State
of Mahararshtra Vs. Christian Community Welfare
Council of India & Anr [2003] Insc 488 (26 September 2003)
Brijesh
Kumar & Arun Kumar. Brijesh Kumar, J.
The
respondent no.1 Sagar Thomas was working as a Branch Manager in Karunagappally
branch of the appellant Bank, namely, the Federal Bank, having its registered
office at Alwaye, Kerala.
He
was, however, suspended on 29.5.1982, since a disciplinary enquiry was ordered
into some charges against him for having exceeded his authority in grant of
loans and advances to different parties. The inquiry officer found him guilty
of the charges and ultimately punishment of dismissal was awarded to the
respondent.
The
respondent no.1 challenged the order of his dismissal by filing a writ petition
in the High Court. A preliminary objection about maintainability of writ
petition seems to have been taken, in defence by the Federal Bank, saying that
it is a private bank and not a State or its agency or instrumentality, within
the meaning of Article 12 of the Constitution of India, hence a writ petition
under Article 226 of the Constitution is not maintainable against it. The
learned single Judge, however, found that the Federal Bank performs public duty
and observed thus:
"As
per statutes, the Reserve Bank and the Central Government exercise all
pervading functional, fiduciary and managerial control over the banking
industry. Every banking company is duty bound to carry on banking business as
per the banking policy under stringent control of the Reserve Bank in the interest
of banking system or in the interest of monetary stability of sound economic
growth, having due regard to the interest of the depositors. The activities
carried on by the bank are vital to public interest and have potential to
affect the socio- economic development and growth of the nation.
Banking
companies are therefore, public institutions, accepting deposits from public,
financial assistance from the State through its agencies/instrumentalities, for
the purpose of lending or investment, pursuing banking policy and engaged in
matters of high public interest or performing public functions, ensuring
monetary stability, sound economic growth, equitable allocation of various
funds to efficient use, for the promotion and growth of economy and welfare of
the State. The first respondent is, thus, performing a public duty and a
positive obligation towards its employees and customers exists.
Therefore,
it is amenable to writ jurisdiction." Ultimately the order passed by the
learned single Judge is :
"....In
the light of the above decisions of the Apex Court, I can very well find that
the Federal Bank Ltd., is performing public duty and as such it comes under the
definition of 'other authority' within the meaning of Article 12 of the
Constitution of India and as such the writ petition is maintainable before this
Court." Aggrieved by the aforesaid judgment of the learned single Judge,
the appellant preferred a writ appeal but referring to a decision of this Court
in U.P.State Co-operative Land Development Bank Ltd. vs. Chandra Bhan Dubey
& Ors. , the Division Bench, observed that in an identical fact situation
it was held that writ application would be maintainable, minor distinctions on
facts, here and there, would not make the aforesaid decision inapplicable to
scheduled banks. With such observations the appeal was dismissed providing that
the learned single Judge shall decide writ petition on merits. The Federal Bank
Ltd. has preferred this appeal, against the aforesaid judgment of the High
Court.
Learned
senior counsel appearing for the appellant, so as to indicate the structure of
the appellant, submits that the Federal Bank Ltd.
is a
'company' incorporated under the Indian Companies Act, 1913, now replaced by
the Companies Act, 1956. Its activities are regulated by the provisions of the
Banking Regulation Act, 1949. The entire shareholding of the company is held by
private individuals and entities. The finances of the banks are raised by its
own resources and efforts, and the profits of the bank are utilized by the bank
for its own purposes. It does not perform any sovereign function nor does it
exercise any authority over a third person. The nature of the activity of the
bank is that of a commercial undertaking which receives deposits from the
individuals and advances loans and performs other ancillary monetary
transactions. The management of the bank is in the hands of the Board of
Directors. There are 10 Directors, out of which 7 are selected by the General
Body of the shareholders. Two members are co-opted by the Board of Directors
and one of them is nominated by the Reserve Bank of India. The Board of Directors exercise
the powers of superintendence and control over the bank. The bank is,
therefore, merely a private limited company; it is neither a 'State' nor any
'authority' within the meaning of Article 12 of the Constitution nor it is
amenable to writ jurisdiction of the High Court.
It is
also the case of the appellant bank that services of an employee or an officer
of a private body, cannot be imposed or thrust upon it nor a relief of
reinstatement can be granted. In this connection, the appellant has referred to
the reliefs prayed for in the writ petition, which are as follows:
"i)
a writ of Certiorari or any other appropriate writ, order or direction quashing
Exhibit P3 Enquiry Report and P6 and P7 orders of the disciplinary authority
and the Board of Directors as illegal and unsustainable in law;
ii) a
writ of Mandamus or any other appropriate writ, order or direction commanding
the respondents to reinstate the petitioner with all wages and increments in
the salary applicable to him as if he had continued in service from the date of
his suspension;
iii) any
other appropriate writ, order or direction as this Hon'ble Court may deem fit and necessary on the
facts and in the circumstances of the case and allow this petition with all
costs."
In the
light of the prayer made for issue of a writ of certiorari for quashing of
inquiry report and the order of punishment and further for issue of a writ of mandamus
or any other appropriate writ or direction for reinstatement of the petitioner
with all wages and increments etc. as if, he had been continued in service, a
plea in reply has been raised by the appellant that it being a private body
incorporated under the Companies Act, it is not amenable to writ jurisdiction
of the High Court. It is in the above background that the learned Single Judge
considered the matter and held that the Federal Bank Limited is performing
public duty, as such it is covered under the expression of 'other authority',
within the meaning of Article 12 of the Constitution, hence the writ petition
is maintainable before the High Court.
The
question thus, which falls for consideration is as to whether the appellant
bank is a private body or falls within the definition of the State or local or
other authorities under the control of the Government.
A body
or organization which is an instrumentality or agency of the State or a company
owned and controlled by the State are all included in the expression "the
State". If it is found that the petitioner falls within the later
category, there would be no hurdle in holding that such a body or organization
would undoubtedly be amenable to the writ jurisdiction under Article 226 of the
Constitution of India. On the other hand, if it is found that the appellant is
a private body in that event it may have to be examined whether a writ petition
would be maintainable or not and the extent to which such powers can be
exercised.
