Virendra Kumar Srivastava Vs. U.P. Rajya Karmachari Kal. Nigam and another
[2004] Insc 709 (23 November 2004)
Y. K. Sabharwal & D. M. Dharmadhikari Dharmadhikari J.
The sole point that arises for decision in this appeal before us is whether
U.P. Rajya Karmachari Kalyan Nigam [for short 'the Corporation'] is covered by
the definition of "State" under Article 12 of the Constitution of
India and is amenable to writ jurisdiction of the High Court under Article 226
of the Constitution of India.
The services of the petitioner from the post of Salesman in one of the
stores of the Corporation have been terminated against which he approached the
High Court of Allahabad. A preliminary objection was raised by the Corporation
to the maintainability of writ petition on the ground that the Corporation does
not fall in the definition of "State" under Article 12 of the
Constitution.
Relying on decisions of the Lucknow Bench of the same Court in the case of
Vijay Kumar Verma vs. U.P. Government Employees Welfare Corporation [Writ
Petition No. 8246 (ss) of 1992 decided on 13.4.1993], the writ petition filed
by the petitioner in the High Court was dismissed as not maintainable against
which the petitioner has preferred the present appeal.
After passing of the impugned judgments by the High Court, the scope of
Article 12 came up for consideration before a Constitution Bench comprising
seven judges of this Court in the case of Pradeep Kumar Biswas vs. Indian
Institute of Chemical Biology [2002 (5) SCC 111]. The seven judges Constitution
Bench in the case of Pradeep Kumar Biswas (supra) overruled the decision of
five judges Constitution Bench in the case of Sabhajit Tewary vs. Union of
India [1975 (1) SCC 485. By explaining and relying on Constitution Bench
decision in the case of Ajay Hasia vs. Khalid Mujid Sehravardi [1981 (1) SCC
722] by a majority of five against two this Court has laid down a multiple test
for determining whether a particular Corporation or Body can be held to be
included within the definition of "State" under Article 12 of the
Constitution. Learned Sister Ruma Pal J., expressing the opinion of majority of
Judges in the case of Pradeep Kumar Biswas (supra) on re-examination of all
previous cases decided by this Court on the subject, laid down the multiple test
in the following words :- "The picture that ultimately emerges is that the
tests formulated in Ajay Hasia's case (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.
[Emphasis supplied] We may also refer to the minority view expressed by
learned Brother Lahoti J. [as he then was] in the case of Pradeep Kumar Biswas
(supra) because the examination of nature of difference in opinion between
majority and minority view, for the purpose of present case, may be of some
relevance. In the minority view, different tests are required to be applied in
each particular case. The claim of a body as included within the definition of
"State" based on it being a statutory body falling in the expression
'other authorities' is to be considered differently from claim of a body based
on the principles propounded in the case of Ajay Hasia (Supra), that it is an
'instrumentality or agency' of the State. In the opinion of minority, the tests
laid down in the case of Ajay Hasia (supra) are relevant only for the purpose
of determining whether an entity is 'an instrumentality or an agency of the
State'. The minority view is expressed thus :- "Simply by holding a legal
entity to be an instrumentality or agency of the State it does not necessarily
become an authority within the meaning of "other authorities" in
Article 12. To be an authority, the entity should have been created by a
statute or under a statute and functioning with liability and obligations to
the public. ................ ........................ It is this strong
statutory flavour and clear indicia of power constitutional or statutory, and
its potential or capability to act to the detriment of fundamental rights of
the people, which makes it an authority; though in a given case, depending on
the facts and circumstances, an authority may also be found to be an
instrumentality or agency of the State and to that extent they may overlap.
............
..............
The tests laid down in the case of Ajay Hasia (supra) are relevant for the
purpose of determining whether an entity is an instrumentality or agency of the
State. Neither all the tests are required to be answered in the positive nor a
positive answer to one or two tests would suffice. It will depend upon a
combination of one or more of the relevant factors depending upon the
essentiality and overwhelming nature of such factors in identifying the real
source of governing power, if need be by removing the mask or piercing the veil
disguising the entity concerned. When an entity has an independent legal
existence, before it is held to be the State, the person alleging it to be so
must satisfy the court of brooding presence of the Government or deep and
pervasive control of the Government so as to hold it to be an instrumentality
or agency of the State.
