Page 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.  419-426  OF 2004

Balmer Lawrie & Co. Ltd. & Ors.                   …Appellants

Versus

Partha Sarathi Sen Roy & Ors.                        …Respondents

WITH

CIVIL APPEAL NO.  926 OF 2013

J U D G M E N T   

Dr. B. S. CHAUHAN, J.

1. These  appeals  have  been  preferred  against  the  impugned  

judgments and orders of the High Court of Calcutta dated 30.1.2002  

and 24.12.2002 in  FMA No.  301/2001,  CO.  2038/1993,  WP.  Nos.  

778/1992, 2613, 2798 & 3169/2000, 1109/1998 and 1739/1996, by  

which the Calcutta High Court by a majority decision held that the

Page 2

Balmer Lawrie & Co. Ltd. – appellant, is a State within the purview of  

Article 12 of the Constitution of India, 1950 (hereinafter referred to  

as,  the ‘Constitution’), and is thus, amenable to writ jurisdiction.  

2. Facts and circumstances giving rise to these appeals are:

A. The appellant is a public limited company incorporated under  

the Indian Companies Act, 1956. The shares of the appellant company  

were  originally  held  by  Indo-Burma  Petroleum  Co.  Ltd.,  Life  

Insurance  Corporation,  Unit  Trust  of  India,  General  Insurance  

Corporation and its subsidiaries, Nationalised Banks and also by the  

public. Subsequently, in 2001 its majority equity shares, i.e. 61.8% of  

its shareholding, which was held by IBP Co. Ltd., was transferred to  

Balmer Lawrie Investments Ltd. (BLIL), a Govt. company in which  

59% shares are held by the government.  

B. The  appellant  company  carries  on  business  in  diverse  fields  

through various Strategic Business Units (SBUs). None of these SBUs  

have monopoly in any business. The said SBUs are involved in the  

manufacturing  of  packing  materials,  i.e.  steel  drums  and  LPG  

cylinders, grease and lubricants. They also provide air freight services,  

2

Page 3

ocean freight services, and project cargo management. They operate  

under a broader segment classified as ‘Logistic Services’,  providing  

space  and  scope  for  segregation,  storage  and  aggregation  of  

containerized cargo, i.e. an infrastructural service carried on outside  

the  port  premises  for  handling,  loading/unloading  and  storage  of  

containerized import, as well as export cargo. The appellant company  

also deals with leather chemicals and tea blending and packaging.  

C. The respondents-employees joined the services of the company  

at different times. However, for the purpose of deciding this case it  

would be convenient  to take up the facts  presented by respondent,  

Partha Sarathi Sen Roy.

The said respondent  joined the appellant  –  company in May  

1975 as a Management Trainee, and was later on confirmed vide order  

dated 1.6.1976 as an officer  in  Grade-III,  subject  to  the terms and  

conditions mentioned in the letter of confirmation w.e.f. 20.5.1976.  

He had previously worked in different branches of the company in  

Dubai,  the  United  Arab  Emirates  etc.  as  an  Accountant-cum-

Administrative Officer. His services were terminated vide order dated  

27.2.1981, in view of Clause 11(a) of the letter of appointment  which  

provided  that  the  company  would  have  a  right,  which  would  be  

3

Page 4

exercised  at  its  sole  discretion,  to  terminate  the  services  of  such  

employees by giving them three calendar months’ notice in writing,  

without  assigning  any  reason  for  such  decision.   The  respondent  

challenged the said termination order by filing writ petition (C.R. No.  

1562 (W) of  1981)  in the High Court  of  Calcutta,  praying for  the  

issuance of a writ of mandamus, directing that the said termination  

order be quashed.  

D. The  appellant  company  contested  the  said  writ  petition  

contending that it was not an authority within the meaning of Article  

12  of  the  Constitution,  and  therefore  was  not  amenable  to  writ  

jurisdiction.  The  terms  and  conditions  of  contractual  rights  and  

obligations could therefore, not be enforced through writ jurisdiction.  

The matter was decided by the learned Single Judge vide judgment  

and order dated 19.12.2000, holding that the appellant was neither a  

State, nor any other authority within the meaning of Article 12 of the  

Constitution, and thus the writ petition itself was not maintainable.  

E. Aggrieved,  the  respondent  filed  an  appeal  (FMA.  No.  

301/2001), against the said judgment and order of the learned Single  

Judge. However, in the meantime, another writ petition No. 778/1992  

was decided by another learned Single Judge of the same High Court,  

4

Page 5

holding that the appellant was infact a State within the meaning of  

Article 12 of the Constitution. Thus, the appellant preferred an appeal  

against the said judgment and order dated 27.3.2001, and the matters  

were heard together by a Division Bench. Both the Judges delivered  

their judgment on 30.1.2002 taking different views on the aforesaid  

issue.  The matter  was referred to a third Hon’ble  Judge,  who vide  

judgment and order dated 24.12.2002, held the appellant to be a State  

within the meaning of Article 12 of the Constitution, and directed that  

the matter be placed before an appropriate bench for decision of the  

writ petitions on merits.  

Hence, these appeals.  

3. Shri Sudhir Chandra, learned senior counsel appearing for the  

State, has submitted that the appellant company cannot be held to be a  

State  within the meaning of  Article  12 of  the Constitution,  or  any  

other  authority  for  that  matter,  as  there  is  no  deep  and  pervasive  

control exercised by the government over the company, though certain  

financial aid was given by it for specific purposes. The government  

however, does not have control over the day-to-day functioning of the  

company.  Merely because the appellant company is a subsidiary of a  

5

Page 6

government company, and is itself a government company, the same  

would not make the appellant company fall within the purview of the  

word ‘State’ as intended by Article 12 of the Constitution. Moreover,  

it does not carry out any public function which could render it as, ‘any  

other authority’, for the purposes of Article 226 of the Constitution. It  

also does not have any kind of monopoly over its business, in fact, it  

carries on a variety of business activities and faces competition from  

all the other industries that operate in the same fields as it does. The  

terms  of  employment   therefore,  cannot  be  enforced  through  writ  

jurisdiction. Thus, the only remedy available to the respondent was to  

file a suit for damages. The appeals deserve to be allowed.  

