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CASE NO.: Appeal (civil)  5047 of 2000

PETITIONER: Virendra Kumar Srivastava

RESPONDENT: U.P. Rajya Karmachari Kal. Nigam and another

DATE OF JUDGMENT: 23/11/2004

BENCH: Y. K. Sabharwal & D. M. Dharmadhikari

JUDGMENT: J U D G M E N T

Dharmadhikari J.

       The sole point that arises for decision in this appeal before us is  whether U.P. Rajya Karmachari Kalyan Nigam [for short ’the  Corporation’] is covered by the definition of "State" under Article 12 of  the Constitution of India and is amenable to writ jurisdiction of the  High Court under Article 226 of the Constitution of India.  

The services of the petitioner from the post of Salesman in one  of the stores of the Corporation have been terminated against which  he approached the High Court of Allahabad.  A preliminary objection  was raised by the Corporation to the maintainability of writ petition on  the ground that the Corporation does not fall in the definition of  "State" under Article 12 of the Constitution.  

Relying on decisions of the Lucknow Bench of the same Court in  the case of Vijay Kumar Verma vs. U.P. Government Employees  Welfare Corporation [Writ Petition No. 8246 (ss) of 1992 decided on  13.4.1993], the writ petition filed by the petitioner in the High Court  was dismissed as not maintainable against which the petitioner has  preferred the present appeal.  

After passing of the impugned judgments by the High Court, the  scope of Article 12 came up for consideration before a Constitution  Bench comprising seven judges of this Court in the case of Pradeep  Kumar Biswas vs. Indian Institute of Chemical Biology  [2002  (5) SCC 111]. The seven judges Constitution Bench in the case of  Pradeep Kumar Biswas (supra) overruled the decision of five judges  Constitution Bench in the case of Sabhajit Tewary vs. Union of  India [1975 (1) SCC 485.   By explaining and relying on  Constitution  Bench decision in the case of Ajay Hasia vs. Khalid Mujid  Sehravardi [1981 (1) SCC 722] by a majority of five against two this  Court has laid down a multiple test for determining whether a  particular Corporation or Body can be held to be included within the  definition of "State" under Article 12 of the Constitution. Learned  Sister Ruma Pal J., expressing the opinion of majority of Judges in the  case of Pradeep Kumar Biswas (supra) on re-examination of all  previous cases decided by this Court on the subject, laid down the  multiple test in the following words :-  

"The picture that ultimately emerges is that the tests formulated  in Ajay Hasia’s case (supra) are not a rigid set of principles so  that if a body falls within any one of them it must, ex hypothesi,  be considered to be a State within the meaning of Article 12.  The question in each case would be  - whether in the light of  the cumulative facts as established, the body is  financially, functionally and administratively dominated

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by or under the control of the Government. Such control  must be particular to the body in question and must be  pervasive. If this is found then the body is a State within  Article 12. On the other hand, when the control is merely  regulatory whether under statute or otherwise, it would not  serve to make the body a State.  [Emphasis supplied]

We may also refer to the minority view expressed by learned  Brother Lahoti J. [as he then was] in the case of Pradeep Kumar  Biswas (supra) because the examination of nature of difference in  opinion between majority and minority view, for the purpose of  present case,  may be of some relevance. In the minority view,  different tests are required to be applied in each particular case. The  claim of a body as included within the definition of "State"  based on it  being a statutory body falling in the expression ’other authorities’ is to  be considered differently from claim of a body based on the principles  propounded in the case of Ajay Hasia (Supra), that it is an  ’instrumentality or agency’ of the State. In the opinion of minority, the  tests laid down in the case of Ajay Hasia (supra) are relevant only for  the purpose of determining whether an entity is ’an instrumentality or  an agency of the State’. The minority view is expressed thus :-  

"Simply by holding a legal entity to be an instrumentality or  agency of the State it does not necessarily become an authority  within the meaning of "other authorities" in Article 12. To be an  authority, the entity should have been created by a statute or  under a statute and functioning with liability and obligations to  the public. ................ ........................ It is this strong  statutory flavour and clear indicia of power \026 constitutional or  statutory, and its potential or capability to act to the detriment  of fundamental rights of the people, which makes it an  authority; though in a given case, depending on the facts and  circumstances, an authority may also be found to be an  instrumentality or agency of the State and to that extent they  may overlap. ............ ..............

