Section 617
GOVERNMENT
COMPANY
[2002]
37 scl 742 (sc)
v.
Mysore Paper Mills Officers’ Association
G.B.
Patnaik and Doraiswamy Raju, JJ.
January
8, 2002
Section 617 of the Companies Act, 1956, read with article 12 of the Constitution - Government company - Appellant-company was a Government-company as envisaged in section 617 attracting section 619 - More than 97 per cent of share capital had been contributed by State Government and financial institutions, controlled and belonging to Government of India on security and undertaking of State Government - Memorandum of association entrusted company with important public duties - Out of 12 directors, 5 were Government and departmental persons besides other elected directors who also were to be with concurrence and nomination of Government - Whether above facts did show that State Government had deep and pervasive control of company and its day-to-day administration and, hence, company was nothing but an instrumentality and agency of State Government - Held, yes - Whether, therefore, it was to be held that company was ‘State’ within meaning of article 12 - Held, yes
The appellant-company was a governmental company
as per section 617. The declared objects of the company established that it had
been entrusted with an important function of public interest closely related to
the governmental functions. In a proceeding before it, the High Court came to
the conclusion that the entire company was run as part or an enterprise of the
State Government and that everyone of the schemes of the company was also to be
approved by the Government. Total financial control of the company by the
Government had also been found. The fact that the State Government had notified
the premises of the company as ‘public premises’ under the provisions of the
Karnataka Public Premises (Eviction of Unauthorised Occupants) Act, 1974, and
the appointment of five of its officers as competent officers for the purpose
of the Act, had been also taken due note of to come to the ultimate conclusion
that the company was an authority and instrumentality or agency of the State,
so as to attract article 12 of the Constitution of India.
On appeal :
A careful consideration of the principles of
law and the factual details not only found and illustrated from the memorandum
as well as articles of association of the appellant but enumerated from the
day-to-day running of the business and administration of the company, left no
room for any doubt as to the identity of the appellant-company being ‘other
authority’ and, consequently, ‘the State’ within the meaning of article 12 of
the Constitution of India. The said definition has a specific purpose and that is
Part III of the Constitution, and not for making it a Government or department
of the Government itself. This is the inevitable consequence of the ‘other
authorities’ being entities with independent status distinct from the State and
this fact alone does not militate against such entities or institutions being
agencies or instrumentalities to come under the net of article 12 of the
Constitution. The concept of instrumentality or agency of the Government is not
to be confined to entities created under or which owes its origin to any
particular statute or order but would really depend upon a combination of one
or more of relevant factors, depending upon the essentiality and overwhelming
nature of such factors in identifying the real source of governing power, if
need be, by piercing the corporate veil of the entity concerned.
The indisputable fact that the
appellant-company was a Government company as envisaged in section 617
attracting section 619, that more than 97 per cent of the share capital has
been contributed by the State Government and the financial institutions,
controlled and belonging to the Government of India on the security and
undertaking of the State Government, that the amendments introduced to the
memorandum of association entrusted the appellant-company with important public
duties obligating to undertake, permit, sponsor rural development and for
social and economic welfare of the people in rural areas by undertaking
programmes to assist and promote activities for the growth of national economy
which were akin and related to the public duties of the State, that out of 12
directors 5 were Government and departmental persons, besides other elected
directors also were to be with the concurrence and nomination of the Government
and the various other forms of supervision and control, showed that the State
Government had deep and pervasive control of the appellant-company and its
day-to-day administration, and, consequently, the position was confirmed that
the appellant-company was nothing but an instrumentality and agency of the
State Government and the physical form of company was merely a cloak or cover
for the Government.
Thus, the company was ‘State’ within meaning
of article 12 of the Constitution.
Decision of the Karnataka High Court in Mysore
Paper Mills Ltd. v. Mysore Mills Officers [1999] 95 FJR 798 (Kar.) (FB)
affirmed.
Praga Tools Corpn. v. C.V. Imanual [1969] 1
SCC 585 (SC), Anadi Mukta Sadguru Shree Muktajee Vandasjiswami Suvarna Jayanti
Mahotsav Smarak Trust v. V.R. Rudani [1989] 2 SCC 691, Tekraj Vasandi alias
K.L. Basandhi v. Union of India [1988] 1 SCC 236, Ajay Hasia v. Khalid Mujib
Sehravardi AIR 1981 SC 487, Ramana Dayaram Shetty v. International Authority of
India [1979] 3 SCC 489, Chander Mohan Khanna v. National Council of Educational
Research & Training [1991] 4 SCC 578, VST Industries Ltd. v. VST Industries
Workers’ Union [2001] 1 SCC 298 and Steel Authority of India Ltd. v. National
Union Water Front Workers [2001] 7 SCC 1.
L. Nageswara Rao, Ranjit Kumar, K.C. Sudarshan, M.A.
Chinnasamy, Jayanth Muthraj, E.M.S. Anam and Fazlin Anam for the
Appearing Parties.
Raju, J. - The above appeals have been filed by the Mysore Paper Mills Ltd.
(‘appellant-company’), against the judgment of a Full Bench of the Karnataka
High Court dated 12-8-1998, in W.A. Nos. 1242 and 1243, insofar as it was held
therein that the appellant-company is ‘State’ within the meaning of article 12
of the Constitution of India, though, their appeals against the order of the
single Judge came to be allowed on the ground that the impugned order of
transfer against the second respondent was not shown to be vitiated by mala
fides or by any extraneous considerations and that the respondents have no
legal right to challenge the said order of transfer made on administrative
grounds, when the plea of alleged mala fides and vindictiveness has not been
substantiated.
2. The
second respondent, said to be a post-graduate in chemistry, joined the services
of the appellant-company on 10-8-1991, as management trainee and after
successive career prospects came to be promoted as Senior Superintendent (D.M.
Plant) which came to be redesignated as the Assistant Manager (D.M. Plant) on
7-9-1991. By a memorandum bearing reference No. FPA/TRF/97/384, dated
27-11-1997, he was transferred to the regional office, Calcutta. The said order
came to be challenged as vitiated by mala fides and illegality and one made
with a view to victimise and prevent him from functioning as an executive
member of the M.P.M. Officers’ Association. Certain allegations to support such
a claim were also made, and it is not necessary to advert to all those details,
in view of certain subsequent developments and turn of events. In the writ
petition filed by the respondents, a learned single Judge of the High Court by
an order dated 4-3-1998, granted stay of the order of transfer dated 27-11-1997
confirming thereby the ex parte interim order of stay earlier granted on
24-2-1998 and rejecting the application of the appellant-company for vacating
the same. Before the Division Bench, at the time of initial hearing of the
appeals, the two grounds of challenge urged were :
(i) The writ petitions filed were not maintainable against the
appellant-company, since it is not a ‘State or other authority’ within the
meaning of article 12 of the Constitution of India and (ii) the order of
transfer was quite in accordance with the terms and conditions of the contract
of service as well as Officers Service Rules and necessitated on account of the
exigencies of work and the interests of business of the appellant-company and,
therefore, not vitiated due to any mala fides or other extraneous
considerations, as alleged. Since, in certain earlier decisions of the Division
Bench, the appellant-company was held to be not ‘State’ within the meaning of
article 12 and it was considered to require reconsideration in the light of
certain decisions of this Court, the matter was referred to a Full Bench for
consideration.
3. Before the Full Bench, the
following questions were taken up for consideration :
(1) Whether the Mysore Paper Mills which is a company incorporated
under the Companies Act, 1956, and which is a Government-company as defined in
section 617 of the Companies Act falls within the meaning of the word ‘State’
as defined in article 12 of the Constitution of India ?
(2) Whether the action taken by the appellant-company transferring
the second respondent to Calcutta under the memo bearing No. FPA/TRF/384, dated
27-11-1997, is vitiated by mala fides and whether it is arbitrary and illegal ?
4. On
a review and consideration of the case law on the subject, the Full Bench, in
the judgment under challenge, noticed the various tests laid down by this Court
and proceeding to consider the status of the appellant-company in the light of
those tests and adverting as well to the memorandum of association and articles
of association of the appellant-company and the day-to-day administration of
its affairs, held as hereunder :
“(a) That the appellant-company is a governmental company as per
section 617 of the Companies Act, 1956.
(b) The declared objects of the company, viz., 1, 1A, 3, 4, 4A,
5, 5A and 5B establish that the company has been entrusted with an important
function of public interest closely related to governmental functions and it
enjoys monopoly status, which is State conferred.
(c) The functions entrusted to the appellant-company go to show
that the Government operates behind a corporate veil carrying out the
Governmental functions of vital importance and therefore, there is no
difficulty in identifying the appellant-company to be ‘State’ within the
meaning of article 12 of the Constitution of India.
(d) The summarised balance-sheets for the years 1993-94, 1994-95
and 1995-96 disclosed that more than 97 per cent of the share capital has been
contributed by the State of Karnataka and the financial institutions controlled
and belonging to Government of India.
(e) The business of the company which has to be managed by the
Board of Directors (article 114 of the articles of association) shall have the
chairman of the board and managing director (article 119) and four directors of
whom one will be the chairman will be nominated by the Government of Karnataka
who shall not retire by rotation or be removed from office except under the
orders of the Government of Karnataka (article 94). The Directors to whom the
management is entrusted shall not be more than 12 or less than 9, inclusive of
the Government nominees and nominees of the financial institutions noticed
under article 94A and not only such nominees of financial institutions hold
office so long as moneys remain owed to those institutions or those
institutions hold debentures in the company as a result of direct subscription
or private placement, but the board also has no powers to remove them during
such period.
