1. This petition by the Association of Officers and its members petitioners Nos. 2 to 6 who are officers employed by Gujarat State Fertilizers Company Limited, respondent No. 1 herein (hereinafter referred to as the 'Company'), have filed this petition mainly challenging the legality and validity of the orders dated 6th May, 1984, passed by the Company terminating the services of petitioners Nos. 2 to 6 (hereinafter referred to as the 'petitioners').
2. Petitioner No. 1 association of officers of the Company (hereinafter referred to as the 'association') is alleged to be the representative trade union of the officers employed by the Company. It may be mentioned here that the Company which had accorded recognition to the association has withdrawn its recognition on 11th May, 1984 and this action of the Company is challenged in a civil suit filed in the Civil Court at Baroda. However, this fact has no bearing on the controversy involved in this petition. Petitioners are office bearers and active members of the association. They has occasion to deal with the management of the Company in the matters relating to pay revision, promotion, bonus etc.
3. It is the case of the petitioners that the management of the Company was not pleased with the activities of the association and petitioners. It is the petitioners' allegation that the management of the Company had illegally discharged petitioners Nos. 2 and 3 from service, in June/July 1978, but when they sought legal protection against them, the impugned orders discharging them from service were withdrawn and they were reinstated in service. It is the petitioners case that the Company has again resorted to victimisation of the office bearers of the association and illegally discharged the petitioners from service by orders dated 6th May, 1984 which are at Annexures A1 to A5 to the petition. Petitioners allege that they are victims of anti-trade union and anti-association attitude of the management of the Company. Discharge of the petitioner from service according to the petitioners is a move to disintegrate the association. Petitioners contend that the Company is a public limited company controlled by the Government of Gujarat. According to the petitioners it is 'State' within the meaning of Art. 12 of the Constitution of India and is an authority and instrumentality of the Union of India and State of Gujarat in carrying out directive principles of the State policies laid down in the Constitution. Petitioners, therefore, contend that the Company is amenable to writ jurisdiction of this Court under Art. 226 of the Constitution.
4. By orders Annexures A1 to A5 dated 6th May, 1984, petitioners are discharged from service with immediate effect under Rule 44 of the Company's Service Rules of 1982. The orders are in identical terms and they read as follows :
'1. You are hereby discharged from the services of the Company with immediate effect under Rule 44 of the Company's Service Rules by payment of 3 months basic pay and DA in lieu of 3 months notice.
2. If there are any dues payable by you to the Company, your 3 months basic pay and DA will be adjusted against such dues. You are hereby requested to clear the dues payable by you to the Company.
3. You are further requested to submit the enclosed clearance for final settlement of your account.'
Rule 44 of the Company's Service Rules under which the Company has discharged the services of the petitioners read as under :
'DISCHARGE OR DETERMINATION OF SERVICE AFTER CONFIRMATION.
After confirmation, an employee in Grade I or II may be discharged from the service of the Company for sufficient reasons by the competent appointing authority, or he may issue or discontinue from the service of the Company after giving three months' notice in writing in that behalf or by payment of three months' basic pay and dearness allowance as in force from time to time in lieu of such notice; an employee in any other Grade may be discharged from the service of the Company for sufficient reasons by the competent appointing authority or he may leave or discontinue from the service of the Company, after giving one month's notice in writing in that behalf or by payment of one month's basic pay and dearness allowance as in force from time to time in lieu of such notice. Provided that the Board or the Personnel Committee may waive such notice or payment in lieu thereof in case of an employee in Grade I and the Managing Director may waive such notice or payment in lieu thereof in case of an employee in Grade II, III or IV.'
5. Petitioners contend that the Company has no absolute power to terminate the services of its employee under Rule 44. It is submitted that even if the Company is held to have power to discharge its employee from service under Rule 44, it can do so only for sufficient reasons. No reasons were furnished to the petitioners either in the impugned orders or thereafter. Rule 44 does not empower the Company to discharge its employee in Grade I or II by payment of three months' basic pay and D.A. in lieu of three month's notice. Petitioners, therefore, contend that the impugned discharge orders are illegal being in violation of the Service Rules. Petitioners further contend that 'discharge from service' is one of the penalties enumerated in Rule 120(1) of the Service Rules of the Company. Clause (ii) of Rule 120 lays down that no penalty shall be imposed on any employee unless the appointing authority or such other authority empowered in this behalf is satisfied that a fair and proper enquiry was made and the charges leading to the penalties were proved. It is submitted that discharge from service being a penalty, it was incumbent upon the Company or the authority empowered in this behalf to hold a fair and proper enquiry and to be satisfied that the charges leading to the penalty were proved before imposing such penalty on the petitioners. Therefore, according to the petitioners, they could have been discharged from service for sufficient reasons only after holding enquiry. Petitioners further submit that the impugned orders are violative of fundamental rights guaranteed under Art. 21 of the Constitution inasmuch as a result of the impugned orders petitioners are deprived of the employment and are thrown into economic starvation. Mandate of Art. 21 is that no one shall be deprived of his life and liberty except in accordance with the procedure laid down by law. Petitioners submit that the word 'life' has a wide meaning and the petitioners cannot be deprived of their livelihood under Art. 21. The Company was, therefore, required to hear the petitioners and observe principles of natural justice before passing the impugned orders. Since the impugned orders have been passed in breach of the principles of natural justice, they are bad in law.
6. In the alternative, petitioners contend that if it is held that Rule 44 confers absolute power on the Company to discharge its employees from service, such rule would violate Arts. 14 and 16 of the Constitution. It is submitted that the rule which confers unguided and unchannelised and absolute power on the Company of discharging its employees from service, clearly violates Arts. 14 and 16 of the constitution. It is further submitted that if Rule 44 is interpreted in the manner sought to be interpreted by the Company, it is obvious that it is discriminatory violative of Arts. 14 and 16 of the Constitution inasmuch as officer employees are given different treatment than rest of the employees of the Company. Under Rule 122 of the Company's Service Rules an employee has a right of appeal against the order passed by his immediate superior or other superior authority which injuriously affects his interest. Petitioners, therefore, have a right to prefer appeal against the orders discharging them from service, but they cannot effectively exercise this right in absence of reasons in support of their discharge from service supplied to them and therefore, the impugned orders of discharge virtually amount to negation of the petitioners right appeal.
