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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 419-426 OF 2004
Balmer Lawrie & Co. Ltd. & Ors. …Appellants
Versus
Partha Sarathi Sen Roy & Ors. …Respondents
WITH
CIVIL APPEAL NO. 926 OF 2013
J U D G M E N T
Dr. B. S. CHAUHAN, J.
1. These appeals have been preferred against the impugned
judgments and orders of the High Court of Calcutta dated 30.1.2002
and 24.12.2002 in FMA No. 301/2001, CO. 2038/1993, WP. Nos.
778/1992, 2613, 2798 & 3169/2000, 1109/1998 and 1739/1996, by
which the Calcutta High Court by a majority decision held that thePage 2
Balmer Lawrie & Co. Ltd. – appellant, is a State within the purview of
Article 12 of the Constitution of India, 1950 (hereinafter referred to
as, the ‘Constitution’), and is thus, amenable to writ jurisdiction.
2. Facts and circumstances giving rise to these appeals are:
A. The appellant is a public limited company incorporated under
the Indian Companies Act, 1956. The shares of the appellant company
were originally held by Indo-Burma Petroleum Co. Ltd., Life
Insurance Corporation, Unit Trust of India, General Insurance
Corporation and its subsidiaries, Nationalised Banks and also by the
public. Subsequently, in 2001 its majority equity shares, i.e. 61.8% of
its shareholding, which was held by IBP Co. Ltd., was transferred to
Balmer Lawrie Investments Ltd. (BLIL), a Govt. company in which
59% shares are held by the government.
B. The appellant company carries on business in diverse fields
through various Strategic Business Units (SBUs). None of these SBUs
have monopoly in any business. The said SBUs are involved in the
manufacturing of packing materials, i.e. steel drums and LPG
cylinders, grease and lubricants. They also provide air freight services,
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ocean freight services, and project cargo management. They operate
under a broader segment classified as ‘Logistic Services’, providing
space and scope for segregation, storage and aggregation of
containerized cargo, i.e. an infrastructural service carried on outside
the port premises for handling, loading/unloading and storage of
containerized import, as well as export cargo. The appellant company
also deals with leather chemicals and tea blending and packaging.
C. The respondents-employees joined the services of the company
at different times. However, for the purpose of deciding this case it
would be convenient to take up the facts presented by respondent,
Partha Sarathi Sen Roy.
The said respondent joined the appellant – company in May
1975 as a Management Trainee, and was later on confirmed vide order
dated 1.6.1976 as an officer in Grade-III, subject to the terms and
conditions mentioned in the letter of confirmation w.e.f. 20.5.1976.
He had previously worked in different branches of the company in
Dubai, the United Arab Emirates etc. as an Accountant-cum Administrative Officer. His services were terminated vide order dated
27.2.1981, in view of Clause 11(a) of the letter of appointment which
provided that the company would have a right, which would be
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exercised at its sole discretion, to terminate the services of such
employees by giving them three calendar months’ notice in writing,
without assigning any reason for such decision. The respondent
challenged the said termination order by filing writ petition (C.R. No.
1562 (W) of 1981) in the High Court of Calcutta, praying for the
issuance of a writ of mandamus, directing that the said termination
order be quashed.
D. The appellant company contested the said writ petition
contending that it was not an authority within the meaning of Article
12 of the Constitution, and therefore was not amenable to writ
jurisdiction. The terms and conditions of contractual rights and
obligations could therefore, not be enforced through writ jurisdiction.
The matter was decided by the learned Single Judge vide judgment
and order dated 19.12.2000, holding that the appellant was neither a
State, nor any other authority within the meaning of Article 12 of the
Constitution, and thus the writ petition itself was not maintainable.
E. Aggrieved, the respondent filed an appeal (FMA. No.
301/2001), against the said judgment and order of the learned Single
Judge. However, in the meantime, another writ petition No. 778/1992
was decided by another learned Single Judge of the same High Court,
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holding that the appellant was infact a State within the meaning of
Article 12 of the Constitution. Thus, the appellant preferred an appeal
against the said judgment and order dated 27.3.2001, and the matters
were heard together by a Division Bench. Both the Judges delivered
their judgment on 30.1.2002 taking different views on the aforesaid
issue. The matter was referred to a third Hon’ble Judge, who vide
judgment and order dated 24.12.2002, held the appellant to be a State
within the meaning of Article 12 of the Constitution, and directed that
the matter be placed before an appropriate bench for decision of the
writ petitions on merits.
Hence, these appeals.
