Sudhir S/O Chatarpal Kedar vs Chairman, Maharashtra State ...
2005 Latest Caselaw 1449 Bom

JUDGMENT

R.C. Chavan, J.

1. This Second Appeal has been admitted on 19-9-2005 to consifollowing substantial question of law.

1) Whether Respondent No. 1 Bank is a State within the meaning of Article 12 of the Constitution of India?

2. The facts which gave rise to the present appeal are as under :

The appellant/original plaintiff Sunil Chatarpal Kedar is a Civil Engineer who was appointed as Engineer/Officer Grade-I in the respondent Bank in July, 1990 and was confirmed in 1991. On 22-7-1994 the plaintiff had written a letter to his employer stating that, he was entitled to a promotion to the post of Deputy Chief Officer according to his seniority. He made a representation again on 18-9-1994. Since his representations were not considered he filed Regular Civil Suit No. 1530 of 1994 before Civil Judge Jr. Dn. at Nagpur. He contended that juniors who were appointed as officers after him were considered for the post of Deputy Chief Officer, resulting in violation of principle of equality and subjecting him to discrimination. His legitimate claim was unnecessarily denied by the respondent. The action of the respondent was illegal, arbitrary and discriminatory. He therefore, sought a declaration that he was entitled to be considered for promotion, a direction to consider him; and an injunction to restrain Bank from appointing others to the post of Deputy Chief Officer.

3. In response to the suit summons the defendant Bank appeared and resisted the claim stating that the plaintiff was in fact appointed as a Civil Engineer in a Technical cadre. The plaintiff would be entitled to the promotion in the technical cadre itself, and that the plaintiff was not entitled to be considered for the post of Deputy Chief Officer for which interviews were held in July 1994. It was therefore, stated that the Bank had not acted illegally or arbitrarily and had not discriminated against the plaintiff. It therefore, prayed for dismissal of the suit.

4. Upon consideration of the evidence tendered before him, the learned 3rd Joint Civil Judge Jr. Dn. came to dismiss the suit. Aggrieved thereby, the plaintiff filed appeal before the District Court. The District Court held in favour of the plaintiff concluding that the impugned action of the Bank was violative of equal opportunity guaranteed under Articles 14 and 16 of the Constitution of India. The respondent Bank filed second appeal which was entertained as appeal bearing No. 20 of 2000 before this Court. The matter was heard finally at the stage of admission itself. It was observed that unless it is held that the person or authority causing discrimination is "State" within the meaning of Article 12 of the Constitution of India, question of violation of Articles 14 and 16 would not arise. Consequently, this Court remanded the matter back to the District Court for examining, whether the defendant Bank is State within the meaning of Article 12 of the Constitution of India.

5. Upon remand, the learned 3rd Additional-District Judge heard the parties on the question, whether the respondent Bank was State within the meaning of Article 12 of the Constitution of India, and concluded that the respondent Bank was not State and hence, disposed of the appeal. As a corollary the plaintiff would be non-suited. Aggrieved by this judgment, dated 13-7-2001, the original plaintiff preferred this second appeal, which, as already recounted, was admitted on 19-9-2005 to consider the question, whether the respondent Bank is State within the meaning of Article 12.

6. I have heard Shri Srivastava, learned Counsel for the appellant and Shri V. G. Wankhade, learned Counsel for the respondent Bank.

7. The learned Counsel for the appellant submitted that the respondent Maharashtra State Co-operative Bank is an Apex Bank for the entire State of Maharashtra, as far as Co-operative Banking sector is concerned. It has all trappings of the State. The bye-laws and other documents of the Bank, which were placed on record, show that the State has pervasive control over the affairs and management of the respondent Bank and its policies. Therefore, merely because the Bank is incorporated under the Co-operative Societies Act, it does not cease to be the State.

8. His learned adversary Shri V. G. Wankhade submitted that the State of Maharashtra does not own the Bank. The Government of Maharashtra has only a nominal contribution to the share capital of the Bank. It does not have any control over the affairs of the Bank other than that on affairs of any other Cooperative society. The Bank is an independent juristic person and is not creation of any statute. Therefore, the learned Counsel submitted that the respondent was rightly held, not to be State, by the learned Additional District Judge.

