Satrughana Rout vs Managing Director, Tribal Development Co-operative Corporation of Orissa Ltd. and Others

B.L. Hansaria, C.J.—Is Tribunal Development Co-operative Corporation of Orissa Limited (TDCC) a ''State'' within the meaning of Article

12 of the Constitution ? is the question which is required to be determined by us in this reference. Though a Bench of this Court in Baikuntha

Swaini v. Tribal. Development Co-operative Corporation of Orissa Ltd. (OJC No. 521 of 1983, disposed of on 13-4-1990) had answered the

question in negative, when this question came up before another Bench, in this case necessity of ''another look'' on the matter was thought merited

for the reasons incorporated in the referring order dated 12-10-1990, it is because of this that we have heard the matter at length after providing,

full opportunities to all concerned to place before us all necessary materials and to assist us otherwise in answering this important question. It is a

matter of great satisfaction to us that we received valuable assistance from learned counsel of all the parties and we put on record our appreciation

for the same.

The question as to when a body can be regarded as an instrumentality of the State has been subject-matter of a large number of decisions of the

apex Court. For the case at hand, it is not necessary to traverse the entire ground inasmuch as the position of law as accepted today is not a matter

of debate. Though initially the Supreme Court was taking rather a restricted view of the matter, as would appear from the decisions in Rajasthan

State Electricity Board v. Mohan Lal AIR 1976 SC 1857 and The Praga Tools Corporation Vs. Shri C.A. Imanual and Others, it started taking a

broader view from the case of Sukhdev Singh, Oil and Natural Gas Commission, Life Insurance Corporation, Industrial Finance Corporation

Employees Associations Vs. Bhagat Ram, Association of Clause II. Officers, Shyam Lal, Industrial Finance Corporation, in which Oil and Natural

Gas Commission, Life Insurance Corporation of India and Industrial Finance Commission were held as ''authorities'' as visualised by Article 12

and as such ''State''. The decision in Sukhdev Singh''s case, more particularly the view taken by Mathew, J. in that case, paved the way for the

thinking in Ramana Dayaram Shetty Vs. International Airport Authority of India and Others, which is a landmark decision on this aspect of the

matter. Then came the case of Som Prakash Rekhi v. Union of India in which the matter received a deep therapy at the hand of Krishna Iyer. J.,

which was decided on 13-11-1980, on which date itself a Constitution Bench delivered the judgment in Ajay Hasia and Others Vs. Khalid Mujib

Sehravardi and Others, in which Bhagwati, J. (as he then was) through whose pen had come Ramana Dayaram, speaking for the Bench, turned a

new leaf in this branch of law. It may be stated that Krishna Iyer, J. had set in the bench of Ajay Hasia also. It is not known as to whether because

of this, the two noted constitutional authorities of the country thought in the same way, or it may be because both of them drew heavily from the

case of Ramana Dayaram. I have said so because the tests which have been laid down in these two cases to determine whether an instrumentality

or body can be regarded as ''State'' or not, are almost identical inasmuch as in Som Prakash Rekhi the following tests were laid down :

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.

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 ... whether the corporation enjoys monopoly status which is State conferred or State protected.

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.

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.

In Ajya Hasia also, Bhagwati, J. spoke about the aforesaid five tests to which one more was added, namely-

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 govern mental character.

It may be stated that in Ajay Hasia the Court had examined the question as to whether the Regional Engineering College, Srinagar, which was

registered under the Jammu and Kashmir Registration of Societies Act, 1898, was a ''State'' or no not: whereas in Som Prakash Rekhi, the

question was whether Bharat Petroleum Corporation Ltd. was a ''State'' or not. It would be apposite to state here that in Som Prakash Rakhi it

was stated at a number of places that whether the entity is one created by statute as distinguished from under a statute has no importance in this

regard and what matters is functionality plus State control. Same view was taken in Ajay Hasia.

