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PETITIONER: PRATHAMA BANK, HEAD OFFICE MORADABAD,THROUGH ITS CHAIRMAN

       Vs.

RESPONDENT: VIJAY KUMAR GOEL & ANR.

DATE OF JUDGMENT22/08/1989

BENCH: SHARMA, L.M. (J) BENCH: SHARMA, L.M. (J) VERMA, JAGDISH SARAN (J)

CITATION:  1989 AIR 1977            1989 SCR  (3) 935  1989 SCC  (4) 441        JT 1989 (3)   432  1989 SCALE  (2)350

ACT:     Regional  Rural  Banks Act, 1976:  Section  3--’Regional Rural  Bank’--Whether ’State’ within Article 12 of the  Con- stitution.     Constitution of India, 1950: Article 12--’Regional Rural Bank’  notified  under Section 3, Regional Rural  Banks  Act 1976 whether ’State’.     U.P.  Public  Services  (Tribunal)  Act  1976:   Section 2(b)--’Public   servant’--Employee    of   Regional    Rural Bank--Whether  ’Public’ servant’.

HEADNOTE:     The respondent who was an employee of the appellant bank was  dismissed  from service on the  basis  of  disciplinary proceedings  instituted against him. He filed a  suit  chal- lenging the validity of the disciplinary proceedings on  the ground that the inquiry was vitiated by serious violation of principles  of natural justice. The trial court decreed  the suit.  The decree was confirmed by the  Additional  District Judge in appeal, and by the High Court in second appeal.     Before  this  Court, the appellant  contended  that  (i) having  regard to the nature of relationship of  master  and servant between the parties, the decree of re-instatement of the  respondent was illegal, and the suit as framed was  not maintainable because the respondent’s remedy was a suit  for damages;  (ii) alternatively, if the respondent was held  to be  a public servant so as to enable him to ask  for  re-in- statement in the service, the suit must be dismissed as  not maintainable  in view of the provisions of the  U.P.  Public Services (Tribunal) Act, 1976; and (iii) there was no viola- tion of the principles of natural justice. While confirming the decree with modifications, this Court,     HELD:  (1) The High Court was right in holding  that  as the respondent was not given adequate opportunity to examine the  documents, he was handicapped in filing his show  cause and defending himself effectively. [938C] 936     (2) The appellant bank is not covered by the  definition of ’public servant’ in section 2(b) of U.P. Public  Services (Tribunal) Act, 1976. It has been constituted in exercise of the power conferred by s. 3 of the Regional Rural Banks Act,

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1976, and has been sponsored by the Syndicate Bank, a natio- nalised Bank. Although fifteen per cent of the total capital of  the  Bank  has been contributed by the  State  of  Uttar Pradesh, it has no controlling power, and none of the condi- tions  mentioned  in s. 2(b) of the U.P. Act  is  satisfied. [939G]     (3)  The plaintiff-respondent is not a "public  servant" within  the  limited meaning of the expression used  in  the U.P.  Act and the courts below are right in  overruling  the defence plea of the bar by the U.P. Act on the  jurisdiction of the civil court to entertain the suit. [939H-940A]       The test for determining if an authority fails  within the definition of State in Article 12 of the Constitution is whether  it is an instrumentality or agency of  the  Govern- ment.  The  enquiry  has to be not as to  how  the  juristic person  is born but why it has been brought into  existence. It is therefore, immaterial whether the authority is created by a statute or under a statute. [940C]     Ajay  Hasia  & Ors. v. Khalid Mujib Sheravardi  &  Ors., [1981] 1 SCC 722, referred to.     (5)  An  examination of the  relevant  circumstances  in regard  to  the  appellant Bank leads  to  the  irresistible conclusion  that  it is an instrumentality  of  the  Central Government.  By  establishing the Rural  Banks  the  Central Government acts in discharge of its obligations under  Arti- cles 38 and 48 of Part IV of the Constitution through  them. [940G, 942C]     (6) The provisions of the Regional Rural Banks Act, 1976 do  not  leave any room for doubt that  the  Regional  Rural Banks  are under deep and pervasive control of  the  Central Government and have been established as its  instrumentality and,  are, therefore, ’State’ within Article 12 of the  Con- stitution. [943A]     (7)  There is no merit in the argument that  the  Courts cannot force the services of the respondent on the appellant bank  by passing a decree for his re-instatement in  service and all that can be done is to grant a relief by way of compensation in a properly  consti- tuted suit. [943B]     Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, [1986] 3 SCC 156, referred to. 937     (8)  In  the instant case, the  departmental  proceeding against the respondent from 5.7.1983 onwards is quashed  and the  decree  for the plaintiff’s re-instatement  in  service with  consequential  benefits is confirmed, subject  to  the modification  that  if the Bank authorities be of  the  view that  in  spite of the delay of several  years  the  inquiry ought  to be completed, it will be open to them  to  proceed with it and to take further steps in the proceeding from the stage  where  it stood on 5.7.1983, in accordance  with  the directions of the Court in this judgment. [943F-G]