9. The learned Counsel for the appellant has placed on record two volumes of Manuals of Maharashtra State Co-operative Bank. These volumes and other documents show that:

(a) The Bank was registered on 11th October, 1911 under the Cooperative Societies Act, 1904 with the object of serving as a balancing centre for Co-operative societies in the State, to organize the provision of credit for agriculturists in the State, to promote economic interest of the members of the Bank, to grant loan to co-operative societies etc. and to act as an agent to the Government and local authorities for such business as may be mutually agreed upon between the Bank and the authority with the sanction of the Registrar, Co-operative Societies.

(b) The share capital of the Bank was Rs. 10 crores and a small part of it was subscribed by the State Government.

(c) The Bank is authorized to receive, from the State Government, a contribution equivalent to the amount of share capital which the Bank may subscribe to the share capital of the Central Bank (District Central Co-operative Bank) and this contribution is to be credited to the 'Principal State Partnership Fund'.

(d) The Board of Directors of the Bank has representatives of District Central Co-operative Banks, a Director representing societies not otherwise represented, a Director representing Apex Co-operative, Cooperative Marketing Society, some Directors representing urban Banks, a Director representing Maharashtra State Co-operative Land Development Bank Limited, five Directors representing individual members, a Director representing Co-operative processing societies and one Director representing Regional and District Industrial Co-operative Banks, Thus, it seems that there is no direct representation of the State, as the State (and not as shareholder) on the Board of Directors.

(e) The Bank can borrow from the Reserve Bank of India, State Government, Public Sector Banks, Industrial Development Bank of India, Agricultural Refinance and Development Corporation and National Co-operative Development Corporation.

The Manuals then lists various procedures and forms to be followed by the officers and employees of the Banks.

10. Bye-laws of the Bank show that :

(f) The Bank may raise monies by receiving deposits and may issue debentures on such terms and conditions as may be approved by the Government of Maharashtra or any other appropriate authority. The Registrar of the Co-operative Societies of the Maharashtra State is under bye-law 10 to be sole trustee for the purpose of securing fulfilment of obligations to all the holders of debentures/ bonds issued by the Bank from time to time. Bye-laws 11 to 15 enumerate details about issuing debentures. According to the learned Counsel for appellant the foregoing features established the character of the Bank to be the State.

In addition the learned Counsel for appellant submitted that:

(g) Commissioner of Co-operation, Maharashtra Government had written a letter to the Bank on 8-7-1998 stating that the Chairman and directors had agreed at a meeting with him to virtually accept control of the State in the matter of recruitment.

(h) Also the Bank had adopted model standing orders issued by Labour Commissioner in respect of recruitment to posts falling under the Labour laws.

(i) The accounts of the Bank are subject to audit by auditors of Cooperation Department.

11. The question is, whether these features (a) to (i) culled out above are sufficient to clothe the Bank with the character of the State. The learned Counsel for the appellant drew my attention to the decision of the Supreme Court in U.P. State Co-operative Land Development Bank Ltd. v. Chandra Bhan Dubey reported at and submitted that the character of U. P. State Co- operative Land Development Bank is similar to the respondent Bank, and since the Apex Court has held that U. P. State Land Development Bank to be "State" there is no reason why the respondent Bank should not be held to be State. The case had arisen out of dismissal of three offices of the Bank after disciplinary proceedings on the charge of embezzlement. It would, therefore, be necessary to examine the various features of U. P. State Co-operative Land Development Bank (hereinafter referred to as "UPSLDB" for short), which have been considered by the Apex Court and to compare them with the features of the respondent Bank.

The Supreme Court has enumerated in Paras 20 and 21 of the judgment the manner of incorporation and functioning of the UPSLDB which led the Court to hold the Bank to be State. The same may be usefully reproduced below.

