C.V. Raman and Others vs The Management of Bank of India, Regional Office, Southern Region and Others

Mohan, J.—An important question arising in this batch of cases is whether the Tamil Nadu Shops and Establishments Act, 1947 (hereinafter

referred to as the Shops Act), is applicable to the Nationalised Banks and to the State Bank of India.

We would first note the facts leading to writ appeals Nos. 561 & 562 of 1983. They arise out of W.P. Nos. 2013 and 2014 of 1979. W.P.

No. 2013 of 1979 is for mandamus to direct the first respondent to dispose of the preliminary objection raised by the Management of Bank of

India, Regional Office. Southern Region. represented by Assistant General Manger. Madras, in regard to the maintainability of T.S.E. Case No.

49 of 1975 on the file of the Additional Commissioner for Workmen''s Compensation-II. Madras, in the appeal preferred by the employee C. V.

Raman, under S. 41 of the Act.

W.P. No. 2014 of 1979 is for prohibition to prohibit the Additional Commissioner from proceeding to take up for disposal T.S.E. Case No. 49

of 1975.

The employee, C. V. Raman, the appellant in W.A. Nos. 561 and 562 of 1983, was working in the Bank of India. His services came to be

terminated by the said Bank by an order dated 17th April, 1975. For the purpose of the issue involved in these appeals, it is not necessary to go

into the circumstances leading to the dismissal. However, it is sufficient to state that the said dismissal was by way of disciplinary action for certain

charges framed against him. The dismissal order was preceded by a domestic enquiry.

Aggrieved by the dismissal, he preferred an appeal under S. 41(2) of the Shops Act. That appeal was taken up on file and numbered as T.S.E.

49 of 1975 on the file of Additional Commissioner for Workmen''s Compensation-II. Madras. On receipt of the appeal memo, the Management

of Bank of India in its written statement raised a preliminary objection that the appeal itself was not maintainable, since the provisions of the Shops

Act were inapplicable to the Bank, which is an establishment under the Central Government. Therefore by reason of S. 4(1)(c) of the Shops Act, it

was exempt from the purview of the said Act. It was contended that since the matter went to the root of jurisdiction, it could be taken as a

preliminary issue and decided before the merits of the appeal were gone into. By an order dated 7th April, 1979, the Additional Commissioner

Workmen''s Compensation, refused to pass an order on the preliminary objection. He directed that the appeal would be heard both on the

preliminary objection and on merits. Accordingly he posted the appeal on 19th May, 1979. It was at that stage, the above two writ petitions were

filed.

In the affidavit filed in support of the Writ Petitions, the only point that was raised was that in view of S. 4(1)(c) of the Shops Act, the Bank

would fall outside the purview of the Act. Section 2(3) of the Act defines ""commercial establishment"", including a Bank. Section 2(6) defines

establishment"", among other things ""commercial establishment"". As the Bank is an establishment under the Central Government, by virtue of S.

4(1)(c) of the Shops Act, it would fall completely outside the Act. No employee of the bank can have recourse to the appellate authority

constituted under S. 51 of the Act. It was submitted that this contention was fully supported by the provisions of the Banking Companies

(Acquisition of Undertakings) Act, 1970 in and by which several banks were nationalised including the Bank of India, the first respondent in the

above appeals. The employee contend that the Bank of India was not an establishment under the Government of India and therefore the appellate

authority constituted under S. 41 of the Shops Act will have every jurisdiction to try the appeal. The matter came up before our learned brother.

Ramanujam. J. Union Bank of India and Others Vs. Additional Commissioner for Workmen''s Compensation and Others, . The learned Judge, on

an analysis of the provisions of the Shops Act and on going through the important provisions of Banking Companies (Acquisition of Undertakings)

Act, 1970, hereinafter referred to as the Nationalisation Act, came to the conclusion that the Bank of India was an establishment under the

Government of India, and therefore S. 4(1)(c) of the Shops Act would apply, which means the Bank will fall out of the purview of the Shops Act.

The learned Single Judge was of the view that whatever considerations applied in determining whether the Bank is an ''authority'' within the

meaning of the Art. 12 of the Constitution of India, those considerations ought to apply in deciding whether an establishment is one under the

Government of India or not. He relied principally on 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, .

The learned Single Judge was of the view that the ruling of this Court reported in Madras State Electricity Board Vs. Commissioner of Labour and

Others, and Madras State Electricity Board v. Commissioner of Labour 1961 I L.L.J. 297 and Narayanswami v. Krishnamurthy AIR 1958 Mad

343, cannot be said to lay down the correct law after the decision by the Supreme Court in Sukhdev Singh''s case (supra). On an analysis of the

decision of the Supreme Court the learned Judge held that two propositions would clearly emerge :

1) A statutory corporation, such as the Banks, whose peculiar features can be gathered from the Nationalisation Act, can be taken to be owned by

the Central Government or at any rate it would be an agency or instrumentality of the Central Government.

2) Even if the statutory corporation belongs to the Central Government or it is owned by the Central Government or it is an agency or

instrumentality of the Central Government, still having regard to its separate legal status, having a legal personality of its own with power to acquire,

hold and dispose of properties, the theory of separate legal entity with power to acquire, hold and dispose of the property of a statutory

corporation is relevant only for the purpose of determining whether the assets and liabilities of the corporation can be taken to be the assets and

liabilities of the Government. Thus the learned Judge allowed the Writ Petitions.

The petitioner in W.P. No. 1550 of 1981 is the State Bank of India, Madras. It is aggrieved by the order of the Commissioner of Labour, Madras

dated 14th February, 1981. The respondents in W.P. No. 1550 of 1981 filed an application under S. 51 of Shops Act. In that application, the

Commissioner of Labour was requested to render a decision that all the provisions of Tamil Nadu Shops and Establishments Act of 1947 would

apply to them as persons employed in the State Bank of India. It was also urged that the exemption granted by the Government of Tamil Nadu to

persons holding position of Management in G.O. Ms. No. 512, Labour dated 10th April, 1970 would not apply to them. Each one of the

respondents filed separate applications praying for the same relief. Therefore they came to be dealt with together.

A preliminary objection was raised on behalf of the Writ Petitioner that State Bank of India would fall under the exemption clause contained

under S. 4(1)(c) of the Shops Act and therefore the Act would not apply to the State Bank of India. Another objection was raised that the work

of the respondents herein involved travelling and therefore. Chapter III of the said Act which deals with hours of work, holidays and payment of

overtime wages would not apply to them. On second of the objections, the Commissioner held that the respondents herein were not persons

whose work involved travelling and under the specific orders of the employer to do work outside the Branch would not convert an office job into

one that involves travelling. On the first of the objections, namely the applicability of S. 4(1)(c) of the Shops Act to State Bank of India, after

analysis of the relevant provisions of the Act and on a reference to relevant case law, he rejected the contention that the State Bank would fall

under S. 4(1)(c) of the Shops Act. In the result, he held that all the provisions of Tamil Nadu Shops and Establishments Act, 1947 would apply to

the respondents herein, who belonged to the Junior management cadre of the State Bank of India and they are not occupying the posts of Branch

Manager or Field Officers. It is under these circumstances that this Writ Petition has come to be preferred for certiorari to quash the order of the

Labour Commissioner, Madras.

W.P. No. 11029 of 1981 : The State Bank of India is the petitioner herein. This Writ Petition is against the order of the Deputy Commissioner

of Labour-II, Madras. The respondent started his career as a clerk in the Imperial Bank of India way back in 1955. By dint of his hard work, he

rose to the position of an Officer Grade-II in 1965.

When he was Branch Manager at Tirupattur (Ramanathapuram District), it was brought to the notice of the writ petition-Bank that during his

tenure as Field Officer in Sattur branch and also as Branch Manager at Tirupattur branch, he committed various acts of misconduct, which are

prejudicial to the interests of the Bank.

By a charge sheet dated 24th November, 1978, sixteen charges were levelled. He submitted his explanation. His explanation was found not

satisfactory. Hence the Bank decided to hold an enquiry into the charges against the second respondent. The Enquiry Officer gave his findings

dated 9th April, 1979 holding that the charges were proved. The Disciplinary Authority considered the findings of the Enquiry Officer and imposed

the penalty of removal from service. He passed the orders on 10th September, 1979 removing him form service.

Against the said order of removal, he preferred an appeal on 12th October, 1979 to the Members of the Board of the Bank. At its meeting

held on 22nd November, 1979 the Local Board of the Bank considered the appeal. It resolved that there was no justification to interfere with the

findings record and the punishment imposed by the Disciplinary Authority. Accordingly the appeal was dismissed. Thereupon he preferred an

appeal under S. 41(2) of the Tamil Nadu Shops and Establishment Act. That was numbered as T.S.F. Case No. 60 of 1979. It was urged that in

view of the exemption clause contained under S. 4(1)(c) of the Act, the provisions of Shops Act would be inapplicable and therefore the appeal

was incompetent. The appeal of the second respondent was allowed by the order dated 14th July, 1981. Hence the present writ petition.

W.P. No. 9563 of 1983 : Here again, it is State Bank of India that is the petitioner. The facts are as under. The second respondent was

working as Assistant Security Officer in the petitioner Bank. During June, 1971 and October, 1971, he was stated to have committed certain

serious irregularities, in the matter of claiming expenses, alleged to have been incurred on account of the visit of V.I.Ps. Therefore by a chargesheet

dated 4th December, 1972, 15 charges were levelled against him. The second respondent was governed by the State Bank of India (Officers and

Accountants) Service Rules. Though under the Service Rules applicable to him, an enquiry was not contemplated, having regard to the facts, the

Bank decided to hold a full-fledged enquiry. Accordingly a domestic enquiry was held. The Enquiry Officer gave his findings, holding that all the

charges except a portion of one charge, were proved. After the receipt of the finding, the second respondent was asked to appear before the

Chief General Manager for a personal hearing. After this, by letter dated 12th May, 1976, the second respondent was informed that it was

proposed to inflict the punishment of dismissal. He was called upon to show cause why the said punishment should not be inflicted. He made a

representation on 15th June, 1976. After considering his representation, the Local Board of the writ petitioner Bank at its meeting held on 7th July,

1976 came to the conclusion that the dismissal was the proper punishment. Therefore orders were passed on 21st July, 1976 dismissing him from

Bank service. Aggrieved by that order, he preferred an appeal under S. 41(2) of the Shops Act. The said appeal was numbered as T.S.E. No. 4

of 1979. Though, originally the matter was heard by Deputy Commissioner, Labour-II, he did not pass any orders. Subsequently the first

respondent was notified as the Appellate Authority and the appeal of the second respondent came to be transferred to the first respondent. In the

course of hearing before him, it was urged that the petition bank is an establishment under the Central Government. Therefore, by virtue of S. 4(1)

(c) of the Tamil Nadu Shops and Establishments Act, the said Act would not apply to second respondent. The further objection raised was that

the second respondent was holding a position of Management and governed by service rules and therefore he could not invoke the provisions of

the said Act. On a consideration of the matter, the first respondent overruled both the objections and order dated 11th August, 1983. It is to quash

the same that this writ petition has come to be preferred.

W.P. No. 1730 of 1984 : In this case, the Central Bank of India, Madras is the petitioner. The Writ Petition is filed to quash the order passed

in T.S.E. No. 23 of 1983 setting aside the order of dismissal passed by the writ petitioner against the second respondent by way of punitive action.

Here again the jurisdictional issue and the applicability of S. 4(1)(c) of the Shops Act to the writ petitioner Bank is involved. Whatever decision is

rendered in W.A. Nos. 561 and 562 of 1983 will squarely govern this case since this is one of the Nationalised Banks, unlike the State Bank of

India. Therefore it is not necessary to go into the details relating to the facts.

Mr. N. G. R. Prasad, learned counsel appearing for the appellant in W.A. Nos. 561 and 562 of 1983, C. V. Raman, an employee of Bank of

India, submits as under : After referring to S. 4(1)(c) of the Shops Act, it is urged that the meaning of ''Commercial establishment'' came to be

decided in Madras Sate Electricity Board v. Commissioner of Labour (supra). In that case, the question arose whether the clerical department of

the then Madras Electricity Board would fall under the definition of ''establishment under the Government. The Court found that there was no direct

relationship of master servant between employees of those departments and the Electricity Board. To the same effect is the ruling reported in

Madras State Electricity Board v. Commissioner of Labour (supra). In Canara Bank and Others Vs. Appellate Authority and Others, , a full

Bench of the Kerala High Court considered the question whether the Canara Bank of India and Bank of India, two nationalised banks, were

establishments under the Central Government and as such would be exempt form the provisions of Kerala Shops and Establishments Act, 1960.

Under S. 3(1)(c) in that case, it was held, the control of the Government over the Nationalised Banks as limited only to matters of policy. The

Corporation, as a separate legal entity, is entitled to acquire, hold and dispose of property. It is liable to Income Tax. The expression establishment

used in S. 3 cannot be equated with the undertaking. These Banks have their own staff pattern, their own conditions of service not connected with

the Government or the service rules of the Government and are not establishments under the Central Government. The learned counsel places

strong reliance on this ruling and contends that the failure on the part of the learned single Judge to apply this ruling to the facts of this case has

resulted in a wrong decision.