The tests laid down in the case of Ajay Hasia (supra) are  relevant for the purpose of determining whether an entity is an  instrumentality or agency of the State. Neither all the tests are  required to be answered in the positive nor a positive  answer to  one or two tests would suffice. It will depend upon a  combination of one or more of the relevant factors depending  upon the essentiality and overwhelming nature of such factors  in identifying the real source of governing power, if need be by  removing the mask or piercing the veil disguising the entity  concerned. When an entity has an independent legal existence,  before it is held to be the State, the person alleging it to be so  must satisfy the court of brooding presence of the Government  or deep and pervasive control of the Government so as to hold it  to be an instrumentality or agency of the State.  

       In the background of the views expressed by majority and  minority of the judges in the case of Pradeep Kumar Biswas (supra),  we have to apply the laid down tests for determining the character of  the Corporation involved in this case. We may clarify at the outset that  the Corporation herein has not been created by any statute. It is  merely a society registered under the Societies Registration Act of  1860. We will confine, therefore, our enquiry and decision as to  whether the present Corporation is an ’instrumentality’ or ’agency’ of  the State and can claim the status of ’State’ as defined in Article 12 of  the Constitution.

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Object for which the Corporation was formed :-  

The object of formation of the Corporation can be gathered from  a letter dated 20.3.1965 sent by Chief Secretary of the State of Uttar  Pradesh to all Heads of Departments, District Magistrates and  Commissioners of Divisions, District Sessions Judges and all Principal  Heads of the Offices in the State of Uttar Pradesh. In the contents of  the letter, the object of formation of Corporation is stated to be as  under :-  

"I am directed to say that of late, there has been an abnormal  rise in prices of almost all consumer goods, including food grains  and being persons of fixed and inelastic income government  servants are finding it difficult to balance their budget. One of  the methods by which real and substantial relief can be given to  them is to provide them with articles of daily requirement at  reasonable rates.  

Government have, therefore, decided to set up a corporation  wholly financed by government for establishing a chain of stores  throughout the State for supply of essential commodities to the  State Government employees at normal rates. It is hoped that  the scheme will not only provide substantial relief to the families  of government employees, but will also help in bringing down  prices generally. The salient features of the scheme are given in  the attached note.  

In the meantime the scheme will function under the supervision  and management of a staff welfare Board  at the Headquarters  of Government. The Board will consist of the following :-  

i)      Chief Secretary                               ....  President  ii)     Commissioner and Secretary, Finance Department  iii)    Commissioner and Secretary, Food & Civil Supplies Deptt. iv)     Secretary, Industries Department  v)      Secretary, Appointment Department vi)     Director of Industries, U.P. vii)    Deputy Secretary, Welfare Scheme,          Chief Secretary’s Branch                        ......    Secretary      

To fulfil the above object contained in the letter of the Chief  Secretary which was addressed to all departments of the State, a  society was formed and registered under the Societies Registration  Act, 1860 with the name of the society as Uttar Pradesh Rajya  Karamchari Kalyan Nigam. In the Memorandum of Association of the  Corporation in clause(3), objects of the Corporation are stated to be as  under :-  

i)      To carry on and promote activities aimed at the welfare of  the employees of the State Government and to equip  itself with capital, credit, means, resources and technical  and managerial assistance for this purpose.  

ii)     To provide and help for the welfare of the employees, the  places of interests, recreation, sports and medical  attendance and to subscribe money to or for, or otherwise  help any other charitable and benevolent object which is  in the opinion of the Corporation useful to the employees.  

iii)    To establish and run stores, shops, canteens for carrying  on retail business in essential commodities of daily use  and other consumer goods without profit motive in such  localities within the State of Uttar Pradesh as the Board of  Directors of the Corporation may decide from time to

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time.  

iv)     To help by planning sales of the said commodities in a no  profit, no loss basis as a whole in maintaining the prices  of such commodities at a reasonable level to the  advantage of the community as a whole.  

v)      To act as an agent or stockist on behalf of any  government or any institution, manufacturer or concern  for procurement, supply and distribution of consumer  goods.  

vi)     To make or enter into arrangements for transport,  processing, manufacturing, grading, packing and  distribution of consumer goods.  

vii)    To acquire by purchase or on lease or hire or by licences  or otherwise, buildings and premises required for the  activities of the Corporation.  

viii)   To lease or let on hire, mortgage, sale, pledge or transfer  by licence or otherwise and lands, buildings or other  property moveable or immoveable.  

ix)     To enter into any arrangements with the Union or the  State Government or any local authority or any person for  the purpose of carrying out the objects of the Corporation  or furthering its interests and to obtain from such  government of authority or person subsiding, loans,  indemnities, grants, contract licences rights, concessions,  privileges or immunities which the Corporation may think  it derisable to obtain and exercise and comply with any  such arrangements, rights privileges and concessions.  

x)      To erect buildings or other structures on lands acquired  by the Corporation in any manner.

xi)     To accept gifts, donations etc., of any nature,  whatsoever.

xii)    To lend or borrow money on such terms and conditions as  it thinks fits.

xiii)   To draw, make, accept, endorse, discount, execute, and  issue cheques, promissory notes, bills of exchange or  other negotiable or transferable instruments.  

xiv)    To do all such other matters and things as may appear to  be incidental or conducive to the attainment of the above  objects or any of them or consequential upon the exercise  of its powers or discharge of its duties.  

