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K.M. Thomas Vs. CochIn Refineries Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCommercial;Constitution
CourtKerala High Court
Decided On
Case NumberO.P. No. 3396 of 1982-D
Judge
Reported inAIR1982Ker248; [1985]58CompCas48(Ker); (1982)IILLJ233Ker
ActsConstitution of India - Articles 12 and 14
AppellantK.M. Thomas
RespondentCochIn Refineries Ltd. and ors.
Appellant Advocate D. Somasundaram, Adv.
Respondent Advocate K.A. Nayar,; C.T. Joseph and; C.N. Ramachandran Nair
DispositionPetition dismissed
Cases ReferredSukhdev v. Bhagat Ram
Excerpt:
.....in order to be state within meaning of article 12 government company should be instrumentality of state of government - no material to show that any activity of government handed over to company - existence of authority or command not established - in view of facts and circumstances company not instrumentality of state within meaning of article 12. - - not being satisfied with the tenders (according to the counter-affidavit of company secretary, all the tenders showed exorbitantly high rates for some items and certain rates wens un workably low) the chief design engineer of the company called all the tenderers for discussion on 26-4-1982. ext. he recommended rejection of petitioner's tender and acceptance of third respondent's tender. 4. the company contends that it is not an..........board of directors is to consist of five nominees of government of india, one nominee of the state government, two nominees of the p. p. c, one nominee of l. i. c. etc. thus five out of nine directon will be nominees of government of india, though all the directors are formally elected so as to comply with the provisions of the companies act. memorandum and articles of association adopted by the company have been placed before me. the main objects of the company are to deal with (import, export, purchase, sale, manufacture, refine, prospect for, extract, mine, bore etc.) all kinds of petroleum, petroleum products, oil gas, carbon, minerals, coal ores, sub-soil products, etc. to carry out the agreement dated 27-4-1963 made between the government of india and p. p. c. and the duncan.....
Judgment:
ORDER

U.L. Bhat, J.

1. Aggrieved by the rejection of the lowest tender submitted by the petitioner and acceptance of the next higher tender submitted by the third respondent tor the construction work of a building complex for the first respondent-Cochin Refineries Ltd., petitioner has filed this Original Petition under Article 226 of IN the Constitution seeking a writ of certiorari quashing the decision of first respondent awarding the work to third respondent and it writ of mandamus directing first respondent to consider Ext. P-4 representation and to award the contract to petitioner. Third respondent and the Secretary of first respondent have sworn to counter affodavits.

