Sukhdev Singh v. Bhagat Ram

A. N. Ray, C. J

( 1 ) THERE are two questions for consideration in these appeals. First, whether an

order for removal from service contrary to regulations framed under the Oil and

Natural Gas Commission Act, 1959 ; the Industrial Finance Corporation Act. 1943;

and the Life Insurance Corporation Act. 1956 would enable the employees to a

declaration against the statutory corporation of continuance in service or would only

give rise to a claim for damages. Second, whether an employee of statutory

corporation is entitled to claim protection of Articles 14 and 16 against the

Corporation. In short the question is whether these statutory corporations are

authorities within the meaning of Article 12.

( 2 ) THE statutes for consideration are the Oil and Natural Gas Commission Act,

1959 ; the Industrial Finance Corporation Act, 1948 ; and the Life Insurance

Corporation Act 1956. The question which really falls for decision is whether

regulations framed under these statues have the force of law.

( 3 ) THE Oil and Natural Gas Commission Act, 1959 hereinafter referred to as the

1959 Act established the Commission a body corporate having perpetual succession

and a common seal. The composition of the Commission is the Chairman, and not

less than two, and not more than eight, other members appointed by the Central

Government. One of the members shall be a whole-time. Final Member in charge of

the financial matters relating to the Commission. The Central Government may if it

thinks fit, appoint one of the members as Vice-Chairman of the Commission. Under

Section 12 of the 1959 Act the Commission may, for the purpose of performing its

powers, appoint such number of employees as it may consider necessary. The

function and the terms and conditions of service of such employees shall be such as

may be provided by regulations made under the 1959 Act. There was an existing

organisation set up in pursuance. of a resolution of the Government of India No.

22/29/55-C and G dated 14 August, 1956. Every person employed by the said

existing organisation before the establishment of the Commission became an

employee of the Corporation in accordance with the provisions contained in Section

13 of the 1959 Act.

( 4 ) SECTION 31 and 32 of the 1959 Act are important. Section 31 states that the

Central Government may, by notification in the Official Gazette, make rules to give

effect to the provisions of the Act. The rules provide inter aviator the term of office

of, and the manner of filling casual vacancies among tie members, and their

conditions of service : the disqualifications for membership of the Commission and

the procedure to be followed in removing a member who is or becomes subject to

any disqualification ; the procedure to be followed in the discharge of functions by

members ; the condition subject to which contract may be entered into by or on

behalf of the Commission and some other matters. Every rule made under Section

31 of the 1959 Act shall be laid as soon as may be before each House of Parliament

as mentioned in the section. Both Houses may agree to or annul the rule 01 modify

( 5 ) UNDER Section 32 of the 1959 Act the Commission may, with the previous

approval of the Central Government, by notification in the Official Gazette, make

regulations not in consistent with the Act and the rules made there under, for

enabling it to discharge it function under the Act. The regulations pro vide inter alia

for the terms and conditions of appointment and service and the scales of pa of

employees of the Commission ; the time an place of meetings of the procedure to

be follow ed in regard to the transaction of business at such meetings ; the

maintenance of minutes of meetings of the Commission and the transmission of

copies thereof to the Central Government ; the persons by whom, and the manner in

which payments, deposits and investments may be made on behalf of the

Commission : the custody of moneys required and the ,. maintenance of accounts.

The Central Government may amend, vary or rescind any regulation which it has

approved, and thereupon t regulation shall have effect accordingly I without

prejudice to the exercise of the power of the Commission under sub-section (1) of

Section 32.

( 6 ) THE Life Insurance Corporation Act, 1956 hereinafter referred to as the 1956

Act established tie corporation under section 3 of the Act. Under Section 11 of the

1956 Act existing employees of an insurer whose controlled business was

transferred to and vested in the Corporation and who were employed by the insurer

wholly or mainly in connection with his controlled business immediately before the

appointed day became from the appointed day employees of the Corporation.

Section 11 of the 1956 Act further states that the employees of the Corporation

would told office upon the same terms and with the same rights and' duties as they

would have held on the appointed day. These employees were further to continue

under the 1956 Act unless and until their employment was terminated or until the

remuneration, terms and conditions were duly altered by the Corporation.

( 7 ) THE two important sections of 1956 Act are Sections 48 and 49. Section 48

states that the Central Government may, by notification in the Official Gazette, make

rules to carry out the purposes of this Act. The rules inter alia provide for the term

of office and the conditions of service of members ; the jurisdiction of the Tribunals

constituted under Section 17 of the Act, the manner in which and the persons to

whom, any compensation under this Act may be paid ; the conditions subject to

which the Corporation may appoint employees. All rules made shall be laid as stated

in the section before both Houses of Parliament and shall be subject to such

modification as Parliament may- make.

( 8 ) SECTION 49 of the 1956 Act states that the Corporation may, with the previous

approval of the Central Government, by notification on in the Gazette of India, make

regulations - not inconsistent with the Act and the rules. 1 made there under to

provide for all matters for s which provision is expedient for the purpose of " giving

effect to the provisions of this Act. The - regulations may provide inter alia for the

powers and functions of the Corporation which may be delegated to the Zonal

Managers ; the - method of recruitment of employees and agents. of the

Corporation and the terms and conditions of service of such employees or agents ; -

s the terms and conditions of service of persons who have become employees of the

Corporation under Section 11 of the Act; the number, term of office and conditions

of service of members of Boards constituted under Sec. 22 of the Act; the manner in

which the Fund of the Corporation shall be maintained ; the form and manner in

which policies may be issued and contracts binding on the Corporation may be

executed.

