1. The petitioner was the General Manager and Chief Executive of the Shamrao Vithal Co-operative Bank, Ltd., respondent 1. Respondents 2 and 3 are respectively, the Chairman and Vice-Chairman of the said bank. In this judgment, respondent 1 shall, hereinafter, be referred to as the bank. The petitioner impugns the validity of Cl. (4) of the Contract of Service, dated 19 November, 1984, and the resolution of the Board of Directors, dated 21 May, 1987, whereby his employment was terminated in accordance with the terms of the contract.

1. THE QUESTIONS

2. Is a co-operative bank, registered under the Multi-state Co-operative Societies Act, 1984, an Act of the Parliament, “State” as defined in Art. 12 of the Constitution of India ? The bank urges that it is not. This is one of the questions arising in this petition.

3. The petitioner was appointed as Additional General Manager on 19 May, 1984. He was promoted to the Office of the General Manager and Chief Executive on 6 September, 1984. The Multi-State Co-operative Societies Act, hereinafter referred to as the Act came into force on 18 August, 1984. By virtue of S. 103(1) of the Act, the bank is deemed to have been registered under the Act. Its bye-laws, in so far as they are not inconsistent with the provisions of the Act or the rules, continue to be in force until altered. The petitioner incurred displeasure of the Board of Directors. The Board of Directors, therefore, resolved to terminate the services of the petitioner by paying three months' salary in lieu of notice. The resolution is dated 21 May, 1987.

4. According to the bank, the petitioner is a trouble-maker and defies the views of the Board of Directors. On 15 February, 1987, he not only incited executives to shout, agitate and demonstrate against the Chairman and the Directors, but obstructed the passage of their cars. On 19 February, 1987, he arranged demonstration with placards at the entrance of the place where the meeting of Board was scheduled to be held. The petitioner's conduct is subject-matter of a complaint by 35 shareholders. (Paragraph 15 of the affidavit-in-reply, dated 27 August, 1988). The bank claims that merely because the order of termination does not specify reasons, “it does not mean that there are no reasons” for the termination. (Paragraph 33 of the affidavit-in-reply, dated 24 August, 1988). The bank asserts that the petitioner instigated employees and shareholders to wage war against the bank and harm the bank. (Paragraph 56 of the affidavit-in-reply, dated 24 August, 1988).

5. The petitioner has urged four points:

(i) On the basis of the averments made by the bank and summarised in Para. 4 above, the petitioner contends that these averments prove that the real motive was to remove the petitioner for the acts of misconduct alleged to have been committed by him. The action is punitive and victimising. The termination of employment being punitive and victimising, it is urged, on the authority of Joshi (K.C) v. Union of India [1985 — II L.L.N 247], that the action is in breach of principles of natural justice. Since the principles of natural justice are part of the constitutional guarantee of equality, the violation of the principles of natural justice offends the fundamental right guaranteed by Art. 14 of the Constitution. Clause (4) of the contract leaves arbitrary discretion in the bank thereby violating Art. 14 of the Constitution of India.

(ii) On the authority of Central Inland Water Transport Corporation v. Brojo Nath Ganguly [1986 — II L.L.N 382], the term of the contract which empowers the bank to terminate services without giving reasons and by giving notice, is opposed to public policy and, therefore, void under S. 23 of the Contract Act.

(iii) The bank claims that there are rules which govern termination of services for misconduct. (Paragraph 35 of the affidavit-in-reply, dated 24 August, 1988). If this is so, Cl. (4) which empowers the bank to terminate without giving reasons and by giving notice is contrary to rules and, therefore, illegal.

(iv) Article 226 of the Constitution of India empowers the High Court to issue “to any person” directions, orders or writs not only for the purpose of enforcement of any of the rights conferred by Part III of the Constitution, but also “for any other purpose.” The petitioner, therefore, urges that an appropriate order striking down the termination could be made in exercise of this jurisdiction, even if the bank is not “State” as defined in Art. 12 of the Constitution of India.

6. Learned counsel for the bank, while opposing the submission made by the petitioner urged that the bank is not “State” as defined in Art. 12 of the Constitution of India and, therefore, this petition to enforce the right granted by Art. 14 of the Constitution of India is incompetent.

II. IS THE BANK “STATE”

7. The concept of State is no longer static. A series of judicial decisions illustrate its growing dynamic content. The concept should, therefore, be understood in its larger sense and not the narrow Austinian enunciation. It has been defined in Art. 12 in a wide language. It has been interpreted to include public corporations and private bodies aided or controlled by the State. In the process of enlarging the meaning, the tests relevant for determination of the status of a body have been laid down. The question, therefore, needs to be answered by applying these tests to the power structure of the Multi-State Co-operative Banks created by the relevant statutes.

(i) The Tests:

8. Article 12 of the Constitution of India defines, for the purpose of Part III thereof, “the State” to include, inter alia, “all local or other authorities within the Territory of India or under the control of the Government of India.” It is this definition, inclusive in its language and ever widening in its-scope, that I am called upon to interpret and apply to a Multi-State Co-operative Society governed by the Act of the Parliament.

9. Learned counsel for the bank urged that the bank is not a “State,” because it does not fall within the meaning of “other authorities” included in the definition of “State.” On the other hand, counsel for the petitioner drew my attention to the tests for determining the status of the bank. What are the attributes of “State” as defined in Art. 12 of the Constitution of India ? What makes a corporation or legal entity a State ? What lefts need to be satisfied in order to constitute “authority” and thereby include it within “State” ? The Supreme Court has laid down various tests in the cases of public corporations and registered societies. To summarise:

10. The substance of the definition of “State” is that a part of the governing power of the State should be located in the bank and the latter's action should be really in the nature of State action. Ramana Dayaram Shelly v. International Airports Authority of India [1981 — I L.L.N 270]. There may be bodies in relation to which the State connection is difficult of discovery. Therefore, the Supreme Court emphasized the need to probe the nature of the operation or activity carried on by the entity. The operation carried on by the bank must, therefore, be shown to be an important public function and it should be engaged in matters of high public interest. Som Prakash Rekhi v. Union of India [1981 — I L.L.N 322], a third guideline is this. Activities which are fundamental to the society may be, too important not to be considered Government functions. Som Prakash Rekhi v. Union of India (vide supra). There are activities or operations which originate as private operations. They are private in the sense that they are carried on through the medium of private organisations or may relate to private property. In such cases a fourth test was evolved. A “private” organisation can be public in the functional sense, for, the activity though private in origin or appearance, performs public service and receives State support, Sukhdev Singh v. Bhagatram Sardar Singh Rughuvanshi [1975 — I L.L.N 366].