2. The facts emerging from the pleadings and documents produced in the case can be summarised as follows; As per Ext. Rule 6 tender notification dated 1-3-1982, first respondent -Cochin Refineries Limited, a Government Company incorporated under the Companies Act, 1956, invited sealed item-rate tenders from experienced and financially sound contractors for constructing a new service building at the Company's premises to house a Canteen, Changing Room, Co-operative Society etc. Tenders were to be accompanied with Earnest money deposit of Rs. 20,000/- and submitted on or before 2-4-1972. Ext. R-6 stated that tenders will be opened immediately after 3.00 p.m. First respondent reserved the right to reject any oF all tenders without assigning any reason. Petitioner, the Managing Partner of a construction firm, the third respondent and two others submitted tenders, satisfying the conditions in Ext. Rule 6. The total amount shown in petitioners' tender was slightly over rupees twenty lakhs. Third respondent's tender showed about rupees three and a half lakhi above the petitioner's tender. The two other tenders were for still higher amounts. Not being satisfied with the tenders (according to the counter-affidavit of Company Secretary, all the tenders showed exorbitantly high rates for some items and certain rates wens un workably low) the Chief Design Engineer of the Company called all the tenderers for discussion on 26-4-1982. Ext. P-3 is the letter received by petitioner in that connection. Petitioner and another were not prepared to revise the rates quoted by them. Third respondent and another agreed to sub-mil revised offers. The revised offer of third respondent was Rs. 22,36.440.00, which was about Rs. 2.35 lakhs above the offer of peti-tioner, but less than the offers of the other two contractors. Even after revision by third respondent, petitioner's offer was the lowest. All the fenders were accompanied by lists of other works undertaken by the four lenderera. Petitioner and third respondent had not undertaken any work for the company and were strangers to the Company, while the two other tenderers had undertaken work earlier for the Company and were therefore known to the Company Officers Petitions and third respondent had handled Building work for Cochin Shipyard Limited and petitioner had also handled contract work for F. A. C. T., Rare Earths Ltd. and P. W. Department of Kerala Government. The concerned Officer of the Company wrote to to F. A. C, T. for confidential report regarding work done by petitioner and to Cochin Shipyard Lid. regarding work done by petitioner and third respondent Reports were duly received: Reports regarding petitioner were unfavourable, while report regarding third respondent was favourable. On 5-5-1982, the Chief Design Engineer who had been deputed to study, analyse and assess the tenders, made Ext. R-3 recommendation to the lender committee. He recommended rejection of petitioner's tender and acceptance of third respondent's tender. His recommendation was approved by the tender committee. Coming to know of this, petitioner gave Ext. P-4 representation dated 5-5-1982 and Ext. R-7 representation dated 6-5-1982 requesting for acceptance of his lowest tender. Along with Ext. R-7, he submitted two certificates Exts. P-l and P-2. The tender committee again met on 7-5-1982, considered the representations, but decided to stick to its original decision as per Ext. Rule 4 minutes. The order for the work was given to third respondent as per Ext. Rule 5. He has commenced and is proceeding with the work.

3. Petitioner contends that the Company, as an Authority under Art. 12 of the Constitution could not reject the lowest tender without reason and at its sweet will, that the Company violated the norms and standard fixed by it in the tender notification, that it action was arbitrary and violated the equality clause in Article 14 of the Constitution, that procedure of securing confidential information and acting on the same without putting it to the petitioner and without giving him an opportunity to give an explanation or to challenge the confidential information offend the doctrine of fair play in administrative action and violates rules of natural justice. He also contends that rejection of his tender on the ground of his alleged unsuitability and alleged unsatisfactory past performance adversely affected his civil rights. It is further contended that acceptance of the substantially higher tender of third respondent was a purely arbitrary act violative of the equality clause.

4. The Company contends that it is not an Authority under Article 12 of the Constitution or a statutory authority and therefore not amenable to writ jurisdiction, that petitioner had no fundamental right to get a contract from the Company but at best had a right to be considered for the contract along with the other tenderers, that the rejection of his tender was not arbitrary but based on his comparative unsuitability for this particular work, that acceptance of tender of third respondent was based on an overall assessment of the tender and suitability by a com-pelent tender committee and the top officials of the Company, that rejection of petitioner's tender involved no civil consequences for him and the principles of fair play or natural justice were not attracted !o the action. In the nature of the circumstances of the case, it is contended, there was nothing wrong in the Company securing confidential reports about the tenderers' past performance and acting on the same and the Company had no duty to put the confidential information to the petitioner or give him a hearing on the same.

5. I will first deal with the question whether the first respondent-Company is 'other Authority' under Article 12 of the Constitution. This company is not a statutory Corporation, but is a Corporation incorporated under the Companies Act. 1956. Learned counsel for the 1st respondent placed reliance on certain observations of the Supreme Court in Raja-sthan State Electricity Board, (AIR 1967 SC 1857), Heavy Engineering Mazdoor Union, (AIR 1970 SC 82), Sukhdev, (AIR 1975 SC 1331} to contend that a Government Company incorporated under the Companies Act can never be an Authority under Article 12. Learned counsel also submitted that the observations of the constitution Bench in Rajasthan Electricity Board must prevail over the observations of smaller Benches of the Supreme Court in Airport Authority, (AIR 1979 SC 1628), and Som Prakash v. Union of India, (AIR 1981 SC 212) and Ajay Hasia v. Khalid Mujib, (AIR 1981 SC 487). In Raja-slban Electricity Board, the Supreme Court was dealing with a statutory Corporation and observed that Art. 12 will include all statutory authorities on whom powers are conferred by law. In Heavy Engineering Mazdoor Union, (AIR 1970 SC 82) the Supreme Court was not construing Art. 12 of the Constitu-tion, but only considering whether the Company was 'carried on under the authority of the Central Government' for the purpose of Section 2(a)(ii) of the Industrial Disputes Act, 1947. In that context, it was held that an incorporated Government company has a separate legal existence and is not an agent of its shareholders, that is, the Central Government. Sukhdev (AIR 1975 SC 1331) dealt with three statutory Corporations and not any Government company. These aspects have been considered in Airport Authority, (AIR 1979 SC 1628) and Som Prakash, (AIR 1981 SC 212) the former dealing with a statutory Corporation, but the latter dealing with an incorporated Government Company, though with a statutory aura.