( 9 ) THE Industrial Finance Corporation Act, 1948 hereinafter referred to as the

1948 Act establishes the Corporation under section 3 of. the act. The

superintendence of the business of the Corporation shall be entrusted to a Board of

Directors. Section 42 of the 1948 Act enacts that the Central Government may make

rules in consultation with the Development Bank not inconsistent with the provisions

of this Act and to give effect to the provisions of the Act and where there is any

inconsistency with 'rules and regulations the rules shall prevail. The rules under the

Act are to be laid before each House of Parliament in the same manner as in the Oil

and Natural Gas Commission Act. Section 43 of the 1948 Act enacts that the Board

may with the previous approval of the Development Bank make regulations not

inconsistent with the Act and the rules made there under to provide for all matters

for which provision is necessary or expedient for the purpose of giving effect to the

provisions of this Act. The Development Bank means the 'industrial Development

Bank established under the Industrial Development Act, 1964. The shares of the

Central Government in the Corporation shall stand transferred to the Development

Bank when the Central Government shall so notify. The regulation provide inter alia

for the holding and conduct of elections under this Act including the final decision of

doubts or disputes regarding the validity of this election; the manner in which and

the conditions subject to which this shares of the Corporation may be held and

transferal; the manner in which. general meetings shall be convened, the procedure

to b2 followed thereat; this duties and conduct, salaries, allowances and conditions

of ;service of officers and other employees and of advisers and agents of the

Corporation.

( 10 ) THE contentions on behalf of the State are these. Regulations are framed

under powers given by the statute affecting matters of internal management.

Regulations do not have a statutory binding character. Terms and conditions of

employment as laid down in the regulations are not a matter of statutory

obligations. Regulations are binding not as law but as contract. Regulations have no

force of law. Regulations provide the term? and conditions of employment and

thereafter the employment of each person is contractual.

( 11 ) THE contentions on behalf of the employees are these. Regulations are made

under the statute. The origin and source of the power to make regulations is

statutory. Regulations are self binding in character. Regulations have the force of

law inasmuch as the statutory authorities have no right to make any departure from

the regulations.

( 12 ) RULES, Regulations, Schemes. By-laws, orders made under statutory powers

are all comprised in delegated legislation. The need for delegated legislation is that

statutory rules are framed with care and minuteness when the statutory authority

making the rules is after the coming into force of the Act in a better position to

adapt the Act to special circumstances. Delegated legislation permits utilization of

experience and consultation with interests affected by the practical operation of

statutes.

( 13 ) IN England the Statutory Instruments (Confirmatory Powers) Orders in

Council or other instruments which are described as orders. This Rules Publication

Act 1893 in England defines "rule making authority" to include every authority

authorised to make any statutory rules. Statutory rules are defined there as rules,

regulations or by-laws made under any Act of Parliamsnt, in England. Orders are

excluded from the statutory definition of statutory rules as being administrative. In

England regulation is the term most popularly understood and the one favoured by

the Committee on Ministers' Powers, who suggested that regulations should be used

for substantive law and rules for procedural law, while orders should be reserved to

describe the exercise of executive power or the taking of a judicial or quasi judicial

decision (See Crates on Statute Law, 7th Ed. at P. 303 ). The validity of statutory

instruments is generally a question of vires,. e. , whether or not the enabling power

has been exceeded or otherwise wrongfully exercised.

( 14 ) SUBORDINATE legislation is made by a person or body by virtue of the

powers conferred by a statute. By-laws are made in the main Toy local authorities of

similar bodies or by statutory or other undertakings for regulating the conduct of

persons within their areas or resorting to their undertakings. Regulations may -

determine the class of cases in which the exercise of the statutory power by any

such authority constitutes the making of statutory :rule.

( 15 ) THE words "rules" and "regulations". are used in an Act to limit the powers of

statutory bodies are derived, controlled and restricted by the statutes which create

them and the rules and regulations framed there under. Any action of such bodies in

excess of their powers or in violation of the restrictions placed on their powers is

ultra vires. The reason is that it goes to the root of the power of such corporations

and the declaration of nullity is the only relief that is granted to the aggrieved party.

( 16 ) IN England subordinate legislation has, if validly made, the full force and

effect of a statute, but it differs from a statute in that its validity whether as

respects form or substance is normally open to challenge in the Courts.

( 17 ) SUBORDINATE legislation has, if validly made, the full force and effect of a

statute. That is so whether or not the statute under which it is made provides

expressly that it is to have effect as if enacted therein. If an instrument made in the

exercise of delegated powers directs or forbids the doing of a particular thing, the

result of a breach thereof is, in the absence of provision to the contrary, the same

as if the command or prohibition had been contained in the enabling statute itself

Similarly, if such an instrument authorises or requires -the doing of any act, the

principles to be applied in determining whether a person injured by the act has any

right of action in respect of the injury are not different from those applicable

whether damage results from an act done under the direct authority of a statute.

Re. Langlois and Biden, (1891) 1 QB 349 and Kruse v. Joshnson, (1898) 2 QB 91.

( 18 ) THE authority of a statutory body or 'public administrative body or agency

ordinarily includes the power to make or adopt rules and regulations with respect to

matters within the province of such body provided such rules and regulations are

not inconsistent with the relevant law. In America a "public agency" has been

defined as an agency endowed with governmental or public functions. It has been

held that the authority to act with the sanction of Government behind it determines

whether or not a governmental agency exists. The rules and regulations comprise

those actions of the statutory or public bodies in which the legislative element

predominates. These statutory bodies cannot use the power to make rules and

regulations to enlarge the powers beyond the scope intended by the legislature.

