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TMI Blog1975 (2) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... f Article 12 of the Constitution. The employees of these statutory bodies have a statutory status and they are entitled to a declaration of being in employment when their dismissal or removal is in contravention of statutory provisions. - Civil Appeal No. 2137 of 1972 with 1879 OF 1972 & 115 of 1974 - - - Dated:- 21-2-1975 - RAY, A.N., MATHEW, KUTTYIL KURIEN, CHANDRACHUD, Y.V., ALAGIRISWAMI, A. AND GUPTA, A.C., JJ. For the Appellant: F. S. Nariman, Addl. Sol. Gen, A. K. Sen, B. Dutta, Pramod Swarup, M. K. Ramamurthy, Janardan Sharma and Jitendra Sharma For the Respondent R. K. Garg, S. C. Agarwala, S. S. Bhatnagar, Y. J. Francis, J. Ramamurthy, I. N. Shroff, P. K. Pillai , O. C. Mathur, Mohan Prasad Jha and K. J. John JUDGMENT RAY, C.J.- There are two questions for consideration in these appeals. First, whether an order for removal from service contrary to regulations framed under the Oil and Natural Gas Commission Act, 1959; the Industrial Finance Corporation Act, 1948; and the Life Insurance Corporation Act, 1956 would enable the employees to a declaration against the statutory corporation of continuance in service or would only give rise to a claim for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the mode in which contracts may be entered into by or on behalf of the Commission and some other matters. Every rule made under section 31 of the 1959 Act shall be laid as soon as may be before each House of Parliament as mentioned in the section. Both Houses may agree to or annul the rule or modify Under section 32 of the 1959 Act the Commission may, with the previous approval of the Central Government, by notification in the Official Gazette, make regulations not inconsistent with the Act and the rules made thereunder, for enabling it to discharge its functions under the Act. The regulations provide inter alia for the terms and conditions of appointment and service and the scaler, of pay of employees of the Commission the time and place of meetings of the Commission, the procedure to be, followed in regard to the transaction of business at such meetings; the maintenance of minutes of meetings of the Commission and the transmission of copies thereof to the Central Government; the persons by whom, and the, manner in which payments, deposits and investments may be made on behalf of the Commission; the custody of 'moneys required and the maintenance of accounts. The Central Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f service of such employees or agents; the terms and conditions of service of persons who have become employees of the Corporation under section 11 of the Act; the number, term of office and conditions of service of members of Boards constituted under section 22 of the Act; the manner in which the Fund of the Corporation shall be maintained; the form and manner in which policies may be issued and contracts binding on the Corporation may be executed. The industrial Finance Corporation Act, 1948 hereinafter referred to as the 1948 Act establishes the Corporation under section 3 of the Act. The superintendence of the business of the Corporation shall be entrusted to a Board of Directors. Section 42 of the 1948 Act enacts that the Central Government may make, rules in consultation with the Development Bank not inconsistent with the provisions of this Act and to give effect to the provisions of the Act and where there is any inconsistency with rules and regulations the rules shall prevail. The rules under the Act are to be laid before each House of Parliament in the same. manner as in the Oil and Natural Gas Commission Act. section 43 of the 1948 Act enacts that the Board may with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al operation of statues. In England the Statutory Instruments (Confirmatory Powers) Order, 1947 contemplates orders in Council or other instruments which are described as orders. The Rules Publication Act 1893 in England defines "rule making authority" to include every authority authorised to make any statutory rules. Statutory rules are defined there as rules, regulations or by-laws made under any Act of Parliament, in England. Orders are excluded from the statutory definition of statutory rules as being administrative. In England regulation is the term most popularly understood and the one favoured by the Committee on Ministers, Powers, who suggested that regulations should be used for substantive, law and rules for procedural law, while orders should be reserved to describe the exercise of executive power or the taking of a judicial or quasi judicial decision (See Craies on Statute Law, 7th Ed. at p. 303). The validity of statutory instruments is generally a question of vires, i.e., whether or not the enabling power has been exceeded or otherwise wrongfully exercised. Subordinate legislation is made by a person or body by virtue of the powers conferred by a statute. By-laws ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r public functions. It has been held that the authority to act with the sanction of Government behind it determines whether or not a governmental agency exists. The rules and regulations comprise those actions of the statutory or public bodies in which the legislative element predominates. These statutory bodies cannot use the power to make rules and regulations to enlarge the powers beyond the scope intended by the legislature. Rules and regulations made by reason of the specific power conferred on the statute to make rules and regulations establish the pattern of conduct to be followed. Rules are duly made relative to the subject matter on which the statutory bodies act subordinate to the terms of the statute under which they are promulgated. Regulations are in aid of the enforcement of the provisions of the statute. Rules and regulations have been distinguished from orders or determination of statutory bodies in the sense that the orders or determination are actions in which there is more of the judicial function and which deal with a particular present situation. Rules and regulations on the other hand are actions in which the legislative element predominates. The process of le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taining the terms and conditions of appointment are imperative. The administrative instruction is the entering into contract with a particular person but the form and content of the contract is prescriptive and statutory. The noticeable feature is that these, statutory bodieshave no free hand in framing the conditions and terms of service of their employees. These statutory bodies are bound to apply the terms and conditions as laid down the regulations. The statutory bodies are not free to make such terms as they think fit and proper. Regulations prescribe the terms of appointment, conditions of service and procedure for dismissing employees. These regulations in the statutes are described :as "status fetters on freedom of contract". The Oil and Natural Gas ,Commission Act in section 12 specifically enacts that the terms and ,conditions of the employees may be such as may be provided by regulations. There is a legal compulsion on the Commission to comply with the regulations. Any breach of such compliance would be a breach of the regulations which are statutory provisions. In other ,statutes under consideration, viz., the Life Insurance Corporation Act and the Industrial Finance Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence in accordance with the provisions of the Act. It is not a statutory body because it is not created by the statute. It is a body created in accordance with the provisions of the statute. The character of regulation has been decided by this Court in several decisions. One group of decisions consists of S. R. Tewari v. District Board Agra (1964) 3 S.C.R. 55); Life