In the High Court of Punjab and Haryana, Chandigarh C.W.P. No. 15293 of 1990 Date of Decision: March 19, 2009 Dr. K.L. Arora and others …Petitioners Versus The Registrar, Cooperative Societies, Punjab and others …Respondents CORAM: HON’BLE MR. JUSTICE M.M. KUMAR HON’BLE MR. JUSTICE JORA SINGH For the Petitioners: Mr. J.K. Sibbal, Senior Advocate, with Mr. Sapan Dhir, Advocate. Mr. Ravi Kapur, Advocate, Mr. O.P. Sharda, Advocate, Mr. Amar Vivek, Advocate. For the Respondents: Mr. Suvir Sehgal, Addl. AG, Punjab, Mr. D.S. Patwalia, Advocate, and Mr. Alok Jagga, Advocate. 1. Whether Reporters of local papers may be allowed to see the judgment? Yes 2. To be referred to the Reporters or not? Yes 3. Whether the judgment should be reported in the Digest? Yes M.M. KUMAR, J. This order shall dispose of a bunch of 132 petitions as common questions of law are involved therein. However, for putting the controversy in its proper perspective, facts are being stated from C.W.P. No. 15293 of 1990. The petitioners, who are employees of the Punjab State Cooperative Milk Producers Federation Limited- CWP No. 15293 of 1990 respondent No. 2 (for brevity, ‘the Federation’) have been recruited as Veterinary Officers and their services are being continuously used by the Federation or loaned to respondent Nos. 4 to 10, which are District Cooperative Milk Producers Unions (for brevity, ‘the Unions’). All the petitioners constituted a common cadre. The petitioners have approached this Court with a prayer for issuance of direction to the respondents to grant them pay and allowances in accordance with the pay scale and allowances viz. Dearness Allowance, House Rent Allowance, City Compensatory Allowance etc. or any other compensatory allowance given to the employees of the Punjab State by its notification dated 15.2.1990 (P-5) with effect from 1.1.1986. A direction has also been sought for payment of arrears with compound interest at the rate of 15% per annum and also for quashing order dated 12.11.1990 (P-12) passed by the Federation, discontinuing the application of the pay scale as adopted by the State Government on the ground of financial stringency. 2. It is pertinent to notice that in the connected petitions, the petitioners have been working on various posts of Accountants, Junior Accountants, Assistants, Milk Procurement Assistants Grade- II, Senior Clerk, Clerks, Junior Scale Stenographer, Head Draftsman, Draftsman (Mech.), Draftsman (Civil) & Sectional Officer etc. either with the Federation or various milk Unions and similar prayers for grant of pay scale equivalent to their counter part employees of the Punjab Government and its corporate bodies have been made. 3. It would also be necessary to notice certain other common facts, which are central to the controversy. The petitioners 2 CWP No. 15293 of 1990 have claimed that in order to give impetus to the supply of milk and earnings of milk producers, keeping in view the interest of general public, the State of Punjab in collaboration with the milk producers, launched the setting up of Cooperative Societies at the village level for milk producers, which are known as Primary Milk Producers Cooperative Societies. These societies in the villages combine as members of the District Level Societies, which are also engaged in the task of production, supply and marketing of milk and milk products. Such Societies are known as District Cooperative Milk Producers Union Limited. These District Level Unions are the members of the Federation and, therefore, combine themselves to constitute the Federation at the State level, which is the apex Cooperative Society connected with the production, supply and marketing of milk and milk products. 4. The petitioners have supported their claim for maintainability of writ petition under Article 226 of the Constitution. For proving that the Federation alongwith Unions are instrumentalities of the State or any other authority within the meaning of Article 12 of the Constitution, they have asserted that the subscribed share capital of the Federation as on 31.3.1990 was Rs. 2,10,00,000/- out of which Rs. 1,39,00,000/- were contributed by the Punjab Government. According to the bye-laws of the Federation, the Registrar, Cooperative Societies, Punjab as also other nominees of the State Government are on its Board of Directors. The Managing Director of the Federation is also appointed only with the approval of the Registrar. The petitioners have also pointed out that financial 3 CWP No. 15293 of 1990 control of the State on the Federation is so deep that the State Government also extends the facility of huge loans to the Federation as and when required for its working. 