Sofni (K.S) v. Fertilisers And Chemicals Travancore Ltd., And Others

Bhaskaran Nambiar, J.:— Justice Sri M.P Menon made a reference order in the following terms;

“Is the Fertilises and Chemicals Travancore, Ltd., a “State” as defined in Art. 12 of the Constitution of India? Assuming that it is a State, is it subject to the writ jurisdiction of this Court except for the purposes of alleged violations of fundamental rights? Assuming that S. 25-F of the Industrial Disputed Act was violated so far as the discharge of the petitioner was concerned, will it afford sufficient ground for tins Court to grant a declaration regarding its nullity, in proceedings under Art. 226 taking into account the character of the employer? These are some of the questions that arise in this writ petition; counsel submits that other writ petitions raising similar questions are before a Division Bench. This original petition is also, therefore, adjourned for being heard by a Division Bench”.

This is how this writ petition has come up for hearing before a Division Beach. The brief facts are these:

2. The petitioner was appointed to the temporary post of a stenographer on 17 August, 1981 in the F.A.C.T Engineering and Design Organisation (FEDO), a division of the Fertilisers and Chemicals Travancore, Ltd. (FACT), a “Government of India enterprise”. The appointment was “purely on contract basis for one year” and during the period of the contract was terminable with one month's notice on either side. The petitioner was to be governed by the standing orders, service conditions and other rules and regulations in force in FEDO from tune to time and the appointment “did not bestow any permanent lien” in the company. The petitioner joined duty on 21 August, 1981. On 19 August, 1982, she was informed as per exhibit P-4 as follows:

“Please refer to our appointment Order No. MPA/F/814/81, dated 17 August, 1981. The period of your appointments expires at the close of working hours on 20 August, 1962. You may please note that your services will not be required beyond the expiry date mentioned above. Our Finance Department is being advised to settle your accounts accordingly”.

3. The petitioner states that there were three other stenographers who were similarly appointed on contract basis; but their services have not been terminated and, therefore, alleges that she has been subject to hostile discrimination, attracting Arts. 14 and 16 of the Constitution. Exhibit P-4 is thus challenged.

4. Apart from the management, respondents 1 and 2, the General Secretary, FACT Officers' Association have got themselves impleaded as the third respondent and the President of the Association through its counsel was also heard at the time of hearing.

5. The management, respondents 1 and 2, through its counsel Sri E.A Nayar contends that FACT is only a Government owned company, bound by its Articles of Association and beyond the reach of this Court under Art. 225 of the Constitution. Respondent 3, through its counsel, Sri T.P.K Nambiar, the President of the Officers' Association, through his counsel Sri Dharmadan and the FACT Officers' Federation and Organisation through Sri P Balagangadhara Menon plead that FACT is a State under Art. 12 of the Constitution and, therefore, within the range of the writ jurisdiction. We shall, therefore, proceed to consider these contentions and answer the reference also.

(1) Whether FACT is a State under Art. 12 of the Constitution?

6. This question has to be answered with reference to the Memorandum and Articles of Association of the company and in the light of the principles stated by the Supreme Court in several reported decisions. The company has undertaken a commercial venture, manufactures chemicals and their bye-products and carries on trade and business. It is registered under the Companies Act. Let us now read some of the relevant Memorandum and Articles of Association of the company.

“The capital of the company at present is Rs. 225,00,00,000 (Two hundered and twenty-five crores) divided into 22,50,00,000 (Twenty-two and a half crores only) equity shares of Rs. 10 each”.

7. Under the Articles of Association:

“The number of Directors shall not be more than fifteen or less than three, of whom two things shall be liable to retire at every Annual General Meeting.

The Government of Kerala shall have the right to nominate a Director on the Board of Directors of the company so long as it holds shares in the company to the nominal value of at least Rs. 100 lakhs.

The Industrial Finance Corporation of India, a Corporation established by the Industrial Finance Corporation Act, 1948, or any other Financial Corporations or institutions, have the right, so long as monies are due by the company to the said corporations or institutions and provided the agreement relating to the advance of monies provides for the same, to appoint two directors in all to be Directors of the company. Such Directors shall be called ‘Special Directors’ and each of their suceessors-in-office shall be entitled to hold office until removal by the said corporation or institution and shall not be bound to retire every year and when any Special Director so appointed vacates office, whether upon removal as aforesaid by the said corporation or institution or by death or otherwise, the said corporation or institution shall be entitled to appoint another director in his place. Such Special Director shall not require any qualification and may at any time by notice in writing to the said corporation or institution and the company, resign his office.

The President of India shall have the right to nominate Directors not exceeding three on the Board of Directors of the company. Further, in the event of the Industrial Finance Corporation of India or other Financial Corporation or institutions not exercising their right in part or in full, to appoint two Directors, such vacancies shall be filled by the nominee-nominees of the President.

The President shall have the power to appoint the Chairman of the Board from amongst the Directors and determine in writing the period for which he is to hold office. The President shall have the power to remove the Chairman from office at any time and in his absolute discretion. If there be no Chairman or if the Chairman is not present at any meeting of the Board, the Directors present shall choose one of their number, to be Chairman of that meeting.

