Full Judgment Text
2026 INSC 233
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. __ _____ OF 2026
(Arising out of SLP (C) 27366 of 2023)
RAVI KHOKHAR & ORS ... APPELLANT (S)
Versus
UNION OF INDIA & ORS. ... RESPONDENT (S)
J U D G M E N T
SANJAY KAROL, J.
Leave Granted.
Signature Not Verified
Digitally signed by
RAJNI MUKHI
Date: 2026.03.12
17:31:09 IST
Reason:
C.A.@SLP(C)No.27366 of 2023 Page 1 of 32
THE CONTROVERSY IN A NUTSHELL
2. The Appellants are employees of the Air Force Group
1
Insurance Society established under the Societies Registration
2
Act, 1860 in the year 1976, with sanction of the Hon’ble
th
President of India, having been received in the same year on 6
October. The dispute germane to this lis is that while the Board
th
of Trustees, had, vide special meeting dated 27 December 2016
decided that the pay scales of the workers would be revised in
accordance with the Sixth Pay Commission of the Government
th
of India, subsequently, by way of meeting dated 13 February
2017 resolved that pay structures would be revised in a way that
any linkage/connection to and pay parity with the Central
Government, by virtue of the Pay Commissions be done away
with, and according thereto, asked all employees by way of
nd
notice dated 22 May 2017 to sign their acceptance to the revised
terms.
THE IMPUGNED JUDGMENT
3. The appellants, aggrieved thereby, filed Writ Petitions
3
before the High Court of Delhi which were dismissed by a
1
AFGIS
2
SRA
3 3 3
WP(C) No. 5024 of 2017; WP(C) No. 16428 of 2022, CM APPL 51620 of 2022; WP(C)
3 3 3
No. 6759 of 2022; WP(C) No. 13858 of 2018; WP(C) No. 863 of 2019; WP(C) No.
15835 of 2022 & CM APPL. 49280 of 2022.
C.A.@SLP(C)No.27366 of 2023 Page 2 of 32
st
common judgment dated 1 February 2023. The findings of the
Learned Division Bench can be summarised as follows:
3.1 The Court’s central finding was that none of the
respondent organisations, namely the Air Force Group
Insurance Society, the Air HQs Non-Public Fund
Organisation, or the CRPF Employees’ Educational
Society, could be treated as “ State ” or “ other authority ”
within the meaning of Article 12 of the Constitution of
India. This determination was foundational, because the
Court held that unless the respondents satisfied the
requirements of Article 12, the writ petitions under Article
226 were not maintainable and the Court cannot not
adjudicate on claims relating to pay parity, service
conditions, promotions, retirement age, or implementation
of Pay Commission recommendations.
In examining the status of the Air Force Group
Insurance Society, the Court found that it is a Society
registered under the Societies Registration Act, 1860,
established in 1976 as a self-contained and self-run welfare
and insurance scheme meant exclusively for Air Force
personnel and their families. While senior Air Force
officers form part of the Board of Trustees and certain
officers are posted with the Society on deputation, the
Court held that this association does not translate into deep
C.A.@SLP(C)No.27366 of 2023 Page 3 of 32
or pervasive governmental control. The day-to-day
administration of the Society is carried out under its own
internal governance framework, and its finances are
sourced entirely from member contributions and the
insurance fund rather than from any budgetary allocation
or grant from the Central Government. The Court placed
particular reliance on the appointment letters of AFGIS
employees, which expressly state that their service
conditions are governed by the Rules of the Society as
amended from time to time. The Court noted that there is
no statutory or contractual guarantee of parity with Central
Government employees and that allowances and pay
structures are subject to approval by the Board of Trustees.
The Court, therefore, concluded that even if historical
parity with Central Government pay scales had existed in
practice, it did not create any enforceable legal right nor
did it convert AFGIS into an instrumentality of the State.
3.2 While addressing the legal tests applicable to Article
12, the Court reaffirmed the principles laid down by the
Constitution Bench of the Court in Ajay Hasia and Others
4
v. Khalid Mujib Sehravardi and Others , which
emphasised that the decisive question is not how an entity
4
(1981) 1 SCC 722
C.A.@SLP(C)No.27366 of 2023 Page 4 of 32
is created but whether it functions as an instrumentality or
agency of the Government. The Court further relied on
Pradeep Kumar Biswas and Others v. Indian Institute of
5
Chemical Biology and Others , , where the Supreme Court
clarified that the tests laid down in Ajay Hasia (supra) are
not rigid and that the cumulative facts must demonstrate
financial, functional, and administrative domination by the
Government, with control that is deep and pervasive. The
Court also drew support from Chander Mohan Khanna v.
National Council of Educational Research and
6
Training , which cautioned against an over-expansive
interpretation of Article 12 merely on the basis of
governmental association or assistance.
The Court specifically rejected the petitioners’
reliance on Sagarika Singh v. Union of India and
7
Others , noting that the reasoning in that decision had
subsequently been disapproved by a larger Bench of the
Delhi High Court in Ex. Sub. Rajender Singh v. Union of
8
India and Others ,. The Court observed that the larger
Bench had clarified that welfare or insurance schemes
connected with the armed forces cannot automatically be
5
(2002) 5 SCC 111
6
(1991) 4 SCC 578
7
2011 SCC OnLine Del 3612
8
2013 SCC OnLine Del 1598
C.A.@SLP(C)No.27366 of 2023 Page 5 of 32
treated as “ State ” in the absence of pervasive
governmental control, and that the earlier view taken in
Sagarika Singh (supra) no longer represents good law.
3.3 Applying these settled principles to the facts of the
present cases, the Court concluded that all the respondent
organisations are autonomous, self-funded societies
established for the limited benefit of their members and not
for the public at large. The Court found no evidence of
financial dependence on the Central Government, nor any
administrative or functional domination of the kind
required to attract Article 12. Consequently, the writ
petitions were held to be not maintainable. The interim
protection granted in one of the petitions was vacated, and
all petitions were dismissed with liberty granted to the
petitioners to pursue their remedies before appropriate
alternative forums such as civil courts or labour
adjudicatory bodies.
3.4 It has to be noted that the status of certain other
bodies as “ State ” within the meaning of Article 12 was also
a question before the High Court, namely Air HQs Non-
Public Fund Organisation and CRPF Employees’
Educational Society, but since the determination in respect
thereof is not under challenge before us, we need not enter
into the particulars thereof.
C.A.@SLP(C)No.27366 of 2023 Page 6 of 32
THE CASE OF THE PARTIES
A. The Appellants
4. We have heard Mr. Shoeb Alam, learned senior counsel for
the appellants. It is submitted that AFGIS has represented itself
to be ‘ Government ’ in official correspondence. As an example, a
th
letter dated 15 March 2016 was shown. The cumulative test is
financial functional and administrative dominance of the
Government and accordingly it is submitted that the day-to-day
affairs are managed by serving senior officers of the Indian Air
9
Force . The very establishment was with the sanction of the
Hon’ble President of India, and membership of this Organisation
is compulsory for all Officers and Airmen. Further, the land on
which the office is situate has been granted by the Ministry of
Defence, Government of India, and it also enjoys exemptions
from various taxes levied. Still further, it is also highlighted that
the functions performed by AFGIS are of public importance and
welfare oriented. Heavy reliance is placed on a recent judgment
10
of this Court in Rajkaran Singh v. Union of India , wherein this
Court examined the issue concerning employees of a compulsory
savings fund being entitled to benefits of the Central Pay
Commission, which was answered in the affirmative given
9
‘IAF’
10
2024 SCC OnLine SC 2138
C.A.@SLP(C)No.27366 of 2023 Page 7 of 32
alignment of service conditions, pervasive government control
and public function. As such, the appellants, being similarly
th
placed would also be entitled to the benefits of the 7 Pay
Commission in line with the past position where they have been
granted the said benefits.
B. Respondent-AFGIS
5. Mr. Ankur Chibber, learned Counsel appeared for AFGIS
and submitted that the body is not ‘ State ’ within the meaning of
Article 12 for it is a self-financed, non-public fund society. The
premiums paid by the members are deducted centrally by the Air
Force Central Accounts Office and then remitted to the
Organisation. This is the only source of funds, and it has no
inflow or outflow from the Consolidated Fund of India. During
the time when the officers of IAF come to the Organisation on
deputation their salary and allowances are borne by the AFGIS
itself. It also employees 47 civilian staff members who are not
government servant. The members of the Board of trustees are
ex-officio and do not receive any remuneration in respect of these
duties. The accounts are maintained by a privately hired
Chartered Accountant and AFGIS does not submit any report to
the Comptroller and Auditor General of India. It is as such
submitted that the High Court’s holding in the impugned
C.A.@SLP(C)No.27366 of 2023 Page 8 of 32
judgment that a petition under Article 226 will not be
maintainable, is the correct position in law.
C. Respondent-UNION OF INDIA
6. Mr. Vikramjeet Banerjee, learned ASG appeared for the
Union of India and supported the stand of AFGIS.
CONSIDERATION ON MERITS
7. Since the advent of the Constitution, the question of
whether a particular body can or cannot be recognised as ‘ State ’
11
within the meaning of Article 12 has arisen time and again.
Initially, this Court adopted a narrow and formalistic approach
focusing on whether the body concerned which was created
under a statute was part of the traditional Government structure.
Over the time however, as functions of the Government expanded
multi-fold there was a shift in this approach. State
instrumentalities, corporations and autonomous bodies were
recognised as covered under this Article, with the shift to a
functional and purposive analysis. The test to be satisfied
pertained to the nature of functions, character of activity, degree
of governmental control. This ensured that the breadth or scope
11
Article 12 of the Constitution of India reads thus:
“12. In this Part, unless the context otherwise requires, “the State’’ includes the Government
and Parliament of India and the Government and the Legislature of each of the States and
all local or other authorities within the territory of India or under the control of the
Government of India.”
