W.P.(C) No. 4596/2007 Page 1 of 26 IN THE HIGH COURT OF DELHI AT NEW DELHI W.P. (C) 4596/2007 Reserved on: 2nd August 2010 Decision on: 17th August 2010 IFCI LTD. ..... Petitioner Through: Mr. Dinkar Singh and Mr. Bharatshree, Advocates. versus RAVINDER BALWANI ..... Respondent Through: Mr. Shyam Moorjani with Mr. Deepak Goel, Advocate. CORAM: JUSTICE S. MURALIDHAR 1. Whether reporters of local paper may be allowed to see the judgment? No 2. To be referred to the reporter or not? Yes 3. Whether the judgment should be referred in the Yes digest? JUDGMENT 17.08.2010 1. Is the Industrial Finance Corporation of India Ltd. („IFCI Ltd.‟) a „public authority‟ within the meaning of Section 2(h) of the Right to Information Act, 2005 („RTI Act‟)? That is the question that arises for consideration in this writ petition, which challenges an order dated 31st May 2007 passed by the Central Information Commission („CIC‟). The CIC answered the question in the affirmative. 2. A complaint was made by the Respondent before the CIC stating W.P.(C) No. 4596/2007 Page 2 of 26 that the Petitioner IFCI Ltd. had not published particulars on its website nor appointed Central Public Information Officers („CPIOs‟) which it was required to do in terms of Section 4, Section 5(1) and 5(2) of the RTI Act respectively, on account of which information available with the IFCI Ltd. concerning the complaints made to it was not able to be accessed. In response to the said complaint, the Petitioner IFCI Ltd. took the stand that it was not a public authority within the meaning of the RTI Act. 3. In the appeal before it, the CIC framed two questions: first, whether an institution established under a law, would cease to be a public authority once that law was repealed? And second, whether in this case the shareholding by government can be treated as substantial finance? The first question was answered by holding that IFCI Ltd. was “established” under the Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993 („the 1993 Act‟) which was an Act made by Parliament. In answering the second question, the CIC noted that IFCI Ltd. “admitted in the hearing and in the written submission that the GOI owned/controlled banks/FI equity in IFCI is 23.53% as on 31-3-2007.” Further, it clarified that “funds need not be directly provided to constitute substantial finance to a body. In this case it stands admitted that indirect finance of 23.53% exists, which cannot be construed to be insubstantial.” Thus, it held IFCI Ltd. to be a public authority within the definition prescribed under Section 2(h)(d)(i) of the RTI Act. W.P.(C) No. 4596/2007 Page 3 of 26 History of IFCI Ltd. 4. A brief enumeration of the history of IFCI Ltd. is necessitated to appreciate the issue that arises in the present petition. The IFCI was established as a statutory corporation in 1948 by the enactment of the Industrial Financial Corporation of India Act, 1948 („the 1948 Act‟). It was the first developmental financial institution set up as a statutory corporation under an Act of Parliament to pioneer institutional credit to medium and large scale industries. 5. The Parliament enacted the 1993 Act which was deemed to have come into force on 1st October 1992. Under Section 2(b) of the 1993 Act, “Company” means “the Industrial Finance Corporation of India Ltd., to be formed and registered under the Companies Act, 1956.” Under Section 2(c), the “Corporation” means the Industrial Finance Corporation of India established under Section 3(i) of the Industrial Finance Corporation Act, 1948. Section 3 of the 1993 Act states, “(o)n such date as the Central Government may, by notification in the Official Gazette, appoint, there shall be transferred to, and vest in, the Company, the undertaking of the Corporation.” The other provisions concerned the general effect of the vesting of the undertaking in the company, tax exemptions, officers and other employees of the Corporation etc. 6. Section 11 of the 1993 Act reads as follows: “11. (1) On the appointed day, the Industrial Finance Corporation Act, 1948 shall stand repealed. W.P.(C) No. 4596/2007 Page 4 of 26 (2) Notwithstanding the repeal of the Industrial Finance Corporation Act, 1948, the Company shall, so far as may be, comply with the provisions of sections 33, 34, 34A, 35 and 43 of the Act so repealed for any of the purposes related to the annual accounts of the Corporation.” 