In
support of their respective contentions learned counsels placed reliance upon
certain decisions of this Court as well as on some decisions of the High Court.
On
behalf of the appellant, a decision in the case of Pradeep decided by a 7
Judges Bench has been referred. The majority judgment considered a catena of
decisions on the point and it has been observed in paragraph 25 of the judgment
: "The tests propounded by Mathew, J. in Sukhdev Singh were elaborated in Ramana
and were reformulated two years later by a Constitution Bench in Ajay Hasia .
What may have been technically characterized as obiter dicta in Sukhdev Singh
(supra) and Ramana (supra) (since in both cases the "authority" in
fact involved was a statutory corporation), formed the ratio decidendi of Ajay Hasia
(supra)". Thereafter the court has extracted para 11, at page 737-38 of
the case of Ajay Hasia (supra), as follows : "The concept of
instrumentality or agency of the Government is not limited to a corporation
created by a statute but is equally applicable to a company or society and in a
given case it would have to be decided, on a consideration of the relevant
factors, whether the company or society is an instrumentality or agency of the
Government so as to come within the meaning of the expression 'authority' in
Article 12." It is then observed that Ramana's case (supra) noted with
approval in Ajay Hasia (supra) and quoted the tests laid down in the case of
Ajay Hasia (supra) at page 737 in para 9. It reads 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. (SCC p.507, 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. (SCC p.508, para 15)
(3) It
may also be a relevant factor .. whether the corporation enjoys monopoly status
which is State-conferred or State-protected (SCC p.508, para 15)
(4)
Existence of deep and pervasive State control may afford an indication that the
corporation is a State agency or instrumentality. (SCC p.508, para 15)
(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. (SCC p.509, para 16)
(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. (SCC p.510, para 18)"
This Court has observed in paragraph 31 as follows :
"The
tests to determine whether a body falls within the definition of
"State" in Article 12 laid down in Ramana (supra) with the
Constitution Bench imprimatur in Ajay Hasia (supra) form the keystone of the
subsequent jurisprudential superstructure judicially crafted on the subject
which is apparent from a chronological consideration of the authorities
cited." After considering a number of decisions it has been observed in para
40 of Pradeep Kumar Biswas (supra) as follows :
"The
picture that ultimately emerges is that the tests formulated in Ajay Hasia
(supra) 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." The appellant
then refers to a decision in Bank of Baroda Ltd. vs. Jeewan Lal Mehrotra ,
which is a decision of a three Judge Bench, wherein it has been laid down that
a contract of service could not be enforced on a private employee. Needless to
say that the case is related to the services of an employee of a Scheduled
bank. Our attention has been particularly drawn to paragraph 3 of the judgment
where it is observed :
".....The
law as settled by this court is that no declaration to enforce a contract of
personal service will be normally granted. The well recognized exceptions to
this rule are
(1) where
a public servant has been dismissed from service in contravention of Article
311,
(2)where
re- instatement is sought of a dismissed worker under the industrial law by labour
or industrial tribunals,
(3) where
a statutory body has acted in breach of a mandatory obligation imposed by
statute...."
However,
so far the above proposition is concerned, learned counsel for the respondent
submitted that the point relates to the merits of the matter which is yet to be
gone into by the learned Single Judge in case it is found that a writ petition
is maintainable.
U.P.State
Co-operative Land Development Bank Ltd. (supra) has been relied upon by the
Division Bench while passing the impugned order dismissing the appeal. We may
examine the position as involved in that case in some detail. It is registered
as a Co-operative society under the provisions of the U.P.Co-operative
Societies Act.
While
holding it to be an instrumentality of the State, the Court took note of the
fact that though registered as a co-operative society, it was constituted under
the provisions of the U.P.Co-operative Land Development Bank Act, 1964. The
Managing Director and the Chief General Manager of the Bank are officials of
the State, who are at the helms of the affairs of the Bank. The service rules
for the employees and officers of the Bank were framed by the State Government
in exercise of powers under Section 30 of the U.P.Co-operative Land Development Bank Act, 1964. The
rules are called the U.P.Co-operative Land Development Banks Rules, 1971, which
lay down the conditions of services of the employees. The Institutional Service
Boards constituted under Section 122 of the Co-operative Societies Act has also
framed service rules according to which dismissal of an employee can be ordered
only after its approval by the Institutional Service Board. The U.P.State
Co-operative Land Development Bank Ltd. is the only bank constituted under the
provisions of the U.P.Co-operative Land Development Bank Act and there cannot
be any other State level Land Development Bank for the whole of the State.
Apart from the fact that the Bank had exclusive jurisdiction over the whole of
the State of Uttar Pradesh, the other Land Development Banks could also be made
members of the U.P.State Co-operative Land Development Bank, in any number, as
the Registrar of the Co-operative Societies may deem it necessary. It is
further found that the Registrar of the Co-operative Societies, U.P. is the
trustee for the purpose of securing the fulfillment of the obligations of the
State Land Development Bank to the holders of debentures issued by the Board of
Directors. The Board of Directors are entitled to issue debentures from time to
time with the previous sanction of the State Government and the trustee,
against the unconditional guarantee by the State Government for the repayment
in full of the principal and interest thereon, or on the security of mortgages,
charges or hypothecations etc.
The
State Government constitutes a Guarantee Fund under Section 9 of the Act for
the purpose of meeting losses that might accrue on account of loans advanced by
the Land Development Banks. The Guarantee Fund is maintained by the Finance
Department of the State Government. On the basis of the facts noted above, the
Court took the view that the U.P.State Co-operative Land Development Bank Ltd.,
though registered as a Co-operative society, is an instrumentality of the State
and its employees have a statutory protection under the statutory rules.
It is
quite apparent that the decision in the case of U.P.State Co-operative Land
Development Bank Ltd. (supra) would in no way be applicable to the case in
hand. The participation and control of the State in the whole activity of the U.P.Land
Development Bank Ltd. is all pervasive. Its officers head the institution. U.P.Land
Development Bank is constituted as the only State level Bank in the State.
