TaxTMI 
TaxTMI 
1980 (11) TMI 113
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....asing tribe of soulless ubiquity and claiming, as it does, to constitutional immunity. This is the first issue to which we will address ourselves. Jawaharlal Nehru warned the Constituent Assembly about the problem of poverty and social change : "The service of India means the service of the millions who suffer. It means the ending of poverty and ignorance and disease and inequality of opportunity. The ambition of the greatest man of our generation has been to wipe every tear from every eye. That may be beyond us, but as long as there are tears and suffering, so long our work will not be over". The second question which claims our attention turns on the petitioner's plea of alleged stultification of article 41 by the State itself re-incarnating as a Government company, by defending the paring down of the pension of the petitioner to a pathetic pittance thus sterilising a directive principle to a decorative paper. "Law cannot stand aside from the social changes around it". (Justice Brennan in Roth v. United States, 354 U.S. 476) The third problem, not humdrum but heuristic, turns on the construction of the relevant legislations and regulations covered by the writ petition, reme....
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....y Provident Fund as represents any Company's contributions to that fund in respect of the period of the member's Accredited Service (including bonuses and interest on such contributions up to that date). (2) A sum equal to four percent. of any amount which before relevant date the member has withdrawn from a Provident Fund in so far as such withdrawal is under the Rules of the Provident Fund charged against the period of the member's Accredited Service (including bonuses and interest thereon) or has been paid out to him during his Accredited Service under the Rules of Provident Fund, together with interest thereon from the date of such withdrawal or receipt to the relevant date. (3) If the Company so elects, a sum not exceeding six per cent. of the amount of any payments which any company has made or may make or which any Company shall be or have been required by law to make to the member in connection with the termination of his service with that company together with interest thereon from the date of payments down to the relevant date". The Pension Fund, on the vesting of Burmah Shell in respondent 2, came to be administered by the latter under the Burmah Shell (Acquisition of....
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....ementary retirement benefit on the score that it was ex gratia, discretionary and liable to be stopped any time by the employer. The petitioner was intimated by the Burmah Shell that consequent on his drawal of provident fund and gratuity benefits, the quantum of his pension would suffer a pro tanto shrinkage, leaving a monthly puny pension of Rs. 40. Since no superannuated soul can survive, in Indian indigence and inflationary spiral, on Rs. 40 per month, the petitioner has come to this Court challenging the deductions from his original pension as illegal and inhuman and demanding restoration of the full sum which he was originally drawing. His right to property under article 19 has been violated, he claims. It may well be, as urged by the Corporation, that if regulation 16 does govern, the deductions are warranted. Likewise, if the supplementary retiral benefit is purely a mercy gesture, savouring of no manner of right nor subject to restrictions on discretionary exercise, the sudden stoppage of that sum is perhaps not illegal. It may be heartless, but not necessarily lawless, for a prosperous undertaking, now in the public sector, which pays over-generous salaries to higher of....
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....ly an inclusive definition, not a conclusive definition. One thing is clear. Any authority under the control of the Government of India comes within the definition. Before expanding on this theme, we may scan the statutory scheme, the purpose of the legislative project and the nature of the juristic instrument it has created for fulfilment of that purpose. Where constitutional fundamentals, vital to the survival of human rights, are at stake, functional realism, not facial cosmetics, must be the diagnostic tool. Law, constitutional law, seeks the substance, not merely the form. For, one may look like the innocent flower but be the serpent under it. The preamble, which ordinarily illumines the object of the statute, makes it plain that what is intended and achieved is nationalisation of an undertaking of strategic importance : "AND WHEREAS it is expedient in the public interest that the undertakings in India, of Burmah Shell Oil Storage and Distributing Company of India Limited, should be acquired in order to ensure that the ownership and control of the petroleum products distributed and marketed in India by the said company are vested in the State and thereby so distributed as bes....