7. The Company denying the allegations made by the petitioners, has contended that it is not 'State' or authority or instrumentality of 'State' within the meaning of Art. 12 of the Constitution and, therefore, it is not amenable to jurisdiction of this Court under Art. 386 of the constitution. It is submitted that the Company is not the agency of the State nor is it a Government Company. It is a public limited Company incorporated under the Companies Act and remedy if any available to the petitioners is to file a civil suit before a competent Civil Court. It is further contended that services of the petitioners were terminated under the Service Rules of the Company and the appeals preferred by the petitioners against the impugned orders have been dismissed. The Company had denied that it has victimised the petitioners and that attempt has been made to disintegrate the association. Allegation that the Company is practising unfair labour practice and that it has carried on anti-trade union activities is denied. According to the Company decision to discharge the petitioners from service was taken in the best interest of the Company under the power conferred under Rule 44 of the Service Rules. It is submitted that the Managing Director of the Company respondent No. 2 herein had recorded reasons on the file for discharge of the petitioners and that there were sufficient reasons to discharge the petitioners from service. It is submitted that the orders of discharge were bona fide and that there was no act of victimisation in discharging them from service. The Company has placed on record the reason recorded for discharging the petitioners from service and they are at Exh. 'C' to the affidavit in reply. Company denies the petitioners' allegation that impugned orders were in violation of Arts. 14, 16 and 21 of the Constitution of India.
8. I will first deal with the question whether the Company is 'State' or authority within the meaning of Art. 12 of the Constitution. Article 12 defines 'State' as under (which appears in Part III of the Constitution).
'In this part, unless the context otherwise requires, the 'State' includes the Government and Parliament of India and the 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.'
In a series of decisions the Supreme Courts has considered the scope of the expression 'State' occurring in Art. 12. The recent trend recognised by the Supreme Court has broadened the concept of 'authorities........ under the control of Government of India.' Where a corporation or a company is instrumentality or agency of the Government it must be held to be an authority within the meaning of Art. 12 and hence subject to the same basic obligation to obey the fundamental rights as government. The question as to when a corporation can be regarded as 'authority' within the meaning of Art. 12, arose for consideration before the Supreme Court in R. D. Shetty v. The International Airport Authority of India [1979-II L.L.J. 217]. The Supreme Court observed at page 227.
'So far as India is concerned, the genesis of the emergence of corporations as instrumentalities or agencies of Government is to be found in the Government of India Resolution on Industrial Policy dated 6th April, 1948 where it was stated inter alia that 'management of State enterprise will as a rule be through the medium of public corporation under the statutory control of the Central Government who will assume such powers as may be necessary to ensure this.' It was in pursuance of the policy envisaged in this and subsequent resolutions on Industrial policy that corporations were created by Government for setting up and management of public enterprises and carrying out other public functions. Ordinarily these functions could have been carried out by Government departmentally through its service personnel but the instrumentality or agency of the corporation was resorted to in these cases having regard to the nature of the task to be performed. The corporation acting as instrumentality or agency of Government would obviously be subject to the same limitations in the field of constitutional and administrative law as Government itself, though in the eye of the law, they would be distinct and independent legal entities. If Government acting through its officers is subject to certain constitutional and public law limitations, it must follow a fortiori that Government acting through the instrumentality or agency of corporations should equally be subject to the same limitations.'
The Supreme Court then addressed itself to the question as to how to determine whether a corporation is acting as an instrumentality or agency of the Government and dealing with that question observed : at pp. 227-228.
'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 law establishing it or by the Charter of its incorporation, there can be no doubt that it would be an instrumentality or agency of Government. But ordinarily where a Corporation is established by statute, it is autonomous in it working, subject only to a provision, often times made, that it shall be bound by any directions that may be issued from time to time by Government in respect of policy matters. So also a Corporation incorporated under law is managed by a board of directors or committee of management in accordance with the provisions of the statute under which it is incorporated. When does such a corporation become an instrumentality or agency of Government Is the holding of the entire share capital of the Corporation by Government enough or is it necessary that in addition there should be a certain amount of direct control exercised by Government and, if so, what should be the nature of such control Should the function which the corporation is charged to carry out possess any particular characteristic or feature, or is the nature of the functions immaterial Now, 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. But, as is quite often the case, a corporation established by statute may have no shares or shareholders in which case it would be a relevant factor to consider whether the administration is in the hands of a board of directors appointed by Government though this consideration also may not be determinative because even where the directors are appointed by Government, they may be completely free from governmental control in the discharge of their functions. What then are the tests to determine whether a corporation established by statute or incorporated under law is an instrumentality or agency of Government. It is not possible to formulate an inclusive or exhaustive test which would adequately answer this question. There is no cut and dried formula, which would provide the correct division of corporations into those which are instrumentalities or agencies of Government and those which are not.'
The Supreme Court then proceeded to indicate the different tests, apart from ownership of the entire share capital at pp. 228-229.
'..... if extensive and unusual financial assistance is given and the purpose of the Government in giving such assistance coincides with the purpose for which the corporation is expected to use the assistance and such purpose is of public character, it may be relevant circumstance supporting an inference that the corporation is an instrumentality or agency of Government..... It may therefore be possible to say that where 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..... But a finding of State financial support plus an unusual degree of control over the management and policies might lead one to characterise an operation as State action vide Sukhdev v. Bhagatram [1975-I L.L.J. 399]. So also the existence of deep and pervasive State Control may afford an indication that the Corporation is a State agency or instrumentality. It may also be a relevant factor to consider whether the corporation enjoys monopoly status which is State conferred or State protected. There can be little doubt that State conferred or State protected monopoly status would be highly relevant in assessing the aggregate weight of the corporation's ties to the State.'
