Case: R.V. Dnyansagar Vs. Maharashtra Industrial and Technical Consultancy Organisation Limited

By this writ petition filed under Article 226 of the Constitution of India, the petitioner prays for direction to respondent to pay him amount of arrears of salary from June 1993 until September 1993, the gratuity, provident fund, etc. with interest at the rate of 21% per annum from 1.10.1993 till actual payment of the entire amounts due and further direction to respondents to pay the petitioners amount of Rs.14,000/towards encashment of earned leave for 46 days with interest at the rate of 21% p.a. from 1.10.1993 till actual payment of the same and also direction to respondents to settle the account of the petitioner in respect of other allowances such as leave travel allowance, travelling allowance, maintenance of the office cum residence, medical reimbursement.2.The respondent is Maharashtra Industrial and Technical Consultancy Organisation Limited. Unless the respondent falls within the meaning of the State or Agency/instrumentality of the State within the meaning of Article 12 of Constitution of India, the claim of the petitioner does not deserve to be examined on merits. We shall, therefore, first see whether Maharashtra Industrial and Technical Consultancy Organisation Limited (respondent) is a State or Agency/instrumentality of the State within the meaning of Article 12 of Constitution or not.3.In this regard, the averment made by the petitioner is that the respondent is deemed Government company registered under the Companies Act; it is a joint venture of the Industrial Credit and Investment Corporation of India (ICICI), Industrial Development Bank of India (IDBI), Industrial Finance Corporation of India (IFCI) and other Corporations of the Government of Maharashtra and Nationalised Banks and the entire share capital is held amongst themselves. It is on this basis alone that according to the petitioner the respondent is a State or agency/instrumentality of the State within the meaning of Article 12 of the Constitution of India.

Court's reasoning:
6.In Mysore Paper Mills, inter alia the question posed before the Apex Court, whether Mysore Paper Mills which was a company incorporated under the Companies Act, 1956 and was a Government company as defined in Section 617 of the Companies Act was covered within the meaning of the word "State" as defined in Article 12 of the Constitution of India. In that case, in the judgment of the High Court as noted by the Apex Court the following facts were adverted before its status was held as of State within the meaning of Article 12:"(a) That theis a governmental company as per Section 617 of the Companies Act, 1956.(b) The declared objects of the company viz. 1,establish that the Company has been entrusted with an important function of public interest closely related to governmental functions and it enjoys monopoly status, which isThe functions entrusted to thego to show that the government operates behind a corporate veil carrying out governmental functions of vital importance and therefore, there is no difficulty in identifying theto be State within the meaning of Article 12 of the Constitution of India.(d) The summarized balance sheets for the years96 disclosed that more than 97% of the share capital has been contributed by the State of Karnataka and the financial institutions controlled and belonging to the Government of India.(e) The business of the Company which has to be managed by the Board of Directors (Article 114 of the articles of association) shall have the Chairman of the Board and Managing Director (Article 119) and four Directors of whom one will be the Chairman will be nominated by the Government of Karnataka who shall not retire by rotation or be removed from office except under the orders of the Government of Karnataka (Article 94). The Directors to whom the management is entrusted shall not be more than 12 or less than 9, inclusive of the government nominees and nominees of the financial institutions noticed under Articleand not only such nominees of financial institutions hold office so long as moneys remain owed to those institutions or those institutions hold debentures in the Company as a result of direct subscription or private placement, but the Board also has no powers to remove them during such period.(f) Theis found to be under the control of the Government of Karnatakasometimes directly and sometimes through the machinery of Karnataka State Bureau of Public Enterprises in respect of matters entrusted to it: as disclosed from the book published by the Department of Personnel and Administration Reforms of the Government of Karnataka.(g) Apart from the Directors who are nominees of the Government and the financial institutions controlled by the Central Government even the elected Directors were also to be nominated by the Government of Karnataka and one cannot become a Director of thewithout the concurrence or nomination by the Government.(h) Appointment of several officers, playing vital role in theadministration of the Company can be done only with the prior permission or approval of the Government of Karnataka. The General Manager also may be appointed on such terms and remunerations as may be fixed, only subject to the approval of the Government of Karnataka.(i) For any investment or expenditure above 25 lakhs the approval of the Government of Karnataka is required. Any revision of pay scales and allowances of employees and officers also have to be done only with the approval of KSBPE. Recruitments to posts carrying pay scales above Rs.4700 can only be with the permission of the Government and reservation policies under Article 16(4) of the Constitution are also applicable to recruitments by the Company. Deputation to Government and vice versa are also permitted. All foreign tours of officers have to be approved by the Government.(j) All loans taken by theare guaranteed by the Government of Karnataka.