For the conduct and management of the business of the company in general subject to the control and supervision of the Board of Directors, the President may empower the Chairman nominated under Art. 101 to exercise the functions of the Managing Director or appoint one of the Directors to be the Managing Director who will be the Chief Executive Officer of the company. The President may also appoint one or more of the Directors to be an Executive Director/Functional Director or Executive Directors/Functional Directors.

The Chairman so empowered or the Managing Director or an Executive Director, Functional Director or Executive Directors/Functional Directors so appointed shall be wholetime employees of the company and shall be paid such salary and allowances as may be fixed by the President.

The Managing Director shall be in management of the whole affairs of the company subject to the control and supervision of the Board of Directors. He may be authorised by the Board to exercise such powers and discretion in relation to the affairs of the company as are specifically delegated to him by the Board and are not required to be done by the Board of Directors or the company at its general meeting.

Notwithstanding anything contained in any of these articles, the President may from time to time, issue such directives as he may consider necessary in regard to the conduct of the business and affairs of the company or Directors thereof and in like manner may vary and annul any such directives. The Directors shall give immediate effect to directives so issued.

The President shall have power to:

(i) give directions to the company as to the exercise and performance of its functions in matters involving national security or substantial public interest and to ensure that the corporation gives effect to such directions;

(ii) call for such returns, accounts and other information with respect to the property and activities of the company as may be required from time to time;

(iii) authorise the amount of capital to be raised and the terms and conditions on which it may be raised;

(iv) approve the company's five-year and annual plan of development and the company's capital budget;

(v) approve the company's revenue budget in case there is element of deficit which is proposed to be met by obtaining funds from the Government; and

(vi) approve agreements involving foreign collaboration proposed to be entered into by the company and to approve purchases and contracts of a major nature involving substantial capital outlay which are in excess of the powers vested in the company”.

Subject to the provisions of the Act and the directives, if any, the President may issue from time to time as contained in Arts. 116 and 116-A, the Board of Directors of the company shall be entitled to exercise all such powers and to do all such acts and things as the company is authorised to exercise and do:

Provided that the Board shall not exercise any power or do any act or thing which is directed or required, whether by the Act or any other Act (to be exercised or done by the company in general meeting) or by the Memorandum of Articles of the company, or in any regulations not inconsistent therewith and duly made thereunder including regulations made by the company in general meeting.

The following matters shall require the prior approval of the President:

(i) Any programme of capital expenditure for an amount which exceeds Rs. 400 lakhs in cases which do not form part of sanctioned estimates:

Provided that in cases where the detailed project reports have been prepared with estimates of the different component parts of the projects and where such reports have been approved by the President, it shall not be necessary for the Board to obtain President's sanction to the incurrence of capital expenditure and the Board of Directors shall have power to sanction the same, subject to the provision in the sanctioned estimates for each component part, and the limit of Rs. 400 lakhs shall not apply.

Provided further that in case of variations in approved estimates which are not more than 10 per cent for any particular component part, the Board of Directors shall be competent to proceed with the work without further reference to the President provided there is no substantial variation in the scope of the project.

(ii) Appointments to posts at Board level as well as appointment of persons who have already attained the age of 58 years to posts carrying a scale of pay of Rs. 2,500 to Rs. 3,000 per mensem and above.

(iii) Sale, lease or disposal otherwise of the whole, or substantially the whole, of the undertaking of the company.

(iv) Division of capital into different classes of shares.

(v) Formation of a subsidiary company.

(vi) Winding up of the company.

The Auditor shall be appointed or reappointed by the Central Government on the advice of the Comptroller and Auditor-General of India and his remuneration shall be fixed by the Central Government”.

8. It is admitted that 99.4 per cent of the shares are held by the Government and 0.6 per cent share alone remains with the general public.

9. It is also necessary to briefly survey the decisions of the Supreme Court to understand the principles applicable to reach the conclusion, whether an authority is a state, within the meaning of Art 12 of the Constitution.

10. Article 12 of the Constitution in the definition provision in Part III reach thus:

“In this part, unless the context other wise requires, ‘the State’ includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India”.

Article 12 is a constitutional dictionary for the definition of the word “State” for the purpose of Part III of the Constitution. State includes the executive Government of the Union and the States, the Legislature of the Union and the States and all local or other authorities;

“Again, Art. 12 winds up the list of authorities falling within the definition by referring to ‘other authorities’ within the territory of India which cannot obviously be read as ejusdem generis with either the Government and the Legislatures or local authorities. The words are of wide amplitude and capable of comprehending every authority created under a statute and functioning within the territory of India or under the control of the Government of India. There is no characterisation of the nature of the authority in this residuary clause and consequently it must include every type of authority set up under a statute for the purpose of administering laws enacted by the Parliament or by the State including those vested with the duty to make decisions in order to implement those laws”. See Smt. Ujjam v. State of Uttar Pradesh, [A.I.R 1952 S.C 1621].

11. The concept of “State” has been examined, studied and discussed in a series of recent decisions of the Supreme Court commencing from Rajasthan Electricity Board case in 1967.

