186Sri Lanka Law Reports[2008) 2 Sri L.R
LANKA RAJYA SANSTHA HA PODU SEVAKASAMITHIYA AND OTHERS – SC FR 171/04MENDIS – SC FR 193/20041RANGANI DE SILVA – SC FR 387/2007
v
BUILDING MATERIALS CORPORATION LTD.SUPREME COURT
DR. SHIRANI BANDARANAYAKE, J.
AMARATUNGA, J.
MARSOOF, J.
SC FR 171/2004SC FR 193/2004SC FR 387/2004MAY 22, 2006JULY 6, 2006SEPTEMBER 20, 2006NOVEMBER 9, 2006FEBRUARY 15. 2007MARCH 20,2007MAY 9, 2007OCTOBER 29, 2007
Fundamental Rights – Article 12(1) – Age of. retirement – 55 or 60 -Conversion of a Corporation to a limited liability company – Applicability of thePublic Administration (PA) Circular 5/2002 – Legitimate expectation -Voluntary Retirement Scheme (VRS) – Reasonable classification – Legitimateexpectation – Computation of the period to grant compensation –
Lanka Rajya Sanstha Ha Podu Sevaka Samilhiya and others – SC FR 171/04, Mendis SC FRqq 193/2004, frangani de Silva – SC FR 387/2007 v Building Materails Corporations Ltd. -| gy
Establishment Code – Cap 5 Section 5.
The petitioners filed three applications complaining of a decision taken by the1st respondent – Building Materials Corporation Ltd., (BMC) that they hadconsented to the accepting the V.R.S. offered by the 4th respondent -Secretary to the Treasury. The petitioners contended that, their letters ofappointment did not specify their age of retirement and the P.A.S. Circular5/2002 dated 23.8.2002 had amended Section 5 of Cap. V of theEstablishment Code extending the age of retirement from 55 years to 57years, and contended that they could have served until the age of 57 yearsand thereafter could have continued up to 60 years, it was their contention thatthey had a legitimate expectation of receiving compensation on the VRS takinginto account 60 years as the age of retirement.
Held:
It is not disputed that the letters of appointment issued to the petitionershad not specified the age of retirement. The BMC had decided to adopt therules and regulations of the E Code but since the conversion of thecorporation to a limited liability company in 1992 (BMC), BMC has nottaken steps to adopt the E Code in situations, where there are no rules andregulations.
The 1st respondent authority had changed its status to a limited liabilitycompany which is not a statutory authority – but only a commercial entity,that falls under the Companies Act, accordingly Government Circulars andthe provisions of the E Code had no automatic application to the 1strespondent. BMC.
At the time the corporation was converted into a limited liability company,the age of retirement stipulated in the E Code was 55. The corporation hadtaken a conscious decision regarding the age of retirement in July 2000 -would be 55 years, although the age of retirement in the E Code wasincreased from 55 to 57. the corporation had not taken a decision tochange their employees age of retirement from 55 to 57.
It is apparent that there had been a differentiation between the employeesof the 1st respondent and the employees of some of the corporations andstatutory bodies, the reasons for the 1st respondent's decision regardingthe age of retirement of its employees is not contrary and rests on real andsubstantial criteria – the classification is based on intelligible differentiationwith reasonable relation to the objects that it sought to achieve.
The petitioner cannot complaint that their age of retirement has not beenconsidered as 57 as they are not similarly circumstanced as the others,where age of retirement has been increased to 57 years.
On a consideration of all the facts and and circumstances it is evident that
188Sri Lanka Law Reports[2008) 2 Sri L.R
neither the Government nor the 1st respondent or its predecessor hadmade any express representation to the petitioners that the age ofretirement would be changed from 55 to 57 years, there had not been anychange in the policy of the 1st respondent in respect of the age ofretirement of its employees. As there had not been a change of the age ofretirement, there could not have been any possibility for the petitioners, toclaim that they had a legitimate expectation for the age of retirement to beconsidered as 60 for the purpose of computing compensation on VRS.
APPLICATION under Article 126 of the Constitution.
Cases referred to:
E.P. Royappa v State of Tamil Nadu AIR 1974 SC 555.
