SUKHDEV SINGH & ORS.

I'.

BHAGA TRAM SARDAR SINGH RAGHUVANSHI AND ANR; February 21, 1975

[A. N. RAY, C.J., K. K. MATHEW, Y. v. CHANDRACHUD,

A. ALAGIR!SWAMI AND A. c. GUPTA, JJ.]

Stal1aory Corporations-Regulations made by, whether have force of law-.

Wlwthcr employees of corporation are servants of Union or State.

Constitution of. India. Art. 12-WJiether statutory corporations are 'State' or 'authority',

The Oil and Natural Gas Com'mission, the Industrial Finance Corporation

nd the Life Insurance Corporation are .:reated by statutes. The Oil and 'C.!'lral Gas Commission is owned by the Government, the management is by the Government and it could be dissolved only by the Government. The p1w. isions of the Oil and Natural Gas Commission Act, 1954, creatil}g it. show that it acts as 1an agency of the cenral Government. The provisions of the Jndustrial Finance Corporation Act, 1948, creating the Industrial Fina, nce Corporation show that the Corporation is under the complete contl'ol and managemwt

f the Central Government. Provisions of the Life Insurance Act, 1956, whi:h creates the Life Insurance Corporation, show that this Corporation is also ari agency of the Government carrying on the exclusive business of Life , Insurance.

The Corporation is owned and managed by the Government and it can be dissolved only by the Government.

All the three statutes constituting the three statutory corporations enabled them to male regulations which provide, il!ll'r a/ia, for the terms and conditions of employment and '3ervices of their employees.

On the question whether, (i) the regulations have the for.:e of law, and (ii) whether the statu.tory corporations are 'State' within the meaning o'f Art. 12 of the Constitution,

HELD: (Per A. N'. Ray, CJ., Y. V. Chandrachud and A. C. Gupta, JJ.)

The regulations have the for~-e of law and the employees arc entitled lo the declamtion of being in employment when their dismissal or removal is in contravention of the regulations.

[642E-F]

(a) Regulations under an Act are framed in exercise of a specific power conferred by the statute to make regulations. The authority making the regulations must specify the sources of its specific power. The essen:e of Jaw is that it is made by the law makers in exerci3e of specific authority. The vires of such of law is capa, ble of being challenged if the power is absent or has been exceeded by the authority making ru.les or regulations.

The manner and procedure adopted in making the regulations in the instant case, by the three statutory corporations, have this characteristic of law.

[629G-A]

(b) Another characteristic of law is its content. Law is a rule of general conduct while administrative instructions relate to a particular person.

[630A]

(c) Broadly stated the distinction between rules and regulations on one hand, and administrative instructions on the other, is that rules and regulations can be made only after reciting the sour.:e of power whereas administrative instructions are not issued after reciting the sou.rce of power. There is, however, no substantial difference between rules and regulations inasmuch as both are subordinate legislation under powers conferred by the statute. A regulation framed under statute applies uniform treatment to everyone or to aJl members of some group of class. [630G; 6330]

(d) The regulations in the present case are, inter alia, for the purpose of defining the duties, conduct and conditions of service of officers and other

employees.

They contain the terms and conditions of aippointment which are imperative. The form and content of the contract with a particular employee is prescriptive and statutory.

The notable feature is that these statutory bodies have no free hand in framing the conditions and temis of service of their employees.

They are bound to apply the terms and conditions as laid down in tile regulations.

These regulaitions are not only binding on the authority but nl5o on the public.

They imposed obligations on the statutory authorities.

The statutory authorities cannot deviate from the conditions of service.

Any deviation will b.t; enforced by legal sanction of courts to invalidate actions in violation of rules and regulations. The existence of rules and regulations u:nder the :itatnte is to ensure regµlar condll'Ct with a distinctive attitude to that conduct as a standard.

The statutory regulations in the instant case give the employees a statutory sta•tus and impose restrictions on the employer and the empl<lyee with 110 option to vary the conditions. An ordinary individual, in the case of muster and servant contract1rnl relationship, enforces breach of contract. the remedy being damages because pe1•sonal service is not capable of enforcement.

Jin the case of stautory bodies, however, there is no personal element whatsoever

because of the impersonal character of the bodies.

In their case the element of public employment and service and the support of statute require observance of rules and regufations.

Failure to observe requirements of the regulation by

~.tatutory bodies i> enforced by courts by declaring the dismissal in violation of rules and regulations to be void.

Whenever a man's rights are affected by a decision under statutory powers the court would resume the existence of a duty to observe the rules of natmal justice and compliance with rules and regulations imposed by statut,~. [630C-D; 633H; 634A-DJ

( e) Further the executive power of a 'state' is not authorhed to frame mks under Art. 162.

[630G]

( f) The rules and regulatians in the present case cannot be equated t,1 the regulation framed by a company incorpora.ted under the Companies Act. A company incorporated under the Companies Act is not created by the Companies Act but comes into existence in accordance with the provisions of that Act.

lt is not a statute body because it is not created by statu.te itself. A cumpany E mak;:s rules and regulations in accordance with the provisions of the Companies Act whereas the source of the power for making rules and regulations the c:ase of corporatiMs created by statute is the statute itself. A statutory body when it makes rules and regulations does so under the powers conferred by statute creating it.

[631B-D]

(g) In U.P. State Warehousing Corporation Case (1970] 2 S.C.R. 250 anG llldian Airlines Corporation Case [)971] 2 S.C.C. 192 tbe temis of the regulations were treated as terms and conditions of relationship between th~ corporation F and its empolyees.

Bu.t that could not lead to the condusion that they art: of the same nature :ind quality as the temis and conditions laid down in a contract of employmer.t.

Those terms and conditions not being contractual are impmed by one kind of subordinate: legislation, viz., regulations made in exercise of the pewer conferred by the statute which constitute .the corporation. Terms of the regulation are not temis of contra:t. A corporation had no power to alter or modify or rescind the provisions of the regulations at its discretion which it could do in respect of the terms of contract that it may wish to enter with its G employees independent of these regulations, So far as the terms of the regulations are concerned the actions of the corporation are controlled by the Owtrnl Government.

The decisions, therefore, in U.P. Warehousing Corporation and Indian Airlines Corporation are in diret conflict with the decision of this Court in 1'arai11das Barot Divisional Co111ro//er S.T.C., [1966] 3 S.C.R. 40 and are wrongly decided.

[633B-D]

The Sirsi M1111icipa/ity v.

Cecelia Kom Francis,

[1973] 1 S.C.C. 409, followed. ·

(2) The statut9ry bodies are authorities within the meaning of Art. 12 of the Constitution though their employees are not the servants of ihe Union or of a State.

[642F]

SUJCHDEV V. BHAGATRAM (3 21

(a) The State undertakes commercial functions in combination with governmental fonctions in a welfare Stil:te. It must be able to impose decisions by or under law with authority.

An element of authority is of binding character.

The rules ancj regulations are authoritative because these rules and regulations direct and control not only the exercise of the powers by the corporation but also of persons who deal with these corporations.

The State itself is cnvi5aged under Art. 298 as having the right to carry on trade and .business.

The State as defined in Art. 12 comprehended bodies created for the purpose of promc1ting economic interests of the people.· The cfocumstance that the "tatutory bodies required to carry on some adivities of the nature of trade or commerce does not indicate that it must be excluded from the scope of the word 'State'.

A public autiiurity is a body which, has public or statutory duties to perform nnd which performs those duties and carries out its transactions for the benefit of the public and not for private profit.

Such an authority is not precluded from makinii a profit for the public benefit, [634F; H; 635A-B & G]

(b) The power to give directions, the disobedience of which wou.ld be punishable as. criminal offences would furnish one of the reasons for ch~1rac terising the body as an authority within the meaning of Art. 12. The Oil and Natural Gas Commi"ion Act confers power of entry on employees of the Commission upon any land or premises for the purposes of lawfully ·:ar;-ying out works by the commission. The members and employees of the Commission are public servant'5 within the meaning of s. 21 'of the Indian Penal Code.

The Commission enjoys protection of action taken under the Act.

The Life Insurance Act provides that if any person wilfully withholds or fails to deliver to the corporation any properly \yhich has been transferred and vested in the corporation and wilfully applies them to purposes other than those expressed or authorised by the Act. he shall. on the complaint of the Corporation, be punishable with imprisonment.

The Corporation also enjoys protection of action taken • under the A:t. The Industrial Finance Corporation Act states that whoeYe:· in any bill of lading, warehouse, receipt or other instrument given to the Corpo:-.1tion whereby security is given to the Corporation for accommodation granted by it wilfully makes any false statement or knowingly permits any false sla!em~11t to be made shall be punishable with imprisonment.

Further, whoever. without the consent in writing of the Corporation, uses its name in any prospectus or advertisements shall also be punishable with imprisonment.

The corpo:arion also enjoys protection of action taken under the Act.

A company incorporated under the Indian Companies Act does not enjoy these privileges. [641F; 64~A-D]

(c) The fat that a statutory corporation is not granted immunity from taxation and therefore is under liability to be taxed would not indicate that the corporaion is not a state authority.

Art. 289 of the Constitution empowers the Union of India to impose a tax in respect of trade or business carried on by on behalf of the State.

[641GH]

Per Mathew J. (Concurring)

The concept of State has undergone drastic changes in recent years.

Today State cannot be conceived of simply as a coercive machinery wielding the thunderbolt of authority. It has to be viewed mainly as a service Corporntion.

A State is an abstract entity.

It. can only act through the instrumentality or agency of naturnl or juridical persons.

There is nothing strange in the notion of the State acting through a Corporation and making it an agency or insrn1mentality of the State.

With the advent of a welfare State the framework of civil service administration became in:re_asingly insr!.fficient for handling the new tasks which were ofte~ of a specialised and highly technical character. "lhe distrust of Governme::' by civil service was a powerful factor in the

developmnt of a policy of public administration through separate Corporntions

which would operate largely according to business principles and be sep, irately nccountable.

The Public Corporation, therefore, became a third arm of the GO\ernment.

The employees of public Corporation are not civil enants.

In .so far as public corporations fulfil public tasks on behalf of governmn,, !hey are public authorities and as such. subject to control by Government.

The public Corporation being a :reation of the State h subject to the constitutional limitation as the State itself.

The governing power wherever located must be

subject to the fundamental constitutional limitations. The ultimate question which is relevant for our purpose is whether the Corporation is an agency or instrumentality of the Government for carrying on a business for the benefit of the public.

[644E; 645B; G; 646C; 647B]

A finding of State financial support plus an unusual degree of control ovf:r the management and policies might lead one to characterize an operation as state action.

Another factor which might be considered is whether the operation is an important public function.

In America corporations or associations, pnvate in character, but dealing with public rights, have been held subject to constitutiomtl standards.

Activitie.' which are too fundamental to the society are by definition too important not to be :onsidered government function.

The State today has an aftirmative duty of seeing that all essentials 6f life are made available to al! persons. [650B-C; 65 lD-G]

it is clear from these provisions of the statute; in question that the Central GoH!rnment has contributed the original capital of the Corporation. that part o[ the profit of the Corporation goes to that Government, that the Central Government exercises control over the policy of the Corporation, thact lh1: Cor)lQration carries on a business having great public importance and that it enjoys a monopolv in the business.

These corporations are agencies or instrumentalities of the 'state' and are, therefore, 'state' within the meaning of Art. 12.

The fact that these corporations have independent personalities in the eye of law doe~ not mean that they are not subject to the :ontrol o:f gol'ernment or that they are not instrumentalities of the government. Thesi: corporatioll'.i are instrnmentalities or agencies of the state for carrying on busi .. nesses which otherwise would have been run by the state departmentally. II'

th~ state had chosen to carry on these businesses through the medium of govern .. meni departments. there would have been no question that actions of tliese: departments be 'state actions'.

Why then should be actions of corporations be: not state actions? [653H; 654A-C]

ThP. ultimate question which is relevant for our purpose is whether such a corporation is an agency or instrumentality of the government for carrying on a.

business for the benefit of the public. In other words, the question is, for 'Vhose benefit was the coroc)ration carrying on the business ? When it is seen from the provisions of that Act that on liquidation of the Corporation, its assets shot•ld be dcvided among the shareholders, namely, the Central and State governments and others, if any. the implication is clear that the benefit of the accumulated income would go to the Central and State governments.

Nobody will den)' that an agent has a legal personality different from that of the prin· cipal.

The fact that the agent is subject to the direction of the principal does not mean that he has no legal personality of his own.

Likewise, merely because: a corporation has legal personality of its own, it does not follow that the Cor· poration cannot be an agent or instrumentality of the state, if, it is subject to control of government in all important matters of policy.

No doubt, there might be some distinction between tne nature of control exercised by principal over agent and the control exercised by government over public corporation.

That, I think is only a distinction in degree.

The crux of the matter is that public corporation is a new type of institution which has sprung from the new

ocial and economic functions of 2overnment and that it therefore does not neatly fit into old legal categories.

Instead of forcing it into them, the latter should be adopted to the needs. of changing times and conditions. [654F-H]

(ii) The learned Chief Justice has dealt with the question in his judgment whether the regulations framed by the corporations have the force of Jaw and he has arrived at the conclusion that the regulations being framed under statutory provisions would have the force of law.

I agree with that conclusion.

Even assuming '.hat the regulations have no force of law, I think since the employm1:nt under these corporations is public employment, an employee would

get a status which would enable him to obtain declaration for continuance in sen ice if he was dismissed or discharged contrary to the regulations.

[6SSE-F]

 (iii) If a job is re11arded as analogous to property, it ought to be recognized that a man is entitled to a particular job just as the courts of Equity acknowledged his right to a particular piece of property. Where a public authority is

SUKHDEV V. BHAGATRAM 623

concerned, this can be illll)lementd by a declaration .. In the case of private

mp!oyment English law has devised no suitable remedy. That this is possible is shon by the example. of _other. countries. The Court must, therefore, adopt the attitude that declaration 1s the normal remedy for a wrongful dismissal in case of public employees which will only be refused in exceptional circumscances.

The remedy of declaration should be a readv-made instrument to proyide :einstatement in ublic sector.

One~ it is accepted. that a man's job is hke h18 property of which he can be depnved of for specific reasons this remedy becomes the primary one though it will need to be reinforced 'where imvate individuals are being sued. The law of master and servant has not kept pace vit~ the modern coditions and the mandate of equality embodied in the Const;<;; t10n. The law still attaches to the servant a status of inferiority and subjection to his master. Though fundamental reforms can only emanate from the legisla.ture,. the princ!ples fashioned by pblic law if applied .to master servant relat10nsh1p cart bnn2 about a change m law to accord with the social conditions of the 20th century.

[6580-G]

[Per Alagiriswami. J. (Dissenting)]

(i) In order that an Institution must be an "authority'' it should exercise part of the sovereign power or authority of the State. Port Trust is given the power to make regulations and Jo provide that breach of its regulations would be punishaole. In such a case, it is undoubtedly exercising part of the power of the State. The whole purpose of the Part III of the Constitution is to confer fundamental rights on the citizen, as against the power of the State or those exercising the power of the State. In the present case none of the Corporations exercise the power of the State anc:, therefore, cannot be the State or Autho

rity. The regulations framed by these Corporations have no force of law.

The employees of these statutory bodies have no statutory status and they are not entitled to declaration of being in employment when their dismissal or removal is in contravention of 'tatutory provisions.

[670A; 67 IA-C]

(ii) Under the Indian Legislative practice Governments make the rules and regulations are made by any institution or organisation established by a Statute and where it is intended that the regulation should have effect as law. the Statute itself says so.

Administrative instructions are not necessarily in rela uon to the particular persons.

They may relate to a whole class of persons even as rules and regulations do.

To say that because the regulations contained the terms and conditions of appointment they are statutory is to beg the question.

An institution like the 1.1.C. which has its offices and employees all over the country has necessarily got to have a standard set of conditions of service for its various classes of employees.

It is not correct to say that the statutory

bodic~ have no free hand in framing the conditions and terms of serv!ce of their employees. They are the authorities to make the regulations and, therefore, can make any regulations regarding the conditions and terms of service of their employees and also change them as they please. It cannot, therefore. be said tha! they are bound by these terms and conditions of service.

[668E-H; 669H]

(iii) There is no hllacy in equating rules and regulations of a Company with rules and reiiulations framed by a . statut_ory body.

Where an institution or organisation 1s established by a Statute or under a Statute in principle there is no difference between their powers. [6700-F]

(iv) While rules are generally made9bv the Government. the rP.gulations are made by a body which is a creature of the statute itself with its powers limited by the statute. While rules apply to all matters covered by the statute, the scope of the regulations is narrower being usually confined to internal matters of the statutory body s•1ch as the conditions of service of its employees. When regulations standardise the condiiom of sen:ice of the employees or purpoi:t to formulate them. their character IS further diluted by the nature of the subJectmatter. For, service or employment is basically a contract which is deeply rooted in private law.· A mere standardisation or enumeration of the terms of a ser

vice contract is not, therefor~. ordinarily sufficient to convert it into a statutory status.

[669BDJ

C1v1L APPELLATE JURISDICTION : Civil Appeal No. 2137 of 1972.

From the Judgment and order da:ed the 14th July, 1972 of the Gujarat High Court in Spl. Civil Appln. No. 1470 of 1968.

ClVIL APPEAL NO. 1655 OF 1973

Appeal by special leave from the Judgment and order dated .the 15th October, 1973 of the Gujarat High Court in L.P.A. No. 95 of

1973.

CIVIL APP.EAL NO. 1879 OF 1972 AND

CIVIL APPEAL NO. 115 of 1974

Appeal by special leave from the Judgment dated the 29th Januarv, c 1973; of the Delhi High Court in LPA No. 155 of 1972.

F. S. Narima11, Addi. Sol. Gen (In CA. No. 2137 /72), A. K.

Sen (In CA 1655/73), B. Dutta for the Appellants.

Pramod Swarup for the appellant (In CA No. 1879 /72).

M. K. Ramwnurthy, Janardan Sharma and Jitendra Sharma for D Appellant in C.A. No. 115/74.

R. K. Garg, S. c. Agarwala, S. S.

Bhatnagar,

V. J.

Francis.

Ramamurthy & Co. for Respondent No. 1.

M. K. Ramamurthy J. Ramamurthy for Respondents (In CAs.

Nos. 1655/73 and 1879/72 and for Interv<:ner (In CA No. 1655/ E 73).

F. S. Nariman, Addi. Sol. Gen. of India, /. N. Shroff for Respondent No. 1( In CA. 115 of 1974).

P. K. Pillai for Intervener (In CA No. 2137/72).

F. S. Narima11, Addi.

Sol. Gen. of India, V. J. Taraporewala,

0. C. Mathur, Moha11 Prasad Jha and K. J. John for the Applicant/ Intervener (Air India).

The following Judgments were delivered

RAY, C.J.-There are two questions for consideration in these appeals. First, vi'hether an order for removal from service contrary to regulations framed under the Oi~ and Natural Gas Commission Act 1959; the Industrial Finance Corporation Act, 1948; and the Lif/:

Insurane Corp.oration Act, 1956 would t:nable the employees to dechrat10n agamst the statutory corporation of continuance in service or would only give rise to a claim for damages.

Seco,1d whether an employee of a statutory corporation is entitled to cla:im protection. of .Articles 14 and 16 againlst tlie Corporation. In short th.e .quest10n 1s . whether these statutory corporations are authorities w1thm the meanmg of Article 12.

SUKHDEV V. BHAGATRAM (Ray, C, J,) 625

The statutes for consideration are the Oil and Natural Gas Commis<ion Act, 1956; the lndutrial Finance Corporation Act, 1948; and the Life Insurance Corporation Act, 1956. The question which really talis for decision i& whether regulations framed under these statutes have the force of law.

The Oil and Natural Gas Commission Act, 1959 hereinafter referred to as the 1959 Act established the Commission as a body corporate having perpetual succession and a common seal. The composwon of the Comm1ss1on is the Chairman, and not less than two, and not more than eight, other members appointed by the Central Government. One of the members shall be a whole-time Finance Member in charge of the financial matters relating to thi Commission.

The Central Government may, if it thinks fit, appoint one of the members as Vice-Chairman of the Commission. Under section 12 of the 1959 Act the Commission may, for the purpose of performing its functions or exercising _its powers, appoint such number of employees as it may consider necessary. The functions and the terms and conditions of service of such employees shall be such as may be provided by regulations made under the 1959 Act. There was an existing organiswti:on set up in pursuance of a resolution of the Government of India No. 22/29/55-0 & G dated 14th August, 1956.

Everv person employed by the said existing organisation before the establishment of the Commission became an employee of the Corporation in accordance with the provisions contained in section 13 o~ the 1959 Act.

Sections 31 and 32 of the 1959 Act are important.