In the background of the views expressed by majority and minority of the
judges in the case of Pradeep Kumar Biswas (supra), we have to apply the laid
down tests for determining the character of the Corporation involved in this
case. We may clarify at the outset that the Corporation herein has not been
created by any statute. It is merely a society registered under the Societies
Registration Act of 1860. We will confine, therefore, our enquiry and decision
as to whether the present Corporation is an 'instrumentality' or 'agency' of
the State and can claim the status of 'State' as defined in Article 12 of the
Constitution.
Object for which the Corporation was formed :- The object of formation of
the Corporation can be gathered from a letter dated 20.3.1965 sent by Chief
Secretary of the State of Uttar Pradesh to all Heads of Departments, District
Magistrates and Commissioners of Divisions, District Sessions Judges and all
Principal Heads of the Offices in the State of Uttar Pradesh. In the contents
of the letter, the object of formation of Corporation is stated to be as under
:- "I am directed to say that of late, there has been an abnormal rise in
prices of almost all consumer goods, including food grains and being persons of
fixed and inelastic income government servants are finding it difficult to
balance their budget. One of the methods by which real and substantial relief
can be given to them is to provide them with articles of daily requirement at
reasonable rates.
Government have, therefore, decided to set up a corporation wholly financed
by government for establishing a chain of stores throughout the State for
supply of essential commodities to the State Government employees at normal
rates. It is hoped that the scheme will not only provide substantial relief to
the families of government employees, but will also help in bringing down
prices generally. The salient features of the scheme are given in the attached
note.
In the meantime the scheme will function under the supervision and
management of a staff welfare Board at the Headquarters of Government. The
Board will consist of the following :- i) Chief Secretary .... President ii)
Commissioner and Secretary, Finance Department iii) Commissioner and Secretary,
Food & Civil Supplies Deptt.
iv) Secretary, Industries Department v) Secretary, Appointment Department
vi) Director of Industries, U.P.
vii) Deputy Secretary, Welfare Scheme, Chief Secretary's Branch ......
Secretary To fulfil the above object contained in the letter of the Chief
Secretary which was addressed to all departments of the State, a society was
formed and registered under the Societies Registration Act, 1860
with the name of the society as Uttar Pradesh Rajya Karamchari Kalyan Nigam. In
the Memorandum of Association of the Corporation in clause(3), objects of the
Corporation are stated to be as under :- i) To carry on and promote activities
aimed at the welfare of the employees of the State Government and to equip
itself with capital, credit, means, resources and technical and managerial
assistance for this purpose.
ii) To provide and help for the welfare of the employees, the places of
interests, recreation, sports and medical attendance and to subscribe money to
or for, or otherwise help any other charitable and benevolent object which is
in the opinion of the Corporation useful to the employees.
iii) To establish and run stores, shops, canteens for carrying on retail
business in essential commodities of daily use and other consumer goods without
profit motive in such localities within the State of Uttar Pradesh as the Board
of Directors of the Corporation may decide from time to time.
iv) To help by planning sales of the said commodities in a no profit, no
loss basis as a whole in maintaining the prices of such commodities at a
reasonable level to the advantage of the community as a whole.
v) To act as an agent or stockist on behalf of any government or any
institution, manufacturer or concern for procurement, supply and distribution
of consumer goods.
vi) To make or enter into arrangements for transport, processing,
manufacturing, grading, packing and distribution of consumer goods.
vii) To acquire by purchase or on lease or hire or by licences or otherwise,
buildings and premises required for the activities of the Corporation.
viii) To lease or let on hire, mortgage, sale, pledge or transfer by licence
or otherwise and lands, buildings or other property moveable or immoveable.
ix) To enter into any arrangements with the Union or the State Government or
any local authority or any person for the purpose of carrying out the objects
of the Corporation or furthering its interests and to obtain from such
government of authority or person subsiding, loans, indemnities, grants,
contract licences rights, concessions, privileges or immunities which the
Corporation may think it derisable to obtain and exercise and comply with any
such arrangements, rights privileges and concessions.
x) To erect buildings or other structures on lands acquired by the
Corporation in any manner.
xi) To accept gifts, donations etc., of any nature, whatsoever.
xii) To lend or borrow money on such terms and conditions as it thinks fits.
xiii) To draw, make, accept, endorse, discount, execute, and issue cheques,
promissory notes, bills of exchange or other negotiable or transferable
instruments.
xiv) To do all such other matters and things as may appear to be incidental
or conducive to the attainment of the above objects or any of them or
consequential upon the exercise of its powers or discharge of its duties.