6. In Airport Authority, (AIR 1979 SC 1628), the Supreme Court observed:

'A corporation may be created in one of two ways. It may be either established by statute or incorporated under a law such as the Companies Act, 1956 or the Societies Registration Act. 1860. Where a Corporation is wholly controlled by Government not only in its policy making but also in carrying out the functions entrusted to it by the law establishing it or by the character of its incorporation, there can be no doubt that it would be an instrumentality or agency of Government

xx xx xx

... ... .. ... ... whilst accepting the test laid down in Rajasthan Electricity Board v. Mohan Lal, (AIR 1967 SC 1857) (supra) and followed by Ray C. J. in Sukhdev v. Bhagat Ram (AIR 1975 SC 1331) (supra), we would, for reasons already discussed, prefer to adopt the test of governmental instrumentality or agency as one more test and perhaps a more satisfactory one for determining whether a statutory Corporation, body or other authority falls within the definition of 'State'. If a statutory corporation, body or other authority is an instrumentality or agency of Government, it would be an 'authority' and therefore 'State' within the meaning of that expression in Art. 12'.

The Court also distinguished the observations in Heavy Engineering Mazdoor Union, (AIR 1970 SC 82) and stated as follows :--

'The argument of Union was that the industry in question has been 'carried on under the authority of the Central Govt.' and the reference could, therefore, be made only by the Central Government. The court held that the words 'under the authority' mean 'pursuant to the authority, such as where an agent or a servant acts under or pursuant to the authority of his principal or master' ...... ... .. ... ... There was no question in this case whether the Corporation was an instrumentality of the Central Government and therefore an 'authority' within the meaning of Article 12.... .. ... .. This decision dealing with an altogether different point has no bearing on the present issue'.

7. In Som Prakash, (AIR 1981 SC 212) the Supreme Court was dealing with an incorporated Government Company to which were transferred the assets and properties of Burma Shell Oil Storage Ltd. which had been taken over under the Burma Shell (Acquisition of Undertaking in India) Act, 1976. The Supreme Court did not agree that incorporated Government Company cannot qualify to be regarded as 'other authority' for the purpose of Article 12. The Court observed (at p. 218):

'For the purposes of the Companies Act, 1956, a Government Company has a distinct personality which cannot be confused with the State. Likewise, a statutory Corporation constituted to carry out on a commercial or other activity is for many purposes a distinct juristic entity not drowned in the sea of 'State', although, in substance, its existence may be but a projection of the State. What we wish to emphasize is that merely because a Company or other legal person has functional or jural individuality for certain purposes and in certain areas of law, it does not necessarily follow that for the effective enforcement of fundamental rights under our constitutional scheme, we should not scan the real character of that entity, and if it is found to be a mere agent or surrogate of the State, in fact owned by the State, in truth controlled by the State and in effect an incarnation of the State, constitutional lawyears must not blink at these facts and frustrate the enforcement of fundamental rights despite the inclusive definition of Article 12 that any authority controlled by the Government of India is itself State.'