Section 31 states that the Central Government may, by notification in the Official Gazette, make rules to give effect to the provisions of the Act. The rules provide inter alia for the term of office of, Jllld the manner of filling casual vacancies among the members, and their conditions of service; the disqualifications for membership of the Commission and the procedure to be followed in removing a member who is or becomes subject to any disqualification; the procedure to be followed in the discharge of functions by members; the conditions subject to which and the mode in which contracts may be entered into by or on behalf of the Commission and some other matters.

Every rule made under section 31 of the 1959 Act shall be laid as soon as may be before each House of Parliament as mentioned in the section. Both Houses may agree to or annul the rule or modify it.

Under section 32 of the 1959 Act the Commission may, with the pnvious approval of the Central Government, by notification in the Official Gazette, make regulations not inconsistent with the Act and the rules made thereunder, for enabling it to discharge its functions under the Act. The regulations provide inter alia for the terms and conditions of appointment and service and the scales of pay of emplovees of the Commission: the time and place of meetings of the Commission. the procedure to be followed in regard to the transaction o[ business at such meetings: the maintenance of mbutes of meetings of the Commission and the transmission of copies thereof to the

Central Government; the persons by whom, and the manner in whicb payments, deposits and investments may be made on behalf of the Commission; the custody of moneys required and the maintenanc<~ of accounts. The Central Government may amend, very or rescind any regulation which it has approved, and thereupon the regulation shall have effect accordingly but without prejudice to the exercise of the powers of the Commission under sub-section ( 1) of section 32.

The Life Insurance Corporation Act, 1956 hereinafter referred to as the 1956 Act established the Corporation under section 3 of the Act. Under section 11 of the 1956 Act existing employees of an insurer whose controlled business was transferred to and vested in the Corporation and who were employed by the insurer wholly or min ly in connection with his controlled business immediately before the appointed day became on and from the appointed day an employee of the Corporation. Section 11 of the 1956 Act further states that the employees of the Corporation would hold office upon the same on the appointed day. These employees were further to continue terms and with the same rights and duties as they would have hild under the 1956 Act unless and until their employment was termiaated or until the remuneration, terms and conditions were duly altered lly the Corporation.

The two important sections of 1956 Act are sections 48 and 49.

Section 48 states that the Central Government may, by notification in the Official Gazette, make rules to carry out the purposes of this Act.

The rules inter alia provide for the term of office and the conditions o[ service of members; the !urisdiction of the Tribunals constituted urnder section 17 of the Act,' the manner in which and the persons to whom, any compensation under this Act mit) be paid; the conditions subject to which the Corporation may appoint employees. All rules made shall be laid as started in the section bt:fore both Houses ot Parliament and shall be subject to such modification as Parliament may make.

Section 49 of the 1956 Act states that the Corporation may, with foe previous approval of the Central Government, by notification in the Gazette of India, make regulations not inconsistent with the Act. and the rules made thereunder to provide for all matters for whic:h

p~·vision is expedient for the purpose of giving effect to the prov1s10ns of this Act. The regulations may provide inter alia for the powers and functions of the Corporation which may be delegated to the Zonal Managers; the method of recruitment of employees and agents of the Corporation and the terms and conditions of service of such employees or agents; the terms and conditions of service <>f

ersons who have become employees of the Corporation under section ! I of the Act; the number, term of office and conditions of service of members of Boards constituted under section 22 of the

At; the maner in which the Fund of the Corporation shall be main.· tamed; the form and manner in which policies may be issued and contracts binding on the Corporation may be executed.

SUKHDEV V, BHAGATRAM (Ray, C, J,) 027

The Industrial Finance Corporation Act, 1948 hereinafter referred to as tlte 1948 Act establishes the Corporation under section 3 of the Act. The uperintendence of the business of the Corporation shall be entrusted to a Board of Directors. Section 42 of the 1948 Act enacts 'that the Central Government may make rules in consultation with the Development Bank not inconsistent with the provisions of this Act and to give effect to the provisions of the Act and where there is aiJy inconsistency with rules and regulations the rules shali prevail. The rules under the Act are to be laid before each House of Parliament in the same manner as in the Oil and Natural Gas Commission Act. Section 43 of the 1948 Act enacts that the Board may with the previous approval of the Development Bank make regulations not inconsistent with the Act and the rules made thereunder to provide for all matters for which provision is necessary or expedient for the purpose of giving effect to the provisions of this Act. The Development Bank means the Industrial Development Bank established under the Industrial Development Act, 1964. The shares of the Central Government in the Corporation shall stand transferred to the Development Bank when the Central Government shall so notify. The regulations provide inter alia for the holding and conduct of elections under this Act including the final decision of doubts or disputes regarding the validity of the election; the manner in which and the conditions subject to which the shares of the Corporation may be held and .transferred; the manner in which general meetings shall be convened, the procedure to be followed thereat; the duties and conduct, salaries, allowances and conditions of service of officers and other employees and of advisers and agents of the Corporation.

The contentions on behalf of the State are these. Regulations are framed under powers given by the statute affecting matters of internal management. Regulations do not have a statutory binding character.

Terms and conditions of employees as laid down in the regulations are not a matter of statutory obligations. Regulations are binding not as. law but as contract. Regulations have no force of law. Regulations provide the terms and conditions of employment and thereafter thP. employment of each person is con:tractual,

The contentions on behalf of the employees are these. Regulations are made under the statute. The origin and source of the power to make regulations is statutory. Regulations are self binding in character. Regulations have the force of law inasmuch as the statutory authorities have no right to make any departure from the regulations.

Rules, Regulations, Schemes, Bye-laws, orders made under statutory powers are all comprised in tlelegated legislation The need for delegated legislation is that statutory ruies are framed with care and minuteness when the statutory authority making the rules is after the coming into force of the Act in a better position to adapt the Act to special circumstances. Delegated legislation permits utilisation of experience and consultation with interests affected by the practical operation of statues.

SUPREME COTJRT REPORTS

(1975) 3 S.C.R.

ln England the Statutory Instruments (Confirmatory Pow<:rs) 01dcr, 1947 contemplates orders in Council o~ o0er instrun:; n.ts which are described as orders. The Rules Pubhcat10n Act 189.• m Englallid defines "rule making authority" to include every authority authorised to make any statutory rules. Statutory rules are defin.ed there as rules, regulations or by-laws made under any Act of a_r!1a ment, in England. Orders are excluded from the statutory defimt1on of statutory rules as being administrative. In England regulation is the term most popularly understood and the one favoured by . the Committee on Ministers' Powers, who suggested that regulations should be used for substantive law and rules for procedural law, while orders should be reserved to describe the exercise of ex-ecutive

power or the taking of a judicial or quasi judicial decision (See Craies on Statute Law, 7th Ed, at p. 303). The validity of statutory instruments is generally a question of vires, i.e., whether or not the enabling power has been exceeded or otherwise wrongfully exerci:ied.

Subordinate legislation is made by a person or body by virtuf: of the powers conferred by a statute. By-laws are made in the main by local authorities or similar bodies or by statutory or other undert:; icings for regulating the conduct of persons within their areas or resorting to their undertakings. Regulations may determine the class of cases in which the exercise of the statutory power by any such authority constitutes the making of statutory rule. '

The words "rules" and "regulations" are used in an Act to limit the power of the statutory authority. The powers of statutory bodies are derived, controlled and restricted by the statutes which cn:<rte them and the rules and regulations framed thereunder. Any action of such bodies in excess of their power or in violation of the restrictiom, placed on their powers is ultra vires. The reason is that it goes to the root of the power of such corporations and the declaration of nuliity is the only relief that is granted to the aggrieved party.

In England subordinate legislation has, if validly made, the full forct: and effect of a statute, but it differs from a statute in that its Yalidity whether as respects form or substance is normally open to challenge in the Courts.

Subordinate legislation has, if validily made, the full force and effect of a statute. That is so whether or not the statute under which it is made provides expressly that it is to have effect as if enacted therein. If an instrument made in the exercise of delegated powers directs or forbids the doing of a particular thing the result of a breach thereci'fo. is, in the absence of provision to the contran. the s:.ane as if the command or prohibition had been contained in the e:iabiing statute itself. Similarly, if such an instrument authorises or requires the doing of any act, the principles to be applied in deter- '.11ining whether a .Prson injured bY_ the act has any right of action m respect of the rn.iury are not different from those applicable

SUKHDEV V. BHAGATRAM (Ray, CJ.) .629

whelher damage results fro~ an act done under ~\lirect &llthority

of a statute, Re Langlois and Biden, (1891) 1 Q.B. 349and1'111# v.

Johnson, (1898) 2 Q.B. 91. .

The authority of a statutory body or public administrative body er agency ordinarily includes tlie power to make or adopt ru!ea l!lld . regulations. with respect .to matte.rs within the _prov_ce of h body provided such rules and regulations aro not lllCOllSIStent with .the relevant law. In America a "public agency" has been &lined as :m

agency endowed with governmental or public functions. It has been held that the authority to act with the sanction of Govent behind it determines whether or not a governmental agency eX1Sts. The rules and regulations comprise those actions of the statutory er public bodies in which the legislative element predominates. These statutory bodies cannot use the power to make rules and regulatioD&. to enlarge the powers beyond the scope intended by the legislature. Rules and regulations made by rea•on of the specific power conferred on the . statute to make rules and regulations establish the pattern of conduct to be followed. Rules are duly made relative to the subject . matter on which the statutory. bodies act subordinate to the terms of the statute under which they are promulgated. Regulations are in aid of the enforcement of the provisions of the statute. Rules and . regulations have been distinguished from orders or determination of statutory bodies in the sense that the orders or determination are . actions in which there is more of the judicial function and which deal with a particnlhr present situation. Rnles and regulations on th"' other hand are actions in which the legislative element predominates. ·

The process of legislation by departmental regulations saves time 'and is intended to deaJwith local variations and the power to legislate by statutory instrument in the form of rules and regulations is conferred by Parliament and ca!a be taken away by Parliament. The legislative function is the making of rules. Some Acts of Parliament decide particular issues and do not lay down general rules.

The justification for delegated legislation in threefold. First, there is pressure on parliamentary time. Second, the technicality of subjectmatter necessitates prior consultation and expert advice on interests concerned. Third, the need for flexibility is established because it. is not possible to foresee every administrative difficulty that may arise to make adjustment that may be called for after the statute has begun , to operate.

Delegated legislation fills those needs.

The characteristic of law .is the. ma!Ller and procedure adopted . in many forms of sub.:lrdinate legislation. The authority making rules and regulation must specify the source of the rule and regulation mak-. ing authority. To illustrate, rules are always framed in exercise of tho specific power conferred by the statute to make rules. Similarly, regulations are framed in exercise of specific power conferred by the statute to make reg-1lations.

The essence of law is that it is made by the law-makers in exercise of specific authority. .The vires of law is capable of beh1g challenged if the power is absent.or-has been exceeded by the authority making rules or re(U!ations.

Another characteristic of law is its content.

Law is a rule of general conduct while administrative instruction relates to particular person.

This may be illustrated with reference to regulations under the Acts forming the subject matter of these appeals.

The Life Insurnnce Corporation Act •as well as the Industrial Fi'aance Corporation Act confers power on the Corporation to 1make regulations as to the method of recruitment of employees and the terms and conditions of service of such employees or agents.

The Oil and Natural Gas Commission Act under section 12 states that the functions and terms a',1d condttiors of service of employees shall be such as may be provided by regulations under the Act.

Regulations under the 1959 Act provide inter alia the torms and conditions of appointment and scales of pay of the employees of the Commissio1a.

The regulations containing the terrns and condcitions of appointmenr are imperative. The administrative instructfon is the entering into contract with a particular pers011 but the form and content of the contract is prescriptive and statuwry.

Th, e noticeable feature il that these statutory bodies have "10 free faand in framing the conditions and terms of service of their employees.

These statutory bodies are bound to apply the terms and conditions as laid down the regulations.

The statutory bodies are not free to make such terms as they think fit -and proper.

RegulatiO'as prescribe the terms of appointmerit, conditions of service and procedure for dismissing employees.

These regulations in the statutes are descril:ied as "'status fetters on freedom of contract". The Oil and Natural Gas Commission A't in section 12 specifically enacts that the terms and conditions of the employees may be such as may be provided by' regulatiO'as.

There is a legal compulsion on the Commission to comply with the regulations.

Any breach of such compliance would b': a breach of the regulations which are statutory provisions. In other statutes under consideration, viz., the Life Insurance Corporation Act and the Industrial Finance Corporation Act though there is no specific provision comparable to secti0',1 12 of the 1959 Act the terms and conditions of employment and conditioas of service are provided for by regulations.

These regulations are not only binding on the authorities but also on the public.

Broadly stated, the distinction between rules and regulatio, is on the one hand and administrative instructions on the other. is that rules and regulations can be made only after reciting the source of pc1wer whereas administrative instructions are 111ot issued after reciting source of power.

Second the executive power of a Stltte is not authorile<l to frame rules under Article 162. This Court held that the Public W<Jrks Department Gode was not a subordinate legilllation (See Gr. /.

Fernandes v. State of Mysore & Ors. (1967) 3 S.C.R. 636.

The rules under Article 309 on the other hand constitute not only . the constitutio,1al rights of relationship between the State and the Government servants but also establish that there must be specific power to frame rules and regulations.

The Additional Solicitor General submitted that regulations could not have the force of law because these regulations are similar to regulations framed by a company incorporated unde;· the Companis

SumDEV V. BHAGATRAM (Ray, CJ,). 631

Act.

TI:e fallacy lies iQ. equa.tin& rules and regulatioM of a company with rules and regulations framed by a statutoty body. A cumpaay makes rules and regulations in accordance with the provisions of. the

Comnies Act. A statutory body on the other hand makes rule! aad regutations by . and under the powers c0'11ferred by the Slatutes creating such bodfos.

Regullltions in Table-A of the Companies Act are. to be adopted by a company.

Such adoption is a statutory require ment.

A company cannot come into existence unless it is incorporated\ in accordance with the provisio,1s of the Companies Act.

A company cannot exercise powers unless the company follows the statutory provisions.

The provision in the Registr_ation Act requires registration of instruments.

The provisions in the Stamp Act contain provisions for stamping of documents.

The non-compliance with statutory provisions will render a document to be of no effect.

The source of the power for. maKing rules and regulations in the case of Corporatior created by a statute is the statute itself.

A company incorporated under the Companies Act is not created by the Companies Act but comes into existence in accorda~1ce with the provisions ~e_ Act. It is not . a statutory body beC'ause it is not creatd 6y t~~ . .!'tatute. It is a body created in accordance with the provisienis of tfie statute.

The character of regulation has been decided by this Cow:t in several decisions. One group of decisions consists of S. R. '.fetrari v.

District Board Agra (1964) 3 S.C.R. 55); Life Insurance Corporation of India v.

Sunil Kumar Mukherjee (1964) .5 S.C.R. 528); Calcutta Dock l.Abour Board v. Jaffar Imam (1965) 3 S.C.R. 45$); Mafaelal Naraindas Barot v.

Divisional Controller S.T.C. (1966) 3 .S.C.R. 40); The Sirsi Municipaliiy v. Cecelia Kom Francis (1973) 1 S.C.C. 409); U.P. State Warehousing Corporation v. C. K. Tyagi

(1970) 2 S.C.R. 250) and Indian Airlines Corporation v. Sukhdeb Rai (1971 2 S.C.C. 192).

In Naraindas Barofs .case this Court held that the t.ermination of services by Corporation created by a statute without complying with the requirements of the regulations framed by the Corporation under the State Governr,1g conditions of the employees of' the Corporation was bad.

The reason is that the termination contravened the provi sions contained in the regulations.

In Tewari's case the termination of the employment of Tewari! was challenged on ..t.he ground that the resolution of the District Board termi1,1ating the services was invalid.

The High Court dismissed Tewari's application under Article 226 in limine.

This Court held that the Courts are invested with the power to declare invalid the act , of a statutory body, if by doing the act the .body has act.ed in breach of the mandatory obligation imposed by statute.

The District Boards Act conferred power upon.the State Government by section 172 to make rules under the Act.

The District Boad relied on a notification headed "Regulatioa regarding dismissal, removal or reduction of officers and servants of District Board". It was treated as a rule inasmuch as section 173(2) of the District Boards Act which conferred power to frame

n gulations did not confer any power to frame powers regulating the exercise of the power of dismissal of officers of servants of the Board.

This. Court held that under the rules dismissal, reruoval or reduction of an officer or servant might be effected only after affording him a reasonable opportunity of showing cause against the action proposed to be taken in regard to him.

In Tewari's case this Court al§O said that the order of dismissal involving punishment must be exercised wn· sistently with the rules or regulations framed under the Statute.

In the Life Insurance Corporation case, there were regulatiions framed uader the Act.

Clause 4 ( 3) of the Regulations prescribed that in Judging a Field Officer's work, the Corporation shall observe the principles contained in the circular issued by the Managing Director on 2 December, 1957.

Paragraph 4(h) of the circular which became an integral part of the regulations inter alia stated that where the Committee of its own decided that th1: poor perform'ance of a Field

~)tficcr'was not due to circumstances beyond his CO'tltrol or that he had made no efforts and not shown inclination or willinness to work, the services of such Field Officer would be terminated. There was also in existence a Field Officer's order which was issued in exercise of the powers co1tfem:d on the Central Government by section 11(2) of the Act.

Clause 10 of the order provided for penalities and termin~ion of s1rvice. The contentiO'a of the employee was that the termination of service could be brought about only under clause 10 of the Order.

This Court held that the regulations to be framed by the Corporation were not to be inconsistent either with the Act or with orders made U'adcr section 11 (2) of the Act.

The circular which was a part of the regulations under clause 4(3) thereof and clause 10 of the order were reconciled by this Court by stating that pamgraph 4(h) of the circular could be availed of to terminate the services of the ofikers but such termination was to be effected in the manner prescribed by clause 10.

The termination was not in accordance with either clause lO(a) or (b) of the order.

Therefore, the termination ms invalid.

The Life Insurance case (supra) recognised regulations framed under the Act to have the force of law.

In the Indian Airlines Corporation case this Court said 1that there being no oblig:i.tion or restriction in the Act or the rules subject to which only the power to terminate the employment could be exercised the employee could not contend that he was entitled to a dedaration that the .termi'.lation of his employment was null and void.

In the fodwn Airlines Corporation case reliance was placed upon the decision of Kruse v. Johnson (1898) 2 Q.B. 91 for the view that not all by-Jaws have the force of law. This Court regarded regulation as the same thing as by-laws.

In Kruse v.

Johnso11 the Court was simply describing tne effect that the county by-laws have on the publk. The observations of the Court in Kruse v. Johnwn t11at the by-law "has the force of law within the sphere of its legitimate operation" are not qualified by the words that it is so "only when

:iffec:tinrr the public or some section of the public .... ordering somethin~: to be done or not to be done and accomprinied by some sane, tion or penaltv for its non-observa',1ce." In this view a rej!Ulation is not a::i agreement or contract but a law binning the c0rporaihn. its officers, servants and the members of the public who come within the sphere of its

SUKHDEV v. BHAGA'tRAM (Ray, CJ.)

operations.

The doctrine of ultra vj.res as applied to statutes, rules and orders should equally apply to the regulations imd any other subordinate legislation.

The regulations made under power .conferred by the tatute are subordinate legislation and have the force and effect, if validly made, as the Act passed by the competent legislature.

In U.P. Warehousing Corporation and Indian Airllnes Corporation cases the terms of the regulations were treated as terms and cond.it1ons of relationship between the Corporation and its employees.

That dos not lead to the conclusion that they are of the same nature and qmtlity as the terms and conditions laid down in tfie contract of employment.

Those terms and conditions not being contractual are imposed by one kind of subordinate legislation, viz., regulations made in exercise of the power conferred by tpe statute which constituted that Corporation.

Terms of the regulations are not terms of contract. In the Indian Airlines Corporation case under section 45 of the Air Corporations Act, 1953, the Corporation had the power to make regulations nbt inconsistent with the Act and the rules made by the Central Government thereunder.

The Corporation had no power to alter or modify or rescind the provisiaas of these regulations at its discretion which it c0uld do in respect of the terms of contract that it may wish to enter with its employees independent of these regulations.

So far as the terms of the regulations are concerned, the actions of the Corporation are controlled by the Central Government.

The decisions of this Court in U.P. Warehousing Corporation and Indian Airlines Corporation are in direct conflict with decision of this Court in Naraindas Baro, t's casewhich was decided by the Constitution Bench.

In Sirsi Municipality v. Cecelia Kom Francis Tellis (supra), lhe dismissal was held to be contrary to rule 143 framed under section 46 of the Bombay District Municipalities Act. This Court held that in regard to the mastec-servant cases in the employment of the State or of other public or local authorities or bodies created under statute, the courts have decided in appropriate cases the dismissal to be invalid if the dismissal is contrary to rule of natural justice or if the dismissal is in violation of the provisions of the statute.