20. We have seen above that the applicant is functioning as a cooperative society under the Societies Act but (a) it has been constituted under the provisions of the Bank Act. (b) In exercise of power conferred on the State Government by Section 30 of the Bank Act, Rules have been framed called "the U. P. Co-operative Land Development Bank Rules, 1971".(c) For the service condition of the employees of the appellant, we have to refer to the Societies Act and the Regulations framed by the U. P. Co-operative Institutional Service Board constituted under Section 122 of the Societies Act as well as to the Service Rules framed by the appellant under Regulation 102 of the Service Regulations. (d) Service Rules framed by the appellant shall be operative only after their approval by the Institutional Service Board. (e) Any order of dismissal by the appellant can be issued only after its approval by the aforesaid Board.(f) If we refer to the Bank Act, it will be seen that under Section 3, there shall not be more than one State Land Development Bank for the whole of the State of Uttar Pradesh and that sole Bank is the appellant. It has thus exclusive jurisdiction for the whole of the State of Uttar Pradesh. It can admit as members Land Development Banks whose number can be as many as may be deemed necessary by the Registrar of the Co-operative Societies for the State of Uttar Pradesh. The appellant is also vested with various powers under the Bank Act which powers are not available to a cooperative society registered merely under the Societies Act. If we refer to some of the provisions of the Bank Act, it will be seen that the Registrar of the Co-operative Societies for the State of Uttar Pradesh shall be the trustee for the purpose of securing the fulfilment of the obligations of the State Land Development Bank to the holders of debentures issued by the Board of Directors. The powers and functions of the trustee shall be governed by the provisions of the Bank Act and by the instrument of trust executed between the appellant and the trustee as modified or substituted from time to time by their mutual agreement and with the approval of the State Government. The trustee is to be a corporation sole. The Board of Directors of the appellant may from time to time issue debentures of various denominations with the previous sanction of the State Government and the trustee and subject to such terms and conditions as the State Government may impose against the unconditional guarantee by the State Government for repayment in full of the principal and payment of interest thereon or on the security of mortgages, charges or hypothecations etc. Under Section 9 of the Bank Act, the State Government constitutes a Guarantee Fund on such terms and conditions as it may deem fit, for the purpose of meeting losses that might arise on account of loans advanced by the Land Development Banks on the security of mortgages not being fully recovered due to such circumstances as may be prescribed. The appellant and the Land Development Bank shall contribute to such Fund at such Rates as may be prescribed. Under Rule 6 of the Bank Rules, the Guarantee Fund shall be maintained by the Finance Department of the State Government in the Public Accounts section of the State Accounts and all contributions to the Fund and interest earned on investment made from the Fund shall be credited direct to the Fund. It is not necessary for us to quote various other sections and Rules, but all these provisions unmistakably show that the affairs of the appellant are controlled by the State Government though it functions as a Co-operative Society and it is certainly an extended arm of the State and thus an instrumentality of the State or authority as mentioned under Article 12 of the Constitution.

21. (h) We also find from the Service Rules that the Managing Director and Chief General Manager of the appellant are officials of the State sent on deputation to the appellant. These two officers are at the helm of the affairs of the appellant. It is difficult to imagine a situation where a Government sends one of its employees on deputation to head a body or institution not controlled by that Government even though the employee may be paid out of the funds of that body or institution unless there is a specific provision of law so entitling the Government. (i) We also find that Service Rules have been framed under the statute and those Rules have the approval of a statutory body. (e) Exercise of power of dismissal by the appellant has to be in accordance with the statutory regulations and with the approval of the statutory body. In Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi a Constitution Bench of this Court held that regulations being framed under statutory provisions would have the force of law," [Alphabets (a) to (i) inserted to indicate features].

12. This decision was relied on in Ram Sharan Rai v. Sachiv Samanya Prabandhak and Anr. reported at where question pertained to employees of District Co-operative Banks in U. P., which had been established under the same U. P. S. C. L. D. B. Act. It was held that the District Co-operative Banks are statutory bodies and instrumentalities of the State.

13. Unlike U. P. S. C. L. D, B., the Maharashtra State Co-operative Bank is not a Bank which is created by a statute. State of Maharashtra too has a Maharashtra State Land Development Bank which is distinct from the appellant Bank. Close association of Maharashtra State Co-operative Bank with the activities of District Central Co-operative Banks does not give it any character of the State. It is only an inter-institution arrangement of coordinating their activities in order to achieve the goals enumerated in the Memorandum of Association of the respective bodies.

