TaxTMI 
TaxTMI 
2003 (9) TMI 707
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of India, hence a writ petition under Article 226 of the Constitution is not maintainable against it. The learned single Judge, however, found that the Federal Bank performs public duty and observed thus: "As per statutes, the Reserve Bank and the Central Government exercise all pervading functional, fiduciary and managerial control over the banking industry. Every banking company is duty bound to carry on banking business as per the banking policy under stringent control of the Reserve Bank in the interest of banking system or in the interest of monetary stability of sound economic growth, having due regard to the interest of the depositors. The activities carried on by the bank are vital to public interest and have potential to affect the socioeconomic development and growth of the nation. Banking companies are therefore, public institutions, accepting deposits from public, financial assistance from the State through its agencies/instrumentalities, for the purpose of lending or investment, pursuing banking policy and engaged in matters of high public interest or performing public functions, ensuring monetary stability, sound economic growth, equitable allocation of various ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Directors and one of them is nominated by the Reserve Bank of India. The Board of Directors exercise the powers of superintendence and control over the bank. The bank is, therefore, merely a private limited company; it is neither a 'State' nor any 'authority' within the meaning of Article 12 of the Constitution nor it is amenable to writ jurisdiction of the High Court. It is also the case of the appellant bank that services of an employee or an officer of a private body, cannot be imposed or thrust upon it nor a relief of reinstatement can be granted. In this connection, the appellant has referred to the reliefs prayed for in the writ petition, which are as follows: "i) a writ of Certiorari or any other appropriate writ, order or direction quashing Exhibit P3 Enquiry Report and P6 and P7 orders of the disciplinary authority and the Board of Directors as illegal and unsustainable in law; ii) a writ of Mandamus or any other appropriate writ, order or direction commanding the respondents to reinstate the petitioner with all wages and increments in the salary applicable to him as if he had continued in service from the date of his suspension; iii) any other appropriate writ, order o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er by a Constitution Bench in Ajay Hasia . What may have been technically characterized as obiter dicta in Sukhdev Singh (supra) and Ramana (supra) (since in both cases the "authority" in fact involved was a statutory corporation), formed the ratio decidendi of Ajay Hasia (supra)". Thereafter the court has extracted para 11, at page 737-38 of the case of Ajay Hasia (supra), as follows : "The concept of instrumentality or agency of the Government is not limited to a corporation created by a statute but is equally applicable to a company or society and in a given case it would have to be decided, on a consideration of the relevant factors, whether the company or society is an instrumentality or agency of the Government so as to come within the meaning of the expression 'authority' in Article 12." It is then observed that Ramana's case (supra) noted with approval in Ajay Hasia (supra) and quoted the tests laid down in the case of Ajay Hasia (supra) at page 737 in para 9. It reads as follows : "(1) One thing is clear that if the entire share capital of the corporation is held by Government, it would go a long way towards indicating that the corporation is an instrumentality or agency ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Jeewan Lal Mehrotra , which is a decision of a three Judge Bench, wherein it has been laid down that a contract of service could not be enforced on a private employee. Needless to say that the case is related to the services of an employee of a Scheduled bank. Our attention has been particularly drawn to paragraph 3 of the judgment where it is observed : ".....The law as settled by this court is that no declaration to enforce a contract of personal service will be normally granted. The well recognized exceptions to this rule are (1) where a public servant has been dismissed from service in contravention of Article 311, (2)where reinstatement is sought of a dismissed worker under the industrial law by labour or industrial tribunals, (3) where a statutory body has acted in breach of a mandatory obligation imposed by statute...." However, so far the above proposition is concerned, learned counsel for the respondent submitted that the point relates to the merits of the matter which is yet to be gone into by the learned Single Judge in case it is found that a writ petition is maintainable. U.P.State Co-operative Land Development Bank Ltd. (supra) has been relied upon by the Division....