Where a State or 'a public authority dismisses an employee in violation of the mandatory procedural requirements on grounds which are not sanctioned or supported by statute the courts may exercise jurisdiction to declare the act of dismissal to be a nullity.

The ratio is that the rules or the regulations are binding on the authority.

There is no substantial difference between a rule and a regulation inasmuch as both are subordinate legislation under powers conferred by the statute.

A regulation framed under a statute applir.s uniform treatment to every one or to all members of some group or class.

The Oil and Natural Gas Commission, the Life Insurance Corporation and Industrial Finance Corporation are all required by the statute to framo regulations fulter alia for the purpose of the duties and conduct and conditions of service of officers and other employees.

These regulations impose obligation on the statutory authorities.

The statutory authorities cannot deviate from the conditions of service.

Any devi11rtion will be enforced by legal sanction of declaration by courts tll 10-470Sup Cl/7S

'U11JIMI COUJ.T llPOITS

ilM'lidate actions in violation of rules and regulations. The emtence of rules ad ns under statute is to ensure regular conduct with a distinctive 4ttitude to that conduct as a standard. The statutory regulations in the cases under consideration give the employees a statutory status and impose restriction on the employer and the employee

with oo option to vary the conditions. An ordinary individual iil1 a case of .master a.nd servant contractual relationship enforces breach of contractul terms. The remedy in such contractual re1'ationship of master and servant is damages because personal service is not capalble .of enforcement. In cases of statutory bodies, there is no perso11al

element whatsoever because of the impersanial charntcr of statutory.. bod.ici. In the case of statutory bodies it has been said that the ele- ment of public employment or service and the support of statute .require observance of rules and regulations. Failure to observe requirc- CAenta by statutory bodies is enforcr, d by courts by declaring dismissal in violation of rules and regulations be void. This Court has repeatedly observed that whenever a man's rights are affected by decision taken wider statutory powers, the Court would presume the existence of a. duty to observe the rules of natural justice and compliance with . m1es and regulations imposed by statute. On bebaH of the Smte it is contended that these Corporations cannot be said to be "other authority" contemplated in Article 12 for two 'Pfincipal reasons. Frrst, one CYf the attributes of a State is making faws. • The State exercises governmental functions and the eirecutive power of the State is 1:o-extensive with the legislative power of tbe State. Second, authority as contemplated in Article 12 mearu: a body of persons established by statute who are entitled as such body to command obedience and enforce directions issued by them 011 pain of pco&llty for violation.

On these grounds it was said that these corporatiom cannot make laws like a Smte and cannot enforce directioilli.

l'be State , undertakes commercial functions in co.mbination with Governmental functions in a welfare State. Oovemmcntal function must be authoritative. It must be able to impose decision by or under law with authority. The demmt of authority is of a binding character. The rules and regulations 'are authoritative because these rules and regukltions direct and control not only the exercise of powers by the Corporations but also all . peraoos who deal with these corporations:

1'his Court i1~ Rajasthan State Eeletricity Board, Jaipur v. Mohan Lal & Ors. (1967) 3 S.C.A. 377) said that an "authority is a p111blic administrati~ agency or corporation havhig quasi-governmental powm and autborised to administer a revenue-producing public enterprise. 1be expression "other authorities" in Article 12 bas been

beid by this Collrt in the Rajasthan Electricity Board caso to be wide enough t'6 include within it every authority created by a statute aud within the territory of India, or under the control of the C'"°"'*uwwwt of India. This Court further said referring to earlier deciliom,, dsat tho expression "O'ther. authorities" in Article 12 will 'In

cJudc: d c:omtitutional or statutory authorities on whom powers 1U"e ccl8fuNd hJ Jaw. 1be State itself is envisaged under Artic,1c 298 u ...... the riaht to carry on trade ai.ad business. 1be State as

SUKHDEV v. BHAGATRAM (Ray, C.J.) 635

defined in Article 12 is comprehended to include bodies created for tbt purpose of promoting economic interests of the people. The circumstance that the statutory body is required to carry on some activities of the nature of trade or c.ommercc does not indicate that the Board must be excluded from the scope of the word ''State." The Electricity Supply Act showed that the Board had power to give directions, the disoqedience of which is punishable as a criminal offence.

The power to issue directi0'.1s and to enforce compliance is ar, important aspect.

The concurring Judgment in the Rajasthat1. Electricity Board case said that the Board was invested by statute with extensive powers of control over electricity undertakings.

The power of the Board to make rules and regulations and to administ.er the Act was said to be in substance the sovereign power of the State delegated to the, Board.

In1 the British Boardcasting Corporation v. Johns (Inspector of Taxes) (1965) 1 Ch. 32) it was said that persons who are created to carry out governmental purposes enjoy immunity like Crown ser~

vants.

Government purposes include the traditional provinces of Government as well as nm1-traditional provinces of Government if the Crown has constitutionally asserted that they are to be within the province of government.

The British Boardcasting Corporation was held not to be within the province of government. because broadcasting was not asserted by the govemmcnt to be within the province of government.

The Wireless Telegraphy Act provided for regulation of wireless telegraphy by a system of licences.

The Court itave two reasons as to why the Broadcasting Corporation was not within the province of the government. If the Broadcasting Corporation was exercising functions required and created for the purpose of govern- ment, it is difficult to see why a licence W'as required to be issued to it.

Again, it is difficult to understand why in the event of an emergency powers should be given to the Postmaster-General to direct thal the broadcasting stations of the Corporation should be deemed to be in possession of Her Majesty if it be the fact that such stati0'11s are already used for purposes of exercising functions required and crC'ated for purposes of the Government.

A public authority is a body which has public or statutory duties to perk rm and which performs those duties and carries out its transactions for the benefit of the public and not for private profit.

Such an authority is not precluded from making a profit for the public benefit. (See Halsbury's Laws of England 3rd. Ed. Vol. 30 paragraph 1317 at p.682). ·

The Oil-fields (Regulation and Devclopmeat) Act, 1948 defines "oilfield" as any area where any operation for the purpose of obtaining natural gas and petroleum, crude oil, refined oil, partially refined oil and any of the products of petroleum in a liquid or solid state, is to be or is being carried on.

Section 4 of the said 1948 Act states that no mini'11g lease shall be granted after the commencement of he

Act otherwise than in accordance with the rules made under the Act.

Section 5 of the said 1948 Act confers power on the Central

636 SUPllMB COURT REPORTS


Government to make rules for regulating grant of mining leases ot prohibitir.g v.m.t of leases. Section 6 of the said 1948 Act CCY.ilfers po'WCl" on the Central Government to make rules for the conservation and development of mineral oils. Mining gas includes natural gas and petroleum. Section 9 of the said 1948 Act states that any rule made under any of the provisions of the Act may provide that c.ny

contravention thereof shall be punishable with the imprisonment which may extend to six months or with fine which may extend to one th"usand rupees or with both.

The Petroleum Concession Rule, l.949 says tl1at the Centr~ Government grants approval for searching, drilling a-ad prodm:ing petroleum and licences for exploring and prospecting. The Oil and Natural Gas Commission is given merely the duty to perform the leases.

The 1959 Act speaks in section 14 of the functions of the Commission and in section 15 of the powers of the Commission.

The runctions of the Commission are to plan, promote, organise a"1d implement programmes for the development of petroleum resources and the production and sale of petroleum and petroleum products produced by it and to perform such functions as the Central Government may, from timie to time as1; ign to the Commission. The powers of the' Commission are such !lS may be necessary read expedient for the purpose of carrying out.the functions under the Act. The Government acquires land for the Commission. The acquisition is for public purpose. The Commission extract~ petroleum from the land. Entry No. 53 in Lisi I of the Seventh Schedule speaks of regulation and development of oilfields and m.i!oleral oil resource~; petroleum and petroleum produ1cts; othllr liquids and substances declared by Parliament by law to be dangeroualy inflammable. Entry No. 54 in List I speaks of regulation of mines and mineral development to the extent to which such regulation aad development under the control of the Union is decla:red by Parliament by law to be expedient in the public interest.

Section 23 of the 1959 Act says that the Oil and Natural Gas Commission shall furnish to the Central Government returns :ind stau:ments ai; ld particulars in regard to proposed or existing programme for the development of petroleum resources and the prodtlction and sale of petroleum and petroleum products produced by the Commission as the Central Government may require. Section 24 of the 1959 Act. speaks of compulsory acquisition of land by i:he Commission.

Section 25 of tlhe 1959 Act confers power on any employee of the Commission authorised by it to e.1ter upon any land or premises and there do such things as may be reasonably necessary for the purpose of la.wfully carrying out any of its works or to make survey, exami:nation or investigation preliminary or incidental to the exercise of powers or t]1e perfot'IIYc!tnce of functions by the Commission under the Act.

The employees of the Commission are deemed by sectio.1 27 of r.he 1959 Act to be public servants under section 21 of the Indian Penal Cock.

The Oil and Natural Gas Commission Act. 1959 is an Act to provide for the establishment of a Commission for the development of petroh:um resources and the productio.a and sale of petroleum and

Sl1JCHDEV v. BHAGATRAM (Ray, C.J.) 6.37

petroleum products produced by it and for matters ronnected therewith.

Article 298 sliates that the executive power of the Union Md of each State shall extend to the carrying on of any trade or business and to the acquisition holding and disposal of property and the making of contracts.

Under Article 73 subject to the provisions of the Constitution, the executive power of the Uni9n shall extend to the matters with respect to which Parliament h-as power to make iaws: and to the exercise of such rights, authority and jurisdiction as are exercisable by the Government of India by virtue of any treaty or agreement.

The Union is competent to carry on .trade and business in mines and milleral resources.

The power of the Union is co-extensive with the legislative power of the Parliament.

The Oil and Natural Gas Commission is established for the development of petroleum resources and the production and sale of petroleum and petroleum products.

The exploitation of the resources is by the Union through the agency of the satutory commission.

The members of the Commission . are appointed by the Ce>atral Government. If they want to resign. resignation bas to be sent to the Central Government.

Termination oI appointment of members is by the Centml Government.

The powers and functions of the Commission are those assigaed by the statute and such functions as the Central Government may assign.

No indutry which will use any of the gases produced by the Commission as a raw material shall be set up by the Commission without the previous appro, ml of the Central Government.

The capital of the Commission is what has already betn incurred by the Central Government as nonrecurring expenditure in connection with the existing organisation.

The Central Government may also provide to the Commission any further capital which may be required by the Crmmission for carrying on its business.

The Commissi0',1 may, with the previous approval of the Central Government borrow money. The budget is to be in such form as the Central Government may prescribe. The Commission may not re-approrriate wilhout the previous approval nf the Centrnl Government.

The reports, accounts are to be audited by the Comptroller and Auditor-General of India and these are not only to be forwarded . to the Central Government but a,.e -also to be laid before the Parliament.

The audit report is also to be before the Parliament. Any land reuired by the Commission is to be acquired under the Land Acquisition Act , as if it were required by a company. The Commission is empowered to enter upon any land or premises. The dissolution of the Commission is by the Central Government.

All these provisions indicate at each stage that the creation, composition of membershio, the functions and P<'Wers. th~ financial powers, the audit of accounts, the returns, the capital, the borrowing powers, the dissolution of the Commission and acquisition of and for the purpose of the company and the powers of entry arc all authority ::ind agency of the Centra! Government.

The Life Insurance Act is an Act to provid~ for the nationalisation of life insurance business in India by transferring all such business to the Corporation established for the puroose •and to provide for the regulation and control of the business of tie Corporation and for matters connected therewith or incidental thereto.

On the appointed day viz.

1 July, 1956, all assets and liabilities appertaining to the controlled A business of all insurers became transferred to and vested in the Corporation. The service of existing employees of insurers was transferrod to the Corporation. It became the duty of very person in possession, custody or control of property appertainir:.g to the controlled business of an insurer to deliver the same to the Corporation forthwith.

The Corporation was empowered to re<luc1~ the amounts of imurancc under contracts of life insurance in such nranner and subject to such condi B tions as it th9ught fit. In the discharge of functions under the Act, the: Corporatic>n is guided by directions ii1 matters of policy involvins public interest as the Central Government may give to it. If any question iarises whether a direction relates to a matter or policy invc1lving public interest, the decision of the Central Government shall be final.

The Corporati<M is to submit to the Central Government a11 .acc count of activi.ties during the financial year. The Corporation has the exc:lusive privilege of carrying on life insurance business in 1ndia. On and from the appointr, d day, none but the Corporatioa can carry on life insurance business in India. The sums assured by policies issued by the Corporation including bonuses shall be guaranteed as to payment in cash by the Central Government. No suit, prosecution or other legal proceedings shall lie against any member or employe:e of D the Corporation for anything which is in good faith done or intended to be done under the Act.

The provisions of the Life Insurance Corporation Act amply 'sta blish that the Corporation has the exclusive privilege of carryini~ on life insurance business. The policies are guaranteed by the Central Government. If profits accrue from any business other than life: in- E surance busi1ness then after making provision for reserve"> and eother . matters, the balance of profit shall be paid to the Central Government.

The: report of the activities of the Corporation is to be submitted to the Central Govemment.

The origin~! capital of the Corporation is five crores of rupees provided by the Central Government. The Central Government m'ly L" reduce the capital of the Corporati0111. The Corporation may ask for .. relief in respect of certain transactions of the insurer whose controlled business has been transferred to the Corporation. The relief is granted l>y the Tribunal. The Tribuml is constituted by the Central Gov1rn rnent. The Central office of the Corporation shall be at such tllac1~ as !he CC',1tral Government may specify.

In the digcharge of functions

undir the Act, the Corporation shall be guided by such direction!; in matters of policy involving public interest as the Central Governmient G may direct. If any question arises relating to a matter of policy involving public irHcrest, the decision of the Central Governme.1t shall be final..

The accounts of the Corooration shall be audited by auditors who will be appointed with the .. previous approval of the Ceutral Government. The auditors shall submit the report to the Corporation and shall also forward a copy of the report to the Central Government.

U If as a result of any investigation undertaken by the Corporation any surplus emerges, ninety-five per cent of such surplus or such higher

SUXHDBV v. BHAGATRAM (Ray, CJ.) 639

percentage thereof as the Central Government may approve shall be allocated to or reserved fur the life insurance policy holders of the Corporation and after meeting the liabilities of the Corporation the remainder shall be paid to the Central Government or if that Govern-- ment so direets be utilised for such purposes and in such manner as that Government may determine. If profits accrue after making provision for reserves 'alld other matters, the balance shall be paid to the Central Goverillilent. The Central Government shall cause the report of. the auditors, the report of the actuaries and the report giving an account o( the activities of the Corporation to be laid before the Parliament. The provisions of the Companies Act do not apply to the Corporation with regard to winding up. The Corporation cannot be placed in liquidation except by an order of the Central Government.

The structure of the Life Insurance Corporation indicates that the Col')'Oration is an agency of the Government carrying on the exclusive busmess of life insurance. Each and very provision shows in no uncertain terms that the voice is tl:tat of the Central Government and the hands are also of the Central Government.

The Industrial Finance Corporation is a body corporate. The authorised capital of the Corporation shall be ten crores of tupeei divided into twenty thousand fully paid up shares of five thousand rupees each. Ten thousand shares of the total value of five crores of rupees shall be issued in the first instance. The remaining shares may be issued with the sanction of the Central_ Government.

Of the capital issued in the first instl'llce, the Central Government and the Reserve Bank of India shall each subscribe for two thousand shares.

Scheduled banks may subscribe for two thousand five hundred shares, Insurance companies, investment trusts and other like financial institu-_ tions for two thousand five hundred shares and co-operative banks for ooe thousand shares of the Corporation. It is significant that ordinary citizens cannot be shareholders. All shares of the Corporation held by Lhe Central Government and the Reserve Bank of India shall stand trimsferred to and vest in the Development Bank.

As compensation therefore, the Development Bank shall pay to the Central Government and to the Reserve Bank respectively the face value of th~ shares htld by that Government and by that Bank. The shares of tl1e CorporatiQn shall be guaranteed by the Central Government as to the re-payment of the principal 1md the payment of the annual diVidend at such minimum rate as may be fixed by the Central Government by notification.

The Development Bank means the Industrial DeYelopment Bank of.

India establisf)ed under the Industrial Development Bank of India Act, 1964. .

The Otairman of the Corporation shall be appointed by the C.Cnlral Gcvemment.

Four Directors are nominated by the Development Bank; two directors are nominated by the Central Government; twodirectors are elected by Scheduled Banks; two directors are elected by shareholders of the Corporation other than the Development Bank, Scheduled Banks and the-_ co-operative banks; two directors are elected by co-operative banb. The Central Government may remove the

Chairman. ·

Where any industrial concern which is under a liability to the Corporation makes any default in re-ayment or other:wise fails to comply with the terms of the agreement WJth the Corporation, the Corporation

shall have the right to take over the management or possession or both of the concern as well as the right to transfer by way of lease or sale

and realise the property, pk.dged, mortgaged, hypothecated or assiied to the Corporation.

The Corporation shall furnish to the Central Government statement of assets and liabilities at the close of the year together with profit and loss account and a report of the working of the Corporation and the repurt shall be published in the Official Gazette and shall be laid before Parliam1mt.

No provision of law relating to the winding up of companies or corporations shall apply to the Corporation. The Corporation shall not be placed in liquidation save by order of the Central Government.

The superintendence and the affairs of the Corporation shall be entms1ed to a Board.

In the discharge of futnctiom:, the JBoard shall be guided by the Developmen1t Bank.

If any dispute arises between the Development Bank and the Board, the dispute shall be referred to the Central Govemment whose decision shall be final.

The Central Government shall have the power to supersede the Board and appoint a new Board in it:s place to function until a properly constituted Boru-d is set up.

The Corporation may invest its funds in the securities of the Central Government or of any State Government mid may with the approval of. the Central Government contribute to the initial capital of .the Unit Trust of India. The Corporation may also subscribe to or purchase the shares of any financial institution which the Cei,1tral Government in consultation •vith the Development Bank may notify in this behalf.

The Corporation may issue and sell bonds and debentures.

Bond~. and debentures of tl1e Corporation sliall be guaranteed by the Central Government as to the re-payment of the principal arid the payment of interest. ·

The Central Govemment may issue directions to auditors requiring them to report to it upon the adequacy of measures taken by the Corporation for the protection of its shareholders and creditors. The Cen1ral Government may appoint the Comptroller and Auditor General of India to examine and reoort upon the accounts of the Corporatify,, and e:penditure. Every audit report shall be forwarded to the Central Government and the Government shall cause the same to be laid before both Houses of Parliament.

The Central Government may decide to acquire the shares held by the shareholders other than the Development Bank.

The harehoHers shall be paid for the shares so acquired an amount equal to the paid up value of the shares tpgether with a premium calculated at the rate of one per cent of the paid up value for every year from the date of issue to the date of acquisition subject to a maximum of ten per cent.

After the acquiition of the shares, the Central Government shall tram:- fer the shares to the Development Bank, that Bank paying an amount

SUKHDEV v. BHAG~TRAM (Ray, C.J.) 641

A equal to the amount paid by the Central Government for such acquisition.

After such acquisition, the Central Goven11i1cnt may direct that the entire undertaking of the Corporation shall stami transferred to and vest in the Development Bank.

These provisions of the Industrial Finance Corporation Act show that the Corporation is in effect managed and controlled by the Central B Government.

The Oil and Natural Gas Commission is owned by the Government. It is a statutory body and not a company. The Commission ha~ the exclusive privilage of extracting petroleum. The management is by the Government. It can be dissolved only by the Governmeht.

c The Life Insurance Corporation is owned by the Government The life insurance business is nationalised and vested in the Corporation, No other insurer can carry on life insurance business. The management is by the Government. The dissoluti'on can be only by the Government.

The Industrial Finance Corporation is under the complete control and management of the Central Government. Citizens cannot be shareholders. 'certain specified institutions like Scheduled Banks, Insurance Companies, Investment Trusts and Co-operative Banks may apply for the shares. The Central Government may acquire shares hdd by shareholders other than the Development Bank. After uch acquisition, the Government may direct that the entire undertaking of the Corporation shall be vested in the Development Bank. The Corporation cannot be dissolved except by the Government.

In the backgound of the provisions of the three Acts under consideration, the question arises as to whether these corporations can be described to be authorities with the meaning of Article 12 of the Constitution. In the Rajasthan Electricity Boord case it was said that the power to give directions, the disobedience of which must be punishable as a criminal offence would furnish one of the reasons for characterising the body as an authority within the mean ing of Article, 12. The power to make rules or regulations :ind to admini£ter or enforce them would be one of the elements of authoritie~ contemplated in Article 12. Authorities envisaged in Art!cfo 12 are described as instrumentalities of State action. On behalf of the State it was contended that the Oil and Natural Gas Commission as well as Industrial Finance Corporation was not granted immunity from taxation and therefore the liability to be taxed would indicate that the Corporation was not a State authority. Reference is mad~ to Article 289 which speaks of exemption of property and income of a State from Union taxation. The liability to taxation will not detract from the Corporation being an authority within the meaning of Arcicle 12.

