Bank of India and Ors. Vs. O.P. Swarnakar and Ors.

In the Supreme Court of India
Equivalent Citation:
AIR 2003 SC 858

Bank of India and Ors.
O.P. Swaranakar and Ors.
Decided on
17th December, 2002
B. Pattanaik, C.J.; K. Sema; B. Sinha

Meaning of Voluntary retirement scheme

Voluntary retirement scheme is a method used by companies to reduce surplus staff. This mode has come about in India as labor laws do not permit direct retrenchment of unionized employees.

Importance of Voluntary retirement scheme

There are several reasons for organizations to introduce VRS.

  • Improves efficiency
  • Responds to decline in sales and increase in cost
  • Reduce overhead costs
  • Protect long-term interests of the organization
  • Achieve technological advancement that reduces the requirement for manpower
  • Restructure the organization

SBI Voluntary Retirement Scheme (SBIVRS)


1. To have a balanced age profile providing for mobility, training, development of skills and succession plans for higher-level positions.

2. To provide an exit for employees who have an honest feeling that they should now retire and take rest or that there are better opportunities elsewhere.

3. To have overall reduction in the existing strength of the employees and to increase productivity and profitability.


1. The scheme will be open to all permanent employees of the Bank, except those specifically mentioned as ‘ineligible’, who have put in 15 years of service or have completed 40 years of age as on 31st December, 2000.

2. Age will be reckoned on the basis of the date of birth as entered in service record. Ineligible.

3. The following categories of employees are ineligible under the scheme;

  • Staff members who have executed bonds and have not completed it; staff members serving abroad under the special arrangements/bonds. The Board of Directors may, however, waive this, subject to fulfillment of the bond/other requirements.
  • Employees against whom disciplinary Proceedings are contemplated/pending or who are under suspension. This will also include employees against whom action has been initiated by Government Agencies/other law enforcing agencies.
  • Employees appointed on contract basis.
  • Watch and ward staff.
  • Specialist Officers,
  • Highly skilled and qualified staff. 

General conditions:

The following general conditions now need be noticed:-

1. A mere request of an employee seeking voluntary retirement under the Scheme will not take effect until and unless it is accepted in writing by the Competent Authority.

2. It will not be open for an employee to withdraw the request made for voluntary retirement under the Scheme after having exercised such option.

3. The Competent Authority shall have absolute discretion either to accept or reject the request of an employee seeking Voluntary Retirement under the scheme depending upon the requirement of the bank. The reasons for rejection of request of an employee seeking voluntary retirement shall be recorded in writing by the competent authority. Acceptance or otherwise of the request of an employee seeking voluntary retirement will be communicated to him in writing.

4. An employee who would seek voluntary retirement under this scheme will not be eligible for re-employment in the bank or any of its subsidiaries.

5. The benefits payable under this scheme shall be in full and final settlement of all claims of whatsoever nature, whether arising under the scheme or otherwise to the employee (or to his nominee in case of death). An employee who voluntarily retired under this scheme will not have any claim against the bank of whatsoever nature and no demand or dispute or difference will be raised by him or on his behalf, whether for re-employment or compensation or back wages including employment of any of his relative on compassionate grounds in the service of the bank or for any other benefit whatsoever.

6. The vacancy caused by voluntary retirement shall not be filled up by new recruitment.

7. The ex-gratia payable to an employee on opting for Voluntary Retirement under this scheme would be paid to him within 45 days from the date of his relieving.


1. The State Bank of India has been constituted under the State Bank of India Act, 1955 whereas the other banks (hereinafter referred to as ‘the Nationalized Banks, for the sake of brevity) were taken over in terms of the provisions of the Banking Companies (Acquisition and Transfer of Undertakings), Act. 1970 (hereinafter referred to as ‘1970 Act’).

2. The banks were said to be over-staffed. For the purpose of effective management, man power planning was contemplated by the Ministry of Finance, Government of India, pursuant whereto and in furtherance whereof, the Government considered the desirability of introducing voluntary retirement scheme to help the banks to right-size their force.

