Pyare Lal Sharma vs J. and K. Industries Ltd.

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

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 preliminary objection 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 Ajay Hasia and Others Vs. Khalid Mujib Sehravardi

and Others, , 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.

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.

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 Vs. State of Bihar and Others, , Dr. S.L. Agarwal Vs. The General Manager, Hindustan Steel Ltd., , The Praga Tools

Corporation Vs. Shri C.A. Imanual and Others, ; 36 FJR 191 , and Sabhajit Tewary Vs. Union of India (UOI) and Others, .

Subsequently, the Supreme Court in Ramana Dayaram Shetty Vs. International Airport Authority of India and Others, , 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.

Their Lordships then laid down certain tests which in their Lordships' opinion are indicative to determine whether or not a corporation can be

said to be an instrumentality or an agency of the Government. These tests are as follows AIR 1981 (SC) 496

(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.

The view taken in Ramana Dayaram Shetty Vs. International Airport Authority of India and Others, , also found support by the same court in

Managing Director, Uttar Pradesh Warehousing Corporation and Another Vs. Vijay Narayan Vajpayee, .

Ramana Dayaram Shetty Vs. International Airport Authority of India and Others, , and Managing Director, Uttar Pradesh Warehousing

Corporation and Another Vs. Vijay Narayan Vajpayee, , were noticed with approval in Ajay Hasia and Others Vs. Khalid Mujib Sehravardi and

Others, , and, after reviewing the case-law, their Lordships opined that if on a consideration of various factors detailed in Ramana Dayaram Shetty

Vs. International Airport Authority of India and Others, , 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 (AIR

1981 SC 496):

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 or agency of the Government

and that would have to be decided on a proper assessment of the facts in the light of the relevant factors.

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.

Keeping in view the guidelines provided by the Supreme Court in Ajay Hasia and Others Vs. Khalid Mujib Sehravardi and Others, , 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.

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.

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:

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.

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.

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.

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.

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.

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

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.

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.

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.

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 suggested by

the Supreme Court in Ramana Dayaram Shetty Vs. International Airport Authority of India and Others, , and approved by the Supreme Court in

Ajay Hasia and Others Vs. Khalid Mujib Sehravardi and Others, , 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.

For what we have said above, we hold that in view of Ajay Hasia and Others Vs. Khalid Mujib Sehravardi and Others, , 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.

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

Mir, J.

I agree.

Rizvi, J.

I agree.