State Bank of India and The Chairman, State Bank of India and Trustees of the State Bank of India Employees Provident Fund V. The Bank Officers (Retd.) Association

SAW/825/2006

AI Insights

The case involves a dispute between the State Bank of India and the Bank Officers (Retd.) Association regarding the interest rates applied to Provident Fund deposits of bank employees from 1969 to 1976. The bank had initially credited these deposits with higher interest rates than those stipulated by the regulations. The bank sought to rectify this by adjusting the excess interest paid. The learned Single Judge's decision, which favored the employees' association, was challenged by the bank in this appeal. The court upheld the Single Judge's decision, emphasizing that the bank, as a trustee of the employees' funds, must adhere to the regulations and cannot unilaterally alter the terms of interest payment.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 821149 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 30-10-2017
• Assessment Year: misc
• Other Referred Cases: Division Bench of Madras High Court
• Laws Referred To: State Bank of Bikaner and Jaipur Employees Provident Fund Regulations, 1969, State Bank of India (Subsidiary Banks) Act, 1959
• Result in Favour of: Respondent
• Court: HIGH COURT
• Department Lawyers: GAYATRI RATHORE
• Assessee Lawyers: G K GARG; ANITA AGARWAL
• Keywords: Banking regulations; Employee benefits; Interest Rates; Provident fund
• Section: 63

Judgement Text

"HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Special Appeal Writ No. 825 / 2006 1. State Bank of India Through Its Managing Director, Central Office At Madam Cama Road, Nariman Point, Mumbai-400021 2. The Chairman, State Bank of India, Central Office, Bombay. 3. Trustees of the State Bank of India Employees Provident Fund, C/o. SBI, Central Office At Madam Cama Road, Nariman Point, Mumbai-400021 ----Appellants Versus The Bank Officers (Retd.) Association, 5 Jha 5, Jawahar Nagar, Jaipur Through Its Secretary Shri B.K. Gupta S/o. Shri R.K. Gupta, R/o J-135, Adarsh Nagar, Jaipur- Present Address Through Secretary Shri H.S. Sharma, 4334, Last Crossing Govind Rajaiyon Ka Rasta, Chandpole Bazar, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. G. K. Garg, Senior Counsel with Ms. Anita Agarwal For Respondent(s) : Ms. Gayatri Rathore _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 30/10/2017 1. By way of this appeal, the original respondent-appellant including Trust has challenged the judgment and order of the learned Single Judge whereby the learned Single Judge has disposed of the petition relying on the decision of Division Bench of Madras High Court. 2. Facts of the case are that the case relates to the interest on the Provident Fund deposits in the Schedule floated by the (2 of 13) [SAW-825/2006] respondent-Bank in respect of its employees who are members of the association. The respondent-Bank during the period 01.10.1969 to 31.03.1976 determined the rates of interest in terms of Regulation 12(2) of the State Bank of Bikaner and Jaipur Employees Provident Fund Regulations, 1969 framed under Section 63 of the State Bank of India(Subsidiary Banks) Act, 1959 between 6% to 11% whereas the bank rate of interest during the said period varied between 5% to 6% on the long term deposits of the bank. The bank took a decision on 20.09.1976 to award the interest to the members of the scheme at the rate of 5% to 6% which was the statutory rate of interest on the deposits made by the employees who were members of the fund for the period commencing 1.10.1969 and ending 31.03.1976 in place the rate of 6% to 11% which was the rate of interest on the long term deposits held by the bank and allowed by the Trustees of the Fund on the deposits and contributions made by the employees and the Bank respectively. 3. Counsel for the appellant has submitted that learned Single Judge has committed a serious error in interpreting the provisions of State Bank of Bikaner and Jaipur Employees, Provident Fund Regulations, 1969 (hereinafter referred to as the Regulations- 1969). He invited our attention to Regulation-12(2) with regard to interest which reads as under:- “The account of each member will be credited with interest on the amount standing to his credit at a rate which shall be fixed by the Trustees annually, having regard to the return which can be obtained on the investment of other provident, charitalble, religious and Trust and quasi Trust funds in accordance with the (3 of 13) [SAW-825/2006] rules, schemes or directions made, framed or given by the Central Government in this behalf. Such interest shall be calculated in round rupees (rounding off the amount to the next higher rupee) on the monthly products of each member’s account and shall be applied to the account half yearly as on 31st March and 30th September.” 