Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL  NO. 6492 of 2002

State of Assam ........   Appellants

Vs.

Barak Upatyaka D.U.Karmachari Sanstha ....... Respondent

J U D G M E N T

R. V.  Raveendran J.,

This appeal by special leave is filed by the State of Assam aggrieved

by the order dated 14.6.2001 passed by the Division Bench of the Gauhati

High  Court.  By  that  order  the  Division  Bench  upheld  the  order  dated

23.12.1999  of  the  learned  Single  Judge  in  Civil  Rule  No.2996/1995

allowing respondent’s  writ  petition and directing the state government to

sanction  financial  assistance  by  way  of  grant-in-aid  to  Cachar  and

Karimganj District Milk Producers’ Cooperative Union Limited (‘CAMUL’

for short)  so as  to  enable  CAMUL to make regular  payment  of monthly

salaries, allowances as also the arrears to its employees.

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2. CAMUL  is  a  society  registered  under  the  Assam  Co-operative

Societies  Act,  1949  (‘Act’  for  short).  Respondent,  a  Trade  Union

representing the workers of CAMUL, filed the said writ petition (Civil Rule

No.2996/1995) contending that the state government formed and registered

CAMUL as a co-operative society to run its cattle development project; that

its  Board  of  Directors  including  the  Managing  Director  (always  a

government  servant,  on  deputation)  were  appointed  by  the  state

government;  that  the  post  of  the  Managing  Director  of  CAMUL  was

declared to be a post  equivalent to a Head of Department under the state

government;  that  initially  the  entire  staff  of  CAMUL  were  drawn  on

deputation from the Veterinary, Agriculture & Co-operative Departments of

the  state  government;  that  in  a  phased  manner,  those  employees  were

reverted  back  to  their  Parent  Departments  and  replaced  by  the  staff

appointed  by  CAMUL,  through  a  Selection  Board  set  up  by  the  state

government with representatives from the Central Government and National

Dairy  Development  Board;  that  state  government  sanctioned  the staffing

pattern of CAMUL; that from the year 1982-83 onwards the Government

was extending financial assistance by way of grants to CAMUL to meet the

expenditure  (including the expenditure relating to its employees); and  that

for the years 1994-95 though the state government had sanctioned financial

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assistance in a sum of Rs. 7 lakhs as grant-in-aid, it was not disbursed and

consequently CAMUL did not  pay the monthly salaries  to its  employees

from December 1994 onwards. It is contended that state government had all

pervasive  control  over  the  affairs  and  management  of  CAMUL  and

therefore  it  should  be  treated  as  a  department  of  government  of  Assam,

though registered as a co-operative society by lifting the corporate veil. It

was further contended that state government was responsible and liable to

pay the salaries and emoluments of the employees of CAMUL and it was

not  justified  in  withholding  the  grant  amount.  The  respondent  union

therefore sought a direction to the state government to release the arrears of

pay and allowances of employees of CAMUL with effect from December

1994 and for a direction to continue to pay the salary and allowances to the

employees  of  CAMUL,  every  month  in  future.  In  addition  to  the  state

government  (respondent  No.1)  and  its  officers  (respondents  2  to  4),  the

Union of India (respondent No.5) and CAMUL and its Managing Director

(respondents 6 and 7) were impleaded as parties to the writ petition.

3. The state  government  opposed the  petition.  It  inter  alia contended

that  the  grant-in-aid  was  extended  for  helping  CAMUL  in  its  different

development activities;  that under a centrally sponsored scheme, between

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1981 to 1986, the earmarked amount was released on 50:50 basis by central

and  state  government   with  70%  loan  component  and  30%  as  grant

component; that though the loan component was not repaid by CAMUL, the

state government continued  the grant-in-aid for purposes of development

activities;  that the state government had also provided Rs.43.60 lakhs for

developing the milk-processing infrastructure of CAMUL; that despite such

assistance,  CAMUL  became  defunct  and  stopped  all  its  activities  and

thereafter  the  Silchar  Town  Milk  Supply  Project  was  being  run  by  the

state’s  dairy  development  department  itself;  that  at  no  time,  the  state

government  made  any  commitment  or  agreed  to  bear  the  salaries  of

employees of CAMUL or any other similar societies;  that CAMUL had to

generate its own funds and resources to pay the salaries of its staff; and that

as there was no relationship of employer and employee between the state

government and the employees of CAMUL, it was not responsible to bear or

pay any amount towards the salaries of the employees of CAMUL.  