The next case relied on by the appellant is Corporation of City of Nagpur Vs. G.S. Narayan Ayyar and Another, . The case arose under

Bombay Shops and Establishments Act. It was held that the Bank of Baroda, which was a Nationalised Bank, was not exempt from the provisions

of the Shops and Establishments Act as being an establishment of the Central Government. That ratio will equally apply to the facts of this case.

The learned Counsel next cites the ruling in C.R.P. No. 2632 of 1979. The decision in that case was rendered by one of us. It was held there that

the property belonging to a Nationalised Bank cannot be equated to the holdings of the Government of India.

As to what is the meaning of ''Government Company'' can be gathered from the ruling of the Supreme Court in Western Coalfields Limited Vs.

Special Area Development Authority, Korba and Another, . In the light of that case, certainly the Nationalised Bank is not a Government

Company.

In a case which arose before the Karnataka High Court, which is reported in Workmen, Karnataka P.F. Employees Union Vs. Additional

Industrial Tribunal and Another, , it was held that the activity of the Provident Fund Organisation is essentially non-governmental. If that were the

position with regard to an organisation the case of the Nationalised Bank could be no better.

In Ramana Dayaram Shetty Vs. International Airport Authority of India and Others, , the Supreme Court has explained the meaning of

''agency'' or ''instrumentality'' for the purpose of Art. 12 of the Constitution of India. Therefore if those cases are applied, certainly the nationalised

banks cannot be held to be either an ''agency'' or an ''instrumentality.''

In Biharilal Dobray Vs. Roshan Lal Dobray, , the Supreme Court held that the U.P. Education Committee was held to be an alter-ego, having

regard to the control exercised by the Central Government. But here the position is entirely different. By a reading of Art. 12 of the Constitution of

India, it is clear that makes reference to other authorities. It has no reference to institution like the present bank.

The learned Counsel for the appellant draws our attention to S. 3(4) and S. 4 of the Nationalisation Act. Both read together, according to him,

would clearly establish the indisputable fact that the Nationalised bank is an institution, having a separate entity. He also draws our attention to S. 7

and S. 11 of this Act and then contends that the fact that the banking company is assessable to income tax under S. 11, is a point in favour of the

employee to hold that the exemption provisions of the Shops Act, would not apply. The learned single Judge, according to the learned Counsel for

the appellant, erred in applying those case to decide the meaning of an ''authority'' under Art. 12 of the Constitution of India to an ''establishment

under the Government of India''. Certainly, it cannot be contended that any Nationalised Bank is an authority subordinate to the Government of

India. Otherwise, its power as a legal institution and as a legal person to acquire, to hold and to dispose of property is rendered nugatory.

Mr. M. R. Narayanaswami, learned Counsel appearing for the Bank contends that the approach to this important legal question must be in the

following manner. Section 2(3) of the Shops Act defines ''commercial establishment''. In that it is included ''a bank''. Section 2(6) defines

''establishment'' as such. This Act is of the year 1947. Before that there was only the Reserve Bank of India Act. That was later on taken over by

the Government. It was only by the Reserve Bank transfer to Public Ownership Act, Central Act 62 of 1948, which came into force on January 1,

1949, the Government of India started exercising control over other Banks. It is under this background the exemption clause containing under S. 4

has to examined. Section 4(1) clauses (a) and (b), exempt individual, while S. 4(1)(c) exempts the establishment under the Government. In other

words, the establishment as such is exempt, which is found to be under the Government of India. Once the institution, as a whole is exempt, it is

irrelevant to find out whether there exists a relationship of master and servant between the Government of India and the Employees of the Bank.

Therefore the crucial test to be applied is whether the Nationalised Bank is an ''establishment'' under the Government of India. To establish this

proposition, he would mainly rely on the provisions of the Nationalisation Act. The learned counsel for the Banks invites our attention to S. 2(d),

which defines the corresponding provisions. Under S. 3, the meaning of ''vesting'' is dealt with. No doubt, S. 3(4) of the Act states a Nationalised

Bank, the body corporate''. That cannot belittle a Nationalised Bank being under the Central Government. The voting takes place under S. 4.

Under S. 7, the location of the Head Office and the management must be as per the directions of the Central Government. Under S. 8, the banks

are to be guided by the Central Government. Under S. 10(7), the profits of the Bank are to be kept by the Central Government. Under S. 10(7),

the profits of the Banks are to be transferred to the Central Government. Section 14 lays down that a custodian of a bank is a public servant within

the meaning of the Indian Penal Code. Then again, there is a scheme framed under S. 9 of this Act. That lays down the measure of control by the

Central Government over these banks. In Sukhdev Singh v. Bhagatram (supra), the Supreme Court formulated the test for holding the Life

Insurance Corporation of India, the Oil & Natural Gas Commission as authority. The learned Counsel would draw our particular attention to the

judgment of Justice Mathew in paragraph 109 and the judgment of Chief Justice Ray in paragraphs 39, 44 and 50. In paragraph 50 of the

judgment, according to him, the Life Insurance Corporation of India was held to be an authority within Art. 12 of the Constitution of India. A close

analysis of the Life Insurance Act of 1956 and the Nationalisation Act of 1970, leaves no room for doubt that the Nationalised Bank is an

establishment under the Government of India. It is important to note, according to the learned Counsel, paragraph 67 of the said judgment where it

has been laid down that the employees of these Corporations or Commissions were not the employees of the Union or the state. They could not

be elevated to that status and therefore, Art. 311 was held inapplicable to them. Those tests to hold the institutions like the Life Insurance

Corporation of India as an authority under Art. 12 of the Constitution of India, should equally apply to Nationalised Banks, in view of great

similarity between the Life Insurance Corporation of India Act and the Nationalisation Act. The learned single Judge was right in approaching the

issue involved in this case in that way.

The same line of reasoning was adopted by the Supreme Court in Som Prakash v. Union of India, . Likewise in Ajay Hasia v. Khalid Mujib

1981 II L.L.J. 103, it was held that even a Society registered under the Societies Registration Act was an authority under Art. 12 of the

Constitution of India. At page 493, the test to be adopted was stated as follows :

The true owner is the state, the real operator is the State and the effective Controllorate is the State and accountability for its action to the

community and the Parliament is of the state.

Those decisions are not only sound, but are relevant to the case on hand.

In Executive Committee, U.P. Warehousing Corporation Vs. Chandra Kiran Tyagi, , the Agricultural Produce (Development and

Warehousing) Corporation, when dismissed an employee without following the procedure laid down in its regulation 16(3), it was held that no

declaration to enforce a contract of personal service will normally be granted. The remedy of such a person would be to file a suit for damages. If

therefore, according to him, a Nationalised Bank falls outside the purview of this Act, no appeal could be entertained by the authority constituted

under S. 41 of the Shops Act.

In Rajasthan State Electricity Board, Jaipur Vs. Mohan Lal and Others, , the Rajasthan Electricity Board was held to be an authority under

Art. 12 of the Constitution of India. In Ramana Dayaram Shetty Vs. International Airport Authority of India and Others, , in paragraph 13, page

226, how the Government could act through its agencies has been explained. The same principle should be applicable to the facts of this case. That

case also explained the case in Supreme Court Heavy Engineering Mazdoor Union Vs. State of Bihar and Others, in paragraph 5 of its judgment.

The question in that case was whether the words under the authority could mean ''pursuant to the authority''. therefore whether the Heavy

Engineering Corporation Limited can be said to be carrying on the business to the authority of the Central Government. The answer to this question

was ''no'' because the Corporation was carrying on business by virtue of the authority derived form its Memorandum or Articles of Associations

and not by reason of any authority granted by the Central Government. The learned Counsel states that having regard to these decisions, there

could be an establishment under the control of the Government, even though it is a statutory Corporation. He states further that the tests applied to

decide an authority under Art. 12 have also been applied to Nationalised Bank as seen from the decision in Lachman Dass Agarwal v. The Punjab

National Bank, 1978 Lab & Ind. Cas 423, with regard to Punjab Nationalised Bank. There the scope of S. 11 of the Nationalised Act has also

been discussed in paragraph 10 at page 428. He also draws our attention to the other cases reported in Sukhdev Ratilal Patel Vs. Chairman, Bank

of Baroda and Another, , and Miss P. S. Geetha v. The Central Bank of Bombay, 1978 Lab & Ind. Cas 1271. He refers to the Third New

Webster''s Dictionary, Shorter Oxford English Dictionary; Stroud''s Judicial Dictionary; Grolier International Dictionary in regard to the word

''under''.

In 1982 II LLJ. 178 the words ''Under the Control of Government of India'' came up for discussion under the Industrial Establishment

(National Festival and other Holidays) Act. According to him S. 11(c) of the Andhra Pradesh Factories Act corresponds to S. 4(1)(c) of the

Shops Act and the ratio of the judgment would therefore apply. The learned Counsel for the appellant, after providing us with the corresponding

provisions of the Shops and Establishments Act of the various States, submits that in Corporation of City of Nagpur Vs. G.S. Narayan Ayyar and

Another, the working of S. 4 of the Bombay Shops and Establishments Act has been dealt with. There is a vital distinction between the word of

and ''under'' Central Government. Therefore that decision cannot be of any use.

The sheet-anchor of the appellant''s argument proceeds from the decision in Canara Bank and Others Vs. Appellate Authority and Others, .

That case bristles with in correctness. When the word ''establishment'' has been defined under the Kerala Shops and Establishments Act, there is

nothing to go to the dictionary meaning. In paragraph 7 of that judgment, the word ''under'' has been read as ''of''. In fact that there is an earlier Full

Bench judgment of the very same High Court as seen from Jacob Philip Vs. State Bank of Travancore and Others, , where, under S. 3 of Kerala

Land Reforms Act, the meaning of Corporation owned or controlled by the State, came to be laid down holding that the State Bank of

Travancore, is a corporation owned or controlled by the State. This Full Bench Judgment has not been noted at all in this ruling.

The learned Counsel for the appellant invites our attention to Bernard Schewartz''s Legal Control of Government, 1972 Edition, pages 39 and

40 as to Nationalisation. He also cites a passage in Wade''s Administrative Law page 139 dealing with public Corporation. He refers to Black''s

Law Dictionary, V Edition, at page 924, wherein the word ''Nationalisation'' is dealt with as against the word ''denationalisation'' at page 320. The

learned single Judge was correct in his approach with regard to the appreciation of the Full Bench of the Kerala High Court.

In Biharilal Dobray Vs. Roshan Lal Dobray, , having regard to the control exercised by the Central Government, the U.P. Education

Committee was held to be alter-ego. This case does not help in deciding the matter in issue.

No doubt in Madras State Electricity Board v. Commissioner of Labour (supra), it was the clerical department of the Industrial Undertaking,

namely the Madras Electricity Board, which is included under S. 2(12)(iii) of the Shops Act. Whether that would be exempt nuder S. 4(1)(c) was

the point to be considered. Therefore it was not the entire establishment as such, which came up for consideration. That decision does not apply to

the facts of the present case. Therefore, the theory of master and servant relationship existing between the Government and the employees need

not detain us.

Originally Banking Companies were governed by Part X-A of the Companies Act, 1930. In 1949, the Banking Regulation Act, was enacted.

Therefore Part X-A was repealed. Under the Banking Regulation Act, the Reserve Bank exercised several controls. By Nationalisation Act

(Central Act V of 1970), if a change was brought about in the structure of the Bank itself, can it still be said the Shops Act, 1947 would apply ?

This should be the approach. Therefore it is futile on the part of the appellant to contend that the Government has control over the Nationalised

Banks.

Mr. N. G. R. Prasad, learned Counsel for the appellant further submits that S. 4(1)(c), when it talks of an establishment under the

Government, it must be construed as an equal to a department of the Government. It must be utterly dependent of Government of India in the

matter of day-to-day administration. An establishment under the control of Government. He requests us to note the distinctive phraseology used in

Art. 12 and Art. 58(2) of the Constitution of India and it is the same interpretation that was placed in G. Narayanaswami Naidu Vs. C.

Krishnamurthi and Another, . That was followed in Kishan Prasad Vs. The Union of India, and 1961 I LLJ. 297. All these cases held that ''under

the Government'' means ''a department of the Government''. Those decisions should be applied to these cases. Strong reliance is placed on the

decision in G. Narayanaswami Naidu Vs. C. Krishnamurthi and Another, , particularly the passage occurring from paragraph 29 onwards. As a

matter of fact, the ruling in G. Narayanaswami Naidu Vs. C. Krishnamurthi and Another, , was noted in Manohar Nathurao Samarth Vs.

Marotrao and Others, . The learned Counsel also cites Servai''s Constitution of India III Edition, Volume I, page 224, paragraph 7.82 and also

Servai''s Constitution of India II Edition. Volume 2 page 1155. He also draws our attention to the corresponding provisions of the Shops and

Establishments Act in the various states like Kerala, Karnataka, Andhra Pradesh, Madhya Pradesh, Punjab and Bombay. The specific mention of

Reserve Bank in S. 4(1)(c), is a relevant point, according to the appellant''s Counsel. If really the intention was to exempt the banking

establishments from the purview of the Act, there is no justification for mentioning Reserve Bank of India alone.