12. In Electricity Board, Rajasthan v. Mohan Lal, [A.I.R 1967 S.C 1857] (vide supra), the Constitution Bench held thus:

“These decisions of the Court support our view that the expression ‘other authorities’ in Art. 12 will include all constitutional or statutory authorities on whom powers are conferred by law. It is not at all material that so the of the powers conferred may be for the purpose of carrying on commercial activities. Under the Constitution, the State is itself envisaged as having the right to carry on trade or business as mentioned in Art. 19(1) (g). In Part IV, the State has been given the same meaning as in Act. 12 and one of the Directive Principles laid down in Art. 46 is that the State shall promote with special care the educational and economic interests of the weaker sections of the people. The State, as defined in Art. 12, is thus comprehended to include bodies created for the purpose of promoting the educational and economic interests of the people. The State, as constituted by our Constitution, is further specifically empowered under Art. 298 to carry on any trade or business. The circumstance that the Board under the Electricity Supply Act is required to carry on some activities of the nature of trade or commerce does not, therefore, give any indication that the Board must be excluded from the scope of the word ‘State’ as used in Art. 12. On the other hand, there are provisions in the Electricity Supply Act which clearly show that the powers conferred on the Board include power to give directions, the disobedience of which is punishable as a criminal offence. In these circumstances, we do not consider it at all necessary so examine the cases cited by Justice Sri Desai to urge before us that the Board cannot be held to be an agent or instrument of the Government. The Board was clearly an authority to which the provisions of Part III of the Constitution were applicable”.

Justice Sri Shah, agreeing with the main Judgment delivered by Justice Sri Bhargava, on behalf of the Bench, observed thus:

“The Board is an authority invested by statute with certain sovereign power of the State. It has the power of promoting co-ordinated development, generation, supply and distribution or electricity and for that purpose to make, after, amend and carry out schemes under Chap. V of the Electricity (Supply) Act, 1948, to engage in certain incidental undertaking; to organise and carry out power and hydraualic surveys; to conduct investigation for the improvement of the methods of transmission; to close down generating stations; to compulsorily purchase generating stations, undertaking, mains and transmission lines; to place wires, poles, brackets, appliances, apparatus, etc., to fix grid tariff; to issue directions for securing the maximum economy and efficiency in the operation of electricity undertakings; to make rules and regulations for carrying out the purposes of the Act; and to issue directions under certain provisions of the Act and to enforce compliance with those directions. The Board is also invested by statute with exersive powers of control over electricity undertakings. The power to make rules and regulations and to administer the Act is in substance the sovereign power of the State delegated to the Board. The Board is, in my judgment, ‘other authority’ within the meaning of Art. 12 of the Constitution.

I am unable, however, to agree that every constitutional or statutory authority on whom powers are conferred by law is ‘other authority’ within the meaning of Art. 12. The expression ‘authority’ in its etymological sense means a body invested with power to command or give an ultimate decision, or enforce obedience, or having a legal right to command and be obeyed”.

This decision is authority for the proposition that all authorities which have their source of origin either under the Constitution or under some statute constitute “State” within the meaning of Art. 12, even if they carry on commercial activities. A statutory birth mark is an indication whether the authority is a State.

In Heavy Engineering Corporation case, [(1969) 1 SCC 765 : A.I.R 1970 S.C 82], a Division Bench observed thus:

“An incorporated company, as is well known, has a separate existence and the law recognises it as a juristic person separate and distinct from its members. This new personality emerges from the moment of its incorporation and from that date the persons subscribing to its memorandum of association and others joining it as members are regarded as a body incorporate or a corporation aggregate and the new person begins to function as an entity. See Salomon v. Salomon & Co., Ltd., [1897 A.C 22]. Its rights and obligations are different from those of its shareholders… Therefore, the mere fact that the entire share capital of the respondent-company was contributed by the Central Government and the fact that all its shares are held by the President and certain officers of the Central Government does not make any difference. The company and the shareholders being, as aforesaid, distinct entities the fact that the President of India and certain officers hold all its shares does not make the company an agent either of the President or the Central Government…. In the absence of a statutory provision, however, a commercial corporation acting on its own behalf even though it is controlled wholly or partially by a Government department, will be ordinarily presumed not to be a servant or agent of the State. The fact that a minister appoints the members or directors of a corporation and he is entitled to call for information, to give directors which are binding on the directors ant to supervise over the conduct of the business of the corporation does not render the corporation an agent of the Government. See State Trading Corporation of India, Ltd. v. Commerical Tax Officer, Visakhapatnam, [A.I.R 1963 S.C 1811], per, Shah, J. and Tamlin v. Hannaford, [(1950) 1 K.B 18]. Such an inference that the corporation is the agent of the Government may be drawn where it is performing in substance governmental and not commercial functions. See Cf(???). London County Territorial and Auxiliary Force Association v. Nichols, [(1948) 2 All E.R 432].