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....asure of immense convenience especially in its commercial ventures. The trappings of personality, liberation from Governmental stiffness and capacity for mammoth growth, together with administrative elasticity, are the attributes and advantages of corporations. "A corporation is an artificial being, invisible, intangible, and existing only in the contemplation of the law. Being the mere creature of the law, it possesses only those properties which the charter of its creation confers on it, either expressly, or as incidental to its very existence. Those are such as are supposed best calculated to effect the object for which it was created. Among the most important are immortality, and, if the expression be allowed, individuality; properties by which a perpetual succession of many persons are considered the same, and may act as a single individual". (John Marshall J., Dartmouth College v. Woodward, 4 Wheaton 518 [1819]). Although corporate personality is not a modern invention, its adaptation to embrace the wide range of industry and commerce has a modern flavor. Welfare States like ours called upon to execute many economic projects readily resort to this resourceful legal contriva....
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....by sub-section (1) of section 7 of the Burmah Shell (Acquisition of Undertakings in India) Act, 1976 (2 of 1976), the Central Government, being satisfied that Burmah-Shell Refineries Ltd., a Government company is willing to comply with such terms and conditions as may be imposed by the Central Government, hereby directs that the right, title and interest and the liabilities of Burmah-Shell Oil Storage and Distributing Co. of India Ltd., in relation to its undertakings in India, shall, instead of continuing to vest in the Central Government vest with effect from the twenty fourth day of January, 1976, in Burmah-Shell Refineries Ltd ". This is the well-worn legal strategy for Government to run economic and like enterprises. We live in an era of public sector corporations, the State being the reality behind. Law does not hoodwink itself and what is but a strategy cannot be used as a stratagem. These are the facts when we come to brass tacks. Facts form the raw material out of which the finished product of judicial finding is fabricated after processing through established legal principles. Indeed, in life as in law "it is as fatal as it is cowardly to blink at facts because they are....
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....ights under our constitutional scheme, we should not scan the real character of that entity; and if it is found to be a mere agent or surrogate of the State, in fact owned by the State, in truth controlled by the State and in effect an incarnation of the State, constitutional lawyers must not blink at these facts and frustrate the enforcement of fundamental rights despite the inclusive definition of article 12 that any authority controlled by the Government of India is itself State. Law has many dimensions and fundamental facts must govern the applicability of fundamental rights in a given situation. Control by Government of the corporation is writ large in the Act and in the factum of being a Government company. Moreover, here, section 7 gives to the Government company mentioned in it a statutory recognition, a legislative sanction and a status above a mere Government company. If the entity is no more than a company under the company law or society under the law relating to registered societies or co-operative societies you cannot call it an authority. A ration shop run by a co-operative store financed by Government is not an authority, being a mere merchant, not a sharer of Stat....
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...., has not the obligations cast on the second respondent by sections 9 and 10. And, section 11 specifically gives the Act primacy vis a vis other laws. Section 12, although it has no bearing on the specific dispute we are concerned in this case, is a clear pointer to the statutory character of the Government company and the vesting of an authority therein. This provision clothes the Government company with power to take delivery of the property of Burmah Shell from every person in whose possession, custody or control such property may be. There are other powers akin to this one in section 12. The provision for penalties if any person meddles with the property of the second respondent emphasises the special character of this Government company. Equally unique is the protection conferred by section 16 on the Government company and its officers and employees "for anything which is, in good faith, done or intended to be done under this Act". Such an immunity does not attach to employees of companies simpliciter, even if they happen to be Government companies. In the same strain is the indemnity conferred by section 18. This review, though skeletal, is sufficient strikingly to bring home....