3. In a letter dated 5.2000, the Director (IR & BOII), Ministry of Finance, intimated to the concerned banks that different committees and experts opined the most of the banks have 25% surplus manpower.

4. It was, therefore, requested that the concerned banks should undertake the exercise of man-power planning on priority basis and send the same to the Banking Division for approval of the Board. A Committee was constituted by the Central Government for consideration of various issues as specified in the report of the Committee on Human Resource Management in Public Sector Banks.

5. Pursuant to or in furtherance of the said purported policy decision, the State Bank of India as well as the Nationalized Banks adopted separately but almost identical scheme known as “Employees Voluntary Retirement Scheme”. We may, however, observe that the scheme adopted by the State Bank of India (hereinafter referred by ‘SBIVRS’) in certain respects differ from the scheme of the Nationalized Banks (hereinafter referred to the ‘said scheme’). For our purpose, we would consider them separately.

6. The Scheme contained an eligibility criteria, namely, that employees against whom disciplinary proceedings were contemplated or pending would not be eligible for seeking voluntary retirement. It states that the employees seeking voluntary retirement were eligible for all other retirement benefits. Under the existing said scheme the bank his reserved with itself the right to withdraw the scheme at any time it thinks fit and its decision in this behalf was to be final.

7. A large number of employees (1, 01,000 employees approx.) submitted their applications out of whom a small number of employees (2000 employees approx.) withdrew their offer. Despite withdrawal of their offer the same was accepted. In some cases offers despite withdrawal thereof were accepted within the period during which the scheme was operative and in some beyond the same.

8. The scheme was introduced by the banks with the approval of the Board of Directors.

9. The writ petitioners filed the writ petitions, inter alia, questioning the validity of the Voluntary Retirement Scheme floated by the Nationalized Banks.

10. In any event, validity of clause 10.5 of the said scheme stipulating that offer once made by an employee could not be withdrawn was in question. The appellants herein are ‘State’ within the meaning of Article 12 of the Constitution of India.

11. The questions raised by the writ petitioners thus could be raised in a proceeding under Article 226 of the Constitution of India.

12. Furthermore, in the event it is held that the action of the appellants was arbitrary and unreasonable, the same would attract the wrath of Article 14 of the Constitution of India.

13. Furthermore, the right of the employee to continue in employment, which is a fundamental right under Article 21 of the Constitution of India, could not have been taken away except in accordance with law.


1. Whether an application by an employee to secure voluntary retirement under the Voluntary Retirement Scheme (VRS) can be withdrawn by such an employee before the same is accepted by the Competent Authority thought he scheme contained in express stipulation that an application made there under is irrevocable and the employee will have no right to withdraw the application once submitted?

2. Whether upon making an application under VRS the employer bank secures the authority to unilaterally determine one way or the other the mural relationship of master and servant between the parties?

3. Whether the voluntary retirement scheme is an offer/proposal or merely an invitation to offer. The question is whether the banks intended to make an offer or merely issued an invitation to treat is essentially a question of fact.


1. Questioning the action on the part of the banks, in accepting the applications of the concerned employees despite their withdrawal, writ petitions were filed in the Punjab & Haryana High Court, Bombay High Court, and Uttaranchal High Court etc.

2. Before the Punjab & Haryana High Court, the legality or validity of the said scheme also came to be questioned. Writ applications were also filed by some employees seeking for issuance of writ of mandamus directing the respective banks to pay unto them their lawful dues strictly in terms of the scheme.

3. The Punjab & Haryana High Court by reason of its judgment impugned herein dated 3.4.2002, inter alia, held:-

That the V.R. Scheme as framed is not a valid piece of subordinate legislation inasmuch as the provision of Section 19 Sub-clause (1) and Sub-clause (4) of the Act have not been complied with and has, therefore, to be set aside”.

4. The Bombay High Court and the other High Courts, on the other hand, held that Clause 10.5 of the scheme or the scheme framed by the other banks is not operative as the employees have indefeasible rights to withdraw their offer before the same is accepted.