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the purpose of meeting losses that might accrue on account of loans advanced by the Land Development Banks. The Guarantee Fund is maintained by the Finance Department of the State Government. On the basis of the facts noted above, the Court took the view that the U.P.State Co-operative Land Development Bank Ltd., though registered as a Co-operative society, is an instrumentality of the State and its employees have a statutory protection under the statutory rules. It is quite apparent that the decision in the case of U.P.State Co-operative Land Development Bank Ltd. (supra) would in no way be applicable to the case in hand. The participation and control of the State in the whole activity of the U.P.Land Development Bank Ltd. is all pervasive. Its officers head the institution. U.P.Land Development Bank is constituted as the only State level Bank in the State. Under the statutory provision there cannot be any other Land Development Bank at the State level. The government guarantees repayment in the event of losses suffered by the Bank and with the approval of the State, the Bank may also issue debentures. To cap it all the service conditions of the employees are governed by the st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion sole is not of sole material relevance to decide whether it is by or under the control of the appropriate Government under the Act. (2) If it is a statutory corporation, it is an instrumentality or agency of the State. If it is a company owned wholly or partially by a share capital, floated from public exchequer, it gives indicia that it is controlled by or under the authority of the Appropriate Government. (3) In commercial activities carried on by a corporation established by or under the control of the appropriate government having protection under Articles 14 and 19(2), it is an instrumentality or agency of the State. (4) The State is a service corporation. It acts through its instrumentalities, agencies or persons - natural or juridical. (5) The governing power, wherever located, must be subject to the fundamental constitutional limitations and abide by the principles laid in the Directive Principles. (6) The framework of service regulations made in the appropriate rules or regulations should be consistent with and subject to the same public law, principles and limitations. (7) Though the instrumentality, agency or person conducts commercial activities according to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Constitution, the action of the authority needs to fall in the realm of public law - be it a legislative act of the State, an executive act of the State or an instrumentality or a person or authority imbued with public law element. The question requires to be determined in each case. However, it may not be possible to generalise the nature of the action which would come either under public law remedy or private law field nor is it desirable to give exhaustive list of such actions.......The distinction between public law and private law remedy has now become thin and practically obliterated." Shri Sachar then referred to a decision of this Court in Andi Mukta Sadguru Shree Muktajee Vandas Swami Suvarna Jayanti Mahotsav Smarak Trust & Ors. Vs. V.R.Rudani & Ors. case. It has been held in this case that the college in question which was managed by a trust registered under the Bombay Trusts Act was amenable to writ jurisdiction and a direction could be issued to the institution to make the payment of arrears of salary and other benefits to the teacher. It is further submitted that if a private body discharges a public duty it would be amenable to the writ jurisdiction. Paragraph 17 of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....jor role in the control, maintenance and working of educational institutions. The aided institutions like government institutions discharge public function by way of imparting education to students. They are subject to the rules and regulations of the affiliating University. Their activities are closely supervised by the University authorities. Employment in such institutions, therefore, is not devoid of any public character. So are the service conditions of the academic staff. .... The service conditions of the academic staff are, therefore, not purely of a private character. It has super-added protection by University decisions creating a legal right-duty relationship between the staff and the management. When there is existence of this relationship, mandamus cannot be refused to the aggrieved party." On this basis, it is submitted in reply that those features by reason of which it has been held that a writ of mandamus would lie against a private management, are not present in the case in hand. A reference to para 12 of the Andi Mukta's case (supra) has been made, where it has been held that no writ would issue where dismissal was not in violation of any statutory provision. No ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a company which is financed and owned by the State; (vi) a private body run substantially on State funding; (vii) a private body discharging public duty or positive obligation of public nature (viii) a person or a body under liability to discharge any function under any Statute, to compel it to perform such a statutory function. Learned senior counsel appearing for the respondent has drawn our attention to the various provisions of the Reserve Bank of India Act, 1934 (for short 'the RBI Act'), the Banking Regulation Act, 1941 and the Industries (Development and Regulation) Act, 1951 so as to emphasise that there is deep and all pervasive statutory control and the control of the Central Government over the Scheduled Banks. It is submitted that these banks discharge functions of public nature and owe the statutory responsibilities, hence there is an element of public law, involved in the activities of the Bank. Section 22 of the Banking Regulation Act provides for Licensing of banking companies. No company can carry on banking business in India unless it holds a licence issued by the Reserve Bank subject to such conditions as may be imposed. Before issuing any licence the Reserve B....
