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PETITIONER: HINDUSTAN STEEL WORKS CONSTRUCTION LTD.

       Vs.

RESPONDENT: STATE OF KERALA AND OTHERS

DATE OF JUDGMENT:       22/04/1997

BENCH: G.N. RAY, G.T. NANAVATI

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T G.N. RAY, J.      Leave granted. Heard learned counsel for the parties.      The short  question that  arises for  decision in  this appeal is  whether the appellant which is government company wholly owned  and controlled  by the  Central Government  is excluded from the purview of the Kerala Construction Workers Welfare Funds  Act 1989  (Act  No.20  of  1989)  hereinafter referred to as the Welfare Funds Act.      The appellant  company entered  into an  agreement  for construction of  a stadium at Kaloor, Ernakulam, Kerala with the respondent  No. 2  Greater Cochin Development Authority. The terms  of the  contract inter  alia stipulated  that sub contractors to  be employed  by the  appellant for execution for the contract were to be approved by the respondent No.2. The appellant  commenced work of construction of stadium and from time to time engaged different contractors on a turnkey basis.      The respondent  No.2 started  making deduction from the part payment  of the  bills raised  by the  appellant at the rate of  1% of  the billed  amount for the works executed by the appellant  on account  of contribution under the Welfare Funds Act  and the  schemes framed thereunder. The appellant company protested  against such  deduction by the respondent No.2 by contending that the appellant being a company wholly owned and  controlled by the Central Government did not come within the purview of the Welfare Funds Act.      For the purpose of appreciating rival contention of the parties to  the  appeal  the  following  provisions  of  the Welfare Funds Act are set out here under:      Section 2.  Definition  -  In  this      Act, unless  the context  otherwise      requires.      (a) (b) ......      (c) "Construction   Work" means any      construction work  carried  out  by      the  State   Government  or  quasi-      governmental agency  or by a public      or  private  undertaking  or  by  a      Society or  by  private  individual

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    and includes  construction  of  any      building, road,  pathway, causeway,      bridge,   culvert,   canal,   tank,      channel,  pond,  dam,  tunnel,  sea      walls, walls  for the prevention of      soil erosion,  embankments,  bunds,      drainage, kanas,  culverts jetties,      compound walls,  will and the like,      breaking of  rocks and  rubbles and      the  repair  in  whatsoever  manner      relation thereto and the demolition      thereof but  does not  include  the      construction  works   relating   to      places   of   public   worship   or      construction work  for a  residence      by a person for his own residential      purposes  costing   not  more  than      Rs.one  lakh,  repair  works  other      than extensions  and reconstruction      of his residence, construction work      undertaken, by  the  Government  of      India or  any of its establishments      or institutions.      (d) ......      (e) "Contractor"  means any  person      registered as a Contractor with any      Department  of  the  Government  of      Kerala or  with any  Department  of      any other State Government, or with      any local  authority  or  with  the      Kerala Water  Authority or Devaswom      Boards  of   Universities  in   the      State,     for     carrying     out      construction  consideration  for  a      Government Company as defined in S.      617  of   the  Companies  Act  1956      (Central Act  I of  1956)  for  any      Board, Corporation or Society owned      or controlled  by the Government of      Kerala  and   includes  the  Kerala      State Construction Corporation.      (f) ......      (g) "Employer: means,      (i) In  the  case  of  construction      work  undertaken   for  the   State      Government   or   for   the   Local      Authority or  for the  Kerala Water      Authority or  for any  Universities      in the  State for Kerala Government      Company as  defined in  Section 617      of the Companies Act, 1956 (Central      Act I  of 1956)  or  for  a  Board,      Corporation or  a Society  owned or      controlled    by     the     Kerala      Government, the contractor;      (ii) In  any other case, the person      for  whom   construction  work   is      done."      "Section  B.  Contribution  to  the      Fund (1) A member of the Fund shall      contribute to  the Fund at the rate      specified  in   any  of  the  slabs      hereunder:      SLAB      A. Ten rupees per month

