Sukhdev Singh & Ors Vs. Bagatram Sardar Singh Raghuvanshi & ANR [1975] INSC 43 (21 February 1975)
RAY, A.N. (CJ) RAY, A.N. (CJ) MATHEW, KUTTYIL KURIEN CHANDRACHUD, Y.V.
ALAGIRISWAMI, A.
GUPTA, A.C.
CITATION: 1975 AIR 1331 1975 SCR (3) 619 1975 SCC (1) 421
CITATOR INFO :
R 1976 SC 888 (9) R 1976 SC1027 (14) RF 1976 SC1913 (11) RF 1976 SC2216 (7) D 1978 SC 252 (12) D 1979 SC 65 (3,10) D 1979 SC1084 (20) F 1979 SC1628 (10,13,15,16,18,27,33) R 1980 SC 840 (8,10,14,21) RF 1980 SC2181 (136) RF 1981 SC 212 (32,36,38,42,44,46,48,49,50,52 RF 1981 SC 487 (8,14,16) RF 1981 SC 818 (19) RF 1981 SC1395 (10) R 1982 SC 917 (20) F 1984 SC 363 (22) F 1984 SC 541 (13) RF 1984 SC1130 (53) RF 1984 SC1361 (26,27) RF 1984 SC1897 (7,8) APL 1985 SC1046 (5) RF 1986 SC1370 (101) R 1986 SC1571 (43,51,69,105) RF 1987 SC1086 (12,15,26) RF 1988 SC 469 (6,7,8,9) APL 1989 SC 341 (9) F 1991 SC 101 (12,32,35,40,170,201,223,236) RF 1992 SC 76 (2)
ACT:
Statutory Corporations--Regulations made by, whether have force of law--Whether employees of corporation are servants of Union or State Constitution of India, Art. 12--Whether statutory corporations are 'State' or 'authority'.
HEADNOTE:
The Oil and Natural Gas Commission, the Industrial Finance Corporation and the Life Insurance Corporation are created by statutes. The Oil and Natural Gas Commission is owned by the Government, the management is by the Government and it could be dissolved only by the Government. The provisions of the Oil and Natural Gas Commission Act, 1954, creating it.
show that it acts as an agency of the Central Government.
The Provisions of the Industrial Finance Corporation Act, 1948, creating the Industrial Finance Corporation show that the Corporation is under the complete control and management of the Central Government. Provisions of the Life Insurance Act, 1956, which creates the Life Insurance Corporation.
show that this Corporation is also an agency of the Government carrying on the exclusive business of LifeInsurance. 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 make regulations which provide, inter alia, for the terms and conditions of employment and services of their employees.
On the question whether, (i) the regulations have the force of law, and (ii) whether the statutory corporations are 'State' within the meaning of Art. 12 of the Constitution, HELD : (Per A. N. Ray, C.J., Y. V. Chandrachud and A. C. Gupta, JJ.) The regulations have the force of law and the employees are entitled to the declaration 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 statue to make regulations. The authority making the regulations must specify the sources of its specific power. The essence of law is that it is made by the law makers in exercise of specific authority. The vires of such of law is capable of being Challenged if the power is absent or has been exceeded by the authority making rules 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 source of power whereas administrative instructions are not issued after reciting the source 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 all members of some group of class. [630G;
633G] (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 620 employees. They contain the terms and conditions of appointment 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 terms of service of their employees. They are bound to apply the terms and conditions as laid down in the regulations. These regulations are not only binding on the authority but also on the public. They imposed obligations on the statutory authorities. The statutory authorities cannot deviate from the conditions of service. Any deviation will be enforced by legal sanction of courts to invalidate actions in violation of rules and regulations. The existence of rules and regulations under the statute is to ensure regular conduct with a distinctive attitude to that conduct as a standard. The statutory regulations in the instant case give the employees a statutory status and impose restrictions on the employer and the employee with no option to vary the conditions. An ordinary individual, in the case of master and servant contractual relationship, enforces breach of contract. the remedy being damages because personal service is not capable of enforcement. In the case of statutory 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 regulations. Failure to observe requirements of the regulation by statutory bodies is 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 natural justice and compliance with rules and regulations imposed by statute. [630C-D; 633H; 634A-D] (e) Further the executive power of a 'state' is not authorised to frame rules under Art. 162. [630G] (f) The rules and regulations in the present case cannot be equated to the regulation framed by a company incorporated 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. It is not a statute body because it is not created by statute itself. A company makes rules and regulations in accordance with the provisions of the Companies Act whereas the source of the power for making rules and regulations the case of corporations 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 and Indian Airlines Corporation Case [1971] 2 S.C.C. 192 the terms of the regulations were treated as terms and conditions of relationship between the corporation and its empolyees. But that could not lead to the conclusion that they are of the same nature and quality as the terms and conditions laid down in a 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 the statute which constitute the corporation.