4. Counsel for the appellant has also strongly relied upon Regulation 18 which reads as under:- “ On any member ceasing to be a member of the Fund any amount not payable to him or to the Bank, under the provisions of these Regulations, shall be forfeited to the Fund. All Sums so forfeited to the fund, due to any reason whatsoever, all profits earned at any time on the sale of investments and all surplus income not allocated for payment of interest as provided under these Regulations shall be transferred to a separate account and shall be used and applied by the Trustees primarily as a reserved against any loss to the Fund on the sale or in consequence of any depreciation of investments and secondly for the benefit of the members and/or retired members and/or dependents of the deceased members and/or any such persons collectively and/or for such purpose connected with the Fund in such manner as the Trustees shall in their absolute discretion think fit.” 5. Counsel for the appellant has contended that the learned Single Judge has wrongly interpreted the decision of Madras High Court wherein it has been observed as under:- “According to the second respondent, the rate of interest payable on moneys of the Fund deposited with the second respondent ought to have ranged between 5 per cent and 6 per cent during the period from 01-10-1969 to 31-03- 1976 as per Sub-regulation(2) of the regulation 12 and, yet, on such deposits at staff rates which ranged between 6 per cent and 11 per cent, which was not the permissible rate and heither under the regulation nor under the contract governing investments, the second respondent is (4 of 13) [SAW-825/2006] bound to pay interest higher than that provided. By virtue of crediting the Fund with interest at the rates ranging from 6 percent to 11 percent, the amount of over Rs. 50 lakhs now dispute go credited to the Fund by mistake this mistake has got to be rectified and according to the second respondent, which has filed an affidavit after the writ petition was heard in part, the amount has been withdrawn on 16.07.1976 by the trustees of the Fund and debited to the current account with the Public park Bikaner Branch of the second respondent bank on the said date and the aforesaid amount was later, on 23.12.1976, credited by the second respondent to its sundry deposit account, in which account the said amount lies as on date. The nineteenth respondent. The Secretary in charge of the fund had written on 06.07.1976 to the Branch Manager of the Public Part Bikaner Branch of the second respondent, stating that the amount in dispute, which is alleged to respondent the excess payment of interest for the period 01.10.1969 to 31.03.1976 could be debited to the Fund’s current Deposit Account with the Bank and may be credited to the Bank’s income account. The second respondent circulated the papers mentioning the agenda for the meeting of the trustees of the Fund to be held on 20.09.1976 at Bombay and item 3 of the agenda reads as follows: “3. To approve the refund of excess interest received by the Trustees to the State Bank of Bikaner and Jaipur on the term deposits of the fund.” The case of the petitioners is that no exception could be taken to the interest credited to the Fund and a proper interpretation of Regulations 11, 12, and 18 will amply bear out that there is no prohibition for the payment of interest at a rate higher than the one provided under sub-regulation (2) of regulation 12, and the interest having had been credited at a specified rate, it is not open to the second respondent, admittedly at the instructions of the first respondent, to recover the alleged excess payment of interest and hence the proposed resolution to be passed at the meeting to be held on 20.09.1976 or on any other date should not be contenanced and the respondents should be restrained from agreeing to, approving or ratifying such resolution.“ (5 of 13) [SAW-825/2006] 6. Counsel for the appellant has also relied upon the observation made by the Madras High Court which reads as under:- Hence, It is not possible to countenance on argument that the Fund as such cannot be allowed to earn more interest than what is permissible to a member. It is admitted that the accounts of a large number of employees were credited with a higher rate of interest and it has been proposed to condone the payment of such interest for the years from 1969-1973. The explanation offered by the second respondent is that such large number of employees had already retired or ceased to be in the service of the second respondent and since recovery at this stage is not possible it was proposed to the trustees to approve as a special case the payment of such higher rate of interest. This, to a very great extent, indicates that there is no hard and fast rule adopted by the second respondent with reference to the payment of interest concerning the amounts of the Fund and its members. Legitimately, the petitioners advance a case that there is no statutory prohibition for the payment of interest at a rate higher than the one contemplated under