Gujarat High Court
M.D. Juvekar vs Modern Bakeries (India) Ltd. And Ors. on 8 October, 1987
Equivalent citations: (1987)2GLR1375, (1988)ILLJ433GUJ
JUDGMENT
1. Petitioner who was employed as Sales Manager by Respondent No. 1-Company (hereinafter referred to as "the Company") has filed this petition challenging the legality and validity of the order Annexure 'I' dated April 21, 1980, by which his services were terminated.
2. Petitioner joined service of the Company as Sales Assistant on October 23, 1967. In April 1973 the petitioner was promoted as Sales Manager on probation and he was posted at Kanpur. On satisfactory completion of the probation period he was confirmed as Sales Manager. It is the petitioner's case that his performance as Sales Manager at Kanpur was excellent and he was, therefore, transferred to Ahmedabad in or about 1975. It is submitted that on account of the efforts made by the petitioner, the sales position had materially improved. However, in 1977-78, the petitioner received several complaints from the customers and merchants regarding the quality of bread manufactured by the Company. The petitioner, therefore, drew the attention of the authorities to these complaints by addressing letters to the General Manager. It is submitted that the quality of the bread did not improve, but on account of the petitioner bringing to the notice of the authorities complaints made by the customers and merchants, the petitioner incurred the wrath of the Chairman-cum-Managing Director of the Company. Petitioner's case is that in the seniority list of Sales Manager Grade-II issued in December 1978, he was at the top of the list of nine officers.
3. In the Confidential Report for the year ended on March 31, 1978, the general evaluation of the petitioner's performance was "Sincere, able and hard working. He has the market sense." In column No. 9 regarding fitness for promotion to a higher grade, in the Confidential Report it was stated "Quite fit". The entries made in the other column of this Confidential Report are stated in paragraph 5 of the petition. The Chief Marketing Manager agreed with the aforesaid remarks made by the Chief Manager in his Confidential Report. However, the Chairman-cum-Managing Director, respondent No. 2 herein who is the reviewing authority made a note to the following effect : "Physically finds it difficult to tour and does inadequate field work". According to the petitioner, these remarks made by respondent No. 2 were absolutely unjustified and contrary to the general remarks made by the Chief Manager with which the Chief Marketing Manager had agreed. The petitioner, therefore, made representation against the above adverse remarks made by respondent No. 2, However, by a letter dated March 16, 1979, addressed to the petitioner by the Chief Personnel Manager, the petitioner was informed that his representation was not accepted. It is the petitioner's case that he was victim of the frank and forthright opinion expressed by him with regard to the quality of the bread, manufactured by the Company and that it was on account of such opinions that respondent No. 2 had made the aforesaid adverse remarks. According to the petitioner, when respondent No. 2 visited Ahmedabad on November 20/21, 1978, he asked the petitioner to resign. The petitioner, however, asked for the reasons for the same, but they were not given to the petitioner. The petitioner placed this fact on record on November 27, 1978 and made a written complaint in that regard to the General Manager on February 3, 1979, a copy of which was forwarded to respondent No. 2. It is submitted that as a result of the above complaint made by the petitioner, he was transferred to Calcutta under order dated April 6, 1979. The order of transfer, according to the petitioner was mala fide. The petitioner, however, took charge of his post at Calcutta.
4. Petitioner thereafter received a memo dated September 24, 1979 alleging that he had not asked for security amount from the Ex-Canteen Contractor of I.P.C.L., Baroda and that the outstandings from certain parties exceeded the security amount. The petitioner gave reply to this memo on October 12, 1979. The petitioner thereafter proceeded on leave and came to Ahmedabad. While he was on leave at Ahmedabad, he received the impugned order Annexure 'I' dated April 21, 1980, terminating his services under Regulation No. 2.18 of the Staff Regulations of the Company. The impugned order was served on the petitioner at Ahmedabad. He was asked to collect his 90 days' pay in lieu of notice period as provided under the said Staff Regulations from the General Manager, Ahmedabad Unit. The petitioner has, thereupon, approached this Court challenging the legality and validity of the said order.
5. The petitioner contends that respondent No. 1 is a Government Company in which 21293 shares of Rs. 1,000/- each are held by the Central Government. The Food Corporation of India. Delhi Administration and States of Gujarat, Kerala, Maharashtra, Tamilnadu and West Bengal each hold one share of Rs. 1,000/- in the Company. According to the petitioner, 99% of the shares are held by the Central Government and remaining shares are held by the State Governments and Statutory Corporations controlled by the Central Government. It is submitted that there are no private share-holders and the Company is wholly owned by the Central Government. The Directors of the Company are also nominated by the Central Government. There is complete financial control of the Central Government and all decisions of the Company are also controlled by the Central Government. It is stated that the Company performs public functions in as much as one of its objects is to manufacture and distribute nutritious bread at cheap rates to the hungry millions of India. It is submitted that having regard to the principles laid down by various decisions of the Supreme Court and the High Courts, the Company is "State" within the meaning of Art. 12 of the Constitution of India and, therefore amenable to the writ jurisdiction of this Court under Art. 226 of the Constitution.
