Full Judgment Text
REPORTABLE
2023 INSC 979
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6611 OF 2015
JYOTIRMAY RAY …APPELLANT
Versus
THE FIELD GENERAL MANAGER,
PUNJAB NATIONAL BANK & ORS. ...RESPONDENT(s)
J U D G M E N T
J.K. Maheshwari, J.
1. Appellant, who was compulsorily retired as Sr. Manager,
was denied the benefit of leave encashment, employer’s
contribution of provident fund, gratuity and pension by the
Punjab National Bank (hereinafter referred to as the “Bank”). On
rejection of his representation by the authorities, a challenge was
made by filing a writ petition before the High Court. The said writ
petition was contested by the Bank, taking the plea that due to
Signature Not Verified
irregularities in granting loans and cash credit facilities under the
Digitally signed by
Jayant Kumar Arora
Date: 2023.11.07
10:22:40 IST
Reason:
Credit Guarantee Fund Trust Scheme for Micro & Small
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Enterprises (for short “CGTMSE”) and otherwise in routine loans,
loss was caused to the Bank.
2. The background facts were that earlier, the appellant was
chargesheeted on 16.10.2009 and also served with a
supplementary chargesheet on 20.11.2009. On submitting of
reply by the appellant, departmental enquiry was conducted and
the enquiry report dated 11.01.2010 was submitted to the
disciplinary authority who found him guilty and vide order dated
29.01.2010, penalty of compulsory retirement was inflicted. The
appeal filed by the appellant was also dismissed by appellate
authority on 28.07.2010.
3. The appellant by filing the writ petition did not challenge the
order of compulsory retirement and only claimed the terminal
benefits i.e., leave encashment, employer’s contribution of
provident fund, gratuity and pension. In the meantime, the review
filed by the appellant before the appellate authority was also
dismissed on 06.01.2011. During pendency of the writ petition,
the Board of Directors of the Bank vide resolution dated
20.12.2010 refused to give employer’s contribution of provident
fund to the tune of Rs. 8,80,085/ to the appellant. Learned
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Single Judge vide order dated 03.04.2012 allowed the said writ
petition in part and directed the Bank to release the employer’s
contribution of the provident fund as well as gratuity with interest
@ 8.5% p.a. and leave encashment in terms of Regulation 38 of
the Punjab National Bank (Officers’) Service Regulations, 1979
(for short “1979 Regulations”). It was also clarified that the dues
be calculated from the date of compulsory retirement and be
released within a period of eight weeks from the date of
communication. Learned Single Judge denied the benefit of
pension because the appellant was not an inservice candidate
when the scheme for shifting to the pension regime became
operational.
4. On filing the Special Appeal by the Bank, the Division Bench
allowed the same in part maintaining the order of grant of leave
encashment, but setaside the grant of provident fund (Bank’s
contribution) and gratuity on the pretext that by an act of the
appellant, loss has been caused to the Bank.
5. In view of the foregoing facts, grant of leave encashment to
appellant is no more res integra . The appellant is not challenging
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the refusal to grant pension as he was not an inservice candidate
at the time of change of scheme. The only question that falls for
consideration is whether the denial of employer’s contribution of
Provident Fund and nonpayment of gratuity to appellant because
of the order of compulsory retirement, as directed by the
impugned order, is justified or not?
6. Mr. Irshad Ahmad, learned counsel appearing for the
appellant contends that Rule 13 of the Punjab National Bank
Employees’ Provident Fund Trust Rules (for short “P.F. Trust
Rules”) gives first lien to the Bank on the contributions made by it
to recover any loss, damages and liabilities which the Bank may
at any time sustain or incur by reasons of any dishonest act,
deed or omission or gross misconduct by a member of the
provident fund. It is submitted that in the main chargesheet or in
the supplementary chargesheet, it is not alleged that due to grant
of loan under the scheme or in other loans, any loss has been
caused to the Bank. In the report of enquiry, finding of loss
having been caused to the Bank has not been recorded. Learned
counsel contends that the Board of Directors unilaterally passed
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a resolution which has rightly been interfered with by the learned
Single Judge.