Rules and regulations made by reason of the specific power conferred by the statute

to make rules and regulations establish the pattern of conduct to be followed. Rules

are duly made relative to the subject matter on which the statutory bodies act

subordinate to the terms of the statute under which they are promulgated.

Regulations are in aid of the enforcement of the provisions of the statute. Rules and

regulations have been distinguished from orders or determination of statutory

bodies in the sense that the orders or determination are actions in which there is

more of the judicial function and which deal with a particular present situation.

Rules and regulations on the other hand are actions in which the legislative element

predominates.

( 19 ) THE process of legislation by departmental regulations saves time and is

intended to deal with local variations and the power to legislate by statutory

instrument in the form of rules and regulations is conferred by Parliament and can

be taken away by Parliament. The legislative function is the making of rules. Some

Acts of Parliament decide particular issues and do not lay down general rules.

( 20 ) THE justification for delegated legislation is three fold. First, there is pressure

on parliamentary time. Second, the technicality of subject-matter necessitates prior

consultation and expert advice on interests concerned. Third, the need for flexibility

is established because it is not possible to foresee every administrative difficulty that

may arise to make adjustment that may be called for after the statute has be- gun

to operate. Delegated legislation fills those needs.

( 21 ) THE characteristic of law is the manner and procedure adopted in many forms

of subordinate legislation. The authority making rules and regulation must specify

the source of the rule and regulation making authority. To illustrate, rules are

always framed in exercise of the specific power conferred by the statute to make

rules. Similarly, regulations are framed in exercise of specific power conferred by the

statute to make regulations. The essence of law is that it is made by the law-makers

in exercise of specific authority. The vires of law is capable of being challenged if the

power is absent or has been exceeded by the authority making rules or regulations.

( 22 ) ANOTHER characteristic of law is its content. Law is a rule of general conduct

while administrative instruction relates to particular person. This may be illustrated

with reference to regulations under the Acts forming the subject matter of these

appeals. The Life Insurance Corporation Act as well as the Industrial Finance

Corporation Act confer power on the Corporation to make regulations as to the

method of recruitment of employees and the terms and conditions of service of such

employees or agents. The Oil and Natural Gas Commission Act under Section 12

states that the functions and terms and conditions of service of employees shall be

such as may be provided by regulations under the Act. Regulations under the 1959

Act provide inter alia the terms and conditions of appointment and scales of pay of

the employees of the Commission. The regulations containing the terms and

conditions of appointment are imperative. The administrative instruction is the

entering into contract with a particular person but the form and content of the

contract is prescriptive and statutory.

( 23 ) THE noticeable feature is that these statutory bodies have no free hand in

framing the conditions and terms of service of their employees. These statutory

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

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

Regulations prescribe the terms of appointment, conditions of service and procedure

for dismissing employees. These regulations in the statutes are described as

"statute" "fetters on freedom of contract". The Oil and Natural Gas Commission Act

in Section 12 specifically enacts that the terms and conditions of the employees may

be such as may be provided by regulations. There is a legal compulsion on the

Commission to comply with the regulations. Any breach of such compliance would

be a breach of the regulations which are statutory provisions. In other statutes

under consideration, viz. , the Life Insurance Corporation Act and the Industrial

Finance Corporation Act though there is no specific provision comparable to Section

12 of the 1959 Act the terms and conditions of employment and conditions of

service are provided for by regulations. These regulations are not only binding on

the authorities but also on the public.

( 24 ) BROADLY stated, the distinction between rules and regulations on the one

hand and administrative instructions on the other is that rules and regulations can

be made only after reciting the source of power whereas administrative instructions

are not issued after reciting source of power. Second, the executive power of a

State is not authorised to frame rules. under Article 162. This Court held that the

Public Works Department Code was not a subordinate legislation (See G. Fernandez

v. State of Mysore, (1967) 3 SCR 636= (AIR. 1967 SC 1753 ). The rules under

Article 309 on. the other hand constitute not only the constitutional rights of

relationship between the State- and the Government servants but also establish that

there must be specific power to frame rules. and regulations.

( 25 ) THE Additional Solicitor General submitted that regulations could not have the

force of law because these regulations are similar to regulations framed by a

company incorporated under the Companies Act. The fallacy lies in equating rules

and regulations of a company with ru'es and regulations framed by a statutory body.

A company makes rules and regulations in accordance with the provisions of the

Companies Act. A statutory body on the other hand makes rules and regulations by

and under the powers conferred by the Statutes creating such bodies. Regulationsin

Table-A of the Companies Act are to be adopted by a company. Such adoption is a

statutory requirement. A company cannot come into existence unless it is

incorporated in accordance with the provisions of the companies act. A company

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

provision in the Registration Act requires registration of instruments. The provisions

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

with statutory provisions will render a document to be of no effect. The source of

the power for making rules and regulations in the case of Corporation created by a

statute is the statute itself. A company incorporated under the Companies Act is not

created by the Companies Act but comes into existence in accordance with the

provisions of the Act. It is not a statutory body because it is not created in

accordance with the provisions of the statute.

