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D.M. Nagaraja Rao Vs. Indian Oil Corporation Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKarnataka High Court
Decided On
Case NumberWrit Petition No. 1343 of 1967
Judge
Reported in[1971]41CompCas621(Kar); (1969)2MysLJ83
ActsCompanies Act, 1956 - Sections 224, 225, 226, 227, 228, 229, 230, 231, 232, 233, 617 and 619
AppellantD.M. Nagaraja Rao
RespondentIndian Oil Corporation Ltd.
Excerpt:
.....309 and 311 of constitution of india - termination of petitioner challenged - whether respondent-company is 'state' or 'authority' within meaning of article 12 and whether appropriate writ can be issued - respondent is registered company functioning under act of 1956 within ambit of articles of association - in eye of law corporation or company is its own master and fully answerable to body contemplated under act and articles of association - servants of respondent-company are appointed by directors or any other officer duly authorized by them - they are not civil servants who can claim benefit of constitutional protection granted under articles 309 or 311 - respondent-company is neither state nor agent of state - termination order would be order wholly in exercise of powers conferred..........which not less than 51 per cent. of the share capital is held by the central government or by any state government or governments, or partly by the central government or partly by one or more state governments. section 619 makes specific provisions for the appointment of an auditor, etc., notwithstanding anything contained in section 224 to 233. it is stated that the auditor of the government company shall be appointed or re-appointed by the central government on the a device of the controller and auditor-general of india. it is thus obvious that subject to the fact that the shares of the company are held wholly by the central government, the rest of the powers and functions of the company fall within the provisions of the companies act, subject to the provisions made in the articles of.....
Judgment:

Tukol, J.

1. The petitioner entered into the service of the respondent, the Indian Oil Corporation Limited, as sales officer, grade II, in 1962. The service of the petitioner were terminated by a memo (exhibit G) dated December 26, 1966, with effect from the date of the receipt of the that letter on payment of the one month's salary in lieu of notice. The petitioner then appealed to the managing director against the aforesaid order. He was informed by a letter on February 13, 1967, that they were unable to alter the decision regarding the termination of his services. The petitioner then filed the present writ petition on June 22, 1967, for a writ of certiorari or writ of the mandamus or other appropriate writ quashing the order of the termination of his services. In his petition he has contended that the order of termination had been passed by the personnel officer who was not competent to pass such order under clause 7 of the terms and conditions of appointment. He also contended that clause 7 applied only to persons who had been continued in service after the period of probation without an order of confirmation and that it did not apply to him as he had been duly confirmed in service from September 5, 1962. According to him some three letters had been issued to him in July and September, 1966, calling for his explanation as to certain acts of negligence, etc., and that he had given satisfactory explanation to all those letters. He also submitted that his services had been terminated without following the procedure indicated in the standing orders. By a subsequent affidavit the petitioner took additional grounds to support his application for the writs mentioned above. He has stated that the Indian Oil Company Limited was a Government undertaking, acting as an agent or instrument of Government, and that the application of clause 7 in his case, without applying it to grade III officers, was discriminatory and violative under article 14 of the Constitution. According to him corporation is an 'authority' within the meaning of article 12 of the Constitution and that he was entitled to any one of the appropriate writs prayed for.

2. The respondents has resisted the petitioner's claim on numerous grounds. Two counter-affidavits have been filed on behalf of the respondent. It has been contended that the order of the termination of the petitioner's services had been competently passed by the managing director and that there was no contravention of clause 7 of the terms and conditions of appointment. It is contended that the relationship between the petitioner and the respondent was contractual and not statutory and that therefore no writ could be issued against the respondent. The order of discharge had not been issued in the discharge of any statutory duty or public obligation and therefore not amenable to the writ jurisdiction of this court. The respondent also has contended that as the head office of the respondent-company was located beyond the jurisdiction of this court, this court cannot issue any writ as it cannot travel beyond its jurisdiction. He affirmed that the standing orders did not applying to the terms and conditions of the petitioner's services and that the letter of the appointment of the offering the post to the petitioner on February 10, 1962, was fully conclusive of the terms and conditions of his service.

