TaxTMI 
TaxTMI 
1975 (2) TMI 111
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....hether an employee of a statutory corporation is entitled to claim protection of Articles 14 and 16 against the Corporation. In short the question is whether these statutory corporations are authorities within the meaning of Article The statutes for consideration are the Oil and Natural Gas Commission Act, 1956; the Indutrial Finance Corporation Act. 1948; and the Life Insurance Corporation Act, 1956. The question which really falls for decision is whether regulations framed under these statutes have the force of law. The Oil and Natural Gas Commission Act, 1959 hereinafter referred to as the 1959 Act established the Commission as a body corporate having perpetual succession and a common seal. The composition of the Commission is the Chairman, and not less than two, and not more than eight, other members appointed by the Central Government. One of the members shall be a whole-time, Finance Member in charge of the financial matters relating to the Commission. The Central Government may, if it thinks fit, appoint one, of the members as Viw-Chairman of the Commission. Under section 12 of the 1959 Act the Commission may, for the purpose of performing its functions or exercising i....
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...., very or rescind any regulation which it has approved, and thereupon the regulation shall have effect accordingly but without prejudice to the exercise of the powers of the Commission under sub-section. (1) of section 32. The Life Insurance Corporation Act, 1956 hereinafter referred to as the 1956 Act established the Corporation under section 3 of the Act. Under section 11 of the 1956 Act existing employees of an insurer whose controlled business was transferred to and vested in the Corporation and who were employed by the insurer wholly or mainly in connection with his controlled business immediately before the appointed day became on and from the appointed day an employee of the, Corporation. Section 11 of the 1956 Act further states that the employees of the Corporation would hold office upon the same on the appointed day. These employees were further to continue terms and with the same rights and duties as they would have held under the 1956 Act unless and until their employment was terminated or until the remuneration, terms and conditions were duly altered by the Corporation. The two important sections of 1956 Act are sections 48 and 49. Section 48 states that the Central....
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....oval of the Development Bank make regulations not inconsistent with the Act and the rules made thereunder to provide for all matters for which provision is necessary or expedient for the purpose of giving effect to the provisions of this Act. The Development Bank means the Industrial Development Bank established under the Industrial Development Act, 1964. The shares of the Central Government in the Corporation shall stand transferred to the Development Bank when the Central Government shall so notify. The regulations provide inter alia for the holding and conduct of elections under this Act including the final decision of doubts or disputes regarding the validity of the election; the manner in which and the conditions subject to which the shares of the Corporation may be held and transferred; the manner in which general meeting's shall be convened, the procedure to be followed thereat; the duties and conduct, salaries, allowances and conditions of service of officers and other employees and of advisers and agents of the Corporation. The contentions on behalf of the State are these. Regulations are framed under powers given by the statute affecting matters of internal management.....
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.... the main by local authorities or similar bodies or by statutory or other undertakings for regulating the conduct of persons within their areas or resorting to their undertakings. Regulations may determine the class of cases in which the exercise of the statutory power by any such authority constitutes the making of statutory rule. The words "rules" and "regulations" are used in an Act to limit the power of the statutory authority. The powers of statutory bodies are derived, controlled and restricted by the statutes which create them and the rules and regulations framed thereunder. Any action of such bodies in excess of their power or in violation of the, restrictions placed on their powers is ultra vires. The reason is that it goes to the root of the power of such corporations and the declaration of nullity is the only relief that is granted to the aggrieved party. In England subordinate legislation has, if validly made, tile full force and effect of a statute, but it differs from a statute in that its validity whether as respects form or substance is normally open to challenge in the, Courts. Subordinate legislation has, if validily made, the, full force, and effect of a statu....
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....by departmental regulations saves time 'and is intended to deal with local variations and the power to legislate by statutory instrument in the form of rules and regulations is conferred by Parliament and can be taken away by Parliament. The legislative function is the making of rules. Some Acts of Parliament decide particular issues and Po not lay down general rules. The justification for delegated legislation in threefold. First, there is pressure on parliamentary time. Second, the technicality of subjectmatter necessitates prior consultation and expert advice on interests concerned. Third, the need for flexibility is established because it is not possible to foresee every administrative difficulty that may arise to make adjustment that may be called for after the statute has begun to operate. Delegated legislation fills those needs. The characteristic of law is the manner and procedure adopted in many forms of subordinate legislation. The authority making rules and regulation must specify the source of the rule and regulation making authority. To illustrate, rules are always framed in exercise of the specific power conferred by the statute to make rules. Similarly, regulat....
