# AV AS VIKAS SANS THAN AND ANR v. AVAS VIKAS SANSTHAN ENGINEERS ASSN. AND ORS

- **Citation:** [2006] 3 S.C.R. 516
- **Court:** Supreme Court of India
- **Decided:** 2006-03-28
- **Bench:** H.K. Sema, Dr. Ar. Lakshmanan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/av-as-vikas-sans-than-and-anr-v-avas-vikas-sansthan-engineers-assn-and-ors-21233
- **Pages:** 27

## Headnote

Constitution of lndia, 1950·-Articles 12 and 14--Contruct Act, 1872Section 23--State Government dissolved a State Society incurring heavy
C losses--Employees of the Society filed Writ Petition before High Court
contending that the Society was an agent of the State and hence their
services could not terminated being government employees-State formulated
a Scheme of providing alternative employment to the employees in various
local bodies subject to certain terms and conditions upon filing of an afjidavitEmployees accepted alternative employment and filed affidavits-Single Judge
D of the High Court quashed the scheme of providing alternative emp/vyment-·
Division Bench of the High Court set aside order of the Single Judge--High
Court. however, directed the State to give pay protection, continuity of past
service for pensionarylretiral benefits and the benefit of 5th Pay Commission
on notional basis to the employees··-High Court also treated daily wagers
E as regular appointees and made available the benefits given to regular
employees--Correctness of-Held, State has the power to abolish posts--Court
cannot issue a Writ of Mandamus to the State to continue with the services
of the employees-On facts, employees are estoppedfrom claiming the benefits
and challenging the terms and condititons of the Scheme since they have
accepted the Scheme and filed affidavits-There is also no pleading in the
F Writ Petition that the terms and conditions of the Scheme are contrary to the
provisions of the Contract Act, 1872 or is violative of Article 14 of the
Constitution of fndia-Hence the employees cannot claim the benefit of pay
protection, continuity in service and the benefit under the 5th Pay Commission--
Daily wagers cannot be put on par with regular employees under any law and
G hence no relief is granted to them-State, however, may sympathetically
consider absorption subject to the conditions laid down.
H
Appellant No. I-a Society registered under the Societies Registration
Act, 1860, was formed as a result ofa Scheme formulated by Housing and
Urban Development Corporation to set up a chain of building centres in
516
-
AVAS VJKAS SANSTHAN 1•. AVAS VIKAS SANSTHAN ENGINEERS ASSN.
5 J 7
the State. After a few years, the Society incurred heavy losses and it could A
not pay salaries to its employees. State Government took a decision to dissolve
the Society.
Employees of the Society filed Writ Petitions before High Court
challenging the action of the State and the Housing Board contending that
their services could not be terminated since the Society was an agent of the B
State and the State Housing Board and hence, the termination orders, if any,
passed be quashed and they be retained in service with benefit of their past
services; and that the order of the State to take them into service in the local
bodies of the State at the lowest grade of services without any benefit of past
services be quashed. The State and its Housing Board contended in the Writ C
Petition that the Society was not a State under Article 12 of the Constitution
of India since it was neither financially nor administratively controlled by
the State.
During the pendency of the Writ Petitions before the High Court,
the State offered alternative employment in various local bodies of ihe D
State subject to filing of an affidavit accepting the terms and conditions.
The employees accepted the terms and conditions and filed !lffidavits.
Single Judge of the High Court allowed the Writ Petition of the
employees. The High Court directed the State to pay unpaid salaries to
the employees. The High Court also directed the State Housing Board to E
create a new cell and take the employees into it and quashed the policy of the
State Government to give alternative employment in various local bodies.
The State Government, Housing Board and the Society filed appeals
before the Division Bench of the High Court. The employees also filed an
appeal before the Division Bench of the High Court. Th

## Text

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A
B
AV AS VIKAS SANS THAN AND ANR.
v.
AVAS VIKAS SANSTHAN ENGINEERS ASSN. AND ORS.
MARCH 28, 2006
[H.K. SEMA AND DR. AR. LAKSHMANAN, JJ.]
Constitution of lndia, 1950·-Articles 12 and 14--Contruct Act, 1872Section 23--State Government dissolved a State Society incurring heavy
C losses--Employees of the Society filed Writ Petition before High Court
contending that the Society was an agent of the State and hence their
services could not terminated being government employees-State formulated
a Scheme of providing alternative employment to the employees in various
local bodies subject to certain terms and conditions upon filing of an afjidavitEmployees accepted alternative employment and filed affidavits-Single Judge
D of the High Court quashed the scheme of providing alternative emp/vyment-·
Division Bench of the High Court set aside order of the Single Judge--High
Court. however, directed the State to give pay protection, continuity of past
service for pensionarylretiral benefits and the benefit of 5th Pay Commission
on notional basis to the employees··-High Court also treated daily wagers
E as regular appointees and made available the benefits given to regular
employees--Correctness of-Held, State has the power to abolish posts--Court
cannot issue a Writ of Mandamus to the State to continue with the services
of the employees-On facts, employees are estoppedfrom claiming the benefits
and challenging the terms and condititons of the Scheme since they have
accepted the Scheme and filed affidavits-There is also no pleading in the
F Writ Petition that the terms and conditions of the Scheme are contrary to the
provisions of the Contract Act, 1872 or is violative of Article 14 of the
Constitution of fndia-Hence the employees cannot claim the benefit of pay
protection, continuity in service and the benefit under the 5th Pay Commission--
Daily wagers cannot be put on par with regular employees under any law and
G hence no relief is granted to them-State, however, may sympathetically
consider absorption subject to the conditions laid down.