3. Shri Sudhir Chandra, learned senior counsel appearing for the
State, has submitted that the appellant company cannot be held to be a
State within the meaning of Article 12 of the Constitution, or any
other authority for that matter, as there is no deep and pervasive
control exercised by the government over the company, though certain
financial aid was given by it for specific purposes. The government
however, does not have control over the day-to-day functioning of the
company. Merely because the appellant company is a subsidiary of a
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government company, and is itself a government company, the same
would not make the appellant company fall within the purview of the
word ‘State’ as intended by Article 12 of the Constitution. Moreover,
it does not carry out any public function which could render it as, ‘any
other authority’, for the purposes of Article 226 of the Constitution. It
also does not have any kind of monopoly over its business, in fact, it
carries on a variety of business activities and faces competition from
all the other industries that operate in the same fields as it does. The
terms of employment therefore, cannot be enforced through writ
jurisdiction. Thus, the only remedy available to the respondent was to
file a suit for damages. The appeals deserve to be allowed.
4. Per contra, Shri Sangaram Patnaik, Mr. Bijan Kumar Ghosh
and Mr. P.K. Roy, the learned counsel appearing for the respondents
have submitted that the appellant company is a government company,
and is a subsidiary of a government company, which is controlled
entirely by the government and that the government has absolute
control over the company. The majority judgment of the Calcutta
High Court, holding the appellant company to be a State within the
meaning of Article 12 of the Constitution cannot be found fault with.
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Even otherwise, law does not permit an employer, particularly the
State or its instrumentalities, to terminate the services of its employees
by adopting a “hire and fire” approach, as it would be hit by the equal
protection clause enshrined in Article 14 of the Constitution of India
(hereinafter referred to as, the ‘Constitution’). Additionally, the
respondent died long ago, and no attempt was ever made by the
appellant company to substitute him with his legal heirs. Thus, the
appeal stands abated qua him. The facts and circumstances of the case
do not warrant any interference by this court, and the appeals are
therefore, liable to be dismissed.
5. We have considered the rival submissions made by learned
counsel for the parties and perused the record.
There is sufficient material on record, and the Memorandum
and Articles of Association of the appellant company make it
abundantly clear, that the same is a government company and is a
subsidiary of IBP, which is also a government company. The share
holding of the appellant company has been referred to hereinabove,
and more than 61.8% shares are held by IBP, a government company.
However, the question for consideration before us is, whether in light
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of the aforementioned facts and circumstances, the appellant company
is, in fact, a State within the meaning of Article 12 of the Constitution.
6. The said issue has been considered by various larger benches,
and it has been held that in order to meet the requirements of law with
respect to being a State, the concerned company must be under the
deep and pervasive control of the government. The dictionary
meaning of ‘pervasive’ has been provided hereunder:
“It means that which pervades/tends to pervade in such a
way, so as to be, or become, prevalent or dominant.”
“Extensive or far reaching, spreading through every part
of something.”
7. In Virendra Kumar Srivastava v. U.P. Rajya Karmachari
Kalyan Nigam and Anr. AIR 2005 SC 411, this court held, that in
order to examine whether or not an authority is a State within the
meaning of Article 12 of the Constitution, the court must carry out an
in depth examination of who has administrative, financial and
functional control of such a company/corporation, and then assess
whether the State in such a case is only a regulatory authority, or if it
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has deep and pervasive control over such a company/corporation,
whether such company is receiving full financial support from the
government, and whether administrative control over it has been
retained by the State and its authorities, and further, whether it is
supervised, controlled and watched over by various departmental
authorities of the State, even with respect to its day-to-day
functioning. If it is so, then such company/corporation can be held to
be an instrumentality of the State under Article 12 of the Constitution
and therefore, will be amenable to the writ jurisdiction of the High
Court under Article 226 of the Constitution.
8. In Lt. Governor of Delhi & Ors. v. V.K. Sodhi & Ors. AIR
2007 SC 2885, a similar test was applied, and it was held that once
finances are made available to the company, and the administration
of such finances is left to that company, and there is no further
governmental control or interference with respect to the same,
such company/corporation or society cannot be held to be a State, or a
State instrumentality within the meaning of Article 12 of the
Constitution. In this case, this court came to the conclusion that the
very formation of an independent society under the Societies
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Registration Act, may be suggestive of the intention that such a
society, could not be a mere appendage to the State.
9. A Seven-Judge Bench of this Court in Pradeep Kumar Biswas
v. Indian Institute of Chemical Biology & Ors. (2002) 5 SCC 111
held, that while examining such an issue, the court must bear in mind
whether in the light of the cumulative facts as established, the body is
financially, functionally and administratively, dominated by, or is
under the control of the Government. Such control must be particular
to the body in question, and must be pervasive. If it is found to be so,
then the body comes within the purview of State within the meaning
of Article 12 of the Constitution. On the other hand, when the control
exercised is merely regulatory, whether under a statute or otherwise,
the same would not be adequate, to render the body a State. The
court, while deciding the said issue placed reliance upon its earlier
judgments in Rajasthan State Electricity Board Jaipur v. Mohan
Lal & Ors. AIR 1967 SC 1857; and Sukhdev Singh & Ors. v.
