Ramaswami, C.J:— In this case the petitioner has obtained a rule from the High Court calling upon the respondents to show cause why a writ in the nature of mandamus under Article 226 of the Constitution should not be issued commanding the respondents not to reduce the rank of the petitioner to that of an Inspector of the Life Insurance Corporation of India. Cause has been shown by the Advocate General on behalf of the respondents to whom notice of the rule was ordered to be given.

2. The petitioner, Sri K.D Banerji, was working as a Divisional Superintendent of the National Insurance Company Limited, from the 1st of January, 1955. In that post he was getting a sum of Rs. 350/- Per month as salary, Rs. 30/- as dearness allowance and Rs. 170/- per month as motor-car allowance. On the 19th January, 1956, the Life Insurance (Emergency Commissions) Ordinance, 1956, was passed, by which all life insurance business in India was nationalised with effect from the 20th January, 1956. After the passing of the Ordinance, the petitioner continued in his post of Divisional Superintendent up to the 1st of September, 1955. On that date the Life Insurance Corporation of India was constituted by an official notification under section 3 of the Life Insurance Corporation Act, 1956 (Act 31 of 1956). Section 7 of that Act provided that all assets, rights and titles of the insurers and all liabilities and obligations in respect of the controlled business stood automatically transferred and vested in the Life Insurance Corporation. Section 11(1) of the Act further provided that all employees of the insurers employed in connection with the controlled business immediately before the appointed date would become employees of the Corporation and they would hold office on the same terms and conditions and have the same rights and privileges as to pension, gratuity and other matters.

3. The case of the petitioner is that by virtue of this section he was entitled to hold the office of Class I Officer of the Corporation in the category of Assistant Branch Manager (Development) on the 1st September, 1956. It is further stated that the post of Divisional Superintendent corresponded to the post of Assistant Branch Manager (Development) mentioned in section 7(1) of the (Staff) Regulations, 1956, made by the Corporation under section. 49(2) of the Act.

4. The petitioner, however, alleges that the respondents have issued letters or orders reducing his rank to that of an Inspector. On the 18th September, 1956, the Divisional Manager (respondent No. 1) sent to the petitioner a circular meant for the guidance and information of the Inspectors. On the 27th December, 1956, the Divisional Manager wrote to him to the effect that he should work as an Inspector of the Corporation (annexure J to the application). On the 27th March, 1957, the Assistant Divisional Manager wrote to the petitioner, asking him to sign the Attendance Register as an Inspector of the Corporation (annexure N to the application).

5. The contention of the petitioner is that these orders and letters are illegal and ultra vires and that the respondents have no legal autnority to reduce the rank of the petitioner and ass him to work in the post of an Inspector. In these circumstances the petitioner has prayed for grant of a writ under Article 226 of the Constitution for quashing the orders of the respondents (Exts. J and N) requiring the petitioner to work as an inspector of the Corporation. The petitioner has also asked for a writ in the nature of mandamus requiring the respondents to post the petitioner as an Assistant Branch Manager (Development).

6. On behalf of the petitioner learned counsel made the submission that the tenure and the rank and the terms of employment of the petitioner continued to be the same after the Life Insurance Corporation of India was constituted and established. In support of his submission learned Counsel referred to section 11(1) of Act 31 of 1956, which is in the following terms:

“11(1) Every whole-time employee of an insurer whose controlled business has been transferred to and vested in the Corporation and who was employed by the insurer wholly or mainly in connection with his controlled business immediately before the appointed day shall, on and from the appointed day, become an employee of the Corporation, and shall hold his office therein by the same tenure, at the same remuneration and upon the same terms and conditions and with the same rights and privileges as to pension and gratuity and other matters as he would have held the same on the appointed day if this Act had not been passed, and shall continue to do so unless and until his employment in the Corporation is terminated or until his remuneration terms and conditions are duly altered by the Corporation:

Provided that nothing contained in this sub-section shall apply to any such employee who has, by notice in writing given to the Central Government prior to the appointed day intimated his intention of not becoming an employee of the Corporation.”