C.A.@SLP(C)No.27366 of 2023 Page 9 of 32
of examination when this question arises is not limited to
ownership/origin but is instead informed by accountability, the
rule of law in furtherance of practical governance. It shall be
useful to refer to certain cases to exemplify the requirements that
need to be established for an organization be held to be “ State ”.
7.1 P.N Bhagwati J. (as His Lordship then was) writing
for the Court in Ramana Dayaram Shetty v. International
12
Airport Authority of India , observed:
“ 14. A corporation may be created in one of two
ways. It may be either established by statute or
incorporated under a law such as the Companies Act,
1956 or the Societies Registration Act, 1860. Where
a corporation is wholly controlled by Government not
only in its policy-making but also in carrying out the
functions entrusted to it by the law establishing it or
by the charter of its incorporation, there can be no
doubt that it would be an instrumentality or agency of
Government. But ordinarily where a corporation is
established by statute, it is autonomous in its working,
subject only to a provision, oftentimes made, that it
shall be bound by any directions that may be issued
from time to time by Government in respect of policy
matters. So also a corporation incorporated under law
is managed by a board of directors or committees of
management in accordance with the provisions of the
statute under which it is incorporated. When does
such a corporation become an instrumentality or
agency of Government? Is the holding of the entire
share capital of the corporation by Government
enough or is it necessary that in addition, there should
be a certain amount of direct control exercised by
Government and, if so, what should be the nature of
such control? Should the functions which the
12
(1979) 3 SCC 489 , ‘R.D Shetty’
C.A.@SLP(C)No.27366 of 2023 Page 10 of 32
corporation is charged to carry out possess any
particular characteristic or feature, or is the nature of
the functions immaterial? Now, 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. But, as is quite often the case,
a corporation established by statute may have no
shares or shareholders, in which case it would be a
relevant factor to consider whether the administration
is in the hands of a board of directors appointed by
Government, though this consideration also may not
be determinative, because even where the directors
are appointed by Government, they may be
completely free from governmental control in the
discharge of their functions. What then are the tests to
determine whether a corporation established by
statute or incorporated under law is an instrumentality
or agency of Government? It is not possible to
formulate an all-inclusive or exhaustive test which
would adequately answer this question. There is no
cut and dried formula which would provide the
correct division of corporations into those which are
instrumentalities or agencies of Government and
those which are not.”
7.2 A Constitution Bench in Ajay Hasia (supra) following
the tests laid down in R.D Shetty (supra)held as under:
“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
case [(1979) 3 SCC 489] . 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 realised that it should not be
stretched so far as to bring in every autonomous body
which has some nexus with the Government within
C.A.@SLP(C)No.27366 of 2023 Page 11 of 32
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
case [(1979) 3 SCC 489] 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)
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
the International Airport Authority case [(1979) 3
SCC 489] , be an “authority” and, therefore, ‘State’
within the meaning of the expression in Article 12.”
C.A.@SLP(C)No.27366 of 2023 Page 12 of 32
7.3 A bench of seven Judges in Pradeep Kumar Biswas
13
v. Indian Institute of Chemical Biology speaking
through Ruma Pal J., referred to the previous decisions of
the Court and held as under:
“ 38. … “these are merely indicative indicia and are
by no means conclusive or clinching in any case”. In
that case, the question arose whether the National
Council of Educational Research (NCERT) was a
“State” as defined under Article 12 of the
Constitution. NCERT is a society registered under the
Societies Registration Act. After considering the
provisions of its memorandum of association as well
as the rules of NCERT, this Court came to the
conclusion that since NCERT was largely an
autonomous body and the activities of NCERT were
not wholly related to governmental functions and that
the government control was confined only to the
proper utilisation of the grant and since its funding
was not entirely from government resources, the case
did not satisfy the requirements of the State under
Article 12 of the Constitution. …
39. Fresh off the judicial anvil is the decision
in Mysore Paper Mills Ltd. v. Mysore Paper Mills
Officers' Assn. [(2002) 2 SCC 167 : 2002 SCC (L&S)
223 : JT (2002) 1 SC 61] which fairly represents what
we have seen as a continuity of thought commencing
from the decision in Rajasthan Electricity
Board [AIR 1967 SC 1857 : (1967) 3 SCR 377] in
1967 up to the present time. It held that a company
substantially financed and financially controlled by
the Government, managed by a Board of Directors
nominated and removable at the instance of the
Government and carrying on important functions of
public interest under the control of the Government is
“an authority” within the meaning of Article 12.
13
(2002) 5 SCC 111
C.A.@SLP(C)No.27366 of 2023 Page 13 of 32
40. The picture that ultimately emerges is that the
tests formulated in Ajay Hasia [ Ajay Hasia v. Khalid
Mujib Sehravardi , (1981) 1 SCC 722 : 1981 SCC
(L&S) 258] 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)
Recently in Rajkaran Singh (supra), on which great
reliance has been placed by the appellant, this Court
while dealing with the question whether the
compulsory savings deposit fund of the Special
Frontier Force, was ‘State’ or not whether the benefit
th
of the 6 Central Pay Commission would be extended
to the employees thereof or not. In para 26 of the
abovesaid judgment the concluding paras of Pradeep
Kumar Biswas (supra) were reproduced and
thereafter applied to the instant facts. The concluding
paras of the latter judgment indicate the following –
to be an authority within the meaning of Article 12 the
entity should either be a creation of statute or be
created under a statute functioning with liabilities and
obligations to the public; Tests 1, 2 and 4 in Ajay
Hasia (supra) are determinative of ownership and
tests 3, 5 and 6 are functional test. It is thereafter
observed that “ 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 on a
combination of one or more of the relevant factors
depending on the essentiality and overwhelming
C.A.@SLP(C)No.27366 of 2023 Page 14 of 32
nature of such factors in identifying the real source of
governing power…”
7.4 The discussion made by N. Santosh Hegde J,
writing for the majority in Zee Telefilms Ltd. v. Union of
14
India , is important for the present purposes. It was held:
“ 31. Be that as it may, it cannot be denied that the
Board does discharge some duties like the selection
of an Indian cricket team, controlling the activities of
the players and others involved in the game of cricket.
These activities can be said to be akin to public duties
or State functions and if there is any violation of any
constitutional or statutory obligation or rights of other
citizens, the aggrieved party may not have a relief by
way of a petition under Article 32. But that does not
mean that the violator of such right would go scot-
free merely because it or he is not a State. Under the
Indian jurisprudence there is always a just remedy for
the violation of a right of a citizen. Though the
remedy under Article 32 is not available, an aggrieved
party can always seek a remedy under the ordinary
course of law or by way of a writ petition under
Article 226 of the Constitution, which is much wider
than Article 32.
…
33. Thus, it is clear that when a private body exercises
its public functions even if it is not a State, the
aggrieved person has a remedy not only under the
ordinary law but also under the Constitution, by way
of a writ petition under Article 226. Therefore, merely
because a non-governmental body exercises some
public duty, that by itself would not suffice to make
such body a State for the purpose of Article 12. In the
instant case the activities of the Board do not come
under the guidelines laid down by this Court
in Pradeep Kumar Biswas case [(2002) 5 SCC 111 :
2002 SCC (L&S) 633] hence there is force in the
14
(2005) 4 SCC 649
C.A.@SLP(C)No.27366 of 2023 Page 15 of 32
contention of Mr Venugopal that this petition under
Article 32 of the Constitution is not maintainable.”
(emphasis supplied)
8. We now proceed to evaluate the rival contentions in the
light of the judgments referred to supra . It is not in dispute that
(a) membership of AFGIS is compulsory for all officers and
Airmen; (b) the contribution of premiums are automatically
deducted from the salaries; (c) the Board of Trustees comprises
entirely of senior serving IAF officials; (d) service at AFGIS is
considered to be proper deputation for officers and the sanction
for this Body as also its deputation rules was granted by the
Hon’ble President of India; (e) AFGIS periodically reports its
financial transactions to a senior officer in the IAF; (f) in letter
th
dated 15 March 2016 AFGIS itself accepts its position as
‘ Government ’; (g) the President has accorded sanctions on
separate occasions viz., introduction of substantive post in the
Society, specific fixation of pay bands; and (h) the Society is
exempt from various taxes given its compulsory nature as also
automatic deduction from pay, AFGIS has a monopoly over
insurance for IAF members. Let us unpack these points.
9. For points (a), (b), (f) and (g) the relevant portion of the
th
letter dated 15 March, 2016 referred to supra are reproduced
below:
“ 2. xxx xxx xxx
C.A.@SLP(C)No.27366 of 2023 Page 16 of 32
(e) Para 5: As regards the issue of submission of
ITR along with form 26 as for the period from 2010-
11 to 2014-15, it is informed that this Society is
established under the authority of Ministry of
Defence, Govt of India to be run departmentally as a
self-contained Society vide GOI, MoD letter No Air
HQ/25657/17/D/Accts/1197 DOLA (Air-11)/76
dated 06 Oct 1976 and that this Society is registered
under the Society Registration Act (XXI of 1860) and
also that this Society has been established by the
Armed Forces of the Union of India (Air Force) for
the welfare of the past and present members (air
warrior / air veterans) and their dependents. The
principal objective of the Society is to collect the
mandatory and compulsory deduction from the air
warriors so as to provide the financial relief in case of
contingencies of death/disability of the air warrior
occurring while in service/post retirement. Further,
the Society also provides welfare services to air
warriors / air veterans and their dependents by
payment of survival (saving element of the mandatory
and compulsory deduction) on retirement/death. The
income of the Society is exempted from Income Tax
u/s 10(23)(C)(iv) of Income Tax Act 1961 as notified
vide MoF letter No F.275/29/85-IT(B) dated 05 Jun
1985
.
xxx xxx xxx
3. xxx xxx xxx
(c) Basis of the Working of the AFGIS:
Consequent to the aforesaid sanction/approvals, the
contributions by air warriors to AFGIS have been
made mandatory and compulsory in terms of Air
Force Instructions (AFI) 16/87 issued by the Govt of
India (Ministry of Defence). The monthly mandatory
contributions are compulsorily deducted from the
salary of all air warriors (officers, airmen and
NCs(E)) from the day they join IAF. Hence,
membership to the group insurance has become an
C.A.@SLP(C)No.27366 of 2023 Page 17 of 32
integral part of the Service Conditions. It is pertinent
to mention here that the AFGIS, like Army Group
Insurance and Naval Group Insurance, caters only to
‘Men in Uniform’ and is not open to civilians or the
general public. AFGIS does not issue any insurance
policies to the air-warriors for its insurance schemes.
xxx xxx xxx
(g) Relationship between AFGIS and its Air
Warrior Members.