Bhagatram Sardar Singh Raghuvanshi & Anr. AIR 1975 SC 1331,
wherein it was held that such a body must perform certain public or
statutory duties, and that such duties must be carried out for the
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benefit of the public, and not for private profit. Furthermore, it was
also laid down that such an authority is not precluded from making a
profit for pubic benefit. The court came to the conclusion, that
although the employees of the Corporation may not be servants of
either the Union, or of the State, at the same time, such a
company/corporation must not represent the “voice and hands” of the
government. Therefore, this court in Pradeep Kumar Biswas
(supra), held that financial support of the State, coupled with an
unusual degree of control over the management and policies of a
body, may lead to an inference that it is a State. Additionally, other
factors such as, whether the company/corporation performs important
public functions, whether such public function (s) are closely related
to governmental function, and whether such function (s) are carried
out for the benefit of the public, etc. are also considered. The court
also considered the case of Ramana Dayaram Shetty v.
International Airport Authority of India & Ors. AIR 1979 SC
1628, wherein it was held that a corporation can be said to be an
instrumentality or agency of the government therein under certain
conditions, and the same are summarised below :
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“(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.
(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.
(3) It may also be a relevant factor …
whether the corporation enjoys monopoly
status which is State-conferred or Stateprotected.
(4) Existence of deep and pervasive State
control may afford an indication that the
corporation is a State agency or
instrumentality.
(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.
(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.”
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The Court also considered the cases of Ajay Hasia etc. v.
Khalid Mujib Sehravardi & Ors. etc. AIR 1981 SC 487; and
Mysore Paper Mills Ltd. v. Mysore Paper Mills Officers’ Assn. &
Anr. AIR 2002 SC 609.
10. In M/s. Zee Telefilms Ltd. & Anr. v. Union of India & Ors.,
AIR 2005 SC 2677, this Court, after applying tests laid down in
various cases, examined the facts of that case and came to the
conclusion that the body was not a State within the meaning of Article
12 of the Constitution, or for that matter, ‘any other authority’ for the
purposes of Article 226 of the Constitution, while observing as under :
“23. The facts established in this case show
the following:
1. The Board is not created by a statute.
2. No part of the share capital of the Board is
held by the Government.
3. Practically no financial assistance is given
by the Government to meet the whole or
entire expenditure of the Board.
4. The Board does enjoy a monopoly status in
the field of cricket but such status is not Stateconferred or State-protected.
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5. There is no existence of a deep and
pervasive State control. The control if any is
only regulatory in nature as applicable to
other similar bodies. This control is not
specifically exercised under any special
statute applicable to the Board. All functions
of the Board are not public functions nor are
they closely related to governmental
functions.
6. The Board is not created by transfer of a
government-owned corporation. It is an
autonomous body.”
This Court further observed:
“35. In conclusion, it should be noted that
there can be no two views about the fact that
the Constitution of this country is a living
organism and it is the duty of Courts to
interpret the same to fulfil the needs and
aspirations of the people depending on the
needs of the time. It is noticed earlier in this
judgment that in Article 12 the term "other
authorities" was introduced at the time of
framing of the Constitution with a limited
objective of granting judicial review of
actions of such authorities which are created
under the Statute and which discharge State
functions. However, because of the need of
the day this Court in Rajasthan State
Electricity Board (supra) and Sukhdev Singh
(supra) noticing the socio- economic policy
of the country thought it fit to expand the
definition of the term "other authorities" to
include bodies other than statutory bodies.
This development of law by judicial
interpretation culminated in the judgment of
the 7-Judge Bench in the case of Pradeep
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Kumar Biswas (supra). It is to be noted that
in the meantime the socio-economic policy of
the Government of India has changed [See
Balco Employees' Union (Regd.) v. Union of
India and Ors. (2002 2 SCC 333)] and the
State is today distancing itself from
commercial activities and concentrating on
governance rather than on business.
Therefore, the situation prevailing at the
time of Sukhdev Singh (supra) is not in
existence at least for the time being, hence,
there seems to be no need to further expand
the scope of "other authorities" in Article 12
by judicial interpretation at least for the time
being. It should also be borne in mind that as
noticed above, in a democracy there is a
dividing line between a State enterprise and
a non- State enterprise, which is distinct and
the judiciary should not be an instrument to
erase the said dividing line unless, of course,
the circumstances of the day require it to do
so.”
(Emphasis added)
11. Often, there is confusion when the concept of sovereign
functions is extended to include all welfare activities. However, the
court must be very conscious whilst taking a decision as regards the
said issue, and must take into consideration the nature of the body’s
powers and the manner in which they are exercised. What functions
have been approved to be sovereign are, the defence of the country,
the raising of armed forces, making peace or waging war, foreign
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affairs, the power to acquire and retain territory etc. and the same are
not amenable to the jurisdiction of ordinary civil courts. (Vide: N.
Nagendra Rao & Co. v. State of A.P., AIR 1994 SC 2663; and
Chief Conservator of Forests & Anr. v. Jagannath Maruti
Kondhare etc.etc., AIR 1996 SC 2898).