6. It is submitted that Regulation 2.18 of the Staff Regulations of the Company which confers absolute and unguided power in the matter of termination of services of the confirmed employees is arbitrary, discriminatory and violative of Arts. 14, 16, 38 and 39 of the Constitution and also contrary to public policy. It is submitted that the said regulation is similar to the regulation which was held to be void by the Supreme Court of India in C.I.W.T. v. B. N. Ganguly (1986-II-LLJ-171). The said Regulation is, therefore, void and unconstitutional and consequently the impugned order Annexure 'I' which is founded on it is also unconstitutional, illegal and void. It is further submitted that the impugned order is penal in nature and such as order could not have been passed without holding enquiry and without giving an opportunity of being heard to the petitioner. The impugned order is, therefore, violative of principles of natural justice. The petitioner has, therefore, prayed that the aforesaid Regulation 2.18 and the impugned order Annexure 'I' terminating his services be declared to be illegal and void and the Company be directed to reinstate him in service with full back wages.
7. The respondents, denying the allegations made by the petitioner, have resisted this petition. The petition is resisted mainly on the following grounds :-
(i) The Court has no jurisdiction to entertain this petition as no part of cause of action has arisen within the jurisdiction of this Court;
(ii) The Company is not "State" within the meaning of Art. 12 of the Constitution and, therefore, it is not amenable to the writ, jurisdiction under Art. 226 of the Constitution;
(iii) Regulation 2.18 of Staff Regulations is not invalid and illegal as urged by the petitioner; and
(iv) The competent authority had the authority and power to pass the impugned order Annexure 'I' and in passing such order, there is no violation of any Article of the Constitution or principles of natural justice.
8. Before dealing with other contentions raised on behalf of the parties, it is necessary first to resolve the question regarding the jurisdiction of this Court. It is submitted on behalf of the respondents that no part of cause of action having arisen within the jurisdiction of this Court, this Court has no jurisdiction to entertain this petition. On the other hand it is submitted on behalf of the petitioner that part of cause of action has arisen within the jurisdiction of this Court in as much as the impugned order Annexure 'I' terminating the services of the petitioner was served on the petitioner at Ahmedabad, where he was staying while on leave.
9. In State of Punjab v. Amar Singh Harika (1966-II-LLJ-188), one of the questions which arose for consideration before the Supreme Court was when does dismissal of Government servant become effective ? Does it become effective on the mere passing of the order of dismissal or only after it is published and communicated to the officer concerned ? Respondent Amar Singh Harika, in the appeal before the Supreme Court, was Assistant Director, Civil Supplies in the Patiala and East Punjab States Union ('Pepsu' for short). He was dismissed from service by an order purported to have been passed on June 3, 1949. Respondent Amar Singh was informed on May 28, 1951 by Bishan Chand, Assistant Comptroller, Pepsu that the record of the office showed that he had been dismissed from Government service with effect from the date of his suspension. Amar Singh filed a suit against the State of Punjab in the Court of Sub Judge, Second Class, Patiala and alleged that the impugned order whereby he was dismissed from service was invalid, inoperative and illegal. Amar Singh pleaded that the impugned order had been passed without holding any enquiry and the procedure adopted by the State of Punjab in respect of the said enquiry was wholly illegal and invalid. He, therefore, claimed a declaration that despite the said order of dismissal he continued to be the employee of the State of Punjab and to hold his post of Assistant Director, Civil Supplies. As a consequential relief, he also asked for an order calling upon the State of Punjab to post him as Assistant Director of Civil Supplies, or to some other post of the same status. The claim made by respondent Amar Singh was resisted by the State of Punjab on several grounds. It was urged that the suit filed by respondent Amar Singh was incompetent in law; that the impugned order was valid, legal and binding on respondent Amar Singh and that the suit was barred by limitation. The learned trial Judge framed three issues, namely : "(1) Is the dismissal of the plaintiff (respondent Amar Singh) from the service of the defendant (State of Punjab) illegal, void and ultra vires ? (2) Is the suit within time ? and (3) Is the suit maintainable ?" The first two issues were answered by the learned trial Judge in favour of respondent Amar Singh. He, however, held that the suit was not maintainable in law with the result that the respondent Amar Singh's claim was dismissed with costs. Against the decree passed by the learned trial Judge, respondent Amar Singh preferred appeal in the Punjab High Court. The High Court upheld the findings of the learned trial Judge in favour of respondent Amar Singh on the first two issues. The High Court, however, took a contrary view in regard to the finding of the learned trial Judge that respondent Amar Singh's suit was not maintainable. It was held that the suit was maintainable. In the result respondent Amar Singh's claim was decreed with costs. The State of Punjab being aggrieved by the decree passed by the High Court went in appeal before the Supreme Court. One of the questions which were raised before the Supreme Court was as to when the order of dismissal became effective. The evidence disclosed that respondent Amar Singh came to know about the order dismissing him from service on May, 28, 1951, when he was informed by Bishan Chand, Assistant Comptroller, Pepsu that the record of the office showed that he had been dismissed from Government service with effect from the date of his suspension. It was, however, urged before the Supreme Court that though respondent Amar Singh came to know about the order of his dismissal for the first time on May 28, 1951, the said order must be deemed to have taken effect from June 3, 1949 when it was actually passed. The High Court had rejected this contention. The Supreme Court also rejected this contention. It was held at pp 191-192 that mere passing of the order of dismissal would not be effective unless it is published and communicated to the officer concerned. If the appointing authority passes the order of dismissal but does not communicate it to the officer concerned, theoretically, it is possible that unlike in the case of judicial order pronounced in Court, the authority may change its mind and decide to modify its order. The Supreme Court went on to observe : "It may be that in some cases the authority may feel that the ends of justice would be met by demoting the officer concerned rather than dismissing him. An order of dismissal passed by the appropriate authority and kept with itself, cannot be said to take effect unless the officer concerned knows about the said order and it is otherwise communicated to all the parties concerned." The Supreme Court, therefore, upholding the decision of the High Court held that the order of dismissal passed against respondent Amar Singh on June 3, 1949 could not be said to have taken effect until the respondent came to know about it on May 28, 1951. In the instant case, it was contended on behalf of the respondent that the impugned order Annexure 'I' terminating the services of the petitioner became effective on the date it was passed at New Delhi. This order was signed by the Chairman-cum-Managing Director, respondent No. 2, at New Delhi on April 21, 1980 and, therefore, according to the respondents, the order became effective on that date. This contention raised on behalf of the respondents cannot be accepted in view of the aforesaid decision of the Supreme Court.