'There is also another factor which may be regarded as having a bearing on this issue and it is whether the operation of the Corporation is an important public function. It has been held in the United States in a number of cases that the concept of private action must yield to a conception of State action where public functions are being performed - Vide Arthur S. Miller : 'The Constitutional Law of the Security State' (10 Stanford Law Review 620 at 664).'
'It may be noted that besides so called traditional functions, the modern State operates a multitude of public enterprises and discharges a host of other public functions. If the functions of the corporation are of public importance and clearly related to governmental functions, it would be a relevant factor in classifying the corporation as an instrumentality or agency of Government. This is precisely what was pointed out by Mathew, J. in Sukhdev v. Bhagatram (supra) where the learned Judge said that 'institutions engaged in matters of high public interest of performing public functions are by virtue of the nature of the functions performed by government agencies. Activities which are too fundamental to the society are by definition too important not to be considered government functions.'
The Supreme Court however proceeded to point out with reference to the last functional test : at page 230.
'.... the decisions show that even this test of public or governmental character of the function is not easy of application and does not invariably lead to the correct inference because the range of government activity is broad and varied and merely because an activity may be such as may legitimately be carried on by Government it does not mean that a corporation, which is otherwise a private entity would be an instrumentality or agency of Government by reason of carrying on such activity. In fact, it is difficult to distinguish between governmental functions and non-government functions. Perhaps, the distinction between governmental and non-governmental functions is not valid anymore in a social welfare State where the laisez faire is an outmoded concept and Herbert Spencer's special statics has no place. The contrast is rather between governmental activities which are private and private activities which are governmental. (Mathew, J. in Sukhdev v. Bhagatram (supra) at page 652. But the public nature of the function, if impregnated with governmental character or 'tied or entwined with Government or fortified by some other additional factor, may render the Corporation an instrumentality or agency of Government. Specifically, if a department of Government is transferred to a corporation it would be a strong factor supportive of the inference.'
The test for determining as to when a corporation can be said to be an instrumentality or agency of Government were culled out from the judgment in the International Airport Authority's case (supra) in Ajay Hasia v. Khalid Mujib, [1981-I L.L.J. 103] at pp. 112-113. The relevant tests were summarised as follows :-
'(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) Where 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 the 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 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 the inference of the corporation being an instrumentality or agency of the Government.'
If on a consideration of these relevant factors, it is found that the corporation is an instrumentality or agency of government, it would, as pointed out in the International Airport Authority's case (supra) be an 'authority' and therefore 'State' within the meaning of the expression in Art. 12 of the Constitution.
9. The decision in International Airport Authority's case was approved by Supreme Court in Som Prakash v. Union of India, [1981-I L.L.J. 79]. It was observed by the Supreme Court in that case that the true test is functional. Not how the local person in born but why it is created. It was observed that apart from discharging functions or doing business as the proxy of the State, wearing the corporate mask there must be an element of ability to affect legal relations by virtue of power vested in it by law.
10. Whether the Company in the instant case is 'State' within the meaning of Art. 12 of the Constitution will have to be decided in the light of the aforesaid principles laid down by the Supreme Court. In order to determine this question it is necessary to refer to the relevant facts and averments made in the petition and affidavit in reply. It appears that immediately after the formation of the State of Gujarat in 1960, the Government of Gujarat decided to set up a fertilizers project on priority basis. In the year 1960 a committee under the Chairmanship of the then Chief Secretary to the Gujarat V. Iswaran, I.A.S. was constituted and Dr. C. B. Patel, the then Director of Industries was made ex-officio Secretary of the said committee. This committee recommended establishment of the fertilizers project near Baroda. Government of Gujarat formed a Board of Directors and promoted the Company. It is the allegation of the petitioners that all the expenditure for the formation of the Company including the expenditure for preparation of Memorandum and Articles of Association was paid by the Government of Gujarat. Even the registered office of the Company was located in Sachivalaya building at Ahmedabad, and one B. D. Shah, Officer on Special Duty, Fertilizers, of Industries Department was looking after the liaison work of the Company. The land for the Company was acquired by Government under Part II of the Land Acquisition Act and not under Part VII. Acquisition under Part II was made for public purpose. These allegations made by the petitioners are not denied by the Respondents. According to the petitioners it is significant to note that name of the Company is Gujarat State Fertilizers Company Limited and that also indicates that it is a State Government industry. Now, so far as shareholding of the Company is concerned the break up is as follows :
Government Financial Institutions 26.77%Government of Gujarat 49.03%Banking Companies 3.75%Insurance Companies 1.37%Indian Companies 1.78%Foreign Companies 0.75%Co-operative Societies 2.01%Individual Share Holders 14.54%---------Total 100.00%---------
It would thus appear that major part (more than 80%) of the shareholding is owned and or controlled by the Government. More than 49% of the total shares are held by Government of Gujarat while more than 31% of the total shares are held by Government Financial Institutions, Nationalised Banks and Insurance Companies.
11. Arts. 138, 140 and 142 of the Articles of Association of the Company provide for appointment of Directors on the Board of Directors of the Company, and they read as follows -
'138. Number of Directors
Unless otherwise determined in a General Meeting and subject to the provisions of S. 252 of the Act the number of Directors of the Company shall not be less than 4 nor more than 12, excluding the Government Director, if any, Special Director, if any, Debenture Director, if any and Corporation Director, if any, two-thirds of whom shall be liable to retire by rotation.'
'140. Government Directors.
Subject to the provisions of the Act and Arts. 141, 142 and 143 the Government of Gujarat shall be entitled to nominate and appoint one-third of the Directors (who are herein referred to as 'Government Directors') on the Board of Directors of the Company, who shall be the permanent directors. Each such Director shall not be bound to hold any qualification shares and shall not be liable to retire by rotation or be removed by the Company. One of such Directors shall be the Chairman of the Board of Directors of the Company. Each such director shall hold office until he is either removed from the office or another is nominated in his place by the Government of Gujarat or until he vacates the office by resignation or otherwise. The remaining two-thirds of the Directors shall be appointed on the Board of the Company by holders of equity shares in general meeting and the said shareholders shall be subject to retirement by rotation and the provisions as to holding of qualification shares etc. shall apply to each such Director.'