13. In Sukhdev Singh case, [1975 — I L.L.N 366], the Constitution Bench had to Consider whether the oil and Natural Gas Commission, Life Insurance Corporation and Industrial Finance Corporation are “authorities” within Art. 12 of the Constitution. Their Lordships observed in Paras. 60 to 67, at pages 383 and 384:

“60. The Oil and Natural Gas Commission is owned by the Government. It is a statutory body and not a company. The Commission has the exclusive privilege of extracting petroleum. The management is by the Government. It can be dissolved only by the Government.

61. The Life Insurance Corporation is owned by the Government. The Life Insurance business is nationalised and vested in the aorporation. No other insurer can carry on life insurance business. The management is by the Government. The dissolution can be only by the Government.

62. The Industrial Finance Corporation is under the complete control and management of the Central Government. Citizens cannot be shareholders. Certain specified institutions like scheduled banks, insurance companies, investment trusts and co operative banks may apply for the shares. The Central Government may acquire shares held by share holders other than the Development Bank. After such acquisition, the Government may direct that the entire undertaking of the corporation shall be vested in the Development Bank. The corporation cannot be dissolved except by the Government.

63. In the background of the provisions of the three Acts under consideration, the question arises as to whether these corporations can be described to be authorities within the meaning of Art. 12 of the Constitution. In Rajasthan Electricity Board case, [A.I.R 1967 S.C 1857] (vide supra), it was said that the power to give directions, the disobedience of which must be punishable as a criminal offence would furnish one of the reasons for characterising the body as an authority within the meaning of Art. 12. The power to make rules or regulations and to administer or enforce them would be one of the elements of authorities contemplated in Art. 12. Authorities envisaged in Art. 12 are described as instrumentalities of State action. On behalf of the State it was contended that the Oil and Natural Gas Commission as well as Industrial Finance Corporation was not granted immunity from taxation and, therefore, the liability to be taxed would indicate that the corporation was not a Stats authority. Reference is made to Art. 289 which speaks of exemption of property and income of a State from Union taxation. The liability to taxation will not detract from the corporation being an authority within the meaning of Art. 12. Article 289 empowers the Union to impose tax in respect of trade or business carried on by or on behalf of a State.

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

65. The Life Insurance Act provides that if any parson unlawfully withholds or fails to deliver to the corporation any property which has been transferred to and vested in the corporation or 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 which may extend to one year or with fine which may extend to one thousand rupees or with both. The corporation also enjoys protection of action taken under the Act.

66. 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 for a term which may extend to two years or with fine which may extend to two thousand rupees or with both. Further, whoever without the consent in writing of the corporation uses the name of the corporation in any prospectus or advertisement shall be punishable with imprisonment for a term which may extend to six months or with fine which may extend to one thousand rupees or with both. The corporation enjoys protection of action taken under the Act. A company incorporated under the Indian Companies Act does not enjoy these privileges.

67. For the foregoing reasons, we hold that rules and regulations framed by the Oil and Natural Gas Commission, Life Insurance Corporation and the Industrial Finance Corporation have the force of law. The employees of these statutory bodies have a statutory status and they are entitled to declaration of being in employment when their dismissal or removal is in contravention of statutory provisions. By way of abundant caution we state that these employees are not servants of the Union or the State. These statutory bodies are ‘authorities’ within the meaning of Art. 12 of the Constitution”.

14. Justice Sri Mathew delivering a supporting judgment observed thus in Paras. 95 and 96, at page 389:

“…. Therefore, it may be stated generally that State financial aid alone does not render the institution receiving such aid a State agency. Financial aid plus some additional factor might lead to a different conclusion. A mere finding of State control also is not determinative of the question, since a State has considerable measure of control under its police power over all types of business operations. It is not possible to assume that the panoply of law and authority of a State under which people carry on ordinary business, or their private affairs or own property, each enjoying equal by in terms of legal capacity would be extraordinary assistance. A finding of State financial support plus an unusual degree of control over the management and policies might lead one to characterise an operation as State action.

96. Another factor which might be considered is whether the operation is an important public function the combination of State aid and the furnishing of an important public service may result in a conclusion that the operation should be classified as a State agency. If a given function is of such a public importance and so closely related to government functions as to be classified as a governmental agency, then even the presence or absence of State financial aid might be irrelevant in making a finding of State action. If the function does not fall within such a description, then mere addition of State money would not influence the conclusion”.

15. While statutory parentage is still maintained as one of the tests, Justice Sri Mathew's observations that financial assistance and unusual degree of control along with functions of public importance do constitute reasonable tests for identifying the area, State within Art. 12 gave a meaningful expansion to the expression “other authorities”.

16. The same Constitution Bench on the same date held that the Council of Scientific and industrial Research is not an authority within Art. 14 in the decision in Sabhajit Tewary v. Union of India, [1975 — I L.L.N 362], wherein it was held thus in Para. 4, at page 364:

“… The society does not have a statutory character like the Oil and Natural Gas Commission, or the Life insurance Corporation or the Industrial Finance Corporation. It is a society incorporated in accordance with the provisions of the Societies Registration Act. The fact that the Prime Minister is the President or that the Government appoints nominees to the Governing Body or that the Government may terminate the membership will not establish anything more than the fact that the Government takes special care that the promotion, guidance and co-operation of scientific and industrial research, the institution and financing of specific research establishment or development and assistance to special institutions or departments of the existing institutions for scientific study of problem affecting particular industry in a trade, the utilisation of the result of the researches conducted under the auspices of the Council towards the development of industries in the country are carried out in a responsible manner”.

