Full Judgment Text
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CASE NO.:
Appeal (civil) 5047 of 2000
PETITIONER:
Virendra Kumar Srivastava
RESPONDENT:
U.P. Rajya Karmachari Kal. Nigam and another
DATE OF JUDGMENT: 23/11/2004
BENCH:
Y. K. Sabharwal & D. M. Dharmadhikari
JUDGMENT:
J U D G M E N T
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
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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 \026 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.
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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
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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
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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
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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
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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
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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.
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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.