The first members including office bearers of the governing body with the
names, addresses and occupation indicate that they are working for the
Corporation ex officio holding different executive posts in different
departments of the State of Uttar Pradesh. The Rules of the Association of the
Corporation are also registered. Rule 5 makes it clear that members of the
Corporation or the Board who are members by virtue of their offices which they
hold in the State shall stand terminated when they cease to hold the office in
the State and their successors to that office shall become members. The names
of the members and office bearers of the governing body are as under :-
1. Shri K. K. Dass Chief Secretary to Govt. Chairman of the Ex officio Board
Board
2. Shri V. M. Bhide Commissioner & Secretary, Finance Deptt. UP Govt. Ex
officio Director
3. Shri H. C. Saxena Secretary, Industries Deptt.
Ex officio Director
4. Shri Bhagwant Singh Commissioner & Secretary, P&C Deptt. UP Govt.
Ex. Officio Director
5. Shri B. B. Malik Director of Industries, UP Ex officio Director
6. Shri B. L. Chak Secretary, Appt. & G.A.D.
Ex officio Director
7. Shri S. B. Saran Dy. Secretary, Chief Secretaries Branch, UP Govt. Ex
officio Exe. Director of the Board The most important is clause 4 of the
Memorandum of Association of the Corporation which reads thus :- "If on
the winding up or dissolution of the Corporation there shall remain, after the
satisfaction of its debts and liabilities, any property, the same shall not be
paid to any of its members or distributed amongst them but subject to the
provisions of section 14 of the Act shall be disposed of in such manner as the
State Government may determine." Rule 4 of the Rules of Association of the
Corporation is also relevant for the purpose of finding out the real nature of
the Corporation. It reads thus :- "The Board may with the previous
approval of the State Government admit any employee of the State Government as
member of the Corporation." Similarly, rule 6 is also relevant and reads
thus :- "The Board may, subject to its general control and supervision and
subject to such restrictions as it may like to impose, delegate all or any of
its powers to any one or more members of the Board. The Board may, likewise
delegate any of its powers, not being the powers under clause (b), (c), (h),
(i) and (k) of sub-rule 5 of rule 3 of the said Rules in favour of any officer
of the Corporation or to an officer of the State Government, not below the rank
of a District Magistrate (which will include an Additional District Magistrate
also)." [Emphasis supplied] Similarly, rule 12 confers powers of the
delegation on Executive Director in favour of any officer of the Corporation or
the State. It reads thus :- "The Executive Director may, subject to his
general control and supervision and such restrictions as he may like to impose
delegate all or any of his powers to any officer of the Corporation or of the
State Government." Rule 17 dealing with amendments of the rules puts
restriction on amendments or variation of the rules which can be done only with
prior approval of the State Government :- Rule 17 "The Corporation may add
to, amend, vary or delete the rules.
Provided that no such rules shall be added to, amended, varied and deleted
unless a resolution to that effect has been passed by not less than 3/5th of
the members present in the meeting of the Corporation specially called for that
purpose and provided further that no such rules shall be added to, amended,
varied or deleted without the prior approval of the State Government." [ Emphasis
supplied ] So far as funding and financing of the Corporation are concerned,
petitioner has filed additional documents in this appeal containing various
grants annually made from time to time by the State Government to the
Corporation. Letter dated 14.1.1992 of Joint Secretary, Govt. of U.P. to the
Executive Director of the Corporation informed that additional grant of 50 lacs
was granted for the financial year 1991-92 for expenditure of 100% amount on
the salary allowances of employees working in the Headquarters of the
Corporation and 50% of the amount spent on salaries and allowances of employees
working at the canteens. By letter dated 15.9.1994 the State Government granted
sanction for revival of the post of Assistant Director earlier sanctioned in
the year 1980 for the Corporation. By letter 6.9.1997, the earlier grant of 75%
in the year 1996-97 was increased to cent percent to meet the expenditure of
salaries and allowances of employees of canteens run by the Corporation. By
letter dated 16.12.1999, the Secretary of Government of Uttar Pradesh wrote to
the Commissioner, Food and Supplies Deptt. And the Executive Director of the
Corporation that to solve the problem of pending bills of the Corporation with
the Secretariat Administrative Department, against the total bill of Rs.1.12
crores, the Food Department will immediately pay the amount from its trading
account which will be reimbursed to the Department on receipt of budget. It was
also directed that a sum of Rs. 45 lacs every quarter shall be made available
by the Food Department to the Corporation on which the Corporation will pay
interest at the rate of 12.34%. By letter dated 16.9.1999, the Secretary
informed the Commissioner of Food and Supplies Department and Executive
Director of the Corporation that the Food Department will provide amount up to
Rs.10 crores from its trading account to the Corporation as working capital for
its business and Food Department will be responsible for return of the working
capital made available to the Corporation within time. The letter, however,
directs the Corporation to return the said amount with interest through a
cheque to Commissioner, Department of Food and Civil Supplies before 31.3.2000.