The statutory character of the corporation was thus Highlighted in this case as well.

17. In the next case, regarding a degree college, in Vaish Degree, College v. Lakshmi Narain, [1976 — I L.L.N 474], Justice Sri Fazl Ali speaking for the Division Bench held that it is not an authority as it was not a statutory body even though it was affiliated to the University and was regulated by the provisions of the University Act or Statutes made thereunder.

18. Next we come to Airport Authorities case, [1981 — I L.L.N 270], in which it can be stated, with due deference to the Judges of the Supreme Court, that a positive attempt is made to broaden the scope of “other authorities” to bring them within the writ discipline of the Courts.

19. Justice Sri Bhagwati speaking on behalf of the three Member Court observed thus in para. 20, at page 270:

“It will thus be seen that there are several factors which may have to be considered in determining whether a corporation is an agency or instrumentality of Government. We have referred to some of these factors and they may be summarised as under; whether there is any financial assistance given by the State, and if so, what is the magnitude of such assistance, whether there is any other form of assistance, given by the State, and if so, whether it is of the usual kind or it is extraordinary, whether there is any control of the management and policies of the corporation by the State, and what is the nature and extent of such control, whether the corporation enjoys State-conferred or State-protected monopoly status and whether the functions carried out by the corporation are public functions closely related to governmental functions. This, particularisation of relevant factors is, However, not exhaustive and by its very nature it cannot be, because with increasing assumption of new tasks, growing complexities of management and administration and the necessity of continuing adjustment in relations between the corporation and Government calling for flexibility, adaptability and innovative skills, it is not possible to make an exhaustive enumeration of the tests which would invariably and in all cases provide an unfailing answer to the question whether a corporation is governmental instrumentality or agency. Moreover even amongst these factors which we have described, no one single factor will yield a satisfactory answer to the question and the Court will have to consider the cumulative effect of these various factors and arrive at its decision on the basis of a particularised inquiry into the facts and circumstances of each case.

It is not enough to examine seriatim each of the factors upon which a corporation is claimed to be an instrumentality or agency of Government and to dismiss each individually as being insufficient to support a finding on that effect. It is the aggregate or cumulative effect of all the relevant factors that is controlling.

It will be seen from these provisions that there ate certain features of the first respondent which are eloquent and throw considerable light on the true nature of the first respondent. In the first place, the Chairman and members of the first respondent are all persons nominated by the Central Government and the Central Government has also the power to terminate their appointment as also to remove them in certain specified circumstances. The Central Government is also vested with the power to take away the management of any airport from the first respondent and to entrust it to any other person or authority and for certain specified reasons, the Central Government can also supersede the first respondent the Central Government has also power to give directions in writing from time to time on questions of policy and these directions are declared binding on the first respondent. The first respondent has no share capital but the capital needed by it for carrying out its functions is provided wholly by the Central Government the balance of the net profit made by the first respondent alter making provision for various charges, such as reserve funds, bad and doubtful debts depreciation in assets, etc, does not remain with the first respondent and is required to be paid over to the Central Government…”

20. This decision thus laid accent on substantial financial assistance, nature and extent of control of the Government and the character of the public functions exercised as indicia for a determination of the content of “other authorities” in Art. 12. There are two decisions in the 1981 reports. In Bharat Petroleum Corporation case, [1981 — II L.L.N 322], a Bench of three Judges, held it is a State within Art. 12.

21. Justice Sri Krishna Iyer speaking on behalf of Justice Sri Chinnappa Reddy also observed thus in Paras. 28, 30, 31 and 58, at pages 329 to 331 and 343:

“Control by Government of the corporation is writ large in the Act and in the factum of being a Government company. Moreover, here, S. 7 gives to the Government company mentioned in it a statutory recognition, a legislative sanction and a status above a mere Government company. If the entity is no more than a company under he Company Law or society under the law relating to registered societies or co-operative societies you cannot call it an authority. A ration shop run by a co-operative store financed by Government is not an authority, being a mere merchant, not a sharer of State power….

30. Sometimes the test is formulated, oversimplified fashion, by asking whether the corporation is formed by a statute or under a statute. The true test is functional. Not how the legal person is born but why it is crated. Nay more, apart from discharging function or doing business as the proxy of the State, wearing the corporate mask there must be an element of ability to affect legal relations by virtue of power vested in it by law.