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 3091  of 1985.     From the Judgment and Order dated 30.11.84 of the  Alla- habad High Court in S.A. No. 1137 of 1984.     Kapil  Sibal, (N.P.), Mr. Rajiv Dhawan, R.K.  Gupta,  H. Sharma and Ms. Indu Sharma for the Appellant.     Satish  Chandra, M.C. Goel, K.P. Singh and  N.N.  Sharma for the Respondents. The Judgment of the Court was delivered by

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   SHARMA,  J.  The main question before us  is  whether  a Regional Rural Bank established by a notification under s. 3 of  the  Regional Rural Banks Act, 1976 is "State"  for  the purposes  of  Part III of the Constitution  of  India.  This appeal by special leave arises out of a suit by the respond- ent  no. 1, an employee of the appellant  Bank,  challenging the  validity of a disciplinary proceeding against  him  and order  of  his dismissal from service  passed  therein.  The trial court decreed the suit and the decree was confirmed by the  Additional  District Judge in appeal and  by  the  High Court in second appeal.     2. The facts briefly stated, omitting the details  which are not relevant for the purpose of this judgment, are in  a short  compass.  The respondent no. 1 was, in  1981,  served with  a  lengthy charge-sheet containing  many  accusations, some  of them being serious, and he was called upon to  file his  show cause. A large number of documents were  mentioned in  the  charge-sheet  and the  respondent  demanded  copies thereof  for the purpose of filing his reply.  According  to the  appellant several opportunities were given to  the  re- spondent  to inspect the documents (excepting a few  in  re- spect  of which privilege was claimed), but  the  respondent did not avail of them with the object of protracting and 938 frustrating  the inquiry. According to the High  Court,  the opportunity given by the appellant was not adequate. Due  to certain  circumstances  the  inquiry  could  not  make   any progress for sometime. A new inquiry officer entrusted  with the  proceeding  took up the matter on 5.7. 1983,  when  the respondent no. 1 contended that he must be given an adequate opportunity of examining the relevant documents for  facili- tating  him to file his written statement. There is  serious controversy between the parties as to the interpretation  of the  conduct  of  the delinquent servant  and  the  approach adopted  by the inquiry officer on the 5th of July  and  the subsequent  dates,  but we do not consider it  necessary  to deal with this aspect in detail as we agree with the view of the High Court that as the respondent was not given adequate opportunity to examine the documents, he was handicapped  in filing his show cause and defending himself effectively.     3.  The  suit was filed by  the  respondent  immediately after the order dated 5th July, 1983 was passed. The  disci- plinary  proceeding, however, proceeded ex parte  and  ulti- mately  the  respondent was dismissed from  service.  By  an amendment  of  the  plaint, the respondent  was  allowed  to challenge the dismissal order also.     4.  The respondent has asserted that it was the  vindic- tive  attitude  of  the Bank authorities which  led  to  the initiation  of the disciplinary proceeding against  him  and the  order  of  his suspension, and the  inquiry  have  been vitiated  by  serious  violation of  principles  of  natural justice.  Besides denying these allegations,  the  appellant Bank contended that having regard to the nature of relation- ship  of master and servant between the parties, the  decree for  re-instatement  of the respondent was illegal  and  the suit as framed was not maintainable. Even assuming that  the respondent proves his case on merits, his remedy would be  a suit  for damages. Alternatively, if the respondent is  held to  be a public servant so as to enable him to ask  for  re- instatement  in the service, the suit must be  dismissed  as not  maintainable  in  view of the provisions  of  the  U.P. Public Services (Tribunal) Act, 1976. There has also been  a stout  denial  of the allegations relating to  violation  of principles of natural justice.     5.  Both the learned advocates representing the  parties

