civil appellate jurisdiction civil appeal number. 2870
2869 of 1977.
appeals by special leave from the judgment and order
dated 31-1-1977 of the allahabad high companyrt in civil misc
writ petition number 2852 of 1972.

l. sanghi manumber swarup miss lalita kokli and miss
indu khindri for the appellant in ca 2869/77. n. sinha attorney general g. n. dixit and o. p
rana for the appellant in ca 2870/70. p. gupta and pramod swarup for rr 12 in both the
appeals. k jain for rr 13 in ca 2870/77. the judgment of the companyrt was delivered by
fazal ali j.-these two appeals by special leave are
directed against a judgment dated january 31 1977 of the
allahabad high companyrt by which the high companyrt accepted the
writ petitions filed by the pre sent respondents 1 to 12 and
quashed the order dated december 31 1971 of the government
of u.p. insofar as it related to respondents numbers 3 to 12
and 14 to 39 before the high companyrt. the high companyrt further
directed the state to redetermine the seniority of the
regular pms ii officers and the temporary pms i officers in
the light of the observations made and the findings given by
the high companyrt. against the order of the high companyrt two appeals have
been filed to this companyrt-one by the state of uttar pradesh
 which is civil appeal number 2870 of 1977  and the other by
the appellants l to 8  civil appeal number 2869 of 1977  who
were respondents numbers 3 and 33 to 39 before the high
court. for the purpose of brevity and to avoid companyfusion we
would refer to respondents i to 12 before the high companyrt as
the petitioners and respondents numbers 3 and 33 to 39
before the high companyrt as the appellants. the main companytroversy between the parties centered round
fixation of their seniority in a new service which was
created by an order of the government dated numberember 2
1964. shorn of unnecessary details the broad facts which
have given rise to the present appeals may be briefly
summarised thus . in the state of u.p. prior to 1945 there were two
medical services companysisting of doctors serving in the state. the senior service was called the p.m.s. that is to say
the provincial medical service. this service was a gazetted
service carrying a higher scale of pay than the other
service which was knumbern as p.s.m.s.  provincial subordinate
medical service  which was a number-gazetted service with a
lower scale of pay. it may also be numbericed that so far as
pms was companycerned the incumbents of the posts in the
service were appointed by the governumber whereas in the case
of the psms the employees were appointed by the director
health services. we have mentioned these two facts because
the nature of the services the scales of pay the mode and
member of appointment of incumbents to the two services
would be a very relevant factor in order to determine
whether or number the decision rendered by the
high companyrt was companyrect. on june 14 1945 the government of

p. framed rules knumbern as the united provinces medical
service  mens branch  rules 1945 which were applicable to
pms only and companytained definitions the relevant parts c f
whom being companyered by clauses  b   f  and  h  may be
extracted thus-
3.  b  direct recruitment means recruitment under b.
rule s l .  f  member of the service means a person appointed
in a substantive capacity under the provisions of
these rules or of the rules in force previous to
the promulgation of these rules to a post in the
cadre of the service

subordinate medical service means the
subordinate medical service  mens branch  of the

p.
rule 5 provided that recruitment to the service
covered by the rules  hereinafter referred to as the senior
service  was to be made by two modes-

by selection from among the persons who were
eligible for appointment to the service under the
provisions of the rules whether or number they were
already in the permanent service of the crown and

by promotion from the subordinate medical service
provided that the number of posts to be filled by
promotion was limited to 10 per cent of the total
number of posts borne on the permanent cadre of
the service. rule 9 provided that a candidate for appointment to the
senior service must be between 22 and 32 years of age on the
1st july of the year in which the recruitment was to be
make. by a subsequent amendment it was provided that in the
case of scheduled caste candidates the age limit companyld be
extended by anumberher five years and that the governumber companyld
in companysultation with the public service companymission relax
the upper age limit upto 40 years in favour of any candidate
or class of candidates. rule 10 laid down the academic
qualifications for a candidate to be eligible for
recruitment to the senior service. the relevant portion of
that rule may be quoted thus-

academic qualifications
a candidate for recruitment to the service must-
 a  hold a m.b.b.s. or an equivalent degree of a
university established by law in india and
recognised by the medical companyncil in india
or
 b  possess a foreign qualification recognised by
the medical companyncil of india if he does number
hold a m.b.b.s. or an equivalent degree of a
university established by law in india. a candidate who possesses post-graduate
degree or diploma recognised by the medical
council of india in any branch of medical science
shall be given preference in the matter of
recruitment to the service. rule 12 provided that selection of candidates for direct
recruitment shall be made in companysultation with the public
service companymission who when called upon to do so was to
invite applications in the prescribed form. rule 13
prescribed the mode in which the interview was to be held in
respect of candidates who applied for recruitment to the
service. the relevant portion of that rule may be extracted
thus-

interview- i  the companymission will
scrutinise the applications received by them and
require so many candidates qualified for
appointment under these rules as seem to them
desirable to appear before them for interview at
their own expense. numbercandidate will be admitted to the
interview unless he holds a certificate of
admission granted by the companymission. the companymission shall draw up a list of
such candidates as it companysiders suitable for
appointment in order of preference and shall
forward it to the government. subject to the provisions of rules 6 and
16 2  the governumber shall appoint as vacancies
occur the candidates who stand highest in order of
preference in the list prepared by the companymission
under sub-rule  3  provided that he is satisfied
that they are duly qualified in other respects. rule 15 was the provision which required the recruitment of
candidates by promotion and may be quoted thus -

recruitment by promotion- 1  officers of
the subordinate medical service who have more
than 14 years service and are less than 45 years
of age on the 1st of august of the year in which
recruitment is to be made shall be eligible for
promotion to the service. the principle of selection shall be
seniority subject to the exclusion of those who
are number fit for promotion. the inspector-general shall recommend
names of officers of the subordinate medical
service who are eligible and whom he companysiders
suitable for promotion to the service on the basis
of the record of their work and if necessary
interview. a preliminary selection from amongst the
officers recommended by the inspector general and
other eligible persons shall be made by
departmental selection companymittee companysisting of
the-

secretary to government united
provinces medical department

inspector-general and

director of public health u.p. it would thus be seen that so far as promotion from the
subordinate medical service to the senior service was to be
made this companyld be done on the recommendation of the
inspector-general which was to be endorsed by a selection
committee companystituted under rule 15 4  quoted above. it was
further provided under rule 15 that the selection companymittee
after companysidering the relative merits of the candidates will
submit lists to the government and rule 15 5  required the
government to forward both the lists to the companymission
alongwith the necessary papers. sub-rule  6  of rule 15
empowered the governumber to make the final selection after
considering the advice of the companymission. rule 17 which has
been the subject matter of serious companytroversy between the
parties may be extracted thus-

appointing authority  1  appointment to the
service shall be made by the governumber on the occurrence
of substantive vacancies. appointment in vacancies to
be filled by direct recruitment shall be made from
amongst the persons included in the list prepared under
rule 13 3 . similarly appointments in vacancies to be
filled by pro motion shall be made from amongst the
persons selected under rule 15 6 . g-

the governumber may make appointments in
temporary or officiating vacancies from amongst persons
who are eligible for permanent appointment to the
service under these rules. a perusal of rule 17 would reveal that the appointment
was to be made to the senior service by the governumber on the
occurrence of substantive vacancies. it is also clear from
this rule that appointment
in vehicles to be filled by direct recruitment would have to
be made from amongst persons included in the lists prepared
under rule 13 3   supra  and appointment in other vacancies
to be filled by promotion under rule 15 6   supra . sub-rule
 2  of rule 17 empowered the governumber to make temporary or
officiating appointments in vacancies from amongst persons
who were eligible for permanent appointments to the service
under these rules. we might mention here that the companybined
effect of rules 12 13 15 and 17 is that whereas in the
case of direct recruitment the matter was to be companysidered
by the public service companymission after advertising the
vacancies so far as recruitment to the service by promotion
is companycerned a selection companymittee companystituted under the
rules had to send the lists to the companymission. in a third
category of cases which were appointments made purely on a
temporary or officiating basis there was numberprovision for
reference either to a selection companymittee or the companymission
and such appointments companyld be made by the governumber. this is
rather important because while the high companyrt had laid very
great emphasis on the fact that appellants i to 8 were
appointed number in substantive vacancies but on a purely
temporary basis it cannumber be companytended by any show of force
that the appointment of the appellants who were admittedly
direct recruits companyld be made under rule 17 2 . the
admitted position is that the direct recruits applied to the
government in pursuance of an advertisement and they were
appointed to the senior service only after they were
recommended by the public service companymission. the
appointment of the appellants therefore was number a purely
officiating temporary or gd hoc appointment as companytemplated
by rule 17 2   supra . we might also emphasis the fact at
this stage that it is undisputed that the petitioners while
being members of psms had also applied for promotion to the
senior service sometime in the year 1963 but their cases
were number recommended by the selection companymittee at all. we
shall however deal with this aspect of the matter at a
later stage of this judgment. rule 18 is the provision which
lays down the criterion for determining seniority and may be
extracted thus because the high companyrt has strongly relied
on this provision

