OFFICERS' CAUSE JUNE - 2016

Vol. 36 No.6 BANGALORE Single Copy : RS. 4/- JUNE - 2016

2N A T IO N F IRST, O RGA N ISA T IO N N EX T, IN D IV ID U A L LA ST

DISMAL PERFORMANCE

he banking industry is facing a stiffchallenge in tackling the issue of Non-Per

forming Asset. The last two quarters resultsannounced by almost all banks be it under thePublic Sector or Private Sector is highlydiscouraging and the NPA’s have become a bigdrain on the profits of the banks. The majorbanks have suffered severely due to the increasein the NPA’s by over 20 to 50% while the netNPA’s have risen to more than 3 to 4% incomparison with the last year performance. TheReserve Bank of India issued a direction thatall banks should clean up their balance sheet bythe year 2017 and the banks have managed toscrape through the year without declaring annuallosses. However, the NPA’s have been underprovided in comparison with the stressed assetsthe entire banking industry is carrying.The majorchunk of the profits have gone towards theprovisioning of NPA’s but still the market is notconvinced that the entire NPA’s have beenprovided for by the banks.

The policy makers in the Government and thechampions of the privatization have their ownagenda to push the banks to the brink so thatthere is every justification for privatization ofthe banks. The issue of growing NPA’s and the

inadequacy of the capital is being quoted as ajustification for the privatization of the banks.The other issue that is engaging the Government'sattention is the issue of consolidation of thebanks. The Government has refused to providenecessary capital to see that the balance sheetsdo not suffer for want of minimum capitaladequacy required by each and every bank.

The issue of the merger of Associate Bankswith State Bank of India received wide mediacoverage in the backdrop of the performance ofthe banks in general. The Government is makingevery effort to push its agenda of Gyan Sangammeeting which aims at the reduction of thenumber of banks.

The growing NPA’s needs a thorough study andthe recovery mechanism made available in thebanking industry. The corporate sector accountsfor almost 90% of the NPA’s while the remaining10% belongs to others. The Government iscoming out certain cosmetic changes in theSARFAESI ACT and several other relatedlegislations in order to strengthen the recoverymechanism. There is serious debate whetherthe Government has intention and wherewithalto force recovery on the corporate sector so

T

Editorial

SU CCESS A W A IT S A T T H E D O O R W H ERE D IL IGEN CE IS

Officers' Cause, June - 2016 3

that the banks need not suffer for want ofcapital and also unreasonable provisioning towardsthe NPA’s. The large scale advances are decidedby the boards. Hence, the lower level employeeswould have a very little say in the grant of suchadvances. The sectoral sickness of the industriesis yet another big drain on the advances of theBanks.The sectors such as Power, Steel, Cement,Textile, Fertilizers, Chemicals, Sugar industry,Infrastructure,Aviation etc., are the majorcontributors to the NPA’s in the banks.

The Bureau of Bank Boards which was constitutedrecently also taken upon itself the responsibilityof suggesting ways and means for reduction ofthe NPA’s. The NPA’s has to be recovered andthere is no question of adjustment and writingoff the loans given to the big corporates.TheGovernment has to come out with stringentmeasures to recover the dues from the promotersof the corporates who own sufficient resourcesand property both inside and outside the country.

The Ministry of Finance is towing with severalproposals in regard to tackling of NPA’s. One ofthe suggestions under consideration has beencreating a separate fund for managing the NPA’s.

The performance of banks needs to be lookedinto from closed quarter. Today, we have nomechanism to audit and have checks and balances

in regard to the capital expenditure of thebanks, the income leakage and the mechanismof settlement wherein the huge money is beingwritten off.The expenditure in regard to theinfrastructure of the banks in particular thetechnology related investments etc.,needs athorough examination by the independent auditcommittees.The Banks are more concerned withthe adjustments connected with NPA’s and therehas to be equal emphasis towards theexpenditure of the banks as well.

The present situation in the banking industry isbound to affect the environment when we gofor the salary revision negotiations with theIBA and the Government. The position ofbalance sheet during the current as well as thenext year should become an alibi to theGovernment to deny us a fair salary revision inthe 11th bipartite settlement.The unions shouldbe in readiness with full facts to present tothe Government and IBA that the generalworkforce are not responsible for the huge NPA’sthat are piling up in the banks due to the failureof the Managements of the banks to recoverthe big advances from the captains of theindustry.Hence,let all the unions commenceground work to face this argument at the timeof the next wage negotiations so that theemployees and officers are ensured the dueshare that they deserve in the next wagerevision.

Smt. Arundhati Bhattacharya SBI Chairmanthe 5th most powerful woman in finance: Forbes

S mt . Arundat hi Bhat t acharya ,Chairman, of State Bank of India, hasbeen ranked among the top f ive mostpowerful women in finance by the Forbesmagazine. She has moved up f ive spotsf rom t he previous year. This is inrecognit ion of t ransforming the bank into technology driven among others. Smt.Arundhat i Bhat tacharya Chairman isalso ranked 25 th in Forbes list of t heworld's 100 most powerful women among top

f emale leaders, ent repreneurs,investors, scient ists, philanthropist and CEOs.