4. Per  contra,  Shri  Sangaram Patnaik,  Mr.  Bijan  Kumar Ghosh  

and Mr. P.K. Roy, the learned counsel appearing for the respondents  

have submitted that the appellant company is a government company,  

and is  a  subsidiary of  a government  company, which is  controlled  

entirely  by  the  government  and  that  the  government  has  absolute  

control  over the company.  The majority  judgment of  the Calcutta  

High Court, holding the appellant company to be a State within the  

meaning of Article 12 of the Constitution cannot be found fault with.  

6

Page 7

Even otherwise,  law does  not  permit  an employer,  particularly the  

State or its instrumentalities, to terminate the services of its employees  

by adopting a “hire and fire” approach, as it would be hit by the equal  

protection clause enshrined in Article 14 of the Constitution of India  

(hereinafter  referred  to  as,  the  ‘Constitution’).  Additionally,  the  

respondent  died  long  ago,  and  no  attempt  was  ever  made  by  the  

appellant  company to substitute him with his legal heirs.  Thus, the  

appeal stands abated qua him. The facts and circumstances of the case  

do not  warrant  any interference  by this  court,  and the  appeals  are  

therefore, liable to be dismissed.

5. We  have  considered  the  rival  submissions  made  by  learned  

counsel for the parties and perused the record.  

There is  sufficient  material  on record,  and the Memorandum  

and  Articles  of  Association  of  the  appellant  company  make  it  

abundantly clear,  that  the same is a government company and is a  

subsidiary of IBP, which is also a government company. The share  

holding of the appellant company has been referred to hereinabove,  

and more than 61.8% shares are held by IBP, a government company.  

However, the question for consideration before us is, whether in light  

7

Page 8

of the aforementioned facts and circumstances, the appellant company  

is, in fact, a State within the meaning of Article 12 of the Constitution.  

6. The said issue has been considered by various larger benches,  

and it has been held that in order to meet the requirements of law with  

respect to being a State, the concerned company must be under the  

deep  and  pervasive  control  of  the  government.  The  dictionary  

meaning of ‘pervasive’ has been provided hereunder:   

“It means that which pervades/tends to pervade in such a  

way,  so  as  to  be,  or  become,  prevalent  or  dominant.”

“Extensive or far reaching, spreading through every part  

of something.”  

7. In  Virendra Kumar Srivastava v. U.P. Rajya Karmachari  

Kalyan Nigam and Anr. AIR 2005 SC 411, this court held, that in  

order to examine whether or  not  an authority is a  State  within the  

meaning of Article 12 of the Constitution, the court must carry out an  

in  depth  examination  of  who  has  administrative,  financial  and  

functional control  of  such a  company/corporation,  and then assess  

whether the State in such a case is only a regulatory authority, or if it  

8

Page 9

has  deep  and  pervasive  control  over  such  a  company/corporation,  

whether  such company is  receiving full  financial  support  from the  

government,  and  whether  administrative  control  over  it  has  been  

retained by the  State  and its  authorities,  and further,  whether  it  is  

supervised, controlled and watched over by various departmental  

authorities  of  the  State,  even  with  respect  to  its  day-to-day  

functioning. If it is so, then such company/corporation can be held to  

be an instrumentality of the State under Article 12 of the Constitution  

and therefore, will be amenable to the writ jurisdiction of the High  

Court under Article 226 of the Constitution.  

8. In Lt. Governor of Delhi & Ors. v. V.K. Sodhi & Ors. AIR  

2007 SC 2885, a similar test was applied, and it was held that once  

finances are made available to the company, and the administration  

of such finances is left to that company, and there is no further  

governmental  control  or  interference  with  respect  to  the  same,  

such company/corporation or society cannot be held to be a State, or a  

State  instrumentality  within  the  meaning  of  Article  12  of  the  

Constitution. In this case, this court came to the conclusion that the  

very  formation  of  an  independent  society  under  the  Societies  

9

Page 10

Registration  Act,  may  be  suggestive  of  the  intention  that  such  a  

society, could not be a mere appendage to the State.  

9. A Seven-Judge Bench of this Court in Pradeep Kumar Biswas  

v. Indian Institute of Chemical Biology & Ors. (2002) 5 SCC 111  

held, that while examining such an issue, the court must bear in mind  

whether in the light of the cumulative facts as established, the body is  

financially, functionally and administratively, dominated by, or is  

under the control of the Government. Such control must be particular  

to the body in question, and must be pervasive.  If it is found to be so,  

then the body comes within the purview of State within the meaning  

of Article 12 of the Constitution.  On the other hand, when the control  

exercised is merely regulatory, whether under a statute or otherwise,  

the same would not  be adequate,  to render the body a State.   The  

court, while deciding the said issue placed reliance upon its earlier  

judgments in  Rajasthan State Electricity Board Jaipur v. Mohan  

Lal & Ors.  AIR  1967  SC 1857;  and  Sukhdev  Singh & Ors.  v.  