Terms of the regulation are not terms of contract. 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 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, therefore, in U.P.
Warehousing Corporation and Indian Airlines Corporation are in direct conflict with the decision of this Court in Naraindas Barot Divisional Controller S.T.C., [1966] 3 S.C.R. 40 and are wrongly decided. [633B-D] The Sirsi Municipality v. Cecelia Kom Francis, [1973] 1 S.C.C. 409, followed.
(2) The statutory bodies are authorities within the meaning of Art. 12 of the Constitution though their employees are not the servants of the Union or of a State. [642F] 621 (a) The State undertakes commercial functions in combination with governmental functions in a welfare State. It must be able to impose decisions by or under law with authority. An clement of authority is of binding character. The rules and 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 envisaged 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 promoting economic interests of the people. The circumstance that the statutory bodies required to carry on some activities of the nature of trade or commerce does not indicate that it must be excluded from the scope of the word 'State'. A public authority is a body which has public or statutory duties to perform 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. [634F; H; 635A-B & G] (b) The power to give directions, the disobedience of which would be punishable as criminal offences would furnish one of the reasons for characterising the body as an authority within the meaning of Art. 12. The Oil and Natural Gas Commission Act confers Power of entry on employees of the Commission upon any land or premises for the purposes of lawfully carrying out works by the commission. The members and employees of the Commission are public servants 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 property which 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 Act. The Industrial Finance Corporation Act states that whoever in any bill of lading, warehouse, receipt or other instrument given to the Corporation whereby security is given to the Corporation for accommodation granted by it wilfully makes any false statement or knowingly permits any false statement 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 corporation also enjoys protection of action taken under the Act. A company incorporated under the Indian Companies Act does not enjoy these privileges. [641F; 642A-D] (c) The fact that a statutory corporation is not granted immunity from taxation and therefore is under liability to be taxed would not indicate that the corporation 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. [641G-H] 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 Corporation. A State is an abstract entity. It, can only act through the instrumentality or agency of natural or juridical persons.
There is nothing strange in the notion of the State acting through a Corporation and making it an agency or instrumentality of the State. With the advent of a welfare State the framework of civil service administration became increasingly insufficient for handling the new tasks which were often of a specialised and highly technical character.
The distrust of Government by civil service 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, therefore, became a third arm of the Government. The employees of public Corporation are not civil servants. 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, The public Corporation being a creation of the State is subject to the constitutional imitation as the State itself. The governing power wherever located must be 622 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 over 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, private in character, but dealing with public rights, have been held subject to constitutional standards.