“Officers' Cause” congratulatesSmt. Arundhathi Bhattacharya,Chairman of the bank for herachievements and wish her graphof achievement go further in the

years to come.

A RISE, A W A KE, ST O P N O T T ILL T H E GO A L IS REA CH ED

4 Officers' Cause, June - 2016

Shri. C. R. Sasikumar has taken over as ManagingDirect or of St at e Bank of Travancore. Hejoined SBI in the year 1978 as probationary officer.Prior to the current post ing he was Dy.ManagingDirector, Inspect ion & Managing Audit at SBI

N.K. CHARI THE NEW M D OFSTATE BANK OF M YSORE

ONE DAY ALL IND IA STRIKEON 29TH JULY 2012

From the text of UFBU Circular no. 2016/56, dated12/05/2016

t the meeting of UFBU held on 11the May,2016it was recalled the discussions that took place

in the last meeting held on 13th April 2016 atMumbai on the developments taking place in thebanking sector on account of the various policydecisions of the Government in the name of financialreforms, amendments to labour laws tailored to suitthe needs of private and foreign players, the ongoingIR problems in IDBI Bank, the voluminous bad loansin the Banks and unwarranted concessions that arebeing given to default ers, discriminat ion incapitalisation result ing in further weakening ofalready weak banks, etc. and deliberated extensivelyfurther on the above issues.

The representatives of constituent unions of UFBUunanimously felt t hat t hese init iat ives of theGovernment, which are aimed at wiping out thepublic sector banking system in the country needsto be resisted by resorting to agitation without anyfurther delay as the Government is moving on fast-track in its initiatives. Thereafter, the agitationprogrammes as under were unanimously decided:

i. 15th June 2016 – Demonstrations at allcentres;

ii. 27th June 2016 – Badge-wearing;

iii. 1st July 2016 to 10th July 2016 – State Unitsof UFBU to chalk out their own agitationprogrammes;

iv. 19th July 2016 – Save Public Sector BanksDay – Rallies and distribution of pamphletson the need to protect Public Sector Banks;

v. UFBU Convention in New Delhi during thesecond fortnight of July 2016;

vi. Letter from UFBU to all the Members ofParliament;

vii. 29th July 2016 – ONE DAY ALL INDIASTRIKE.

It was also decided by UFBU to take up with IBA theissues of non-coverage of domiciliary hospitalizationexpenses by the Insurance Company under theMedical Insurance Scheme of retirees, speeding upof collection of data with regard to issues referred inthe Record Note dated 25th May 2015 on the issues

Shri. N.K. Chari has been appointed as ManagingDirector of State Bank of Mysore. Prior to this hewas the Dy. Managing Director of State Bank ofIndia. He joined State Bank of India as aprobationary officer in the year 1978, andworked with their various circles in differentcapacities.He had also severed as the Managing

Director of Nepal SBI Bank ltd. for four years from2007.

“Officers Cause” congratulate Shri. N.K. Chari forhaving elevated to the post of Managing Director ofSBM and wish him all success in his future endeavorfor the growth of the bank.

SASIKUM AR THE NEW M D OFSTATE BANK OF TRAVANCORE

Corporate Centre, in Hyderabad.

“Officers Cause” congratulate Shri. Sasikumarfor having appointed for the top post in the SBTand wish him all success in his future endeavor,for the growth of the Bank.

A

Appointments

OrganisationalI ssues

Officers' Cause, June - 2016 5W O RK IS W O RSH IP , D O YO U R D U T Y

of retirees and also towards proper implementationof Compassionate Appointment Scheme in all thebanks as per Government guidelines.

In respect of participation of UFBU in the National

General Strike on the 2nd September, 2016 by CentralTrade Unions, it was decided to discuss the matter inthe next meeting of UFBU as some constituent unionsof UFBU sought time to obtain mandate from theirrespective Executive Committees.

BPS/JOINT NOTE DATED 25.05.2015 –ACCUM ULATION OF PRIVILEGE LEAVE

BEYOND 240 DAYS UPTO M A X IM UM OF 270 DAYS – A CLA RIFICATION

here was a Joint Note signed on 25.05.2015, withregard to accumulation of Privilege Leave

beyond 240 days up to a maximum of 270 days waspermitted. However, there was some doubt aboutcredit of Privilege Leave for accumulation purposes.

A clarification issued by IBA Ref. No. CIR/HR&IR/2016-17/XBPS/232 dated 07.05.2016 is furnished hereunderfor information of members.

Quote:

BPS/Joint Note dated 24.4.2015-Accumulation ofPrivilege Leave beyond 240 days up to Maximum of270 days-Clarification

We refer to Clause 30 0f BPS/Para 20 of Joint Not dated25.5.2015 with regard to accumulation of PL beyond240 days, the relevant provisions are reproduced asunder:

BPS:

In partial modification to Clause 8 of BipartiteSett lement dated 29.6.1990. Pr ivi lege Leaveaccruing to an employee on or after the date ofthis settlement, shall be allowed to be accumulated

beyond 240 days up to a maximum of 270 dyas.However encashment of privilege leave shall berestricted up to a maximum of 240 days.