14. Control of Registrar of the Co-operative Societies or Co-operation Department of the State is in the nature of ensuring that the bodies concerned do not create a situation which would entail interference by the State. It is only in order to ensure that these Co-operative Banks conduct their affairs properly, that audit by the Co-operation Department is prescribed. It is not intended to bring in the sweep of the State all the activities of the Bank.

15. The circular issued by the Commissioner of Co-operation on 8-7-1998 is not helpful to the appellant to show that the Bank is an arm of the State. It may be seen from the letter itself that it recorded an agreement of Chairman and other members of the Bank in course of their meeting with the Commissioner. The letter only recites what the directors had agreed to do after obtaining concurrence of the State Government. Had the State had power to impose restrictions and insist on concurrence by State on the Bank and its directors, it would have been unnecessary to seek an agreement from the Chairman and Directors of the Bank.

16. It may be seen that in the case of U. P. S. C. L. D. B. even the power of taking disciplinary action vests in a statutory Board, and not in the Board of directors of the: Bank. The whole scheme of working of the U. P. State Cooperative Land Development Bank would show all pervasive control by the instrumentalitieis of the State in all the activities of the Bank. The only similarity in the two Banks may be in respect of issuance of debentures or the Registrar of Co-operative Societies being the trustee. This enabling provision may have been inserted to instil a confidence in the debenture holders about safety of their investment, which in turn would stimulate investment. This in itself would not make the appellant "State".

17. The learned Counsel for the appellant submitted that even if the Bank is not held to be the State, if it is found to be discharging Public functions, discrimination cannot be made in the absence of Rules giving such an opportunity to the management. He placed reliance on a decision in the matter of Vaish Degree College v. Lakshmi Narain, reported at AIR 1976 SC 888. In that case services of principal of the College had been terminated without obtaining approval of the Vice Chancellor as required under Section 25 (c) Clause (2) of Agra University Act. The Principal had filed suit for an injunction to restrain the College from terminating his services. The trial Court had dismissed the suit, but the decree was set aside on appeal to the District Court. On second appeal to the High Court the learned Single Judge of the Allahabad High Court made a reference to the Full Bench. The Full Bench held that the defendant College was a statutory body. In view of the answers given to the questions referred to the Full Bench, the learned Single Judge held accordingly and dismissed the appeal filed by the College.

18. The Supreme Court entertained Special Leave Petition filed by the College and allowed the appeal, holding that the termination of the service of the Principal could not be interfered into by the Courts. In the judgment delivered by Fazal AH, J. for himself and Khanna J, the Court elaborated the requirements for clothing the authority with the character of the State. The discussion in Paragraphs 9, 10 and 17 of the judgment may be usefully reproduced for consideration of the questions in the present case :

9. It seems to us that before an institution can be a statutory body it must be created by or under the statute and owe its existence to a statute. This must be the primary thing which has got to be established. Here a distinction must be made between an institution which is not created by or under a statute but is governed by certain statutory provisions for the proper maintenance and administration of the institution. There have been a number of institutions which though not created by or under any statute have adopted certain statutory provisions, but that by itself is not, in our opinion, sufficient to clothe the institution with a statutory character. In Sukhdeo Singh v. Bhagatram Sardar Singh Raghuvanshi this Court clearly pointed out as to what constitutes a statutory body. In this connection my Lord A. N. Ray, C. J., observed as follows :

A Company incorporated under the Companies Act is not created by the Companies Act but comes into existence in accordance with the provisions of the Act. It is not a statutory body because it is not created by the statute. It is body created in accordance with the provisions of the statute.