Activities which are too fundamental to the society are by definition too important not to be considered government function. The State today has an affirmative duty of seeing that all essentials of life are made available to all persons. [650B-C; 651D-G] It is clear from these provisions of the statutes in question that the Central Government has contributed the original capital of the Corporation. that part of the profit of the Corporation goes to that, Government, that the Central Government exercises control over the policy of the Corporation that the Corporation carries on a business having great public importance and that it enjoys a monopoly 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 does not mean that they are not subject to the 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 businesses through the medium of government departments, there would have been no question that actions of these departments be 'state actions'. Why then should be actions of corporations be not state actions ? [653H; 654A-C] 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 devided 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 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 distinction between the 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 social and economic functions of government 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 law 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 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 declaration for cent nuance in service if he was dismissed or discharged contrary to the regulations. [655E-F] (iii) 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 623 concerned, this can be implemented by a declaration. In the case of private employment English law has devised no suitable remedy. That this is possible is shown by the example of other countries. 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 exceptional 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 the modern 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 can only emanate from the legislature, the principles fashioned by public law if applied to master servant relationship can bring about a change in law to accord with the social conditions of the 20th century. [658D-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 to provide that breach of its regulations would be punishable. 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 and, therefore, cannot be the State or Authority. 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 statutory provisions. [670A; 671A-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 relation 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 L.I.C. 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 bodies have no free hand in framing the conditions and terms of service 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 that they are bound by these terms and conditions of service. [668E-H; 669H] (iii) There is no fallacy in equating-rules and regulations of a Company with rules and regulations framed by a statutory body. Where an institution or Organisation is established by a Statute or under a Statute in principle there is no difference between their powers. [670-F] (iv) While rules are generally made by the Government, the regulations 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 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 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 service contract is not, therefore, ordinarily sufficient to convert it into a statutory status. [669B-D] , 624
CIVIL APPELLATE JURISDICTION Civil Appeal No. 2137 of 1972.
From the Judgment and order dated the 14th July, 1972 of the Gujarat High Court in Spl. Civil Appln. No. 1470 of 1968.
CIVIL 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 APPEAL NO. 1879 OF 1972 AND CIVIL APPEAL NO. 115 of 1974 Appeal by special leave from the Judgment dated the 29th January, 1973 of the Delhi High Court in LPA No. 155 of 1972.
F. S. Nariman, Addl. 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. Ramamurthy, Janardan Sharma and Jitendra Sharma for Appellant in C.A. No. 115/74.
R. K. Garg, S. C. Agarwala, S. S. Bhatnagar, Y. 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 Intervener (In CA No. 1655/ 73).
F. S. Nariman, Addl. Sol. Gen. of India, I. N. Shroff for Respondent No. 1 (In CA. 115 of 1974).
P. K. Pillai for Intervener (In CA No. 2137/72).
F. S. Nariman, Addl. Sol. Gen. of India, Y. J.
Taraporewala, O. C. Mathur, Mohan 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, whether an order for removal from service contrary to regulations framed under the Oil and Natural Gas Commission Act, 1959; the Industrial Finance Corporation Act, 1948; and the Life Insurance Corporation Act, 1956 would enable the employees to a declaration against the statutory corporation of continuance in service or would only give rise to a claim for damages. Second whether an employee of a statutory corporation is entitled to claim protection of Articles 14 and 16 against the Corporation.
In short the question is whether these statutory corporations are authorities within the meaning of Article 12.
625 The statutes for consideration are the Oil and Natural Gas Commission Act, 1956; the Indutrial Finance Corporation Act.
1948; and the Life Insurance Corporation Act, 1956. The question which really falls for decision is 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 composition of the Commission 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 the Commission. The Central Government may, if it thinks fit, appoint one, of the members as Viw-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 Organisation set up in pursuance of a resolution of the Government of India No. 22/29/55-O & G dated 14th August, 1956. Every 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 of 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, and 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 Under section 32 of the 1959 Act the Commission 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 there under, 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 scaler, of pay of employees of the Commission the time and place of meetings of the Commission, the procedure to be, followed in regard to the transaction of business at such meetings; the maintenance of minutes of meetings of the Commission and the transmission of copies thereof to the 626 Central Government; the persons by whom, and the, manner in which payments, deposits and investments may be made on behalf of the Commission; the custody of 'moneys required and the maintenance 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 mainly 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 held under the 1956 Act unless and until their employment was terminated or until the remuneration, terms and conditions were duly altered by 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 or service of members; the jurisdiction of the Tribunals constituted under section 17 of the Act,, the manner in which and the persons to whom, any compensation under this Act may be paid; the condition-, subject to which the Corporation may appoint employees. All rules made shall be laid as started in the section before both Houses of Parliament and. shall be subject to such modification as Parliament may make.
Section 49 of the 1956 Act states that the Corporation may, with the previous approval of the Central Government, by notification in the Gazette of India, make regulations not inconsistent With the Act. and the rules made there under to provide for all 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 conditions 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.