The above noted tests laid down in the aforesaid cases have been followed during the last more than ten years in innumerable decisions by the

apex Court and the High Courts of the country. It is, therefore, not necessary to burden this judgment with what was stated in these decisions. (At

appropriate places we shall, however, refer to these decisions to bring home a point or two). It would be sufficient if reference is made to the latest

decision of the Supreme Court in Chander Mohan Khanna Vs. The National Council of Educational Research and Training and

other[OVERRULED], in which it was stated as below in paragraph 3 :

Article 12 should not be stretched so as to bring in every autonomous body which has some nexus with the Government within the sweep of the

expression ''State''. A wide enlargement of the meaning must be tempered by a wise limitation. It must not be lost sight of that in the modern

concept of Welfare State, independent institution, corporation and agency are generally subject to State control. The State control does not render

such bodies as ''State'' under Article 12. The State control, however vast and pervasive, is not determinative. The financial contribution by the

State is also not conclusive. The combination of State and coupled with an unusual degree of control over the management and policies of the

body, and rendering of an important public service being the obligatory functions of the State may largely point out that the body is ''State''. If the

Government operates behind a corporate veil, carrying out governmental activity and governmental functions of vital public importance, there may

be little difficulty in identifying the body as ''State'' within the meaning of Article 12 of the Constitution. ...

The above shows that the question whether an entity can be regarded as an instrumentality of the State would depend upon various factors,

which would be individual to each case. This apart, there is no single factor which can be held to be conclusive in this regard. An overall view is to

be taken keeping in mind the interplay of the aforesaid tests, without allowing any particular factor to determine the question. It is because of this

that it was rightly observed, if we may say so with respect, by a Full Bench of this Court in Banabihari Tripathy Vs. Registrar of Co-operative

Societies and Another, (to which we shall refer in detail afterwards) that the essential tests cannot be put in a ""strait jacket formula"". T he same

view had been taken by a Bench of this Court in B. Rajkumar Patra Vs. Union of India (UOI) and Others, by observing at page 447 that no

particular test has a predominant role to play and it is cumulative effect which has to be looked into.

The aforesaid being the position in law, we shall make two observations before proceeding further. The first is that though learned counsel for

the parties drew our attention to a large number of decisions of different High Courts on the question as to when a particular co-operative society

was regarded by them to be a ''State'' within the meaning of Article 12 of the Constitution or not, we are not referring to those decisions because,

as already stated, such a question has to be decided on the facts of each case keeping in view the statutory provision governing the entity, its

funding source, its activities, nature and status of its activities and nature and control exercised by the Government on the entity, which factors are

bound to vary from case to case. So, the decision of any particular High Court holding the body before it to be a ''State'' or not by applying the

aforesaid tests would not help us to answer the question whether the entity before us can as well be regarded as a ''State''. The different High

Courts having applied the tests mentioned in this regard in the cases of Som Prakash Rakhi and Ajaya Hasia to the entities before them, what we

have to do is to find out whether on the basis of the tests formulated in the aforesaid cases, IDCC can be regarded as a ''State''. No useful purpose

shall, therefore, be served by lengthening this Judgment by noting the views expressed by the different High Courts regarding the question at hand

while examining the same in regard to the entities which were before them.

Secondly, we would observe that we would confine our attention whether IDCC can be regarded as a ''State'' For this purpose, it is not

necessary at all to decide the general question as to whether all co-operative societies would be ''States''. From what has been stated above, It is

abundantly clear that this question has to be answered with reference to a particular society keeping in view the above-mentioned aspects of the

case, because of which there cannot be a general answer to the question whether each and every co-operative society can be or cannot be

regarded as a ''State''.

Despite what has been stated in paragraph 6 above, it would be meet and proper to have a look as to what this Court had said on earlier

occasions when seized with similar question, though in this reference we have to answer this point qua the IDCC, which had specifically came up

for consideration in the case of Baikuntha Swain {supra) only. We have taken this decision to examine the precedents of this Court, as every

Bench is required to keep in mind for deciding a case, the earlier rulings of the Court having a bearing on the subject, so that its views do not clash

with that of any other Bench. This caution is necessary to prevent confusion and controversy which may result if different views in a matter are

taken by different Benches of the same High Court.

