TMI Blog1996 (1) TMI 432X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod of three weeks. The annexure to the show-cause notice contained thirteen items of charges against the respondent. The substance of charges Nos. 1 to 11 is that the respondent sanctioned credit facilities to certain persons and enhanced certain existing facilities in the case of others without obtaining adequate securities. The twelfth charge was that he intentionally delayed the placing of the branch inspection reports to the board of directors and the thirteenth charge was that the bank defaulted in maintaining the statutory liquidity ratio and the cash reserve ratio as required under the Act. According to the respondent, the abovesaid charges, were absolutely baseless and unreal and he had filed a detailed reply on December 3, 1982, that is to say, within the time allowed. However, the second appellant passed an order on April 2, 1983, removing the respondent from the office of the chairman and chief executive officer with effect from April 2, 1983. As against the said order, the respondent filed an appeal dated May 1, 1983, before the first appellant under Section 36AA(3) of the Act. Though the respondent requested for personal hearing the first appellant without granting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 36AA(3) of the Act. The said order was quashed by the learned single judge as per judgment dated August 3, 1992. It is against the said judgment that this writ appeal is filed. 3. Learned counsel for the appellants raised a strong plea for sustaining exhibit P-6 order. It was pointed out that every aspect of the case was considered by the first appellant in extenso and there was due application of mind while passing exhibit P-8. It is the case of the appellants that the learned single judge was in error in making the observation that the first appellant had dealt with the case in such a casual manner without application of mind . Of course, it is difficult to say that Sri K. J. Reddy, Additional Secretary who passed exhibit P-8 order had not applied his mind while passing exhibit P-8 order. But the real question is whether there was application of mind by Sri K.J. Reddy after hearing the respondent in person. If it was an order passed after such hearing, we would have definitely sustained it without any demur. What we could perceive here, if we put it in the words of the learned single judge, is that two officers who heard the case, did not pass orders and the one who p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied rules nor can they be elevated to the position of fundamental rights. 6. Therefore, the width and amplitude and the manner of exercise of power conferred on an authority to act in accordance with the principles of natural justice largely depends upon the intention of the courts while conferring such power and the purpose for which it is conferred and also the effect of such exercise of power. 7. The next question which requires to be decided is whether the rule that the person or authority who heard the case should pass orders is an indispensable requirement in the observance of principles of natural justice. This rule has a salient purpose. The authority who passes the order, must apply its mind after hearing the aggrieved party. During the course of hearing the authority must be able to formulate the conclusions after noticing even the demeanour of the parties. S. A. de Smith's Judicial Review of Administrative Action frames this rule as this : Must he who decides also hear ? In general the answer is in the affirmative. It is a breach of natural justice for a member of a judicial tribunal or an arbitrator to participate in a decision if he has not heard all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry to enter into a decision on this issue for the purposes of the present case. 10. Now, let us examine what is laid down by the House of Lords in Local Government Board v. Arlidge [1915] AC 120. That was a case where A public inquiry had been held on an appeal to the Local Government Board by the owner of a house against which the Hampstead Borough Council had made a closing order on the ground that it was unfit for human habitation. The owner complained to the court that the Board had dismissed his appeal without a fair hearing because he was not allowed to appear before the officer who made the decision or to see the report of the inspector who held the inquiry. That report was, of course, the principal document in the proceedings. These complaints succeeded in the Court of Appeal but failed in the House of Lords. The judges all agreed that the general importance of the case 'can scarcely be overestimated'. Where they differed was in their willingness to compromise between the procedure of courts of law and the needs of practical administration. The argument that prevailed was that by entrusting the power to a Government department, Parliament must have intended th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, AIR 1959 SC 308, discussed Local Government Board v. Arlidge [1915] AC 120 (HL) and three other decisions, namely, Ranger v. Great Western Rly Co. [1854] 5 HLC 72, Rex v. Sussex Justices ; Ex parts McCarthy [1924] 2 KB 256 and Rex v. Essex Justices ; Ex parte Perkins [1927] 2 KB 475 and held (page 327) : The aforesaid decisions accept the fundamental principle of natural justice that in the case of quasi-judicial proceedings, the authority empowered to decide the dispute between opposing parties must be one without bias towards one side or other in the dispute. (italics supplied) The theory that