Bhaskaran Nambiar, J.
1. In 1976, a Full Bench of this Court in Gopala Pillai v. S.S.I. Corporation 1978-11 L.L.J. 368 held that a 'Corporation which has been registered as a company under the Companies Act cannot be regarded as a Start? for the purpose of Article 12 of the Constitution'. Is this decision still good law especially after the subsequent pronouncements of the Supreme Court on the subject? This accounts for the constitution of a larger Bench to dispose of this writ petition.
2. Two of us (Bhaskaran, Ag. C.J. k Bhaskaran Nambiar, J.) had occasion to consider this aspect in a recent decision in Sofhi. F.A.C. T. (1984 KLT 32) when the question was raised whether F.A.C.T. (Fertilisers and Chemicals Travancore Ltd.), a registered company, is a State amenable to the writ jurisdiction of this Court. Surveying the decisions of the Supreme Court beginning with Rajasthan Electricity board's case in 1967 and ending with Ajay Hasia'scase in 1981 and applying the principles stated therein, it was held that F.A.C.T. is a State, subject to the writ discipline of this Court.
3. Article 12 of the Constitution, defining 'State' for the purposes of Part III reads thus:
In this part, unless the context otherwise requires, 'The State' includes the Government and Parliament of India and the 30 Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India.
4. And in 5m/. Ujjam v. State of Uttar Pradesh 35 A.I.R. 1962 S.C. 1621 it was observed thus:-
Again, Article 12 winds up the list of authorities, falling within the definition by referring to 'other authorities' within the territory of India which cannot obviously be read as ejusdem generis with either the Government and the Legislatures or local authorities. The words are of wide amplitude and capable of comprehending every authority created under a statute and functioning within the territory of India or under the control of the Government of India. There is no characterisation of the nature of the 'authority' in this residuary clause and con- & sequently if must include every type of authority set up under a statute for the purpose of administering laws enacted by the Parliament or by the State including those vested with the duty to make decisions 10 in order to implement those laws.
5. Subsequently in a series of decisions, the Supreme Court had to consider the scope of the expression 'State' occurring in Article 12 and it is noteworthy that there has been a steady expansion 15 of the content of the expression 'other authorities' in Article 12 by a gradual process of judicial reasoning extending over a decade. Initially the concept of 'other authority' was confined to constitutional or statutory authorities. Eventually 20 it has been held that it is irrelevant whether the Corporation/Company is created by or under a statute and the true test is whether it is an instrumentality of the State or agency of the Government. 'The enquiry has to be not as to 25 how the juristic person was born but why it has been brought into existence. The corporation may be a statutory corporation created by statute or it may be a Government company or a company formed under the Companies Act, 1956 30 or it may be a society registered under the Societies Registration Act, 1860 or of other similar statute.' The relevant tests gathered from the decision in the Internationa] Airport Authority's case were summarised as follows in the Ajay 35 Hasia's case 1981-1 L.L.J. 103 in Para 9:-
(1) One thing is clear that if the entire share capital of the corporation is held by Government it would go a long way towards indicating that the corporation is an instrumentality or agency of Government.
(2) Whether the financial assistance of the State is so much as to meet almost entire expenditure of the Corporation, it would afford some indication of the corporation being impregnated with governmental character.
(3) It may also be a relevant factor...whether the corporation enjoys monopoly status which is State conferred or State protected.
(4) 'Existence of 'deep and pervasive State control' may afford an indication that the Corporation is a State agency or instrumentality.
(5) If the functions of the corporation are of public importance and closely related to governmental functions, it would be a relevant factor in classifying the corporation as an instrumentality or agency of Government.
(6) 'Specifically, if a department of Government is transferred to a corporation, it would be a strong factor supportive of this inference of the corporation being an instrumentality or agency of Government.
6. The latest decision by the Supreme Court brought to our notice is in U.S. Minhas v. Indian Statistical Institute 1984-1 L.L.J. 67. Their Lord-25 ships held thus in Para 21:
Reliance was placed upon Ajay Hasia v. Khalid Mujib Sehravardi 1981-1 L.L.J. 103. The Constitution Bench in that case took the view that the expression 'other authorities in Article 12 must be given a broad and liberal interpretation, where constitutional fundamentals vital to the maintenance of human rights are at stake and functional realism and not facial cosmetics must be the diagnostic tool, for constitutional law must seek the substance and not the form. The Court pointed out that the Government may act through the instrumentality or agency of jurisdical persons to carry out its functions, since, with the advent of the welfare State, its new tasks have increased manifold and such jurisdical persons acting as the instrumentality or agency of the Government must therefore be subject to the same discipline of fundamental right as the State.