5. In respect of the Unions, the share capital of the State Government is so predominant that 2/3rd of the share capital are owned by the State Government, which makes it simply an instrumentality of the State. That apart, the petitioners have claimed that the Federation and the Unions are discharging vital governmental functions concerning production, supply and marketing of milk, which is a basic essential commodity and to make provision for the same is the primary duty entrusted to the State. It is on that premise that the petitioners have put forward the claim that the functions of the Federation and the Unions are akin to those of State Government. 6. To further buttress their stand reliance has been placed on the provisions of Sections 26(2), (2A), (2B), (3) and (4) of the Punjab Cooperative Societies Act, 1961 (for brevity, ‘the 1961 Act’), which reads thus:- “26. Election and nomination of members of committee. (1) xxx xxx xxx (2) Notwithstanding anything contained in sub- section (1). – (a) Where the government have subscribed to the share capital of a co-operative society or has guaranteed the repayment of the principal of and payment of interest on 4 CWP No. 15293 of 1990 debentures issued for loans raised by a co- operative society, the government or any person authorised by it in this behalf, shall have the right to nominate on the committee such number of persons, not exceeding three or one-third of the total number of members thereof, whichever is less, as the Government may determine: Provided that where the Government have subscribed to the share capital of a co- operative society to the extent of twenty lacs of rupees or more, the Government may, notwithstanding anything contained in the bye-laws of the society, - (a) appoint one of the members nominated in the aforesaid manner as Chairman of the committee of such society; or (b) nominate another member in addition to those nominated in the aforesaid manner and appoint him as Managing Director: Provided further that no person shall be appointed to act as Managing Director unless he is a member of the Indian Administrative Service, Punjab Civil Service (Executive 5 CWP No. 15293 of 1990 Branch) or a Deputy Registrar, a Joint Registrar or an Additional Registrar, Co- operative Societies. (b) Where the Industrial Finance corporation, the State Finance Corporation or any other financing institution notified in this behalf by the Government has provided finance to a co-operative society, the Industrial Finance Corporation, State Finance corporation or other financing institution, as the case may be, shall have the right to nominate one person on the committee. (2A) Where the Government appoints a Chairman or Managing Director under the proviso to clause (a) of sub-section (2) the Chairman or Managing director, if any, as the case may be, holding office immediately before such appointment shall cease to hold office on such appointment. (2B) The terms and conditions of service of the Managing Director or Chairman, as the case may be, appointed by the Government shall be such as may be determined by the Government and the remuneration payable to the Managing Director for Chairman as the case may be, shall be paid out of the funds of the co- operative society. 6 CWP No. 15293 of 1990 (3) A person nominated under sub-section (2) shall hold office during the pleasure of the Government or the Corporation or other financing institution as the case may be. (4) Where, in a co-operative society in which shares have been subscribed for liability by way of guarantee for borrowing exceeding fifty per centum of the working capital of the society has been undertaken by the Government, a difference of opinion in respect of any matter arises between the nominated members of the committee and other members thereof the matter shall be referred by the committee to the Government whose decision thereon shall be final and will operate as if the same were a decision taken by the committee.” (emphasis added) 7. It has, thus, been claimed that the Federation and the Unions are instrumentalities of the State under Article 12 of the Constitution and are amenable to the writ jurisdiction of this Court under Article 226 of the Constitution. 8. At this stage, some facts explaining the historical background of the formation of the Federation and Unions may also be noticed. Initially the work of the dairy development in the State of Punjab was looked after by the Milk Commissioner. Subsequently, the Punjab Dairy Development Corporation Limited (for brevity, ‘PDDC’) was formed and registered under the Companies Act, 1956. The entire share of PDDC belonged to the State of Punjab. The 7 CWP No. 15293 of 1990 employees working under the Milk Commissioner were also transferred to PDDC. After formation of the Federation the entire assets and liabilities of PDDC including its employees were placed at the disposal of the Federation w.e.f. 9.4.1983. The share capital of the Federation was also contributed by the State of Punjab. The Chairman of the Board of Directors of the Federation is