7. It was contended that the status of an Inspector was inferior to that of a Divisional Superintendent, and reference was made by learned Counsel to paragraphs 22 and 24 of the application. There is no clear denial of this fact by the respondents in their counter-affidavit. The Advocate General nevertheless stressed the argument on behalf of the respondents that there is no difference between the status of an Inspector and the status of a Divisional Superintendent.

8. The argument of the Advocate General was unconvincing on this point and he was not able to establish that the cost of an Inspector was not inferior to that of a Divisional Superintendent. On the other hand it was definitely alleged by the petitioner in his affidavit that there were important, differences in the rank and service conditions of the Divisional Superintendent of the outgoing insurer and the Inspector of the Life insurance Corporation. In paragraph 4 of the supplementary affidavit and also in paragraph 6 of the counter-affidavit the petitioner has said that the function of the Divisional Superintendent was to supervise the work or the Inspectors an ??? held workers and that the Divisional Superintendent held an offence superior to the Inspectors and other safaried held workers.

9. The ??? of the Inspector, on the contrary, was to procure business through the agents and to work under the supervision and direction of the Assistant Branch Manager (Development). In the second place, the service of the Divisional Superintendent was not based upon a contract to produce specific business through agents, nor was his salary determined against any such business contract. His service was also not subject to any periodical business review, nor was it subject to termination and re-adjustment of remuneration against any business contract.

10. On the other hand, the service of the Inspector was based upon a contract to produce specific business and to give specific premium collection and his remuneration was determined against such contract of business expectation. The service of the Inspector was also subject to periodical business review and was liable to termination or re-adjustment of remuneration if he failed to fulfil the business expectation.

11. The allegation of the petitioner on this point has not been denied by the respondents in the counter-affidavit. I would, therefore, reject the argument of the Advocate General and hold that the rank of the Inspector of the Life Insurance Corporation was subordinate to that of, the Divisional Superintendent and that the terms and conditions of service were less advantageous to the petitioner than that of the Divisional Superintendent.

12. The argument of the petitioner is that the terms and conditions of service as Divisional Superintendent and also the rights and privileges of that post having been secured to the petitioner under section 11(1) of Act 31 of 1956, the action of the respondents in reducing the rank of the petitioner to that of an Inspector was illegal and ultra vires. The Advocate General, however, contended that even if there was a reduction in the rank of the petitioner, the respondents had the legal authority to make such a reduction of rank.

13. In support of his submission the Advocate General referred to the following clause of section 11(1), that is “and shall continue to do so unless and until his employment in the Corporation is terminated or until his remuneration, terms and conditions are duly altered by the Corporation”. The contention of the Advocate General is that this clause conferred an express power upon the Corporation to alter the terms and conditions of service of the employees transferred to it.

14. It was argued that section 11(1) conferred an absolute, unfettered and overriding power on the Corporation to alter the conditions of service of the employees and therefore, the action of the respondents in reducing the rank of the petitioner was legally justified under this clause. I do not accept this argument as correct. The reason is that section 11(1) cannot be taken in isolation but the language of the sub-section must be construed subject materies in the context of the provisions of section 11(2) and the main clause of section 11(1). Section 11(2) as originally enacted was in the following terms:

“11.(2) Notwithstanding anything contained in sub-section (1) or in any contract of service, the Central Government may, for the purpose of rationalising the pay scales of employees of insurers whose controlled business has been transferred to and vested he it or for the purpose of refacing the remuneration payable to employees in cases where in the interest of the Corporation and its policy holders a reduction is called for, after the terms of service of the employees as to their remuneration in such manner as it thinks fit; and if the alteration is not acceptable to any employees the Corporation may terminate his employment on giving him compensation equivalent to three months' remuneration unless the contract of service with such employee provides for a shorter notice of termination.

Explanation: The compensation payable to an employee under this sub-section shall be in addiction to and shall not affect any pension, gratuity, provident fund money or any other benefit to which the employee may be entitled under his contract of service.”

