'May' in Disciplinary Regulations is Directory, Not Mandatory | SC Upholds Management Discretion in Canara Bank Case : SC

The Supreme Court has clarified a critical aspect of internal disciplinary procedures in public sector banks, holding that the word 'may' in Regulation 10 of the Canara Bank Officer Employees’ (Discipline and Appeal) Regulations, 1976, is directory and not mandatory. This decision reinforces managerial discretion in conducting joint disciplinary proceedings and affirms that failure to hold a common inquiry does not invalidate individual proceedings, even where multiple officers are implicated in the same transaction.

Background & Facts

The Dispute

The dispute arose from disciplinary proceedings initiated by Canara Bank against Prem Latha Uppal, a Senior Manager (Scale-IV), for alleged negligence and collusion in sanctioning loans to M/s. Aman Trading Company and M/s. Creative Trading Company. The Bank alleged that she failed to verify borrower credentials, collateral ownership, and financial documents, exposing the Bank to significant financial risk. She was charge-sheeted on 27.07.2005 under two Articles of Charges relating to these two loan transactions.

Key Facts

• Prem Latha Uppal was appointed as Senior Manager, Scale-IV, effective 19.07.2004.
• She was a member of the Credit Sanction Committee, but not the final sanctioning authority.
• The loans in question were sanctioned in 2004 - 2005.
• Two other officers, P.P. Nayak and S.S. Bhat, were also charge-sheeted in connection with the same transactions.
• The disciplinary inquiry was conducted separately against Uppal, despite the common cause of action.
• The Enquiry Officer found some charges proved and others not, and recommended reduction in grade from SMG Scale-IV to MMG Scale-III.
• The Disciplinary Authority, Appellate Authority, and Reviewing Authority upheld the punishment.
• Uppal retired on superannuation on 31.11.2010.
• The Bank did not initiate joint proceedings against the three officers, despite Regulation 10 permitting such an option.

Procedural History

• 27.07.2005: Charge-sheet issued to Prem Latha Uppal.
• 31.05.2006: Disciplinary Authority ordered reduction in grade.
• 2008: Uppal filed Writ Petition No. 3150 of 2008 before the High Court of Karnataka.
• 02.09.2013: Single Judge dismissed the writ petition, upholding the punishment.
• 15.02.2023: Division Bench allowed the Writ Appeal No. 6228 of 2013, setting aside the punishment on grounds of violation of natural justice and misinterpretation of Regulation 10.
• 2023: Canara Bank filed Special Leave Petition (Civ.) No. 10226 of 2023 before the Supreme Court.
• 12.05.2026: Supreme Court delivered judgment.

The Parties' Positions

For the Appellant (Canara Bank):

• The disciplinary proceedings were fair and followed due process.
• The Enquiry Officer was impartial and found some charges not proved, indicating careful scrutiny.
• Regulation 10 uses the word 'may', which confers discretion, not obligation.
• The High Court erred in treating 'may' as mandatory and in re-appreciating evidence.
• The Bank was not required to conduct a joint inquiry, especially since the roles of the officers differed.

For the Respondent (Legal Representatives of Prem Latha Uppal):

• The Enquiry Officer relied on unexamined statements of co-accused officers (S.S. Bhat and R. Chandramouli), violating principles of natural justice.
• The punishment was disproportionate, as six other officers received only denial of increments.
• The High Court correctly held that the proceedings were vitiated by lack of opportunity to rebut evidence.
• The interpretation of 'may' as directory was correct, but the Court should not have interfered with the setting aside of punishment.

Relief Sought

The Appellant sought to set aside the Division Bench’s judgment and restore the order of punishment dated 31.05.2006. The Respondents sought confirmation of the setting aside of the punishment and no further proceedings, given the deceased status of the employee.

The Legal Issue

Is the word 'may' in Regulation 10 of the Canara Bank Officer Employees’ (Discipline and Appeal) Regulations, 1976, mandatory or directory, and does reliance on unexamined statements from co-accused officers during a departmental inquiry violate the principles of natural justice?

