REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3495 OF 2005

R.R. Pillai (dead) through Lrs.  ...Appellants

Versus

Commanding Officer HQ S.A.C. (U) and Ors. …Respondents

(With Civil Appeals Nos. 3557-3559, 3560 and 3561 of 2005)

J U D G M E N T

Dr. ARIJIT PASAYAT, J.

1. Doubting correctness of the view of this Court in  Union of India v.  

Mohd. Aslam (2001 (1) SCC 720) reference has been made to a three-Judge  

Bench and that is how these appeals are before this Bench. The controversy  

lies within a very narrow compass.

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2. The issue is as to the status of an employee of Unit Run Canteen in  

Armed Forces. While admitting Civil Appeal No.3495/2005 the matter was  

referred to a larger Bench as noted above and other cases were tagged with  

Civil Appeal No.3495 of 2005. We shall deal with the factual scenario in  

Civil Appeal No.3495 of 2005 and after deciding the legal issues involved,  

apply the decision to the other appeals.

3. Appellant Shri R.R. Pillai was recruited as Airman in the Indian Air  

force on 7.10.1967 and was discharged from service on 31.10.1988 as Junior  

Warrant Officer as he sought for premature retirement from service. Before  

his discharge he had been looking after the affairs of the Unit-Run-Canteen  

(in short the ‘URC’). After discharge he was engaged as Manager of URC at  

Southern Air Command on an honorarium of Rs.1,000/-P.M. w.e.f 1.2.1989.  

Para  6  of  the  appointment  letter  clearly  stated  that  the  appointment  was  

governed  by  the  terms  and  conditions  as  laid  down  in  Air  HQ  letter  

No.20728/P/Org  dated  31st  January,  1984  issued  under  the  relevant  

Regulations. The terms and conditions of service of canteen employees are  

covered by the rules called “The Rules regulating the Terms and Conditions  

of Service of’ Civilian Employees of Air Force Unit Run Canteen paid out  

of Non Public Funds”.

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4. According  to  the  appellant  the  view taken  in  Mohd Aslam’s case  

(supra) is the correct view, it is stated that even if Canteen Store Department  

(in short the ‘CSD’) was not the source of funding, other parameters clearly  

cover the employees in question of Government service.

5. Reference is made to certain decisions to support the stand, e.g., Kona  

Prabhakara Rao v.  M. Seshagiri Rao and Anr. (1982 (1) SCC 442 (para 9)  

and Satrucharla Chandrasekhar Raju v. Vyricherla Pradeep Kumar Dev and  

Anr.  (1992 (4) SCC 404 at 412). Even if full funding is not there partial  

funding by quality discount is there which is the test for determining as to  

which employee is a government servant. Reference is also made to certain  

subsequent decisions in which Aslam’s case (supra) has been referred to. It  

is pointed out that on the date the OAs were decided, Aslam’s case (supra)  

was applicable and therefore de facto doctrine would apply. In any event, it  

is stated that Rule 24 cannot take out the benefits in the manner done. The  

High Court had not considered the challenge to Rule 24. It is pointed out  

that  the  decision  which  has  been  given  can  only  be  re-considered  for  

compelling reasons and the view taken in Aslam’s case (supra) is a possible  

view. In any event, the appointing body is an instrumentality of State and,  

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therefore, Articles 14 and 16 of the Constitution of India, 1950 (in short the  

‘Constitution’)  are applicable.  With reference to Section 23 of the Indian  

Contract Act, 1923 (in short the ‘Contract Act’) it is stated that Section 23 of  

the Contract Act clearly prohibits the appointments in the manner done.

6. Learned  counsel  for  the  Union  on  the  other  hand  submitted  that  

Aslam’s case (supra) proceeded on erroneous factual basis. It proceeded on  

the basis as if the canteen or the establishment in question was funded by the  

CSD. The issue is not whether it is an instrumentality of the State. Issue is  

whether the concerned employees are government employees. It is submitted  

that  Union  of  India  and  Anr. v.  Chote  Lal (1999  (1)  SCC 554)  clearly  

applies to the facts of the case.

7. It  is  submitted  that  unit  run  canteen  is  amenable  to  Shops  and  

Commercial  Establishments  Statutes  because  the  appointment  cannot  be  

made dehors the Rules.  There is no prescribed qualification or age limit.  

