Full Judgment Text
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PETITIONER:
PRATHAMA BANK, HEAD OFFICE MORADABAD,THROUGH ITS CHAIRMAN
Vs.
RESPONDENT:
VIJAY KUMAR GOEL & ANR.
DATE OF JUDGMENT22/08/1989
BENCH:
SHARMA, L.M. (J)
BENCH:
SHARMA, L.M. (J)
VERMA, JAGDISH SARAN (J)
CITATION:
1989 AIR 1977 1989 SCR (3) 935
1989 SCC (4) 441 JT 1989 (3) 432
1989 SCALE (2)350
ACT:
Regional Rural Banks Act, 1976: Section 3--’Regional
Rural Bank’--Whether ’State’ within Article 12 of the Con-
stitution.
Constitution of India, 1950: Article 12--’Regional Rural
Bank’ notified under Section 3, Regional Rural Banks Act
1976 whether ’State’.
U.P. Public Services (Tribunal) Act 1976: Section
2(b)--’Public servant’--Employee of Regional Rural
Bank--Whether ’Public’ servant’.
HEADNOTE:
The respondent who was an employee of the appellant bank
was dismissed from service on the basis of disciplinary
proceedings instituted against him. He filed a suit chal-
lenging the validity of the disciplinary proceedings on the
ground that the inquiry was vitiated by serious violation of
principles of natural justice. The trial court decreed the
suit. The decree was confirmed by the Additional District
Judge in appeal, and by the High Court in second appeal.
Before this Court, the appellant contended that (i)
having regard to the nature of relationship of master and
servant between the parties, the decree of re-instatement of
the respondent was illegal, and the suit as framed was not
maintainable because the respondent’s remedy was a suit for
damages; (ii) alternatively, if the respondent was held to
be a public servant so as to enable him to ask for re-in-
statement in the service, the suit must be dismissed as not
maintainable in view of the provisions of the U.P. Public
Services (Tribunal) Act, 1976; and (iii) there was no viola-
tion of the principles of natural justice.
While confirming the decree with modifications, this Court,
HELD: (1) The High Court was right in holding that as
the respondent was not given adequate opportunity to examine
the documents, he was handicapped in filing his show cause
and defending himself effectively. [938C]
936
(2) The appellant bank is not covered by the definition
of ’public servant’ in section 2(b) of U.P. Public Services
(Tribunal) Act, 1976. It has been constituted in exercise of
the power conferred by s. 3 of the Regional Rural Banks Act,
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1976, and has been sponsored by the Syndicate Bank, a natio-
nalised Bank. Although fifteen per cent of the total capital
of the Bank has been contributed by the State of Uttar
Pradesh, it has no controlling power, and none of the condi-
tions mentioned in s. 2(b) of the U.P. Act is satisfied.
[939G]
(3) The plaintiff-respondent is not a "public servant"
within the limited meaning of the expression used in the
U.P. Act and the courts below are right in overruling the
defence plea of the bar by the U.P. Act on the jurisdiction
of the civil court to entertain the suit. [939H-940A]
The test for determining if an authority fails within
the definition of State in Article 12 of the Constitution is
whether it is an instrumentality or agency of the Govern-
ment. The enquiry has to be not as to how the juristic
person is born but why it has been brought into existence.
It is therefore, immaterial whether the authority is created
by a statute or under a statute. [940C]
Ajay Hasia & Ors. v. Khalid Mujib Sheravardi & Ors.,
[1981] 1 SCC 722, referred to.
(5) An examination of the relevant circumstances in
regard to the appellant Bank leads to the irresistible
conclusion that it is an instrumentality of the Central
Government. By establishing the Rural Banks the Central
Government acts in discharge of its obligations under Arti-
cles 38 and 48 of Part IV of the Constitution through them.
[940G, 942C]
(6) The provisions of the Regional Rural Banks Act, 1976
do not leave any room for doubt that the Regional Rural
Banks are under deep and pervasive control of the Central
Government and have been established as its instrumentality
and, are, therefore, ’State’ within Article 12 of the Con-
stitution. [943A]
(7) There is no merit in the argument that the Courts
cannot force the services of the respondent on the appellant
bank by passing a decree for his re-instatement in service
and all that can be done is to
grant a relief by way of compensation in a properly consti-
tuted suit. [943B]
Central Inland Water Transport Corporation Ltd. v. Brojo
Nath Ganguly, [1986] 3 SCC 156, referred to.