(f) The appellant-company is found to be under the control of
the Government of Karnataka—sometimes directly and sometimes though the
machinery of Karnataka State Bureau of Public Enterprises in respect of matters
entrusted to it: as disclosed from the book published by the Department of
Personnel and Administration Reforms of the Government of Karnataka.
(g) Apart from the directors who are nominees of the Government
and the financial institutions controlled by the Central Government even the
elected directors were also to be nominated by the Government of Karnataka and
one cannot become a director of the appellant-company without the concurrence
or nomination by the Government.
(h) Appointment of several officers, playing vital role in the
day-to-day administration of the company can be done only with the prior
permission or approval of the Government of Karnataka. The general manager also
may be appointed on such terms and remunerations as may be fixed, only subject
to the approval of the Government of Karnataka.
(i) For any investment or expenditure above Rs. 25 lakhs the
approval of the Government of Karnataka is required. Any revision of pay scales
and allowances of employees and officers also have to be done only with the
approval of the KSBPE. Recruitments to posts carrying pay scales above Rs.
4,700 can only be with the permission of the Government and reservation
policies under article 16(4) of the Constitution are also applicable to recruitments
by the company. Deputation to Government and vice versa are also permitted. All
foreign tours of officers have to be approved by the Government.
(j) All loans taken by the
appellant-company are guaranteed by the Government of Karnataka.
(k) The company secretary of the appellant-company has in his
communication Annexure ‘GGG’ declared that the same is an undertaking under the
control of the Government of Karnataka.”
5. On
the basis of the above facts found and several other documents produced reflecting
the conditions and terms subject to which the affairs of the company were found
actually carried on (noticed in para 12 of the judgment of the High Court) the
Full Bench came to the inevitable conclusion that the entire company is run as
part or an enterprise of the State Government and that everyone of the schemes
of the company are also to be approved by the Government. Total financial
control of the company by the Government has also been found. The fact that the
State Government has notified the premises of the company at Bhadravathi as
‘public premises’ under the provisions of the Karnataka Public Premises
(Eviction of Unauthorized Occupants) Act, 1974, and appointment of five of its
officers as competent officers for the purpose of the Act, has been also taken
due note and consideration to come to the ultimate conclusion that the company
is an authority and instrumentality or agency of the State, so as to attract
article 12 of the Constitution of India.
6. Heard,
the learned senior counsel, appearing on either side who tried to reiterate the
very stand taken before the High Court relying upon one or the other of the
decisions noticed by the High Court and some subsequent decisions, to which a
reference will be made hereinafter. We have carefully considered the
submissions on either side in the light of the principles laid down by this
court and the factual details found on the basis of the materials placed at the
time of hearing before the High Court. Except taking exception to the finding
that the company’s business in the manufacture of news printing papers no
monopoly of State is enjoyed and that the said assumption was wrong, none of
the other factual findings were ever shown to be incorrect or unwarranted and
without basis. Even this grievance is sought to be made on the basis of
national level factual assumption and not by producing any material to disprove
the statement recorded in the judgment that no other company than the appellant
is allowed to produce newsprint in the State of Karnataka, which alone being
relevant for the purpose.
7. In
Praga Tools Corpn. v. C.V. Imanual [1969] 1 SCC 585, this Court declared that
the person or authority on whom the statutory duty is imposed need not be a public
official or an official body and further held that a mandamus can be issued to
a society to compel it to carry out the terms of the statute to which it owe
its constitution as well as to companies or corporations to carry out their
duties enjoined by the statutes, authorising their undertakings. In Anadi Mukta
Sadguru Shree Muktajee Vandasjiswami Suvarna Jayanti Mahotsav Smarak Trust v.
V.R. Rudani [1989] 2 SCC 691, this Court held that the words ‘any person or
authority’ used in article 12 of the Constitution of India are not to be
confined to only statutory authorities and instrumentalities of the State and
that they may cover any other person or body performing public duties and the
form of the body concerned is not very much relevant. The nature of duty
imposed on the body to be adjudged in the light of positive obligation owed by
the person or authority to the affected party, would be determinative of the
question of issue of a writ of mandamus to compel its performance. While
dealing with the Institute of Constitutional and Parliamentary Studies,
registered under the Societies Registration Act, 1860, this Court in Tekraj
Vasandi alias K.L. Basandhi v. Union of India [1988] 1 SCC 236, observed that
there cannot be any straitjacket formula for adjudging whether any person or
authority answers the description of ‘State’ within the meaning of article 12,
and it would be necessary to look into the Constitution of the body, the
purpose for which it has been constituted, the manner of its functioning including
the mode of its funding and the broad features which have been found by this
Court to be relevant for such purpose though it is not necessary that all those
tests should be satisfied in every case to arrive at a conclusion either way.
8. In
Ajay Hasia v. Khalid Mujib Sehravardi AIR 1981 SC 487 this Court while
approving the tests laid down in Ramana Dayaram Shetty v. International Airport
Authority of India [1979] 3 SCC 489 as to when a corporation can be said to be
an instrumentality or agency of Government observed as hereunder’ :
“9. The tests for determining as to when a
corporation can be said to be an instrumentality or agency of Government may
now be culled out from the judgment in the International Airport Authority AIR
1979 SC 1628. These tests are not conclusive or clinching, but they are merely
indicative indicia which have to be used with care and caution, because while
stressing the necessity of a wide meaning to be placed on the expression ‘other
authorities’, it must be realized that it should not be stretched so far as to
bring in every autonomous body which has some nexus with the Government with
the sweep of the expression. A wide enlargement of the meaning must be tempered
by a wise limitation. We may summarise the relevant tests gathered from the
decision in the International Airport Authority’s case as follows :
(1) ‘One thing is clear that if the entire
share capital of the corporation is held by Government, it would go a long way
towards indicating that the corporation is an instrumentality or agency of
Government’. (para 14)
(2) ‘Where the financial assistance of the
State is so much as to meet almost entire expenditure of the corporation, it
would afford some indication of the corporation being impregnated with
governmental character’.
(3) ‘It may also be a relevant factor. . .
whether the corporation enjoys monopoly status which is the State conferred or
State protected’.
(4) ‘Existence of deep and pervasive State
control may afford an indication that the corporation is a State agency or
instrumentality.’
(5) ‘If the functions of the corporation are
of public importance and closely related to governmental functions, it would be
a relevant factor in classifying the corporation as an instrumentality or
agency of Government.’
(6) ‘Specifically, if a department of
Government is transferred to a corporation, it would be a strong factor
supportive of this inference of the corporation being an instrumentality or
agency of Government’.
If on a consideration of these relevant factors it is found that the corporation is an instrumentality or agency of Government, it would, as pointed out in International Airport Authority’s case, be an ‘authority’ and, therefore, ‘State’ within the meaning of the expression in article 12.” (p. 496)
9. In
Chander Mohan Khanna v. National Council of Educational Research & Training
[1991] 4 SCC 578, this Court while observing that there are only general
principles but not exhaustive tests to determine whether a body is an
instrumentality or agency of the Government and those which are not, emphasized
that the powers, functions, finances and control of the Government are some of
the indicating factors to answer such questions. The combination of State aid
coupled with an unusual degree of control over the management and policies of
the body and rendering of an important public service were considered vital to
point out that the body is ‘State’. Due caution was also administered that the
wide enlargement of the meaning must be tempered by wise limitation and mere State
control however vast and pervasive is not by itself determinative and the
financial contribution by the State is also not conclusive. In VST Industries
Ltd. v. VST Industries Workers’ Union [2001] 1 SCC 298, this Court was only
concerned with the question as to whether, a canteen run in the factory of the
company concerned pursuant to an obligation cast under section 46 of the
Industrial Disputes Act, 1947, can be said to constitute a person or authority
to attract judicial review under article 226 of the Constitution of India in
respect of its action/activities and the answer was that the company concerned
therein manufacturing and selling cigarettes or running the canteen for the
welfare of workmen was not performing any public activity, function or duty so
as to render it amenable to article 226. This, in our view, does not in any
manner help to support the stand of the appellant before us.
10. Instead
of multiplying reference to several authorities of decided cases, it would be
useful to advert to a latest decision of this Court rendered by a Constitution
Bench in Steel Authority of India Ltd. v. National Union Water Front Workers
[2001] 7 SCC 1, wherein while dealing with a claim, whether all Central
Government Undertakings which fall within the meaning of ‘other authorities’ in
article 12 of the Constitution of India are agents or instrumentalities of the
State functioning under the ‘authority’ of the Central Government to constitute
such Government to be the ‘appropriate Government’ for purposes of section
2(1)(a) of the Contract Labour (Regulation and Abolition) Act, 1970, and
section 2(a) of the Industrial Disputes Act, 1947, this Court adverted to the
relevant decisions and after an analytical consideration of the principles
therein observed as follows :
“31. In interpreting the said phrase, support
is sought to be drawn by the learned counsel for the contract labour from the
cases laying down the principles as to under what circumstances a Government
company or undertaking will fall within the meaning of ‘State or other
authorities’ in article 12 of the Constitution. We shall preface our discussion
of those cases by indicating that for purposes of enforcement of fundamental
rights guaranteed in Part III of the Constitution the question whether a Government
company or undertaking is ‘State’ within the meaning of article 12 is germane.