31. In the present case, the source of both, read in the light of Ss. 3 and 7, is saturated with state functions. Avowedly, the statutory contemplation, as disclosed by S. 7, is that the company should step into the shoes of the executive power of State. The legislative in lieu in which the second respondent came to be the successor of Burmih-Shell suggests that the former is more than a mere company registered under the Companies Act. It has a statutory flavour acquired under S. 7. Moreover, everything about the second respondent in the matter of employees, their provident, superannuation and welfare funds, is regulated statutorily unlike in the case of ordinary companies. Sections 9 and 10 deal with these aspects. These two provisions which regulate the conditions of service and even provide for adjudication of disputes relating to employees indicate that some of the features of a statutory corpora ion attach to this Government company. Sections 9 and 10, in terms, create rights and duties vis-a-vis the Government company itself apart from the companies Act. An ordinary company, even a Government company simpliciter has not the obligations cast on the second respondent by Ss. 9 and 10 And S. 11 specifically gives the Act primacy vis-a-vis other laws. Section 12, although it has no bearing on the specific dispute we are concerned in this case, is a clear pointer to the statutory character of the Government company and the vesting of an authority therein. This provision clothes the Government company with power to take delivery of the property of Burman-Shell from every person in whose possession, custody or control such property may be. There are other powers akin to this one in S. 12. The provision for penalties if any person meddles with the property of the second respondent emphasises the special character of this Government company. Equally unique is the protection conferred by S. 16 on the Government company and its officers and employees ‘for anything which is, in good faith, done or intended to be done under this Act. Such an immunity does not attach to employees of companies simpliciter even if they happen to be Government companies. In the same strain is the indeminity conferred by S. 18. This review, though skeletal, is sufficient strikingly to bring home the point that the corporation we are concerned with is more than a mere Government company. Whatever its character antecedent to the Act, the provisions we have adverted to have transformed it into an instrumentality of the Central Government with a strong statutory flavour super-added and clear indicia of power to make it an ‘authority’. Although registered as a company under the Indian Companies Act, the second respondent is clearly a creature of the statute, the undertaking having vested in it by force of S. 7 of the Act. The various provisions to which our attention was drawn, an elaboration of which is not called for, emphasises the fact that the second respondent is not a mere company but much more than that and has a statutory flavour in its operations and functions, in its powers and duties, and in its personality itself, apart from being functionally and administratively under the thumb of Government. It is a limb of Government, an agency of the State, a vicacious creature of statute working on the wheels of the Acquisition Act. We do not mean to say that for purposes of Art. 309 or otherwise this Government company is State but limit our holding to Art. 12 and Part III.

58. The commonsense signification of the expression ‘other authorities under the control of the Government of India’ is plain and there is no reason to make exclusions on sophisticated grounds such as that the legal person must be a statutory corporation, must have power to make laws, must be created by and not under a statute and so on. The jurisprudence of Third World countries cannot afford the luxury against which Salmon cavilled, Salmond Jurisprudence, 10th Edn., page 51”.

21. Justice Sri Pathak, advocating caution in the approach to be made, observed in Para. 73, at page 346:

“I must confess to some hesitation in accepting the proposition that the Bharat Petroleum Corporation, Ltd., is a ‘State’ within the meaning of Art. 12 of the Constitution. But in view of the direction taken by the law in this Court since Ramana Dayaram Shetty v. International Airport Authority of India, [1981 - I L.L.N 270]. I find I must lean in favour of that conclusion. I would have welcomed a wider range of debate before us on the fundamental principles involved in the issue and on the implications flowing from the definition in the Companies Act, 1956, of a ‘Government company/but perhaps a future case may provide that”.

22. A subtle development from the statutory origin as a sure index for identifying other authorities as State within Art. 12, to a mere statutory flavour is the key note of this judgment. Next we come to Ajay Hasia case, [1981 — II L.L.N 613], a decision of the Constitution Bench surveying the decisions and development of the law on the subject and formulating the tests to decide when and how a Government owned company can be a State within Art. 12. The question was whether “the Regional Engineering College, Srinagar,” was “State” under Art. 12. Justice Sri Bhagwati, speaking on behalf of the Bench observes thus in Paras. 9, 11 and 15, at pages 621 to 623:

“The tests for determining as to when a corporation can be said to be an instrumentality or agency of Government may now be culled out from the judgment in International Airport Authority case, [1981 — I L.L.N 270] (vide supra). These tests are not conclusive or clinching, but they are merely indicative indicia which have to be used wit J care and caution, because while sties-sing the necessity of a wide meaning to be placed on the expression “other authorities”. it must be realised that it should not be stretched so far as to bring in every autonomous body which has some nexus with the Government with the sweep of the expression. A wide enlargement of the meaning must be tempered by a wise limitation. We may summarise the relevant tests gathered from the decision in International Airport Authority case (vide supra), as follows:

(1) One thing is clear that if the entire share capital of the corporation is held by Government it would go a long way towards indicating that the corporation is an instrumentality or agency of Government.

(2) Where the financial assistance of the State is so much as to meat almost the entire expenditure of the corporation, it would afford some indication of the corporation being impregnated with governmental character.

(3) If may also be a relevant factor … whether the corporation enjoys monopoly status which is the State conferred or State protected.

(4) Existence of ‘deep and pervasive State control’ may afford an indication that the corporation is a State agency or instrumentality.

(5) If the functions of the “corporation are of public importance and closely related to governmental functions, it would be a relevant factor in classifying the corporation as an instrumentality or agency of Government.

(6) Specifically, if a department of Government is transferred to a corporation, it would be a strong factor supportive of this inference of the corporation being an instrumentality or agency of Government.