937
(8) In the instant case, the departmental proceeding
against the respondent from 5.7.1983 onwards is quashed and
the decree for the plaintiff’s re-instatement in service
with consequential benefits is confirmed, subject to the
modification that if the Bank authorities be of the view
that in spite of the delay of several years the inquiry
ought to be completed, it will be open to them to proceed
with it and to take further steps in the proceeding from the
stage where it stood on 5.7.1983, in accordance with the
directions of the Court in this judgment. [943F-G]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3091 of
1985.
From the Judgment and Order dated 30.11.84 of the Alla-
habad High Court in S.A. No. 1137 of 1984.
Kapil Sibal, (N.P.), Mr. Rajiv Dhawan, R.K. Gupta, H.
Sharma and Ms. Indu Sharma for the Appellant.
Satish Chandra, M.C. Goel, K.P. Singh and N.N. Sharma
for the Respondents.
The Judgment of the Court was delivered by
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SHARMA, J. The main question before us is whether a
Regional Rural Bank established by a notification under s. 3
of the Regional Rural Banks Act, 1976 is "State" for the
purposes of Part III of the Constitution of India. This
appeal by special leave arises out of a suit by the respond-
ent no. 1, an employee of the appellant Bank, challenging
the validity of a disciplinary proceeding against him and
order of his dismissal from service passed therein. The
trial court decreed the suit and the decree was confirmed by
the Additional District Judge in appeal and by the High
Court in second appeal.
2. The facts briefly stated, omitting the details which
are not relevant for the purpose of this judgment, are in a
short compass. The respondent no. 1 was, in 1981, served
with a lengthy charge-sheet containing many accusations,
some of them being serious, and he was called upon to file
his show cause. A large number of documents were mentioned
in the charge-sheet and the respondent demanded copies
thereof for the purpose of filing his reply. According to
the appellant several opportunities were given to the re-
spondent to inspect the documents (excepting a few in re-
spect of which privilege was claimed), but the respondent
did not avail of them with the object of protracting and
938
frustrating the inquiry. According to the High Court, the
opportunity given by the appellant was not adequate. Due to
certain circumstances the inquiry could not make any
progress for sometime. A new inquiry officer entrusted with
the proceeding took up the matter on 5.7. 1983, when the
respondent no. 1 contended that he must be given an adequate
opportunity of examining the relevant documents for facili-
tating him to file his written statement. There is serious
controversy between the parties as to the interpretation of
the conduct of the delinquent servant and the approach
adopted by the inquiry officer on the 5th of July and the
subsequent dates, but we do not consider it necessary to
deal with this aspect in detail as we agree with the view of
the High Court that as the respondent was not given adequate
opportunity to examine the documents, he was handicapped in
filing his show cause and defending himself effectively.
3. The suit was filed by the respondent immediately
after the order dated 5th July, 1983 was passed. The disci-
plinary proceeding, however, proceeded ex parte and ulti-
mately the respondent was dismissed from service. By an
amendment of the plaint, the respondent was allowed to
challenge the dismissal order also.
4. The respondent has asserted that it was the vindic-
tive attitude of the Bank authorities which led to the
initiation of the disciplinary proceeding against him and
the order of his suspension, and the inquiry have been
vitiated by serious violation of principles of natural
justice. Besides denying these allegations, the appellant
Bank contended that having regard to the nature of relation-
ship of master and servant between the parties, the decree
for re-instatement of the respondent was illegal and the
suit as framed was not maintainable. Even assuming that the
respondent proves his case on merits, his remedy would be a
suit for damages. Alternatively, if the respondent is held
to be a public servant so as to enable him to ask for re-
instatement in the service, the suit must be dismissed as
not maintainable in view of the provisions of the U.P.
Public Services (Tribunal) Act, 1976. There has also been a
stout denial of the allegations relating to violation of
principles of natural justice.
5. Both the learned advocates representing the parties
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invited us to go deeply into the facts, but we have declined
to do so, as all the three courts below have considered the
matter in great detail and we agree with the High Court that
the inquiry officer should have given adequate opportunity
to the respondent to examine the relevant documents for the
purpose of preparing his reply. Not having done so, the
939
further orders in the proceeding must be held to be vitiat-
ed. We, however, do not agree with the contention of Mr.
Satish Chandra, the learned counsel for the respondent, that
the entire proceeding from its very inception is fit to be
quashed as illegal.
6. Now remains the issue relating to the-maintainability
of the suit. So far the provisions of the U.P. Public Serv-
ices (Tribunal) Act, 1976 are concerned, they are wholly
in-applicable. Section 6 of the Act bars the jurisdiction of
the civil court to entertain a suit against the State of
Uttar Pradesh and certain other authorities by a person who
is or has been a "public servant" as defined in s. 2(b) of
the Act in the following words:
"2. Definitions.--In this Act--
(a) ..................