It is important notice that in these cases the pertinent question is
appropriateness of the Government—which is the appropriate Government within
the meaning of the Contract Labour (Regulation and Abolition) Act, whether, the
Central or the State Government, is the appropriate Government in regard to the
industry carried on by the Central/State Government company or any undertaking
and not whether such Central/State Government company or undertaking come
within the meaning of article 12. The word ‘State’ is defined in article 12
which is quoted in the footnote.
32. In Sukhdev Singh v. Bhagatram Sardar Singh
Raghuvanshi this Court, in the context whether service regulations framed by
statutory corporations have the force of law, by majority, held that the
statutory corporation, like ONGC, IFFCO, LIC established under different
statutes fell under ‘other authorities’ and were, therefore, ‘State within the
meaning of that term in article 12 of the Constitution. The Court took into
consideration the following factors, (a) they were owned, managed and could
also be dissolved by the Central Government; (b) they were completely under the
control of the Central Government; and (c) they were performing public or
statutory duties for the benefit of the public and not for private profit; and
concluded that they were in effect acting as the agencies of the Central
Government and the service regulations made by them had the force of law, which
would be enforced by the court by declaring that the dismissal of an employee
of the corporation in violation of the regulations, was void.
33. In Ramana Dayaram Shetty v. International
Airport Authority of India, a three-judge Bench of this Court laid down that
the corporations created by the Government for setting up and management of
public enterprises and carrying out public functions, act as instrumentalities
of the Government; they would be subject to the same limitations in the field
of constitutional and administrative laws as Government itself, though in the
eye of law they would be distinct and independent legal entities. There, this
court was enforcing the mandate of article 14 of the Constitution against the
respondent—a Central Government Corporation.
34. Managing Director, Uttar Pradesh State
Warehousing Corporation v. Vijay Narain Vajpayee, dealt with a case of
dismissal of the respondent-employee of the appellant-corporation in violation
of the principles of natural justice. There also the Court held the corporation
to be an instrumentality of the State and extended protection of articles 14
and 16 of the Constitution to the employee taking the view that when the
Government is bound to observe the equality clause in the matter of employment,
the corporations set up and owned by the Government are equally bound by the
same discipline.
35. In Ajay Hasia v. Khalid Mujib Sehravardi,
the question decided by a Constitution Bench of this Court was : whether the
Jammu and Kashmir Regional Engineering College, Srinagar, registered as a
society under the Jammu and Kashmir Registration of Societies Act, 1898, was
‘State’ within the meaning of article 12 of the Constitution so as to be
amenable to writ jurisdiction of the High Court. Having examined the memorandum
of association and the Rules of the society, the Court decided that the control
of the State and the Central Government was deep and pervasive and the society
was a mere projection of the State and the Central Government and it was,
therefore, an instrumentality or agency of the State and the Central Government
and as such an authority—State within the meaning of article 12.
36. The principle laid down in the
aforementioned cases that if the Government acting through its officers was
subject to certain constitutional limitations, a fortiori the Government acting
through the instrumentality or agency of a corporation should equally be
subject to the same limitations, was approved by the Constitution Bench and it
was pointed out that otherwise it would lead to considerable erosion of the
efficiency of the fundamental rights, for in that event the Government would be
enabled to override the fundamental rights by adopting the stratagem of
carrying out its function through the instrumentality or agency of a
corporation while retaining control over it. That principle has been
consistently followed and reiterated in all subsequent cases : see Delhi
Transport Corporation v. D.T.C. Mazdoor Congress, Som Prakash Rekhi v. Union of
India, Manmohan Singh Jaitla v. Commissioner, Union Territory, Chandigarh, P.K.
Ramachandra Iyer v. Union of India, A.L. Kalra v. Project & Equipment
Corporation of India Ltd., Central Inland Water Transport Corporation Ltd. v.
Brojo Nath Ganguly, C.V. Raman v. Bank of India, Lucknow Development Authority
v. M.K. Gupta, Star Enterprises v. City & Industrial Development
Corporation of Maharashtra Ltd., LIC of India v. Consumer Education &
Research Centre and G.B. Mahajan v. Jalgaon Municipal Council. We do not
propose to burden this judgment by adding to the list and referring to each
case separately.
37. We wish to clear the air that the
principle, while discharging public functions and duties the Government
companies/corporations/societies which are instrumentalities or agencies of the
Government, must be subjected to the same limitations in the field of public
law—constitutional or administrative law—as the Government itself, does not
lead to the inference that they become agents of the Central/State Government
for all purposes so as to bind such Government for all their acts, liabilities
and obligations under various Central and/or State Acts or under private law.”
(p. 25)
11. A
careful consideration of the principles of law noticed supra and the factual
details not only found illustrated from the memorandum as well as articles of
association of the appellant but enumerated from the day-to-day running of the
business and administration of the company leave no room for any doubt as to
the identity of the appellant-company being ‘other authority’ and,
consequently, ‘the State’ within the meaning of article 12 of the Constitution
of India. The said definition has a specific purpose and that is Part III of
the Constitution, and not for making it a Government or the Department of the
Government itself. This is the inevitable consequence of the ‘other
authorities’ being entities with independent status distinct from the State and
this fact alone does not militate against such entities or institutions being
agencies or instrumentalities to come under the net of article 12 of the
Constitution. The concept of instrumentality or agency of the Government is not
to be confined to entities created under or which owes its origin to any
particular statute or order but would really depend upon a combination of one
or more of relevant factors, depending upon the essentiality and overwhelming
nature of such factors in identifying the real source of governing power, if
need be, by piercing the corporate veil of the entity concerned.
12. The
indisputable fact that the appellant-company is a Government company as
envisaged in section 617 attracting section 619 of the Companies Act, that more
than 97 per cent of the share capital has been contributed by the State
Government and the financial institutions controlled and belonging to the
Government of India on the security and undertaking of the State Government,
that the amendments introduced to the memorandum of association in the year
1994 introducing articles 5A and 5B entrusts the appellant-company with important
public duties obligating to undertake, permit, sponsor rural development and
for social and economic welfare of the people in rural areas by undertaking
programmes to assist and promote activities for the growth of national economy
which are akin and related to the public duties of the State, that out of 12
directors 5 are Government and departmental persons, besides other elected
directors also are to be with the concurrence and nomination of the Government
and the various other form of supervision and control, as enumerated supra,
will go to show that the State Government had deep and pervasive control of the
appellant-company and its day-to-day administration, and consequently confirm
the position that the appellant-company is nothing but an instrumentality and
agency of the State Government and the physical form of company is merely a
cloak or cover for the Government. Despite best and serious efforts made on
behalf of the appellant, the decision under challenge has not been shown to
suffer any infirmity whatsoever to call for interference in our hands.
13. The appeals, therefore, fail and shall stand dismissed. No. costs.
[2003]
46 scl 153 (Bom.)
v.
Maharashtra Industrial And Technical Consultancy Organisation Ltd.
R.M.
Lodha and A.S. Aguiar, JJ.
February
26, 2003
Section 617 of the Companies Act, 1956, read
with article 12 of the Constitution of India - Government Company - Whether
question whether an entity is a State within meaning of article 12 has to be
decided by taking into consideration cumulative facts as established and that
whether State Government has deep and pervasive control over body in question -
Held, yes - Whether if control is merely regulatory, whether under statute or
otherwise, body would not be ‘State’ within meaning of article 12 - Held, yes -
Whether where there was nothing on record to indicate that State Government had
deep and pervasive control over respondent-company mere fact that prior to
1-6-1995, shares of respondent-company were held by Banks or Industrial Banks
Infrastructure Corporation and it was deemed Government company within meaning
of section 619B of Companies Act, would not make it Government company within
meaning of section 617 of Companies Act or State or ‘instrumentality of State’
within meaning of article 12 - Held, yes
The petitioner filed a writ petition under
article 226 seeking directions of the High Court to the respondent-company to
pay him the amount of arrears of salary along with other consequential
benefits. The petitioner claimed that the respondent-company was a deemed
Government company within the meaning of section 619B of the Companies Act, as
it was a joint venture of the ICICI, IDBI, IFCI and other corporations of the
State Government and nationalised banks and the entire share capital of the
said company was held by them and, therefore, the respondent-company was a
State or agency/instrumentality of the State within the meaning of article 12.
Unless the respondent fell within the meaning
of the ‘State’ or agency/instrumentality of the State within the meaning of
article 12, the claim of the petitioner did not deserve to be examined on
merits. Therefore, first it would be seen whether the respondent was a State or
agency/instrumentality of the State within the meaning of article 12 or not.
[Para 2]
In view of the several decisions of the
Supreme Court, the question whether an entity is a State within the meaning of
article 12 has to be decided by taking into consideration the cumulative facts
as established and that whether such body or entity is financially,
functionally and administratively dominated by or under the control of the
Government. In other words, whether the State Government has deep and pervasive
control over the body in question. If the control is merely regulatory, whether
under statute or otherwise, the body would not be a State within the meaning of
article 12. [Para 10]
As regards the respondent-company, nothing was
produced by the petitioner indicating formation of the respondent-company, its
objects and functions and management and control, which could lead one to hold
that the respondent-company was a State within the meaning of article 12. The
primary burden was on the petitioner to produce material to establish that the
respondent-company was a State within the meaning of article 12, which he had
failed to discharge. Mere fact that the shares of the respondent-company prior
to 1-6-1995 were held by banks or Industrial Banks Infrastructure Corporation
by itself would not make it State or agency or instrumentality of State within
meaning of article 12. There was nothing on record to indicate that the State
Government had deep and pervasive control over the respondent. Pertinently, the
respondent-company was not even a Government company within the meaning of
section 617. It was only a deemed Government company within the meaning of
section 619B, whereby the provisions of section 619 had been made applicable.