On the expenditure of the working capital provided some restrictions have been
placed which read thus:- "Out of this working capital, the Corporation
will purchase products already approved or to be approved in future by the
Product Approval Committee of U.P. State Employees Welfare Corporation
constituted vide GO dated 4.9.1999.
The Food Commissioner will separately maintain account for the arrangement
and will ensure that it functions smoothly." Letter sent on 7.3.2001 by
the Executive Director of the Corporation to all District Magistrates indicates
overall control on the activities of the Corporation by the functionaries of
the State. The contents of the letter directing physical verification of stocks
of essential commodities in various stores of the Corporation through the
Commissioner and Secretary of Food and one gazetted officer nominated by
District Magistrate is a clear pointer to the pervasive control exercised by
the State and its officers on the functioning and activities of the
Corporation.
The multiple test which is to be applied to ascertain the character of a
body as falling within Article 12 or outside as laid down by majority view in
Pradeep Kumar Biswas case (supra) is to ascertain nature of financial,
functional and administrative control of the State over it and whether it is
dominated by the State Government and the control can be said to be so deep and
pervasive as described the minority view in Pradeep Kumar Biswas case (supra)
so as to satisfy the court 'of brooding presence of the government' on the
activities of the Corporation.
We may, therefore, briefly indicate the evidence produced by the parties
relevant to the multiple test to determine the composition and character of the
Corporation :- Administrative Control :- The Corporation was formed by a
decision of the government with the object of providing articles of daily
requirement to the government servants at reasonable rates. In this respect,
the contents of the minutes of the meeting held on 1.10.1971 in the
Chairmanship of Minister of Food for considering the note prepared by the Cabinet
of the Government with Chief Secretary, Commissioner and Secretary to Food and
Commissioner and Secretary, Finance is revealing. In the course of meeting, the
Chief Secretary suggested that the finances of the Corporation can be raised by
raising share capital to be sold to the government employees. The Food
Secretary thereupon objected to the proposal saying that the Corporation is a
government organization and raising of share capital would change its character
from government institution to a cooperative institution. The minutes also
record the suggestion of the Chief Secretary that as the government employees
are being provided facility of making them available articles of daily need on
reasonable price apart from dearness allowance in cash, the activities of the
Corporation and the object for which its set up, should be made known to the
Pay Commission.
By notification dated 01.4.1987, issued in exercise of powers under
sub-section (3) of section 3 of the U.P. Shops and Commercial Establishments
Act, 1962, all stores, depots and canteens run by the Corporation have been
exempted from the provisions of section 4(b) of the said Act.
From the memorandum of the Articles of Association, it is clear that one of
its objects is that it can act as an agent or stockist on behalf of the
government. The members and office bearers of the Corporation are all executive
officers of the State representing different departments concerned with civil
supplies. They are on the management of the Corporation in their capacity as
officers of the State Government. In accordance with Rule 4 of the Rules of
Association, other employees of the State Government can be included as members
of the Corporation only with the previous approval of the State Government. In
accordance with rule 6, the Board may delegate specified powers to the officers
of the State Government not below the rank of District Magistrate or Addl.
District Magistrate. Similarly, in accordance with rule 12, Executive Director
can delegate his powers to any officers of the State Government. The rules of
the Corporation can be added to, amended, varied or deleted only with prior
approval of the State Government. The above mentioned objects and the
provisions in the memorandum and rules of the Corporation clearly go to show
that the administrative control of the Corporation vests in the Executive
Officers representing different departments of the State.