the one who decides must hear is recognized for the reason that bias and ignorance alike preclude fair judgment upon the merits of the case. The rule the one who decides must hear declared by the Constitution Bench in Gullapalli Nageswara Rao v. A, P. S. R. T. Corporation, AIR 1959 SC 308, derives support from a famous case decided by the Supreme Court of the United States in Morgan v. United States [1936] (298 US 468). In that decision the court invalidated a price-fixing order of the Secretary of Agriculture merely on the ground that the secretary himself had not personall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to watch the demeanour of a witness and to make up his own mind as to the credibility of the witness. Secondly, the party is unable to put his arguments before the person who really counts and to persuade him directly to accept his viewpoint. 17. These drawbacks in institutional decisions necessarily place the rule the one who decides must hear on a higher standard of procedural fairness than what obtains in the United Kingdom. 18. We are aware that the insistence on the above rule in institutional decisions may sometimes create practical difficulties in day-to-day governmental functions. That does not mean the rule as such has to be dispensed with. Various remedial measures are available to overcome administrative difficulties. The exercise of quasi-judicial power by the Government department is regulated by internal rules of business in certain cases. It is also noticed that the relevant statute may itself provide the procedure for hearing and for taking decision. We do not propose to elaborate the various procedural safeguards mandated by the Supreme Court in different decisions which are available to the affected parties in cases of institutional decisions. There are c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may, for reasons to be recorded in writing, by order, remove from office, with effect from such date as may be specified in the order, any chairman, director, chief executive officer (by whatever name called) or other officer or employee of the banking company. (2) No order under Sub-section (1) shall be made unless the chairman or director or chief executive officer or other officer or employee concerned has been given a reasonable opportunity of making a representation to the Reserve Bank against the proposed order: Provided that if, in the opinion of the Reserve Bank, any delay would be detrimental to the interests of the banking company or its depositors, the Reserve Bank may, at the time of giving the opportunity aforesaid or at any time thereafter, by order direct that, pending the consideration of the representation aforesaid, if any, the chairman or, as the case may be, director or chief executive officer or other officer or employee, shall not, with effect from the date of such order- (a) act as such chairman or director or chief executive officer or other officer or employee of the banking company ; (b) in any way, whether directly or indirectly, be concerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s mandatory in this case in view of exhibit P-2 judgment, which necessarily dissolves its institutional character. That would otherwise mean that exhibit P-8 order is liable to be tested within the framework of the rule the one who decides must hear . 23. Now let us broadly examine whether exhibit P-8 order will conform to the general principles of natural justice or to the specific rule the one who decides must hear . If exhibit P-8 does not conform to the latter it ipso facto contravenes the former. The examination of the entire question therefore involves simultaneous consideration. Exhibit P-8 order has been passed by Sri K.J. Reddy, Additional Secretary and he is the officer who decided the appeal on June 13, 1991. Admittedly he did not hear the respondent and he is thus a totally unknown person to him. His name was not disclosed earlier at any point of time. However, in paragraph 17 of the impugned order it is stated ; In his submissions in the course of oral hearing the appellant has argued . . . This statement appears to be a misleading statement in view of the fact that the respondent was not heard by Sri K. J. Reddy. He did not further explain the background of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is clear from exhibit P-7 itself that the hearing was done by the then incumbent in office on August 14, 1991, but the order exhibit P-7 was passed by the successor on September 17, 1991. The person who heard the revision on August 14, 1991, has not passed the order, though from what appears in exhibit P-7, he had made some notes of hearing in the note file. These notes were utilised by the successor and made into an order which he pronounced as exhibit P-7. Admittedly there was no further hearing of the matter. In the circumstances the order passed by a person who did not hear the matter and who did not have any opportunity to come to grips with the issues arising for consideration, is violative of the principles of natural justice and is liable to be quashed on this ground itself. 24. We agree with the view expressed in the aforesaid decisions. 25. Finally, it cannot be said that this is a case where no prejudice is caused to the respondent. Serious prejudice is caused to him due to the failure to grant personal hearing by the officer who passed exhibit P-8 rejecting the appeal against the order removing him from service. The learned single judge has exercised his dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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