An authority is a State within the meaning of Article 12 of the Constitution if it is an instrumentality or agency of the Government. A decision on this question shall have due regard to the tests 50 formulated and summarised in F.A.C.T. case, (supra) as follows:
(a) The entirety or a massive majority of the share capital in the hands of the Government is a penetrating index that it is an instrument or agent of the Government.
(b) 'Deep and pervasive' state control is an affirmative assurance that it is Government' agency or instrumentality. This can be gathered from the following surrounding circumstances as well:
(i) Domination in the composition of the Society or company by the representatives of the government.
(ii) Obedience to the directions of the Government for the performance of its functions.
(iii) The concurrence or approval of the Government for making rules and regulations.
(iv) The accounts requiring scrutiny and satisfaction of the Government.
(iv) The effective control of the affairs of the Society/Corporation by the Government.
(c) Substantial financial assistance by the Government meeting practically the entire expenditure of the Company gives an added colour and flavour of Governmental agency.
(d) The public importance of the functions, in its nature allied to Governmental activity, is also yet another vital indication.
(e) Monopoly status of the Corporation either conferred or protected by the State.
(f) Statutory origin of the Corporation/Company may be the hall mark of 'State', but the absence of this birth mark need not exclude it from the expensive area of State' within Article 12
7. The earlier Full Bench ruling in Gopala Pillai v. S.S.I. Corporation (supra) in fact followed two decisions of the Supreme Court (1) Sabhajit Tewary v. Union of India and Ors. 1975-1 L.L.J. 374; (2) Sukhdev Singh and Ors. v. Dhagatram Sardar Singh Raghuvanshi and Anr. 1975-1 L.L.J. 399. The Fuji Bench noted that the Supreme Court had in 1975-1 L.L.J. 374 held that the companies in those cases were not departments of the Government. The question, as we understand, is not whether the companies are departments of the Government, for it is nobody's case, they are departments of the Government. They are separate juristic entities, never treated as departments of Government, their employees having no status as civil servants. An employee in a company is not a member of a civil service and cannot claim the constitutional immunity under Article 311.
8. Sukhdev Singh's case (supra) was expressly referred to and distinguished in Ajay Hasia's case (supra). Sukhdev Singh's case (supra) related to three juristic bodies, the Oil and Natural Gas Commission, the Industrial Finance Corporation and the Lite Insurance Corporation and all the three institutions have statutory parentage as the hall-mark of their existence. The Supreme Court in that case was therefore not concerned 'with the question whether a company or society formed under a statute can be an 'authority' or not.'
9. Thus, in view of Ajay Hasia's case, (supra) and the later decisions of the Supreme Court following the same, we cannot but overrule Gopala Pillai v. S.S.I. Corporation (supra) when it was decided that no Government Company can be an 'authority' under Article 12, amenable to the 25 writ supervision of this Court. A Government company can still be an authority within the meaning of Article 12 if it is an instrumentality of the State. Accordingly we approve Sofhi v. F.A.C. T. (supra) on this aspect. Applying these principles, the main question in this Original Petition is whether SIDECO (Kerala State Industrial Development and Employment Corporation Ltd.), a government owned company is a 'State' within Article 12 of Constitution. All the shares of the company are vested in the Government and the company is rightly described as a Government owned company. The Directors of the company are representatives of the Government. The Directors shall reserve for the decision of the Governor and take action only, after the approval of the Governor is obtained, in respect of any programme of capital expenditure involving 50 lakhs and above, of disposal of fixed assets of the Corporation exceeding 25 lakhs and for the formation of the companies as subsidiaries to the Corporation. The following matters shall require the prior approval of the Governor: -
(i) Appointment to posts carrying salary of more than Rs. 2,250/- p.m.
(ii) Any programme of capital expenditure for an amount exceeding Rs. 10 lakhs in cases which do not form part of the sanctioned estimate.
(iii) Agreements involving foreign collaboration proposed to be entered into by the Company.
(iv) Division of capital into different classes of shares.
(v) Sale, lease or disposal of the whole or substantially the whole of the undertaking of the company and the purchase of any property of value of more than Rs.l lakh.
(vi) Formation of or assumption of the control of a subsidiary company. 15
(vii) Winding up of the Company.
(viii) Foreign tours by Directors, Officers or employees of the company for business matters or for study purposes or otherwise shall be undertaken only with the prior sanction of Governor.