H
Appellant No. I-a Society registered under the Societies Registration
Act, 1860, was formed as a result ofa Scheme formulated by Housing and
Urban Development Corporation to set up a chain of building centres in
516
-
AVAS VJKAS SANSTHAN 1•. AVAS VIKAS SANSTHAN ENGINEERS ASSN.
5 J 7
the State. After a few years, the Society incurred heavy losses and it could A
not pay salaries to its employees. State Government took a decision to dissolve
the Society.
Employees of the Society filed Writ Petitions before High Court
challenging the action of the State and the Housing Board contending that
their services could not be terminated since the Society was an agent of the B
State and the State Housing Board and hence, the termination orders, if any,
passed be quashed and they be retained in service with benefit of their past
services; and that the order of the State to take them into service in the local
bodies of the State at the lowest grade of services without any benefit of past
services be quashed. The State and its Housing Board contended in the Writ C
Petition that the Society was not a State under Article 12 of the Constitution
of India since it was neither financially nor administratively controlled by
the State.
During the pendency of the Writ Petitions before the High Court,
the State offered alternative employment in various local bodies of ihe D
State subject to filing of an affidavit accepting the terms and conditions.
The employees accepted the terms and conditions and filed !lffidavits.
Single Judge of the High Court allowed the Writ Petition of the
employees. The High Court directed the State to pay unpaid salaries to
the employees. The High Court also directed the State Housing Board to E
create a new cell and take the employees into it and quashed the policy of the
State Government to give alternative employment in various local bodies.
The State Government, Housing Board and the Society filed appeals
before the Division Bench of the High Court. The employees also filed an
appeal before the Division Bench of the High Court. The High Court F
maintained the direction of payment of unpaid salary to the employees but set
aside the quashing of the policy of the State of providing alternative
employment in various local bodies. The High Court, however, directed
the State to give pay protection; continuity of past service for pensionary/
retiral benefits; and the benefit of 5th Pay Commission on notional basis G
to the employees. The High Court also treated daily wagers as regular
appointees and made available the benefits given to regular employees.
Hence the appeals filed by State, Housing Board, Society and the
employees.
The State contended that the abolition of a post is an inherent right of H
518
SUPREME COURT REPORTS
[2006] 3 S.C.R.
A an employer particularly if there was lack of funds or heavy loss; that the
employees, whose services have been terminated, have no right to seel!. reemployment or absorption in other departments of the State; that, even though
there was no legal obligation to offer alternative employment, it framed a
scheme and offered employment in other local bodies of the State; that the
B directions of the High Court will create additional financial burden upon the
various local bodies which absorbed the employees; that the employees have
submitted affidavits to the State stating that their alternative employment with
local bodies will be treated as fresh appointments and would not claim continuity
of service, seniority, pay protection etc.; that the employees are estopped from
challenging the terms and conditions of the alternative employment after filing
C the affidavit; that the employees did not claim that the terms and conditions of
alternative employment are unfair or that there was allegation that the
employees were coerced or unduly influenced to submit the affidavit; that the
benefit of 5th Pay Commission are not available to them since they were not
government employees; that the daily wagers have 110 right to seek regular
D
appointment from the State; that the Rajasthan Civil Services Rules, 1969
are not applicable as the employees were not government servants; and
that they did not raise any ground in the Writ Petition that the decision
to liquidate the Society was ma!afide and that the decision should be quashed.
The employees contended that the State should act as a model employer
E exhibiting fairness of action towards the employees; that they should be given
pay protection, seniority, continuity of service for pensionary/retiral benefits;
that the terms and conditions of the alternative employment violate Article
14 of the Constitution of India and that the settlement is void under section
23 of the Contract Act, 1872; that any undertaking to the Court and
contractual arrangement resultant thereto does not oust the jurisdiction or
F the power of the Court to hear case or grant relief; and that the daily wage
employees should be treated on par with other employees and should be entitled
to similar benefits.