If on a consideration of these relevant factors it is found that the corporation is an instrumentality or agency of Government, it would, as pointed out in the International Airport Authority case (vide supra), be an ‘authority’ and, therefore, ‘State’ within the meaning of the expression in Art. 12….

11. We may point out that it is immaterial for this purpose whether the corporation is created by a statute or under a statute. The test is whether it is an instrumentality or agency of the Government and not as to how it is created. The inquiry has to be not as to how the juristic person is born but why it has been brought into existence. The corporation may be a statutory corporation created by a statute or it may be a Government company or a company formed under the Companies Act, 1956, or it may be a society registered under the Societies Registration Act, 1860, or any other similar statute. Whatever be its genetical origin, it would be an ‘authority’ within the meaning of Art. 12 if it is an instrumentality or agency of the Government and that would have to be decided on a proper assessment of the facts in the light of the relevant factors. The concept of instrumentality or agency of the Government is not limited to a corporation created by a statute but is equally applicable to a company or society and in a given case it would have to be decided, on a consideration of the relevant factors, whether the company or society is an instrumentality or agency of the Government so as to come within the meaning of the expression ‘authority’ in Art. 12.

15. It is in the light of this discussion that we must now proceed to examine whether the society in the present case is an ‘authority’ falling within the definition of ‘State’ in Art. 12. Is it an instrumentality or agency of the Government? The answer must obviously be in the affirmative if we have regard to the Memorandum of Association and the rules of the society. The composition of the society is dominated by the representatives appointed by the Central Government and the Governments of Jammu and Kashmir, Punjab, Rajasthan and Uttar Pradesh with the approval of the Central Government. The monies required for running the college are provided entirely by the Central Government and the Government of Jammu and Kashmir and even if any other monies are to be received by the society it can be done only with the approval of the State and the Central Governments. The rules to be made by the society are also required to have the prior approval of the State and the Central Governments, and the accounts of the society have also to be submitted to both the Governments for their scrutiny and satisfaction. The society is also to comply with all such directions as may be issued by the state Government with the approval of the Central Government in respect of any matters dealt with in the report of the Reviewing Committee. The control of the State and the Central Governments is indeed so deep and pervasive that no immovable property of the society can be disposed of in any manner without the approval of both the Governments. The State and the Central Governments have even the power to appoint any other person or persons to be members of the society and any member of the society other than a member representing the State or the Central Government can be removed from the membership of the society by the State Government with the approval of the Central Government. The Board of Governors, which is in charge of general superintendence, direction and control of the affairs of society and of its income and property is also largely controlled by nominees of the State and the Central Governments. It will thus be seen that the State Government and by reason of the provision for approval, the Central Government also, have full control of the working of the society and it would not be incorrect to say that the society is merely a projection of the State and the Central Governments and to use the words of Ray, C.J in Sukhdew Sing case, [1975 — I L.L.N 366] (vide supra), the voice is that of the State and the Central Governments and the hands are also of the State and the Central Governments. We must, therefore, hold that the society is an instrumentality or the agency of the State and the Central Governments and it is an ‘authority’ within the meaning of Art. 12”.

Thus, with the aid of these pronouncements of the Supreme Court it can be concluded that an authority is a State within Art. 12 of the Constitution if it is an instrumentality or agency of the Government. To decide whether it is an instrumentality or agency of the Government due regard may be had to the following characteristic features and the facts and circumstances of each case:

(a) The entirety or a massive majority of he share capital in the hands of the Government is a penetrating index that it is an instrument or agent of the Government.

(b) ‘Deep and pervasive’ State control is an affirmative assurance that it is Government agency or instrumentality. This can be gathered from the following surrounding circumstances as well—

(i) Domination in the composition of the society or company by the representatives of the Government.

(ii) Subjection to the directions of the Government for the performance of its functions.

(iii) The concurrence or approval of the Government for making rules and regulations.

(iv) The accounts requiring scrutiny and satisfaction of the Government.

(v) The effective control of the affairs of the society/corporation by the Government.

(c) Substantial financial assistance by Government meeting practically the entire expenditure of the company gives an added colour and flavour of governmental agency.

(d) The public importance of the functions, in its nature allied to governmental activity, is also yet another vital indication.

(e) Monopoly status of the corporation either conferred or protected by the State.

(f) Statutory origin of the corporation/company may be the hall mark of ‘State’ but the absence of this birth mark need not exclude it from the expensive area of ‘State’ within Art. 12.

Applying these tests, let us examine whether, F.A.C.T is a State.

23. 99.4 per cent of the shares are owned by the Government, Central or State. The President appoints the Chairman and Managing Director. The President shall have the right to nominate Directors not exceeding three. The Government of Kerala shall have the right to nominate one Director. Election to the remaining places on the Board is in fact only a nomination by the Government, the holder of 99.4 per cent shares. The entire Director body is thus practically nominees of the Government. The President can issue

“such directives as he may consider necessary in regard to the conduct of the business and affairs of the company”.