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    B. Fifteen rupees per month      C. Twenty rupees per month      Provided that  a member  may change      his rate  of  contribution  at  his      option at  the commencement  of any      year.      (2) An  employer  shall  contribute      one percent  of  the  cost  of  the      construction work undertaken by him      to the fund.      (3) In case where the employer is a      Contractor,    the     contribution      payable under sub-section (2) shall      be recovered  by  the  Departments,      Authorities,   Company   or   other      undertakings mentioned  in item (I)      in clause  (g) of Section 2 for the      bills payable to the contractor and      paid to  the  Fund  within  fifteen      days in  the manner  prescribed. In      the case  of other  employers,  the      contribution shall  be paid in such      manner to such authority and within      such time as  may be prescribed.      (4) The Government shall pay to the      Fund every year an amount by way of      grant which  shall not be less than      ten per  cent of  the  Contribution      initially made  by a  member of the      Fund under sub-section (I).      The appellant  company’s case  is  that  the  appellant company is  wholly owned and controlled by the Government of India. The  President of  India is  vested with the absolute power to  appoint and remove the Directors. Each activity of the company  is controlled  by the  Central Government.  For such deep  and pervasive control of the appellant company by the central  government, the  appellant  is  essentially  an establishment or an institution of the Government of India.      It may  be stated here that several writ petitions were filed in  the Kerala  High Court challenging the validity of Welfare Funds  Act and  by a common judgement dated 7.4.1993 passed by the Singly Bench of the Kerala High Court the said writ petition  were disposed  of inter alia holding that (i) Section 2(g)  and 8(2)  of the Welfare Funds Act and clauses 25 and  26 of the scheme framed under the Act are valid (ii) Section 9  is ultravires  and void  (iii) contributions  are payable   under Section  8 of  the welfare Funds Act only in respect of works awarded as commenced after 7th August 1990.      The decision  was given  in the said judgment disposing of writ  petition directing  that  the  Board  shall  adjust contribution received  from any    of  the  said  petitioner towards construction  for works  awarded and commenced after 7th August  1990 and  refind the  excess is  any to the writ petitioners.      According to  the  appellant  company,  the  said  writ petitioners were  contractors  registered  with  the  public works department  of the State of Kerala and non of the said writ petitioner was a company wholly owned and controlled by the Government  of India  like the appellant company. Hence, the  appellant   company’s  claim   for  exemption  was  not available to  the other writ petitioners. When the claim for exemption of  the appellant  company was  not acceded to the appellant company  moved a  writ petition  before the Kerala High Court.  Since the  decision of  the Single Bench of the Kerala High  Court was  assailed in  Letter  Patent  Appeals