The Supreme Court referred to Rajasthan State Electricity Board, (AIR 1967 SC 1857) and found it perfectly compatible with the view taken in Som Prakash, (AIR 1981 SC 212). The Court observed (para 53 of AIR 1981 SC):

'The short question that fell for decisionwas as to whether the Electricity Board wai'State'. There was no debate, no discussionand no decision on the issue of excludingfrom the area of 'State' under Article 12 unitsincorporated under a statute as against thosecreated by a statute. xxx xxxthese bodies may be statutory corporations,registered societies, government companies atother like entities. The Court was not calledupon to consider this latter aspect ... ... ...'

The Court further observed (para 57 of AIR 1981 SC):

'The common significance of the expression 'other authorities under the control of the Government of India' is plain and there is no reason to make exclusions on sophisticated grounds such as that ihe legal person must be statutory corporation, must have power to make laws, must be created by and not under a statute and so on ... .. ...'

8. This position has been underscored and upheld by a constitution Bench of the Supreme Court in Ajay Hasia, (AIR 1981 SC 487). The Court was considering the case of a Society registered under the Jammu and Kashmir Societies Registration Act, 1898 and repelled the contention that such a Society, since it is not a statutory creature, could not be an 'authority' within meaning of Article 12. The Court observed (at p. 496):

'... .. ... it ii immaterial for thii purpose whether the Corporation is created by a statute or under a statute. The test is whether ft is an instrumentality or agency of the Government and not as to how it is created. The enquiry ha a to be not as to how the person is born but why it has been brought into existence. The Corporation may be a statutory corporation created by a statute or it may be a government company or a company formed under the Companies Act, 1956 or it may be a society registered under the Societies Registration Act, I860 or any other similar statute. Whatever be its genetical origin, it would be an 'authority' within the meaning of Article 12 if it is an instrumentality or agency of Government and ... .. ... The concept of instrumentality or agency of the Government is not limited to a Corporation created by a statute but is equally applicable to a Company or society and in a given case it would have to be decided, on a consideration of the relevant factors, whether the Company or society is an instrumentality or agency of the Government so as to come within the meaning of the expression 'authority' in Article 12.'

9. It it not correct to say the Supreme Court has taken the view (on the decisions placed before me) that a Government Company, because it a not created by a statute, but only incorporated under a statute, i.e. Companies Act, a shut out from being regarded as an authority under the control of the Government of India within the meaning of Article 12. On the other hand, the Supreme Court has laid down unambiguously that a Govt. Company can be so regarded as an 'authority' for the purpose of Article 12, if it has the attributes of an instrumentality on agency of the Government of India. A Government Company, though it has a distinct juristic personality, will be treated as an instrumentality of the Government, if it is seen to be a mere agent of the Government, owned and controlled by the Government. This it not to say that every Government Company OF a mere Government Company --without anything more is an 'authority'. The question must be decided on the features and circumstances existing in each case. The broad approach and indicia have been explained in Airport Authority, (AIR 1979 SC 1628) and this has been approved and followed in Som Prakash, (AIR 1981 SC 212) and Sukdev, (AIR 1975 SC 1331).

18. The background and history of the Company, its structure, the purpose of incorporation the public importance of functions it is intended to perform, financial structure and resources, essential functional character, presence or absence of plenary control resting with the Government, presence or absence of State conferred or State protected monopoly status, existence or otherwise of some element of authority OF command etc. are the various: areas for examination in deciding whether a Company or a Government Company it an instrumentality of State.