627 The industrial Finance Corporation Act, 1948 hereinafter referred to as the 1948 Act establishes the Corporation under section 3 of the Act. The superintendence 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 any inconsistency with rules and regulations the rules shall 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 there under to provide for all matters for which provision is necessary or expedient for the purpose of giving effect to the provisions of this Act. 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 meeting's 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 the, employment of each person is contractual.
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 delegated legislation The need for delegated legislation is that statutory rules are framed with care and minuteness when the statutory authority mating 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 experienced and consultation with interests affected by the practical operation of statues.
628 In England the Statutory Instruments (Confirmatory Powers) Order, 1947 contemplates orders in Council or other instruments which are described as orders. The Rules Publication Act 1893 in England defines "rule making authority" to include every authority authorised to make any statutory rules. Statutory rules are defined there as rules, regulations or by-laws made under any Act of Parliament, in England. Orders are excluded from the statutory definition 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 executive 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 exercised.
Subordinate legislation is made by a person or body by virtue 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 undertakings 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 create them and the rules and regulations framed thereunder. Any action of such bodies in excess of their power or in violation of the, restrictions 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 nullity is the only relief that is granted to the aggrieved party.
In England subordinate legislation has, if validly made, tile full force and effect of a statute, but it differs from a statute in that its validity 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 thereof is, in the absence of provision to the contrary, the same as if the command or prohibition had been contained in the enabling statute itself. Similarly, if such an instrument authorises or requires the doing of any act, the principles to be applied in determining whether a person injured by the act has any right of action in respect of the injury are not different from those applicable 629 whether damage results from an act done under the direct authority of a statute, Re Langlois and Biden, (1891) 1 Q.B.
349 and Kruse v. Johnson, (1898) 2 Q.B. 91.
The authority of a statutory body or public administrative body or agency ordinarily includes the power to make or adopt rules and regulations with respect to matters within the province of such body provided such rules and regulations are not inconsistent with the relevant law. In America a "public agency" has been defined as an agency endowed with governmental or public functions. It has been held that the authority to act with the sanction of Government behind it determines whether or not a governmental agency exists. The rules and regulations comprise those actions of the statutory or public bodies in which the legislative element predominates. These statutory bodies cannot use the power to make rules and regulations to enlarge the powers beyond the scope intended by the legislature. Rules and regulations made by reason 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 particular present situation. Rules and regulations on the other hand are actions in which the legislative element predominates.
The process of legislation by departmental regulations saves time 'and is intended to deal with local variations and the power to legislate by statutory instrument in the form of rules and regulations is conferred by Parliament and can be taken away by Parliament. The legislative function is the making of rules. Some Acts of Parliament decide particular issues and Po not lay down general rules.
The justification for delegated legislation in threefold.
First, there is pressure on parliamentary time. Second, the technicality of subject matter 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 manner and procedure adopted in many forms of subordinate legislation. The authority making rules and regulation must specify the source of the rule and regulation making authority. To illustrate, rules are always framed in exercise of the specific power conferred by the statute to make rules.
Similarly, regulations are framed in exercise of specific power conferred by the statute to make regulations. 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 being challenged if the power is absent or has been exceeded by the authority making rules or regulations.
630 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 Insurance Corporation Act as well as the Industrial Finance Corporation Act confers power on the Corporation to make regulations as 'Lo 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 and conditions 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 terms and conditions of appointment and scales of pay of the employees of the Commission. The regulations containing the terms and conditions of appointment are imperative. The administrative instruction is the entering into contract with a particular person but the form and content of the contract is prescriptive and statutory.
The noticeable feature is that these, statutory bodieshave no free hand 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. Regulations prescribe the terms of appointment, conditions of service and procedure for dismissing employees. These regulations in the statutes are described :as "status fetters on freedom of contract". The Oil and Natural Gas ,Commission Act in section 12 specifically enacts that the terms and ,conditions of the employees may be such as may be provided by regulations.