 The first members including office bearers of the governing body  with the names, addresses and occupation indicate that they are  working for the Corporation ex officio holding different executive posts  in different departments of the State of Uttar Pradesh. The Rules of  the Association of the Corporation are also registered. Rule 5 makes it  clear that members of the Corporation or the Board who are members  by virtue of their offices which they hold in the State shall stand  terminated when they cease to hold the office in the State and their  successors to that office shall become members. The names of the  members and office bearers of the governing body are as under :-  1.      Shri K. K. Dass         Chief Secretary to Govt.                        Chairman of the         

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       Ex officio Board                                        Board

2.      Shri V. M. Bhide         Commissioner & Secretary, Finance         Deptt. UP Govt. Ex officio                              Director

3.      Shri H. C. Saxena         Secretary, Industries Deptt.         Ex officio                                              Director

4.      Shri Bhagwant Singh         Commissioner & Secretary,          P&C Deptt. UP Govt. Ex. Officio                 Director

5.      Shri B. B. Malik                                                 Director of Industries, UP         Ex officio                                              Director

6.      Shri B. L. Chak         Secretary, Appt. & G.A.D.          Ex officio                                              Director

7.      Shri S. B. Saran         Dy. Secretary, Chief Secretaries          Branch, UP Govt. Ex officio                             Exe. Director                                                                 of the Board  

The most important is clause 4 of the Memorandum of  Association of the Corporation which reads thus :-  

"If on the winding up or dissolution of the Corporation  there  shall remain, after the satisfaction of its debts and liabilities, any  property, the same shall not be paid to any of its members or  distributed amongst them but subject to the provisions of  section 14 of the Act shall be disposed of in such manner as the  State Government may determine."  

Rule 4 of the Rules of Association of the Corporation is also  relevant for the purpose of finding out the real nature of the  Corporation. It reads thus :-

"The Board may with the previous approval of the State  Government admit any employee of the State Government as  member of the Corporation."  

Similarly, rule 6 is also relevant and reads thus :-  

"The Board may, subject to its general control and supervision  and subject to such restrictions as it may like to impose,  delegate all or any of its powers to any one or more members of  the Board. The Board may, likewise delegate any of its powers,  not being the powers under clause (b), (c), (h), (i) and (k) of  sub-rule 5 of rule 3 of the said Rules in favour of any officer of  the Corporation or to an officer of the State Government,  not below the rank of a District Magistrate (which will  include an Additional District Magistrate also)."  

    [Emphasis supplied]  

Similarly, rule 12 confers powers of the delegation on Executive  Director in favour of any officer of the Corporation or the State. It  reads thus :-  

"The Executive Director may, subject to his general control and

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supervision and such restrictions as he may like to impose  delegate all or any of his powers to any officer of the  Corporation or of the State Government."

Rule 17 dealing with amendments of the rules puts restriction on  amendments or variation of the rules which can be done only with  prior approval of the State Government :-  

Rule 17 "The Corporation may add to, amend, vary or delete  the rules.  

Provided that no such rules shall be added to, amended, varied  and deleted unless a resolution to that effect has been passed  by not less than 3/5th of the members present in the meeting of  the Corporation specially called for that purpose and provided  further that no such rules shall be added to, amended, varied or  deleted without the prior approval of the State Government."  

                                                   [ Emphasis supplied ]