( 26 ) THE character of regulations has 'been decided by this Court in several

decisions. One group of decisions consists of S. R. Tewari v. District Board Agra,

(1964) 3 SCR 55 == AIR 1964 SC 1680); Life Insurance Corporation of India v. Sunil

Kumar Mukherjee (1964) 5 SCR 528= (AIR 1964 SC 847); Calcutta Dock Labour

Board v. Jaffar Imam (1965) 3 SCR 453 = (AIR 1966 SC 282); Mafatlal Narandas

Barot v. Divisional Controller S. T. Mehsana (1966) 3 SCR 40 = (AIR 1966 SC 1364);

The Sirsi Municipality v, Cecelia Kom Francis (1973) 1 SCC 409 == (AIR 1973 SC

855); U. P. State Warehousing Corporation v. C. K. Tyagi, 1970 2 SCR 250 = (AIR

1970 SC 1244) and Indian Airlines Corporation v. Sukhdeo Rai (1971) 2 SCC 192 =

(AIR 1971 SC 1828 ).

( 27 ) IN Narandas Barot's case, (1966) 3 SCR 40= (AIR 1966 SC 1364) this Court

held that the termination of services by Corporation created by a statute without

complying with the requirements of the regulations framed by the Corporation under

the Statute governing conditions of the employees of the Corporation was bad. The

reason is that the termination contravened the provisions contained in the

regulations.

( 28 ) IN Tewari's case. (1964) 3 SCR 55 = AIR 1964 SC 1680) the termination of

the employment of Tewari was challenged on the ground that the resolution of the

District Board terminating the services was invalid. The High Court dismissed

Tewari's application under Art. 226 in limine. The Court held that the Courts are

invested with the power to declare invalid the act of a statutory body, if by doing -

the act the body has acted in breach of the mandatory obligation imposed by

statute. The District Boards Act conferred power upon the State Government by S.

172 to make rules under the Act. The District Board relied on a notification headed

"regulation regarding dismissal, removal or reduction of officers and servants of

District Boards". It was treated -as a rule inasmuch as Section 173 (2) of the District

Boards Act which conferred power to frame regulations did not confer any power to

frame rules regulating the exercise of the power of dismissal of offcers or servants

of the Board. This Court held that under the rules dismissal, removal or reduction of

an officer or servant might be effected only after affording him a reasonable

opportunity of showing cause against the action proposed to be taken in regard to

him. In Tewari's case this Court also said that the order of dismissal involving

punishment must be exercised consistently with the rules or regulations framed

under the Statute.

29 ) IN the Life Insurance Corporation case, (1964) 5 SCR 528 = (AIR 1964 SC

847) there were regulations framed under the act. clause 4 (3) of the regulations

prescribed that in judging a Field Officer's work, the Corporation shall observe the

principles contained in the circular issued by the Managing Director on 2nd Dec,

1957. Paragraph 4 (h) of the circular which became an integral part of the

regulations inter alia stated that where the Committee of its own decided that the

poor performance of a Field Officer was not due to circumstances beyond his control

or that he had made no efforts and not shown inclination or willingness to work the

services of such Field Officer would be terminated. There was also in existence a

Field Officer's order which was issued in exercise of the powers conferred on the

Central Government by Section 11 (2) of the Act, Clause 10 of the order provided

for penalties and termination of service. The contention of the employee was that

the termination of service could be brought about only under clause 10 of the Order.

This Court held that the regulations to be framed by the Corporation were not to be

inconsistent either with the Act or with orders made under Section 11 (2) of the Act.

The circular which was a part of the regulations under Cl. 4 (3) thereof and clause

10 of the order were reconciled by this Court by stating that paragraph 4 (h) of the

circular could be availed of to terminate the services of the officers but such

termination was to be effected in the manner prescribed by the clause 13. The

termination was not in accordance with either clause 10 (a) or (b) of the order.

Therefore, the termination was invalid. The Life Insurance case (supra) recognised

regulations framed under the Act to have the force of law.

( 30 ) IN the Indian Airlines Corporation case, (1971) 2 SCC 192= (AIR 1971 SC

1828) this Court said that there being no obligation or restriction in the Act or the

rules subject to which only the power to terminate the employment could be

exercised the employees could not contend that he was entitled to a declaration that

the termination of his employment was null and void. In the Indian Airlines

Corporation case reliance was placed upon the decision of Kruse v. Johnson (1898)

2 QB 91 for ths view that not all by-laws have the force of law. This Court regarded

regulations as the same thing as by-laws. In (1898) 2 QB 91. the Court was simply

describing the effect that the county by-laws have on the public. The obervations of

the Court in (1898) 2 QB 91 that the by-law "has the force of law within the sphere

of its legitimate operation" are not qualified by the words that it is so "only when

affecting the public. . . . . . ordering fomething to be done or not to be done and

accompanied by some sanction or penalty for its non-observance. " In this view a

regulation is not an agreement or contract but a law binding the corporation, its

officers, servants and the members of the public who come within the sphere of its

operations. The doctrine of ultra vires as applied to statutes, rules and orders should

equally apply to the regulations and any other subordinate legislation. The

regulations made under power conferred by the statute are subordinate legislation

and have the force and effect, if validly made, as the Act passed by competent

legislature.

