Pyare Lal Sharma vs Managing Director, J and K Industries Ltd., Srinagar

A.S. Anand, Ag. C.J.

A Full Bench of this court in Abdul Ahad Loan v. Manager Govt. 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

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 AIR 1979 J &

K 57.

The Full Bench in Abdul Ahad's case 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 the 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 Cooperative 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 reported 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, 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 Govt., it would go a long way towards indicating that the corporation is an instrumentality or

agency of Govt. 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 the Board of Directors appointed by the Govt, though this consideration

also may not be determinative because even where the Directors are appointed by the Govt. 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 :

(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 Govt.

(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 that whether the corporation enjoys monopoly status which is state-confer red 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) That 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 the 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, .

Both the Air Port case (supra) and the U. P. Werehousing Corporation case (supra) 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 the International Air Port case, it is found that the corporation is an instrumentality or an agency of the Governmentthen it would be an ""authority

and, therefore, ""state"" within the meaning of the expression in Article 12. Their Lordships went on to point out ""that it is immaterial for this purpose

whether the corporation is whether it is on 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 may 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 r

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 Govt. order No. SRO 27 of 1963 dated 30-10-1963 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. Limited 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 for the Jammu and Kashmir Industries Private Ltd which says that the object for which the company is

established is to run manage, 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 Director 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 the 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 andthe Articles of Association, it is apparent that the Governor virtually and actually

controls the affairs of the Company. He has extensive say in financial arid 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 Assocation, 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 the 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 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 Private Limited

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.