One of the primary factors for deciding the
applicability of Service Tax is the relationship
between a service provider and service receiver
wherein there is a “flow of service”. AFGIS is a self-
contained Society run departmentally under the
authority of Govt of India (Ministry of Defence). The
insurance schemes run by AFGIS are exclusively for
the air warrior members hence the group is a “Closed
Group”. Membership and contribution to the schemes
is compulsory and mandatory. Following examples
regarding decisions given by the Courts could further
clarify this matter.
(i) In the case of Saturday Club Ltd v/s Assistant
Commissioner, Service Tax, 2006 (3) STR 305;
the Hon’ble High Court of Calcutta observed
that, “Principally there should be an existence of
two sides/entities for having transaction as
against consideration. In a members club there is
no question of two sides. ‘Members’ and ‘club’
both are same entity. One may be called as
‘Principal’ while the other may be called as
‘Agent’ and therefore, such transaction in
between themselves cannot be recorded as
income, sale or service as per applicability of the
revenue tax of the country.”
(ii) In the matter of New Delhi CESTAT in the
case of Federation of Indian Chambers of
Commerce & Industry (FICCI) v/s
Commissioner of Service Tax, Delhi (2015) 38
S.T.R. 529 (New Delhi - CESTAT) wherein the
C.A.@SLP(C)No.27366 of 2023 Page 18 of 32
Tribunal held that the service by FICCI to its
members is not liable for payment of service tax
owing to ‘Principle of Mutuality’.
(h) AFGIS is controlled by the Govt. of India through
the Ministry of Defence and Air HQ and hence is
“Government” in terms of Finance Act, 1994. AFGIS
acts as a wing of the Government and hence the
collection received from its members is outside the
purview of the service tax primarily on the basis of
“Principle of Mutuality” and by virtue of Section 66 D
of the Finance Act, 1994 wherein the service of
‘Government’ is outside the purview of the Service Tax.
xxx xxx xxx”
st
Air Force instruction dated 1 October 1987 mandating membership of
AFGIS is as under:-
COPY
AIR FORCE INSTRUCTION
NO – 16
New Delhi, Thursday, October 1, 1987/Asavina 9, 1909
COMPULSORY MEMBERSHIP-GROUP
INSURANCE SCHEME
1. The membership under Air Force Group Insurance Society for
the Insurance Scheme in existence at the time of joining Indian
Air Force will be compulsory for the following:-
(a) Officers
(b) Airmen
(c) NCs(E)
(d) Flight Cadets
2. All personnel who are members of Enhanced Group Insurance
Scheme 1982 of Air Force Group Insurance Society shall
automatically become members of any other Insurance Scheme
floated in future by the Air Force Group Insurance Society. The
will be liable to pay insurance premium for the new scheme as
fixed by the Air Force Group Insurance Society from time to
time.
C.A.@SLP(C)No.27366 of 2023 Page 19 of 32
3. All personnel who are not members of Enhanced Group
Insurance Scheme 1982 but are members of Group Insurance
Scheme 1975 or 1978 can become members of any new
insurance scheme floated by Air Force Group Insurance Society
after becoming members of Enhanced Group Insurance Scheme
1982, for which they will be required to pay the insurance
premium applicable for 1982 scheme from 01 Apr 82 till the
date the new schemes come into force. Premium paid under
1975 and 1978 Schemes will be retained and paid at the time of
retirement will applicable rates of interest.
4. These provisions take effect from the date of issue of this AFI.
Case No. Air HQ/24018/16/PP&R-1/D (Air-III)
Min of Def/(Fin) UO No. 1410/Pay/AF of 1987
Sd/-
(R.K. Dhir)
Dy Secretary
10. For point (c), reference may be made to the Manual of
Administration and Management, Air Force Group Insurance
Society (Published under the Authority of Board of Trustees
AFGIS) 2009
CHAPTER 2
ADMINISTRATION
Board of Trustees
1. The Society will be administered by a Board of Trustees and a
Managing Committee as per the details given in succeeding paras.
2. The Board of Trustees constitute the following:-
AOA — Chairman
DG(IBS) — Member
DCAS — Member
AOM — Member
AOP — Member
C.A.@SLP(C)No.27366 of 2023 Page 20 of 32
ACAS (Accts) — Member
PD AFGIS — Member Secretary
18. Secretary . The Secretary shall be an officer
of the rank of Gp Capt of the Accounts Branch and will be
on deputation to the Society as per the terms and conditions
approved by the Government. His appointment will be
approved by the Chairman, Board of Trustees. He will
conduct day to day administration and be responsible to
Principal Director, AFGIS on all matters of the Society. He
shall perform the following functions:-
(a) Carry out administrative duties as may be entrusted to
him by Principal Director, AFGIS.
(b) Give notice of the meeting to the members of Board of
Trustees/Managing Committee and prepare briefs on all
agenda points to be sent to the members.
(c) Attend all meetings of the Board of Trustees and
Managing Committee unless prevented by illness or
excused from attending by the Chairman and record the
Minutes of all meetings of the Board of Trustees.
(d) Communicate decisions of the Board of
Trustees/Managing Committee to concerned executives for
implementation.
(e) Be responsible for the efficient functioning of Claims,
Advances, PRIC and Contribution Sections and correct
maintenance of connected records.
(f) Conduct correspondence o behalf of the Board of
Trustees and Managing Committee
(g) Finalise and settle all death, disability and survival
benefit claims duly approved by the appropriate authority.
(h) prepare the annual report of the Society for approval by
the Board of Trustees.
(j) Perform the duties of Principal Director and JD (Fin) in
the absence of the permanent incumbent.
(k) Approve expenditure as per the financial powers
delegated within the overall budget limit approved by the
Board of Trustees.
C.A.@SLP(C)No.27366 of 2023 Page 21 of 32
(l) Put up proposals for investment of funds of the Society.”
xxx xxx xxx
11. For points (d), the following letter is extracted:-
11(5)2000/DOI/DOI/D(Air-III)
Government of India
Ministry of Defence
th
New Delhi dated the 27 Mar 2002
To
The Chief of Air Staff
(with 15 Spare copies)
Subject: GENERAL TERMS & CONDITIONS FOR
DEPUTATION OF OFFICERS TO AIR FORCE GROUP
INSURANCE SOCIETY
Sir,
I am directed to convey the sanction of the
President to the general Terms & Conditions for
deputation of IAF officers to Air Force Group Insurance
Society as laid down in Annexure ‘A’ of this letter.
3. This issues with the concurrence of Ministry of
Defence (Finance) vide their u.o. No.543/P&W/AF dated
22 Mar 2002.
Yours faithfully,
(G. Srinivasan)
Desk Officer
12. For point (e) relevant portion of Manual of Administration
and Management, AFGIS:-
C.A.@SLP(C)No.27366 of 2023 Page 22 of 32
th
35. Monitoring System On 25 of every month,
PD AFGIS is to apprise ACAS (Accts) on the case flow of
AFGIS, bringing out the details of all investment during the
previous 30 days. He is also to make a structured
presentation to AOA of investment status, the quotations
received during the previous quarter along comparative
statements, their forecast appreciation of the investment
environment the next quarter and the case flow assessment
of the next quarter. At the end of every quarter the
performance analysis of the investment is to be put up to
both for their perusal.
13. For point (g) reference is made to the following letters
th th
dated 25 February 1985 and 28 September 1981:-
“No.Air HQ/5.18172/22/3/PC-26/Plans/361/DOIIA/
D(Air-III)
Government of India,
Ministry of Defence,
New Delhi, the 25th February, 1985
To
The Chief of the Air Staff (with 35 spare copies)
SUBSTANTIVE CADRE OF GROUP CAPT AND
ABOVE - DIRECTOR OF GROUP INSURANCE SOCIETY
Sir,
I am directed to refer to this Ministry's letter No. Air
HQ/S.18172/22/3/Plans/3750/D(Air-III)/62 dated 15th May, 1974 as
amended from time to time and to convey the sanction of the President to
the inclusion of one post of Air Cmde (Accts) in the substantive cadre of Air
Cmde (Accts) so long the post of director of Group Insurance Society is held
by an Air Force Office and its deletion from the existing substantive cadre/of
Group Cap-t (Accts).
C.A.@SLP(C)No.27366 of 2023 Page 23 of 32
2. This issues with the concurrence of Ministry of Defence/
(Finance/Division)vide their u.o. No. 351/Org/S/AF of 1985.