'142. Corporation Director.
So long as any moneys be owing by the Company to any Finance Corporation or Credit Corporation or to any Financing Company or Body (which Corporation or Body is hereinafter in this Article referred to as 'the corporation'), who may have advanced any loan to the Company, or so long as any guarantee given by such Corporation at the request of and for the purposes of the Company remains outstanding, or so long as such Corporation holds any shares of the Company as a result of its having underwritten the issue of shares by the Company, the Directors may authorise such Corporation to appoint, from time to time, any person as a Director of the Company (which Director is hereinafter referred to as 'Corporation Director') and may agree that the Corporation Director shall not be liable to retire by rotation and need not possess any qualification shares to qualify him for the office of such Director.
The Corporation may at any time and from time to time remove any such Corporation Director appointed by it and may at the time of such removal and also in the case of death or resignation of the person so appointed, at any time, appoint any other person as a Corporation Director in his place. Such appointment or removal shall be made in writing signed by the Chairman of the Corporation or any person or Director thereof and shall be delivered to the Company at its registered office.
It is clarified that every corporation entitled to appoint a Director under this Article may appoint such number of persons and Directors as may be authorised by the Directors of the Company.
Art. 145(1) of the Articles of Association of the Company deals with appointment of Managing Directors and it reads as follows :
'145. Power to appoint Managing Directors :
Subject to the provisions of the Act the Directors may appoint from time to time one or more of them out of the permanent Directors nominated and appointed by the Government on the Board of Directors of the Company as specified in the Art. 140 only to be the Managing Director or Managing Directors of the Company either for a fixed term not exceeding five years at a time or such other term as may be approved by the Central Government in that behalf.'
Art. 147 deals with filling up of casual vacancies and Art. 148 with Additional Director. These Articles do not have bearing on the question in controversy and therefore, it is not necessary to set them out. Art. 121 of the Articles of Association provides for votes of Members and it reads as under :
'121 Votes of Members. Subject to the provisions of Arts. 119 and 120 every member of the Company holding any equity share capital and otherwise entitled to vote shall, on a show of hands when present in person (or being a body corporate present by a representative duly authorised) have one vote and on a poll when present in person (including a body corporate by a duly authorised representative) or by an agent duly authorised under a Power of Attorney or by proxy his voting right shall be in proportion to his share of the paid up equity share capital of the Company.'
12. The above Articles and the percentage of share holding of the Government of Gujarat reveal that 2/3rds of Directors on the Board of Directors are appointed by the Government of Gujarat. Under Art. 140 of the Articles of Association, Government of Gujarat is entitled to nominate and appoint 1/3rd of the Directors on the Board of Directors of the Company who shall be permanent Directors. Such Director is not bound to hold any qualification shares nor is he liable to retire by rotation or be removed by the Company. Remaining 2/3rds of the Directors are to be appointed by the holders of equity shares in general meeting. Under Art. 121 of the Articles of Association, voting rights are in proportion to the share of the paid up equity share capital of the Company. Since the Government of Gujarat holds 49.03% of the equity share capital one half of the 2/3rds of the Directors who are to be appointed by the holders of equity shares would be appointed by Government of Gujarat. It would thus appear that having regard to the nominated Directors and appointed Directors on the basis of voting right, the Government of Gujarat can nominate or appoint 2/3rds of the total Directors. It is significant to note that under Art. 140 of the Articles of Association, one of the Directors nominated by the Government of Gujarat has to be appointed as Chairman of the Board of Directors of the Company. It is also significant to note that under Art. 145(1), one or more of them out of the permanent Directors nominated and appointed by the Government of Gujarat on the Board of Directors as specified in Art. 140 only can be appointed as Managing Director or Managing Directors of the Company either for a fixed term not exceeding five years at a time or such other term as may be approved by the Central Government in that behalf. It is therefore, clear that the Managing Director or Managing Directors in whom the executive powers vest and also the Chairman who presides over the meetings of the Board of Directors are appointed by the State Government. Besides the State Government who has power to nominate and appoint 2/3rds of the Directors on the Board of Directors, the Financial Corporations which are Government Corporations are entitled to nominate 'Corporate Directors'. The equity shareholders other than Government of Gujarat and Government owned Corporations are so small in number that they hardly have any scope of getting elected as Directors of their own at the Annual General Meeting. Practically appointment of Directors is controlled by Government of Gujarat and/or Government owned Institutions or Corporations. It indeed cannot be disputed that it is the Directors who manage the affairs of the Company. It was pointed out by the petitioners that at the time when they filed this petition out of eight Directors six Directors were directly connected and two Directors were indirectly connected with the Government.
13. Company discharges the Governmental functions to implement the directive principles of State policy enshrined in Part IV of the Constitution and more particularly the duty cast upon the State Government to endeavour to organize agriculture on modern and scientific lines as provided in Art. 48 of the Constitution. Clauses 13A and 13B incorporated under 'Objects' in the Memorandum of Association of the Company show that the Company in incorporated to implement the directive principles of the State policy. The said Objects are as under :
'13A. To undertake, carry out, promote and sponsor rural development including any programme for promoting the social and economic welfare of, or the uplift of the public in any rural areas and to incur any expenditure on any programme of rural development and to assist execution and promotion thereof either directly or through an independent agency or in any other manner; without prejudice to the generality of the foregoing 'programme of rural development' shall also include any programme for promoting the social and economic welfare of or the uplift of the public in any rural development : and that the words 'rural area' shall include such areas under S. 35CC of the Income-tax Act, 1961, or any other law relating to rural development for the time being in force and in order to implement any of the above mentioned objects or purposes transfer without consideration or at a fair or concessional value and divest the ownership of any property of the Company to or in favour of any Public or Local Body or Authority or Central or State Government or any Public Institutions or Trusts engaged in the programme of rural development.'