5. In arriving at its aforementioned finding, the High Court, inter alia, relied on the following decisions of this Court[1]

6. Assailing the judgment of the High Courts, Mr. Soli J. Sorabjee, learned Attorney General for India, inter alia, submitted that having regard to the purport and object sought to be achieved by the scheme, Clause 10.5 of the General Conditions cannot be said to be illegal as by submitting themselves thereto, the concerned employees must be held to have resigned in present and in that view of the matter the contractual bar contained therein cannot be held to be bad in law.

7. The learned Attorney General would urge that the High Court proceeded on a wrong premise insofar as it failed to take into consideration that the scheme would amount to a regulation which would attract the provision of Section 19 of the 1970 Act. It was submitted that power to fix the terms and conditions of service of their employees by the Banks is provided for under Section 7 of the said Act. The learned counsel would contend that it is not the case of the writ petitioner-respondents that the aforementioned Clause 10.5 is arbitrary or otherwise opposed to public policy or suffers from lack of mutuality and, thus, the High Court must be held to have arrived at a wrong conclusion.

8. Those employees, Mr. Sorabjee would submit, who accepted the ex-gratia payment could not have been permitted by the High Court to approbate or reprobate. In support of the said contention, reliance has been placed.[2]

9. As regards the finding of the Punjab & Haryana High Court that the scheme is ultra vires having regard to the fact that the same was not laid before the Parliament as required under Section 19(4) of 1970 Act, it was contended that such a provision being directory one, failure on the part of the Central Government to lay the said scheme before the Parliament could not vitiate the scheme itself. Strong reliance, in this connection, has been placed in Jan Mohammad Noor Mohammad Begban v. State of Gujarat and Anr[3]and Atlas Cycle Industries Ltd. and Ors. v. The State of Haryana[4].

10. It was urged that the entire scheme was offered to the employees as a package and the same had to be treated as such and in that view of the matter, it being within the realm of contract, statutory regulations cannot be said to have any application whatsoever.

11. V.R. Reddy, who appeared for the Punjab National Bank in the matters arising out the judgment and orders, passed by the Bombay High Court, inter alia, would submit that the High Court erred in proceeding on the basis as if the employees are the Government servants and enjoy a status. According to the learned counsel, having regard to the provisions of the 1970 Act, the terms and conditions of services of the employees of the Nationalized Banks are governed by contract. Mr. Reddy would urge that the purpose of the scheme being downsizing of the employees, the same was required to be considered having regard to the age profile, skill profile, the extent of the response received from the employees and several other relevant factors. In the aforementioned situation, the learned counsel would submit that Clause 10.5 was inserted to that in the event, those who had opted for the scheme resale there from; the banks may not face practical difficulties. The requirement of the bank, the learned counsel would submit, must prevail over the requirement of the individual employees.

12. Mukul Rohtagi appearing on behalf of the Bank of India would contend that as the writ petitions involved enforcement of contract qua contract, they were not maintainable. The learned counsel placed strong reliance in Har Shankar and Ors. v. The Dy. Excise and Taxation Commr. and Ors[5].

13. Rajeev Dhawan and Mr. Harish Salve, appearing on behalf of the State Bank of India, submitted that the High Court completely misdirected itself insofar as it failed to take into consideration that the provisions of the State Bank of India Act, 1955 materially differ from 1970 Act. According to the learned counsel, the terms and conditions of employment are governed under Sections 17 and 43 of 1955 Act.

14. It has been pointed out that having regard to the difficulties which may be faced by some of the employees, although the scheme dated 27.12.2000 was to remain in force for a short time, implementation thereof was contemplated in a time-bound manner i.e.:-

a) Opportunity to the employees to apply for voluntary retirement during the period 15.1.2001 to 31.1.2001;

b) Opportunity to the employees to withdraw, if so desired by 15.2.2001;

c) Employees whose request for voluntary retirement is accepted were to stand retired on 31.3.2001 and paid accordingly.