Under the statutory provision there cannot be any other Land Development Bank
at the State level. The government guarantees repayment in the event of losses
suffered by the Bank and with the approval of the State, the Bank may also
issue debentures. To cap it all the service conditions of the employees are
governed by the statutory rules. It is submitted by the appellant that this
case will have no application to the present case and the same has been wrongly
followed and relied upon by the High Court to dismiss the appeal.
Shri Rajinder
Sachar, learned senior counsel appearing for the respondent, refers to a
Constitution Bench decision in All India Bank Our attention has been
particularly drawn to the observations made at page 299 of the report wherein
it is observed as follows:- "....If it was not the Reserve Bank of India,
the only other authority that could be entrusted with the function would be the
Finance Ministry of the Government of India and that department would
necessarily be guided by the Reserve Bank having regard to the intimate
knowledge which the Reserve Bank has of the banking structure of the country as
a whole and of the affairs of each bank in particular......".
It has
been referred to indicate that the control of the Reserve Bank of India over
all the banks would be as if the control is in place of Finance Ministry,
Government of India.
A
reference has then been made to Air India Statutory a three Judge Bench. It has
been held that the industry carried on by Air India under authority of central
government would involve public law element even though its activity may be
commercial in nature. It was held that the Air India was being run by the
Airport Authority of India of the Central Government and there was element of
deep and pervasive governmental control. Initially it was a statutory authority
under the International Airports Authority of India Act, 1971. Later it was
amalgamated with National Airports Authority and thereafter it is constituted
as a Company under the Companies Act. In that context, it has been held, if the
company is run wholly or partially by the share capital floated from public
exchequer, it gives indication of its control by the appropriate government. On
consideration of a number of decisions on the point, the Court found the
following principles which may be considered, for coming to a conclusion
whether any public element is involved or not, the paragraph 26 of the
decision, reads as under :
"(1)
The constitution of the corporation or instrumentality or agency or corporation
aggregate or corporation sole is not of sole material relevance to decide
whether it is by or under the control of the appropriate Government under the
Act.
(2) If
it is a statutory corporation, it is an instrumentality or agency of the State.
If it is a company owned wholly or partially by a share capital, floated from
public exchequer, it gives indicia that it is controlled by or under the
authority of the Appropriate Government.
(3) In
commercial activities carried on by a corporation established by or under the
control of the appropriate government having protection under Articles 14 and
19(2), it is an instrumentality or agency of the State.
(4)
The State is a service corporation. It acts through its instrumentalities,
agencies or persons - natural or juridical.
(5)
The governing power, wherever located, must be subject to the fundamental
constitutional limitations and abide by the principles laid in the Directive
Principles.
(6)
The framework of service regulations made in the appropriate rules or
regulations should be consistent with and subject to the same public law,
principles and limitations.
(7)
Though the instrumentality, agency or person conducts commercial activities
according to business principles and are separately accountable under their
appropriate bye-laws or Memorandum of Association, they become the arm of the
Government.
(8)
The existence of deep and pervasive State control depends upon the facts and
circumstances in a given situation and in the altered situation it is not the
sole criterion to decide whether the agency or instrumentality or persons is by
or under the control of the appropriate Government.
(9)
Functions of an instrumentality, agency or person are of public importance
following public interest element.
(10)
The instrumentality, agency or person must have an element of authority or
ability to effect the relations with its employees or public by virtue of power
vested in it by law, Memorandum of Association or bye-laws or Articles of
Association.
(11)
The instrumentality, agency or person renders an element of public service and
is accountable to health and strength of the workers, men and women, adequate
means of livelihood, the security for payment of living wages, reasonable
conditions of work, decent standard of life and opportunity to enjoy full
leisure and social and cultural activities to the workmen.
(12)
Every action of the public authority, agency or instrumentality or the person
acting in public interest or any act that gives rise to public element should
be guided by public interest in exercise of public power or action hedged with
public element and is open to challenge. It must meet the test of
reasonableness, fairness and justness.
(13)
If the exercise of the power is arbitrary, unjust and unfair, the public
authority, instrumentality, agency or the person acting in public interest,
though in the field of private law, is not free to prescribe any
unconstitutional conditions or limitations in their actions."
One of
the important factors to be considered is, if it is a statutory corporation, an
instrumentality or agency of the State or a company owned wholly or partially
by a share capital floated from public exchequer, it gives indicia that it is
controlled by and under the authority of the Appropriate Government. We find
that it is this factor which brings in public element. Paragraph 61 of the
judgment reads:- "The legal right of an individual may be founded upon a
contract or a statute or an instrument having the force of law. For a public
law remedy enforceable under Article 226 of the Constitution, the action of the
authority needs to fall in the realm of public law - be it a legislative act of
the State, an executive act of the State or an instrumentality or a person or
authority imbued with public law element. The question requires to be
determined in each case. However, it may not be possible to generalise the
nature of the action which would come either under public law remedy or private
law field nor is it desirable to give exhaustive list of such actions.......The
distinction between public law and private law remedy has now become thin and
practically obliterated." Shri Sachar then referred to a decision of this
Court in Andi Mukta Sadguru Shree Muktajee Vandas Swami Suvarna Jayanti been
held in this case that the college in question which was managed by a trust
registered under the Bombay Trusts Act was amenable to writ jurisdiction and a
direction could be issued to the institution to make the payment of arrears of
salary and other benefits to the teacher. It is further submitted that if a
private body discharges a public duty it would be amenable to the writ jurisdiction.
Paragraph 17 of the judgment has been particularly referred to, which reads as under
:
"There,
however, the prerogative writ of mandamus is confined only to public
authorities to compel performance of public duty. The 'public authority' for
them mean every body which is created by statute - and whose powers and duties
are defined by statute. So government departments, local authorities, police
authorities, and statutory undertakings and corporations, are all 'public
authorities'. But there is no such limitation for our High Courts to issue the
writ 'in the nature of mandamus'. Article 226 confers wide powers on the High
Courts to issue writs in the nature of prerogative writs. This is a striking
departure from the English Law. Under Article 226, writs can be issued to
"any person or authority". It can be issued "for the enforcement
of any of the fundamental rights and for any other purpose".