The first case of this Court which has come to our notice is that of Narayan Rath v. Registrar of Co-operative Societies ILR 1970 Cutt 437. In

that case a contention was raised that a writ cannot be issued against the Nayagarh Co-operative Central Bank. The Bench answered the question

in affirmative by stating as below at pages 449 and 480 :

The Nayagarh Co-operative Central Bank in the instant case is a society which has been registered under the Co-operative Societies Act. Like

companies incorporated under the Indian Companies Act, the Society registered under the Co-operative Societies Act, is a Juristic person and

begins to function as an entity from the time of its registration. The Society is governed by the provisions of the Co-operative Societies Act. There

is a strict control exercised by the Registrar and all pet sons appointed by the State to assist him in the matter of constitution of the Managing

Committee, Board of Directors, amendment of bye-laws and framing and imposing of subsidiary rules on the society which the society is bound to

obey. There are provisions which provide for interference by the Registrar in cases of disobedience of his order legally issued under the various

sections of the Act. In the present case as has been stated earlier, the subsidiary rules lay down the service conditions of the employees including

that of the petitioner. These rules govern the society as well as its employees. Similarly, the bye-laws of the society are framed under the authority

of law. Neither the bye laws of the society nor the subsidiary rules framed by the Registrar and adopted by the society can be treated as mere

contractual rules because the consent for foundation of the contract is absent in framing these rules. They give rise to rights in favour of the

petitioner, and impose corresponding obligations on the society and its management. The Society, can, therefore, be compelled to carry out its

obligations under the Act and bye laws end the rules framed thereunder by appropriate authority. Therefore, we are of the opinion that the last

point regarding the maintainability of the writ application fails.

An appeal was preferred against this judgment and the same became the subject-matter of The Nayagarh Co-operative Central Bank Ltd. and

Another Vs. Narayan Rath and Another, The Supreme Court did not approve the view taken by this Court and observed as below in paragraphs

5 and 6 :

The High Court has dealt with the question whether a writ petition can be maintained against a co-operative society, but we are inclined to the

view that the observations made by the High Court and its decision that such a writ petition is maintain able are not strictly in accordance with the

decisions of this Court. We would have liked to go into the question for ourselves but it is unnecessary to do so respondent No. 1 by his writ

petition was asking for relief not really against a co-operative society but in regard to the order which was passed by the Registrar, who was acting

as a statutory authority in the purported exercise of powers conferred on him by the Co-operative Societies Act. The writ petition was in that view

maintainable.

We would like to observe that the judgment of the High Court should not be treated as an authority for the proposition that a writ petition is

maintainable against a co-operative society. That question shall have to be decided by the High Court as and when it arises in the light of the

decisions of this Court.

In view of the aforesaid pronouncement of the apex Court, we would have been perhaps not required to say anything further on the question at

hand; but then, the qualitative change brought about in the concept of ''State'' by subsequent of the Supreme Court, starting specially from Ramana

Dayaram to which we have referred earlier, what was opined in the aforesaid case cannot be taken to be the end of the matter. We shall have to

pursue it further and see whether on the touch stone of the tests specifically mentioned in Som Prakash Rekhi and Ajay Hasia the TDCC can be

regarded as a ""State''.

This takes us to the next decision of this Court which was rendered in Pitambar Mohapatra v. Nilambar Sahu 36 (1970) CLT 866. In that

case, Soro Carpentry Industry Co-operative Society Ltd. was not held to be an instrumentality of the State principally for two reasons, (i) the

society was not a department of the Government or a statutory corporation, but a private juristic person, and (2) it did not exercise any public

function vis-a-vis the employees, one of whom was before the Court.