regulations12(2) it cannot be stated that the second respondent did something which stood prohibited by the statutory Regulations and on that account a mistake has crept in, which required ratification. After all, the fund has earned interest at a rate permissible on long term fixed deposits and there is no justification for reopening the matter on the ground of mistake. As stated above, it is not possible to spell out any statutory prohibition with regard to payment of interest on the moneys of the Fund held by the second respondent on long term fixed deposits at a rate over and above that contemplated under regulation 12(2). If the second respondent has paid such interest, it may not be permissible for it to re-claim it on the ground of mistake even if such an action is to be taken at the instance of the first respondent. The surplus had become available to the Fund for the purpose of the same being utilized as contemplated under regulation 18. The case of the petitioners is that a sub- (6 of 13) [SAW-825/2006] committee was constituted, including the nineteenth respondent, for suggesting welfare schemes to put before the trustees and an item to that effect was included in the agenda for the trustees meeting to be held on 19.08.1975 for working out welfare schemes. But, unfortunately, the meeting could not be held and it got postponed. The very move on the part of the second respondent to take away the benefit of interest already accrued to the Fund and which benefit is available for the purpose of working out its welfare schemes as contemplated under regulation 18 being an incompetent and unsustainable one, it is not permissible for the trustees of the fund or any office bearer of the Fund to give sanctity to this action by passing any resolution to that effect. Viewed from this angle. The grievance of the petitioners appears to be legitimate and tenable. The trustees of the Fund are bound to act in the interests of the members under the Regulations. The Regulations by themselves di not lay down a prohibition for payment of interest on the moneys of the Fund held by the second respondent at a rate over and above the rate contemplated under regulation 12(2). Regulation 12(1) could not be construed to compel the second respondent to pay interest at a rate not less than that contemplated under regulation 12(2) and it cannot be construed as laying down a rule prohibiting the second respondent from paying interest on the moneys of the fund held by it at a rate higher than that contemplated under regulation 12(2). If the trustees of the fund are to pass any such resolution as notified in the agenda for the moding to be held on 20.09.1976, that would not be in consonance with the duties and obligations which they are bound to discharge in the interests of the members under the Regulations. After all the trustees administer the fund and they cannot act in derogation of the rights and interests of its members. Any such proposed action by the trustees of the fund must have the sanction of the Regulations. In the instant case, such a sanction is lacking and on the other hand, there is a misconception and definitely, that would amount to a breach of the duties and obligations of the trustees, who are constituted by the statutory Regulations. It is stated by the petitioners that respondents 1 and 2 are behind this process of passing the proposed resolution and this is not being denied by the (7 of 13) [SAW-825/2006] second respondent. On the other hand, the second respondent justifies and supports the passing of such a resolution. “ 6.1. Thereafter he has taken us to the observation made by Division Bench which reads as under:- The Regulations above quoted thus show that(1) all moneys of the Fund except sums withdrawn under Regulation 14, 15 and 17 were to be deposited in an account styled’ The Trustees of the State Bank of Bikaner and Jaipur Employees Provident Fund’ or invested by the Trustees in any securities for the time being authorized under the Indian Income tax Act 1961, and the Indian Trusts Act, 1882, and the rules made thereunder in respect of the investment of money of a provident fund recognized under the Indian Income tax Act, 1961:(2) the Bank on such deposit was required to pay compound interest with half-yearly rests;(3) the account of each member was required to be credited with interest on the amount standing to his credit;(4) Interest was also required to be credited at a rate fixed by the Trustees at the end of each year, the method of calculating the interest being as indicated in sub-Regulation (2) of Regulation 12, that is to say, being the equivalent of the average yield to redemption throughout the year of rupee securities of the Government of India of approximately 20 years maturity rounded off to the nearest one-half per cent above;(5) there could be forfeiture but only in terms of Regulation 18 and (6) there could be withdrawals but only in accordance with Regulations 14, 15 and 17. 