7. Learned counsel contends that while reversing those
findings, the Division Bench has not assigned any cogent reason
or even discussed the issue. It is also submitted that the Punjab
National Bank, Personnel Division, Head Office, New Delhi issued
Circular No. 1563 on 16/01/1997 having due reference to the
provisions of the Payment of Gratuity Act, 1972 (for short
“Gratuity Act”) and payment under the 1979 Regulations.
Explanation to clause 14(1)(a) of the said circular makes it clear
that the gratuity is payable on termination of service to an officer
on completion of at least 10 years of service. It is clarified that the
said termination should not be by way of punishment as
dismissal or removal. Learned Single Judge has rightly observed
that Regulation 4 of the Punjab National Bank Officer Employees’
(Discipline and Appeal) Regulations 1977 (for short “1977
Regulations”) makes it clear that a dismissal of an employee shall
ordinarily be a disqualification for future employment whereas
removal from service shall not be a disqualification for future
employment. It is also stated that no aggravating circumstance of
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causing loss by appellant or finding as to loss being caused has
been recorded in the enquiry. There was no quantification of loss
or damage. It is urged that on inflicting a penalty of compulsory
retirement after enquiry, would not result in forfeiture
ipso facto
of the gratuity as directed by the impugned order. Even otherwise
the forfeiture of gratuity affects the civil right of an employee
having adverse consequence which cannot be directed in violation
of the principles of natural justice.
8. Per contra, Mr. Rajesh Kumar Gautam, learned counsel for
the respondent Bank argued in support of the findings recorded
in the impugned order passed by the Division Bench and
contends that the normal retirement of an employee cannot be
equated with compulsory retirement inflicted by way of penalty.
Therefore, gratuity and Bank’s contribution towards provident
fund have rightly been withheld by the order impugned. In
support of his contention, reliance has been placed on the Full
Bench judgment of the Punjab & Haryana High Court in LPA No.
566 of 2012 titled
UCO Bank and others vs. Anju Mathur
decided on 07.03.2013. It is urged that the said judgment was
cited and relied upon by the High Court of Delhi in B.R. Sharma
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vs. Syndicate Bank and others, 2015 SCC Online Del 13989.
Learned counsel has also placed reliance on the judgment of this
Court in
Canara Bank and another vs. Lalit Popli (Dead)
through Legal Representatives (2018) 11 SCC 87.
9. We have heard learned counsel for the parties at length. The
issue of payment of provident fund (Bank’s contribution) and
payment of gratuity and its forfeiture are required to be analysed
with reference to the relevant provisions of the Act, Rules,
Regulations and the circulars issued by the Bank from time to
time. They are being considered in the subsequent subheadings
and the paragraphs.
GRANT OF PROVIDENT FUND AND WHEN IT CAN BE
FORFEITED :
10. Chapter IX of 1979 Regulations deals with the terminal
benefits. As per Regulation 45(1), every officer shall become a
member of the Provident Fund constituted by the Bank and shall
be bound by the Rules governing such fund. The Rules governing
such fund are known as P.F. Trust Rules. As per Rule 2 of the
Trust Rules, the contribution of the employee and employer shall
be deposited in the provident fund trust account, which shall be a
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contributory provident fund. Rules 13 and 14 whereof are
relevant for the purpose of this case and are reproduced as thus:
“13. The Bank shall have first lien on the
contributions made by it to the individual account of
any member together with interest thereon or
accretions thereto, to recover any loss, damages and
liabilities which the Bank may at any time sustain or
incur by reasons of any dishonest act, deed or
omission or gross misconduct of or by such member.
14. In case where the Bank shall have first lien
as provided in Rule No. 13 above, the Trustees shall
on receipt of the resolution passed by the Bank’s
Board of Directors pay to the Bank out of such
member’s individual account in the Fund, such
portion thereof not exceeding the Bank’s
contribution to it, as the Board might ask the
Trustees to pay, and the receipt of the Bank for any
payment so made, shall be complete discharge to the
Trustees. In the event of any such payment, the
remaining amount out of the Provident Fund
balance shall be paid to him. The recovery of such
losses by the Bank shall be limited to the extent of
such financial loss only.”