Further citations on behalf of the appellant are Dr. S.L. Agarwal Vs. The General Manager, Hindustan Steel Ltd., , it is urged that the word

''under'' means ''subordination to the Government''. It is this interpretation which has to be placed in this case. So construed, it cannot be held that

the Nationalised Bank are subordinated of the Government, having regard to the fact that there is no absolute control over their day-to-day affairs.

Acting under the power conferred by Central Act V of 1970, the Indian Overseas Bank has framed ''Discipline and Appeal Regulation''. They

do not provide for an appeal to Central Government. That is one of the tests laid down in Biharilal Dobray Vs. Roshan Lal Dobray, . The failure to

provide for such an appeal to Central Government is again a point in his favour.

Mr. M. R. Narayanaswami, learned Counsel for the State Bank of India, petitioner in other writ petitions, draws our attention to the following

important provisions of the State Bank of India Act of 1965.

Section 3 : ""Establishment of the State Bank. Section 4 particularly the proviso dealing with ''Authorised Capital''

Section 6 dealing with ''transfer of assets and liabilities'' from Imperial Bank to the State Bank.

It is also stated therein that all the shares in the capital of the Imperial Bank shall be transferred to and vested with the Reserve Bank.

Section 10(1) deals with transferability of shares.

However in sub-s. 2. It is clearly stated :

Nothing in sub-s. 1 shall entitle the Reserve Bank to sell its shares in the State Bank if it results in reducing the shares of the Reserve Bank to less

than 55% of the issued capital.

Section 16(1) states, the Central Office of he State Bank shall be at Bombay.

Section 16(2) talks of the Bank having local head offices in Bombay, Calcutta and Madras.

Section 18, according to the learned Counsel is an important section which has a bearing. That section states as follows :

Section 18(1). In the discharge of its functions. State Bank Shall be guided by such directions in matters and policies involving public interest as

the Central Government may of the consultation with the Governor of the Reserve Bank and the Chairman give to it.

(2) All directions given by the Central Government shall be given through the Reserve Bank. If any question arises where the direction relates to a

matter of policy of public interest, the decision of the Central Government is final.

This shows the nature of appeal.

Section 19 deals with the composition of the Central Board; the power of appointment of Directors under Clauses a, b, Ca and Cb; Clause (d)

contemplates director from various sources.

All these Directors are appointed only by Central Government. In this connection, it is worthwhile to note part X-A of the Banking Regulation Act,

1949.

Section 20, talks of the terms of the Office of the Chairman. That is to be fixed by the Central Government.

Sub-section 1A deals with termination of Office by Central Government.

Section 21 in Clause (c) deals with the nomination of Six members of a Local Board by Central Government.

Section 24 deals with removal from office of Directors by the Central Government.

Section 25 states even casual vacancies are to be filled by Central government.

Section 27(2) deals with ''Salary of Chairman''.

Here again it is the Central Government which determines the same. Likewise S. 29(2) deals with the fixation of salary of the Vice-Chairman.

Chapter VI of the Act concerns with the business of the State Bank of India.

Under Section 35, it is stated thus : ""State Bank may acquire the business of other banks with the sanction of the Central Government.

Under S. 37, it is stated thus : ""Reserve Fund : State Bank shall establish a reserve fund consisting of the amount held in the reserve fund of the

Imperial Bank transferred to the State Bank and such further sums as may be transferred to it by State Bank out of its annual net profits before

declaring a dividend.

Sections 40, 49 and 50 also are relevant. These various provisions suggest immense or extensive control by the Central Government. The learned

Counsel cites the decision in V. Ramiah Vs. State Bank of India, in this connection and also the decision in .

In 9184 II LLJ 67, when the Supreme Court held that the Statistical Institute of India was an ''authority'' under Art. 12 of the Constitution, in

paragraph 20 of its judgment at page 73 had applied the test of deep and pervasive control of Government of India. It is that test which will be

important. If therefore, on an analysis, the Court comes to the conclusion, there is a deep and pervasive control by Government of India over the

State Bank, certainly the Bank would claim exemption under S. 4(1)(c) of the Shops Act.

Mr. Gopinath, learned Counsel appearing for the second respondent submits that the inclusion of ''bank'' under S. 2(3) of the Shops and

Establishments Act is significant. Section 42 of the Reserve Bank of India Act, gives power to the said Bank to exercise control over the banks.

The Reserve Bank of India is a Government Bank. If the argument of the petitioner - State Bank of India - is accepted, all banks will go out of the

Shops and Establishments Act. Such an interpretation is not warranted at all in this case.

State Bank of India is a body corporate. Its shares are freely transferable. Among the Board of Directors, one of them can be from public. On a

reading of the entire State Bank of India Act of 1955, it is clear that except for a capital structure and a policy control by Government, there is no

other control. The learned Counsel draws our attention to the decision reported in AIR 1975 SC 1311. (Stated supra)

It has been held in Ramana Dayaram Shetty v. International Airport Authority (supra) that financial assistance is one of the tests. That test is helpful

to the instant case. He also cites the decision in Managing Director, Uttar Pradesh Warehousing Corporation and Another Vs. Vijay Narayan

Vajpayee, , and contends that the interpretation placed by the petitioner cannot be accepted.

According to the learned Counsel for the second respondent in W.P. No. 11029 of 1981, unless the control by the Government of India is full

and complete, it is not possible to say that the State Bank of India is under the control of Government. In law, if there is accountability even to one

shareholder, it would mean that the Bank is not under the control of the Government. To support this argument, he makes a reference to

Ramaiya''s Company Law, page 257, paragraph 5.38. If really the Directors are in fiduciary capacity to shareholders, theirs appointments by

government are immaterial. In this connection, the learned Counsel referred to Ramaiya''s Company Law, - commentary of Section 291 of

Companies Act - (at page 622 of the latest edition).

Mr. A. Ramachandran, learned Counsel for the contest respondent in W.P. No. 1550 of 1981 state that the existence of master and servant

relationship, which is one of the important tests to be adopted in the case has been correctly held to be applicable in Madras State Electricity

Board Vs. Commissioner of Labour and Others, . If really S. 4(1)(c) of the Shops Act when it was amended, omitted railway and retained

Reserve Bank of India, that is a matter for consideration. Then again, the Government of Tamil Nadu itself granted exemption on the assumption

that the Act is applicable. Therefore if the Act has been so understood, there is no justification to hold to the contrary. This apart, S. 4(1)(c) of the

Shops Act neither uses the word ''instrumentality'' nor ''agency''.

Part IV of the Constitution when it talks of ''State'', it means ''sovereign power''. The Government of India has no ownership of the State Bank

of India. It is thus argued that the State Bank of India will not fall within the purview of exemption number S. 4(1)(c) of the Shops Act.

In reply, Mr. M. R. Narayanaswami, learned Counsel for the State Bank of India again draws our attention to the decision in 1964 II LLJ 311

at and also Ramiah (V.) Vs. State Bank of India, . On the strength of these two cases, it could be held that there could be an employment in a

public Corporation. Such an employment would be ''Public Employment'' not being governed by Art. 311 of the Constitution. In such a case, an

endeavor must be made to find out the proper and appropriate meaning of the word ''under'' and apply to the situation. The word ''under'' is not

defined under the Shops Act. The word ''under'' occurring in S. 4(1)(c) of the Shops Act must be construed in such a way as to be harmonious

with other provisions of the Act.

The reasoning which compels the Nationalised Banks to hold that they are under the Government of India, must be applied to the State Bank

as well. In regard to the State Bank the degree of control could be less. Yes there is substantial control though there is some autonomy. The

election cases do not have any bearings in determining the word ''under'', since the status of the establishment alone was in question in those cases.

We all consider the position of 1) the Nationalised Bank; and 2) the State Bank of India,

in the light of S. 4(1)(c) of the Shops Act. For that purpose, it is necessary to provide the legal backdrop. The Tamil Nadu Shops and

Establishments Act, as stated above, briefly referred to as the Shops Act, was enacted in the year 1947. It is an Act to provide for the regulation

of conditions of work in the Shops, Commercial Shops, Restaurants, Theatres and other shops and for certain other purposes. Though the weekly

Holidays Act of 1942, Central Act 18 of 1942 had been brought into force in this State from 1st January, 1947, it was limited in scope, in that it

provided only for the grant of holidays and did not contain provisions for various other matters, such as hours of work, payment of wages, health

and safety. Therefore a comprehensive measure was considered necessary to regulate these matters on the lines of similar enactments in force in

other States.

The meaning of ''Commercial Establishment'' can be gathered from S. 2(3). That reads as follows :

2(3) ""Commercial establishment"" means an establishment which is not a shop but which carries on the business of advertising, commission,

forwarding or commercial agency, or which is a clerical department of a factory or industrial undertaking or which is an insurance company, joint

stock company, bank, broker''s office or exchange and includes such other establishment as the State Government may be notification declare to

be a commercial establishment for the purpose of this Act.

It requires carefully to be noted that the Bank is also included under the definition, therefore, normally any bank would fall under this Act, since

business is carried on by the Bank.

The word ''establishment'' has been defined under S. 2(6) of the Act. The is as follows :

2(6) ''establishment'' means a shop, commercial establishment, theater or any place of public amusement or entertainment and includes each

establishment as the Government may, by notification, declare to be an establishment for the purposes of this Act.

The exemption clause, which is vital for our case, is contained under S. 4(1). Clause (c) is relevant. That is extracted below :

4(1) Nothing contained in this Act shall apply to

(a) xx xx xx

(b) xx xx xx

(c) establishments under the Central and State Governments, local authorities, the Reserve Bank of India, the Federal Railway Authority, a railway

administration operating a federal railway, and cantonment authorities :

Two striking features of this exemption clause are

1) the specific mention of the Reserve Bank of India; and

2) the omission of the words ''the Federal Railway Authority''.

The argument proceeds that inasmuch as under the definition of ''commercial establishment'' Bank has come to be specifically included and in the

exemption clause, the Reserve Bank of India alone is mentioned, it is impossible to contend that the Nationalised Banks, much less the State Bank

of India, would fall under the exemption clause. The correctness of this, in just opposition to the argument ''establishment under the Central

Government''. Which is relevant forms the crux of the question in this case.

To find out whether a Nationalised Bank will fall under the exemption clause, it is necessary on our part to make a reference to the Banking

Companies Acquisition and Transfer of Undertakings Act of 1970 (Central Act V of 1970). Section 2(d) defines

''corresponding New Bank'' in relation to an existing bank

This means the Body Corporate specified against Bank in Col. 2 of the First Schedule.

Existing Bank means :

''a Banking Company specified in Col. 1 of the First Schedule.''

Section 3 deals with ''Establishment of corresponding new banks and business thereof.

Section 4 states : ''Undertaking of Existing Banks to vest in corresponding new banks.''

The general effect of vesting is stated in S. 5 as follows :

5 General effect of vesting : (1) The undertaking of each existing bank shall be deemed to include all assets, rights, powers, authorities and

privileges and all property, movable and immovable, cash balances, reserve founds, investments and all other rights and interests in, or arising out

of, such property as were immediately before the commencement of this Act the ownership, possession, power or control of the existing bank in

relation to the undertaking, whether within or without India, and all books of accounts, registers, records and all other documents of whatever

nature relating thereto and shall also be deemed to include all borrowings, liabilities and obligation of whatever kind then subsisting of the existing

bank in relation to the undertaking.

(2) If, according to the laws of any country outside India, the provisions of this Act by themselves are not effective to transfer or vest any asset or

liability situated in that country which forms part of the undertaking of an existing bank to, or in, the corresponding new bank, the affairs of the

existing bank in relation to such asset or liability shall, on and from the commencement of this Act, stand entrusted to the chief executive officer for

the time being of the corresponding new bank, and the chief executive officer may exercise as may be exercised or done by the existing bank for

the purpose of effectively transferring such assets and discharging such liabilities.

(3) The Chief Executive Officer of the corresponding new bank shall, in exercise of the powers conferred on him by sub-s. (2), take all such steps

as may be required by the laws of any such country outside India for the purpose of effecting such transfer or vesting, and may either himself or

through any person authorised by him in this behalf realise any asset and discharge any liability of the existing bank.

(4) Unless otherwise expressly provided by this Act, all contracts, deeds, bonds, agreements, powers of attorney, grants of legal representation

and other instruments of whatever nature subsisting or having effect immediately before the commencement of this Act and to which the existing

bank is a party or which are in favour of the existing bank shall be full force and effect against or in favour of the corresponding new bank, and may

be enforced or acted upon as fully and effectually as if in the place of the existing bank, the corresponding new bank had been a party thereto or as

if they had been issued in favour of the corresponding new bank.