7. The effect of the above enactment of 1993 was that IFCI was incorporated as a company under the Companies Act, 1956 by virtue of the above statute. The other peculiar feature of the 1993 Act was that notwithstanding the incorporation of IFCI Ltd. under the Companies Act, Sections 33, 34, 34A, 35 and 43 of the 1948 Act continue to be applicable in terms of Section 11(1) of the 1993 Act. Of these, Sections 34(4), 34(6), 34(7), 35(3), 43(1) and 43(3) are significant, and read as under: “34(4). The Central Government may in consultation with the Development Bank at any time issue directions to the auditors requiring them to report to it upon the adequacy of measures taken by the Corporation for the protection of its shareholders and creditors or upon the sufficiency of their procedure in auditing the affairs of the Corporation, and may at any time enlarge or extend the scope of the audit or direct that a different procedure in audit be adopted or direct that any other examination be made by the auditors if in its opinion the public interest so requires. … 34(6). Without prejudice to anything contained in the proceeding sub section, the Central Government may, at any time, appoint the Comptroller and Auditor General of India to examine and report upon the accounts of the Corporation and any expenditure incurred by him in connection with W.P.(C) No. 4596/2007 Page 5 of 26 such examination and report shall be payable by the Corporation to the Comptroller and Auditor General of India. 34(7). Every audit report shall be forwarded to the Central Government and the Government shall cause the same to be laid before both House of Parliament. … 35(3). The Reserve Bank and the Development Bank within five months of the close of the financial year a statement in the prescribed form of its assets and liabilities as at the close of that year together with a profit and loss account for the year and a report of the working of the Corporation during the year, and copies of the said statement, account and report shall be published in the Official Gazette and shall be laid before Parliament. … 43(1) The Board may, with the previous approval of the Development Bank make and by notification in the official Gazette regulations not inconsistent with this Act and the rules made there under, to provide for all matters for which provision is necessary or expedient for the purpose of giving effect to the provisions of this Act. … 43(3) Every regulation made under this Section shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the regulation or both Houses agree that the W.P.(C) No. 4596/2007 Page 6 of 26 regulation should not be made the regulation shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that regulation.” 8. It is apparent that notwithstanding the fact that the IFCI Ltd. was incorporated as a company under the Companies Act by virtue of Section 11 of the 1993 Act, the provisions of the 1948 Act, which talk of control by the Central Government over the affairs of the IFCI Ltd., continue to apply. In terms of sub-clause (7) of Section 34, the audit reports of IFCI Ltd. are to be forwarded to the Central Government which will cause it to be laid before the Parliament. In terms of Section 35(3), the statement of accounts and the annual report of IFCI Ltd. are required to be published in the Official Gazette by the Central Government and laid before the Parliament. Sub-section (3) of Section 43 requires any modification in the regulations to be approved by both the Houses of the Parliament. This makes IFCI Ltd. very different from any other company registered under the Companies Act. Submissions of Counsel 9. The main thrust of the argument of Mr. Dinkar Singh, the learned counsel for the Petitioner was that the expression “public authority” under Section 2 (h) RTI Act had to be interpreted in pari materia with “other authorities” under Article 12 of the Constitution of India. It was submitted that insofar as the IFCI Ltd. does not answer the test of an „authority‟ within the meaning of Article 12 of the Constitution on W.P.(C) No. 4596/2007 Page 7 of 26 applying the tests laid down by the Supreme Court in Pradeep Kumar Biswas v. Indian Institute of Chemical Biology 2002 (5) SCC 111, it would not be a public authority for the purposes of the RTI Act. Second, it was submitted that the Petitioner is not a body established or constituted by a law made by the Parliament. Since the 1948 Act stood repealed by the 1993 Act, the Petitioner was like any other company incorporated under the Companies Act. In other words, with the repeal of the 1948 Act, IFCI Ltd. was no longer a company incorporated by an Act of Parliament but was one incorporated „under‟ an Act of Parliament. Therefore it did not satisfy the requirement of Section 2(h)(b) of the RTI Act. It was submitted that the erstwhile assets of the predecessor of IFCI Ltd. were transferred to and vested in a new company called the Industrial Finance Corporation of India Limited, subsequently named as IFCI Ltd. Consequently, IFCI Ltd. ceases to be a body established by a statute. 