Article 289 empowers Union to impose tax in respect of trade or business carried on by or on behalf of a State.

The Oil and Natural Gas Commission Act confers power of entry on employees of the Commission upon any land or premises for the purpose of lawfully carrying out works by the Commission. Th!l mem-

642 SUPlU!MB COUl.T RBPOllTS [1975) 3 11.C.ll.

bc:rs and employees of the Commission are public servants within the meaning of &eetion 21 of the Indian Penal Code. The Commission enjoys protection of action taken under the Act.

. The Life Insurance Act provides that if any person lawfully withholds or fails to deliver to the Corporation any property which has been transfen:ed to and vested in the Corporation or wilfully applies them to purposes other than those expressed or authorised by th(~ Act, he: shall, on the complaint of the Corporation be punishable with the ' imprir.onment, which may extend to one year or with fine which may extend to one thousand of rupees or with both. The O>rporation also

1 enjoys protec1; ion of action taken under the Act. ' The Industrial Finance Corporation Act states that whoever in any bill of lading, warehouse receipt or other instrument given to the ., C.orporation whereby security is given to the Corporation for 11c:commodation granted by it wilfully makes any false statement or knowingly permits any false statement to be made shall be punishable with imprisonment for a term which may extend to two years or with fine which may extend to two thousand rupees or with both. Further whoev(:r without the consent in writing of the Corporation uses the name

of the Corporation in any prospect or advertisement shall be punishable with imprisonment for a term which may extend to six months or with fine which may extend to one thousand rupees or with both. 1 Th.e Corporation enjoys protection of action taken under the Act. A , company inoorporated under the Indian Companies Act does not . 1 enjoy these privileges.

For the foregoing reasons, we hold that rules and regulations framed by the Oil and Natural Gas Commission, Life lnsuranee C'.01·

poration and the Industrial Finance Corporation have the force of law. The employees of these statutory bodies have a statutory status ancl they are entitled to declaration of being in employment, when the!r dismissal or removal is in contravention of statutory prov.isions. By way of abundant caution we state that these emplovees are not ser vants of the Ui:i.ion or the State. These statutory bodies are "authorities" within the meaning of Article 12 of the Constitution.

 In Civil Appeal No. 2137 of 1972, the declaration granted by the High C-Ourt that the order removing Bhagatram Sardarsing Raghuvansi

from service is null and void and that he continues in service is upheld. me. writ of mandamus issued by the High C-Ourt is also upheld.

In Civil Appeal No. 1655 of 1973, the writ of mandamus granted by the Hjgh Court is upheld.

In Civil Appeal No. 1879 of 1972, our conclusion is that the Corporation is an authority within the meaning of Article 12 of the Contitution for the reasons given in this judgment. The conclusion of the High Court that the regulations have not the foree of law is set aside.

The conclusion of the Hil!:h Court that Corporation should not be permitted to enforce the regulations mentioned in clas (1) and (4) of Reg111lation 25 iii upheld.

J:.

SUKHDEV v. BHAGATRAM (Mathew, J.) 643

In Civil Appeal No. 115 of 197 4, the judg1nent of the High Court is set aside. The Finance Corporation is an authority within the meaning of Artic; e 12. The regulations of the Corporation have the force of law. The conclusion of the High Court that the Association is not entitled~ raise a plea of discrimination on the basis of Article 16 is set aside.

The appeals are disposCd of accordingly.

The parties will pay and bear their own costs in all these appeals.

MATHEW, J.-The question whether a public corporation of tho nature ofl Oil and, Natural Gas/ Commission, Life Insurance Corporation or Industrial Finance Corporation is a 'state' within the

meaning of Article 12 of the Constitution is one of far reaching impQrtance. ·

The relevant provisions of the Oil and Natural Gas Commission Act, 1939, have been analvsed in the judgment of my Lord the ChieC Justice and I do not think it necessary to set them out here.

In Ra; asthan Electricity Board v. Mohan Lal(') this Court had occasion to consider the question whether the Rajasthan Electricity Board was an authority within the meaning of the expression 'other authorities" in Article 12 of the Constitution. Bhargava, J. delivering the judgment for the majority pointed out that the exl?ression "other authorities" in Article 12 would include all constitµtional and statutory authorities on whom powers are conferred by law. The lcamd judge also said that if any body of persons has authority to issue directions, the disobedience of which would be punishable as a criminal offence, that would be an indication that that authority is 'state'.· Justice Shah who delivered a separate judgment agreeing with the couclusion reached by the majority preferred to adopt a slightly different meaning to the words "other authorities". He said that authorities, constitutional or statutory, would fall within the expression 'state' as dewed in Article 12 only if they are invested with sovereign power of the State, namely, the power to make mies or regulations which have the force of law.

The test propounded by the majority is satisfied so far as the Oil and Natural Gas Commission (hereinafter referred to as 'the Commi:;-

sion) is concerned as s. 25 of the Oil and Natural Gas Commission Act (hereinafter referred to as 'the Act') provides for issuin.e binding_ issue binding directions to third parties not to prevent the employees G of the C0mmission from entering upon their propertv if the Commisliion so directs. In other words, as s. 25 authorises the Commission to issue bindin!l: directions to third parties not trJ prevent the employee> of the Commigion from entering into their land and a~ diobediencc of such directions is punishable under the relevant provision of the Indian Penal Code since those employees are deemed to be public servants under s. 21 of the Indian Penal Code by virtue of s. 27 of tllc H Act, the Commission is an 'authority' within the meaning of the expres.sion "other authorities" in Article 12. ·


'Iltough this would be sufficient to make the Commission a 'state' according to the decision of this Court in the Rajasthan Electricity Board Case (supra), there is a larger question which has a direct b.ar- ing so far as the other two Corporations are concerned viz., whether, despite the fact that there are no provisions for issuing bindinj directions to third parties the disobedience of which would entail pe:nal consequence, the corporations set up under statutes to carry on business of public Importance or which is fundamental to the life of the people can be considered as 'state' within the meaning of Article 12 That Article reads .

"In this Part, unless the context otherwise requires, 'the State' includes the Government and Parliament of India and the Government and the Le!rlslature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India."

It is relevant to note that the Article does not define the word 'stat:::'.

It only provides that 'state' includes the authorities specified therdn.

The question whether a corporation set up under a statute to carry on a business of public importance is a 'state' despite the fact that itha~ no power to issue binding directions has to be decided on other considerations.

One of the greatest sources of our strength in constituti'Onal law is that we adjudge only concrete cases and do not pronounce principles in the abstract.

But there comes a moment when the process of empiric adjudication calls for more rational and realistic disposition than that the immediate case is not different from preceding ca; cs.

The concept of state has undergone drastic changes in recent years.

Today state cannot be ccmceived of simply as a coercive machinery wielding the thunderbolt of authority. It has to be view- .; d mainly as a service corporation.

"If we clearly grasp the character of the state as a social agent, understanding it rationally as a form of service and not mystically as an ultimate power, we shall differ only in respect of the limits of its ability to render service."

(see Mac Iver, "The Modern State", 183).

To some people state is essentially a: class-strut:ture, 'an organization of one class dominating over the other classes'; others regard it a~! an organisation that transcends all classes and stands for the

whol~ community.

They regard it as a power-system. Some view it entirely a~ a ieeal structure, either in the old Austinian sense which mad<: it a relationship of governors and g(Jverned, or, in the language of modem jurisorudence, as a community 'urganized for action under

le.~! rules'.

Some re:wrd it as no more than a mutual insurance society, others as the very texture of all our life.

Some class the state as a tJrcat 'cornnration' and others consider it as indistinguishable from society itself('),

(1) Be~ Mac. Iver, "The Modern State", pp. 3-4.

SVKHDEV v. BHAGATMM (Mathew, /.) 645

Part IV of the Constitution gives a picture of the services which the state is expected to undertake and render. for the welfare of the: people.

Article 298 provides that the executive power of the Union and State extends to the carrying on of any business or trade.

As I said, the question for consideration is whether a public corporafron set up under a special statute to carry on a business or service which PEr!!::ment thinks necessary to be cmrid on in the interest of the naticm is an agensy or instrumentalitv s£ th.~ Si8.1:c and w0uld be subje<::t to the Emitatio11s expressed ::i Artie]~ l 3(2) of the Constitution.

A state is an abstract e:tity. It can only act throng:h the instrumentality Oi a(!ency of natural or juridical persons.

Therefore, there is nothing strnll.l'e in the notion of the state acting through a corporation ~.nd making it an agency or inslrumentality vf the State.

The chartered corporations of the 17th, 13th :rnd 19th centuric, were expected, perhaps req\1ired, to perform stated cluties to the community like running a ferry, founding a colony o• establishing Ea~.: [ndian trade.

Performance of these functions and securing whatever revenue the enterprise made to the Crown were the primary reasons why a charter was granted. Corporation in early English Law were in fact, and in legal cognizance, a dc•,1ice by which the political state got something done.

They were far nore like the bodies corporate we call 'public authorities' today.

Few in the 17th or 18th century would have disputed that such a corporation was an agency of the state(').

The Supreme Court of the United States in McCullough v. Maryland(2) held that the Congress has power to charter corporations as incidental to or in aid of governmental functions.

So far as federal corporatioilS are concerned, they are, by hypothesis, agencies of government. With this premise it would follow that action of a federally chartered corporation would be governed bv the constitutional limitation imposed on an agency of the Federal Government(3).

The tasks 'Of government multiplied with the advent of the welfare state and consequently, the framework of civil service administration became increasingly insufficient for handling the new tasks 1hich were often of a specialised and highly technical character. .1!, t the same time, 'bureaucracy' came under a cloud.

The. distrust of government by civil service, justified or not, was a powerful factor in the development of a policy of public administration through separate corporations which would operate largely according to business principles and be separately accountable.

The public corporation, tfterefore, became a third arm of the Government. In Great Britain, the conduct of basic industrie~ through giant corporation is now a permanent feature of public Ek.

----(~~-;;-!lcnerii\\y-;'The Modem Corporation and Private Property". Berle &

Means, pp. 119-128.

(2) 4 Wheat. 315 (US 1819).

(3) see Adolf A. Berle, "Constitutional Limitations on Corporate Activity ..

Protection of Personal Rights from Invasion through Economic Power", 100 Uni1. of Pennsylvania Law Rev. 933.

64& SUPllBME COUIT !\!PORTS (1975] 3 s.c.1.

A public corporation is a legal entity established normally by Parliament and always under legal authority, usually in the form of a special statute, charged with the duty of carrying out specifted governmental functions in the national interest, those fnnctions bein~ confined to a comparatively restricted field, and subjected to control by the executive, while the corporation remains juristically an independent 1entity not directly responsible to Parliament(').

A public <.."'Qrporation is not generally a multi-purpose authority but a functional organisation created for a specific purpose. It has ger.eral!y

no shares or shareholde1'8.

Its responsibility generally is to Government.

Its administration is in the hands of a Board appointed by the competent Minister. The employees of public corporation are not civil servants.

Jt is. in fact, likely that in due course a special type of training for speeialized form of public service will be developed and the status of the personnel of public corporation mav more

and more closely approximate to that of civil service without forming vart of it. In so far as public corporations fulfil public tasks on behalf of government, they are public authorities and as such subject to control by government.

In France, "An enterprise publique is an enterprise the whole or the majority of whl'.lse capital belongs to the State or other ;:-ublic

agencies. By reason of its industrial C'r commercial activities it is basically subject to private Jaw (and i:articularly to commercial law) ; is are private enterprises, but, because of its public nature, it find~ itself subj:ected to a certain degree of dependence on and control by public authorities" (1).

The motivation for the creation of public corporation naturally plavs much lar!!er part in under-developed and poor countries than in industiially advanced countries. This accounts for the emergence of public corporations and the present significance of public enterprise carried on by them. The Government of India resolution on industrial policy dated April 6, 1948 stated, among other things, that "management of state enterprise will as a rule be through the medium of public ccmioration under the statutory control of the Central Government who will assume such powers as may be necessary to ensure this. The. Government of India Resolution on Industrial Polic:y dated April 30, 1956 stated : (1)

"Aa:ordingly, the State will progressively assume a predominant amt direct responsibility for setting up new industrial undertakin~ and for developing transport facili- .ties. It will al90 undertake State trading on an increasing

s<:ale." The Constitution wa, framed on the theory that limitation should exist on the exercise of power by the State. The assumption was

(I) sec Gamer : "Public Corporations in the United Kingdom" in "Govcmmcnt Enteiµrisc" ed. W. Friedmann & J.P. Garner, p. 4. !ii

(2) seo "Government E.oterprisc", cd, W. Friedrnann & J. F. Gamer, pp. 107-108.

(3) ~' "Government in Business", S .s. Khcra, p. 368 & p. 373.

- A

SUDIDIV v. l~ATIAM. (MGIJllw, J,) 6'1

.that the State alone was competent to wield power. But the esaett

tiol problem of liberty and equality is one of freedom from arbitrary . restriction and discrimination whenever and however imposed. Th•

Constitution, therefore, should, wherever J>0S5ible, be so construed as to apply to arbitrary application of power against individuals by centres of power. The emerging principle appears to be that a public corporation being a creation of the State is subject to the constitutional limitation as the State itself.

The pre-condition& of this are two, namely, that the corporation is created by State, and, the existence of power in the corporation to invade the constitutional right of individual.

The advocates of pluralism like Laski and Dr. Figgis pleaded for recognition of social groups within the state in mitigation of the legal and ideological, deification of the State. Today, probably the gia, nt corporations, the labour unions, trade associatiuns and other powerful organisations have taken the substace of sovereignty from the state.

We are witnessing another dialectic process in history namely, that th•

sovereign state having taken over all effective legal and political power from groups surrendered its power to the new massive social groups('). The growing power of the industrial giants, of the labour unions and of certain other organiz.ed groups, compels a reasses&- ment of the relation between group power and the modem state on the hand and the; freedom of the individual on the other. The corporate organisations of business and labour have long ceased to be

private phenomena.

That they have a direct and decisive impact on the social, economic and political life of the nation is no longer a matter of argument. It is an undeniable fact of daily experience.

The challenge to the contemporary lawyer is to translate the social

transformation of these organisations from private associations fo public organisms into legal terms. In attempting to do so, we haYt to recognize that both business and labour currently exercise vast powers. First, they have power over the millions of men and women whose lives they largely control as employees or as members. Second, they exercise power more indirectly, though not less powerfullv, over the unorganized citizens whose lives they largely control through standardized terms of contract, through price policy, through the po of production and the' terms and conditions of labour.

Last, they exercise oontrol over the organi7.ed community, represented by th• organs of State, in a multitude of ways; direct lobby pressures, con" trot over election and policies of the elected representatives of the peoples and far-reaching control over the mass media ot communicatfon.

In this sense 'government' or 'law-making' by private groups is today an irTcvemOle fact(•).

Generally speaking, large corporationa have power and this power does not merely oome from the statutes creating them. They acquire power because they produce goods or !el'Vices upon which the community rcmJes to rely. Jbe methods by which these corporations pro- H duce and the distribution made in the coune Of their production by

(1) See W. Friedmann, ''I.aw ill a ChanciOI Society"," 298:

(2) eee "Gorporalle Paws, Gow:mment by Private GroupS and the law'

57 Colmnbia L'w Rev .156,'at IS6, 176-177).

way of wages, dividends and interest, as also tht:: profit withheld and used for further capital progress and the manner in which and the conditions under which they employ their workmen and staff are vital botl1 to the lives of many people and to the continued supply !me of thL' ccuntry. Certain impcrtives follow from this.

Both big busin<:ss and big labour unions exercise much quasi-public authority.

The problems po, cd by the big corporntion is the pro(ec; ic.n •, if the individual rights of the crnploye(; S. Sug;;; csticns are bcin:~ mack trnt the corporate organisr.tions o[ big busi,1ess and labour ar~ no lo:iger private phmJmcna; that they arc public organisims a:1d that constitutional and common law rcstrictioris imposed upon State agencies must be impo.';:::<l upon them.

The go'.'Crning power wherever located must be subject to the fundamental constitutional limitations. The need to subject the power centres to the control of constitution require an expansion cf the concept cf State action. The historicai trend in America of jurlicial decisions bas been that of bringing more and more activity within the

reach of the limitations of the Constitution. "The next step would be to draw private governments into the tent of state action. This is not a particularly startling proposition, for a number of recent cases have shown that the concept of private action must yield to a conception of state .action where public functions are being performed"(').

In Marsh v. Alabama(2 ), a corporation owned a 'company town'.

Marsh, a Jehovah's \\tness offc, red his pamphlets preached his doctrine on one of the town comers. He was arrested for trespassing by one of the company guards, was fined five dollars and the case went all the way up to the Supreme Court.

On straight property logic, Marsh, of course was trespa<sing;; he \Vas an unwanted visitor on company's re1al estate. But, Court said, operation of a town is a public func .. tion.

Although private in the property sense, it was public in the functional sense. The substance of the doctrine there laid down is that where a corporation is privately perfom1ing a 'public function' it is held to the constitutional standards regarding civil right and equal pirotection of the laws that apply to the state itself. The C.Ourt held" that administration of private property such a town, though privately carded on, was, nevertheless, in the nature of a '.public function', that tlte private rights of the corporation must thereforebe-exercised within constitutional limitations, and the conviction for trespass was reversed.

But how far can this expansion go? Except in very few cases, 'Our Constitution does not, through its own force, set any limitation upon private action. Article 13 (2) provides that no' State shall make any law which takes away or abridges the right guaranteed by Pa.rt III.

It is the Stat<~ action of a particular character that is prohibited. fodividual invasion of individual right is not, generally speaking, covered by Article 13(2). In other words, it is against State action that fundamental right!; are guaranteed.

W1'0ngful individual acts unsupported -·--------

(1) see Arthur S. Miller : "The Constitutional Law of the 'Security State'.".

JO Stanford Law Rev. 620 at 664.

(2) 326 U.S. 501 (1946). _

SUKHDEV v. BHAGATRAM (Mathew, J.) 6 4 9

by State authority in the shape of laws, customs, or judicial or executive proceeding are not prohibited. Articles 17, 23 and 24 postulate that fundamental. rights can be violated by private individuals and that the remedy under Article 32 may be available against them.

Bui. by and large, unless an act is sanctioned in some way bv the St:1tc, the action would not be State action. In other words, until some law is passed or some action is taken through officers or agents of the State, there is no action by the State. In the Civil Rights Cases (I) Bradley, J. speaking for the majority, took this view of the 14th Amendment.

That Amendment provides, : "No State shall make or enforce any law which shall abridQc the privileges or immunities of citizens of the United Sta1cs; nor shall any State deprive any pers.on of life, liberty or property without due process of law; , nor deny to any person within its jurisdiction the equal protection of the laws."

On the other hand, Justice Harlan tried to justify the imposition of civil liability for racial discrimination, effected not only by the normal officers of the State, but also by pri; vac individuals.

He perceived State action in rules and practices of hotels, inns, taverns, rail roads and places of amusement. He said that inn-keepers arc exercising a quasi-public employment and that law gives them special privileges and they are chairged with certain duties and responsibilities to the public. As t'O public cmveyances, he read the law of common carriers to require the performance of public duties, , and that no matter who is the agent or what is the agency, the function to be performed is that of 'State'. The investiture of rail road with power of eminent domain made the function of the rail road corporation a public function.

I think the later decisions of courts in the~ U.S.A. follow the lead given by Justice Harlen in his dissenting Judgement.

Several tests have been propounded to find out whether an action is private or state action..

These decisi'On do not rest on the. basis that the entity or organization must wield authority in the sense it !lllust have power to issue commands in the Austinian sense, or that it must have the sovereign power to pass laws or regulations having the force of law.

Does any a.mount of state help, however inconsequential, make an aci something more than an individual act ? Suppose, a privately owned and managed operation receives direct financial aid from the State, is an act of such an agency an act of State ? It would be difficult to give a categorical answer to this question.

Any operation or purpose of value to the public may be encouraged by aporopriation of public money and the resulting publicly supported operation can be characterized as a state operation.

But such a rule would seem to go 1\) the extreme. There seems to be no formula which would provide the correct division of cases of this type into neat cateeorics of State action and private action.

Some clue however, to the considerations which might impel the court in one directi'on or the other mr.y be obtained from an examination of the cases in this area.

The decisions of the State courts in U.S.A. seem to establish that a private agency, if supported by public money for its operation would be 'state'.