'13B. To undertake, carry out, promote and sponsor or assist any activity for the promotion and growth of national economy and for discharging social and moral responsibilities of the Company to the public or any section of the public as also any activity likely to promote national welfare or social, economic or moral uplift of the public or any section of the public and undertake, carry out, promote and sponsor any activity for publication of any books, literature, newspapers, or for organising lectures or seminars likely to advance these objects or for giving merits awards, for giving scholarships, loans or any other assistance to deserving students or other scholars to enable them to prosecute their studies or academic pursuits or researches and for establishing, conducting or assisting any institution, trust, having any one of the aforesaid objects as one of its objects, by giving donations or otherwise in any other manner and in order to implement any of the above mentioned objects or purposes transfer without consideration or at a fair or concessional value, as the Directors may think fit and divest the ownership of any property of the Company to or in favour of any Public or Local Body or Authority or Central or State Government or any Public Institutions or Trustees established or operating under, by virtue of, or pursuant to any law for the time being in force.'
14. It is not disputed that the above objects were inserted at the instance of the Government of Gujarat. It was urged that the aforesaid objects were inserted only to get some benefit under the Income-tax Act. I am not prepared to believe that the Company would insert the objects in the Memorandum of Association without any intention to carry out those objects and only with a view to getting some benefits under the Income-tax Act. If there was no intention to carry out the objects and the object was only to get the benefit of Income-tax Act, it is obvious that insertion of the above objects was not honest to say the least. However, I am not inclined to accept the respondents contention that the Company was not serious about carrying out the abovesaid objects and that they were inserted only for the purpose of obtaining certain benefits under the Income-tax Act.
15. The Articles of Association of the Company also provide for audit of the Company's accounts by the Comptroller and Auditor General of India or its nominee. Relevant provisions in this regard are contained in Article 230 and they read as under :
'230. State Government to direct audit by the Comptroller and Auditor General of India or its nominee.
1. If and so long as the Government of Gujarat holds (either in the name of the Governor of Gujarat or in the name of its nominee or nominees) at least 25 per cent. of the paid up capital of the Company for the time being, it shall be lawful for the State Government to direct the Company to have its accounts for the year or years specified in such direction, audited by the Comptroller and Auditor General of India and it shall be the duty of the Company to abide by and comply with such directions.
2. On the State Government giving directions in pursuance of Clause (1) hereof, the Comptroller and Auditor General shall have powers :
(a) to direct the manner in which the Company's account shall be audited by the auditor/auditors appointed in pursuance of Article hereof and to give such auditor/auditors instructions in regard to any matter relating to the performance of his/their functions as such;
(b) to conduct a supplementary or test audit of the Company's accounts by such person or persons as he may authorise in this behalf; and for the purposes of such audit, to have access, at all reasonable times, to call Accounts, Account Books, Vouchers, Documents and other papers of the Company and to require information or additional information to be furnished to any person or persons so authorised, on such matters, by such person or persons and in such form, as the Comptroller and Auditor-General may, by general or special order direct;
3. The Auditor/Auditors aforesaid shall submit a copy of his/their audit report to the Comptroller and Auditor-General of India who shall have the right to comment upon or supplement the audit report in such manner as he may think fit. Any such comments upon or supplement to, the audit report shall be placed before the Meeting of the Company at the same time and in the same manner as the auditor's report.'
In the context of the above Art. 230 it is also important to refer to the correspondence exchanged between the Government of Gujarat and the Company collectively marked Exhibit D to the affidavit in reply dated September 6, 1985 filed on behalf of the Company. In the letter dated October 4, 1971, the Additional Chief Secretary to Government of Gujarat, Industries, Mines and Power Department, wrote to the Chairman of the Company inquiring whether there would be any objection if a convention was established to place the annual report & accounts of the Company before the State Legislature every year to enable a discussion if necessary. In reply, the Company by its letter dated October 8, 1971 wrote to the Additional Chief Secretary to say that while the Company was agreeable to the suggestion made in his letter, it would suggest that a further convention also be accepted that it would be for the Minister concerned to furnish whatever information might be sought in the State Legislature. The Company assured that whatever information Minister might require would be very willingly furnished by the Company. It is also stated in the letter that the Company assumed that it would not be subject to any scrutiny by the Committee on Public Enterprises or by the Public Accounts Committee. The suggestion made by the Company was accepted by the State Government by its letter dated November 11, 1971.
16. A very significant fact which supports the petitioners' contention that the Company is controlled by the contention that the Company is controlled by the Government is the exemption claimed by the Company under the Monopolies and Restrictive Trade Practices Act, 1969 (M.R.T.P. Act.' for short). The said Act does not apply in certain cases as provided in S. 3 thereof. Under Clauses (b) of S. 3 of the M.R.T.P. Act, the Act does not apply to any undertaking owned or controlled by Government. In this connection, it is very interesting to refer to the letter dated February 11, 1972 (Annexure M to the affidavit dated August 23, 1985 filed on behalf of the Petitioners) addressed by the Company to the Secretary to the Government of India, Department of Company Affairs, New Delhi. In this letter, claim was made by the Company that it is an undertaking owned or controlled by the Government within the meaning of S. 3(b) of the M.R.T.P. Act. It was stated that M.R.T.P. Act was not applicable to the Company and therefore, it should be de-registered under S. 26(3) of the said Act. Since this letter throws considerable light on the controversy before me, it is necessary to set out the entire text of the letter which is as follows :
'At the commencement of the Monopolies and Restrictive Trade Practices Act, 1969, the total value of the assets of this Company was not less than Rs. 20 crores within the meaning of S. 20(a)(i) of the said Act, and therefore, deemed it prudent to apply for registration of the Company under S. 26(1)of the said Act. Accordingly, this Company has been registered under certificate of Registration No. 9/1118/70-M(B) dated the October 24, 1970. However, on the facts set out hereafter this Company is an undertaking owned or controlled by the Government within the meaning of S. 3(b)of the said Act, and the said Act is not applicable to it. We, therefore, hereby apply for the de-registration of the Company under S. 26(3) of the said Act.