Financial Control :- The financial control of the Corporation is to a large
extent with the State Government. Hundred percent grant is made for payment of
the salary of employees at the Headquarters of the Corporation and initially
50% grant was given for employees working in the canteens which was later
increased to 75% and lastly cent percent. Working capital to the Corporation
was made available by the Food Department to the extent of 10 crores and
although the amount is returnable but its expenditure and reimbursement is to
be ensured by Secretariat Administrative Department of the State of U.P. In the
letter dated 16.9.1999, working capital of 10 cores is provided to the
Corporation with the responsibility placed on the Food Department for its
return.
Admittedly, therefore, there is total financial support to the Corporation
of the State of U.P. although it is expected that the Corporation will generate
sufficient amount to be able to run on 'no profit no loss' basis.
Functional Control :- There is complete functional control of the
Corporation by the State which is evident from the fact that Executive Officers
of the State are ex officio members and office bearers of the Corporation.
From the minutes of the meeting held in the Chairmanship of Minister for
Food with Commissioner and Secretary of Food and Civil Supplies Department,
there is an indication that the government has taken responsibility to finance
and fund the Corporation. The proposal, therefore, to raise share capital was
declined. For auditing the accounts of the Corporation, services of Chief
Finance Officer of the State were made available to the Corporation.
Most revealing is the letter dated 07.3.2000 mentioned above which describes
the Corporation as an undertaking of the State and directs physical
verification of the stocks in stores of the Corporation to be done by Gazetted
Officer or Incharge Officer to be nominated by District Magistrate for the
District in which the depot or store is operated. More important to indicate
administrative and functional control is clause (4) of the Memorandum of
Association which provides that on winding up or dissolution of the
Corporation, the property available after satisfaction of debts and liabilities
will not go to its members but shall be at the disposal of the State
Government. As observed in the minority view in the case of Pradeep Kumar
Biswas (supra) if the corporate mask of the registered society is removed it
clearly exposes the real nature of the Corporation as entity of the State.
On behalf of the Corporation, learned counsel highlighted the Constitution
of the Corporation and the Articles of the Association which regulate its
affairs. It is submitted that it is an autonomous body. The Corporation is not
engaged in any State function of vital importance making available daily needs
of the government servants which is an activity like any other commercial
activity. It is also submitted that merely because there is 'patronage',
encouragement, push or recognition to the Corporation of the State, it would
not make it as an entity following within the definition of 'State' under
Article 12 of the Constitution.
We have in detail and very carefully examined the Constitution and Articles
of Association of the Corporation by which it is regulated.
On detailed examination of the administrative, financial and functional
control of the Corporation, we have no manner of doubt that it is nothing but
an 'instrumentality and agency of the State' and the control of the State is
not only 'regulatory' but it is 'deep and pervasive' in the sense that it is
formed with the object of catering to the needs of the government employees as
a supplement to their salaries and other perks. The top executives of the
government department ex officio are members and office bearers of the
Corporation. The Corporation is fully supported financially and
administratively by the State and its authorities. Even day-to-day functioning
of the Corporation is watched, supervised and controlled by the various
departmental authorities of the State particularly the Department of Food and
Civil Supplies. The multiple test indicated to be applied both by the majority
and minority view in Pradeep Kumar Biswas (supra) is fully satisfied in the
present case for recording a conclusion by us that the Corporation is covered
as an 'agency and instrumentality of the State' in the definition of 'State'
under Article 12 of the Constitution. It is, therefore, amenable to the writ
petition of the High Court under Article 226 of the Constitution.
Before parting with the case, it is necessary for us to clarify that even
though a body, entity or Corporation is held to be a 'State' within the
definition of Article 12 of the Constitution what relief to the aggrieved
person or employee of such a body or entity is to be granted is a subject
matter in each case for the court to determine on the basis of the structure of
that society and also its financial capability and viability. The subject of
denial or grant of relief partially or fully has to be decided in each
particular case by the court dealing with the grievances brought by an
aggrieved person against the bodies covered by the definition of 'State' under
Article 12 of the Constitution.
In the result, the appeal is allowed. The impugned order dated 30.9.1999 of
the High Court dismissing the writ petition on the preliminary ground based on
Article 12 of the Constitution is set aside.
The case is remitted to the High Court for taking a decision on the merits
of the case. In the circumstances, the parties shall bear their own costs in
this Court.
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