(1) 109 u. s. 3. l l-470SCI/75

, But in all these cases, it has been found that there was an element of control exercised by the State. Therefore, it may be state<f generally that State financial aid alone does not render the institution receiving such aid a state agency. Financial. aid plus some additional factor might lead to a difl'erent conclusion. A mere finding of state control also is not determinative of the question, since a state has considerable measure of control under its police power over all types of busim .. ss operations. It is not possible to assume that the panoply of law and , authority of a state under which people carry on ordinary business, or their private affairs or own property, each enjoying equality in terms of legal capacity would be extraordinary assistanc_e.

A finding I of state financial support plus an unusual degree of control over the l manageme, nt and policies might lead one to characterize an operation as state action.

Another factor which might be. considered is whether the operation 1 fa an important public function.

The combination of state aid and . the furnishing of an important public service may result ii:t a coni clusion that the operation should be classified as a state agency. If a given function is of such public importance and so closely related to governmental functions as to be classified as a government agency, then even the presence or absence of state financial aid .might be irrelevant in making a finding of state action. . If the function does not fall within such a description, then mere addition of state money would not influence the conclusion. 1 ' The state may aid a private operation in various ways other than by direct financial assistance. It may give the organization the power of eminent domain, it may grant tax exemptions, or it may give it a monopolistic status for certain purposes. All these are re:Ievant in making au assessment whether the operation is private or savours of 1itate action (1).

An important case on the subject is Kerr v. Enoch Pratt Free Lib rary( 2 ).

The library system in question was established by private donation in 1882, but by 1944, 99 per cent of the system"s budget was supplied by the city; title to the library property was held by the city; employees were paid by the city pay-roll officer; and a high degree of budget control was exercised or available to the city government.

On these facts the Court of Appeals required the trustees managing the system to abandon a discriminatory admissions policy for its library training courses(3). '

Dorsev v. Stuvvesant Town Corporation(') related to die problem raised by discriminatory action by a private agency receiving state financial aid.

Pursuant to New York's redevelopment laws, the Metropolitan Life Insurance Company organized a redevelopment corooration to participae in a plan to construct housing.

By an investm.:, nt

(I) se~ gnera!ly "The Meaning of State Action", LX Columbia Law Rev. 1083. .

(2) 149 F. 2d 212 (4th cir.) cert. denied, 326 U.S. 721 (1945).

(3) See LX Columbia Law Review 1083, at 1103.

(4) 299 N. Y. 512.

SUKHDEV v. BHAGATRAM (Ma:hew, J.) 6 51

of some $ 90,000,000, the company constructed a complex of apartments capable of housing 25,000 people.

The power of eminent domain was used to acquire the necessary land and partial tax exemption was granted for the completed project. As a part of the cooperative effort by the city and the private company, the plans for the pro- . ject were subject to approval of the city and the company's profits, dividends, and power to dispose of the property were subjected to regulation by state law.

When prospective Negro tenants were rejected by the company, they sued to enjoin discrimination as a violation of the Fourteenth Amendment.

The majority of the New York Court of Appeals found no exertion of state power directly in aid of discrimination and decided that the private company wls not engaged in a governmental function.

Fuld, J. dissented.

He said that even the conduct of private individuals would offend against the equal protection clause if the conduct appears in an activity of public importance and if the state has accorded to the activity, either the panoply of its authority or th(! weigh~ of its power, interest and support(').

In America, corporations or associations, private in character, lmt dealing with public rights, have already been held subject to constitutior..:11 standards. Political parties, for example, even though they are not statutory organisations, and are in form private clubs, are within this category. So also are labour unions on which statutes confer the right of collective bargaining.

Thus, in Steel v. LOuisville & Nashville R R (2) it was observed :

"If .... the (Railway Labour) Act confers this power on the bargaining r!!presentative of a craft . . . without any commensurate statutory duty towards its members, , constitutional questions arise.

For the representative is clothed with power not unlike that of a legislature which is subject to constitutional limitations on its power to deny, restrict, destroy, discriminate against the rights of those for whom it legislates and which is also under an affirmative constitutional duty equally to protect those rights." Institutions engaged in matters of high public. interest or perform:-/ ing public functions are by virtue of the nature of the function per formed government agencies(3).

Activities which are too fundamental to the society are by definition too important not to be considered government function. This demands the delineation of a theory which requires government to provide all persons with all fundamentals of life and the determinations of aspects which are fundamental.

The state today has an affirmative duty of seeing that all essentials of life' are made available to all persons.

The task of the state today is to make possible the achievement of a Good life both by removing obstacles in the path of such achievements and in assisting individual in realizing his ideal of self-perfection Assuming that indispensable functions are government functions, the problem remains

(I) see the Note in XXXV Cornell Law Quarterly, 399.

(2) 323 U. S; 192, 198.

(3) see the decisions in Terry v. Adams, 273 U.S. 536 & Nixon v. Condon, 286 u. s. 73.

ar ddi.ning the line etween fudamentals and nn-fundamnt.als. Th,~

analogy of the cloctnne of "busmesses affected with_ a public interest immediately comes to mind.

The difficulty here is wel sta!ed by Justice Holmes in Tyson and Brother v. Banton(!) dealing with the constitutionality of a New York statute which limited the fees chaqed by theatre ticket brokers :

"But if we arc to yield to fashionable conventions, it seems to me that theatres are as much devoted to public use as anything well can be .. (T)o many people the superfluous is the necessary, and it seems to me that government does not go beyond its sphere in attempting to mr, ke life livable for

them."

The difficulty of separating vital government functions from nongov;:rnment functions has created further difficulties.

Is the distinctioR between governmental and non-governmental functions which plagued the courts a rationi:.l one? The contrast is between governmental activitie:s which are' private and private activities which are governmental.

Without the adoption of a radical laissez faire philosophy and the definition of state functions as they were current in the days of Herbert Spencer it is impossible to sort out proper from improper functions.

Besides the so-called traditional functions, the modern state operates a multitude of public enterprises.

Mr. Justice Holmes said, the Constitution does not enact Herbert Spencer's social statics.

This applies equally to the definition of state function for legal purposes.

In New York v. United States(2). the question was •;1hether the ' sta.te of New York was liable to the federal tax on mineral waters from state-owned and state-operated Saratoga Springs. The judgments of both the majority and the minority agree on the uselessness of the test laid down in Ohio v. Helvering( 3 ) that liability to taxation depended upon the aistinction between stat..: as government and state as trader.

Frankfurter, J. said :

"When this Court came to sustain the federal taxing power upon a transportation system operated by a State, it did so in ways familiar in developing the law from precedent to precedent. It edged away from reliance on a sharp distinction between the 'governmental' and the 'trading' activities of a State, by denying immunity from federal taxation to a , State when it "is undertaking a business enterprise of a sort that is normally within the reach of the fecieral taxing power and is distinct from the usual governmental functions that are immune from federal taxation in order to safe-guard the n-xessary independence of the State".

H elvering v.

Powers, 293 U.S. 214 at 227. But this likewise does not furnish a satisfactory guide for dealing with such a practical problem as the constitutional power of the United States

(l) 272 U.ts. 41g. 447.

(2) 326 U. S, 572.

(3) 292 u. s. 360, 366.

SUKHDEV v. BHAGATRAM (Mathew, /.) 653

over State activities.

To rest the federal taxing power on what is 'normally' conducted by private enterprise in contra- . diction to the 'usual' governmental functions is too shifting a basis for determining constitutional power and too entanged in expediency to s-::rve as a dependable legal criterion.

The essential nature of the problem cannot be hidden by an attempt to separate manifestations of indivisible governmental powers."

Douglas, J. (1)

"A State's project is as much a legitimate governmenta\ activity whether it is traditional, or akin to private enterprise.

or conducted for profit. Cf. Helvering v. Gerhardt, 304 US 405, 426, 427.

A state may deem it as essential to its economy that it own and operate a railroad, a mill, or an irrigation system as it does to own and operate bridges, street lights, or a sewage disposal plant.

What hight have been viewed in an earlier day as an improvident or even dangerous extension of state activities may today be deemed indispensable.

But as Mr. Justice White said in his dissent in South Caroling v. United States, any activity in which ;, State engages within the limits of its police power is a legitimate governmental activity."

Jn Pfizer v. Ministry of Hcalthe), Willmcr L. J. in the Court of Appeal has recognized that in mid-Victorian times the treatment of patients in hospitals would have been regarded as 'something quite foreign to the functions of government' but added that since then there had been 'a revolution in political thought, and a totally different conception prevails today as to what is and what is not within the functions of government'.

It has taken English and American Courts many years to concede that the ci; crcise of an industrial or commercial activity on behalf of the State docs not deprive such activity of its 'governmental' character.

But a great many anomalies in common law remain, in particubr as regards the immunities and privileges of the Crown in such matters, immunity from the binding force of statute, debt priority, freedom from taxes and other public charges.

The recent English cases, appear, at long last, to move towards lthe abandonment of the totally antiquated notions of 'proper' functions of government.

In the Jigh.t of this discussion let us see whether the Lifo Insur::mce Corporation and the Industrial Finance Corporation would come within the ambit of 'state'.

The relevant provisions of the Life Insurance Corporation Act have been very clearly analysed in the judgment of my Lord the Chief Justice and it is unnecessary to repeat them. It is clear from the provisions that the Central Government has contributed the original capital of the Corporation, that part of the profit of the Corporation goes

(1) 326 U.S. 572, at 591.

(25) [1964]1Ch.614, at p. 641(affirmed1965 A. C. 512).

to that Government, that the Central Government exercises control A over the polfoy of the Corporation, that the Corporation carries on a business havi11g great public importance and that it e'ljoy a monopoly in the business.

I would draw the same conclusions from the relevant provisions of the Industrial Finance Corporation Act which have also been referred to in the aforesaid judgment. In these circumstances.

I think, these corporations are agencies or instrumentalities of the 'state' and are, therefore, 'state' within the meaning of Article B 12.

The fac.t that these corporations have independent personalities in the eye of law does not meJUl_ that-they are not subject to tht~ control of government or that they are not instrumentalities of the government.

These corporations are instrumentalities or agencies of the state for carrying on businesses which otherwise would have been run by the state departmentally. If the state had chosen to carry on these C' businesses through the medium of government departments, there would have been no question that actions of these departments would be 'state actions'.

Why then should be actions of these corporations be not state actions ?

The Additional Solicitor General submitted that since these corporations have separate personalities, they cannot be regarded as agents or instrumentalities of the state and referred to the decision in Andhra D Pradesh Srate Road Transport Corporation v. The Income Tax Officer and A 11other(l).

The question in that case was whether the Road Transport Corporation constituted under the Road Transport Corporations Act, 1950, was carrying on business on behalf of the State of Andhra Pradesh and that the income of the Corporation was exempt from liability to pay income tax.

This Court took the view that the-_ Road Transport Corporation was a corporate body and has a separate E personality and, therefore, the business carried on by it was its own busineos and the St::ite Government had no beneficial interest in the

iniome.

The ultimate question which is relevant for our purpose is whether such a corporation is an agency or instrumentality of the government for carrying on a business for the benefit of the public. In other words, the question is, for whose benefit was the corporation carrying on the business ? When it .is seen from the provisions of that Act that on liquidation of the Corporation, its assets should be divided among the shareholders, namely, the Central and State governments and others, if any, the implication is clear that the benefit of the accumulat~ income would go to the Central and State governments. Nobody will deny that an agent has a legal personality different from that of the principal.

The fact that the agent is subject to the direction of the principal does not mean that he has no legal personality of his own.

Likewise, merely because a corporation has legal personality of its own, it does not follow that the corporation cannot be an agent or instrumentality of the state, if it is subject to control of government in all important matters of policy. No doubt, there might be some disinction between the nature of control exercised by principal over agi:nt and the control exercised by government over public corporation. That, I think is only a distinction in degree.

The crux of the

(1) [19641 7 S.C. R. 17.

SUKHDEV v. BHAGATRAM (Mathew, J.) 655

matter is that public corporation is a new type of institution which has sprung from the new social and economic functions of government and that it therefore does not neatly fit into old legal categories. In stead of forcing it into them, the later should be adapted to the needs of changing times and conditions.

I do not think there is any basis for the apprehension expressed that by holding that these public corporations are 'state' within the

meanin~ of Article 12, the employees of these corporations would become gG1;:rnment servants. I also wish to make it clear that I express no opinion on the quesion whether private corporations or other like organisations, though they exercise power over their employees which might violate their fundamental rights, would be 'state' within the meaning of Article 12.

The second question for consideration is whether an order of removal or dismissal from service contrary to the regulations framed by these corporations in the exercise of power conferred in that behalf would enable an employee to a declaration against them for continuance in service or would give rise only to a claim for dama,1tes.

This will depend upon the question whether the regulations framed by these corporations would have the force of law and even if they have not the force of law, whether the employment is public employment and, for that reason, the employee would obtain a status which would enable him to obtain the declaration.

The learned Chief Justice has dealt with the question in his judgment whether the regulations framed by the corporations have the force of law and he has arrived at the conclusion that the regulations being framed under statutory provisions would have the force of law.

Ever. assuming that the regulations have no force of law, I think since the employment under these corporations is public employment, an employee would get a status which would enable him to obtain

1 declaration for continuance in service if he was dismissed or discharged contrary to the regulations.

The original concept of employment was that of master and servant. It was therefore held that a court will not specifically enforce a contract of employment. The law has adhered to the age..old rule that an employer may dismiss the employee at will. Certainly, an employee can never expect to be completely free to do what he likes to do.

He must face the prospect of discharge for failing or refusing to do his work in accordance with his employer's directions. Such control by the employer over the employee is fundamental to the employllli:nt relationship.

But there are innumerable facets of the employee's life that have little or no relevance to the employment relationship and over which the employer should not be allowed tv exercise control.

It is no doubt difficult to draw a line between reasonable demands of an employer and those which are unreasonable as having no relation to the employment itself. The rule that an employer can arbitrarily

discharge an employee with or without regard to th<: actuating nntive is a rule settled beyond doubt.

But the rule jJecame settled at :i time when the words 'master' and 'srvant' were t'aken more literath th:rn they are now and when, as in early Roman Law, the rights oE the servant, like the rights of any other member of the household, were not his own, but those or his pater families.

The overtones of this ancient doctrine are discernible in the judicial opinion which rationalised the employer's absolute right to discharge th<> employee.

Suh a philosophy of the employer's dominion over his employee may have been in tune with the rustic simplicity of by gone days. But that philosophy is incompatible with 'these days o[ ic:rgc, impersonal, corpor~1tc employers.

The conditions have now vastly changed and it is dim.- cult to regard the contract of employment with large scale industries and government enterprises conducted by bodies which are created under special statutes as mere contract of personal service.

Where large numbe~ of people are unemployed and it is extremely difficult to find employment, an employee who is discharged from service might have to remain without means of subsistence for a considerably 10~1g time and damages in the shape of wages for a certain period may not be an adequate compensation to the employee for non employment.

In other words, damages would be a poor substitute for reinstatement.

The traditional nle has survived because of the sustenance it rc.::eiwct

from the law of contracts. From the contractual principle oi mutuality of obligation, it was reasoned that if the employee-an quit bis job oil will, then so too must the employ1r have the right to terminat_e

the n:lationship for any or no reason.

And there are a number of cases in which even contracts for permanent employment, i.e. for indefinite terms, have hcen held uncnforccabk on the ground th:; t thi:y lack mutuality of obligation.

But these cases demonstrate that mutuality is a high sounding phrase of little use as an analytical tool and it would seem cle:ir that mutuality of obligation is not an inexorable requirement and that lack of mutuality is simply, as many courts have come to recognize, an imperfect way of referring to the real obstacle to enforcing any kind of contractual limitation on the employer's right

of di.charge, i.e. lack of consideration. If there is anything in contract Jaw which ~.cems likely to advance the present inquiry, it is the growing tendency to protect individuals from contracts of adhesion, from over-reaching terms often found in standard forms of co:ltract used by large commercial establishments. Judicial disfavour of co;1tracts of adhesion has been said to reflect the assumed need to orotect the weaker contrn, cting party against the harshness of the comm'on law and th:: abuses of freedom of contract.

The same philosophy seems to provide an appropriate answer to the argument, which stilt seems to have some vitality, that "the servant cannot complain, as 'h: tahs the ·mployment on the terms which arc offered to him"(').

In !1.fal!och v. A bcrdcen Corporatioll(").

Lord Wilberfor.;-:, in speaking about the anomaly created by judicial decision in the area nf contractual and statutory employments, has said :

(I) s~: Jc1stic: Ible •1.!i1 \1: "'.1tiT: v. !l!W B:dford, 155 Ma, s. 216.

(2) (1971) I W. LR. 1578.

SUKHDEV v. BHAGATRAM (Mathew, ].) 657

"A compai'ative list of situations in which persons have been held entitled or not entitled to a hearing or to observation of rules of natural justice, according to the master and servimt test, looks illogical and even bizarre.

A specialist surgeon was denied protection which is given to a hospital doctor; a University professor, as a servant has been denied the right to be heard, a dock labourer and an undergraduate have been granted it; examples can be multiplied.

One may accept that if there are relationships in which all requirements of the observance of rules of natural justice ar" excluded (and I do not wish to assume that this is inevitably

o), these must be confined to what have been called "pure master and servant cases", which I take to mean caes in which there is no element of public employment or service, no support by statute, nothing in the nature of an office or a status which is capable of protection. If any of these elements exist, then, in my opinion, whatever the terminology used. and even though in son1c ill!Cr partes aspects the rla tionship may be called that of master and servant, there may be essential precedural requirements to be observed, and falurc to observe then1 n1ay rcsu1t in a disn1issal being dccbred to be void." (I)

I think that employment under public corporations of th.> nature under consideration here .is public employment and therefor~ the employee should have the protection which apportains to public employment ..

ln McC/dlaml V. Northern Ireland Health Board(") rt; Hou>c of Lords, by a majority, decided that the express term whiCh provided for dismissal in case of misconduct and inefficiency was .:.xhaustiYc of the grounds of dismissal and, therefore, no further terms as to notice could be implied.

Lord Evershed pointed out :

 "Much may turn on the prcmis~ to a consideration of the meaning of the conditions-whether in a contract of ser- . vie~ made in the t\vcntieth ccnturv \\'ith a statutory board

such as the respondent board (whose cstablishe,.r" officers participate in the pension scheme contained in regulations promulgated by the Ministry of Health and Local Govm1mcnt of Northern Trdand). it is corr:ct tJ regard the comr.ion law right of <.t master to dc-tnninc his scrvlnt's engagement as of so well-established and paramount character that the contract should be interpreted as necessarily subject to that right (and to a corresponding right on the

part of the servant) so that only the clearest cxpr"ss terms will excfude it."

And he also pointed out that the position of the employer board and one of its servants is very different : 'The loss or damaoe to tile board OCCnsioned by the departure Of one Of its servants would, Sa\"e in very . ~-- .

(1) Mpp. 1595-1596.

Emhasis added.

(2) [!957] 2 All E.R.129.

exceptional circumstances, be negligible. To a servant, certainly a servant in the positiot1 of the appellant, the security of employment with the board for the period of working life is of immense value." This approach to public c:mployment goes some way towards the reversal of the common law position. In public employment where there is an appointment to a perma 1aent post, there should b<: presumption that the employee cannot qe given notice and the servant can only be dismissed for misconduct or specified reasons.

Lord Evershed in interpreting the word 'permanent' in that case said : "it seems to me of considerable importance, in interpreting its use in a contract of service, that. such a contract cannot be specifically enforced." This is an orthodox statement of legal principle but it is 11evertheless paradoxical to find it in a judgment which supported the majority view that a declaration should be granted.

Declaration is not specific performance but it has the same e.if ect in practice where a public authority is concerned which will invariablv act in accordance with the law as declared.

Declarations that \1otices of dismissal were invalid have also been granted in the school teacher cases. (1)

In Hanson v. Radclifie U.D.C. (2), Lord Sterndale M. R. Said "The power of the court (o make declarations, when it is a question of detcrmini!lg the rights of two parties to a contract, is now almost unlimited, or limired only by the discretion of the court." The discretimi.

which should guide the court must be in tune with the modern conditions of life and should result in reversal of present-day attitude. If a job is regarded as analogous to property, it ought to be recognized that a man is entitled to a particular job just as the courts of Equity acknowledged his right to a particular piece of property.

Where a public authority is concerned, this can be implemented by a declaration.

In the case of private employment English law has devised no suitabl~ remedy.

That this is possible is shown by the example of other countries(3).

The Court must, therefore, adopt the attitude that declaration is the normal remedy for a wrongful dismissal in case of public employees which will only be refused in exceptioll'al circumstances.

The remedy of declaration should be a ready-made instrument to provide reinstatement in public sector.

Once it is accepted that a man's job is like his property of which he can be deprived of for specific reasons, this remedy becomes the primary one though it will need to be reinforced where private individuals are being sued.

The law of master and servant has not kept pace with tl:e modem conditions and the mandate of equality embodied in the Constitution. The law still attaches to the servant a status of inferiority and subjection to his master.