G
Disposing of the appeals, the Court
HELD: 1.1. The power to abolish a post, which may result in the holder
thereof ceasing to be a Government Servant, has got to be recognized. The
measure of economy and the need for streamlining the administration to make
it more efficient may induce any State Government to make alterations in the
staffing pattern of the civil services necessitating either the increase or the
decrease in the number of posts or abolish the post. In such an event, the
H Court cannot, by a writ of mandamus, direct the employer to continue
AVAS VIKASSANSTflAN v. AVAS VIKAS SANS THAN ENGINEERS ASSN..
5 J 9
employing such employees as have been dislodged. The employees of the A
Society have accepted alternative employment imd filed an affidavit They cannot
now say that the judgment of the Division Bench of the High Court should be
given effect. To they are estopped from claiming the benefits and challenging
the terms and conditions of the fresh employment. The employees have no
right to resile from the affidavits filed before the High Court. At no point of B
time, the employees raised any dispute as regards the fairness of the
settlement. Having obtained the benefit, it was not open to them to turn down
without justifiable reasons to contend that the settlement was not fair and
they should be given pay protection, continuity of service for retiral benefits
and placing the employees on par in the receiving Department.
[537-F, G; 538-A-D] C
1.2. The State has acted fairly and benevolently even though it has no
constitutional and legal obligation to offer alternative employment to the
employees on the abolition of the posts. The State framed a scheme and offered
employment in other local bodies of the government by relaxing the rules of
such bodies and the terms and conditions were fixed without financial D
economic compulsions of the State. Thus the terms and conditions of such
alternative employment cannot be challenged. There is also no pleading in
the Writ Petition that the conditions contained in the affidavit of undertaking
are contrary to Section 23 of the Contract Act, 1872 or violative of Article
14 or inconsistent with the Directive Principles of State Policy of the E
Constitution of India. The State is directed to strictly adhere to and implement
its decision to offer employment in other local bodies in letter and spirit. All
the erstwhile employees, if not already employed, should be employed in the
local bodies as per the scheme formulated by the State in a war footing.
[535-E; 540-C, D]
F
Rajendra v. State of Rajasthan, [1999) 2 SCC 3i7 and S.K. Nilajkar v.
Telecom District Manager, (2003) 4 SCC 27, relied on.
M. Ramanathan Pillai v. State of Kera/a, (1973) 2 SCC 650; K.
Rajendran v. State of Tamil Nadu, (1982) 2 SCC 273; Bank of India v. O.P.
Swarnakar, (2003) 2 SCC 721; State of Uttaranchal v. Jagpal Singh Tyagi, G
(2005] 8 SCC 49; Central Inland Water Transport Corporation Ltd and Anr.
v. Brajo Nath Ganguly and Anr., (1986) 3 SCC 156; Delhi Transport
Corporation v. D. TC Mazdoor Congress and Ors., (1991( I Supp. l SCC 600;
Gurmail Singh v. State of Punjab, [1991) l SCC 748; Prakash Ramachandra
v. Maruthi, (1995] Supp. 2 SCC 539; National Building Construction
Corporation v. Raghunathan,. (1998] 7 SCC 66; Federal Bank Ltd. Sagar H
520
SUPREME COURT REPORTS
(2006] 3 S.C.R.
A Thomas, (20031 IO SCC 733 and Pradeep Kumar Biswas v. Indian Institute
of Chemical Biology, (20021 5 SCC 111, referred to.
1.4. There is a Cabinet decision of the State that no pay protection should
be granted to the employees. The cabinet decision was taken after taking into
consideration the views of the Finance Department as it has huge financial
B burden on the local bodies offering re-employment after relaxing their own
recruitment rules. The undertaking by the employees when they were
absorbed into other local bodies had the same stipulation. This being so, the
claim for pay protection by the employees at this late stage cannot be made.
Due to the absence of any legal right for pay protection to the employees,
C such claims cannot be sought for. In the absence of any legal right of pay
protection and fresh employment consequent upon on fresh appointment on
humanitarian grounds, the decision of the High Court to grant protection of
pay is unsustainable and liable to be interfered with.
1535-G, H 536-A; 538-DI
D
1.5. There is a Cabinet decision of the State that the benefit of past
service is not to be counted for any purpose. The undertaking by the
employees when they were absorbed into other local bodies had the same
stipulation. Under the provisions of the Society Employees Service
Regulation, 1993, the employees were having the benefit of contributing
provident fund and were not entitled to any other pensionary/retiral
E benefits. The employees have withdrawn provident fund including the
employer's contribution after termination of service from the Society. Thus
the services rendered by the employees with the Society cannot be counted
for the purpose of pensionary/retiral benefits since such benefits were not
available to them even in their parent organization. Therefore, such claim
p
for counting services rendered in the Society for the pensionary/retiral
benefits cannot be made.1536-B; 539-A-q
1.6. The recommendations of the 5th Pay Commission is applicable
only to Government Servants. Since the employees of the Society are not
government servants, they are not entitled to the benefits under 5th Pay
G Commission Report. In the Writ Petition, there was no prayer for grant
of benefit of 5th Pay Commission. Thus the High Court has erred in directing
that the benefit of the recommendations of the 5th Pay Commission shall be
given to the employees of the Society on notional basis. The employees would
be governed by the terms and conditions of the local bodies where they have
H been re-employed.1539-D, El
AVAS VIKAS SANSTHAN v. AVAS VIKAS SANSTHAN ENGINEERS ASSN. [LAKSHMANAN, J.J 521
A.I. Railway Parcel and Goods Porters Union v. Union of India and A
Ors., 12003) 11SCC590, referred to.