Insurance Corporation of India v. Sunil Kumar Mukherjee (1964) 5 S.C.R. 528); Calcutta Dock Labour Board v. Jaffar Imam (1965) 3 S.C.R. 453); Mafarlal Naraindas Barot v. Divisional Controller S.T.C. (1966) 3 S.C.R. 40); The Sirsi Municipality v. Cecelia Kom Francis (1973) 1 S.C.C. 409); U.P. State Warehousing Corporation v. C. K. Tyagi (1970) 2 S.C.R. 250) and Indian Airlines Corporation v. Sukhdeb Rai (1971 2 S.C.C. 192). In Naraindas Barot's case this Court held that the termination of services by Corporation created by a statute without complying with the requirements of the regulations framed by the Corporation under the State Governing conditions of the employees of the Corporation was bad. The reason is that the termination contravened the provisions contained in the regulations. In Tewari's case the termina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gulations to be framed by the Corporation were not to be inconsistent either with the Act or with orders made under section 11 (2) of the Act. The circular which was a part of the regulations under clause 4(3) thereof and clause 10 of the order were reconciled by this Court by stating that paragraph 4(b) of the circular could be availed of to terminate the services of the officers but such termination was to be effected in the manner prescribed by clause 10. The termination was not in accordance with either clause 10(a) or (b) of the order. Therefore, the termination was invalid. The Life Insurance case (supra) recognised regulations framed under Act to have the force of law. In the Indian Airlines Corporation case this Court said that there being no obligation or restriction in the Act or the rules subject to which only the power to terminate the employment could be exercised the employee could not contend that he was entitled to a declaration that the termination of his employment was null and void. In the Indian Airlines Corporation case reliance was placed upon the decision of Kruse v. Johnson (1898) 2 O.B. 91 for the view that not all by-laws have the force of law. This Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Naraindas Barot's case which was decided by the Constitution Bench. In Sirsi Municipality v. Cecelia Kom Francis Tellis (supra), the dismissal was held to be contrary to rule 143 framed under section 46 of the Bombay District Municipalities Act. This Court held that in regard to the master-servant cases in the employment of the State or of other public or local authorities or bodies created under statute, the courts have decided in appropriate cases the dismissal to be invalid if the dismissal is contrary to rule of natural justice or if the dismissal is in violation of the provisions of the statute. Where a State or a public authority dismisses an employee in violation of the mandatory procedural requirements on grounds which are not sanctioned or supported by statute the courts may exercise jurisdiction to declare the act, of dismissal to be a nullity. The ratio is that the rules or the regulations are binding on the authority. There is no substantial difference between a rule and a regulation inasmuch as both are subordinate legislation under powers conferred by the statute. A regulation framed under a statute applies uniform treatment to every one or to all members of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f penalty for violation. On these grounds it was said that these corporations cannot make laws like a State and cannot enforce directions. The State undertakes commercial functions in combination with Governmental functions in a welfare State. Governmental function must be authoritative. It must be able to impose decision by or under law with authority. The element of authority is of a binding character. The rules and regulations are authoritative because these rules and regulations direct and control not only the exercise of powers by the Corporations but also all persons who deal with these corporations. This Court in Rajasthan State Eeletricity Board, Jaipur v. Mohan Ors. (1967) 3 S.C.A. 377) said that an "authority is a public administrative agency or corporation having quasigovernmental powers and authorised to administer a revenueproducing public enterprise. The expression "other authorities" in Article 12 has been held by this Court in the Rajasthan Electricity Board case tobe wide enough to include within it every authority created by a statute and functioning within the territory of India, or under the control of the Government of India. This Court further said refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sty if it be the fact that such stations are already used for purposes of exercising functions required and created for purposes of the Government. A public authority is a body which has public or statutory duties to perform and which performs those duties and carries out its transactions for the benefit of the public and not for private profit. Such an authority is not precluded from making a profit for the public benefit. (See Halsbury's Laws of England 3rd. Ed. Vol. 30 paragraph 1317 -at p.682). The oil-fields (Regulation and Development) Act, 1948 defines oilfield" as any area where any operation for the purpose of obtaining natural gas and petroleum, crude oil, refined oil, partially refined oil and any of the products of petroleum in a liquid or solid state, is to be or is being carried on. Section 4 of the said 1948 Act states that no mining lease shall be granted after the commencement of the Act otherwise than in accordance with the rules made under the Act. Section 5 of the said 1948 Act confers power on the Central Government to make rules for regulating grant of mining leases of prohibiting grant of leases. Section 6 of the said 1948 Act wafers power on the Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to eater upon any land or premises and there do such things as may be reasonably necessary for the purpose of lawfully carrying out any of its works or to make survey, examination or investigation preliminary or incidental to the exercise of powers or the performance of functions by the Commission under the Act. The employees of the Commission are deemed by section 27 of the 1959 Act to be public servantsunder section 21 of the Indian Penal Code. The Oil. and Natural Gas Commission Act, 1959 is an Act to provide for the. establishment of a Commission for the development of petroleum resources and the production and sale of petroleum and petroleum products produced by it and for matters connected there ,with. Article 298 states that the ,executive power of the Union and of each State shall extend to the carrying on of any trade or business and to the acquisition holding and disposal of property and the making of contracts. Under Article 73 subject to the provisions of the Constitution, the executive power of the Union shall extend to the matters with respect to which Parliament has power to make laws;and to the exercise of such rights, authority and jurisdiction as are exercisabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the powers of entry are all authority and agency of the Central Government. The Life Insurance Act is an Act to provide for the nationalisation of life insurance business in India by transferring all such business to the Corporation established for the purpose and to provide for the regulation and control of the business of the Corporation and for matters connected therewith or incidental thereto. On the appointed day viz. 1 July, 1956, all assets and liabilities appertaining to the controlled business of all insurersrs became transferred to and vested in the Corporation. The service of existing employees of insurers was transferred to the Corporation. It became the duty of very person in possession, custody or control of property appertaining to the controlled business of an insurer to deliver the same to the Corporation forthwith. The