JOINT NOTE:

On or from 1.6.2015 under Regulation 3394) ofOfficers’ Service Regulations, 1979 82. PrivilegeLeave may be accumulated up to not more than270 days except where leave has been applied andit has been refused.. However encashment ofprivilege leave shall be restricted up to a maximumof 240 days.

We have been receiving quar ies from memberbanks as to whether the accrual of PL beyond240 days shall be calculated from 1.6.2015 or fromthe beginning of the Calendar Year 2015 (April2015 in the case of SBI)?

CLARIFICATION:

We are of the view that since accrual/credit ofPL for the previous year is being given on thefirst day of the next year, banks may calculatePL accrual from January/(April of 2015 in the caseof SBI) and not on pro-rata basis w.e.f.1.6.2015.Banks may please be guided as above.

T

REIM BURSEM ENT OF OUT OF POCKET EX PENSESRESIDENTIA L TELEPHONES: REVISION

IHL-M A X GA IN TO A LL EX ISTING IHL A /C

Management has revived reimbursement all theabove which the federat ion had been demanding.

The relevant e-Circular inst ruct ions referencesare as under;

i. Out of Pocket Exp-e-Circular No.CDO/P&HRD-PM / 23/ 2016-17 dated 19thMay 2016 (Enhanced to `650 from `400)

ii. Resident ial t elephones e-C ircularN o.C D O / P&HRD - PM / 2 4 / 2 0 1 6- 1 7dated 19th May 2016.

ii i. M axgain –IHL to staff –e –CircularNo.CDO/ P&HRD-IR/ 26/ 2016 -17 dated20th May 2016.

Service Matters

LET CUSTOM ER SERVICE BE OUR M OTTO

5 Officers' Cause, June - 2016

OUT OF POCKET EX PENSES OTHERS

Federation on 30th May 2016 had sent a communicationto the Management on the captioned subject. A copy ofthe same is reproduced for information.

Text of our letter No:6523 / 50 /2016,Dt:27.05.2016, Addressed To, The DeputyManaging Director & CDO,State Bank of India,Corporate Centre, MUMBAI - 400 021.

Dear Sir,

OUT OF POCKET EXPENSES OTHERS

Referring to e-circular No.CDO/P&HRD-PM/23/2016-17 dated 19.5.2016, the out of pocketexpenses for journey completed on the same dayhave been enhanced in line with the increase inHalting Allowances. Similarly the out of pocketexpenses for officers working in Airport offices, Clg.CPCs, Swift centers need to be enhanced.

2. The officers working at Airport offices, ClearingCPC Branches, Swift Centers etc required to workeither before 8 AM, Or after 8 PM are being paidout of pocket expenses at `200/- per day w.e.f.1.6.2007 vide Circular No.CDO/P&HRD-PM/13/2007-08 dt.22.06.2007, before which date it wasonly `100/- per day. This has been in relation to

half of the Halting allowance at the material time.

3. The officers who are working in these Branchesare either required to be present before 8 AM orstay after 8 PM as the case may be depending uponthe shifts they are allotted, thus making them startearly in the mornings from their residences or reachlate in the nights which definitely require somesacrifice towards their family and also personal life.4. To compensate to some extent, the out of pocketexpenses were being paid and the same had beenrevised from `100/- to `200/- w.e.f. 1.6.2007,almost 9 years back. This has not been revised inrelation to relation in Halting allowance which hasbeen enhanced from time to time. It is a well knownfact that during these 9 years ‘ Inflation’ has touchedits peak. The present halting allowance as per 10thbipartite is ̀ 1300/-.

5. Accordingly we suggest that the out of pocketexpenses of Rs.200/- per day (for the above categoryofficers) be increased to one half the HaltingAllowance revised recently vide 10th Bipartitesettlement, w.e.f. 01.05.2015 i.e ̀ 650/-.

6. We once again request you to look into the matteron priority and arrange to issue instructions to theoperating staff at the earliest.

INTER CIRCLE TRA NSFER15-IN-A YEA R POLICY DELAY IN RELIEVING

here are cases where circles have notrelieved the off icers on inter circle t ransfer

even af t er t helapse of 15 mont hs oftheir ident if icat ion for ICT by the CorporateCent re during November 2014; t hough t heywere promised that relief s would take placeafter annual closing. Now it is understood that

the management is contemplat ing promot ionexercise.

As such t he Federat ion has t aken up t hemat t er wit h Corporat e Cent re t o relieve allt he of f icers w ho are ident i f ied f or ICTimmediately.

T

Grand Installation ceremony was held by theMumbai Circle Association on 29th May, 2016

to install the New Team of Office-Bearers for thenext triennial period at SBOA Public School Hall,Nerul, Navi Mumbai.

2. The dignitaries were invited to the dais and receivedby Com.Anil Nare, the President and Com.Ramkumar

Sabapathy, General Secretary of the Association.Shri.M.K.Dutta, General Manager, NW IV (MumbaiCircle) was the Guest Honor on behalf of the CircleManagement . Com.D.T.Franco Rajendra Dev,President, AISBOF and Com.Y.Sudarshan, GeneralSecretary, AISBOF and Com.Jaiprakash Khatri, theGeneral Secretary SBISU (Mumbai Circle) were theGuest of Honor represent ing the respect ive

A

INSTA LLATION OF NEW TEA M OF OFFICE-BEA RERS

AT M UM BA I CIRCLE

OrganisationalMatters

BE TRUTHFUL, BE FEA RLESS

Officers' Cause, June - 2016 7

organizations. There were dignitaries from variousother circles.