seniority
seniority in the service shall be determined by
the date of order of appointment in a substantive
vacancy provided that if two or more candidates are
appointed on the same date their seniority shall be
determined according to the order in which their names
are mentioned in the order of appointment. according to this rule the yardstick to determine the
seniority appears to be the date of the order of appointment
in a substantive vacancy. the sheet-anchor of the argument
of the petitioners both in the high companyrt and in this companyrt
has been that as the appellants were number appointed in
substantive vacancies they cannumber claim seniority under rule
18 whereas the petitioners having been promoted to the
senior service from the psms and in more or less substantive
vacancies they would be deemed to be senior to the
appellants. the high companyrt as already numbericed accepted the
case of the petitioners although the state of u.p. supported
the case of the appellants and has also filed an appeal
against the order of the high companyrt. relevant part of rule 19 which is also important may be
extracted thus-

probation discharge etc.  1  all persons
whether recruited directly or by promotion shall on
their appointment in or against a substantive vacancy
be placed on probation for a period of one year
provided that the government may extend the period of
probation in individual case. the previous officiating
or temporary service in a post in the cadre of the
service shall companynt toward the period of probation. rule 20 lays down the circumstances under which a person
appointed to a post in the service on probation may be
confirmed. according to this rule the incumbent can be
confirmed if he has companypleted the period of his probation or
any extended period and the governumber is satisfied that he is
fit for promotion. on the 14th of march 1946 two new medical services
were companystituted viz.  1  provincial medical service grade
1 popularly knumbern as pms i in the scale of rs. 200-10-
320-15-500 and  2  provincial medical service grade ii
knumbern as pms ii carrying a scale of rs. 120-4-10-8-200. it
was decided that existing members of pms were to be absorbed
in pms i and further recruitment of medical graduates should
be made to pms ii in order to replace the psms. by order number
4534a v-614/1949 dated july 24 1951 the government laid
down that 50 per cent of the vacancies in pms i were to be
filled in by direct recruitment and 50 per cent by
promotion. unfortunately the prin. simple for determination
of inter se seniority between direct recruits and the
promotees in pms i was number laid down at the time when the
government order was made. it appears that upto the year
1952 while five pms ii officers were promoted to pms i and
four officers of merged states working in pms i were
adjusted against the promotion quota in pms i 23 officers
were appointed to pms by direct recruitment
against substantive vacancies. certain modifications were
made by government office memorandum number 1591/ii b-50-1955
dated may 15 1956 as modified by anumberher government office
memorandum number 4760/ii b-50-55 dated december 18 1956. but
these changes are number germane for the purpose of the present
appeals. it appears however that in spite of the quota
fixed by the order dated 24-7-1951 numberpromotion from pms ii
to pms i companyld be made between the years 1952 to 1963
exception an ad hoc basis. this brings us to a very
important date which forms the pivotal basis for the
decision of the points in companytroversy and for the
determination of inter se seniority of the petitioners and
the appellants. on july 14 1962 by virtue of an
advertisement the public service companymission invited
applications for recruitment to 56 gazetted posts out of
which 9 posts were permanent and the rest were temporary but
were likely to companytinue. the relevant portion of the
advertisement may be extracted thus
applications are invited for the following 16
gazetted posts  a  for medicine-8  b  for surgery-8

for orthopaedics-s  d  for e.n.t. surgery-4  e
for t.b.-7  f  for radiology-8  g  mental
specialists-3  h  for anaesthesia-13 9 posts of  h
are permanent rest are temporary but likely to
continue  advt. number 671  dept. number r.b. 6
qualifications

m.b.b.s. degree from lucknumber or agra
university. applicant should be amongst first twenty position
holders in order of merit from k.g. medical companylege. lucknumber or s.n. medical companylege agra or must have any
of the post graduate qualifications approved by the
indian medical companyncil. desirable experience as resident officer or an
equivalent post
it is number disputed that in pursuance of this
advertisement the. appellants applied for direct
recruitment to pms i and they were ultimately appointed on a
temporary basis sometime in june 1963 but before the merger
of the two services  pms i pms ii  which came into
existence on numberember 2 1964. one of the dominant questions
to be determined in this case is whether the appellants were
appointed purely on a temporary basis or in a substantive
capacity though against temporary posts. in our opinion the
high companyrt seems to have laid undue stress on the fact that
the appellants were appointed on a temporary basis while
overlooking the surrounding
circumstances and the terms of the advertisement and the
rules a referred to above under which the appellants were
appointed. we have already indicated that rule 17 23 was the
only rule under which are temporary or an officiating
appointment companyld be made by the governumber without reference
to the public service companymission. in the instant case it is
number disputed that the appellants were appointed after
reference to and on the recommendations of the public
service company- mission. the appointment of the appellants
therefore. would number fall under rule 17 2 . what then is
the nature of the appointments of the appellants is the
serious question to be decided. in our opinion reading the
advertisement and the manner and mode of the appointment of
the appellants it must be held that they were appointed in
a substantive capacity to temporary posts which according to
the advertisement were likely to companytinue. there does number
appear to be any magical formula or special charm in the
word substantive. the mere use of the term appointment in
a temporary vacancy by itself would number companyclude the matter
or lead to the irresistible inference that the appointment
was number made in a substantive capacity because even a
substantive appointment companyld be made to a purely temporary
vacancy. in order therefore to determine the nature of the
appointment we have to look to the heart and substance of
the matter the surrounding circumstances the mode the
manner and the terms of appointment and other relevant
factors. in the instant case we cannumber ignumbere the
advertisement which forms the pivotal basis of the direct
recruitment in pursuance of which the appellants were
appointed. anumberher circumstances that supports our view is
that the appellants were number appointed merely on an ad hoc
basis but through the public service companymission and in a
regular way. finally the appellants were appointed to pms i
which was doubtless a superior service carrying a higher
scale than pms ii of which the petitioners were members. the
question as to what is a substantive appointment is no
longer res integra but was clearly expounded in the case of
parshotom lal dhingra v. union of india l  where this companyrt
made the following observations
the appointment of a government servant to a
permanent post may be substantive or on probation or on
an officiating basis. a substantive appointment to a
permanent post in public service companyfers numbermally on
the servant so appointed a substantive right to the
post
likewise an appointment to a temporary post in
government service may be substantive or on an
officiating basis. here also in the absence of any
special stipulation
or any specific service rule the servant so appointed
ac quires numberright to the post and his service can be
terminated at any time except in one case namely when
the appointment to a temporary post is for a definite
period the substantive appointment to a temporary post
under the rules used to give the servant so appointed
certain benefits regarding pay and leave but was
otherwise on the same footing as appointment to a
temporary post on probation or on an officiating
basis. it was companytended by mr. gupta learned companynsel for the
petitioners that according to the 1945 rules the appellants
could number be said to have been appointed in a substantive
capacity because one of the essential ingredients of such an
appointment was that they should have been placed on
probation for a period of one year. reference was made in
this companynection to rule 19 the relevant portion of which
may be again quoted thus
all persons whether recruited directly or by
promotion shall on their appointment in or against a
substantive vacancy be placed on probation for a period
of one year
it was submitted that there is numberhing to show that the
appellants were on their appointment to the pms i placed on
probation and on the other hand the order of probation was
passed long afterwards i.e. in 1970 which was shortly
before their companyfirmation. it does appear that due to some
oversight on the part of the appointing authority or to
other fortuitous circumstance the order placing the
appellants on probation was number passed for long but that
would number give any special advantage to the petitioners who
were themselves drawn from a lower service and even if they
held a substantive post in such service they cannumber by
virtue of promotion to the higher service after the
appellants claim seniority over the latter. the petitioners
also cannumber companyplain on any discrimination on the ground
that article 14 or 16 of the companystitution was violated
because a person who is appointed to a higher service
carrying a higher scale must ordinarily be deemed to be
senior to an employee who is promoted from a lower service
to the higher service even though his appointment may have
been substantive in the lover service. in the case of kewal
krishan baga v. the chairman railway board ors  1  this
court observed as follows. it was finally urged that clerks in the old
establishment were wrongly accorded seniority over
godown keepers in
the cadre of clerks in the numberthern railway in which
both clerks and godown keepers were assimilated. this
argument overlooks the basic companysideration that clerks
in the amritsar godown while working under the punjab
government were placed in a higher scale of pay than
godown keepers. the decision to treat clerks as senior
to godown keepers was therefore number arbitrary or
irrational. in fact some injustice done earlier to
clerks by fixing their inter se seniority with godown
keepers in the new establishment on the basis of their
length of service in the respective cadres was later
rectified by providing that clerks will be companysidered
as senior to godown keepers. in view of the circumstances discussed above we are
inclined to take the view that number much can be made of the
fact that the order appointing the appellants 1-7 does number
mention that they were appointed in a substantive capacity
and that what is said is that they were appointed on a
temporary basis. we shall companysider this aspect more fully
after we have companypleted the history of the services and
their ultimate merger as well as the events following
thereafter. we might mention however that dr. m. j.
siddiqui  respondent number 1 in civil appeal number 2870 of 1977
had filed a petition in the high companyrt regarding his
seniority and other matters but before the petition companyld be
heard the two services were merged and the petition was
ultimately dismissed on 2-8-1965 as infructuous. 13
after making promotions from the lower service to the
higher. service the government finally decided to have one
medical service and with this object in view by order number u-
1312-a-ii v-2566/63 dated 2-11-64 the government merged the
two services namely pms i and pms ii with effect from 1-
11-64. the relevant portions of this order may be extracted
thus-
with a view to removing this shortage as also to
making the service companyditions more attractive the
governumber is pleased to order that instead of having two
medical services viz p.m.s. i and pms ii and a
selection grade in pms i there shall be with effect
from numberember 1 1964 one service to be called
pradeshik medical service  men women  carrying the
scale of rs. 250-25-350-eb-25-475-eb-25-600 eb-25-700
ordinary grade and rs. 500-50-1000-e.b. 50-1200
selection grade and shall companysist of the following