Ram Krishna Dalmia v Justice Tendolkar AIR 1958 SC 538.
Dayaratne v Minister of Health 1999 1 Sri LR 393.
Sirimal v Board of Directors of the CWLS 2003 2 Sri LR 23.
Lorna Gunasekera v People's Bank SC FR No. 524/2002 SCM 20.6.2007.
Attorney-General of Hong Kong v Ng Tuen Shiu 1983 2 All ER 346.
Council of Civil Services Union v Minister for the Civil Service 1986 3 All ER935.
Peter Jayasekera with Kosala Senadheera for petitioners.
Bimba Jayasinghe Tilakaratne DSG for respondents.
December 12, 2007
DR. SHIRANJ BANDARANAYAKE, J.Thirty (30) petitioners filed three (3) applications complaining ofthe decision taken by the 1st respondent. Since all applicationsrelate to a single decision taken by the 1st respondent, all Counselagreed that there applications could be heard together and a singlejudgment would be applicable to all applications.
Petitioners of all these applications, employees of the 1strespondent Corporation Ltd., had consented to accept a VoluntaryRetirement Scheme (hereafter referred to as VRS), which wasoffered by the 4th respondent. The petitioners' position was that thesaid VRS was offered to all employees, who were attached toGovernment Corporations and Companies, which were to beclosing or winding up due to various reasons. According topetitioners, for the purpose of payment of compensation in terms ofthe VRS, the employees were classified into (3) categories, whichincluded,
Lanka Rajya Sanstha Ha Podu Sevaka Samithiya and others – SC FR 171/04, Mendis – SC FR
cr. 193/2004, Irangani de Silva – SC FR 387/2007 v Building Materaifs Corporations Ltd. , aQ
(Or. Shirani Bandaranayake, J)1
employees having ten (10) or more years of service;
employees who had ten (10) years of service; and
casual and contract employees.
In terms of the amendment to paragraph 4 of the CircularNo. P.E.D. 10 dated 28.05.2003 (P23(b)) provision was made forthe payment of compensation taking into consideration the age ofretirement. According to the said Circular,
"for the purpose of payment of compensation,the relevant age(as per service agreement) shall be 55 years or 60 years asstated in the letter of appointment."
Learned Counsel for the petitioners contended that their lettersof appointment did not specify their age of retirement and the PublicAdministration Circular No.5/2002 dated 23.08.2002 had amendedsection 5 of Chapter V of the Establishments Code extending theage of retirement from 55 years to 57 years of age. Accordingly, thepetitioners submitted that in terms of the said Circular, thepetitioners could have served until the age of 57 years andthereafter could have obtained extensions upto the age of60 years.
Accordingly, the petitioners stated that they had a legitimateexpectation of receiving compensation based on the VRS takinginto account 60 years as the age of retirement. The petitionerstherefore complained that the compensation given to them on thebasis of VRS considering the age of retirement as 55 years asarbitrary and unreasonable and in violation of their fundamentalrights guaranteed in terms of Article 12(1) of the Constitution.
This Court granted leave to proceed for the alleged infringementof Article 12(1) of the Constitution.
It is common ground that all the petitioners were paid and hadaccepted the compensation package offered to them in terms of theVRS, on the basis of 55 years of age, irrespective of their actualages, which was considered as the age of retirement. The onlyquestion that has to be resolved therefore is whether the age ofretirement of the petitioners was 55 years as stated by therespondents or whether it was changed on the basis of the PublicAdministration Circular No. 5/2002 dated 23.08.2002 as contended
190Sri Lanka Law Reports[2008] 2 Sri L.R
by the learned Counsel for the petitioners in these threeapplications, to 60 years of age.
