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Pyare Lal Sharma Vs. J. and K. Industries Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtJammu and Kashmir High Court
Decided On
Case NumberWrit Petition No. 661 of 1982
Judge
Reported inAIR1985J& K33,[1986]59CompCas693(NULL)
ActsConstitution of India - Articles 12 and 226; ;Companies Act, 1956; ;Societies Registration Act, 1860; ;Jammu and Kashmir Companies Act, 1977
AppellantPyare Lal Sharma
RespondentJ. and K. Industries Ltd.
Appellant AdvocateParty in person
Respondent Advocate M.A. Nehvi, Adv.
Cases ReferredAjay Hasia v. Khalid Mujib Sehravardi
Excerpt:
- .....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 its 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.....
Judgment:

Dr. A.S. Anand, Actg. C.J.

1. A Full Bench of this court in Abdul Ahad Loan v. Manager, Government Woollen Mills, AIR 1979 J & K 57, after a review of a catena of authorities opined that a company incorporated under the Companies Act and governed by the provisions of the Companies Act, cannot be characterised as an ' authority,' State, or an agent of the State ' and in that view of the matter held that the Jammu and Kashmir Industries (Private) Ltd. is a company and not an authority within the meaning of Article 12 of the Constitution and is not amenable to the writ jurisdiction of this court. Placing reliance on this judgment, a preliminaryobjection was raised by the learned counsel for the respondent challenging the maintainability of the writ petition, before a learned single judge of this court. Kotwal J. (as his Lordship then was) doubted whether or not the aforesaid (F.B.) authority still holds the field in view of the judgment of the Supreme Court in Ajai Hasia v. Khalid Mujib Sehravardi, AIR 1981 SC 487, and, therefore, he referred the case for an authoritative pronouncement before a Full Bench as it involved the reconsideration of the Full Bench of this court in Abdul Ahad Loan v. Manager, Govt. Woollen Mills AIR 1979 J&K; 57.

2. The Full Bench in Abdul Ahad's case, AIR 1979 J&K; 57, to which one of us, namely, Anand J., was a party and who had authored the judgment, considered a catena of authorities and opined that a company registered under the Companies Act and incorporated in accordance with the provisions of the Companies Act cannot be treated as a statutory body because it is not created by a statute. The Full Bench opined (at p. 65):

'There is thus a well marked distinction between a body created by a statute and a body which after having come into existence is governed in accordance with the provisions of the statute. Only such institutions, which owe their very existence to a statute can be considered as ' statutory ' institutions or 'authorities' within the meaning of Article 12, because the statute itself is the fountain-head of their powers. None of the institutions to which reference has been made above, can be considered to be an institution which owes its very existence to any statute. The institutions referred to above are not created by the provisions of any Act. They are merely governed by the provisions of a statute in accordance with the requirements of law for the time being in force. That position does not militate against their independent existence. Their existence is independent of the statute by the provisions of which they are governed. According to the requirements of law, certain institutions like co-operative societies after their formation are required to be registered in accordance with the provisions of the Co-operative Societies Act. It cannot be said, by any stretch of imagination, that the society so registered under the Act is created by the provisions of the Co-operative Societies Act, it remains a body which, after having come into existence, is governed in accordance with the provisions of the statute and that cannot clothe it with any statutory status and their employees cannot be considered to be enjoying any statutory status either.'

3. In taking the aforesaid view, the Full Bench relied upon the various judgments of the Supreme Court and particularly those in Heavy Engineering Mazdoor Union v. State of Bihar [1969] 39 Comp Cas 905 (SC); AIR 1970 SC 82, Dr. S.L. Agarwal v. General Manager, Hindustan Steel Ltd.,AIR 1970 SC 1150, Praga Tools Corporation v. C.V. Imanual [1969] 39 Comp Cas 889 (SC); 36 FJR 191 ; AIR 1969 SC 1306, and Sabhajit Tewary v. Union of India [1975] 47 FJR 211; AIR 1975 SC 1329.

4. Subsequently, the Supreme Court in Ramana Dayaram Shetty v. International Airport Authority of India, AIR 1979 SC 1628, once again addressed itself to the question as to how to determine whether a company or a corporation is acting as an instrumentality or agency of the Government and, as such, amenable to the writ jurisdiction. Their Lordships in this connection observed (para. 14) :

' 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 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 its 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 the Government and, if so, what should be the nature of such control? Should the functions 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 the 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 the Government, they may be completely free from Governmental control in the discharge of their functions.'

5. Their Lordships then laid down certain tests which in their Lordships' opinion are indicative to determine whether or not a corporation can besaid to be an instrumentality or an agency of the Government. These tests are as follows (at p. 496 of AIR 1981 (SC)):

' (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 the 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 view taken in International Airport's case, AIR 1979 SC 1628, also found support by the same court in U.P. Warehousing Corporation v. Vijay Narain, AIR 1980 SC 840.

7. Both Airport's case, AIR 1979 SC 1628, and U.P. Warehousing Corporation's case, AIR 1980 SC 840, were noticed with approval in Ajay Hasia v. Khalid Mujib Sehravardi AIR 1981 SC 487, and, after reviewing the case-law, their Lordships opined that if on a consideration of various factors detailed in International Airport's case, AIR 1979 SC 1628, it is found that the corporation is an instrumentality or an agency of the Government, then it would be an 'authority' and, therefore, ' State ' within the meaning of the expression in Article 12. Their Lordships went on to point out (at p. 496 of AIR 1981 SC):

' that it is immaterial for this purpose whether the corporation is created by a statute or under a statute. The test is whether it is an instrumentality or agency of the Government and not as to how it is created. The inquiry has to be not as to how the juristic 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, 1860, 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 oragency of the Government and that would have to be decided on a proper assessment of the facts in the light of the relevant factors.'