4. The learned Single Judge allowed the writ petition. He held that the

State  Government  through  its  Veterinary  Department  undertook  the

Integrated  Cattle  Development  Projects  (ICDP)  in  various  districts  of

Assam; and as a part  of  the said  project,  an  ICDP block was created  at

Ghungoor, Silchar in Cachar district; that 32 cooperative societies of Milk

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Producers were established and CAMUL was formed as an Apex Body of

those co-operative societies; that the Dairy Development Department of the

state  government  had  been  providing  grant-in-aid  earmarked  in  the  state

budget every year to CAMUL; that the state government failed to offer any

explanation  or  reason  for  stopping  the  grant-in-aid  from 1994;   that  the

Dairy Development Project at Silchar was purely a state government scheme

and as that Project has not been discontinued and as there was no decision

to barring CAMUL from receiving grant-in-aid which was being granted

from 1982-83 till 1994, the state government could not deny the grant-in-aid

amount.  Consequently,  the  learned  Single  Judge  directed  release  of  the

grand-in-aid for paying monthly salaries and allowances along with arrears

to the employees.  The said order has been affirmed by the Division Bench

which is under challenge in this appeal by special leave. The only question

that  arises  for  consideration  is  whether  the  High  Court  was  justified  in

directing the state government to release grants to CAMUL, so as to enable

CAMUL to pay the salary and other emoluments of its employees.  

5. The various averments of the respondent in the writ petition, about

the all pervasive financial, administrative and functional control of CAMUL

by the state government, even if assumed to be true,  may at best result in

CAMUL  being  treated  as  ‘state’  within  the  meaning  of  that  expression

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under Article 12 of the Constitution of India.  If it  is a ‘state’, in case of

violation of any of the fundamental rights of its employees, by CAMUL as

employer, the employees were entitled to claim relief against CAMUL, by

taking recourse to a writ petition under Article 226 of the Constitution of

India. But the fact that a corporate body or co-operative society answers the

definition of ‘state’ does not make it  the ‘state government’, nor will  the

employees of such a body, become holders of civil posts or employees of

the state government. Therefore the fact that the CAMUL may answer the

definition of “state” does not mean that the state government is  liable to

bear and pay the salaries of its employees. CAMUL indisputably is a co-

operative society registered under the provisions of the Assam Cooperative

Societies  Act,  1949.  Section  85  of  the  said  Act  provides  that  every

registered society shall be deemed to be a body corporate by the name under

which it  is  registered, with perpetual  succession and a common seal,  and

with power to hold property, to enter into contracts,  institute and defend

suits  and  other  legal  proceedings  and  to  do  all  things  necessary  for  the

purposes for which it was constituted. Therefore, CAMUL, even if it was

‘state’ for  purposes of Article  12,  was an independent  juristic  entity and

could not have been identified with or treated as the state government. In

the view we have taken, it is not necessary in this case to examine whether

CAMUL was ‘state’ for purposes of Article 12.

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6. Section  43  of  the  Act  provides  that  notwithstanding  anything

contained in any law for the time being in force, the State Government may

grant loans or give financial assistance in any form to any registered society.

Therefore, the fact that the state government had given financial assistance

in the form of grant-in-aid to CAMUL continuously for some years, either

to meet its development activities or for even meeting the salaries, does not

mean that state government is responsible to bear and pay the salaries and

emoluments of the employees of CAMUL or other liabilities of CAMUL.

Nor  can  the  state  government  be  made  liable  for  extension  of  financial

assistance  for  all  times  to  come,  to  cover  the  payment  of  salaries  of

employees  of  CAMUL.  If  the  salaries  are  not  paid,  the  remedy  of  the

employees of CAMUL is to proceed against CAMUL, in accordance with

law, by approaching the forum under the appropriate labour legislation or

the  Co-operative  Societies  Act.  But  a  trade  union  representing  the

employees of a co-operative society cannot, by filing a writ petition, require

the Government to bear and pay the salaries of the employees of the co-

operative society, howsoever pervasive, the control of the state government,

over such society. Nor is any right created to demand the continuance of

financial  assistance  to  a  co-operative  society,  on  the  ground  that  such

assistance  has  been  extended  by the  government,  for  several  years.  The

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respondent  has  not  been  able  to  show  any  right  in  the  employees  of

CAMUL against the state government, or any obligation on the part of the

state government with reference to the salaries/emoluments of employees of

CAMUL either under any statute or contract or otherwise.  

