Patna High Court
Bihar Rajya Khadi Gram Udyog Board ... vs State Of Bihar And Ors. on 18 January, 1996
Equivalent citations: AIR1997PAT51, AIR 1997 PATNA 51, (1996) 1 BLJ 682
Author: B.P. Singh
Bench: B.P. Singh
ORDER
1. The petitioners herein have prayed for issuance of a writ, order or direction commanding the respondent State of Bihar and its officials, including respondents 1 to 4 herein, to release immediately funds in favour of respondent No. 5, Board, to enable it to meet its establishment expense for the financial year 1993-94, and such arrears relating to previous years which are payable by the State. They have also prayed for an order directing the State of Bihar and its officials to sanction, the annual programme, including the annual schedule of the officers an servants of the Board prepared and submitted by the respondent-Board, within the stipulated time-frame, so that there is no delay in actual release of the funds by the State Government for meeting the expenditure of the establishment of the respondent Board. Petitioner No. 1 herein is the Bihar Rajya Khadi Gram Udyog Board Karyakarta Sangh which espouses the cause of its members numbering 314, who are employees of the respondent -- Khadi Board. Petitioners 2 and 3, apart from being the office bearers of the petitioner Sangh, are also the employees of the respondent-Board. Respondents 1 to 4 are the State of Bihar and its Officers, whereas respondent No. 5 is the Bihar State Khadi and Village Industries Board (hereinafter referred to as 'the Board') and respondent No. 6 is the Chairman of the aforesaid Board.
2. The case of the petitioners is that the employees of the respondent Board are entitled to the payment of their salaries and wages through the respondent Board, but, in view of the fact that the respondent/Board has no source of income, nor does it carry on any activity of commercial nature, it is not in a position to raise funds so as to discharge its obligation, in particular those in relation to its establishment. It has, therefore, necessarily to depend upon the State of Bihar. The submission urged on behalf of the petitioners is to the effect that the provisions of the Act under which the respondent Board has been created, cast an obligation upon the State of Bihar to provide sufficient funds to the Board to meet its obligations and to perform its functions. The statutory obligations cast by the statute must be enforced by issuance of a Writ, because the employees of the respondent-Board have not been paid their wages for the last several months. The respondent-Board has clearly expressed its inability to pay the salary and wages to its employees on the ground that sufficient funds have not been made available to it to enable it to discharge its financial obligations. It is in this background that the instant writ application has been filed.
3. Counsel appearing on behalf of respondent Board submits that so far as the Board is concerned, it has no objection to paying to its employees the salaries, wages and allowances due to them, but it is helpless in the matter because it does not have necessary funds to make payment. He has also emphasised that the provisions of the Act, under which the Board has been constituted, do not provide for the Board carrying on any activity of a commercial nature which can yield profits so as to enable the Board to meet its financial obligations out of its own earnings. The Board's stand is that there is no activity carried on by it under the Act which can result in the generation of funds. The primary objective of the Board is to organise, develop and regulate the Khadi and Village industries. In the performance of its duties under the Act, it incurs expenses, but does not earn any income. That is why the provisions of the Act, under which the respondent Board has been constituted, in terms provide for complete control by the Government of the respondent Board which is a body corporate, and also enjoin upon the State Government a duty to provide the necessary funds to enable the Board to perform the functions entrusted to it by law.
4. The learned Advocate-General appearing on behalf of the State of Bihar and its officers submitted that, no doubt, the State has been given abundant powers which enable it to control the activities of the respondent Board but the respondent Board being a corporation, a body corporate, the State has no obligation to advance any fund to the Board which is a distinct legal entity. He further submitted that if any obligation is created by law which obliges the State to make available funds to the respondent Board, such statutory obligations can be enforced by issuance of a writ. He, therefore, submitted that the obligation of the State of Bihar exists only to the extent such obligation has been created or duty cast upon it by the statute, and no liability can be enforced against the State of Bihar de hors the statutory provisions of the Act. He, indeed, submitted that on a reading of the provisions of the Act, it will appear that the Board can appoint officers and servants only which the approval of the State of Bihar, and the budget also has to be sanctioned by the State of Bihar. He, therefore, submitted that in case this Court comes to the conclusion that the State of Bihar is bound to provide sufficient funds to the respondent-Board to carry on its activity and to meet its obligations, including payment of salary and wages to its staff members, that should be limited only to such employees of the respondent-Board who have been appointed in accordance with the Act, that is to say, with the approval of the Government. If the Board has made illegal appointments without the approval by the State of Bihar, the Board itself must find funds to meet the liabilities arising from such illegal appointments.