10. A Division Bench decision of the Calcutta High Court in Umashankar Chatterjee v. Union of India and others, reported in (1982-II-LLJ-378) directly covers the issue which arises for my consideration in this petition. The Division Bench was dealing with the appeal arising out of the judgment of the learned single Judge of Calcutta High Court, whereby the learned Judge had discharged the rule nisi issued on the petition of the appellant before the Division Bench under Art. 226 of the Constitution on the ground of want of territorial jurisdiction. The appellant in that case was served with a charge-sheet containing six articles of charges and an enquiry was held against him. The Enquiry Officer found him guilty of all the charges. The Chairman and Managing Director of the Fertilizer Corporation of India Ltd. ('Corporation ' for short), whose employee the appellant was, agreed with the findings of the Enquiry Officer and after considering the reply of the appellant on the second show-cause notice, he by his order dated December 9, 1977 removed the appellant from the services of the Corporation with immediate effect. The order of removal was sent to the appellant at his Calcutta residence. The appellant's appeal against the order of removal was dismissed by the Board of Directors. Both the orders of removal and dismissing appeal were passed at New Delhi. The appellant filed a writ petition in the Calcutta High Court challenging the validity of the order of removal and the order of Board of Directors dismissing the appeal. The learned single Judge who heard the writ petition took a view that the Calcutta High Court had no jurisdiction entertain and hear the writ petition for the appellant served all along in Madhya Pradesh and the order of removal and order of dismissal of the appeal were both passed in New Delhi. In the opinion of the learned judge either the Madhya Pradesh High Court or Delhi High Court but not the Calcutta High Court had jurisdiction in the matter. In that view of the matter, the learned Judge discharged the rule nisi issued on the writ petition of the appellant. In the background of these facts, the question which arose for consideration before the Division Bench of the Calcutta High Court was whether the order of removal became effective only when it was served on the appellant in Calcutta or when it was put into the post box in New Delhi at the instance of the authority concerned who was the Chairman and Managing Director of the Corporation. The Division Bench held that the decision of the Supreme Court in Amar Singh's case (supra) supported the contention of the appellant that the order of removal became effective only when it was served on him in Calcutta. It was not disputed that the appellant had no earlier knowledge of the order. The Division Bench held that when an order of dismissal or removal from service is sent out, it is effective on the authority concerned, but so far as the Government servant is concerned it becomes effective only when he is apprised of it either by oral communication or be actual service of it. It was, therefore, held that in the case before the Division Bench, the impugned order of removal became effective when the same was received by the appellant through post in Calcutta he having no prior knowledge of the same by any other means. After referring to various decisions, the Division Bench held that infringement of rights gives rise to a cause of action and, consequently, the right to sue. It was the case of the appellant that his right to remain in service was infringed by the order of removal. The order of removal, therefore undoubtedly gives rise to cause of action for the employee to institute an action for the establishment of his right to be in service. It was held that so long as the order was not effective there was no question of accrual of a cause of action or the right to sue; but the moment it became effective, there was such accrual of action and right to sue. It was held that the impugned order of removal having become effective in Calcutta when it was received by the appellant, a part of the cause of action must be held to have arisen in Calcutta within the jurisdiction of the Calcutta High Court.
