Power to Fix Pay & Allowances cannot include Power to Reduce Salary [Case Law]

Co-operative Societies Rules, 1969 (Kerala) - Note 6 to Appendix III - Whether consequent upon the degradation of the society, the Government has the right to revise and reduce the pay and allowances that was enjoyed by such employees before the degradation - Held, power to reclassify the society based on financial position cannot be utilised as a power to reduce pay and allowances of an employee.

The Government can make rules only within the limit of the rule making power. The power to reclassify the society based on financial position cannot be utilised as a power to reduce pay and allowances of an employee. An employee is having vested or accrued right to get pay and allowances in accordance with the classification of society. That accrued right cannot be altered by a delegatee through the delegated legislation unless the delegatee is specifically conferred with power through legislation. [Para 11]

Facts of the Case

Note 6 to Appendix III as challenged in these writ petitions to the extent ordering reduction of the salary is without power. Writ petitions are allowed striking down Note 6 to Appendix III of the Kerala Co-operative Societies Rules, 1969 to the extent ordering reduction of pay and allowances on reclassification of the society.

Co-operative Societies Rules, 1969 (Kerala) - Note 6 to Appendix III - Power to fix the pay and allowances cannot include the power to reduce salary unless such power is expressly given to the Government. The accrued rights of an employee can be only divested through the legislative power and the Government can use such power only if it is so authorised.

IN THE HIGH COURT OF KERALA AT ERNAKULAM

A. MUHAMED MUSTAQUE, J.

W.P. (C) Nos.33131 of 2010 & 29458 of 2011

Dated this the 10th day of April, 2018

PETITIONERS : 

1 KERALA CO-OPERATIVE EMPLOYEES FRONT, WAYANAD DISTRICT COMMITTEE REPRESENTED BY DISTRICT SECRETARY, MOHANA DAS, NOW WORKING IN PULPPALLY SERVICE CO-OPERATIVE BANK AS HEAD CLERK, PULPALLY P.O., WAYANAD DISTRICT.

2 SUDHAKARAN P.N., ACCOUNTANT, MULLANKOLLY SERVICE CO-OPERATIVE BANK, PANICHIRA, WAYANAD DISTRICT.

BY ADVS.SRI.P.N.MOHANAN SMT.I.VINAYAKUMARI 

RESPONDENTS: 

1. GOVERNMENT OF KERALA, REPRESENTED BY SECRETARY TO GOVERNMENT, CO-OPERATIVE DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM-695001.

2. REGISTRAR OF CO-OPERATIVE SOCIETIES, THIRUVANANTHAPURAM-695001.

3. JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (G), WAYANAD-673121.

BY SPL. GOVERNMENT PLEADER SRI.K.S.MOHAMMED HASHIM 

J U D G M E N T 

It is unusual for a Court to render a judgment with illustrations or story. The problem presented in these writ petitions impels this Court to begin the judgment with an illustration to espouse the legal question germane to the dispute. 'A' commenced his service in a co-operative society in a lowest cadre. At the time of his initial appointment, society was classified as Class V society. Before his retirement, society was re-classified as Class I. The pay and allowances of different class of societies are fixed based on the classification of the society. Therefore, when the society reached the classification as Class I, 'A' was drawing higher pay and allowances comparing to such pay and allowances drawn by the employees of Class V society. The average pay for ten months preceding the retirement is reckoned for the purpose of pension under the pension scheme floated for the employees working in the co-operative sector. The classification of the society is based on the capital deposit, loan outstanding, audit classification, declaration of profit, dividend etc. Due to severe drought and calamities in the area of operation of the society, financial position of the society became precarious. Thus the society was ordered to be reclassified as Class V. By virtue of Note 6 to Appendix III of the Kerala Co-operative Societies Rules, 1969, the society is given six months time from being reclassified to lower categories. If not, the classification of society will be reduced and pay and allowances will be refixed accordingly. In the matter of 'A', classification is reduced/downgraded prior to ten months of his retirement and his pay and allowances for the purpose of pension was worked out based on reduction in classification. In case the society where 'A' was employed achieves higher criteria for upgradation after his retirement, the society will be upgraded and those employees will be able to enjoy higher pay and allowances. This is one of the illustrations. Illustrations as above are referred in the matter of pension. The question that looms large in this case is whether consequent upon the degradation of the society, the Government has the right to revise and reduce the pay and allowances that was enjoyed by such employees before the degradation.