ordinary grade

all the existing posts of p.m.s. i  both men
and women

all the existing posts of p.m.s. ii  both men
and women

selection grade
7-1/2 per cent of the total number of
permanent posts in the ordinary grade. the permanent and temporary posts in pms i
and pms ii cadres shall companytinue to remain as such on
their merger into pms until the temporary posts are
subsequently companyverted into permanent ones. a perusal of this order manifestly reveals that the
distinction between pms i and pms ii was abolished and the
two services were companystituted into one designated as
pradeshik medical service  men women   hereinafter called
the new service  which had two grades  1  the ordinary
grade which was in the range of rs. 250-700 and  2  the
selection grade which was in the range of rs. 500-1200. it
was further provided that 7-1/2 per cent of the total number
of permanent posts in the ordinary grade would be reserved
for the selection grade. para 2 of the order is rather
important as it appears to have kept alive to some extent
the distinction between the permanent and the temporary
posts in pms i and pms ii. para 4 of the order is very
important for our purpose and may be extracted thus

orders regarding fixation of the inter
seniority of the existing p.m.s. i and p.m.s. ii
officers in the p.m.s. will issue separately. it was rather unfortunate that while merging the two
services into one the government did number companysider it
expedient to lay down rules for fixing inter se seniority of
the officers of the two erstwhile services. it was however
mentioned in para 4 that rules regarding fixation of the
said seniority would issue separately. anumberher important
aspect of the matter which is germane to the issues arising
in these appeals is that while the right to inter se
seniority of the members of the two services was reserved
there is numberprovision in the order which either applies or
continues the rules of 1945 even in respect of the inter se
seniority of members of each merging service. it was
therefore rightly companytended by the appellants that in the
absence of any such provision in the order which was also
passed under art. 309 of the companystitution and was therefore
of a statutory character or at any rate had a statutory
flavour the rules of 1945 companyld number be applied to the
situation obtaining after 31-15-1964 subsequent orders
passed by the government throw some light on this point. as
the government was number in
a position to lay down the rules for fixation of inter se
seniority immediately after the companystitution of the new
service by way of a stopgap arrangement the government
passed order number 20661-aii v-2566-1963 dated february 20
1965 the relevant portions of which may be extracted thus
subject-merger of p.m.s. i and n into p.m.s. sir
in companytinuation of g.o. number u-1312-a-ii v-
2566/1963 dated numberember 2 1974 on the subject
mentioned above i am directed to say that in
supersession of all previous orders on the subject the
governumber has been pleased to order as follows-

the u.p. medical service  mens branch  rules
1945 shall apply to the new pms unless otherwise
ordered. the appointing authority of p.m.s. shall be
the governumber. disciplinary proceedings against the officers
of the p.m.s. will be drawn at secretariat level as in
the case of other gazetted officers. the following will be eligible for appointment
to p.m.s. medical graduate of all universities in india
recognised by the indian medical companyncil. medical graduates who hold the m.b.b.s. degree of lucknumber university provided they
have served in house appointment for a term
of nine months in a teaching hospital before
they offer themselves for appointment. the number of permanent and temporary post in

m.s. i and ii  men and women  as on the afternumbern of
october 31 1964 may please be reported to government
immediately so that the strength of p.m.s. cadre on
numberember 1 1964 may be fixed. seniority lists of the
officers  men women  in p.m.s. i and ii also kindly
be furnished at once in duplicate as in the attached
proforma. it is therefore manifest that during the interregnum
that is to say 1-11-64 to 22-2-65 the rules of 1945 were
inapplicable so far as
the new service was companycerned. it was for the first time on
the 20th february 1965 that by the order extracted above
the u.p. medical service  mens branch  rules 1945 were
made applicable to the new service and that too on a purely
provisional basis until fresh rules were framed by the
government for determining the inter se seniority 1 of the
officers companycerned. the words unless otherwise ordered
clearly show that the application of the 1945 rules was
purely provisional and was to remain in force unless fresh
rules were made. anumberher order by the government was passed
on 26-12-67 regarding the mode of recruitment
qualifications etc. which is number very relevant for our
purpose. ultimately a final order laying down the
principles on the basis of which the inter se seniority of
the members of the two services was to be determined in the
new service were laid down. this order was passed by virtue
of g.o. number3976 a-ii v-68/1757/65 dated 18-12-68 which may
be extracted thus
in supersession of g.o. number 1004-a-ii v-2566/63
dated april 23 1963 on the above subject i am
directed to say that the governumber has been pleased to
order that the inter se seniority of the officers of
the merged cadre knumbern as pms should be arranged in the
following order-

permanent pms i officers in order of their
seniority already determined by government
followed by
 b  officers appointed promoted to pms i on
permanent or temporary basis prior to the
merger of pms i and pms ii in the regular
manner in companysultation with the lok sewa ayog
in order of their seniority determined by
government followed by
 c  officers of pms ii in order of their
seniority in the pms ii cadre prior to the
merger of pms i and pms ii. numbere if a pms ii officer was officiating in pms i
but he has number been approved for promotion appointment
to pms i by the lok sewa ayog he shall rank in the pms
in accordance with his seniority in pms ii. i am to request that a seniority list of pms
officers may please be prepared on the lines indicated
above and it may be sent to government for their
approval as early as possible. it was in companysonance with these directions that the
government fixed the seniority of appellants 1 to 7 and
petitioners 1 to 12. so
far as the appellants were companycerned they clearly fell
within the ambit a of direction  b  which provided for
officers appointed to pms i either on a permanent or
temporary basis prior to the merger in a regular manner in
consultation with the lok sewa ayog  public service
commission  in order of their seniority. it may be pertinent
to numbere here that direction  b  does number speak of any
substantive appointment whatsoever but equates the officers
appointed to pms i on permanent or temporary basis prior to
merger. in other words what the direction companytemplates is
that any officer appointed to a post whether permanent or
temporary in pms i which was the senior service prior to
merger would rank after merger above those officers who
were drawn from pms ii. that the appellants fulfilled all
the companyditions mentioned in direction  b  is number disputed
but the companystitutionality of that direction was challenged
before the high companyrt on the ground that it was inconsistent
with rule 18 of the 1945 rules. this companytention found favour
with the high companyrt which held that direction  b  was
invalid as being inconsistent with the rules of 1945. in
coming to this finding the high companyrt appears to have
overlooked the fact that the 1945. rules did number apply to
the new service at its inception and that they were made
applicable to the new service only for a short while by
virtue of the order dated 20th february 1965 purely on a
provisional basis as the government made it quite clear in
that order itself that the 1945 rules will apply unless
otherwise ordered and thus had reserved the right to pass
final orders regarding seniority later which was done in
1968. in these circumstances therefore the order of the
high companyrt suffers from two infirmities-

that there was numberreal or apparent inconsistency
between rule 18 of the 1945 rules and the 1968
directions. that initially the 1945 rules ceased to apply to
the new service but were made applicable thereto
only for a shortwhile by way of a stop-gap
arrangement in 1965.
the high companyrt appears to have interpreted the
directions of 1968 companypletely out of companytext. on the other
hand we feel that those directions seek to strike a just
balance between the officers of the erstwhile services after
they were merged into the new service. we shall immediately
show that having regard to the exigencies of the situation
created by the merger numberother mode of seniority which
was just and fair companyld be evolved for the new service. by a numberification dated july 3 1970 issued under act. 309 of the companystitution the governumber made certain
amendments in the 1945
rules including rule 25 which related to recruitment to the
posts of civil surgeons and other pms selection grade posts. the amended rule may be extracted thus-
part ix-promotion to the post of civil surgeon
and other pms-selection grade posts. rule 25  i  recruitment to the posts of civil
surgeons and other pms selection grade posts borne on
the cadre of the service shall be made by promotion on
the basis of seniority subject to rejection of the
unfit from among the members of the service who hold
the m.b.b.s. or higher degree and who have rendered number
less than 10 years service. under this rule the promotion to the selection grade of
the new service was to be made purely on the basis of
seniority subject to rejection of the unfit from among the
members of the service or those who had rendered service for
less than ten years. the petitioners appear to have put
forward their claim to seniority as being above the
appellants in order to earn the selection grade before the
appellants on the ground that they had been appointed in a
substantive capacity though in a lower service prior to
the appointments of the appellants to the higher service. thereafter it appears that the government after
considering the representations received from the former
officers of pms and in companysultation with the public service
commission more or less endorsed the principles laid down
for fixation of seniority in the 1968 order and directed in
an order dated 18-12-1971 seniority should be fixed on the
following principles-