Corporation was empowered to reduce the amounts of insurance under contracts of life insurance in such manner and subject to such conditions as it thought fit. In the discharge of functions under the Act, the Corporation is guided by directions in matters of policy involving public interest as the Central Government may give to it. If any question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion undertaken by the Corporation any surplus emerge, , ninety-five per cent of such surplus or such higher percentage thereof as the Central Government may approve shall be allocated to or reserved for the life insurance policy holders Corporation and after meeting the liabilities of the Corporation remainder shall be paid to the Central Government or if that Government so directs be utilised for such purposes and in such manner as that Government may determine. if profits accrue after making provision for reserves and other matters, the balance shall be paid to the Central Government. The Central Government shall cause the report of the auditors, the report of the actuaries and the report giving an account of the activities of the Corporation to be laid before the Parliament. The provisions of the Companies Act do not apply to the Corporation with regard to winding up. The Corporation cannot be placed. in liquidation except by an order of the Central Government. The structure of the Life Insurance Corporation indicates that the Corporation is an agency of the Government carrying on the exclusive business of life insurance. Each and very provision shows in no uncertain terms th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssession or both of the concern as well as the right to transfer by way of lease 'or sale and realise the property, pledged, mortgaged, hypothecated or assigned to the Corporation. The Corporation shall furnish to the Central Government statement of assets and liabilities at the close of the year together with profit and loss account and a report of the working of the, Corporation and the report shall be published in the, official Gazette and shall be laid before, Parliament. No provision of law relating to the winding up of companies or corporations shall apply to the Corporation. The Corporation shall not be placed in liquidation save by order of the, Central Government. The superintendence and the affairs of the Corporation shall be entrusted to a Board. In the discharge of functions, the Board shall be guided by the Development Bank. If any dispute arises between the Development Bank and the Board, the dispute shall be referred to the Central Government whose decision shall be final. The Central Government shall have the power to supersede the Board and appoint a new Board in its place to function until a properly constituted Board is set up. The Corporation may invest it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Corporation. No other insurer can carry on life insurance business. The management is by the Government. The dissolution can be only by the Government. The Industrial Finance Corporation is under the complete control and management of the Central Government. Citizens cannot be shareholders. Certain specified institutions like Scheduled Banks, Insurance Companies, Investment Trusts and Co-operative Banks may apply for the shares. The Central Government may acquire shares held by shareholders other than the Development Bank. After such acquisition, the Government may direct that the entire undertaking of the Corporation shall be vested in the Development Bank. The Corporation cannot be dissolved except by the Government. In the, background of the provisions of the three Acts under consideration, the question arises as to whether these corporations can be described to be authorities with the meaning of Article 12 of the Constitution. In the Rajasthan Electricity Board case it was said that the power to give directions, the disobedience of which must be punishable as a criminal offence would furnish one of the reasons for characterising the body as an authority within the meaning o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extend to six months or with fine which may extend to one thousand rupees or with both. The Corporation enjoys protection of action taken under the Act. A ,company incorporated under the Indian Companies Act does not enjoy these privileges. For the foregoing reasons, we hold that rules and regulations framed by the Oil and Natural Gas Commission, Life Insurance Corporation and the Industrial Finance Corporation have the force of law. The employees of these statutory bodies have a statutory status and they are entitled to declaration of being in employment when their dismissal or removal is in contravention of statutory provisions. By way of abundant caution we state that these employees are not servants of the Union or the State. These statutory bodies are "authorities " within the meaning of Article 12 of the Constitution. In Civil Appeal No. 2137 of 1972, the declaration granted by the High Court that the order removing Bhagatram Sardarsing Raghuvansi from service is null and void and that he continues in service is upheld. The writ of mandamus issued by the High Court is also upheld. In Civil Appeal No. 1655 of 1973, the writ of mandamus granted by the High Court is upheld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with sovereign power of the State, namely, the power to make rules or regulations which have the force of law. The test propounded by the majority is satisfied so far as the Oil and Natural Gas Commission (hereinafter referred to as 'the Commission) is concerned as s. 25 of the Off and Natural Gas Commission Act (hereinafter referred to as 'the Act') provides for issuing binding issue binding directions to third parties not to prevent the employees of the Commission from entering upon their property if the Commission so directs. In other words, as s. 25 authorises the Commission to issue binding directions to third parties not to prevent the employees of the Commission from entering into their land and as disobedience of such directions is punishable under the relevant provision of the Indian Penal Code since those employees are deemed to be public servants under s. 21 of the Indian Penal Code by virtue of s. 27 of the Act, the Commission is an 'authority' within the meaning of the expression "other authorities" in Article 12. . Though this would be sufficient to make the Commission a 'state' according to the decision of this Court in the Rajasthan Electricity Board Case (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the language of modern jurisprudence, as a community 'organized for action under legal rules'. Some regard it as no more than a mutual insurance society, others as the very texture of all our life. Some class the state as a great 'corporation and others consider it as indistinguishable from society itself(see Mac. Iyer, "The Modern State', pp. 3-4. 