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invited us to go deeply into the facts, but we have declined to do so, as all the three courts below have considered  the matter in great detail and we agree with the High Court that the  inquiry officer should have given adequate  opportunity to the respondent to examine the relevant documents for  the purpose of preparing his reply. Not having done so, the 939 further orders in the proceeding must be held to be  vitiat- ed.  We,  however, do not agree with the contention  of  Mr. Satish Chandra, the learned counsel for the respondent, that the  entire proceeding from its very inception is fit to  be quashed as illegal.     6. Now remains the issue relating to the-maintainability of the suit. So far the provisions of the U.P. Public  Serv- ices  (Tribunal)  Act, 1976 are concerned, they  are  wholly in-applicable. Section 6 of the Act bars the jurisdiction of the  civil  court to entertain a suit against the  State  of Uttar Pradesh and certain other authorities by a person  who is  or has been a "public servant" as defined in s. 2(b)  of the Act in the following words:               "2. Definitions.--In this Act--                         (a) ..................                         (b)  "public  servant"  means  every               person in the service or pay of--                         (i) the State Government; or                         (ii)  a local authority not being  a               Cantonment Board; or                         (iii) any other corporation owned or               controlled by the State Government  (including               any  company  as defined in Section 3  of  the               Companies  Act,  1956 in which not  less  than               fifty  per  cent of paid up share  capital  is               held  by  the State Government) but  does  not               include--               (1)  a  person in the pay or  service  of  any               other company; or                         (2)  (a) a member of the  All  India               Services or other Central Services;" The  appellant  Prathama Bank is not covered  by  the  above definition.  It  was constituted in exercise of  power  con- ferred by s. 3 of the Regional Rural Banks Act, 1976. It has been  sponsored by the Syndicate Bank, a nationalised  bank. Although  fifteen per cent of the total capital of the  Bank has  been contributed by the State of Uttar Pradesh, it  has no  controlling power, and none of the conditions  mentioned in  s.  2(b) of the U.P. Act is  satisfied.  The  plaintiff- respondent is, therefore, not a "public servant" within  the limited meaning of the expression 940 used  in  the  U.P. Act and the courts below  are  right  in overruling the defence plea of the bar by the U.P. Act.     7. The main point pressed on behalf of the appellant  is that  the Bank cannot be deemed to be ’State’ for  the  pur- poses of Part III of the Constitution, and so the decree for re-instatement  of  the respondent is illegal.  The  learned counsel cited several decisions in support of his  argument, but we do not consider it necessary to refer to all of  them in view of the authoritative pronouncements of this Court on this aspect. In Ajay Hasia and others v. Khalid Mujib Shera- vardi and others, [1981] 1 SCC 722, it was held by a Consti- tution  Bench that the test for determining if an  authority falls  within the definition of State in Article 12  of  the Constitution is whether  it is an instrumentality or  agency of  the Government. The enquiry has to be not as to how  the juristic  person  is born but why it has been  brought  into