5. Having regard to the submissions urged at the Bar, it is necessary to examine the scheme of the Act. The Act under which the respondent Board has been constituted, is called the Bihar Khadi and Village Industries Act, 1956. Some provisions of the Act were amended by Amendment Act of 1981. We shall take notice of the provisions of the Act as mended by the Amendment Act of 1981. Section 3 of the Act provides that as soon as may be after the coming into force of this Act, there shall be established, for the purpose of this Act by the State Government a Board to be called the Bihar State Khadi and Village Industries Board. The Board shall be a body corporate and shall have perpetual succession and a common seal and shall by the said name sue and be sued. Section 4 provides for the constitution of the Board and terms of office of members of the Board and its Chairman. The section makes it clear that the members of the Board shall be appointed by the State Government, and it may also nominate one of the no official members to be the Chairman of the Board. The section also authorities the State Government to determine the term of office and the terms and conditions of services of the Chief Executive Officer of the Board. Under Section 7 power has been vested in the State Government to remove from office the Chairman or any member of the Board in the circumstances set out in that section. Section 10 of the Act is important. It provides as under:
"10. Appointment of members of staff of Board and conditions of their services : --
(1) The Board may, subject to the approval of the State Government, appoint such number of officers and servants as" it may consider necessary.
(2) The remunerations, allowances and other conditions of service of the Officers and servants of the Board shall be such as may be determined by regulations made by the Board.
The regulations referred to in Section 10 are framed in the manner provided by Section 34 of the Act, which provides that the Board may, with the previous sanction of the State Government, make regulations not inconsistent with the Act and the rules made thereunder, and publish them in the official Gazette. This clearly indicates that the regulations must have the previous sanction of the State Government, though they are technically framed by the Board. (Section 13 authorises the Government to dissolve the Board in the Circumstances set out in the section. Section 14 of the Act provides for the functions of the Board. It reads as follows :
"14. Functions of Board : (1) It shall be the duty of the Board to organise, develop and regulate Khadi and Village Industries and perform such other functions as the State Government may prescribe from time to time.
(2) Without prejudice to the generality of the provisions of Sub-section (1), the Board shall, in particular, discharge and perform all or any of the following duties and functions, namely :--
(a) to start, encourage, assist and carry on Khadi and Village Industries.
(b) to help persons or association of persons by providing them with work in their homes and to give them financial assistance in shape of loans and grant for any of the purposes of this Act on such terms and conditions as may from time to time be laid down:--
(i) by the Commission, in case of loans and grants given by the Board out of the funds received from the State Government or otherwise,
(ii) by the State Government in case of loans and grants given by the Board out of the funds received from the State Government or otherwise, and such terms and conditions may also provide for the recovery of the loans together with interests thereon, if any, of the grants.
(c) to encourage the establishment of cooperative societies for Khadi and Village Industries:
(d) to conduct training centres and to train people at such centres or at other centures out side Bihar with a view to equiping them with the necessary knowledge for starting or carrying on Khadi or village industries,
(e) to arrange for the supply of raw materials, tools and implements and for the finished products of such industries,
(f) to arrange for publicity of, and popularising, finished products of such industries by opening stores, shops, emporiums or exhibitions,
(g) to endeavour upon the public the advantages of patronising the products of Khadi and Village Industries,
(h) to seek and obtain the advice and guidance of experts in such industries.
(i) to undertake and encourage research work in connection with Khadi and Village Industries,
(j) to maintain or assist in the maintenance of institution for the development of Khadi or Village Industries, and
(k) to discharge such other duties and to perform such other functions as the State Government may direct for the purpose of carrying out the objects of this Act.
(3) The Board shall ordinarily consult the Advisory Council constituted under Section 11 with respect to the discharge of its functions under this Act."
It would appear from a perusal of the enumerated functions of the Board that though it has several functions to perform, none of the functions performed by it are of commercial nature which may enable the Board to generate funds to meet the liabilities incurred by it in the performance of its statutory functions. The functions which it is required to perform are necessarily dependent upon the grants made by the State of Bihar as well as the Khadi Commission, for which it is required to maintain two separate funds under Section 21 of the Act.