Bhagatram Sardar Singh Raghuvanshi & Anr. AIR 1975 SC 1331,  

wherein it was held that such a body must perform certain public or  

statutory  duties,  and  that  such  duties  must  be  carried  out  for  the  

1

Page 11

benefit of the public, and not for private profit. Furthermore, it was  

also laid down that such an authority is not precluded from making a  

profit  for  pubic  benefit.  The  court  came  to  the  conclusion,  that  

although the employees of  the Corporation may not be servants of  

either  the  Union,  or  of  the  State,  at  the  same  time,  such  a  

company/corporation must not represent the “voice and hands” of the  

government.   Therefore,  this  court  in  Pradeep  Kumar  Biswas  

(supra),  held  that  financial  support  of  the  State,  coupled  with  an  

unusual degree of control over the management and policies of a  

body, may lead to an inference that it is a State. Additionally, other  

factors such as, whether the company/corporation performs important  

public functions, whether such public function (s) are closely related  

to governmental function, and whether such function (s) are carried  

out for the benefit of the public, etc. are also considered. The court  

also  considered  the  case  of  Ramana  Dayaram  Shetty  v.  

International  Airport  Authority  of  India & Ors. AIR  1979  SC  

1628,  wherein it  was held that  a  corporation can be said to be an  

instrumentality  or  agency  of  the  government  therein  under  certain  

conditions, and the same are summarised below :  

1

Page 12

“(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  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.”

1

Page 13

The  Court  also  considered  the  cases  of  Ajay  Hasia  etc.  v.  

Khalid  Mujib  Sehravardi &  Ors.  etc. AIR  1981  SC  487;  and  

Mysore Paper Mills Ltd. v. Mysore Paper Mills Officers’ Assn. &  

Anr. AIR 2002 SC 609.  

10. In M/s. Zee Telefilms Ltd. & Anr. v. Union of India & Ors.,  

AIR 2005  SC  2677,  this  Court,  after  applying  tests  laid  down  in  

various  cases,  examined  the  facts  of  that  case  and  came  to  the  

conclusion that the body was not a State within the meaning of Article  

12 of the Constitution, or for that matter, ‘any other authority’ for the  

purposes of Article 226 of the Constitution, while observing as under :  

“23. The facts established in this case show  the following:

1. The Board is not created by a statute.

2. No part of the share capital of the Board is   held by the Government.

3. Practically no financial assistance is given   by  the  Government  to  meet  the  whole  or   entire expenditure of the Board.

4. The Board does enjoy a monopoly status in   the field of cricket but such status is not State- conferred or State-protected.

1

Page 14

5.  There  is  no  existence  of  a  deep  and   pervasive State control. The control if any is   only  regulatory  in  nature  as  applicable  to   other  similar  bodies.  This  control  is  not   specifically  exercised  under  any  special   statute applicable to the Board. All functions   of the Board are not public functions nor are   they  closely  related  to  governmental   functions.

6. The Board is not created by transfer of a   government-owned  corporation.  It  is  an   autonomous body.”

This Court further observed:

“35. In conclusion, it should be noted that   there can be no two views about the fact that   the  Constitution  of  this  country  is  a  living   organism  and  it  is  the  duty  of  Courts  to   interpret  the  same  to  fulfil  the  needs  and   aspirations  of  the  people  depending  on  the   needs of the time. It is noticed earlier in this   judgment  that  in  Article  12 the term "other   authorities"  was  introduced  at  the  time  of   framing  of  the  Constitution  with  a  limited   objective  of  granting  judicial  review  of   actions  of such authorities which are created   under the Statute and which discharge State   functions.  However,  because  of  the  need  of   the  day  this  Court  in  Rajasthan  State   Electricity Board (supra) and Sukhdev Singh  (supra)  noticing the socio- economic policy   of  the country thought it  fit  to expand the   definition of the term "other authorities" to   include bodies  other  than statutory  bodies.   This  development  of  law  by  judicial   interpretation culminated in the judgment of   the  7-Judge  Bench  in  the  case  of  Pradeep  

1

Page 15

Kumar Biswas (supra). It is to be noted that   in the meantime the socio-economic policy of   the  Government  of  India  has  changed  [See  Balco Employees' Union (Regd.) v. Union of   India and Ors. (2002 2 SCC 333)] and the   State  is  today  distancing  itself  from  commercial  activities  and  concentrating  on   governance  rather  than  on  business.   Therefore,  the  situation  prevailing  at  the   time  of  Sukhdev  Singh (supra)  is  not  in   existence at least for the time being, hence,   there seems to be no need to further expand   the scope of "other authorities" in Article 12   by judicial interpretation at least for the time   being. It should also be borne in mind that as   noticed  above,  in  a  democracy  there  is  a   dividing line between a State enterprise and   a non- State enterprise, which is distinct and  the judiciary should not be an instrument to   erase the said dividing line unless, of course,   the circumstances of the day require it to do   so.”  

                                            (Emphasis added)

11. Often,  there  is  confusion  when  the  concept  of  sovereign  

functions is extended to include all welfare activities. However, the  

court must be very conscious whilst taking a decision as regards  the  

said issue, and must take into consideration the nature of the body’s  

powers and the manner in which they are exercised. What functions  

have been approved to be sovereign are, the defence of the country,  

the  raising of  armed forces,  making peace  or  waging war,  foreign  

1

Page 16

affairs, the power to acquire and retain territory etc. and the same are  

not amenable to the jurisdiction of ordinary civil courts.  (Vide:  N.  

Nagendra Rao & Co.  v.  State of  A.P.,  AIR 1994 SC 2663;  and  

Chief  Conservator  of  Forests  &  Anr.  v.  Jagannath  Maruti  

Kondhare etc.etc., AIR 1996 SC 2898).

In  Bangalore  Water  Supply  &  Sewerage  Board  v.  A.  