(5) If, on the appointed day, any suit, appeal or other proceeding of whatever nature in relation to any business of the undertaking which has been

transferred under S. 4, is pending by or against the existing bank, the same shall not abate, be discontinued or be, in any way, prejudicially affected

by reason of the transfer of the undertaking of the existing bank or of anything contained in this Act, but the suit, appeal or other proceeding may

be continued, prosecuted and enforced by or against the corresponding new bank.

(6) Nothing in this Act shall be construed as applying to the assets, rights, powers, authorities and privileges and property, movable and

immovable, cash balances and investments in any country outside India (and other rights and interests in or arising out of such property) and

borrowings, liabilities and obligations of whatever kind subsisting at the commencement of this Act, of any existing bank operating in that country if,

under the laws in force in that country, it is not permissible for a banking company, owned or controlled by Government to carry on the business of

banking there.

Section 6 deals with payment of compensation.

S. 6(1) Every existing bank shall be given by the Central Government such compensation in respect of the transfer under S. 4 to the corresponding

new bank of the undertaking of the existing bank as is specified against each bank in the second schedule.

Section 7, Head Office and Management :

(1) The Head Office of each corresponding new bank shall be at such place as the Central Government may by notification in the Official Gazette

specify in this behalf and until such place is so specified shall be at such place at which the head office of this Bank is on the commencement of this

Act located.

(2) The general superintendence, direction and management of the affairs and business of a corresponding new bank shall vest in a Board of

Directors which shall be entitled to exercise all such powers and do all such acts and things as the corresponding new bank is authorised to

exercise and do.

(3) The Central Government shall in consultation with the Reserve Bank constitute the First Board of Directors of a corresponding new bank

consisting of not more than 7 persons to be appointed by the Central Government and every Director shall hold office until the Board of Directors

of such corresponding new bank is constituted in accordance with the scheme made under S. 9.

(4) Until the First Board of Director is appointed by the Central Government under sub-s. 3, the general superintendence, direction and

management of the business of the corresponding new bank shall vest with the custodian.

(5) The Chairman of the existing bank shall be the custodian and if he declines, the Central Government may appoint any other person as the

custodian.

(6) The Custodian holds office during the pleasure of the Central Government.

Section 8 :

The corresponding new banks to be guided by the directions of the Central Government in the discharge of its functions.

Section 9 :

Power of the Central Government to make a scheme to carry out the provisions of this Act.

Section 9(4) :

The Central Government, may after consultation with the Reserve Bank, make a scheme to amend or vary any scheme made under sub-s. (1)

Section 11 :

Corresponding new bank to be deemed to be an Indian Company.

Section 14 :

Every Custodian shall be deemed to be a public servant under the Indian Penal Code.

Section 18 : Dissolution :

No provision of law relating to winding up of Corporations shall apply to a new bank and corresponding new bank shall be placed in liquidation

save by order of the Central Government.

Section 19. Power to make regulations :

The Board of Directors of a corresponding new bank may after consultation, with the Reserve Bank and the provisions sanctioned by the Central

Government make regulations consistent with the provisions of this Act or any scheme made thereunder for the purpose of giving effect to the

provisions of this Act.

Whether these new banks constituted under Central Act V of 1970 will fall within the scope of Art. 12 of the constitution of India, had come

up for consideration in various cases. Before we deal with the case, it is necessary to note as to what Art. 12 states in extending Fundamental

rights vis-a-vis the authorities. That Article explains the definition of ''State'' which normally would mean ''sovereign power'' as under :

Article 12. In this Part, unless the context otherwise requires, ""the State"" includes the Government and Parliament of India and the Government

and the Legislature of each of the States and all local or other authorities within the territory of India of under the control of the Government of

India.

In 51 SJR 419, the Calcutta High Court held that the Bank of India would be can authority under Art. 12 of the Constitution. The similar view was

expressed in K. Satyanarayana Murthy Vs. Syndicate Bank and Another, , by the Andhra Pradesh High Court as regards Syndicate Bank. In

Sukhdev Ratilal Patel Vs. Chairman, Bank of Baroda and Another, , the Gujarat High Court took also the same view as regards Bank of Baroda.

1978 Lab Ind Cas 423 dealt with the Punjab National Bank. That is a decision of the Punjab High Court. In 1978 Lab Ind cas 1271, the Andhra

High Court was concerned with the Central Bank of India. That Court came to the Central Bank of India. That Court came to the conclusion that

such a bank would fall under the meaning of ''authority'' under Art. 12.

It may be stated at this stage in Lachhman Dass v. Punjab National Bank (supra) in paragraphs 9 and 10 at 426 and 427, the following

observations are found :

Applying the principles laid down in Sukhdev Singh''s case (supra) there can be no doubt that Punjab National Bank is an ""authority"" within

meaning of Art. 12 of the Constitution. Punjab National Bank, as distinguished from the Punjab National Bank Limited, is not a Company

incorporated pursuant to the provisions of the Companies Act, but is a body created by Statute, namely, the Banking Companies (Acquisition and

Transfer of Undertakings) Act, 1970. It is wholly owned by the Central Government. The general supervision, direction and management of affairs

and business of Punjab National Bank are vested in a Board of Directors appointed pursuant to a scheme made by the Central Government in

consultation with the Reserve Bank of India. The Central Government has the power to modify the scheme from time to time. The Central

Government is entitled to give directions to the Bank. The audit report is to be submitted to the Central Government and the Central Government is

under an obligation to lay the report before both the Bank are required to be transferred to the Central Government. The officers and employees of

the Bank are granted immunity against losses and expenses incurred in connection with the discharge of their duties. It is clear from these

provisions that the Government, instead of itself carrying on the business of banking as it certainly is entitled to, has chosen to carry on the business

through the instrumentality of Punjab National Bank and other ""corresponding new Banks"" crated by the statue and wholly owned by the

Government. It is, ''State action'' through bodies corporate, owned ''body and soul'' (if such an expression may be used by the state). We have no

doubt that the ''new corresponding Banks'' are authorities within the meaning of Art. 12 of the Constitution. Our view is supported by a decision of

the Gujarat High Court in Sukhdev Rati Lal v. Chairman, Bank of Baroda (1976) 2 Serv. L.R. 144 and that of a learned single Judge of this Court

in Chaman Lal Gupta v. Punjab National Bank (RSA No. 1797 of 1973) (Punj.).

Shri D. S. Nehra, learned counsel for the Bank argued that the Bank continued to be a company and relied upon S. 11 of the Act, which

provides that for the purpose of Income Tax Act, 1961, the Bank shall be deemed to be an Indian Company. The submission of Shri Nehra is

entirely without substance. Shri Nehra is confusing Punjab National Bank with the Punjab National Bank Limited While the Punjab National Bank

Limited was a Company incorporated pursuant to the provisions of the Indian Companies Act, Punjab National Bank, the corresponding new

Bank, is a creature of statute. The fact that it is required to be assessed to Income Tax as an Indian Company does not make it a Company

incorporated under the Indian Companies Act. In fact if it was a company under the Companies Act, S. II of the Act would be redundant.

It may be seen that the above ruling relied heavily on Sukhdev Singh''s case (supra)

It is the contention of Mr. N. G. R. Prasad, the learned Counsel for the appellant that the tests applied to determine whether a particular

authority is an authority under the Government of India, have no relevancy whatsoever to determine and establishment under the Central

Government. In this case what is necessary to be established is that there must be a relationship of master and servant. It was that test which was

adopted in a case arising under the Shops Act in Madras State Electricity v. Commissioner of Labour (supra). A similar view was taken in 1961

L.L.J. 297. The same principles have been adopted by a Full Bench of the Kerala High Court in Canara Bank v. Appellate Authority (supra) and

Jacob Philip Vs. State Bank of Travancore and Others,

In opposition to this, it is argued by Mr. M. R. Narayanaswami, learned Counsel appearing for the Bank that the tests that have been applied

under Art. 12 to determine whether an authority is under the Government of India would be the tests to determine the question arising here namely

whether a particular establishment is an establishment under the Government of India.

We have already extracted Art. 12 of the Constitution of India. In view of this Article the Courts were concerned in determining when an

authority could be said to be ''under the Control of Government India''. It cannot be gain said that this definition of ''State'' is only for the purposes

of Part III of the Constitution, namely the Fundamental Rights. Part XIV of the Constitution of India which deals with the services under the Union

and the States, is inapplicable to a servant under the authority falling under Art. 12 of the Constitution. That is evident from the language of Art

311, where for bringing the benefit of that Article, he must be :

1) a member of a civil service of the Union

2) a member of an all-India service.

3) a member of a civil service of a State :

4) a member holding a civil post under

a) Union

b) State.

We will now refer the relevant case law as to the tests adopted in determining the meaning of an authority under the control of the Government of

India. The leading case is 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, . There the question

arose whether (1) the Oil and Natural Gas Commission :

(2) Life Insurance Corporation and (3) the Industrial Financial Corporation are authorities within the meaning of Art. 12 of the Constitution. In

paragraph 39, the learned Chief Justice observed after referring to HALSBURY''s Laws of England as follows :

A public authority is a body with has public or statutory duties and carries out its transaction for the benefit of the public and not for private

profit. Such an authority is not precluded from making a profit for the public benefit.

All these provisions indicate at each stage that the creation, composition of membership, the functions and powers, the financial powers,

capital, the borrowing powers, dissolution of the Commission and acquisition of land for the purpose of the company and the powers of entry are

all authority and agency of the Central Government.

The structure of the Life Insurance Corporation indicates that the Corporation is an agency of the Government carrying on the exclusive

business of Life Insurance. Each and every provision shows in no uncertain terms that the voice is that of the Central Government and the hands

are also of the Central Government,

In paragraph 109, Mathew, J, observed as follows :

The relevant provisions of the Life Insurance Corporation Act have been very clearly analysed in the judgment of my Lord the Chief Justice

and it is unnecessary to repeat them. It is clear from those provisions that the Central Government has contributed the original capital of the

Corporation, that part of the profit of the Corporation goes to that Government, that the Central Government exercises control over the policy of

the Corporation, that the Corporation carries on a business having great public importance and that it enjoys a monopoly in the business. I would

draw the same conclusions from the relevant provisions of Industrial Finance Corporation Act which have also been referred to in the aforesaid

judgment. In these circumstance, I think, these corporations are agencies or instrumentalities of the ''state'' and are therefore, ''state'' within the

meaning of Art. 12. The fact that these corporations have independent personalities in the eye of the law does not mean that they are not subject to

the control of Government or that they are not instrumentalities of the Government. These corporations are instrumentalities or agencies of the state

for carrying on business which otherwise would have been run by the state departmentally. If the state had chosen to carry on these business

through the medium of Government departments, there would have been no question of these departments would be ''state actions''. Why then

should actions of these corporations be not state actions ?

According to Mr. M. R. Narayanaswami, learned Counsel for the writ petitioners, having regard to the close similarity between the Life Insurance

Corporation Act and Central Act V of 1970, undoubtedly Nationalised Bank would be ''an establishment under the Government of India''. We will

now draw a tabular statement of the provisions of the two Acts.

----------------------------------------------------------------

Central Act 31 of 1956 Central Act V of

(LIC Act) 1970

----------------------------------------------------------------

S. 3 Establishment S. 3

S. 5 Capital S. 3(3)

S. 5(2) Body Corporate S. 3(4) Body Corporate

S. 7 Vesting section S. 4

S. 7(2) Assets, meaning S. 5(1) Assets

thereof

S. 18 Location of S. 7 Location of

Central Office Head Office and

Management

S. 11 and 11(4) Provi- S. 12, 12(2) and

sions releating to 12(4)

existing employees

S. 24 to 28, 28A S. 10

Finance Audit

and Accounts

S. 38 Dissolution S. 18

S. 49 Power to make S. 19

Regulations

-----------------------------------------------------------------

We have already stated that the benefit Art. 311 of the Constitution of India, cannot be availed of by the employees of an authority under the

control of Government of India. Our view is based on the finding of the Supreme Court in paragraph 67 of Sukhdev Singh''s case (supra).

If it is really a case of ascertaining the meaning of the word ''authority under the control of Government of India'' certainly having regard to the

close similarity between Life Insurance Corporation Act and Central Act V of 1970, without hesitation we would have held that the Bank is an

authority. But we are to construe the meaning of an establishment under the Central Government. How best these decisions could be applied, we

will consider after referring to a few other case.

In Ajay Hasia v. Khalid Mujib (supra), the question arose whether the Regional Engineering College, Srinagar, one of the fifteen Engineering

Colleges in the country sponsored by the Government of India, would be an authority within the meaning of Art. 12 of the Constitution of India.

That College was established and its administration and management were carried on by a Society registered under the Jammu and Kashmir

Registration of Societies Act, 1898. At page 493, it was observed :

It is really the Government which acts through the instrumentality or agency of the corporation and the juristic veil of corporate personality worn

for the purpose of convenience of management and administration cannot be allowed to obliterate the true nature of the reality behind which is the

Government.