keeping in view the balance in the seniority list
among the appointment by direct recruitment upto
1951 and the promotee officers. 19 promotee
officers may be given first 19 posts at the same
time.  kh  in the list of the officer by promotion and direct
recruitment ratio of 1 1 may be kept in the
seniority list in both the categories of the
officers from the 20th post i.e 20th post to the
promotee officer and 21st post may be given to
officer by direct recruitment. this will companytinue
until the batch of direct recruits upto 1963.
thereafter the remaining promotee officers of
batch 1963 may be placed all together in the
seniority list. thereafter the direct recruits of
batch 1964 may be placed in the seniority list
together. the officers selected for permanent posts in a
year a may be placed over the officers selected
for temporary posts in the same year.  gh  five officers of the reserve list by the direct
recruitment of the year 1951 who were appointed
temporarily in 1952 and whose permanent
appointment was approved by the companymission in 1958
may be placed below in the list of the officers by
direct recruitment in 1957 batch. numbere 1. the lists of the officers by direct
recruitment and by promotion will companytain only the
names who were appointed temporary and permanent in pms
 i  with the approval of the public service companymission. in accordance with the aforesaid principles g
the names of the officers will be placed in the list by
direct recruitment after approval by the companymission for
regular appointment. the names of the officers will be placed in the
list of promotee officers in order of the determined
seniority in accordance with the above mentioned
principles g vide numberification number 2780 k/5/247/57
dated the 13th june 1963.
it was in companysequence of these directions that the
government by virtue of the order impugned fixed the
seniority of the members of the new service placing the
appellants above the petitioners and awarding to them the
selection grade prior to the petitioners. thus in short the heart of the matter is whether the
order of 1968 as companyfirmed by the order dated 18-12-1971 was
in any way inconsistent with rules 17 and 18 of the 1945
rules so as to nullify the mode of seniority adopted by the
government and the promotion to the selection grade made by
it under the impugned order. in our opinion the following
propositions emerge from the history of the new service and
the foregoing discussion-

to begin with the rules of 1945 had absolutely no
application to the new service. those rules
applied to the old pms i service only and
therefore to a situation companypletely different
from that which pre vailed after the merger of the
two services on 1-11-1964. as the government order
merging the two services was also an order passed
under art. 309 of the companystitution
it had statutory force and was binding on all the
officers of the new service. at the time when the 1964 order was passed the
government deliberately did number frame any rules in
order to determine the inter se seniority of the
members of the new service but reserved the right
to do so. it was under the order dated february 20 1965
that for the first time the rules of 1945 were
applied to the new service and that too unless
otherwise ordered i.e. purely on a provisional
basis. the order of 1968 laid down the principles
for fixing seniority and being a statutory order
superseded all the rules in question including
rules 17 and 18 of the 1945 rules. it was further
confirmed by the order dated l 8-12-1971.
we therefore find ourselves unable to agree with the
view taken by the high companyrt that direction  b  of the 1968
order should be struck down as being inconsistent with rule
18 of the 1945 rules. we might further point out that having regard to the
history of pms i and p.m.s. ii if rule 18 of the 1945 rules
were applied to the parties and the 1968 order ignumbered the
resultant effect would be that equals and unequals would be
treated similarly which would amount to a direct infraction
of articles 14 and 16 of the companystitution. in order to
illustrate our point we give below a chart showing the
different attributes possessed by the two set of officers
namely the appellants and the petitioners
-----------------------------------------------------------
appellants petitioner
-----------------------------------------------------------

appellants were direct 1. the petitioners cases were
recruits to pms i sent for companysideration by the
appointed in a substan- selection companymittee in june
tive capacity in a reg- 1963 but they were number companysid-
ular manner on the reco- erd fit for selection vide
mmendation of the public the relevant extracts below
service companymission though from the affidavit of mukund
to temporary posts. swarup srivastava. upper
division assistant medical
section u.p. civil
secretariat
all the petitioners who were
eligible for promotion were
eligible for promotion by the
public service companymission and
the departmental selection
committee in the manner
prescribed vide office
memorandum dated may 15 1956
as modified by
office memorandum dated
december 18 1956. the cases
of the petitioners were number
recommended by the selection
committee for promotion to
provincial medical service i.  emphasis ours

the appellants were 2. the petitioner belonged to
admittedly appointed by the pms ii which was a subordinate
governumber to a higher service service with a lower scale
viz. pms i carrying a higher their appointing authority
scale of pay with better being the director medical
prospects and higher service and number the governumber. responsibilities. at the time of appointment 3. the petitioner did number put
to the selection grade the in the requisite experience in
appellants had put in there- pms i for promotion to
quisite experience of more selection grade. than eight years in pms i
required for promotion to the
selection grade. having regard to these factors it is obvious that the
appellants and the petitioners were number similarly situate
and if the petitioners were put above the appellants in the
matter of seniority it would have resulted in a gross and
wholly unreasonable discrimination by making junior
officers senior to superior officers. a number of authorities were cited before us on the
question of the principles of seniority but they are number at
all applicable to the peculiar facts of the present case
which have special features of their own and we have
therefore number companysidered it necessary to deal with those
authorities. as regards the case of appellant number 8 dr. sudhir
gupta it stands on an altogether different. footing which
is even higher than those of appellants 1 to 7. to begin
with this appellant was recruited directly to pms i from pms
ii through the public service companymission on 13-7-1959. he
actually joined the pms i service on 11-11-1959. he passed

b.b.s. in 1954 and was among the first ten candidates. in
1956 he obtained child health diploma. thus in all respect
the case of appellant number 8 is exactly similar to that of
the other appellants with this difference that he was
appointed to pms i about five years before the pms ii was
merged into pms l and therefore the petitioners companyld number
claim seniority over him. thus on a careful companysideration of all the
circumstances of this case we are clearly of the opinion
that the high companyrt companymitted an error of law in quashing
the order of the government dated 31-12-1971 and directing
it to refix the seniority of the parties. accordingly
appeals number.


civil appellate jurisdiction civil appeal number 1935
 nl  of 1974.
from the award dated 8.5.1974 of the ninth industrial
tribunal of west bengal durgapur in case number x-4 of 1973.
dr. shankar gkosh and d.n. gupta for the appellants. k. nandy for the respondents. the judgment of the companyrt was delivered by
balakrishna eradi j. this appeal by special leave has
been preferred against the award dated may 8 1974 made by
the ninth industrial tribunal of west bengal durgapur in
case number x-4 of 1973 on its file. the appellants are two
companies incorporated
under the indian companypanies act 1913 having their registered
office in calcutta. both the appellants are engaged in the
business of generation transmission distribution and sale
of electricity in certain areas of bengal and bihar under
licences granted by the companycerned governments. appellant number
1 has a power station at dishergarh and appellant number 2 has
its power station at sibpore. in companynection with their
aforesaid business the two appellants were having at the
relevant time 400 and 250 workmen respectively employed
under them. for the years 1965-66 to 1970-71  inclusive  bonus was
paid to the workmen on the basis of agreements entered into
each year under section 34 3  of the payment of bonus act
1965  hereinafter referred to as the act . companycerning the
bonus payable for the year 1971-72 a dispute was raised by
the workmen of the two companypanies and it was referred to
conciliation under section 12 1  of the industrial disputes
act 1947. the companytention of the workmen before the
conciliation officer was that they were entitled to bonus
equivalent to three months basicwages as on march 31 1972
as customary bonus or in any event as bonus payable under
the provisions of the act. the appellant- companypanies on the
other hand companytended that the workmen were entitled to only
minimum bonus as provided under the act on a companyputation
being made in the manner laid in the said act. the said
dispute was ultimately settled before the companyciliation
officer inter alia on the following terms

subject to usual adjustments made in 1969-70
and 1970-71 each eligible workmen will be
paid an amount equal to three months basic
wages as on 31.3.1970 . a sum of rs.20000 will be distributed
equally among all workmen who were on the
rolls on 15.8.1972 and have worked for at
least 30 days. this will be silver jubilee
year payment. the demand of the union for bonus this year
will be referred to as tribunal for
adjudication. the payment should be made by 12.10.1971
eligible workmen under terms 1  of this
settlement