So far as funding and financing of the Corporation are  concerned, petitioner has filed additional documents in this appeal  containing various grants annually made from time to time by the  State Government to the Corporation. Letter dated 14.1.1992 of Joint  Secretary, Govt. of U.P. to the Executive Director of the Corporation  informed that additional grant of 50 lacs was granted for the financial  year 1991-92 for expenditure of 100% amount on the salary  allowances of employees working in the Headquarters of the  Corporation and 50% of the amount spent on salaries and allowances  of employees working at the canteens.  By letter dated 15.9.1994 the  State Government granted sanction for revival of the post of Assistant  Director earlier sanctioned in the year 1980 for the Corporation. By  letter 6.9.1997, the earlier grant of 75%  in the year 1996-97 was  increased to cent percent to meet the expenditure of salaries and  allowances of employees of canteens run by the Corporation. By letter  dated 16.12.1999, the Secretary of Government of Uttar Pradesh  wrote to the Commissioner, Food and Supplies Deptt. And the  Executive Director of the Corporation that to solve the problem of  pending bills of the Corporation with the Secretariat Administrative  Department, against the total bill of Rs.1.12 crores, the Food  Department will immediately pay the amount from its trading account  which will be reimbursed to the Department on receipt of budget. It  was also directed that a sum of Rs. 45 lacs every quarter shall be  made available by the Food Department to the Corporation on which  the Corporation will pay interest at the rate of 12.34%. By letter dated  16.9.1999, the Secretary informed the Commissioner of Food and  Supplies Department and Executive Director of the Corporation that  the Food Department will provide amount up to Rs.10 crores from its  trading account to the Corporation as working capital for its business  and Food Department will be responsible for return of the working  capital made available to the Corporation within time. The letter,  however, directs the Corporation to return the said amount with  interest through a cheque to Commissioner, Department of Food and  Civil Supplies before 31.3.2000. On the expenditure of the working  capital provided some  restrictions have been placed which read thus:-  

"Out of this working capital, the Corporation will purchase   products already approved or to be approved in future by  the Product Approval Committee of U.P. State Employees  Welfare Corporation constituted vide GO dated 4.9.1999.  The Food Commissioner will separately maintain account  for the arrangement and will ensure that it functions  smoothly."  

Letter sent on 7.3.2001 by the Executive Director of the

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Corporation to all District Magistrates indicates overall control on the  activities of the Corporation by the functionaries of the State. The  contents of the letter directing physical verification of stocks of  essential commodities in various stores of the Corporation through the  Commissioner and Secretary of Food and one gazetted officer  nominated by District Magistrate is a clear pointer to the pervasive  control exercised by the State and its officers on the functioning and  activities of the Corporation.  

The multiple test which is to be applied to ascertain the  character of a body as falling within Article 12 or outside as laid down  by majority view in Pradeep Kumar Biswas case (supra) is to ascertain  nature of financial, functional and administrative control of the State  over it and whether it is dominated by the State Government and the  control can be said to be so deep and pervasive as described the  minority view in Pradeep Kumar Biswas case (supra) so as to satisfy  the court ’of brooding presence of the government’ on the activities of  the Corporation.  

We may, therefore, briefly indicate the evidence produced by the  parties relevant to the multiple test to determine the composition and  character of the Corporation :-  

Administrative Control  :-

       The Corporation was formed by a decision of the government  with the object of providing articles of daily requirement to the  government servants at reasonable rates. In this respect, the contents  of the minutes of the meeting held on 1.10.1971 in the Chairmanship  of Minister of Food for considering the note prepared by the Cabinet of  the Government with Chief Secretary, Commissioner and Secretary to  Food and Commissioner and Secretary, Finance is revealing. In the  course of meeting, the Chief Secretary suggested that the finances of  the Corporation can be raised by raising share capital to be sold to the  government employees. The Food Secretary thereupon objected to the  proposal saying that the Corporation is a government organization and  raising of share capital would change its character from government  institution to a cooperative institution. The minutes also record the  suggestion of the Chief Secretary that as the government employees  are being provided facility of making them available articles of daily  need on reasonable price apart from dearness allowance in cash, the  activities of the Corporation and the object for which its set up, should  be made known to the Pay Commission.  

       By notification dated 01.4.1987, issued in exercise of powers  under sub-section (3) of section 3 of the U.P. Shops and Commercial  Establishments Act, 1962, all stores, depots and canteens run by the  Corporation have been exempted from the provisions of section 4(b) of  the said Act.  

       From the memorandum of the Articles of Association, it is clear  that one of its objects is that it can act as an agent or stockist on  behalf of the government. The members and office bearers of the   Corporation are all executive officers of the State representing  different departments concerned with civil supplies. They are on the  management of the Corporation in their capacity as officers of the  State Government. In accordance with Rule 4 of the Rules of  Association, other employees of the State Government can be included  as members of the Corporation only with the previous approval of the  State Government. In accordance with rule 6, the Board may delegate  specified powers to the officers of the State Government not below the  rank of District Magistrate or Addl. District Magistrate. Similarly, in  accordance with rule 12, Executive Director can delegate his powers to  any officers of the State Government. The rules of the Corporation can  be added to, amended, varied or deleted only with prior approval of

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the State Government. The above mentioned objects and the  provisions in the memorandum and rules of the Corporation clearly go  to show that the administrative control of the Corporation vests in the  Executive Officers representing different departments of the State.  