Shri Sachar
has also stressed upon the observation made in the later part of para 19 and para
20 where it has been observed:
".....Any
attempt to equate the scope of the power of the High Court under Article 226 of
the Constitution with that of the English courts to issue prerogative writs is
to introduce the unnecessary procedural restrictions grown over the years in a
comparatively small country like England with a unitary form of government into
a vast country like India functioning under a federal structure....." Para
20 "....The words "any person or authority" used in Article 226
are, therefore, not to be confined only to statutory authorities and
instrumentalities of the State. They may cover any other person or body
performing public duty. ......What is relevant is the nature of the duty
imposed on the body. The duty must be judged in the light of positive
obligation owed by the person or authority to the affected party....."
While making his submissions in reply, the appellant referred to paragraph 15
of the above judgment wherein it has been observed that if the rights are
purely of a private character, no mandamus can be issued. It is further
observed that if the management of the college is purely a private body with no
public duty, mandamus would not lie. But it has been held that the college run
by a private trust was affiliated to the university to which public money is
paid as government aid. It is then observed :
"...Public
money paid as government aid plays a major role in the control, maintenance and
working of educational institutions. The aided institutions like government
institutions discharge public function by way of imparting education to
students. They are subject to the rules and regulations of the affiliating
University. Their activities are closely supervised by the University
authorities. Employment in such institutions, therefore, is not devoid of any
public character. So are the service conditions of the academic staff. ....
The
service conditions of the academic staff are, therefore, not purely of a
private character. It has super-added protection by University decisions
creating a legal right-duty relationship between the staff and the management.
When there is existence of this relationship, mandamus cannot be refused to the
aggrieved party." On this basis, it is submitted in reply that those
features by reason of which it has been held that a writ of mandamus would lie
against a private management, are not present in the case in hand. A reference
to para 12 of the Andi Mukta's case (supra) has been made, where it has been
held that no writ would issue where dismissal was not in violation of any
statutory provision. No reinstatement could be ordered.
State
of Andhra Pradesh & Ors. a Constitution Bench judgment. In reference to para
79 it is submitted that educational institutions discharge public duties
irrespective of the fact they receive aid or not. The absence of aid does not
detract from the public nature of the duty. The submission, therefore, is that
even though a body or institution may be a private body but if the duty that it
discharges is that of a public nature, a writ would lie.
In
this connection Life Insurance Corporation of India & Anr. vs. Consumer
Education & Research Centre & Ors . also has been referred to, which in
turn refers to Kumari Shrilekha Vidyarthi contractual obligation of public
character is violative of Article 14 of the Constitution. the Court held that
rates of premium must be reasonable and acceptable. It cannot be unjust and
excessive. Thus the touchstone of test is the reasonableness and
non-arbitrariness of the action even in the contractual matters of the State or
its agencies and instrumentalities.
The
appellant in reply also referred to The Praga Tools company registered under
the Companies Act is neither statutory nor any public duty is imposed on it by
any statute in respect of which enforcement would be sought by means of a
mandamus. Mandamus lies to secure the purpose of a public or statutory duty. No
mandamus or order of reinstatement of an office which is essentially of a
private character can be issued. A mandamus can be issued to compel the
official of a society to carry out the terms of the statute under or by which
the society is constituted or governed and also to companies or corporations to
carry out duties placed on them by the statutes authorizing their undertakings.
Executive
Committee of Vaish Degree College, Shamli & proposition that contract of
personal service cannot ordinarily be enforced.
From
the decisions referred to above, the position that emerges is that a writ
petition under Article 226 of the Constitution of India may be maintainable
against
(i) the
State (Govt);
(ii)
Authority;
(iii) a
statutory body;
(iv) an
instrumentality or agency of the State;
(v) a
company which is financed and owned by the State;
(vi) a
private body run substantially on State funding;
(vii) a
private body discharging public duty or positive obligation of public nature
(viii)
a person or a body under liability to discharge any function under any Statute,
to compel it to perform such a statutory function.
Learned
senior counsel appearing for the respondent has drawn our attention to the
various provisions of the Reserve Bank of India Act, 1934 (for short 'the RBI
Act'), the Banking Regulation Act, 1941 and the Industries (Development and
Regulation) Act, 1951 so as to emphasise that there is deep and all pervasive
statutory control and the control of the Central Government over the Scheduled
Banks. It is submitted that these banks discharge functions of public nature
and owe the statutory responsibilities, hence there is an element of public
law, involved in the activities of the Bank. Section 22 of the Banking
Regulation Act provides for Licensing of banking companies. No company can
carry on banking business in India unless
it holds a licence issued by the Reserve Bank subject to such conditions as may
be imposed. Before issuing any licence the Reserve Bank may satisfy itself
about the conditions as laid down under sub-section (3) of Section 22 as to
whether the company fulfills those conditions or not.