(k) The Company Secretary of thehas in his communication Annexure GGG declared that the same is an undertaking under the control of the Government ofunmistakable terms it was thus held by the Apex Court that the State Government of Karnataka has deep and pervasive control of the Mysore Paper Mills and itsadministration and accordingly it confirmed the finding of the High Court that the said company viz. Mysore Paper Mills was nothing but an instrumentality or agency of the State and the physical form of the company is merely a cloak or cover for the Government.9.The seven Judge Bench of the Supreme Court in Pradeep Kumar Biswas was dealing with the question whether the Council for Scientific and Industrial Research (CSIR) is a State within the meaning of Article 12 of the Constitution of India. Paragraph 40 of the majority judgment reads:"40. The picture that ultimately emerges is that the tests formulated in Ajay Hasia are not a rigid set of principles so that if a body falls within any one of them it must, ex hypothesi, be considered to be a State within the meaning of Article 12. The question in each case would be whether in the light of the cumulative facts as established, the body is financially, functionally and administratively dominated by or under the control of the Government. Such control must be particular to the body in question and must be pervasive. If this is found then the body is a State within Article 12. On the other hand, when the control is merely regulatory whether under statute or otherwise, it would not serve to make the body a State."10.The majority view of the Supreme Court, thus, emphasises that the question, whether an entity is a State within the meaning of Article 12 has to be decided by taking into consideration the cumulative facts as established and that whether such body or entity is financially, functionally and administratively dominated by or under the control of the Government. In other words, whether the State Government has deep and pervasive control to the body in question. If the control was merely regulatory, whether under Statute or otherwise, the body would not be a State within the meaning of Article 12. The formation of CSIR was noted in paragraph 42 of the report and its objects and functions are noted in paragraph 44 of the report which read thus:"42. Onthe Board of Scientific and Industrial Research and onthe Industrial Research Utilisation Committee were set up by the Department of Commerce, Government of India with the broad objective of promoting industrial growth in this country. Ona Resolution was passed by the Legislative Assembly and accepted by the Government of India to the following effect:"This Assembly recommends to thethat a fund called the Industrial Research Fund be constituted, for the purpose of fostering industrial development in this country and that provision be made in the budget for an annual grant of rupees ten lakhs to the fund for a period of fivethe light of the review of the judicial opinion as noted in the judgment, the majority view ultimately held that CSIR was a State within the meaning of Article 12 of the Constitution of India.14.As regards the respondent company nothing is produced by the petitioner indicating formation of the respondent company, its objects and functions and management and control which may lead us to hold that respondent company is a State within the meaning of Article 12. The primary burden was on the petitioner to produce material to establish that the respondent company was a State within the meaning of Article 12 of the Constitution of India, which he has failed to discharge. Because the shares of the respondent company prior to 1.6.1995 were held by Banks or Industrial Banks Infrastructure Corporation by itself would not make it State or agency or instrumentality of State within meaning of Article 12 of the Constitution of India. There is nothing on record to indicate that State Government has deep and pervasive control over the respondent. Pertinently the respondent company is not even a Government company within the meaning of Section 617 of the Companies Act. It is only a deemed Government company within the meaning of Section 619 B of the Companies Act whereby the provisions of Section 619 have been made applicable. Sections 619 and 619B of the Companies Act read thus:"619.(1) In the case of a Government company, the following provisions shall apply, notwithstanding anything contained in sections 224 to 233.(2) The auditor of a Government company shall be appointed orby the Comptroller andof India;Provided that the limits specified in(1B) and (1C) of Section 224 shall apply in relation to the appointment orof an auditor under thisThe Comptroller andof India shall haveto direct the manner in which the companys accounts shall be audited by the auditor appointed in pursuance of(2) and to give such auditor instructions in regard to any matter relating to the performance of his functions as such;(b) to conduct a supplementary or test audit of the companys accounts by such person or persons as he may authorise in this behalf; and for the purposes of such audit, to require information or additional information to be furnished to any person or persons, so authorised, on such matters, by such person or persons, and in such form, as the Comptroller andmay, by general or special order, direct.(4) The auditor aforesaid shall submit a copy of his audit report to the Comptroller andof India who shall have the right to comment upon, or supplement, the audit report in such manner as he may think fit.(5) Any such comments upon, or supplement to, the audit report shall be placed before the annual general meeting of the company at the same time and in the same manner as the audit report.619B. The provisions of section 619 shall apply to a company in which not less thanper cent of theshare capital is held by one or more of the following or any combination thereof, as if it were a Government company,the Central Government and one or more Government companies;(b) any State Government or Governments and one or more Government companies;(c) the Central Government, one or more State Governments and one or more Government companies;(d) the Central Government and one or more corporations owned or controlled by the Central Government;(e) the Central Government, one or more State Governments and one or more corporations owned or controlled by the Central Government;(f) one or more corporations owned or controlled by the Central Government or the State Government;(g) more than one Government company."15.What is provided by Section 169B is that the provisions of Section 619 shall be applicable to a company wherein not less than 51% of the paid up share capital is held by one or more of the combinations provided in clauses (a) to (g). In case of the respondent company prior to 1.6.1995 though it was covered by clause (g) of Section 619B as its shareholding was held by more than one Government company and accordingly Section 619 was applicable to it but that does not make it Government company within the meaning of Section 617. It is deemed to be Government company only for the purposes of Section 619 and as a result of which Sections 224 to 233 pertaining to audit of the company applicable to Government companies were also applicable to it. We are afraid, this would not make the respondent company a State or agency or instrumentality of State within the meaning of Article 12 of the Constitution of India.16.Besides that from reply affidavit filed on behalf of respondent company, it transpires that after 1.6.1995 the respondent company has even ceased to be deemed Government company under Section 619B of Companies Act because of substantial change in the Constitution and composition of its shareholders. The status of the respondent company, therefore, today is no better than a public limited company under the Companies Act. We are afraid, such company is not and cannot be amenable to the writ jurisdiction under Article 226 of the Constitution of India.