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before the  Division Bench  of the  Kerala High Court by the aggrieved writ  petitioners, the  writ petition filed by the appellant company was heard and disposed of along with other writ appeals  challenging the  validity of the Welfare Funds Act and  by a common judgment, the petition of the appellant company was disposed of by considering the question of vires of the Act without considering the claim of exemption by the appellant company  being a  wholly owned and managed company of the  Central  Government.  The  appellant  then  filed  a special leave  petition being SLP (Civil) No. 26450 of 1995. By order  dated December  8, 1995 this court disposed of the said  special  leave  petition  by  giving  liberty  to  the appellant company  to approach  the  Kerala  High  Court  by filing a  review petition.  Such review  petition being R.P. No. 9 of 1996 in O.P.No. 11626 of 1994 has been dismissed by the Kerala  High Court  by order  dated January 15, 1996 and this appeal  is directed against such decision of the Kerala High Court.      Mr.  Dipankar   Gupta,  the   learned  Senior   counsel appearing for the appellant has contended that the appellant company is  fully owned by the Central Government. The board of management  of the  appellant company consists of persons nominated by  the Central  Government.  There  is  deep  and pervasive control  of the  Central  Government  of  all  the activities of  the appellant  company. The appellant company is not  only a  ‘State’ within  the meaning of Article 12 of the Constitution  by fulfilling  the criteria  laid down  by this Court  is various  decision but  for  all  intents  and purposes,  the   appellant   company   is   essentially   an undertaking or establishment of the Central Government.      Mr. Gupta  has contended that ‘construction work’ under Section 2(c)  of the  Welfare Funds  Act  does  not  include construction work  under taken  by the  Government or any of its establishment  or institution.  Hence, the  construction work undertaken by the appellant company being establishment or institution  of the  Central Government cannot be held to be construction work under Section 2[c] of the Welfare Funds Act. In support of his contention, Mr. Gupta has referred to the Constitution  Bench decision of this Court in Ajay Hasia and other  Vs. Khalid  Mujib Sehravardi and Other (1981) SCC 722. In  the said  decision, it  has been held by this Court that the  court should  give such  an interpretation  to the expression " other authorities" referred to in Article 12 of the Constitution  as will  not  stultify  the  operation  in relation  to   the  fundamental   rights  by   enabling  the government to  its obligation in relation to the fundamental rights  by   setting  up   an  authority   to  act   as  its instrumentality or  agency for carrying its functions. Where constitutional fundamentals,  vital to  the  maintenance  of human right  are at stake, functional realism and not facial cosmetics must  be diagnostic  tool, for  constitutional law must seek  the substance  and not  the form.  This Court has also indicated  that the  government  may  act  through  its instrumentality or  agency of  natural  persons  or  it  may employ the  instrumentality or agency of judicial persons to carry  out   its  functions.  It  has  been  held  that  the government, in  may of  its commercial  ventures and  public enterprises, is  resorting to  more and  more frequently  to this resourceful  legal contrivance of a corporation because it has  many practical  advantage and  at the same time does involve  the  slightest  diminution  in  its  ownership  and control of  the undertaking.  In such, cases, the true owner is the  State, the  real  operator  is  the  State  and  the effective controllorate  is the State and accountability for its actions  to the  community and  to Parliament  is of the

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State. Even  then, the  corporation is  a distinct  juristic entity with  a corporate  structure of  its own. It has also been indicated  by this  Court that  if a  corporation is an instrumentality or  agency of  the government,  it  must  be subjected  to   the  same   limitations  in   the  field  of constitutional law  as the  government itself, though in the eye of  the law,  it would be distinct and independent legal entity.      Mr. Gupta  has  submitted  that  this  Court  has  also noticed that  in view of the inadequacy of the civil service to deal  with new  problems which  came to  the realised, it became  necessary   to  forge   a  new   instrumentality  or administrative device for handing these new problems. It was in  these  circumstance  and  with  view  to  supplying  the administrative need that the "Corporation came into being as the third  arm of  the government  and over  the year it has been increasingly  utilised by the government for setting up and running public enterprises and carrying out other public functions." (Emphasis supplied)      Mr. Gupta  therefore submitted  that it  will  be  only appropriate to  accept the  appellant company as a third arm of the  government being  an establishment of the government for the purpose of exemption from the purview of the Welfare Fund Act.      In this  connection, Mr.  Gupta has  also  referred  to another decision  of this Court in C.V. Raman Vs. Management of Bank of India and another (1988 (3) SCC 105). In the said case,  this  Court  has  taken  into  consideration  of  the enforcement of  Tamil Nadu  Shops and Establishments Act and similar acts  in other states to the State Bank of India and the nationalised  banks.  It  has  been  held  in  the  said decision that  the State  Bank of India and the nationalised banks are establishments under the central Government within the meaning  of Clause  (a) of  Section 4(1)  of Tamil  Nadu Shops and Establishments Act as well other parimateria Shops and Establishment  Acts in  other states.  In the said case, the contention  of the  employees of  the banks was that the banks being autonomous corporations having distinct juristic entity with  a corporate  structure of  their own, cannot be treated to  be owned  by  the  Central  Government  and  the expression "under  the Central Government" connotes complete control  in   the  sense  of  being  owned  by  the  Central Government. Such  contention, however, has not been accepted by this  Court. The  contention that since Article 12 of the Constitution occurs  in Part III of the Constitution dealing with the  fundamental rights,  the decisions  in  the  cases dealing with  Article 12  of the Constitution cannot be made the basis  for contending  that the  State Bank of India and the nationalised  banks are establishments under the Central Government under  the Shops  and Establishment Act, has also not been accepted by this Court in C.V. Raman’s case. It has been  held  that  even  though  the  decisions  relating  to instrumentality or  agency of  the government  were made  in connection with  the fundamental  right, but  in view of the construction of  the expression "State or other authorities" under Article  12 of the Constitution, it cannot be gainsaid that the  salient principle which have been laid down in the decisions dealing  with the  import of  Article  12  of  the Constitution  with   regard  to  the  authorities  having  a corporate  structure  and  exercising  autonomy  in  certain spheres, will  certainly be  useful for  determining  as  to whether the  State Bank  of India  and the nationalised bank are establishments  under the  Central  Government  for  the purpose of enforceability of the Shop and Establishment Act.