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existence. It is, therefore, immaterial whether the authori- ty  is  created by a statute or under a statute.  The  Court after examining the Memorandum of Association and the  Rules in that case held the Society which was registered under the Jammu  &  Kashmir  Registration of Societies Act  to  be  an ’authority’ within the meaning of Article 12. It was pointed out that the composition of the Society was dominated by the representatives appointed by the Central Government and  the Governments  of  several  States with the  approval  of  the Central  Government; the cost of meeting the  expenses  came from  the Central Government and the Government of  Jammu  & Kashmir;  the rules to be made by the Society were  required to  have  the  prior approval of the  two  Governments;  the accounts  had  to be submitted to the  two  Governments  for their  scrutiny; the Society was to comply with  the  direc- tions  of  the  State Government with the  approval  of  the Central  Government;  and the control of the State  and  the Central  Government was thus deep and  pervasive.  Reference was also made to the provisions in regard to the appointment and removal of the members of the Society and to the consti- tution and powers of the Board of Governors. An  examination of  the  relevant circumstances in regard to  the  appellant Bank in the light of this decision leads to the irresistible conclusion  that  it is an instrumentality  of  the  Central Government. As has been stated earlier, the Bank was  estab- lished under the provisions of the Regional Rural Banks act, 1976.  The  preamble  of the Act which  is  mentioned  below clearly  indicates that the Regional Rural Banks are  estab- lished  to  discharge  the duties which  are  basically  the responsibility of a welfare State.               "An  Act  to provide  for  the  incorporation,               regulation and               941               winding up of Regional Rural Banks with a view               to developing the rural economy by  providing,               for the purpose of development of agriculture,               trade, commerce, industry and other productive               activities  in  the rural  areas,  credit  and               other  facilities, particularly to  the  small               and marginal farmers, agricultural  labourers,               artisans  and  small  enterpreneurs,  and  for               matters  connected  therewith  and  incidental               thereto." Section  3  says that if requested by a  Sponsor  Bank,  the Central  Government may establish a Regional Rural  Bank  in the manner provided therein. The Sponsor Bank in the present case  was  a nationalised bank, which has been  held  to  be under the control of the Central Government and,  therefore, covered by the definition in Article 12 of the Constitution. The share capital of a Rural Bank is to be subscribed by the Sponsor  Bank  which has the further duty  of  training  the personnel  of  the Rural Bank and providing  managerial  and financial assistance during the initial stage. The  duration of  such period can be extended by the  Central  Government. The Central Government is also vested with power to increase or  reduce the authorised capital in consultation  with  the Reserve  Bank and the Sponsor Bank. The burden to  subscribe to the capital issued by the Rural Bank is  divided--amongst the  Central Government, Sponsor Bank and the State  Govern- ment,  their respective shares being fifty per cent,  thirty five per cent and fifteen percent. The general  superintend- ence,  direction and management of the affairs of the  Rural Bank  vest in a Board of Directors which is  constituted  of two  Directions to be nominated by the  Central  Government, one  Director  to  be nominated by  the  Reserve  Bank  from