Yours faithfully,
(H.D. SHARMA)
DESK OFFICER
xxx xxx xxx
Appendix 'E'
(Refers to para 9 of
Chapter 3)
No. Air HQ/24011/71 PP & R-1/2282/DOIIB/D (Air III)
Government of India/Bharat Sarkar
Ministry of Defence /Raksha Mantralaya
New Delhi, the 28 September, 1981
th
6 Asvina, 1903 Sako Era
To
The Chief of the Air Staff,
Subject: Enhancement of Flying Pay-Air Force Personnel
Sir,
1. I am directed to refer to para 9(b) of AFI 4/S/74 as amended and
Serial No.12 of Appendix 'B' to AFI 2/S/74, as amended and to state that the
president is pleased to decide that with effect from 01 Sep 1981, the rates of
flying pay will be enhanced as under:-
(i) Wing Commander and below
Rs.750.00 pm
(ii) Group Caption and Air Cmde
Rs.666.00 pm
(iii) Air Vice Marshal and above
Rs.600.00 pm
C.A.@SLP(C)No.27366 of 2023 Page 24 of 32
(iv) Airmen including JWOs, WOs and MWOS
Rs.374.50 pm
2. The increased flying pay will be admissible subject to additional
insurance cover as given below, taken through Air Force Group Insurance
Society (AFGIS):-
(a) Officers of the flying branch are required to obtain additional
life insurance cover against all risks, including flying for a minimum
of Rs.2 Lakhs effective from 01 Oct 81, on payment of monthly
contribution as given below:-
(i) Wing Commander and below
Rs.325.00 pm
(ii) Group Captain and Air Cmde
Rs.283.00 pm
(iii) Air Vice Marshal and above
Rs.250.00 pm
(b) Officers of the Ground duty Branches, entitled to flying pay
will be required to obtain additional life insurance cover against all
risks, including flying, for a minimum of Rs.2 Lakhs effective from
01 Oct 81, on payment of monthly contribution as applicable to
equivalent ranks of the flying branch only during the period of
entitlement of flying pay.
(c) Airmen aircrew, entitled to flying pay, will be required to
obtain additional life insurance cover against all risks, including
flying for a minimum of Rs. One Lakhs effective from 01 Oct 81, on
payment of monthly contribution of Rs.162.00 only during the
period of entitlement to flying pay.
(d) The Air Force Group Insurance Society will pay Survival
Benefit to persons covered under the above insurance scheme on
retirement/release, the amount of which will be determined by the
said Society from time to time.
C.A.@SLP(C)No.27366 of 2023 Page 25 of 32
3. (a) The amount payable to the Group Insurance Scheme is to be
recovered from IRLAs of officers and airmen from the pay of Sep
81 onwards and paid by the Air Force Central accounts Office to Air
Force Group Insurance Society in respect of personnel for whom
IRLAs are maintained, on the day pay for the month is disbursed.
(b) (i) Deputationists and other officers and airmen for
whom no IRLAS are maintained at Air Force Central
Accounts Office and who are entitled to enhance flying pay,
are to obtain insurance cover for the amounts, as applicable
by remitting the contributions to Air Force Group Insurance
Society for the flying pay to be admitted.
(ii) In the case of the existing deputationist and other
officers and airmen for whom no IRLAs are maintained by
Air Force Central Accounts Office and who are entitled for
enhanced flying pay contributions are to be remitted by them
direct to the AFGIS latest by 01 Jun 82. However, the
contributions will have to be made wef 01 Oct 81.
(iii) In the case of the officers mentioned above whom no
IRLAs are maintained by AFCAO, the controlling officers
will admit flying pay only on receiving a certificate/receipt
from the Air Froce Group Insurance Society to the effect that
the individual has contributed for the month(s) for which
flying pay is admitted.
(c) In view of the provisions made in sub paras (a) & (b) (iii)
above, no certificate of payment of insurance premium will be
required to be given by OC Unit and no POR is necessary, in respect
of this additional insurance cover. However, the flying pay
certificate prescribed in the Appendix 'G' to AFI 2/S/74 and
Appendix 'C' to AFI 2/S/74 will continue to be furnished.
4. Other conditions governing flying pay including insurance cover
required under the earlier orders remain unchanged.
5. AFI 4/S 74 and AFI 2/S/74 will be amended in due course.
C.A.@SLP(C)No.27366 of 2023 Page 26 of 32
6. This issues with the concurrence of Min of Fin (Def) vide their
No.2622/Pay/ AA of 1981.
Yours faithfully,
Sd/-
(N.N. Mathur)
Desk Officers
xxx xxx xxx”
st
14. For point (h) the Notification dated 31 October 1983
exempting the Society from estate duty is extracted below:-
“Appendix 'D'
(Refers to para 8
of Chapter 1)
TO BE PUBLISHED IN PART II SECTION 3-SUB
SECTION (1) OF THE GAZETTE OF INDIA
Government of India
Central Board of Direct Taxes
New Delhi, the 31" October, 1983
NOTIFICATION
ESTATE DUTY
GSR 841, Whereas the Central Government is of opinion that
circumstances are such that some relief in addition to the relief provided in
sub section (i) of Section 33 of the Estate Duty act, 1953 (34 of 1953) should
be given in respect of the following class of property belonging to the
deceased which passes on his death and in respect of which estate duty is
liable to be levied and collected under the said Act, namely, the money
payable under Army Group Insurance Scheme or the Naval Group Insurance
Scheme or the Air Force Group Insurance Schemes as the case may be, in
existence on the date of publication of this Notification in the Official
Gazette. Now, therefore, in exercise of the power conferred by sub section
C.A.@SLP(C)No.27366 of 2023 Page 27 of 32
(2) of the section 33 of the Estate Duty Act, 1953 (34 of 1953), the Central
Government hereby directs that no estate duty shall be payable in respect of
the aforesaid class of property.
Sd/
(Arvind Pinto)
Under Secretary to the Government of India
(F.No.296/7/83-ED)
th
Notification dated 5 June 1985 exempting AFGIS from income tax, is as
under:-
“Appendix 'B'
(Refers to para 7(c) of Chapter 1)
Copy
TO BE PUBLISHED IN PART II SECTION 3 (II) OF THE
GAZETTE OF INDIA
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
th
NEW DELHI, TIME 5 JUNE, 1985
NOTIFICATION
INCOME TAX
S.O. In pursuance of sub clause (f) of clause (iii) of sub section (3) of section
194A of the Income Tax Act, 1961 (43 of 1961), the Central Government
hereby notifies the Society known as Air Force Group Insurance Society,
New Delhi, for the purpose of the said sub- clause.
(F. No. 275/29/85-IT (B)
Sd/-
(B.Nagarajan)
Deputy Secretary to
the Govt of India
C.A.@SLP(C)No.27366 of 2023 Page 28 of 32
xxx xxx xxx”
15. In our view, a perusal of the documents extracted supra
make out a case for AFGIS to be considered ‘ State ’ within the
meaning of Article 12. For the aspect of deep and pervasive
control, we observe that the Hon’ble President of India granted
sanction for AFGIS to be established and also specifically
approved the deputation Rules; the Principal Director (AFGIS),
every month is to apprise the Assistant Chief of Air Staff
regarding the cash flow of AFGIS which ensures monitoring by
a core member of the IAF on the activities of AFGIS; the
membership and deductions arising therefrom are a compulsory
aspect of serving in the IAF, meaning thereby that there is no
choice of the individual officer in that matter and instead is a
mandate from the employer. When the aspect of administrative
control is examined, it is seen that all the members of the Board
of Trustees, so also the Managing Committee are serving
members of the IAF and are deputed to AFGIS for a fixed period.
In essence, therefore, the administration of the Body is entirely
in the hands of Government servants even though the body itself
is a purportedly private, a self-contained society. The appellant,
in submitting that financial control also rests with the
Government says that since the mandatory reduction of the
premium is directly/automatically from the salary of the
C.A.@SLP(C)No.27366 of 2023 Page 29 of 32
members of IAF and these salaries are charged to the
Consolidated Fund of India- this shows financial control.
16. We are unable to accept this contention. It may be that in
so far as financial aspects of AFGIS are concerned, the
Government may not have a direct role however for a body to be
held to be a ‘State’ it is the cumulative effect and impact of deep
and pervasive control, financial and administrative control along
with other factors such as carrying out of public duty.
17. We are of the considered view that AFGIS does indeed
perform a public duty. The protection and welfare of armed
forces personnel is a core government function. The role of the
armed forces is directly linked to the sovereignty and security of
the nation and in protecting the same members of the forces are
required to adhere to, abide by, and maintain a strict set of rules,
unquestionable conduct, and at times in the most severe and
adverse circumstances . Thus, providing insurance coverage is a
public function as it addresses a collective obligation the State
has towards a defined public class whose service is
indispensable. The body, in effect, becomes a conduit for the
discharge of that obligation. The role of the State in protecting
them does not end upon their superannuation from service for the
life of a person from the forces is forever shaped by their time in
service. Insurance to service members is a critical instrument for
safeguarding their physical, mental well-being, dignity and
C.A.@SLP(C)No.27366 of 2023 Page 30 of 32
economic security. It operates as an assurance of protection and
support in case contingencies such as disability or illness befall
them or even untimely death which is a real possibility in these
services. The fact that healthcare, rehabilitation, support to
dependants is available readily, is undoubtedly an aspect that
gives great peace of mind to the member of service enabling them
to carry out their duties without worry, at least in this regard.
18. In addition to the discussion above, it is also seen that at
one-point AFGIS itself claimed to be Government while claiming
an exemption from service taxes, since it is under the control of
Ministry of Defence. In effect, by opposing the challenge of the
appellants, AFGIS has resiled from its own statement. We fail to
understand an organisation can be ‘ Government ’ for one purpose
and not be, for another purpose.
19. Consequent to the above discussion, AFGIS would be
‘ State ’ under Article 12. The writ petition before the High Court
accordingly, maintainable. The said writ petition on the grievance
of the appellants is restored. The High Court is requested to
decide the same expeditiously keeping in view the fact that the
same has been filed in the year 2017. Appeal is allowed.
C.A.@SLP(C)No.27366 of 2023 Page 31 of 32
Pending application(s) if any shall stand disposed of.
………….……..……………..J.
(SANJAY KAROL)
……….………..……………..J.