This case referred to the decision in R. D. Shetty v. The International Airport Authority of India (supra) and approved the following observations

contained in that judgment :

A corporation may be created in one or 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 became 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 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 Government, it would go a long way towards indicating that the corporation is an instrumentality or

agency of Government. But, as is quite often the case, a corporation established by statute may have no shares or shareholders, in which case it

would be a relevant factor to consider whether the administration is in the hands of a board of directors appointed by Government though this

consideration also may not be determinative, because even where the directors are appointed by Government, they may be completely free from

governmental control in the discharge of their functions. What then are the tests to determine whether a corporation established by statue or

incorporated under law is an instrumentality or agency of Government ? It is not possible to formulate any inclusive or exhaustive test which would

adequately answer this question. There is no cut and dried formula, which would provide the correct division of corporations into those which are

instrumentalities or agencies of Government and those which are not.

The Court then proceeded to indicate the different tests, apart from ownership of the entire share capital :

... if extensive and unusual financial assistance is given and the purpose of the Government in giving such assistance coincides with the purpose for

which the corporation is expected to use the assistance and such purpose is of public character, it may be a relevant circumstance supporting an

instrumentality or agency of Government ..... It may, therefore, be possible to say that 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 the governmental

character ... But a finding of State financial support plus an unusual degree of control over the management and policies might lead one to

characterise an operation as State action Vide Sukhdev v. Bhagatram (supra). So also the 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 to consider whether the corporation

enjoys monopoly status which is State-conferred or State-protected. There can be little doubt that State-conferred or State-protected monopoly

status would be highly relevant in assessing the aggregate weight of the Corporation''s ties to the State."" ""There is also another factor which may be

regarded as having a bearing on this issue and it is whether the operation of the Corporation is an important public function. It has been held in the

United States in a number of cases that the concept of private action must yield to a conception of State action where public functions are being

performed vide Arthur S. Miller : ""The constitutional Law of the Security State"" (10 Stanford Law Review 620 at 664).

It may be noted that besides the so-called traditional functions, the modern State operates a multitude of public enterprises and discharges a host

of other public functions. If the functions of the corporation are of public importance and closely related to Governmental functions, it would be a

relevant factor in classifying it as an agency of Government. This is precisely what was pointed out by Mathew, J. in Sukhdev v. Bhagatram (supra)

where the learned Judge said that ""institutions engaged in matters of high public interest of performing public functions are by virtue of the nature of

the functions performed government agencies. Activities which are too fundamental to the society are by definition too important not to be

considered government functions.

The court, however, proceeded to point out with reference to the last functional test :

..... the decisions show that even this test of public or Governmental character of the function is not easy of application and does not invariably

lead to the correct inference because the range of governmental activity is broad and varied and merely because an activity may be such as may

legitimately be carried on by Government, it does not mean that a Corporation, which is otherwise a private entity, would be an instrumentality or

agency of Government by reason of carrying on such activity. In fact, it is difficult to distinguish between governmental functions and non-

governmental functions. Perhaps the distinction between governmental and non-governmental functions is not valid anymore in a social welfare

State where the laissez-faire is an outmoded concept and Herbert Spencer''s social status has no place. The contract is rather between

governmental activities which are private and private activities which are governmental. (Mathew, J., in Sukhdev v. Bhagatram (supra) at the

function, if impregnated with governmental character or ''tied or en winded with Government'' or fortified by some other additional factor, may

render the corporation 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 the inference. These observations of the court in the International Airport authority''s case (supra) have our

full approval.

The test for determining, when a Corporation could be said to be an instrumentality, was stated in paragraph 9 as under :

The test for determining as to when a Corporation can be said to be an instrumentality or agency of the Government may now be culled out

from the judgment in the International Airport Authority''s case (supra). These tests are not conclusive or clinching, but they are merely indicative

indicia which have to be used with care and caution, because while stressing the necessity of a wide meaning to be placed on the expression ""other

authorities"", it must be realised that it should not be stretched so far as to bring in every autonomous body which has some nexus with the

Government with the sweep of the expression. A wide enlargement of the meaning must be tempered by a wise limitation. We may summarise the

relevant tests gathered form decision in the International Airport Authority''s case as follows :

""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.

""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.

""It may also be a relevant factor .... whether the Corporation enjoys monopoly status which is the State conferred or State protected.

""Existence of deep and pervasive State Control may afford an indication that the Corporation is a State agency or instrumentality.

""If the functions of the Corporation 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.

If on a consideration of these relevant factors it is found that the Corporation is an instrumentality or agency of Government, it would, as pointed

out in the International Airport Authority''s case, be an ''authority'' and, therefore, ''State'' within the meaning of the expression in Art. 12.

The above said decision referred to U.P. Warehousing Corporation v. Vijay Narain (supra) and the observations made by the learned Judge

(Chinnappa Reddy, J.) are also reinforced. It was observed in Ajay Hasia and Others Vs. Khalid Mujib Sehravardi and Others, as under :

It is in the light of this discussion that we must now proceed to examine whether the Society in the present case is an ''authority'' falling within the

definition of ""State"" in Art. 12. Is an instrumentality or agency of the Government ? The answer must obviously be in the affirmative if we have

regard to the Memorandum of Association and the Rules of the Society. The composition of the Society is dominated by the representatives

appointed by the Central Government and the Governments of Jammu & Kashmir, Punjab, Rajasthan and Uttar Pradesh with the approval of the

Central Government. The money required for running the college are provided entirely by the Central Government and the Government of Jammu

& Kashmir and even if any other Society, it can be done only with the approval of the State and the Central Governments. The Rules to be made

by the Society are also required to have the prior approval of the State and the Central Governments and the accounts of the Society have also to

be submitted to both the Governments for their scrutiny and satisfaction. The Society is also to comply with all such directions as may be issued by

the State Government with the approval of the Central Government in respect of any matters dealt with in report of the Reviewing Committee. The

control of the State and the Central Governments is indeed so deep and pervasive that no immovable property of the Society can be disposed of in

any manner without the approval of both the Governments. The State and the Central Governments have even the power to appoint any other

person or persons to be members of the Society and any member of the Society other than a member representing the State or Central

Government can be removed from the membership of the Society by the State Government with the approval of the Central Government. The

Board of Governors, which is in charge of general superintendence, direction and control of the affairs of Society and of its income and property is

also largely controlled by nominees of the State and the Central Governments. It will thus be seen that the State Government and by reason of the

provision for approval, the Central Government also, have full control of the working of the Society and it would not be incorrect to say that the

Society is merely a projection of the State and the Central Governments and to use the words of Ray, C.J., in Sukhdev Singh''s case (supra) the

voice is that of the State and the Central Governments and the hands are also of the State and the Central Governments. We must, therefore, hold

that the Society is an instrumentality or the agency of the State and the Central Governments and it is an ''authority'' within the meaning of Art. 12.

Thus even a Society was held to be an authority within the meaning of Art. 12 of the Constitution. In Rajasthan State Electricity Board, Jaipur Vs.

Mohan Lal and Others, , Rajasthan State Electricity Board was held to be an authority under Art. 12 of the Constitution of India. In Heavy

Engineering Mazdoor Union Vs. State of Bihar and Others, , the facts are as under :

The appellant herein filed a writ petition in the High Court of Patna disputing the validity of the reference to the Industrial Tribunal by the State

Government of Bihar the two following questions for adjudications, firstly, as regards the number of festival holidays and secondly whether the

second Saturday of the month should be an off-day for the Heavy Engineering Corporation, Ranch, a Government Company. The grounds set out

in the writ petition were two : (1) the appropriate Government to make the reference was the Central Government; and (2) the questions referred

were at the time actually pending before the certifying authority under the Industrial Employees (Standing Orders) Act, 1946 on an application for

modification of the company''s Standing Orders and therefore the said questions would not be industrial disputes that could be validly referred for

adjudication. The High Court held against both the contentions and upheld the reference. Hence the instant appeal to the Supreme Court with the

certificate of the High Court.

Held : The words ''under the authority in S. 2(a) of the Industrial Disputes Act, 1947 mean ''pursuant to the authority'', such as when an agent or

servant acts under or pursuant to the Authority of his principal of master. That cannot be said of the company incorporated under the Companies

Act, 1956 which derives its powers and functions from and by virtue of its memorandum and articles of association.

The mere fact, that the entire share capital of the respondent-company was contributed by the Central Government or the fact that the President of

India and certain officers of the Central government held all its shares do not make any difference. The company is a separate entity.

No doubt extensive powers are conferred on the Central Government including the power to give directions as to how the company should

function, the power to appoint directors and even the power to determine the wages and salaries of the company''s employees. But these powers

are derived from the company''s memorandum and articles of association and not by reason of the company being the agent of the Central

Government.

The question whether a corporation is an agent of the State must depend on the facts of each case. Where a statute setting up a Corporation so

provides such a Corporation can easily be identified as agent of the State. In the absence of a statutory provision, a commercial corporation acting

on its own behalf even though it is controlled wholly or partially by a Government Department will be ordinarily presumed not to be a servant or

agent of the State. The contention that it is only the Central Government, as the appropriate Government, could make the reference, therefore

fails.

It is the contention of Mr. N. G. R. Prasad, the learned Council of the appellant that the Company is a separate entity and therefore, it will not

be an authority, is a point in his favour. Further notwithstanding the extensive powers being conferred on the Central Government, including the

power to give direction and the power to appoint Directors, it was held that the Heavy Engineering Corporation was not an agent. There is no bar

to apply the same ratio in this case as well.

In opposition to this, it is contended on behalf of the Bank, that this case dealt with the situation where in the absence of statute, a commercial

corporation was acting on its behalf, it could not be held to be a servant or agent of the State. Therefore, this ruling cannot govern the present case.

In order to set as rest this controversy, we will rather refer to the interpretation placed by the Supreme Court on this very case.

The decision in R. D. Shetty v. Airport Authority (supra), to which we have already made a reference, in paragraph 30 at page 236, the

Supreme Court explains the purport of this ruling as follows :

The second decision to which we must refer is that in Heavy Engineering Mazdoor Union v. State of Bihar (supra). The question which arose in

this case was whether a reference of an industrial dispute between the Heavy Engineering Corporation Limited (hereinafter referred to as the

Corporation) and the Union made by the State of Bihar under S. 10 of the Industrial Disputes Act, 1947 was valid. The argument of the Union

was that the industry in question was ""carried on under the authority of the Central Government"" and the reference could, therefore, be made only

by the Central Government. The Court held that the words ""under the authority"" mean pursuant to the authority"", such as where an agent or a

servant acts under or pursuant to the authority of his principal or master"" and on this view, the Court addressed itself to the question whether the

Corporation could be said to be carrying on business pursuant to the authority of the Central Government. The answer to this question was

obviously ''no'' because the Corporation was carrying on business by virtue of the authority derived from its memorandum and articles of

association and not by reason of any authority granted by the Central Government. The Corporation, in carrying on business, was acting on its own

behalf and not on behalf of the Central Government and it was therefore not a servant or agent of the Central Government in the sense its actions

would bind the Central Government. There was no question in this case whether the Corporation was an instrumentally of the Central Government

and therefore an ''authority'' within the meaning of Art. 12. We may point out here that when we speak of a Corporation being an instrumentality or

agency of Government, we do not mean to suggest that the Corporation should be an agent of the Government in the sense that whatever it does,

should be binding on the Government. It is not the relationship of principal and agent which is relevant and material but whether the Corporation is

an instrumentality of the Government in the sense that a part of the governing power of the State is located in the Corporation and though the

Corporation is acting on its own behalf and not on behalf of the Government, its action is really in the nature of State action.

The next case which could be referred to is Biharilal Dobray v. Roshan Lal (supra). This case dealt with the meaning of Office of profit under

the Government of India and the test to be adopted for determination of such an office. At page 395, it was observed :

Even though the incorporation of a body corporate may suggest that the statute intended it to be a statutory corporation independent of the

Government, it is not conclusive on the question whether it is really so independent. Sometimes the form may be that of a body corporate

independent of the Government, but in substance it may be just the alter ego of the Government itself. The true test of determination of the said

question depends upon the degree of control the Government has over it, the extent of control exercised by the several other bodies or committees

over it and their composition, the degree of its dependence on Government for its financial needs and the functional aspect, namely, whether the

body is discharging any important Governmental function or just some function which is merely optional from the point of view of Government.

The Indian Statistical Institute, which is a Society registered under the Societies Registration Act whether would be an authority within the meaning

of Art. 12 of the Constitution of India came up for consideration in B. S. Minhas v. Indian Statistical Institute (supra). In Paragraph 20 at page

369, a reference was made to the earlier rulings in Ajay Hasia v. Khalid Mujib Sehravardi (supra) and held that the expression other authorities in

Art. 12 must be given a broad and liberal interpretation. On that basis, it was concluded that having regard to the control exercised by the

Government of India, it would be an ''authority''. In an unreported judgment (vide CRP No. 2630/1979) of which one of us was a party the

question was entirely different. There the question was whether the property of the Bank could be considered to be the property of the

Government to claim the benefit of the doctrine of immunity of instrumentality. I answered in the negative. That can be of no assistance in deciding

the issue involved in this case. Thus, on an analysis of the above rulings, two legal propositions emerge :

(1) The statutory Corporation like the Nationalised Bank over which the Government of India exercises deep and pervasive control is undoubtedly

an ''agency'' or instrumentality of the Central Government;

(2) No doubt as a statutory Corporation it is a legal person. As such it has separate legal status and a personality of its own. It has powers to

acquire, hold and dispose of property. But that does not in any way militate against the principle of they being authorities under the control of

Government of India.