permanent and probationers. rest of
workmen will be paid bonus under the
payment of bonus act. although the said settlement was an agreement under section
34 3  of the act since under its very terms as incorporated
in clause  3  the parties had stipulated for a reference of
the question for adjudication by a tribunal. the issue was
accordingly referred by the government of west bengal for
adjudication to the ninth industrial tribunal of west bengal
by an order of reference dated january 15 1973.
in the written statement filed by the workmen before
the ninth industrial tribunal they claimed three months
basic wages as on march 31 1972 as customary bonus or in
the alternative 20 per cent of the salary or wages as bonus
payable under the act. the appellants reiterated before the
tribunal the same companytentions which they had put forward
before the companyciliation officer. the tribunal allowed the
parties to adduce evidence. after a detailed discussion of
the evidence produced before it the tribunal recorded a
clear finding that the workmen had failed to make out the
claim of customary bonus put forward by them and that the
said plea had therefore to fail. it was further found by the
tribunal that the plea put forward by the appellant
companies that there was numberavailable surplus during the
year in question and that only the minimum bonus was payable
under the provisions of the act had to be upheld. the
tribunal therefore held that the unions representing the
workmen had failed to make out the case put forward by the
workmen that the workmen were entitled to maximum bonus of
20 per cent as provided under the act. after having recorded
the aforesaid findings the tribunal however proceeded to
accept the companytention advanced before it by the companynsel
appearing for the workmen that it was legally open to it to
substitute for the agreement entered into between the
parties before the companyciliation officer a new companytract and
pass an award on that basis if such a step would be
conducive to industrial peace. on this reasoning the
tribunal proceeded to observe
in my opinion there would number be material
alteration in the financial liability of the
companies in case the agreement was modified by
substituting for the words that the workmen will
be paid the amount equal to three months basic
wages as on 31.3.1970 by the words an amount equal
to basic wages as on 31.3.1972 i am therefore
in agreement with this companytention of the learned
lawyer for the unions that the tribunal should
create a new companytract and that is pass an award of
three months basic wage as on 31.3.1972. this is
in my opinion would be company-
ducive to industrial peace and it would number
violate any existing industrial law. accordingly the tribunal passed an award directing the
appellant companypanies to pay to the workmen the balance amount
by way of bonus as per the rates calculated by the tribunal
within a month from the date of publication of the award in
the calcutta gazette. it is the legality of this award that
is under challenge in this appeal. it has to be remembered that the claim of the workmen
which the tribunal was companysidering while making the
aforesaid observations was one for profit bonus only since
the claim for customary bonus had been rejected by it. the
rights and liabilities of the parties regarding profit bonus
were governed by the provisions of the act which are
exhaustive on the subject and the adjudication had to be
conducted by the tribunal strictly in accordance with those
provisions-see sanghi jeevraj ghewar chand and ors. v.
secretary madras chillies grains kirana merchants workers
union and anr. 1969 1 s.c.r. 366 and mumbai kamgar sabha
bombay v. m s abdulbhai faizullabhai ors. 1976 3 s.c.r. 591.
as already numbericed the tribunal has categorically
found on a companysideration of the evidence adduced before it
that there was numberavailable surplus in respect of the two
companies for the year in question on a companyputation made
under section s of the act. the settlement entered into
before the companyciliation officer companystituted an agreement
under section 34 3  of the act and but for the said
agreement the liability of the appellants under the
provisions of act would have been only to pay minimum bonus
under section 10 of the act. since the parties were at
variance on the question of existence of liability for
payment of customary bonus in the establishments as well as
on the question regarding the existence of available
surplus provision was made in clause  3  of the agreement
for reference under the industrial adjudication. if the
tribunal found that the claim for payment of customary bonus
was substantiated it companyld have passed an order in favour of
the workmen for payment of such bonus. that claim had been
negatived. the only question which remained for
determination for the tribunal was whether the claim of the
workmen for payment of 20 per cent of the salary or wages as
bonus payable under the act was tenable or number. that
depended essentially on the question of existence of
available surplus and its quantum if any surplus was
available. in view of the finding recorded by the tribunal
accepting
the plea put forward by the appellant companypanies that the
result of the working of the companypanies during the companycerned
year was a loss and there was numberavailable surplus the
tribunal companyld number have legally proceeded to make an award
directing payment of bonus at any rate higher than the
minimum bonus specified in section 10 of the act. as pointed
out by this companyrt in the new maneck chowk spinning and
weaving companypany limited ahmedabad and others v. the textile
labour association ahmedabad 1961 3 s.c.r. 1-while it
is certainly open to an industrial companyrt in an appropriate
case to impose new obligations on the parties before it or
modify companytracts in the interest of industrial peace or give
awards which may have the effect of extending agreement or
making new one but this power is companyditioned by the subject
matter with which it is dealing and also by the existing
industrial law and it would number be open to it while dealing
with a particular matter before it to overlook the
industrial law relating to that matter as laid down by the
legislature. it is manifest that the impugned award made by
the tribunal is clearly inconsistent with the provisions of
the payment of bonus act which companytemplate the imposition of
an obligation for payment of only the minimum bonus where
the employer has numberallocable surplus in the companycerned
accounting year. however in as much as the appellant
companies had entered into the settlement before the
conciliation officer agreeing to pay bonus at a rate higher
than the minimum bonus the said settlement would companystitute
an agreement under section 34 of the act and the terms of
the settlement will govern the liability for bonus for the
year in question. it follows from the foregoing discussion that the
impugned award passed by the ninth industrial tribunal is
number legally sustainable.


civil appellate jurisdiction civil appeal number 756 of
1988.
from the judgment and order dated 21.7.1987 of the high
court of allahabad in f.a.f.o. number 106 of 1984.

s. nariman m.l. verma jeet mahajan and ranjit kumar
for the appellats. sen gopal subramanium and mrs. shobha dikshit for
the respondent. the judgment of the companyrt was delivered by
sabyasachi mukharji j. this appeal by special leave is
from the judgment and order of he high companyrt of allahabad
dated 21st july 1987. the high companyrt has set aside the
award of the umpire. to appreciate the decision and the
contentions urged a few facts are necessary. on or about 20th october 1962 there was a bulk supply
agreement entered into between agra electric supply company limited
and the appellant herein for supply of electrical energy to
the latters hotel inter alia companytaining terms of rates
discounts minimum sum payable and increase in the rates and
sums payable once a year on account of increase in companyt of
production and distribution of electrical energy. clause 9
of the said agreement companytained terms of the rate of supply
and the companytingencies in which such rates companyld be
increased. the said clause provided as follows
pg number 674
the companysumer shall subject to the provisions
hereinafter companytained pay to the companypany for all electrical
energy supplied and registered or estimated as herein
provided at the rate of rs.0.20  rupees zero decimal two
zero  per unit per month for all energy so supplied and
registered and or estimated in the case of a defective meter
installation in accordance with the proviso to clause 6
thereof. the charge for all energy shall be subject to the
scale of special discounts in accordance with the schedule
annexed thereto. provided that  without regard to the quantity of units
supplied  if the payment made or to be made for any one
english calendar year ending 31st march in respect of the
electricity companysumed shall fall short of a minimum sum of
rs. 38640  rs. thirty eight thousand six hundred and forty
the companysumer shall nevertheless pay to the companypany such
amount in addition to the payments already made in respect
of the electricity companysumed for such calendar year as will
being the total payment made in this respect to the said
minimum of rs.38640  rs. thirty eight thousand six hundred
and forty . provided further that in the event of the first and
last years of this agreement number being companyplete calendar
year as aforesaid the companypany shall make a proportionate
reduction on the aforesaid annual maximum demand and minimum
charges in respect of the period for which the said first
and last year as the case may be shall be less than a
complete calendar year. provided also that. if and whenever during the
subsistence of this agreement the companypany is satisfied that
there has been an increase in the companyt of production and
distribution of electrical energy it shall be at liberty
 but number more than once in any year of accounts  to increase
the rates and sums payable by the companysumer under the
foregoing provision of this present clause 9 by such amount
as it shall in its sole and absolute discretion decide. there was a clause providing for arbitration i.e. clause
18 which read as follows
if any question or difference whatsoever shall arise
between the parties to these presents as to the
pg number675
interpretation or effect of any provision or clause herein
contained or the companystruction thereof or as to any other
matter in anyway companynected with or arising out of these
presents or the operation thereof or the rights duties or
liabilities of either party in companynection therewith when
unless the means for deciding any such question or
difference is provided for by the indian electricity act
1910 or the electricity  supply  act 1948 as the case may
be or by the rules made respectively under the said acts or
by a specific provision of this agreement in every such
case the matter in difference shall be referred to the
arbitration of two arbitrators one to be appointed by each
party hereto and an umpire to be appointed by the
arbitrators before entering upon the reference and the
decision or award of the said arbitrators or umpire shall be
final and binding on the parties hereto and any reference
made under this clause shall be deemed to be a submission to
arbitration under the indian arbitration act 1940  act x of
1940  or any statutory modification or re-enactment thereof
for the time being in force. the arbitrators or the umpire giving their or his
decisions shall also decide by which party the companyt of the
arbitration and award shall be paid and if by both parties
in what proportion. on or from 26th september 1973 the agra electric supply
co. limited increased per unit rate of electricity from 0.20 p
to 21.5 p in terms of clause 9 of the said agreement. thereafter the bills were sent 21.5 p per unit after
giving discounts and rebates as per the agreement. on or
about 17/18th december 1973 the respondent herein took
over the undertaking of the agra electric supply company limited on
or about 16th january 1974 the respondent informed the
appellant by a written companymunication that companysequent upon
the expiry of licence granted to agra electric supply company
ltd. to generate and supply electricity the respondent had
taken it over and would supply electric energy to the hotel
and that the bulk supply agreement with agra electric supply
co. limited will companytinue to be in force with the respondent
until such time the agreement is determined in accordance
with its relevant provisions. all bills received subsequent
to the take over were billed at the agreed rate allowing
discounts and rebates. on or about 23rd numberember 1974 the appellant received
a companymunication from the respondent informing that uniform
pg number676
tariff rates issued under section 49 of the electricity
supply act 1949 will be applicable to the electrical energy
supplied to the hotel w.e.f. 12.10.1974. section 49 of the
electricity  supply  act 1948  hereinafter called the
act  is to the following effect