645) Part IV of the Constitution gives a picture of the services which the state is expected to undertake and render for the welfare of the people. Article 298 provides that the executive power of the Union and State extends to the carrying on of any business or trade. As I said, the question for consideration is whether a public corporation set up under a special statute to carry on a business or service which Parliament thinks necessary to be carried on in the interest of the nation is an agency or instrumentality of the State and would be subject to the limitations expressed in Article 13(2) of the Constitution. A state is an abstract entity. It can only act through the instrumentality or agency of natural or juridical persons. Therefore, there is nothing strange in the notion of the state acting through a corporation and making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the duty of carrying out specified governmental functions in the national interest, those functions being confined to a comparatively restricted field, and subjected to control by the executive, while the corporation remains juristically an independent entity not directly responsible to Parliament(see Garner :"Public Corporations in the United Kingdom" in "Government Enterprise' ed. W. Freidmann J. F. Garner, p. 4). A public corporation is not generally a multi-purpose authority but a functional Organisation created for a specific purpose. It has generally no shares or shareholders. Its responsibility generally is to Government. Its administration is in the hands of a Board appointed by the competent Minister. The employees of. public corporation are not civil servants. It is, in fact, likely that in due course a special type of training for specialized form of public service will be developed and the status of the personnel of public corporation may more and more closely approximate to that of civil service without forming part of it. In so far as public corporations fulfil public tasks on behalf of government, they are public authorities and as such subject to control by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate in mitigation of the legal and ideological, deification of the State. Today, probably the giant corporations, the labour unions, trade associations and other powerful or ganisations have taken the substance of sovereignty from the state. We are witnessing another dialectic process in history namely, that the sovereign state having taken over all effective legal and political power from groups surrendered its power to the new massive social groups(see W. Friedmann, "Law in a Changing Society", p. 298). The growing power of the industrial giants, of the labour unions and of certain other organized groups, compels a reassessment of the relation between group power and the modern state on the hand and the freedom of the individual on the other. The corporate organisations of business and tabour have long ceased to be private phenomena. That they have a direct and decisive impact ,on the social, economic and political life of the nation is no longer a matter of argument. It is an undeniable fact of daffy experience. The challenge to the contemporary lawyer is to translate the social transformation of these organisations from private associations to public organisms into legal terms. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity within the reach of the limitations of the Constitution. "The next step would be to draw private governments into the tent of state action. This is not a particularly startling proposition, for a number of recent cases have shown that the concept of private action must yield to a conception of state action where public functions are being performed"( see Arthur S. Miller : "The Constitutional Law of the 'Security State,,", 10 Stanford Law Rev. 620 at 664. (2). In Marsh v. Alabama(326 U.S. 501 (1946), a corporation owned a 'company town. Marsh, a Jehovah's witness offered his pamphlets preached his doctrine on one of the town comers. He was arrested for trespassing by one of the company guards, was fined five dollars and the case went all the way up to the Supreme Court. On straight property logic, Marsh, of course was trespassing; he was an unwanted visitor on company's real estate. But, Court said, operation of a town is a public function. Although private in the property sense, it was public in the functional sense. The substance of the doctrine there laid down is that where a corporation is privately performing a 'public function' it is held to the constitutional standar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the public. As to public conveyances, he read the law of common carriers to require the performance of public duties, and that no matter who is the agent or what is the agency, the function to be performed is that of 'State'. The investiture of rail road with power of eminent domain made the function of the rail road corporation a public function. I think the later decisions of courts in +.he U.S.A. follow the lead given by Justice Harlen in his dissenting Judgement. Several tests have been propounded to find out whether an action is private or state action. These decision do not rest on the basis that the entity or organization must wield authority in the sense it must have power to issue commands in the Austinian sense, or that it must have the sovereign power to pass laws or regulations having the force of law. Does any amount of..state help, however inconsequential, make an act something more than an individual act ? Suppose, a privately owned and managed operation receives direct financial aid from the State, is an act of such an agency an act of State ? It would be difficult to give a categorical answer to this question. Any operation or purpose of value to the public ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x exemptions, or it may give it a monopolistic status for certain purposes. All these are relevant in making an assessment whether the operation is private or savours of state action(see generally "The Meaning of State Action", LX Columbia Law Rev. 1083). An important case on the subject is Kerr v. Enoch Pratt Free Library (149 F. 2d 212 (4th cir.) cert. denied, 326 U. S. 721 (1945)). The library system in question was established. by private donation in 1882, but by 1944, 99 per cent of the system's budget was supplied by the city; title to the library property was held by the city; employees were paid by the city pay-roll officer; and a high degree, of budget control was exercised or available to the city government. On these facts the Court of Appeals required the trustees managing the system to abandon a discriminatory admissions policy for its library training courses(see LX Columbia Law Review 1083, at 1103). Dorsev v. Stuvvesant Town Corporation(299 N. Y. 512) related to the problem raised by discriminatory action by a private agency receiving state financial aid. Pursuant to New York's redevelopment laws, the Metropolitan Life Insurance Company organized a redevelopment c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t agencies(gee the decisions in Terry v. Adams, 273 U. S. 536 Nixon v. Condon, 286 U. S. 73). Activities which are too fundamental to the society are by definition too important not to be considered government function. This demands the delineation of a theory which requires government to provide all persons with all fundamentals of life and the determinations of aspects which are fundamental. The state today has an affirmative duty of seeing that all essentials of life are made available to all persons. The task of the state today is to make possible the achievement of a Good life both by removing obstacles in the path of such achievements and in assisting individual in realizing his ideal of self-perfection Assuming that indispensable functions are government functions, the problem remains or defining the line between fundamentals and nonfundamentals. The analogy of the doctrine of "businesses affected with a public interest"immediately comes to mind. The difficulty here is well stated by Justice Holmes in Tyson and Brother v. Banton(272 U.S. 418. 