11. State financial support plus an unusual degree of control over management of the body characterises State action. Sukhdeo Singh Bhagatram [1975 — I L.L.N 366] (vide supra). Thus, performance of public function combined with State aid may lead to the conclusion that the corporation or entity is State. Sukhdeo Singh case (vide supra). It is not necessary that the State should exercise control over the internal management of the corporation or organisation. Even where the State does not control the internal management, the corporation or entity may fall within the definition of “State,” if it performs a public function with State aid and control. M.C Metha v. Union of India [(1987) 1 SCC 395 : A.I.R 1987 S.C 1086]. Again if the organisation, in question, enjoys State protection and monopoly, it may well fall within the definition of “State.” Ramana Dayaram Shetty v. International Airport Authority [1981 — I L.L.N 270] (vide supra).

12. In judging the character of the function of the bank and its status, the above tests need to be satisfied. By its very nature, the process of application of these tests to a given body defies a rigid mathematical formula. It stands to reason, therefore, that in the case under consideration, as indeed in any given case, every test cannot be satisfied. Nor are these tests exhaustive. Therefore, the Court should consider the aggregate or cumulative effect of all the relevant factors. M.C Metha v. Union of India [(1987) 1 SCC 395 : A.I.R 1987 S.C 1086] (vide supra). The corporations or entities which fall for scrutiny differ in their nature, characteristics, composition, power exercised, functions performed and the relationship with the State. A prescriptive formula being impossible of attainment, “the features which emerge boldly and prominently,” Tekraj Vasandi (alias) K.L Basandhi v. Union of India [1988 — I L.L.N 892], may be determinative of its character as “authority” within the definition of Art. 12 of the Constitution of India.

(ii) Co-operative banking. Its public importance:

13. I am called upon to determine, for the purpose of Art. 12, the status of a co-operative bank. The nature of the banking business and more particularly of co-operative banking in the nation's economy needs to be kept in mind in deciding the question. It is engaged in the business of banking—not merely lending and borrowing. Secondly, it is different from commercial banks: it has its origin in the urge of a section of the people to carry on the business on co-operative principles. Thirdly, the bank has spread its activities beyond the boundaries of one State.

14. Against this background of the bank's characteristics, I will examine whether co-operative banking is by itself endowed with public importance. Is banking a public function? Seen in isolation, banking by itself may not appear an obvious public function in the sense that defence of India, maintaining roadways are public functions.

15. However, merely because the bank functions on co-operative principles and the magnitude and extent of co-operative banking may be much smaller in comparison with the large commercial banking institutions, it cannot be assumed that there is no public function element in its operation. Smallness of an operation and its public function are entirely different phenomena. Banking was in its origin a private business. But the history of the evolution of banking reveals that initially the chief functions of banks were to keep in custody other people's money. Gradually, these functions were extended and others added. In the result, the dependence of commerce upon banking has become so great that in a modern money economy, the cessation, even for a day, or two, of the banker's activities would completely paralyse the economic life of a nation. Modern banking is not confined to lending and borrowing. Modern banking functions extend to large areas of commercial activity. Indeed, the functions are evergrowing. They include: Custody of stocks, shares, financing of imports and exports and dealing with documents in relation thereto, dealing with bills of lading, railway receipts, marine insurance policies, issuing letters of credit, issuing travellers' cheques, administration of estates, underwriting the issues of shares and debentures, etc. The banking business has great importance to the public life. So all embracing, all pervading, is the influence of banking that it is, too fundamental not to be characterised as public function. But the bank is a cc-operative bank. Its foundation is co-operation by its members. The co-operative character of the backing operation is an important index of the public character of banking. This genus of financial institution is a co-operative endeavour, by individuals or organisation for mutual service. It serves a social group. Historically co-operative banking has its origin in the urge of people— like small traders, labourers, agriculturists, artisans— to get rid of business organiser. They are the people's banks. The co-operative movement which started off as a reaction to the conditions created by the industrial revolution has grown into multi-pronged, multi-faceted, organ of economic development. So much so that its public interest content was legislatively recognised as early as 1904 by the enactment of the Co-operative Credit Societies Act. The Co-operative Societies Act, 1912 (Act II of 1912), enlarged the scope of co-operative law by extending it to other kinds of societies established for the purpose of production and distribution. The Bombay Co-operative Societies Act, 1925, went ahead to classify the societies on the basis of purpose. Since 1960 when the Maharashtra Co-operative Societies Act was enacted, most of the States in the Indian Union have laws broadly on the model provided by the committee on Co-operative Law, 1956, approved by the Government of India.

16. The Multi-Unit Co-operative Societies Act, 1942, which governed the co-operative societies whose activities extended beyond one State was found to be inadequate. The Parliament stepped in and brought forth the comprehensive law to provide for central authority responsible for “promotion, registration and supervision” of Multi-State Co-operative Societies. The Multi-State Co-operative “Societies Act, 1984, is a manifestation of the legislative recognition of the importance of co-operative banking societies in the nation's economy.

(iii) The Banking Regulation Act, 1949— State Policy.

17. The legislative policy in regard to co-operative banking revealed by the Acts of Parliament furnishes the index to the degree of importance of co-operative banking to the State and its economy. In other words, how does the State— Union Government— State Government— regard co-operative banking ? Does it consider that co-operative banking is such a private activity that it should be left to function under the ordinary law applicable to individuals or does it regard it of such importance that the State should step in to control and regulate it ? I shall, therefore, endeavour to consider how the State understands the co-operative banking.

18. The Banking Regulation Act, 1949, is an important legislative Act which unfolds the State's policy on banking, including co-operative banking. The attitude, the concern and the overall policy of this Act would show how important to the public co-operative banking is. The Banking Regulation Act is applicable to the Multi-State Co-operative Banks. (Section 64 of the Act— Proviso). The Banking Regulation Act itself makes its provisions applicable to co-operative banks. (Section 56 of the Banking Regulation Act), Toe maid features of the Banking Regulation Act reveal that the Reserve Bank and the Central Government exercise far-reaching and deep control and authority over co-operative banks. The following features are striking for their controlling influence:

19. The qualifications and experience of the Board of Directors have been prescribed. (Section 10-A of the Banking Regulation Act). If there is a vacancy of Chairman, the Reserve Bank of India can appoint a Chairman, even if such person is not a Director. (Section 10-BB of the Banking Regulation Act). No co-operative society can carry on business without a licence from the Reserve Bank of India. (Section 22 of the Banking Regulation Act). Before granting such licence, the Reserve Bank of India has to be satisfied that the management of the bank is not prejudicial to the public interest and the public interest will be served by granting the licence. (Section 22 of the Banking Regulation Act). No new branches can be opened without the prior permission of the Reserve Bank of India. (Section 23 of the Banking Regulation Act). The submission of the periodical returns of assets and liabilities. (Section 27 of the Banking Regular lion Act) the power of the Reserve Bank and the Central Government to inspect the bank and its books, the Director's obligation to produce such books for inspection, and the power of the Inspecting Officer appointed by the Reserve Bank of India to examine Directors and Officers on oath, furnish the measure of control exercised by the Central Government and the Reserve Bank of India on Banking Companies. (Section 35 of the Banking Regulation Act) which include the cooperative banks. The Reserve Bank of India can remove the Chairman, Directors, or officers if it is in public interest to do so (S. 36-AA of the Banking Regulation Act) and appoint additional Directors in public interest (Section 36-AB of the Banking Regulation Act, 1949). The appointment or removal of Directors, Chairman, or officers so made operates notwithstanding any other law, contract, etc. (Section 36-AC of the Banking Regulation Act, 1949). The Central Government exercises the overriding power to acquire the undertakings of banking companies. (Section 36-AE of the Banking Regulation Act, 1949). Since every officer of the bank is deemed to be a public servant for the purpose of Chap, IX of the Indian Penal Code he enjoys immunity from prosecution without previous sanction. (Section 46-A of the Banking Regulation Act, 1949).