The
appellant is one of the Scheduled Banks, definition of which as provided in the
Reserve Bank of India Act, has been referred to which says :
"2(e)
scheduled bank" means a bank included in the Second Schedule;"
Sub-section (6) of Section 42 of the RBI Act has been referred to indicate the
control which is exercised by the Reserve Bank of India on the banking
companies. It reads as under :
"(6)
The Bank shall, save as hereinafter provided, by notification in the Gazette of
India, -
(a) direct
the inclusion in the Second Schedule of any bank not already so included which
carries on the business of banking [in India] and which –
(i) has
a paid-up capital and reserve of an aggregate value of not less than five lakhs
of rupees, and
(ii) satisfies
the Bank that its affairs are not being conducted in a manner detrimental to
the interests of its depositors, and
(iii)
[is a State co-operative bank or a company] as defined [section 3 of the
Companies Act, 1956 (1 of 1956), or an institution notified by the Central
Government in this behalf] or a corporation or a company incorporated by or
under any law in force in any place[outside India];
(b) direct
the exclusion from that Schedule of any scheduled bank, -
(i) the
aggregate value of whose paid-up capital and reserves becomes at any time less
than five lakhs of rupees, or
(ii) which
is, in the opinion of the Bank after making an inspection under section 35 of
the Banking Regulation Act, 1949 (10 of 1949), conducting its affairs to the
detriment of the interests of its depositors, or
(iii) which
goes into liquidation or otherwise ceases to carry on banking business:
xxx xxx
xxx The Preamble of the RBI Act has also been referred to, which reads as
follows :
"An
Act to Constitute a Reserve Bank of India :
Whereas
it is expedient to constitute a Reserve Bank of India to regulate the issue of
Bank notes and the keeping of reserves with a view to securing monetary
stability in [India] and generally to operate the currency and credit system of
the country to its advantage;
And
whereas in the present disorganization of the monetary systems of the world it
is not possible to determine what will be suitable as a permanent basis for the
Indian monetary system;
But
whereas it is expedient to make temporary provision on the basis of the
existing monetary system, and to leave the question of the monetary standard
best suited to India to be considered when the international monetary position
has become sufficiently clear and stable to make it possible to frame permanent
measures".
Section
46-A of the Banking Regulation Act provides as under :- "46A. Chairman,
director, etc., to be public servants for the purposes of Chapter IX of the
Indian Penal Code.- [Every Chairman who is appointed on a whole-time basis,
managing director, director, auditor] liquidator, manager and any other
employee of a banking company shall be deemed to be a public servant for the
purposes of Chapter IX of the Indian Penal Code (45 of 1860).] A reference is
also made to Section 35 of the Banking Regulation Act which provides for inspection
of any banking company and its books of accounts by the Reserve Bank on the
direction issued by the Central Government. Under sub-section (1A) it is
provided that without prejudice to sub-section (1) it may at any time cause a
scrutiny to be made by any one or more of its officers, of the affairs of any
banking company. The report of the inspection or the scrutiny are to be
furnished to the banking company. Sub-section (4) of Section 35 provides as
under:
"(4)
The Reserve Bank shall, if it has been directed by the Central Government to
cause an inspection to be made, and may, in any other case, report to the
Central Government on any inspection [or scrutiny] made under this section, and
the Central Government, if it is of opinion after considering the report that
the affairs of the banking company are being conducted to the detriment of the
interests of its depositors, may, after giving such opportunity to the banking
company to make a representation in connection with the report as, in the
opinion of the Central Government, seems reasonable, by order in writing –
(a) prohibit
the banking company from receiving fresh deposits;
(b) direct
the Reserve Bank to apply under section 38 for the winding up of the banking
company:
Provided
that the Central Government may defer, for such period as it may think fit, the
passing of an order under this sub-section, or cancel or modify any such order,
upon such terms and conditions as it may think fit to impose." Section
35-A empowers the Reserve Bank to give directions, which reads as under :
"35A.
Power of the Reserve Bank to give directions.- (1) Where the Reserve Bank is
satisfied that :- (a) in the [public interest]; or [(aa) in the interest of
banking policy; or] (b) to prevent the affairs of any banking company being
conducted in a manner detrimental to the interests of the depositors or in a
manner prejudicial to the interests of the banking company; or (c) to secure
the proper management of any banking company generally, it is necessary to
issue directions to banking companies generally or to any banking company in
particular, it may, from time to time, issue such directions as it deems fit,
and the banking companies or the banking company, as the case may be, shall be
bound to comply with such directions.
(2)
The Reserve Bank may, on representation made to it or on its own motion, modify
or cancel any direction issued under sub-section (1), and in so modifying or cancelling
any direction may impose such conditions as it thinks fit, subject to which the
modification or cancellation shall have effect." Section 36 of the Banking
Regulation Act which enumerates further powers and functions of Reserve Banks
has also been referred to. The relevant part of Section 36 reads as under :
"36.
Further powers and functions of Reserve Banks.- (1)The Reserve Bank may - (a)
caution or prohibit banking companies or any banking company in particular
against entering into any particular transaction or class of transactions, and
generally give advice to any banking company;
(b)
xxx xxx xxx (c) xxx xxx xxx (d) xxx xxx (i) require the banking company to call
a meeting of its directors for the purpose of considering any matter relating
to or arising out of the affairs of the banking company; or require an officer
of the banking company to discuss any such matter with an officer of the
Reserve Bank;
(ii) xxx
xxx (iii) xxx xxx (iv) appoint one or more of its officers to observe the
manner in which the affairs of the banking company or of its offices or
branches are being conducted and make a report thereon;
(v) require
the banking company to make, within such time as may be specified in the order,
such changes in the management as the Reserve Bank may consider necessary.] (2)
& ( 3 ) xxx xxx" Section 36AA deals with Power of Reserve Bank to
remove managerial and other persons from office. The relevant part of the
provision is quoted below :
"(1)
Where the Reserve bank is satisfied that in the public interest or for
preventing the affairs of a banking company being conducted in a manner
detrimental to the interests of the depositors or for securing the proper
management of any banking company it is necessary so to do, the Reserve Bank
may, for reasons to be recorded in writing, by order, remove from office, with
effect from such date as may be specified in the order, [any chairman,
director,] chief executive officer (by whatever name called) or other officer
or employee of the banking company.
(2) to
(5) xxx xxx (6) Where an order under sub-section (1) has been made, the Reserve
Bank may, by order in writing, appoint a suitable person in place of [the
chairman or director] or chief executive officer or other officer or employee
who has been removed from his office under that sub-section, with effect from
such date as may be specified in the order.
(7) to
(8) xxxx xxxx" Section 36AB of the Banking Regulation Act empowers the
Reserve Bank to appoint additional directors of the banking company in the
interest of the company or its depositors. Sub-section (1) reads as under :
"36AB.