In Bangalore Water Supply & Sewerage Board v. A.
Rajappa & Ors., AIR 1978 SC 548, this Court dealt with the terms
“Regal” and “Sovereign” functions, and held that such terms are used
to define the term “governmental” functions, despite the fact that there
are difficulties that arise while giving such a meaning to the said
terms, for the reason that the government has now entered largely the
field of industry. Therefore, only those services, which are governed
by separate rules and constitutional provisions such as Articles 310
and 311, should strictly speaking, be excluded from the sphere of
industry by necessary implication.
Every governmental function need not be sovereign. State
activities are multifarious. Therefore, a scheme or a project,
sponsoring trading activities may well be among the State’s essential
functions, which contribute towards its welfare activities aimed at
the benefit of its subjects, and such activities can also be undertaken
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by private persons, corporates and companies. Thus, considering the
wide ramifications, sovereign functions should be restricted to those
functions, which are primarily inalienable, and which can be
performed by the State alone. Such functions may include legislative
functions, the administration of law, eminent domain, maintenance of
law and order, internal and external security, grant of pardon etc.
Therefore, mere dealing in a subject by the State, or the monopoly of
the State in a particular field, would not render an enterprise sovereign
in nature. (Vide: Agricultural Produce Market Committee v.
Ashok Harikuni & Anr. etc. AIR 2000 SC 3116; State of U.P. v. Jai
Bir Singh, (2005) 5 SCC 1; Assam Small Scale Ind. Dev
Corporation Ltd. & Ors. v. M/s. J.D. Pharmaceuticals & Anr.,
AIR 2006 SC 131; and M.D., H.S.I.D.C. & Ors. v. M/s. Hari Om
Enterprises & Anr., AIR 2009 SC 218).
12. A public authority is a body which has public or statutory duties
to perform, and which performs such duties and carries out its
transactions for the benefit of the public, and not for private profit.
Article 298 of the Constitution provides that the executive power of
the Union and the State extends to the carrying on of any business or
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trade. A public authority is not restricted to the government and the
legislature alone, and it includes within its ambit, various other
instrumentalities of State action. The law may bestow upon such
organization, the power of eminent domain. The State in this context,
may be granted tax exemption, or given monopolistic status for
certain purposes. The State being an abstract entity, can only act
through an instrumentality or an agency of natural or juridical
persons. The concept of an instrumentality or agency of the
government is not limited to a corporation created by a statute, but is
equally applicable to a company, or to a society. In a given case, the
court must decide, whether such a company or society is an
instrumentality or agency of the government, so as to determine
whether the same falls within the meaning of expression ‘authority’,
as mentioned in Article 12 of the Constitution, upon consideration of
all relevant factors.
In light of the aforementioned discussion, it is evident that it is
rather difficult to provide an exhaustive definition of the term
“authorities”, which would fall within the ambit of Article 12 of the
Constitution. This is precisely why, only an inclusive definition is
possible. It is in order to keep pace with the broad approach adopted
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with respect to the doctrine of equality enshrined in Articles 14 and 16
of the Constitution, that whenever possible courts have tried to curb
the arbitrary exercise of power against individuals by centres of
power, and therefore, there has been a corresponding expansion of the
judicial definition of the term State, as mentioned in Article 12 of the
Constitution.
In light of the changing socio-economic policies of this country,
and the variety of methods by which government functions are usually
performed, the court must examine, whether an inference can be
drawn to the effect that such an authority is infact an instrumentality
of the State under Article 12 of the Constitution. It may not be easy
for the court, in such a case, to determine which duties form a part of
private action, and which form a part of State action, for the reason
that the conduct of the private authority, may have become so
entwined with governmental policies, or so impregnated with
governmental character, so as to become subject to the constitutional
limitations that are placed upon State action. Therefore, the court
must determine whether the aggregate of all relevant factors once
considered, would compel a conclusion as regards the body being
bestowed with State responsibilities.
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13. When we discuss ‘pervasive control’, the term ‘control’ is
taken to mean check, restraint or influence. Control is intended to
regulate, and to hold in check, or to restrain from action. The word
‘regulate’, would mean to control or to adjust by rule, or to subject to
governing principles. (Vide: State of Mysore v. Allum
Karibasauppa & Ors., AIR 1974 SC 1863; U.P. Cooperative Cane
Unions Federations v. West U.P. Sugar Mills Association & Ors.
etc.etc., AIR 2004 SC 3697; M/s. Zee Telefilms Ltd., (supra); and
Union of India (UOI) & Ors. v. Asian Food Industries, AIR 2007
SC 750).