20. The application of the Banking Regulation Act, the power to inspect the banks, the requirement of licence from the Reserve Bank of India and the power to appoint and remove Directors vested in the Central Government, lead to only one inference. The Central Government and the Parliament consider banking to be of such importance to the public that they should be subject to public control through the Government and the Reserve Bank of India. A significant feature of this policy is that the co-operative banks are included in the banking companies. Therefore, so far as the public interest is concerned, co-operative banks are as important as other banks. The co-operative banking is, therefore, of great public importance.

(iv) The bank — Instrumentality of State—

21. Whether the bank falls within the definition of “State” raises further questions Is the bank an agency or instrumentality of the State ? (Sukadeo Singh v. Bhagatram Sardar Singh Raghuvanshi [1975 — I L.L.N 366] (vide supra). Do the Multi-State Cooperative Banks exercise any powers of the State. Whether the bank, notwithstanding its corporate co-operative personality, perform functions of the State ? Are Multi-State Co-operative Banks, the media through which the State acts ? or to use the language of the Supreme Court, does the Act reveal the hand and voice of the Government in the function of the bank ? (Sukhdeo Singh v. Bhagatram Sardar Singh Raghuvanshi (vide supra), Ray, C.J Para. 50). The answers to these questions have to be found by interpreting the provisions of the relevant law. There are two sources where the answer lies: the Act itself and the Banking Regulation Act.

22. The public function element in the banking operations is clear from these features.

23. The modern banking exercises deep and pervading influence on the public life. The fact that the bank operates on cooperative principles or its small in magnitude as compared to the large commercial banks is not inconsistent with public character of its function. Co-operative banks are people's banks. The public service element of cooperative banking has been legislatively recognised, for, the State through its legislative arm considered it necessary to step in to promote, regulate and control co-operative activity. That banking undoubtedly is an activity vital to the life of the community and a business of great public importance has been judiciously recognised by a Division Bench of this Court. (State Bank Of India v. Kalpaka Transport Company Private Ltd.*), Ltd. [A.I.R 1979 Bom. 250]).

24. But in order that the bank falls within the definition of “State”, it has also to be shown that in its operation, State exercises significant control. A careful analysis of the Banking Regulation Act and the “Act” reveals that the governmental control manifests itself in diverse matters like control over personnel, inspection of the bank, the appointment of directors, disposal of profits, subscription to the share captial, power of supersession and so on.

25. The Banking Regulation Act deems every Chairman, Director and Manager of the bank to be a public servant. (Section 46-A — Banking Regulation Act). The “Act” grants to the society, officers of the bank and members, immunity against prosecution without the previous sanction of the Central Government. (Section 97(2) of the Act). If the Central Government subscribes more than half the share capital which it has a right to do, the bank cannot appoint its Chief Executive and the functional Directors without the previous approval of the Central Government. (Section 44(4) of the Act). The Central Government can compel an employee to refund the amount improperly spent. (Section 73 of the Act). The bank is not free to appoint its managerial personnel except from the list prepared by the committee appointed Central Government. (Section 42(d) and S. 50 of the Act). Therefore, the Central Government through its agency controls the appointment of managerial personnel.

26. A far-reaching and all pervasive control is evident from the Central Government's power to issue binding directions to the bank. There is no restriction on matters on which such directions may be issued. (Section 47 of the Act). Omission or failure by the bank in compliance with the directions invites drastic consequence of supersession of the Board of Directors. (Section 48 of the Act). Thus, if the directions are not obeyed, the Central Government can itself administer the bank through the administrator.

27. The bank governed by the Act does not enjoy absolute power of disposal over its net profits. It is obliged to credit the prescribed amount of one per cent of its profits to the Co-operative Educational Fund maintained by the National Co-operative Union of India, New Delhi. (Section 61 of the Act). This fund is administered by members who do not represent the bank. (Multi-State Co-operative Societies (Privileges, Properties and Funds, etc.) Rules, 1985 — Rule 4).

28. The Multi-State Co-operative Society cannot carry on banking business or open new branches without the licence of the Reserve Bank of India. (Banking Regulation Act — Sections 22 and 23). In addition, the Central Registrar exercises the power to register or refuse to register the society thereby controlling the existence and expansion of the operations of the banking society. (Section 7 of the Act).

29. The banking society is subject to inspection by authorities. The Reserve Bank of India is bound to cause inspection of the bank if so directed by the Central Government. (Banking Regulation Act — Section 35). The Central Registrar appointed by the Central Government may inspect the bank and hold, on his own motion, inquiry into the constitution, working and financial condition of the bank. (Sections 68 and 69 of the Act). Thus, the power of inspection and inquiry confer on the Central Government's agents extensive authority of superintendence.

30. Another area of Government's control is its power as to amalgamation or division of banking societies. The amalgamation or division of banking societies or transfer of assets and liabilities cannot be done without the prior consultation with the Central Registrar. (Section 14 of the Act). This provision applicable to all societies shows, a special concern for banking societies. The Central Registrar cannot sanction amalgamation or division or transfer of assets and liabilities without the approval of the Reserve Bank of India which exercises over-riding powers over banking companies. (Section 45 of the Banking Regulation Act). Consider how the Central Government has the ultimate control over the very existence of the bank. The Central Government on the application of the Reserve Bank of India has the power to make an order of moratorium. (Section 45 of Banking Regulation Act). Once this is done, the Central Registrar acquires the authority to propose scheme for amalgamation or reorganisation of the bank. (Section 15 of the Act). This provision does tot spell out ordinary regulating power. In appropriate cases the ultimate power to amalgamate the society with another and thereby put an end to the bank has been created and vested in the Central Government.