Rajappa & Ors., AIR 1978 SC 548, this Court dealt with the terms  

“Regal” and “Sovereign” functions, and held that such terms are used  

to define the term “governmental” functions, despite the fact that there  

are  difficulties  that  arise  while  giving such  a  meaning  to  the  said  

terms, for the reason that the government has now entered largely the  

field of industry.  Therefore, only those services, which are governed  

by separate rules and constitutional provisions such as Articles 310  

and 311,  should  strictly  speaking,  be  excluded from the  sphere  of  

industry by necessary implication.   

Every  governmental  function  need  not  be  sovereign.  State  

activities  are  multifarious.  Therefore,  a  scheme  or  a  project,  

sponsoring trading activities may well be among the State’s essential  

functions,  which contribute  towards its  welfare activities  aimed at  

the benefit of its subjects, and such activities can also be undertaken  

1

Page 17

by private persons, corporates and companies.  Thus, considering  the  

wide ramifications, sovereign functions should be restricted to those  

functions,  which  are  primarily  inalienable,  and  which  can  be  

performed by the State alone. Such functions may include legislative  

functions, the administration of law, eminent domain, maintenance of  

law and  order,  internal  and  external  security,  grant  of  pardon  etc.  

Therefore, mere dealing in a subject by the State, or the monopoly of  

the State in a particular field, would not render an enterprise sovereign  

in  nature.  (Vide:  Agricultural  Produce  Market  Committee  v.  

Ashok Harikuni & Anr. etc. AIR 2000 SC 3116; State of U.P. v. Jai  

Bir  Singh,  (2005)  5  SCC  1;  Assam  Small  Scale  Ind.  Dev  

Corporation Ltd. & Ors.  v.  M/s.  J.D.  Pharmaceuticals & Anr.,  

AIR 2006 SC 131; and  M.D., H.S.I.D.C. & Ors. v. M/s. Hari Om  

Enterprises & Anr., AIR 2009 SC 218).  

12. A public authority is a body which has public or statutory duties  

to  perform,  and  which  performs  such  duties  and  carries  out  its  

transactions for the benefit of the public, and not for private profit.  

Article 298 of the Constitution provides that the executive power of  

the Union and the State extends to the carrying on of any business or  

1

Page 18

trade. A public authority is not restricted to the government and the  

legislature  alone,  and  it  includes  within  its  ambit,  various  other  

instrumentalities  of  State  action.  The  law  may  bestow  upon  such  

organization, the power of eminent domain. The State in  this context,  

may  be  granted  tax  exemption,  or  given  monopolistic  status  for  

certain  purposes.  The  State  being  an  abstract  entity,  can  only  act  

through  an  instrumentality  or  an  agency  of  natural  or  juridical  

persons.  The  concept  of  an  instrumentality  or  agency  of  the  

government is not limited to a corporation created by a statute, but is  

equally applicable to a company, or to a society. In a given case, the  

court  must  decide,  whether  such  a  company  or  society  is  an  

instrumentality  or  agency  of  the  government,  so  as  to  determine  

whether the same falls within the meaning of expression ‘authority’,  

as mentioned in Article 12 of the Constitution, upon consideration of  

all relevant factors.  

In light of the aforementioned discussion, it is evident that  it is  

rather  difficult  to  provide  an  exhaustive  definition  of  the  term  

“authorities”, which would fall within the ambit of Article 12 of the  

Constitution.  This  is  precisely  why,  only  an inclusive  definition is  

possible.  It is in order to keep pace with the broad approach adopted  

1

Page 19

with respect to the doctrine of equality enshrined in Articles 14 and 16  

of the Constitution, that whenever possible courts have tried to curb  

the  arbitrary  exercise  of  power  against  individuals  by  centres  of  

power, and therefore, there has been a corresponding expansion of the  

judicial definition of the term State, as mentioned  in Article 12 of the  

Constitution.  

In light of the changing socio-economic policies of this country,  

and the variety of methods by which government functions are usually  

performed,  the  court  must  examine,  whether  an  inference  can  be  

drawn to the effect that such an authority is infact an instrumentality  

of the State under Article 12 of the Constitution. It may not be easy  

for the court, in such a case, to determine which duties form a part of  

private action, and which form a part of State action, for the reason  

that  the  conduct  of  the  private  authority,  may  have  become  so  

entwined  with  governmental  policies,  or  so  impregnated  with  

governmental character, so as to become subject to the constitutional  

limitations that  are  placed upon State  action.   Therefore,  the court  

must  determine  whether  the  aggregate  of  all  relevant  factors  once  

considered,  would  compel a conclusion as regards the body being  

bestowed with State responsibilities.  

1

Page 20

13. When  we  discuss  ‘pervasive  control’,  the  term ‘control’   is  

taken to  mean check,  restraint  or  influence.  Control  is  intended to  

regulate, and to hold in check, or to restrain from action. The word  

‘regulate’, would mean to control or to adjust by rule, or to subject to  

governing  principles.  (Vide:  State  of  Mysore  v.  Allum  

Karibasauppa & Ors., AIR 1974 SC 1863; U.P. Cooperative Cane  

Unions Federations v. West U.P. Sugar Mills Association & Ors.  

etc.etc., AIR 2004 SC 3697;  M/s. Zee Telefilms Ltd., (supra); and  

Union of India (UOI) & Ors. v. Asian Food Industries, AIR 2007  

SC 750).  

14. In K. Ramanathan v. State of Tamil Nadu & Anr., AIR 1985  

SC 660, this court held as under:   

 “The power to regulate carries with it full   power  over  the  thing  subject  to  regulation   and in absence of restrictive words, the power   must be regarded as plenary over the entire   subject.  It  implies  the  power  to  rule,  direct   and control,  and involves the adoption of  a   rule or guiding principle to be followed or the   making of a rule with respect to the subject to   be  regulated.  It  has  different  shades  of   meaning  and  must  take  its  colour  from the   

2

Page 21

context in which it is used having regard to   the purpose and object of the legislation.”  