7. As an incidents of the deposits being fixed in the Bank, (Incidentally the appellant), it appears, interest ranged from 6% to 11% during the period 1.06.69 to 31.03.76. The appellant somehow found that would have credited only at a rate, which according to it, ranged between 5% and 6% during the said period. Although on the deposit of any other creditor, the appellant would not have denied the interest between 6% and 11% or any fixed deposit, it found, (8 of 13) [SAW-825/2006] however, that since it was a Provident Fund money it could debit and withdraw interest credited beyond 5% and 6% during the period from 01.10.1969 to 31.01.1976 and thus, deny the benefit of the interest earned on the deposit to the account-holders, that is to say, each member of the Scheme. 8. XXX XXX XXX 9. XXX XXX XXX 10. XXX XXX XXX 11. Coming to the actual merit, what has happened? Is there any violation of Regulation 12(2) in investing the provident fund in a fixed deposit of a nationalized bank? Can it be said that by such investment in the bank, which incidentally is also the employer, liability is different than the only which any statutory bank will held for any depositer? The answer is a banker shall have one and the same liability; the similar responsibility with respect to the claims of each and every creditor; otherwise, it shall cause discrimination and act arbitrarily. That being a liability of the appellant as a banker and not as the employer, it is legally bound to discharge its liability as a banker; as employer it discharged the liability the moment it parted with its contribution to the provident fund and along with the contribution of the employees, deposited it in the provident fund. That precisely is the conclusion recorded by the learned Single Judge. We find no error in that judgment. A perusal of para 6 of the Division Bench judgment referred to above clearly shows as indicated at (3) that “the account of each member was required to be credited with interest on the amount standing to his credit”. At (4) of the directions, it was further stated “ Interest was also required to be credited at a rate fixed by the Trustees at the end of each year..”Thus, there is no room or scope for respondent Bank, in my opinion, to contend that respondent-Bank was not required to credit the interest on the amount standing to the credit of each member to the scheme. Having said, so it is further necessary to refer to para 11 of the judgment where the matter has been (9 of 13) [SAW-825/2006] further clarified. A look at the aforesaid paragraph of the judgment of the Division Bench of the Madras High Court further shows that the Division Bench has equated the deposit made by each members of the scheme to the long term deposits held by the bank and has equated the member employee with the creditor or depositors in the long term deposits. The Division Bench of the Madras High Court was of the opinion that investment in the bank which is the employer in this case cannot have a different liability in the case of an employee who is the member of the scheme than the one which it holds towards a depositor. In the words of the Division Bench “ the answer is, a banker shall have one and the same liability; the similar responsibility with respect to the claims of each and every creditor; otherwise, it shall cause discrimination and act arbitrarily. That being a liability of the appellant as a banker and not as the employer, it is a legally bound to discharge its liability as a banker; as employer it discharged the liability the moment it parted with its contribution to the provident fund and along with the contribution of the employees, deposited it in the provident fund...”Thus, in my opinion, the plea of the respondent-Bank that respondent-Bank was not required to allow the rate of interest between 6% to 11% which it had fixed under Regulation 12(2) in the case of member of the Scheme for the period 01.10.1969 to 31.03.1976 is not well founded. The same contention with is being raised by this case by the respondents finds place in para 7 of the judgment of the Division Bench of the Madras High Court which was turned down. Consequently, the writ petition is allowed and it is held that members of the petitioner association whose name have been enumerated in Schedule-A of the writ petition would be entitled in terms of para 6, 7 and 11 of the Judgment of the Division Bench of the Madras High Court “ to be credited with interest on the amount standing to his credit at a rate fixed by the Trustees at the end of each year”, “ the method of calculating of interest being as indicated in (10 of 13) [SAW-825/2006] sub-Regulation. (2) of Regulation 12 at the end of each year. So far as the actual verification as to whether or not the person enumerated in the Schedule-A is concerned, it would be open that the respondent-Bank to scrutinize the respective account and to verify the details in respect of each of such persons. The said persons would entitled only to the difference in the amount credited by way of interest if lesser rate of interest has been credited to the account of such members who was a member of the scheme during the relevant period from 01.10.1969 to 31.03.1976 in place of the interest rate ranging between 6% to 11%.” 