Learned Counsel for the petitioners contended that althoughthere was a conversion from the Building Materials Corporation intothe Building Materials Corporation Ltd., such conversion had noeffect with regard to the terms and conditions of service of itsemployees. It was also contended that the amendment to ChapterV of the Establishments Code by Public Administration CircularNo. 5/2002 dated 23.08.2002 had enabled an employee to remainin employment upto the age of 57 years without any annualextensions of service. In support of his contention learned Counselfor the petitioners referred to the letter dated 20.10.2004 by theSecretary to the Ministry of Housing and Construction Industry,Eastern Province Education and Irrigation Development, where theCorporation and statutory Boards, which came under that Ministrywere permitted to adopt the government policy on retirement at theage of 57 years in place of 55 years of age with provision to obtainextension of service upto 60 years of age. Learned Counsel for thepetitioners also submitted that that National Housing DevelopmentAuthority had consequent to the directive of the aforementionedSecretary to the Ministry of Housing and Construction Industry,Eastern Province Education and Irrigation Development Ltd. hadadopted 57 years as the age of retirement. Learned Counsel for thepetitioners therefore contended that they were similarlycircumstanced as other government servants and/or employees ofStatutory Boards or Corporations that has adopted 57 years as theage of retirement.
Learned Counsel for the petitioners also contended that theVRS was calculated on a formula based on the number of yearsbetween the age of the employee and the age of retirementstipulated by the respondent authority. Learned Counsel for thepetitioners contended that since the letters of appointment had notstated the age of retirement, that should be considered on the basisof the government policy and considering the amendment to theEstablishments Code by Public Administration Circular No. 5/2002,the petitioners had a legitimate expectation of serving until the ageof 57 years and obtaining extensions of service thereafter.Accordingly, he contended that, for the purpose of paying
Lanka Rajya Sanstha Ha Podu Sevaka Samithiya and others – SC FR 171/04, Mendis • SC FR
0 „193/2004, trangani de Silva – SC FR 387/2007 v Building Materaiis Corporations Ltd.
(Dr. Shirani Bandaranayake, J)191
compensation on VRS, the age of retirement should be taken as 60years of age and not 55 as has been considered by therespondents.
Accordingly, the complaint of the petitioners was that the 1strespondent had wrongfully and unreasonably fixed the age ofretirement of the petitioners as 55 years of age for the purpose ofpaying compensation on the VRS without considering theamendment to the Establishment Code and the PublicAdministration Circular No. 5/2002.
At the hearing it was conceded that the actions of the 1strespondent Corporation were executive or administrative within themeaning of Article 126(1) of the Constitution.
The main contention of the learned Counsel for the petitionerswas that the Building Materials Corporation as well as the 1strespondent Corporation Ltd. were governed in terms of theEstablishments Code and were subjected to the government policyof retirement, which was extended from 55 years to 57 years ofage.
It was not disputed that the letters of appointments issued to thepetitioners had not specified the age of retirement. It was also notdisputed that the Building Materials Corporation in 1992 haddecided to adopt the rules and regulations of the EstablishmentsCode 'when no rules or regulations in respect of a matter' wereavailable. The relevant Minute of the Board Meeting held on29.04.1992 which refers to this position, was as follows:
".where there are no rules and regulations adopted by the
board for the Corporation, the rules and regulations laid downin Volumes I and II of the Establishments Code of theDemocratic Socialist Republic of Sri Lanka will apply to theBuilding Materials Corporation."
However, the Chairman/Managing Director of the 1strespondent Corporation has dearly averred in his affidavit thatsince the conversion of the Building Materials Corporation to alimited liability Company on 16.10.1992, the Company has nottaken any steps to adopt the Establishments Code, in situationswhere there are no rules and regulations.
192Sri Lanka Law Reports[2008] 2 Sri L.R
It is not disputed that with the conversion which took place on
the 1st respondent authority changed its status to alimited liability Company, which is not a statutory authority, but onlya commercial entity, that falls under the Companies Act.Accordingly the Government circulars and the provisions of theEstablishments Code had no automatic application to the 1strespondent, although the 1st respondent had the authority for themto be adopted, modified or varied at the discretion of the Board ofDirectors acting in terms of the Companies Act. The petitionershowever had not submitted any materials to show that the 1strespondent had passed a resolution to this effect.
It is also important to note that at the time the 1st respondentadopted the provisions of the Establishments Code, it was only forthe purpose of making provision, where no regulations had beenmade by the Building Materials Corporation (R3).