11. A similar question had also come up for consideration before Kerala High Court in Union of India v. P. Kunhabdulla in (1985-I-LLJ-331). In that case, the respondent was Assistant Station Master at Ambur in Madras Division of Southern Railway. Disciplinary proceedings were initiated against him on the charge that he committed serious misconduct and acted in a manner unbecoming of a railway servant. On the basis of the enquiry report, the Divisional Operating Superintendent, Madras by his impugned order dated August 26, 1982, removed the respondent from service. The respondent received a copy of the order by registered post on September 11, 1982 while he was in Badagara within the State of Kerala. The respondent filed a writ petition in the Kerala High Court for quashing the order removing him from service and consequential reliefs. One of the contentions which was raised on behalf of the appellant before the learned single Judge, who heard the respondent's petition, was that Kerala High Court had no jurisdiction to entertain the respondent's petition in as much as no part of cause of action had arisen within the jurisdiction of that Court. The learned single Judge, however, rejected this contention, holding that the respondent was apprised of the order of removal from service only on receipt thereof when he was at Mayyabhoor in Badagara, that the order of removal became effective so far as the respondent was concerned only on his being apprised of the order, and that therefore part of the cause of action had thus arisen within the territorial limits of Kerala High Court. The learned single Judge held that the order of removal was illegal and consequently allowed the writ petition of the respondent. The appellant, therefore, preferred appeal before the Division Bench of Kerala High Court. One of the grounds which was raised before the Division Bench was that the learned single Judge had erred in holding that Kerala High Court had territorial jurisdiction to entertain the writ petition of the respondent. The Division Bench, however, held that the order of removal became effective only on acceptance of the order communicated to the respondent by registered post at his permanent residence in Badagara in the State of Kerala. The view taken by the learned single Judge that a part of the cause of action had arisen within the jurisdiction of Kerala High Court was consequently upheld.
12. The Allahabad High Court had also an occasion to deal with the question as to when the order of dismissal would become effective in Secretary, Home Department, Government of Maharashtra v. Bansidhar and others, reported in 1981(2) SLR 475. In that case, respondent No. 1 who was employed as Wireless Operator in the State of Maharashtra was dismissed from service by an order dated August 17, 1973 issued from Maharashtra which was served on him on August 28, 1973 at his home address in district Pratapgadh in Uttar Pradesh. He filed a suit in 1976 in the Court of the Munsif, Kunda in Pratapgadh claiming reliefs against the order of dismissal from service. A contention was raised on behalf of the State of Maharashtra that the Civil Court at Pratapgadh had no jurisdiction to entertain the suit. The trial Court, however, negatived this contention. Thereupon a revision application was preferred before the Allahabad High Court. Relying on the decision of the Supreme Court in Amar Singh's case (supra), it was held that the order of dismissal became effective only on the date on which it was served on respondent No. 1. The service of the order was, therefore, a necessary cause of action in the transaction. Since the order was served within the jurisdiction of the Civil Court at Pratapgadh that Court had jurisdiction to entertain the suit of respondent No. 1. In that view of the matter, the revision application was rejected.
13. In the instant case, the impugned order Annexure 'I' terminating the services of the petitioner was served on him at Ahmedabad. It was submitted on behalf of the respondents that the order was passed and signed at New Delhi and ordinarily, it would have been served on the petitioner at Calcutta, where he was working as Sales Manager. However, since the petitioner was on leave, it was served on him at his Ahmedabad address, where he was staying, during his absence on leave. However, the mere fact that the petitioner happened to be in Ahmedabad and the impugned order happened to be served at Ahmedabad would not confer jurisdiction on this Court. The petitioner, it may be recalled, was working as Sales Manager at Ahmedabad before he was transferred to Calcutta. After his transfer to Calcutta, it appears, the petitioner had kept his family at Ahmedabad for the education of his children. It was, therefore, that when he proceeded on leave, the petitioner came to Ahmedabad to live with his family. The fact that the petitioner was at Ahmedabad was known to the respondents and that is evident from the order Annexure 'I' wherein the residential address of the petitioner where the order was served is stated. It is not as if the petitioner got the order served on him at Ahmedabad so as to confer jurisdiction on this Court. In other words, he did not come to Ahmedabad to see that the impugned order was served on him there so that he can prosecute his petition in this Court. His stay in Ahmedabad was bona fide, and it was to the knowledge of the respondents. The impugned order also states that the petitioner may collect his 90 days' pay in lieu of the notice period from the General Manager, Ahmedabad Unit. It was submitted on behalf of the respondents that such direction was given only for the convenience of the petitioner. Even if such order was passed for the convenience of the petitioner, the fact remains that he was directed to collect his dues from the Ahmedabad Unit. It is also not disputed that the impugned order was served the petitioner at Ahmedabad.
14. As held by the Supreme Court in Amar Singh's case (supra) the impugned order became effective only when it was served or communicated to the petitioner at Ahmedabad. As held by Calcutta High Court in Umashankar Chatterjee's case (supra), the order of removal would undoubtedly give rise to a cause of action for the petitioner to institute an action for the establishment of his right to be in service. I am also in respectful agreement with the view of the Calcutta High Court that so long as the order was not effective, there was no question of accrual of cause of action or the right to sue, but the moment it became effective, there was such accrual of cause of action and right to sue. Therefore, the impugned order of removal having became effective in Ahmedabad when it was received by the petitioner, part of cause of action must be held to have arisen in Ahmedabad within the jurisdiction of this Court.