elected every year from amongst the elected members of the Unions, which are affiliated to the Federation. During the time i.e. 13.2.1980 to 29.7.1981 and 6.10.1984 to 8.10.1986, when the members of the Board of Directors of the Federation were not elected, the functions of the Federation were controlled by the State of Punjab by appointing Administrators. On that count also it has been claimed that the Federation is State or its instrumentality within the meaning of Article 12 of the Constitution and amenable to the writ jurisdiction of this Court. In that regard, reliance has also been placed by the petitioners on the judgments reported as R.S. Goyal v. State of Punjab, 1989 (3) SLR 258 and Ajay Bhatia v. State of Punjab, 1991 (1) RSJ 563. 9. The petitioners have further asserted that the Board of Directors of the Unions consist of Government representatives such as Registrar, Cooperative Societies, Punjab, Chandigarh or his nominee, one nominee from the financing agency, one nominee from the National Dairy Development Board, one nominee from the Federation and three nominees of the Government. The accounts of the Unions are audited by the Chief Auditor, Cooperative Societies, 8 CWP No. 15293 of 1990 Punjab, Chandigarh, and in that regard a letter dated 22.1.1990 has been placed on record (Annexure P-3 with CWP No. 4418 of 1992). 10. The petitioners have further claimed that from time to time State Government come to the rescue of the Federation and its affiliated Unions by providing funds for clearing the outstanding payments. For example, on 22.4.1990, the Managing Director of the Federation requested the Government for release of Rs. 12.32 crores for clearing outstanding dues (Annexure P-4 with CWP No. 4418 of 1992). Subsequently, an amount of Rs. 12 crores was released by the Punjab Government on 9.5.1990. Likewise, on 2.5.1990, the National Dairy Development Board also released a sum of Rs. 4 crores in favour of the Federation and its affiliated Unions. 11. The petitioners have further claimed that all of them except Dr. K.L. Arora and Dr. H.K. Chauhan (Petitioner Nos. 1 and 8) were directly recruited by the Federation on various dates prior to 15.4.1983 as Veterinary Officers with the understanding that the Federation would use their services directly or loan their services to the ‘Unions’ for a short period. In this manner, the services of the petitioners are inter-changeable on the direction of the Federation either from one Union to another or from the Union to the Federation or vice-versa, depending upon the requirements of the Federation. The petitioners have asserted that Dr. K.L. Arora and Dr. H.K. Chauhan (Petitioner Nos. 1 and 8) were appointed by the PDDC prior to 1983 and after transfer of its assets and liabilities to the Federation in pursuance to agreement dated 15.4.1983 they also started to draw their pay and allowances from the Federation. It has been claimed that the posts held by the petitioners are 9 CWP No. 15293 of 1990 equivalent to the posts of Veterinary Officers or Veterinary Assistant Surgeons in the Animal Husbandry Department of the State of Punjab though the nomenclature is different. The officers posted as Veterinary Officers or as Veterinary Assistant Surgeons perform the same duties and possess the same qualifications of Bachelor of Veterinary Science and Animal Husbandry. 12. Prior to 1.8.1980 the pay scales of Veterinary Officers/Veterinary Assistant Surgeons in the Animal Husbandry Department in the State of Punjab was Rs. 400-1100. The same scale of pay and allowances like DA/HRA/CCA etc. was adopted by the Federation. With effect from 1.8.1980, the pay scales of the Veterinary Officers employed by the State of Punjab in the Animal Husbandry Department were revised to Rs. 850-1700, which were also adopted by the Federation for its employees. Accordingly, the petitioners were adjusted in the pay scale of Rs. 850-1700 plus allowances w.e.f. 1.8.1980. After acceptance of the recommendations of the Third Pay Commission, the pay scales were further revised w.e.f. 1.1.1986 and the pay scale of Rs. 850-1700 was revised to Rs. 2100-3700. The pay scales of other categories of employees were also revised by the State Government. In the Animal Husbandry Department, a separate category of posts known as ‘Assistant Directors’ in the revised pay scale of Rs. 2200-3900, was also carved out which comprised posts other than the post of Veterinary Officers or Veterinary Assistant Surgeons. In that regard, the petitioners have placed on record the extract of Rule 3(g) and (h) of the Punjab Civil 10 CWP No. 15293 of 1990 Services (Revised Pay) Rules, 1988 (for brevity, ‘the 1988 Rules’) and its Second Schedule (P-2). 