1.7. The daily wage employees cannot be put on par with regular
employees under any law prevalent as of date. The finding of the High Court
that they can be treated on par with regular employees and be given various
reliefs is wrong and erroneous under law. Therefore, no relief is granted to B
the daily wage employees as their claim is not justified under law. However,
the State may sympathetically consider absorption of these employees in the
vacancy available if any in future by giving them preference to other new
applicants in any of their local bodies etc. subject to the stated conditions laid
down. (536-G, H; 537-A)
C
Punjab State Electricity Board v. Malkiat Singh, 12005) 9 SCC 22,
referred to.
1.8. The State Civil Servkes (Absorption of Surplus Personnel) Rules,
1969 are applicable only to the government servants. The employees of D
the Society are not government servants and hence the Rules are not
applicable to them. (541-D]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5302/2004.
From the Judgment dated 3.5.2002 of the High Court of Rajasthan i11 E
D.B. Civil Special Appeal No. 315/2002 in SBCWP No. 1750/1999.
With C.A. Nos. 5303, 5305-5308, 5309-5311, 5312-5316, 5317-5322,
' 5323-5327, 5328-5330, 5331-5336, 5337, 5339, 5342-5348, 5349-5351, 53525354, 5356, 5357-5359, 5360-5365, 5366-5370, 5371-5376, 5377-5381, 53825385, 5386-5392, 5338 and 5340-5341 of 2004.
Vijay Hansaria, Dr. Rajeev Dhawan, B.D. Sharma, Jatinder Kumar
Bhatia, Sushi! Kumar Jain, A.P. Dhamija, H.D. Thanvi, Prashant, Ms. Rani
Maheshwari, Ms. Pratibha Jain, Manish Kumar, Ansar Ahmad Chaudhary,
F
Ch. Shamsuddin Khan, Ms. Shobha, Annam D.N. Rao, Ms. Shweta Verma,
Aruneshwar Gupta, Naveen Kumar, Anil Kumar Gupta-II and Mrs. K. Sharda G
Devi for the appearing parties.
The Judgment of the Court was delivered by
DR. AR. LAKSHMANAN, J. This batch of appeals arise from the
H
522
SUPREME COURT REPORTS
(2006] 3 S.C.R.
A common final judgment and order dated 03.05.2002, passed by the High Court
of Judicature for Rajasthan at Jaipur in D.B. Civil Special Appeal No. 31512002
etc. etc. in S.B.C.W.P. No. 1750/99 etc. etc. whereby the High Court partly
allowed the appeal of the appellants-herein by holding that the employees
(respondents) are entitled to re-employment and the various reliefs claimed by
them.
B
Since all the appeals involve common question of law, they have been
heard together with the consent of concerned parties and are being disposed
of by this judgment.
C Facts in brief
Avas Vikas Sansthan (in short 'the A VS') was registered as a Society
under the Societies Registration Act, l 860 on 17 .11.1988. The A VS was
brought into existence to achieve certain objectives. The objects of the society
were to collect in formation regarding low cost technology for construction of
D houses, undertake field studies for development of appropriate low cost
building materials, undertake construction works, imparting practical training
etc. in the State of Rajasthan.
The A VS was brought into existence as a result of the Scheme formulated
by the Housing and Urban Development Corporation, New Delhi, to set up
E chain of building centres in the State of Rajasthan.
Appellant No.2 the Rajasthan Housing Board sanctioned a sum of Rs.
l-5 lakhs per building centre and provided land free of cost for setting up of
9 such centres in Rajasthan. The A VS was to raise its own resources; the
State Government or the Rajasthan Housing Board did not have any control
F over the A VS. The A VS had employed the respondents.
The AVS started functioning in the year 1989, but in the year 1997, it
began to incur heavy losses and could not pay its employees their salaries
after 0 I. 12. 1998. The Rajasthan Government decided that, in view of the
G financial and administrative conditions of the AVS, it should be dissolved
and the State Government directed the appellant-the Rajasthan Housing Board
to take immediate steps to liquidate the A VS. The State Government also
directed that the employees of the f VS would be adjusted on priority on the
vacant posts of Municipal Boards, Municipal Councils, Jaipur Development
Authority and other local bodies whenever posts fell vacant on the retirement
H of the employees of such local bodies. By the resolution of the A VS dated
AVAS VIKAS SANSTHAN v. AVAS VIKAS SANS THAN ENGINEERS ASSN. (LAKSHMANAN, J.] 523
26.03.1999, the A VS was dissolved.