15. Relying on the decision of the Bombay High Court in W. W. Joshi v. State of Bombay (1959-II-LLJ-485), it was urged on behalf of the respondents that in order to decide the question whether this Court has jurisdiction to entertain this petition, what is required to be decided is where the consequence of this order fell. The Bombay High Court held at pp. 491-492 that it was not possible to concede that to sustain challenge to the termination of services under Art. 226 of the Constitution, it is sufficient for the Government servant only to establish that an order for termination of his service has been made. That fact by itself alone cannot afford to him a ground to claim relief at the hands of the Court. He must farther prove that the consequence of that order fell on him i.e. as a consequence of that order he, in fact, was removed from service. It was held that in case of a claim arising out of the order of termination, the cause of action would arise at a place where the order of termination of service was made and also at a place where the consequence fell on the servant. It was urged that in the instant case, the impugned order was passed at New Delhi and the consequence thereof fell at Calcutta in as much as the petitioner would stand removed from service at Calcutta. The impugned order having been made outside the jurisdiction of this Court and consequence there of also having fallen outside the jurisdiction of this Court, this Court will have no jurisdiction to entertain this petition. I am unable to accept this submission. I fail to see how the Bombay decision would help the respondents. As held by the Bombay High Court, the consequence of the impugned order would be actual removal from service. In other words, the petitioner has to establish that not only the order removing him from service was passed, but the consequence thereof, namely actual removal from service, had fallen on him. The petitioner has established both these facts. There is no dispute that the impugned order has been passed and the petitioner has actually been removed from service. Since the petitioner was served with the impugned order at Ahmedabad, therefore, the consequence of the impugned order, namely, actual removal from service fell on the petitioner at Ahmedabad. It is not correct to say that the consequence of the impugned order fell on the petitioner only at Calcutta.
16. The aforesaid decision of the Bombay High Court was followed by another Division Bench of the same Court in Damomal Kausomal Raisinghani v. Union of India & Ors. (AIR) 1967 Bombay 355. There also, the view taken was that the High Court can exercise jurisdiction in respect of the matter, if whole or part of any cause of action has arisen within its territorial jurisdiction. It was held that in that case the effect of the order by the Additional Settlement Commissioner at Delhi had fallen on the petitioner at Bombay and, therefore, the Bombay High Court had jurisdiction to entertain the petition challenging the action of the said authority. In my opinion, both the above decisions of the Bombay High Court are of no assistance to the respondents. As observed above, the consequence of the impugned order fell on the petitioner at Ahmedabad within the jurisdiction of this Court and, therefore, this Court has jurisdiction to entertain this petition.
17. The next question which I am called upon to consider is whether respondent No. 1-Company, which is a private Company incorporated and registered under the Companies Act, 1956, is "State" within the meaning of Art. 12 of the Constitution. The respondents have placed on record Memorandum and Articles of Association of the Company. It is important to note that the subscribers to the Memorandum of Association are two, namely : (i) The President of India ('President' for short), and (ii) R. Balasubramanian, Joint Secretary to the Government of India, Ministry of Food and Agriculture (Department of Food) New Delhi. Article 3 of the Articles of Association clearly states that the Company is a private Company. Clause (b) of the said Article 3 lays down that any invitation to the public to subscribe for any shares in or debentures of the Company is prohibited. The authorised share capital of the Company is Rs. 4,13,00,000/- dividend into 41,300 equity shares of Rs. 1000/- each. Article 6 provides that subject to the provisions of the Act and the Articles and to the rights of the President, the shares shall be under the control of the Directors, who may allot or otherwise dispose of the same to such persons on such terms and conditions as they think fit. Article 7 provides for increase of capital by the Company, but it makes it clear such increase shall be subject to the approval of the President. Similarly under Art. 9, the approval of the President is necessary for reduction of the capital. Sun-division and consolidation of shares also requires the approval of the President under Art. 10. Under Art. 61, payment or repayment of moneys borrowed could be secured only with the approval of the President. Issue of debentures is also made subject to the approval of the President under Art. 62. Article 72 provides for the right of the President to appoint any person as his representative at all or any meetings of the Company and the person so appointed is deemed to be a member of the Company with all the rights and powers including right to vote by proxy. Article 96 confers powers on the President to appoint Directors. Clause (1) of the said Art. 96 provides that the Directors shall be appointed by the President in consultation with the Chairman and shall be paid such remuneration as the President may, from time to time, determine. Under clause (3) of the said Article the President has power to remove any Director from office at any time in his absolute discretion. Under clause (4), the President has right to fill in any vacancy in the office of the Directors caused by removal, resignation, death or otherwise by fresh appointment. Article 106(1) empowers the President to appoint Chairman of the Board of Directors or Managing Director or Managing Directors of the Company. The said provision further provides that the Secretary to the Government of India, Ministry of Food and Agriculture (Department of Food) shall be the first Chairman of the Board of Directors. Clause (2) of said Art. 106 provides that the President may, from time to time, entrust to and confer upon the Chairman, Managing Director (s), General Manager (s) for the time being such of the power exercisable, under the Articles by the Directors as he may think fit and may confer such powers for such time and to be exercised for such objects and purposes and upon such terms and conditions and with such restrictions as he may think expedient, and he may confer such powers either collaterally with or to the exclusion of and in substitution for all or any of the powers of the Directors in that behalf and may from time to time revoke, withdraw, alter or vary all or any of such powers. Article 119 provides that without prejudice to the general powers conferred by Art. 97 and so as not in any way to limit or restrict those powers and without prejudice to the other powers conferred by the Articles, it is declared that the Directors shall have the following powers, that is to say, power :
"(1) To authorise the undertaking of works of a capital nature subject to the condition that the Board of Directors do not incur capital expenditure on schemes not included in the capital budget approved by the Government and also subject to the condition that all cases involving a capital expenditure exceeding Rs. 2 crore or such higher amount as may be decided by the Government from time to time shall be referred to the President for his approval before authorisation.