15. In  Vodafone International Holdings B.V. v. Union of India  

& Anr., (2012) 6 SCC 613, this Court observed that:

 “‘Control’ is a mixed question of law and   fact. The control of a company resides in the   voting power of its shareholders and shares   represent an interest of a shareholder which   is made up of various rights contained in the   contract  embedded  in  the  Articles  of   Association.  

The  question  is,  what  is  the  nature  of  the   “control” that a parent company has over its   subsidiary? It is not suggested that a parent   company  never  has  control  over  the   subsidiary. For example, in a proper case of   “lifting of corporate veil”, it would be proper   to  say  that  the  parent  company  and  the   subsidiary form one entity. But barring such   case,  the  legal  position  of  any  company  incorporated  abroad  is  that  its  powers,   functions and responsibilities are governed by   the law of its incorporation.  

Control, in our view, is an interest arising   from holding a particular number of shares   and the same cannot be separately acquired   or transferred. Each share represents a vote   in the management of the company and such   a  vote  can  be  utilized  to  control  the   company.”   

2

Page 22

16. The need to determine and reach a conclusion as regards such  

an issue is of paramount importance as this Court has stated in Steel  

Authority of India Ltd. & Ors. etc. v. National Union Water Front  

Workers & Ors. etc.etc. AIR 2001 SC 3527, and held as under:   

“The  principle  is  that  if  the  Government   acting  through  its  officers  was  subject  to   certain  constitutional  limitations,  a  fortiori   the  Government  acting  through  the   instrumentality  or  agency  of  a  corporation   must  equally  be  subject  to  the  same   limitations. It is pointed out that otherwise it   would  lead  to  considerable  erosion  of  the   efficiency of  the Fundamental  Rights,  for in   that event the Government would be enabled   to  override  the  Fundamental  Rights  by   adopting  the  stratagem  of  carrying  out  its   function  through  the  instrumentality  or   agency  of  a  corporation  while  retaining   control over it.”  

(See  also:  M/s.  Star  Enterprises  & Ors.  v.  City  and Industrial  

Development Corpn. of Maharashtra Ltd. & Ors. (1990) 3 SCC  

280;  LIC of India & Anr. v. Consumer Education and Research  

Centre & Ors. AIR 1995 SC 1811; and  Mysore Paper Mills Ltd.  

(supra).

2

Page 23

17. In order to determine whether an authority is amenable to writ  

jurisdiction except in the case of  habeas corpus or  quo warranto, it  

must  be  examined,  whether  the  company/corporation  is  an  

instrumentality or an agency of the State, and if the same carries on  

business for the benefit of the pubic; whether the entire share capital  

of the company is held by the government; whether its administration  

is in the hands of a Board of Directors appointed by the government;  

and  even  if  the  Board  of  Directors  has  been  appointed  by  the  

government, whether it is completely free from governmental control  

in  the  discharge  of  its  functions;  whether  the  company  enjoys  

monopoly status; and whether there exists within the company, deep  

and pervasive State control. The other factors that may be considered  

are whether the functions carried out by the company/corporation are  

closely related to governmental functions, or whether a department of  

government has been transferred to the company/corporation, and the  

question in each case, would be whether in light of the cumulative  

facts  as  established,  the  company  is  financially,  functionally  and  

administratively under the control of the government. In the event that  

the Government provides financial support to a company, but does not  

retain any control/watch over how it is spent, then the same would not  

2

Page 24

fall within the ambit of exercising deep and pervasive control.  Such  

control must be particular to the body in question, and not general in  

nature.  It must also be deep and pervasive. The control should not  

therefore, be merely regulatory.   

18. In  West  Bengal  State  Electricity  Board  &  Ors.  v.  Desh  

Bandhu Ghosh & Ors. (1985) 3 SCC 116, this Court considered a  

case where the respondent-employee was terminated by giving him  

only  three  months’  notice,  and  without  holding  any  enquiry  or  

informing  him about any actions on his part that were unwarranted.  

The court,  after  placing reliance  on the  judgment  in  Workmen v.  

Hindustan Steel Ltd. AIR 1985 SC 251, held that where a regulation  

enables an employer to terminate the services of an employee,  in an  

entirely  arbitrary  manner  and  in  a  manner  that  confers  vicious  

discrimination, the same must be struck down as being violative of  

Article 14 of the Constitution.  Therefore, even Standing Orders must  

be non-arbitrary, and must not confer uncanalised and drastic powers  

upon the employer, which enables him to dispense with an inquiry and  

further  enables him to dismiss an employee,  without assigning any  

reason for the same, by merely stating, that doing so would not be  

2

Page 25

expedient, and that it would be against the interests of the industry, to  

allow continuation of employment with respect to the employee. This  

is  primarily  because,  such  a  procedure  is  violative  of  the  basic  

requirements of natural  justice.  Such power would tantamount to a  

blatant adoption of the “hire and fire” rule.  