[Para 14]
That would not make the respondent-company a
State or agency or instrumentality of the State within the meaning of article
12. [Para 15]
After 1-6-1995, the respondent-company had
even ceased to be deemed Government company under section 619B because of
substantial change in the constitution and composition of its shareholders. The
status of the respondent-company, therefore, was no better than that of a
public limited company under the Companies Act. Such company was not and could
not be amenable to the writ jurisdiction under Article 226. [Para 16]
Since the respondent-company was not amenable
to the writ jurisdiction under article 226, it was not necessary to go into the
merits of the case set up by the petitioner as the writ petition had to be
dismissed on that ground alone. [Para 17]
The writ petition was to be dismissed
accordingly. [Para 18]
Rajasthan State Electricity Board v. Mohan Lal
AIR 1967 SC 1857 (para 5), Praga Tools Corpn. v. C.A. Imanual [1969] 1 SCC 585
(para 5), Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi [1975] 1 SCC 421
(para 5), Aja Hasia v. Khalik Mujib Sehravandi [1981] 1 SCC 722 (para 5), Som
Prakash Rekhi v. Union of India [1981] 1 SCC 449 (para 5), Ramana Dayaram
Shetty v. International Airport Authority of India AIR 1979 SC 1628 (para 5),
B.S. Minhas v. Indian Statistical Institute [1983] 4 SCC 582 (para 5), Central
Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly AIR 1986 SC 1571 (para
5), Chander Mohan Khanna v. National Council of Educational Research &
Training [1991] 4 SCC 578 (para 5), All India Sainik Schools Employees
Association v. Defence Minister-cum-Chairman, Board of Governors, Sainik
Schools Society [1989] Suppl. (1) SCC 205 (para 5), Mysore Paper Mills Ltd. v.
Mysore Paper Mills Officers Association [2002] 2 SCC 167 (paras 5 and 7) and
Pradeep Kumar Biswas v. Indian Institution of Chemical Biology [2002] 5 SCC 111
(para 5).
P.K. Hushing for the Petitioner. S.K. Talsania, Manilal Kher and Ambalal
for the Respondent.
R.M. Lodha, J. - By this writ petition filed under Article
226 of the Constitution of India, the petitioner prays for direction to
respondent to pay him amount of arrears of salary from June 1993 until
September 1993, the gratuity, provident fund, etc. with interest at the rate of
21 per cent per annum from1-10-1993 till actual payment of the entire amounts
due and further direction to respondents to pay the petitioner’s amount of Rs.
14,000 towards encashment of earned leave for 46 days with interest at the rate
of 21 per cent per annum from 1-10-1993 till actual payment of the same and
also direction to respondents to settle the account of the petitioner in
respect of other allowances such as leave travel allowance, travelling allowance
maintenance of the office cum residence, medical reimbursement.
2. The
respondent is Maharashtra Industrial and Technical Consultancy Organisation
Limited. Unless the respondent falls within the meaning of the State or
Agency/instrumentality of the State within the meaning of Article 12 of the
Constitution of India, the claim of the petitioner does not deserve to be
examined on merits. We shall, therefore, first see whether Maharashtra
Industrial and Technical Consultancy Organisation Limited (respondent) is a
State or Agency/instrumentality of the State within the meaning of Article 12
of Constitution or not.
3. In
this regard, the averment made by the petitioner is that the respondent is deemed
Government company registered under the Companies Act; it is a joint venture of
the Industrial Credit and Investment Corporation of India (ICICI), Industrial
Development Bank of India (IDBI), Industrial Finance Corporation of India
(IFCI) and other Corporations of the Government of Maharashtra and Nationalised
Banks and the entire share capital is held amongst themselves. It is on this
basis alone that according to the petitioner the respondent is a State or
Agency/instrumentality of the State within the meaning of Article 12 of the
Constitution of India.
4. The
respondent has, however, denied that it is a State within the meaning of
Article 12 of the Constitution of India. Though it is not in dispute that until
1-6-1995 the respondent-company was a deemed Government company under section
619B of Companies Act, but the State Government has had no control over the
affairs of the said company much less deep and pervasive control. It is
submitted that it is not a Government undertaking in any sense and the only
fact that it has equity from Banks and Industrial Infrastructure Corporation
does not make it covered under Article 12. It gets no grant for its survival.
It has to earn its livelihood through fee base income. The company does not
discharge any public function nor public duty nor any public function or duty
is cast upon it by the State or by Government orders. Even otherwise, it is
submitted that after 1-6-1995, the respondent-company has ceased to be deemed
Government company even under section 619B of the Companies Act as composition
and constitution of the shareholders of the company have undergone substantial
change. It is, thus, submitted that the respondent-company is not amenable to
writ jurisdiction.
5. The
question whether a Body, Association, Corporation or Company is State or
agency/instrumentality covered under Article 12 had been matter of debate in
large number of cases before Supreme Court from time to time. A few important
decisions in this regard being Rajasthan State Electricity Board v. Mohan Lal
AIR 1967 SC 1857; Praga Tools Corpn. v. C.A. Imanual [1969] 1 SCC 585 ; Sukhdev
Singh v. Bhagatram Sardar Singh Raghuvanshi [1975] 1 SCC 421; Aja Hasia v.
Khalik Mujib Sehravandi [1981] 1 SCC 722; Som Prakash Rekhi v. Union of India
[1981] 1 SCC 449; Ramana Dayaram Shetty v. International Airport Authority of
India AIR 1979 SC 1628; B.S. Minhas v. Indian Statistical Institute [1983] 4
SCC 582; Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly AIR
[1986] SC 1571; Chander Mohan Khanna v. National Council of Educational
Research & Training [1991] 4 SCC 578; All India Sainik Schools Employees
Association v. Defence Minister-cum-Chairman, Board of Governors, Sainik
Schools Society [1989] Suppl. (1) SCC 205; Mysore Paper Mills Ltd. v. Mysore
Paper Mills Officers Association [2002] 2 SCC 167; and Pradeep Kumar Biswas v.
Indian Institution of Chemical Biology [2002] 5 SCC 111. We do not intend to
burden our judgment by referring to all those judgments since in our view
consideration of two recent judgments wherein all these judgments have been
considered would bring home the point we want to convey.
6. In
Mysore Paper Mills Ltd.’s case (supra) inter alia the question posed before the
Apex Court, whether Mysore Paper Mills which was a company incorporated under
the Companies Act, 1956 and was a Government Company as defined in section 617
of the Companies Act was covered within the meaning of the word ‘State’ as
defined in Article 12 of the Constitution of India. In that case, in the judgment
of the High Court as noted by the Apex Court the following facts were adverted
before its status was held as of ‘State’ within the meaning of Article 12 :
“(a) That the appellant-company
is a governmental company as per section 617 of the Companies Act, 1956.
(b) The declared objects of the
company viz. 1, 1A, 3, 4, 4A, 5, 5A and 5B established that the company has
been entrusted within an important function of public interest closely related
to governmental functions and it enjoys monopoly status, which is
State-conferred.
(c) The functions entrusted to
the appellant-company go to show that the Government operates behind a
corporate veil carrying out governmental functions of vital importance and
therefore, there is no difficulty in identifying the appellant-company to be
‘State’ within the meaning of article 12 of the Constitution of India.
(d) The summarized balance
sheets for the years 1993-94,1994-95 and 1995-96 disclosed that more than 97%
of the share capital has been contributed by the State of Karnataka and the
financial institutions controlled and belonging to the Government of India.
(e) The business of the Company
which has to be managed by the Board of Directors (Article 114 of the articles
of association) shall have the Chairman of the Board and Managing Director
(article 119) and four Directors of whom one will be the Chairman will be
nominated by the Government of Karnataka who shall not retire by rotation or be
removed from office except under the orders of the Government of Karnataka (article
94). The Directors to whom the management is entrusted shall not be more than
12 or less than 9, inclusive of the Government nominees and nominees of the
financial institutions noticed under article 94A and not only such nominees of
financial institutions hold office so long as moneys remain owed to those
institutions or those institutions hold debentures in the company as a result
of direct subscription or private placement, but the Board also has no powers
to remove them during such period.
(f) The appellant-company is
found to be under the control of the Government of Karnataka - sometimes
directly and sometimes through the machinery of Karnataka State Bureau of
Public Enterprises in respect of matters entrusted to it; as disclosed from the
book published by the Department of Personnel and Administration Reforms of the
Government of Karnataka.
(g) Apart from the Directors
who are nominees of the Government and the financial institutions controlled by
the Central Government even the elected directors were also to be nominated by
the Government of Karnataka and one cannot become a director of the
appellant-company without the concurrence or nomination by the Government.
(h) Appointment of several
officers, playing vital role in the day-to-day administration of the company
can be done only with the prior permission or approval of the Government of
Karnataka. The general manager also may be appointed on such terms and
remunerations as may be fixed, only subject to the approval of the Government
of Karnataka.
(i) For any investment or
expenditure above Rs. 25 lakhs the approval of the Government of Karnataka is
required. Any revision of pay scales and allowances of employees and officers
also have to be done only with the approval of KSBPE. Recruitments to posts
carrying pay scales above Rs. 4,700 can only be with the permission of the
Government and reservation policies under Article 16(4) of the Constitution are
also applicable to recruitments by the company. Deputation to Government and
vice versa are also permitted. All foreign tours of officers have to be
approved by the Government.