Similarly there is no grade or cadre. Therefore, it  cannot be said that the  

concerned employees are holders of civil posts.

8. In the case of Aslam’s case (supra) a Bench of this court proceeded on  

incorrect factual premises inasmuch as after noticing that the URCs are not  

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funded from the Consolidated Fund of India, it went wrong in concluding  

that the URCs are funded by CSD as well as the articles were supplied by  

the CSD. Unfortunately, it did not notice that no such funding is made by the  

CSD. Further, only refundable loans can be granted by the CSD to URCs at  

the rate of interest laid down by it from time to time upon the application of  

URCs seeking financial  assistance.  URCs can also take from other  Non-

Public  Funds.  Further  observation  regarding  supply  is  also  not  correct.  

URCs, in fact, purchase articles from CSD depots and it is not an automatic  

supply and relation between URCs and CSDs is that of buyer and seller and  

not of principal and the agent. This Court further went wrong in holding that  

URCs are  parts  of  CSDs when it  has been clearly  stated  that  URCs are  

purely private ventures and their employees are by no stretch of imagination  

employees of the Government or CSD. Additionally, in Aslam’s case (supra)  

reference  was  made  to  Chandra  Raha  and  Ors. V.  Life  Insurance  

Corporation  of  India (1995  Supp  (2)  SCC 611).  The  Bench  hearing  the  

matter unfortunately did not notice that there was no statutory obligation on  

the  part  of  the  Central  Government  to  provide  canteen  services  to  its  

employees.  The profits  generated from the  URCs are  not  credited  to  the  

Consolidated Funds, but are distributed to the Non Public Funds which are  

used by the units  for the welfare of the troops.  As per para 1454 of the  

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Regulations for the Air Force, 1964 the losses incurred by the non public  

funds are not to be borne by the State.

9. The factors highlighted to distinguish  Chotelal’s case (supra) in our  

considered opinion are without any material. There was no scope for making  

any distinction factually between Aslam’s case (supra) and Chotelelal’s case  

(supra).  In  our  view,  therefore,  Aslam’s case  (supra)  was  not  correctly  

decided.

10. The question whether the URC can be treated as an instrumentality of  

the  State  does  not  fall  for  consideration  as  that  aspect  has  not  been  

considered by CAT or the High Court. Apparently, on that score alone we  

could have dismissed the appeal.  But we find that the High Court placed  

reliance on Rule 24 to deny the effect of the appointment. From Rule 4 read  

with Rule 2 it is clear classification that all employees are first on probation  

and they shall be treated as temporary employees. After completion of five  

years they might be declared as permanent employees. They do not get the  

status of the Government employees at any stage. In  Aslam’s case (supra)  

CAT’s  order  was  passed  in  1995.  By  that  time  1999 Rules  were  not  in  

existence and 1984 rules were operative.

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11. It  is  to be noted that  financial  assistance is  given,  but  interest  and  

penal  interest  are  charged.  The  URCs  can  also  borrow  from  financial  

institutions. The reference is answered by holding that employees of URCs  

are not government servants.

12. The High Court has come to an abrupt conclusion about validity of  

Rule  24,  distinguishing  the  decision  of  this  Court  in  Delhi  Transport  

Corporation v.  D.T.C. Mazdoor Congress and others (AIR 1991 SC 101).  

Present appellant had questioned validity of Rule 24.  High Court should  

have  considered  that  challenge  in  the  proper  perspective.   But  it  is  not  

necessary to examine that question as the original employee R.R. Pillai has  

already expired.  But, in the peculiar facts of the case we direct that a sum of  

Rs.2  lakhs  be  paid  to  his  legal  representatives  within  a  period  of  three  

months in full and final settlement of all his claims.

13. The applications for intervention are dismissed.  

14. This order shall operate in respect of the appeal filed by the deceased  

through his legal heirs and other appeals by the Union of India.

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15. The appeals are disposed of accordingly.  

……..…………………….………J. (Dr. ARIJIT PASAYAT)

…………………………….……..J. (P. SATHASIVAM)

…………………………….……..J. (AFTAB ALAM)

New Delhi, April 28, 2009

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