7. The learned counsel for the respondent contended that the same issue

arose for consideration in  Kapila Hingorani v.  State of Bihar reported in

2003 (6) SCC 1 (for short  ‘Kapila Hingorani I’) and the  issue  has been

answered in  their  favour.  Reference is  invited  to  the  following question,

which was set down as one of the questions arising for consideration in that

case:  

Whether  having  regard  to  the  admitted  position  that  the  government companies or corporations referred to hereinbefore are ‘State’ within the meaning of Article 12 of the Constitution of India, the  State of Bihar having deep and pervasive control over the affairs thereof, can be held to be liable to render all assistance to the said companies so as to fulfil its own  and/or  the  corporations’  obligations  to  comply  with  the  citizens’ rights under Article 21 and 23 of the Constitution of India?

Reference  is  also  invited  to  the  following  observations  of  this  Court  in

considering the said question :  

“30. The government companies/public sector undertakings being “States” would be constitutionally liable to respect life and liberty of all persons in terms of Article 21 of the Constitution of India. They, therefore, must do so in cases of their own employees. The Government of the State of Bihar for  all  intent  and purport  is  the  sole  shareholder.  Although in  law,  its liability towards  the  creditors  of  the  company may be  confined to  the shares held by it  but having regard to the deep and pervasive control it exercises over the government companies, in the matter of enforcement of human rights and/or rights of the citizen to life and liberty, the State has

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also  an  additional  duty  to  see  that  the  rights  of  employees  of  such corporations are not infringed.

31. The right to exercise deep and pervasive control would in its turn make the Government of Bihar liable to see that the life and liberty clause in respect of the employees is fully safeguarded.  The Government of the State of Bihar, thus, had a constitutional obligation to protect the life and liberty of the employees of the government-owned companies/corporations who are the citizens of India.  It had an additional liability having regard to its right of extensive supervision over the affairs of the company.

33. The State having regard to its right of supervision and/or deep and pervasive  control,  cannot  be  permitted  to  say that  it  did  not  know the actual state of affairs of the State Government undertakings and/or it was kept in the dark that the salaries of their employees had not been paid for years leading to starvation death and/or commission of suicide by a large number of employees. Concept of accountability arises out of the power conferred on an authority.

34. The state may not be liable in relation to the day-to-day functioning of the companies, but its liability would arise on its failure to perform the constitutional duties and functions by the public sector undertakings, as in relation thereto lie the State’s constitutional obligations. The State acts in a fiduciary capacity. The failure on the part  of the state in a case of this nature must also be viewed from the angle that the statutory authorities have  failed  and/or  neglected  to  enforce  the  social-welfare  legislations enacted in this behalf e.g. Payment of Wages Act, Minimum Wages Act etc.  Such welfare activities as adumbrated in part IV of the Constitution of India indisputably would cast a duty upon the state being a welfare state and  its  statutory authorities  to  do  all  things  which  they are  statutorily obligated to perform.”

Reference  is  invited  to  the  fact  that  this  Court  directed  the  Bihar

government to release Rs.50 crores and deposit it with the High Court for

disbursing  salaries  of  employees  of  government  corporations/companies.

The contention of respondent is that the direction of the High Court, is in

consonance with the said view.

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8. The learned counsel for the respondent also relied upon the following

observations in  Kapila Hingorani vs. State of Bihar – 2005 (2) SCC 262

(for short ‘Kapila Hingorani II’)  :

“26. We, therefore, do not appreciate the stand taken by the State of Bihar now that it  does not have any constitutional obligation towards a section of citizens  viz.  the employees of the public sector undertakings who have not been paid salaries for years.

27. We also do not appreciate the submissions made on behalf of the State of Bihar that the directions issued were only one-time direction.  In clause 4 of the directions, it was clearly stated that the State for the present shall  deposit  a  sum  of  Rs.  50  crores  before  the  High  Court  for disbursement  of  salaries  to  the  employees  of  the  corporations. Furthermore,  the matter  had been directed to  be placed again after  six months.”

This Court also issued further interim directions to State of Bihar to deposit

a further sum of Rs.50 crores and State of Jharkhand to deposit a sum of

Rs.25 crores to meet the arrears of salaries of Public Sector undertakings.  

9. We  have  carefully  examined  the  said  two  decisions.  The  two

decisions are interim orders made in a writ petition under Article 32 of the

Constitution. The said orders have not finally decided the issues/questions

raised, nor laid down by any principle of law. The observations extracted

above as also other observations and directions are purely tentative as will

be evident from the following observations in Kapila Hingorani (I) :    

“We, however hasten to add that we do not intend to lay down a law, as at present  advised,  that  the  State  id  directly  or  vicariously liable  to  pay

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salaries/remunerations of the employees of the public sector undertakings or the government companies in all situations.