As to the first reason, it is sufficient to state whether a body is a statutory corporation or not has ceased to be of relevance in view of what has

been stated in this regard in Som Prakash Rekhi and Ajay Hasia, wherein it has been observed that it is of no importance in this regard as to

whether the entity is one created by a statute as distinguished from under a statute, but what matters is functionality plus State control. It was

specifically observed in Som Prakash Rekhi that ""there is no reason to make exclusions on sophisticated grounds, such as, that the legal person

must be a statutory corporation..."" (See paragraph 57). As to the next reason, we would say with respect that the relevant question to be examined

is not whether the entity is exercising public function vis-a-vis its employees, but whether the work undertaken by it can be said to be in the nature

of public function.

For these reasons the view taken in this case cannot be regarded to be either binding or even persuasive.

The third case in sequence of time is that of Narayan Rath v. Nayagarh Co-operative Central Bank Ltd. 43 (1977) CLT 119. The sole ground

on which the status of ''State'' was denied to the Cooperative Central Bank in question was that it was not created by any statute to which it owed

its existence. Though that was the legal thin king prevailing at that time, as would appear from the cases of the apex Court noted in that decision, as

already stated, there is a distinct departure in this regard after judgments in Som Prakash Rekhi and Ajay Hasia were delivered. So, this case also

has lost its binding force.

It was for the first time in Chakradhar Patel Vs. Samasingha Service Co-operative Society Ltd. and Others, that this Court examined the

question at hand by applying the tests laid down in Som Prakash Rekhi and held that the society at hand was not a ''State''. This case has,

therefore its importance and we have to see as to why the aforesaid view was taken in that case. Before applying the tests mentioned in Som

Prakash Rekhi, this Court first applied its mind, being seized with a case of termination order by the President of a co-operative society, to the

question whether the service under a co-operative society could be regarded in the nature of public employment, in which case a writ Court can

grant the relief of reinstatement by enforcing even a contract of personal service, in view of what was stated in several judgments of the apex Court

noted in that case. The Bench came to the conclusion that as a co-operative society could not be regarded to be a statutory body, the relief of

reinstatement could not be given. It is in this context that it was stated that the employment under the society could not be regarded as one of

public employment. This reason given by the Bench may not detain us, because whether a body is statutory or not has lost its relevance as a test

for reason already given. This apart the question whether the relief of reinstatement can be granted to an employee of a Co-operative Society is not

the one with which we are seized. That aspect of the matter would be examined by the Bench before whom the case would be placed to give its

views on the merits, inasmuch as grievance in this case also is about the termination of the service of the petitioner by the TDCC.

Let us now see as to why on the touchstone of the tests mentioned in Som Prakash Rekhi, it was said that the society in question was not a

State: As to this, we find that after quoting the tests, the only observation made at page 67 was :--

These obviously would not exist in the case of a co operative society as here.

We are denied the benefit of knowing as to why this observation was made. There is no discussion at all on this subject. So, we say with respect

that what has been stated in this regard in Chakradhar Patel (supra) can have no persuasive value.

This takes us to the Full Bench case of Banabihari Tripathy Vs. Registrar of Co-operative Societies and Another, Therein, Agrawal, C.J.

reviewed the legal petition, and after noting the tests laid down in Ajay Kasia''s decision applied the same to the facts of the case and came to the

conclusion that the Khurda Central Co-operative Bank could not be regarded as an instrumentality of the State. What is of importance to us is to

note the conclusions arrived at by the Full Bench relating to the legal position.

The Full Bench applied its mind to two questions as noted at page 8 :--

(1) Whether the Co-operative Societies registered under a Co-operative Societies Act as such will come within the fold of Article 12 of the

Constitution of India and are amenable to the writ jurisdiction of the High Court?

(In case the answer is in the negative).

(2) Whether the Co-operative Society is borne under any statute or is discharging any such functions which may make it an ''instrumentality of the

State'' ?