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    Mr. Gupta  has  submitted  that  the  position  of  the autonomous bodies  being instrumentalities  and agencies  of the  government   on  account  of  administrative  need  and functioning as  ‘third arm’  of the government as noticed in Ajay Hasia’s  case has  been relied  by this  Court in  C.V. Raman’s case.  Mr. Gupta  has contended  that  it  has  been indicated in  paragraph 12  of the  judgment in Raman’s case that if  the criteria  laid down  in Ajay  Hasia’s  case  as quoted in  the decision,  is applied to the fact of the case of C.V. Raman, it is obvious that even though the State Bank of India and  the nationalised banks may not be owned by the Central  Government   and  its  employees  may  not  be  the employees of  the Central  Government, they  will  certainly fall within the purview of the expression "under the Central Government" in  view of  the existence of deep and pervasive control of the Central Government over these banks.      Mr. Gupta  has, therefore, submitted that the appellant is essentially  a government  establishment for  all intents and purposes and therefore is entitled to get exemption from the purview  of the  Welfare Funds  Act by treating it as an establishment of the Central Government.      Such  contention   of  Mr.  Gupta  has,  however,  been disputed by Mr. R. Nariman, Senior Counsel appearing for the respondent No.  2, Greater Cochin Development Authority. Mr. Nariman has submitted that the decision in Ajay Hasia’s case was made in the context of preserving the fundamental rights of the  citizen of  India vis-a-vis  the government  and its departments and  also the  agencies and instrumentalities of the government  in respect  of which the government has deep and pervasive  control. In the instant case, the question of enforcement of fundamental rights is not involved. Moreover, the Welfare  Funds Act  is a  beneficial legislation enacted for the  purpose of  ensuring protection  and welfare of the employees. Mr.  Nariman has  also  submitted  that  in  C.V. Raman’s case,  this Court  has  kept  in  view  the  welfare measures and  in order  to ensure  welfare measures,  it has held that the State Bank of India and nationalised banks are establishment under  the Central Government for the purposes of Shops  and Establishment  Act. In  the instant  case, the government Company  is trying  to get  out of the beneficial measures under  the Welfare Funds Act which has been enacted to protect  the interest  of the  labourers. Such beneficial object under  the Act should not be allowed to be frustrated by expanding the meaning of instrumentality or agency of the Central Government  Mr. Nariman  has further  submitted that even if  on account of any ambiguity two interpretations are possible, the  one which will go to the benefit of labourers must be  accepted so  that the  purpose of  the Act  is  not frustrated Mr. Nariman has also submitted that the appellant is a  public undertaking. Referring to Clause (c) of Section 2 of  the Welfare  Fund Act,  Mr. Nariman has submitted that the  expression   "Construction  Work"   undertaken  by  the Government  of   India  or  any  of  its  establishments  or institution  is  very  significant.  Mr.  Nariman  has  also submitted that  Clause (e) of Section 2 of the Welfare Funds Act defines  "Contractor" and  according to  the  definition under Clause  (e) of  Section 2, Contractor means any person registered as  a contractor  for carrying  out  construction work for  consideration for  a government  company  for  any State corporation  or society  made  by  the  Government  of Kerala and includes Kerala State Government Corporation. Mr. Nariman has  submitted that  the legislature has intended to include government company as a contractor in Clause (e) and if  the  legislature  has  intended  to  exclude  government Company or  public undertaking  for the  purpose of  Section