The respondents (employees), feeling that their services might be
terminated, filed a writ petition in the High Court on 26.03.1999, made the
following averments:
A
*
A VS is only an agent of the State Government of Rajasthan and B
of the Rajasthan Housing Board.
*
*
The services of the respondents, who were employees of the
State Government/Rajasthan Housing Board, could not be
terminated by the Rajasthan Housing Board or the State
Government or the A VS and
Also if any termination order be passed it be quashed and they
might be retained in service with benefit of their past services in
all respects.
c
*
The Governmentmder dated 15.03.1999 was challenged by which D
the respondents were to be taken in service by local bodies viz.
Panchayat, JD.A. etc. at the lowest grade of services without
any benefit of past services.
A VS terminated the services of all its 46 daily wage employees on
31.03.1999.
On 01.06.1999, State Government issued an order which contained
directions regarding the manner in which the employees of the A VS would
be given first appointment in the local self-Government institutions in
Rajasthan without benefit of past service. The condition, which was put by
E
the Government was that, they would be given employment on the lowest p
post of pay drawn in A VS of direct recruitment and on the minimum of the
grade and no benefit of past service would be given to them. An option was
also given to the employees to retire under Voluntary Retirement Scheme, if
they so desired.
The Rajasthan Housing Board and the State Government of Rajasthan G
contested the writ petitions by filing replies.
*
It was averred, inter alia, in the reply by the Rajasthan Housing
Board that A VS was a registered Society under the Societies
Registration Act, 1860.
H
A
B
524
•
SUPREME COURT REPORTS
[2006] 3 S.C.R.
And it was neither financially nor administratively controlled by
the State Government or the Housing Board and hence the said
AVS could not be said to be a 'State' within the meaning of
Article 12 of the Constitution of India and the employees were
not employees of the State Government or Rajasthan Housing
Board, they had no remedy against the State Government or the
petitioner- Housing Board.
During the pendency of the writ petitions, an offer was made to the
employees of the A VS to agree to be given new appointment in local self
Government institutions on the condition mentioned in order dated 01.06.1999
C of the State Government and the employee:; were asked to submit undertaking
in the form of affidavits that they were willing to take employment in the
Municipal Boards, Municipal Councils, J.D.A etc. on the conditions set out
in the order and that on such affidavits being filed, they would be given
employment in such local Government institutions.
D
The respondents and all the other permanent employees of the A VS
E
submitted their affidavits and were given employment in the Municipal Boards,
Municipal Councils, and J.D.A.
Learned Single Judge of the High Court allowed the writ petition and
held as under:-
(a)
Employees will be entitled to salary for the period worked by
them;
(b) Rajasthan Housing Board to create a new cell in the name of the
Low Cost Housing Centre or any other name and the employees
F
would be employed in the said centre;
( c) The policy of the State Government to give alternate employment
was quashed. However, the employees were given option to
continue in the said employment if they so choose.
Feeling aggrieved, the Rajasthan Housing Board, the A VS and the
G State Government preferred appeals before the Division Bench of the High
Court.
The Division Bench disposed of all the appeals by the impugned order.
The Division Bench maintained the direction to pay unpaid salary. The direction
H to constitute a Low Cost Housing Centre and the quashing of State
AVAS VIKAS SANSTHAN v. A VAS VIKAS SANS THAN ENGINEERS ASSN. [LAKSHMANAN, J.J 525
Government decision to provide alternate employment was set aside. However, A
the Division Bench on the appeal filed by the employees directed grant of
following benefits:
(i)
pay protection;
(ii) service to be counted for the purpose of pension and other B
retirement benefits;
(iii) benefit of fixed period higher pay scale available to Government
employees under Government Order dated 25.01.1992;
(iv) benefit of 5th Pay Commission to be available on notional basis;
(v) one Narendra Kumar Sharma and few other daily wagers to be C
treated as regular appointees as they were selected but not
appointed on regular basis till date of dissolution;
(vi) certain employees including Brijesh Kumar Goel and R.K. Saini
who were working at Latur Project in Maharashtra were also
entitled to alternative employment in local bodies.
D
PARTICULARS OF APPEALS
The appeals in the present batch of cases may be divided in the
following three categories:
A.
The following 12 appeals have been filed by the RHB and A VS:
Civil Appeal Nos. 5302/04, 5317-5322/04, 5312-5316/04, 53095311/04, 5323-5327/04, 5328-5330/04, 5331-5336/04, 53425348/04, 5305-5308/04, 5337/04, 5303/04.
E
B.
The following 11 appeals have been filed by the State of p
Rajasthan:
Civil Appeal Nos. 5339/04, 5371-5376/04, 5366-5370/04, 5309-53525354/04, 5377-5381/04, 5357-5359/04, 5360-5365/04, 5386-5392/04,
5382-5385/04, 5356/04.