(j) All loans taken by the appellant-company are guaranteed by the
Government of Karnataka.
(k) The Company Secretary of
the appellant-company has in his communication Annexure ‘GGG’ declared that the
same is an undertaking under the control of the Government of Karnataka.” (p.
171)
7. The
Apex Court in paragraph 11 of the report observed, The concept of
instrumentality or agency of the Government is not to be confined to entities
created under or which owes its origin to any particular statute or order but
would really depend upon a combination of one or more of relevant factors,
depending upon the essentiality and overwhelming nature of such factors in
identifying the real source of governing power, if need be, piercing the
corporate veil of the entity concerned. In respect of facts obtaining with
regard of Mysore Paper Mills in paragraph 12 it was held thus :
“12. The
indisputable fact that the appellant-company is a Government company as
envisaged in section 617 attracting section 619 of the Companies Act, that more
than 97 per cent of the share capital has been contributed by the State
Government and the financial institutions controlled and belonging to the Government
of India on the security and undertaking of the State Government, that the
amendments introduced to the memorandum of association in the year 1994
introducing articles 5A and 5B, entrusts the appellant-company with important
public duties obligating to undertake, permit, sponsor rural development and
for social and economic welfare of the people in rural areas by undertaking
programmes to assist and promote activities for the growth of national economy
which are akin and related to the public duties of the State, that out of 12
directors 5 are Government and departmental persons, besides other elected
directors also are to be with the concurrence and nomination of the Government
and the various other forms of supervision and control, as enumerated supra,
will go to show that the State Government has deep and pervasive control of the
appellant-company and its day-to-day administration, and consequently confirm
the position that the appellant-company is nothing but an instrumentality and
agency of the State Government and the physical form of the company is merely a
cloak or cover for the Government. Despite best and serious efforts made on
behalf of the appellant, the decision under challenge has not been shown to
suffer from any infirmity whatsoever, to call for interference in our hands.”
(p. 178)
8. In
unmistakable terms it was thus held by the Apex Court that the State Government
of Karnataka has deep and pervasive control of the Mysore Paper Mills and its
day-to-day administration and accordingly it confirmed the finding of the High
Court that the said company viz. Mysore Paper Mills was nothing but an
instrumentality or agency of the State and the physical form of the company is
merely a cloak or cover for the Government.
9. The
seven Judge Bench of the Supreme Court in Pradeep Kumar Biswas was dealing with
the question whether the Council for Scientific and Industrial Research (CSIR)
is a State within the meaning of Article 12 of the Constitution of India.
Paragraph 40 of the majority judgment reads :
“40. The
picture that ultimately emerges is that the tests formulated in Ajay Hasia are
not a rigid set of principles so that if a body falls within any one of them it
must, ex hypothesi, be considered to be a State within the meaning of Article
12. The question in each case would be whether in the light of the cumulative
facts as established, the body is financially, functionally and
administratively dominated by or under the control of the Government. Such
control must be particular to the body in question and must be pervasive. If
this is found then the body is a State within Article 12. On the other hand,
when the control is merely regulatory whether under statute or otherwise, it
would not serve to make the body a State.”
10. The
majority view of the Supreme Court, thus, emphasises that the question, whether
an entity is a State within the meaning of Article 12 has to be decided by
taking into consideration the cumulative facts as established and that whether
such body or entity is financially, functionally and administratively dominated
by or under the control of the Government. In other words, whether the State
Government has deep and pervasive control to the body in question. If the
control was merely regulatory, whether under Statute or otherwise, the body would
not be a State within the meaning of Article 12. The formation of CSIR was
noted in paragraph 42 of the report and its objects and functions are noted in
paragraph 44 of the report which read thus :
“42. On 27-4-1940,
the Board of Scientific and Industrial Research and on 1-2-1941, the Industrial
Research Utilisation Committee, were set up by the Department of Commerce,
Government of India with the broad objective of promoting industrial growth in
this country. On 14-11-1941 a Resolution was passed by the Legislative Assembly
and accepted by the Government of India to the following effect :
‘This Assembly
recommends to the Governor-General-in-Council that a fund called the Industrial
Research Fund be constituted, for the purpose of fostering industrial
development in this country and that provision be made in the budget for an
annual grant of rupees ten lakhs to the fund for a period of five years.’
44. The 26-9-1942 Resolution had provided that the functions of CSIR
would be :
(a) to implement and give
effect to the following resolution moved by the Hon’ble Dewan Bahadur Sir A.R.
Mudaliar and passed by the Legislative Assembly on 14-11-1941 and accepted by
the Government of India . . . . (quoted earlier in this judgment).
(b) the promotion, guidance and
co-ordination of scientific and industrial research in India including the
institution and the financing of specific researches;
(c) the establishment or
development and assistance to special institutions or department of existing
institutions for scientific study of problems affecting particular industries
and trade;
(d) the establishment and award of research studentships and
fellowships;
(e) the utilisation of the
results of the researches conducted under the auspices of the Council towards
the development of industries in the country and the payment of the share of
royalties arising out of the development of the results of researches to those
who are considered as having contributed towards the pursuit of such
researches;
(f) the establishment,
maintenance and management of laboratories workshops, institutes and
organisation to further scientific and industrial research and utilize and
exploit for purposes of experiment or otherwise any discovery or invention likely
to be of use to Indian industries;
(g) the collection and
dissemination or information in regard not only to research but to industrial
matters generally;
(h) publication of scientific papers and a journal of industrial
research and development; and
(i) any other activities to promote generally the objects of the
resolution mentioned in (a) above.”
11. As
regards, “Management and Control” in paragraphs 48 and 49 of the report, the
majority judgment noted thus :
“48. When the
Government of India resolved to set up CSIR on 26-2-1942, it also decided that
the Governing Body would consist of the following members :
(1) The Honourable Member of
the Council of his Excellency the Governor-General in charge of the portfolio
of Commerce (Ex Officio).
(2) A representative of the
Commerce Department of the Government of India, appointed by the Government of
India.
(3) A representative of the
Finance Department of the Government of India, appointed by the Government of
India.
(4) Two members of the Board of Scientific and Industrial Research
elected by the said Board.
(5) Two members of the Industrial Research Utilisation Committee
elected by the said Committee.
(6) The Director of Scientific and Industrial Research.
(7) One or more members to be
nominated by the Government of India to represent interests not otherwise
represented.
49. The present Rules and Regulations, 1999 of CSIR provide that :
“(a) The Prime Minister of India shall be the ex officio President of
the Society.
(b) The Minister in charge of the
ministry or department, dealing with the Council of Scientific and Industrial
Research shall be the ex officio Vice-President of the Society :
Provided that
during any period when the Prime Minister is also such Minister, any person
nominated in this behalf by the Prime Minister shall be the Vice-President.
(c) Minister in charge of Finance and Industry (ex officio).
(d) The members of the Governing Body.
(e) Chairman, Advisory Board.
(f) Any other person or persons appointed by the President, CSIR.
The Governing Body of the Society is constituted by the :
(a) Director General;
(b) Member Finance;
(c) Directors of two national laboratories;
(d) Two eminent Scientists/Technologists, one of whom shall be from
academia;
(e) Heads of two scientific departments/agencies of the Government
of India.”
12. The aspect of financial aid
was noted in paragraph 55 of the report which reads thus :
“55. The
initial capital of CSIR was Rs. 10 lakhs, made available pursuant to the
Resolution of the Legislative Assembly on 14-11-1941. Paragraph 5 of the
26-9-1942 Resolution of the Government of India pursuant to which CSIR was
formed reads :
“The
Government of India have decided that a fund, viz., the Industrial Research
Fund, should be constituted by grants from the Central revenues to which
additions are to be made from time to time as moneys flow in from other
sources. These ‘other sources’ will comprise grants, if any, by Provincial
Government, by industrialists for special or general purposes, contributions from
universities or local bodies, donations or benefactions, royalties, etc.,
received from the development of the results of industrial research, and
miscellaneous receipts. The Council of Scientific and Industrial Research will
exercise full powers in regard to the expenditure to be met out of the
Industrial Research Fund subject to its observing the bye-laws framed by the
Governing Body of the Council, from time to time, with the approval of the
Governor-General-in-Council, and to its annual budget being approved by the
Governor-General-in-Council.”
13. In
the light of the review of the judicial opinion as noted in the judgment, the
majority view ultimately held that CSIR was a State within the meaning of
Article 12 of the Constitution of India.
14. As
regards the respondent-company nothing is produced by the petitioner indicating
formation of the respondent-company, its objects and functions and management
and control which may lead us to hold that respondent-company is a State within
the meaning of Article 12. The primary burden was on the petitioner to produce
material to establish that the respondent-company was a State within the
meaning of Article 12, of the Constitution of India, which he has failed to
discharge. Because the shares of the respondent-company prior to 1-6-1995 were
held by Banks or Industrial Banks Infrastructure Corporation by itself would
not make it State or agency or instrumentality of State within meaning of
Article 12 of the Constitution of India. There is nothing on record to indicate
that the State Government has deep and pervasive control over the respondent.
Pertinently the respondent-company is not even a Government company within the
meaning of section 617 of the Companies Act. It is only a deemed Government
company within the meaning of section 619B of the Companies Act whereby the
provisions of section 619 have been made applicable. Sections 619 and 619B of
the Companies Act read thus :
“619.