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....ning the earlier cases why we hold the recent decisions to be right and reconcilable with the broad approach in the older authorities. Moreover, rulings of this court are calculated to settle the law and not to unsettle it by reconsideration in season and out merely because it hurts one party or the other or tastes sour for one judge or the other. If incompatibility between the ratios stares us in the face we must clear the confusion by the process suggested by Shri Pai. But we are satisfied that the Airport Authority, [1979] 3 SCC 489, has been consistently and correctly decided and, being bound by it, hold that a writ will lie against the second respondent under article 32. An explanatory journey is necessary to make good this assertion. The U. P. Warehousing Corporation case, [1980] 57 FJR 1-the latest on the point-related to a statutory corporation and the litigation was by an employee for wrongful dismissal. One of the questions considered there was the maintainability of a writ petition against a statutory corporation at the instance of an employee. The court reviewed many decisions, Indian and English, and upheld the employee's contention that the writ could and should issu....
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....ed very many aspects of a citizen's life. The Government, directly or through the corporations set up by it or owned by it, now owns or manages a large number of industries and institutions. It is the biggest builder in the country: Mammoth and minor irrigation projects, heavy and light engineering projects, projects of various kinds are undertaken by the Government. The Government is also the biggest trader in the country, The State and the multitudinous agencies and corporations set up by it are the principal purchasers of the produce and the products of our country and they control a vast and complex machinery of distribution. The Government, its agencies and instrumentalities, the corporations set up by the Government under statutes and corporations incorporated under the Companies Act but owned by the Government have thus become the biggest employers in the country. There is no good reason why, if Government is bound to observe the equality clauses of the Constitution in the matter of employment and in its dealings with the employees, the corporations set up or owned by the Government should not be equally bound and why, instead, such corporations could become citadels of patr....
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....concept of State it enlarges the scope to embrace all authorities under the control of Government. The constitutional philosophy of a democratic, socialist Republic mandated to undertake a multitude of socio-economic operations inspires Part IV and so we must envision the State entering the vast territory of industrial and commercial activity, competitively or monopolistieally, for ensuring the welfare of the people. This expansive role of the State under Part IV is not played at the expense of the cherished rights of the people entrenched in Part III since both the sets of imperatives are complementary and co-exist harmoniously. Wherever the Constitution has felt the need to subordinate Part III to Part IV it has specificated it and, absent such express provision, both the Parts must and can flourish happily together given benign judicial comprehension a la Kerala v. Thomas, [1976] 2 SCC 310. There is no inherent conflict between the two Parts if orchestrated humanely. We are at pains to emphasise this perspective because the substance of Part III, save where the Constitution says so, shall not be sacrificed at the altar of Part IV by the strategem of incorporation. It is well kno....
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....s free as an individual in selecting the recipients for its largesse. Whatever its activity, the Government is still the Government and will be subject to restraints inherent in its position in a democratic society. A democratic Government cannot lay down arbitrary and capricious standards for the choice of persons with whom alone it will deal". "What's in a name ? that which we call a rose By any other name would smell as sweet". -Romeo and Juliet II, ii, 43. And the State is fragrant with fundamental rights whatever the legal hue or jural cloak of its surrogate. And, to alter the imagery, Maricha is Ravana, the misleading golden deer mask notwithstanding! This court in Airport Authority, [1979] 3 SCC 489, at pages 503-504, pointed its unanimous finger on these events and portents : "Today with tremendous expansion of welfare and social service functions, increasing control of material and economic resources and large scale assumption of industrial and commercial activities by the State, the power of the executive Government to affect the lives of the people is steadily growing. The attainment of socio-economic justice being a conscious end of State policy, there is a vast an....
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....such powers as may be necessary to ensure this '. It was in pursuance of the policy envisaged in this and subsequent resolutions on industrial policy that corporations were created by Government for setting up and management of public enterprises and carrying out other public functions. Ordinarily these functions could have been carried out by Government departmentally through its service personnel, but the instrumentality or agency of the corporations was resorted to in these cases having regard to the nature of the task to be performed. The corporations acting as instrumentality or agency of Government would obviously be subject to the same limitations in the field of constitutional and administrative law as Government itself, though in the eye of the law, they would be distinct and independent legal entities. If Government acting through its officers is subject to certain constitutional and public law limitations, it must follow a fortiori that Government acting through the instrumentality or agency of corporations should equally be subject to the same limitations". (emphasis added). Article 12 gives the cue to forbid this plea. "Other authorities........ under the control of t....