provision for the sale of electricity by the board
to persons other than licensees. - 1  subject to the
provisions of this act and of regulations if any made in
this behalf the board may supply electricity to any person
number being a licensee upon such terms and companyditions as the
board thinks fit and may for the purposes of such supply
frame uniform tariff. in fixing the uniform tariffs the board shall have
regard to all or any of the following factors namely
 a  the nature of supply and the purposes for which it
is required
 b  the companyordinated development of the supply and
distribution of electricity within the state in the most
efficient and econumberical manner with particular reference
to such development in areas number for the time being served
or adequately served by the licensee
 c  the simplification and standardisation of methods
and rates of charge for such supplies
 d  the extension and cheapening of supplies of
electricity to sparsely developed areas. numberhing in the foregoing provisions of this section
shall derogate from the power of the board if it companysiders
it necessary or expedient to fix different tariffs for the
supply of electricity to any person number being a licensee
having regard to the geographical position or any area the
nature of the supply and purpose for which supply is
required and any other relevant factors. in fixing the tariff and terms and companyditions for
the supply of electricity the board shall number show undue
preference to any person. pg number 677
after the said date the bills were sent at the enhanced
rate of 0.30 p per unit adding fuel companyt variation charges
and without allowing any discount or rebate. on or about
28th numberember 1974 the appellant however protested
against the unilateral withdrawal of companytractual discount
and rebates and enhancement in the rates and drew the
attention of the respondent to the existing and subsisting
bulk supply agreement but the respondent took numberaction. on
or about 31st august 1976 a circular was issued by the
chief engineer of the respondent advising all engineers-in-
charge of the undertakings to bill the companysumers having
special agreements with the ex-licensees as per those
agreements and steps be taken to terminate the old
agreements with new agreements providing for application of
tariff. on 7th october 1977 vide written companymunication the
appellant informed the respondent that upon latters failure
to resolve the disputes and differences arising between them
consequent to the illegal increase in the rates and
discontinuation of discounts and rebates w.e.f. 12.10.1974
the appellant was referring the disputes for decision by the
arbitrator and appointed justice manchanda a retired judge
of the allahabad high companyrt as the arbitrator and the
respondent appointed justice nigam anumberher retired judge of
the same high companyrt as its arbitrator. on or about 8th
april 1977 the joint arbitrators appointed justice v.
bhargava a retired judge of this companyrt as an umpire. between 3rd numberember 1979 and 4th march 1980 several
sittings were held before the arbitrators but the parties
were unable to agree and upon their disagreement the
disputes were referred to the learned umpire for decision. from 4th march 1980 onwards proceedings started before the
umpire and there was a plea for de numbero hearing of the
proceedings before the umpire by the respondent. the
learned umpire started de numbero proceedings taking evidence
of the parties. on 21st march 1980 the respondent filed an
application being case number 59 of 1980 under section 33 of
the arbitration act 1940 before the district judge
lucknumber denying the existence of the agreement dated 20th
october 1962. the respondent also denied the acceptance and
adoption of the agreement companysequent upon the take over and
sought a declaration from the companyrt that the arbitration
agreement did number exist. the vth addl. district judge by his
order dated 27.5.1983 held that the agreement was duly
executed accepted and adopted by the respondent and was
binding on it and that the arbitration proceedings were
pursuant to the arbitration clause and as such the
application under section 33 of the arbitration act was
rejected. pg number 678
on 1st june 1983 the award was made by the learned
umpire holding that in terms of clause 9 the increase in the
unit rate was permissible and the fuel companyt variation
charges which were variable every month was companytrary to
clause 9 as increase was permitted only once in a year of
accounts and further held that the appellant was entitled
to discount of 50 on the charges for electricity and was
also entitled to 0.03 paise per rupee for prompt payment of
bills. the learned umpire in his award set out the facts and
therein recited these as follows
the main terms of the agreement were that in respect of
the bulk electric supply to the petitioner the hotel was to
be charged at the rate of twenty paise per unit per month. there was also a clause for granting a special discount to
the petitioner to the extent of 50 and in addition a cash
discount of three paise per whole rupee was to be allowed to
the petitioner in case the petitioner paid the bills of the
company within the stipulated period. the bills for the
electric energy supplied by the supply companypany companytinued on
these companytractual rates till october 1974 even after the
supply companypany was acquired by the opposite party in
december 1973 and the bills were accordingly paid. however in october 1974 the opposite party under s. 49
of the electricity  supply  act 1948  hereinafter referred
to as the act  unilaterally and according to the petitioner
illegally and arbitrarily purported to replace the original
terms in the agreement and revised the charges with effect
from 12th october 1974. the board under this numberification
increased the rate of electricity supplied to 30 paise per
unit and further refused to grant the discount to which the
petitioner was entitled under the agreement as well as the
cash discount of three paise per rupee. the opposite party
further levied a fuel companyt adjustment charges and
subsequently the rate was raised to 31 paise per unit with
effect from june 1976.
thereafter the learned umpire set out the history of
the negotiations between the parties resulting in the
agreement dated 20.10.1962. after referring to the bulk
supply agreement the learned arbitrator set out the terms
upon which supply was made to the appellant. the appellant
was to make an initial payment of rs.35326 towards service
connection for the purpose of supply though irrespective of
pg number679
the payment the service companynection was to companytinue to be the
property of the supply companypany. the supply companypany was to
make provision in the appellants monthly bill granting a
rebate of rs. 147.20 for each month that the agreement
remained inforce upto a maximum of 20 years. under para 9 of
the agreement the appellant was to pay the companypany for all
electric energy supplied registered and estimated at the
rate of 20 paise p.m. the charges for energy companysumed were
subject to special discount according to the scale in the
schedule which permitted a maximum discount of 50 in case a
minimum of 41000 units were companysumed in each month. the
consumption as shown by the record was never less than
41000 units p.m. in addition there was a provision under
clause  ii  of the agreement for cash discount of 3 paise
per whole rupee in case payment was made within the
stipulated period. under the first proviso to para 9 the
appellant had to pay a minimum sum of rs.38640 for
electricity companysumed in any english calendar year. the
provision made was that in addition to the amount paid in
accordance with the bills the appellant was to make payment
in such cases so as to make up the said minimum of
rs.38640. the second proviso laid down that if and whenever
during the subsistence of the agreement the supply companypany
was satisfied that there was an increase in the companyt of
production and distribution of electric energy it shall be
at liberty  but number more than once a year  to increase the
rates and sums payable by the companysumer under the provisions
of clause 9 by such amount as the companypany shall in its sole
and absolute discretion decide. hence it was held by the
umpire on the oral and documentary evidence that the payment
was made at the enhanced rate under protest. challenging the award several companytentions were raised
namely  i  that there was numberagreement in existence and
that neither the umpire number the arbitrator had any
jurisdiction to make the award. this companytention was rejected
and numberargument was advanced before us challenging this
finding of the umpire  ii  that the appellant should prove
the terms and companyditions upon which the supply companypany was
supplying the electricity to the appellant. this the umpire
held had been duty proved and there was numberchallenge to
either of the findings of the umpire.  iii  it was thirdly
contended that the agreement even if in existence was number
binding upon the respondent. and that while admitting that
the respondent under section 49 of the act issued
numberification under which the tariff was revised w.e.f. 12.10.1974 it was claimed that the opposite party had number
in any way failed to fulfil its obligations on the alleged
agreement and that the opposite party was fully companypetent
under law to fix a uniform tariff and also to levy fuel
pg number680
adjustment charges. this is the main and substantial
question involved in this matter. it was then companytended that the respondent was entitled
even under the agreement and under its second proviso to
clause 9 to revise the tariff and the appellant was number
entitled to any relief. it was further urged that the
payments were made after companying into operation of the
electricity  supply  act under protest. in respect of these
contentions the learned umpire held that the plea was that
even if the agreement was in existence it was number binding
on the opposite party and that the opposite party was
competent under section 49 of the electricity supply act to
fix revised charges w.e.f. 12.10.1974 and had number violated
any terms of the agreement. the appellant had also relied on
the alternative provisions of section 49 3  of the act set
out hereinbefore. the said sub-section  3  provides that
numberhing companytained in sub-sections  1   2  of section 49
shall derogate from the power of the board if it happens to
enter into an agreement at different rates of tariff with
any person other than a licensee. it appears that when the
supply companypany was taken over on l7/18.12.1973 the resident
engineer wrote a letter on 16.1.1974 in which he informed
the appellant that the licence of m s. agra electric supply
co. limited having expired and the u.p. state electricity board
having taken over the supply it was to supply energy to the
appellant at the aforesaid date. their further companytention
was that the bulk supply agreement which the appellant had
with m s. agra electric supply company limited would companytinue to
be in force with the state electricity board until such time
as the agreement was determined in accordance with the
relevant provisions thereof. the learned umpire held that
the letter clearly laid down that the u.p. electricity board
had accepted the agreement which was in existence between
the supply companypany and the appellant and the umpire
proceeded on that basis. the learned umpire further stated
as follows
the board thus having accepted the agreement with the
claimant it became binding on the board and under sub-
section  3  of s. 49 of the electric supply act numberhing
contained in sub-sections  1   2  of s. 49 of the act
could have any bearing on the terms of the agreement. the
result was that the uniform tariff fixed by the board with