(ix) Rules of the company governing the conditions of service of employees, P.F. and other rules, creation of reserves and other funds.
(x) Revision of scales of pay, D.A., T.A. etc., of the employees, of the company.
(xi) Annual plans of development and capital budget of the company.
(xii) Any other matter which, in the opinion the of the Chairman may be of such importance as to be reserved for approval of the Governor.
Notwithstanding anything contained in any of the articles, the Governor may from time to time issue such directions or instructions as he may consider necessary in regard to the affairs or the conduct of the business of the Company or Directors thereof and in like manner may vary and annul any such direction or instruction. The Directors shall duly comply with and give immediate effect to directions or instructions so issued.
The Auditors of the company are to be appointed by the Central Government on the advice of the Comptroller and Auditor General of India. Practically the entire financial assistance is given by the Government. The Company has as its objectives to aid, counsel, finance and protect and promote the interests of Small Industries in the State, stabilise and run any Industrial Undertakings, Projects or Enterprises whether owned or run by Government, statutory body, Company etc., to promote employment and enterpreneur-ship among the skilled, semi-skilled, trained, experienced and educated members of the public, to promote and operate schemes for industrial development etc.
10. It is thus clear that SIDECO is an instrumentality of the State and thus 'State' within the meaning of Article 12 of the Constitution and hence bound by the Constitutional corrective in writ jurisdiction.
11. The next question, on the facts of this case, is whether the petitioners are entitled to the grant of any writ or appropriate direction under Article 226 of the Constitution against SIDECO. Only some brief facts are necessary to decide this point.
12. The petitioners, engineering graduates, selected by the Public Service Commission for appointment in Government service were appointed as Junior Engineers (subsequently re-designated as Asst. Engineers) in the Kerala Small Scale Industries Development Corporation (for short K.S.S.I.C.). K.S.S.I.C. was amalgamated with Kerala State Small Industries Development and Employment Corporation Ltd. (SIDECO) along with yet another corporation, Kerala Employment Promotion Corporation, in 1975.
13. The employees of K.S.S.I.C. were transferred to SIDECO. Their service conditions were then protected as seen from the proceedings of the Ministry of Law, Justice k Company Affairs, S.C. 241(E) dated 18th March, 1977 (Ext. P. 3):-
Provisions respecting existing officers and other employees of the Transferor companies.
Every officer or other employees (including within that expression the auditors but excluding therefrom the directors of the transferor companies), employed immediately before the appointed day in the Transferor companies shall, as from the appointed day become an officer or other employee, as the case may be, of the Transferee Company, and shall hold his office or service therein by the same tenure and upon the same terms and conditions and with the same rights and privileges as he would have held the same under the Transferor companies if his order had not been made and shall continue to do so unless and until he is duly removed from his employment in the Transferee company or until the conditions of employment are duly altered by mutual consent or in accordance with the prescribed procedure in this behalf.'
14. Qualifications and methods of appointment to the post of Assistant Engineers (re-designated as Assistant Executive Engineers) were prescribed in K.S.S.I.C. where the petitioners were initially appointed. These rules (Ext. P,6) provided the following qualifications and quota for purpose of promotion to the post of Assistant Executive Engineer.
(1) Degree or diploma in Civil Engineering.
(2) 2 years experience and a ratio of 3:1 to be observed between degree holders and diploma holders.
15. The petitioners and respondents 4 to 7 who were originally appointed as Junior Engineers (re-designated as Asst. Engineers) in the K.S.S.I.C. were governed by the same service rules. All of them were transferred to SIDECO. Respondents 4 to 7 are admittedly seniors to the petitioners. But respondent Nos. 4,6, and 7 are only certificate holders and the 5th respondent, a diploma holder. On 4th December, 1979 respondents 4 to 7 were provisionally promoted as Assistant Executive Engineers on the ground that 'the qualification and method of appointment for various posts in SIDECO have not been finalised.' The order is Ext. R. 2. The present O.P. was filed on the same date to prevent promotion being effected and was subsequently amended challenging Ext. R. 2 when it was issued.
16. The contention raised is that as the petitioners and respondents 4 to 7 are governed by the same set of rules Ext. P. 6, the Corporation has no jurisdiction to ignore those rules and make provisional promotion and Ext. R. 2 was therefore arbitrary and violative of Article 14 of the Constitution.