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....ation Act though there is no specific provision comparable to section 12 of the 1959 Act the terms and conditions of employment and conditions of service are provided for by regulations. These regulations are not only binding on the authorities but also on the public. Broadly stated, the distinction between rules and regulations on the one hand and administrative instructions on the other is that rules and regulations can be made only after reciting the source of power whereas administrative instructions are not issued after reciting source of power. Second the executive power of a State is not authorised to frame rules under Article 162. This Court held that the Public Works Department Code was not a subordinate legislation (See G. J. Fernandes v. State of Mysore & Ors. (1967) 3 S.C.R. 636. The, rules under Article 309 on the other hand constitute not only the constitutional rights of relationship between the State and the Government servants but also establish that there must be specific power to frame rules and regulations. The Additional Solicitor General submitted that regulations could not have the force of law because these regulations are similar to regulations framed by....
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....tion of the employment of Tewari was challenged on the ground that the resolution of the District Board terminating the services was invalid. The High Court dismissed Tewari's application under Article 226 in limine. This Court held that the Courts are invested with the power to declare invalid the, act of a statutory body, if by doing the act the body has acted in breach of the mandatory obligation imposed by statute. The District Boards Act conferred power upon the State Government by section 172 to make rules under the Act. The District Board relied on a notification headed "Regulation regarding dismissal, removal or reduction of officers and servants of District Board". It was treated as a rule inasmuch as section 173 (2) of the District Boards Act which conferred power to frame regulations did not confer any power to frame powers regulating the exercise of the power of dismissal of officers of servants of the Board. This Court held that under the rules dismissal, removal or reduction of an officer or servant might be effected only after affording him a reasonable opportunity of showing cause against the action proposed to be taken in regard to him. In Tewari's case this Cou....
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....ourt regarded regulation as the same thing as by-laws. In Kruse v. Johnson the Court was simply describing the effect that the county by-laws have on the public. The observations of the Court in Kruse v. Johnson that the by-law "has the force of law within the sphere of its legitimate operation" are not qualified by the words that it is so "only when affecting the public or some section of the public .... ordering something to be done or not to be done and accompanied by some sanction or penalty for its non-observance." In this view a regulation is not an agreement or contract but a law binding the corporation, its officers, servants and the members of the public who come within the sphere of its operations. The doctrine of ultra vires as applied to statutes, rules and orders should equally apply to the regulations and any other subordinate legislation. The regulations made under power conferred by the statute are subordinate legislation and have the force and effect, if validly made, as the Act passed by the competent legislature. In U.P. Warehousing Corporation and Indian Airlines Corporation cases the terms of the regulations were treated as terms and conditions of relationsh....
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....rs of some group or class. The Oil and Natural Gas Commission, the Life Insurance Corporation and Industrial Finance Corporation are all required by the statute to frame regulations inter alia for the purpose of the duties and conduct and conditions of service of officers and other employees. These regulations impose obligation on the statutory authorities. The statutory authorities cannot deviate from the conditions of service. Any deviation will be enforced by legal sanction of declaration by courts to invalidate actions in violation of rules and regulations. The existence of rules and regulations under statute is to ensure regular conduct with a distinctive attitude to that conduct as a standard. The statutory regulations in the cases under consideration give the employees a statutory status and impose restriction on the employer and the employee with no option to vary the conditions. An ordinary individual in a case of master and servant contractual relationship enforces breach of contractual terms. The remedy in such contractual relationship of master and servant is damages because personal service is not capable of enforcement. In cases of statutory bodies, there is no person....
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....aid referring to earlier decisions that the expression "Other authorities" in Article 12 will include all constitutional or statutory authorities on whom powers are conferred by law. The State itself is envisaged under Article 298 as having the right to carry on trade and. business. The State as defined in Article 12 is comprehended to include bodies created for the purpose of promoting economic interests of the people. The circumstance that the statutory body is required to carry on some activities of the nature of trade or commerce does not indicate that the Board must be excluded from the scope of the word "State." The Electricity Supply Act showed that the Board had power to give directions, the disobedience of which is punishable us a criminal offence. The power to issue directions and to enforce compliance is an important aspect. The concurring Judgment in the Rajasthan Electricity Board case said that the Board was invested by statute with extensive powers of control over electricity undertakings. The power of the Board to make rules and regulations and to administer the Act was said to be in substance the sovereign power of the State delegated to the Board. In the Bri....