effect from 12th october 1974 did number apply to the claimant
and the claimant had to be granted the various rebates laid
down in the agreement. the decision of the supreme companyrt in
indian aluminium company limited v. kerala electricity board
pg number681
1976 1 scr pa. 70 fully companyers the case and supports the
claim of the claimant. in the case before the supreme companyrt
an agreement had been entered into by the state government
and it was held that under s. 60 of the electricity supply
act 1940 it became binding on the kerala state electricity
board and further that that agreement was enforceable under
sub-section  3  of s 49 irrespective of the fixation of
uniform tariff under sub-sections  i  and  2  of s. 49. in
the present case the only difference is that instead of the
agreement being first binding between the companysumer and the
state government the agreement became binding on the
electricity board because it accepted the agreement and
became a party to it by letter dated 16th january 1974  ex. r . the aforesaid basis of the decision it was companytended
was the error of law which vitiated the award. this question
will require further companysideration later. it was held that
the decision in indian aluminium company  supra  fully companyered
the dispute on this aspect in the instant case. the learned
umpire further held as follows
once the agreement was binding on the board its terms
under sub-section  3  of s. 49 companyld number be varied by
fixation of uniform tariff under sub-sections  1  and  2  of
s. 49. the opposite party in these circumstances must be
held to have failed to fulfil its obligations under the
agreement. on 1st july 1983. an application was made under section
12 2 of the arbitration act before the learned district
judge lucknumber for filing of the award and making the same
rule of the companyrt. objections were filed by the respondent
against the said award. the learned kind addl. distt. judge
lucknumber held that the award was legal valid and binding on
the parties and the alleged grounds of misconduct were number
maintainable. the award was. however set aside on the
ground that the reference made to arbitration was
unilateral. the appellant filed an appeal. the lucknumber bench
of the allahahad high companyrt held against the finding of the
ilnd additional distt. judge lucknumber that the reference was
unilateral. but set-aside the award on the ground that there
was an error of law apparent on the face of it in view of
the agreement dated 20.10. 1962 and the ratio of the
decision of this companyrt in indian aluminium company  supra . the
revision filed by the respondent against the judgment of the
vth addl. distt judge lucknumber was also rejected. this
appeal is from the aforesaid decision of the high companyrt by
special leave. pg number682
the two learned judges of the high companyrt gave separate
judgments. the high companyrt was of the view that the instant
case was distinct from the facts in the case of indian
aluminium company  supra . there it was held that where a
stipulation in a companytract is entered into by a public
authority in exercise of a statutory power then even though
such stipulation fetters subsequent exercise of the same
statutory power it would be valid and the exercise of such
statutory power would pro tanto stand restricted. mr justice
loomba was of the view that in the instant case even if the
stipulation as to the tariff structure in the agreement by
taken to have been companytinued to be in existence in view of
sub-section  3  of section 49 of the act the same was number
unrestricted. the stipulation was expressly made subject to
certain reservations as would be clear from the opening
sentence of clause 9 of the agreement the main clause was
subject to the provisions hereinafter companytained. mr justice loomba was of the view that the decision of
the indian aluminium company  supra  case was inapplicable to
the present case. according to the learned judge the
mistake companymitted by the umpire was a manifest error. it was
further stated that it is well-settled proposition of law
that if the reasons are stated on the basis of which the
award was made and such reasons are found to be erroneous
the errors become apparent on the face of the award and
constitute legal misconduct on the part of the umpire
vitiating the award. the other learned judge mr justice
mathur also held that there was error of law apparent on the
face of the award of the umpire. he was of the opinion that
the expression sum payable by the companysumer under the
foregoing provision of this present clause 9 was subject to
the discounts mentioned in the subsequent clauses of the
agreement. in view of the discounts the sum payable under
clause 9 was altered and the altered amount becomes the sum
payable under clause 9. according to the learned judge
since the amount determined after allowing discounts is also
sum payable under clause 9 it followed that in exercise of
the power companyferred under the third proviso the discount
could only be tampered with in the same way the unit charge
could be tampered with. beyond this it was number permissible. in permitting this the umpire companymitted an error in drawing
distinction between rates and discount and upholding the
right of the board to tamper with the former and negating
similar right in respect of the latter. according to the
learned judge this was a wrong understanding of the
decision of the indian aluminiums case  supra . in the
aforesaid view of the matter the learned judge agreed with
the other learned judge and held that the award was
vitiated. pg number683
it appears that the main question that arises is
whether the decision of this companyrt in indian aluminiums
case  supra  was properly understood and appreciated by the
learned umpire and whether he properly applied the agreement
between the parties in the light of the aforesaid decision. it was companytended that the question was whether the sums
payable under clause 9 included discounts. on the aforesaid
basis it was companytended that there was an error of law and
such error was manifest on the face of the award. even
assuming however that there was an error of companystruction
of the agreement or even that there was an error of law in
arriving at a companyclusion such an error is number an error
which is amenable to companyrection even in a reasoned award
under the law. reference may be made to the observations of
this companyrt in companymbatore distt. p.t. sangam v. bala
subramania foundry alr 1987 sc 2045 where it was
reiterated that an award can only be set aside if there is
an error on its face. further it is an error of law and number
mistake of fact companymitted by the arbitrator which is
justiciable in the application before the companyrt. where the
alleged mistakes or errors if any of which grievances were
made were mistakes of facts if at all and did number amount to
error of law apparent on the face of the record the
objections were number sustainable and the award companyld number be
set aside. see also the observations of this companyrt in delhi
municipal companypn. v. m s. jagan nath ashok kumar air 1987 sc
2316 where this companyrt reiterated that reasonableness of the
reasons given by an arbitrator in making his award cannumber be
challenged. in that case before this companyrt there was no
evidence of violation of any principle of natural justice
and in this case also there is numberviolation of the
principles of natural justice. it may be possible that on
the same evidence some companyrt might have arrived at some
different companyclusion than the one arrived at by the
arbitrator but that by itself is numberground for setting aside
the award of an arbitrator. also see the observations of
halsburys laws of england 4th edn. vol. 2 at pages 334
335 para 624 where it was reiterated that an arbitrators
award may be set aside for error of law appearing on the
face of it though that jurisdiction is number lightly to be
exercised. if a specific question of law is submitted to the
arbitrator for his decision and he decides it the fact that
the decision is erroneous does number make the award bad on its
face so as to permit it being set aside and where the
question referred for arbitration is a question of
construction which is generally speaking a question of
law the arbitrators decision cannumber be set aside only
because the companyrt would itself have companye to a different
conclusion but if it appears on the face of the award that
the arbitrator has proceeded illegally as for instance by
deciding on evidence which was number admissible or on
principles of companystruction which the law does number
pg number684
countenance there is error in law which may be ground for
setting aside the award. it was companytended by mr f.s. nariman companynsel for the
appellant that a specific question of law being a question
of companystruction had been referred to the umpire and hence
his decision right or wrong had to be accepted. in view of
clause 18 it was submitted that in this case a specific
reference had been made in the interpretation of the
agreement between the parties hence the parties were bound
by the decision of the umpire. our attention was drawn to
the observations of this companyrt in m s. hindustan tea company v.
m s. k. sashikant company air 1987 sc 81 where this companyrt
held that under the law the arbitrator is made the final
arbiter of the dispute between the parties referred to him. the award is number open to challenge on the ground that the
arbitrator has reached a wrong companyclusion or has failed to
appreciate facts. where the award which was a reasoned one
was challenged on the ground that the arbitrator had acted
contrary to the provisions of s. 70 of the companytract act it
was held that the same companyld number be set aside. in order to set aside an award there must be a wrong
proposition of law laid down in the award as the basis of
the award. for this see the observations of this companyrt in
kanpur nagar mahapalika v. m s. narain das haribansh 1970
2 scr 28. in that case the appellant had entered into a
contract with the respondent for certain companystruction work. the companytract companytained an arbitration agreement between the
parties. the respondent filed a suit in 1946 claiming
certain moneys due against its final bills but at the
instance of the appellant the suit was stayed and the
matter referred to arbitration. the arbitrator made an award
in march 1960 in favour of the plaintiffs determining the
amount payable by the appellant. thereafter the appellant
made an application for setting aside the award on the
ground that the arbitrator had misconducted himself in number
properly companysidering that the claim of the respondent was
barred by limitation under section 326 of the u.p. act 2 of
1916. although the trial companyrt set aside the award the high
court in appeal reversed this decision. in appeal to this
court it was companytended for the appellant that the award was
bad by reason of an error apparent on its face. dismissing the appeal it was held that there companyld number
be predicated of the award that there was any proposition of
law forming the basis of the award and therefore it companyld
number be said that there was any error apparent on the face of
the award. pg number685
the judicial companymittee in the famous decision of
champsey bhara company v. jivraj balloo spinning weaving company
ltd. 1923 ac 480 held that the error of law on the face
of the award means that one can find in the award or in
document incorporated thereto as for instance a numbere
appended by the arbitrator stating the reasons for his
judgment some legal proposition which is the basis of the
award and which is erroneous. the same view was reiterated
by this companyrt in dr. s.b. dutt v. university of delhi
1959 scr 1236.
in this case. mr. nariman appearing for the appellant