It is, therefore, clear that there is a well marked distinction between a body which is created by the statute and a body which after having come into existence is governed in accordance with the provisions of the statute. In other words the position seems to be that the institution concerned must owe its very existence to a statute which would be the fountainhead of its powers. The question in such cases to be asked is, if there is no statute would the institution have any legal existence. If the answer is in the negative, then undoubtedly it is a statutory body, but if the institution has a separate existence of its own without any reference to the statute concerned but is merely governed by the statutory provisions it cannot be said to be a statutory body. 10.... In fact an identical argument which forms the basis of the judgment of the Full Bench of the High Court had been advanced before this Court and rejected outright. For instance in Sabhajit Tewary v. Union of India, AIR 1975 SC 1329, 1330 the question was whether the Council of Scientific and Industrial Research which was a society registered under the Societies Registration Act, as the present appellant is, was a statutory body. It was urged that because the Council of Scientific and Industrial Research had Government nominees as the President of the body and derived guidance and financial aid from the Government, it was a statutory body. A. N. Ray, C. J., rebutted these arguments and observed as follows :

The Society does not have a statutory character like the Oil and Natural Gas Commission, or the Life Insurance Corporation or Industrial Finance Corporation, It is a Society incorporated in accordance with the provisions of the Societies Registration Act. The fact that the Prime Minister is the President or that the Government appoints nominees to the Governing Body or that the Government may terminate the membership will not establish anything more than the fact that the Government takes special care that the promotion, guidance and Co-operation of Scientific and Industrial Research, the Institution and Financing of Specific Researches, establishment or development and assistance to special institutions or departments of the existing institutions for scientific study or problem affecting particular industry in a trade, the utilization of the result of the researches conducted under the auspices of the Council towards the development of industries in the country are carried out in a responsible manner.

17. On a consideration of the authorities mentioned above, it is, therefore, clear that a contract of personal service cannot ordinarily be specifically enforced and a Court normally would not give a declaration that the contract subsists and the employee, even after having been removed from service can be deemed to be in service against the will and consent of the employer. This Rule, however, is subject to three well recognized exceptions - (i) where a Public servant is sought to be removed from service in contravention of the provisions of Article 311 of the Constitution of India; (ii) where a worker is sought to be reinstated on being dismissed under the Industrial Law; and (iii) where a statutory body Acts in breach or violation of the mandatory provisions of the statute.

(Emphasis supplied).

19. Justice Bhagwati wrote separate but concurring judgment. Bhagwati J. observed that while bodies created by a statute were undoubtedly the State, those which are created under the statute can be considered as having trappings of the State. The observation of Bhagwati, J. in Paragraph 32 too may be usefully reproduced as under:

Now, two questions immediately arise for consideration on this statement of law. The first is, what is the 'statutory body' contemplated in these decisions, and the second is, are the three exceptions formulated by this Court intended to be exhaustive? When we are trying to understand what is the 'statutory body' which this Court had in mind when it laid down this statement of law, it must be remembered that a statement of law enunciated by this Court must be read in the light of the principle which it seeks to effectuate and it should not be construed as if it was a section. The third exception is intended to cover cases where by reason of breach of mandatory obligation imposed by law, as distinct from contract, the termination of service is null and void so that there is in law no repudiation at all. That is the principle on which the third exception is based and it is in the light of this principle that the expression 'statutory body' used by this Court has to be understood. Now, obviously, a body or authority created by statute would be a statutory body, but even a body or authority which is created under a statute, as for example, the State Road Transport Corporation which is created by the State under the Road Transport Corporation Act, 1950, would also be a statutory body. What other kinds of statutory bodies would be included in a matter not free from difficulty'. But in any event it does appear to me that the three exceptions formulated in the statement of law laid down by this Court in the above decisions are not intended to be and cannot be exhaustive. The categories of exceptions to the general Rule should not be closed, because any attempt at rigid and exhaustive formulation of Legal Rules - any attempt to put law in a straitjacket formula- is bound to stifle the growth of law and seriously cripple its capacity to adapt itself to the changing needs of society. In fact, Ray, J., as he then was, speaking on behalf of this Court in Sirsi Municipality v. Cecelia Kom Francis (1973) 3 SCR 348 : AIR 1973 SC 855 pointed out that the third exception applied not only to employees in the service of 'bodies created under statutes" but also to those in the employment of 'other public or local authorities." It may be a possible view - and some day this Court may have to consider it - that whether law, as distinct from contract, imposes a mandatory obligation prescribing the kind of contract which may be entered into by an employer and the manner in which alone the service of an employee may be terminated, any termination of service effected in breach of such statutory obligation would be invalid and ineffective and in such a case the Court may treat it as null and void. But I do not think it necessary to pursue this line of discussion any further and come to a positive conclusion whether the appellant is or is not a statutory body or a Public authority nor do I consider it necessary to go into the question whether the Statutes of the Agra University had the force of law and conferred rights on the Principal and teachers of affiliated Colleges, as in Prabhakar Ramkrishna v. A. L. Pande or they only set out the terms and conditions which had no validity and conferred no legal rights, unless and until they were embodied in the contract between the Principal or Teacher on the one hand and the affiliated College on the other as in Vidya Ram Mishra v. Managing Committee. Shri Jai Narain College . I take the view that on the second part of the question the case of the first respondent is well founded.