3. Com.Ramkumar Sabapathy, the General Secretaryextended a warm welcome to each and every dignitarypresent on the dais. He spoke in brief about theMumbai Circle Association and its activities duringthe last couple of years, including the innumerablesocial service activists.

4. The former veteran leaders of t heCircle Associat ion Sarvashr i . K.D.Thoakar,R.H.Chandanshive, Savant .V.S, Raja Kamble,Mahant, N.B.Kulkarni, etc., were present and gracedthe occasion. These leaders were honored on theoccasion for their valuable services to the Association.

5. Shri.M.K.Dutta, the General Manage IV expressedhis happiness on the occasion to participate in thefunction. He advised that the major responsibility ofthe association was to serve the officers and workfor their bet terment . The Bank is facing st if fchallenges in the area of business, the problems ofNPA’s etc. The challenges could be fought togetherand the large gathering of officers on the occasionwas an expression of solidarity and unity and the sameshould be utilized for meeting the new challenges inthe banking industry. He congratulated all the newlyelected office-bearers and wished them all successon the occasion of their installation in the office.

6. Shri.A.R.Kolhatkar, the Chairman of the ElectionCommittee with 6 elect ion committee membersensured the smooth conduct of the elections. TheChairman expressed his happiness over the smoothconduct of the elections and thanked the memberswho had supported him for the efficient conduct ofthe election process. He also thanked the staff ofthe Associat ion for their excellent support andco-operation for the smooth conduct of the elections.

7. The results of the election were announced by theChairman and other members of the Committee.Later the installat ion ceremony took place. Theelected office bearers from various modules wereinvited along with their teams. When the PresidentCom.Nare and the General Secretary Sabapathy’s

names were announced, there was all-round frenzyand thunderous applause.

8. Com.Y.Sudarshan, the General Secretary of theFederation speaking on the occasion paid hiscompliments to all the former Presidents and GeneralSecretaries who were present in the function to blessthe new team of leaders. He was happy about theexcellent manner in which the function was beingorganized and it is an inspiration to all the electedmembers who would dedicating themselves for theservice of the members of the organization. He madereference to Com.Anil Nare, the President andCom.R.Sabapathy the General Secretary who wereresponsible for the successful elections of the newteam and taking all pains and care for the membersacross the circle. He advised the newly electedmembers to listen to the members problems withsympathy and patience to find solutions to theirgrievances in their day to day functioning in theorganization. The leaders should acquire experienceand knowledge in all fields of banking as well as theother general matters as well so that they could guidetheir members in right direction.

9. In regard to the challenges that the bankingindustry is passing through and the issues relatingto the Gyan Sangam and the init iat ives of theGovernment to privatize the banking industry wasvividly brought to the notice of the members presentin the meeting.

10. Com.D.T.Franco Rajendra Dev, President of theFederation congratulating all the newly electedmembers expressed his happiness over the largeattendance in particular the lady comrades despitethe day being a general holiday. He made referenceto the posit ion of the Associate Banks and theFederation preparedness to tackle these issues. Healso talked about t he preparat ions of t heConfederation under Save Public Sector campaignto tackle these challenges.

11. He complimented all the members for theiraugust presence and wished the new team all successin their new assignment.

SBI WANTS BANKS TO HOLDGOVERNM ENT’S CASH BALANCE

n view of the liquidity crunch that banks have beenfacing for the last few months, particularly

in March,the State Bank of India (SBI) –haddemanded that the government’s cash balances to

be kept with the lenders and not with the ReserveBank of India (RBI).

With government curtailing its spending towards

IBanking

OUR LIFE IS WHAT OUR THOUGHTS M A KE IT 7 Officers' Cause, June - 2016

the end of the last financial year, its cash balanceswith RBI had gone up. Bankers estimate the liquiditydeficit in the system in March was over Rs. Two lakhcrore, mainly on account of lack of governmentspending, and the deficit was higher than the comfortlevel of RBI which is around ̀ 75, 000 crore.

“We expect RBI to address the issues of systemicliquidity. Currently, the issue of high volatility incurrency holdings of public (both in the form of cashand jewellery) as well as Government’s cashbalances with RBI is leading to volatility in systemliquidity.” Smt. Arundhati Bhattacharya, ChairmanSBI said in a statement. RBI will review the monetarypolicy on 5th April. “To this end, government’s cashbalances may be placed with public sector banks,instead of with RBI, so that the cash remains withinthe banking system and does not create unnecessaryvolatility in money markets. Such an action willprovide a clear picture of the money available withinthe system which will not get distorted by

government borrowing,” added the chairman.

She further said that if government keeps its cashwith banks, then, it can earn interest which the bankswill offer. RBI offers no interest to the governmentfor keeping its cash.