Applications of sections 224 to 233 to Government companies.—(1) In the case of
a Government company, the following provisions shall apply, notwithstanding
anything contained in sections 224 to 233.
(2) The
auditor of a Government company shall be appointed or re-appointed by the
Comptroller and Auditor-General of India;
Provided that
the limits specified in sub-sections (1B) and (1C) of section 224 shall apply
in relation to the appointment or re-appointment of an auditor under this
sub-section.
(3) The comptroller and auditor-general of India shall have power—
(a) to direct the manner in
which the company’s accounts shall be audited by the auditors appointed in
pursuance of sub-section (2) and to give such auditor instructions in regard to
any matter relating to the performance of his functions as such;
(b) to conduct a supplementary or
test audit of the company’s accounts by such person or persons as he may
authorise in this behalf; and for the purposes of such audit, to require
information or additional information to be furnished to any person or persons,
so authorised, on such matters, by such person or persons, and in such form, as
the comptroller and auditor-general may, by general or special order, direct.
(4) The
auditor aforesaid shall submit a copy of his audit report to the Comptroller
and Auditor-General of India who shall have the right to comment upon, or
supplement, the audit report in such manner as he may think fit.
(5) Any such
comments upon, or supplement to, the audit report shall be placed before the
annual general meeting of the company at the same time and in the same manner
as the audit report.
619B.
Provisions of section 619 to apply to certain companies.—The provisions of
section 619 shall apply to a company in which not less than fifty-one per cent
of the paid-up share capital is held by one or more of the following or any
combination thereof, as if it were a Government company, namely :—
(a) the Central Government and one or more Government companies;
(b) any State Government or Governments and one or more Government
companies;
(c) the Central Government, one or more State Governments and one
or more Government companies;
(d) the Central Government and
one or more corporations owned or controlled by the Central Government;
(e) the Central Government, one
or more State Government and one or more corporations owned or controlled by
the Central Government;
(f) one of more corporations owned or controlled by the Central
Government or the State Government;
(g) more than one Government company.”
15. What
is provided by section 619B is that the provisions of section 619 shall be
applicable to a company wherein not less than 51 per cent of the paid up share
capital is held by one or more of the combinations provided in clauses (a) to
(g). In case of the respondent-company prior to 1-6-1995 though it was covered
by clause (g) of section 619B as its shareholding was held by more than one
Government company and accordingly section 619 was applicable to it but that
does not make it Government company within the meaning of section 617. It is
deemed to be Government company only for the purposes of section 619 and as a
result of which sections 224 to 233 pertaining to audit of the company
applicable to Government companies were also applicable to it. We are afraid,
this would not make the respondent-company a State or agency or instrumentality
of State within the meaning of Article 12 of the Constitution of India.
16. Besides
that from reply affidavit filed on behalf of respondent company, it transpires
that after 1-6-1995 the respondent-company has even ceased to be deemed Government
company under section 619B of Companies Act because of substantial change in
the Constitution and composition of its shareholders. The status of the
respondent-company, therefore, today is no better than a public limited company
under the Companies Act. We are afraid, such company is not and cannot be
amenable to the writ jurisdiction under Article 226 of the Constitution of
India.
17. Since
the respondent-company is not amenable to the writ jurisdiction under Article
226 of the Constitution of India, we do not deem it necessary to go into the
merits of the case set up by the petitioner as the writ petition has to be
dismissed on that ground alone.
18. Writ petition is,
accordingly, dismissed. Rule is discharged. No costs.
v.
Shri Ambica Mills Ltd.
M.M. PUNCHHI AND K.
VENKATASWAMI JJ.
OCTOBER 17, 1997
Dhruv Mehta, Ms. Monica Mehta and S.K. Mehta for the
Appellant.
P.H. Parekh, Amit Dhingra and C.V. Subba Rao for the
Respondent.
K.
Venkataswami J.—This appeal
by special leave is directed against the Division Bench judgment of the Gujarat
High Court dated February 7, 1985. The brief facts concerning the case are
given below.
The first
respondent-company is engaged in the manufacture of steel tubes through its
Ambica Tubes Division. For the purpose of manufacture of steel tubes, hot
rolled strips in coils are required as raw material. These hot rolled strips were
being supplied at the relevant time to the manufacturers of steel tubes like
Ambica Tubes (hereinafter referred to as "the importer") through the
appellant subject to certain conditions. The manufacturers who are given raw
materials must possess the import licence and have to carry out certain export
obligations. The obligations concerning this for the period in question,
namely, April, 1983, to March, 1984, were given in the import and export policy
for that period. Previously, a public notice in respect of the scheme for
supply of raw material by the Steel Authority of India Ltd. (hereinafter called
"the SAIL") against advance import licences was issued on December
11, 1982. For the period 1983-84, it was announced, the scheme published on December
11, 1982, would be continued. According to that, the importer becomes eligible
for supply of goods on compliance with the conditions fixed in the scheme, in
particular, the conditions of producing advance licences, duty exemption
entitlement certificate, legal undertaking/execution of export bond and
furnishing of irrevocable letter of credit. The appellant as an indigenous
supplier under the aforesaid Import and Export Policy for 1983-84 made an
announcement of the prices at which the raw material will be supplied. That
announcement was published in the Economic Times on June 10, 1983, under the
caption "Scheme for supply of certain categories of indigenously produced
steel materials at competitive prices against valid import licences".
Pursuant to
the abovesaid announcement, the importer submitted licences requiring supply of
about 3768 tonnes of hot rolled strips in coils. It was found that the licence
submitted by the importer (Ambica Tubes) did not mention that it was an advance
import licence nor was it accompanied by the duty exemption entitlement
certificate and the bond. In addition to the submission of licences, the said
Ambica Tubes however submitted a letter of credit dated August 19, 1983, on the
same date, namely, August 20, 1983. In the letter of credit also there were
certain infirmities and when the same was pointed out, it was rectified and
submitted before August 25, 1983.
On receipt of
the licence and the letter of credit, the appellant by a telex message dated
August 23, 1983, pointed out the defects in the licence/release order and also
stated that in view of the defects, the appellant is not taking any action on
the letter of credit for the present.
In reply to
the telex message, Ambica Tubes sent a letter on the same date (August 23,
1983), informing the appellant that the original release order in duplicate and
the duty exemption entitlement certificate booklet had been submitted to the
joint controller at Ahmedabad and would be sent to the Bombay SAIL office on
receipt of the same. The relevant documents after carrying out the corrections
were factually furnished to the appellant by Ambica Tubes only on August 26,
1983. In the meanwhile, the appellant enhanced/revised the price of their
supplies (steel materials) from Rs. 2,460 to Rs. 2,750 per metric tonne on and
from August 25, 1983. Since the relevant documents after carrying out the
corrections with necessary enclosures were received by the appellant only on
August 26, 1983, the importer (Ambica Tubes) was required to pay the price for the
release of steel materials at the revised rate, namely, Rs. 2,750 per metric
tonne.
Ambica Tubes
made representations that they having submitted letter of credit and the
necessary documents, though defective, well before August 25, 1983, the revised
charges should not have been applied. The appellant gave a detailed reply to
the representation of the importer. The importer moved the Gujarat High Court
on June 18, 1984, for quashing the announcement made by SAIL revising the price
and for a direction that the supplies must have been made at the pre-revised
price and for consequential refund of the difference between the pre-revised
and revised prices. The appellant resisted the writ petition by filing a
detailed reply to the affidavit filed in support of the writ petition.
The High
Court proceeding on a wrong premise, namely, that SAIL (appellant) was a
department of Union of India but its administration is run separately in the
interest of efficiency; held that the importer (Ambica Tubes) was not
responsible for the defects pointed out in the licence/release order and it was
the office of the Joint Chief Controller of Imports and Exports alone who was
responsible for the defects for which the importer should not be punished. In
other words, the High Court was of the view that the licence though defective
must be deemed to have been presented on August 20, 1983, long before the
revised price was announced. Therefore, the appellant was not entitled to
charge for the supply of raw materials at the revised rate. The High Court also
directed the refund of the difference between the pre-revised and the revised
rates. The High Court further observed that the action of the appellant
"in not registering the petitioners' indent No. 7 of 1983, dated August
19, 1983, latest on August 24, 1983, was an action bad at law, arbitrary and
unreasonable".
We are not
concerned with the other reliefs granted against the Union of India in this
appeal.