On perusal, it is clear that the Bank shall have first lien on the
contributions made by it to the individual account of any member
together with interest thereon or accretions thereto, to recover
any loss, damages and liabilities, sustained any time by the Bank
or incurred by reasons of any dishonest act, deed or omission or
gross misconduct of the member. It is further apparent that the
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Board of Directors shall pass an order to pay the contribution of
the Bank which is in the account of fund to the Bank to the
extent of recovery of the loss, damages and liabilities.
11. Let us apply the said Rules to the facts of the present case
in the context of the allegations made in the chargesheet dated
16.10.2009 and supplementary chargesheet dated 20.11.2009 to
consider the position that emerges.
12. It was alleged that while granting the loans or extending
cash credit facilities under the CGTMSE or otherwise, due
diligence of the procedure was not followed by the appellant. In
the chargesheet, it is not alleged that by such an act, the Bank
has suffered loss nor has the quantification of the amount of loss
been done. In the report of enquiry, finding about loss being
caused or quantification of the amount of loss has not been
recorded. The contribution of Bank to provident fund was
forfeited as per resolution dated 20/12/2010 of the Board of
Directors based on the communication dated 19/11/2010 as
referred by the learned Single Judge. The said resolution refers
that the Bank has suffered a loss of Rs. 77.59 lakhs by an act of
the appellant for which the penalty of compulsory retirement has
9
been directed. However, the recommendations were made for
appropriation of the Bank’s contribution of provident fund to the
tune of Rs. 8,80,085/ and it was withheld from the provident
fund account of the appellant. By filing this appeal, the appellant
has averred and produced the report of the internal auditor dated
27/7/2009 (Annexure P1). The said report was of the prior date,
from the date of issuance of the chargesheet. However, relying on
the said report, it is submitted that no loss has been caused to
the Bank. It is contended that nothing is alleged towards loss in
the chargesheet.
13. In the counter affidavit to this appeal, it is stated that the
Report (Annexure P1) was not part of the record of the writ
petition before the High Court and without an application to take
the additional evidence on record, it cannot be read by this Court.
On perusal of the averments of the counter affidavit, the existence
of the report (Annexure P1) has not been denied by the
respondents. In the finding of the enquiry report, quantification of
the loss caused is not recorded. The resolution of the Board of
Directors dated 20/12/2010 is subsequent to the order of penalty
of compulsory retirement. Thus, prior to the chargesheet as per
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report of the internal auditor, loss has not been reported to the
Bank. Presumably, it appears to us, for the said reasons in the
chargesheet, allegations causing loss and quantifying the amount
of loss have not been specified. The Board of Directors on the
basis of information unilaterally passed the resolution alleging
loss of Rs. 77.59 lakhs. Prior to passing the resolution, notice
asking response and opportunity was not afforded to the
appellant. In the facts as discussed, the unilateral report cannot
be relied upon by the Board of Directors to deny the benefit of
payment of employer’s contribution of provident fund. In this view
of the matter, learned Single Judge was right in observing that
the Board of Directors has not afforded an opportunity to the
appellant on the issue of causing loss or damage to the Bank,
prior to the passing of the resolution of appropriation of the
contribution of the Bank from the provident fund account of the
appellant. Moreover, in the absence of any allegation in the
chargesheet about the quantifiable amount of loss, the argument
as advanced by respondents is bereft of any merit. In view of the
above discussions, the findings recorded by learned Single Judge
with regard to payment of Bank’s contribution of provident fund
11
is equitable, just and is liable to be upheld, setting aside the
findings of the Division Bench.
PAYMENT OF GRATUITY AND WHEN IT CAN BE WITHHELD:
14. Regulation 46 of Chapter IX of 1979 Regulations deals with
gratuity. The relevant extract of the said Regulation is
reproduced as thus:
“46. Gratuity:
46.(1) Every officer shall be eligible for gratuity on:
a) retirement
b) death
c) disablement rendering him unfit for further service as
certified by a medical officer approved by the Bank
d) resignation after completing ten years of continuous
service; or
e) termination of service in any other way except by way
of punishment after completion of 10 years of service.