(2) To authorise expenditure on townships residential quarters etc. without prior reference to the Government upto the limit laid down by Government from time to time subject to the conditions that the schemes are included in the capital budget of the Company and approved by the Government.
x x x x x x (11) To invest in the State Bank of India or in such securities as may be approved by the President and ...........
x x x x x x (14) Subject to the approval of the President, to distribute by way of bonus or ex-gratia payment in the form of cash awards amongst the staff of the Company a share in the profits of the Company, and to give to any officers or other person employed by the Company a commission on the profits of any particular business or transaction, and to charge such bonus or commission as part of the working expenses of the Company."
Declaration of dividend under Art. 124 also is to be with the approval of the President. The mode of auditing accounts is provided for in Art. 143. The Comptroller and Auditor General of India has been empowered to direct the manner in which the Company's accounts shall be audited by the Auditor/Auditors and to give such Auditor/Auditors instructions in regard to any matter relating to the performance of his/their functions as such; and to conduct a supplementary or test audit of the Company's accounts by such person/persons as he may authorise in this behalf and for the purposes of such audit, to have access, at all reasonable times, to all accounts, accounts books, vouchers, documents and other papers of the Company and to require information or additional information to be furnished to any person or persons and in such form as the Comptroller and Auditor General may, by general or special order, direct. The Comptroller and Auditor General of India is also given a right to comment upon or supplement to the audit report submitted by the Auditor/Auditors and submit report in such a manner as he may think fit. Any comment made by the Comptroller and Auditor General or supplement to the Audit Report made by him is required to be placed before the Annual General Meeting of the Company at the same time and in the same manner as the Audit Report. Article 158 confers wide powers on the President and it reads as under :
"158. Notwithstanding anything contained in any of these Articles the President may, from time to time, issue any such directions or instructions as he may consider necessary in regard to the affairs or the conduct of the business of the Company or Directors thereof and in like manner may vary and annual any such directions or instructions. The Directors shall duly comply with and give immediate effect to directions or instructions so issued."
18. It is not disputed that 99% of the shares of the Company are held by the Central Government, State Governments and the statutory Corporations controlled by the Central Government. As pointed out above, at the end of the year 1978-79, 21293 equity shares of Rs. 1000/- each were held by the Central Government; Food Corporation of India, Delhi Administration, States of Gujarat, Kerala Maharashtra, Tamilnadu and West Bengal each held one equity share of Rs. 1000/- each.
19. In a series of decisions, the Supreme Court has considered the scope of the expression "State" occurring in Art. 12 of the Constitution. The recent trend recognised by the Supreme Court has broadened the concept of "authorities ...... under the control of Government of India". Where a Corporation or a Company is instrumentality or agency of the Government it must be held to be an authority within the meaning of Art. 12 and hence subject to the same basic obligation to obey the fundamental rights as Government. The question as to when a Corporation can be regarded as 'authority' within the meaning of Art. 12, arose for consideration before the Supreme Court in R. D. Shetty v. The International Airport Authority of India, (1979-II-LLJ-217). The tests for determining as to when a Corporation can be said to be an instrumentality or agency of Government were culled out from the said judgment by the Supreme Court in its another judgment in Ajay Hasia v. Khalid Mujib (1981-I-LLJ-103). The relevant tests were summarised as follows at pp. 112-113 of (1981-I-LLJ-103) :
"(1) One thing is clear that if the entire share capital of the Corporation is held by Government it would go a long way towards indicating that the Corporation is an instrumentality or agency of Government.
(2) Where the financial assistance of the State is so much as to meet almost entire expenditure of the Corporation, it would afford some indication of the Corporation being impregnated with Government character.
(3) It may also be a relevant factor .... whether the Corporation enjoys monopoly status which is the State conferred or State protected.
(4) Existence of 'deep and pervasive' State control may afford an indication that the Corporation is a State agency or instrumentality.
(5) If the functions of the Corporation are of public importance and closely related to Governmental functions it would be a relevant factor in classifying the Corporation as an instrumentality or agency of Government (6) Specifically, if a department of Government is transferred to a Corporation, it would be a strong factor supportive of this inference of the Corporation being an instrumentality or agency of the Government."
The decision in International Airport Authority's case (supra) was approved by the Supreme Court in Som Prakash Rekhi v. Union of India (1981-I-LLJ-79). It was observed by the Supreme Court in that case that the true test is functional; not how the legal person is born but why it is created. It was observed that apart from discharging functions or doing business as the proxy of the State wearing the corporate mask, there must be an element of ability to effect legal relations by virtue of power vested in it by law. Whether the Company in the instant case is "State" within the meaning of Art. 12 of the Constitution, will have to be decided in the light of the aforesaid principles laid down by Supreme Court.