(VIPUL M. PANCHOLI)
New Delhi
March 12, 2026
C.A.@SLP(C)No.27366 of 2023 Page 32 of 32
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. __ _____ OF 2026
(Arising out of SLP (C) 27366 of 2023)
RAVI KHOKHAR & ORS ... APPELLANT (S)
Versus
UNION OF INDIA & ORS. ... RESPONDENT (S)
J U D G M E N T
SANJAY KAROL, J.
Leave Granted.
Signature Not Verified
Digitally signed by
RAJNI MUKHI
Date: 2026.03.12
17:31:09 IST
Reason:
C.A.@SLP(C)No.27366 of 2023 Page 1 of 32
THE CONTROVERSY IN A NUTSHELL
2. The Appellants are employees of the Air Force Group
1
Insurance Society established under the Societies Registration
2
Act, 1860 in the year 1976, with sanction of the Hon’ble
th
President of India, having been received in the same year on 6
October. The dispute germane to this lis is that while the Board
th
of Trustees, had, vide special meeting dated 27 December 2016
decided that the pay scales of the workers would be revised in
accordance with the Sixth Pay Commission of the Government
th
of India, subsequently, by way of meeting dated 13 February
2017 resolved that pay structures would be revised in a way that
any linkage/connection to and pay parity with the Central
Government, by virtue of the Pay Commissions be done away
with, and according thereto, asked all employees by way of
nd
notice dated 22 May 2017 to sign their acceptance to the revised
terms.
THE IMPUGNED JUDGMENT
3. The appellants, aggrieved thereby, filed Writ Petitions
3
before the High Court of Delhi which were dismissed by a
1
AFGIS
2
SRA
3 3 3
WP(C) No. 5024 of 2017; WP(C) No. 16428 of 2022, CM APPL 51620 of 2022; WP(C)
3 3 3
No. 6759 of 2022; WP(C) No. 13858 of 2018; WP(C) No. 863 of 2019; WP(C) No.
15835 of 2022 & CM APPL. 49280 of 2022.
C.A.@SLP(C)No.27366 of 2023 Page 2 of 32
st
common judgment dated 1 February 2023. The findings of the
Learned Division Bench can be summarised as follows:
3.1 The Court’s central finding was that none of the
respondent organisations, namely the Air Force Group
Insurance Society, the Air HQs Non-Public Fund
Organisation, or the CRPF Employees’ Educational
Society, could be treated as “ State ” or “ other authority ”
within the meaning of Article 12 of the Constitution of
India. This determination was foundational, because the
Court held that unless the respondents satisfied the
requirements of Article 12, the writ petitions under Article
226 were not maintainable and the Court cannot not
adjudicate on claims relating to pay parity, service
conditions, promotions, retirement age, or implementation
of Pay Commission recommendations.
In examining the status of the Air Force Group
Insurance Society, the Court found that it is a Society
registered under the Societies Registration Act, 1860,
established in 1976 as a self-contained and self-run welfare
and insurance scheme meant exclusively for Air Force
personnel and their families. While senior Air Force
officers form part of the Board of Trustees and certain
officers are posted with the Society on deputation, the
Court held that this association does not translate into deep
C.A.@SLP(C)No.27366 of 2023 Page 3 of 32
or pervasive governmental control. The day-to-day
administration of the Society is carried out under its own
internal governance framework, and its finances are
sourced entirely from member contributions and the
insurance fund rather than from any budgetary allocation
or grant from the Central Government. The Court placed
particular reliance on the appointment letters of AFGIS
employees, which expressly state that their service
conditions are governed by the Rules of the Society as
amended from time to time. The Court noted that there is
no statutory or contractual guarantee of parity with Central
Government employees and that allowances and pay
structures are subject to approval by the Board of Trustees.
The Court, therefore, concluded that even if historical
parity with Central Government pay scales had existed in
practice, it did not create any enforceable legal right nor
did it convert AFGIS into an instrumentality of the State.
3.2 While addressing the legal tests applicable to Article
12, the Court reaffirmed the principles laid down by the
Constitution Bench of the Court in Ajay Hasia and Others
4
v. Khalid Mujib Sehravardi and Others , which
emphasised that the decisive question is not how an entity
4
(1981) 1 SCC 722
C.A.@SLP(C)No.27366 of 2023 Page 4 of 32
is created but whether it functions as an instrumentality or
agency of the Government. The Court further relied on
Pradeep Kumar Biswas and Others v. Indian Institute of
5
Chemical Biology and Others , , where the Supreme Court
clarified that the tests laid down in Ajay Hasia (supra) are
not rigid and that the cumulative facts must demonstrate
financial, functional, and administrative domination by the
Government, with control that is deep and pervasive. The
Court also drew support from Chander Mohan Khanna v.
National Council of Educational Research and
6
Training , which cautioned against an over-expansive
interpretation of Article 12 merely on the basis of
governmental association or assistance.
The Court specifically rejected the petitioners’
reliance on Sagarika Singh v. Union of India and
7
Others , noting that the reasoning in that decision had
subsequently been disapproved by a larger Bench of the
Delhi High Court in Ex. Sub. Rajender Singh v. Union of
8
India and Others ,. The Court observed that the larger
Bench had clarified that welfare or insurance schemes
connected with the armed forces cannot automatically be
5
(2002) 5 SCC 111
6
(1991) 4 SCC 578
7
2011 SCC OnLine Del 3612
8
2013 SCC OnLine Del 1598
C.A.@SLP(C)No.27366 of 2023 Page 5 of 32
treated as “ State ” in the absence of pervasive
governmental control, and that the earlier view taken in
Sagarika Singh (supra) no longer represents good law.
3.3 Applying these settled principles to the facts of the
present cases, the Court concluded that all the respondent
organisations are autonomous, self-funded societies
established for the limited benefit of their members and not
for the public at large. The Court found no evidence of
financial dependence on the Central Government, nor any
administrative or functional domination of the kind
required to attract Article 12. Consequently, the writ
petitions were held to be not maintainable. The interim
protection granted in one of the petitions was vacated, and
all petitions were dismissed with liberty granted to the
petitioners to pursue their remedies before appropriate
alternative forums such as civil courts or labour
adjudicatory bodies.
3.4 It has to be noted that the status of certain other
bodies as “ State ” within the meaning of Article 12 was also
a question before the High Court, namely Air HQs Non-
Public Fund Organisation and CRPF Employees’
Educational Society, but since the determination in respect
thereof is not under challenge before us, we need not enter
into the particulars thereof.
C.A.@SLP(C)No.27366 of 2023 Page 6 of 32
THE CASE OF THE PARTIES
A. The Appellants
4. We have heard Mr. Shoeb Alam, learned senior counsel for
the appellants. It is submitted that AFGIS has represented itself
to be ‘ Government ’ in official correspondence. As an example, a
th
letter dated 15 March 2016 was shown. The cumulative test is
financial functional and administrative dominance of the
Government and accordingly it is submitted that the day-to-day
affairs are managed by serving senior officers of the Indian Air
9
Force . The very establishment was with the sanction of the
Hon’ble President of India, and membership of this Organisation
is compulsory for all Officers and Airmen. Further, the land on
which the office is situate has been granted by the Ministry of
Defence, Government of India, and it also enjoys exemptions
from various taxes levied. Still further, it is also highlighted that
the functions performed by AFGIS are of public importance and
welfare oriented. Heavy reliance is placed on a recent judgment
10
of this Court in Rajkaran Singh v. Union of India , wherein this
Court examined the issue concerning employees of a compulsory
savings fund being entitled to benefits of the Central Pay
Commission, which was answered in the affirmative given
9
‘IAF’
10
2024 SCC OnLine SC 2138
C.A.@SLP(C)No.27366 of 2023 Page 7 of 32
alignment of service conditions, pervasive government control
and public function. As such, the appellants, being similarly
th
placed would also be entitled to the benefits of the 7 Pay
Commission in line with the past position where they have been
granted the said benefits.
B. Respondent-AFGIS
5. Mr. Ankur Chibber, learned Counsel appeared for AFGIS
and submitted that the body is not ‘ State ’ within the meaning of
Article 12 for it is a self-financed, non-public fund society. The
premiums paid by the members are deducted centrally by the Air
Force Central Accounts Office and then remitted to the
Organisation. This is the only source of funds, and it has no
inflow or outflow from the Consolidated Fund of India. During
the time when the officers of IAF come to the Organisation on
deputation their salary and allowances are borne by the AFGIS
itself. It also employees 47 civilian staff members who are not
government servant. The members of the Board of trustees are
ex-officio and do not receive any remuneration in respect of these
duties. The accounts are maintained by a privately hired
Chartered Accountant and AFGIS does not submit any report to
the Comptroller and Auditor General of India. It is as such
submitted that the High Court’s holding in the impugned
C.A.@SLP(C)No.27366 of 2023 Page 8 of 32
judgment that a petition under Article 226 will not be
maintainable, is the correct position in law.
C. Respondent-UNION OF INDIA
6. Mr. Vikramjeet Banerjee, learned ASG appeared for the
Union of India and supported the stand of AFGIS.
CONSIDERATION ON MERITS
7. Since the advent of the Constitution, the question of
whether a particular body can or cannot be recognised as ‘ State ’
11
within the meaning of Article 12 has arisen time and again.
Initially, this Court adopted a narrow and formalistic approach
focusing on whether the body concerned which was created
under a statute was part of the traditional Government structure.
Over the time however, as functions of the Government expanded
multi-fold there was a shift in this approach. State
instrumentalities, corporations and autonomous bodies were
recognised as covered under this Article, with the shift to a
functional and purposive analysis. The test to be satisfied
pertained to the nature of functions, character of activity, degree
of governmental control. This ensured that the breadth or scope
11
Article 12 of the Constitution of India reads thus:
“12. In this Part, unless the context otherwise requires, “the State’’ includes the Government
and Parliament of India and the Government and the Legislature of each of the States and
all local or other authorities within the territory of India or under the control of the
Government of India.”