20. As observed by Bhagwati, J. conditions under which ordinary law of master and servant would not apply, may exist and may require evaluation on a case to case basis. Likewise it may not be desirable to have any straitjacket formula to find out as to whether an entity is State or not only on the basis of whether it owes its existence to statute or otherwise. Bhagwati, J. also observes that same day the Courts may have to consider whether law as distinct from contract imposes mandatory obligations in the employee-employer relations. Law has to respond to the needs of changing times. Freedom of action for individuals and juristic persons does not imply that State may allow anarchy.

21. The observation of the Court in this case show that though three categories enumerated in Sabhajit Tewary v. Union of India may not be exhaustive, it does not follow that in case of institution, which is not State, a Civil Court would be entitled to look into the questions raised de hors the Common law relating to master and servant.

22. It may be seen that the Maharashtra State Co-operative Bank in its original incarnation was infact registered in the year 1911 under the Co-operative Societies Act in the Bombay Province. At that time there was no question of Bank being required to perform any sovereign function of the State or to assist the State in performing such functions. Even after independence the State control over the institutions like U. P. S. C. L. D. B. became necessary, not in order to perform sovereign functions, but because the State wanted to ensure egalitarian growth of the society by intervening in the field of financing growth, which was neither sovereign function of State, nor was the State apparatus geared up to effectively take up this function. With the changing times, it has become unnecessary for the State to take active part in these areas and the Role of the State is day by day receding to minimum regulation only to ensure that there is no exploitation of the underdog.

23. Rule of law, and orderly conduct of affairs in a democratic State requires some regulation by the State of activities of private bodies by appropriate legislation. It does not however, follow that because the activities are regulated by the statute the Acts of such entity concerned would come under the scanner of judicial review as if it is the Act of the executive or legislative wings of State. More regulation of Industrial units, commercial establishment, Banks, Companies, Schools or Colleges or Co-operative Societies, or Requirement of their registration under relevant provisions of the statute do not clothe them with the character of State. These bodies are not creature of the statute and only have their activities regulated under the statute. Therefore, these bodies cannot be subjected to the regimen of Part-III of the Constitution of India.

24. The learned Counsel for the appellant submitted that even if the Bank is not held to be the State since it is discharging Public functions it may not be permitted to discriminate between its employees. He has cited some examples when the officers of the technical cadre have been promoted to the posts in the non-technical cadre. He therefore, submits that failure to consider the appellant for promotional post in non-technical cadre would amount to discrimination in the case of the appellant. First it is not province of this Court to go into the individual cases where people from the technical cadre were considered for the posts in non-technical cadre and to examine vires of such actions. For all we know, such promotion may be wrong as causing injustice to the officers from non-technical cadre. Secondly, as far as the appellant is concerned, since he was appointed as a Civil Engineer, if he is not considered for a promotional post in the non-technical cadre it may not be possible to say that such non-consideration is entirely baseless and discriminatory. Therefore, it may not be permissible for the appellant to compare himself with officers in the non-technical cadre who were appointed after him, and had been considered for promotion to nontechnical post. A person entering a channel has to go by limitations of the channel. While promotional avenues in non-technical branches may be more, the strength of feeder posts may also be large. Promotion is not the matter of right of the employee. Therefore, since it is not shown that any contractual rights, or even statutory rights vesting the appellant which can be specifically enforced, have been breached by the respondent Bank it would not be possible to hold that the appellant was entitled to the relief which he had initially claimed, as a result, the appeal fails and is dismissed with costs throughout.