20. As already pointed out above, 99% shares are held by the Central Government, State Governments and Statutory Corporations controlled by the Central Government. As held by the Supreme Court, if the entire share capital of the Company or a substantial part thereof is held by the Government, it would go a long way towards indicating that the Company is an instrumentality or agency of Government. I have already set out in detail the relevant provisions of Articles which clearly show existence of deep and pervasive control of the Central Government over the Company. This also satisfies one more test laid down by the Supreme Court and indicates that the Company is a State agency or instrumentality. In my opinion, without going into any other contentions urged on behalf of the petitioner, holding of share capital by the Central Government and deep and pervasive control of the Central Government over the Company, goes to establish beyond doubt that the Company is State agency or instrumentality. It must, therefore, be held that it is "State" within the meaning of Art. 12 of the Constitution. I, therefore, reject the respondents' contention that the respondents are not amenable to the writ jurisdiction of this Court under Art. 226 of the Constitution.
21. This brings me to the question of validity of Regulation 2.18 of the Staff Regulations. This Regulation reads as under :
"2.18 Termination of service
(i) The services of any confirmed employee may be terminated by the competent authority on giving him :
(a) 90 days' notice or pay in lieu thereof in case of an employee belonging to Cat. I or II.
(b) 60 days' notice or pay in lieu thereof in the case of employees belonging to Cat. III.
(ii) The authority competent to appoint shall be the competent authority for the purpose of this regulation."
It is contended on behalf of the petitioner that the aforesaid regulation confers absolute and unguided power on the Company in the matter of termination of confirmed employees. It is submitted that this provision is clearly arbitrary, discriminatory and violative of Arts. 14, 16, 38 and 39 of the Constitution and contrary to public policy.
22. Rule similar to the aforesaid regulation had come up for consideration before the Supreme Court in Central Inland Water Transport Corporation Ltd. & Anr. v. Brojo Nath Ganguly & Anr. (supra). There the Supreme Court was dealing with Rule 9 of the Central Inland Water Transport Corporation Ltd. Service (Discipline and Appeal) Rules of 1979 ('Rules' for short) and this Rule read as follows :
"9 Termination of employment for acts other than misdemneanour.
(i) The employment of a permanent employee shall be subject to termination on three months' notice on either side. The notice shall be in writing on either side. The Company may pay the equivalent of three months' basic pay and dearness allowance, if any, in lieu of notice or may deduct a like amount when the employee has failed to give due notice.
(ii) The service of a permanent employee can be terminated on the grounds of 'services no longer required in the interest of the Company' without assigning any reason. A permanent employee whose services are terminated under this clause shall be paid 15 days' basic pay and dearness allowance for each completed year of continuous service in the Company as compensation. In addition he will be entitled to encashment of leave at his credit."
It will be seen that the aforesaid Rule 9(i) is similar to Regulation 2.18 of the Staff Regulations in the instant case. The Supreme Court described the aforesaid Rule 9(i) as 'the Henry VIII clause'. It was held that this rule conferred an absolute, arbitrary and unguided power upon the Corporation. It did not even state who on behalf of the Corporation was to exercise that power. There were no guideliness whatever laid down to indicate in what circumstances the power given by Rule 9(i) was to be exercised by the Corporation. No opportunity whatever of a hearing was at all to be afforded to the permanent employee whose services were being terminated in the exercise of this power. It was further observed by the Supreme Court that even where the Corporation could proceed under Rule 36 and dismiss an employee on the ground of misconduct after holding regular disciplinary inquiry, it was free to resort instead to Rule 9(i) in order to avoid the hustle of an enquiry. Rule 9(i) thus conferred an absolute, arbitrary and unguided power upon the Corporation. The Supreme Court held that the said Rule violated one of the two great rules of natural justice - the audi alteram partem rule. It was observed that it is not only in cases to which Art. 14 applies that the rules of natural justice came into play. The principles of natural justice are not the creation of Art. 14. Article 14 is not their begetter but their constitutional guardian. There was no justification for exclusion of audi alteram partem rule in Rule 9(i). The Supreme Court further held that power conferred by Rule 9(i) was not only arbitrary but was also discriminatory for it enabled the Corporation to discriminate between employee and employee. It could pick up one employee and apply to him clause (i) of Rule 9. It could pick the another employee and apply to him clause (ii) of Rule 9. It could pick up yet another employee an apply to him sub-clause (iv) of clause (b) of Rule 36 read with Rule 38 and to yet another employee it could apply Rule 37. It was observed that all this the Corporation could do when the same circumstances existed as would justify the Corporation in holding under Rule 38 a regular disciplinary inquiry into alleged misconduct of the employee. The Supreme Court further held that a clause such as Rule 9(i) in a contract of employment affecting large sections of the public is harmful and injurious to the public interest for it tends to create a sense of insecurity in the minds of those to whom it applies and consequently it is against public good. Such a clause, therefore, is opposed to public policy and being opposed to public policy, it is void under Section 23 of the Contract Act. The Supreme Court held that Rule 9(i) was both arbitrary and unreasonable and it also wholly ignored and set aside the audi alteram partem rule and it therefore, violated Art. 14 of the Constitution. The Supreme Court, therefore, held that the said Rule 9(i) was illegal and ultra vires. The ratio of the decision of the Supreme Court applies with equal force to Regulation 2.18 in the instant case. For the reasons set out in the judgment of the Supreme Court, the said Regulation also must be held to be ultra vires.