447) dealing with the constitutionality of a New York statute which limited the fees charged by theatre ticket brokers : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutional power of the United States over State activities. To rest the federal taxing power on what is 'normally' conducted by private, enterprise in Contradiction to the usual' governmental functions is too shifting a basis for determining constitutional power and too entanged in expediency to serve as a dependable legal criterion. The essential nature of the problem cannot be hidden by an attempt to separate manifestations of indivisible governmental powers." Douglas, J. ( 326 V. S. 572 , at 591 ) "A State's project is as much a legitimate governmental activity whether it is traditional, or akin to private enterprise, or conducted for profit. Cf. Helvering v. Gerhardt, 304 US 405, 426, 427. A state may deem it as essential to its economy that it own and operate a railroad, a mill, or an irrigation system as it does to own and operate bridges, street lights, or a sewage disposal plant. What hight have been viewed in an earlier day as an, improvident or even dangerous extension of state activities may today be deemed indispensable. But as Mr. Justice White said in his dissent in South Caroling v. United States, any activity in which a State engages within the limits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntalities of the government. These corporations are instrumentalities or agencies of the state for carrying on businesses which otherwise would have been run by the state departmentally. If the state had chosen to carry on these businesses through the medium of government departments, there would have been no question that actions of these departments would be 'state actions'. Why then should be actions of these corporations be not state actions? The Additional Solicitor General submitted that since these corporations have separate personalities, they cannot be regarded as agents or instrumentalities of the state and referred to the decision in Andhra Pradesh State Road Transport Corporation v. The Income Tax Officer and Another([1964] 7 S.C. R. 17). The question in that case was whether the Road Transport Corporation constituted under the Road Transport Corporations Act, 1950, was carrying on business on behalf of the State of Andhra Pradesh and that the income of the Corporation was exempt from liability to pay income tax. This Court took the view that the Road Transport Corporation was a corporate body and has a separate personality and, therefore, the business carried on by i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nferred in that behalf would enable an employee to a declaration against them for continuance in service or would give rise only to a claim for damages. This will depend upon the question whether the regulations framed by these corporations would have the force of law and even if they have not the force of law, whether the employment is public employment and, for that reason, the employee would obtain a status which would enable him to obtain the declaration. The learned Chief Justice has dealt with the question in his judgment whether the regulations framed by the corporations. have the force of law and he has arrived at the conclusion that the regulations being framed under statutory provisions would have the force of law. Even assuming that the regulations have no force of law, I think since the employment under these corporations is public employment, an employee would get a status which would enable him to obtain declaration for continuance in service if he was dismissed or discharged contrary to the regulations. The original concept of employment was that of master and servant. It was therefore held that a court will not specifically enforce a contract of employment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if the employee can quit his job at will, then so too must the employer have the right to terminate the relationship for any or no reason. And there are a number of cases in which even contracts for permanent employment, i.e. for indefinite terms, have been held unenforceable on the ground that they lack mutuality of obligation. But these cases demonstrate that mutuality is a high sounding phrase of little use as an analytical tool and it would seem clear that mutuality of obligation is not an inexorable requirement and that lack of mutuality is simply, as many courts have come to recognize, an imperfect way of referring to the real obstacle to enforcing any kind of contractual limitation on the employer's right of discharge, i.e. lack of consideration. If there is anything in contract law which seems likely to advance the present inquiry, it is the growing tendency to protect individuals from contracts of adhesion, from overreaching terms often found in standard forms of contract used by large commercial establishments. Judicial disfavour of contracts of adhesion has been said to reflect the assumed need to protect the weaker contracting party against the harshness of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Much may turn on the premise to a consideration of the meaning of the conditions whether in a contract of service made in the twentieth century with a statutory board such as the respondent board (whose established officers participate in the pension scheme contained in regulations promulgated by the Ministry of Health and Local Government of Northern Ireland), it is correct to regard the common law right of a master to determine his servant's engagement as of so well-established and paramount character that the contract should be interpreted as necessarily subject to that right (and to a corresponding right on the part of the servant) so that only the clearest express terms will exclude it." And he also pointed out that the position of the employer board and one of its servants is very different: 'The loss or damage to the board occasioned by the departure of one of its servants would, save in very exceptional circumstances, be negligible. To a servant, certainly a servant in the position of the appellant, the security of employment with the board for the period of working life is of immense value." This approach to public employment goes some way towards the reversal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his remedy becomes the primary one though it will need to be reinforced where private individuals are being sued. The law of master and servant has not kept pace with the modern conditions and the mandate of equality embodied in the Constitution. The law still attaches to the servant a status of inferiority and subjection to his master. Though fundamental reforms can only emanate from the legislature. the principles fashioned by public law if applied to masterservant relationship can bring about a change in law to accord with the social conditions of the 20th Century(see generally "Public Law Principles Applicable to Dismissal from Employment" by G. Gan, 30 Modern Law Rev ). That apart, the regulations framed by these corporations were intended to be binding upon them and were the bases on which the employments were made. As the employments were under corporations created by statutes for carrying on businesses of public importance, they were public employment. And even if the regulations have not got the force of law, I think the principle laid down by Justice Frankfurther in Viterelli v. Seaton(359 U. S. 536, at 546-547) should govern the situation. He said "An execut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent per cent by the Mysore Government. Under the Articles of Association of the company the first Directors of the company were Minister-in Charge of the Industries Portfolio in the Mysore Government, the Secretaries to the Mysore Government in the Finance Department, and in the Commerce and Industries Department, the Managing Director of the Mysore Iron Steel Ltd., and the Chief Conservator of Forest,; of the Mysore Government. The Governor of Mysore was entitled to appoint all or a majority of the members of the Board of Directors so long as the Government of Mysore held not less than 51 per cent of the total paid-up capital of the company or so long as the Governor continued to be interested in any fiduciary capacity. Thus the State Government had considerable control in appointment of Directors of the company as well as in the appointment of the Managing Director who was to be appointed by the Governor from amongst the Directors nominated by him. The Governor was also entitled to appoint from amongst the nominated Directors a Chairman And