Though fundamental reforms r, an only emanate from the legislature. the principles fashioned by public law if applied to masterservant relationship can bring about a change in law to accord with the social conditions of the 20th Century(4).

(I) So!~ Sadler '" Sheffield Corporation, (1924) 1 Ch. 483; Martin v. Eccles Corporati.011, (1919)_ 1 Ch. 387; & Hanson v. Radcliffe U.D.C., (1922) 2 Ch. 490.

(2) (1922) 2 Ch. 490.

(3) see Wedderburn : "The Worker and the Law" , p. 89 onwards.

(4) see generally "Public Law Principles Applicable to Dismissal from Employm::nt'" by G. Gan , 30 Modern Law Rev. 288.

SUKHDEV v. BHAGATRAM (Alagiriswami, J.) 659

That apart, the tegulatio.15 framed by these corporations were in tended to be binding upon them and were the bases on which the em ployments were made.

As the employments were U'nder corporations created by statutes for carrying on. businesses of public importa11ce, they were public employment.

And even if the regulations have not got the force of-law, I think the principle laid down by J!lstic.c Frankfurther in Viterelli v. Seaton(') should govern the s1tuat1on.

He £aid:

'"An executive agency must be rigorously held to the standards by which it professes its action to be judged ....

Accordi11g, if dismissal from employment is based on a defined procedure, even though generous beyond the requirements that bind such agency, that procedure must be scrupulously observed. . . . . This judicially evolved rule of administrative law is now firmly established and, if I may add, rightly so.

He that takes the procedural sword shall perish with that sword."

l agree With the conclusions of my Lord the Chief Justice.

ALAGJRISWAMI, J. In his judgment in Writ Petition No. 43 of 1972 as Lord the Chief Justice has quoted with approval the decision of this Court in Praga Tools Corp. v. !manna! (1969 (3) SCR 773), Heavy Engii11.. Mazdoor Union v. Bihar (1969 (3) SCR 995), and S. L. Agarwal v. Hindustan Steel (1970 (3) SCR 363). I may also ref er to the decision of this Court in Hindustan Antibiotics v.

Workmrn (1967 (1) SCR 652). The last one was a Government undertaking incorporated under the Indian Companies Act. The entire equity capital of the company was held by the President of India and his nominees and the entire Board of Directors was, nominated by him.

Service conditions of the workmen an'd other matters were subject to the approval of the President of India. It was pointed out by the Constitution Bench of this Court that though the company was a limited one and therefore had a distinct corporate existence, it was in effect financed and controlled by the Central Government.

The conduct of the business of the company was subject to the directives issued from time to time by the President of India and its accounts were audited bv the uditors appointed bv the Central Government 'On the advice of the Comptroller and Auditor General of India. The annual report of the working of the company and its affairs along with the Audit Report had to be placed before the Parliament.

Dividends declared by the company entirely went to the coffers of the State. All the same this Court treated that company like any other company registered under lne Indian Companies. Act.

In G11rushantappa v. Abdul Khaddus (1969 (3) SCR 425) the question whether an employee in a company owned by Government was holding an office of profit was considered. It was a private limi- H ted company registered under the name of Mysore Iron & Steel Limited. Bhadravati. The shares of the company were held cent per cent

O) 359 U. S. 536, at 546-547.

bv the Mysore Government.

Under the Articles of Association of the company the first Directors of the company were Minister-in- Charge of the Industries Portfolio in the Mysore Government, the Secretaries to the Mysore Government in the Finance Department, and in the Commerce and Industries Department, the Managing Director of the Mysore Iron & Steel Ltd., and the Chief r:onsm:itor of

Forest~ of the Mysore Government.

The Governor of Mysor.c was entitled to appoint all or a majority of the members of the Board of Directors so long as the Government of Mysore held rrot bs than

51 per cent of the total paid-up capital of the company or so long as the Governor continued to be intesrested in any fiduciary capacity.

Thus the State Government had considerable control in appo!ntment of Directors of the company as well as in the: appointment ,1f the Managing Dir, ector who was to be appointed by the G0Yc:rn,1r from amongst the Directors nominated by him.

The Governor was also entitled to appoint from amongst the nominated Directors a Ch:tirman and Vice-Chairman of the Board of Directors.

Even the 5ccretan' of the company had to be npP'ointcd by the Board of Direc10:-; aftc.r obtaining approval of the Governor.

In respect of other c:r:~Lyces of the company, recruil'ment and service conditions had to Li,: in accordance with the rules which may be prescribed by the Government from time to time.

This Court held that the employee 1' as not holding an ollice of profit under the State Government.

In Parga Tools Corporation's case (sPprn) the comp:rny w:is incorporated under the Indi<:n Companies Act.

The Union Government and the Government of Andhra Pradc>h bctwee;1 them '1eld 56 per cent and 32 per cent 'Of its shares respectil'dy.

The Cnic;-, G0vern.ment had the power to nominate the company\ dircctor'.

This Court held that even so, being registered under the Comrar!;:·; Act and governed by the provisions of that At, the company ·,1 <E sepz.- ratc legal entity and: could not be said t'l be either :i GJ".: :ament corporation or an industry nm by or under the authoritv nf tl-: L'cion Government.

In the Heavy Ellginccring case

(supra) the comp::my ''-''.1i one incorporated under the Companies Act.

Tts entirC' share cap!r,2.l was

cmtributcd by the Central Government and nll its shares \1 etc rcgi>- tcred in the name of the President of India and certain oil1ccr> ('f the Central Government. It was, therefore, a Ccwcrnmcnt crnip; rny.

The Memorandum of Association and the ,\rticks of Ass0ci:tiJ:1 0f the company conferred large powers on the Central Govern1<ent inclllding the power to give directions ns regards the functionini:: , Jf the company.

The wages and salaries of its employees wer~ abc determined in accordance with the said directions.

The Director~ of the company were appointed bv the President.

Jn its standinc (1;-ders, the company was described as a Government undertaking.

In de3ling with the question whether the company could be said to l'~ carrying on its business pursuant to the autlroritv of the Centr;:il CJvernment this Court observed :

"An incorporated company, as is well known, has a separat: existence and the law recognises it as a juritic person. separate and distinct from its members.

This new person-

SUKHDEV v. BHAGATRAM (Alagiriswami, !.)

GG 1

ality emerges from the moment of its incorporation and from that date the persons sub.scribing to Its memorandum of association and others joining it as members are regarded as a body incorporate or a corporation aggregate and the new person begins to function as an entity. (cf. Salomon

v. Solomon & Co. (I). Its rights and obligations are differentfrom those of its shareholders. Action taken against it does not directly affect its shareholders. The company in holding its property and carrying on its business is not the agent of its, shareholders.

An in.frill/gement of its rights does n'Ot give a cause of action to its shareholders.

Consequently, it has been said that if a man trusts a corporation he trusts that legal persons and must look to its assets for pa, yment; he can call upon the individual shareholders to contribute only if the Act or charter creating the corporation so provides.

The liability of an individual member is not increased by the fact that he is the sole person beneficially interested in the property of the corporation and that the other members have become members merely for the purpose of enabling the corporation to become incorporated

and possess only a nominal interest in its property or hold it in trust for him. (cf Halbury's Laws of England, 3rd Ed. Vol. 9, p. 9).

Such a company even possesses the nationality 'Of the country under the laws of which it is in.- cGrporated, irrespective of the nationality of its members and does not cease to have that nationalitv even if in times of war it falls under enemy control (cf. Janson v. Driefontain Consolidated Mines(2) and Kuenigi v. Donnersmarck(8 ).

The rompany so incorporated derives its powers and functions from and by virtue of its memorandum of association and its articles of association.

Therefore, the mere fact . that the entire share capital of the respondent-company was contributed by the Central Government and the fact that all its shares are held by the President and certain officers of the Central Government does not make any difference.

The company and the shareholders being, as aforesaid, distinct entities the fact that the President of India and certain officers hold all its shares does not make the company an agent either of the President or the Central Government. . A notice to the President ofl India and the said officers of the Central Government, who hold between them all the shares of the company, would not be a notice to the company; ncir can a siiit m:UUtainable !>Y and in the name ·~ the comp<'ny be sustamed by or m the name of the President and the said officers. ·

It is true that besides the Central Government having contributed the entire share capital, extensive powers are conferred on it, including the power to give directions as to how the company should function, the power to appoint

(I) [1897] A. C. 22.

(2) [\902] A. C. 484.,..

(3) [l9S5] 1 Q. B. Sl6. '

662 SUPREME COURT REPO'll.TS [1975] 3 s.c.R.

directors and even the power to determine the wages ad salaries payable by the company to its employees.

But these powers are derived fnom the company s memorandum of association and the articles of association and not by reason of the company being the agent of the Central Government.

The question whether a corporation is an agent of the State

must depend on the facts of each case. Where a. statu1:e setting up a corporation so provides, such a corP?ration, can

easily be idetified as the agent of the State as.1!1 Graham

v. Public Works Commissioners(') where Phillimore, J. said that the Crown does in certain cases establish with the consent of Parliament certain officials or bodies who are to be treated as agents of the Crown even though they have the power of contracting as principals. In the absence of a statutory provision, however, a commria1 corporation a.ct'

ing on its own behalf, even though 1t 1s cntrolled ':"holy or partially by a Government department, will be ordinarily presumed not to be a servant or agent of the State. The fact that a minister appoints the members or directors of a corporation and he is entitled to call for information, to give directions which are binding on the directors and to supervise oiver the conduct of the business of the corporation does not render the corporation an agent of the Government, (see The State Trading Corporation of .lndia Ltd. v. The Commercial Tax Officer, Visakhapatnam( 2 ) and.

Tamin

v. Hannaford(8 ). Such an inference that the corporation is the agent of the Government may be drawn where it is performing in substance governmental and not. commercial functions (cf. London County Territorial and Au.xiliary forces Association v. Nichols(4),

In Hindustan Steel case (supra) it was argued before the Constitution: Bench that since it . was entirely financed by the Government and its management was directly the responsibility of the President,

the post was virtually under the Government of India. Hindustan F 'Steel was a Government company and a private limited company. Its

Articles of Association, as also the Indian Companies Act rendered the ordinary company .law inapplicable in certain respects and conferred unlimited powers of management on the President of Indfa and his nominees. It was entirely owned by the Union of India. TI1is Court . held that the Hindustan Steel had its independent existence. and by .the law relating to corporations it was distinct even .from its members.

G though the question for decision therein was whether Article . 311 of the Constitution 'applied to the employee in question.

I shaU: now compare these cases with those relating to lbf: Oil and NatluraJ Gas Commission, the Life Insurance Corporation of India and the Industrial Finance Corporation with which these four appeals are concerned.

(I) [1901] 2 K. B. 781.

(3) [1950] I K. B. 18, 75-26.

(2) (1964] 4 S.C.R. 99,188 per Shah, J.

(4) [1948] 2 All E. R. 432.

SllKHDEV v. BHAGATRAM (Alagiriswamt, J.) 663

The Oil and Natural Gas Commission consists of the Cbail'illan, and not less than two, and not more than eight, other members appointed by the Central Government. The Central Government may, if it thinks fit, appoint one of the members as Vice-Chairn1an of the Commission.

The Commission may, for the purpose of performing its functions or exercising its powers, appoint such number of employees as it may consider necessary.

The functions and the terms and conditions of service of such employees shall be such as may be provided by regulations made under the 1959 Act.

The Commis:Sion may, with the previous approval of the Central Government, by notification in the Official Gazette, make regulations not inconsistent with the Act and the rules made thereunder, for enabling it to discharge its functions under the Act. The regulations pro~ vide inter alia for the terms and conditions of appointment and service and the. scales o~ pay of employees of the Commission; the time and place of meeting of the Commission, the procedure to be followed in regard to the tralJ\Saction of business at such meetings; the maintenance of minutes of meetings of the Commission and the transmission of copies thereof to the Central Government; the persons by whom, and the manner in which payments, deposits and investments may be made on _behal1l of the Commission; the custody of moneys required and the maintenance of accounts.

The Central Government may amend, vary or rescind any regulation which it has approved;. and thereupon the relation shall have effect accordingly but without prejudice to the exercise of the powers of the Commission under sub-section (1) of section 32.

The Life Insurance Corporation was established by the Life Insurance Corporation Act, 1956.

Under s.49 of the Act the Corpo- !ration may, with the previous approval of the Central Government, by notifieation in the Gazette of India, make regulations not inconsh:- 'tent with the Act and the rules made thereunder to provide for ail matters for which provision is expedient for the purpose of giving effect to the provisions of this Act.

The regulations may provide inter alia for the powers and functions of the Corporation which may be delegated to the Zonal Managers; the method of recruitment of employees and agents of the Corporation and the terms and conditions of service of such employees or agents; the terms and condition of service of persons who have become employees of the. Corporation under section 11 of the Act; the number, term of office and conditions of service of members of boards constituted under section 22 of the Act; the manner in which the Fund of the Corporation shall be maintained the form and manner in. which policies may be issued and contracts binding on the Corporation may be executed.

The Industrial Finance Corporation was set up by the Industrial }'.inance Corporation Act, 1948.

The superintendence of the business of the Corporation is entrusted to a Board of Directors. The Central Government may make rules in consultation with the Development Bank not inconsistent with the provisions of the 1948 Act and to give effect to the provisions of the Act.

Section 43 of the Act enacts that the Board may with the previous approval of the Development Bank regulations not inconsistent with the Act and the

rules made thereunder to provide for all matters for which provision is necessary or expedient for the purpose of giving effect to th1~ po visions of this Act.

TI1e Development Bank means the Industrial Development Bank established under the Industrial Development Act, 1964.

The shares of the Central Government in the Corporation shall stand transferred to the Development Bank when the Central Government shall so notify.

The regulations provide inter alia for the holding and conduct of elections under this Act including the final decision of doubts .or dispute& regarding the validity of the election; the mam1er in which and the conditions subject to which the shares of the Corporation may be held and transferred; the manner in which ceneral meetings shall be convened, the procedure to be followed thereat; th< duties and conduct, salaries, allowances and conditions of

i>crvice of 1.licers and other employees and of. advisers and agents of the Coroo. 'tion. ·

All the: c Acts confer rule making power on tlte Central Government and it is not necessary to refer them for the purpose of these cases. It is necessary only to refer to the regulation making power conferred on the three organisations under consideration. On behalf of these orga11isations the contention advanced was that the regulations relate to ir:terrtal management, that the teflllS and conditions of service of employ.:cs as laid down in the regulations are not law but merely rules for the purposes of internal management. In so far as the appointments of the various employees of these three .organisations are concerned they are appointed by contract and these regulations merely for!ll part of those contracts.

On behalf of the employees the contenllon was that as the source of the power tQ make regulations is the statute the regulations are themselves law.

Under d. (51) of section 3 of the General Clauses Act, 1897 "rule" means a rule made in exercise of a power conferred by any enactment, and shall includ~ a regulation made as a rule under any enactment. -

Section 20 of the General Clauses Act reads as follows :

 "20. Where, by any Central Act or Regulation, a power to issue any notification', order, scheme, rule, form, or byclaw is conferred, then expressions used in the notification,

<trder scheme, rule,. form, or bye-law, if it is mad~ after the commencement of this Act, shall, unless there is anything repugnant in the subject or context, have the same respective meanings as in the Act or Regulation conferring the power."

The CCYlllpendious term "Subordinate Legislation" refers to notificati'ons, 0rders, schemes, rules and bye-laws referred ro in ss. 20 and 21 of the General Clauses Act. It would be noticed that the word "order" used in the General Clauses Act is not used in the same sense that word is used in England where orders are excluded from the statutcirv definition of statutory rules as being administrative.

The Committee on Ministers' Powers suggested that regulations should be used for substantive law and rules for procedural law, while orders s.hould be reserved to describe the exercise of executive power or the taking of

SUKJlDE\' \', BIIAGATRA\I (A/agiriswami, !. ) 665

a judicial or quasi-judicial decision.

It would be noticed that this scheme is completely di!ferent from the Indhn legislative practice.

The word "ort:r" . very often is used in India for certain types ot subordmate legislation for various control orders like the "Ratwning Order". There are a_number of statutes on the Statute BJok in India

whe:e the word "regulaion'' is used to refer to the regulations made by bodies other than the State. The word "rule" is always used tu refer to the subordinate legislation made by. virtue of powers conferred.

The regulations framed under the regulation making power conerrcd by the three Acts in question are not the regulations as defined Ul the General Clauses Act. In interpreting Indian statutes it is unnecessary and might sometimes be misleading to refer to the provisions of English law in connection with subordinate legislation.

We have to refer only to the General Clauses Act and the Indian Legislative practice.

Though ''rule" is defined as including a regulation made as a rule, it cannot be said that regulation making power conferred on the three organisations in question is a rule making power.

Under the legislative practice in India the rule making power is con-- ferred on the State and the power to make regulations is conferred on bodies or. organisations created by the statute.

The Air Corporations Act, 1953 which deals with Indian Airlines and Air India International confers power on the Central Governnient to make rules under section 44 with regard to terms and conditions of service of the General Managers and such categories of officers as may be specified from time to time under sub-section (1) of section 8.

Under sub-section (2) of section 8 every person employed by each of the Corporations shall be subject to such conditions of service and shall be entitled to such remuneration and privileges as may be determined by regulations made by the Corporation by which he is employed.

Under section 45 the Corporations have the power to make regulations amoc,1g other things regarding terms and con_ditions of service of officers and other employees of the Corporation other than the General Manager and officers of any other categories

referred to in section 44.

Under the All-India Institute of Medical Sciences Act, 1956 the Central Government has the power to mke rules un~r scctiori ~8. including the power to make rules regarding the cod1t1ons of sev1ce of members of the Institute, the allowances to be paid to the President and members of the Institute and the number of officers and emplo}'.ees that may be appointed by the Instittite and the manner of such appointment.

Under section 29 thi Institute has the power to make regulations regarding the allowan<; es, if any, to be. paid !O the Chairman and the members of the Govermn!} Body and of standmg and ad hoc committees and the tenure of office, salaries and allowances and other

onditions of service of the Director and other officers l!-lld employees of th~ Institute including teachers appointed by the Institute.

On the other hand, under the @cntral Silk Board Act, 1948 it. is the Central Government that has the power to make rules regarding

1_2-l70SupCl/75

the statf which may be employed by the Board and the pay and allowances, leave and other conditions of service of officers and other employees of the Board.

The Board has no power to make regula- •

tior~.

Under the Chartered Accountants Act, 1949 it is the Council that has tht: power to make regulations about various matters. The Central Government has, however, the power to direct the Council to make any regulations or to amend or revoke any regulations already

made within such period as it may specify in this behalf. There i> however no rule making power conferred on the Central Government.

Under the Indian Coconut Committee Act, 1944 the O:ntrul Government has the power to make rules, including many others, the power for regulating grant of pay and kave to otticers and servants l1f

the Committee as also the pensions, gratuities, compassionate allow ances and travelling allowance$.

The power of the. Committc:c l(l 'make regulations is, however, very limit~'\i and relates only to demand

Ing security from offic1:rs and servant.~ of the Committee and th1: Prn- \•ident Fund.

Under the Coir Industry Act, 1953 the Central Govcrnme11t has power .to make rules and the Coffee Board has no power to make any n:gulations.

Under the Coir Industry Act, 1953. the Central Government ha~ the power to make regulations and the Board to make bye-laws irega.rding the appointment, promotion and dismissal of its olficers and other

~'mployecs other than the Secretary and the creation and abolition of their posts, as well as the conditions of service of its officers and other employees other than the St.cretary including their pay, leave, lea\\! allowances, pensions, gratuities, compassionate allowances and travel~

ling allowances, and the establishment and maintenance of a provident fund for tbcm.

Under the Cost and Works Accountants Act, 1959 only th1: Council has. the power to make regulations and the Government has no power to make rules.

Linder the Damodar Valley Corporation Act, 1948 the Central Government has the power to make rnlcs and the Corporation to

make regulations among other things regarding making of appointments and promotion of its officers and servants, and spcifying othL'r conditions of service of its officers and servants.

Under the Dntisls Act, J 948 the State Governments alone ha\"c

111,~ power to make rules including rules regarding the term of office and the powers and duties of the Registrar and other officers and scr- ' ants of the State Dental Council. .The State Council~ have no powers w make a.ny regulations.

The Deposit Insurance Corporation Act, 1961 enables lh1~ CorporaLiou to tnake regulations but cOb.fcrs 110 power on the Government 10 make mks.

SUKHDEV l'. BHA.GATRA.M (4lagiriswami, !.) 667

Under the Electricity (Supply) Act, 1948 the State Governments have the power to make rules and the Board makes regulations.