The central bank is aware of the liquidity shortageand infused funds in the banking system bypurchasing bonds through open market operations.

Still, short terms rates hardened in March, with theovernight rates becoming volatile as it spiked duringthe early hours of trade while dipping sharply inthe closing hours.

SBI has also urged that the central bank should alsoexamine why the currency holdings with public hasincreased so much.

Source: The Hindu-2.4.16

anks issue guarantees (BG) for a variety oft ransact ions and a large number of these are

in favour of departments of Central and StateGovernments. Even after the relat ive t ransact ionis completed, the departments rarely return theguarantees to the issuing bank. This poses aninsurmount able prob lem t o banks as t heguarant ee favour ing Government s allow t hebeneficiary (Government) to sue the issuing bankany t ime within 30 years after the expiry of theguarantee. To overcome this problem, banks havebeen devising ingenious st rategies so that theirliability under the guarantee is not kept alive fora long period. Recent ly the Indian Contract Acthas been amended to facilitate banks further inthis regard, but some banks are yet to avail of thebenef icial provision of t he amendment . Thevarious issues are discussed in this art icle.

Historical perspective

The Limitat ion Act , 1963 provides under item 112of the Schedule as follows:

‘Any suit (except a suit before the Supreme Courtin the exercise of its original jurisdiction) by oron behalf of the Central Government or any

BANK GUARANTEES AND LIM ITATION PERIOD

State Government, including the Government ofthe State of Jammu and Kashmir: Period ofLimitation: Thirty years’. This would include alsoGovernments as beneficiaries under BG.

Sect ion 28 of t he Indian Cont ract Act , 1872provided, t ill 1997, as under:

Agreements in restraint of legal proceedingsvoid — Every agreement by which any partythereto is restricted absolutely from enforcinghis rights under or in respect of any contract,by the usual legal proceedings in the ordinarytribunals, or which limits the time within whichhe may thus enforce his rights is void to thatextent ‘

The effect of the above two provisions is that thebeneficiary under BG can exercise his right to suethe bank up to the period allowed under the lawof limitat ion, in which period is 30 years forgovernment beneficiaries and 3 years for others.The pract ical import is that banks have to keeptheir liability under BG alive for 30 or 3 years, ort ill the BG is returned to the bank for cancellat ion,whichever is earlier. Governments rarely returnthe BG even after the underlying t ransact ion has

BArticle

LET US BUILD A STRONG A ND SELF RELIA NT INDIA

Officers' Cause, June - 2016 9

been successfully completed, despite repeatedpleas by the applicant of BG and the bank.

To resolve this problem, before 1997, banks usedto insert a clause at the end of BG to the effectthat the bank’s liability under the BG would beext inguished unless a suit or claim is made withina specif ied period, say 3 or 6 months after expirydat e ment ioned in BG. They and insurancecompanies, which also incorporat ed similarclauses in the insurance contracts, claimed thatthe clause did not become void under Sect ion 28of the Contract Act , because it ‘ext inguished ‘(not limited) the beneficiary’s rights unless thelat t er sued wit hin a specif ied per iod. Thiscontent ion was upheld by the Supreme Court inVulcan Insurance Company ‘ vs Maharaj Singh(AIR 1976 SC).

The mat ter was taken up suo motto by the LawCommission of India. In its 97th report in March1984, i t came down heav i ly on t he t heninterpretat ion of Sect ion 28.It observed partiesto an agreement are not allowed to substitutetheir own periods of limitation in place of theperiod laid down in the general law of limitation.. . .....But . . . .. . are allowed to substitute theirown periods of prescription. It concluded that‘Present legal posit ion ( in 1984) as t oprescription clauses in contracts cannot bedefended as a matter of justice, logic commonsense or convenience’.The commission thereforerecommended that Sect ion 28 be amended toprohibit ‘extinction of liability period by partiesto contract ‘.

Fol low ing t he Law C ommission’srecommendat ions, Sect ion 28 was amended in1997, making the then Sect ion as clause (a) andadding clause (b) as follows:

Every agreement ‘(b) which extinguishes therights of any party thereto, or discharges anyparty thereto from any liability under or inrespect of any contract on the expiry of aspecified period so as to restrict any party fromenforcing his rights, is void to that extent.’

Practical Impact on banks

The amendment had a devastat ing impact on

banks issuing BG f avour ing Governmentdepar t ment s. The depar t ment s get a lot ofconstruct ion works (civil, mechanical, elect ricalet c) done by private part ies. All t he cont ractsinvolve a number of BG, starring with bid bonds,performance guarantee for proper and promptexecut ion, advance payment guarant ee f ormobilisat ion advance extended by the departmentand retent ion money guarantee.

While the bid bonds would be returned soon afterthe contract is awarded to a party, all the othersare co- extensive, in period, with the contract. Aftersuccessf ul comp let ion of t he cont ract t hecontractor gets his payment , but the departmentdoes not easily return the BG either due to faultyrecord-keeping or to ext ract illegal payments fromthe contractor.