3. So, the first question that was submitted for our consideration by Mr. S. K. Venkataranga Iyengar, learned advocate appearing for the petitioner, is whether the respondent-company is a 'State' or 'authority' within the meaning of the article 12 of the Constitution, and whether an appropriate writ can be issued by this court. In support of this argument he drew our attention to a letter issued on October 7, 1961, by the Deputy Secretary to the Government of India in the Ministry of Steel, Mines and Fuel on the subject of the allotment of land to oil companies for erection of pump sets for the supply of petroleum products. Therein it has been mentioned that the Indian Oil Company Limited, 'A wholly Government-owned organisation', had entered into a distribution trade of petroleum products. It cannot be disputed that the Indian Oil Corporation Limited is a registered company, registered under the Companies Act, 1956, with its registered office situate in the State of Maharashtra. The objects of this company are enumerated in article 3 of the memorandum and articles of the association. The company according to article 4 of the articles of association is to be a 'private company' with the characteristics as detailed therein. The share capital of the company is Rs. 85 crores divided into 8,50,000 equity shares of Rs. 1,000 each. It is undisputed that all the shares are owned by the Union Government and that the shares are held by the four different officers of the Union Ministry on behalf of the President. Articles 10 of the articles of association states that the shares be under the control of the board of the directors subject to the provisions of the Companies Act and the articles and the to the rights of the President. Article 116(23) of the articles of association empowers the directors, without prejudice to the general powers 'to appoint and at their discretion remove or suspend such secretaries, officers, clerks, agents and servants as they may from time to time think fit, and to determine their powers and duties and fix their salaries or emoluments and require security in such instances and to such amounts as they may think fit'. It is unnecessary to read the proviso which refers to appointments to posts carrying a salary in excess of the Rs. 2,250. From the memorandum and articles of association, it is clear that the respondent was registered as a private company, that it is clear that the respondent was registered as a private company, that it has its share capital as mentioned in articles 6, that the all the shares are held by the different officers of the Union Government in the name of the Presidents and that the directors of the company have the power of appointing or removing at their discretion secretaries, officers, clerks, etc. Prima facie, the memorandum and the articles of association do indicate that the respondent is a registered company under the Companies Act and has been functioning under the provisions of the Companies Act, within the ambit of the articles of association.

4. Section 617 of the Companies Act defines a government company as a company in which not less than 51 per cent. of the share capital is held by the Central Government or by any State Government or Governments, or partly by the Central Government or partly by one or more State Governments. Section 619 makes specific provisions for the appointment of an auditor, etc., notwithstanding anything contained in section 224 to 233. It is stated that the auditor of the Government company shall be appointed or re-appointed by the Central Government on the a device of the Controller and Auditor-General of India. It is thus obvious that subject to the fact that the shares of the company are held wholly by the Central Government, the rest of the powers and functions of the company fall within the provisions of the Companies Act, subject to the provisions made in the articles of the association.

5. The learned advocate for the petitioner has cited a number of decisions in support of his contention that the respondent-company is the State of at least an agent of the State or an instrument of the State. The decision of the Supreme Court in Tata Engineering and Locomotive Co. Ltd. v. State of Bihar : [1964]6SCR885 had to consider whether corporations or companies registered under the Companies Act are citizen competent to apply under the articles 32 of the Constitution. Their Lordships came to the conclusions that the activities of the corporations are entirely separate from those of the its shareholders and it bears its own name and possesses its own seal, that it can sue or be sued exclusively for its own purpose and that the liability of the members or shareholders is limited to the capital invested by them. While holding that the corporations and companies are not citizens within the meaning of articles 32, their Lordships referred to the doctrine of lifting the veil in trying to ascertain the real nature of the corporation or the company. Mr. Iyengar, appearing for the petitioner, contended that this was a case where the doctrine of lifting the veil should be applied to the defendant-company in order to find out that in reality the defendant is the Union Government and not, as it purports to be a company registered under the Companies Act. The doctrine was discussed by their Lordships who stated also its limitations. They observed :

'Thus, at present, the judicial approach in cracking open the corporate shell is somewhat cautious and circumspect. It is only where the legislative provision justified the adoption of such a course that the veil has been lifted. In exceptional cases where courts have felt 'themselves able to ignore the corporate entity and to treat the individual shareholder as liable for its acts', the same course has been adopted. Summarising his conclusions, Gower has classified seven categories of cases where the veil of a corporate body has been lifted. But it would not be possible to evolve a rational, consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should be lifted or not. Broadly stated, where fraud is intended to be prevented, or trading with an enemy is sought to be defeated, the veil of a corporation is lifted by judicial decisions and the shareholders are held to be the persons who actually work for the corporation.