(b) "public servant" means every
person in the service or pay of--
(i) the State Government; or
(ii) a local authority not being a
Cantonment Board; or
(iii) any other corporation owned or
controlled by the State Government (including
any company as defined in Section 3 of the
Companies Act, 1956 in which not less than
fifty per cent of paid up share capital is
held by the State Government) but does not
include--
(1) a person in the pay or service of any
other company; or
(2) (a) a member of the All India
Services or other Central Services;"
The appellant Prathama Bank is not covered by the above
definition. It was constituted in exercise of power con-
ferred by s. 3 of the Regional Rural Banks Act, 1976. It has
been sponsored by the Syndicate Bank, a nationalised bank.
Although fifteen per cent of the total capital of the Bank
has been contributed by the State of Uttar Pradesh, it has
no controlling power, and none of the conditions mentioned
in s. 2(b) of the U.P. Act is satisfied. The plaintiff-
respondent is, therefore, not a "public servant" within the
limited meaning of the expression
940
used in the U.P. Act and the courts below are right in
overruling the defence plea of the bar by the U.P. Act.
7. The main point pressed on behalf of the appellant is
that the Bank cannot be deemed to be ’State’ for the pur-
poses of Part III of the Constitution, and so the decree for
re-instatement of the respondent is illegal. The learned
counsel cited several decisions in support of his argument,
but we do not consider it necessary to refer to all of them
in view of the authoritative pronouncements of this Court on
this aspect. In Ajay Hasia and others v. Khalid Mujib Shera-
vardi and others, [1981] 1 SCC 722, it was held by a Consti-
tution Bench that the test for determining if an authority
falls within the definition of State in Article 12 of the
Constitution is whether it is an instrumentality or agency
of the Government. The enquiry has to be not as to how the
juristic person is born but why it has been brought into
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existence. It is, therefore, immaterial whether the authori-
ty is created by a statute or under a statute. The Court
after examining the Memorandum of Association and the Rules
in that case held the Society which was registered under the
Jammu & Kashmir Registration of Societies Act to be an
’authority’ within the meaning of Article 12. It was pointed
out that the composition of the Society was dominated by the
representatives appointed by the Central Government and the
Governments of several States with the approval of the
Central Government; the cost of meeting the expenses came
from the Central Government and the Government of Jammu &
Kashmir; the rules to be made by the Society were required
to have the prior approval of the two Governments; the
accounts had to be submitted to the two Governments for
their scrutiny; the Society was to comply with the direc-
tions of the State Government with the approval of the
Central Government; and the control of the State and the
Central Government was thus deep and pervasive. Reference
was also made to the provisions in regard to the appointment
and removal of the members of the Society and to the consti-
tution and powers of the Board of Governors. An examination
of the relevant circumstances in regard to the appellant
Bank in the light of this decision leads to the irresistible
conclusion that it is an instrumentality of the Central
Government. As has been stated earlier, the Bank was estab-
lished under the provisions of the Regional Rural Banks act,
1976. The preamble of the Act which is mentioned below
clearly indicates that the Regional Rural Banks are estab-
lished to discharge the duties which are basically the
responsibility of a welfare State.
"An Act to provide for the incorporation,
regulation and
941
winding up of Regional Rural Banks with a view
to developing the rural economy by providing,
for the purpose of development of agriculture,
trade, commerce, industry and other productive
activities in the rural areas, credit and
other facilities, particularly to the small
and marginal farmers, agricultural labourers,
artisans and small enterpreneurs, and for
matters connected therewith and incidental
thereto."
Section 3 says that if requested by a Sponsor Bank, the
Central Government may establish a Regional Rural Bank in
the manner provided therein. The Sponsor Bank in the present
case was a nationalised bank, which has been held to be
under the control of the Central Government and, therefore,
covered by the definition in Article 12 of the Constitution.
The share capital of a Rural Bank is to be subscribed by the
Sponsor Bank which has the further duty of training the
personnel of the Rural Bank and providing managerial and
financial assistance during the initial stage. The duration
of such period can be extended by the Central Government.
The Central Government is also vested with power to increase
or reduce the authorised capital in consultation with the
Reserve Bank and the Sponsor Bank. The burden to subscribe
to the capital issued by the Rural Bank is divided--amongst
the Central Government, Sponsor Bank and the State Govern-
ment, their respective shares being fifty per cent, thirty
five per cent and fifteen percent. The general superintend-
ence, direction and management of the affairs of the Rural
Bank vest in a Board of Directors which is constituted of
two Directions to be nominated by the Central Government,
one Director to be nominated by the Reserve Bank from
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amongst one of its Officers, one Director to be nominated by
the National Bank from amongst one of its Officers, two
Directors to be nominated by the Sponsor Bank from amongst
its Officers and the remaining two Directors to be nominated
by the State Government from its Officers. In view of the
relationship with and control of the Central Government on
the Reserve Bank, National Bank and the Sponsor Bank, the
Central Government gets an effective control over the Rural
Bank. The head office of the Rural Bank is to be located
according to the directions of the Central Government. The
remunerations of the Officers and other employees of the
Rural Bank are to be fixed by the Central Government as
indicated in s. 17. Without attempting to exhaustively deal
with the functions of a Rural Bank, s. 18(2) mentions the
following types of business within its duty:
"18.(1).......