1. This Company was sponsored by the Government of Gujarat, and its issued, subscribed and paid up share capital is held as shown in the statement annexed hereto and marked Annexure 'A'. It will be observed from the said statement, that 49.03 per cent. of the share capital of the Company is held by the Government of Gujarat, and 31.86 per cent. of the share capital is held by the nationalised financial institutions, banks and insurance companies. Thus, 80.89 per cent. of the total issued, subscribed and paid up share capital of the Company is held by the Government and nationalised Financial Institutions, banks and insurance companies.
2. The Company's first Board of Directors was nominated by the Government of Gujarat. Under Art. 140 of the Articles of Association of the Company, the Government of Gujarat, is entitled to nominate and appoint one-third of the total number of Directors of the Company, subject to the rights of the financial institutions like IDBI, IFC, LIC, and ICICI, under Art. 142 read with the relevant provisions of the loan and underwriting agreements entered into between the Company and said institutions. The IDBI is entitled to nominate and appoint not more than two Directors, and the IFC, LIC and ICICI are each entitled to nominate and appoint one Director, on the Board of Directors of the Company. The nominee Directors of the Government of Gujarat and the Financial Institutions are to be permanent Directors, not liable to retire by rotation or be removed by the Company, and are not required to hold any qualification shares. The Chairman and Managing Director of the Company are to be appointed out of the Directors nominated by the Government of Gujarat.
3. The present Board of Directors of the Company consists of the following members :
(1) Shri Jaykrishna Harivallabhdas, Chairman (Nominated by the Government of Gujarat), Industrialist.
(2) Shri Arvind N. Mafatlal. Industrialist.
(3) Shri H. M. Patel, I.C.S. (retired).
(4) Shri Arvind N. Lalbhai, Industrialist.
(5) Shri R. B. Amin, Industrialist.
(6) Shri T. K. Patel, Member of Parliament and Chairman, Gujarat State Co-operative Marketing Society Limited.
(7) Shri Rohit C. Mehta, Industrialist.
(8) Shri F. N. Rana, I.A.S. (retired).
(9) Shri L. R. Dala, I.A.S., Chief Secretary to the Government of Gujarat (Nominated by the Government of Gujarat).
(10) Shri M. D. Rajpal, I.A.S., Additional Chief Secretary to the Government of Gujarat.
(11) Dr. S. K. Subramanian, (Nominated by the Industrial Development Bank of India).
(12) Shri F. J. Heredia, I.A.S., Managing Director, (Nominated by the Government of Gujarat).
4. It may be observed from the above list that Directors at Serial Nos. 1, 9 and 12 are the nominees of the Government of Gujarat, and Director at Serial No. 11 is the nominee of IDBI, Director at Serial Nos. 8 and 10 have been appointed as rotational Directors on the Board at the request of the Government of Gujarat. Directors at Serial Nos. 2, 3, 4 and 5 were included in the Board, when the first Board was constituted by the Government of Gujarat in 1962. Directors at Serial Nos. 6 and 7 were appointed in consultation with the Government of Gujarat. All the rotational Directors at Serial Nos. 2, 3, 4, 5, 6, 7, 8 and 10 have re-elected on the Board from time to time with the consent and support of the Government of Gujarat, and the nationalised financial institutions, banks and insurance companies, who all together held 80.89 per cent. of the total issued, subscribed and paid up share capital of the Company. It may also be appreciated that but for the consent and support of the Government of Gujarat and the Nationalised financial Institutions, Banks and Insurance Companies, none of the rotational Directors can be elected on the Board of the Company. Thus all the Directors on the Board are there because they enjoy the full confidence of the Government of Gujarat and the nationalised financial institutions, Banks and insurance companies.
5. The Managing Director of the Company, who is a nominee of the Government of Gujarat and who is invariably an I.A.S. officer of the Gujarat cadre, has been vested with substantial powers of management and exercises full control over the day-to-day affairs of the Company.
6. Under Article 230 of the Articles of Association of the Company, the Government, so long as it holds at least 25 per cent. of the paid up share capital of the Company, is entitled to direct the Company to have its accounts for any year audited by the Comptroller and Auditor General of India, and the said Government has in fact directed such audit.
7. The Government of Gujarat in effect exercises substantial control over the affairs and working of the Company in several ways including issue of directives from time to time, which the Company has invariably obeyed and carried out. To wit, the said Government directed the Company :
(i) in 1968, to stop retail sale of fertilisers from its Farmers Information Centres;
(ii) in 1970, to place its entire insurance with LIC only;
(iii) in 1971 to reduce the price of its O.A.P. Fertiliser by Rs. 95 per tonne; and
(iv) in 1971, to place the Company's Annual Report and Accounts before the State Legislature.
On the considerations set out above, we request that the Central Government may be pleased to cancel the registration of the Company.'
17. Petitioners also strongly rely on a letter dated September 23, 1974, addressed by the Company to the Chief Secretary to Government of Gujarat on the subject of additional water supply scheme 10 MGD from Mahi river for GSFC. In this letter it was stated by the Company that it was considering of establishing facilities for the MGD Water Supply to meet requirement of water for the expansion scheme that would be undertaken by it. Paragraphs 2 and 3 of this letter on which reliance was placed by the petitioners read as follows :
'In view of the above, we would like to reserve site in Mahi River bed as shown in the enclosed plan. The site proposed to be reserved is in between existing wells of Baroda Municipal Corporation (BMC) and Gujarat Industrial Development Corporation (GIDC). Drawing showing location of the proposed site, along with locations of wells of Gujarat Refinery and GSFC, BMC and GIDC is enclosed herewith. The site desired to be reserved is shown shaded in red on this drawing.
We would request you to please allocate and reserve the above site and issue notification to this effect so that no other agency may locate their site in this area. District Collector and Superintending Engineer, Public Works Department may be informed in this Regard.'