Power of Reserve Bank to appoint additional directors.- (1) If the Reserve Bank
is of [opinion that in the interest of banking policy or in the public interest
or] in the interests of the banking company or its depositors it is necessary
so to do, it may, from time to time by order in writing, appoint, with effect
from such date as may be specified in the order, one or more persons to hold
office as additional directors of the banking company:
xxx xxxx"
Section 36AE has also been referred to which empowers the Central Government to
acquire undertakings of banking companies in the interests of the depositors,
the banking policy or for the better provision of credit generally or of credit
to any particular section of the community or in any particular area. Lastly,
our attention has been drawn to provisions contained in Section 45 of the
Banking Regulation Act which empowers the Reserve Bank to apply to Central
Government for suspension of business by a banking company and to prepare
scheme of reconstitution of amalgamation of a banking company.
In
view of the aforesaid provisions it is submitted that the control of the
Reserve Bank of India and the Central Government is all pervasive over the
banking companies, they can cause an inspection to be made, can make scrutiny
of the working and accounts of the banking company, can remove the Chairman or
appoint additional directors, the functioning of the banking company can also
be suspended, the undertaking can also be acquired. It is further submitted
that the Reserve Bank of India has been constituted to regulate issue of bank
notes and for keeping reserves with a view to secure and maintain monetary
stability in the country. It is with that end in view that powers have been
vested in the Reserve Bank of India to keep proper check on the working and
functioning of the banking companies as also in the interest of the depositors
and the own interest of the banking company. Such a nature of control indicates
that the Banking Companies discharge functions of public nature.
As
against the submission made on behalf of the respondent regarding control of
the Reserve Bank of India over the banking companies, the appellant submits
that such measures as indicated by reference to the provisions of the Banking
Regulation Act are only regulatory in nature. Such regulatory control is also
exercised over other companies as well, registered under the Companies Act,
1956. In this connection, a reference has been made to Section 233A of the
Companies Act which empowers the Central Government to direct special audit of
the companies in certain eventualities. For example as indicated in sub-
clauses (a) to (c) of sub-section (1) of Section 233A, which reads as under :
"233A.
(1) Where the Central Government is of the opinion –
(a) that
the affairs of any company are not being managed in accordance with sound
business principles of prudent commercial practices; or
(b) that
any company is being managed in a manner likely to cause serious injury or
damage to the interests of the trade, industry or business to which it
pertains; or
(c) that
the financial position of any company is such as to endanger its
solvency;........."
The
report of the special audit is to be submitted to the Central Government by the
Chartered Accountants deputed for special audit. The special auditor, in the
audit report shall include all the matters required to be included in an
auditor's report under Section 227 of the Companies Act and the matters as the
Central Government may, also direct to include. The Central Government is also
authorized to direct any particular person to furnish such information or
additional information to the auditor and failure to do so shall render such
person liable to be punished by imposition of fine. The Central Government, on
consideration of the report is empowered to take such action as provided under
the Act or any other law for the time being in force. Section 235 of the
Companies Act empowers the Central Government to appoint one or more competent
persons as inspectors to investigate the affairs of any company on the
application of the shareholders and submit the report to the Central
Government. Similar power for investigation is also vested under Section 237 of
the Act. The company by a special resolution or court by an order can declare
that affairs of the company ought to be investigated by an inspector appointed
by the Central Government, where the business of the company is being conducted
with intent to defraud its creditors, members or any other persons or otherwise
for fraudulent or unlawful purpose. Then a reference has been made to Section
250 of the Companies Act which empowers the Central Government to impose
restriction upon the transfer of shares and debentures of the company.
Any
transfer of shares made during the period of the restriction, would be void
under clause (a) of sub-section (2). Such actions are permissible to be taken
in the public interest. Section 255 falls in the Chapter II pertaining to
directors and constitution of Board of Directors which mandates for retirement
of directors in given proportion by rotation.
Section
267 places restrictions on appointment of Managing Directors.
Such
persons who are undischarged insolvents or at any time have been adjudged so or
having been convicted by a Court of an offence involving moral turpitude. So
far the financial aspect is concerned, the Central Government has powers in
that regard as well and in that connection our attention has been drawn to
Section 58-A. Sub-sections (1) and (2) of Section 58-A read as under :
"58
A. (1) The Central Government may, in consultation with the Reserve Bank of
India, prescribe the limits up to which, the manner in which and the conditions
subject to which deposits may be invited or accepted by a company either from
the public or from its members.
(2) No
company shall invite, or allow any other person to invite or cause to be
invited on its behalf, any deposit unless –
(a) such
deposit is invited or is caused to be invited in accordance with the rules made
under sub- section (1), and
(b) an
advertisement, including therein a statement showing the financial position of
the company, has been issued by the company in such form and in such manner as
may be prescribed....." Under Section 388 B the Central Government is
empowered to state a case and refer to the High Court where in certain
circumstances it considers that any person concerned in conduct and the
management of the affairs of the company is not fit to hold the office of
Director or any other office, to make an inquiry into the case and record its
decisions in that regard. On the basis of the report of the High Court the
Central Government has power to remove such a person as the Director or as the
case may be.
A
reference has also been made to certain provisions of Industries (Development
and Regulation) Act, 1951. Section 15 empowers the Central Government to cause
investigation to be made into the affairs of the industrial undertaking in
certain eventualities. The same reads as under :
"15.
Power to cause investigation to be made into scheduled industries or industrial
undertakings.- Where the Central Government is of the opinion that –
(a) in
respect of any scheduled industry or industrial undertaking or undertakings –
(i)
there has been, or is likely to be, a substantial fall in the volume of
production in respect of any article or class of articles relatable to that
industry or manufactured or produced in the industrial undertaking or
undertakings as the case may be, for which, having regard to the economic
conditions prevailing, there is no justification; or
(ii)
there has been, or is likely to be, marked deterioration in the quality of any
article or class of articles relatable to that industry or manufactured or
produced in the industrial undertaking or undertakings, as the case may be,
which could have been or can be avoided; or
(iii)
there has been or is likely to be a rise in the price of any article or class
of articles relatable to that industry or manufactured or produced in the
industrial undertaking or undertakings, as the case may be, for which there is
no justification; or
(iv)
it is necessary to take any such action as is provided in this chapter for the
purpose of conserving any resources of national importance which are utilized
in the industry or the industrial undertaking or undertakings, as the case may
be; or
(b) any
industrial undertaking is being managed in a manner highly detrimental to the
scheduled industry concerned or to public interest];
the
Central Government may make or cause to be made a full and complete
investigation into the circumstances of the case by such person or body of
persons as it may appoint for the purpose." Section 15-A also empowers the
Central Government to investigate into the possibility of running or restarting
the industrial undertaking which is being wound up by or under the supervision
of the High Court and to make an application in that regard to the High Court.