Under the Employees' State Insurance Act, 1948 . the Central Government has the power to make rules in respect of certain matters and the tate Governments in rest of certain other matters, but the Corporation has the power to make regulations regarding the method of recruitment, pay and allowances, discipline, superannuation benefits and other conditions of service of officers and servants of the Cor- poration other than the principal officers. The State Governments have the power to make rules regarding the conditions of service of staff employed in fhe hospitals, dispensaries and institutions maintained by the Corporation. The important point to note about provisions of this Act is that the regulations made by the Corporation shJll be published in th~ Gazette of India and thereupon shall have efiect as. if enacted in the Act. It shows that where the Parliament intended that a regulation should have statutory effect it said so specificalfy.

This also illustrates the provision of Cl. ( S 1) of section 3 of the General Clauses Act which defines 'rule' as including n regulatlcn intended to be made as a rule. ·

The Faridabad Development Corporation Act, 1956 confers th~ power to make rules on the Central Government but no power is given to the Corporation to make any regulations.

The Incjian Medicine Central Council Act, 1970 confers the power tn make rules on the Central Government and the power to make regulations on the Central Council of Indian Medicine including .the power to make regulations regarding the tenure of office, and tb: powers and duties of the Registrar and other officers and servants of the Council and th1.~ appointment, powers, duties and procedure of inspectors and visitors.

The Industrial Development Bank of India Act, 1964 confers powers on the Board of Directors of the Bank to make regulations but no rule making power on the Government.

The International Airports Authority Act, 1971 confers power on the Central Government tO make rules and on the Authority to make regulations including regulations regarding the conditions ?f servie and the remuneration of officers and other employees appomted by 1t. .

The Khadi and Village Industries Commission Act, 1956 confers the power to make rules on the Central Government and the power to make regulations on the Commission including regulations regarding the terms and conditions of appointment and service and the scales of pay of offis an~ servlli}ts of the Commis_si~ othe! than te Secretary and the Financial Adviser to the Comnusston which are to be regulated by ruies made by the Government

Urider the Life Insurance O>rporation Act, .1956 the power to niake rules is with the Central Goyernment and the power . to make regulations with the Corporation,

.. , ' '.:·

SUPREME COURT REPORTS (1975] 3 S.C.Jt

Under the Major Por1 Trusts Act, 1963 the Central Government has the power to make rules and the Board of Trustees for the Port

the power to make n:gulations including the power regarding the app<>intment, promotion, suspension, removal and dismissal of its e:niployees, their leave, leave allowances, pensions, gratuities, compassionate allowances and travelling allowances and the establishment and maintenance of a Provident Fund or any other fund for their welfare,. and the terms and conditions of service of persons who beconw employees of the Board.

The Marine Products Export Development Authority Act, 1972 enables the Central Government to make rules and the Marine Products Export Development Authority to make regulations.

The Indian Medical Council Act, 1956 confers power on the Central Government to nfltkc rules and on the Council to make r1:gulations including the tenure of office an.d the powers and duties of the Registrar and other officers and servants of the Council, the appointment, powers, duties and procedure of medical inspectors and visitors.

The :Monopolies and Restrictive Trade Practices Act, 1969 confers the power to make. rules on the Central Government and the power to make regulations on the Monopolies and Restrictive Trade Practice~ Commission.

The National Co-operative Development Corporation Act, 1962' confers the power to make rules on the Central Government and the power to make regulations on the Corporation.

I have gone through the various statutes only to point out that under the Indian Legislative practice rules arc what the Central Cio\'- ernment or the State Governments make and the regulations arc made by any institutlCin or organisation established by a statute and where it is intended that the regulation should have effect as law the statute

itself says so. It is, therefore, as I stated earlier, unnecessary and may b0 even misleading to refer to the English practice in interpreting thr word' 'regulation'.

My learned brotners say that the regulations under the Oil & Natural Gas Commission Act provide for the terms and conditions of appointment and service and scales of pay of the employees of the Commission, regulations arc imperative and the administrative instruction is the entering into contract with the particular person, but the fol'lll and content of the contract is prescriptive and not statutory.

Administrative instructions are not necessarily in relation to particula:r p1rson, they may relate to a whole class of persons even as rules and regulations may.

To say that because the regulations contained the tc:rms and conditions of appointment they are statutory is to bc, l! the question. I have extracted the power to make regulations found in the various statutes merely to show that .the power to make regulations may be of different kinds. An institutJon like the Life Insurance Corporation which bas its offices and. employees all over the country

has necessarily got to have a standard set of cqnditions of service for its \'; irious classes of employees. That is why they ate made subje:ct

" "

SUKHDEV l'. llHAGATRAM (Alagiriswami, .7.) 669

of regulations.

But the mere fact that regulations are made in respect or the conditions of service of the employees of a certain i115titution or organisation does not mean that those conditions are statmory.

No doubt these arc the conditions of service applying to their employees.

But ii there is breach of th0se conditions it cannot be said that there is a breach of any statutory provision.

While rules arc generally made by the Government the regulations are made by a body which i~; a creature of the stalute itself with its powers limited by the statute. While rules apply to all matters coverd by te statue, the scope of the regulations is narrower being usually confined to mternal matters of the statutory body such as the conditions of service of its employees.

When regulations standardise the conditions of service of the employees or purport to formulate them, their character is further diluted by the nature of the subject-matter.

For, service or employment is basically a contract which is deeply rooted in private law.

A mere standardisation or e'numeration of the terms of a service contract is not, therefore, ordinarily sufficient to convert it into a statutory status.

For, the statute itself is silent and does not confer any security of tenure on the employee.

The Corpo-. ration has a complete discretion in framing the regulations and giving such protection thereunder to its employees as it thinks fit.

The amount of the protection thus depends on their own discretion.

It is not given by a mandatory statutory obligation imposed on the corporation from above.

For, the corporation can vary the terms of the regulations at any time thus depriving its employees of the security of tenure of service.

The matter is thus one between the employee and the employer which is precisely the case of a service contract.

A breach of such conditions is therefore a breach of the service contract remediable by damages rather than an ultra vires action to be set aside by a declaration or mandamus.

As argued on behalf of the three organisations the regulations arc abvut the conditions of service which are offered to its employees in the form of a contract. The result of accepting the argument that these powers are statutory would be to hold that the employees of the various organisations and institutions which are governed by the various statutes I have enumerated above would be deemed to have their service conditions fixed by statutes. Even assuming that their conditions of service are fixed by staute it does not mean that be removal of an employee contrary to those conditions would necessarily result in the removal having to be declared void.

That was the position, for instance, under section 96-B of the Government of India Act, 1919 till section 240 was introduced in the Government of Incija

Act, 1935. (See Venkat Rao's case, A.l.R. 1937 P.C. 31, and Rangachari's case,. AIR 1937 P.C. 27).

It does not seem correct to say that these statutory bodies have no free hand in framing the conditions and terms of service of their em1>l<;>yees. ' It is true that they have to offer terms and conditions as laid down in the regulations. But it is incorrect to say that they are not free to frame such terms and conditions as they think proper. They are the authorities to make the reirulations and therefore can make

any regulations regarding the conditions and terms of service of their

cmplloyces and also change them as they please.

It cannot therefore be said that they arc bound by these terms and conditions of service. fodeed there is no obligation on them to make regulations regard.ing

the terms and c:onditions of service of their employees. It has bcen held by this Court that in the case of public servants though the Governments have power to make rules under the proviso to Art. 309 or undc:rtake legislation regarding terms and conditions of service of Gov1ermµent servants, they can either by administrative instructions or executive orders also regulate the terms and conditions of their service.

Corporations als-0 can do so and even if they make regulations _!hpsc

rigulations cannot be said to be law in relation to them. While regulations made by one oody which another body is bound to observe.can

l>c said to have the effect of law, the regulations which a body makes and can change and which it need not even make cannot be said to have the effect of law in relation to that body. ·

The learned Additional Solicitor General. submitted .that r1:gulatiuns could not have the force of law because these regulations arc similar to regulations framed by a company incorporated under the Companies Act. My learned brothers say that the fallacy lies in equating rules and regulations of a company with rules and regulaticms framed by a statutory body. 1 do not see where the fallacy lies. A company makes rules and regulations in accordance with the provisl.ons of the Companies Act. A statutory body makes regulations under the powers conferred by the statute creating that body. Both stanct on the same footing as both derive their authority one from the Companies Act and the other fro!l1 the Act which creates that body, for instance in the case of the Life Insurance Corporation from the Life Insurance Corporation Act, 1956. The fact that a Corporation like Jthc Life Insurance Corporation is created by the statute itself and a company comes into existence jn accordance with the provisions of

lt1e Companies Act does not make any difference to this situation.

Merely because a body happens to be a statutory body it does not become any the less entitled to frame regulations which could be of the same kind as the regulations made by a company.

Whether a corporation or a company is created by a statute or under a statute does not make any differen-; e to this principle.

The logic of the three decisions. the validity of which my learned brothers have accepted in their decision in W.P. No. 43 of 1972, requires that it ihonlcl be applied to the en1ployces of these three organisations. There is no reason in principle why a different result should follow just because a corporation happens to be established by a statute whereas it is different in the case of a company. Whether :an institution or organisation is established by a statute or under a statute in principle ther1~ is no difference between their powers.

Ultimatdy unless it should be held that thr. institution or organisation in question is an 'authority' within the meaning of the term in Article 12 of the Conslitution there can be no question of the regulations framed by thMC organisations being deemed to be law.

In order that an institution must be an 'authority' it should exercu; e part of the sovereign power or authority of the State. See in this

r• .I

SUKHDEV I'. BH~ATRAM (Alagiriswami, !-) 671

connection the definition of the word in the General Clauses Act, which

rads as follows :

'"Local authority" shall mean a municipal committee, tJistrict board, body of port commissioners or other authority legally entitled to, or entrusted by the Goverument with, the control or managemeut of a municipal or local tund."

They are all concerned with exercising part of the powers of the State.

That is why a Port Trust is given even the power to !pake regulations to provide that a breach of its regulatiQns would he , punishable. In such a case it is undoubtedly exercising part of the power of the State.

!be whole purpose of the provisions of Part III of the Constitution is tu confi:r fundamental rights on the citizen as againsttbe power of the Stahl or those exercising the power of the State. None of these corpurations do so and so they cannot be the 'State' or .'autho\ity' .

. The case in British Broadcasting Corpn. v. Johns [1965 {1) Cb. 32.1 is very much in point. It is not necessary to burden this judg- 1nent by quoting extensively from that decision. It. was held there that the B.B.C. was not an instrument of Government. It was argued tn that case that the Crown was entitled to a monopoly of broadcasting and therefore the Gov_ernment purposes also include non-traditional provinces of Government if the Crown has constitutionally asserted that they are to be within the province of . Government. Willmer, L.J .. quoted with approval the remarks of Wilbr.rforce, J., against whose judgment the Court of Appeal was being heard, to the effect :

"So I come to the conclusion that however widely one may be inclined to extend the conception of an act or function of government the Crown has not taken the path of cngagaing itself in a broadcasting service or of entrusting it tll any agent. It has deliberately chosen the alternative of an independent instrument."

There can be no doubt that that is the position in respect of the three

corporations we are dealing with.

The distinction between g ental functions and commercial functions is, therefore, clear ell\'.)ugli.

Even in the United States of America this distinction is clearly kt!pt mind.

In New York v.

United States (90 L. ed. 326) it was rem .ed : . 1 '"That there is a (', onstitutional line between the State as government and the State as trader, was still more recently n1ade the basis of a decision sustaining a liquor tax against Ohio. "If a state chooses to J!O into the business of buying ahd selling commodities, its riht to do so may conceded so far as the Federal Constitution is concerned; but the exercise of the ri.eht is not the performance of a governmen- . rat function . ... When a state enters the market place seektng customers it divests itself of its quasi sovereignty pro

tanto, and tak.::s on the character of a trader so far, at Jea~L as the taxing power of the federal government is concerned."

Ohio v. Helvering, supra (292 US at 369, 78 L. ed 1310, 54 S Ct 72'J). When the Ohio Case was decided it was too late in the day _not to recognize the vast extension of the sphae of government, both s, ate and national, compared

with ; hat with which the Fathers were familiar. h could tiardly remain a satisfactory constitutional doctrine that only such State activities are immune from federal taxatiof1 as wen: engaged in by the States in 1787. Such a static concept ot government denies its essential nature. "The science

11t government is the most abstruse of all sciences; if, inded, tl1at can lh~ called a science which lias but few fixed principles, and practically consists in little more than the exercise of a sound discretion, applied to the exegencies of the state as they arise. t is the science of' experiment." Anderson

v. Dun11. 6 Whc,1t. (U.S.) 204, 226, 5 Led. 242, 247.

When this Court came to sustain the federal taxing power upon a transportatio[! system operated by a State, it did so m ways fannliar m developing the Jaw from prece- Ji:nt ru precedent. lt edged away from reliance .on a

harp disttn, ction between the "governmental" and the "trading" activities of a Sta'e, by denying immunity from federal taxatton to a State when it "is undertaking a business enterprise of a sort that is normally within the reach of the fede. rat wxin11 vower and is distinct from the usual governmental rundwns that are immuue from federal taxation in order to safeguard the necessary independence of the State." Halvering v. Powers, supra (293 US at 227, 7~1 L. ed. 296, 55 S Ct 117).

It is, therefore, clear that Article 298 of the Constitution cannot be resorted to for supportmg the proposition that when the State ent1rs into non-governmental activities that should also be considered to bi~ a governmental function.

In this connection the history of Article 298 as it ts at preent may be noted.

Jn Ranjit Kumar Chatterjee v. Union India (AIR 1969 cal. 95) Basu, l dealing with similar contention advanced before him, observed as follows :

"(iii) Mr. Dutt, for the petitioner relied strongly upon the provision in Article 298, as amended by the Constitution (Seventh Amendment) Act, 1956, to argue that when Government .takes up a business, it does so in the exercise of its 'executive power' and, therefore, whatever be the agency through which Government may carry on a business, that is identified with the Government.

This argument, however, overlooks ihe object and H scope of the Amendment of the Article.

Prior to this amendment, it was helo in some cases that since there was :no express provision empowering the Government to enter

' \

SUKHDEV 1'. BHAGATRAM (A/agiriswami, ].) ti7 3

into a trade, this could not be done without legislative 1>anct ion-Moti Lal v. State of U.P .. (AIR 1951 All. 257 FB).

This view was overruled by the Supreme Court in the case t>f Rwn Jawaya v. Srate of Punjuh ( 1955 2 SCR 225 : AIR 1955 SC 549) and the Amendment of 1956 simply codifies the effect of the decision in Ram J awaya's case ( 1955 2 SCR 225 : AIR 1955 SC 549) namely, that legislation is not required to empower a Government to carry on a business, it can do so in the exercise of its executive power. except, of course, where a law is required by some other provision of the Constitution, say, Article 19(6). But the effect of the amendment is not to convert a commercial function of the Government into a governmental function. It is to be noted that even where a State Government carries on a business, it cannot be treated as a governmental function to claim immunity from Union taxation, without a declaration by Parliament by law under Article 289(3)-vide AlR 1964 SC 1486 at p. 1492. If the Central Government carries on a business, it can never be treated as a. governmental function to claim immunity from State taxation because Article 285 ( 1) simply speaks of 'the property of the union' and no business.

It has been held by the Supreme Court that even when the Government carries on a business departmentally as in the case of Railway, it cannot be treated as a 'sovereign func'ion' for the purpose of 'suability'.

But that principle would not apply for the purpose of determining the status of its employees under Article 311.

When the business is carried on by a Department of the Government, as in the case of Railways. obviously, the employees hold under the Government and not under any separate juristic entity, and so it has been held in numerous cases of Parshotam v.

Union of India (AIR 1958 SC 36), Moti Ram v.

N.E.F.

Rly. (AIR 1964 SC 600). The reason is obvious, namely, where the employer is a Department of the Government, no question of a separate legal entity arises.

The question, however, becomes different, where the business is carried on through a separate legal person, e.g. a s•atutory corporation or a comoany (vide AIR 1966 SC

1364) because in such a case, the employee is a servant of a legal entity other than the Government."

The reference to Article 297 of the Constitution in relation to the Oil & Natural Gas Commission's case is not apt either. That Artie:·. does not declare that all oil wherever found is the property of the Government. It is only the oil found under the land in the territoria, I waters and the continental shelf that is the property of the Govern. ment. This would be also clear if one looks at the Oil Fields (Regulation & Development) Act, 1948.

The decision in Tamlin v. Hannaford (1950 1 KB 18) is very much in point in deciding the questions that arise in the present case ..

That case was concerned with the question whether the British Transport Commission was a servant or an agent of the Crown, It wa~ brought into existence by a special statute which had many of the qualities which belonged to corporations of other kinds.

It had defined powers which it could not exceed.

There. were no shareholders to subscribe the capital. The money which the Corporation needed was raised by borrowing and was guaranteed by the Treasury. If it c:ould not repay the loss_ fell on the Consolidated Fund of the UnitcJ Kingdom. All those who used the services which it provided and all whose supplies depended on it were concerned in seeing that it was properly run. The protection of the interests of the taxpayer, user and beneficiary was intruste<l by Parliament to the Minister of Transport. He was given powers over Chis corporation which were as great as 'those possessed by llf man who held all the shar.::s in a private company, subjec:t, however, to a duty to account to Parliament for his stewardlship.

It was the Minister who appointed the directors, the members of the Commission, and fixed their remuneration. They must give him any information h1! wanted.

He was given power to give them directions of a general nature and they were bound to obey. The Court of Appeal said :·

"These are grellt powers but still we cannot regard the corporation as being his agent, any more than a company is the agent of the shareholders, or even of a sole shareholder. In the eye of the law, the corporation is its own master and is answerable as fully as any other person or l!orporation. It is-not the Crown and Has none of the immunities or privileges of the Crown.

Its servants are not civil servants, and its property is not crown property."

Further on they remarked :

"But the carriage of passengers and goods is a commer· cial concern which }las never been the monopoly of anyone and we clo not think that its unification under state control i£: any ground for conferring Crown privileges upon it.

The onlv fact in this case which can be said to make th<: British Transport Commission a servant or agent of tht: Crown is the control over it which is exercised by the Minis· ter of Transport: but there h. ample authority both in thil; Court and in the House of Lords for saying that such con· trol as he exercises is insufficient for the purpose.

. .... III the absence of any such express provision, the proper infe-·

rence. In the case, at any rate, of a commercial corporation, Js that it Eicts on its own behalf, even-through it is controlled 'by a government department." The case for considering any one of the three corporation..<i under consideration as a public author.it}' is much weaker than that either 1of the 81ritish Broadcasting Corporation or the British Transport Commisnon.

In Kruse v. Johnson (1898 2 OB 91) fn regard to by-laws iit was said:

SUKHDEV v. BHMlATRAM (A/agiriswami, I.) 67 5

"But first it seems necessary to consider what is a bylaw.

A by-law, of the class we are here considering, I take to be an ordinance affecting the public, or some portion of the public, imposed by some authority clothed with statutory powers ordering something to be done or not to be done, and accompanied by some sanction or penalty for its non-observance. It necessarily involves rcstricti'vn of liberty of action by persons who come under its operation as to acts which, but for the bye-law, they would be free to do or not do as they pleased. Further, it involves this consequenre-that, if validly made, it has the force of law within the sphere of its legitimate operation." Contrast these with the effect of the regulations which we are considering. These regulations apply only to the employees of the corporation. They do not affect the public or any portion of the public, they do not order something to be done or not to be done accompanied' by some sanction or penalty for its non-observance. Indeed it is this test that was applied in the Rajasthan Electricity Board's case ( 1967

3 SCR 377).

In Halsbury's Laws of England (3rd ed., Vol. 9, p. 40) the law is set out thus :

. "All regulations made by a corporation and intended to hind not only itself and its officers and servants, but members or the public who come within the sphere of their operation, may properly be called "bye-laws.'' whether they are valid or invalid in point of law; but the term may also be applied to regulations binding only on the corporation, its officers and servants." ·

The distinction here is brought out between what we would call rules and regulations in our country.

Allen in his. work 'Law and Orders' (3rd ed., p. 324) refers to the question raised in Tamlin v. Hannaford (supra). After noting that it w'cl.S undoubtedly a public authority with large powers, and a considerable measure of control was exercised over it, under the Transport Act. 194 7. by the Minister of Transport; but in its activities, its liabilities, the status of its employees, and its subordination to statute, it was essentially a separate corporate body, in no way comparable to a Government department, goes on to observe :

"It is interesting to note that had the decision been otherwise everyone of the half-million (approximately) employees of the railways alone would have become a "servant or agent" of the Crown, entitled to the privileges of that status."

That unfortunately would he the effect of what my learned brothers bave chosen to d~ in their judgment.

It is now time to refer to the decisions of this Court relevant t<> the subject.

ln th<0 St<1/t' trodi11g Corporation of I 11dia Ltd. & Ors. v.