In the absence of BG back in its hands, the bank isunable to release the security — in the form of cashmargin or immovable property. Also, the liabilitycont inued in the books of the bank, unnecessarilyswelling its capital base for the expired guarantee.Banks, t herefore, sought expert opinion f romret ired Chief Just ice of India, Just ice Y.V.Chandrachud (YVC). His advice was that t heproblem could be circumvented by incorporat ing aclause in BG to the effect that the demand if anyfor payment under the terms of this contract(guarantee) shall be made by the beneficiarywithin the period of validity of the guarantee only.The beneficiary may enforce the right pursuantto such demand in any court or t ribunal inaccordance with law’. Banks have been adopt ingthis procedure. It is a moot point whether the clausesuggested by YVC would be legally valid in view ofthe clear provisions of sect ion 28 of the ContractAct . To be on the safe side, banks issue a let ter tothe beneficiary a few weeks after the expiry of theBG, reminding them that their claim could no longerbe made under BG. Allowing for a reasonable t imethere-after, they cancel the BG in their books andrelease the relat ive security.

Incidentally the amendment in 1997 created ripplesin internat ional circles also. Some contractors fromabroad, who wanted to tender for Governmentcontracts in India were dismayed at the very longper iod of l imi t at ion under BG f avour ing

DUTY FIRST, RIGHT NEX T

9 Officers' Cause,June - 2016

Governments. Contract guarantees are generallycover ed by t he Int ernat ional Chamber ofCommerce ( ICC) uniform rules for cont ractguarantees, provided all part ies agree t o begoverned by them. Art icle 4 of the rules provideinter alia that ‘If a guarantee does not specify alast date by which a claim must have beenreceived by the guarantor, such last date is’deemed to be ... six months from the datespecified in the contract for delivery etc ‘Compared to this, the period of 30 years is reallytoo long by any standards.

Second Narasimham Committee

The issue was also examined by the Commit teeon banking sector reforms (popularly known asthe second Narasimham Commit tee) headed byShri M Narasimham, former Governor of ReserveBank of India. In it s report of April 1998, itrecommended, inter alia as follows: In view ofthe recent amendments to Section 28 of Indian:Contract Act, banks have expressed a fear thatthey can no longer limit their liabilities underbank guarantees to a specified period and thatthey would have carried such guaranteecommitments for long periods as outstandingobligations. Government departments do notgenerally return the original guarantee paperseven after the purpose is served. The wholeissue needs to be re examined and bankguarantees exempted from the purview of therecent amendment to Section 28 of the IndianContract Act ‘.

Pursuant to the above, the mat ter was examinedby the Commit tee on Legal reforms in BankingSector, headed by T R Andhyarujina. In its secondreport in 1999, the Commit tee felt that banks andf inancial inst it ut ions have a case t o have aspecial t reatment for guarantees in the amendedprovisions of Sect ion 28 and recommended that‘a reasonable period (be allowed) to enforce therights under the guarantee after a specifiedevent.’

Latest amendment to Section 28

More t han a decade after t he submission of

Andhyaruj ina Commit t ee report , an enablingprovision has been made by The Banking Laws(Amendment) Act , 2012'. In its Schedule, item 1provides as under: ‘In Sect ion 28 (The IndianContract Act , 1872) after Exception 2, the followingExcept ion shall be inserted, namely:- Except ion 3– This sect ion shall not render illegal a contract inwrit ing by which any bank or f inancial inst itut ionst ipulate a term in a guarantee or any agreementmaking a p rovision f or guarant ee f orext inguishment of the rights or discharge of anypat ty thereto from any liability under or in respectof such guarantee or agreement on the expiry of aspecif ied period which is not less than one yearfrom the date of occurring or non-occurring of aspecif ied event for ext inguishments or dischargeof such party from the said liability ‘

The effect of the amendment is that banks andfinancial inst itut ion could limit the period of theirliability under the guarantees issued by them toone year from the expiry of the date of guarantee,instead of keeping the liability for 30 or 3 years asthe case may be. Thus, banks would have to keepBG as outstanding obligat ions for at least one yearafter the expiry of BG, with the concomitant capitaladequacy obligat ions, unless the original BG isreturned for cancellation earlier. Some banks seemto be issuing BG with the clause suggested by YVCeven now. They should change t he BGincorporat ing a provision in conformity with theamendment passed by t he Bank ing LawsAmendment Act , 2012.

In conclusion, the period of limitat ion allowed toGovernment s for enforcing their rights undercontracts, including BG, is unconscionably long.Yet , t he recent amendment t o Sect ion 28 ofContract Act would go a long way to mit igate thehardship of banks in issuing BG, especially t oGovernment departments. If any bank has not yetchanged its BG format in tune with the currentprovisions of t he Cont ract Act , t hey are welladvised to do so without delay.