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.... the Central Government to make rules for the conservation and development of mineral oils. Mining gas includes natural gas and petroleum. Section 9 of the said 1948 Act states that any rule made under any of the provisions of the Act may provide that any contravention thereof shall be punishable with the imprisonment which may extend to six months or with fine which may extend to one thousand rupees or with both. The Petroleum Concession Rule, 1949 says that the Central Government grants approval for searching, drilling and producing petroleum and licences for exploring and prospecting. The Oil and Natural Gas Commission is given merely the duty to perform the leases. The 1959 Act speaks in section 14 of the functions of the Commission and in section 15 of the powers of the Commission. The functions of the Commission are to plan, promote, organise and implement programmes for the development of petroleum resources and the production and sale of petroleum and petroleum products produced by it and to perform such functions as the Central Government may, from time to time assign to the Commission. The powers of the Commission are such as may be necessary and expedient for the purpose....
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....are exercisable by the Government of India by virtue of any treaty or agreement. The Union is competent to carry on trade and business in mines and mineral resources. The power of the Union is co-extensive with the legislative power of the Parliament. The Oil and Natural Gas Commission is established for the development of petroleum resources and the production and sale of petroleum and petroleum products. The exploitation of the resources is by the Union through the agency of the statutory commission. The members of the Commission are appointed by the Central Government. If they want to resign, resignation has to be sent to the Central Government. Termination of appointment of members is by the Central Government. The powers and functions of the Commission are those assigned by the statute and such functions as the Central Government may assign. No industry which will use any of the gases produced by the Commission as a raw material shall be set up by the Commission without the previous approval of the Central Government. The capital of the Commission is what has already been incurred by the Central Government as nonrecurring expenditure in connection with the existing Organisatio....
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....If any question arises whether a direction relates to a matter or policy involving public interest, the decision of the Central Government shall be final. The Corporation is to submit to the Central Government an account of activities during the financial year. The Corporation has the exclusive privilege of carrying on life insurance business in India. On and from the appointed day, none but the Corporation can carry on life insurance business in India. The sums assured by policies issued by the Corporation including bonuses shall be guaranteed as to payment in cash by the Central Government. No suit, prosecution or other legal proceedings shall lie against any member or employee of the Corporation for anything which is in good faith done or intended to be done under the Act. The provisions of the life Insurance Corporation Act amply establish that the Corporation has the exclusive privilege of carrying on life insurance business. The policies are guaranteed by the Central Government. If profits accrue from any business other than life insurance business then after making provision for reserves and other matters, the balance of profit shall be paid to the Central Government. The re....
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....ncertain terms that the voice is that of the Central Government and the hands are also of the Central Government. The Industrial Finance Corporation is a body corporate. The authorised capital of the Corporation shall be ten crores of rupees divided into twenty thousand fully paid up shares of five thousand rupees each. Ten thousand shares of the total value of five crores of rupees shall be issued in the first instance. The remaining shares may be issued with the sanction of the Central Government of the capital issued in the first instance, the Central Government and the Reserve Bank of India shall each subscribe for two thousand shares. Scheduled banks may subscribe for two thousand five hundred shares, Insurance companies, investment trusts and other like financial institutions for two thousand five hundred shares and co-operative banks for one thousand shares of the Corporation. It is significant that ordinary citizens cannot be shareholders. All shares of the Corporation held by the Central Government and the Reserve Bank of India shall stand transferred to and vest in the Development Bank. As compensation therefore, the Development Bank shall pay to the Central Government....
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....rporation may invest its funds in the securities of the Central Government or of any State Government and may with the approval of the Central Government contribute to the initial capital of the Unit Trust of India. The Corporation may also subscribe to or purchase the shares of any financial institution which the Central Government in consultation with the Development Bank may notify in this behalf. The Corporation may issue and sell bonds and debentures. Bonds and debentures of the Corporation shall be guaranteed by the Central Government as to the re-payment of the principal and the payment of interest. The Central Government may issue directions to auditors requiring them to report to it upon the adequacy of measures taken by the Corporation for the protection of its shareholders and creditors. The Central Government may appoint the Comptroller and Auditor General of India to examine and report upon the accounts of the Corporation and expenditure. Every audit report shall be forwarded to the Central Government and the Government shall cause the same to be laid before both Houses of Parliament. The Central Government may decide to acquire the shares held by the shareholders othe....