( 31 ) IN U. P. Warehousing Corporation and Indian Airlines Corporation cases,

(1970) 2 SCR 250 = (AIR 1970 SC 1244) and (1971) 2 SCR 192 = (AIR 1971 SC

1828) the terms of the regulations were treated as terms and conditions of

relationship between the Corporation and its employees. That does not lead to the

conclusion that they are of the same nature and quality as the terms and conditions

laid down in the contract of employment. Those terms and conditions not being

contractual are imposed by one kind of subordinate legislation, viz. , regulations

made in exercise of the power conferred by the statute which constituted that

Corporation. Terms of the regulations are not terms of contract. In the Indian

Airlines Corporation case under Section 45 of the Air Corporations Act, 1953, the

Corporation had the power to make regulations not inconsistent with the Act and the

rules made by the Central Government thereunder. The Corporation had no power

to alter or modify or rescind the provisions of these regulations at its discretion,

which it could do in respect of the terms | of contract that it may wish to enter with

its : employees independent of these regulations. So far as the terms of the

regulations are concerned, the actions of the Corporation are controlled by (he

Central Government. The decisions of this Court in U. P. Warehousing Corporation

and Indian Airlines Corporation are in direct conflict with the decision of this Court in

Narandas Barot's case, (1966) 3 SCR 40 = (AIR 1966 SC 1364) which was decided

by the Constitution Bench.

( 32 ) IN (1973) 1 SCC 409 == (AIR 1973- SC 855) the dismissal was held to be

contrary to Rule 143 framed under Section 46 of the Bombay District Municipalities

Act. This Court held that in regard to the master-servant cases in the employment of

the State or of other public or local authorities or bodies created under statute, the

courts have decided in appropriaie cases the dismissal to be invalid , if the dismissal

is contrary to rules of natural justice or if the dismissal is in violation of the '

provisions of the statute. Where a State or a public authority dismisses an employee

in violation of the mandatory procedural requirements on grounds which are not

sanctioned or supported by statute the courts may exercise jurisdiction to declare

the act of dismissal to be a nullity. The ratio is that the rules or the regulations are

binding on the authority.

( 33 ) THERE is no substantial difference be tween a rule and a regulation inasmuch

as both are subordinate legislation under powers conferred by the statute. A

regulation framed under a statute applies uniform treatment to everyone or to all

members of same group or class. The Oil and Natural Gas Commission, the Life

Insurance Corporation and Industrial Finance Corporation are all required by the

statute to frame regulations inter alia for the purpose of the duties and conduct and

conditions of service of officers and other employees. These regulations impose

obligation on the statutory authorities. The statutory authorities cannot deviate from

the conditions of service. Any deviation will be enforced by legal sanction of

declaration by courts to invalidate actions in violation of rules and regulations. . the

existence of rules and regulations under statute is to ensure regular conduct with a

distinctive attitude to that conduct as a standard. The statutory regulations in the

cases under consideration give the employees a statutory status and impose

restriction on the employer and the employee with no option to vary the conditions.

An ordinary individual in a case of roaster and servant contractual relationship

enforces breach of contractual terms. The remedy in such contractual retionship

of master and servant is damages because personal service is rot capable of

enforcement. In cases of statutory bodies there is no personal element whatsoever

because of the impersonal character of statutory bodies. In tie case of statute

bodies it has been said that the element of public employment or service and the

support of statue require observance of rules and regulations. Failure to observe

requirements by statutory bodies is enforced by courts by declaring dismissal in

violation of rules and regulations to be void. This Court has repeatedly observed that

whenever a man's rights ere affected by decision taken under statutory powers, the

Court would presume the existence of a duty to observe the rules of natural justice

and compliance with rules and regulations imposed by statute.

( 34 ) ON behalf of the State it is contended that these Corporations cannot be said

to be "other authority" contemplated in Article 12 for two principal reasons. First,

one of the attributes of a State is making laws. The State exercises governmental

functions and the executive power of the State is co extensive with the legislative

power of the State. Second, authority as contemplated in Article 12 means a body of

persons established by statute who are entitled as such body to command

obedience and enforce directions issued by them on pain of penalty for violation. On

these grounds it was said that these corporations cannot make laws like a Stale and

cannot enforce directions.

( 35 ) THE State undertakes commercial functions in combination with governmental

functions in a welfare State. Governmental function must be authoritative. It must

be able to impose decision by or under law with authority. The element of authority

is of a binding character. The rules and regulations are authoritative because these

rules and regulations direct and control not only the exercise of powers by the

Corporations but also alt; persons who deal with these corporations.

( 36 ) THIS Court in Rajasthan State Electricity Board, Jaipur v. Mchan Lal (1967) 3

SCR 377 == (AIR 1967 SC 1857) said that an "authority" is a public administrative

agency or corporation having quasi govern rental powers and authorised to

administer a revenue-producing public enterprise. The expression "other authorities"

in Article 12 has been held by this; Ccurt in ihe Rajasthan Electricity Board case to

be wide enough to include within it every authority created by a statute and

functioning within the territory of Irdia, or under the- control of the Government of

India. This: Court further said referring to earlier decisions that the expression

"other authorities" in Article 12 will include all constitutional or statutory authorities

on whom powers are conferred by law. The State itself is envisaged' under Article

298 as having the right to carry on trade and business. The State as defined in

Article 12 is comprehended to include bodies created for t e purpose of promoting

economic interest of the people. The circumstance that the statutory body is

required to carry on some activities of the nature of trade or commerce does not

indicate that the Board must be excluded from the scope of the word "state". The

Electricity Supply Act showed that the Board" had power to give directions, the

disobedience of which is punishable as a criminal offence. The power to issue

directions and to enforce - compliance is an important aspect.