19. Where  the  actions  of  an employer  bear  public  character  and  

contain an element of public interest, as regards the offers made by  

him, including the terms and conditions mentioned in an appropriate  

table, which invite the public to enter into contract, such a matter does  

not  relegate  to  a  pure  and simple  private  law dispute,  without  the  

insignia  of  any  public  element  whatsoever.  Where  an  unfair  and  

untenable, or an irrational clause in a contract, is also unjust, the same  

is  amenable  to  judicial  review.  The  Constitution  provides  for  

achieving social and economic justice. Article 14 of the Constitution  

guarantees to all persons, equality before the law and equal protection  

of  the  law.  Thus,  it  is  necessary  to  strike  down  an  unfair  and  

unreasonable  contract,  or  an  unfair  or  unreasonable  clause  in  a  

contract, that has been entered into by parties who do not enjoy equal  

bargaining power, and are hence hit by Section 23 of the Contract Act,  

2

Page 26

and where  such  a  condition  or  provision  becomes  unconscionable,  

unfair,  unreasonable  and  further,  is  against  public  policy.   Where  

inequality of bargaining power is the result of great disparity between  

the  economic  strengths  of  the  contracting  parties,  the  aforesaid  

principle would automatically apply for the reason that, freedom of  

contract must be founded on the basis of equality of bargaining power  

between  such  contracting  parties,  and  even  though  ad  idem  is  

assumed,  applicability  of  standard  form  of  contract  is  the  rule.  

Consent  or  consensus  ad  idem  as  regards  the  weaker  party  may  

therefore, be entirely absent. Thus, the existence of equal bargaining  

power between parties, becomes largely an illusion. The State itself,  

or a state instrumentality cannot impose unconstitutional conditions in  

statutory  rules/regulations  vis-à-vis  its  employees,  in  order  to  

terminate the services of its permanent employees in accordance with  

such terms and conditions. (Vide: Central Inland Water Transport  

Corporation  Ltd.  v.  Brojo  Nath  Ganguly,  AIR  1986  SC  1571;  

D.T.C.  v.  D.T.C. Mazdoor Congress,  AIR 1991 SC 101;  LIC of  

India (supra); K.C. Sharma v. Delhi Stock Exchange & Ors., AIR  

2005 SC 2884; and Punjab National Bank by Chairman & Anr. v.  

Astamija Dash, AIR 2008 SC 3182).    

2

Page 27

20. A  question may also arise as regards whether the court must  

examine only those facts and circumstances that existed on the date on  

which the cause of action arose, or whether subsequent developments,  

are also to be taken into consideration. The aforesaid issue was dealt  

with  by this  Court  in  Rajesh  D.  Darbar & Ors.  v.  Narasingrao  

Krishnaji Kulkarni & Ors. (2003) 7 SCC 219, and therein it was  

held as under:  

“The impact  of  subsequent  happenings  may   now  be  spelt  out.  First,  its  bearing  on  the   right of action, second, on the nature of the   relief and third, on its importance to create or   destroy substantive rights.  Where the nature   of the relief, as originally sought, has become   obsolete  or unserviceable  or a new form of   relief will be more efficacious on account of   developments subsequent to the suit or even   during the appellate stage, it is but fair that   the relief  is moulded,  varied or reshaped in   the light of updated facts.  Subsequent events   in  the  course  of  the  case  cannot  be   constitutive of substantive rights enforceable   in  that  very  litigation  except  in  a  narrow  category  (later  spelt  out)  but  may influence   the  equitable  jurisdiction  to  mould  reliefs.   Conversely, where rights have already vested   in a party, they cannot be nullified or negated   by  subsequent  events  save  where  there  is  a   change in the law and it is made applicable at   any  stage.  Lachmeshwar  Prasad  Shukul  v.   Keshwar  Lal  Chaudhuri,  AIR  1941  FC  5  falls in this category. Courts of justice may,   

2

Page 28

when the compelling equities of a case oblige   them, shape reliefs — cannot deny rights — to   make  them  justly  relevant  in  the  updated   circumstances.  Where  the  relief  is   discretionary,  courts  may  exercise  this   jurisdiction  to  avoid  injustice.  Likewise,   where the right to the remedy depends, under   the statute itself, on the presence or absence   of certain basic facts at the time the relief is   to  be  ultimately  granted,  the  court,  even in   appeal,  can  take  note  of  such  supervening   facts  with  fundamental  impact.  This  Court's   judgment  in  Pasupuleti  Venkateswarlu  v.   Motor & General Traders AIR 1975 SC 1409  read  in  its  statutory  setting,  falls  in  this   category. Where a cause of action is deficient   but later events have made up the deficiency,   the court may, in order to avoid multiplicity   of litigation, permit amendment and continue   the  proceeding,  provided  no  prejudice  is   caused to the other side. All these are done   only in exceptional situations and just cannot   be  done  if  the  statute,  on  which  the  legal   proceeding is based, inhibits, by its scheme or   otherwise, such change in the cause of action   or relief. The primary concern of the court is   to  implement  the justice  of  the  legislation.   Rights vested by virtue of a statute cannot be   divested  by  this  equitable  doctrine  (see   V.P.R.V.  Chockalingam  Chetty  v.  Seethai   Ache AIR 1927 PC 252).”

21. The above-mentioned appeals are required to be considered in  

light of the aforesaid settled legal propositions. However, at  this stage  

2

Page 29

it  may  also  be  pertinent  to  refer  to  the  relevant  Clauses  of  the  

Memorandum and Articles of Association, which read as under:  

“7A.  Notwithstanding anything contained in   these  Articles  and so  long as  the  Company   remains  a  Government  Company,  the   President  of  India  shall  subject  to  the   provisions  of  Article  6  thereof  and  Section   255 of the Act, be entitled to appoint one or   more  Directors  (including  whole  time  Director (s) by whatever name called) of the   Company to hold office for such period and  upon  such  terms  and  condition  as  the   President  of  India  may  from  time  to  time   decide.