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....rity within the meaning of Article, 12. The power to make rules or regulations and to administer or enforce them would be one of the elements of authorities contemplated in Article 12. Authorities envisaged in Article 12 are described as instrumentalities of State action. on behalf of the State it was contended that the Oil and Natural Gas Commission as well as Industrial Finance Corporation was not granted immunity from taxation and therefore the liability to be taxed would indicate that the Corporation was not a State authority. Reference is made to Article 289 which speaks of exemption of property and income of a State from Union taxation. The liability to taxation will not detract from the Corporation being an authority within the meaning of Article 12. Article 289 empowers Union to impose tax in respect of trade or business carried on by or on behalf of a State. The Oil and Natural Gas Commission Act confers power of entry on employees of the Commission upon any land or premises for the purpose of lawfully carrying out works by the Commission. The members and employees of the Commission are public servants within the meaning of section 21 of the Indian Penal Code. The Commissi....
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....ed by the High Court is upheld. In Civil Appeal No. 1879 of 1972, our conclusion is that the Corporation is an authority within the meaning of Article 12 of the Constitution for the reasons Oven in this judgment. The conclusion of the High Court that the regulations have not the force of law is set aside. The conclusion of the High Court that Corporation should not be permitted to enforce the regulations mentioned in clauses (1) and (4) of Regulation 25 is upheld. In Civil Appeal No. 115 of 1974, the judgment of the High Court is set aside. The Finance Corporation is an authority within the meaning of Article 12. The regulations of the Corporation have the force of law. The conclusion of the High Court that the Association is not entitled to raise a plea of discrimination on the basis of Article 16 is set aside. The appeals are disposed of accordingly. The parties will pay and bear their own costs in all these appeals. MATHEW, J.-The question whether a public corporation of the nature of Oil and Natural Gas Commission, Life Insurance Corporation or Industrial Finance Corporation is a 'state' within the meaning of Article 12 of the Constitution is one of far reaching ....
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.... Rajasthan Electricity Board Case (supra), there is a larger question which has a direct bearing so far as the other two Corporations are concerned viz., whether, despite the fact that there are no provisions for issuing binding directions to third parties the disobedience of which would entail penal consequence, the corporations set up under statutes to carry on business of public importance or which is fundamental to the life of the people can be considered as 'state within the, meaning of Article 12 'That Article reads. "In this Part, unless the context otherwise requires, 'the State' includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India." It is relevant to note that the Article does not define the word 'state'. It only provides that 'state' includes the authorities specified therein. The question whether a corporation set up under a statute to carry on a business of public importance is a 'state' despite the fact that it has no power to issue binding directions has to be decided on other considerations. ....
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....te acting through a corporation and making it an agency or instrumentality of the State. The chartered corporations of the 17th, 18th and 19th centuries were expected, perhaps required, to perform stated duties to the community like running a ferry, founding a colony or establishing East Indian trade. Performance of these functions and securing whatever revenue the enterprise made to the Crown were the primary reasons why a charter was granted. Corporation in early English Law were in fact, and in legal cognizance, a device by which the political state got something done. They were far more like the bodies corporate we call 'public authorities' today. Few in the 17th or 18th century would have disputed that such a corporation was an agency of the state(see generally "The Modern Corporation and Private Property", Berle & Means, pp. 119-128). The Supreme Court of the United States in McCullough v. Mary "(4 Wheat. 315 (US 1819) held that the Congress has power to charter corporations as incidental to or in aid of governmental functions. So far as federal corporations are concerned, they are, by hypothesis, agencies of government. With this premise it would follow that action of ....
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.... authorities and as such subject to control by government. In France, "An enterprise publique is an enterprise the whole or the majority of whose capital belongs to the State or other public agencies. By reason of its industrial or commercial activities it is basically subject to private law (and particularly to commercial law) as are private enterprises, but, because of its public nature, it finds itself subjected to a certain degree of dependence on and control by public authorities" (Sao "Government Enterprise", ed. W. Friedmann & J. F. Garner, pp. 107-108). The motivation for the creation of public corporation naturally plays much larger part in under-developed and poor countries than in industrially advanced countries. This accounts for the emergence of public corporations and the present significance of public enterprise carried on by them. The Government of India resolution on industrial policy dated April 6, 1948 stated, among other things, that "management of state enterprise will as a rule be through the medium of public corporation under the statutory control of the Central Government who will assume such powers as may be necessary to ensure this. The Government of In....