11. The counter affidavit filed on behalf of first respondent shows that out of the paid up share capital of the Company, 53% is held by Central Government, 15% by Government of Kerala, Life Insurance Corporation of India and General Insurance Company, 26% is held by Philips Petroleum Company of United States of America (P. P. C). Besides there are 2000 individual share-holders including corporate Bodies. P. P. C. is a foreign company and is the main supplier of crude oil to the Company. As per an agreement between the foreign Company and the Government of India, the former has a share in Share Capital and representation in the Board of Directors. It it submitted by learned counsel for first respondent, as per an agreement, Board of Directors is to consist of five nominees of Government of India, one nominee of the State Government, two nominees of the P. P. C, one nominee of L. I. C. etc. Thus five out of nine Directon will be nominees of Government of India, though all the Directors are formally elected so as to comply with the provisions of the Companies Act. Memorandum and Articles of Association adopted by the Company have been placed before me. The main objects of the Company are to deal with (import, export, purchase, sale, manufacture, refine, prospect for, extract, mine, bore etc.) all kinds of petroleum, petroleum products, oil gas, carbon, minerals, coal ores, sub-soil products, etc. to carry out the agreement dated 27-4-1963 made between the Government of India and P. P. C. and the Duncan Brothers & Company Ltd.. to carry into effect the contract with Phillips Petroleum International Corporation, to enter into arrangements with Government of India or any State Government, Rulers, landlords or other persons that may seem conducive to the Company's objects and obtain from them powers, privileges, concessions, licenses, grants etc. Articles of Association explain the powers of Board of Directors. The Board has full powers of management subject to certain specified limitations. Approval of the President of India is necessaty only in certain matters i.e. to secure repayment of borrowings, lo undertake works involving capital expenditure exceeding Rs. fifty lakhs, to appoint officers on pay scale with maximum pay of Rs. 2,2501- or more per month, to invest moneys in securities to set apart any part of profils to provide a fund to provide for pensions, gratuities, to create Provident Fund. Board of Directors can elect one of them a Managing Director. The Chairman of Directors meetings could be nominated by the President of India. Proposal of decisions of the Board raising an important issue is to be referred by the Chairman for the decision of the Central Government. If the Government's views are not received within one month, Board shall be entitled lo proceed in accordance with its proposal or decision. President of India may issue directions in regard to Reserve Fund. Auditor of the Company has to' be appointed by Central Government on the advice of the Comptroller and Auditor General of India and the latter shall have certain powers as stated in Article 110. There is also a provision in the Articles of Association to the effect that until 31-8-1982, no capital expenditure in excess of Rs. 5 lakhs per project or in excess of Rs. 25 lakhs in the aggregate in any one financial year shall be incurred without the approval of the majority of the Directors, hut so at to include in such majority the Director Dominated by P. P. C.

12. The Government of India has only a bare majority and not the entirety of the share capital of the Company i. e. Cochin Refineries Ltd. A substantial part of the share capital belongs to a foreign company. There it no material to show exclusive or mutual financial assistance has been given by the Government. The Board of Directors that practically full control over the management of the affairs of the Company. The fact that five out of. nine Directors are Government nominees it not sullicient to say Government has exclusive or unusual control over management etc. This conclusion is valid even taking into consideration certain reservations regarding approval of Central Government. For that matter the foreign company has power of veto in regard lo capital expenditure in excess of specified limits. Presence of nominees of a foreign company in the Board is a significant circumstance. It cannot be said that there is deep and pervasive state control. Of course Company may enjoy monopoly status since it it dealing wilh precious commodities like petroleum and petroleum products and the like and such an activity is of public importance, viewed in the light of importance of these commodities in the life of the Nation. There it no material to show that any activity of the Government has been handed over lo the Company. Existence of any element of authority or command has not been eslab-lished. The totality of the circumstances/ mentioned above is not sufficient to show that! 'voice is that of the Government or hands are of the Government' or that the Company it 'an agent or surrogate of State, in fact owned by the State, in truth controlled by State and in effect an incarnation of State'. It is no more than a Government Company under the Company law and not a limb of Government. In this view, 1 uphold the contention of first respondent-Company, that it is not an instrumentality of State within the meaning of Article 12 of the Con--stitution.

13. The grievance of the petitioner is that impugned action of the Company offends his fundamental right to equality guaranteed under Art 14 of the Constitution. Such a claim cannot be put forward against the Company as it is not the State or an authority under Article 12. It is, therefore, unnecessary to go into the merits canvassed in the petition. The petition is dismissed, but under the circumstances, without costs.


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