By.......R.ViswanathanDy. Managing Di rector (Retd) SBI

Source: I ndian Banker, March 2016

NEVER BEND BEFORE THE INSOLENT M IGHT

Officers' Cause, June - 2016 10

Retrenchment - Daily Wager – Industrial Disputes Act, 1947 - Section 25-F - Second Respondentworked as daily wager with Appellant — Service of Second Respondent discontinued - Mandatoryprovisions of section 25-F not followed — Labour Court set aside termination and awarded reinstate-ment - in writ petition, Single Judge awarded compensation in lieu of reinstatement - Appeal – Whethermandatory provisions of section 25-F applicable to daily wager — Held, provisions of Section 25-F ofAct, 1947 contemplates working for period of 240 days before retrenchment or termination of serv-ice - Nature of service is not relevant – Even if a daily wager completed 240 days of service, he isentitled to benefit of provisions of section 25-F of Act, 1947 – Second Respondent worked for morethan eighteen years before termination – Reinstatement is not automatic - Infringement of mandatoryprovision of Section 25-F of Act, 1947 may be compensated by payment of lump sum amount —Single Judge granted compensation — No infirmity in order passed by single judge-Appeal dismissed.

2016-II-LLJ-35 (M ad)LNIND 2016 M A D 158

IN THE HIGH COURT OF M A DRA SPresent :Hon’ble M r. Just ice Sat ish K. A gnihot r i andHon’ble M r. Just ice K.K. SasidharanW.A . No. 1749 of 2015 and M .P. No. 1of 2015

25t h January, 2016Chief General M anager, St at e Bank of India, Chennai-600 006

… . A ppel lantVersus

Cent ral Governm ent Indust r ial Tr ibunal-cum -Labour Court , No. 6, Haddow s Road,Shast r i Bhavan, Chennai-600 006 and A not her

… . Respondent s

JUDGMENT

Mr. SATISH K. AGNIHOTRI, J

The instant int ra-court appeal arises f rom theorder dated 12.12.2014 made in W.P. No 12988 of2006,

2. The services of the second respondent , workingas Sweeper from 1982 was discont inued on 9thJune, 2001. A disput e was raised before t heCent ral Government Indust r ial Tr ibunal-cum-Labour Court , Chennai in I.D.No.31 of 2003. ThePresiding Officer of the Labour Court came to theconclusion that t he respondent employee hasestablished cont inuous working for more than 240

days in 12 calendar mont hs preceding herterminat ion. It was also held that mandatoryrequirement of the provision of Sect ion 25-F ofthe Industrial Disputes Act , 1947 (for short ‘’l.D.Act”), giving one month not ice or payment in lieut hereof , was not compl ied w it h bef oreterminat ion. Thus the terminat ion was held asvoid ab init io. Accordingly, an Award was passedon 17th June, 2005, direct ing reinstatement inservice with consequent ial benefits of seniorityand backwages.

3. Feeling aggrieved, the management-appellantpreferred the writ pet it ion. The learned SingleJudge, relying on the decision of the SupremeCourt in D.K. Yadav v. J.M.A. Industries Ltd.,

Judicial Verdict

TIM E A ND TIDE WA IT FOR NONE

11 Officers' Cause, June - 2016

(1993) 3 SCC 259 : LNIND 1993 SC 443 : 1993-II-LLJ -696, held t hat no employee can beterminated without complying with the provisionsof Sect ion 25-F of the I.D. Act , if the employeehas established that he had worked for more than240 days in t he calendar year preceding hisret renchment / terminat ion. It was also held thatthe second respondent employee has renderedabout 20 years of service and was thrown out onaccount of the fact that the work was out-sourced.The learned Single Judge, in t he interest ofjust ice, set t led the dispute as full and f inal, byawarding a sum of Rs. 5,00,000/ - to the employeein lieu of reinstatement , backwages and otherbenefits. Thus, the second respondent employeestands sat isf ied.

4. Thereagainst , the management has come upwith the instant appeal, quest ioning the amountof Rs,5,00,000/ -, Inter-alia, on the ground thatthe second respondent was a daily wager and assuch, provisions of Sect ion 25-F of the I.D. Actwould not be applicable.

5. Needless to state that provisions of Sect ion25-F of the I.D. Act contemplates working for aper iod of 240 days before ret renchment orterminat ion of service. The nature of service isnot relevant . Even if an employee is temporaryor daily wager, if he has successfully worked for240 days in the preceding calendar year, t heemployee is ent i t led t o t he benef it of t heprovisions of Sect ion 25-F of the I.D. Act . It is notcont rover t ed t hat t he second respondentemployee has been working from 1982 t ill thedate of her t erminat ion / ret renchment f romservice.

6. The quest ion as to whether violat ion of Sect ion25-F of t i le I.D. Act would ent ail aut omat icreinst at ement w it h backwages came int oconsiderat ion in catena of decisions. Lately, inVice-Chancellor, Lucknow University, Lucknow,UP. v. Akhilesh Kumar Khare and Another, 2015SCC Online SC 797 : AIR 2015 SC 3473 : LNIND2015 SC 520 2015-lV-LLJ-257, Civil Appeal No.5731 of 2011, the Supreme Court has examinedt he issue af resh in t he light of t he var iousdecisions rendered earlier and held as under :

‘’16. In considering the violat ion of Sect ion25F of the Industrial Disputes Act , 1947 inIncharge Officer & Anr. v. Shankar Shetty(2010) 9 SCC 126 and after referring to thevarious decisions, this Court held that therelief by way of back wages is not automat icand compensat ion instead of reinstatementhas been held to meet the ends of just iceand it reads as under:-

“2. Should an order of reinst at ementautomat ically follow in a case where theengagement of a daily wager has beenbrought to end in violat ion of Sect ion 25-Fof t he Industrial Disputes Act , 1947 ( forshort ‘’the ID Act”)? The course of t hedecisions of this Court in recent years hasbeen uniform on the above quest ion.