C.A.@SLP(C)No.27366 of 2023 Page 9 of 32
of examination when this question arises is not limited to
ownership/origin but is instead informed by accountability, the
rule of law in furtherance of practical governance. It shall be
useful to refer to certain cases to exemplify the requirements that
need to be established for an organization be held to be “ State ”.
7.1 P.N Bhagwati J. (as His Lordship then was) writing
for the Court in Ramana Dayaram Shetty v. International
12
Airport Authority of India , observed:
“ 14. A corporation may be created in one of two
ways. It may be either established by statute or
incorporated under a law such as the Companies Act,
1956 or the Societies Registration Act, 1860. Where
a corporation is wholly controlled by Government not
only in its policy-making but also in carrying out the
functions entrusted to it by the law establishing it or
by the charter of its incorporation, there can be no
doubt that it would be an instrumentality or agency of
Government. But ordinarily where a corporation is
established by statute, it is autonomous in its working,
subject only to a provision, oftentimes made, that it
shall be bound by any directions that may be issued
from time to time by Government in respect of policy
matters. So also a corporation incorporated under law
is managed by a board of directors or committees of
management in accordance with the provisions of the
statute under which it is incorporated. When does
such a corporation become an instrumentality or
agency of Government? Is the holding of the entire
share capital of the corporation by Government
enough or is it necessary that in addition, there should
be a certain amount of direct control exercised by
Government and, if so, what should be the nature of
such control? Should the functions which the
12
(1979) 3 SCC 489 , ‘R.D Shetty’
C.A.@SLP(C)No.27366 of 2023 Page 10 of 32
corporation is charged to carry out possess any
particular characteristic or feature, or is the nature of
the functions immaterial? Now, 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. But, as is quite often the case,
a corporation established by statute may have no
shares or shareholders, in which case it would be a
relevant factor to consider whether the administration
is in the hands of a board of directors appointed by
Government, though this consideration also may not
be determinative, because even where the directors
are appointed by Government, they may be
completely free from governmental control in the
discharge of their functions. What then are the tests to
determine whether a corporation established by
statute or incorporated under law is an instrumentality
or agency of Government? It is not possible to
formulate an all-inclusive or exhaustive test which
would adequately answer this question. There is no
cut and dried formula which would provide the
correct division of corporations into those which are
instrumentalities or agencies of Government and
those which are not.”
7.2 A Constitution Bench in Ajay Hasia (supra) following
the tests laid down in R.D Shetty (supra)held as under:
“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
case [(1979) 3 SCC 489] . 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 realised that it should not be
stretched so far as to bring in every autonomous body
which has some nexus with the Government within
C.A.@SLP(C)No.27366 of 2023 Page 11 of 32
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
case [(1979) 3 SCC 489] 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)
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
the International Airport Authority case [(1979) 3
SCC 489] , be an “authority” and, therefore, ‘State’
within the meaning of the expression in Article 12.”
C.A.@SLP(C)No.27366 of 2023 Page 12 of 32
7.3 A bench of seven Judges in Pradeep Kumar Biswas
13
v. Indian Institute of Chemical Biology speaking
through Ruma Pal J., referred to the previous decisions of
the Court and held as under:
“ 38. … “these are merely indicative indicia and are
by no means conclusive or clinching in any case”. In
that case, the question arose whether the National
Council of Educational Research (NCERT) was a
“State” as defined under Article 12 of the
Constitution. NCERT is a society registered under the
Societies Registration Act. After considering the
provisions of its memorandum of association as well
as the rules of NCERT, this Court came to the
conclusion that since NCERT was largely an
autonomous body and the activities of NCERT were
not wholly related to governmental functions and that
the government control was confined only to the
proper utilisation of the grant and since its funding
was not entirely from government resources, the case
did not satisfy the requirements of the State under
Article 12 of the Constitution. …
39. Fresh off the judicial anvil is the decision
in Mysore Paper Mills Ltd. v. Mysore Paper Mills
Officers' Assn. [(2002) 2 SCC 167 : 2002 SCC (L&S)
223 : JT (2002) 1 SC 61] which fairly represents what
we have seen as a continuity of thought commencing
from the decision in Rajasthan Electricity
Board [AIR 1967 SC 1857 : (1967) 3 SCR 377] in
1967 up to the present time. It held that a company
substantially financed and financially controlled by
the Government, managed by a Board of Directors
nominated and removable at the instance of the
Government and carrying on important functions of
public interest under the control of the Government is
“an authority” within the meaning of Article 12.
13
(2002) 5 SCC 111
C.A.@SLP(C)No.27366 of 2023 Page 13 of 32
40. The picture that ultimately emerges is that the
tests formulated in Ajay Hasia [ Ajay Hasia v. Khalid
Mujib Sehravardi , (1981) 1 SCC 722 : 1981 SCC
(L&S) 258] 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)
Recently in Rajkaran Singh (supra), on which great
reliance has been placed by the appellant, this Court
while dealing with the question whether the
compulsory savings deposit fund of the Special
Frontier Force, was ‘State’ or not whether the benefit
th
of the 6 Central Pay Commission would be extended
to the employees thereof or not. In para 26 of the
abovesaid judgment the concluding paras of Pradeep
Kumar Biswas (supra) were reproduced and
thereafter applied to the instant facts. The concluding
paras of the latter judgment indicate the following –
to be an authority within the meaning of Article 12 the
entity should either be a creation of statute or be
created under a statute functioning with liabilities and
obligations to the public; Tests 1, 2 and 4 in Ajay
Hasia (supra) are determinative of ownership and
tests 3, 5 and 6 are functional test. It is thereafter
observed that “ 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 on a
combination of one or more of the relevant factors
depending on the essentiality and overwhelming
C.A.@SLP(C)No.27366 of 2023 Page 14 of 32
nature of such factors in identifying the real source of
governing power…”
7.4 The discussion made by N. Santosh Hegde J,
writing for the majority in Zee Telefilms Ltd. v. Union of
14
India , is important for the present purposes. It was held:
“ 31. Be that as it may, it cannot be denied that the
Board does discharge some duties like the selection
of an Indian cricket team, controlling the activities of
the players and others involved in the game of cricket.
These activities can be said to be akin to public duties
or State functions and if there is any violation of any
constitutional or statutory obligation or rights of other
citizens, the aggrieved party may not have a relief by
way of a petition under Article 32. But that does not
mean that the violator of such right would go scot-
free merely because it or he is not a State. Under the
Indian jurisprudence there is always a just remedy for
the violation of a right of a citizen. Though the
remedy under Article 32 is not available, an aggrieved
party can always seek a remedy under the ordinary
course of law or by way of a writ petition under
Article 226 of the Constitution, which is much wider
than Article 32.
…
33. Thus, it is clear that when a private body exercises
its public functions even if it is not a State, the
aggrieved person has a remedy not only under the
ordinary law but also under the Constitution, by way
of a writ petition under Article 226. Therefore, merely
because a non-governmental body exercises some
public duty, that by itself would not suffice to make
such body a State for the purpose of Article 12. In the
instant case the activities of the Board do not come
under the guidelines laid down by this Court
in Pradeep Kumar Biswas case [(2002) 5 SCC 111 :
2002 SCC (L&S) 633] hence there is force in the
14
(2005) 4 SCC 649
C.A.@SLP(C)No.27366 of 2023 Page 15 of 32
contention of Mr Venugopal that this petition under
Article 32 of the Constitution is not maintainable.”
(emphasis supplied)
8. We now proceed to evaluate the rival contentions in the
light of the judgments referred to supra . It is not in dispute that
(a) membership of AFGIS is compulsory for all officers and
Airmen; (b) the contribution of premiums are automatically
deducted from the salaries; (c) the Board of Trustees comprises
entirely of senior serving IAF officials; (d) service at AFGIS is
considered to be proper deputation for officers and the sanction
for this Body as also its deputation rules was granted by the
Hon’ble President of India; (e) AFGIS periodically reports its
financial transactions to a senior officer in the IAF; (f) in letter
th
dated 15 March 2016 AFGIS itself accepts its position as
‘ Government ’; (g) the President has accorded sanctions on
separate occasions viz., introduction of substantive post in the
Society, specific fixation of pay bands; and (h) the Society is
exempt from various taxes given its compulsory nature as also
automatic deduction from pay, AFGIS has a monopoly over
insurance for IAF members. Let us unpack these points.
9. For points (a), (b), (f) and (g) the relevant portion of the
th
letter dated 15 March, 2016 referred to supra are reproduced
below:
“ 2. xxx xxx xxx
C.A.@SLP(C)No.27366 of 2023 Page 16 of 32
(e) Para 5: As regards the issue of submission of
ITR along with form 26 as for the period from 2010-
11 to 2014-15, it is informed that this Society is
established under the authority of Ministry of
Defence, Govt of India to be run departmentally as a
self-contained Society vide GOI, MoD letter No Air
HQ/25657/17/D/Accts/1197 DOLA (Air-11)/76
dated 06 Oct 1976 and that this Society is registered
under the Society Registration Act (XXI of 1860) and
also that this Society has been established by the
Armed Forces of the Union of India (Air Force) for
the welfare of the past and present members (air
warrior / air veterans) and their dependents. The
principal objective of the Society is to collect the
mandatory and compulsory deduction from the air
warriors so as to provide the financial relief in case of
contingencies of death/disability of the air warrior
occurring while in service/post retirement. Further,
the Society also provides welfare services to air
warriors / air veterans and their dependents by
payment of survival (saving element of the mandatory
and compulsory deduction) on retirement/death. The
income of the Society is exempted from Income Tax
u/s 10(23)(C)(iv) of Income Tax Act 1961 as notified
vide MoF letter No F.275/29/85-IT(B) dated 05 Jun
1985
.
xxx xxx xxx
3. xxx xxx xxx
(c) Basis of the Working of the AFGIS:
Consequent to the aforesaid sanction/approvals, the
contributions by air warriors to AFGIS have been
made mandatory and compulsory in terms of Air
Force Instructions (AFI) 16/87 issued by the Govt of
India (Ministry of Defence). The monthly mandatory
contributions are compulsorily deducted from the
salary of all air warriors (officers, airmen and
NCs(E)) from the day they join IAF. Hence,
membership to the group insurance has become an
C.A.@SLP(C)No.27366 of 2023 Page 17 of 32
integral part of the Service Conditions. It is pertinent
to mention here that the AFGIS, like Army Group
Insurance and Naval Group Insurance, caters only to
‘Men in Uniform’ and is not open to civilians or the
general public. AFGIS does not issue any insurance
policies to the air-warriors for its insurance schemes.
xxx xxx xxx
(g) Relationship between AFGIS and its Air
Warrior Members.