C.
The following appeal have been filed by the Employees: Civil G
Appeal Nos. 5349-5351/04.
Against the decision of the Division Bench of the High Court,
the appellants preferred the above appeals to this Court.
We heard Mr. Vijay Hansaria, learned senior counsel appearing for the H
526
SUPREME COURT REPORTS
[2006] 3 S.C.R.
A appellant and Dr. Rajeev Dhawan, learned senior counsel, Mr. Aruneshwar
Gupta and Ms. Shobha, learned counsel appearing for the respective
respondents.
B
c
D
E
F
G
H
Mr. Vijay Hansaria, learned senior counsel for the appellants made the
following submissions:
(a) That after the dissolution of the A VS, in the writ petition
preferred by the respondents no ground was taken saying that
the liquidation was ma/a fide nor was it prayed that the decision
to liquidate be quashed.
(b) That on 18.05.1999 Cabinet decision was taken to absorb the
employees of the AVS 'in principle' as decided on 09.03.1999 by
prescribing certain terms and conditions after considering the
opinion of the Finance Department.
(c) That there is no conflict between the Cabinet decisions dated
09.03.1999 and 18.05.1999, neither is there any change in policy
of the State Government nor the State Government has gone
back on any promise made earlier. In the cabinet decisions dated
09.03.1999 only an 'in principle' decision was taken to adjust
the employees of the AVS in other local bodies and 'modalities'
of adjustment was worked out in the Cabinet decision dated
18.05.1999.
( d) Thereafter the State Government wrote to all local bodies for
appointment of employees of the A VS in their departments along
with ·affidavits filed by the employees of the A VS showing their
willingness to take employment in other local bodies. In 2000,
all the employees of the A VS were given alternate employment
as fresh employment on certain terms and conditions. All the
employees have submitted affidavits inter-alia stating that their
appointment with local bodies will be treated as fresh appointment
and will not claim continuity of service, seniority, pay protection
etc. and that they will withdraw writ petition. Several employees
have even filed application for the withdrawal of the writ petition
in terms of their undertakings.
( e) The writ petition was not amended challenging the terms of
undertaking filed by the employees of Sansthan for securing
employment with the local bodies. There is no allegation in the
AVAS VIKAS SANSTHAN v. AVAS VIKAS SANSTHAN llNGINEERS ASSN. [LAKSHMANAN, J.] 527
writ petition that the employees were coerced/forced/unduly A
influenced to submit the undertaking.
Submissions on Merit
It was submitted by Mr. Hansaria that abolition of posts is a matter of
policy and is an inherent right of the employer particularly on the closure of B
a project due to lack of funds and heavy loss. The natural consequence of
abolition of posts in any organization is the termination of services of the
employees engaged in such organization. It was further urged that the
employees whose services have been terminated as a consequence of abolition
of posts have no right to seek re-employment or absorption in other C
departments. Learned senior counsel relied on the view taken by this Court
way back in 1973 in the case of M Ramanathan Pillai v. State of Kera/a,
[1973] 2 sec 650 that 'the discharge of the civil servant on account of
abolition of post held by him is not an action which is proposed to be taken
as a personal penalty but it is an action concerning the policy of the State
whether a permanent post should continue or not. The power to abolish any D
civil post is inherent in every sovereign government. And such abolition will
not entail any right on the person holding the abolished post the right to reemployment or to hold the same post.
Learned senior counsel relied on the decision in K. Rajendran v. State
of Tamil Nadu, [1982] 2 sec 273 on the same issue in which this Court has E
held that, 'the question whether a person who ceases to be Government
servant according to law should be rehabilitated by giving an alternative
employment is, as the law stands today, a matter of policy on which the
Court has no voice.'
Citing the decision of this Court in the case of Rajendra v. State of F
Rajasthan, [1999] 2 SCC 317 and S.M Nilajkar v. Telecom District Manager,
[2003) 4 SCC 27 learned senior counsel submitted that when a project has
been shut down due to want of funds the employer cannot by a writ of
mandamus be directed to continue employing such employees as have been
dislodged because such a direction would amount to requisition for creation G
of posts though not required by the employer and funding such posts though
the employer did not have the funds available for the purpose. And also that
the same will act as a disincentive to the state to float such schemes in future.
With regard to the employment .of 604 employees of the A VS, it was
argued that the State of Rajasthan had no legal obligation to offer alternative H
528
SUPREME COURT REPORTS
(2006) 3 S.C.R.
A employment to the erstwhile employees of the Sansthan. But the State of
Rajasthan did frame a scheme and offered employment in other local bodies
of the government. Therefore the terms and conditions of such alternative
employment cannot be challenged.
It was also submitted that additional financial burden will fall upon the
B various local bodies which have absorbed the employees of the A VS, if the
directions of the Division Bench of the Rajasthan High Court are enforced.