6. Section 16 of the Act provides that in each year, on such date as may be prescribed, the Board shall prepare and forward in prescribed form to the State Government a programme for the promotion and development of Khadi and Village Industries, and a schedule of the staff of officers and servants already employed and to be employed in the next year. The programme shall contain particulars of the scheme which the Board proposes to execute during the next year and particulars of any work which the Board proposes, to execute, or any undertaking which it proposes to organise, during the next year for the purpose of carrying out its functions under the Act. The programme and the schedule of staff so submitted by the Board to the State Governments has to be sanctioned by the State Government as provided under Section 17 of the Act, with such modifications as it deems fit. Section 21 of the Act relates to the fund of the Board and is reproduced herein after for the sake of convenience.
"21. Fund of Board. - (1) The Board shall have two separate funds to be called the "Khadi Fund" and "Village Industries Fund" and all grants and advance made to the funds, from time to time by the State Government or by the Commission for the purpose of development of Khadi or the development of Village Industries and all other receipts of the Board shall be credited to the 'Khadi Fund' or the "Village Industries Funds" as the case may be and all payments by the Board for or in respect of Khadi or Village Industries shall be made from the appropriate fund."
Section 24 provides for the Budget. The Board is required to submit its budget to the State Government for approval. Section 25 provides the manner in which the budget has to be approved. Sections 24 and 25 are significant and are being reproduced below for convenience:
"24. Budget:-- The Board shall, by such date in each year as may be prescribed, . prepare and submit to the State Government for approval two separate budgets in the prescribed form for the next financial year, to be called the Khadi budget and the Village Industries budget. Showing the estimated receipts and expenditure in respect of Khadi and Village Industries, respectively, during the financial year."
"25. Sanction of budget:-- (1) The State Government may sanction the budget submitted to it with such modifications as it thinks fit.
(2) Subject to the provisions of Sub-sections (3) and (4) no sum shall be expended by or on behalf of the Board unless the expenditure is covered by a specific provision in the budgets approved by the State Government (3) The Board may, within the respective limits of the Khadi budget and the Village Industries budget, sanction any re-appropriation from one head of expenditure to another or from a provision made for one scheme to that in respect of another, but in no case shall a re-appropriation of fund be made from the Khadi budget to the Village Industries budget or from the Village Industries budget to the Khadi budget except with the previous approval of the State Government.
Provided that no re-appropriation from the head 'loan' to any other head of expenditure and vice versa in either budget shall be sanctioned by the Board, except with the previous approval of the State Government.
(4) The Board may, within such limits and subject to such conditions as may be prescribed, incur expenditure in excess of the limit provided in the budgets approved by the State Government under any head of expenditure or in connection with any particular scheme, so long as the aggregate amount in either budget approved by the State Government is not exceeded."
7. Under Section 27 of the Act the Board is required to prepare and forward to the State Government in such manner as may be prescribed, an annual report, within three months of the end of the financial year giving a complete account of its activities during; the previous financial year, and the said report has to be laid before both the houses of State Legislature as soon as may be after it is received by the State Government. Section 30 of the Act provides that in the discharge of its functions, the Board shall be guided by such directions and instructions as may be given to it, from time to time, by the State Government.
8. It will be seen from the provisions of the Act that the statutory Board is constituted by the State Government which appoints one of the non-official members to be the Chairman of the Board. The Chief Executive Officer is aiso appointed by the State Government. The power to remove any member or Chairman of the Board or to dissolve it also vests in the State Government. The Board cannot appoint any officer or servant without the approval of the State Government. The terms and conditions of service of such officers and servants are to be regulated by the regulations, which again have to; be framed by the Board with the previous approval of the State Government. The State may make grants and advances to the funds of the Board from time to time. Similarly the Board may receive grants and funds from the Khadi Commission. The Board is required to keep two separate funds under Section 21 of the Act. The budget for the Board is to be approved by the Government which has to sanction the budget. The annual report submitted by the Board is to; be laid before the houses of State legislature.
9. All these provisions make it clear that the Board has no commercial activity to perform and can perform only those functions which are entrusted to it by the Act. In the matter of funds it is totally dependent upon grants made to it by the State of Bihar or by the Khadi Commission, apart from any donations etc. made to its funds. In the matter of appointment of officers and servants of the Board, it is the State Government which has to accord sanction for such appointments and no appointment can be made by the Board unless it has the approval of the State Government. These provisions of the Act leave us in no doubt that it is the State Government which is responsible to meet the establishment expenses of the Board. So far as other activities are concerned, the Board may regulate the activities having regard to the availability of funds in the form of grants or advances made by the State of Bihar or the Khadi Commission, but, so far as the liability to pay salaries and wages to its officers and staff is concerned, the liability is of a permanent recurring nature and, there-fore, there can be no doubt that the funds required to maintain the establishment of the Board have to be made available by the State Government, which is required to approve the budget of the Board. In fact, from Annexure 9, produced before us, it would appear that a provision is made in the State's budget presented to the legislature, for allocation of funds to the respondent Board, and it appears that it was to the tune of Rupees 31,50,000/- for the year 1992-93.