Financial Control :-  

       The financial control of the Corporation is to a large extent with  the State Government. Hundred percent grant is made for payment of  the salary of  employees at the Headquarters of the Corporation and  initially 50% grant was given for employees working in the canteens  which was later increased to 75% and lastly cent percent. Working  capital to the Corporation was made available by the Food Department  to the extent of 10 crores and although the amount is returnable but  its expenditure and reimbursement is to be ensured by Secretariat  Administrative Department of the State of U.P. In the letter dated  16.9.1999, working capital of 10 cores is provided to the Corporation  with the responsibility placed on the Food Department for its return.  Admittedly, therefore, there is total financial support to the  Corporation of the State of U.P. although it is expected that the  Corporation will generate sufficient amount to be able to run on ’no  profit no loss’ basis.  

Functional Control :-  

       There is complete functional control of the Corporation by the  State which is evident from the fact that Executive Officers of the  State are ex officio members and office bearers of the Corporation.  From the minutes of the meeting held in the Chairmanship of Minister  for Food with Commissioner and Secretary of Food and Civil Supplies  Department, there is an indication that the government has taken  responsibility to finance and fund the Corporation. The proposal,  therefore, to raise share capital was declined. For auditing the  accounts of the Corporation, services of Chief Finance Officer of the  State were made available to the Corporation.  

       Most revealing is the letter dated 07.3.2000 mentioned above  which describes the Corporation as an undertaking of the State and  directs physical verification of the stocks in stores of the Corporation to  be done by Gazetted Officer or Incharge Officer to be nominated by  District Magistrate for the District in which the depot or store is  operated. More important to indicate administrative and functional  control is clause (4) of the Memorandum of Association which provides  that on winding up or dissolution of the Corporation, the property  available after satisfaction of debts and liabilities will not go to its  members but shall be at the disposal of the State Government. As  observed in the minority view in the case of Pradeep Kumar Biswas  (supra) if the corporate mask of the registered society is removed it  clearly exposes the real nature of the Corporation as entity of the  State.  

       On behalf of the Corporation, learned counsel highlighted the  Constitution of the Corporation and the Articles of the Association  which regulate its affairs. It is submitted that it is an autonomous  body. The Corporation is not engaged in any State function of vital  importance making available daily needs of the government servants  which is an activity like any other commercial activity. It is also  submitted that merely because there is ’patronage’, encouragement,  push or recognition to the Corporation of the State, it would not make  it as an entity following within the definition of ’State’ under Article 12  of the Constitution.  

       We have in detail and very carefully examined the Constitution  and Articles of Association of the Corporation by which it is regulated.

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       On detailed examination of the administrative, financial and  functional control of the Corporation, we have no manner of doubt that  it is nothing but an ’instrumentality and agency of the State’ and the  control of the State is not only ’regulatory’ but it is ’deep and  pervasive’ in the sense that it is formed with the object of catering to  the needs of the government employees as a supplement to their  salaries and other perks.  The top executives of the government  department ex officio are members and office bearers of the  Corporation. The Corporation is fully supported financially and  administratively by the State and its authorities. Even day-to-day  functioning of the Corporation is watched, supervised and controlled by  the various departmental authorities of the State particularly the  Department of Food and Civil Supplies. The multiple test indicated to  be applied  both by the majority and minority view in Pradeep Kumar  Biswas (supra) is fully satisfied in the present case for recording a  conclusion by us that the Corporation is covered as an ’agency and  instrumentality of the State’ in the definition of ’State’ under Article 12  of the Constitution. It is, therefore, amenable to the writ petition of the  High Court under Article 226 of the Constitution.  

Before parting with the case, it is necessary for us to clarify that  even though a body, entity or  Corporation is held to be a ’State’  within the definition of Article 12 of the Constitution what relief to the  aggrieved person or employee of such a body or entity is to be granted  is a subject matter in each case for the court to determine on the basis  of the structure of that society and also its financial capability and  viability. The subject of denial or grant of relief partially or fully has to  be decided in each particular case by the court dealing with the  grievances brought by an aggrieved person against the bodies covered  by the definition of ’State’ under Article 12 of the Constitution.  

       In the result, the appeal is allowed. The impugned order dated  30.9.1999 of the High Court dismissing the writ petition on the  preliminary ground based on Article 12 of the Constitution is set aside.   The case is remitted to the High Court for taking a decision on the  merits of the case. In the circumstances, the parties shall bear their  own costs in this Court.