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TMI Blog1988 (1) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... : (1) Whether the Modern Food Industries (India) Ltd., a Government Company incorporated under the Companies Act, falls within the definition of 'the State' under Art. 12 of the Constitution of India ? (2) Whether clause 2.18 of the Staff Regulations is illegal and void on the ground to being unconscionable and opposed to public policy, i.e. contrary to Section 23 of the Contract Act as also violative of Arts. 14 and 16 of the Constitution of India ? (3) Whether this High Court was competent to entertain the petition brought by the respondent-employee who was posted at the date of the termination of his service at the Calcutta Unit of the appellant No. 1 Company merely because communication of the termination order was received by him at Ahmedabad while on leave ? 3. The learned single Judge has come to the conclusion that the appellant No. 1 Company was 'the State' within the meaning of Art. 12 of the Constitution; that Regulation 2.18 of the Staff Regulations was illegal and void as violative of Section 23 of the Contract Act and ultra vires Arts. 14 and 16(1) of the Constitution and that this High Court had jurisdiction to entertain the petition as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 2 also for information. The respondent was thereafter transferred to Calcutta by an order dated April 6, 1979. Although this order, in the view of the respondent, was mala fide, the respondent took charge of his post at Calcutta. Since the harassment continued unabated, the respondent contends that he proceeded on leave and came to Ahmedabad. While he was on leave at Ahmedabad, he received the impugned order of termination of service dated April 21, 1980. The text of the order may be reproduced at this stage : April 21, 1980 MEMORANDUM Sub :- Termination of Services. The services of Shri M. D. Juvekar, Additional Sales Manager (on leave), Calcutta Unit, are terminated under provisions of Staff Regulation No. 2.18 of the Staff Regulations of the Company with immediate effect. Shri Juvekar may collect his 90 day's pay in lieu of notice period, as provided under the said staff Regulation from the General Manager, Ahmedabad Unit. Sd/- (R. S. PAL) Chairman-cum-Managing Director The foot-note at the end of this Memorandum is of considerable importance so far as the question of jurisdiction is concerned and it would therefore be appropriate to reproduce th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he was guilt of insubordination. It is not necessary for us to capitulate the averments made in this behalf against the respondent as the question which arise for our determination in this appeal do not require us to go into these factual aspects. Suffice it to say that the allegations made against the respondent in the counters have been denied by the respondent in his affidavit-in-rejoinder. It is in the back-drop of the above facts that we must consider whether the impugned order passed by the learned single Judge is sustainable. 6. Article 12 which finds its place in Part III of the Constitution entitled 'Fundamental Rights' defines the expression 'the State' to include the Government and Parliament of India and the Government and the Legislature of each the States and all local or other authorities within the territory of India or under the control of the Government of India. Article 36 which finds place in Part IV of the Constitution entitled 'Directive Principles of State Policy', posits that the expression 'the State' shall have the same meaning as in Part III of the Constitution. Thus, the expression 'the State' used in Parts III ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this context we have to consider whether the appellant No. 1 Company which is a Government Company incorporated under the Companies Act is one such agency or instrumentality through which the Government is discharging its obligation under Art. 47, which enjoins upon the State the duty to raise the level of nutrition and improve the public health of its people, while operating in the field of trade and business by running a bakery intended to supply nutritious bread to the community. 7. It is obvious from the cause title of the memo of appeal that appellant No. 1 is a Government Company having its registered office at New Delhi. Section 617 of the Companies Act defines 'Government Company' as any Company in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any State Government of Governments, or party by the Central Government and party by one or more State Government and includes a Company which is a subsidiary of a Government Company as thus defined. Appellant No. 1 Company has an authorised share capital of ₹ 4.13 crores divided into 41,300 equity shares of ₹ 1,000/- each. The respondent avers t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s including the right to vote by proxy. The power to appoint Directors is conferred on the President by Art. 96 which inter alia provides that the President shall have the power to remove any Director from office at any time in his absolute decoration and fill the vacancy by fresh appointment. Article 106(1) empowers the President to appoint Chairman of the Board of Directors or Managing Director or Managing Directors of the Company. The first Chairman of the Board of Directors was the Secretary to the Government of India, Ministry of Food and Agriculture (Department of Food), Art. 106(2) empowers the President to entrust to and confer upon the Chairman, Managing Director(s) and General Manager such powers as are exercisable by the Directors subject to such terms and conditions as he may think appropriate to impose. The powers of the Directors are enumerated in Art. 119 of the Memorandum and Articles of Association of the Company. It is obvious from the above Articles that the appointment and removal of the Directors of the Company is with the President, so also the President is empowered to appoint the Chairman of the Board of Director as well as Managing Directors of the Company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 of the Constitution. 