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2(e), there  would have  been  specific  exclusion  of  such government company  but such  exclusion has deliberately not been made  in Clause  2(e). Therefore, the appellant company cannot claim exemption from the purview of the Welfare Funds Act.      Mr.  Sreekumar,   learned  counsel  appearing  for  the respondent No.3,  namely, the  Construction Workers  for the Welfare Board, has also disputed the contentions made by Mr. Gupta Mr.  Kumar has  submitted  that  the  appellant  is  a government company and claim that being a government company it should  get exemption from the enforcement of the Welfare Funds Act.  Mr. Kumar  has  submitted  that  the  government Company has  been defined under Section 617 of the Companies Act. The  government company  means any company in which not less that fifty one percent of paid share capital is held by the Central  Governments and  includes a  company which is a subsidiary of  the Government  Company. Hence, only with 51% of paid up share capital belonging to the Central Government or to  the State  Government or  to both,  a company will be held to  be a  government company  even though  such company cannot be  held to  be fully owned by the government. By the definition of  government company  under the  Companies Act, the government company need not necessarily be company fully owned  by   the  Government   and   by   that   process   an instrumentality of the government. Hence, claim of exclusion from   the purview  of the  Act simply on account of being a government company  cannot be  accepted. Mr.  Kumar has also supported the  contention  made  by  Mr.  Nariman  that  the appellant Company  having undertaken the contractual work as a commercial  venture  should  not  be  permitted  to  claim exemption from  the purview of the Welfare Funds Act against the interest of the poor labourer for whose benefit the said Act has  been enacted.  He has, therefore, submitted that no interference is  called for  by this  Court and  the  appeal should be dismissed.      After giving  our careful consideration to the facts of the case  and the  respective contention made by the learned counsel for the parties, it appears to us that the appellant company cannot be held to be a department of the government. There may  be deep  and pervasive  control of the government over the  appellant company  and the  appellant company,  on such account  may be  an instrumentality  or agency  of  the Central Government  and as such a ‘State’ within the meaning of Article 12 of the Constitution. Even though the appellant company is  an agency  or  instrumentality  of  the  Central Government,  it  cannot  be  held  to  be  a  department  or establishment  of   the  government   in  all   cases.  Such instrumentality or agency has been held to be a third arm of the government  in Ajay  Hasia’s case  but it  should not be lost sight of that it was only in the context of enforcement of fundamental  rights against  the action of government and its instrumentalities  or agencies  it was  held  that  such agencies were  the third  arm of  the  government  and  they cannot avoid constitutional obligation. There is no question of enforcing  any fundamental  right in the instant case. On the contrary,  the question of protecting the welfare of the employees vis-a-vis  the instrumentality  or agency  of  the Central Government under the Welfare Funds Act is to be kept in mind  for the purpose of deciding the rival contention of the parties.  If clauses  2 [c] and [e] of the Welfare Funds Act are  taken into consideration, it will be quite apparent that  the  legislature  has  not  intended  to  exclude  the government company  or the  statutory corporations  from the purview of  the Welfare  Funds Act.  The  decision  in  C.R. Raman’s case,  in our  view, is  not an  authority  for  the

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proposition that  an instrumentality or agency of government is essentially  a government  department for all purpose and such instrumentality or agency will enjoy the same privilege and protection  which any government or its establishment or department  enjoys   in   relation   to   a   statute.   The establishment of  a government  only connotes  in its  plain meaning, an establishment directly run by the government and not through the agency or instrumentality of the Government. The Welfare  Funds Act  is essentially an act to protect the interest of  and welfare  of the labourers. Unless expressly the instrumentality  or agency  of the  government  is  kept outside the  purview of the said Act, it would not be proper to interpret  the said  Act in  a wide amplitude by removing the corporate  veil so as to exclude such instrumentality or agency from the purview of the said Act.      We, therefore, do not find any reason to interfere with the impugned  decision of  the Kerala  High Court  and  this appeal, therefore,  fails and  is dismissed.  There will be, however, no order as to cost.