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amongst one of its Officers, one Director to be nominated by the  National  Bank from amongst one of  its  Officers,  two Directors  to be nominated by the Sponsor Bank from  amongst its Officers and the remaining two Directors to be nominated by  the State Government from its Officers. In view  of  the relationship  with and control of the Central Government  on the  Reserve Bank, National Bank and the Sponsor  Bank,  the Central Government gets an effective control over the  Rural Bank.  The  head office of the Rural Bank is to  be  located according  to the directions of the Central Government.  The remunerations  of  the Officers and other employees  of  the Rural  Bank  are to be fixed by the  Central  Government  as indicated in s. 17. Without attempting to exhaustively  deal with  the functions of a Rural Bank, s. 18(2)  mentions  the following types of business within its duty:               "18.(1).......                (2).........               942                        (a)  the  granting of loans  and  ad-               vances,  particularly  to small  and  marginal               farmers  and agricultural  labourers,  whether               individually or in groups, and to co-operative               societies,  including  agricultural  marketing               societies, agricultural processing  societies,               co-operative farming societies, primary  agri-               cultural credit societies or farmers’  service               societies, for agricultural purposes or  agri-               cultural  operations  or  for  other  purposes               connected therewith;                         (b)  the granting of loans  and  ad-               vances, particularly to artisans, small enter-               preneurs and persons of small means engaged in               trade,  commerce or industry or other produc-               tive  activities, within the notified area               in relation to the Regional Rural Bank." It  is  manifest that by establishing the  Rural  Banks  the Central  Government  acts in discharge  of  its  obligations under  Articles  38 and 48 of Part IV  of  the  Constitution through  them.  To ensure that the  object  of  establishing Rural  Banks is fully achieved, sub-section (2) of s. 20  of the  Act has brought both the houses of the Parliament  also in the picture in the following words:               "(2) The Central Government shall cause  every               auditor’s report and report on the working and               activities  of each Regional Rural Bank to  be               laid,  as  soon as may be after they  are  re-               ceived, before each House of Parliament." By  s.  24-A the Sponsor Bank is  required  to  periodically monitor the progress of the Rural Banks and to take connect- ed  steps, and to cause inspection, internal audit et  cetra made. The rule making power dealt with in s. 29 is vested in the Central Government and the power of the Central  Govern- ment to give directions is mentioned in s. 24, quoted below:               "24(1)  A  Regional Rural Bank shall,  in  the               discharge of its functions, be guided by  such               directions  in  regard to  matters  of  policy               involving  public  interest  as  the   Central               Government  may, after consultation  with  the               Reserve Bank, give.               (2)  If any question arises as to whether  any               such  direction relates to a matter of  policy               involving public interest, the decision of the               Central Government thereon shall be final." 943 The  provisions of the Act do not leave any room  for  doubt

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that  the Regional Rural Banks are under deep and  pervasive control of the Central Government and have been  established as  its instrumentality and, are, therefore, ’State’  within Article 12 of the Constitution.     8. The learned counsel contended that even if the appel- lant Bank is considered to be State, the courts cannot force the services of the respondent on it by passing a decree for his  re-instatement in service. All that can be done  is  to grant a relief of way of compensation in a properly  consti- tuted  suit. We do not find any merit in the  argument.  The learned  counsel  relied on the  following  observations  in paragraph 103 of the judgment in Central Inland Water Trans- port Corporation Ltd. and another v. Brojo Nath Ganguly  and another reported in, [1986] 3 SCC at page 156:                         "The  contesting respondents  could,               therefore,  have  filed  a civil  suit  for  a               declaration  that  the  termination  of  their               service was contrary to law on the ground that               the  said Rule 9(i) was void. In such a  suit,               however, they would have got a declaration and               possibly  damages for wrongful termination  of               service  but  the civil court could  not  have               ordered reinstatement as it would have amount-               ed  to  granting  specific  performance  of  a               contract of personal service. As the  Corpora-               tion is "the State", they, therefore,  adopted               the  far more efficacious remedy of  filing  a               writ petition under Article 226 of the Consti-               tution". Far from helping the appellant, the observations clarify the correct  position which is just contrary to the argument  of the learned counsel.     9.  In the result, the departmental  proceeding  against the  respondent  from 5.7.1983 onwards is  quashed  and  the decree  for  the plaintiffs reinstatement  in  service  with consequential benefits is confirmed. If the Bank authorities be  of the view that in spite of the delay of several  years the  inquiry ought to be completed, it will be open to  them to proceed with it and to take further steps in the proceed- ing  from  the stage where it stood on 5.7. 1983,  but  they should  indicate their intention to do so to the  respondent and  also serve copies of the relevant document on  him.  If they are of the view that any particular document is  confi- dential  in nature and a copy thereof cannot be handed  over to  the  respondent they may so indicate in writing  to  the respondent  and  it will be open to the inquiry  officer  to examine  whether the denial of such a copy would  amount  to violation of principles of 944 natural  justice. The Bank shall also permit the  respondent to join his post and receive his other benefits before he is called  upon to file a show cause. Subject to the  modifica- tions as indicated the decree under appeal is affirmed.  The parties are directed to bear their own costs of this Court. R.S.S. 945