10. It also appears from the various communications which have been produced before us as Annexures to the writ petition that even the State Government's perception of its obligations under the Act was to the same effect. In a letter, Annexure 3, dated 3rd November, 1977, written by the Joint Secretary of the Government of Bihar in the Department of Industries to the Accountant General, Bihar, Patna, it was stated that the respondent Board have been established under an Act with a view to organise, develop and regulate the Khadi Industries. The expenses incurred by the Board have to be borne by the State Government, and for this purpose the State Government had appointed a committee. From the aforesaid Annexure it also appears that provision was made for payment of salary to persons who had been appointed at different levels by the Board. A request was made to the Accountant General to release funds amounting to Rupees 18,50,000/-. A list of employees and the scale of pay to which they were entitled was also annexed thereto. Annexure 4 is the recorded note of discussion in the meeting of the Chairman of the Khadi and Village Industries Commission, Bombay with the Governor of Bihar, held on 24-6-1985 at Patna. It appear from the minutes produced before us as Annexure 4 that the Governor of Bihar emphasised the fact that there should be adequate budgeting of full expenditure of the State Board to be met out of the State Government fund from 1985-86 onwards. To the same effect are the observations made in Annexures 5, 6 and 18. These Annexure establish that even the Government at different times had accepted its obligation to provide funds for the maintenance of the establishment of the respondent-Board.
11. Having regard to the scheme of the Act and the express provisions thereof, we are of the considered opinion that the State Government is obligated to meet the establishment expenses incurred by the Board in the performance of statutory functions. As we have observed earlier, the Board is constituted by the State Government, its members are appointed by the State Government who can be removed by the State Government. Similarly the Board can be dissolved by the State Government. After all, the duties enjoined upon the Board are performed by it with the assistance of its officers and servants, and express provisions have been made for the appointment of such officers and servants by the Board, but not without the approval of the State Government. Similarly in the matter of allocation of funds, a budget has to be prepared by the Board and approved by the State Government. All these lead to the irresistible conclusion that the obligation to meet the legitimate expenses of the Board cannot be denied by the State. It cannot be disputed that in the performance of its statutory functions; the Board has to maintain an establishment and necessarily incur expenses. If the objectives of the Act have to be achieved, such establishment has to be maintained by the Board and that necessarily implies an obligation to pay to the officers and servants of the Board the emoluments prescribed. Since the Board does not carry on any commercial activity so as to make a profit, nor does it perform any other function which may enable is to generate funds to meet its obligations, the overall control which is complete and is vested in the State Government, carries with it the obligations to meet the legitimate expenses incurred by the Board in the performance of its statutory functions. Even the learned Advocate-General could not contend otherwise, because admittedly the State has been allotting funds to the Board. The grievance of the petitioners is that the allocations so made are wholly insufficient to meet the obligations and the liabilities of the Board. The result is that its employees have to got without salary for months together.
12. The learned Advocate-General contended that there is no difference between a statutory Corporation and a Government Company incorporated under the Companies Act. It is not necessary for us to dwell upon this aspect of the matter in the instant case, as that is not relevant and may be considered in an appropriate case. However, we are not prepared to go to the extent of saying that there is no distinction whatsoever between a Government Corporation and a Government company. Ex facie, the former is a creation of statute, while the latter is created under a statute, the common feature being that both are distinct legal entities, and being a corporate body possess a legal personality. It may also be that a Government company incorporated under the Companies Act may stand on a different footing than a Government corporation, because the obligation of a share-holder is limited in view of the provisions of the Companies Act, and a shareholder cannot be called upon to meet an obligation beyond his limited liability. However, where a Government Corporation is created by a statute, and the statute itself creates legal obligations and casts a duty upon the State Government to meet the liabilities of the Corporation, such liabilities cannot be disowned by pleading that the Board is a Government Corporation distinct from the State Government. The statutory obligations can certainly be enforced by this Court in exercise of writ jurisdiction. We may only observe that Government companies, which have been established for carrying on commercial activities cannot, in the matter of allotment of funds, claim the same status as a Government corporation, when a statutory obligation is imposed upon the State to bear the liabilities incurred by a statutory body in the performance of its functions. It is not as if the liabilities incurred by such Corporation and/or the Government Companies cannot be enforced against the Corporation or the Government company by third parties but what we are considering in the instant case is the liability of the State Government to meet such liabilities incurred by the Corporation.