xx xx xx

17. The  Company  may,  subject  to  the   provisions  of  Section  284  of  the  Act,  by   ordinary resolution for which special  notice   has been given, remove any Director before   the expiration of his period of office and may   be ordinary resolution of which special notice   has been given, appoint another person in his   stead,  if  the  Director  so  removed  was   appointed  by  the  Company  in  General   Meeting  or  by  the  Board  under  Article  10.   The  person  so  appointed  shall  hold  office   until  the  date  upto  which  his  predecessor   would have held office if he had not been so   removed.  If  the  vacancy  created  by  the   removal of a Director under the provisions of   this Article is not so filled by the meeting at   which he is removed the Board may at  any   time  thereafter  fill  such  vacancy  under  the   provisions of Article 10.  

xx xx xx

2

Page 30

26AA. Notwithstanding  anything  to  the   contrary contained in these Articles, so long   as  the  company  remains  a  Government   company within the meaning of Section 617 of   the  Act,  the  President  of  India  shall  be   entitled to issue from to time such directives   or  instructions  as  may  be  considered   necessary  to  the  conduct  of  business  and  affairs  of  the  Company.  Provided  that  all   instructions from the President of India shall   be in writing addressed to the Chairman or   Managing Director of the Company.

xx xx xx

146. No dividend shall be payable except   out  of  the  profits  of  the  Company  or  of   moneys  provided  by  the  Central  or  a  State   Government for the payment of the dividend   in pursuance of any guarantee given by such   Government  and  no  dividend  shall  carry   interest against the Company.”

22. Admittedly, the appellant is a government company which is  

managed under the guidance of the Ministry of Petroleum and Natural  

Gas.  The  Ministry  of  Petroleum  and  Natural  Gas  exercises  

administrative  control  over  the  appellant  company.  The  appellant  

company  started  its  business  as  a  partnership  firm  in  1867  and  

subsequently, the same was converted into a private limited company  

in 1924, and then eventually, into a public limited company in 1936.

           Its past shareholding position has been reproduced as under:  

Category of shareholders        %age of equity holding

3

Page 31

IBP Co. Ltd.                          61.80%

Financial Institutions & Banks                         21.69%

Public                           14.29%

Employees                           0.85%

Foreign National                           0.44%

Corporate Bodies                            0.86%

U.P. State Government                           0.02%

Directors & their relatives                           0.85%

The present shareholding as per the Annual Report for 2005-06  

has been as under:

Category of shareholders        %age of equity holding

Balmer Lawrie Investment Ltd.                         61.80%

Mutual Fund & UTI                           5.08%

Financial Institutions & Banks                         12.85%

Foreign National                           2.97%

UP State Government                           0.05%

Private/Corporate Bodies                            6.14%

Indian Public                           11.10%

Directors & their relatives                            0.01%

3

Page 32

23. There is nothing on record to show that the Central Government  

provides any financial or budgetary support to the appellant company.  

The appellant  company is a profitable company and meets its  own  

working capital requirements, as well as its fixed capital requirements  

for all requisite purposes through internal funds generated by the re-

deployment of its own profits, and also by borrowing short term funds  

from financial institutions. The grant given by the government to the  

appellant company is in fact very limited, and the extent of such grant  

has been shown by the company as under:  

Year Amount  of  grant  given  in  lakhs

%age of the grant-vs- avg.  yearly  fund  requirement  of  the  appellant-co.(353.55  crores)

1999 91.29 0.26

2001    237 0.67

2002      20 0.06

2003    176 0.50

24. The appellant company carries on its business in diverse fields  

through various Strategic  Business Units (hereinafter  referred to as  

‘SBUs’), and its work is being carried on by (i) an SBU for Industrial  

3

Page 33

Packaging; (ii) an SBU for Greases & Lubricants; (iii) an SBU for  

Logistics  Services;  (iv)  an  SBU  for  Projects  &  Engineering  

Consultancy; (v) an SBU for Travel & Tour; (vi) an SBU for Leather  

Chemicals; (vii) an SBU for Tea Blending & Packaging; and (viii) an  

SBU for Container & Freight Station.  

25. Undoubtedly, the business carried on by the appellant company  

does  not  confer  upon  it  any  monopolistic  character,  as  there  are  

several private companies that are carrying on the same business and  

some of these businesses are even generally carried on by individual  

persons.  