There is a legal compulsion on the Commission to comply with the regulations. Any breach of such compliance would be 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 section 12 of the 1959 Act the terms and conditions of employment and conditions 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 regulations on the one hand and administrative instructions on the other is that rules and regulations can be made only after reciting the source of power whereas administrative instructions are not issued after reciting source of power.
Second the executive power of a State is not authorised to frame rules under Article 162. This Court held that the Public Works Department Code was not a subordinate legislation (See G. J. 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 constitutional 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 under the Companies 631 Act. The fallacy lies in equating rules and regulations of a company with rules and regulations framed by a statutory body. A company makes rules and regulations in accordance with the provisions of the Companies Act. A statutory body on the other hand makes rules and. regulations by and under the powers conferred by the Statutes creating such bodies.
Regulations in Table-A of the Companies Act are to be adopted by a company. Such adoption is a statutory requirement. A company cannot come into existence unless it is incorporated in Accordance with the provisions of the Companies Act. A company cannot exercise powers unless the company follows the statutory provisions. The provision in the Registration 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 Corporation created by a statute is the statute itself. A company incorporated tinder 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 a body created in accordance with the provisions of the statute.
The character of regulation has been decided by this Court in several decisions. One group of decisions consists of S. R. Tewari 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 Labour Board v. Jaffar Imam (1965) 3 S.C.R. 453); Mafarlal Naraindas Barot v. Divisional Controller S.T.C. (1966) 3 S.C.R. 40); The Sirsi Municipality 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 Barot's case this Court held that the termination of services by Corporation created by a statute without complying with the requirements of the regulations framed by the Corporation under the State Governing conditions of the employees of the Corporation was bad. The reason is that the termination contravened the provisions contained in the regulations.
In Tewari's case the termination of the employment of Tewari was challenged on the ground that the resolution of the District Board terminating 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 acted 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 Board relied on a notification headed "Regulation 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 regulations did not confer any power to frame powers regulating the exercise of the power of dismissal of officers of servants of the Board.
632 This Court held that under the rules dismissal, removal 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 also said that the order of dismissal involving punishment must be exercised consistently with the rules or regulations framed under the Statute.
In the Life Insurance Corporation case, there were regulations framed under 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 the poor performance of a Field Officer was not due to circumstances beyond his control or that he had made no efforts and not shown inclination or willingness 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 conferred on the Central Government by section 11(2) of the Act. Clause 10 of the order provided for penalities and termination of service. The contention 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 under 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 paragraph 4(b) of the circular could be availed of to terminate the services of the officers but such termination was to be effected in the manner prescribed by clause 10. The termination was not in accordance with either clause 10(a) or (b) of the order.
Therefore, the termination was invalid. The Life Insurance case (supra) recognised regulations framed under Act to have the force of law.
In the Indian Airlines Corporation case this Court said that there being no obligation 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 declaration that the termination of his employment was null and void. In the Indian Airlines Corporation case reliance was placed upon the decision of Kruse v. Johnson (1898) 2 O.B. 91 for the view that not all by-laws have the force of law. This Court regarded regulation as the same thing as by-laws. In Kruse v. Johnson the Court was simply describing the effect that the county by-laws have on the public. The observations of the Court in Kruse v. Johnson that 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 affecting the public or some section of the public .... Ordering something to be done or not to be done and accompanied by some sanction or penalty for its non-observance." In this view a regulation is not an agreement or contract but a law binding the corporation, its officers, servants and the members of the public who come within the sphere of its 633 operations. The doctrine of ultra vires as applied to statutes, rules and orders should equally apply to the regulations and any other subordinate legislation. The regulations made under power conferred by the statute 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 Airlines Corporation cases the terms of the regulations were treated as terms and conditions of relationship between the Corporation and its employees.' That does not lead to the conclusion that they are of the same nature and quality as the terms and conditions laid down in the 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 the 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 not inconsistent with the Act and the rules made by the Central Government there under. The Corporation had no power to alter or modify or rescind the provisions of these regulations at its discretion which it could 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 Barot's case which was decided by the Constitution Bench.
In Sirsi Municipality v. Cecelia Kom Francis Tellis (supra), the dismissal was held to be contrary to rule 143 framed under section 46 of the Bombay District Municipalities Act.