In this context we will now proceed to deal with the cases arising under the Shops Act of the various States. The relevant provisions with

regard to exemption in each of the State Acts are as follows :

Establishments Act :

Tamil Nadu Shops Nothing contained in

and Establishments this Act shall apply to ....

Act - S. 4(1)(c) ""establishments under

the Central and State

Kerala Shops and Governments and State

Establishments Governments, Local

Act - S. 3(1)(c) Authorities, Reserve

Andhra Pradesh Bank of India, Railway

shops and Est- Administration operating

ablishment Act. any railway as defined

S. 64(1)(b) in CI 20 Act. 366

Pondicherry Shops of the Constitution

and Establish- and Cantonment

ments Act S. 4(1)(c) Authorities.

Karnataka Shops Nothing in this Act shall

and Establishment apply to office of or under

Act S. 3(1)(a) the Central and State

Governments or local

authorities except

commercial undertakings.

Bombay Shops Notwithstanding any

and Establish- thing contained in this

ments Act. Bombay Act, the provisions

of Act 1979 of 1948. this Act mentioned in

S. 4 the 3rd column of Sche-

dule 2 shall not apply to

the establishments,

employees and

other persons mentioned against

them in the 2nd column of the

said schedule.

Schedule II - 1. Establishments of the

Central Government.

Establishments of the

state Government.

Establishments of the

Local Authorities.

Establishment of the

Bombay Port Trust.

Establishments of any

Railway Administration.

provisions.

In Madras State Electricity Board v. Commissioner of Labour (supra) this Court had held that the then Madras State Electricity Board was not

entitled to exemption from the purview of S. 4(1)(c) of the Tamil Nadu Shops and Establishments Act.

The Court reasoned as follows :

That the Electricity Act gives State Government a measure of control over that activities of the Board which, subject to that control, is an

autonomous body, did not admit of any doubt. I do not think it is necessary to discuss in detail the statutory provisions of the Electricity Act to

examine the degree of control which the State Government could lawfully exercise. It was clear that the employees of the Board constituting an

establishment and a commercial establishment within the meaning of S. 2(3) of the Shops and Establishments act, were not the clerical employees

of the State Government, and therefore the establishment cannot be viewed as an establishment under the State Government within the meaning of

S. 4(1)(c) of the Act. That the Board was under the Control of the State Government did not make the employees, employees of the Government,

not did it make the establishment consisting of the clerical employees, an establishment under the State Government. It is the direct relationship of

master and servant between the State Government and the persons employed in the establishment or commercial establishment that is necessary to

take that establishment outside the scope of the Act under S. 4(1)(c).

What came up for discussion in that case was whether the clerical employees of the Board would as such be the employees of the

Government. It was not the entire establishment as such that came up for consideration. Therefore the insistence of the relationship of master and

servant is out of place.

In Madras State Electricity Board v. Commissioner of Labour (supra), this Court relying On Narayanswami v. Krishnamurthi AIR 1958 Mad

343 held that it was not a department of the Government. This reasoning was based on the ruling just now referred, namely Narayanaswami v.

Krishnamurthi (supra). In that Case it was held that the Life Insurance Corporation was not a department of the Government of India. Therefore

services under the Corporation would not tantamount to service under the Government. It is on this basis, Mr. N. G. R. Prasad contends that the

consistent view of this Court is in order that it may be an establishment under the Government, it should be a department of the Government. We

are unable to persuade ourselves to accept this view. If really that was the intention of the Law makers, nothing would have been easier than to

state a department of a Government, under S. 4(1)(c) of the Shops Act. Even otherwise, as rightly held by our learned Brother Ramanujam, J., in

Sukhdev Singh''s case (stated supra) when the very Life Insurance Corporation has been held to be an authority within the meaning of Art. 12 and

having regard to the close similarity between the provisions of Life Insurance Corporation Act and Central Act V of 1970, this ruling cannot be

held to be good law any longer. It is no doubt true that the ruling in AIR 1958 Mad 343 came to be noted in Manohar Nathurao Samarth Vs.

Marotrao and Others, . The reference is made only in passing. The Supreme Court did not deal with this aspect of the case namely under the

Government or under the control of Government. Therefore that ruling cannot be of any assistance to the appellant.

In Corporation of City of Nagpur Vs. G.S. Narayan Ayyar and Another, the following passage occurs :

I do not think, therefore, that the learned Counsel for the respondent is on a sound footing when he says that the respondent bank is an

establishment of the Central Government.

It requires to be carefully noted that the exemption clause of the Bombay Shops and Establishments Act in Schedule II, item I mentioned

establishment of the Central Government and not ''under the Central Government''. If it is to be an establishment of the Central Government, it must

be part and parcel of the Central Government. The theory of agency or instrumentality or subject to the control of regulation may not arise.

Therefore having regard to the clear distinction between of and ''under'' occurring respectively in the Bombay Shops Act and the Tamil Nadu

Shops Act, we leave this citation out of consideration.

The nearest ruling is the one reported in Canara Bank v. Appellate Authority (supra). That case dealt with the scope of the exemption clause

occurring under S. 3(1)(C) of the Kerala Shops Act. That also uses the identical phraseology, namely establishments under the Central

Government or State Government. Strong reliance is placed by the appellant on this ruling, In that case, admittedly the Nationalised Bank, namely

Canara Bank was held not to fall within the scope of the exemption clause. In paragraph 5 at page 192, it was stated thus :

The Counsel for the petitioner/appellant contended that since the capital of the new company belongs to the Government and the Government

alone can order dissolution of the company, it is a property of the Government and, therefore, the establishment under the Government. This

contention ignores the fundamental difference between the company and the share-holders of the company. The share-holders are different from

the company. They have right over the shares. That does not mean they are part-owners of the company to the extent of their shares. The

company has its own separate existence distinct from the share-holders and, therefore, the fact that the entire share capital of the bank belongs to

the Government does not make the new bank a Government. It has a juristic personality distinct from the State. But at the same time, it is linked

with it. This is the essential feature of a State undertaking. But it will be difficult to call it an establishment under the Government. Further the

expression ""establishment"" used in S. 3 cannot be equated with the undertaking. Establishment can only mean the group of persons who form the

organisation managing the undertaking. In the matter of policy this establishment may have to obey the directives but in the day-to-day management

the State has absolutely no control and never interferes with it. Hence it cannot be said that the establishment of these nationalised banks are

establishments under the Government. In the Shorter Oxford English Dictionary the meaning of the word ""establishment"" as ""an organised staff of

employees or servants including or occasionally limited to building in which they are located"", was adopted by this Court in Karunakaran Nair v.

Authority Under the Payment of Wages Act 1972 I LLJ 350. We find that expresses the correct idea of that word used in S. 3 of the Act. Besides

this exemption there are five other exemptions and all of them convey the same idea, namely the staff of employees or servants belonging to a

certain concern. The entire concern does not come under the expression ""establishment"", but only the group of persons who run the establishment.

So even if the undertaking belongs to the Government, by the fact that all the shares of the company are owned by the Government, the

establishment of that undertaking is not an establishment under the Government. In this view the number of authorities cited at the Bar and all of

which equate an instrumentality with the Government for the purpose of Part III of the Constitution have no application to the facts of this case.

Therefore, we are unable to agree with the argument of the petitioner''s counsel that the Nationalised Bank like the Canara Bank or the Bank of

India will be an establishment under the Central Government as that expression is used in S. 3(1)(a) of the Act.

Again in paragraph 7 it was observed by the Full Bench as follows :

In Chamber''s Dictionary the word ""under"" means beneath; below or to a position lower than that of especially vertically lower. This meaning also

explains the establishment exempted. Only establishments constituted by the Central Government with freedom to change the set up and also with

the freedom to appoint and dismiss the staff can be establishments under the Central Government. But in the case of the Bank of India and the

Canara Bank, they have their own staff pattern, their own conditions of service unconnected with the Government or the service rules of the

Government and so are not establishments under the Central Government. Therefore, we are unable to accept the larger contention put forward by

the petitioner''s counsel that the establishment. To this extend we agree with the decision of Khalid, J., challenged in the writ appeal.

On an analysis of this decision, it could be seen that the conclusions were based upon the following factors :

1) The decisions holding that the Statutory corporations would fall within the meaning of ''other authorities'' as contemplated under Art. 12 of the

Constitution, would be of no assistance.

2) The control over Nationalised Banks is limited only to matters of policy, as stated in S. 8 of Central Act V of 1970;

3) The Nationalised Bank is a legal person. It has right to acquire, hold and dispose of property;

4) It is liable to Income Tax as any other independent citizen;

5) The day-to-day administration and in appointing, dismissing officers and staffs, the Bank has the fullest freedom and as such it is not under the

Government;

6) The Company has its own, separate existence distinct from share-holders and therefore the fact that the entire share capital belongs to the

Government of India does not make a Nationalised Bank, a part of Government;

7) If really it was the intention of the Law makers to exempt Nationalised Banks, there is no reason why Reserve Bank of India alone must be

mentioned.

With great respect, we are unable to accept these reasonings. As a matter of fact in another Full Bench of the very same High Court reported in

Jacob Philip Vs. State Bank of Travancore and Others, . In that case, the Corporation was the State Bank of Travancore. In paragraph 7, it was

observed as follows :

Then it was contended the appellant that the Corporation in this case, viz., the State Bank of Travancore, is not one owned or controlled by the

State. We were taken through the provisions of the State Bank of India Act, 1955 The State Bank of India (Subsidiary Banks) Act, 1959 and the

Reserve Bank of India Act, 1934. The position disclosed is that the Reserve Bank of India owns not less than 55% of the shares in the State Bank

of India 55% of the shares in the State Bank of India and cent per cent of the shares in the Reserve Bank of India are owned by the Government.

We find too, that a subsidiary bank such as the State Bank of Travancore is to act, as an agent of the State Bank of India if required (S. 36 of the

Subsidiary Banks Act, 1959), and that the State Bank of India is to act as an agent of the Reserve Bank if so required (S. 32 of the State Bank of

India Act). Again under S. 37 of the Subsidiary Banks Act, the Central Government has power, after consultation with the Reserve Bank, to direct

the Subsidiary Banks to carry on any business or to prohibit such banks from carrying on any business. Under S. 24 of the Subsidiary Banks Act,

the State Bank has the right of issuing any directions, and the subsidiary banks are bound to comply. Section 25 provides for the constitution of the

Board of Directors of the Subsidiary bank. Section 27 provides that the General Manager of a Subsidiary Bank who is to carry on the day-to-day

administration is to be appointed only with the approval of the Reserve Bank. A consensus of these provisions leaves us in no doubt that there is

governmental control in regard to the transaction of affairs by subsidiary banks of the type of the respondent in his appeal. We are, therefore, of

the view that the State Bank of Travancore is a Corporation owned or controlled by the State. The result is that it is entitled to plead the benefit of

the exemption engrafted by S. 3(1)(i) of the Act.

This decision unfortunately was not noted in the later Full Bench decision, though one of the learned Judges (Viswanatha Ayyar, J.) was a party to

the earlier ruling.

It cannot be gainsaid that the principle applicable to the determination of an authority under Art. 12 can bodily be imported in deciding the

meaning of establishment under the Government. However, the line of reasoning namely the theory of deep and pervasive control must prevail to

find out whether the Statutory Corporations are under the Central Government or functioning independently. It is not correct to state that the

control of Government of India relates only to matters of policy as adumbrated under S. 8 of Central Act V of 1970. On the contrary, there is

every conceivable control over

1) Capital funds;

2) The location of the Head Offices at such places as the Central Government may direct;

3) The power of general superintendence;

4) The Constitution of the Board by the Central Government.

5) The custodian holding office under the pleasure of the Central Government.

6) The policy of the Central Government to be followed under S. 8.

7) The power of the Central Government to make a scheme to carry out the provisions of the Act the custodian being a public servant.

8) Regulations to be made after sanction of the Central Government.

Therefore, it is clear from the above distinctive provisions that the finance flows from the Government of India. The appointment of Directors, the

reduction or enhancement of the capital, either splitting up of or amalgamation of the various Banks and the net profit of all the Nationalised Banks

vesting with the Government clearly indicate that the voice of the Nationalised Banks is the voice of the Central Government. We are in entire

agreement with our learned brother Ramanujam, J., when he says that the voice of the Nationalised Banks is the voice of the Central Government.

We would, however, add that the Nationalised Bank is merely ''this master''s voice''.

No doubt the Reserve Bank of India has been by a specific mention excluded from the purview of the Act under S. 3(1)(c) of the Kerala Act,

as well as the corresponding provision in the Tamil Nadu Act. That in our considered view, cannot mean that it was not the intention of the

Legislature, not to exempt the Nationalised Banks.