2. These writ petitions are filed by the association of co-operative employees as well as the employees working in the co-operative sector challenging the Rules framed by the Government invoking Section 109 of the Kerala Co-operative Societies Act, 1969 ('the Act', for short). Clause (xxxviii) under Section 109 refers to the residuary power of the Government to make rules for any other matters required or allowed under the Co-operative Societies Act. The amended rules are in respect of Appendix III to the Kerala Co-operative Societies Rules. The Government is having power under Section 80 of the Act to classify the societies according to their type and financial position. Accordingly, the Government classified the societies as shown in Appendix III. Rule 182 of the Co-operative Societies Rules states that societies in the State shall be classified as shown in Appendix III. Rule 188 states that every society shall adopt the staff pattern indicated in Appendix III. Under Section 80(6) of the Act, the Government is having power to fix the pay and allowances and other benefits of employees of co-operative societies. Thus it is clear that the Government is having power to classify the society in accordance with its financial position. The Government also have the power to prescribe the staff pattern as well as the pay and allowances applicable to such societies.

3. The problem in this context is peculiar to the co-operative societies owing to the power given to the Government. That is to say, co-operative societies, though an autonomous body, have no power in fixing the pay and allowances.

4. The financial position of the society is not static and it varies according to the volume and nature of the business. The classification also will change in accordance with the variable factors reckoned for such classification. The staff pattern and the pay and allowances applicable to each class of society are also different. The salary pattern is also different from one class to another. For example, in Appendix III which came into force with effect from 01.07.1974, the Secretary of the Class I employees draws the pay scale of 400-40-800. Secretary of Class II society draws pay scale of 350-35-700 and Secretary of Class V society draws pay scale of 125-8- 165-10-195. This was revised from time to time by the Government. Thus a Secretary of Class I society who was drawing pay scale of 400-40-800 on degradation of the society as Class V, would be eligible to the pay scale of 125-8-165-10- 195.

5. Consequent upon the degradation of the society, staff pattern of the society also will change. However, the Government Orders and Rules are silent in regard to dealing with excess staff as a result of degradation. Since that issue has not been cropped up in these writ petitions, this Court is of the view that the question relating to excess staff on account of degradation can be left open.

6. The challenge in these writ petitions is against Note 6 to Appendix III of the Co-operative Societies Rules as amended by S.R.O 9/2010. Note 6 to Appendix III reads as follows: 

“The revised classification will not adversely affect the existing classification of the Banks/Societies and the staff strength for six months from the date of notification. The period of six months may be extended for six months, if necessary, by the Registrar of Co-operative Societies for sufficient reasons to be recorded. If any society does not reach this revised norms even after the above period, the classification of such societies will be reduced and refixed accordingly”.

7. Note 6 to Appendix III refers to reduction of salary consequent upon reclassification of the society. These writ petitions were filed in the year 2010 and 2011 respectively. Section 80(6) of the Act at the time of filing the writ petitions confers power on the Government to fix the pay and allowances. Section 80(6) was amended with effect from 14.02.2013 by giving power to the Government to fix and alter the pay and allowances of the employees of the society. It is appropriate to refer Section 80(6) before and after amendment.

Before amendment, Section 80(6) reads as follows: 

“Government shall have power to fix the pay, allowances and other benefits of employees of co-operative societies provided that the Government may direct the Registrar to fix the pay and allowances of employees of Co-operative Societies, whose pay and allowances are not fixed by the Government as per this sub-section.

After amendment, Section 80(6) reads as follows: 

“Government shall have power to fix or alter the maximum and minimum limit of establishment expenses of Co-operative Societies including the pay and allowances and other benefits of employees of Co-operative Societies”.

There is no power to the Government when the impugned orders were issued to alter the pay and allowances. For the first time such power has been conferred only by way of amendment in the year 2013. Therefore, a question would also arise as to whether the Government before the amendment has power to reduce pay and allowances consequent upon reclassification by downgrading the society.

8. It is obvious that Note 6 as such is implemented on pay scale will be downgraded at par with the reclassification of the society. In these writ petitions, the petitioners were threatened with recovery of excess salary being drawn on account of reclassification. The petitioners urged that their last drawn pay before reclassification should be protected.