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....nancial support plus an unusual degree of control over the management and policies might lead one to characterise an operation as State action" : Vide Sukhdev v. Bhagatram, [1975] 47 FJR 214. So also the existence of deep and pervasive State control may afford an indication that the corporation is a State agency or instrumentality. It may also be a relevant factor to consider whether the corporation enjoys monopoly status which is State conferred or State protected. There can be little doubt that State conferred or State protected monopoly status would be highly relevant in assessing the aggregate weight of the corporations' ties to the State. There is also another factor which may be regarded as having a bearing on this issue and it is whether the operation of the corporation is an important public function. It has been held in the United States in a number of cases that the concept of private action must yield to a conception of State action where public functions are being performed. Vide Arthur S. Millers : The Constitutional Law of the "Security State" : 10 Stanford Law Review 620 at 664. If the functions of the corporation are of public importance and closely related to Gov....
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....t III may be perilous. The court cannot connive at a process which eventually makes fundamental rights as rare as "roses in December, ice in June" : as Lord Byron lamented in English Bards and Scottish Reviewers. Article 12 uses the expression "other authorities" and its connotation has to be clarified. On this facet also, the Airport Authority's case supplies a solution, [1979] 3 SCC 489 at p. 517 : "If a statutory corporation, body or other authority is an instrumentality or agency of the Government, it would be an 'authority' and therefore 'State' within the meaning of that expression in article 12". The decisions are not uniform as to whether being an instrumentality or agency of Government ipso jure renders the company or other similar body "State". This again involves a navigation through precedents and Bhagwati, J., in Airport Authority, [1979] 3 SCC 489, has spoken for the Court, after referring to Rajasthan Electricity Board v. Mohan Lal, [1967] 3 SCR 377, Sukhdev v. Bhagatram, [1975] 47 FJR 214, Praga Tools Corporation v. C.A. Inanual, [1969] 36 FJR 191, Heavy Engineering Mazdoor Union v. State of Bihar, AIR 1970 SC 82, S. L. Agarwal v. Hindustan Steel Ltd., AIR 1970 SC....
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....nd is subject to the same constitutional limitations as Government. This divagation explains the ratio of the Airport Authority, (supra) in its full spectrum. There the main contention was that the said authority, a statutory corporation, was not State and enforcement of fundamental rights against such a body was impermissible. As is apparent from the extensive discussion above, the identical issue confronting us as to what are the "other authorities" contemplated by article 12 fell for consideration there. Most of the rulings relied on by either side received critical attention there and the guidelines and parameters spelt out there must ordinarily govern our decision. A careful study of the features of the Airport Authority and a Government company covered by sections 7, 9, 10 and 12 of the Act before us discloses a close parallel except that the Airport Authority is created by a statute while Bharat Petroleum (notified under section 7 of the Act.) is recognised by and clothed with rights and duties by the statute. There is no doubt that Bhagwati, J., broadened the scope of State under article 12 and according to Shri G. B. Pai the observations spill over beyond the requirement....
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....molish the ratio in Airport Authority, [1979] 3 SCC 489. A majority of three judges spoke through Ray, C.J. while Mathew, J., ratiocinated differently to reach the same conclusion. Alagiriswamy, J., struck a dissenting note. Whether certain statutory corporations were "State" under article 12 was the question mooted there at the instance of the employees who invoked articles 14 and 16. The judgment of the learned Chief Justice sufficiently clinches the issue in favour of the petitioner here. The problem was posed thus ([1975] 45 Comp. Cas. 285 at page 290): "In short, the question is whether these statutory corporations are authorities within the meaning of article 12". The answer was phrased thus (at page 309): "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. 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". Thus, the holding was that the legal persons involved there (three corpor....