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....ese organisations from private associations to public organisms into legal terms. In attempting to do so, we have to recognize that both business and tabour currently exercise vast powers. First, they have power over the Millions of men and women whose lives they largely control as employees or as members. Second, they exercise power more indirectly, though not less powerfully, over the unorganized citizens whose lives they largely control through standardized terms of contract, through price policy, through the tempo of production and the terms and conditions of labour. Last, they exercise control over the organized community, represented by the organs of State, in a multitude of ways; direct lobby pressures, control over election and policies of the elected representatives of the peoples and far-reaching control over the mass media of communication, In this sense 'government, or 'law-maldng' by private groups is today an irreversible fact(see "Corporate Power, Government by Private Groups and the Law' 57 Columbia Law Rev .156, at 156, 176-177). 648). Generally speaking, large corporations have power and this power does not merely come from the statutes creating them. They acquire....
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.... privately performing a 'public function' it is held to the constitutional standards regarding civil right and equal protection of the laws that apply to the state itself. The Court held that administration of private property such a town, though privately carried on, was, nevertheless, in the nature of a 'public function', that the private rights of the corporation must therefore be exercised within constitutional limitations, and the conviction for trespass was reversed. But how far can this expansion go? Except in very few cases, our Constitution does not, through its own force, set any limitation upon private action. Article 13 (2) provides that no State shall make any law which takes away or abridges the right guaranteed by Part III. It is the State action of a particular character that is prohibited. individual invasion of individual right is not, generally speaking, covered by Article 13(2). In other words, it is against State action that fundamental rights are guaranteed. Wrongful individual acts unsupported by State authority in the shape of laws, customs, or judicial or executive proceeding are not prohibited. Articles 17, 23 and 24 postulate that fundamental rights ca....
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....tegorical answer to this question. Any operation or purpose of value to the public may be encouraged by appropriation of public money and the resulting publicly supported operation can be characterized as a state operation. But such a rule would seem to go to the extreme. There seems to be no formula which would provide the correct division of cases of this type into neat categories of State action and private action. Some clue however, to the considerations which might impel the court in one direction or the other may be obtained from an examination of the cases in this area. The decisions of the State courts in U.S.A. seem to establish that a private agency, if supported by public money for its operation would be 'state'. But in all these cases, it has been found that there was an element of ,control exercised by the State. Therefore, it may be stated generally that State, financial aid alone does not render the institution receiving ,such aid a state agency. Financial aid plus some additional factor might lead to a different conclusion. A mere finding of state control also is not determinative of the question, since a state has considerable measure of control under its police....
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....s redevelopment laws, the Metropolitan Life Insurance Company organized a redevelopment cornoration to participate in a plan to construct housing. By an investment of some $ 90,000,000, the company constructed a complex of apartments capable of housing 25,000 people. The power of eminent domain was used to acquire the necessary land and partial tax exemption was granted for the completed project. As a part of the cooperative effort by the city and the private company, the plans for the project were subject to approval of the city and the company's profits, dividends, and power to dispose of the property 'were subjected to regulation by state law. When prospective Negro tenants were rejected by the company, they sued to enjoin discrimination as a violation of the Fourteenth Amendment. The majority of the New York Court of Appeals found no exertion of state power directly in aid of discrimination and decided that the private company wag not engaged in a governmental function. Fuld, J. dissented. He said that even the conduct of private individuals would offend against the equal protection clause if the conduct appears in an activity of public importance and if the state has accorded ....
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.... a New York statute which limited the fees charged by theatre ticket brokers : "But if we are to yield to fashionable conventions, it seems to me that theatres are as much devoted to public use as anything well can be . . (T) o many people the superfluous is the necessary, and it seems to me that government does not go beyond its sphere in attempting to make life livable for them." The difficulty of separating vital government functions from nongovernment functions has created further difficulties. Is the distinction between governmental and non-governmental functions which plagued the courts a rational one? The contrast is between governmental activities which are private and private activities which are governmental. Without the adoption of a radical laissez fare philosophy and the definition of state functions as they were current in the days of Herbert Spencer it is impossible to sort out proper from improper functions. Besides the so-called traditional functions, the modern state operates a multitude of public enterprises. Mr. Justice Holmes said, the Constitution does not enact Herbert Spencer's social statics....