9. We have already pointed out earlier that the executive power of the Union and of each State extends to the carrying on of any trade or business through its agencies or instrumentalities created under a statute or incorporated under the Companies Act. In a developing country, the State is required to extend its activities to fields hitherto reserved for private enterprise to meet the new social demands for the promotion of the social and economic welfare of the community. These new tasks undertaken by the State have to be fulfilled through the instrumentality of statutory Corporations and Companies incorporated under the Companies Act. Of course these tasks have the performed consistently with the provisions of the Constitution. We have noticed from the Memorandum and Articles of Association of the Company the extent of control exercised by the President in the matter of the distribution of share capital, issuance of debentures, declaration of dividends appointment of Directors, Chairman of the Board of Directors and Managing Directors, exercise of power by the Directors and Managing Directors as per instructions issued from time to time and the supervi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive by the majority holding that these three Corporations were 'other authority situate in the territory of India and were under the control of the Government of India and, therefore, they answered the requirements of the definition of 'the State' in Art. 12 of the Constitution. It was further held that the regulations framed by these statutory Corporations in exercise of power conferred on them by the statute have the force of law. Ray, C.J. pointed out at P. 411 that 'The State' undertakes commercial functions in combination with Government function in a welfare state' while Mathew, J. held at P. 423 that 'A finding of State financial support plus an unusual degree of control over the management and policies might lead one to characterize an operation as State action'. Mathew J. further pointed out at P. 424 that 'the State today had 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 reading his ideal of self-perfection'. It is, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ford some indication of the Corporation being impregnated with Governmental character. (3) It mat also be a relevant factor .... whether the Corporation enjoys monopoly status which is the State conferred or State protected. (4) Existence of deep and pervasive State control may afford an indication that the Corporation is a State agency or instrumentality. (5) If the function 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 the inference of the Corporation being an instrumentality or agency of the Government. Thereafter in Som Prakash Rekhi v. Union of India the Court held that Bharat Petroleum, a Government Company incorporated under Section 617 of the Companies Act fell within the meaning of the expression 'the State' used in Art. 12. In B. S. Minhas v. Statistical Institute (1984 I LLJ 671), following the criteria laid down in Ajay Hasia's case (supra), the Supreme Court held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablish anything more than the fact that the Government took special interest and care for the promotion, guidance and co-operation of the scientific and industrial research and allied activities. This decision was considered by the Supreme Court in the Airport Authority's case (supra) in the following words Lastly, we must refer to the decision in Sabhajit Tewary v. Union of India where the question was whether the Council of Scientific and Industrial Research was an 'Authority' within the meaning of Art. 12. The Court no doubt took the view on the basis of the facts relevant to the constitution and functioning of the Council that it was not an 'authority' but we do not find any discussion in this case as to what are the features which must be present before a Corporation can be regarded as an 'authority' within the meaning of Art. 12. This discussion does not lay down any principle or test for the purpose of determining when a Corporation can be said to be an 'authority'. If at all any test can be gleaned from the decision, it is whether the Corporation is 'really an agency of the Government. The Court seemed to hold on the facts that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... powers including right to vote by proxy. A capital expenditure exceeding Rupees two crores must receive the approval of the President. The declaration of dividend to share holders, the grant of bonus or any other ex gratia payment to the members of the staff etc. are also made subject to the approval of the President. It will thus be seen from the above provisions that considerable control is exercised by the Government in the matter of management of the Company and that is yet another indication that the Company is the instrumentality or agency of the Government. The provisions in the Memorandum and Articles of Association when read in conjunction show existence of deep and pervasive control of the Central Government over the Company. We are, therefore, of the opinion that the learned single Judge was right in reaching the conclusion that appellant No. 1 Company was an instrumentality or agency of the Central Government and, therefore, 'other authority' within the meaning of Art. 12 and hence 'the State'. We must, therefore, answer the first question in the affirmative. 13. We now move on to the second question which bears on the validity of Clause 2.18 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices of permanent employee can be terminated on the grounds of 'services on longer required in the interest of the Company' without assigning any reason. A permanent employee whose services are terminated under this clause shall be paid 15 days' basic pay and dearness allowance for each completed year of continuous service in the Company as compensation. In addition he will be entitle to encashment of leave at his credit . Dealing with this clause, the Supreme Court, after considering the case law in this country and the statutes of the United States and United Kingdom, came to the conclusion that if a clause in a contract smacks of unreasonableness or lack of fairness emanating from inequality of bargaining power between the parties, Courts of Law will regard it as opposed to public policy and refuse to enforce the same. The Supreme Court also observed that such a clause in the contract conferring arbitrary and unguided power to the management to terminate the services of even confirmed employees on payment of notice pay must be regarded as violative of Art. 14 of the Constitution. In paragraph 92 of its judgment, the Supreme Court observed as under This princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has no choice but to accept the said term if he desires employment with the Company. The employees have no voice in the formulation of this clause and unlike Rule 9(i) with which the Supreme Court was concerned, this clause does not permit the employee to put an end to the contract of employment by a similar notice or on payment of a sum equivalent to pay for the notice period. It can, therefore, be said that the clause in the contract lacks mutuality and is even more drastic than Rule 9(i) to that extent. 