Chapter III-A provides for direct management or control of industrial
undertakings by Central Government in certain cases. Relevant part of Section
18-A, which falls under Chapter III-A, reads as under :
"18-A.
Power of Central Government to assume management or control of an industrial
undertaking in certain cases –
(1) If
the Central Government is of opinion that-
(a) an
industrial undertaking to which directions have been issued in pursuance of
Section 16 has failed to comply with such directions, or
(b) an
industrial undertaking in respect of which an investigation has been made under
Section 15 (whether or not any directions have been issued to the undertaking
in pursuance of Section 16), is being managed in a manner highly detrimental to
the scheduled industry concerned or to public interest.
The
Central Government may, by notified order, authorize any person or body of
persons to take over the management of the whole or any part of the undertaking
or to exercise in respect of the whole or any part of the undertaking such
functions of control as may be specified in the order....." Section 18-AA empowers
the Central Government to take over the industrial undertaking without
investigation in the given circumstances.
In
view of the provisions indicated above under the Companies Act and the
Industrial (Development and Regulation) Act, it is submitted that the nature
and the control over the companies is more or less of the same degree and
nature as the control exercised over the banking companies under the Banking
Regulation Act. There is control and supervision over the functioning and
working and the conduct of business of the companies. A watchful eye is kept
over the interest of the share holders, the interest of the company itself as
well as over the production of company, even managing director can be removed
by the Central Government. It has also the powers, as indicated above, to take
over the management of a company. Such powers are drastic;
nonetheless
they remain regulatory in nature in the interest of the industry, the company,
the shareholders and in the general interest since production of goods of
importance is most essential for proper economic growth and stability of the
country.
A
company registered under the Companies Act for the purposes of carrying on any
trade or business is a private enterprise to earn livelihood and to make
profits out of such activities. Banking is also a kind of profession and a
commercial activity, the primary motive behind it can well be said to earn
returns and profits. Since time immemorial, such activities have been carried
on by individuals generally. It is a private affair of the company though case
of nationalized banks stands on a different footing. There may, well be
companies, in which majority of the share capital may be contributed out of the
State funds and in that view of the matter there may be more participation or
dominant participation of the State in managing the affairs of the company. But
in the present case we are concerned with a banking company which has its own
resources to raise its funds without any contribution or shareholding by the
State. It has its own Board of Directors elected by its shareholders. It works
like any other private company in the banking business having no monopoly
status at all.Any company carrying on banking business with a capital of five lacs
will become a scheduled bank. All the same, banking activity as a whole carried
on by various banks undoubtedly has an impact and effect on the economy of the
country in general. Money of the shareholders and the depositors is with such
companies, carrying on banking activity. The banks finance the borrowers on any
given rate of interest at a particular time. They advance loans as against
securities. Therefore, it is obviously necessary to have regulatory check over
such activities in the interest of the company itself, the shareholders, the
depositors as well as to maintain the proper financial equilibrium of the
national economy. The Banking companies have not been set up for the purposes
of building economy of the State on the other hand such private companies have
been voluntarily established for their own purposes and interest but their
activities are kept under check so that their activities may not go wayward and
harm the economy in general. A private banking company with all freedom that it
has, has to act in a manner that it may not be in conflict with or against the
fiscal policies of the State and for such purposes, guidelines are provided by
the Reserve Bank so that a proper fiscal discipline, to conduct its affairs in
carrying on its business, is maintained. So as to ensure adherence to such
fiscal discipline, if need be, at times even the management of the company can
be taken over. Nonetheless, as observed earlier, these are all regulatory
measures to keep a check and provide guideline and not a participatory
dominance or control over the affairs of the company. For other companies in
general carrying on other business activities may be manufacturing, other
industries or any business, such checks are provided under the provisions of
the Companies Act, as indicated earlier. There also, the main consideration is
that the company itself may not sink because of its own mismanagement or the
interest of the shareholders or people generally may not be jeopardized for
that reason. Besides taking care of such interest as indicated above, there is
no other interest of the State, to control the affairs and management of the
private companies. The care is taken in regard to the industries covered under
the Industries (Development and Regulation) Act, 1951 that their production
which is important for the economy may not go down yet the business activity is
carried on by such companies or corporations which only remains a private
activity of the entrepreneurs/companies.
Such
private companies would normally not be amenable to the writ jurisdiction under
Article 226 of the Constitution. But in certain circumstances a writ may issue
to such private bodies or persons as there may be statutes which need to be
complied with by all concerned including the private companies. For example,
there are certain legislations like the Industrial Disputes Act, the Minimum
Wages Act, the Factories Act or for maintaining proper environment say Air
(Prevention and Control of Pollution) Act, 1981 or Water (Prevention and
Control of Pollution) Act, 1974 etc. or statutes of the like nature which
fasten certain duties and responsibilities statutorily upon such private bodies
which they are bound to comply with. If they violate such a statutory provision
a writ would certainly be issued for compliance of those provisions. For
instance, if a private employer dispense with the service of its employee in
violation of the provisions contained under the Industrial Disputes Act, in
innumerable cases the High Court interfered and have issued the writ to the
private bodies and the companies in that regard. But the difficulty in issuing
a writ may arise where there may not be any non-compliance or violation of any
statutory provision by the private body. In that event a writ may not be issued
at all. Other remedies, as may be available, may have to be resorted to.