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....t 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 of its police power is a legitimate governmental activity." In Pfizer v. Ministry of Health((25) [1964] 1 Ch. 614, at p. 641 (affirmed 1965 A. C. 512). 654), Willmer L. J. in the Court of Appeal has recognized that in mid-Victorian times the treatment of patients in hospitals would have been regarded as 'something quite foreign to the functions of government' but added that since then there had been 'a revolution in political thought, and a totally different conception prevails today as to what is and what is, not within the functions of government'. It has taken English and American Courts many years to concede that the exercise of an industrial or commercial activity on behalf of the state does not deprive such activity of its 'governmental' character. But a great many anomalies in common law remain, in particular as regards the immunities and privileges of the Crown in such matters, community from the binding force of statute, debt priority, freedom fr....
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....ome 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 it was its own .business and the State Government had no beneficial interest in the income. The ultimate question which is relevant for our purpose is whether such a corporation is an agency or instrumentality of the government for carrying on a business for the benefit of the public. In other words, the question is, for whose benefit was the corporation carrying on the. business ? When it is seen from the provisions of that Act that on liquidation of the Corporation, its assets should be divided among the shareholders, namely, the Central and State governments and others, if any, the implication is clear that the benefit of the accumulated income would go to the Central and State governments. Nobody will deny that an agent has a legal personality different from that of the principal. The fact that the agent is subject to the direction of the principal does not mean that he has no legal personality of his own. Likewise, merely because a corporation has legal ....
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....ervice 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. The law has adhered to the age-old rule that an employer may dismiss the employee at will. Certainly, an employee can never expect to be completely free to do what he likes to do. He must face the prospect of discharge for failing or refusing to do his work in accordance with his employer's directions. Such control by the employer over the employee is fundamental to the employment relationship. But there are innumerable facets of the employee's life that have little or no relevance to the employment relationship and over which the employer should not be allowed to exercise control. It is no doubt difficult to draw a line between reasonable demands of an employer and those which are unreasonable as having no relation to the employment itself. The rule that an employer can arbitrarily discharge an employee with or without regard to the actuating motive, is a rule, settled beyond doubt. But the rule became settled at a time when the words 'master' and 'serva....
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....nd 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 common law and the abuses of freedom of contract. The same philosophy seems to provide an appropriate answer to the argument, which still seems to have some vitality, that "the servant cannot complain, as he takes the employment on the terms which are offered to him"( see Justice, Holem nolin Mc Auliffe v. new Bedford, 155 Mass. 216). In Malloch v. Aberdeen Corporation (1971) 1 W. L.R. 1578). Lord Wilberforce, in speaking about the anomaly created by judicial decision in the area of contractual and statutory employments, has said "A comparative list of situations in which persons have been held entitled or not entitled to a hearing or to observation of rules of natural justice, according to the master and servant test looks illogical and even bizarre. A specialist surgeon wag denied protection which is given to a hospital doctor; a University professor, as a servant has been denied the right....
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....ture 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 the common law position. In public employment where there is an appointment to a permanent post, there should be presumption that the employee cannot be given notice and the servant can only be dismissed for misconduct or specified reasons. Lord Evershed in interpreting the word 'permanent' in that case said : "it seems to me of considerable importance, in interpreting its use in a contract of service, that such a contract cannot be specifically enforced." This is an orthodox statement of legal principle but it is nevertheless paradoxical to find it in a judgment which supported the majority view that a declaration should be granted. Declaration is not specific performance but it has the same effect in practice where a public authority is concerned which will invariably act in accordance with the law as declared. Declarations that notices of dismissal were inval....
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....ations 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 executive agency must be rigorously held to the standards by which it professes its action to be judged.... According, if dismissal from employment is based on a defined procedure, even though generous beyond the requirements that bind such agency, that procedure must be scrupulously observed.. . . . This judicially evolved rule of, administrative law is now firmly established and, if I may add, rightly so. He that takes the procedural sword shall perish with that sword." I agree with the conclusions of my Lord the Chief Justice. ALAGIRISWAMI, J. In his judgment in Writ Petition No. 43 of 1972 as Lord the Chief Justice has quoted with approval the decision of this Court in Praga Tools Corp. v. Imannal (1969 (3) SCR 773), Heavy Engin. Mazdoor Union v. Bihar (1969 (3) SCR 995), and S. L. Agarwal v. Hindustan Steel (1970 (3) ....
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....s 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 approval of the Governor. In respect of other employees of the company, recruitment and service conditions had to be in accordance with the rules which may be prescribed by the Government from time to time. This Court held that the employee was not holding an office of profit under the State Government. In Parga Tools Corporation's case (supra) the company was incorporated under the Indian Companies Act. The Union Government and the Government of Andhra Pradesh between them held 56 per cent and 32 per cent of its shares respectively. The Union Government had the power to nominate the company's directors. This Court held that even so, being registered under the Companies Act and governed by the provisions of that Act, the company was a separate legal entity and could not be said to be either a Government corporation ....