Learned State Counsel correctly contended that such decisionto adopt the Establishments Code did not fetter the 1st respondentCorporation from making any other rules contrary to theEstablishments Code. Thus, the 1st respondent Corporation couldhave made necessary rules without adopting an amendment thatwas brought to the Establishments Code.
The decision of the Board of Directors to adopt the provisions ofthe Establishments Code was taken as referred to earlier, on
Within a matter of six months in October 1992, theBuilding materials Corporation was converted into a limited liabilityCompany. At that time the age of retirement stipulated in theEstablishments Code was 55 years of age.
Even if we were to take into account that the 1st respondent hadtaken a decision to adopt the Establishments Code and since therewere no further adoption of the said Code by the newly establishedCorporation Limited that the earlier decision should continue toapply to the latter, it is clearly evident that, the 1st respondent hadtaken a considered decision regarding the age of retirement of itsemployees.
As has been stated earlier, the decision of the Board of Directorsin April 1992 has to adopt the rules and regulations of theEstablishments Code, when there were no applicable rules and
Lanka Rajya Sanstha Ha Podu Sevaka Samithiya and others – SC FR 171/04, Mendis – SC FR
193/2004, Irangani de Silva * SC FR 387/2007 v Building Materails Corporations Ltd. * Qo
(Dr. Shirani Bandaranavake, J)1
regulations made by the 1st respondent Corporation. Then therewas only a limited applicability of the Establishments Code and thediscretion was in the hands of the Building Materials Corporation todecide whether to adopt the provisions of the Establishments Codeor to make their own rules and regulations.
In fact it is clearly evident, that the Building MaterialsCorporation Ltd. had taken a conscious decision regarding the ageof retirement of their employees in July 2000. The decision of theBoard of Directors on 03.07.2000 clearly states that the age ofretirement of their employees would be 55 years. The said Boarddecision (R4) reads as follows:
"Extension of service of the Employees beyond the age of 55years – Board Papers 92/03 and 92/04.
The Board having perused Board Papers 92/03 and 92/04made a policy decision that as a matter of principle not toextend the services of employees of BMC beyond the age of55 years … with effect from 31.07.2000.
The Board also decided that as recommended by the BoardPaper 92/04 those whose services have already beenextended will serve upto the approved date of extension."
Although the age of retirement in the Establishments Code wasincreased from 55 years to 57 years by Public AdministrationCircular No. 5/2002 dated 23.08.2002, the Building MaterialsCorporation Ltd., quite evidently had not taken a decision to changetheir employees age of retirement from 55 years to 57 years. Onthe contrary, the 1st respondent just prior to the issuance of thePublic Administration Circular No. 5/2002 and soon afterwards, hadonce again reiterated and had reconfirmed their decision that theemployees should retire at the age of 55 years. Thus on
the Board of Directors had referred to the age ofretirement as 55 years (R5). The decision stated as follows:
"The chairman said that since the Board decision is not toextend the services of employees who reach the retirementage of 55 years BMC was not in a position to retain anemployee even if his services were required as it would becontrary to the decision of the Board."
194Sri Lanka Law Reports[2008] 2 Sri L.R
Similar decisions were taken at the meetings held on07.11.2002 (R6) and 24.11.2003 (R7), which were as follows:
"Revision of Section 5 of Chapter V
The Board resolved to abide by the decision of retiringemployees at the optional age of 55 years as proposed by thechairman."
"Age of Retirement
The Managing Director stated that there had been a requestto change the provisional age of retirement to 57 years. TheBoard after discussion regretfully decided to abide by theexisting policy of 55 years."
It is thus evident that the Building Materials Corporation and theBuilding Materials Corporation Ltd., which were under no obligationto follow the Establishment Code had taken a policy decisionirrespective of the amendments made by the Public AdministrationCircular No. 5/2002, to maintain the age of retirement of theiremployees at 55 years of age.
Having said so, the question that arises at this point is whetherthere had been any violation of the petitioners' fundamental rightsguaranteed in terms of Article 12(1) of the Constitution, by thedecision of the 1st respondent Corporation to consider thepetitioners' age of retirement as 55 years for the computation of thepayments on VRS when there have been instances, where someof the Corporations and Statutory Boards had adopted 57 years ofage as the age of retirement.