14. Since the appellant No. 1 Company is found to be 'the State' within the meaning of Art. 12 and is, therefore, amenable to the jurisdiction of the High Court under Art. 226 of the Constitution, its terms must comply with the requirements of Arts. 14 and 16 of the Constitution. As pointed our above, Rule 9(i) was found to be arbitrary and unreasonable and opposed to the principles of natural justice by the Supreme Court in the aforementioned case. Clause 2.18 of the Staff Regulations with which we are concerned is even more drastic than Rule 9(i) with which the Supreme Court was concerned and must therefore, a fortiori, be struck down as violative of Art. 14 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own to have arisen within the jurisdiction of this Court to enable it to grant any relief sought by the respondent-employee. The learned single Judge has come to the conclusion that since the order of termination of service dated April 21, 1980 was communicated to the respondent employee at Ahmedabad, the consequence of the order fell at Ahmedabad and, therefore, this High Court was competent to entertain the writ petition and grant the reliefs sought. In taking this view, the learned Judge placed strong reliance to the decision of the Supreme Court in State of Punjab v. Amar Singh Harika. In that case the question which the Court was required to consider was : When does the dismissal of a Government servant become effective ? Does it become effective on the mere passing of the order of dismissal or only after it is published and communicated to the officer concerned ? In that case Amar Singh, Assistant Director, Civil Supplies, Pepse, was dismissed from service by an order stated to have been passed on June 3, 1949. Amar Singh was informed about the same by one Bishanchand, Assistant Controller, Pepus on May 28, 1951. Thereupon Amar Singh filed a suit for a declaration that the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned employee. Therefore, even though theoretically the competent authority can be said to have passed the order of dismissal, it does not become effective until it is communicated to the concerned employee resulting in the dispensation of his service. A similar view was taken by the Calcutta High Court in Umashankar Chatterjee v. Union of India Others wherein the employee on being found guilty of the charges levelled against him was ordered to be removed from service on December 9, 1977. The order of removal was sent to the employee at his Calcutta residence. The employee challenged the order by a writ petition filed in the Calcutta High Court. The learned single Judge discharged the Rule Nisi on the ground of want of territorial jurisdiction. In appeal, the Division Bench of the Calcutta High Court held that although the order of removal from service was passed at New Delhi, its consequence fell on the employee at Calcutta where the order was communicated to him and hence the Calcutta High Court had jurisdiction to entertain the writ petition. In taking this view, reliance was placed on the decision of the Supreme Court in Amar Singh's case (supra). Similar question was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above discussion that passing of a dismissal order is not enough, it cannot become effective unless it is published and communicated to the concerned employee. If an order of dismissal remains on the file of the authority passing it, it would not have effect unless the concerned employee is informed about the same and told not to report for work, In the present case also if the dismissal order were to remain on the file of the Chairman-cum-Managing Director of appellant No. 1 Company at New Delhi and not be communicated to its Calcutta Unit, the employee would report for work and the Officer in charge of the Calcutta Unit would obviously permit him to work. Only after the order is forwarded to Calcutta Unit, the Officer in charge of that Unit would refuse to permit the concerned employee to render service, in which case the said employee would have to be informed about the termination of his service. Therefore, one of the essentials of an effective dismissal order is communication thereof to the concerned employee and this, in our view, constitutes an important link in the chain of events constituting the cause of action. We are, therefore, of the opinion that the learned single ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... territories which as from that day i.e. November 1, 1956, formed part of the territories of one of the successor States, the State of Bombay. Dealing with this question the Division Bench speaking through Tambe, J. observed at pp. 491-492 as under : The meaning of the term 'cause of action' as is generally understood is 'every fact which, if traversed, it would be necessary for the plaintiff to prove in order to support his right to the judgment of the Court'. The petitioners' claim is that their services have been wrongly terminated. Undoubtedly, therefore, the fact that the order of termination of service was made would form part of a cause of action, and it would arise at the place the order is made. It is the contention of all the petitioners that once they establish that orders for the termination of their services have been made it was sufficient to entitle them to claim relief at the hands of this Court. All these orders were made in Nagpur, which at the material time was the seat of the Government of the former State of Madhya Pradesh. The cause of action, therefore, in its entirety arose at Nagpur which now forms the territory of the present State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty for the proposition that a part of the cause of action arose at the place where the order of termination of service was communicated to the concerned employee. Another Division Bench of the Bombay High Court in a subsequent case of Damumal Pesumal v. Union of India Others held that the High Court can exercise jurisdiction if whole or part of any cause of action arises within its territories. In that case the order was passed by the Additional Settlement Commissioner, Delhi, but the consequence of that order had fallen on the petitioner at Bombay. The High Court held that it had jurisdiction to entertain the petition and grant appropriate reliefs. We are, therefore, clearly of the view that this High Court was entitled to entertain the petition and grant such relief or reliefs as it considered appropriate in the facts and circumstances of the case. 20. We are pained to note that even after the clear pronouncement of the Supreme Court in Central Inland Water Transport Corporation Ltd. (supra) holding Rule 9(i) of the Service, Discipline and Appeal Rules of the Corporation violative of Section 23 of the Contract Act and Arts. 14 and 16 of the Constitution, the appellants have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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