15. This sub-section was, however, amended by the Life Insurance Corporation (Amendment) Act, 1957 (Act 17 of 1957), and after the amendment-section 11(2) reads as follows:

“11.(2) Where the Central Government is satisfied that for the purpose of securing uniformity in the scales of remuneration and the other terms and conditions of service applicable to employees of insurers whose controlled business has been transferred to, and vested in, the Corporation, it is necessary so to do, or that, in the interests of the Corporation and its policy-holders, a reduction in the remuneration payable, or a revision of the other terms and conditions of service applicable, to employees or any class of them is called for, the Central Government may, notwithstanding anything contained in sub-section (1), or in the Industrial Disputes Act, 1947, or in any other law for the time being in force, or in any award, settlement or agreement for the time being in force, alter (whether by way of reduction or otherwise) the remuneration and the other terms and conditions of service to such extent and in such manner as it thinks fit; and if the alteration is not acceptable to any employee, the Corporation may terminate his employment by giving him compensation equivalent to three months' remuneration unless the contract of service with such employee provides for a shorter notice of termination.

Explanation: The compensation payable to an employee under this sub-section shall be in addition to and shall not affect, any pension, gratuity provident fund money or any other benefit to which the employee may be entitled under his contract of service.”

16. It is manifest that section 11(2) as amended confers a limited power upon the Central Government to alter the terms and conditions of its exiting employees for two specific purposes. The power can be exercised by the Central Government where it is satisfied that the alteration is necessary to secure uniformity in the scales of remuneration and other terms and conditions of service of all the existing employees. The Central Government may also exercise its power of revising the terms and conditions of service if it is satisfied that it is necessary to do so in the interest of the Corporation and its policy-holders.

17. It is only for effecting these two purposes that the Central Government may exercise the power of alteration of the terms and conditions of service under section 11(2). There is a further safeguard to the existing employees under section 11(2). Even where the Central Government exercises the power of alteration of the terms and conditions of service, the employees are given the option either to accept or to refuse the altered terms and conditions. If the alteration is not acceptable to any employee, the Corporation may terminate his employment by giving him compensation equivalent to three months remuneration.

18. The explanation to section 11(2) further provides that the compensation payable shall be in addition to and shah not affect any pension, gratuity, etc., to which an employee may be entitled under his contract of service. The argument of the Advocate General is that section 11(1) confers on the Corporation an unfettered and unbridled power to alter the terms and conditions of the existing employees. If this interpretation is accepted, the result would be that the Corporation could terminate the services of an existing employee under section 11 without payment of any compensation and for any purposes whatever.

19. I am not prepared to accept this interpretation as correct. It cannot be supposed that Parliament intended to confer an unfettered power upon the Corporation to alter the terms and conditions of the existing employees under section 11. If the interpretation for which the Advocate General contends is right, the power of the Central Government under section 11(2) would be unnecessary and redundant and there is also no reason why the Parliament should restrict the power of the Central Government under section 11(2) in such a careful manner and subject to safeguards in favour of the existing employees.

20. In my opinion, therefore, section 11(1) cannot be construed to mean that an unfettered power was conferred upon the Corporation to alter the terms and conditions of the service of the existing employees. I think that section 11 was intended by the Parliament to provide for the continuity of service of the existing employees on the same terms and conditions as those existent under private insurers. That is, I think, the true interpretation of the power conferred upon the Corporation by section 11(1). This opinion is further borne out by section 9(1) of Act 31 of 1956, which provides that

“all contracts, agreements and other instruments of whatever nature subsisting or having effect immediately before the appointed day and to which an insurer whose controlled business has been transferred to and vested in the Corporation is a party or which are in favour of such insurer shall in so far as they relate to the controlled business of the insurer be of as full force and effect against or in favour of the Corporation, as the case may be, and may be enforced or acted upon as fully and effectually as if, instead of the insurer, the Corporation had been a party thereto or as if they had been entered into or issued in favour of the Corporation.”

21. If this is the right interpretation of section 11(1), it follows that the respondents have no legal authority to alter the terms and conditions of service of the petitioner under the power conferred by section 11(1) of the Act.

22. The Advocate General submitted in the next place that the respondents had power under the (Staff) Regulations to allot the employees to various categories. In support of his argument reference was made to Regulation 7 of the (Staff) Regulations, which relates to classification of staff. Regulation 7 reads as follows:

“7.(1) The permanent staff of the Corporation shall be classified as follows:

Class I — Officers.