The Reserve Bank of India was constituted under Central Act 2 of 1934. The object of the Act was to constitute a Reserve Bank of India to

regulate the issue of Bank notes and keeping of reserves with view to securing monetary system in India and generally to operate the currency and

credit system of the country to its advantage. At that time there was disorganisation of the monetary systems of the world and therefore in the

preamble of the Act, it was observed that in the present disorganisation of the monetary systems of the world it is not possible to determine what

will be suitable as a permanent basis for the Indian Monetary System. But whereas it is expedient to make temporary provision on the basis of the

existing monetary system, and to leave the question of the monetary standard best suited to India to be considered when the international monetary

position has become sufficiently clear and stable to make it possible to frame permanent measures. Originally it was shareholders'' bank. Because,

it is considered to be expedient to bring the share capital of the Reserve Bank to public ownership, Central Act 62 of 1948 was enacted. That

came into force on the appointed day, namely 1st January, 1949. That was the Act to bring the Share capital of the Reserve Bank to public

ownership and to make consequential amendments in the Reserve Bank of India Act, 1934. Section 3 of the Act is as follows :

3 Transfer of bank shares : (1) On the appointed day - (a) all shares in the capital of the bank shall by virtue of this Act be deemed to be

transferred free of all trusts, liabilities and encumbrances to the Central Government; and

(b) as full compensation therefor, the Central Government shall issue to every person who, immediately before the appointed day, is registered as

the holder of any such shares, an amount calculated at the rate of one hundred and eighteen rupees and ten annas per share, in promissory notes of

the Central Government bearing interest at the rate of three per cent per annum repayable at par on such date as may be specified in this behalf by

the Central Government : Provided that where the amount so calculated is not an exact multiple of one hundred rupees the amount in excess of the

nearest lower multiple of one hundred rupees shall be paid by cheque drawn on the bank;

Provided further that in respect of any share obtained at par from the Central Government by any Director of the Bank in pursuance of sub-s. (8)

of S. 4 of the Principal Act as in force immediately before the appointed day, the said amount shall be calculated at the rate of one hundred rupees

per share.

Notwithstanding the transfer of shares effected by this section any shareholder who, immediately before the appointed day, is entitled to

payment of dividend on the shares held by him shall be entitled to receive from the Bank.

(a) all dividends accuring due on his shares in respect of the year ending on the 30th June, 1948 or any preceding year remaining unpaid on the

appointed day;

(b) dividends calculated at the rate of four rupees per annum per share, in respect of the period from the 1st day of July, 1948 to the appointed

day.

Tamil Nadu Shops Act is of the year 1947. At that time the Reserve Bank of India was merely a shareholders'' Bank since Act 62 of 1948 had

not been enacted. Therefore a specific exemption had to be granted. The Kerala Act though enacted in 1960, merely copied S. 4(1)(c) of the

Tamil Nadu Act. Hence much cannot be made out of the same.

We have already analysed various cases arising under Art. 12 of the Constitution of India. The difference in language between Art. 12 of the

Constitution of India which says ''an authority under the control of the Government'' and S. 4(1)(c) of Shops Act which says an establishment

''under the Government of India'' cannot be lost sight of. Therefore it becomes imperative to ascertain the meaning of the word ''under''.

Webster''s Third Under - ""In or into a

New International condition of subjugation

page 2487 regulation or subordination.

Shorter Oxford ""Subordinate of lower

English Dictionary rank or position."" ""In

Vol. II 3rd Edition senses denoting sub

page 2290 ordination or subjugation,

with abstract or other subject,

denoting the authority or control,

direction, care, examination,

restraint, etc.

In or into a position or

state of subjugation or submission.

The Compact Edition ""Subordinate subjected

of the Oxford English to.

Dictionary Vol. II

The Grolier Inter- Under - ""Subject to the

national Dictionary authority, rule, control

Vol. II of

Subject to the supervision,

instruction or influence of

Webster''s Dictionary of the English Language - Encyclopedia :

Edition - Unabridged II

x x x

Under

5) In position of inferiority or subordination to, subject to the rule, government, direction, guidance, instruction, or influence of, as, he is under my

care, I served under his father.

6) In a state of liability, obligation.

2) Lower in authority, position, power, etc. subordinate.

3) Held in control or restraint, used productively.

BOVIAR''S LAW DICTIONARY

Under

The term sometimes used in its literal sense of ''below in position'' but more frequently in its secondary meaning of ''inferior'' on ''subordinate.''

THE COMPACT EDITION OF THE OXFORD ENGLISH DICTIONARY (3486)

x x x

Under

Inferior, subordinate, of lower rank of position (10) - Denoting subordination to; or control by, a person or persons having or exercising,

recognising authority or command.

13) With abstract or other subs, denoting authority or control, with or without specification of the person or person exercising it.

In Venkatramaiya''s Law Lexicon, at page 1766 (1971 Edition), it is stated as follows :

''Under'' - Under has the same significance as ''by virtue of ""by or through the authority of''

In Zila Parishad (District Board) Vs. Smt. Shanti Devi and Another, , the word ''under'' came up for interpretation while considering the words

done under an Act."" It was observed :

Under"" has the same significance as ''by virtue of ""by or through the authority of"" vide 43. ""Words and phrases"", P. 84 and Supplement P. 33. In

Vithoba Babaji Narote Vs. Sholapur Municipality, , it was said that there is no material difference as to the principle involved between the words

of S. 80 C.P.C. and the words ""done or purporting to have been done in pursuance of the Act, occurring in S. 206 of the Bombay Municipalities

Act.

With this, we pass on to the meaning of the word ""Under control."" In Stroud''s Judicial Dictionary of words and phrases. Vol. 5. It is found as

under :

Under control"" - see control. The word ''control'' is wide enough to include many types of possession of, which are not commensurate with full

ownership.

''Control'' will cover the right to tell the possessor what is to be done.

A train is not ""under the control of the Railway Company running it, if in the matter complained of the Company are prevented by Vis Mejor, eg.

the Postmaster General acting under Statutory power.

Therefore if the Nationalised Bank is subject to the authority or control of the Government of India, which is the meaning of the word ''under'' as

seen above, the principle of deep and pervasive control may be applied in considering S. 4(1)(c) of the Shops Act.

In Motsingh Vs. Bhaiyyalal, it is observed as follows :

In Clause (a) of Art. 191(1) of the Constitution the expression used is ""any office of profit under the Government"". The use of the word ""under

would obviously connote a subordination to the Government. As I would show in the sequel, the provisions of the Act would no doubt show that

the respondent was working under the local authority of the Zilla Parishad, but Art. 191(1)(a) of the Constitution, unlike Art. 58 does not include

persons holding an office under a local authority. Article 58 of the Constitution prohibits a person holding an office of profit not only under the

Government of India or the Government of any State but also under any local or other authority subject to the control of any of the said

Governments from contesting election as the President of India. Similar provision is however, not made in Art. 191(1)(a) and the omission of the

clause, ""who holds an office of profit under any local or other authority subject to the control of any of the said Governments"" from that article is

not without significance. That would only show that the Parliament wanted to dear a person holding an office of profit under the Government of

India or State Government for contesting elections to the Legislative Assemblies of the State because of the possibility of a conflict between duty

and self interest but it did not intend to debar a person holding an office of profit under a local or other authority subject to the control of any of the

said Governments, presumably because there was no likelihood of a conflict between duty and self-interest.

This case is easily distinguishable because it was only the Local authority that was the subject matter of this ruling. Undoubtedly, every Local

Authority is a pocket of local State Government. Therefore we cannot hold that ''under'' means ''most subordination'' so as to equate it to a

department as contended by the appellant.

In D.R. Gurushantappa Vs. Abdul Khuddus Anwar and Others, the following observations are found :

We are unable to accept the proposition that the mere fact that the Government had control over the Managing Director and other Directors as

well as the power of issuing directions relating to the working of the Company can lead to the inference that every employee of Company is under

the control of the Government. The power of appointment and dismissal of respondent No. 1 vested in the Managing Director of the Company

and not in the Government. Even the directions for the day-to-day work to be performed by respondent No. 1 could only be issued by the

Managing Director of the Company and not by the Government. The indirect control of the Government which might arise because of the power of

the Government to appoint the Managing Director and to issue directions to the Company in its general working does not bring respondent No. 1

directly under the control of the Government. In Gurugobinda Basu Vs. Sankari Prasad Ghosal and Others, the position was quite different. In that

case the appellant was appointed by the Government and was liable to be dismissed by the Government. His day-to-day working was controlled

by the Comptroller and Auditor General who was a servant of the Government and was not in any way an office bearer of the two companies

concerned. In fact the Court had no hesitation in holding that the appellant in that case was holding an office of profit under the Government,

because the Court found that the several elements which existed were the power to appoint, the power to dismiss, the power to control and give

directions, as to the manner in which the duties of the office are to be performed, and the power to determine the question of remuneration. All

these elements being present, the Court did not find any difficulty in finding that the appellant was holding an office of profit under the Government.

In the case before us, the position is quite different. The power to appoint and dismiss respondent No. 1 does not vest in the Government or in any

government servant. The power to control and give directions as to the manner in which the duties of the office are to be performed by respondent

No. 1 also does not vest in the Government, but in an officer of the Company. Even the power to determine the question of remuneration payable

to respondent No. 1 is not vested in the Government which can only lay down rules relating to the conditions of service of the employees of the

Company. We are unable to agree that, in these circumstances, the indirect control exercisable by the Government because of its power to appoint

the Directors and to give general directions to the Company can be held to make the post of Superintendent, Safety Engineering Department, an

office of profit under the Government.

But in the case on hand, the tests employed in paragraph 10 of this judgment (cited supra) are necessary including the fixation of remuneration. No

doubt, there is no provision for an appeal in the Discipline and Appeal Regulation of the Bank in question, Indian Overseas Bank. That was one of

the tests laid down in Biharilal Dobray Vs. Roshan Lal Dobray, respectively. The following is the observation at page 395.

The rules made regarding the disciplinary proceedings in respect of the teachers in the basic schools managed by the Board as observed earlier

vest the final voice in the State Government or its officers and almost the entire financial needs of the Board are met by the Government. The

Board for all practical purposes is a department of the Government and its autonomy is negligible.

But that cannot be the sole and exclusive test. The Legislative intention with regard to the word ''under'' will have to be gathered from the language

and also from the context.

It is well settled that where the language is ambiguous, that construction will have to be preferred, which will preserve such a remedy to one,

which bars or defeats in. Normally a Court should avoid an interpretation upon a statute of this type, which may have a penalizing effect unless it is

driven to do so by the irresistible force of the language employed by the Legislature.

As regards context, it has to be stated as follows :

The meaning of the words used in particular statute has to be construed with reference to the context, and not in isolation. However, it is not

possible to lay down any rule of universal application in this matter. In construing the words in a section of an Act it is not to take those words in

vaoua so to speak and attribute to them what is sometime called natural and ordinary meaning. One has to read the statute as a whole and ask

oneself the question, in this context relating to the subject matter ""what is true meaning of the word ? It is also well settled that the words derive

colour from those which surround them.

So construed, it cannot, but be interpreted as subject to the ''authority'' or ''rule'' or ''control''. The control of the Government of India over the

Nationalised Banks is enormous as seen above and therefore we have no hesitation in agreeing with the learned single Judge.

We do not think that it is necessary to refer to the election cases as they do not have any bearing in deciding the question of the status of

establishment which is issue in this case.

Now we will go to deal with the State Bank of India. This Bank was constituted for the expansion of banking activities on a large scale more

particularly in the rural and semi-urban areas and for diverse other public purposes and to transfer to it the undertaking of the Imperial Bank of

India and to provide for other matters connected therewith or incidental thereto. The Imperial Bank of India was constituted by the Imperial Bank

of India Act of 1920. The objects and reasons of the Act are relevant for our purposes. That may now be set out.

State Bank of India Act 1955 (Act 23 of 1955)

The Reserve Bank of India had appointed in August, 1951 a Committee of Directors for conducting an all-India rural credit survey. The General

Report of the Survey embodying the Committee''s recommendation was received last year. The Report makes comprehensive recommendation

relating to numerous aspects of the problem of rural credit. One of the important recommendations and an integral part of the solution of the rural

credit problem propounded by the Committee is the setting up of a State Bank of India as ""one strong integrated patterned commercial banking

institution with an effective machinery of branches spread over the whole country for stimulating banking development by providing vastly extended

remittance facilities for co-operation with other Banks and following a policy which would be in effective concurrence with national policies

adopted by Government without departing from the canons of sound business. Such a State Bank of India is envisaged as coming into being by the

amalgamation of the Imperial Bank of India with certain ""State Associated"" banks, on the 28th December, 1954. Government announced that they

accepted in principle this recommendation of the Committee and that they had decided as a first step towards the setting up of such an institution,

to assume effective control over the Imperial Bank. The Bill seeks to give effect to this decision.