13. It is claimed that the Federation also approached the Registrar, Cooperative Societies, Punjab-respondent No. 1 under Section 84(a) of the 1961 Act for according approval to the revised pay scales for its employees as well as employees of the Unions. On 2.6.1989, the Registrar-respondent No. 1 accorded the approval for implementation of the recommendations of the Third Punjab Pay Commission for the employees of the Federation and its Unions (P-3). On 5.6.1989, the Federation implemented the recommendations of the Third Punjab Pay Commission and revised the pay scales and allowances with effect from 1.1.1986 (P-4). The pay scale of the petitioners was accordingly revised to Rs. 2100-3700 w.e.f. 1.1.1986. 14. On 15.2.1990, the State Government further made an amendment in the 1988 Rules and the pay scales of the Veterinary Officers of the Punjab Government Animal Husbandry Department, who were earlier drawing the pay scale of Rs. 850-1700 prior to 1.1.1986, has been revised to Rs. 2200-4000 instead of Rs. 2100-3700. It has further been provided that after 8 years of service the pay scale of Veterinary Officers would be Rs. 3000-4500 and after 18 years of service it would be Rs. 3700-5300 (P-5). 15. The petitioners also represented to the Federation and the Unions for revision of their pay scale in consonance with the notification dated 15.2.1990 (P-6). On 9.6.1990, a legal notice was also served (P-7), however, no response was received. 11 CWP No. 15293 of 1990 16. The petitioners have also referred to Rule 1.7 and 1.8 of the Punjab State Cooperative Milk Producers Federation Services (Common Cadre) Rules, 1980 (for brevity, ‘the 1980 Rules’), which governs their service conditions. Rule 1.7 and 1.8 reads thus:- “Categorisation, qualification and pay structure of the employees of the Common Cadre. 1.7. The various categories covered by the common cadre and pay-scales, qualifications and experience of each of the categories of the posts shall be specified in Annexure-I. Provided that the Board of Directors of the Federation may add or delete any post or category of posts or revise the scale of pay or fix the qualifications and experience contained in Annexure-I from time to time with the approval of the Registrar Co-op. Societies.” “Pay of employees in Common Cadre. 1.8. Pay of employees of the Federation and Unions who are taken on the Common Cadre or deemed to be taken on Common Cadre under rule shall be fixed in the grade specified in Annexure-I, according to the principles of pay fixation laid down in the Punjab Civil Services Regulations Vol. I Part-1.” 17. On 12.11.1990 (P-12), the Federation issued a notice under Section 9-A of the Industrial Disputes Act, 1947 to all the 12 CWP No. 15293 of 1990 employees on the pretext of financial stringency showing its intention to effect the changes specified in the annexure annexed with the said notice, which reads thus:- “ The Punjab State Cooperative Milk Producers Federation Ltd. Chandigarh, had been following the Punjab Govt. in the matter of wage structure and payment of other allowances like Dearness Allowance/HRA/CCA/Rural Allowance etc. Now the Milkfed has been forced into a situation of grim financial crisis and is struggling hard in fighting this battle for ultimate survival. In view of such an unavoidable situation any further financial burden on account of increase in wage bill would become unbearable. It has, therefore, been decided to stop the following the State Govt. pattern in the matter of wage payments like Dearness Allowance/HRA/CCA/Rural Allowance and other compensatory allowances as may take effect after the expiry of 21 days notice. Thus, after the expiry of the notice as mentioned above, the following amendments in the Milkfed Common Cadre Rules, 1980 and the Milkfed Non-Common Cadre Rules, 1985, will become effective for the purposes of regulating the above allowances to the employees:- 1. Milkfed Common Cadre Rules, 1980: Existing Addition/Modiciation 13 CWP No. 15293 of 1990 “3.1. Except as provided otherwise in the rules an employee appointed to a category shall draw the minimum in the scale fixed for the category in Annexure I. “The following proviso to this rule needs to be added: Provided that the matter regarding payment of DA/HRA/CCA/RA or any other compensatory allowance shall be regulated as per the decisions of the BOD of Milkfed, which may be taken from time to time keeping in view its paying capacity.” 2. MILKFED NON COMMON CADRE RULES, 1985. “22. Dearness Allowance, HRA, City Compensatory allowance & other compensatory allowance shall be admissible to the employees of Milkfed as admissible to the employees of Punjab Govt. from time to time. “DA/HRA/CCA/RA or any other compensatory Allowance shall be admissible to the employees of Milkfed as per decisions of the BOD of Milkfed which may be taken from time to time keeping in view its paying capacity.” 14 CWP No. 15293 of 1990 2. The officers/employees/workmen may please note this change.” 