14. In K. Ramanathan v. State of Tamil Nadu & Anr., AIR 1985
SC 660, this court held as under:
“The power to regulate carries with it full
power over the thing subject to regulation
and in absence of restrictive words, the power
must be regarded as plenary over the entire
subject. It implies the power to rule, direct
and control, and involves the adoption of a
rule or guiding principle to be followed or the
making of a rule with respect to the subject to
be regulated. It has different shades of
meaning and must take its colour from the
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context in which it is used having regard to
the purpose and object of the legislation.”
15. In Vodafone International Holdings B.V. v. Union of India
& Anr., (2012) 6 SCC 613, this Court observed that:
“‘Control’ is a mixed question of law and
fact. The control of a company resides in the
voting power of its shareholders and shares
represent an interest of a shareholder which
is made up of various rights contained in the
contract embedded in the Articles of
Association.
The question is, what is the nature of the
“control” that a parent company has over its
subsidiary? It is not suggested that a parent
company never has control over the
subsidiary. For example, in a proper case of
“lifting of corporate veil”, it would be proper
to say that the parent company and the
subsidiary form one entity. But barring such
case, the legal position of any company
incorporated abroad is that its powers,
functions and responsibilities are governed by
the law of its incorporation.
Control, in our view, is an interest arising
from holding a particular number of shares
and the same cannot be separately acquired
or transferred. Each share represents a vote
in the management of the company and such
a vote can be utilized to control the
company.”
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16. The need to determine and reach a conclusion as regards such
an issue is of paramount importance as this Court has stated in Steel
Authority of India Ltd. & Ors. etc. v. National Union Water Front
Workers & Ors. etc.etc. AIR 2001 SC 3527, and held as under:
“The principle is that if the Government
acting through its officers was subject to
certain constitutional limitations, a fortiori
the Government acting through the
instrumentality or agency of a corporation
must equally be subject to the same
limitations. It is pointed out that otherwise it
would lead to considerable erosion of the
efficiency of the Fundamental Rights, for in
that event the Government would be enabled
to override the Fundamental Rights by
adopting the stratagem of carrying out its
function through the instrumentality or
agency of a corporation while retaining
control over it.”
(See also: M/s. Star Enterprises & Ors. v. City and Industrial
Development Corpn. of Maharashtra Ltd. & Ors. (1990) 3 SCC
280; LIC of India & Anr. v. Consumer Education and Research
Centre & Ors. AIR 1995 SC 1811; and Mysore Paper Mills Ltd.
(supra).
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17. In order to determine whether an authority is amenable to writ
jurisdiction except in the case of habeas corpus or quo warranto, it
must be examined, whether the company/corporation is an
instrumentality or an agency of the State, and if the same carries on
business for the benefit of the pubic; whether the entire share capital
of the company is held by the government; whether its administration
is in the hands of a Board of Directors appointed by the government;
and even if the Board of Directors has been appointed by the
government, whether it is completely free from governmental control
in the discharge of its functions; whether the company enjoys
monopoly status; and whether there exists within the company, deep
and pervasive State control. The other factors that may be considered
are whether the functions carried out by the company/corporation are
closely related to governmental functions, or whether a department of
government has been transferred to the company/corporation, and the
question in each case, would be whether in light of the cumulative
facts as established, the company is financially, functionally and
administratively under the control of the government. In the event that
the Government provides financial support to a company, but does not
retain any control/watch over how it is spent, then the same would not
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fall within the ambit of exercising deep and pervasive control. Such
control must be particular to the body in question, and not general in
nature. It must also be deep and pervasive. The control should not
therefore, be merely regulatory.
18. In West Bengal State Electricity Board & Ors. v. Desh
Bandhu Ghosh & Ors. (1985) 3 SCC 116, this Court considered a
case where the respondent-employee was terminated by giving him
only three months’ notice, and without holding any enquiry or
informing him about any actions on his part that were unwarranted.
The court, after placing reliance on the judgment in Workmen v.
Hindustan Steel Ltd. AIR 1985 SC 251, held that where a regulation
enables an employer to terminate the services of an employee, in an
entirely arbitrary manner and in a manner that confers vicious
discrimination, the same must be struck down as being violative of
Article 14 of the Constitution. Therefore, even Standing Orders must
be non-arbitrary, and must not confer uncanalised and drastic powers
upon the employer, which enables him to dispense with an inquiry and
further enables him to dismiss an employee, without assigning any
reason for the same, by merely stating, that doing so would not be
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expedient, and that it would be against the interests of the industry, to
allow continuation of employment with respect to the employee. This
is primarily because, such a procedure is violative of the basic
requirements of natural justice. Such power would tantamount to a
blatant adoption of the “hire and fire” rule.