( 37 ) THE concurring judgment in the Rajasthan Electricity Board case, (1967) 3

SCR 377" = (AIR 1967 SC (1857) said that the Board' was invested by statute with

extensive powers. of control over electricity undertakings. The power of the Board to

make rules and regulations and to administer the Act was said to be- in substance

the sovereign power of the State- delegated to the Board.

( 38 ) IN the British Broadcasting Corporation' v. Johns (Inspector of Taxes) (1965)

1 Ch. 32 ). it was said that persons who are created to carry out governmental

purposes enjoy immunity like Crown servants. Government purposes include the

traditional provinces of Government as well as non-traditional provinces of

Government if the Crown has constitutionally asserted that they are to be within the

province of government. The British Broadcasting Corporation was held not to be

within the province of government because broadcasting was not asserted by the

government to be within the province of government. The Wireless Telegraphy Act

provided for regulation of wireless telegraphy by a system of liceness. The Court

gave two reasons as to why the Broadcasting Corporation was not within the

province of the government. If the Broadcasting Corporation was exercising

functions required and 'created for the purpose of government it is difficult to see

why a licence was required to be. issued to it. Again, it is difficult to understand why

in the event of an emergency powers should be given to the Postmaster-General to

direct that the Broadcasting stations of the Corporation should be deemed to be in

possession of Her Majesty if it be the fact that such stations axe already used for

purposes of exercising functions required and created for purposes of the

Government.

( 39 ) A public authority is a body which has public or statutory duties to perform

and which performs those duties and carries out its transactions for the benefit of

the public and not for private profit. Such an authority is not precluded from making

a profit for the public benefit (See Halsbury's Laws of England 3rd. Ed. Vol. 30

paragraph 1317 at p. 682 ).

( 40 ) THE Oil-fields (Regulation and Deve- 'lopment) Act, 1948 defines "oilfield" as

any area where any operation for the purpose of obtaining natural gas and

petroleum, crude oil, refined oil, partially refined oil and any of the products of

petroleum in a liquid or solid state, ,is to be or is being carried on. S. 4 of the said

1948 Act states that no mining lease shall be.-granted after the commencement of

the Act otherwise than in accordance with the rules made under the Act. Section 5

of the said 1948 Act confers power on the Central Government to make rules for

regulating grant of mining leases or prohibiting grant of leases. Section 6 of the said

Act confers power on the Central Government to make rules for the conservation

and development of mineral oils. Mining gas includes natural gas and petroleum.

Section 9 of the said 1948 Act states that any rule made. under any of the

provisions of the Act may. provide that any contravention thereof shall bepunishable

with imprisonment which may extend to six months or with fine which may extend

to one thousand rupees or with both. The Petroleum Concession Rules, 1949 say

that the Central Government grants approval for searching, drilling and producing

petroleum and licences for exploring and prospecting. The Oil and Natural Gas

Commission is given merely the duty to perform the leases.

( 41 ) THE 1959 Act speaks in Section 14 of the functions of the Commission and in

Section 15 of the powers of the Commission. The functions of the Commission are to

plan, promote, organise and implement programmes for the development of

petroleum resources and the production and sale of petroleum and petroleum

products produced by it and to perform such functions as the Central Government

may, from time to time, assign to the Commission. The powers of the Commission

are such as may be necessary and expedient for the purpose of carrying out the

functions under the Act. The Government acquires land for the Commission. The

acquisition is for public purpose. The Commission extracts petroleum from the land.

Entry No. 53 in list I of the Seventh Schedule speaks of regulation and development

of oilfields and mineral oil resources; petroleum and petroleum products: other

liquids and substances declared by Parliament by law to be dangerously

inflammable. Entry No. 54 in list I speaks of regulation of mines and mineral

development to the extent to which such regulation and development under the

control of the Union is ' declared by Parliament by law to be expedient in the public

interest.

( 42 ) SECTION 23 of the 1959 Act says that the Oil and Natural Gas Commission

shall furnish to the Central Government returns and statements and particulars in

regard to proposed or existing programme for the development of petroleum

resources and the production and sale of petroleum and petroleum products

produced by the Commission as the Central Government may require. Section 24 of

the 1959 Act speaks of compulsory acquisition of land by the Commission. Section

25 of the 1959 Act confers power on any employee of the Commission authorised by

it to enter upon any land or premises and there do such things as may be

reasonably necessary for the purpose of lawfully carrying out any of its works or to

make survey, examination or investigation pre liminary or incidental to the exercise

of powers or the performance of functions by the Commission under the Act. The

employees of the Commission are deemed by Section 27 of the 1959 Act to public

servants under Section 21 of the Indian Penal Code.

( 43 ) THE Oil and Natural Gas Commission Act, 1959 is an Act to provide for the

establishment of a Commission for the development of petroleum resources and the

production and sale of petroleum and petroleum products produced by it and for

matters connected therewith. Article 298 states that the executive power of the

Union and of each State shall extend to the carrying on of any trade or business and

to the acquisition, holding and disposal of property and the making of contracts.

Under Article 73 subject to the provisions of the Constitution, the executive power of

the Union shall extend to the matters with respect to which Parliament has power to

make laws; and to the exercise of such rights, authority and jurisdiction as are

exercisable by the Government of India by virtue of any treaty or agreement. The

Union is competent, to carry on trade and business in mines and mineral resources.

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

The Oil and Natural Gas Commission is established for the development of

petroleum resources and the production and sale of petroleum and petroleum

products. The exploitation of the resources is by the Union through the agency of

the statutory Commission- The members of the Commission are appointed by the

Central Government. If they want to resign, resignation has to be sent to the Central

Government. Termination of appointment of members is by the Central Government.