Under the Conduct, Discipline and Review Rules applicable to  

the officers of the appellant company, a letter dated 31.3.1989 written  

by  Managing  Director  of  the  company,  shows  that  government  

directives  on  the  subject  have  been  made  applicable  with  certain  

modifications as required to the terms and conditions of employment  

that  are  applicable  to  various  organizations  of  the  company.  The  

company is not  only a Government of  India enterprise,  but  is  also  

under  the  Administrative  control  of  the  Ministry  of  Petroleum,  

Chemicals  and Fertilizers,  Government  of  India.    Its  directors  are  

3

Page 34

appointed  mainly  from  government  service.  Article  26AA  of  the  

Articles of Association lays down that the President of India shall be  

entitled to issue from time to time, such directives or instructions, as  

may be considered necessary in regard to the administration of the  

business and affairs of the company. Article 7A thereof, provides that  

the President of India shall, subject to other existing provisions, be  

entitled to  appoint  one or  more directors  in  the company for  such  

period, and upon such terms and conditions, as the President of India  

may from time to time decide are required. In view of the provisions  

of Section 617 of the Companies Act, 1956, a government company  

has been defined by way of an inclusive definition, as that which is a  

subsidiary of a government company. The appellant company has also  

been receiving grant-in-aid from the Oil Industry Development Board  

by way of a grant and not as a loan.  Some products of the company  

are in fact monopoly products,  whose procurement and distribution  

are within the direct control of the Ministry of Petroleum which is  

under the Central  Government.  All  Matters of  policy and also,  the  

management  issues  of  the appellant  company,  are  governed by the  

Central  Government.  The Central  Government has control  over the  

appointment  of  Additional  Directors,  and  Directors,  and  their  

3

Page 35

remuneration etc.  is  also determined by Presidential  directives,  and  

the same is applicable to deciding the residential accommodation of  

the Managing Director,  his  conveyance,  vigilance,  issues  regarding  

the welfare of weaker sections etc. The functioning of the appellant  

company is of great public importance. Majority of its shares are held  

by a government company. Its day-to-day business and operations, do  

not  depend  on  the  actions  and  decisions  taken  by  the  Board  of  

Directors, in fact the said decisions are taken under either Presidential  

directives,  or  in  accordance  with  instructions  issued  by  the  

Administrative Ministry or the Finance Ministry.  Its basic function is  

related to the oil industry, which is generally handled by government  

companies.   The  appellant  company  cannot  take  any  independent  

decisions with respect to the revision of pay-scales that are applicable  

to its employees, and the same are always subject to the approval of  

the Administrative Ministry.  The annual  budget  of  the company is  

also  passed  only  if  the  same  is  approved  by  the  Administrative  

Ministry.  

26. It is evident from the material on record that all the whole time  

Directors of the appellant company are appointed by the President of  

3

Page 36

India,  and  such  communications  are  also  routed  through  the  

Administrative Ministry.  

The  appellant  company  is  under  an  obligation  to  submit  its  

monthly, as well as its half-yearly performance reports to the Ministry  

of Petroleum, Government of India. The company has also promoted  

the  use  of  Hindi  language  in  the  course  of  official  work,  in  

consonance with the circulars/guidelines that have been issued by the  

Government  of  India.  The  appellant  company  and  IBP  Company  

Limited, had a common Chairman. The remuneration structure of the  

employees of the appellant company, is also in conformity with those  

which are applicable to the Indian Oil Corporation and IBP, as has  

been fixed by the Bureau of Public Enterprises, Government of India.  

The reservation policy as enshrined in the Directive Principles of the  

Constitution, has also been implemented as per the directions of the  

Central Government in the appellant company.

27. In  order  to  determine  whether  the  appellant  company  is  an  

authority under Article  12 of  the Constitution,  we have considered  

factors  like the formation of  the appellant  company,  its  objectives,  

functions, its management and control, the financial aid received by it,  

3

Page 37

its  functional  control  and  administrative  control,  the  extent  of  its  

domination by the government, and also whether the control of the  

government  over  it  is  merely  regulatory,  and  have  come  to  the  

conclusion  that  the  cumulative  effect  of  all  the  aforesaid  facts  in  

reference to a particular company i.e. the appellant, would render it as  

an authority amenable to the writ jurisdiction of the High Court.  

28. Clause 11(a) of the letter of appointment reads as under:  

“The Company shall have the right, at its sole discretion,   to terminate your services by giving you three calendar   months  notice  in  writing  and  without  assigning  any   reason. The Company also reserves the right to pay you   in lieu of notice, a sum by way of compensation equal to   three  months  emoluments  consisting  of  basic  salary,   dearness  allowance,  house  rent  assistance  and  bonus   entitlements, if any, after declaration of bonus”.

Undoubtedly, the High Court has not dealt  with the issue on  

merits  with  respect  to  the  termination  of  the  services  of  the  

respondents  herein.  However,  considering  the  fact  that  such  

termination took place several decades ago, and litigation in respect of  

the same remained pending not only before the High Court, but also  

before  this  Court,  it  is  desirable  that  the  dispute  come to  quietus.  

Therefore, we have dealt with the case on merits. In keeping with this,  

3

Page 38

we cannot approve the “hire and fire” policy adopted by the appellant  

company, and the terms and conditions incorporated in the Manual of  

Officers in 1976, cannot be held to be justifiable, and the same being  

arbitrary, cannot be enforced.   

In such a fact-situation, clause 11 of the appointment letter is  

held to be an unconscionable clause, and thus the Service Condition  

Rules are held to be violative of Article 14 of the Constitution to this  

extent. The contract of employment is also held to be void to such  

extent.  The  dictionary  meaning  of  the  word  ‘unconscionable’  is  

“showing no regard for conscience; irreconcilable with what is right  

or  reasonable.  An unconscionable  bargain  would  therefore,  be  one  

which is irreconcilable with what is right or reasonable. Legislation  

has also interfered in many cases to prevent one party to a contract  

from taking undue or unfair advantage of the other. Instances of this  

type of legislation are usury laws, debt relief laws and laws regulating  

the hours of  work and conditions of  service of  workmen and their  

unfair discharge from service, as also control orders directing  a party  

to sell a particular essential commodity to another.”  Thus, we do not  

find  any  force  in  the  said  appeals.  The  same  are  dismissed  

accordingly.      

3

Page 39

29. As we have already mentioned, the present appeal stands abated  

qua respondent in C.A. No. 419/2004 owing to his death, and the non-

substitution of his legal heirs. We would like to clarify that his legal  

heirs  may  enure  the  benefits  of  this  judgment,  to  the  extent  that  

respondent was entitled to receive 60% of the arrears of wages due to  

him, from the date of his termination to the date of his superannuation.  

The benefit shall be calculated on the basis of periodical revision of  

salary and other terminal benefits which shall be paid to the LRs of  

the deceased employee within three months.  If it is not given within  

three months then interest at the rate of 9% will accrue. Additionally,  

they  shall  also  be  entitled  to  all  statutory  benefits  like  gratuity,  

provident fund and pension, if any.

CIVIL APPEAL NO.  926 OF 2013

30. The abovesaid appeal stands disposed of in terms of judgment  

in  Civil Appeal Nos.419-426  of 2004.

..………………………….J.  (Dr. B.S. CHAUHAN)

 .…………………………..J. (V. GOPALA GOWDA)

New Delhi;                                                                                  February 20, 2013

3

Page 40

4