(2).........
942
(a) the granting of loans and ad-
vances, particularly to small and marginal
farmers and agricultural labourers, whether
individually or in groups, and to co-operative
societies, including agricultural marketing
societies, agricultural processing societies,
co-operative farming societies, primary agri-
cultural credit societies or farmers’ service
societies, for agricultural purposes or agri-
cultural operations or for other purposes
connected therewith;
(b) the granting of loans and ad-
vances, particularly to artisans, small enter-
preneurs and persons of small means engaged in
trade, commerce or industry or other produc-
tive activities, within the notified area
in relation to the Regional Rural Bank."
It is manifest that by establishing the Rural Banks the
Central Government acts in discharge of its obligations
under Articles 38 and 48 of Part IV of the Constitution
through them. To ensure that the object of establishing
Rural Banks is fully achieved, sub-section (2) of s. 20 of
the Act has brought both the houses of the Parliament also
in the picture in the following words:
"(2) The Central Government shall cause every
auditor’s report and report on the working and
activities of each Regional Rural Bank to be
laid, as soon as may be after they are re-
ceived, before each House of Parliament."
By s. 24-A the Sponsor Bank is required to periodically
monitor the progress of the Rural Banks and to take connect-
ed steps, and to cause inspection, internal audit et cetra
made. The rule making power dealt with in s. 29 is vested in
the Central Government and the power of the Central Govern-
ment to give directions is mentioned in s. 24, quoted below:
"24(1) A Regional Rural Bank shall, in the
discharge of its functions, be guided by such
directions in regard to matters of policy
involving public interest as the Central
Government may, after consultation with the
Reserve Bank, give.
(2) If any question arises as to whether any
such direction relates to a matter of policy
involving public interest, the decision of the
Central Government thereon shall be final."
943
The provisions of the Act do not leave any room for doubt
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that the Regional Rural Banks are under deep and pervasive
control of the Central Government and have been established
as its instrumentality and, are, therefore, ’State’ within
Article 12 of the Constitution.
8. The learned counsel contended that even if the appel-
lant Bank is considered to be State, the courts cannot force
the services of the respondent on it by passing a decree for
his re-instatement in service. All that can be done is to
grant a relief of way of compensation in a properly consti-
tuted suit. We do not find any merit in the argument. The
learned counsel relied on the following observations in
paragraph 103 of the judgment in Central Inland Water Trans-
port Corporation Ltd. and another v. Brojo Nath Ganguly and
another reported in, [1986] 3 SCC at page 156:
"The contesting respondents could,
therefore, have filed a civil suit for a
declaration that the termination of their
service was contrary to law on the ground that
the said Rule 9(i) was void. In such a suit,
however, they would have got a declaration and
possibly damages for wrongful termination of
service but the civil court could not have
ordered reinstatement as it would have amount-
ed to granting specific performance of a
contract of personal service. As the Corpora-
tion is "the State", they, therefore, adopted
the far more efficacious remedy of filing a
writ petition under Article 226 of the Consti-
tution".
Far from helping the appellant, the observations clarify the
correct position which is just contrary to the argument of
the learned counsel.
9. In the result, the departmental proceeding against
the respondent from 5.7.1983 onwards is quashed and the
decree for the plaintiffs reinstatement in service with
consequential benefits is confirmed. If the Bank authorities
be of the view that in spite of the delay of several years
the inquiry ought to be completed, it will be open to them
to proceed with it and to take further steps in the proceed-
ing from the stage where it stood on 5.7. 1983, but they
should indicate their intention to do so to the respondent
and also serve copies of the relevant document on him. If
they are of the view that any particular document is confi-
dential in nature and a copy thereof cannot be handed over
to the respondent they may so indicate in writing to the
respondent and it will be open to the inquiry officer to
examine whether the denial of such a copy would amount to
violation of principles of
944
natural justice. The Bank shall also permit the respondent
to join his post and receive his other benefits before he is
called upon to file a show cause. Subject to the modifica-
tions as indicated the decree under appeal is affirmed. The
parties are directed to bear their own costs of this Court.
R.S.S.
945