well have considered the 3rd Respondents application toretire favourably and sanctioned his retirement The award of pensionappears to me to be a just and equitable order.
In S.C. Appeal No. 37/87, the 3rd Rspondent-Appellant wants this Court toset asids the judgment of the Court of Appeal quashing toe Arbitrator'saward allowing a payment of Rs. 24,805/- on account of revision of salaryand allowances, and a payment of Rs. 16,800/- on account of encashmentof leave.
The 3rd Respondent claimed a revision of salary on the basis of the StaffCircular of 31.05.1971 (A1A) and the Arbitrator has made an award of asum of Rs. 24,805/- for the period 01.01.1970 to 20.04.1975 acting on thecontents of the said Circular alone.
The Arbitrator has not addresed his mind to the letters (A9) and (A10).After the letter (A10) was sent to the 3rd Respondent, in view of furtherrepresentations made by the 3rd Respondent, the letter (A10) was sent tohim where he was dearly told that the salary proposals were not applicableto staff officers of the Bank at Colombo who are not Indian based. The3rd Respondent was not India-based.
Mr. H.L. de Silva, P.C., submitted that the resolution referred to in letter(A10) was discriminatory and 1here was no rational basis for the distinctiondrawn between India-based officers and Sri Lankan staff officers in theColombo Branch of the Bank. The answer to this is found in the letter (A9)written by foe Bank which gave a reason, namely, that the 3rd Respondent'soverall emoluments were better than those of his counterparts in India. Itis also relevant to note that bote Mr. Johnpulle and tee 3rd Respondent,the only two Sri Lankan Staff Officers, by letter of 28.07.1971 made a jointrequest teat they be paid tee revised salary scales. The reply to both wasthe Bank's letter (A9). It is not tee 3rd Respondent's complaint teat amongSri Lankan Staff Officers there was discrimination inter se.
CAState Bank of India v. Edirisinghe and others (Tambiah, J.)419
As regards the award of Rs. 16,800/- on account of encashment of leave,here again, the Arbitrator has acted on the contents of Circular (A36) atone.He has not addressed his mind to the other evidence on this matter. TheBank Agent Mr. da Cunha, stated that the Circular is applicable to India-based officers only. He further stated that any accumulated leave to thecredit of any officer lapses at the time of cessation of his employment The3rd Respondent if he was entitled to any accumulated leave, could haveutilised it before he left the service of the Bank. However, in his anxiety toleave the Bank's service soon in order to commence the alternateemployment which he had obtained, he could not utilise the accumulatedleave, if any, to his credit Further Rule 30 erf the Service Rules requiresan officer who intends to resign to give the Bank 3 calendar months'previous notice in writing, failing which he shall pay to the Bank 3 months’salary. The Bank, however, by its letter of 30.4.1975, at the 3rdRespondents request set off the required 3 months notice against hisunavailed ordinary leave.
Mr. H.L. de Silva, P.C., here again, submitted that there is no rational basistor a distinction to be drawn between India based officers and Sri Lankanofficers in the Colombo Branch of the Bank in the application of Circular(A36). It is discriminatory, he said. I am inclined to agree with Mr. Choksy,P.C., that these are matters of policy to be decided by the Bank. There isevidence in this case that the 3rd Respondent made representations to theMinistry of Defence and External Affairs when he was not promoted asAssistant Manager as he was told the post was reserved for an IndianNational. He was told that the Ministry could not intervene in the matter.Here too, it is not the position of the 3rd Respondent that in regard toencashment of lieu leave, among Sri Lankan officers in the Bank, therehas been discrimination inter se.
The power given to an Arbitrator to make a just and equitable award isnot unllimited. In the assessment of evidence, he must act judicially (perSirimanne, J., in Heath & Co. (Ceylon) Ltd., v. Kariyawasam (11) at p.384).Th j order of a Labour Tribunal is not a just and equitable one, if it is madewithout examination and consideration of all relevant evidence adduced atthe inquiry, (per H.N.G. Fernando, C.J., in Lews Brown & Co. Ud. v.Periyapperuma, (12). This observation is equally applicable to an award ofan Industrial Arbitrator.
I affirm the order of the Court of Appeal quashing the award of Rs. 24,805on account of revision of salary and allowances and of Rs. 16.80C/- onaccount of encashment of leave.
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In the result both appeals are dismissed. In each of these appeals therewiS be no oosts.
G.P.S. DE SILVA, J. — I agree.
KULA7UNGA, J.— I agree.
DHEERARATNE, J.— I agree.
WADUGODAPfTTYA, J. — I agree.
STATE BANK OF INDIA v. EDIRISSNGHE AND OTHERS