Vice-Chairman of the Board of Directors. Even the Secretary of the company had to be appointed by the Board of Directors after obtaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts shareholders. Action taken against it does not directly affect its shareholders. The company in holding its property and carrying on its business is not the agent of its shareholders. An infringement 'of its rights does not give a cause of action to its shareholders. Consequently, it has been said that if a man trusts a corporation he trusts that legal persons and must look to its assets for payment; he can call upon the individual shareholders to contribute only if the Act or charter creating the corporation so provides. The liability of an individual member is not increased by the fact that he is the sole person beneficially interested in the property of the corporation and that the other members have become members merely for the purpose of enabling the corporation to become incorporated and possess only a nominal interest in its property or hold it in trust for him. (of Halbury's Laws of England, 3rd Ed. Vol. 9, p. 9). Such a company even possesses the nationality of the country under the laws of which it is incorporated, irrespective of the nationality of its members and does not cease to have that nationality even if in times of war it falls under enemy control (cf. Janson ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of a corporation and he is entitled to call for information, to give directions which are binding on the directors and to supervise over the conduct of the business of the corporation does not render the corporation an agent of the Government, (see The State Trading Corporation of India Ltd. v. The Commercial Tax Officer, Visakhapatnam([1964] 4 S.C.R.99,188 per Shah, J) and Tamlin v. Hannaford([1950] 1 K. B. 18, 25-26). Such an inference that the corporation is the agent of the Government may be drawn where it is performing in substance governmental and not commercial functions (cf. London County Territorial and Auxiliary forces Association v. Nichols ([1948] 2 All E. R. 432. 663). In Hindustan Steel case (supra) it was argued before the Constitution Bench that since it was entirely financed by the Government and its management was directly the responsibility of the President, the post was virtually under the Government of India. Hindustan Steel was a Government company and a private limited company. Its Articles of Association as also the Indian Companies Act rendered the ordinary company law inapplicable in certain respects and conferred unlimited powers of management on the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Central Government, by notification in the Gazette of India, make regulations not inconsistent with the Act and the rules made thereunder to provide for all matters for which provision is expedient for the purpose of giving effect to the provisions of this Act. The regulations may provide inter alia for the powers and functions of the Corporation which may be delegated to the Zonal Managers; the method of recruitment of employees and agents of the Corporation and the terms and conditions of service of such employees or agents; the terms and condition of service of persons who have become employees of the Corporation under section 11 of the Act; the number, term of office and conditions ,of service of members of boards constituted under section 22 of the Act; the manner in which the Fund of the Corporation shall be maintained the form and manner in which policies may be issued and contracts binding on the Corporation may be executed. The Industrial Finance Corporation was set up by the Industrial Finance Corporation Act, 1948. The superintendence of the business of the Corporation is entrusted to a Board of Directors. The Central Government may make rules in consultation with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gulation, a power to issue any notification, order, scheme, rule, form, or bye-law is conferred, then expressions used in the notification, order scheme, rule, form, or bye-law, if it is made after the commencement of this Act, shall, unless there is anything repugnant in the subject or context, have the same respective meanings as in the Act or Regulation conferring the power." The compendious term "Subordinate Legislation" refers to notifications, orders, schemes, rules and bye-laws referred to in ss. 20 and 21 of the General Clauses Act. It would be noticed that the word "order" used in the General Clauses Act is not used in the same sense that word is used in England where orders are excluded from the statutory definition of statutory rules as being administrative. The Committee on Ministers' Powers suggested that regulations should be used for substantive law and rules for procedural law, while orders should be reserved to describe the exercise of executive power or the taking of a judicial or-quasi-judicial decision. It would be noticed that this scheme is completely different from the Indian legislative practice. The word"order" very often is used in lndia for certain type ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitute and the manner of such appointment. Under section 29 the Institute has the power to make regulations regarding the allowances, if any, to be paid to the Chairman and the members of the Governing Body and of standing and ad hoc committees and the tenure of office, salaries and allowances and other conditions of service of the Director and other officers and employees of the Institute including teachers appointed by the Institute. On the other hand, under the Central Silk Board Act 1948 it is the Central Government that has the power to make rules regarding the staff which may be employed by the Board and the pay and allowances, leave and other conditions of service of officers and other employees of the Board. The Board has no power to make regulation Under the Chartered Accountants Act, 1949 it is the Council that has, 'the power to make regulations about various matters. The Central Government has, however, the power to direct the Council, to make any regulations or to amend or revoke any regulations already made within such period as it May specify in, this behalf. There is however no rule making power conferred on the Central Government. Under the Indian Coconut Committe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make regulations regarding the method of recruitment, pay and allowances, discipline, superannuation benefits and other conditions of service of officers and servants of the Corporation other than the principal officers. The State Governments have the power to make rules regarding the conditions of service of staff employed in the hospitals , dispensaries and institutions mansions of this Act is that the regulations made by the Corporationshall be published in the Gazette of India and thereupon shall have effect as if enacted in the Act. It shows that where the Parliament intended that a regulation should have statutory effect it said so specifically. This also illustrates the provision of Cl. (51) of section 3 of the General Clauses Act which defines 'rule' as including a regulation intended to be made as a rule. The Faridabad Development Corporation Act, 1956 confers the power to make rules on the Central Government but no power is given to the Corporation to make any regulations. The Indian Medicine Central Council Act, 1970 confers the power to make rules on the Central Government and the 'power to make regulations on the Central Council of Indian Medicine including the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs the power to make rules on the Central Government and the power to make regulations on the Monopolies and Restrictive Trade Practices Commission. The National Co-operative Development Corporation Act, 1962 confers the power to make rules on the Central Government and the power to