The powers and functions of the Commission are those assigned by the statute and

such functions as the Central Government may assign. No industry which will use

any of the gases produced by the Commission as a raw material shall be set up by

the Commission without the previous approval of the Central Government. The

capital of the Commission is what has already been incurred by the Central

Government as non-recurring expenditure in connection with the existing

organisation. The Central Government may also provide to the Commission any

further capital which may be required by the Commission for carrying on its

business. The Commission may, with the previous approval of the Central

Government borrow money. The budget is to be in such form as the Central

Government may prescribe. The Commission may net re-appropriate without the

previous approval cf the Central Government. The reports, accounts are to be

audited by the Comptroller and Auditor-General of India and these are not only to

be forwarded to the Central Government but are also to be laid before the

Parliament. The audit report is also- to be placed before the -Parliament. Any land?

required by the Commission is to be acquired uncer the Land Acquisition Act as if it

were- required by a company. The Commission is. empowered to enter upon any

land or premises. The dissolution of the Commission is by the- Central Government.

( 44 ) ALL these provisions indicate at each stage that the creation, composition of"

membership, the function and powers, the financial powers, the audit of" accounts,

the returns, the capital, the borrowing: powers, the dissolution of the Commission

and; acquisition of land for the purpose of the company and the powers of entry are

all authority and agency of the Central Government.

( 45 ) THE Life Insurance Act is an Act to provide for the nationalization of life

insurance business to the Corporation established for tile purpose and to provide for

the regulation and control of the business of the Corporation and for matters

connected therewith or incidental thereto. On the appointed day viz. 1st July, 1956,

all assets and liabilities appertaining to. the controlled business of all insurers

became transferred to and vested in the Corporation- Ihe service of existing

employees of insurers- was transferred to the Corporation. It became the duty of

every person in possession, custody or control of property appertaining to the

controlled business of an insurer to deliver the same to the Corporation forthwith.

The Corporation was empowered to reduce the amounts of insurance under

contracts of life insurance in such manner and; subject to such conditions as it

thought fit. In the discharge of functions under the Act, the Corporation is guided by

directions in matters. of policy involving public interest as the Central Government

may give to it. If any question arises whether a direction relates to a matter or

policy involving public interest, the decision of the Central Government shall be final.

( 46 ) ). The Corporation is to submit to the 'central Government an account of

activities during the financial year. The Corporation has the exclusive privilege of

carrying on life insurance business in India. On and from the appointed day, none

but the Corporation can carry on life insurance business in India. The sums assured

by policies issued by the Corporation including bonuses shall be guaranteed as to

payment in cash by the Central Government. No suit, prosecution or other legal

proceedings shall be against any member or employee of the Corporation for

anything which is in good faith done or intended to be done under the Act.

( 47 ) THE provisions of the Life Insurance Corporation Act amply establish that the

Corporation has the exclusive privilege of carrying on life insurance business. The

policies are. guaranteed by the Central Government. If profits accrue from any

business other than life insurance business then after making provision for reserves

and other matters, the balance of profit shall be paid to the Central Government.

The report of the activities of the Corporation is to be submitted to the Central

Government.

( 48 ) THE original capital of the Corporation is five cores of rupees provided by the

Central 'govt. The Central Govt. may reduce the capital of the Corporation. The

corporation may ask for relief in respect of certain transactions of the)insurer whose

controlled business has been transferred to the Corporation. The relief is. granted by

the Tribunal. The Tribunal is constituted by the Central Government. The Central

office of the Corporation shall be at such place as the Central Government may

specify. In the discharge of functions under the Act the Corporation shall be guided

by such directions in matters of policy involving public interest as the Central Govt.

may direct. If any question arises relating to a matter of policy involving public

interest, the decision of the Central Govt. shall be final. The accounts of the

Corporation shall be audited by auditors who will be appointed with the previous

approval of the Central Government. The auditors shall submit the report to the

Corporation and shall also forward a copy of the report to the Central Government.

( 49 ) IF as a result of any investigation undertaken by the Corporation any surplus

emerges, ninety-five percent of such surplus or such higher percentage there re of as

the Central Government may approve shall be allocated to or reserved for the life

insurance policy holders of the Corporation and after meeting the liabilities of the

Corporation the remainder shall be paid to the Central Government or if that

Government so directs be utilised for such purposes and in such manner as that

Government may determine. If profits accrue after making provision for reserves

and other matters, the balance shall be paid to the Central Government. The Central

Government shall cause the report of the auditors, the report of the actuaries and

the report giving an account of the activities of the Corporation to be laid before the

Parliament. The provisions of the companies act do not apply to the Corporation

with regard to winding up. The Corporation cannot be placed in liquidation except by

an order of the Central Government.

( 50 ) THE structure of the Life Insurance Corporation indicates that the Corporation

is an agency of the Government carrying on the exclusive business of life insurance.

Each and every provision shows in no uncertain terms that the voice is that of the

Central Government and the hands are also of the Central Government.