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....onal provinces of Government as well as non-traditional provinces of Government if the Crown has constitutionally asserted that they are to be within the province of 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". (emphasis added) Taking up each statute and analysing its provisions the learned Chief Justice concluded (at pages 306 and 308): "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 every provision shows in no uncertain terms that the voice is that of the Central Government and the hands are also of the Central Government. ****** These provisions of the Industrial Finance Corporation Act show that the Corporation is in effect managed and controlled by the Central Government". (emphasis added) The italicised portion pithily sums up the meat of the matter. If the voice is of the Government and so also the hands, the face will not hide the soul. There is nothing in this judgmen....
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....l support plus an unusual degree of control over the management and policies might lead one to characterise an operation as State action". Indeed, the learned Judge went much further (also at page 318): "Another factor which might be considered is whether the operation is an important public function. The combination of State aid and the furnishing of an important public service may result in a conclusion that the operation should be classified as a State agency. If a given function is of such public importance and so closely related to Governmental functions as to be classified as a Governmental agency, then even the presence or absence of State financial aid might be irrelevant in making a finding of state action. If the function does not fall within such a description, then mere addition of state money would not influence the conclusion". It must be noticed that the emphasis is on functionality plus State control rather than on the statutory character of the Corporation (at page 319): "Institutions engaged in matters of high public interest or performing public functions are by virtue of the nature of the function performed Government agencies, Activities which are too funda....
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....rporations. Nay, the tests are common to any agency or instrumentality, the key factor being the brooding presence of the State behind the operations of the body, statutory or other. A study of Sukhdev's case, [1975] 47 FJR 214, (a Constitution Bench decision of this Court) yields the clear result that the preponderant considerations for pronouncing an entity as State agency or instrumentality are financial resources of the State being the chief funding source, functional character being Governmental in essence, plenary control residing in Government, prior history of the same activity having been carried on by Government and made over to the new body and some element of authority or command. Whether the legal person is a Corporation created by a statute, as distinguished from under a statute, is not an important criterion although it may be an indicium. Applying the constellation of criteria collected by us from Airport Authority, [1979] 3 SCC 489, on a cumulative basis to the given case, there is enough material to hold that the Bharat Petroleum Corporation is "State" within the enlarged meaning of article 12. The Rajasthan Eleclricity Board case, AIR 1967 SC 1857, (the majorit....
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....e 12, is thus comprehended to include bodies created for the purpose of promoting the educational and economic interests of the people. The State, as constituted by our Constitution, is further specifically empowered under article 298 to carry on any trade or business. The circumstance that the Board under the Electricity Supply Act is required to carry on some activities of the nature of trade or commerce does not, therefore, give any indication that the Board must be excluded from the scope of the word 'State' as used in article 12". The meaning of the learned Judge is unmistakable that "the State" in article 12 comprehends bodies created for the purpose of promoting economic activities. These bodies may be statutory corporations, registered societies, Government companies or other like entities. The court was not called upon to consider this latter aspect, but to the extent to which the holding goes, it supports the stand of the petitioners. We are not disposed to discuss more cases because two constitution benches and two smaller benches have already pronounced on the amplitude of "other authorities" in article 12. Even so, a passing reference may be made to a few more cases.....
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....is-a-vis these strange beings which are Government in fact but corporate inform If only fundamental rights were forbidden access to corporations, companies, bureaus, institutes, councils and kindred bodies which act as agencies of the Administration, there may be a break-down of the rule of law and the constitutional order in a large sector of Governmental activity carried on under the guise of "jural persons". It may pave the way for a new tyranny by arbitrary administrators operated from behind by Government but unaccountable to Part III of the Constitution. We cannot assent to an interpretation which leads to such a disastrous conclusion unless the language of article 12 offers no other alternative. It is well known that "corporations have neither bodies to be kicked, nor souls to be damned" and Government corporations are mammoth organisations. If Part III of the Constitution is halted at the gates of corporations, Justice Louis D. Brandeis' observation will be proved true : "The main objection to the very large Corporation is that it makes possible-and in many cases makes inevitable-the exercise of industrial absolutism". It is dangerous to exonerate corporations from the n....