One of the primary factors for deciding the
applicability of Service Tax is the relationship
between a service provider and service receiver
wherein there is a “flow of service”. AFGIS is a self-
contained Society run departmentally under the
authority of Govt of India (Ministry of Defence). The
insurance schemes run by AFGIS are exclusively for
the air warrior members hence the group is a “Closed
Group”. Membership and contribution to the schemes
is compulsory and mandatory. Following examples
regarding decisions given by the Courts could further
clarify this matter.
(i) In the case of Saturday Club Ltd v/s Assistant
Commissioner, Service Tax, 2006 (3) STR 305;
the Hon’ble High Court of Calcutta observed
that, “Principally there should be an existence of
two sides/entities for having transaction as
against consideration. In a members club there is
no question of two sides. ‘Members’ and ‘club’
both are same entity. One may be called as
‘Principal’ while the other may be called as
‘Agent’ and therefore, such transaction in
between themselves cannot be recorded as
income, sale or service as per applicability of the
revenue tax of the country.”
(ii) In the matter of New Delhi CESTAT in the
case of Federation of Indian Chambers of
Commerce & Industry (FICCI) v/s
Commissioner of Service Tax, Delhi (2015) 38
S.T.R. 529 (New Delhi - CESTAT) wherein the
C.A.@SLP(C)No.27366 of 2023 Page 18 of 32
Tribunal held that the service by FICCI to its
members is not liable for payment of service tax
owing to ‘Principle of Mutuality’.
(h) AFGIS is controlled by the Govt. of India through
the Ministry of Defence and Air HQ and hence is
“Government” in terms of Finance Act, 1994. AFGIS
acts as a wing of the Government and hence the
collection received from its members is outside the
purview of the service tax primarily on the basis of
“Principle of Mutuality” and by virtue of Section 66 D
of the Finance Act, 1994 wherein the service of
‘Government’ is outside the purview of the Service Tax.
xxx xxx xxx”
st
Air Force instruction dated 1 October 1987 mandating membership of
AFGIS is as under:-
COPY
AIR FORCE INSTRUCTION
NO – 16
New Delhi, Thursday, October 1, 1987/Asavina 9, 1909
COMPULSORY MEMBERSHIP-GROUP
INSURANCE SCHEME
1. The membership under Air Force Group Insurance Society for
the Insurance Scheme in existence at the time of joining Indian
Air Force will be compulsory for the following:-
(a) Officers
(b) Airmen
(c) NCs(E)
(d) Flight Cadets
2. All personnel who are members of Enhanced Group Insurance
Scheme 1982 of Air Force Group Insurance Society shall
automatically become members of any other Insurance Scheme
floated in future by the Air Force Group Insurance Society. The
will be liable to pay insurance premium for the new scheme as
fixed by the Air Force Group Insurance Society from time to
time.
C.A.@SLP(C)No.27366 of 2023 Page 19 of 32
3. All personnel who are not members of Enhanced Group
Insurance Scheme 1982 but are members of Group Insurance
Scheme 1975 or 1978 can become members of any new
insurance scheme floated by Air Force Group Insurance Society
after becoming members of Enhanced Group Insurance Scheme
1982, for which they will be required to pay the insurance
premium applicable for 1982 scheme from 01 Apr 82 till the
date the new schemes come into force. Premium paid under
1975 and 1978 Schemes will be retained and paid at the time of
retirement will applicable rates of interest.
4. These provisions take effect from the date of issue of this AFI.
Case No. Air HQ/24018/16/PP&R-1/D (Air-III)
Min of Def/(Fin) UO No. 1410/Pay/AF of 1987
Sd/-
(R.K. Dhir)
Dy Secretary
10. For point (c), reference may be made to the Manual of
Administration and Management, Air Force Group Insurance
Society (Published under the Authority of Board of Trustees
AFGIS) 2009
CHAPTER 2
ADMINISTRATION
Board of Trustees
1. The Society will be administered by a Board of Trustees and a
Managing Committee as per the details given in succeeding paras.
2. The Board of Trustees constitute the following:-
AOA — Chairman
DG(IBS) — Member
DCAS — Member
AOM — Member
AOP — Member
C.A.@SLP(C)No.27366 of 2023 Page 20 of 32
ACAS (Accts) — Member
PD AFGIS — Member Secretary
18. Secretary . The Secretary shall be an officer
of the rank of Gp Capt of the Accounts Branch and will be
on deputation to the Society as per the terms and conditions
approved by the Government. His appointment will be
approved by the Chairman, Board of Trustees. He will
conduct day to day administration and be responsible to
Principal Director, AFGIS on all matters of the Society. He
shall perform the following functions:-
(a) Carry out administrative duties as may be entrusted to
him by Principal Director, AFGIS.
(b) Give notice of the meeting to the members of Board of
Trustees/Managing Committee and prepare briefs on all
agenda points to be sent to the members.
(c) Attend all meetings of the Board of Trustees and
Managing Committee unless prevented by illness or
excused from attending by the Chairman and record the
Minutes of all meetings of the Board of Trustees.
(d) Communicate decisions of the Board of
Trustees/Managing Committee to concerned executives for
implementation.
(e) Be responsible for the efficient functioning of Claims,
Advances, PRIC and Contribution Sections and correct
maintenance of connected records.
(f) Conduct correspondence o behalf of the Board of
Trustees and Managing Committee
(g) Finalise and settle all death, disability and survival
benefit claims duly approved by the appropriate authority.
(h) prepare the annual report of the Society for approval by
the Board of Trustees.
(j) Perform the duties of Principal Director and JD (Fin) in
the absence of the permanent incumbent.
(k) Approve expenditure as per the financial powers
delegated within the overall budget limit approved by the
Board of Trustees.
C.A.@SLP(C)No.27366 of 2023 Page 21 of 32
(l) Put up proposals for investment of funds of the Society.”
xxx xxx xxx
11. For points (d), the following letter is extracted:-
11(5)2000/DOI/DOI/D(Air-III)
Government of India
Ministry of Defence
th
New Delhi dated the 27 Mar 2002
To
The Chief of Air Staff
(with 15 Spare copies)
Subject: GENERAL TERMS & CONDITIONS FOR
DEPUTATION OF OFFICERS TO AIR FORCE GROUP
INSURANCE SOCIETY
Sir,
I am directed to convey the sanction of the
President to the general Terms & Conditions for
deputation of IAF officers to Air Force Group Insurance
Society as laid down in Annexure ‘A’ of this letter.
3. This issues with the concurrence of Ministry of
Defence (Finance) vide their u.o. No.543/P&W/AF dated
22 Mar 2002.
Yours faithfully,
(G. Srinivasan)
Desk Officer
12. For point (e) relevant portion of Manual of Administration
and Management, AFGIS:-
C.A.@SLP(C)No.27366 of 2023 Page 22 of 32
th
35. Monitoring System On 25 of every month,
PD AFGIS is to apprise ACAS (Accts) on the case flow of
AFGIS, bringing out the details of all investment during the
previous 30 days. He is also to make a structured
presentation to AOA of investment status, the quotations
received during the previous quarter along comparative
statements, their forecast appreciation of the investment
environment the next quarter and the case flow assessment
of the next quarter. At the end of every quarter the
performance analysis of the investment is to be put up to
both for their perusal.
13. For point (g) reference is made to the following letters
th th
dated 25 February 1985 and 28 September 1981:-
“No.Air HQ/5.18172/22/3/PC-26/Plans/361/DOIIA/
D(Air-III)
Government of India,
Ministry of Defence,
New Delhi, the 25th February, 1985
To
The Chief of the Air Staff (with 35 spare copies)
SUBSTANTIVE CADRE OF GROUP CAPT AND
ABOVE - DIRECTOR OF GROUP INSURANCE SOCIETY
Sir,
I am directed to refer to this Ministry's letter No. Air
HQ/S.18172/22/3/Plans/3750/D(Air-III)/62 dated 15th May, 1974 as
amended from time to time and to convey the sanction of the President to
the inclusion of one post of Air Cmde (Accts) in the substantive cadre of Air
Cmde (Accts) so long the post of director of Group Insurance Society is held
by an Air Force Office and its deletion from the existing substantive cadre/of
Group Cap-t (Accts).
C.A.@SLP(C)No.27366 of 2023 Page 23 of 32
2. This issues with the concurrence of Ministry of Defence/
(Finance/Division)vide their u.o. No. 351/Org/S/AF of 1985.