15. It was contended that the scheme if read in its entirely would clearly show that the same was an offer and not an invitation to offer and in terms thereof an enforceable rights and duties had been conferred upon both employer and employee which would, subject to certain exception, be enforceable. It was contended that as the concerned employee did not exercise his option of withdrawal within the specified date, namely, 15.2.2001, his case had been considered on the premise that he has not withdrawn his offer. The learned counsel would contend that a contract of employment can be terminated unilaterally; even tenure of contract of employment can be curtailed by an agreement and in that view of the matter voluntary retirement scheme cannot be said to be illegal.

16. Gopal Subramanium, learned senior counsel appearing on behalf of the respondent in civil Appeal arising out of SLP (C) Nos. 19373-404 of 2002, would submit that the scheme formulated by other public sector banks including Punjab & Sind Bank is identical to that of Punjab National Bank. According to the learned counsel, the entire scheme has been read as a whole.

17. It was pointed out that the scheme had a limited duration from 1.12.2000 to 31.12.2000, and a cumulative consideration of the relevant clauses would clearly show that the relationship between the master and servant comes to an end only upon acceptance of the offer. It was pointed out that the offer is required to be considered at the level of the Branch Manager and Zonal Manager and upon their recommendation the same was ultimately to be taken up by the Personnel Department will clearly go to show that irrevocable nature of option would be relevant only if the same culminates into an acceptance.

18. The learned counsel would submit that mere declaration given by an offerer that he would not withdraw or cancel the offer would not destroy his locus. Strongly relying upon the decisions of this Court in N. Srivastava v. Union of India and Anr.[6], the learned counsel would submit that even after acceptance, the offer could be withdrawn, such an action on the part of the optioned is permissible even after the acceptance of the offer and in that view of the matter the application of contractual bar must be held to be applicable only in a case where offerer has been relevant from his part not prior thereto.

19. Rakesh Dwivedi, learned senior counsel appearing on behalf of the respondents in civil Appeals arising out of SLP (C) Nos. 19373-405 of 2002, would contend that the offending clause having been unilaterally prescribed would not amount to a contractual bar.

20. Such a contractual bar, the learned counsel would submit, must be based on consideration. A contractual scheme must not offend the fight of the employee under Section 5 of the Indian Contract Act, in terms of whereof the offerer is entitled to revoke his proposal/offer at any time before the communication of the acceptance. Relying upon or on the basis of a large number of decisions by different High courts[7], it was argued that in absence of any statute or statutory rules governing the field Section 5 of the Indian Contract Act would be attracted and in that view of the matter Clause 10.5 is neudum pactum and thus being a nullity is not enforceable.

21. D. Goburdhan, appearing on behalf of the respondent-employee of the State Bank of India would submit that his client, who had completed 19 years, 10 months of service, had made the offer as he wanted pensionary benefits having regard to the circular issued by the Indian Banks’ Association of which the State Bank of India is manager, namely, that who had completed 15 years of service may opt therefore, but withdrew the same as he was informed that he would not get his pensionary benefits.

22. Pradeep Gupta appearing in civil Appeal Nos. 5380-81 of 2002 on behalf of the concerned employees of Allahabad Bank, would submit that as the respondent therein was working in a foreign exchange branch, and having been doing a specialized job would not have ordinary come within the purview of the scheme. It was promoted out that his letter of withdrawal was strongly recommended by the Branch Manager but despite the same, by reason of the writ petition, the competition authority accepted the same without assigning any reason. The said order, contends the learned counsel, suffers from vice of non-application of kind inasmuch as in a case of this nature the concerned authority should have passed a speaking order.

23. The learned counsel appearing in SLP (C) CC No. 7966 would submit that the Punjab & Haryana High Court had rejected ten writ petitions filed by the petitioners, inter alia on the ground that as the scheme is ultra vires, no relief can be granted in their favor. The learned counsel contended that as the scheme is contractual in failure, the benefits which were otherwise available to them in terms of the scheme could not have been curtailed.