19. Where the actions of an employer bear public character and
contain an element of public interest, as regards the offers made by
him, including the terms and conditions mentioned in an appropriate
table, which invite the public to enter into contract, such a matter does
not relegate to a pure and simple private law dispute, without the
insignia of any public element whatsoever. Where an unfair and
untenable, or an irrational clause in a contract, is also unjust, the same
is amenable to judicial review. The Constitution provides for
achieving social and economic justice. Article 14 of the Constitution
guarantees to all persons, equality before the law and equal protection
of the law. Thus, it is necessary to strike down an unfair and
unreasonable contract, or an unfair or unreasonable clause in a
contract, that has been entered into by parties who do not enjoy equal
bargaining power, and are hence hit by Section 23 of the Contract Act,
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and where such a condition or provision becomes unconscionable,
unfair, unreasonable and further, is against public policy. Where
inequality of bargaining power is the result of great disparity between
the economic strengths of the contracting parties, the aforesaid
principle would automatically apply for the reason that, freedom of
contract must be founded on the basis of equality of bargaining power
between such contracting parties, and even though ad idem is
assumed, applicability of standard form of contract is the rule.
Consent or consensus ad idem as regards the weaker party may
therefore, be entirely absent. Thus, the existence of equal bargaining
power between parties, becomes largely an illusion. The State itself,
or a state instrumentality cannot impose unconstitutional conditions in
statutory rules/regulations vis-à-vis its employees, in order to
terminate the services of its permanent employees in accordance with
such terms and conditions. (Vide: Central Inland Water Transport
Corporation Ltd. v. Brojo Nath Ganguly, AIR 1986 SC 1571;
D.T.C. v. D.T.C. Mazdoor Congress, AIR 1991 SC 101; LIC of
India (supra); K.C. Sharma v. Delhi Stock Exchange & Ors., AIR
2005 SC 2884; and Punjab National Bank by Chairman & Anr. v.
Astamija Dash, AIR 2008 SC 3182).
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20. A question may also arise as regards whether the court must
examine only those facts and circumstances that existed on the date on
which the cause of action arose, or whether subsequent developments,
are also to be taken into consideration. The aforesaid issue was dealt
with by this Court in Rajesh D. Darbar & Ors. v. Narasingrao
Krishnaji Kulkarni & Ors. (2003) 7 SCC 219, and therein it was
held as under:
“The impact of subsequent happenings may
now be spelt out. First, its bearing on the
right of action, second, on the nature of the
relief and third, on its importance to create or
destroy substantive rights. Where the nature
of the relief, as originally sought, has become
obsolete or unserviceable or a new form of
relief will be more efficacious on account of
developments subsequent to the suit or even
during the appellate stage, it is but fair that
the relief is moulded, varied or reshaped in
the light of updated facts. Subsequent events
in the course of the case cannot be
constitutive of substantive rights enforceable
in that very litigation except in a narrow
category (later spelt out) but may influence
the equitable jurisdiction to mould reliefs.
Conversely, where rights have already vested
in a party, they cannot be nullified or negated
by subsequent events save where there is a
change in the law and it is made applicable at
any stage. Lachmeshwar Prasad Shukul v.
Keshwar Lal Chaudhuri, AIR 1941 FC 5
falls in this category. Courts of justice may,
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when the compelling equities of a case oblige
them, shape reliefs — cannot deny rights — to
make them justly relevant in the updated
circumstances. Where the relief is
discretionary, courts may exercise this
jurisdiction to avoid injustice. Likewise,
where the right to the remedy depends, under
the statute itself, on the presence or absence
of certain basic facts at the time the relief is
to be ultimately granted, the court, even in
appeal, can take note of such supervening
facts with fundamental impact. This Court's
judgment in Pasupuleti Venkateswarlu v.
Motor & General Traders AIR 1975 SC 1409
read in its statutory setting, falls in this
category. Where a cause of action is deficient
but later events have made up the deficiency,
the court may, in order to avoid multiplicity
of litigation, permit amendment and continue
the proceeding, provided no prejudice is
caused to the other side. All these are done
only in exceptional situations and just cannot
be done if the statute, on which the legal
proceeding is based, inhibits, by its scheme or
otherwise, such change in the cause of action
or relief. The primary concern of the court is
to implement the justice of the legislation.
Rights vested by virtue of a statute cannot be
divested by this equitable doctrine (see
V.P.R.V. Chockalingam Chetty v. Seethai
Ache AIR 1927 PC 252).”
21. The above-mentioned appeals are required to be considered in
light of the aforesaid settled legal propositions. However, at this stage
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it may also be pertinent to refer to the relevant Clauses of the
Memorandum and Articles of Association, which read as under:
“7A. Notwithstanding anything contained in
these Articles and so long as the Company
remains a Government Company, the
President of India shall subject to the
provisions of Article 6 thereof and Section
255 of the Act, be entitled to appoint one or
more Directors (including whole time
Director (s) by whatever name called) of the
Company to hold office for such period and
upon such terms and condition as the
President of India may from time to time
decide.
xx xx xx
17. The Company may, subject to the
provisions of Section 284 of the Act, by
ordinary resolution for which special notice
has been given, remove any Director before
the expiration of his period of office and may
be ordinary resolution of which special notice
has been given, appoint another person in his
stead, if the Director so removed was
appointed by the Company in General
Meeting or by the Board under Article 10.