Class II — Salaried Field Staff (Inspectors) other than Probationary Inspectors.

Class III — Supervisory and Clerical Staff.

Class IV — Probationary Inspectors.

Class V — Subordinate staff.

Board's power to fix the scales of pay and number of posts.

(2) The Board shall prescribe from time to time the scales of pay for each post or group of posts.

(3) The Board shall also prescribe from time to time the number of posts for which the minimum of the grade is Rs. 500/- or more.”

23. The Advocate General also pointed out that the (Staff) Regulation was made by the Life Insurance Corporation by virtue of the rule-making power conferred by section 49 of the Act. Section 49(1) and (2)(b) runs as follows:

“49.(1) The Corporation may, with the previous approval of the Central Government, by notification in the Gazette of India, make regulations not inconsistent with this Act and the rules made thereunder to provide for all matters for which provision is expedient for the purpose of giving effect to the provisions of this Act.

(2) In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for—

(b) the method of recruitment of employees and agents of the Corporation and the terms and conditions of service of such employees or agents.”

24. I do not think that Regulation 7 of the (Staff) Regulations made under Section 49(2)(b) of Act 31 of 1956 has any bearing on the question presented for determination in this case. Section 49(2)(b) does not confer any power on the Corporation to alter the terms and conditions of service of the existing employees of insurers, nor does Regulation 7 purport to confer any such power on the Life Insurance Corporation or upon the respondents. I, therefore, reject the argument of the Advocate General that the respondents have power to reduce the rank of the petitioner under Regulation 7 of the (Staff) Regulations.

25. The Advocate General then submitted that the Central Government has made an order under section 11(2) altering the terms of service of the existing employees. Reference was made to an order of the Government of India No. 53(1)-Ins. (1)/57, dated the 1st June, 1957, made under section 11(2) of the Act, altering the remuneration and the other terms and conditions of service of the employees. But this order has no application to the petitioner, because it applies only to those employees who were in supervisory, clerical and subordinate staff grades of the insurers on the 31st August, 1956.

26. Paragraph 2 of the order expressly states that it has no application to officers and field staff of the insurers. I do not therefore accept the argument of the Advocate General that the rank of the petitioner can be reduced to that of an Inspector by virtue of the order of the Government of India which has already been referred to.

27. Lastly it was contended on behalf of the respondents that the number of officers' Posts in the Corporation was smaller than the total number of such posts in all the insurers put together, and so persons holding executive positions in insurers companies have perforce to be appointed to positions carrying lower designations. It was also pointed out, that the appointments made were provisional and there has been no final appointment of officers to various categories. The Advocate General referred in this connection to paragraphs 14, 15 and 16 of the Interim Report of the Life Insurance Corporation of India published in August, 1957. Paragraphs 14, 15 and 16 run as follows:

“14. Selection of the officers of the various insurers for appointments to the various posts he the Corporation posed problems though of a different kind. The Central Government had, during the period between the 19th January, 1956 and the ‘appointed day’ viz. 1st, September, 1956, collected full information relating to officers in various insurance companies drawing a salary of Rs. 500/- or more, numbering 688. Selections to senior posts in the Corporation were made on the basis of these data and after an interview by a Committee headed by Shri M.C Shah, Minister for Revenue and Civil Expenditure. Broadly, the criteria for selection were qualifications, experience and the training which the officer had received and the length of service in responsible positions.

For other posts of officers, selections from these as well as other employees of insurers were made by Committees in each Zone composed of the senior officers designate in each Zone Though these appointments, which were made on a provisional basis, were ratified by the Corporation at its first meeting, the appointments continue to be provisional pending a review by the Corporation on the basis of a detailed study of all individual cases. The number of such appointments (which include appointments made after 1st September, 1956) to various grades is shown in Appendix IV.

15. There were considerable difficulties in assessing relative claims of officers as to seniority and gradation. Designations in companies did not in every case indicate identical duties, or functions involving the same level of responsibility. Even where the functions and the level of responsibility were the same, the size of the company and the nature of its operations meant different degrees of training and experience. The integration of all the officers into one well-knit cadre with a well-recognised seniority has therefore, been presenting considerable difficulties

The Corporation expects to derive assistance from the report of a Committee which was set up by the Central Government under the Chairmanship of Shri S. Lall, I.C.S, (Retd.) for the purpose of studying the problem of seniority among officers of life insurance companies.