It was further argued that the employees of the AVS did accept the alternative
employment with the terms and conditions set out initially by way of an
affidavit and therefore they are now estopped from claiming benefit and
C challenging the terms and conditions of the fresh employment by citing the
decision in the case of Bank of India v. O.P.Swarnakar, [2003] 2 SCC 721
which laid down that, "the scheme is contractual in nature. The contractual
right derived by the employees concerned, therefore, could be waived. The
employees concerned having accepted a part of the benefit could not be
permitted to approbate and reprobate nor can they be permitted to resile from
D their earlier stand."
Placing reliance on a very recent decision of this Court in the State of
Uttaranchal v. Jagpal Singh Tyagi, [2005] 8 SCC 49, learned senior counsel
submitted that. "the employees did not, at any point of time. claim that the
terms of settlement were not fair, therefore after obtaining some benefit, it
E was not open to the employees to later tum away without justifiable cause
and contend that the settlement was not fair."
On the question of Pay Protection and for counting services rendered
in the A VS for pension and other retiral benefits claimed by the respondents,
F the arguments put forward by the appellant was that on facts the Cabinet
decision of 18-05-1999 specifically states that "no pay protection should be
granted to the employees", the same was conveyed by the Rajasthan Housing
Board letter dated 01-06-1999. This decision was taken after considering the
views of the Finance Department. So also the undertaking by the employees
when they were absorbed into other local bodies had the same stipulation,
G therefore at this later stage such pay protection and counting of services for
pension and other retiral benefits cannot be claimed for.
Coming to the claim of the respondents for the benefit of the Government
order date 25.01.1992, it was argued by the appellants that the Government
Order in question is applicable only to 'government servants' and as such the
H employees of A VS are not entitled to the benefit of the said government
---
AVAS VIKAS SANSTHAN v. AVAS VIKAS SANSTHAN ENGINEERS ASSN. [LAKSHMANAN. J.J 529
order. And also the employees would be governed by the terms and conditions A
of the local bodies where they have been reemployeq. So also the benefit of
the 5th Pay Commission is applicable only to government employees. Since
the employees of the A VS are not govt. employees they are not entitled to
the benefit of the 5th Pay Commission.
With regard to appointment of 46 daily wage employees, it was argued B
that after the dissolution of the Society, there is no right on the part of any
employee to be re-employed. Therefore, it was argued that the daily wagers
have no right seeking regular appointment. The decision of this Court in the
case of Punjab State Electricity Board v. Malkiat Singh, (2005] 9 SCC 22 was
relied on. It was held that, "it is settled law that mere inclusion of name of C
a candidate in the select list does not confer on such candidate any vested
right to get an order of appointment". Thus it was argued that the Writ issued
by the Division Bench of the High Court to treat the daily wagers at par with
the regular appointees of Avas Vikas Sansthan is wrong.
Further it was argued by the appellant that the decision in the case of D
Central Inland Waters Transport Corporation Limited & Anr. v. Brojo Nath
Ganguly & Anr., [1986] 3 SCC 156 and Delhi Transport Corporation v.
D. T. C. Mazdoor Congress & Ors., [I 991] Supp I SCC 600 have no application
hi:re because those cases relate to a term in the employment that even services
of a permanent employee can be terminated on 3 months notice without
assigning any reason and such condition was specifically assailed therein. E
The present matter relates to providing alternative employment to the
employees of an organization that is liquidated and posts have been abolished.
In such circumstances the employees of an organization that is liquidated has
no right to seek re-employment.
It was argued that the reliance placed by the respondents on the
provisions of Rajasthan Civil Services Rules, 1969 is wholly misconceived
as the Rules mentioned apply only to government servants. Therefore, these
rules will not apply to employees of the A VS.
F
Dr. Rajeev Dhawan, learned senior counsel for the respondent submitted G
as follows:-
According to learned senior counsel, the judgment of the Division Bench
of the Rajasthan High Court is correct in so far as it gave:
(a) Pay protection (including benefit of higher scales for completing H
530
SUPREME COURT REPORTS
[2006] 3 S.C.R.
A
of 9, 18 and 27 years)
B
(b) Counting of service for retiral benefits for long standing employees
of the AYS.
Submissions on law
The State is expected to act as a model employer exhibiting 'fairness of
action' towards long standing employees. Learned senior counsel relied on
the decision of this Court in Gurmail Singh v. State of Punjab, [ 1991] I SCC
748. It was laid down by this Court that even though according to the
provisions of Section 25-FF of the Industrial Disputes Act, 1947, retrenchment
C compensation has been paid and accepted, the State was under a duty to treat
employees who were on deputation and those who were dismissed equally
because the state was a "model employer" exhibiting "fairness in action".
It was argued that the above case is an authority for the proposition that
where a state body is shut down, it is part of the obligations of the state as ·
D a model employer dedicated to fairness in action that subject to adjustments,
employees who were on deputation and those who are dismissed should be
absorbed subject to similar equities:-
E
F
G
There should necessarily be: -
*
*
*
Pay protection where appointments are made on a lower scale.