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....inal 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 v. Driefontain Consolidated Mines([1902] A. C. 484) and Kuenigi v. Donnersmarck ([1955] 1 Q. D. 516). The company so incorporated derives its powers and functions from and by virtue of its memorandum of association and its articles of association. Therefore, the mere fact that the entire share capital of the respondent-company was contributed by the Central Government and the fact that all its shares are held by the President and certain officers of the Central Government does not make any difference. The company and the shareholders being, as aforesaid, distinct entities the fact that the President of India and certain officers hold all its shares does not make the company an agent either of the President or the Central Government. A notice to the President of India and the said officers of the Central Government,....
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....d 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 President of India and his nominees. It was entirely owned by the Union of India. This Court held that the Hindustan Steel had its independent existence and by the law relating to corporations it was distinct even from its members, though the question for decision therein was whether Article 311 of the Constitution applied to the employee in question. I shall now compare these cases with those relating to the Oil and Natural Gas Commission, the Life Insurance Corporation of India and the Industrial Finance Corporation with which these four appeals are concerned. The Oil and Natural Gas Commission consists of the Chairman. and not less than two, and not more than eight, other 'members appointed by the Central Government. The Central Government may, if it thinks fit, appoint one of the members as Vice-Chairman of t....
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.... 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 the Development Bank not inconsistent with the provisions of the 1948 Act and to give effect to the provisions of the Act. Section 43 of the Act enacts that the Board may with the previous approval of the Development Bank regulations not inconsistent with the Act and the rules made thereunder to provide for all matters for which provision is necessary or expedient for the purpose of giving effect to the provisions of this Act. The Development Bank means the Industrial Development Bank established under the Industrial Development Act, 1964. The shares of the Central Government in the Corporation shall stand transferred to the Development Bank when the Central Government shall so notify. The regulations provide inter alia for the holding and conduct of elections under this Act including the final decision of doubts ....
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....gested 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 types of subordinatelegislation for various control orders like the "Rationing Order". There are a number of statutes on the Statute Book in India where the word "regulation" is used to refer to the regulations made by bodies other than the State. The word "rule" is always used to refer to the subordinate regulation made by virtue of powers conferred. The regulations framed under the regulation making were conferred by the three Acts in question am not the regulations defined in the General Clauses Act.' In interpreting Indian statutes it is unnecessary and might sometimes be misleading to refer to the provisions of English law in connection with subordinate legislation. We have to refer only to the General Clauses Act and the Indian Legislative practice. Though "rule" is defined as including a regulation made....
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....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 Committee Act, 1944 the Central Government has the power to make rules, including many others, the power for regulating grant of pay and leave to officers and servants of the Committee 'as also the pensions, gratuities, compassionate allowances and travelling allowances. The power of the Committee to make regulations is, however, very limited and relates only to demandIng security from officers and servants of the Committee and the Provident Fund. Under the Coir Industry Act, 1953 the Central Government has power to make rules and the Coffee Board has no power to make any regulations. Under the Coir Industry Act, 1953 the Central Government has the power to make regulations and the Board to make bye-laws regarding the appointment, promotion and dismissal of its officers and other employees other than the Sec....
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.... 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 power to make regulations regarding the tenure of office, and the powers and duties of the Registrar and other officers and servants of the Council and the appointment, powers, duties and procedure of inspectors and visitors. The Industrial Development Bank of India Act, 1964 confers powers on the Board of Directors of the Bank to make regulations but no rule making power on the Government. The International Airports Authority Act, 1971 confers power on the Central Government to make rules and on the Authority to make regulations including regulations regarding the conditions of service and the remuneration of officers and other employees appointed by it. The Khadi and Village Industries Commission Act, 1956 confers the power to make rules on the Central Government and the power to make regula....
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....g 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 is prescriptive and not statutory,. Administrative instructions are not. necessarily in relation to particular person, they may relate to a whole class of persons even as rules and regulations may. To say that because the regulations contained the terms and conditions of appointment they are statutory is to beg the question. I have extracted the power to make regulations found in the various statutes merely to show that the power to make regulations may be of different kinds. An institution like the Life Insurance Corporation which has its offices and employees all over. the country has necessarily got to have a standard set of conditions of service for its various classes of employees. That is why they are made subject of regulations. But the mere fact that regulations are made in respect of....