15. In view of the above, an officer of the Bank shall be eligible
for gratuity on retirement; death; disablement rendering him unfit
as certified by an approved medical officer; resignation after
completion of 10 years of continuous service or termination of
service after completion of 10 years except in a case if such
termination is by way of punishment. However, the said
Regulations are silent on the contingency as to what would
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happen if an officer is met with a penalty of compulsory
retirement.
16. Further if we look at Section 4 of the Gratuity Act, it
elucidates the conditions of payment of gratuity to an employee
on termination of his services. In particular, subsection (6) of
Section 4 highlights the conditions when gratuity can be withheld
to an employee on his termination. The relevant portion has been
reproduced as under:
(6) Notwithstanding anything contained in sub
section (1)
(a) the gratuity of an employee, whose services have
been terminated for any act, wilful omission or
negligence causing any damage or loss to, or
destruction of, property belonging to the employer
shall be forfeited to the extent of the damage or loss
so caused;
(b) the gratuity payable to an employee shall be
wholly forfeited
(i) if the services of such employee have been
terminated for his riotous or disorderly conduct or
any other act of violence on his part, or
(ii) if the services of such employee have been
terminated for any act which constitutes an offence
involving moral turpitude, provided that such
offence is committed by him in the course of his
employment.
17. The provisions of Gratuity Act make it clear that forfeiture of
gratuity may be directed to the extent of damage or loss so
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caused or destruction of property belonging to employer. In twin
situations where the termination is due to riotous or disorderly
conduct or involvement of the employee in a criminal case
involving moral turpitude, the gratuity shall be wholly forfeited.
18. This Court in the case of Y.K. Singla vs. Punjab National
(2013) 3 SCC 472, while considering the issue
Bank and others
of interest on the late payment of gratuity to a retired employee of
Punjab National Bank held that the payment of Gratuity Act will
override the Punjab National Bank (Employees’) Pension
Regulations, 1995 (for short “1995 Pension Regulations”). While
dealing with the issue of recovery from gratuity under Regulation
46 or withholding of pension under Regulation 46(2) of the said
Regulations, this Court in paragraph 22, after referring to Section
14 of the Gratuity Act, has held as under:
“
22 . In order to determine which of the two
provisions (the Gratuity Act , or the 1995
Regulations) would be applicable for determining the
claim of the appellant, it is also essential to refer
to Section 14 of the Gratuity Act, which is being
extracted hereunder:
“14. Act to override other enactments,
etc. – The provisions of this Act or any rule
made thereunder shall have effect
notwithstanding anything inconsistent
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therewith contained in any enactment
other than this Act or in any instrument or
contract having effect by virtue of any
enactment other than this Act.”
(emphasis supplied)
A perusal of Section 14 leaves no room for any doubt
that a superior status has been vested in the
provisions of the Gratuity Act visàvis any other
enactment (including any other instrument or
contract) inconsistent therewith. Therefore, insofar
as the entitlement of an employee to gratuity is
concerned, it is apparent that in cases where
gratuity of an employee is not regulated under the
provisions of the Gratuity Act , the legislature having
vested superiority to the provisions of the Gratuity
Act over all other provisions/enactments (including
any instrument or contract having the force of law),
the provisions of the Gratuity Act cannot be ignored.
The term “instrument” and the phrase “instrument
or contract having the force of law” shall most
definitely be deemed to include the 1995
Regulations, which regulate the payment of gratuity
to the appellant.”
19. In view of the above, it is apparent that the provisions of the
Gratuity Act have superiority over all other provisions of
Regulations.
20. The Bank harmonizing the provisions of Regulation 46 of
1979 Regulations and the Gratuity Act issued Circular No. 1563
on 16.01.1997 through its personnel division. Therein
harmonizing the Regulations with the provisions of the Gratuity
15
Act and in clauses 8 and 14 of the Circular, the instances as to
when gratuity could be forfeited, have been specified. Those
clauses are relevant and have been reproduced as under:
“8. FORFEITURE OF GRATUITY UNDER ACT
The gratuity payable under the payment of gratuity
act, is liable to full or partial forfeiture under
different circumstances. Section 4(1) of payment of
gratuity act deals to payment of gratuity whereas
section 4(6) of the act deals with forfeiture of
gratuity. Section 4(1) reads as under:
Gratuity shall be payable to an employee on the
termination of his employment after he has rendered
continuous service for not less than five Years,
a. On his superannuation, or
b. On his retirement or resignation, or
c. On his death or disablement due to accident or
disease.