The Commercial Tax O.fficer, Visakhapat11om & Ors. [I 964 ( 4) SCR 99] r u'•tice Shah pointed out that :

"The question whether a corporation is an agent or servant ol: the State must be decided on the facts of each case.

In the abscnc-: of any statutory prnvision, a commercial corporation acting on its behalf, even if it is con- (rofled wholly or parually by a Government department, wiJI be presumed not ro be a servant or an agent of the State.

Wh.:re, hllwcver, the corporauon 1s performing in substance govcrmB.ontal. and not commcrcml, functions, an intcrence will readily be made that it is an agent cf the Government."

rhe cac in Tamlin v. Ha1111aford was relied upon for this proposition.

In Life insurance Corporation of India v. Sun!/ Kumar Mukherjee & Ors. [ l 964 (5) SCR 528] the order under consideration was one issued by the Central Government under section 11 (2) of the Act in exercise ot its powers under that section.

By that section it was the Central Goveniment that was given the power to alter (whether by way of reduction or otherwise) the remuneration ancl other terms and condit10ns of service to such an extent and m such manner as 1t thought fit.

That power so conferred was to be exercised notwith- >tanding any thing contained in sub-section ( 1), or in the Indm; trial Disputes Act, 1947, or in any other Jaw for the time being in force, or in any award, settlemct;1t or agreement for the time being in force.

fhc order therefore had tatutory effect and the order of termination of services of the employee was therefore in contravention of the statutory provision.

That decision cannot therefore support any argument that regulations made under a statute have statutory effect.

Jn Andhra Pradesh State Road Transport Corporation v.

The Income Tax Officer & Anr. [1964 (7) SCR 17] a Constitution B£:nch of this Court held that State Road Transport Corporation is not the State.

In that judgment the decision in Tamlin v.

Hanna/ ord was also referred to and after an exhaustive analysi~ of the various sections vf the Act it was pointed out that :

" .. all the relevant provisious emphatically bring out the separate personality of the corporation and proceed 011 the basis that the trading activity is run by the rporatron and the profit and loss that would be made as a result of the trad- Jng activity would be the profit and loss of the corporation.

TI1ere is no provision in the Act which has attempted to lift the veil from the face of the corporation and thereby enable the shareholders to claim that despite the form which the organisation bas taken, it is the shareholders who run the trade and who can claim the income coming from it as their own." 'The decision in K. S. Ramamurthi Reddiar v. The Chief C.t>mmissioner, Pondicherry [1964 ( 1) SCR 656] is not helpful b deciding what an authority is because the appellate in that case was r quasijudicial authority.

SUKHDEV l', BHAGATR.AM (Alagiriswami, 1.)

In Kasturilal v. Slate (1966 (1) SCR 375) a Constitution Bench .:if this Court after an exhaustive reference to all the earlier decisions pointed out :

"It is not difficult to realhe the significance and impor lance of making such a dislinction particularly at the present time when, in the pursuit of their welfare ideal, the Governments of th<! States as well as the Government of India naturally auc1 legitimately enter into many commercial and other undertakings and activities which 1,1ave no relation with the traditional .:oncept of governmental activiues in which the exercise of sovereign power is involved. It is necessary to limit the area of these aairs of the State in relation to the exercise of sovereign power, so that if acts arc committed t,~"Govemment employees in relation to other activities which may be conveniently described as non- . governmental or non-sovereign, citizens who have a cause

of action for damages should not be precluded from making their claim against the State. That is the basis on which the area of the State immunity against such claims must be limited."

lt would, therefore, be wrong to consider the words "other auti1oriti.:s' in Article 12 as including any corporation which docs not exercise part of the government'al functions of the State.

The Rajastha11 Staie Electricity Board v. Moha11 Lal (1967 (J).

SCR 377) is a very important decision.

After noting the mea-.1ing of the word "authority" given in Webster's Third New International Dictionary the majority went on to point out that the dictionary meaning of the word "authority" y,•as wide enough to include all bOdics created by a statute on which powers arc waferred to carry out governmental or quasi-governmental fu®tions. The first point to be noted i.s that none of the functions with which the three corporations under consideration are concerned, arc governmC'atal or quasi-governmcntai functions. The work done by the Oil & Natural Gas Commission always used to be done by the various oil companies like Bitrmah Shell, Standard .Vacuum etc. The work done by the Life' Insurance Corporation was done by various insurance compa!ilies and the Industrial Finance Corporation is merely carrying out functions which any bank can carry on.

When the majority further went on to observe. :

'The expression "other authorities" is wide enough to iacludc within it every authority created by a statute and functioning within the territory of India, or under the co11trol of the Government of India."

l t can onJy be with regard to authority exercising governme1lal or quasi-governmental functions.

The clue to the deeision is given really in the fol10\,/ing passage :

"The circumstance that the Board under the Electricity Supply Act is required to carry n some activities of the na-

' ture of trade or commerce docs not, therefore, give any indication that the Board must be excluded from the scope of the word "State" as used in Art. 12.

On the other hand, there arc provisions in the Electridty Supply Act which clearly show tb•a.t the powers co'.1fcrred on the Board includ.;; power to give directions, the disobedience of which is punishable as a criminal offence ........ The Board was clearly an authority to which the provisions of Part Ill of the Constitution were applicabk."

1 his makes it clear that the fact that the lloard carried on 'Jct!· vities in the nature of trade or commerce could be a ground for cxc:luding it from the scope of word "State'' but for the fact that it was given powers to give directions the disobedience of which was punish able as a criminal offo.Jcc.

We need not now p•ause to consider whether where a body carri.::s out functions both with regard to trade and commerce and also c:xerdscs powers, which only a State can exercise like giving directions the disobedience of which is punishable as a criminal offence, the obligations and rcstrictioas which are imposed by the Constitution 011 the exercise of those powers by the State should not be confined to those powers :ind with regi.rd to thi: carrying on the tiade and commerce it should not be treated as any other ordinary commercial conrcrn.

Justice Shah s concurring judgment bring out. in sharp foct:s 'he :rJllo of the <lccisio,1 by the majority.

He said :

"The Board is an authority invested by statute with ccr- ; ain sovereign powers of the State ...... und to issu~ directions under certain provisions 0f the Act and to enforce compliance with those directions.

The Board is also invested by statute with extensive powers of control over electricity undertakings.

The power to make rules and rcgulatiO'tls and to administer the Act is in substance the sovereign power ?f the State delegated to the Board. The Board is, in my Judgment, "other authority"' within the meaning of Art. l 2 of the Constitution.

The expression "authority in its etymological sense me.ans a ho<!Y. fa.vested with powe~ to command or give an

.ltunate dccmon, or enforce obed1cncc, or having a legal .right to COIJlllland and be obeyed." ........ In considering

wehcr a st..ltt:ory or constittional body is an authority, :•1th1_n the mcanms of Art. 12: 1t would be necessary to bear

1~ mm~ •,1ot on1'j whether agamst the authority, fundamental rights m terms imsolutc arc intended to be enforced but also whether it was intended by the Constitution-make~ that 1l1c

auth?riy was invcste_d with the sovereign power to , impose restnctwos on very important und basic fundamental frc.~ . • do ms.

SUKHDEV v. BHAG.ATRAM (Alagiriswami, J.) 679

In my judgmeiat, authorities constitutional or statutory invested with power by law but not sharing the sovereign power do not fall within the expression "State" as defined in Art. 12.

Those authorities which arc invested with sovereign power, i.e.; power to make rules or regulatiC'ns and to administer or enforce them to the detriment of citiicns and others fall withr,1 the definition of "Sr.ltc" in Art. 12, and constitutional or statutory bodies which do not share that sovereign power of the State arc not, in my judgment, "State" within the meaning of Art. 12 of the Coru; titution.''

This is not in any way contrary to what majority decided but only explains and brings out in bold relief what has been laid.down hy the majority.

In Co-op. Bank v. lnd11st. Tribunal (1970 (I) SCR 205) it 11as ht>ld:

''The principle that rules framed under a statute have tile force of statute docs not apply to bye-Jaws of a COOperati\"C

society.

They merely govern the intem.il management, business or administration of a society and may be binding between the persons effected by them but arc neither law nor do they have the force of Jaw.

They arc just like conditions of service laid down by contract between the parties, or like' bye-laws under the Articles of Association of a company under the Comv.inics Act, or Staading Orders certified

under the Industrial Employment (Standing Orders) Act,

1946. Therefore, the circumstances that in granting relief, the Tribunal may have to vary the special bye-laws framed by the C-Ooperative Banks docs not lead to the inference that the Tribunal would be making orders ca,1trary to law and

therefore is incompetent to grant the reliefs claimed.

Tlic Jurisdiction granted to the Tribunal by the Industrial Disputes Act is not the jurisdiction of merely administering exit

iog Jaws and enforcing existing contracts. The Tribunal has the jurisdiction even to vary contracts of service between employer and employees.

Further in, the Andhra Act th.: re' is no prohibition that the conditions of service prescribed ·; m~ not to be altered.

Therefore the reliefs collid only be grantcJ by the Industrial Tribunal and could not fall within the scope of the Registrar's powers under the Cooperative Societies Act."

The main contention on behalf of the three organisations put forward by the learned Addl. Solicitor Genera1 was that if we hold that these corporations are State and the regulatia,1s as having the force of law there would be no room for any r.eference to the Indust1rial Tribunal under the Industrial Disputes Act, and that would be_ a great disadvantage from which the labour would suffer.

fo. Warehousing Corp. v. Tyagi (1970 (2) SCR 250) it was hc:ld:

"A declaration to enforce a contract of personal service will :Jot normally be granted.

The exceptions are: (i) appropriate cases of public servants who have been dismissed frcm service in contravention of Art. 311; (ii) dismissed woi:kers under inciustrial and labour law; and (iii) when a statutory b-xl.y has acted in breach of a mandatory obligation imposed by a statute."

On the facw of this case it was held that a breach had been committed

by the appelfamt of regulation 16 ( 3), but such an oder made in breach of the regulations would only be contrary to the terms and conditions of relationship between the appellant and the respondent and i~ would not be in breach of any statutory obligatian because the Act docs not gimra!D.tee any statutory status to the respondent, nor docs it impose :.my obligation on the appellant in such matters.

Therefore, the violation of the regulation could not have the effect of treating the employee as still in service or entitling him to reinstatement. This case was rightly relied upoa by the learned Addi. Solicitor Qenemi as supporting his point.

The decisio11 in l.A.C. v. Sukhdeo Rai (1971 (Supp) SCR 510) had to consider the case of the Indian Airlines which is one of the parties in the cases before us.

This Court referred to its earlier decisions in Tewari'~ case (1964(3) SCR 55) and Rajasthan State Electricity Board case (supra) and distinguished the case in Life Insurance Corporation of India v. Mukherjee (supra). It also explained Naraindas Barot's ca~ (1966 (3) SCR 40). It then held that :

"Though made under the power conferted by statute, the regulations merely embody the terms and conditions of service in the Corporation but do not constitute a statutory restriction as to the kind of contracts which the Corporalion can make with its servants or the grounds on which it can. terminate them. That being so, and the Corporation

hvg undoubtedly power to dismiss its employees, th1: dismissal of the respondent was with jurisdiction and although

SUKHDEV v. BHA1GATRAM (AlagirisWami, !.)

it was wrongful in the sense of its berag in breach of the terms •and conditions which governed the relationship between the Corporation and the respondent, it did subsist.

The present case, therefore, did not fall under any of , the three well-recognised exceptions laid down by this Court; hence the respondent was only entitled to damages and no.t to the declaration that his dismissal was null and void."

My learned brothers have referred to Naraindas Barot's case (1966 (3) SCR 40) and state that as it was decided by the Constitution Bench, the U.P. Warehousing Corporation's case (1970 (2) SCR

250] and the Indian Airlines' case

(1971 (2) SCR 192 ·: 1971 (Supp) SCR 510) are in direct conflict with former decision in 'Nttraindas Barot's case. The question whether the Road Transport Corporation was a State within the meaning of that term 11,1der Art. 12 of the Constitution was neither raised nor decided there. Nor was the question whether the regulations under consideration in that case were of a statutory charactr raised or decided. That case is not an authority for the proposition that the Road Transport CorporatiO'a was a, State or that its regulations had the effect of law. The discitssion in this case would therefore have to proceed on the lYasis that it lays down no ratio and the U. P. Warehousing Corporation and the Indian Airlines cases are still good law. The Sirsi Municipality case (1973 (1) SCC 409) antj Tewari's case (1964 (3) SCR 55) stand, however, on 'a different footmg.

They are both concerned with bodies which were undoubtedly local bodies and therefore a State and they could prO'Vide no support for the view which my learned brothers have taken.

It only remains to deal with the two-poh1ts made by the learned Addi. Solicitor General tor the Corporations, One was that if the regulations are held to be Jaw the remedy under the Industrial Dispute.s Act would not be available to the employees of these Corpol'ations because under the Industrial Dispute.s Act the Tribunals have the right to form a new contract for the parties if the employment I~ a matter of contract but it can1.1ot do, so if it is a matter of statute and the decision that the regulations are law would have the result of causing detriment to the interest of the employees. I do not think that that consideration need deter us from holding that the regulations are law if it could be so held on other grounds, . .. \.

Another argume.1t of his was that these employments a1e u matter of personal service and therefor~ the .test whether the contract could 13--470Sup.CI/75

be specifically enforced should be taken into consideration in deciding whether a declaration th•at a dismissal of an employee in any case is void and he should be reins1ated.

I do not think that in the mod1rn commercial and industrial mrld the idea of personal ervice has much relevance. It might have had its place in the context of 19th Century.

There is no question of presonal service in a large commercial or industrial organisation and this cdasideration need not therefore stand in the way of our accepting the employees' contention if it is otherwise acceptable.

The various provisions contained in respect of the various organisations like the State Raad Transport Corporation or the British Transport CommissicY.1 in Tar/in v. Hannaford would show that the power of c:ontrol or even the financial interest of the State in these Corporations was as high as, if not higher than, that of the State in these corporations under consideration. So none of the considerations mentioned by my le-arned brothers would help them to reach the conclusion that these corporations are the State. The power of the owner in hire-purchase agreement and the power of the mortgages under s. 69 of the Transfer of Property Act to sell the mortgaged property by exercisrag

his right of private sale can be usefully compared in connection with the powers conferred on the Industrial Finance Corporation. Nor do I think that section 25 of the Oil & Natural Gas Commission Act, 1959 would make it a State. The test laid down for deciding what is a State r.1 the Ra; asthan Electricity Board case, that is of commanding other people to do or not to do a thing on pain of punishment, is not there. I do not see how, 'llS long as that decision holds the field, it is open to this Bench to take a different view.

All the other decisions of thi~ Court have followed only that view. The decision of my learned brothers is unsupportable i:a principle against the weight of authority and frought with serious consequences. Suddenly overnight by the fiat of this Court all these bodies which till yesterday were not considered to be a State or other authority would be considered to be other authority and their employees entitled to provisions of Part III of the Constitution.

We would be opening 'a veritable Pandora's box.

The: protection given to Government servants in ndia have no parallels anywherc in the world. They were getting on well enough till the Government of India Act, 1935. Till then there was no statutory protection given to them [See Venkata Rao's case (supra) and Rangachari's case (suprd)]. It is a well known fact that it was the Jack of confidenee of the British Government in the capacity of the Indians to manage their own affairs that led to section 240 becoming part of the Govemment of India Act, 1935. This section is a forerunner of the prese,1t Article

SUKHDEV I'. HHA.:; ATRAM (Alagiriswami, !.) 61! 3

311 of the Constitution. It is to be wondered why the framers of the Constitution should have copied the provisions of the Government ot India Act 1935 with regard to Government servants. Be that as it may, there at least we have got the saving grace of Article 310. One's experie•ace in the various High Courts as well as in this Court would have made it amply clear that not merely Art. 311 but Articles 14 and 16 are resorted to by various Government servants to take up matters till the Court of the last resort even in petty matters like seniority, scale of pay and even minor punishments. Many a time have the learned Judges of this Court felt unhappy about the time of the Court

being taken for days together by petty matters relati'ag to Government servants and wished that there were a separate Court for deaiing with these matters. By deciding that organis•ations like the ones under consideration in these cases are 'other authority' and the regulations they make is law we would at once at one stroke be creating a large mass of neo-Governmen, t servants and Articles 14 and 16 would provide amply opportunities for endles litigation.

One would readily agree that labour whether employed by private industry or industry run by the Government should be treated equally. But that one class of labour, that is labour employed in industry run by the Government, should be more equal than others is a proposition which .no reasonable minded person can agree to. The employees of the public sector industries would get even more advantages than even the Government servants to whom Articles 309, 310 and 311 apply. In the name of industrial action life will be paralysed. . They are not subject to same rules and regurations or discipline to which the Government servants are subject. They would be different from the days when they were treated like employees of private firms and were subject to the ordinary law of master and servant and become entitled to be treated even better than the Government employees. One has only to refer to one's experience of what has happened to the Life Insurance Corporation or the various mtionalised banks since they were nationalised. Misplaced sympathy is sometimes responsible for our attitude to labour. These days labour is not the weak and helpless force that it was in the 19th Century.

They are strong, well organised, rich and powerful. In England the Trade Union Congress is able to dictate to suecessive Governments on all sorts of matters. Jn AmeriC'a it is said that industrial managers have to wait hat-in-hand before the officers of the trade union bqsses.

George Meany of the A.F.L. and C.1.0. is able to dictate to the Government. . One has only to refer to Jimmy H~!Ia @.f the Teamsters' Union in America to know how powerful trade unions are.

To the legitimate armoury of labour like strike and picketing and industrial negotiations this country has dubious distinction .of having added 'gherao', a most uncivilised form of wrongful confinement in order to force concessions from managements and even heads of institutions, even educational institutions. There is no question there of any negotiations. The management or the head of the institution has to either surrender or be prevented frolil eating or even answering calls of nature and to be kept )ncommunicado with the outside world.

These are not dire forebodings of what will happe, n but merely an enumeration of what is actually happening.

With the tre unions

· <:oming up to this Court even in matters of minor punishment of a single workman and sometimes even against interim orders of industrial tribunals it would be litigants paradise.

I huve f'ad the judgment of my learned brother Mathew, J. with great in•'!rest and respec; t for the vast amount of learning and philosophical considemtion that he has bestowed on the subject. It is obvious therefrom, however, that he realises that the earlier decisions of thi3 Court do not support the view taken by him or my other learned brethren. What he says about labour and the public service corporations, at best esablish that they shoud be subject to control. But it does not establish that public service corporations owned by the Government should be treoated differently from other public service corporations. That is why I said it is reasonable that labour in both cases should be treated alike. It does not establish that labour in public service corporations owned by Government should be treated like GovP, rament servants engaged in administering or enforcing functions and duties connected with governmental functions.

I would hold that Oil & Natural Gas Commission, Life lnsurnnce Corporation an, d the Industrial Finance Corporation are not authorities within the meaning of Article 12 of the Constitution and regulations framed by them have no force of law. The employees of these sl'atuto9.'/bodies have no statutory status and they are not entitled to declaration of being in employment when their dismissal or removal is in contravention of statutory provisions.

ORDER By order of the Court.

Rules and Regulations of .the ' Oil and Natural Gas Co11ullis!1ion, Life Insurance Corporation, Industrial Finance Corporation ho.vc the force of law.

 The employees of these statutory bc>gies have a statutory status and H they are entitled to a declarati~ ot being in employment whe11 theit dismissal or rernoval is in contravention of statutory provisions.

SUKHDEV v. BHAGATRAM (Alagiriswamy, !.) 6 8 5

These statutory bodies are authorities within the meaning of Art. 12 of the Constitution.

In Civil Appeal No. 2137 of 1972, the declaration granted by the High Court that the order removing Bhagatram Sardarsingh Raglrnvansi from service is null and void and that he continues in service is upheld. The writ of mandamus issued by the High Court is also upheld.

In Civil Appeal No. 1655 of 1973, the writ of mandamus granted by the High Court is upheld.

In Civil Appeal No. 1655 of 1973, the writ of mandamus granted Corporation is an authority within the meoaning of Art. 12 of the Constitution for the reasons given in this judgment. The conclusion of the High Court that the regulations have not the force of law is set aside.

The conclusion of the High Court that Corporation should not be permitted to enforce the regulations mentioned in clauses ( 1) and ( 4) of Regulation 25 is upheld.

In Civil Appeal No. 115 of 1974, the Judgment of the High Court is set aside. The Finance Corporation is 'an authority within the meaning of Art. 12. The Regulations of the Corporation have the force of law. The conclusion of the High Court that the Association is not entitled to raise a plea of discrimination on the basis of Art. 16 is set aside.

The appeals are disposed of accordingly.

The P'arties will pay and bear their own costs in all these appeals.

P. H.P.