It was urged that unless the Company was controlled by the Government, it could not have made request as contained in the said letter. It is urged on behalf of the respondents that Gujarat Refinery, Gujarat Industrial Development Corporation and Baroda Municipal Corporation had reserved sites in the Mahi River bed for water scheme and therefore, merely because the Company made similar request, it could not be said it was controlled by Government. It is, however, significant to note that the Corporations and Gujarat Refinery for which the sites were reserved in Mahi river bed were local authorities or the Government Undertakings. It is not pointed out that any Corporation or Company other than the local authorities or the Government owned corporations or the Company was given site in Mahi river bed for water scheme. The above fact, when considered in the light of the other facts stated above cannot be said to have no significance or bearing on the question in controversy.
18. The Company is engaged in the manufacture of fertilizers. Fertilizers are used in cultivation of land and increasing agricultural produce. Having regard to the important contribution which the fertilizers make in increasing the agricultural output, they are controlled by the Fertilisers (Control) Order, 1957. Clause 13 of the said Order places restriction on manufacture or sale etc. of the Fertilizers Schedule I of the said Order lays down varieties of Fertilisers with specifications. The movement of Fertilizers is controlled by the Fertilizers (movement Control) Order, 1973. It is also not disputed that substantial quantities of fertilizers are got distributed through Co-operative Societies by the Company as a part of the policy of the State Government. It was having regard to the important part played by the Fertilizers in the agricultural activity that the Government of Gujarat had decided to set up Fertilizers Project in Gujarat. It was in pursuance of the decision taken by the Government of Gujarat to set up a Fertilizers Project on priority basis that the Company was established. Government of Gujarat not only contributed to the extent of 49.03 per cent. in the equity share capital but also kept control over the Company. As discussed above, two thirds of the Directors on the Board of Directors, Chairman of the Board of Directors and Managing Director or Managing Directors are directly or indirectly appointed or nominated by the State Government. Besides the State Government, Institutions and Corporations owned by Union of India hold equity shares and have a right to nominate Directors. In fact, as already pointed out above, no Director can be appointed without the support of the Government of Gujarat. These and other factors discussed above, and the facts set out in letter dated February 11, 1972 Annexure 'M' adverted to above, clearly establish existence of 'deep and prevasive control' by the Government of Gujarat and such control indicated that the Company is a 'state' agency or instrumentality. It also cannot be disputed that the function of the Company of manufacturing fertilizers is of public importance in which the Government is vitally interested. Further, as pointed out above, initially the State Government itself wanted to set up Fertilisers project but later on decided to establish the Company. This is also a strong factor supporting the inference of the Company being an instrumentality or agency of the State Government. The cumulative effect of all the relevant factors set out above, prove beyond doubt that the Company is 'State' within the meaning of Art. 12 of the Constitution and is subject to the same constitutional limitations as the Government. It must, therefore, be held that the Company is amenable to jurisdiction of this Court under Art. 226 of the Constitution.
19. Before parting with this controversy relating to Art. 12 of the Constitution, I may mention that strong reliance was placed by the respondents on the decision of the Kerala High Court in K. M. Thomas v. Cochin Refineries Ltd. [1982-II L.L.J. 233]. In this decision, the learned Single Judge of Kerala High Court after examining the facts relating to the Cochin Refineries Limited in the light of the decisions of the Supreme Court came to the conclusion that Cochin Refineries Limited could not be said to be an instrumentality of State within the meaning of Art. 12 of the Constitution. Each case depends on its own facts and it was having regard to the facts which obtained in that case the learned Judge took the view that Cochin Refineries Limited was not an instrumentality of the State within the meaning of Art. 12 No new principles are laid down by the learned Judge. I therefore, fail to see how this decision can be of any assistance to the Company.
The next question which falls for my consideration is whether it was open to the Company to discharge the petitioners from the service under Rule 44 of its Service Rules as has been done by its Managing Director respondent No. 2 herein. Rule 44 has been set out above. Relying on this rule it was urged on behalf of the Company that the Company could have discharged from service its employees in Grade I or II (i) for sufficient reasons by the competent appointing authority, or (ii) by three months' notice in writing or by payment of three months' basic pay and dearness allowance as in force from time to time in lieu of such notice. Relevant part of the rule on which reliance is placed by the Company printed in the book entitled 'Service Rules' published by the Company reads as under :
'After confirmation, an employment in Grade I or II may be discharged from the service of the Company for sufficient reasons by the competent appointing authority, or he may leave or discontinue from the service or the Company after giving three months' notice in writing in that behalf or by payment of three months' basic pay and dearness allowance as in force from time to time in lieu of such notice.'
This part of the rule is already set out above while reproducing the entire Rule 44. The Company sought to place reliance on the last portion of the part of the rule set out above namely 'or the Company after giving three months' notice in writing..... in lieu of such notice.' If the rule is read as a whole, in other words, the above part is read along with the subsequent or latter part of the rule, it is obvious that the word 'or' in 'or the Company after giving three months' notice' is a misprint, and it should read as of. This part of the rule permits the employee in Grade I and/or II to leave or discontinue from service of the Company Word 'or' as printed does not make sense. If the entire rule is read, similar provision in regard to other employees contained in the latter part of the rule clearly indicates that the aforesaid part permits the employee to leave or discontinue from service of the Company. To say the least, it is most surprising that the Company which is controlled by Government should have attempted to take advantage of misprint in the rule. If the rule is correctly read, it is evident that so far as confirmed grade I or grade II employee is concerned, the competent appointing authority can discharge him from service for sufficient reasons. In other words, if there are no sufficient reasons, the employee cannot be discharged from service. Expression 'sufficient reasons' or 'sufficient cause' is used in many statutes and rules. The use of the expression itself indicates that an enquiry is contemplated before an employee can be discharged. How can the competent authority record 'sufficient reasons' without affording an opportunity of being heard to the employee who is ought to be discharged In other words, it is implicit in the rule to hold an enquiry before the employee could be discharged under Rule 44. This conclusion is strengthened by the provision contained in Chapter VII of the Rules, which deals with Conduct, Discipline and Appeals. Rule 120 enumerates penalties which can be imposed on employee who commits wilful breach of any of the rules or any of this duties or who displays negligence, inefficiency or indolence or who knowingly, willingly, intentionally or negligently causes any loss or damage whether pecuniary or otherwise to the Company or to any of its properties, or who knowingly, wilfully or intentionally does anything detrimental to the interests or prestige of the Company or in conflict with its instructions or who commits a breach of discipline or is guilty of disobedience or of any other act of misconduct or misbehaviour. One of the penalties enumerated in Rule 120 is 'discharge from service.' Clause (ii) of Rule 120 provides that no penalty shall be imposed on any employee unless the appointing authority or such other authority empowered in this behalf is satisfied that a fair and proper enquiry was made and the charges leading to the penalties were proved. Rule 44 has to be read with Rule 120 and when so read, it leaves no room for doubt that before imposing penalty of discharge from service on an employee, it is necessary to hold a fair and proper enquiry and the competent authority has to reach the conclusion on the basis of such enquiry that the charges levelled against the employee are proved.