8. Their Lordships found that the concept of instrumentality or agency of the Government is not limited to a corporation created by a statute but it is equally applicable to a company or society and in a given case it would have to be decided on a consideration of 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' of Article 12 of the Constitution which is amenable to the writ jurisdiction of this court.

9. Keeping in view the guidelines provided by the Supreme Court in Ajai Hasia's case, AIR 1981 SC 487, and other cases noticed above, we now turn to consider whether the J & K Industries Pvt. Ltd. is an authority within'the meaning of Article 12 of the Constitution.

10. It was, vide Government order No. SRO 27 of 1963 dated October 30, 1963, that the sanction was accorded by the Sadar-i-Riyasat to the formation of a company under the Jammu and Kashmir Companies Act, 1977 (BK), for ' managing certain industrial undertakings, which were hitherto being run by the Government of Jammu and Kashmir '. Thus, we find that the Jammu and Kashmir Industries Pvt. Ltd. was created by specifically transferring to it certain industrial undertakings which were hitherto being run by the Government of Jammu and Kashmir. That is a strong factor supportive of the inference that the company is an instrumentality or agency of the Government. This view also finds support from Clause (iii)(a) of the memorandum of association of the Jammu and Kashmir Industries Pvt. Ltd., which says that the object for which the company is established is to run, manage and administer the State industrial undertakings as may be notified by the Governor in a manner as would ensure their economic working.

11. A review of the articles of association of the company shows that both in financial matters and administrative matters, the company is under the control of the Governor of the State. In this connection, it would be relevant to notice some of the articles of association of the company:

12. Under Article 31, the right of members to transfer their shares has been restricted and a share may be transferred by a member or other person entitled to transfer only to a person or persons approved by or on behalf of the Governor and to no other person.

13. Under Article 41, the directors of the company may, from time to time, with the previous sanction of the Governor raise or borrow or secure payments of any sum or sums of money for the purpose of the company.

14. Article 42 also provides that the directors may, subject to the approval of the Governor, raise or secure the payment or repayment of such sum or sums in such manner and upon such terms and conditions as they think fit.

15. Under Article 68, it is provided that until otherwise determined by the Governor, the number of directors shall not be less than 5 and not more than 12. One of the directors shall be appointed by the Governor as the chairman. The Governor has also been vested with the power to remove any director, including the chairman, vice-chairman and the managing director, from the office at any time in his absolute discretion and has a right to fill any vacancy in the office of a director caused by retirement, removal, resignation, death or otherwise in his sole discretion.

16. Article 73 places an embargo on the exercise of power by the director and provides that the powers conferred by the articles shall be exercised by the directors with the sanction of the Governor.

17. Article 74 empowers the Governor to appoint one or more directors to the office of the managing director or managing directors.

18. Under Article 75, the Governor may from time to time entrust or confer upon the managing director or manager for the time being such of the powers exercisable under the articles as he may think fit.

19. Under Article 89, notwithstanding anything contained in the articles, the Governor may from time to time issue such directions or instructions as he may think fit in regard to the finance and the conduct of business and the affairs of the company to the directors.

20. The shareholders of the company are to be the Governor and some other officers of the State Government and there is no private person who holds any share.

21. Thus, from a review of the memorandum of association and the articles of association, it is apparent that the Governor virtually and actually controls the affairs of the company. He has extensive say in financial and administrative matters of the company. The Governor being the executive head of the Government, it is obvious that the actual control is of the Government through the Governor. The control of the Government through the Governor as is evident from the articles of association of the company is so deep and pervasive that no effective order can be passed by the company without the approval of the Governor. Article 89 of the articles of association, which has been noticed above, makes it amply clear that the company has to obey the directions or instructions as may from time to time be issued by the Governor in regard to the financial and the administrative affairs of the company ' notwithstanding anything contained in the articles of association '. The determinative factors suggestedby the Supreme Court in International Airport's case, AIR 1979 SC 1628, and approved by the Supreme Court in Ajay Hasia's case, AIR 1981 SC 487, are fully satisfied in the case of Jammu and Kashmir Industries Private Limited and, on a consideration of all these relevant factors, we hold that the Jammu and Kashmir Industries Private Limited is an instrumentality or an agency of the Government. In the said company, as is apparent from the articles of association, the voice is that of the Government and the hands are also of the Government. We, accordingly, hold that the company being an instrumentality or the agency of the State, is an authority within the meaning of Article 12 of the Constitution and is, as such, amenable to the writ jurisdiction of this court.

22. For what we have said above, we hold that in view of Ajay Hasia's case, AIR 1981 SC 487, the Full Bench judgment of this court in Abdul Ahad's case, AIR 1979 J & K 57, is no longer good law and a writ petition is maintainable against the Jammu and Kashmir Industries P. Ltd.

23. The writ petition shall now be listed for further proceedings before a learned single judge of this court.

Mir, J.

24. I agree.

Rizvi, J.

25. I agree.


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