31. Another centre of Central Government's controlling power is seen in the requirement of registration of bye-laws. The bank is a body corporate. Its bye-laws no doubt stipulate that the power of management belongs to the general body of the members. But all corporations act through the general body. It is because of this external form of functioning through the general body that it becomes necessary to lift the veil of the corporate personality and find out whether behind the corporate mask lies the hand of the State. In addition to the power of the Reserve Bank to license, which includes, the power to refuse to issue licence, the power to permit or refuse to permit the opening of new branches, there is implied, in S. 7(c) of the Act, the power of the Central Registrar appointed by the Central Government, not to register a society if there is another society in the same area. (Section 7(c) of the Act. “That there is no other Multi-State Co-operative Society having similar area of operation and identical purpose).” This creates in the society a monopoly of operation in the permitted geographical or operational area. Although the society enjoys certain amount of autonomy, it is not free to amend its bye-laws unless the amendment has been registered under the Act. (Section 9 of the Act). The Registrar may refuse to register the amendment to the bye-laws. This authority of the Central Register enables him to restrict, curtail and, therefore, influence the exercise of the authority of the general body to make or amend the bye-laws. The power of the Central Registrar to register or refuse to register the bye-laws influences the very birth of a Multi-State Co-operative Society. It is not open to any co-operative society to convert itself into a Multi-State Co-operative Society because the amendment of the bye-laws to bring about such a change has to be registered by the Central Registrar. The Registrar, thus, exercises powers which restrict the coming into being of Multi-State Co-operative Societies, regulate the number of such societies, and the area of their operations. This power influences the very life line of the societies.

32. The Central Government has, under the Act, the power to influence the com position of the general body. This inference may appear startling. Yet reasonable and logical interpretation of the law inevitably leads to this inference. No person can be admitted as a member of the Multi-State Co-operative Society except those specified in S. 19(1) of the Act. Of all these categories, only one category is of individuals. The rest of them are organisations like Multi-State Co-operative Society, Central Government, tare Government, Government Corporations, Government companies and so on. This leaves membership open mostly to organisations like Central Government, State Government National Co-operative Society and Government companies. It is open to the Central Government under S. 19(6) to disqualify from membership any person or class of persons, thereby, restricting membership to persons or classes of persons chosen by the Government. Then there is the power to restrict holding of shares. No member can hold more than such portion of the total share capital of the society as may be prescribed, which shall not exceed one-fifth of the shares. But the Central Government, State Government, Corporations owned or controlled by Government are not subject to this restriction. In other words, these bodies can hold shares in excess of the one-fifth of the share capital. (Section 24 of the Act). Again it is open to the Government to specify in respect of any class of societies, a higher or lower maximum than one-fifth of the share capital, (Section 24 proviso). It is thus possible for the Government or its corporation to hold a majority share capital. Thus, if majority of share capital is held by the organisations like the Governments and Governments' own companies, what will be the composition of the general body ? The general body consists of the members. If majority of the membership is controlled by the Central Government by exercise of its power under S. 24, it can influence composition of the general body.

33. The composition of the Board of Directors is an important area in which the Central Government's hand is seen. The Central Government has power to nominate employees of the bank on the Board of Directors. (Section 34, first proviso). The Central Government or a State Government has the right to nominate on the Board of Directors such number of persons as may be prescribed, if such Government has subscribed to the share capital or has guaranteed the repayment of principal amount of debts. Such Directors hold office during the pleasure of the concerned Government. (Section 41 of the Act). The number of Central and State Government' nominees on the Board has been prescribed. The Central or the State Government has right to nominate not more than ⅓rd total number of members. But the bye-laws may prescribe a number in excess of ⅓rd of the total number of members. (Rule31- Multi State Co-operative Societies Rules). Where the Central Government subscribes more than half of the share captial of the National Co-operative Society, the Chief Executive and functional Directors cannot be appointed without prior approval of the Central Government. (Section 44(4) of the Act). The functional Directors of the National Co-operative society automatically become members of the Board. (Section 44(3) of the Act). This is how the Central Government has controlling power over the composition of the Board.

34. The status of a civil Court conferred on the Central Registrar in certain inquiries and the extraordinary power of the revision granted to the Government are a measure of the controlling authority. The Central Registrar or a person appointed by him when executing orders under the Act for recovery of money is constituted a civil Court (Section 88 of the Act). The Central Government exercises extraordinary powers of revision (Section 92 of the Act). Again no prosecution can be instituted under the Act without the previous sanction of the Central Registrar thereby creating for the employees a status similar to that of public servants. (Section 97 of the Act). The Central Government enjoys the extraordinary and overriding power to exempt any Multi-State Co-operative Society from conditions as to registration, thereby, admitting members who do not fulfil the qualifications laid down in S, 7. This necessarily implies the power to concentrate societies in any chosen area. (Section 99 of the Act). The matters in respect of which the bank may make bye-laws and the procedure to be followed in respect thereof have been left to be determined by making rules by the Central Govern meat. Thus, by exercising its rule-making power, the Central Government may restrict the freedom of the societies to make bye-laws. (Section 109(2) (v)—power to make rules).

35. I will make a brief reference to certain judicial authorities relied upon by Sri Dhanuka on behalf of the bank.

36. Pritam Singh v. State of Punjab [1982 (2) S.L.R 135], was a case in which the Board of Directors of the State Bank of India were authorised to make regulations in respect of the bulk governed by the Punjab Co-operative Land Mortgage Bank, Ltd. In Satish Kumar v. Punjab State Co-operative Bank, Ltd [58 F.J.R 455], the absence of Government's control through shareholding or otherwise led to the decision that the bank was not “State.” Banabihari Tripathy v. Registrar, Co-operative Societies [A.I.R 1989 Orj. 31], was a case of co-operative society, the function of which was merely to finance co-operative societies, to encourage their development — the control always being with the general body V.I Khalifa v. Sathubha T. Vaghela [1988 (3) S.L.R 175], related to a co-operative society in which only three out of fifteen Directors were appointed by the State and the bye-laws did not reveal that these directors exercised overriding control over the management of the society. C.J Thomas v. South Indian Bank, Ltd. [1987 — II L.L.J 193] and Immanual Paul Chakkola v. Catholic Syrian Bank, Ltd. [1987 — I L.L.N 451], were cases of private banks which were not governed by an Act conferring powers on the authorities created by the Central Government. Since there was no financial control by the Government and the profits from the banking business went into private hands, it was held that the bank was not “State.” P. Bhaskaran v. Additional Secretary, Agricultural (Co operation) Department, Trivandrum [A.I.R 1988 Ker. 75], was the case of a co-operative society over whose management the Government had no controlling influence either through shareholding or otherwise.

37. The cases cited by Sri Dhanuka were cases of co-operative banks which were no-agencies or instrumentalities of the Government. The facts of these cases show absence of Government's control. The power to control shareholding, to issue binding directions, to supersede the Board of Directors, if the directions are disobeyed, to impose on the bank executives chosen by the Government, to inspect the bank, and a host of other features which distinguish the Multi-State Co-operative Banks, were absent in all these cases. None of them are applicable to the case which I am considering.

(v) Conclusion

38. The extension of the concept of State to draw corporations into the tent of the State is no longer a startling proposition. Sukhadeo Singh and the judicial decisions that followed accepted this proposition. I am not oblivious to the need of caution in extending the meaning of “State” to organisations engaged in activities traditionally known as “private” in respect of which the State in exercise of its police powers makes regulatory laws. But if the analysis of the laws made discloses that the State has transferred part of its governing power to such bodies and has lent its hand and voice to them, such legislation is much more than a mere exercising of the regulatory power. I he constitution of the bank, nature of its functions and the measure of Central Government's, control, make the Multi-State Co-operative Society — “State.”