Provided that the completion of continuous service of
five years shall not be necessary where the
termination of the employment of any employee is
due to death or disablement.
Section 4(6) provides as under:
"Notwithstanding anything contained in subsection (1)
a. The gratuity of an employee, whose services have
been terminated for any act, wilful omission or
negligence causing any damage or loss to, or
destruction of, property belonging to the employee,
shall be forfeited to the extent of the damage or loss
so caused:
b. The gratuity payable to an employee may be
wholly or partially forfeited.
I) If the services of such employee have been
terminated for his riotous or disorderly conduct or
any other act of violence on his part, or
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II) If the services of such employee have been
terminated for any act which constitutes an offence
involving moral turpitude, provided that such
offence is committed by him in the course of his
employment.
14. PAYMENT UNDER OFFICERS SERVICE REGULATIONS
Rules relating to payment of gratuity of officers staff
have been laid down under Regulation 46 of PNB
Officers Service Regulations, 1979 which is as
under:
(I) Every officer shall be eligible for gratuity on:
(a) Retirement, (b) death (c) disablement rendering
him unfit for further service as certified by a medical
officer approved by the bank, or (d) resignation after
completing ten years of continuous service or
termination of service in any other way except by
way of punishment after completion of 10 years of
service.
Explanation: We have to clarify that gratuity may be
paid in case of termination of service, subject to the
condition that the officers has put in at least 10
years of service with the bank and provided that the
termination is not by way of dismissal or removal
from service as punishment.
(II) The amount of gratuity payable to an officer shall
be one month's pay for every completed year of
service, subject to a maximum of 15 months’ pay.
Provided that where an officer has completed more
than 30 years of service, he shall be eligible by way
of gratuity for an additional amount at the rate of
one half of month pay for each completed year of
service beyond thirty years.
Pay for the purpose of gratuity in case of officer shall
mean basic pay only. While calculating gratuity, that
part of PQA & FPA drawn by an officer, which rank
for superannuation benefit, shall also be taken into
account.
Note: If the fraction of service beyond completed
years of service is six months or more, gratuity will
17
be paid prorata for the period. In this connection,
we have to clarify that for the purpose of calculating
gratuity, the number of days, beyond 6 months
period is also to be taken into account.
On a combined reading of the provisions of the Gratuity Act, 1979
Regulations and the circular, it becomes clear that the gratuity
shall become payable to every officer on retirement, death,
disablement or on resignation except in a case of termination of
service in any other way, by way of punishment after completion
of 10 years of continuous service.
21. At this stage, it is relevant to refer to the provisions of 1977
Regulations. Regulation 4 of the said Regulations specifies major
penalties:
“ Major penalties :
(f) ……..
(g) ……..
(h) Compulsory retirement;
(i) Removal from service which shall not be a disqualification
for future employment;
(j) Dismissal which shall ordinarily be a disqualification for
future employment. ”
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The explanation to Regulation 4 under the heading “Major
Penalties” specifies some of the situations which shall not amount
to penalty within the meaning of this Regulation. As those
conditions are not relevant for the present case, they are not
being referred to.
22. Under Regulation 4 of the 1977 Regulations, the compulsory
retirement of an officer is a major penalty. The explanation as
given in clause 14(1)(a) of the said Circular clarifies that in case of
termination after at least 10 years of service in the Bank, if such
termination is not by way of punishment as dismissal or removal,
the gratuity may be paid. In the said explanation, the denial of
gratuity to an employee, who is inflicted with the major penalty of
compulsory retirement, has not been included. Therefore, the
gratuity is payable to the appellant under the 1979 Regulations in
terms of the explanation under the said Circular. Even
otherwise, if we see the provisions of the Gratuity Act, gratuity
can be withheld in case of damages or loss so caused or
destruction of property belonging to the employer or otherwise
where the termination of service is due to riotous or disorderly
conduct or due to criminal case involving moral turpitude.