(Second question is recasted)

The answers to the above questions find place at page 24, which are as below :--

Answer to question No. 1--A Co-operative society on merely getting registered under the Co-operative Societies Act does not acquire any

status of becoming an authority to render it amenable to the writ jurisdiction of the High Court. The supervisory power given to the Registrar is with

the object of better working of the societies and to give them guidance of well trained and expert officers.

Answer to question No. 2--If a Co-operative Bank is borne under or created by statute, then it may acquire the status of an ''authority'' within the

meaning of Article 12 of the Constitution. Otherwise, it has to satisfy the essential tests formulated by the various decisions of the Supreme Court

for which, however, there cannot be a strait jacket formula. However, it may not be necessary that the society must satisfy all the tests for

qualifying to be an ""authority"" and in a given case, only some of the prominent features may give it that status. But that must be so predominant that

on tearing the veil, it may appear that the society is merely a projection of the State, the voice being that of the State and the hands also of the

State.

With respect, we agree to the legal propositions contained in the aforesaid answers. We shall have, therefore, to see whether on the facts of

the present case, it can be said that the TDCC is a projection of the State, the voice being that of the State and the hands also of the State"". In

doing so, we shall also make our own observations regarding the nature of the power given to the Registrar by the Orissa Co-operative Societies

Act, 1962 (hereinafter, ''the Act''). As that case has dealt with the characteristic of the Khurda Central Co-operative Bank after analysing the

various aspects relating to that bank, which were relevant to decide the point in controversy, the conclusion arrived at in that case on facts cannot

throw any light on the question with which we are seized.

Before we come to the Bench decision in Baikuntha Swain''s case (supra) in which the TDCC was held to be not a ''State'', we have to refer

to a single Bench decision of this Court in The Managing Director and Another Vs. Natabar Mohanty and Another, In that case, a view was taken

after referring, inter alia to Som Prakash Rekhi, Ajay Hasia and Banabehari Tripathy (supra) that the co-operative society at hand was not a

''State''. The reasons for the same are contained in paragraph 7 of the judgment, a perusal of which shows that the learned Judge came to the

conclusion that the management of the society was not controlled by the Government; there was nothing to show if the entire expenditure of the

society was met by the financial assistance of the Government ; no monopoly status had been conferred on the society ; nor could its function be

stated to be related to Government functions and as to the deep and pervasive control also, it was held that the same was under the control of a

committee, majority of whom were elected members of a society. There can be no dispute that if this be the position, a society cannot be regarded

as a ''State''.

This takes us to the case of Baikuntha Swain. The Bench in that case, after referring to Chakradhar Patel Vs. Samasingha Service Co-

operative Society Ltd. and Others, , Banabihari Tripathy Vs. Registrar of Co-operative Societies and Another, and The Managing Director and

Another Vs. Natabar Mohanty and Another, examined the bye-laws of the TDCC to find out if the tests mentioned in the aforesaid cases to

regard an entity as an instrumentality of the State were satisfied or not.

23 (a). At first, reference was made to Bye-law No. 7, which indicated that 49,800 shares of Rs. 100/- each were allotted to primary co-

operative societies; Rs. 95,000/- special class shares of Rs. 1,000/-each were allotted to Government Panchayat Samitis and other statutory

bodies; and Rs. 20,000/- nominal shares of Re. 1/- each to individuals having transactions with the TDCC. This being the provision regarding

share capital in Bye-law No. 5, the Bench concluded :

It is difficult for us to accept the submission of Mr. Das for the petitioner that the entire share capital of the Corporation is held by the

Government.

23 (b). Reference was then made to Bye-law No. 15 dealing with ""managing committee"" stating that the managing committee shall consist of 15

members, of which 7 would be elected from amongst the affiliated societies; 4 from amongst the Panchayat Samitis; 3 to be nominated by the

Government apart from the Managing Director. It was then observed that ""this clearly indicates that the control and management of the society

vests in the managing committee, of which the majority of the members are not Government nominees though the Managing Director is appointed

by the Government. This would not constitute a deep and pervasive control of the State Government with regard to the affairs of the Corporation.