make regulations on the Corporation. I have gone through the various statutes only to point out that under the Indian Legislative practice rules are what the Central Government or the State Governments make and the regulations are made by any institution or Organisation established by a statute and where it is intended that the regulation should have effect as law the statute itself says so. It is, therefore, I stated earlier, unnecessary and may be even misleading to refer to the English practice in interpreting the word 'regulation'. My learned brothers say that the 'regulations' under the Oil Natural Gas Commission Act provide for the terms and conditions of appointment and service and scales of pay of the employees of the Commission, regulations are imperative and the administrative instruction is the entering into contract with the particular person, but the form and content of the contract i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g its employees of the security of tenure of service. The matter is thus one between the employee and the employer which is precisely the case of a service contract. A breach of such conditions is therefore a breach of the service contract remediable by damages rather than an ultra vires action to be set aside by a declaration or mandamus. As argued on behalf of the three organisations the regulations are about the conditions of service which are offered to its employees in the form of a contract. The result of accepting the argument that these powers are statutory would be to hold that the employees of the various organisations and institutions which are governed by the various statutes I have enumerated above would be deemed to have their service conditions fixed by statutes. Even assuming that their conditions of service are fixed by staute it does not mean that the removal of an employee contrary to those conditions would necessarily result in the removal having to be declared void. That was the position, for instance, under section 96-B of the Government of India Act, 1919 till section 240 was introduced in the Government of India Act, 1935. (See Venkat Rao's case, A.I.R. 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation like the Life Insurance Corporation is created by the statute itself and a company come,-, into existence in accordance with the provisions of the Companies Act does not make any difference to this situation. Merely because a body happens to be a statutory body it does not become any the less entitled to frame regulations which could be of the same kind as the regulations made by a company. Whether a corporation or a company is created by a statute or under a statute does not make any difference to this principle. The logic of the three decisions, the validity of which my learned brothers have accepted in their decision in W.P. No. 43 of 1972, requires that it should be applied to the employees of these three organisations. There is no reason in principle why a different result should follow just because a corporation happens to be established by a statute whereas it is different in the case of a company. Whether an institution or Organisation is established by a statute or under a statute in principle there is no difference between their powers. Ultimately unless it should be held that the institution or Organisation in question is an 'authority' within the meaning of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinction is clearly kept in mind. In New York v.United States (90 L. ed. 326) it was remarked "That there Ls a Constitutional line between the State as government and the State as trader, was still more recently made the basis of a decision sustaining a liquor tax against Ohio. "If a state chooses to go into the business of buying and selling commodities, its right to do so may be conceded so far as the Federal Constitution is concerned; but the exercise of the right is not the performance of a government rat function .... When a state enters the market place. seeking customers it divests itself of its quasi sovereignty protanto, and takes on the character of a trader so far, at least, as the taxing power of the federal government is concerned." Ohio v. Helvering, supra (292 US at 369, 78 L. ed 1310, 54 S Ct '125). When the Ohio Case was decided it was too late in the day not to recognize the vast extension of the sphere of government, both State and national, compared with that with which the Fathers were familiar. It could hardly remain a satisfactory constitutional doctrine that only such State activities are immune from federal taxation as were engaged in by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of Ram Jawaya v. State of Punjab (1955 2 SCR 225: AIR 1955 SC 549) and the Amendment of 1956 simply codifies the effect of the decision in Ram Jawaya's case (1955 2 SCR 225: AIR 1955 SC 549) namely, that legislation is not required to empower a Government to carry on a business, it can do so in the exercise of its executive power, except, of course, where a law is required by some other provision of the Constitution, say, Article 19(6). But the effect of the amendment is not to convert a commercial function of the Government into a governmental function. It is to be noted that even where a State Government carries on a business, it cannot be treated as a governmental function to claim immunity from Union taxation, without a declaration' by Parliament by law under Article 289(3)-vide AIR 1964 SC 1486 at p. 1492. If the Central Government carries on a business, it can never be treated as a governmental function to claim immunity from State taxation because Article 285(1) simply speaks of 'the property of the union and no business. It has been held by the Supreme Court that even when the Government carries on a business departmentally as in the case of Railway, it cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shares in a private company, subject, however, to a duty to account to Parliament for his stewardship. It was the Minister who appointed the directors, the members of the Commission, and fixed their remuneration. They must give him any information he wanted. He was given power to give them directions of of a general nature and they were bound to obey. The Court Appeal said : "These are great powers but still we cannot regard the corporation as being his agent, any more than a company is the agent of the shareholders, or even of a sole shareholder. In the eye of the law, the corporation is its own master and is answerable as fully as any other person or corporation. It is not the Crown and has none of the immunities or privileges of the Crown. Its servants are not civil servants, and its property is not crown property." Further on they remarked "But the carriage of passengers and goods is a commercial concern which had never been the monopoly of anyone and we do not think that its unification under state control is any ground for conferring Crown privileges upon it. The only fact in this case which can be said to make the British Transport' Commission a servant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rules and regulations in our country. Allen in his work 'Law and Orders' (3rd ed., p. 324) refers to the question raised in Tamlin v. Hannaford (supra). After noting that it was undoubtedly a public authority with large powers, and a considerable measure of control was exercised over it, under the Transport Act, 1947, by the Minister of Transport; but in its activities, its liabilities, the status of its employees, and its subordination to statute, it was essentially a separate corporate body, in no way comparable to a Government department, goes on to observe : "It is interesting to note that bad the decision been otherwise everyone of the halfmillion (approximately) employees of the railways alone would have become a;'servant or agent" of the Crown, entitled. to the privileges of that