Yours faithfully,
(H.D. SHARMA)
DESK OFFICER
xxx xxx xxx
Appendix 'E'
(Refers to para 9 of
Chapter 3)
No. Air HQ/24011/71 PP & R-1/2282/DOIIB/D (Air III)
Government of India/Bharat Sarkar
Ministry of Defence /Raksha Mantralaya
New Delhi, the 28 September, 1981
th
6 Asvina, 1903 Sako Era
To
The Chief of the Air Staff,
Subject: Enhancement of Flying Pay-Air Force Personnel
Sir,
1. I am directed to refer to para 9(b) of AFI 4/S/74 as amended and
Serial No.12 of Appendix 'B' to AFI 2/S/74, as amended and to state that the
president is pleased to decide that with effect from 01 Sep 1981, the rates of
flying pay will be enhanced as under:-
(i) Wing Commander and below
Rs.750.00 pm
(ii) Group Caption and Air Cmde
Rs.666.00 pm
(iii) Air Vice Marshal and above
Rs.600.00 pm
C.A.@SLP(C)No.27366 of 2023 Page 24 of 32
(iv) Airmen including JWOs, WOs and MWOS
Rs.374.50 pm
2. The increased flying pay will be admissible subject to additional
insurance cover as given below, taken through Air Force Group Insurance
Society (AFGIS):-
(a) Officers of the flying branch are required to obtain additional
life insurance cover against all risks, including flying for a minimum
of Rs.2 Lakhs effective from 01 Oct 81, on payment of monthly
contribution as given below:-
(i) Wing Commander and below
Rs.325.00 pm
(ii) Group Captain and Air Cmde
Rs.283.00 pm
(iii) Air Vice Marshal and above
Rs.250.00 pm
(b) Officers of the Ground duty Branches, entitled to flying pay
will be required to obtain additional life insurance cover against all
risks, including flying, for a minimum of Rs.2 Lakhs effective from
01 Oct 81, on payment of monthly contribution as applicable to
equivalent ranks of the flying branch only during the period of
entitlement of flying pay.
(c) Airmen aircrew, entitled to flying pay, will be required to
obtain additional life insurance cover against all risks, including
flying for a minimum of Rs. One Lakhs effective from 01 Oct 81, on
payment of monthly contribution of Rs.162.00 only during the
period of entitlement to flying pay.
(d) The Air Force Group Insurance Society will pay Survival
Benefit to persons covered under the above insurance scheme on
retirement/release, the amount of which will be determined by the
said Society from time to time.
C.A.@SLP(C)No.27366 of 2023 Page 25 of 32
3. (a) The amount payable to the Group Insurance Scheme is to be
recovered from IRLAs of officers and airmen from the pay of Sep
81 onwards and paid by the Air Force Central accounts Office to Air
Force Group Insurance Society in respect of personnel for whom
IRLAs are maintained, on the day pay for the month is disbursed.
(b) (i) Deputationists and other officers and airmen for
whom no IRLAS are maintained at Air Force Central
Accounts Office and who are entitled to enhance flying pay,
are to obtain insurance cover for the amounts, as applicable
by remitting the contributions to Air Force Group Insurance
Society for the flying pay to be admitted.
(ii) In the case of the existing deputationist and other
officers and airmen for whom no IRLAs are maintained by
Air Force Central Accounts Office and who are entitled for
enhanced flying pay contributions are to be remitted by them
direct to the AFGIS latest by 01 Jun 82. However, the
contributions will have to be made wef 01 Oct 81.
(iii) In the case of the officers mentioned above whom no
IRLAs are maintained by AFCAO, the controlling officers
will admit flying pay only on receiving a certificate/receipt
from the Air Froce Group Insurance Society to the effect that
the individual has contributed for the month(s) for which
flying pay is admitted.
(c) In view of the provisions made in sub paras (a) & (b) (iii)
above, no certificate of payment of insurance premium will be
required to be given by OC Unit and no POR is necessary, in respect
of this additional insurance cover. However, the flying pay
certificate prescribed in the Appendix 'G' to AFI 2/S/74 and
Appendix 'C' to AFI 2/S/74 will continue to be furnished.
4. Other conditions governing flying pay including insurance cover
required under the earlier orders remain unchanged.
5. AFI 4/S 74 and AFI 2/S/74 will be amended in due course.
C.A.@SLP(C)No.27366 of 2023 Page 26 of 32
6. This issues with the concurrence of Min of Fin (Def) vide their
No.2622/Pay/ AA of 1981.
Yours faithfully,
Sd/-
(N.N. Mathur)
Desk Officers
xxx xxx xxx”
st
14. For point (h) the Notification dated 31 October 1983
exempting the Society from estate duty is extracted below:-
“Appendix 'D'
(Refers to para 8
of Chapter 1)
TO BE PUBLISHED IN PART II SECTION 3-SUB
SECTION (1) OF THE GAZETTE OF INDIA
Government of India
Central Board of Direct Taxes
New Delhi, the 31" October, 1983
NOTIFICATION
ESTATE DUTY
GSR 841, Whereas the Central Government is of opinion that
circumstances are such that some relief in addition to the relief provided in
sub section (i) of Section 33 of the Estate Duty act, 1953 (34 of 1953) should
be given in respect of the following class of property belonging to the
deceased which passes on his death and in respect of which estate duty is
liable to be levied and collected under the said Act, namely, the money
payable under Army Group Insurance Scheme or the Naval Group Insurance
Scheme or the Air Force Group Insurance Schemes as the case may be, in
existence on the date of publication of this Notification in the Official
Gazette. Now, therefore, in exercise of the power conferred by sub section
C.A.@SLP(C)No.27366 of 2023 Page 27 of 32
(2) of the section 33 of the Estate Duty Act, 1953 (34 of 1953), the Central
Government hereby directs that no estate duty shall be payable in respect of
the aforesaid class of property.
Sd/
(Arvind Pinto)
Under Secretary to the Government of India
(F.No.296/7/83-ED)
th
Notification dated 5 June 1985 exempting AFGIS from income tax, is as
under:-
“Appendix 'B'
(Refers to para 7(c) of Chapter 1)
Copy
TO BE PUBLISHED IN PART II SECTION 3 (II) OF THE
GAZETTE OF INDIA
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
th
NEW DELHI, TIME 5 JUNE, 1985
NOTIFICATION
INCOME TAX
S.O. In pursuance of sub clause (f) of clause (iii) of sub section (3) of section
194A of the Income Tax Act, 1961 (43 of 1961), the Central Government
hereby notifies the Society known as Air Force Group Insurance Society,
New Delhi, for the purpose of the said sub- clause.
(F. No. 275/29/85-IT (B)
Sd/-
(B.Nagarajan)
Deputy Secretary to
the Govt of India
C.A.@SLP(C)No.27366 of 2023 Page 28 of 32
xxx xxx xxx”
15. In our view, a perusal of the documents extracted supra
make out a case for AFGIS to be considered ‘ State ’ within the
meaning of Article 12. For the aspect of deep and pervasive
control, we observe that the Hon’ble President of India granted
sanction for AFGIS to be established and also specifically
approved the deputation Rules; the Principal Director (AFGIS),
every month is to apprise the Assistant Chief of Air Staff
regarding the cash flow of AFGIS which ensures monitoring by
a core member of the IAF on the activities of AFGIS; the
membership and deductions arising therefrom are a compulsory
aspect of serving in the IAF, meaning thereby that there is no
choice of the individual officer in that matter and instead is a
mandate from the employer. When the aspect of administrative
control is examined, it is seen that all the members of the Board
of Trustees, so also the Managing Committee are serving
members of the IAF and are deputed to AFGIS for a fixed period.
In essence, therefore, the administration of the Body is entirely
in the hands of Government servants even though the body itself
is a purportedly private, a self-contained society. The appellant,
in submitting that financial control also rests with the
Government says that since the mandatory reduction of the
premium is directly/automatically from the salary of the
C.A.@SLP(C)No.27366 of 2023 Page 29 of 32
members of IAF and these salaries are charged to the
Consolidated Fund of India- this shows financial control.
16. We are unable to accept this contention. It may be that in
so far as financial aspects of AFGIS are concerned, the
Government may not have a direct role however for a body to be
held to be a ‘State’ it is the cumulative effect and impact of deep
and pervasive control, financial and administrative control along
with other factors such as carrying out of public duty.
17. We are of the considered view that AFGIS does indeed
perform a public duty. The protection and welfare of armed
forces personnel is a core government function. The role of the
armed forces is directly linked to the sovereignty and security of
the nation and in protecting the same members of the forces are
required to adhere to, abide by, and maintain a strict set of rules,
unquestionable conduct, and at times in the most severe and
adverse circumstances . Thus, providing insurance coverage is a
public function as it addresses a collective obligation the State
has towards a defined public class whose service is
indispensable. The body, in effect, becomes a conduit for the
discharge of that obligation. The role of the State in protecting
them does not end upon their superannuation from service for the
life of a person from the forces is forever shaped by their time in
service. Insurance to service members is a critical instrument for
safeguarding their physical, mental well-being, dignity and
C.A.@SLP(C)No.27366 of 2023 Page 30 of 32
economic security. It operates as an assurance of protection and
support in case contingencies such as disability or illness befall
them or even untimely death which is a real possibility in these
services. The fact that healthcare, rehabilitation, support to
dependants is available readily, is undoubtedly an aspect that
gives great peace of mind to the member of service enabling them
to carry out their duties without worry, at least in this regard.
18. In addition to the discussion above, it is also seen that at
one-point AFGIS itself claimed to be Government while claiming
an exemption from service taxes, since it is under the control of
Ministry of Defence. In effect, by opposing the challenge of the
appellants, AFGIS has resiled from its own statement. We fail to
understand an organisation can be ‘ Government ’ for one purpose
and not be, for another purpose.
19. Consequent to the above discussion, AFGIS would be
‘ State ’ under Article 12. The writ petition before the High Court
accordingly, maintainable. The said writ petition on the grievance
of the appellants is restored. The High Court is requested to
decide the same expeditiously keeping in view the fact that the
same has been filed in the year 2017. Appeal is allowed.
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Pending application(s) if any shall stand disposed of.
………….……..……………..J.
(SANJAY KAROL)
……….………..……………..J.
(VIPUL M. PANCHOLI)
New Delhi
March 12, 2026
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