X X X X Extracts X X X X
X X X X Extracts X X X X
....But whereas it is expedient to make temporary provision on the basis of the existing monetary system, and to leave the question of the monetary standard best suited to India to be considered when the international monetary position has become sufficiently clear and stable to make it possible to frame permanent measures". Section 46-A of the Banking Regulation Act provides as under :- "46A. Chairman, director, etc., to be public servants for the purposes of Chapter IX of the Indian Penal Code.- [Every Chairman who is appointed on a whole-time basis, managing director, director, auditor] liquidator, manager and any other employee of a banking company shall be deemed to be a public servant for the purposes of Chapter IX of the Indian Penal Code (45 of 1860).] A reference is also made to Section 35 of the Banking Regulation Act which provides for inspection of any banking company and its books of accounts by the Reserve Bank on the direction issued by the Central Government. Under sub-section (1A) it is provided that without prejudice to sub-section (1) it may at any time cause a scrutiny to be made by any one or more of its officers, of the affairs of any banking company. The report....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to. The relevant part of Section 36 reads as under : "36. Further powers and functions of Reserve Banks.- (1)The Reserve Bank may - (a) caution or prohibit banking companies or any banking company in particular against entering into any particular transaction or class of transactions, and generally give advice to any banking company; (b) xxx xxx xxx (c) xxx xxx xxx (d) xxx xxx (i) require the banking company to call a meeting of its directors for the purpose of considering any matter relating to or arising out of the affairs of the banking company; or require an officer of the banking company to discuss any such matter with an officer of the Reserve Bank; (ii) xxx xxx (iii) xxx xxx (iv) appoint one or more of its officers to observe the manner in which the affairs of the banking company or of its offices or branches are being conducted and make a report thereon; (v) require the banking company to make, within such time as may be specified in the order, such changes in the management as the Reserve Bank may consider necessary.] (2) & ( 3 ) xxx xxx" Section 36AA deals with Power of Reserve Bank to remove managerial and other persons from office. The relevant part of the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er the banking companies, they can cause an inspection to be made, can make scrutiny of the working and accounts of the banking company, can remove the Chairman or appoint additional directors, the functioning of the banking company can also be suspended, the undertaking can also be acquired. It is further submitted that the Reserve Bank of India has been constituted to regulate issue of bank notes and for keeping reserves with a view to secure and maintain monetary stability in the country. It is with that end in view that powers have been vested in the Reserve Bank of India to keep proper check on the working and functioning of the banking companies as also in the interest of the depositors and the own interest of the banking company. Such a nature of control indicates that the Banking Companies discharge functions of public nature. As against the submission made on behalf of the respondent regarding control of the Reserve Bank of India over the banking companies, the appellant submits that such measures as indicated by reference to the provisions of the Banking Regulation Act are only regulatory in nature. Such regulatory control is also exercised over other companies as well, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the company. Any transfer of shares made during the period of the restriction, would be void under clause (a) of sub-section (2). Such actions are permissible to be taken in the public interest. Section 255 falls in the Chapter II pertaining to directors and constitution of Board of Directors which mandates for retirement of directors in given proportion by rotation. Section 267 places restrictions on appointment of Managing Directors. Such persons who are undischarged insolvents or at any time have been adjudged so or having been convicted by a Court of an offence involving moral turpitude. So far the financial aspect is concerned, the Central Government has powers in that regard as well and in that connection our attention has been drawn to Section 58-A. Sub-sections (1) and (2) of Section 58-A read as under : "58 A. (1) The Central Government may, in consultation with the Reserve Bank of India, prescribe the limits up to which, the manner in which and the conditions subject to which deposits may be invited or accepted by a company either from the public or from its members. (2) No company shall invite, or allow any other person to invite or cause to be