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....ing 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. 1937 P.C. 31, and Rangachari's case, AIR 1937 P.C. 27). It does not seem correct to say that these statutory bodies have no free hand in framing the conditions and terms of service of their employees. It is true that they have to offer terms and conditions as laid down in the regulations. But it is incorrect to say that they are not free to frame such terms and conditions as they think proper. They are the authorities to make. the regulations and therefore can make any regulations regarding the conditions and terms of service of their employees and also change them as they please. It cannot therefore be said that they are bound by these terms and conditions of service. Indeed there is no obligation on them to make regulations regarding the terms and conditions of service of their employees. I....
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....ould 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 the term in Article 12 of the Constitution there can be no question of the regulations framed by those organisations being deemed to be law. In order that an institution must be an 'authority' it should exercise part of the sovereign power or authority of the State. See in this connection the definition of the word in the General Clauses Act, which reads is follows: "Local authority" shall mean a municipal committee, district board, body of port commissioners or other authority legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund." They are all concerned with exercising part of the powers of the State. that is why a Port Trust is given even the power to make regulations to provid....
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....east, 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 the States in 1787. Such a static concept of government denies its essential nature. "The science of government is the most abstruse of all sciences; if, indeed, that can be called a science which has but few fixed principles, and practically consists in little more than the exercise of a sound discretion, applied to the exegencies of the state as they arise. It is the science of experiment." Anderson v. Dunn. 6 Wheat. (U.S.) 204, 226, 5 L. ed. 242, When this Court came to sustain the federal taxing power upon a transportation system operated by a State, it did so in ways familiar in developing the law from precedent To precedent. It edged away from reliance on a sharp distinction between the "go....
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....t 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 cannot be treated as a 'sovereign function' for the purpose of 'suability'. But that principle would not apply for the purpose of determining the status of its employees under Article 311. When the business is carried on by a Department of the Government, as in the case of Railways. obviously, the employees hold under the Government and not under any separate juristic entity, and so it has been held in numerous cases of Parshotam v. Union of India (AIR 1958 SC 36), Moti Ram v. N.E.F. Rly. (AIR 1964 SC 600). The reason is obvious, namely, where the employer is a Department of the Government, no question of a separate legal entity arises, The que....
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.... 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 or agent of the Crown is the control over it which is exercised by the Minister of Transport; but there is ample authority both in this Court and in the House of Lords for saying that such control as he exercises is insufficient for the purpose......'In the absence of any such express provision, the proper inference. in the case, at any rate, of a commercial corporation, Is that it acts on its own behalf, even through it is controlled by a government department." The ease for considering any one of the three corporations under consideration as a public authority is much weaker than that either....
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....arable 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 is an agent or servant of the State must be decided on the facts of each ,case. In the absence of any statutory provision, a commercial corporation acting on its behalf, even if it is con.trolled wholly or partially by a Government department, will be presumed not to be a servant or an agent of the State. Where, however, the corporation is performing in substance governmental.. and not commercial, functions, an interence will readily be made that it is an agent of the Governme....
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....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 be conveniently described as nongovernmental or non-sovereign, citizens who have a cause of action for damages should not be precluded from making their claim against the State. That is the basis on which the area of the State immunity against such claims must be limited." It would, therefore, be wrong to consider the, words "other authorities" in Article 12 as including any corporation which d....
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....ffence. 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 directions. The. Board is also invested by statute with extensive powers of control over electricity undertakings. The power to make rules and regulation and to administer the Act is in substance the sovereign power ,of the State delegated to the Board. The Board is, in my judgment, "other authority" within the meaning of Art. 12 of the Cons....
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....med. 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 from which the labour would suffer. In Warehousing Core. v. Tyagi (1970 (2) SCR 250) it was held: "A declaration to enforce a contract of personal service will not normally be granted. The exceptions are : (i) appropriate cases of. pub....
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....onstitution 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 different footing. They are both concerned with bodies which were undoubtedly local bodies and therefore a State and they could provide no support for the view which my learned brothers have taken. It only remains to deal with the two points made ....
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....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 (supra) and Rangachari's case (supra)]. It is a well-known fact that it was the lack of confidence of the British Government in the capacity of the Indians to manage their own affairs that-led to section 240 becoming part of the Government of ....
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.... 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 and to be kept incommunicado with the outside world. These are not dire forebodings of what will happen but merely an enumeration of what is actually happening. With the trade unions coming up to this Court even in matters of minor punishmen....