The person so appointed shall hold office
until the date upto which his predecessor
would have held office if he had not been so
removed. If the vacancy created by the
removal of a Director under the provisions of
this Article is not so filled by the meeting at
which he is removed the Board may at any
time thereafter fill such vacancy under the
provisions of Article 10.
xx xx xx
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26AA. Notwithstanding anything to the
contrary contained in these Articles, so long
as the company remains a Government
company within the meaning of Section 617 of
the Act, the President of India shall be
entitled to issue from to time such directives
or instructions as may be considered
necessary to the conduct of business and
affairs of the Company. Provided that all
instructions from the President of India shall
be in writing addressed to the Chairman or
Managing Director of the Company.
xx xx xx
146. No dividend shall be payable except
out of the profits of the Company or of
moneys provided by the Central or a State
Government for the payment of the dividend
in pursuance of any guarantee given by such
Government and no dividend shall carry
interest against the Company.”
22. Admittedly, the appellant is a government company which is
managed under the guidance of the Ministry of Petroleum and Natural
Gas. The Ministry of Petroleum and Natural Gas exercises
administrative control over the appellant company. The appellant
company started its business as a partnership firm in 1867 and
subsequently, the same was converted into a private limited company
in 1924, and then eventually, into a public limited company in 1936.
Its past shareholding position has been reproduced as under:
Category of shareholders %age of equity holding
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IBP Co. Ltd. 61.80%
Financial Institutions & Banks 21.69%
Public 14.29%
Employees 0.85%
Foreign National 0.44%
Corporate Bodies 0.86%
U.P. State Government 0.02%
Directors & their relatives 0.85%
The present shareholding as per the Annual Report for 2005-06
has been as under:
Category of shareholders %age of equity holding
Balmer Lawrie Investment Ltd. 61.80%
Mutual Fund & UTI 5.08%
Financial Institutions & Banks 12.85%
Foreign National 2.97%
UP State Government 0.05%
Private/Corporate Bodies 6.14%
Indian Public 11.10%
Directors & their relatives 0.01%
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23. There is nothing on record to show that the Central Government
provides any financial or budgetary support to the appellant company.
The appellant company is a profitable company and meets its own
working capital requirements, as well as its fixed capital requirements
for all requisite purposes through internal funds generated by the redeployment of its own profits, and also by borrowing short term funds
from financial institutions. The grant given by the government to the
appellant company is in fact very limited, and the extent of such grant
has been shown by the company as under:
Year Amount of grant given in
lakhs
%age of the grant-vsavg. yearly fund
requirement of the
appellant-co.(353.55
crores)
1999 91.29 0.26
2001 237 0.67
2002 20 0.06
2003 176 0.50
24. The appellant company carries on its business in diverse fields
through various Strategic Business Units (hereinafter referred to as
‘SBUs’), and its work is being carried on by (i) an SBU for Industrial
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Packaging; (ii) an SBU for Greases & Lubricants; (iii) an SBU for
Logistics Services; (iv) an SBU for Projects & Engineering
Consultancy; (v) an SBU for Travel & Tour; (vi) an SBU for Leather
Chemicals; (vii) an SBU for Tea Blending & Packaging; and (viii) an
SBU for Container & Freight Station.
25. Undoubtedly, the business carried on by the appellant company
does not confer upon it any monopolistic character, as there are
several private companies that are carrying on the same business and
some of these businesses are even generally carried on by individual
persons.
Under the Conduct, Discipline and Review Rules applicable to
the officers of the appellant company, a letter dated 31.3.1989 written
by Managing Director of the company, shows that government
directives on the subject have been made applicable with certain
modifications as required to the terms and conditions of employment
that are applicable to various organizations of the company. The
company is not only a Government of India enterprise, but is also
under the Administrative control of the Ministry of Petroleum,
Chemicals and Fertilizers, Government of India. Its directors are
3Page 34
appointed mainly from government service. Article 26AA of the
Articles of Association lays down that the President of India shall be
entitled to issue from time to time, such directives or instructions, as
may be considered necessary in regard to the administration of the
business and affairs of the company. Article 7A thereof, provides that
the President of India shall, subject to other existing provisions, be
entitled to appoint one or more directors in the company for such
period, and upon such terms and conditions, as the President of India
may from time to time decide are required. In view of the provisions
of Section 617 of the Companies Act, 1956, a government company
has been defined by way of an inclusive definition, as that which is a
subsidiary of a government company. The appellant company has also
been receiving grant-in-aid from the Oil Industry Development Board
by way of a grant and not as a loan. Some products of the company
are in fact monopoly products, whose procurement and distribution
are within the direct control of the Ministry of Petroleum which is
under the Central Government. All Matters of policy and also, the
management issues of the appellant company, are governed by the
Central Government. The Central Government has control over the
appointment of Additional Directors, and Directors, and their
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remuneration etc. is also determined by Presidential directives, and
the same is applicable to deciding the residential accommodation of
the Managing Director, his conveyance, vigilance, issues regarding
the welfare of weaker sections etc. The functioning of the appellant
company is of great public importance. Majority of its shares are held
by a government company. Its day-to-day business and operations, do
not depend on the actions and decisions taken by the Board of
Directors, in fact the said decisions are taken under either Presidential
directives, or in accordance with instructions issued by the
Administrative Ministry or the Finance Ministry. Its basic function is
related to the oil industry, which is generally handled by government
companies. The appellant company cannot take any independent
decisions with respect to the revision of pay-scales that are applicable
to its employees, and the same are always subject to the approval of
the Administrative Ministry. The annual budget of the company is
also passed only if the same is approved by the Administrative
Ministry.