39 The Central Government's control over the Multi-State Co-operative Banks is writ large in the provisions of the Act. The most significant of these provision is the power of the Central Government to issue binding directions as in Mehta (M.C) v. Union of India [(1987) 1 SCC 395 : A.I.R 1987 S.C 1086] (vide supra). The consequence of supersession of the Board of Directors and the appointment of an administrator highlights the extent of Government's authority over the administration of the bank. By exercising this authority, the Central Government's hand propels the banking operation in a chosen direction.

40. The indemnity against legal process granted to the Directors and employees of the bank in respect of any act done or purporting to have been done under the Act and the immunity from prosecution without previous sanction is a feature which in the words of the Supreme Court is “unique.” Som Prakash Rekhi v. Union of India [1981 I—I L.L.N 322] (vide supra).

Para. 30 — “Equally unique is the protection on the Government company and its officers and employees' for anything which is, in good faith done or intended to be done under the Act.”

How mighty is the control exercised by the Central Government is evident from the fact that the executives cannot be appointed except from the list prepared by the Committee appointed by the Central Government. Therefore, the whole managerial structure of the bank is designed, built and created by the Committee appointed by the Central Government. It is not open to an individual bank to advertise and select executives of its choice. They have to be selected from the list prepared under S. 50 of the Act. The stringent power of licensing exercised by the Reserve Bank of India and the equally stringent power of the Central Registrar in respect of the registration of the societies and expansion of the branches of the banks, clothes the Central Government's agencies with the authority to permit or prevent concentration of banks, development of banking and ultimately the growth of the economy in any area. Mehta (M.C) v. Union of India [(1987) 1 SCC 395 : A.I.R 1987 S.C 1086] (vide supra), was a case of fertilizer industry which, in a sense was a private activity. Yet the licensing power of the Government was held to be of controlling significance. I find it difficult to resist the conclusion that the licensing power of the Reserve Bank of India, the stringent powers of registration conferred on the Central Registrar transform the bank into an authority.

41. A unique feature of the Act, as indeed of the Banking Regulation Act, is the Central Government's power of inspection of the banks. The Central Registrar's authority goes far beyond routine inspection and extends to enquiring into the constitution, finances and functioning of the bank, a feature which is absent in all judicial decisions cited before me. Again, the society is not free to dispose of its assets or amalgamate itself with another society without the sanction of the Central Registrar, in respect of a bank where moratorium has been issued by the Central Government, the Central Registrar can himself prepare a scheme of amalgamation. The power of issuing moratorium, being a power exercised by the Central Government under the Banking Regulation Act, it is needless to say, that, in the final analysis, it is the Central Government who wields this authority. The composition of the General Body and the Board of Directors is controlled by the Central Government by reason of its extraordinary power to make exceptions to the rules as to holding share capital. The ubiquitous and omnipresent Central Government's hand is seen everywhere in the Act.

42. The analysis of the various provisions of law present a single dominant feature — the overriding determinative control of the Central Government. It is everywhere: in the appointment of executives, in the com position of the general body and the Board, in the inspecting powers and in the overriding power of issuing binding direction. It is the Central Government's hand that leads the Central Registrar to inspect the bank, to place or replace members of the Board of Directors, amalgamate the bank with another, sanction registration of the bye-laws, to determine the managerial structure, to supersede the Board. The general body furnishes the external form of the bank's autonomous existence. The members attend the meeting, vote and pass resolutions. But the Central Government's all pervasive authority is the “power behind the throne.” It is the Central Government's hand that rules.

III. VALIDIIY OF THE CONTRACT

43. I will, now, deal with the validity of Cl. (4) of the contract of employment between the petitioner and the bank. The letter, dated 19 May, 1984, by which the petitioner was appointed as Additional General Manager, informed the petitioner that his appointment was on the bank's usual terms and conditions, other than those specifically set out in the letter. It is common ground that there are no rules framed by the bank governing conditions of service and conduct of employees. Clause (4) of the letter which embodies the contract of employment records that the service of the petitioner is “terminable by three calendar months' notice on either side or payment of three months' pay including all allowances in lieu thereof.” (Clause (4) of contract of employment: “Your service is terminable by three calendar months' notice on either side or payment of three months' pay including all allowances in lieu thereof”). The petitioner impugns the validity of Cl. (4) of the contract of employment on two grounds:

(i) Clause (4) leaves in the bank uncontrolled and arbitrary power to choose any employee for the purpose of “termination simpliciter” even where the bank really intends to punish the employee for acts of misconduct. Clause (4) violates the principles of natural justice, which are part of the constitutional guarantee of equality, thereby, violating Art. 14 of the Constitution of India;

(ii) The impugned clause in the contract is opposed to public policy. Therefore, Cl. (4) is void under S. 23 of the Contract Act.

44. In Central Inland Water Transport Corporation, Ltd. v. Brojo Nath Ganguly [1986 — II L.L.N 382] (vide supra), the validity of similar power of termination of employment was considered by the Supreme Court. Under rule 9(i) of the “Central inland Water Transport Corporation, Ltd., Service, Discipline and Appeal Rules,” the employment of a permanent employee was “subject to termination on three months' notice on either side” or by payment of “three months' basic pay and dearnesss allowance, if any, in lieu thereof.” The provision was identical to Cl. (4) of the Contract of employment impugned in this petition. Since the bank has no rules governing disciplinary action in the case of delinquent officials, there is no question of following the rules. It is the case of the bank that the petitioner is a trouble-maker. (Paragraphs 20 and 51 of the affidavit-in-reply, dated 24 August, 1988). According to them, there exist good reasons for termination but instead of resorting to those “reasons,” they chose to resort to Cl. (4) for the purpose of getting rid of the petitioner. (Paragraph 26 of the affidavit-in-reply, dated 24 August, 1988). In a nutshell, there is no dispute that the bank considers the petitioner guilty of the acts disclosed in the affidavit-in-reply. Although the bank calls its act “termination simpliciter,” it has chosen this course because the petitioner is arrogant, incites executives against the Chairman and Directors, blocks the passage of their cars and so on. In other words, it has dismissed him because of such conduct. Therefore, in my opinion, the bank has terminated the services of the petitioner ostensibly under Cl. (4) of the contract, but really with a view to penalise him for the acts already referred to. It is elementary that before a person is condemned by punishment, he should know why he is being condemned and he should be heard before he is actually punished. There is, thus, clear breach of the principles of natural justice. Irrespective of whether Cl. (4) violates Art. 14 of the Constitution of India, on the admitted facts, the bank has committed a breach of the rules of natural justice. The petitioner's services can be terminated under Cl (4) of the contract. No rules governing disciplinary action have been shown to me. Even if there exist such rules, it would not affect the interpretation of the validity of the clause. Thus Cl. (4) confers on the bank the power to terminate the employment without specifying when and in what circumstances the power may be exercised. It is needless to say that Cl. (4) can be used where the post is abolished, the work is unsatisfactory or the employee is guilty of misconduct. Under Cl. (4) of the contract, services can be terminated without assigning any reason even if there exist reasons, as indeed the bank did in this case. What considerations should be taken into account for resorting to Cl. (4) is not clear. Thus, it confers on the bank an absolute, arbitrary and unguided power of terminating employment. It violates one of the two great rules of natural justice— the audi alteram partem rule. Central Inland Water Transport Corporation, Ltd v. Brojo Nath Ganguly [1986 — II L.L.N 382] (vide supra). The principles of natural justice have now come to be recognised as being a part of the constitutional guarantee enshrined in Art. 14. Union of India v. Tulsiram Patel [1985 — II L.L.N 488]. The result of the recognition of the principles of natural justice as being a part of the constitutional guarantee of equality has been stated in these words in Para. 109, at page 431 of 1986— II L. L N.:

“… violation of a rule of natural justice results in arbitrariness which is the same as discrimination; where discrimination is the result of State action, it is violation of Art. 14. Therefore, a violation of a principles of natural justice by a State action is a violation of Art 14….” (Union of India v. Tulsiram Patel(vide supra).

45. In Central Inland Water Transport Corporation, Ltd. [1986 — II L.L.N 362] (vide supra), the Supreme Court held that rule 9(i) which was couched in identical language, left unguided, uncontrolled power to pick and choose an employee for “termination simpliciter” even where the employer had in mind the misconduct of the employee. I see no difference between the facts of that case and the present one.

46. In my opinion, the impugned clause of the contract of employment is violative of the guarantee of equality under Art. 14 of the Constitution of India Clause (4) of the contract is discriminatory because it is open to the bank to pick an unwanted employee for termination simpliciter, whereas in another case they could follow the principles of natural justice by issuing notice to show cause and holding an enquiry. Thus it enables the bank to pick and choose an employee for this hostile action without assigning any reason.

47. In Central Inland Water Transport Corporation, Ltd. v. Brojo Nath Ganguly [1986 — II L.L.N 382] (vide supra), the employees in the service of Rivers Steam Navigation Company, Ltd., were, upon the sanction of the scheme of arrangement by Calcutta High Court, offered employment in the corporation which they accepted. If they were not to accept the appointment on terms imposed by the corporation, they had to remain without employment. But this fact does not make any difference to the circumstances of the petitioner's case. The petitioner who applied for the job with the bank was not in a portion to bargain on the terms of employment. That is not the case of the bank either. He was in need of the job. The bank was in a position to give him the job. The principle that the Courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract or unfair and unreasonable clause in a contract between the parties who are not equal in bargaining power, has been recognised by the Supreme Court. (Central Inland Water Transport Corporation, Ltd. v. Brojo Nath Ganguly (vide supra). The inequality of the bargaining power between the petitioner and the bank results from the great disparity in the economic strength between the job seeker and job giver. They were unequal in their contracting strength. If the petitioner were not to accept the job on the terms imposed by the bank, the result envisaged by the Supreme Court would follow:

“The corporation can afford to dispense with the services of an officer. It will find hundreds of others to take his place but an officer cannot afford to lose his job because if he does so, there are not hundreds of jobs waiting for him.” (Central Inland Water Transport Corporation, Ltd. v. Brojo Nath Ganguly (vide supra).

Therefore, the clause is against right and reason. It is wholly unconscionable because it is entered into between the parties between whom there is gross inequality of bargaining power. Following the reasoning of the Supreme Court, I hold that Cl. (4) which is identical with rule 9(i) struck down by the Supreme Court, is harmful and injurious to the public interest, for, it tends to create a sense of insecurity in the minds of those to whom it applies and consequently it is against public good. Such a clause, therefore, is opposed to public policy and being opposed to public policy, it is void under S. 23 of the Indian Contract Act. (Central Inland Water Transport Corporation, Ltd. v. Brojo Nath Ganguly (vide supra).

48. The bank has adopted the course of termination simpliciter for punishing the petitioner. They are aware that if they openly come out with accusations, disciplinary proceedings will have to be held. Against the background of these facts, “termination simpliciter” is a colourable method adopted by the Directors to get rid of an inconvenient but efficient administrator. The punishment of termination for non-existent misconduct is colourable exercise of the power claimed under Cl. (4) of the agreement. As held in Manmohan Singh Jaitla v. Commissioner, Union Territory, Chandigarh [1985 — I L.L.N 954], where the termination of services is a result of colourable exercise of authority, it “smacks of mala fides” and is void ab initio.

IV. RELIEF-REINSTATEMENT

49. I am dealing with a case in which the petitioner was, as any other employee, driven to enter into the contract on the terms which I have found to be unreasonable and unconscionable. It is a contract entered into by a person who was unequal in his bargaining power. The bank in its contracting strength and bargaining power is so strong and the petitioner so weak, that to quote the words of Madon, J., in Central Inland Water Transport Corporation, Ltd. case [1986 — II L.L.N 382] (vide supra), “…it is not right that the strong should be allowed to push the weak to the wall.” If the petitioner has succeeded in establishing that the contract of the employment is void, “should the Courts sit back and watch supinely while the strong trample under foot, the rights of the weak”? Central Inland Water Transport Corpora ion, Ltd. v. Brojo Nath Ganguly (vide supra). This is the fundamental question which I am called upon to answer.

50. In Sukhdeo Singh case [1975 — I L.L.N 366] (vide supra), the Supreme Court upheld the right of the employees “to declaration of being in employment.” In this case, the termination is not only void, under S. 23 of the Contract Act, but it violates the constitutional guarantee of equality. Should the Courts sit back when the employer says “My action may be void, unconstitutional, but you should not reinstate my employee whom I have removed illegally ?” If the Courts decline to grant the relief in such cases, the employers will reap the benefit of an unjust, void contract and get rid of an employee and achieve by Courts' inability, the same result which they seek to achieve by the impugned action. In my opinion, in such cases the Court should endeavour to undo the wrong on the basis of principles governing such cases.

51. Sri Dhanuka relied upon Bhandari (O.P) v. Indian Tourism Development Corporation, Ltd [1986 — II L.L.N 1051], to support his submission that the petitioner should not be reinstated. The Supreme Court, dealing with the case of an executive of the Public Sector undertaking, held that it was in the public interest that such undertakings are not compelled to entrust the management to personnel in whom “on reasonable grounds” they have no trust or faith (emphasis supplied). The Supreme Court granted compensation in lieu of reinstatement. So, the employer's lack of trust or faith should be based on reasonable grounds and it should be in public interest that the employee is not reinstated.

Secondly, in the case of Public Sector undertakings, the employer should be unable to function harmoniously with the employee “in a bona fide manner.”

52. Their Lordships proceeded to balance the various factors, such as the employee earning the compensation without working, the prospect of his getting a job elsewhere and the avoidance of disciplinary proceedings after reinstatement and held, on the facts of that case, that compensation was to the employee's advantage.