Counting of Service for retiral benefits
Placing the employees on par in the receiving departments
including salary
Gurmail Singh (supra) has also laid down that it would not be fair to
allow absorbed employees to steal a march over the employees in the
department into which they are absorbed. However the regular appointees of
such local bodies should not be put at a disadvantageous position by the loss
of seniority due to the absorption of the employees of the A VS.
Following the decision in the case of Central Inland Waters Transport
Corporation limited (supra), it can be observed that:
I.
Unfair labour contracts shock the conscience and are opposed to
public policy.
H
2.
Such unconscionability could be caused by economic duress
A VAS VIKAS SANS THAN '· A VAS VIKAS SANS THAN ENGINEERS ASSN. [~AKSHMANAN, J.J 5 3 J
3.
Inequality of bargaining powers vitiates contracts, such contracts A
also violate Article 14 of the Constitution
4.
This Court in the present case applied Section 23 of the Contract
Act and held the contract to be unconscionable and void.
"The principle deducible from the above discussions on this part of the case B
is in consonance with right and reason, intended to secure social and economic
justice and conforms to the mandate of the great equality clause in Article
14. This principle is that the courts will not enforce and will when called upon
to do so, strike down an unfair and unreasonable contract or an unfair or
unreasonable clause in the contract, entered into by two parties who are not
equal in bargaining power. It is difficult to give an exhaustive list of all C
bargains of this type. No court can visualize the different situations which can
arise in the affairs of men; one can only attempt to give some illustrations."
Further, learned senior counsel submitted that this Court in Delhi
Transport Corporation v. DTC Mazdoor Congress, (supra) approved the
Central Inland decision (supra) and struck down the unconscionable 'hire & D
fire' clause.
Our attention was invited to certain observations made by Ramaswamy,
J. and B.C. Ray, J; which are as under:-
!.
The State cannot impose unconscionable conditions and stated E
that such contracts were contrary to Article 14.
2.
Public policy in contract be construed accordingly and be drawn
from the constitution.
B.C. Ray, J. observed that there should not be any limitation on the freedom
of contract and specifically approved Central Inland decision (supra) in respect
of such contracts being contrary to Article 14 guaranteed under the
Constitution. This Court further observed that, "The court has, therefore the
jurisdiction and power to strike or set aside the unfavourable terms in contract
of employment which purports to give effect to unconscionable bargain
violating Article 14 of the constitution."
It was further observed in the case of Prakash Ramachandra v. Maruthi,
[1995] Supp 2 SCC 539 that any undertaking to the court and contractual
arrangement resultant thereto does not oust the jurisdiction or the power of
the court to hear cases or grant relief.
F
G
H
532
SUPREME COURT REPORTS
(2006] 3 S.C.R.
A
Learned counsel for the respondents while citing the decision in National
Building Construction Corporation v. Raghunathan, (1998] 7 SCC 66 argued
that a legitimate expectation is created where employees have been assured
absorption on one basis, which is there altered to their detriment under coercive
circumstances where they have not been paid and acted on the previous
promise that they have tried to enforce in court. It was further argued that
B the decisions cited by the appellant on Article 311 and abolishing civil posts
are exceptional and irrelevant to the present controversy.
that,
c
D
Therefore, according to learned senior counsel, the law clearly establishes
(a) The State must be a model employer and show fairness in action
(b) Even where all statutory requirements (such as Section 25 FF)
and technicalities have been complied with, the State must be fair
enough to absorb employees on a minimal fairness basis which
includes:
(i)
protection to pay scale
(ii) counting of past service for pensionary benefits
(iii) no seniority over new employees in the new organization
E
(iv) equal treatment in future with all employees
F
G
H
(c) Unconscionable contracts and undertakings are contrary to section
23 of the Indian Contract Act, public policy, Article 14 of the
Constitution and Directive Principles of state policies.
( d) Undertakings not accepted by the lower court (and even if
accepted) do not inhibit this Court's jurisdiction to hear a matter and
grant relief.
With regard to the argument of the appellant's counsel that:-
(a) the employees should not be given pensions;
(b) the Division Bench should not have ordered increments at 7, 13
& 27 years as are available to other employees the learned counsel
argued that, if this was made practicable, the employees after
joining the new department cannot be meted out discriminatory
treatment. TI1ey will lose seniority, but they cannot be denied
-
~-
.'-
AVAS VIKAS SANSTHAN .-. AVAS VIKAS SANSTHAN ENGINEERS ASSN. [LAKSHMANAN, J.] 533
benefits available to others. The respondent's counsel also stated A
that a situation cannot be created where, a former A VS worker
has no pension or Provident Fund and also not to discriminate
by not to extending 9, 18 & 27 years of service which would be
available to others.
Mr.