9. The Government defended Note 6 to Appendix III stating that reduction of salary is due to classification and that classification is having nexus with the object of the classification. Much emphasis is given to defend Note 6 relating to classification and contending that the factors such as working capital, deposit, outstanding loan etc. are the criteria reckoned for upgradation and degradation and therefore, the advantages and disadvantages depend upon the collective efforts of the employees of the society.

10. An employee's achieved life in employment is not accidental but is a result of the concerted effort that he had put along with others. His quality of life depends upon the resources he possess. Though service conditions including pay and allowances cannot be claimed as a fundamental right, deprivation of such pay and allowances would have an impact on the life of an individual. The individual interest of a person covering his economic life like other interest protected by law can be only regulated through the authority of the State through the legislation. The Government cannot control such “interest” unless the legislature authorises the Government. The power of the Government to classify the society in accordance with the norms cannot be doubted. However, the Government is not vested with any power to take away the 'accrued rights' of the employees when the society is upgraded and started drawing pay and allowances at par with such classification. Such 'accrued rights' cannot be deprived without any legislative mandate. There is no corresponding power given to the Government consequent upon reclassification to reduce the pay and allowances at the time when the impugned orders were issued. The economic interest of an employee, therefore, can be deprived only in accordance with the plenary power of the legislature.

11. The Government can make rules only within the limit of the rule making power. The power to reclassify the society based on financial position cannot be utilised as a power to reduce pay and allowances of an employee. An employee is having vested or accrued right to get pay and allowances in accordance with the classification of society. That accrued right cannot be altered by a delegatee through the delegated legislation unless the delegatee is specifically conferred with power through legislation. The Supreme Court in Mahabir Vegetable Oils (P) Ltd and another vs. State of Haryana and others ((2006) 3 SCC 620) and in State of Haryana vs. Anil Pesticides Limited and another ((2010) 12 SCC 606) have held against taking away the vested or accrued right through the delegated legislation.

12. This matter has to be examined from the constitutional angle laying down the scheme for the structure and governance of the co-operative societies. Part IV of the Constitution of India cherish principles of a welfare state on the professed declaration under preamble of an ideal socialist democratic State. Article 43B of the Constitution of India refers the duty of the State to promote voluntary formation, autonomous functioning, democratic control and professional management of co-operative societies. Under Article 38(2) of the Constitution of India, it is a mandate for the State to minimise the inequalities in income and inequalities in status, facilities and opportunities, not only amongst individuals but also amongst groups of people residing in different areas or engaged in different vocations.

13. The history of the co-operative movement would go to show that the movement owed its origin to poverty and to the desire for someway out of all the distress and hardship resulted from such poverty. The common bond held by the members of such movement to overcome the economic distress was the basis of formation of the society or association. In the book written by H. Calvert, after referring the above aspects of the movement, he refers to four principles of co-operative movement which are; 

1. members joined as human persons and not as capitalist.

2. persons joined together to satisfy the common need on the basis of equality.

3. the act of association must be voluntary.

4. association is formed to promote the economic interest of themselves and not anybody else.

Therefore, it is clear that the co-operative society is formed as a Self Help Group to provide mutual aid among such group with common economic needs. This kind of movement is ideal in a welfare State particularly in a country like India to secure the objectives of Part IV of the Constitution of India.

14. The co-operative societies are autonomous bodies subject to the regulations made by the State. The regulations made by the State are referable to the source of power given to the State under entry 32 of List II - State List of the Seventh Schedule of the Constitution of India. The constitutional court cannot consider the basic structure of the co-operative society in isolation of the principles cherished in the Constitution. That is to say, in the matter of governance of co-operative societies, the State Government will have to place its foundational inspiration from the principles enunciated under the Constitution. Though socialism is an ideal proclaimed in the preamble of the Constitution and treated as part of the basic structure of the Constitution, the very same Constitution allows the Government to have free market with capitalism elements. This is so as every citizen has the fundamental right to carry on any trade and business under Article 19(1)(g) of the Constitution.