17. We see considerable force in the contention of the petitioners. The conditions of service applicable to the petitioners and respondents 4 to 7 in the K.S.S.I.C. are preserved to them when they were transferred to SIDECO where they hold office 'by the same tenure and upon the same terms and conditions and with the same rights and privileges' as they would have held under the Transferor Companies. This is guaranteed under Ext. P. 3 and re-asserted in Ext. P. 7 dated 9th August, 1979 where it is stated thus: -
Till such time a uniform rule is framed and put up to the Board for approval, the existing practice in K.S.S.I.C. may be continued for the staff of the K.S.S.I.C. absorbed in the SIDECO due to amalgamation.
Under the rules certificate holders are not entitled to promotion as Assistant Executive Engineers and therefore the promotion given to respondents 4, 6 and 7 are patently without jurisdiction and | clearly opposed to the rules. The promotion . given to them under Ext. R. 2 cannot stand. The 120 fifth respondent, a diploma holder, is entitled to promotion only in the quota available to diploma holders after three graduates are promoted. He could not, therefore, have been promoted in prefer-ence to petitioners I to 3. He can only follow petitioners 1 to 3 and not overtake them. His promotion to this extent also is illegal.
18. It is contended on behalf of the Corporation and respondents 4 to 7 that when provisional promotions alone have been made, 130 no rights of the petitioners are affected.
19. The power to make provisional appointment is not a charter for arbitrary preference. It is no administrative licence to ignore the service conditions of serving personnel. Provisional appointments cannot be made in violation of the rules, though, in very urgent cases, this power may be invoked when rules cannot be complied with. Appointments have to be made with reference to the conditions existing on the dates when the vacancies arise. If those vacancies could be filled according to the rules, the legal rights of claimants qualified and entitled to hold the post cannot be defeated by recourse to provisional appointments. The claims of persons appointed provisionally have to yield to the rights of persons legally and lawfully entitled to be appointed. Thus, even if a provisional appointment has been made, it has to be reviewed at the earliest opportunity when the appointing authority is alerted about the availability of a person to be appointed according to the relevant rules. A provisional appointment, cannot thus continue endlessly jeopardising the rights of the employees governed by specific service rules.
20. Here is a case, where respondents 4, 6 and 7 were not qualified to be appointed as they were only certificate holders. Their promotion was in patent disregard of the rules, Ext. P. 6. The 5th respondent, a diploma holder was not entitled to an out of turn promotion when three graduate engineers, petitioners 1 to 3, were available for appointment. The 5th respondent could be appointed only to the fourth vacancy. The service conditions in the K.S.S.I.C. applicable to the petitioners and respondents 4 to 7 guaranteed to them under Ext. P. 3 cannot be ignored to give any preferential treatment to these respondents. Arbitrariness is thus writ large when Ext. R. 2 was issued. The appointments so made violate Article 14 of the Constitution and are patently discriminatory and unjust. The appointments made under Ext. R. 2 in favour of respondents 4 to 7 are thus quashed. Respondents 2 and 3 will immediately issue appointment orders to the petitioners and the fifth respondent to the cadre of Assistant Executive Engineers in accordance with Ext. P. 6 (rules) from 4th December, 1979, the date of Ext. R. 2. These orders will be issued within a month from the date of this judgment. It is conceded that if Ext. R. 2 is set aside, the petitioners are entitled to be appointed to those vacancies as they have the qualifications and experience prescribed by the rules.
21. Respondents 2 and 3 know about the illegality of the appointments when this writ petition was filed in 1979 and notice was taken 35 to them early in 1980. It is now 1984. Ext. P. 6 rules continue to remain in force. They have not been replaced by common rules. The Corporation never set right the error. They did not even pause to re-examine the issue. They have 40 not attempted to review or revise the order. Even now they justify their wrong stand. The petitioners need not suffer for the Corporation's failure to follow the rule. The Corporation shall pay the petitioners the salary and allowances due to them as Assistant Executive Engineers from 4th December, 1979, when they were entitled to be appointed to the service. As respondents 4 to 7 have been working as Assistant Executive Engineers, though under wrong orders, they cannot be denied the wages for the work done and hence no steps need be taken to recover, salary or allowance from them on the ground that their appointments are now set aside. The Corporation can only blame themselves for this unfortunate situation when they have to pay two sets of employees for the same period.
In the result the Original Petition is allowed quashing Ext. R. 2, proceedings No. PER(l) 34187/79 dated 4th December, 1979 issued by the Managing Director, Kerala State Small Industries & Employment Corporation Limited (2nd respondent), so far as respondents 4 to 7 are concerned and we direct the Corporation to proceed in accordance with this judgment and in accordance with law.
The 2nd respondent will pay the costs of the petitioners.