With regard to 1st issue

1. With regard to the envisaged major contract, the effect of the contract of option is to create an irrevocable offer and a power of acceptance.

2. The offer is irrevocable in the sense that it is a breach of the contract of option to revoke it and its effect is to create a power of acceptance in the option-holder good against the grantor of the option and sometimes also against third parties.

3. Thus the grantor of the option is under a conditional duty, and the option-holder has a conditional right of performance of the option offer, that condition being the exercise of the power of acceptance by the option-holder; as the envisaged major contract may be bilateral or unilateral, that condition may be an acceptance or other act by the option-holder.

4. Furthermore, the exercise of the option may itself be subject to certain condition precedent, such as a time limit, or the occurrence of a certain event, or the duration of a major contract of which it forms a part, or the mode in which it may be exercised.

5. The basic concept of the scheme, therefore, underwent a change which also goes to show that the banks had sought to invoke its power of amending the scheme.

6. Once the scheme is amended and or an apprehension is created in the mind of the employees that they would not even receive the entire benefits as envisaged under the scheme, they were entitled to revoke their offers. Their action in our considered opinion is reasonable.

7. It may be that some of the employees only opted for the provident fund benefit which did not undergo any amendment but the same would not change the attitude on the part of the banks.

8. Therefore, do not find any error in the judgment of the High Court on this score.

With regard to 2nd issue:

1. In Power Finance Corporation Ltd. v. Pramod Kumar Bhatia[8] a scheme of voluntary retirement was floated and pursuant thereto the Respondent therein has applied for voluntary retirement but subsequently the Corporation had withdrawn the scheme although the offer had been accepted. Such acceptance was to take effect from 31-12-1994.

  1. The court held that the acceptance of his offer to voluntarily retire being subject to adjustment of the amount payable to him, the same did not attain finality.
  2. This decision is an authority for the proposition that even after acceptance of the offer made by the employee, the scheme can be withdrawn and, if it is so done, the employee does not acquire any vested right.

With regard to 3rd issue:

1. The distinction between an offer and invitation to treat has been dealt with some clarity in Gibson v. Manchester City Council[9] where the council adopted a policy of selling council’s house to Mr. Gibson.

2. The council wrote a letter to Mr. Gibson that “it may be prepared to sell the house to you at the purchase price of Pounds 2,725 less 20% = Pounds 2180 (free hold).

3. He was invited to make a formal application which he did. Before the documents could be executed the control of the council changed hands as a result whereof policy of selling the council house was reversed.

4. When it was claimed by Mr. Gibson that the transaction amounted to a binding contract, the House of Lords negativing the same held that the letter in question was an invitation to treat and Mr. Gibson’s application was an offer and not an acceptance.

5. In the instant case, there was even no reasonable certainty that the scheme would be acted upon.

6. Furthermore terms and conditions thereof could be amended and even the scheme itself could be rescinded.

7. We, therefore, have no hesitation in coming to the conclusion that the voluntary scheme was not a proposal or an offer but merely an invitation to treat and the applications filed by the employees constituted ‘offer’

8. “Offers and Invitations to Treat: It is sometimes difficult to distinguish statements of intention which cannot, and are not intended to result in any binding obligation from offers which admit of acceptance, and so become binding promises. A person advertises goods for sale in a newspaper, or announces that he will sell them by tender or by auction; a shopkeeper displays goods in a shop window at a certain price; or a bus company advertises that it will carry passengers from A to Z and will reach Z and other intermediate stops at certain times. In such cases it may be asked whether the statement made is an offer capable of acceptance or merely an invitation to make offers, and do business. An invitation of this nature, if it is not intended to be binding, is known as an ‘invitation to treat.”[10]


1. The banks treated the application from the employees as an offer which could be accepted or rejected.

2. Acceptance of such an offer is required to be communicated in writing.

3. The decision making process involved application of mind on the part of several authorities.

4. Decision making process was to be formed at various levels.

5. The process of acceptance of an offer made by an employee was in the discretion of competent authority.

6. The request of voluntary retirement would not take effect in present but in future.

7. The Bank reserved its right to alter/rescind the conditions of the scheme.


1. The scheme is not a part of the statutory regulation. It was in the realm of contract. That being so it was not necessary for the Central Government to place the same before the Parliament.