15. The Co-operative Societies Act is an enactment to secure social and economic justice as proclaimed in the Constitution of India. The aim and object of a welfare state cannot be overlooked while interpreting the statutory provisions. The very ideal of a welfare state is to embrace the elements of economic justice based on the socialist concept in which the concern of the State is public welfare and not profit maximisation. The pay and allowances to an employee therefore cannot be made dependent on profit of a cooperative society. When the State wants to regulate the affairs of a co-operative society, the laws made by the State will have to be in harmony with the larger frame of the system of law referable to the source of power. Thus, the general conditions of law and the established principles on which such law is based is the legal rule while applying interpretation of the enactment. The capacity of the employer would be relevant if the State does not want to interfere with the freedom of the citizens in the economic pursuit. The State is having a free choice under the Constitution either to regulate/restrict the economic pursuits of citizens or to give a freedom to citizens. However, while pursuing the socioeconomic justice in contemplation of the aims and objectives of a welfare state, the scheme of such regulation must have due regard to the directive principles of the State policy in the light of the ideals of socialism proclaimed in the preamble. Thus, the action emanating out of the regulation should not be repulsive to the aims and objectives of an enactment based on socio-economic justice and such action need to be corrected by the court, otherwise it would frustrate the very purpose of the larger system of law in which such an enactment is made. It is open for the Government to fix the pay and allowances. But it cannot reduce such pay and allowances merely referring to the financial position of the society. Such an action is repugnant to the goal of a welfare state based on socialist ideals. Socialist principles being part of basic structure of the Constitution must guide the State while evolving its economic policy and social welfare. Socialism seeks economic democracy to raise standard of living focusing on public interest and welfare in precedence to private profit. The socioeconomic justice is achieved through such policy of the State by making necessary legislations in this regard. The Government could have linked the profit with the career of an employee by way of giving incentives. Anyway it is for the State Government to consider in what manner the pay and allowances have to be fixed. Given the background of social and economic dimensions of co-operative laws, the legislature need to declare its policy. The Constitution entrusted this task to the State legislature under entry 32 of List II - State List of the Seventh Schedule of the Constitution. It is true that the State has power and freedom to determine its economic policy. The source of this plenary power to make laws is traceable to Constitution. It is for the legislature to decide by its policy whether to reduce pay and allowances by renouncing the idea of social welfare and economic justice based on socialist elements. Our Constitution has given such freedom to the legislature. The executive power of the State under Article 162 of the Constitution is co-extensive with the legislative power of the legislature. Since the State legislature has already made law with regard to the subject, the power of the State Government therefore is only as a delegatee. In the absence of law, the State Government cannot dilute the aims and objectives of co-operative laws by reducing pay and allowances of an employee consequent upon degradation of the society. It is even doubtful whether the State legislature can delegate such power to the executive, as it involves essential legislative power in regard to the economic policy covered by the subject entrusted to the State legislature under the Constitution (See Messrs. Dwarka Prasad Laxmi Narain vs. State of Uttar Pradesh and others (AIR 1954 SC 224), Rajnarain Singh vs. Chairman, Patna Administration Committee, Patna and another (AIR 1954 SC 569), The Municipal Corporation of Delhi vs. Birla Cotton, Spinning and Weaving Mills, Delhi and another (AIR 1968 SC 1232), Gwalior Rayon Mills Mfg. (Wvg.) Co. Ltd vs. Asstt. Commissioner of Sales Tax and others (AIR 1974 SC 1660) and N.K. Papiah & Sons vs. The Excise Commissioner and another (AIR 1975 SC 1007)). Since in these cases this Court having already adverted that no such power was given to the Government before the amendment to Section 80(6) of the Co-operative Societies Act in the year 2013, this question has to be decided in a broader angle in an appropriate challenge on a future date.

16. It is to be noted that the amendment to Section 80(6) of the Act conferring power on the Government to alter the maximum and minimum pay and allowances had not been adverted by this Court. The action of the Government is therefore impugned only with reference to Note 6 to Appendix III.

17. Note 6 to Appendix III as challenged in these writ petitions to the extent ordering reduction of the salary is without power. The power to fix the pay and allowances cannot include the power to reduce salary unless such power is expressly given to the Government. The accrued rights of an employee can be only divested through the legislative power and the Government can use such power only if it is so authorised.

18. Therefore, I have to clarify that the judgment and declaration of law would apply only in such cases covered by the action prior to amendment made to Section 80(6) of the Act with effect from 14.02.2013. The rest of the issues will have to be dealt separately.

These writ petitions are, therefore, allowed striking down Note 6 to Appendix III of the Kerala Co-operative Societies Rules, 1969 to the extent ordering reduction of pay and allowances on reclassification of the society. If any recovery is effected from the petitioners, certainly the same shall be restored to the petitioners without any delay. No costs.