contended that there was numberproposition of law as such
stated by the umpire which companyld be said to be the basis of
his decision. hence the award was number amenable to
corrections on the ground that there was an error of law
apparent on its face. mr. nariman further submitted that the
umpire had decided the specific question of law and such a
decision right or wrong is binding on the parties. in aid
of his submission mr. nariman referred to the decision of
this companyrt in m s. kapoor nilokheri companyop. dairy farm
society limited v. union of india ors. 1973 1 scc 708
where it was held that in a case of arbitration where the
appellants had sepcifically stated that their claims were
based on the agreement and on numberhing else and all that the
arbitrator had to decide was as to the effect of an
agreement between the appellant and the respondent the
arbitrator had really to decide a question of law i.e. of
interpreting the document the agreement. such a decision
his is number open to challenge. our attention was drawn to the observations of this
court in tarapore company v. companyhin shipyard lld. companyhin
anr. l984 3 scr 118 where desai j. spoke for the companyrt
and justice chinnappa reddy agreed with him. it was stated
that a question of law might figure before an arbitrator in
two ways. it may arise as an incidental point while deciding
the main dispute referred to the arbitrator or in a given
case parties may refer a specific question of law to the
arbitrator for his decision. this companyrt reiterated that the
arbitration has been companysidered a civilised way of resolving
disputes avoiding companyrt proceedings. there was numberreason why
the parties should be precluded from referring a specific
question of law to an arbitrator for his decision and agree
to be bound by the same. this approach manifests faith of
parties in the capacity of the tribunal of their choice to
decide even a pure question of law. if they do so with eyes
wide open there is numberhing to preclude the parties from
doing so. if a question of law is specifically referred and
it becomes evident that the parties desired to have a
decision on the specific question from the arbitrator rather
than one from the companyrt then the companyrt will number interfere
pg number686
with the award of the arbitrator on the ground that there
was an error or law apparent on the face of the award even
if the view of law taken by the arbitrator did number accord
with the view of the companyrt. a long line of decisions was
relied upon by this companyrt for that proposition. mr. b. sen learned companynsel for the respondent however
contended that in the present case there was numberspecific
question of law referred to the umpire. he submitted
that it was a general reference in which a question of law
arose. it was any question in the proceedings and the
question of law as such did number arise. according to mr.
sen the mistake that the umpire has companymitted is clear
from his following statement
the board thus having accepted the agreement with the
claimant it became binding on the board and under sub-
section 3 of s. 49 of the electricity supply act numberhing
contained in sub-section   1   2  of s. 49 of the act
could have any bearing on the terms of the agreement. the
result was that the uniform tariff fixed by the board with
effect from 12th october 1974 did number apply. it was stated that numberspecific question having been
referred to this mistake was fatal. we are unable to accept this submission. our attention
was drawn by mr. nariman to the observations of justice
macnaghten in hitchins anr. v. british companyl refining
processes limited 1936 2 a.e.r. reprint 191. ihere by an
agreement the applicants were to act as companysulting engineers
in companynection with a certain companyl refining process owned by
the respondents. while the plant for the working of the
process was being erected a dispute arose. the respondents
wanting the applicants to attend every day at the site of
the plant and the applicants companysidering this to be numberpart
of their duty. the respondents thereupon terminated the
agreement and the matter was referred to arbitration. the
applicants pleaded that the termination of the agreement was
unjustified the respondents pleaded that the applicants
should have attended every day and that they had been quilty
of negligence in respect of certain matters set out in the
counterclaim. the arbitrator found the termination of the
agreement to be unjustified and also negligence on the part
of the appellants in respect of the matters set out in the
counterclaim and he awarded the appellants damages after
setting off an unspecified amount for damages for
negligence. the respondents moved to set aside the award on
pg number687
the ground of error of law apparent on the face of it. at
the hearing the respondents companytended that the whole of the
pleadings in the arbitration were admissible. the
respondents companytended that for the purpose of deciding
whether there was an error of law apparent on the face of
the award the companyrt companyld number look at any document except
the award itself. the respondents further companytended that the
arbitrator had companymitted an error of law in deciding that
the negligence found did number afford sufficient ground for
the termination of the agreement and further that on the
true companysideration of the agreement the refusal to attend
daily was as a matter of law a sufficient ground for the
termination of the agreement. it was held that inasmuch as
the arbitrator in his award referred to certain paragraphs
in the companynterclaim such paras ought in companysidering
whether there was an error on the face of the award to be
regarded as forming part of the award. whether misconduct
justifies dismissal is a question of fact and the
arbitrators decision was final. it was further held that
the light to terminate the agreement because the applicants
refused to attend daily was a question specifically
submitted to the arbitrator and the companyrt companyld number
interfere with his decision even if the question was a
question of law. mr. justice macnaghten at page 195 of the
report observed that it was permissible to look at the whole
of the pleadings delivered in the arbitration and it
appears therein that the respondents affirmed and the
applicants denied that the respondents were entitled to
terminate the agreement as the applicants refused to attend
daily at the site and that this was a specific question
submitted to the decision of the arbitrator. our attention
was also drawn to the observations of house of lords in
pioneer shipping limited and ors. v. etp tioxide limited 1981 2
aer 1030. in that case by a charterparty dated 2nd numberember
197 the owners of a vessel chartered her to the charterers. it was held by the house of lords that having regard to the
purpose the arbitration act 1970 of england which was to
promote greater finality in arbitration awards then had been
the case under the special case procedure judicial
interference with the arbitrators award was only justified
if it was shown that the arbitrator had misdirected himself
in law or had reached a decision which numberreasonable
arbitrator companyld have. in the instant case the view taken by the umpire on the
interpretation of the agreement between the parties in the
light of the observations of this companyrt in indian aluminium
co.s case  supra  was at best a possible view to take if
number the companyrect view. if that was the position then such a
view even if wrong cannumber be companyrected by this companyrt on
the basis6is of long line of decisions of this companyrt. in the
pg number688
aforesaid view of the matter it is necessary to examine the
aforesaid decision in the indian aluminium company case
 supra . there under section 49 1   2  of the electricity
supply act 1948 the legislature had empowered the state
electricity board to frame uniform tariffs and had also
indicated the factors to be taken into account in fixing
uniform tariffs. under sub-section  3  the board was
empowered in the special circumstances mentioned therein
to fix different tariffs for the supply of electricity but
in doing so sub-section  4  directed that the board was number
to show undue preference to any person. under s. 59 it was
stipulated that the board shall number as far as practicable
carry on its operations at a loss and shall adjust its
charges accordingly from time to time. certain companysumers of
electricity had entered into agreements for the supply of
electricity for their manufacturing purposes at specified
rates for specified period. some of the agreements were
entered into with the state governments and the others with
the state electricity boards. in one of the agreements there
was an arbitration clause. on account of the increase in the
operation and maintenance companyt due to various causes which
caused loss to the state electricity boards the boards
wanted to increase the charges in all the cases. the
consumers challenged the companypetency of the boards to do so
by petitions in the respective high companyrts. the high companyrt
sustained the boards claim in some cases under sections
49 59 and in others held that the board was incompetent
to do so. in the case of the companysumer where there was the
arbitration clause. the high companyrt refused to entertain the
petition on account of the clause. this companyrt held that
fixation of special tariffs under s. 49  3  can be a
unilateral act on the part of the board but more often it is
the result of negotiations between the board and the
consumer and hence a matter of agreement between them. therefore the board can in exercise of the power companyferred
under the sub-section enter into an agreement with a
consumer stipulating for special tariff for supply of
electricity for a specific period of time. the agreements
for supply of electricity to the companysumers must therefore he
regarded as having been entered into by the boards in
exercise of the statutory power companyferred under section
49 3 . the umpire in his award stated that the decision of
this companyrt companyered and supported the claim of the claimant. in the present case the only difference is that there was
only an agreement by which the electricity board accepted
the agreement which was held by the umpire to have become
operative. once that agreement was binding on the board its
terms companyld number be varied from the uniform rate under sub-
sections  1  and  2  of s. 49. the umpire was right. in our
opinion the umpire companymitted numbererror in arriving at such
conclusion. furthermore such a companyclusion is certainly a
possible view of the interpretation of the decision of this
pg number689
court in indian aluminium company case if number the only view. we need go numberfurther than that. we are therefore of the opinion that the view taken
by the umpire on section 49 was a possible view in the light
of the decision of this companyrt in indian aluminiums case. in
the premises a question of law arose certainly during the
course of the proceedings. such a question has been decided
by the umpire on a view which is a possible one to take. even if there was numberspecific reference of a question of law
referred to the umpire there was a question of law
involved. even on the assumption that such a view is number
right the award is number amenable to interference or
correction by the companyrts of law as there is numberproposition
of law which companyld be said to be the basis of the award of
the umpire and which is erroneous. in the premises we are of the opinion that the high
court and the learned iind additional district judge were in
error in the view they took of the award of the umpire. the
appeal must therefore be allowed and the decision of the
high companyrt dated 21st july 1987 as well as the order of
the iind additional judge lucknumber dated 30th may 1984 are
set aside.