That being the position with regard to the doctrine of the veil of a corporation and the principle that the said veil can be lifted in some cases, the question which arises for our decision is : can we lift the veil of the petitioner and say that it is the shareholders who are really moving the court under article 32, and so, the existence of the legal and juristic separate entity of the petitioners as a corporation or as a company should not make the petitions filed by them under article 32 incompetent. We do not think we can answer this question in the affirmative.'

6. In the absence of any provisions of law which enables a court to go behind the legal entity of the corporation or company registered under the Act, we do not think that it is open to us to say that the company is quite different from what it purports to be according to the provisions of governing its constitution, functions and obligations.

7. Reliance was placed on the decision of the Supreme Court in Rajasthan State Electricity Board, Jaipur v. Mohan Lal : (1968)ILLJ257SC in which their Lordships had to consider whether the Electricity Board of Rajasthan is a 'State' within article 12 of the Constitution. After referring to article 12 and to the dictionary meaning of the word 'authority', their Lordships proceeded to lay down that the expression 'other authorities', occurring in article 12, is wide enough to include within it every authority created by a statute and functioning within the territory of India, or under the control of the Government of India. In their Lordships' opinion the expression 'other authorities' includes all constitutional or statutory authorities on whom powers are conferred by law. Our pointed attention was drawn by the learned advocate for the petitioner to the discussion on page 1863 of the report, wherein their Lordships referred to their earlier decisions and quoted from K. S. Ramamurthy Reddiar's case : [1964]1SCR656 the following passage :

'Further, all local or other authorities within the territory of India include all authorities within the territory of India whether under the control of the Government of India or the Governments of various States and even autonomous authorities which may not be under the control of the Government at all.'

8. They proceeded further and stated :

'These decisions of the court support our view that the expression 'other authorities' in article 12 will include all constitutional or statutory authorities on whom powers are conferred by law. It is not at all material that some of the powers conferred may be for the purpose of carrying on commercial activities ....... The State, as constituted by our Constitution, is further specifically empowered under article 298 to carry on any trade or business. The circumstance that the board under the Electricity (Supply) Act is required to carry on some activities of the nature of trade or commerce does not, therefore, give any indication that the board must be excluded from the scope of the word 'State' as used in article 12.'

9. Their Lordships referred to the other provisions of the Electricity (Supply) Act which show that powers conferred on the board include power to give directions, the disobedience of which is punishable as a criminal offence.

10. It should be remembered that the board that their Lordships were dealing with was one constituted under the Electricity (Supply) Act, 1948. The respondent-company is neither a statutory corporation nor an organisation credited under the constitution. The decision of this court in H. Suryanarayana v. Managing Director ([1966] 1 Mys. L.J. 465) cited for the petitioner left open the question whether the Hindustan Machine Tools Limited was a 'State' or not. During the course of the judgment their quoted certain observations from the judgment of Denying L.J. Tamlin v. Hannaford ([1950] K.B. 18; [1949] 2 All E.R. 327, 329). It is enough if we refer to the following small passage :

'In the eye of the law the corporation is its own masters and is answerable as fully as any other person or corporation. It is not the Crown and has none of the immunities or privileges of the Crown. Its servants are not civil servants, and its property is not Crown property. It is as much bound by Acts of Parliament as any other subject of the King. It is, of course, a public authority and its purposes, no doubt, are public purposes but it is not a Government.'

11. The question whether a corporation is an agent or servant of the State came up for consideration before the Supreme Court in State Trading Corporation of India v. Commercial Tax Officer : [1964]4SCR99 . During the course of the discussion their Lordships referred to the observations of Denning L.J. in Tamlin's case ([1950] K.B. 18; [1949] 2 All E.R. 327, 329) and clarified the position as follows :

'The question whether the corporation either sole or aggregate is an agent or servant of the State must depend upon the facts of each case. In the absence of any statutory provision a commercial corporation acting on its own behalf even if it is controlled wholly or partially by a Government department, will be presumed not to be a servant or an agent of the State. The fact that a minister appoints the members of the corporation and is entitled to call for information and to supervise the conduct of the business, does not make the corporation an agent of the Government. Where, however, the corporation is performing in substance governmental, and not commercial functions, an inference that it is an agent of the Government may readily be made.'

12. In the eye of law a corporation or a company is its own master and is fully answerable like any other person to the body contemplated under the Act and the articles of association. The Servants of the respondent-company as already stated are appointed by the directors or any other officer duly authorised by them. They are not therefore civil servants who can claim benefit of the constitutional protection granted either under article 311 or the rules framed under the proviso to article 309 by the President.

