2013 (4) TMI 132 - SC - Companies Law

Whether the company/corporation can be held to be a State within the meaning of Article 12 of the Constitution, or any other authority for that matter instrumentality or an agency of the State? - respondent working in different branches of the company as an Accountant-cum- Administrative Officer challenged his termination order by filing writ in the High Court of Calcutta, praying for the issuance of a writ of mandamus, directing that the said termination order be quashed - 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 - Held that - 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. 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 re-deployment 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. 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. It is also evident from the material on record that all the whole time Directors of the appellant company are appointed by the President of India, and such communications are also routed through the Administrative Ministry.In order to determine whether the appellant company is an authority under Article 12 of the Constitution, factors like the formation of the appellant company, its objectives, functions, its management and control, the financial aid received by it, 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 are considered 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. 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,it cannot be approved 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. As the present appeal stands abated owing to his death, and the non- substitution of his legal heirs, 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.

Summary

Issues Involved:
1. Whether the appellant company is a "State" within the meaning of Article 12 of the Constitution.
2. Whether the termination of the respondents' services was valid and enforceable under the terms of the employment contract.

Detailed Analysis:

1. Whether the appellant company is a "State" within the meaning of Article 12 of the Constitution:

The Supreme Court examined whether the appellant company, a public limited company, qualifies as a "State" under Article 12 of the Constitution. The company was initially held by various entities, including government bodies, and later, the majority of its shares were transferred to a government company. The respondents argued that the company was under the control of the government and thus should be considered a "State."

The Court considered several factors to determine if the company was under deep and pervasive control of the government, including:
- Administrative, Financial, and Functional Control: The Court referred to previous judgments, such as Virendra Kumar Srivastava v. U.P. Rajya Karmachari Kalyan Nigam, which emphasized examining administrative, financial, and functional control to determine if an entity is a State.
- Governmental Control: The Court noted that the government appointed directors, issued directives, and had significant influence over the company's operations.
- Financial Support: The appellant company did not receive significant financial support from the government, indicating a lack of deep financial control.
- Public Functions: The company carried out various business activities without monopoly status and faced competition, suggesting it did not perform public functions closely related to governmental functions.

Based on these factors, the Court concluded that the appellant company was under deep and pervasive control of the government, making it a "State" within the meaning of Article 12. This rendered the company amenable to writ jurisdiction under Article 226 of the Constitution.

2. Whether the termination of the respondents' services was valid and enforceable under the terms of the employment contract:

The respondents challenged their termination, arguing it was arbitrary and violated Article 14 of the Constitution. The appellant company terminated the respondents' services under Clause 11(a) of the appointment letter, which allowed termination with three months' notice without assigning any reason.

The Court examined the validity of this clause and the termination process:
- Arbitrary Termination: The Court referred to previous judgments, such as West Bengal State Electricity Board v. Desh Bandhu Ghosh, which held that arbitrary termination without inquiry or reason violates Article 14.
- Unconscionable Clause: The Court found Clause 11(a) to be unconscionable and violative of Article 14, as it allowed termination without just cause or due process.
- Natural Justice: The Court emphasized the importance of natural justice and fair treatment in employment, rejecting the "hire and fire" policy adopted by the appellant company.

The Court held that the termination clauses in the employment contract were unjustifiable and unenforceable. The contract of employment was deemed void to the extent that it allowed arbitrary termination. The respondents were entitled to relief, including arrears of wages, terminal benefits, and statutory benefits like gratuity and provident fund.

Judgment:
The appeals were dismissed, and the Court directed that the legal heirs of the deceased respondent were entitled to the benefits of the judgment, including arrears of wages and other terminal benefits. The appellant company was held to be a "State" under Article 12, and the termination of the respondents' services was found to be arbitrary and unenforceable.