The Directors are bound to give immediate effect to the directives so issued. The prior approval of the President is required—

(a) to sell, lease or dispose of otherwise the whole or substantially the whole of the undertaking;

(b) for appointment to certain high level posts;

(c) in respect of some vital programmes of capital expenditure;

(d) for formation of subsidiary company, etc; and

(e) for winding up of the company.

The auditor is appointed by the Central Government on the advice of the Comptroller and Auditor-General of India who has also the power to direct the manner in which the company's assets shall be audited and also to conduct a supplementary or test audit. This is thus a “Government of India enterprise” as rightly styled by the company itself, controlled and managed by the Government and thus a State within Art. 12 of the Constitution.

24. Sri K.A Nayar, the counsel for the F.A.C.T, then contended t at the Memorandum and Articles of Association can alone be looked into to decide about the character and status of the company. The articles in this case do not say that the shares can be held only by the Government or specify the number of shares to be held by the Government. He, therefore, contends that the fact that 99.4 per cent shares are held by She Government has to be ignored. It cannot be said that the Memorandum and Articles of Association can alone be the basis for deciding the question whether corporation/company is a State or not. They furnish the source and extent of power that can be exercised and the actual facts and figures regarding the functioning of the company within the framework of the articles provide the key to the determination of the question whether the company is an instrumentality or agency. The dividing line between a Government owned company which is a “State” and a similar company which is not a State is thus very thin; but substantial and real. The question will have to be considered in each case with reference to all the facts, and circumstances.

II. Whether F.A.C.T as “State” is subject to the writ jurisdiction of this Court except for the purposes of alleged violation of fundamental rights:

25. The answer to this question is Simple as it is completely covered by the decision in Ajay Hasia case, [1981 — II L.L.N 613], (vide supra), w ere it was held thus in Para. 12, it page 622:

“It is also necessary to add that merely because a juristice entity may be an ‘authority’ and therefore, ‘state’ within the meaning of Art. 12. it may not be elevated to the position of ‘State’ for the purpose of Arts. 309 to 311 which find a place in Part XIV, The definition of ‘State’ in Art. 12 which includes an ‘authority within the territory of India or under the control of the Government of India is not limited in its application only to Part III and by virtue of Art. 36 Part IV, it does not extend to the other provisions of the Constitution and hence a juristic entity which may be ‘state’ for the purpose of Parts III and IV would not be so for the purpose of Part XV or any other provision of the Constitution. That is why the decisions of this Court in Aggarwal (SL) v. Hindustan Steel Ltd., [(1970) 1 SCC 177 : A.I.R 1970 S.C 1150] and other cases involving the applicability of Art. 311 have no relevance to the issue before us”.

And the decision of the Full Bench of this Court in Canara Bank v. Appellate Authority under Kerala Shops and Establishments Act, [1981 - II L.L.N 201], in Para. 3, at pages 203 and 204:

“The veil of the corporate personality of these new banks is not allowed to be pierced except to the extent of finding out the nature of the action taken by the State through them and to see whether that action violates Part III of the Constitution. In other words, in the matter of finding out whether the State action violates any of the fundamental rights the agency or instrumentality through which the State activity is carried on, is identified with the State. To that extent alone the veil to the corporate personality is permitted the be pierced and this is because of the definition of the expresion ‘State’ in Art. 12 of the Constitution. In all other respects the separate corporate personality of the State remains intact. This is clear from the recent decisions of the Supreme Court referred to above and also the decision in Ajay Hasia v. Khalid Mujib, [1981 — II L.L.N 613] (vide supra)”.

26. Even though, therefore, F.A.C.T is a State, a writ, will issue only if there is an infringement of any of the fundamental rights.

III. Is there any isolation of any fundamental right in this case?

27. The petitioner was appointed on contract basis. She was appointed for a fixed term and her service was terminable with one month's notice on either side. In his case, she was allowed to serve for the full contractual period. Exhibit P-4, the impugned order, only alerted her that her services were not required “beyond the expiry date”. Even without exhibit P-4, her service would have ended on the terms of the appointment order itself. In this view there is no violation of any fundamental right of the petitioner.

28. The petitioner's counsel, however, contends that persons appointed on contract basis, persons similarly situate, were given extension of their term and therefore, the non-extension of service to the petitioner was arbitrary, attracting Arts 14 and 16 of the Constitution. He also presses into service Airport Authority case, [1981-I L.L.N 270] (vide supra). There is no complaint that at the threshold of the contract, when the contract was made, there was any arbitrary deal. The post was advertised, applications were called for and then only appointments made. It was made known to all the candidates that the contract was only for a particular period. With open eyes, the petitioner applied. She knew her services would be terminated at the end of this contractual period. Her services were terminated by enforcing the terms of her contract. An enforcement of the clauses in her contract of service cannot spell arbitrariness to attract Art. 14 when the management in other cases renewed their contracts. The petitioner cannot compel the management to retain her in service beyond the duration of the contract. Her termination does not violate any rule or regulation made by the management. If she has a case that there was any violation of the provisions of the Industrial Disputes Act, she has a remedy under that Act. Her remedy is not under Art. 226 of the Constitution.

29. Reserving, therefore, the rights, if any, available to the petitioner, under the Industrial Disputes Act, this original petition is dismissed. No costs.