status." That unfortunately would be the effect of what my learned brothers have chosen to do in their judgment. It is now time to refer to the decisions of this Court relevant to, the subject. In the State Trading Corporation of India Ltd. Ors. v. The Commercial Tax Officer, Visakhapatnam Ors. [1964 (4) SCR 99] Justice Shah pointed out that : The question whether a corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim that despite the form which the Organisation has taken, it is the shareholders who run the trade and who can claim the income coming from it as their own. The decision in K. S. Ramamurthi Reddiar v. The Chief Commissioner, Pondicherry [1964 (1) SCR 656] is not helpful in deciding what an authority is because the appellate in that case was a quasiJudicial authority, In Kasturilal v. Stale [1966 (1) SCR 375] a Constitution Bench of this Court after an exhaustive reference to all the earlier decisions. pointed out : It is not difficult to realise the significance and importance of making such a distinction particularly at the present time when, in the pursuit of their welfare ideal, the Governments of the States as well as the Government of India naturally and legitimately enter into many commercial and other undertakings and activities which have no relation with the traditional concept of governmental activities in which the exercise of sovereign power is involved. It is necessary to limit the area of these affairs of the State in. relation to the exercise of sovereign power, so that if acts are committed by Government employees in relation to other activities. which may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of Part III of the Constitution were applicable." This makes it clear. that the fact that the Board carried on activities in the nature of trade or commerce could be a ground for excluding it from the scope of word "State" but for the fact that it was given powers to give directions the disobedience of which was punishable as a criminal offence. We need not-now pause to consider whether where a body carries out functions both with regard to trade and commerce and also exercises powers, which only a State can exercise like giving directions the disobedience of which is punishable as a criminal offence, the obligations and restrictions which are imposed by the Constitution on the exercise of those powers by the State should not be confined to those powers and with regard to the carrying on the trade and commerce it should not be treated as any other ordinary commercial concern. Justice Shab's concurring judgment bring out in sharp focus the ration of the decision by the majority. He said "The Board is an authority invested by statute with certain sovereign powers of the State...... and to issue directions under certain provisions of the Act and to enforce compliance with those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1946. Therefore, the circumstances that in granting relief, the Tribunal may have to vary the special bye-laws framed by the, Cooperative Banks does not lead to the inference that the Tribunal would be making orders contrary to law and therefore is incompetent to grant the reliefs claimed. The Jurisdiction granted to the Tribunal by the Industrial Disputes Act is not the jurisdiction of merely administering existing laws and enforcing existing contracts. The Tribunal has the jurisdiction even to vary contracts of service between employer and employees. Further in the Andhra Act there is no prohibition that the conditions of service prescribed are not to be altered. Therefore the reliefs could only be granted by the Industrial Tribunal and could not fall within the Scope of the Registrar's powers under the Cooperative Societies Act." The main contention on behalf of the three organisations put forward by the learned Addl. Solicitor General was that if we hold that these corporations are State and the regulations as having the force of law there would be no room for any reference to the Industrial Tribunal under the Industrial Disputes Act, and that would be a great disadvantage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt; hence the respondent was only entitled to damages and not to the declaration that his dismissal was null and void." My learned brothers have referred to Naraindas Barot's case (1966 (3) SCR 40) and state that as it was decided by the Constitution Bench, the U.P. Warehousing Corporation's case [1970 (2) SCR 250] and the Indian Airlines' case (1971 (2) SCR 192 : 1971 (Supp) SCR 510) are in direct conflict with former decision in Naraindas Barot's case. The question whether the Road Transport Corporation was a State within the meaning of that term under Art. 12 of the Constitution was neither raised nor decided there. Nor was the question whether the regulations under consideration in that case were, of a statutory character raised or decided. That case is not an authority for the proposition that the Road Transport Corporation was a State or that its regulations had the effect of law. The discussion in this case would therefore have to proceed on the basis that it lays down no ratio and the U. P. Warehousing Corporation and the Indian Airlines cases are still good law. The Sirsi Municipality case (1973 (1) SCC 409) and Tewari's case (1964 (3) SCR 55) stand, however, on a diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onferred on the Industrial Finance Corporation. Nor do I think that section 25 of the Oil Natural Gas Commission Act, 1959 would make.it a State. The test laid down for deciding what is a State in the Rajasthan Electricity Board case, that is of commanding other people to do or not to do a thing on pain of punishment, is not there. I do not see how, as long as that decision holds the field, it is open to this Bench to take a different view. All the other decisions of this Court have followed only that view. The decision of my learned brothers is unsupportable in principle against the weight of authority and frought with serious consequences. Suddenly overnight by the fiat of this Court all these bodies which till yesterday were not considered to be a State or other authority would be considered to be other authority and their employees entitled to provisions of Part III of the Constitution. We would be opening a veritable Pandora's box. The protection given to Government servants india have no parallels anywhere in the world. They were getting on well enough till the Government of India Act, 1935. Till then there was no statutory protection given to them [See Venkata Rao's case ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance Corporation or the various nationalised banks since they were nationalised. Misplaced sympathy is sometimes responsible for our attitude to labour. These days labour is not the weak and helpless force that it was in the 19th Century. They are strong, well organised, rich and powerful. In England the Trade Union Congress is able to dictate to successive Governments on all sorts of matters. In America it is said that industrial in managers have to wait hat-in-hand before the officers of the trade union bosses. George Meany of the A.F.L. and C.I.O. is able to dictate to the Government. one has only to refer to Jimmy Hoffa of the Teamsters' Union in America to know how powerful trade unions are. To the legitimate armoury of labour like strike and picketing and industrial negotiations this country has dubious distinction of having added 'gherao', a most uncivilised form of wrongful confinement in order to force concessions from managements and even heads of institutions, even educational institutions. There is no question there of any negotiations. The management or the head of the institution has to either surrender or be prevented from eating or even answering calls of nature ..... X X X X Extracts X X X X X X X X Extracts X X X X
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