53. On a true understanding of the judgment in Bhandari (O.P) case [1986 — II L.L.N 1051] (vide supra), the following principles or tests emerge:

(i) The employer's lack of trust or faith in the employee should be based on reasonable grounds.

(ii) It should be shown that the employer is unable to function with the employee harmoniously “in a bona fide manner,” meaning thereby that the reason “for the lack of harmony should arise bona fide.”

(iii) It should be in public interest that the employee is not reinstated in service.

(iv) The prospect of getting employment elsewhere and avoidance of disciplinary proceedings after reinstatement should be considered in exercising the discretion of granting reinstatement.

54. I will, now, proceed to apply these principles.

55. The termination of the petitioner, ostensibly “simpliciter” and apparently innocent, is marked by undercurrents of motives which are clearly projected in the affidavit-in-reply made by respondent 1. The termination of employment does not become “simpliciter” merely because the employer acting from ulterior purpose chooses the word “simpliciter.” The quality of termination of the employment, its punitive content and real colour have to be understood in the light of the facts which enter the decision to put an end to the employee's career.

56. The bank's real motive was to punish the petitioner for what he is alleged to have done. The “termination” of the petitioner's employment carries the stigma of misconduct. Whether the action by the bank is reasonable, bona fide, which way the public interest considerations lead, will be clear from the discussion in the following paragraphs.

57. With the unfounded accusations of misconduct and unbecoming behaviour clearly averred by the bank in their affidavit-in-reply and referred to by me in Para. 4 of this judgment, it is not possible for the petitioner to seek with dignity employment elsewhere. Therefore, an important factor which weighed with the Supreme Court is absent in this case. The Supreme Court's observations apply where the employer has lost “trust” or “faith” in the employee “in a bona fide manner.” As I will demonstrate, the facts of this case announce that the bank's action lacks bona fides and was taken for an oblique purpose unconnected with the interests of administration. In Para. 22 of the affidavit-in-reply, respondent 1 says—” the petitioner, however, in trying to provoke respondent 1 to disclose all its grievances against the petitioner…,” thereby, proclaming that the bank harbours “grievances.” They have not been able to deny the statement in Para. 6 of the petition that the petitioner's record of service was distinguished and unblemished. Respondent 1 who is the Chairman was driven to admit that “certain increments” had been given to petitioner 1, but did not urge that the petitioner's record of service was tainted. Then, respondent 1 alleges that the petitioner is a trouble-maker.” “Really speaking, all the trouble was started by the petitioner for the directors of respondent 1….” In Para. 21 of the affidavit-in-reply, the acts of “misconduct” alleged to have been committed by the petitioner are set out. A guilty feeling that the respondents were, in fact, casting stigma on the character of the petitioner, is seen in Cl. (c) of Para. 21 of the affidavit-in-reply in which respondent 1 says—

“The Board did not and “does not want” to cast any stigma on the petitioner. The terms of contract clearly entitle respondent 1 to terminate the services of the petitioner by offering three months' salary in lieu of notice, as “termination simpliciter.”

Had no stigma been intended, this guilty revelation was unnecessary. In Para. 26, respondent 1 claims “It does not mean that no reasons existed” for termination, which is clear admission of the fact that the termination was made because of these “reasons.” These reasons motivated the decision to terminate the services. These “reasons” entered the order of termination and furnish the colour and content of the impugned action The “reasons” are in Paras. 20, 21, 22 and 26 of the affidavit-in-reply.

58. The accusations in Paras. 20, 21 and 26 of the affidavit-in-reply are unsubstantiated assertions by the authorities of the bank who harbour bias against lbs petitioner. No attempt was made during the arguments to substantiate them. While choosing the method of “termination simpliciter” the bank always bad in mind these “reasons” which reflect the ulterior purpose.

59. Another feature of the “bona fides” is this: According to the petitioner on 30 June, 1987, after the petition was filed, respondent 2 who is the chairman prepared and circulated a confidential note to all the directors, a copy of which is annexed at exhibit C to the affidavit-in-rejoinder made on 15 September, 1987. One month later, on 15 October, 1987, respondent 1 made an affidavit-in-sur-rejoinder. He denied that he ever circulated the note. But significantly, he has not denied that the date “30 June, 1987” written at the bottom of this note is in his handwriting. It is the petitioner's case in Para. 6 of the affidavit-in-rejoiner that it was in the hand of respondent 2. The note brings out the fact that the requisitions from the shareholders were received expressing “no confidence” in the Board of Directors, The note sets out the progress made by the bank as a result of the efficient performance of the petitioner in setting up of a new department, making innovations in the administration, the reorganisation of the bank, and recovery of several bad debts. In this note, respondent 2 admits that the petitioner has done no harm to the bank and will continue to do good work that he had been doing while in service. The note was an attempt to patch up the differences with, the petitioner. The persistent denials of respondent 1 in his affidavit are false. He did not have the courage to deny that the date “30 June, 1987” was in his hand. I am certain that the petitioner's case that respondent 1 and the bank are not acting bona fide is true.

60. The public interest in reinstatement of the petitioner cannot be judged on the basis of the unsubstantiated and biased assertion of the bank that they cannot carry on harmoniously with the petitioner. Every employer interested in defeating his employee has the natural urge to resist reinstatement. Therefore, the facts, and not interested assertions, ate important.

Firstly, the note by the Chairman repudiates the argument against reinstatement. (Exhibit C) … “The General Manager has served the bank for last three years extremely well, increasing its deposits advances, and over all business three fold. He set up the E.D.P Department and made several innovations. He has reorganised the working of the bank and has succeeded in recovering and settling several bad debts. I do not think he has done any harm to the hank…”

Secondly, the bank and its Board are acting out of personal considerations. This will be clear from the affidavit, dated 22 June, 1987, by N.S Rao, Ex-Chairman of the bank. The letter by him, dated 19 February, 1987 (exhibit 1— affidavit, dated 22 June, 1987, by N.S Rao) annexed to the affidavit makes a grievance that the petitioner introduced the practice of “safe conduct passes” for entry into the bank even for Directors. If the petitioner acting from a concern for security and efficiency introduced such passes, the resistance thereto suggests concern for personal prestige and not for public interest. The public interest demands that high executives are strict, disciplined, fearless and impartial, as indeed the image of the petitioner is.

Thirdly, the petitioner introduced recruitment of staff by advertisement, a system which serves public interest. He stopped the recruitment by “private” applications and appointments by “recommendation.” All these steps were conceived in the best interests of the administration. The directors' personal convenience is subordinate to consideration of security and efficiency. The petitioner did what was in public interest.

61. It is clear that the petitioner's leadership of the administration promoted the interests of the public by increasing deposits, adoption of innovative measures, introduction of healthy practices in management, making recruitment on merits and so on. Those who oppose these measures, conceived and executed in public interest, seek to promote their private and personal interests. The considerations of public interest demand that toe petitioner should be in charge of the administration. It is not in the public interest that reinstatement should be denied to the petitioner.