The
six factors which have been enumerated in the case of Ajay Hasia (supra) and
approved in the later decisions in the case of Ramana (supra) and the seven
Judges Bench in the case of Pradeep Kumar Biswas (supra) may be applied to the
facts of the present case and see as to those tests apply to the appellant bank
or not. As indicated earlier, share capital of the appellant bank is not held
at all by the government nor any financial assistance is provided by the State,
nothing to say which may meet almost the entire expenditure of the company. The
third factor is also not answered since the appellant bank does not enjoy any
monopoly status nor it can be said to be an institution having State
protection. So far control over the affairs of the appellant bank is concerned,
they are managed by the Board of Directors elected by its shareholders. No
governmental agency or officer is connected with the affairs of the appellant
bank nor anyone of them is a member of the Board of Directors. In the normal
functioning of the private banking company there is no participation or
interference of the State or its authorities. The statutes have been framed
regulating the financial and commercial activities so that fiscal equilibrium may
be kept maintained and not get disturbed by the mal-functioning of such
companies or institutions involved in the business of banking. These are
regulatory measures for the purposes of maintaining the healthy economic
atmosphere in the country. Such regulatory measures are provided for other
companies also as well as industries manufacturing goods of importance.
Otherwise these are purely private commercial activities. It deserves to be
noted that it hardly makes any difference that such supervisory vigilance is
kept by the Reserve Bank of India under a Statute or the Central Government.
Even if it was with the Central Government in place of the Reserve Bank of
India it would not have made any difference, therefore, the argument based on
the decision of All India Bank Employees' Association (supra) does not advance
the case of the respondent. It is only in case of mal-functioning of the
company that occasion to exercise such powers arises to protect the interest of
the depositors, shareholders or the company itself or to help the company to be
out of the woods. In the times of normal functioning such occasions do not
arise except for routine inspections etc. with a view to see that things are
moved smoothly in keeping with fiscal policies in general.
There are
a number of such companies carrying on the profession of banking. There is
nothing which can be said to be close to the governmental functions. It is an
old profession in one form or the other carried on by individuals or by a group
of them. Losses incurred in the business are theirs as well as the profits. Any
business or commercial activity, may be banking, manufacturing units or related
to any other kind of business generating resources, employment, production and
resulting in circulation of money are no doubt, are such which do have impact
on the economy of the country in general. But such activities cannot be
classified one falling in the category of discharging duties, functions of
public nature. Thus the case does not fall in the fifth category of cases
enumerated in the case of Ajay Hasia (supra). Again we find that the activity
which is carried on by the appellant is not one which may have been earlier
carried on by the government and transferred to the appellant company. For the
sake of argument even if it may be assumed that one or the other test as
provided in the case of Ajay Hasia (supra) may be attracted that by itself
would not be sufficient to hold that it is an agency of the State or a company
carrying on the functions of public nature. In this connection, observations
made in the case of Pradeep Kumar Biswas (supra) quoted earlier would also be
relevant.
We may
now consider the two decisions i.e. Andi Mukta (supra) and the U.P. State
Co-operative Land Development Bank Ltd.(supra)upon which much reliance has been
placed on behalf of the respondents to show that a writ would lie against the
appellant company.
So far
the decision in the case of U.P. State Co-operative Land Development Bank Ltd.(supra)
is concerned, it stands entirely on a different footing and we have elaborately
discussed it earlier.
The
other case which has been heavily relied upon is Andi Mukta (supra). It is no
doubt held that a Mandamus can be issued to any person or authority performing
public duty, owing positive obligation to the affected party. The writ petition
was held to be maintainable since the teacher whose services were terminated by
the institution was affiliated to the university and was governed by the
Ordinances, casting certain obligations which it owed to that petitioner. But
it is not the case here. Our attention has been drawn by the learned counsel
for the appellant to paragraphs 12, 13 and 21 of the decision (Andi Mukta) to
indicate that even according to this case no writ would lie against the private
body except where it has some obligation to discharge which is statutory or of
public character.
Merely
because the Reserve Bank of India lays the banking policy in the interest of
the banking system or in the interest of monetary stability or sound economic
growth having due regard to the interests of the depositors etc. as provided
under Section 5(c)(a) of the Banking Regulation Act does not mean that the
private companies carrying on the business of or commercial activity of
banking, discharge any public function or public duty. These are all regulatory
measures applicable to those carrying on commercial activity in banking and
these companies are to act according to these provisions failing which certain
consequences follow as indicated in the Act itself. Provision regarding
acquisition of a banking company by the Government, it may be pointed out that
any private property can be acquired by the Government in public interest. It
is now judicially accepted norm that private interest has to give way to the
public interest. If a private property is acquired in public interest it does
not mean that the party whose property is acquired is performing or discharging
any function or duty of public character though it would be so for acquiring
authority.
For the
discussion held above, in our view, a private company carrying on banking
business as a scheduled bank, cannot be termed as an institution or company
carrying on any statutory or public duty. A private body or a person may be
amenable to writ jurisdiction only where it may become necessary to compel such
body or association to enforce any statutory obligations or such obligations of
public nature casting positive obligation upon it. We don't find such
conditions are fulfilled in respect of a private company carrying on a
commercial activity of banking. Merely regulatory provisions to ensure such
activity carried on by private bodies work within a discipline, do not confer
any such status upon the company nor puts any such obligation upon it which may
be enforced through issue of a writ under Article 226 of the Constitution.
Present is a case of disciplinary action being taken against its employee by
the appellant Bank. Respondent's service with the bank stands terminated. The
action of the Bank was challenged by the respondent by filing a writ petition
under Article 226 of the Constitution of India. The respondent is not trying to
enforce any statutory duty on the part of the Bank. That being the position,
the appeal deserves to be allowed.
In the
result, the appeal is allowed and the judgment and order passed by the High
Court is set aside and the writ petition is held to be not maintainable. There
will, however, be no order as to costs.
AIR
1999 SC Page 753 (2002) 5 SCC page 111 Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi,
(1975) 1 SCC 421 Ramana Dayaram Shetty v. International Airport Authority of
India, (1979) 3 SCC 489 Ajay Hasia v. Khalid Mujib Sehravardi, (1981) 1 SCC 722
1970(3) SCC page 677 1962 (3) SCR page 265 1997(9) SCC page 377 1989(2) SCC
page 691
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