20. In the instant case, admittedly no enquiry, much less fair and proper enquiry has been held against the petitioners before imposition of penalty of discharge from service on them. Further, the requirement of Rule 44 of recording sufficient reasons had also not been complied with by the competent authority inasmuch as the impugned orders do not disclose or reveal any reasons for discharge of the petitioners from service. It is not enough to record reasons on the file. Reasons for which the competent authority decided to discharge an employee from service must be reflected in the order of discharge. It is not disputed that petitioners had right to prefer appeal against the impugned orders under Rule 122 of the Service Rules. How could the petitioners have exercised this right of appeal effectively without knowing the reasons for which they were discharged from service. Admittedly reasons recorded in the file were not disclosed to the petitioners before they filed appeals. In fact, the reasons were produced for the first time before this Court. To ask the petitioners to prefer appeal without revealing them reason for their discharge amounts to negation of their right to appeal. The competent authority, it must be held, has acted in violation of the provisions of Rules 44, 120 and 122 in passing the impugned orders of discharge from service.
21. The reasons which are recorded for discharge of the petitioners from service and discharge of the petitioners from service and which are placed on record, clearly indicate that there were allegations of misconduct against the petitioners and it was on account of such allegations that petitioners have been discharged from service. When there are allegations of misconduct and it is on the basis of such allegations that an employee is sought to be discharged, it is incumbent upon the authority concerned to hold an enquiry into the allegations and give an adequate opportunity to the employee against whom the allegations are made to meet those allegations. Unless employee is given such an opportunity, principles of natural justice would be violated.
22. In Board of Trustees of the Port of Bombay v. Dilipkumar Raghavendranath Nadkarni and others [1983-I L.L.J. 1], it was observed. The expression 'life' does not merely connote animal existence or a continued drudgery through life. The expression 'life' has a much wider meaning. Where therefore the outcome of a departmental enquiry is likely to adversely affect reputation or livelihood of a person, some of the nuances of human civilisation which make life worth living would be jeopardised and the same can be put in jeopardy only by law, which inheres fair procedures. In this context one can recall the famous words of Chapter II of Bhagwad Gita :
'Sambhavitsya Chakeerti Marnad atirichyate.'
In Olga Tellis v. Bombay Municipal Corporation, (1985) 3 S.C.C. 545, the Supreme Court observed as follows :-
'As we have stated above while summing up the petitioner's case, the main plank of their argument is that the right to life which is guaranteed by Art. 21 includes the right to livelihood and since, they will be deprived of their livelihood if they are evicted from their slum and payment dwellings, their eviction amounts to deprivation of their life and is hence unconstitutional. For purposes of argument, we will assume the factual correctness of the premise that if the petitioners are evicted from their dwelling, they will be deprived of their livelihood. Upon that assumption, the question which we have to consider is whether the right to life includes the right to livelihood. We see only one answer to that question, namely, that it does. The sweep of the right to life conferred by Art. 21 is wide and far reaching. It does not mean merely that life cannot be extinguished or taken away as, for example, by the imposition and execution of the death sentence, except according to procedure established by law. That is but one aspect of the right to life. An equally important facet of that right is the right to livelihood because, no person can live without the means of living, that is, the means of livelihood. If the right to livelihood is not treated as a part of the constitutional right to life, the easiest way of depriving a person of his right to life would be to deprive him of his means of livelihood to the point of abrogation. Such deprivation would not only denude the life of its effective content and meaningfulness but it would make life impossible to live.
And yet, such deprivation would not have to be in accordance with the procedure established by law if the right to livelihood is not regarded as a part of the right to life.....'
'.... The State may not, by affirmative action, be compellable to provide adequate means of livelihood or work to the citizens. But, any person, who is deprived of his right to livelihood except according to just and fair procedure established by law, can challenge the deprivation as offending the right to life conferred by Art. 21.'
23. Petitioners as a result of their discharge from service would be deprived of their means of livelihood. They cannot be deprived except according to the just and fair procedure established by law. The impugned orders, therefore, violate Art. 21 of the Constitution as urged on behalf of the petitioners. It is true that if the Company was not held to be 'State' within the meaning of Art. 12 of the Constitution, petitioners could not have successfully sought protection of Art. 21 of the Constitution. But since in my view, the Company is 'State' within the meaning of Art. 12 of the Constitution, petitioners are entitled to protection of Art. 21. Petitioners, therefore, could not have been discharged from service except by observing the principles of natural justice. In other words, they could not have been discharged from service without holding enquiry in regard to the allegations made against them and without giving them an opportunity of being heard to meet with the allegations.
24. In the light of the above discussion, it must be held that the impugned orders discharging the petitioners from service are illegal, arbitrary and unjustified. They, therefore, deserve to be quashed and set aside.
25. No other contention or relief claimed in the petition was pressed before me.
26. In the result, this petition is allowed. The impugned orders Annexures 'A1' to 'A5' discharging petitioners Nos. 2 to 6 from service are quashed and set aside. The respondents are directed to reinstate the petitioners in service from the date they were discharged from service with all consequential monetary and other benefits. Petitioners shall be reinstated in service on or before 31st October, 1985 and the direction regarding giving them monetary and other benefits shall be complied with before 30th November, 1985.
27. Rule made absolute with costs.
28. Petition allowed.