invited on its behal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch are utilized in the industry or the industrial undertaking or undertakings, as the case may be; or (b) any industrial undertaking is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest]; the Central Government may make or cause to be made a full and complete investigation into the circumstances of the case by such person or body of persons as it may appoint for the purpose." Section 15-A also empowers the Central Government to investigate into the possibility of running or restarting the industrial undertaking which is being wound up by or under the supervision of the High Court and to make an application in that regard to the High Court. Chapter III-A provides for direct management or control of industrial undertakings by Central Government in certain cases. Relevant part of Section 18-A, which falls under Chapter III-A, reads as under : "18-A. Power of Central Government to assume management or control of an industrial undertaking in certain cases - (1) If the Central Government is of opinion that- (a) an industrial undertaking to which directions have been issued in pursuance of Section 16 has failed to comply with such ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tter there may be more participation or dominant participation of the State in managing the affairs of the company. But in the present case we are concerned with a banking company which has its own resources to raise its funds without any contribution or shareholding by the State. It has its own Board of Directors elected by its shareholders. It works like any other private company in the banking business having no monopoly status at all.Any company carrying on banking business with a capital of five lacs will become a scheduled bank. All the same, banking activity as a whole carried on by various banks undoubtedly has an impact and effect on the economy of the country in general. Money of the shareholders and the depositors is with such companies, carrying on banking activity. The banks finance the borrowers on any given rate of interest at a particular time. They advance loans as against securities. Therefore, it is obviously necessary to have regulatory check over such activities in the interest of the company itself, the shareholders, the depositors as well as to maintain the proper financial equilibrium of the national economy. The Banking companies have not been set up for th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4 etc. or statutes of the like nature which fasten certain duties and responsibilities statutorily upon such private bodies which they are bound to comply with. If they violate such a statutory provision a writ would certainly be issued for compliance of those provisions. For instance, if a private employer dispense with the service of its employee in violation of the provisions contained under the Industrial Disputes Act, in innumerable cases the High Court interfered and have issued the writ to the private bodies and the companies in that regard. But the difficulty in issuing a writ may arise where there may not be any non-compliance or violation of any statutory provision by the private body. In that event a writ may not be issued at all. Other remedies, as may be available, may have to be resorted to. The six factors which have been enumerated in the case of Ajay Hasia (supra) and approved in the later decisions in the case of Ramana (supra) and the seven Judges Bench in the case of Pradeep Kumar Biswas (supra) may be applied to the facts of the present case and see as to those tests apply to the appellant bank or not. As indicated earlier, share capital of the appellant bank ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the business are theirs as well as the profits. Any business or commercial activity, may be banking, manufacturing units or related to any other kind of business generating resources, employment, production and resulting in circulation of money are no doubt, are such which do have impact on the economy of the country in general. But such activities cannot be classified one falling in the category of discharging duties, functions of public nature. Thus the case does not fall in the fifth category of cases enumerated in the case of Ajay Hasia (supra). Again we find that the activity which is carried on by the appellant is not one which may have been earlier carried on by the government and transferred to the appellant company. For the sake of argument even if it may be assumed that one or the other test as provided in the case of Ajay Hasia (supra) may be attracted that by itself would not be sufficient to hold that it is an agency of the State or a company carrying on the functions of public nature. In this connection, observations made in the case of Pradeep Kumar Biswas (supra) quoted earlier would also be relevant. We may now consider the two decisions i.e. Andi Mukta (supra) a....