Though the main
relief in the writ petition was the challenge to the right of SAIL to fix the
price from time to time, the High Court left open that issue without deciding the same. The
entire reasoning of the High Court is found in paragraph 16 of its judgment
which reads as follows:
"16. We
have analysed the facts above very clearly and held that the petitioners had
done whatever was required to be done by them. They had procured the release
order in time. One hand of the Government acting in the joint controller's office
committed some blunders because of the lackadaisical fashion in which the
things are handled there. It forgot to mention about the duty exemption
entitlement certificate. It forgot to mention that it is an advance release
order, though the covering letter did mention it. The petitioners no doubt got
these things rectified, but because of the communication difficulties, there
was a delay of a day or two. How can that fortuitous circumstance be exploited
by SAIL by seeking a pound of flesh? They should have seen reason and should
not have chastised this petitioner-company for the faults of the employees of
the very Union of India, their masters. Such amendments required to be made
later on because of the negligence and carelessness of the employees of the
Union of India are to be legitimately treated as having been effected
retroactively. This is the only reasonable and rational way of looking at
things. Negligence of one branch of the Union of India cannot be capitalised by
another branch of the very Union of India. This action is per se arbitrary,
capricious and whimsical. Such an illegal action is taken by the Ahmedabad
office or the Bombay office. Another reasonable office of this very SAIL say at
Madras or Bangalore would not do such things and citizens like the petitioners
there would be favourably treated. In this sense of the term, it could be said
that a possibly inconsistent stand, and, therefore, discriminatory stand, can
be there in the action of respondent No. 1. On this short ground, the petition
of the petitioners can be allowed, because we hold that this executive power
has been exercised by the SAIL absolutely unreasonably and capriciously. There
was not an iota of justification for them to sit tight on that date August 24,
1983, and all that was required to be done was done by these petitioners. If
such things are allowed to go, it would set a very bad example in the working
of the rule of law in practical and final analysis. It is because of this
necessity of striking down the action of the public authority, namely, the
SAIL, that we are inclined to entertain this petition and decide it and if for
that purpose we have to strike a departure from the normal rule of not
entertaining even money claims, we would very willingly do so, so that such
actions would not be repeated in future. We, however, add that here essentially
the challenge was to the right of fixation of price at any capricious time and
that was the subject-matter of the petition, but we are not required to go into
it and, therefore, we do not go into it. Otherwise, much could be said in
favour of the petitioners when they contend that the prices are required to be
fixed quarterly. The term 'quarterly' would mean every three months and the
SAIL has fixed the price on December 11, 1982, March 14, 1983, June 7, 1983 and
March 25, 1983, and had we been required to decide this question, we would have
in all probability interpreted clause 6 read with clause 10 to mean that the
prices are to be fixed for the period of three months and they are to remain
operative for that period, but we are not to be understood to have expressed
any final opinion on that point because the ultimate relief of the petitioners
can be granted without deciding the point."
Aggrieved by
the judgment of the High Court, the present appeal is filed by the SAIL.
Mr. Dhruv
Mehta, learned counsel appearing for the appellants, submitted that the High
Court erred in assuming that the appellant was a department of the Union of
India forgetting totally that it is a company incorporated under the Companies
Act and it is a separate entity, notwithstanding the fact that the company is
entirely owned by the Government of India. It will not be a wing/department of
the Government. In support of his contention, he placed reliance on the
judgments of this court in Dr. S.L. Agarwal v. General Manager, Hindustan Steel
Ltd., AIR 1970 SC 1150 and Western Coalfields Ltd. v. Special Area Development
Authority, AIR 1982 SC 697. He also submitted that in the absence of a decision
regarding the power of SAIL to revise the price list from time to time, the
relief given by the High Court would amount to refund of money by exercising
the jurisdiction under article 226 which is against the ruling of this court in
Suganmal v. State of Madhya Pradesh [1965] 56 ITR 84; AIR 1965 SC 1740; 16 STC
398. He also submitted that the importer being a party to the contract and
having paid the price as revised and taken delivery of the goods cannot now
turn around and challenge the action of the SAIL by invoking the writ
jurisdiction under article 226 of the Constitution of India. In support of this
submission, he placed reliance on a judgment of this court in Har Shankar v.
Dy. Excise and Taxation Commissioner [1975] 1 SCC 737.
He also placed
reliance on other judgments of this court in Radhakrishna Agarwal v. State of
Bihar, AIR 1977 SC 1496, State of Orissa v. Narain Prasad [1996] 5 SCC 740 and
Assistant Excise Commissioner v. Issac Peter [1994] 4 SCC 104.
On the facts,
Shri Dhruv Mehta, learned counsel for appellant, submitted that on the admitted
position that the documents, namely, licence/release order after rectification
having been furnished only on August 26, 1983, the importer cannot claim the
application of the pre-revised price on the ground that the mistake, if at all,
was on the part of the office of the Joint Chief Controller of Imports and
Exports and, therefore, it should not be penalised. According to learned
counsel, the conditions of the scheme published enable the appellant to insist
upon all the documents to be furnished before release of the raw material. The
SAIL was not concerned with the party responsible for the defect in the
document. Therefore, the High Court was not justified in making certain
observations against the appellant. According to Mr. Dhruv Mehta, the appeal
should be allowed.
Mr. Parekh,
learned counsel appearing for the first respondent, placing reliance on para.
2.3 of the scheme announced on June 10, 1983, submitted that the letter of
credit having been furnished after rectifying the defects before August 25,
1983, the importer is entitled to get the supplies at the pre-revised rate
notwithstanding the defects in the licence/release order as the importer was
not responsible for the defects. He also submitted that the High Court was well
within its jurisdiction in entertaining the writ petition and granting the
relief. According to learned counsel, the judgment under appeal does not call
for any interference by this court.
Before
considering the rival submissions, it is necessary to set out the relevant
paragraphs in the scheme announced on June 10, 1983.
"2.2 When
a valid and eligible import licence is surrendered by an import licence holder
to the concerned office of SAIL for supply of materials under this scheme, the
approximate quantity of the material which can be supplied against the import
licence will first be determined keeping in view (a) the utilised value
available on the licence, (b) the price of the concerned item as announced by
SAIL for supply under this scheme. Thereafter, the import licence holder will
be requested by the concerned office of SAIL to make appropriate financial
arrangements taking into account, besides (a) and (b) mentioned above, the
approximate amount of duties/taxes/levies, etc., chargeable on such supplies.
The actual supply will be restricted to the quantity which can be supplied
against the surrendered import licence provided the amount for which financial
arrangements are made permits the same."
Para. 2.3
reads as1 follows:
"2.3. The
price as announced for supply of materials under this scheme shall be subject
to periodic revisions. The prices chargeable shall be the prices ruling on the
date of delivery which shall be the date of the railway receipt in the case of
direct dispatches by rail and the date of the delivery challan of SAIL's
stockyard in the case of ex-yard delivery, except in the following cases where
the chargeable prices shall be the prices ruling on the date on which
acceptable and operative financial arrangements are made in favour of SAIL by
import licence holders eligible to get supplies under this scheme.
(a) Where the financial arrangement made in
favour of SAIL is such that it enables SAIL to effect dispatches on a
continuing basis without any restrictions about delivery schedule ; this will
also include an irrevocable confirmed automatic revolving letter of credit
(L/C) without recourse to the drawer which would enable SAIL to effect
dispatches on a continuing basis without quantitative or other restrictions.
(b) Where the financial arrangement made in
favour of SAIL is such that despatches have to be completed within a period of
three months from the date on which the financial arrangement became operative
but is for a quantity less than the tonnage covered by the import licence, the
despatches shall be restricted to the quantity covered by the financial
arrangement.
(c) In all cases, the interpretation and
decisions of SAIL as to the acceptability, adequacy, effectiveness and
operativeness of the financial arrangement made by eligible import licence
holders in favour of SAIL for supply of materials under this scheme shall be
final and binding."
Coming to the
merits of the case, we accept the contention of learned counsel for the
appellant that the High Court went wrong in holding that SAIL was a department
of the Union of India. In Dr. S.L. Agarwal v. General Manager, Hindustan Steel
Ltd., AIR 1970 SC 1150, 1153 a Constitution Bench of this court, while
considering a similar question, held as follows:
"We must,
therefore, hold that the corporation which is Hindustan Steel Limited in this
case is not a department of the Government nor are the servants of it holding
posts under the State. It has its independent existence and by law relating to
corporations, it is distinct even from its members."
In Western
Coalfields Ltd. v. Special Area Development Authority, AIR 1982 SC 697, 704
this court held as follows:
"It is
contended by the Attorney-General that since the appellant-companies are wholly
owned by the Government of India, the lands and buildings owned by the
companies cannot be subjected to property tax. A The short answer to this
contention is that even though the entire share capital of the
appellant-companies has been subscribed by the Government of India, it cannot
be predicated that the companies themselves are owned by the Government of
India. The companies which are incorporated under the Companies Act have a
corporate personality of their own, distinct from that of the Government of
India. The lands and buildings are vested in and owned by the companies, the
Government of India only owns the share capital."
In view of the
above decisions of this court, we have no hesitation to hold that the High
Court erred in thinking that SAIL was a department of the Union of India and
most of the reasons given in the judgment are based on this wrong premise.
The importer
in this case, it is an admitted fact, is a registered exporter of steel pipes
entitled to priority allotment of steel either through imports or from
indigenous plants like the appellant. The allotment of steel was for
manufacture of steel pipes for export against advance licence granted to the
importer from time to time. During the relevant period, hot rolled strips in
coils manufactured by plants under SAIL were available in sufficient quantity
and hence the direct imports of the raw materials were banned and the
manufacturers were required to obtain the supplies of the raw materials from
the appellant against the import licences with them and/or release orders issued
by the licensing authority, namely, the Chief Controller of Imports and
Exports.
Various
categories of licences are granted for the purpose of imports to the
manufacturers. One such licence was advance licence. Paragraph 149 of the
Import Policy provided for grant of advance licence/imprest licences and the
relevant part of paragraph 149 reads "the term advance licence refers to
cases where the import is allowed under the duty exemption scheme whereas the
term "imprest licence" will be used where the import is allowed
outside the duty exemption scheme. The advance licences, it is stated, which
include release orders are intended to supply import input or inputs in short
supply for export production. It is also stated that the licensing authority
issuing the advance licences will simultaneously issue the collected duty
exemption entitlement certificate. The policy does not provide for issuance of
advance licence without duty exemption."
Bearing the
abovesaid facts in mind, let us now consider the issue raised before us.