23. Similar view was also taken by the Supreme Court in O. P. Bhandari v. Indian Tourism Development Corporation Ltd. & Others, (1986-II-LLJ-509). There also rule similar to Regulation 2.18 in the instant case and Rule 9(i) in the case of Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly (supra), came up for consideration. The Supreme Court held (1986-II-LLJ-509 at 511-512) that the Rule 31(v) of the Indian Tourism Development Corporation Conduct Discipline and Appeal Rules, 1978, which provided for discharge simpliciter, could not coexist with Arts. 14 and 16(1) of the Constitution. The Supreme Court observed that the said rule must die so as to keep the fundamental rights guaranteed by the aforesaid provisions of the Constitution alive. The guarantee enshrined in Arts. 14 and 16 of the Constitution can be set at naught by framing a rule authorising termination of an employee by merely giving notice. To uphold the validity of such a rule, the Supreme Court observed, it will have to be held that the tenure of services of a citizen who takes up employment with the State will depend upon the pleasure or whim of the competent authority unguided by any principle or policy. The services of an employee can be terminated even though there is no rational ground for doing so, even arbitrarily or capriciously. The Supreme Court observed that to uphold this right is to accord the 'magnacarta' to the authorities invested with these powers to practice uncontrolled discrimination at their pleasure and caprice on considerations not necessarily based on welfare of the organisation but possibly based on personal likes and dislikes, personal preferences and prejudices. The aforesaid Rule 31(v) of the I.T.D.C. Rules, the constitutional validity of which was challenged before the Supreme Court, provides as follows :
"31. Termination of services-The services of an employee may be terminated by giving such notice or notice pay as may be prescribed in the contract of service in the following manner :
(v) Of an employee who has completed his probationary period and who has been confirmed or deemed to be confirmed by giving him 90 days' notice or pay in lieu thereof."
It would appear that aforesaid Rule 31(v) of the I.T.D.C. Rules in similar to Regulation 2.18 under consideration in the instant case. For the reasons stated in C.I.W.D.C. v. B. N. Ganguly (supra) and O. P. Bhandaria's case (supra) which apply with equal force to Regulation 2.18 in the instant case, Regulation 2.18 must be held to be illegal and ultra vires and violative of Arts. 14 and 16(1) of the Constitution of India. Once Regulation 2.18 is held to be illegal and ultra vires, the impugned order Annexure 'I' founded on it must consequently fail. In other words, order Annexure 'I', by which the petitioner's services were terminated under Regulation 2.18 must be held to be illegal and beyond the authority of the company. In the result this petition must succeed and the respondents should be directed to reinstate the petitioner in service. The next question is whether full back wages should be awarded to the petitioner. In his affidavit, the petitioner has stated that he is not gainfully employed from the date of his dismissal from service till to-day. There is, therefore, no reason to make a departure from the normal rule that when employee is reinstated in service, he should be reinstated with full back wages.
24. In the result, this petition is allowed. Regulation 2.18 of the Staff Regulations is held to be illegal and ultra vires being violative of Arts. 14 and 16(1) of the Constitution of India and Section 23 of the Contract Act. The impugned order Annexure 'I' dated April 21, 1980, by which the services of the petitioner are terminated under the said Staff Regulation 2.18 is also held to be illegal, ultra vires and void. The respondents are directed to reinstate the petitioner in service with effect from April 21, 1980, the date on which his services were terminated, with full back wages and with continuity of service. Petitioner shall be entitled to all monetary and other benefits as if he continues in service of the respondentc-Company. These directions shall be complied with on or before November 16, 1987.
25. There shall be further order on the same terms as passed in K. C. Joshi v. Union of India (1985-II-LLJ-416 at 420-421), namely :
"Now that amount is being paid in one lump sum, it is likely that the employer may take recourse to Section 192 of the Income-tax Act, 1961, which provides that any person responsible for paying and income chargeable under the head 'Salaries' shall, at the time of payment, deduct income-tax on the amount payable at the average rate of Income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated Income of the assessee under this head for that financial year. If, therefore, the employer proceeds to deduct the Income-tax as provided by Section 192, we would like to make it abundantly clear that each appellant would be entitled to the relief under Section 89 of the Income-tax Act which provides that where, by reason of any portion of assessee's salary being paid in arrears or in advance or by reason of his having received in any one financial year salary for more than 12 months or a payment which under the provisions of clause (3) of Section 17 is a profit in lieu of salary, his Income is assessed at a rate of higher than that it would otherwise have been assessed, the Income-tax Officer shall on an application made to him in this behalf grant such relief as may be prescribed. The prescribed relief is set out in Rule 21-A of the Income-tax Rules. The appellant is entitled to relief under Section 89 because compensation herein awarded includes salary which has been in arrear for 18 years as also the compensation in lieu of reinstatement and the relief should be given as provided by Section 89 of the Income-tax Act read with Rule 21-A of the Income-tax Rules. The appellant indisputably is entitled to the same. If any application is necessary to be made, the appellant may submit the same to the competent authority and the Commission shall assist the appellant for obtaining the relief."
26. Rules made absolute accordingly with no order as to costs.