13. Since in our view the respondent-company is neither a State nor an agent or instrument of the State as contended by the learned advocate for the petitioner, the case of the petitioner must solely rest on the terms and conditions of his service as contained in exhibit A and the order that the respondent would pass while terminating the services of the petitioner would be an order wholly in the exercise of the powers conferred by the terms of the contract and not under any statute or law. The result of this position would be that a writ cannot be issued against the respondent in the nature of certiorari for the simple reason that the order of termination of service is neither a judicial nor a quasi-judicial order now one passed under law. A writ of mandamus cannot also be issued for the reason that in passing the order terminating the services of the petitioner, the respondent is not either discharging a public duty or exercising a right founded on any statute, so that the breach of it could create an enforceable right in favour of the petitioner entitling him to a writ.

14. The view that we have taken finds support from the latest decision of the Supreme Court rendered on February 19, 1969, in Civil Appeal No. 612 of 1966 (Praga Tools Corporation v. C. A. Imanual [1969] 39 Comp. Cas. 889, 894). In that case, there was an agreement between the appellant and the two rival unions of workman. That agreement as subsequently modified by another agreement that was entered into with one of the unions under which the appellant decided to retrench some of the workman who were surplus to the requirements. The petitioners filed a writ for various reliefs. One of them was for a declaration to the effect that the subsequent agreement was not legal. The Division Bench of the Andhra Pradesh High Court against whose judgment the instant appeal had been preferred had held that the petition for mandamus was not maintainable, as there was no question of securing a performance of public or statutory duty by the appellant. Their Lordships had also held that there could be no mandamus directing the company for reinstatement of retrenched workmen as the act was essentially of a private character and did not rest upon the performance of any public obligation. Their Lordships held :

'The company being a non-statutory body and one incorporated under the Companies Act there was neither a statutory nor a public duty imposed on it by a statute in respect of which enforcement could be sought by means of a mandamus, nor was there in its workmen any corresponding legal right for enforcement of any such statutory or public duty. The High Court, therefore, was right in holding that no writ petition for a mandamus or an order in the nature of mandamus could lie against the company ........ It is, therefore, fairly clear that such a declaration can be issued against a person or an authority or a corporation where the impugned act is in violation of or contrary to a statute under which it is set up or governed or a public duty or responsibility imposed on such person, authority or body by such a statute.'

15. In their Lordships' view, it was not open to the High Court to have given a declaration against a company registered under the Companies Act and not set up under any statute or having any public duties and responsibility to perform under such a statute.

16. At this stage Mr. Iyengar submits that we should not express our views on the factual merits of the case regarding the terms of appointment as embodied in exhibit A, and the legality of the order of termination under exhibit G, since his client's case is likely to be affected in one way or the other, if he decides to pursue his normal remedies in a civil court. While we refrain from discussing the merits of the case in pursuance of this sub-mission, we should like to observe that the petitioner's contention that clause 7 applicable to him was violative of article 14 of the Constitution does not merit serious consideration, in view of our finding that the respondent is neither a State nor a statutory authority. Article 14 of the Constitution prohibits the State from denying to any person equality before the law or equal protection of laws within the territory of India. The contention of the petitioner of that clause 7 which provides for termination of service after giving one month's pay was applicable to him but not applicable to grade III servants of the company. According to him the discrimination lies in making that clause applicable to grade II servants like the petitioner and not to other lower classes of servants including grade III. In passing we may refer to the memorandum of settlement in which it has been stated that all grades of workmen or employees except those drawing at present salary up to and not including Rs. 350-590 were covered by the settlement. It appears from one of its terms that the job classification was to be carried out as per clause 19 of the statement and the question of bringing employees in the grade of Rs. 350-590 within the purview of the statement was to be considered. It was submitted at the bar that a subsequent decision had been taken to exclude officers of the category like that of the petitioner. It would thus follow that the petitioner was considered by the management as belonging to a class separate from the class of workmen including grade III officers or workmen. From the material before us it is clear that there cannot be any charge of discrimination against the respondent in applying clause 7 contained in exhibit A. We may also add that it is one of the conditions of service which the petitioner willingly accepted by his letter of acceptance under exhibit B. We, therefore, see no merit in this contention. In the view that we have taken it is unnecessary to consider the respondent's objection as to the jurisdiction of this court and to our competence to issue any writ affecting him.

17. For the aforesaid reasons the writ petition fails and is accordingly dismissed. We make no order as to costs.


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