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23. The facts of the case at hand are not a case of riotous
behaviour of appellant or his involvement in any criminal case.
As discussed hereinabove, while dealing with the issue of
forfeiture of employers’ contribution of provident fund in the
enquiry report, no finding regarding causing loss to the bank or
on quantification of the amount of loss has been recorded.
24. While passing an order of withholding of gratuity,
opportunity of hearing has not been afforded to the appellant. In
this regard, the judgment of the Full Bench of Punjab & Haryana
High Court in UCO Bank (supra) is relevant, wherein the Full
Bench has duly considered the issue of forfeiture of gratuity and
the relevant paras of the said judgement are reproduced as
under:
“ 22 . ……. No doubt, in the chargesheet as many as
24 accounts are mentioned where the respondent
had given loans or other financial accommodation
either beyond her powers or without obtaining
proper securities. That would show that certain
accounts were overdrawn. Even the operation of
these accounts was not satisfactory. However,
whether the appellantBank ultimately suffered loss
and what was the actual loss is not reflected. No
doubt, the irregularities committed by the
respondent may have exposed the Bank to such
losses. However, that is entirely different from loss
having been actually suffered by the bank. Even if
some accounts became bad and the Bank had to file
20
suits for recovery concerning those accounts against
the defaulting parties, that would not automatically
lead to the conclusion that the loss/damage has
been suffered. It is possible that Bank is able to
recover full money in those proceedings. Whether
that happened in fact or not and whether loss is
actually suffered or not is not discernible from either
the chargesheet or the enquiry report.
23 . It is for this reason that it was incumbent upon
the appellantBank to mention specifically about the
actual loss having been suffered, if it suffered, in the
show cause notice itself with particulars of that loss
in order to enable the respondent to meet the same.
That has not been done even in the final order.
Though the figure of 4 crores is given, in the final
order, even that is not substantiated by giving
particulars thereof. We are, therefore, of the opinion
that the show cause notice or the final orders
passed, forfeiting the gratuity, do not meet the legal
requirements and have to be set aside.”
25. In the facts of the present case, the said judgement squarely
applies looking to the situation wherein the quantification of loss
has not been proved in the enquiry. Even otherwise, prior to
passing of an order of forfeiture of gratuity, opportunity of hearing
has not been afforded to the appellant. We acknowledge the view
taken by the Full Bench in the said judgment and reaffirm the
same.
[
26. The counsel for appellant also relied upon the judgement of
B.R. Sharma (supra) , in which the riotous behaviour of the
employee was found proved. However, the said judgment does not
21
apply in the facts of the present case. Similarly, reliance was also
placed on the case of Canara Bank (supra) wherein as per the
Regulations of the Canara Bank, the withholding of the amount of
gratuity to the extent of loss caused was permissible. In the facts
of the present case and contents of Regulations and Circular of
the Bank, the said judgment being distinguishable, has no
application. The learned Single Judge has correctly observed that
as per the 1977 Regulations, compulsory retirement; removal
from service which shall not be a disqualification for future
employment and dismissal which shall ordinarily be a
disqualification for future employment are distinct and separate
punishments. The act of forfeiture of gratuity is not envisaged in
the present case as the provisions are silent on the aspect of
forfeiture in case of compulsory retirement. As per Circular No.
1563 dated 16.01.1997 of the Bank, in our view, the Division
Bench erred in reversing the judgment of the learned Single
Judge.
27. Therefore, taking a wholistic view of the 1977 Regulations,
1979 Regulations, Circular dated 16.01.1997 and the facts on
record, we are of the view that the present civil appeal deserves to
22
be allowed. We affirm the findings of the learned Single Judge and
setaside the judgement rendered by the Division Bench. The
appeal is allowed. No order as to costs.
……...............................J.
(J.K. MAHESHWARI)
………...........................J.
(K.V. VISWANATHAN)
NEW DELHI;
NOVEMBER 06, 2023.
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