23 (c). Lastly, attention was paid to Bye-law No. 14 dealing with the subject of ""General Body"" in whom the final authority vests. It was then

noted that under that Bye-law, the General Body consists of (i) delegates representing member-societies, (ii) members of the managing committee

nominated by the State Government; and (iii) delegates representing Panchayat Samitis and local bodies which are members of the Corporation.

23(d). After having examined the aforesaid clauses of the Bye-laws, it was opined that the TDCC was also a ""society formulated akin to the

societies which were considered by this Court in the (aforesaid) Full Bench case as well an m Chakradhar Patel''s ... and, therefore not a ''State''

within the weaning of Article 12 of the Constitution"".

It is the correctness of the aforesaid view which we are required to examine in the present reference. Let, us see, on the basis of mass of

materials placed before us, which of the factors required to be borne in mind in this connection are in existence in so far as the TDCC is concerned

; and whether on the basis of the factors found, present, can it be said that TDCC is a ''State''.

After discussing facts and materials about TDCC on (a) Share capital, (b) Deep and pervasive State control, (c) Monopoly status--State

conferred or State protected, (d) Nature of functioning--Whether closely related to governmental functions, (e) Was the TDCC earlier a Govt.

department ? and (f) Extent of financial assistance by the State, Their Lordships found : Conclusion :

(a) From what has been stated above, we find that of the six factors to be borne in mind in this connection, those relating to the share capital

being held by the Government, deep and pervasive State Control, monopoly status of the business and activities being akin to governmental

functions are satisfied in the present case. Of course, in so far as share capital is concerned, the whole of it is not held by the Government, but it

holds a very substantial part of it, as its share holding is to the extent of 88 %.

(b) The point for consideration is whether on the basis of satisfaction of these tests, it can be rightly and justly said that the TDCC is a ''State''. It

has to be borne in mind in this connection that in absence of fair application of the aforesaid tests, there is possibility of turning every non-

governmental society into an agency or the purpose and may be far from reality, as pointed out in paragraph 20 of Takraj Vasandi (supra). It has

also been recently pointed out in Chander Mohan Khanna''s case that Article 12 should not be stretched so as to bring any other autonomous

body which has some nexus with \he Government within the sweep of the expression ''State''.

(c) We would say that while deciding the above question, it is also necessary to be borne in mind that once an entity comes within the fold of

''State'', it becomes subject to the discipline of fundamental rights, which include Article 14, because of which it would become possible for higher

Courts to examine the reasonableness of the decisions taken by such an entity. With this aid of Article 14, it would be possible to check arbitrary

decisions of these bodies. Further, life of law is not logic, it is experience. And experience born out of the prevailing situation in the country is that

arbitrariness is gaining ground which requires the higher Courts fastened with the constitutional responsibility of protecting fundamental rights of the

citizens to remain ever vigiland. It would no doubt increase the work of these Courts, but it would not open the flood gate, which argument was

rejected by Krishna Iyer at, J. (for self and Bhagwati, J.) in Fertilizer Corporation Kamgar Union v. Union of India AIR 1981 SC 344 by referring

to the following observation of Australian Law Reforms Commission ;

''The idle and whimsical plaintiff, a dilettante who litigates for a lark, is a spectre which hunts a legal literature, not in the Court room.

(d) Keeping in view all the above and the following statement of law in Chander Mohan Khanna''s case :

The combination of State aid coupled with an unusual degree of control over the management and policies of the body, and rendering of an

important. public service being the obligatory functions of the State may largely point out that the body is a ''State''.

We hold that the TDCC is a ""State"" because the factors of which mention has been made in the aforenoted question are present in the case of

TDCC in a very great measure. The TDCC does reflect the voice of the State and the hands of the State are very much apparent.

(e) The reference is, therefore, answered by stating that the TDCC is a ''State''.

Let the records be now placed before the appropriate Bench for disposal of the case in accordance with the answer given by us.

L. Rath, J.

I agree.

A.K. Padhi, J.

I agree.