10. Thirdly, it is submitted by Mr. Dinkar Singh that for the purposes of Section 2(h)(d), the appropriate government, i.e., the Central Government had to issue a notification notifying IFCI Ltd. to be a public authority within the meaning of Section 2(h) of the RTI Act. Since it had failed to do so, the Petitioner was not a public authority. Fourthly, it is submitted that the IFCI Ltd., was not substantially financed by the Central Government. It is pointed out that the Central Government holds no shares whatsoever in the Petitioner. 76% of the shares are subscribed by private companies including public financial institutions, private banks, cooperative banks and mutual funds. The W.P.(C) No. 4596/2007 Page 8 of 26 balance 24% is subscribed by scheduled commercial banks and national insurance companies etc. It is further submitted that in terms of Clause 122 read with 124 of the Articles of Association of the IFCI Ltd., the number of directors shall not be less than 3 or more than 15 excluding the government directors and debenture directors. It is submitted that the Government of India could at the most appoint two directors on the Board of the Petitioner. It is maintained that the Petitioner is purely a commercial organization and the government has neither a functional nor organizational/administrative “deep and pervasive” control over the day-to-day affairs of the Petitioner. Relying on the judgment in Ramana Dayaram Shetty v. International Airport Authority of India AIR 1979 SC 1628, it is submitted that since there is no pervasive control of the Petitioner by the Central Government, it is not an authority within the meaning of Article 12 of the Constitution and therefore not a „public authority‟ under Section 2 (h) of the RTI Act. 11. Mr. Shyam Moorjani, learned counsel for the Respondent on the other hand submitted that at the time of the conversion of the Petitioner into a public limited company under the Companies Act, assets worth Rs. 9060 crores stood vested in it by virtue of the 1993 Act. It is pointed out that once a body comes into existence by virtue of a central enactment, in this case the 1948 Act, it does not cease to be a public authority within the meaning of Section 2(h)(b) of the RTI Act only because it has been converted into a public limited company subsequently. It is further submitted that in this case it is the 1993 Act W.P.(C) No. 4596/2007 Page 9 of 26 which actually brought about the transformation and, therefore in one sense, the Petitioner in its present structure, is also an entity that has been created by a central enactment. 12. Referring to Section 2(h)(d)(i) RTI Act, Mr. Moorjani submitted that the extensive financial control over the affairs of the Petitioner by the Central Government was evident from the manner in which the Central Government rescued it from bankruptcy. A reference is made to the Annual Report of the IFCI Ltd. for the year ending 31st March 2008 which shows that the 33.22% of the equity capital of the Petitioner is held by public sector banks, financial institutions and insurance companies. They formed the single largest bloc of shareholders of the Petitioner. In other words, the extent of shareholding held by government controlled or government owned organizations was indicative of indirect substantial financing. It is pointed out that the government owned companies held preferential shares of Rs. 263.84 crores for a period of 20 years in the IFCI Ltd. and had acquired a preferential right to vote under Section 87(2)(b) of the Companies Act. Optional Convertible Debentures (OCDs) to the extent of Rs. 923 crores were held by the Government of India. These were convertible at par into equity shares at the option of the government any time up to 2023. It is further pointed out that a total sum of Rs. 5220 crore towards grants has been communicated to the IFCI Ltd. by the Ministry of Finance. Out of this, Rs. 2409 crore was released by the Government of India between 2002-03 to 2006-07 directly from the Union Budget. Further budgetary provision of Rs. W.P.(C) No. 4596/2007 Page 10 of 26 433 crore has been made in respect of the grants to be given by the Central Government in the Union Budget for 2008-09. The entire amount is to be released during a ten years period, i.e., up to 2011-12. 