Bihar State Financial Corporation Can Fix Employee Pay Without State Approval: Jharkhand HC

Background Facts

The employees were working with the Bihar State Financial Corporation (BSFC). The Finance Department of the Government of Bihar issued a resolution in January 2010 to implement the 6^th Pay Revision Commission (PRC) for its state employees effective from 1^st January 2006.

The Board of Directors of BSFC decided to revise the pay scale of its own employees as per the 6^th PRC, from 1^st January 2006. The Board decided to use its own resources for the payment but sought approval from the Department of Industries, Government of Bihar. The employees filed a writ petition seeking a direction to enforce the Board's decision. The High Court disposed of the petition directing the State of Bihar to take a decision on the matter.

However, the order was not complied with. Therefore, the employees filed a contempt case. During the proceeding, the State of Bihar refused its concurrence as the Corporation was in operational loss. Consequently, the employees filed another writ petition. A Single Judge allowed this petition giving liberty to the Corporation to implement its own resolution regarding the 6^th PRC.

Aggrieved by this order, the BSFC filed the appeal before the Division Bench of the Jharkhand High Court.

It was argued by the BSFC that its initial decision to implement the 6^th PRC was taken under a wrong presumption of operational profit. The Board had erroneously calculated profit based on total receipts and total expenses for a single financial year, without considering the Corporation's loan and interest liabilities.

It was submitted that the Corporation reviewed its financial condition and found itself to be in loss in the financial year 2020-21. Therefore, the Board withdrew its earlier decision, as implementing the pay revision would be financially ruinous for the Corporation.

It was further contended that under the State Financial Corporations Act, 1951, the Board's decisions are subject to the previous sanction of the State Government, and the Board could not act without prior approval.

On the other hand, it was argued by the employees that the Corporation's own records showed that it was in operational profit in the financial year 2019-20 and had a cash surplus. They submitted that the Board had taken a decision and the Corporation could not overturn it. The employees also relied on a judgment of the Patna High Court, wherein it was held that the Corporation's employees were entitled to pay revisions as per State Government orders at par with the State Government Employees.

It was further contended that Section 23 of the Act of 1951 gives complete autonomy to the Corporation to fix its employees' service conditions, and the State Government's approval was no longer necessary.

Findings and Observations of the Court

It was observed by the Division Bench that as per Section 23 of the State Finance Corporation Act, 1951, there was no need for State Government approval for employee remuneration. The purpose was to provide the State Financial Corporation with greater autonomy and operational flexibility. It was held that the Corporation has absolute power to determine the conditions of service and remuneration for its employees.

It was further observed that the Board had taken a decision in 2019 based on an operational profit. The Board had also filed a counter-affidavit stating that adequate funds were available.

The case of Bhartiya Kamgar Karmachari Mahasangh Vs. Maharashtra State Financial Corporation was relied upon wherein it was held that the financial corporation is an autonomous body which has the power to determine the conditions of appointment and services as well as the remuneration payable to its employees. Further it was not necessary to obtain prior approval of the State Government.

It was held by the Division Bench that the Government of Bihar had no jurisdiction with regard to implementation of the 6^th PRC for the employees of the Corporation, rather the Corporation itself was competent to take its decision.

It was further held that the decision of the Corporation to withdraw benefits was arbitrary and it seemed to be taken under undue pressure from the State Government. It was further held that the Corporation was in profit in financial year 2019-20. Therefore, implementation of the 6^th Pay Revision Commission could not be denied on the ground of financial constraints.

With the aforesaid observations, the appeal filed by the BSFC was dismissed by the Division Bench.

Case Name : Bihar State Financial Corporation & Ors. Vs. Rajnikant & Ors.

Case No. : L.P.A. No. 709 of 2023 With L.P.A. No. 18 of 2024

Counsel for the Appellants : Indrajeet Sinha, Deepak Kumar Dubey, Rashi Sharma, Ruhi Dubey, Advocates

Counsel for the Respondents : Krishna Murari, Raj Vardhan, Ritesh Kumar Pathak, Advocates