Arguments Presented

For the Appellant

The Appellant contended that Regulation 10 uses the word 'may' to indicate discretion, not compulsion. Citing T. Baba Prasad v. Andhra Bank, it argued that the provision is facilitative, designed to empower management to conduct joint proceedings where convenient, not to impose an obligation. The Bank emphasized that the roles of the charge-sheeted officers were not identical, and the disciplinary authorities varied in rank, making a common proceeding impractical. It further argued that the High Court exceeded its judicial review limits by re-evaluating evidence and overturning findings based on procedural technicalities, not substantive illegality.

For the Respondent

The Respondents argued that the Enquiry Officer’s reliance on statements of S.S. Bhat and R. Chandramouli - officers who were not examined as witnesses - deprived the employee of the right to cross-examine and rebut evidence. This, they submitted, violated the fundamental principle of audi alteram partem. They contended that the High Court did not re-appreciate evidence but identified a clear legal flaw: the use of untested material as the basis for a finding of guilt. They did not contest the directory nature of Regulation 10 but maintained that the procedural irregularity alone justified setting aside the punishment.

The Court's Analysis

The Supreme Court undertook a two-pronged analysis: first, on the interpretation of Regulation 10; second, on the validity of the High Court’s findings regarding natural justice.

On Regulation 10, the Court affirmed the view of the Andhra Pradesh High Court in T. Baba Prasad v. Andhra Bank, holding that the word 'may' is directory. The Court emphasized that statutory interpretation must reflect legislative intent, not literal meaning alone. It cited State of U.P. v. Babu Ram Upadhya, noting that even the word 'shall' may be directory if its mandatory construction would cause injustice or inconvenience without advancing legislative purpose. The Court observed that mandating joint proceedings would restrict the employer’s ability to respond to dynamic circumstances, such as differing ranks of employees, varying degrees of culpability, or administrative convenience.

"'May' is not understood as 'must', so long as the English language retains its meaning."

The Court further noted that Regulation 10 does not confer any enforceable right on the employee to demand a joint inquiry. Failure to hold one does not vitiate individual proceedings.

However, the Court declined to interfere with the High Court’s conclusion that the disciplinary proceedings were vitiated by a violation of natural justice. The Enquiry Officer relied on statements of two officers - S.S. Bhat and R. Chandramouli - who were themselves accused in the same matter and were not examined as witnesses. The Court held that such reliance, without opportunity for cross-examination, rendered the findings legally unsustainable. The High Court did not re-appreciate evidence; it identified a fatal procedural flaw.

The Court also noted that the Bank had consulted the Central Vigilance Commission despite no vigilance angle being involved, but declined to set aside the proceedings on this ground alone.

The Verdict

The Supreme Court set aside the High Court’s finding that Regulation 10 was mandatory, holding instead that 'may' is directory. However, it upheld the setting aside of the punishment dated 31.05.2006 due to violation of natural justice. The Appellant is directed to settle the account of the deceased employee’s estate by duly noting the outcome of the High Court’s judgment within six weeks from the date of this judgment. All pending applications are disposed of.

What This Means For Similar Cases

Disciplinary Proceedings Cannot Rely on Unexamined Statements

• Practitioners must ensure that all evidence relied upon in departmental inquiries is formally presented and subject to cross-examination.
• Statements from co-accused or investigating officers, if used to prove guilt, must be tendered as witnesses.
• Failure to do so renders findings legally vulnerable, regardless of the strength of the underlying allegations.

'May' in Statutory Provisions Is Presumed Directory Unless Context Demands Otherwise

• In service law matters, enabling provisions using 'may' are generally directory unless the statute’s object, context, or consequences indicate compulsion.
• Employers retain discretion to choose between joint or individual proceedings, even in cases of common cause.
• Employees cannot claim a right to joint inquiries; the decision rests solely with the competent authority.

Judicial Review in Disciplinary Matters Is Limited but Not Absent

• Courts will not re-appreciate evidence but will intervene where procedural illegality is apparent on the record.
• A finding based on untested material constitutes a jurisdictional error, not mere error of appreciation.
• This judgment reinforces that natural justice is non-negotiable, even in internal disciplinary processes.