Admittedly
when the importer wanted to register the indent for supply of hot rolled strips
in coils, the licences/release orders produced lacked in material particulars
and relevant enclosures. In other words, the licence did not mention that it
was an advance licence and no duty exemption entitlement certificate was
enclosed and legal undertaking/exemption of export bond was also not enclosed.
It was on this admitted position, the appellant declined to register the indent
of the importer. No doubt, the mistake was committed by the licensing
authority. Does that mean that the appellant can ignore the lacuna in the
documents and register the indent placed by the importer in contravention of
the requirements of the scheme? The High Court held that the licensing
authority and the appellant being two different wings/departments of the Union
of India, the appellant on receipt of rectified documents on August 26, 1983,
must register the indent as if it was presented on August 20, 1983. We are
afraid, we cannot accept the above reasoning of the High Court as we have
pointed out that the basic error committed by the High Court was in assuming
that the appellant was a department of the Union of India. We have already
noticed that there are a number of judgments of this court taking the view that
a company though fully owned by the Union of India when incorporated takes its
own entity/identity and cannot be considered as a department of the Union of
India. Further, it is seen from the records that the importer in this case is
not a new entrant to plead ignorance though that may not be an excuse. He has
presented applications for registration before and after the application in
question and, therefore, it must be taken that the importer knew fully well
about the requirements for registering the indent. It is also relevant to note
that the appellant on receipt of the application for registration expressly and
in writing replied not only pointing out the defects but also stated that they
are not taking any action on the letter of credit enclosed along with the
licence. It is also an admitted fact that the indent was registered only on
August 26, 1983, when all the relevant documents after curing the defects were
presented on that date. Under these circumstances and in the light of the
scheme published by the appellant, we hold that the importer (Ambica Tubes)
cannot claim as of right that its order must be deemed to have been registered
for supply of raw materials on August 20, 1983, when the documents with all defects
were presented.
We cannot
agree with the contention of Mr. Parekh that mere presentation of an
irrevocable letter of credit covering the value of requirement of raw materials
is sufficient for registering the indent. We have already set out para. 2.3. Paragraph
2.3 of the scheme announced on June 10, 1983, decides
the price to be paid for the indent. Mr. Parekh placed reliance on the last
part of paragraph 2.3 to contend that the date of presentation of irrevocable
letter of credit will be relevant for fixing the price. We have seen that it
says price chargeable shall be the price ruling on the date on which acceptable
and operative, financial arrangements are made in favour of SAIL by import
licence holders eligible to get supplies under this scheme. Mr. Parekh wants us
to ignore the portion underlined above. Mere production of the letter of credit
will not be sufficient to determine the price ruling on the date. It must be
given by an import licence holder eligible to get the supplies under the scheme.
In this case, we have seen that the importer will not fall under the category
of "import licence holder eligible to get supplies under the scheme"
as on the date when the letter of credit was presented, the licence/release
order was defective. Therefore, we cannot agree with Mr. Parekh that the
importer having produced the letter of credit well before August 25, 1983, the
price payable for the supplies must be the pre-revised one.
In view of our above
conclusion, it is not necessary for us to consider and decide the other points
raised by learned counsel for the appellant.
We have seen that the High
Court has not decided but has left open the question relating to the right of
the appellant to fix the price from time to time even though that was the main
issue raised in the writ petition before the High Court. As we are not in
agreement with the view expressed by the High Court on other issues, it is now
necessary for the High Court to consider the issue relating to the right of the
appellant to fix the price from time to time.
It is open to the appellant
to raise the question of unjust enrichment when the matter is taken up by the
High Court pursuant to this remit order. The parties can place before the High
Court necessary material in support of their respective contentions on the
issue of unjust enrichment.
Before parting with the
case, we would like to observe that the observations of the High Court in the
judgment condemning the appellant for not registering the order placed by the
importer on the date when the relevant documents were presented with defects
were totally uncalled for and, therefore, we expunge all those observations
from the judgment.
In the result, the appeal
is allowed and the judgment of the High Court is set aside and the matter is
remitted to the High Court to decide the right of the appellant to fix the
price from time to time and also the question of unjust enrichment. No costs.
[2002]
36 SCL 733 (All.)
v.
District Judge, Moradabad
Sudhir
Narain, J.
May 24,
2001
Section 617 of the Companies Act, 1956, read
with section 8 of the Provincial Insolvency Act, 1920, section 5(c) of the
Banking Regulation Act, 1949 and section 2(d) of the Banking Companies (Acquisition
and Transfer of Undertakings) Act, 1970 - Government company - Respondent-bank
(Punjab National Bank) filed a suit for recovery of amount against petitioner
which was decreed for an amount - Petitioner filed an insolvency petition for
declaring him insolvent - Respondent-bank objected that insolvency petition was
not maintainable against bank in view of section 8 of the Provincial Insolvency
Act, 1920 - Whether any company registered under any enactment is exempted from
insolvency proceedings - Held, yes - Whether Punjab National Bank is a
Government company under section 617 - Held, yes - Whether respondent bank
being registered company was exempted from insolvency proceedings - Held, yes
The respondent-bank filed a suit for recovery
of amount against petitioner and others which was decreed for an amount. The
petitioner filed an insolvency petition for declaring him insolvent with the
allegation that the decreed amount was due to the respondent-bank and he had
1/72nd share in a house in Bijnor of value only Rs. 1,000 and his wearing
clothes and assets were valued at Rs. 2,000 which were very less in comparison
to amount due. The respondent-bank raised an objection that insolvency petition
was not maintainable against the bank in view of section 8 of the Provincial
Insolvency Act, 1920. The bank’s objection was accepted and insolvency petition
was rejected. The petitioner filed an appeal against the order and the
Appellate Court dismissed the appeal.
On writ :
Any company registered under any enactment is
exempted from the insolvency proceedings. The bank was registered as a banking
company as defined under section 5(c) of the Banking Regulation Act, 1949,
Punjab National Bank is a Government company under section 617 in view of the
above provision. The view taken by the lower courts that the bank was
registered company and, therefore, it was exempted from insolvency proceedings
did not suffer from any illegality.
Jitendra Narain Rai for the Petitioner. Vijay Khare for
the Respondent.
1. This
writ petition is directed against the order dated 7-9-2000 passed by the
respondent No. 2 rejecting the insolvency petition filed by the petitioner and
the order of the appellate court dated 1-3-2001 affirming the said order in
appeal.
2. Briefly
stated, the facts are that Punjab National Bank, Branch : Station Road,
Moradabad, the respondent No. 3, (‘the Bank’) filed Suit No. 717 of 1991 for
recovery of amount against the petitioner as well as Shivalik International and
others. The suit was decreed on 10-2-1992 for Rs. 20,72,000.
3. The
petitioner filed an insolvency petition before the respondent No. 2 for
declaring him insolvent with the allegation that Rs. 20,72,000 is due to Punjab
National Bank. He has 1/72nd share in the house situated in Seohara Town,
District Bijnor, the value of which is hardly Rs. 1,000 and his wearing clothes
and other assets are valued at Rs. 2,000. The bank raised an objection that
insolvency petition is not maintainable against the bank in view of section 8 of
the Provincial Insolvency Act, 1920 which reads as under :
“8. Exemption of corporations, etc., from
insolvency proceedings.—No insolvency petition shall be presented against any
corporation or against any association or company registered under any enactment
for the time being in force.”
4. The
objection of the bank was accepted by the respondent No. 1 and insolvency
petition was rejected by order dated 7-1-2001. The petitioner filed appeal
against this order and the appellate court dismissed the appeal vide order
dated 1-3-2001.
5. The
question is whether the bank can claim exemption from insolvency proceedings
under section 8 of the Act. Any company registered under any enactment is
exempted from the insolvency proceedings. The bank was registered as a banking
company as defined under section 5(c) of the Banking Regulation Act, 1949 (Act
No. 10 of 1949), which reads as under :
“5(c) ‘banking company’ means any
company which transacts the business of banking in India;”
6. Clause
(d) of section 5 of the Act No. 10 of 1949 defines ‘company’ to mean any
company as defined in section 3 of the Companies Act, 1956; and includes a
foreign company within the meaning of section 591 of that Act. Section 2 of Act
No. 10 of 1949 provides that the provisions of Act shall be in addition to, and
not, save as hereinafter expressly provided, in derogation of the Companies
Act, and any other law for the time being in force.
7. After
the enforcement of Banking Companies (Acquisition and Transfer of Undertakings)
Act, 1970 (Act No. 5 of 1970), all the banking companies including the foreign
companies registered under the Companies Act, 1959, were nationalised and more
than 51 per cent shares were taken over by the Government of India and the
banking companies became the body corporate under section 2(d) of Act No. 5 of
1970. Clause (d) defines ‘corresponding new bank in relation to existing bank’
to mean a body corporate specified against such bank in column 2 of Schedule 1.
In the First Schedule ‘Punjab National Bank Ltd.’ is in the first column and in
the second column it has been referred to as ‘Punjab National Bank’. Section 4
of 1970 Act provides that on commencement of the Act undertaking of every
existing bank shall be transferred to and shall vest in the corresponding new
bank.
8. In
view of the aforesaid provision of law, Punjab National Bank is a Government
company under section 617 of the Companies Act. The view taken by the courts
below that the bank is registered company and, therefore, it is exempted from
insolvency proceedings—does not suffer from any illegality.
9. The writ petition is, accordingly, dismissed.
10. Petition dismissed.