Article 12(1) of the Constitution, which deals with equality beforethe law reads as follows:
"All persons are equal before the law and are entitled to theequal protection of the law."
Equality requires the application of a law equally amongsimilarly circumstanced people without any discrimination.However, it does not mean that the same law should applyidentically to all persons and every differentiation is not treated asdiscrimination. It is thus evident that in these circumstances,classifications could be sustained. A classification to be treated as
Lanka Rajya Sanstha Ha Podu Sevaka Samithiya and others – SC FR 171/04, Mendis – SC FR
cj/-*193/2004, Irangani de Silva • SC FR 387/2007 v Building Materails Corporations Ltd. ^ QC.
(Dr. Shirani Bandaranavake, J)1
valid it should be reasonable and not arbitrary. Equality, as pointedout by Bhagwati, J. (as he then was) in E.R Royappa v State ofTamil Nack/1), is antithetic to arbitrariness and equality andarbitrariness are sworn enemies. This however does not mean thatevery classification would become invalid on the basis ofarbitrariness. A classification could be valid if it could satisfy thefollowing conditions:
the classification must be founded on an intelligible differentiawhich distinguish persons that are grouped in from otherswho are left out of the group; and
that the differentia must bear a reasonable or a rationalrelationship to the objects and effects sought to be achieved(Ram Krishna Dalmia v Justice TendolkaA2).
Accordingly, there cannot be any discrimination between twopersons, who are similarly circumstanced, which emphasizes thenotion that equals cannot be treated unequally and unequalscannot be treated equally.
The many descriptions and explanations given in interpretingthe concept of equality refer to classifications, which are notarbitrary or irrational, but are reasonably related to a legitimateobjective.
Accordingly, the question that has to be answered in instancessuch as the one that is under consideration would be whether theclassification has been based on reasonable grounds.
Admittedly, the petitioners' allegation is that they have beentreated differently as the 1st respondent had taken a decision thattheir age of retirement is at 55 years for the purpose of computingthe payment of compensation on the VRS, whereas some of theother Corporations and Statutory Board had allowed theiremployees to function until the age of 57 years.
Considering the Circumstances of this case, it is apparent thatthere had been a differentiation between the employees of the 1strespondent and the employees of some of the Corporations andStatutory Boards. In such a situation the question that has to beanswered would be whether this classification is reasonable andcould be founded on intelligible differentia that distinguishes the
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employees of the 1st respondent from that of the others. Suchclassification, as has been stated earlier, cannot be arbitrary andshould rest on real and substantial criteria. Accordingly it would benecessary to consider the reasons for the 1st respondent'sdecision regarding the age of retirement of its employees.
The Chairman of the 1st respondent in his affidavit had averredthat the 1st respondent had in recent years incurred heavy losseshad become a commercially non-viable Company and had ceasedto be an on going concern in view of its accumulated losses.
Considering the aforementioned it was absolutely clear that the1st respondent was not profit making and necessarily needed arestructuring programme to reduce the employees and thereby toreduce the expenditure of the Company. For this purpose the 1strespondent had introduced a Voluntary Retirement Scheme and625 employees had accepted the said Scheme. The Circularpertaining to the said VRS had clearly stated that the age ofretirement is considered as 55 years for the purpose of payment ofcompensation and the petitioners had accepted the compensationin terms of the said Circular and had retired from service.
When these circumstances are taken into consideration it isquite evident that the 1 st respondent Corporation is totally differentto other Organizations. The other establishments referred to by thepetitioners where the age of retirement was extended from 55years to 57 years of age had no such financial difficulties as hadbeen encountered by the 1st respondent. Accordingly it is evidentthat the 1st respondent belongs to a different category. Thus theclassification is founded on intelligible differentia with a reasonablerelationship to the objects and effects that it sought to achieve. Theconcept of equality means that persons who are similarly placedcould be treated equally and on a consideration of all thecircumstances in these applications it is apparent that thepetitioners do not belong to the category of employees of otherCorporations, where the age of retirement was fixed at 57 years ofage. The petitioners therefore cannot complain that their age ofretirement has not been considered as 57 years as they are notsimilarly circumstanced as the others, whose age of retirement hasbeen increased upto the age of 57 years.