2. Even if the same was a regulation, the laying down rule is merely a directory one and not mandatory.

3. Therefore, the court is of the opinion that the scheme in question cannot be said to be bad in law.

4. The appeals preferred by the Nationalized Banks arising from the High Courts are dismissed except the cases where the concerned employees have accepted a part of the benefit under the scheme; However, in respect of such of the employees who despite acceptance of a part of the retirement benefit under the scheme had continued under the orders of the High Court and has retired on attaining the age of superannuation, the order shall not apply.

5. The appeals filed by the State Bank of India are allowed:

6. The appeals arising from the judgments of the Uttaranchal High Court are allowed and the judgments of the said High Court are set aside.

7. The appeals arising from the judgments of the Punjab and Haryana High Court in relation to ten writ petitions which were filed by the employees for a direction upon the Bank that the benefits under the scheme be paid to them are set aside and the matters are remitted to the High Court for consideration thereof afresh on merits and in accordance with law.

8. These appeals are disposed of on the above terms. However, in the facts and circumstances of the case, the parties shall pay and bear their own costs throughout.

Edited by Parul Soni

Approved & Published – Sakshi Raje



[1] Union of India and Ors. v. Gopal Chandra Mishra and Ors. (1978)ILLJ492SC , Balram Gupta v. Union of India and Anr. (1987)IILLJ541SC , Punjab National Bank v. P.K. Mittal (1989)ILLJ368SC , Union of India and Anr. v. Wing Commander T. Parthasarathy (2001) 1 SCC 158 and Shambhu Murari Sinha v. Project & Development India Ltd. and Anr.: (2002)IILLJ430SC .

[2] Brijendra Nath Bhargava and Anr. v. Harsh Wardhan and Ors.(1988)2SCR124 , Shri Lachoo Mal v. Shri Radhey Shyam (1971) 3SCR693 , Halsbury’s Laws of England, Fourth Edition, Volume 16, para 957 and American Jurisprudence, 2d, Volume 28, pages 677 to 680.

[3] Mohammad Noor Mohammad Begban v. State of Gujarat and Anr (1966) 1 SCR 505.

[4] Atlas Cycle Industries Ltd. and Ors. v. The State of Haryana (1992) 3 SCALE 477.

[5] Har Shankar and Ors. v. The Dy. Excise and Taxation Commr. and Ors (1975) 3 SCR 254.

[6] J.N. Srivastava v. Union of India and Anr. (1999) ILLJ 546 SC.

[7] Zoravarmal v. Gopal Das AIR 1922 Mad 486, Secretary of State v. Bhaskar Krishnaji AIR 1925 Bom 485 , Somu Sundram Pillai v. Provincial Government AIR 1947 Mad 366, Raghunandan v. State of Hyderabad AIR 1963 AP 110 , T. Linga Godar v. State of Madras AIR1971AP281, Rajendra K. Verma v. State of M.P. AIR 1972 MP 131 , Sri Durga Saw Mills v. State of Orissa: AIR1978 Ori 41 , 43, Managing Committee v. State of Bihar AIR 1981 Pat 271 , Janardhan Misra v. State of U.P. AIR 1981 All 213, Suraj Besan & Rice Mills v. FCI AIR 1988 Delhi 224.

[8] Power Finance Corporation Ltd. v. Pramod Kumar Bhatia (1997) IILLJ 819 SC.

[9] Gibson v. Manchester City Council (1979) All. E.R. 972.

[10] Anson’s law of contract,26th Edn. 25.


Urwashi Ahuja
I am Urwashi Ahuja currently studying in second year of 3 year law course at faculty of law,Delhi University. One of the reasons I am pursuing law is to help the voiceless and improve the Animal Laws of our country which are very inefficient as compared to other countries. I enjoy doing legal research and writing articles on various legal propositions.