6.2 Therefore, he contended that it is absolutely discretion of the Trust to make payment as they decided under Regulation 12(2) and on the basis the members are to be made payment the claim on the amount received by the Trust in view of the adjustment made with the Appellant No. 1. 7. He further submitted that all the members who are before the learned Single Judge have retired and they ceased to be members of the Trust and in view of Clause 18, their fund lapsed and forfeited and in view thereof they are not entitled for the relief. 8. Counsel for the respondent has supported the order of the learned Single Judge and contended that the view taken by the learned Single Judge is just and proper and no interference is required. 9. Heard the learned counsel for the parties. 10. The preamble of the Regulation-1969 reads as under:- (11 of 13) [SAW-825/2006] In exercise of the powers conferred by Section 63 of the State Bank of India (Subsidiary Banks) Act, 1959 (No. 38 of 1959), the State Bank of India, with the approval of the Reserve Bank of India and in consultation with the Board of Directors of the State Bank of Bikaner and Jaipur hereby makes, in supersession of the Bank of Bikaner Ltd. Staff Provident Fund Regulations and the Bank of Jaipur Ltd. Employees’ Provident Fund Rules the following regulations, which shall be known as the State Bank of Bikaner and Jaipur Employees’ Provident Fund Regulations, 1969. They shall come into force with effect from the 1st October, 1969. The supersession of the Bank of Bikaner Ltd. Staff Provident Fund Regulations and the Bank of Jaipur Ltd. Employees’ Provident Fund Rules shall not affect:- (I) the previous operations of those Rules or anything done or suffered thereunder including by virtue of reading thereinto the observations made in chapter VII of the Award of National Industrial Tribunal in reference No. 1 of 1960; or (ii) any right, privilege, obligation or liability acquired, accrued or incurred under the said Rule prior to the coming into force of these Regulations. 11. On going through the preamble of the Trust which has been created for the benefit of the employees, the interpretation which is required to be made is always required to be made in view of objects and reasons of the regulations which are framed by the statutory authority which is now practically held to be State within the meaning of article 12 and any interpretation, it is to be made in favour of the persons who are of a deprived class, here it is admittedly employees who are of deprived class, and the appellant is making profit out of investment which is received by the public as well as the employees contribution fund, the amount which has been invested under the provident fund Scheme, the object is that the benefit must go to the (12 of 13) [SAW-825/2006] employees who have invested their hard earned money for the benefit and therefore, after retirement or in the case of crises. In that view of the matter, the interpretation which has been put forward by the counsel regarding Regulation 12(2) that trust will decide the amount irrespective of the amount received from Appellant No. 1 and will make contribution and the appellant after retirement being ceases to be member of the Trust and therefore, under clause 18 they are not entitled to any benefit. In our considered opinion, the learned Single Judge while considering the matter has accepted the principle laid down by the Madras High Court, however we add more reasons for the judgment to support the conclusion reached by the learned Single Judge in as much as when the amount is invested by the trust, the intention is to give maximum benefit to the beneficiary. It is not the intention that the trust should be rewarded. The intention is to make member more peaceful after retirement. In that view of the matter, the argument advanced by Mr. Garg that the trust can retain the service for amount received from the Bank and surplus is used for the other benefit of the employees. In our considered opinion when the trust has received whatever received from the employee disturbing among the members, they cannot retain the amount of interest as per Regulation 18 and will come into operation only on death of the employee otherwise, it will continue to members till it is in existence. We are of the considered opinion that the conclusion reached by the learned Single Judge is just and proper. (13 of 13) [SAW-825/2006] Petitioners will be entitled for the benefit till they are alive. The payment will be made by appellant No. 3. 12. The appeal is required to be dismissed. The same is dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. B. M. G/Gourav/21 "