26. It is evident from the material on record that all the whole time
Directors of the appellant company are appointed by the President of
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India, and such communications are also routed through the
Administrative Ministry.
The appellant company is under an obligation to submit its
monthly, as well as its half-yearly performance reports to the Ministry
of Petroleum, Government of India. The company has also promoted
the use of Hindi language in the course of official work, in
consonance with the circulars/guidelines that have been issued by the
Government of India. The appellant company and IBP Company
Limited, had a common Chairman. The remuneration structure of the
employees of the appellant company, is also in conformity with those
which are applicable to the Indian Oil Corporation and IBP, as has
been fixed by the Bureau of Public Enterprises, Government of India.
The reservation policy as enshrined in the Directive Principles of the
Constitution, has also been implemented as per the directions of the
Central Government in the appellant company.
27. In order to determine whether the appellant company is an
authority under Article 12 of the Constitution, we have considered
factors like the formation of the appellant company, its objectives,
functions, its management and control, the financial aid received by it,
3Page 37
its functional control and administrative control, the extent of its
domination by the government, and also whether the control of the
government over it is merely regulatory, and have come to the
conclusion that the cumulative effect of all the aforesaid facts in
reference to a particular company i.e. the appellant, would render it as
an authority amenable to the writ jurisdiction of the High Court.
28. Clause 11(a) of the letter of appointment reads as under:
“The Company shall have the right, at its sole discretion,
to terminate your services by giving you three calendar
months notice in writing and without assigning any
reason. The Company also reserves the right to pay you
in lieu of notice, a sum by way of compensation equal to
three months emoluments consisting of basic salary,
dearness allowance, house rent assistance and bonus
entitlements, if any, after declaration of bonus”.
Undoubtedly, the High Court has not dealt with the issue on
merits with respect to the termination of the services of the
respondents herein. However, considering the fact that such
termination took place several decades ago, and litigation in respect of
the same remained pending not only before the High Court, but also
before this Court, it is desirable that the dispute come to quietus.
Therefore, we have dealt with the case on merits. In keeping with this,
3Page 38
we cannot approve the “hire and fire” policy adopted by the appellant
company, and the terms and conditions incorporated in the Manual of
Officers in 1976, cannot be held to be justifiable, and the same being
arbitrary, cannot be enforced.
In such a fact-situation, clause 11 of the appointment letter is
held to be an unconscionable clause, and thus the Service Condition
Rules are held to be violative of Article 14 of the Constitution to this
extent. The contract of employment is also held to be void to such
extent.
The dictionary meaning of the word ‘unconscionable’ is
“showing no regard for conscience; irreconcilable with what is right
or reasonable. An unconscionable bargain would therefore, be one
which is irreconcilable with what is right or reasonable. Legislation
has also interfered in many cases to prevent one party to a contract
from taking undue or unfair advantage of the other. Instances of this
type of legislation are usury laws, debt relief laws and laws regulating
the hours of work and conditions of service of workmen and their
unfair discharge from service, as also control orders directing a party
to sell a particular essential commodity to another.” Thus, we do not
find any force in the said appeals. The same are dismissed
accordingly.
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29. As we have already mentioned, the present appeal stands abated
qua respondent in C.A. No. 419/2004 owing to his death, and the non substitution of his legal heirs.
We would like to clarify that his legal
heirs may enure the benefits of this judgment, to the extent that
respondent was entitled to receive 60% of the arrears of wages due to
him, from the date of his termination to the date of his superannuation.
The benefit shall be calculated on the basis of periodical revision of
salary and other terminal benefits which shall be paid to the LRs of
the deceased employee within three months. If it is not given within
three months then interest at the rate of 9% will accrue. Additionally,
they shall also be entitled to all statutory benefits like gratuity,
provident fund and pension, if any.
CIVIL APPEAL NO. 926 OF 2013
30. The abovesaid appeal stands disposed of in terms of judgment
in Civil Appeal Nos.419-426 of 2004.
..………………………….J.
(Dr. B.S. CHAUHAN)
.…………………………..J.
(V. GOPALA GOWDA)
New Delhi;
February 20, 2013
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