62. The principles emerging from Bhandari (O P.) case [1986 — II L.L.N 1051] (vide supra), when applied to the petitioner's case lead to these conclusions.

Firstly, the claim that the bank has lost trust or faith in the petitioner, has been advanced only to defeat the petitioner's case. The analysis of the facts reveals that there exist no grounds for such loss of trust. The “grounds” alleged have not been substantiated even prima facie.

Secondly, the bank's case that they are not able to function harmoniously with the petitioner, is not bona fide. The assertion is motivated by the ulterior purpose of getting rid of the petitioner because of his efficient and impartial administration which has caused inconvenience to the Directors whose unhealthy practices were discontinued by the petitioner. The lack of “harmonious functioning” is the result of the Directors' insistance that the petitioner should be “convenient” and docile. It is not “bona fide.”

Thirdly, for reasons already stated, the public interest as opposed to the Directors' personal interest demands that the petitioner shall be reinstated with dignity.

Lastly, with the bank's attempt to smear the petitioner's fair name and reputation, it is unlikely that the petitioner can, with dignity, secure another job. Nor do I see why such indignity should be permitted after holding that the bank has illegally and mala fide terminated the employment.

63. Sri Dhanuka also relied upon Joshi (K.C) v. Union of India [1985 — II L.L.N 247] (vide supra), in which the Supreme Court held in Para. 13, at page 252:

“Ordinarily, where the order of termination of service is shown to be bad and illegal, the necessary declaration must follow that the employee continues to be in an uninterrupted service and he is entitled to full back-wages. We would have been perfectly justified in giving the declaration and making that order. However, the appellant is out of service from 29 December, 1967, till today. A period of nearly 18 years have rolled by and he will have to go back to some chagrined master …”

64. The petitioner, in this case, is out of Job only for a couple of years. His competence and integrity as Chief Executive have not been questioned. I am not satisfied that it is in public interest that the petitioner should be denied the relief of reinstatement

65. Sri Dhanuka then relied upon the judgment in Radhakrishna Agarwal v. State of Bihar [1977 (3) S.C.C 457], and urged that where the Government enters into contract with citizens, the relations are not governed by the constitutional provisions but by contracts which determine the rights and obligations of the parties. According to Sri Dhanuka, the petitioner's case arises out of a contract and no writ or direction should be issued. Radhakrishna Agarwal case (vide supra), arose out of the action by the State Government whereby it revised the rate of royalty payable by the petitioners under a lease of 1970 and, thereafter, cancelled the lease. It was, in the context of a purely commercial transaction, that the Supreme Court observed that the relations are governed by the contract. In Prabhat Kumar Mukhejee v. State of Bihar [1969(3) S.L.R 470], relied upon by Sri Dhanuka, the petitioner sought a writ of mandamus under Art. 226 of the Constitution of India compelling the respondents to appoint him as Chief Engineer of Patna Improvement Trust to which he was appointed by a contract between him and the trust. Prabhat Kumar Mukherjee was a retired Engineer and was reappointed by the Government of Bihar for a term of four years from 1966. In 1967, while on such re-employment, his services were lent to the trust who employed him on a contract of two years. While upholding the petitioner's contention that the order of the Government and of the Chairman of the trust terminating his employment was illegal, the Court declined to grant a writ of mandamus on this ground:

“The reason is that the appointment of the appellant was a matter of contract and further, the period of appointment for two years under the contract has already expired.”

This decision does not assist Sri Dhanuka:

Firstly, because the nature of appointment of Prabhat Kumar with the trust was on a tenure of two years.

Secondly, the specified period of two years had expired on the date on which the petition was disposed of.

66. In my opinion, it will be unjust to deny to the petitioner the relief of reinstatement.

V. THE SUMMING

67. The points urged by Sri Cama are set out in Para. 5 of this judgment. In the view which I have taken on points (i) and (ii), it is unnecessary to decide the points (iii) and (iv).

68. On the analysis of the nature of co-operative banking business, the legislative policy unfolded by the Banking Regulation Act, and the Multi-State Co-operative Societies Act, I have held that the Multi-State Co-operative Bank which includes the Shamrao Vithal Co-operative Bank, Ltd.— Respondents 1 — is an agency or instrumentality of the State by reason of its unmistakable public character, its subordination to Central Government's directives, the Central Government's control over the management through inspection, licensing, powers of amalgamation, control over composition of general body and the Board of Directors, power to control shareholding and appointments of executives. (For reasons — See Paras 13-42 of this judgment). The bank is, therefore, “an authority” under the control of the Government of India. The bank — a Multi-State Co-operative Bank — is, therefore, “State” as defined in Art. 12 of the Constitution of India. If the Government is subject to the limitations imposed by Part III of the Constitution of India, it follows that the Government agency or instrumentality which, in this case, is the bank, is equally subject to the same constitutional limitations. Consequently, the refore, the bank is subject to the constitutional limitations created by the chapter on fundamental rights.

69. Clause (4) of the contract of employment of the petitioner with the bank embodied in the letter, dated 19 May, 1984, which empowers the bank to terminate the petitionary employment without assigning reasons and by giving three months' notice or salary in lieu thereof is void:

Firstly, because it violates the fundamental right guaranteed by Art. 14 of the Constitution of India, and

secondly, because the consideration and the object of the contract are opposed to public policy. (For reasons — See Paras. 43-48 of this judgment).

70. The termination of the employment made under Cl. (4) of the contract is void. The bank's action is not bona fide, but actuated by oblique purpose. (Paragraphs 48 and 31 of this judgment) It is in the public interest that the petitioner is reinstated with full salary and allowances with effect from 21 May, 1987. (Paragraphs 49-54 of this judgment).

71. The petition is, therefore, made absolute and the following order is made:

(i) The resolution of the bank, dated 21 May, 1987, and the consequent termination of the petitioner's employment are void ab initio.

(ii) The petitioner shall be deemed to be in continuous employment as General Manager and Chief Executive of the Shamrao Vithal Co-operative Bank, Ltd, notwithstanding the resolution of the Board of Directors, dated 21 May, 1987, and the consequent termination of the employment.

(iii) The Shamrao Vithal Co-operative Bank, Ltd., shall reinstate the petitioner to the office of the General Manager and Chief Executive of that bank forthwith. The bank shall take all necessary steps to reinstate the petitioner and shall actually reinstate him on or before 5 April, 1989. The reinstatement shall take effect from 21 May, 1937.

(iv) The Shamrao Vithal Co-operative Bank Ltd. shall pay to the petitioner within 15 days from today all the arrears of pay and allowances due to him from 22 May, 1987.

(v) The petitioner will get costs of this petition from the respondent 1.

72. Learned counsel for the respondents urged that the operation of this order should be stayed. The circumstances in which the petitioner was removed and the facts of this case do not justify the postponement of the reinstatement and payment of the arrears of salary and allowances. The application is rejected.