( 51 ) THE Industrial Finance Corporation is a body corporate. The authorised capital

of the Corporation shall be ten crores of rupees divided into twenty thousand fully

paid up shares of five thousand rupees each Ten thousand shares of the total value

of five crores of rupees shall be issued in the first instance. The remaining shares

may be issued with the sanction of the Central Government. Of the capital issued in

the first instance, the Central Government and the Reserve Bank of India shall each

subscribe for two thousand shares. Scheduled banks may subscribe for two

thousand five hundred shares. Insurance companies, investment trusts and other

like financial institutions for two thousand five hundred shares and cooperative

banks for one thousand shares of the Corporation. It is significant that ordinary

citizens cannot be shareholders. All shares of the Corporation held by the Central

Government and the Reserve Bank of India shall stand transferred to and vest in the

Development Bank. As compensation therefore, the Development Bank shall pay to

the Central Government and to the Reserve Bank respectively the face value of the

shares held by that Government and by that Bank. The shares of the Corporation

shall be guaranteed by the Central Government as to the re-payment of the principal

and the payment of the annual dividend at such minimum rate as may be fixed by

the Central Government by notification. The Development Bank means the Industrial

Development Bank of India established under the Industrial Development Bank of

India Act, 1964.

( 52 ) THE Chairman of the Corporation shall 'be appointed by the Central

Government. Four Directors are nominated by the Development Bank; two directors

are nominated by the Central Government: two directors are elected by Scheduled

Banks; two directors are elected by shareholders of the Corporation other than the

Development Bank, Scheduled Banks and the co-operative banks; two directors are

elected by co-operative banks. The Central Government may remove the Chairman.

( 53 ) WHERE any industrial concern which is under a liability to the Corporation

makes any default in repayment or otherwise fails to comply with the terms of the

agreement with the Corporation, the Corporation shall have the right to take over

the management or possession or both of the concern as well as the right to

transfer by way of lease or sale and realise the property, pledged, mortgaged,

hypothecated or assigned to the Corporation.

( 54 ) THE Corporation shall furnish to the Central Government statement of assets

and liabilities at the close of the year together with profit and loss account and a

report of the "working of the Corporation and the report shall be published in the

Official Gazettee and shall be laid before Parliament. No provision of law relating to

the winding up of companies or corporations shall apply to the Corporation. The

Corporation shall not be placed in liquidation save by order of the Central

Government.

( 55 ) THE superintendence and the affairs of the Corporation shall be entrusted to a

Board. In the discharge of functions, the Board shall be guided by the Development

Bank. If any 'dispute arises between the Development Bank and the Board, the

dispute shall be referred to the Central Government whose decision shall be final.

The Central Government shall have. the power to supersede the Board and appoint

a new Board in its place to function until a properly constituted Board is set up.

( 56 ) THE Corporation may invest funds in the securities of the Central Government

or of any State Government and may with the approval of the Central Government

contribute to the initial capital of the Unit Trust of India. The Corporation may also

subscribe to or purchase the shares of any financial institution which the Central

Government in consultation with the Development Bank may notify in this behalf.

The Corporation may issue and sell bonds and debentures. Bond and debenture of

the Corporation shall be guaranteed by the Central Government as to the repayment

of the principal and the payment of interest.

( 57 ) THE Central Government may issue directions to auditors requiring them to

report to it upon the adequacy of measurers taken by the Corporation for the

protection of its share holders and creditors. The Central Government may appoint

the Comptroller and Auditor General of India to examine and report upon the

accounts of the Corporation and expenditure. Every audit report shall be forwarded

to the Central Government and the Government shall cause the same to be laid

before both Houses of Parliament.

( 58 ) THE Central Govt. may decide to acquire the shares held by the shareholders

other than the Development Bank. The shareholders shall be paid for the shares so

acquired an amount equal to the paid up value of the shares together with a

premium calculated at the rate of one per cent of the paid up value for every year

from the date of issue to the date of acquisition subject to a maximum of ten per

cent. After the acquisition of the shares, the Central Government shall transfer the

shares to the Development Bank, that Bank paying an amount equal to the amount

paid by the Central Government for such acquisition, the Central Government may

direct that the entire undertaking of the Corporation shall stand transferred to and

vest in the Development Bank.

( 59 ) THESE provisions of the Industrial Finance Corporation Act show that the

Corporation is in effect managed and controlled by the Central Government.

( 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 Corporation. 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 shareholders 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 Article 12 of the Constitution. In the Rajsthan Electricity Board

case, (1967) 3 SCR 377 = (AIR 1967 SC 1857) 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 characterizing the body as an authority within

the meaning of Article 12. The power to make rules or regulations and to administer

or enforce them would be one of the elements of authorities contemplated in Article

12. Authorities envisaged in Article 12 are described as instrumentalities of State

action. On behalf of the State it was contended that the Oil and Natural Gas

Commission as well as Industrial Finance Corporation was not granted immunity

from taxation and therefore the liability to be taxed would indicate that the

Corporation was not a State authority. Reference is made to Article 289 which

speaks of exemption of property and income of a State from Union taxation. The

liability to taxation will not detract from the Corporation being an authority within the

meaning of Art. 12. Article 289 empowers 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 Section 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 person lawfully withholds or fails

to deliver to the Corporation any property which has been transferred to and vested

in the Corporation or willfully 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 willfully 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 2 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 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 have the force of law.

The employees of these statutory bodies have a statutory status and they lare

entitled to declaration of being in employment when their dismissal or removal is in

contravention of statutory provision. By way of abundant caution we state that these

employees are not servants of the Union or of the State. These statutory bodies Are

"authorities'' within the meaning of Article 12 of the Constitution. [Mathew,. wrote a

separate but concurring judgment. Algiri Swami,. wrote a dissenting judgment.

Appeals were decided according to majority opinion.