13. We, therefore, hold that where the State by enacted legislation creates an agency with enumerated functions, with the avowed purpose of achieving the declared objectives, the obligations that arise from the creating and maintenance of such an agency are implicitly the obligations of the State, more so when the provisions of the Act make explicit what is otherwise implicitly the obligation of the State. The obligation to maintain such an agency in the manner best suited to achieve the objectives, includes the liability which such agency is reasonably expected to incur in the normal discharge of its functions. If the agency is required to maintain an establishment to carry out its statutory functions, the expenses incurred in maintaining such establishment, by necessary implication, must be the liability of the State, unless the statute provides otherwise. The real test to apply is whether the statute conceived of the agency as one expected to generate its own funds for meeting its liabilities, or even for earning a profit, or whether, having regard to its statutory functions, it was wholly dependent on the State for its functioning and survival. The extent of control which the State exercises in relation to such an agency, is also a relevant factor to be taken into account.
14. The learned Advocate-General in the alternative submitted that the State is under no obligation to meet all the liabilities that may be incurred by the Board. The State Government at best can be called upon to allocate adequate funds for meeting the liabilities lawfully incurred by the Board. The Board has to appoint officers and servants with the approval of the State Government. If the Board, contrary to law, appoints on its own officers and servants without approval of the Government, the Government is not obliged to allocate funds for the payment of salaries and wages to such illegally appointed officers and servants. We have no hesitation in accepting the submission urged by the Advocate-General. Since the Act imposes a duty upon the State Government to meet expenses legally incurred by the Board, it has vested in the Government powers to see to it that the Board does not perform its duties in breach of the statutory provisions so as to incur liabilities which can be reasonably avoided. The purpose behind giving to the State Government power to approve appointments made by the Board, is to keep a check on the number of persons who are appointed by the Board so that unnecessary expenses are not incurred by maintaining unduly heavy establishment. The Control by the Government is essential because ultimately it is the Government which has to provide funds for payment of salary and wages to the officers and staff of the Board. A part from the fact that the Board has no authority to make an appointment without approval by the Government, any appointment so made is clearly illegal and it does not vest in the persons so appointed the right to receive salary. It goes without saying that the State Government cannot be compelled to pay salaries and wages to the officers and staff illegally appointed by the corporation without its approval. Counsel for the petitioners also submitted that the persons illegally appointed may not be paid their salaries and allowances, and the petitioners herein were not interested in payment of salaries and allowances to persons illegally appointed. So far as the members of the petitioner No. 1 Union are concerned, they have all been legally appointed in accordance with law with the approval of the Government. We do not wish to say anything on the question as to whether all the members of the petitioner union have been legally and validly appointed, because we do not have enough materials before us to adjudicate on that questions, nor are we called upon in this writ petition to go into that question.
15. In these circumstances we allow the writ petition and hold that for the legitimate expenses incurred by the respondent Board in the performance of statutory functions including the employment of officers and servants with the approval of the Government, the State Government is obliged to provide adequate funds to the Board to meet the obligations. If the funds which are being allocated year after year are not sufficient to meet those obligations, the State Government must and is directed to allocate additional fund so as to enable the Board to discharge its legal obligation to pay salaries and allowances to the officers and servants of the Board legally appointed with the approval of the Government. We make it clear that the State Government is not obliged to provide for payment of salaries and allowances to the officers and servants appointed by the Board in breach of the provisions of the Act and without approval of the State Government. We direct the State of Bihar to take immediate steps to provide additional funds to the respondent Board to meet its legal obligations. The Board shall prepare a detailed statement of account and submit the same to the State Government giving full particulars about the persons employed by it, the Government orders sanctioning the posts etc. and the funds required to meet its obligations, and after examining the same and working out the liability incurred by the Board, the State shall make available to the Board necessary funds to meet such obligations, including arrears due, within a period of three months from the date on which the Board furnishes the necessary statement to the Government, The Board shall upon receipt of the amount, pay to the employees legally appointed, their arrears of salaries and allowances within two weeks.
Needless to say that in future as well, the Board shall submit to the State Government well in advance complete statement of its requirement of fund with justification therefor, as required by Sections 16 and 24 of the Act, and the State Government shall allocate funds in such a manner that the Board does not find any difficulty in regularly paying salaries and wages to its officers and staff.