3. In Jagbir Singh v. Haryana State AgricultureMktg. Board, (2009) 15 SCC 327, delivering thejudgment of this Court , one of us (R.M. LODHA,J.) not iced some of the recent decisions of thisCourt , namely, UP. State Brassware Corps. Ltd.v. Uday Narain Pandey, (2006) 1 SCC 479,Uttaranchal Forest Development Corps. v. M.C.Joshi (2007) 9 SCC 353, State of M.P.v. LalitKumar Verma (2007) 1 SCC 575, M.P, Admn. v.Tribhuban (2007) 9 SCC 748 Sita Ram v. MotiLal Nehru Farmers (2008) 5 SCC 75, JaipurDevelopment Authority v. Ramsahai(2006) 11SCC 684, GDA v. Ashok Kumar (2008) 4 SCC 261and M ahboob Deepak v. N agar Panchayat,Gajaraula (2008) 1 SCC 575 and stated as follows:(Jagbir Singh case (2009) 15 SCC 327, SCC pp.330 & 335, paras 7 & 14).

‘’7. It is t rue that the earlier view of t hisCour t ar t i culat ed in many dec isionsref lect ed t he legal posit ion t hat if t heterminat ion of an employee was found to beillegal, the relief of reinstatement with fullback w ages would ordinar i ly f ol low.However, in recent past , there has been ashift in the legal posit ion and in a long lineof cases, this Court has consistent ly takenthe view that relief by way of reinstatementwith back wages is not automat ic and maybe wholly inappropr iat e in a given fact

Subscr ibe to OFFICERS' CAUSE DOMESTIC ENQUIRY LABOUR RESEARCH SUBSCRIPTION SUBSCRIPTION SUBSCRIPTION

Annual : `.40/- Annual : `.40/- Annual : `.30/-

Drafts should be drawn in favour ofA ll India St at e Bank Of f icers' Federat ion

and mailed toThe General Secretary

ALL INDIA STATE BANK OFFICERS' FEDERATIONState Bank Buildings, St.Mark's Road, Bangalore-560001

: 080 22270619: Fax : 080 22214959/22214956E-mail: aisbofbangalore@gmail.com

Website: http://www.aisbof.org

Edited and Published by Sri. Y. Sudarshan on behalf of AISBOF, SBI Buildings, St.Mark's Road,Bangalore - 560 001. Printed by Sri C.A. Ramachandra Murthy at Anant Art Printery, Bangalore.

Registered news paper

To:

If Undelivered please return to:

ALL INDIA STATE BANK OFFICERS' FEDERATION

ST.MARK 'S ROAD, BANGALORE - 560 001

RNI. No. 36617 / 81 OFFICERS' CAUSE TOTAL NO. OF PAGES 12 JUNE - 2016REGN.NUMBER.KRNA/BGE/202/2015-2017.REGD. NUMBER.527/MDS-POSTED ON15TH OF EVERY MONTH AT BANGALORE PSO,MYSORE ROAD, BANGALORE 560 026LICENSED TO POST WITHOUT PREPAYMENT. LICENCE NUMBER. WPP/82

situat ion even though the terminat ion of anemployee is in contravention of the prescribedprocedure. Compensat ion inst ead ofreinstatement has been held to meet the endsof just ice.

* * *

14. It would be, thus, seen that by a catena ofdecisions in recent t ime, this Court has clearly laiddown that an order of ret renchment passed inviolat ion of Sect ion 25-F although may be set asidebut an award of reinstatement should not , however,be aut omat ical l y passed . The aw ard ofreinstatement with full back wages in a case wherethe workman has completed 240 days of work in ayear preceding the date of terminat ion, part icularly,daily wagers has not been found to be proper bythis Court and instead compensat ion has beenawarded. This Court has dist inguished between adaily wager who does not hold a post and apermanent employee.

4. Jagbir Singh (2009) 15 SCC 327 has beenapplied very recent ly in Telegraph Dept t . v.

Santosh Kumar Seal (2010) 6 SCC 773, whereinthis Court stated: (SCC p. 777, para 11)

‘’11. In view of the aforesaid legal posit ionand the fact that the workmen were engagedas daily wagers about 25 years back and theyworked hardly for 2 or 3 years, relief ofreinst at ement and back wages t o t hemcannot be said to be just if ied and insteadmonetary compensat ion would subserve theends of just ice.”

7. Thus, deducing from the rat io laid down by theSupreme Court, it is well sett led that reinstatementis not automat ic, but the infringement of mandatoryprovision of Sect ion 25-F of the I.D. Act may becompensated by payment of a lump sum amount .The learned Single Judge has g rant edcompensat ion to the tune of Rs. 5,00,000/ -. We donot f ind any inf irmit y in t he said order and nointerference is warranted.

8. Resultant ly, the writ appeal stands dismissed.No costs. Consequent ly connected miscellaneouspet it ion is closed.

Appeal dismissed