13. Thirdly, Mr. Moorjani pointed out that under Section 4A of the Companies Act, the Petitioner was a „public financial institution‟, a status that has been recently affirmed by the Division Bench of this Court in its judgment dated 9th July 2010 in W.P.(C) 7097 of 2008 (Finite Infratech Ltd. v. IFCI). It is pointed out that the Petitioner had, in that case, argued contrary to its stand in the present case. There IFCI Ltd. had submitted, and which submission was accepted by the Division Bench, that notwithstanding the 1993 Act, it continues to be a public financial institution. 14. In response to the third submission, counsel for the Petitioner dissociated from the submissions made on behalf of the IFCI Ltd. before this Court in the Finite Infratech Ltd. case and stated that it arose in a very different context. He maintained that the release of Rs.2409 crores to IFCI Ltd. by the Government of India to meet the liabilities of the IFCI Ltd. was not substantial financing. He submitted that the funds of the IFCI Ltd. came from the bond holders and not from the Government of India. Although earlier the Government of India had guaranteed the bonds issued by the Petitioner, it no longer continues to do so. Reliance was placed on the judgment in Executive Committee of Vaish Degree College, Shamli v. Lakshmi Narain (1976) 2 SCC 58 to urge that the privatization of the Petitioner W.P.(C) No. 4596/2007 Page 11 of 26 brought about by the 1993 Act resulted in the Petitioner no longer being a statutory corporation. IFCI Ltd. is a body ‘established’ and ‘constituted’ by an Act of Parliament 15. This Court would first like to note that for the purposes of Section 2(h) of the RTI Act, two distinct submissions were made in support of the plea that IFCI Ltd. is a „public authority‟. One relates to Section 2(h)(b) RTI Act and the second relates to Section 2(h)(d)(i) RTI Act. 16. Section 2(h) of the RTI Act reads as under: “2. In this Act, unless the context otherwise requires – … (h) “public authority” means any authority or body or institution of self-government established or constituted,- (a) by or under the Constitution; (b) by any other law made by Parliament; (c) by any other law made by State Legislature; (d) by notification issued or made by the appropriate Government, and includes any- (i) body owned, controlled or substantially financed; (ii) non-Government Organisation substantially financed, directly or indirectly by funds provided by the appropriate Government;” 17. There is a clear distinction made by the legislature between bodies that have been „established or constituted‟ „by or under the Constitution‟ and bodies that that have been „established or constituted‟ „under‟ a central or state enactment. In other words W.P.(C) No. 4596/2007 Page 12 of 26 where the body is not one falling under Section 2 (h) (d) (a) of the RTI Act, then to come within the purview of Section 2 (h) (d) (b) RTI Act, it is not enough that it is established or constituted „under‟ a central or state enactment. It has to be established or constituted „by‟ such enactment. Take the Companies Act. Every public or private limited company is established (or „incorporated‟) under that enactment. However, that would not make them „public authorities‟ for the purposes of the RTI Act only on that score. It would have to be shown that they have been established or constituted „by‟ a central or state enactment. 18. At this juncture, this Court would like to deal with the submission of the learned counsel for the Petitioner that the test for determining whether a body is a „public authority‟ for the purposes of the RTI Act is no different from the test for determining whether a body is an „authority‟ for the purposes of Article 12 of the Constitution. Given the fact that there is a specific definition of what constitutes a „public authority‟ for the purposes of the RTI Act, there is no warrant for incorporating the tests evolved by the Supreme Court in Pradeep Kumar Biswas for the purposes of Article 12 of the Constitution. While it is possible that an authority within the meaning of Article 12 of the Constitution is likely to be a „public authority‟ under the RTI Act, the converse need not be necessarily true. Given the purpose and object of the RTI Act the only consideration is whether the body in question answers the description of a „public authority‟ under Section 2 (h) of the RTI Act. There is no need to turn to the Constitution for W.P.