16. The number of officers' posts in the Corporation is smaller than the total number of posts carrying same or equivalent designations in all the insurers put together. A number of persons holding executive positions in insurance companies have consequently been appointed to positions carrying lower designations. Aim in the process of fitting in of officers in the new grades of the Corporation, their emoluments were revised. These revisions have resulted, in a large number of cases, in loss of prospective increments, and in some cases even their pre-existing emoluments suffered a reduction. It speaks well of the reasonableness and public spirit of the concerned persons that as a rule they accepted the changed conditions in good spirit.”

28. In reply to his arguments Counsel for the petitioner submitted that selection of officers has not been made bona fide and the crieria of selection laid down in paragraph 14 of the Interim Report have not been applied by the respondents in selecting officers. The case of the petitioner is that there has been victimization. In paragraph 16 of the petitioner's reply to the counter-affidavit dated the 1st of August, 1957, it is said that Sri N. Sahay and Sri C.P.N Sinha, who were Inspectors of the Oriental Life Insurance Company (to which the Divisional Manager, Patna Division, himself belonged) and who held the same status and nature of service as Inspectors of National Insurance Company Ltd., were posted after promotion as Branch Manager, Gaya, and acting Branch, Manager, Arrah, ignoring the rights of the petitioner without any justification.”

29. It is further alleged in paragraph that “the opposite parties have acted mala fide in the petitioner's case as the petitioner had reported against opposite party Nos. 3 and 4 that there were evidence that they had committed misappropriation of Government fund and other illegal acts..” Copies of these reports have been annexed to the affidavit as annexures V and W. The Advocate General may be right in contending that all the officers employed by private insurers cannot be immediately appointed to corresponding posts in the Corporation and selection hag to be made on the basis of “qualifications, experience and the training which the officer had received and the length of service in responsible positions” as stated in paragraph 14 of the Interim Report.

30. But there is no material in this case to show that this criterion was applied by the respondents in making selection for Class I posts in the Life Insurance Corporation. On the other hand, the allegation made by the petitioner in his affidavit is that there has been victimization and that persons inferior to him in capacity, qualification and experience have been appointed as Class I officers in supersession of his own merits and record of service.

31. In any event, the respondents have no statutory power to reduce the rank of the petitioner from Class I post which he is entitled to hold under the express language of section 11(1) of Act 31 of 1958 and so long as there is no order by the Central Government under section 11(2) reducing his rank.

32. For the reasons I have expressed I hold that the orders of the respondents conveyed in their letters (Exts. J and N) dated the 27th December, 1958 and 27th March, 1957, requiring the petitioner to work as an Inspector of the Corporation, are illegal, ultra vires and without Jurisdiction. I further hold that a writ in the nature of mandamus must be issued requiring the respondents to consider the application of the petitioner dated the 24th November, 1958 (annexure I), claiming to be appointed to the post of Assistant Branch Manager (Development) and to decide and determine the claim of the petitioner in accordance with law. I would accordingly allow this application with costs. Hearing fee Rs. 200/-.

33. M.J.C No. 264 of 1957. The material facte in this case are closely parallel to these of Miscellaneous Judicial Case No. 265 of 1957, and for the reasons given by ms in the judgment of that case I hold that the orders conveyed by the respondents in their letter (annexure H), requiring the petitioner to work as an Inspector of the Corporation, and another letter (annexure K) informing him that his status is that of an Inspector, are illegal, ultra vires and without jurisdiction. I further hold that a writ in the nature of mandamus should be issued requiring the respondents to deal with the application of the petitioner dated the 2nd July, 1957, claiming the post of Assistant Branch Manager (Development) and to decide and determine that application in accordance with law. The application is accordingly allowed with costs. Hearing fee Rs. 200/-.

34. Raj Kishore Prasad, J.:— I agree.

M.K.S

35. Applications allowed.