Lanka Rajya Sanstha Ha Podu Sevaka Samithiya and others – SC FR 171/04, Mendis – SC FR
C/^193/2004, Irangani de Silva – SC FR 387/2007 v Building Materails Corporations Ltd. . Q7
(Dr. Shirani Bandaranayake, J)
Learned Counsel for the petitioners submitted that they had alegitimate expectation for the retirement age to be considered as 60years as a matter of government policy for the purpose ofcomputing the compensation on the VRS not referred to thedecisions in Dayaratne v Minister of Health^3) and Sirimal v Board ofDirectors of the CWBA).
Legitimate expectation, as has been stated in LornaGunasekera v People's Bantt3), was based on^ the principles ofprocedural fairness and was closely related to hearings inconjunction with the rules of natural justice. As expressed by DavidFoulkes (Administrative Law, 8th Edition, Butterworths, 1995, pg.290), it is necessary for the presence of a promise or anundertaking to give rise to a legitimate expectation. Referring to thisconcept, David Foulkes (supra) had stated that:
‘The right to a hearing, or to be consulted, or generally to putone's case, may also arise out of the action of the authorityitself. This action may take one of two, or both forms: apromise (or a statement or undertaking) or a regularprocedure. Both the promise and the procedure are capable ofgiving rise to what is called a legitimate expectation, that is, anexpectation of the kind which the Courts will enforce1'(emphasis added).
This position was clearly illustrated by the decision in Attorney-General of Hong Kong v Ng Tuen ShiiJ6) and Council of CivilService Unions v Minister for the Civil Serviced).
As the petitioners have contended that they had a legitimateexpectation that the compensation on VRS would be computedconsidering the age of retirement as 60 years, it could benecessary to examine whether there had been a promise and/orprocedure that could have given rise to such an expectation.
On a consideration of all the facts and circumstances of theseapplications it is evident that neither the Government not the 1strespondent Corporation or its predecessor had made any expressrepresentation to the petitioners that the age of retirement would bechanged from 55 years to 57 years of age. Moreover, if oneconsiders the age of retirement that had been applicable to theemployees of the 1st respondent including the petitioners, it could
198Sri Lanka Law Reports[2008] 2 Sri L.R
be observed that throughout the years the 1st respondent hadmaintained that to be 55 years of age. There had not been anychange in the policy of the 1st respondent Corporation in respect ofthe age of retirement of its employees. It is therefore clearly seenthat the petitioners' applications are totally different to that ofDayaratne v Minister of Health (supra) and Sirimal v Board ofDirectors of the C.W.E. (supra), where it was accepted that theaggrieved parties had a substantial legitimate expectation.
In Dayaratne's case (supra) that question that arose waswhether a change in criteria for the scheme of training had violatedthe express representation made and thereby whether that hadaffected the legitimate expectation of the petitioners. In that casethe petitioners in response.to a Gazette Notification had sat for thecompetitive examination and on its results were qualified to followthe training at which stage a decision had been taken effecting achange of policy. In Sirimal (supra), C.W.E. had issued severalCirculars stating that extensions would be granted upto the age of60 years and later had changed their policy and had decided toretire their employees at the age of 55 years without any extensionsof service.
A careful consideration of the present case clearly indicates that,as stated earlier, there had been no change of the age of retirementof the employees of the 1st respondent. Accordingly there could nothave been any possibility for the petitioners to claim that they had alegitimate expectation for the age of retirement to be considered as60 years of age for the purpose of computing compensation on VRS.
On a consideration of all the aforementioned facts andcircumstances and for the reasons given in my judgment I hold thatthe petitioners have not been successful in establishing that theirfundamental rights guaranteed in terms of Article 12(1) of theConstitution had been violated by the respondents.
These applications are accordingly dismissed, but without costs.
AMARATUNGA, J.-I agree.
MARSOOF, J.-I agree.
Application dismissed.