(C) No. 4596/2007 Page 13 of 26 this purpose, particularly when there is a specific statutory provision for that purpose. Even for the purposes of Section 2(h)(d) (i) or (ii) RTI Act for determining if the body is “owned”, “controlled” or “substantially financed” directly or indirectly by the appropriate government the Article 12 tests, which talk of “deep and pervasive” control or “dominance”, are not helpful. 19. Reverting to the case on hand, IFCI Ltd. in its earlier form was initially brought into existence or „established‟ by a central enactment, i.e., the 1948 Act. Later, when on account of the changes in the financial sector, coupled with the continued decline in the availability of concessional funds from the Government of India and the Reserve Bank of India, it became necessary for the predecessor of IFCI Ltd. to raise finances from the market, it was unable to do so on account of the provisions of the 1948 Act. In the Statement of Objects and Reasons of the 1993 Act after noting that it was necessary to respond to the needs of a fast changing financial system it was thought necessary “to establish a new company under the Companies Act 1956 to which the entire undertaking, business and functions of IFCI as well as the assets and liabilities and the staff of IFCI will be transferred on such day as will be notified by the Central Government.” Consequently, Section 2 (b) of the 1993 Act states that “Company” means “the Industrial Finance Corporation of India Ltd., to be formed and registered under the Companies Act, 1956.” There can be no doubt that but for the 1993 Act the IFCI Ltd. in its present W.P.(C) No. 4596/2007 Page 14 of 26 form would not have come about. In other words, IFCI Ltd. in the present form is a creature of the 1993 Act having been created by the 1993 Act. Further, as already noticed, the added peculiar feature is that even while the 1993 Act converts the Petitioner into a company under the Companies Act, it retains the applicability of certain provisions of the 1948 Act, which have been extracted hereinbefore. These provisions underscore the extensive control of the Central Government over the affairs of the IFCI Ltd. 20. The peculiar character of the IFCI Ltd. with reference to both the 1948 Act and the 1993 Act, both of which are Acts made by the Parliament, makes the IFCI Ltd. answer the description of a „public authority‟ within the meaning of Section 2(h)(b) of the RTI Act. Consequently, this Court concurs with the view of the CIC that the IFCI Ltd. is a public authority since it has been brought about in its present status as a result of the joint operation of the 1948 Act and the 1993 Act in the circumstances noticed hereinbefore. IFCI is a public authority within the meaning of Section 2(h)(d)(i) RTI Act as well 21. Before examining whether IFCI Ltd. is a „public authority‟ within the meaning of Section 2(h)(d)(i) RTI Act, this Court would like to deal with the submission of the learned counsel for the Petitioner that without a notification by the central government under Section 2(h)(d) IFCI Ltd. cannot be said to be a „public authority‟. This submission is, in the considered view of this Court, based on a misreading of the W.P.(C) No. 4596/2007 Page 15 of 26 provision. The words “and includes” starting from the left margin (as the provision is published in the official gazette) indicates that the categories that follow those words are separate categories that expand the scope of the earlier clauses (a) to (d). In other words, a body might be a „public authority‟ even if there is no notification to that effect by the central government as long as it satisfies the requirement of Section 2(h)(d) (i) or (ii). 22. For the purposes of Section 2(h)(d)(i) RTI Act, the question that arises is whether the IFCI Ltd. is a body that is “controlled” by the central government (which is the appropriate government) or “substantially financed” “directly or indirectly by funds provided by” the central government? For the reasons set out hereafter, this Court answers the question in the affirmative. 23. The word “financed” is qualified by the word “substantially” indicating a degree of financing. It must be shown that the financing of the body by the government is not insubstantial. The word „substantial‟ does not necessarily connote „majority‟ financing. Black’s Law Dictionary (6th Edn.) defines the word „substantial‟ as being “of real worth and importance; of considerable value; valuable. Belonging to substance; actually existing; real: not seeming or imaginary; not illusive; solid; true; veritable. Something worthwhile as distinguished from something without value or merely nominal. Synonymous with