We, as explained hereinbefore, only say that the state cannot escape its liability when a human rights problem of such magnitude involving the starvation  deaths  and/or  suicide  by the  employees  has  taken  place  by reason  of  non-payment  of  salary  to  the  employees  of  public  sector undertakings for such a long time.

This order shall be subject to any order that may be passed subsequently or finally.”

The position is further made clear in Kapila Hingorani (II) as under :

“We make it clear that we have not issued the aforementioned directions to the States of Bihar and Jharkahand on the premise that they are bound to pay the salaries of the employees of the public sector undertakings but on the ground that the employees have a human right as also a fundamental right  under  Article  21  which  the  states  are  bound  to  protect.  The directions, which have been issued by this Court on 9.5.2003 as also which are being issued herein, are in furtherance of the human and fundamental rights of the employees concerned and not by way of an enforcement of their legal right to arrears of salaries. The amount of salary payable to the employees or workmen concerned would undoubtedly be adjudicated upon in the proper proceedings. However, these directions are issued which are necessary for their survival.”

It  is  thus  clear  that  directions  were  not  based  on  legal  right  of  the

employees,  but  were  made  to  meet  a  human  right  problem  involving

starvation deaths and suicides. But in the case on hand, relief is claimed and

granted  by  proceeding  on  the  basis  that  the  employees  of

corporations/bodies answering the definition of ‘state’ have a legal right to

get their salaries from the state government. In fact  Kapila Hingorani (I)

and (II) specifically negative such a right.   

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10. A precedent is a judicial decision containing a principle, which forms

an authoritative element termed as ratio decidendi. An interim order which

does not  finally and conclusively decide an issue cannot be a precedent.

Any reasons assigned in support of such non-final interim order containing

prima facie findings, are only tentative. Any  interim directions issued on

the  basis  of  such  prima  facie  findings  are  temporary  arrangements  to

preserve the  status quo till the matter is finally decided, to ensure that the

matter does not become either infructuous or a fait accompli before the final

hearing.  The observations and directions in  Kapil Hingorani (I) and (II)

being interim directions based on tentative reasons, restricted to the peculiar

facts  of  that  case  involving  an  extraordinary  situation  of  human  rights

violation  resulting  in  starvation  deaths  and  suicides  by  reason  of  non-

payment of  salaries  to the  employees of  a large number of  public sector

undertakings  for  several  years,  have no  value as  precedents.  The interim

directions  were  also  clearly  in  exercise  of  extra-ordinary  power  under

Article  142 of  the  Constitution.  It  is  not  possible  to  read  such  tentative

reasons,  as  final  conclusions,  as  contended  by  the  respondent.  If  those

observations  are  taken  to  be  a  final  decision,  it  may  lead  to  every

disadvantaged group or every citizen or every unemployed person, facing

extreme hardship, approaching this Court or the High Court alleging human

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right violations and seeking a mandamus requiring the state, to provide him

or them an allowance for meeting food, shelter,  clothing,  salary, medical

treatment, and education, if not more.  Surely that was not the intention of

Kapila Hingorani (I) and (II).  

11. What clearly holds the field at present is the principle laid down and

reiterated by the Constitution bench of this Court in Steel Authority of India

v. National Union Waterfront Workers 2001 (7) SCC 1 wherein this Court

categorically held :

“  We wish to clear  the air  that  the  principle,  while  discharging public functions  and  duties  the  government  companies/corporations/societies which  are  instrumentalities  or  agencies  of  the  government  must  be subjected to the same limitations in the field of public law - constitutional or  administrative  law -  as  the  government  itself,  does  not  lead  to  the inference that they become agents of the Centre/state government  for all purposes so as to bind such government for all their acts, liabilities and obligations  under  various  Central  and/or  State  Acts  or  under  private law.”

[emphasis supplied]

12. We, therefore, reject the interpretation put forth by the respondent, on

the tentative observations in  Kapila Hingorani(I) and (II), to contend that

the government would be liable for payment of salaries and other dues of

employees of the public sector undertakings. We are of the considered view

that the decision of the High Court cannot therefore be sustained.   

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13. We, accordingly allow this appeal, set aside the orders of the Division

Bench and the learned Single Judge of the High Court and dismiss the writ

petition without prejudice to the right of the employees of CAMUL to take

such action as is available in law for redressal of their grievances. We may

also add that this decision will  not come in the way of state government

formulating any scheme or extending any relief or benefit to the employees

of CAMUL or other similarly situated persons.  

..................................J [R. V. Raveendran]

 ...................................J

[Markandey Katju] New Delhi. March  17,  2009.

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