18. In the written statement filed on behalf of the Federation and the Unions several preliminary objections have been raised. It has been asserted that the petitioners cannot invoke jurisdiction of this Court under Article 226 of the Constitution because the Federation and the Unions does not satisfy the tests enunciated by Hon’ble the Supreme Court of India to classify them as State as envisaged by Article 12 of the Constitution. It has been contended that the Federation has been registered as a Society under the provisions of the Punjab Cooperative Societies Act, 1961 and is a State level apex body of various cooperative milk societies at the village level and district cooperative milk producers unions operating at district level. The members of the cooperative societies at village and district level elect their Presidents and members, who further elect their Chairman. All the Chairmen of the District Cooperative Milk Producers Unions are Directors on the Board of Directors of the Milkfed. It has, however, been admitted that there is one nominee of the National Dairy Development Board, one nominee of the Registrar Cooperative Societies, Punjab, and one nominee of the State Government in the Board of Directors. The affairs of the Federation are conducted by the Board of Directors and all decisions are taken by majority vote. It has been pointed out that as on 31.12.1991, the share capital of the Federation was 459.76 lacs out of which 270.76 lacs belonged to the members of the Cooperative Societies and 189 lacs was the share capital of the Government, which was to be 15 CWP No. 15293 of 1990 returned in seven years with a moratorium period of two years in five yearly equal instalments. It has, thus, been denied that the Federation and the Union are ‘State’ within the meaning of Article 12 of the Constitution and no writ is competent against them. 19. On merits, it has been asserted that the administrative control over the affairs of the Federation is vested in the elected Board of Directors and the Managing Director and the State Government does not have any administrative or financial control over it. Only temporary financial assistance in the shape of share capital is invested by the Government, which is liable to be refunded within stipulated period of seven years. It has further been denied that the functions of the Federation and Unions are akin to those of the State Government because all the administrative and functional decisions of the Federation and the Unions are taken by their elected Board of Directors. The State Government except for subscribing to the share capital, does not exercise any effective and pervasive control over their day-to-day affairs/functions. The respondents have also denied the nature of duties being performed by the petitioners is the as that of the Veterinary Assistant Surgeons of the State Government. It has been asserted that the petitioners were appointed on specific terms and conditions and there is no provision in the statutory rules that same pay scale are to be given to its employees as are being drawn by the same category of employees in the State Government. However, it has been admitted that in respect of certain category of posts the respondents have been voluntarily and without any legal obligation, following the pay scales of the State 16 CWP No. 15293 of 1990 Government but it is not obligatory on their part to blindly follow the pay scales of the State Government for its employees. The factual position about grant of pay scales w.e.f. 1.1.1986 has not been denied. However, it has been asserted that due to financial stringency it is not possible for the Federation to grant the pay scale of Rs. 2200-4000 and 3700-5300 to the petitioners. 20. In the written statement filed in CWP No. 4418 of 1992, it has been specifically denied that in the appointment letter it was mentioned that the petitioners would be entitled to the pay scales as granted by the State of Punjab to its employees for all times to come. In fact, the petitioners were offered a specific pay scale and allowances as were admissible to corresponding Punjab Government employees. The revision of pay scales of the employees of the Punjab Government has no automatic application upon the employees of the Federation or the Unions. They have their own pay structure as approved by the Board of Directors and the Registrar, Cooperative Societies, Punjab. 21. It is pertinent to notice here that controverting the stand taken by the respondents in the written statement filed in CWP No. 4418 of 1992, the petitioners therein filed a replication wherein it has been denied that the petitioners are not entitled to invoke jurisdiction of this Court under Article 226 of the Constitution. The petitioners have also placed on record various orders regarding appointment of Managing Directors of the Federation by the Government to show that the Government has deep and pervasive role in the affairs