Suitable provisions are made relative to the acquisition of the undertaking of the Imperial Bank, the taking over of the business and staff, the

payment of compensation to shareholders, the setting up of an appropriate machinery for the governance of the State Bank, the business which the

Bank may and may not transact, etc. It is contemplated that the Reserve Bank will always hold a minimum shareholding of 25 per cent, in the paid-

up capital of the Bank. By virtue of this holding and the composition of the Board of Directors of the Bank as well as by virtue of the power to give

directions in matters of policy involving public interest vested in the Central Government it is provided that the general working of the State Bank of

India shall be responsive to and in consonance with Government policies while the autonomy of the institution in the day-to-day working will be

fully maintained. Amendments necessary to the Reserve Bank of India Act, 1934, and to the Banking Companies Act, 1949, consequent to the

establishment of this institution have been provided for in the Third and Fourth Schedules to the Bill.

This Act underwent two amendments one in 1955 itself and in 1964 by Amending Act 33 of 1955 and Act 35 of 1964 respectively. The reasons

for those amendments can best be found from the statements and object of those amending Acts.

Amending Act 33 of 1955 : The scheme of the State Bank of India Act, 1955, envisaged the State Bank of India coming into existence and the

Imperial Bank of India going out of the existence simultaneously on the ""appointed day"" (being the day notified in this behalf by the Central

Government) and provided for the automatic transfer of all the assets and liabilities of the undertaking of the Imperial Bank of India from the

institution to the State Bank of India. While there was no difficulty about such transfer so far as the assets and liabilities of the Imperial Bank

situated in India were concerned, Government were advised that it was doubtful whether such as automatic transfer of assets and liabilities made

by virtue of an Indian Law from one corporate body to another would be recognised and given effect to in foreign countries in respect of the assets

and liabilities of the foreign branches of the Imperial Bank of India. In the light of the advice obtained on this legal issue from counsel in the different

foreign countries concerned, it was decided that it would be advisable to amend the scheme of the Act and to provide for the continued existence

of the Imperial Bank of India as a corporate entity beyond the ''appointed day'' to enable it to make over its business in the foreign branches by

execution of documentary transfers, if necessary, to the corresponding branches of the State Bank of India to be opened there. It was, therefore,

necessary to amend the State Bank of India Act, 1955, and as this had to be done prior to the 1st of July, 1955, which had been notified as the

appointed day"" under the State Bank of India Act, the State Bank of India (Amendment) Ordinance, 1955, was promulgated on the 23rd June,

1955. The present Bill seeks to convert that Ordinance into an Act.

State Bank of India Act, 1955, (Amending Act 35 of 1964).

* * *

The business and activities of the State Bank of India have increased very considerably, since the Bank was established on 1st July, 1955. It is,

therefore, considered desirable that provision should be made for facilitating the creation of a large number of local head office, for certain changes

in the composition of the Central and Local Boards of the Bank and for vesting some specific powers in the Local Boards so as to enable the

Bank to dispose of the business expeditiously and to improve the quality of the service generally.

An integration and development fund was created in 1955 for financing the development activities of the Bank. As the balance in the fund is now

adequate, it is proposed to modify the relevant provisions of the Act, so as to limit the accommodation in the fund at any time to a sum of Rs. 5

cores.

We will now compare the provisions of Central Act V of 1970

and the State Bank of India Act.

Act V of 1970 State Bank of India Act

Preamble to the Act Preamble to the Act

S. 2(d) : ""Corresponding New Bank"" S. 3 : Establishment of the State Bank.

in relation to an existing (i) A Bank called the State

bank means the Body Corporate Bank of India shall be

specified against bank in Col. 2 of constituted to carry on the

the First Schedule. business of banking and

other business in accordance

to the provisions of this Act

and for the purpose of taking

over the undertaking of the

Imperial Bank.

(e) ''Custodian'' means the (ii) The Reserve Bank

person who becomes or is together with other

appointed a Custodian under S. 7 persons as may from time to

time become share-holders

in the State Bank in

accordance with the provisions

of this Act shall constitute

a Body Corporate with

perpectual succession.

(f) Existing Bank means a

Banking Company specified in

Col. 1 of the First Schedule.

S. 3 : Establishment of

corresponding new banks and

business thereof.

(3) The entire capital of

each corresponding new Bank shall

stand vested in, and allotted

to the Central Government.

S. 4 : Undertaking of existing

Banks vest corresponding new Banks.

S. 5 : Central effect of vesting.

(iii) The State Bank shal

S. 6 : Payment of Compensation have the power to acquire

the whole property and to

(1) Every existing bank shall dispose of the same.

be given by the Central

Government such compensation S. 4 : Authorised Capital :

in respect of the transfer under The authorised capital shall

bank of the undertaking of the be Rupees twenty crores divided

existing bank as is specified against into twenty lakhs OF FULLY

each bank in the second schedule. PAID UP SHARES of Rupees one

hundred each provided that the

Central Government

may increase or reduce it.

S. 7 : Head Office and Management : S. 5(1) : Issued Capital : The

Issued Capital shall be

(1) The Head office of each Rupees five crores,

corresponding new bank shall be sixty two lakhs and

at such place as the Central fifty thousand divided

Government may by notification in into shares which stand

the Official Gazette specify in allotted to the Reserve

this behalf and until such Bank in lieu of the

place is so specify shall be shares of the Imperial

at such place at which the head Bank.

office of this bank is on the

commencement of this Act located.

(2) The General superintendence, (2) The Central Board may

direction and management from time to time increase the

of the affairs and business issued capital but no increase

of a corresponding new bank shall to be in a manner that the

vest in a Board of Directors Reserve Bank holds less

which shall be entitled to exercise than 55% of the issued

all such powers and do all capital.

such acts and things as the

corresponding new bank is

authorised to exercise and do. (3) No increase in the

issued capital beyond twelve

crores and fifty

lakhs of rupees without

prior sanction of the

Central Government.

S. 6 : Transfer of Assets

and liabilities from

Imperial Bank to the

State Bank. All shares in

the Capital of the

Imperial Bank shall be

transferred to and vested

with the Reserve Bank.

S. 9 : Compensation to be

given to share-holders of

Imperial Bank.

(3) The Central Government (1) Every person who immediately

shall in consultation with the before the appointed day is

Reserve Bank constitute the registered as holder of shares

First Board of Directors of a in the Imperial Bank shall be

corresponding new bank consisting entitled to comperisation in

of not more than 7 persons to be accordance with the provisions

appointed by the Central of First Schedule.

Government and every Director

shall hold office until the

Board of Directors of such S. 10 : The shares of the State

corresponding new bank Bank shall be freely transferable

is constitute in accordance with subject to sub-s. 2.

the scheme made under S. 9.

(4) Until the first Board of (2) Nothing in sub-s. 1 shall

Directors is appointed by the entitle the Reserve Bank to

Central Government under Sub-s. 3, sell its shares in the

the general superintendence, State Bank if it results

direction and management of in reducing the shares of

the business of the corresponding new the Reserve Bank to less than

bank shall vest with the custodian. 55% of the issued capital.

(5) The Chairman of an existing S. 11 : No person shall be

bank shall be the custodian registered as a share-holder

and if he declines the Central in respect of any shares held

Government may appoint any other by him or jointly with any

person as the custodian. other person in excess

of 200 shares. This restriction

shall not apply to the

(6) The custodian holds office institutions referred to in

during the pleasure of the the proviso to the section.

Central Government.

S. 12 : Shares to be approved

securities.

S. 13 : The principal register

of share-holders to be kept at

the Central Office.

S. 16 : (1) The Central Office

of the State Bank shall be at

Bombay.

(2) The State bank shall have

local head offices in Bombay,

Calcutta and Madras.

S. 17 : Management :

(1) The general superintendence

and direction of the affairs

and business of the State Bank

be entrusted to the

Central Board which may

exercise all powers as may be

exercised or done

by the State Bank and are not

by this Act expressly directed

or required to be done by the

State Bank in the General

meeting.

(2) The Central Board in

discharging its functions

shall act on business

principles of public interest.

S. 18 : (1) In the discharge of

its functions, State Bank

shall be guided by such

directions in matters and

policies involving public

interest as the Central

Government may in

consultation with the Governor

of the Reserve Bank and

Chairman give to it.

(2) All Directions given by the

Central Government shall be

given through the Reserve Bank.

If any question arises where the

direction relates to a matter of

policy of public interest, the

decision of the Central

Government is final.

S : 19 Composition of the

Central Board : It shall

consist of :

a) A Chairman and a Vice

Chairman to be appointed by

the Central Government in

consultation with the Reserve

Bank and after consideration of

the recommendations of the

Central Board.

b) Not more than 2 Managing

Directors appointed by the

Central Board with the

approval of the Central

Government.

b. b) Presidents of the Local

Boards appointed under sub-S. 5

of S. 21.

S. B. The corresponding new C. 1) If the total amount of

banks to be guided by the holding of the shareholders

directions of the Central other than Reserve Bank is

Government in the discharge not more than 10% of the

of its functions. total issued capital - 2

directors.

S. 9 : Power of the Central 2) Not less than 10% but not

Government to make a scheme to more than 25% - 3 Directors.

carry out the provisions of

this Act.

The Central Government may 3) More than 25% - 4

after consultation with the Directors to be elected.

Reserve Bank make a scheme

to amend the scheme made under c. a) One Director from among

sub-s. 1. the employees who are workmen

of the State Bank to be

S. 11 : Corresponding new appointed by the Central

bank to be deemed to be an Government.

Indian Company.

c. b) Not less than 2 and not

more than 6 Directors

nominated by the Central

Government in consultation with

the Reserve Bank.

e) One Director to be nominated

by the Central Government.

f) One Director by the Reserve

Bank.

S : 20. Term of office of

chairman and Managing Director,

etc.,

S : 21. Local Boards to be

constituted at each place where the

State Bank has a local head office.

(A) Terms of Office of the

members of the local Board.

(B) Powers of the local board.

(C) Local committee.

S : 24 : Removal from office of

Directors.

S. 8 : The corresponding new S : 25 : Casual vacancies.

banks to be guided by the

directions of the Central S : 26 : Remuneration of Directors.

Government in the discharge

of its functions. S : 27 : Powers and remuneration

of the Chairman.

S. 9 : Power of the Central S : 28 : Powers and remuneration

Government to make a scheme to of the Vice Chairman.

carry out the provisions this

Act.

S : 29 : Powers and remuneration

of the Managing Director.

The Central Government may S : 31 : Meeting of the

after consultation with the Central Board.

Reserve Bank make a scheme to

amend any scheme made under S. 33 : Other business which

sub-s. 1. State Bank may transact.

S. 35 : State Bank may acquire

the business of other banks

with the sanction of the

Central Government.

S. 11 : Corresponding new bank S. 37 : Reserve Fund : State

State Bank may transact. Bank shall establish a reserve

to be deemed to be an Indian fund consisting of the amount

Company. held in the reserve fund of the

Imperial Bank transferred to the

State Bank and as such further sum

S. 14 : Every custodian shall as may be transferred by it

be deemed to be a public to State Bank out of its annual

servant under the Indian net profits before declaring a

Penal Code. dividend.

S. 38 : Disposal of Profits : Out

of its net profits the State

Bank may declare a dividend after

making provisions for the

requirements mentioned in the

section. The rate of dividend

shall be determined by the

Central Board.

S. 18 : Dissolution : No provision S. 42(1) Balance Sheet etc.,

of law relating to winding of State Bank may be discussed at

up of Corporations shall apply the General Meeting. General

to a new bank and no Meeting referred to as an

corresponding new bank shall Annual General Meeting shall

be placed in liquidation save be held annually at such place

by order of the Central where there is a

Government. local head office of

the State Bank as shall from time

to time be specified by the

S. 19 : Power to make regulations : Central Board and the General

The Board of Directors Meeting may be convened by the

of a corresponding new bank State Bank at any time.

may after consultation with the

Reserve Bank and the provisions (2) Bar to the liquidation of

sanctioned by the Central the State Bank, save by order

Government make regulations of the Central Government.

consistent with the provisions

of this Act or any scheme made S. 49 : Power of Central

thereunder for the purpose of Government to make rules in

giving effect to the consultation with the

provisions of this Act. Reserve Bank for the purpose of

giving effect to the provisions of

the Act.

S. 50 : Power of Central Board

to make regulations with the

sanction of the Central Government.

We have already noted the definition of the word ''establishment'' under the Tamil Nadu Shops Act which includes ''a bank''. However, it is no

doubt correct as Mr. Gopinath, learned Counsel would contend that it the argument of the petitioner is accepted, all the banks would go out of the

purview of the Tamil Nadu Shops Act. Apart from the nationalised Bank, which have been taken over under Central Act V of 1970, there are still

other banks which would certainly fall within the definition of ''establishment'' under S. 2(3) of this Act. No doubt in Ramana v. I. A. Authority of

India (supra) in paragraph 19, finance assistance is stated to be one of the tests. Here also the shareholdings of the State Bank of India is as under :

The affidavit of R. C. Royappa may now be extracted to show the percentage of shareholders.

The authorised capital of the Bank is Rs. 20 crores consisting of 20 lacs shares of Rs. 100/- each. The issued and subscribed capital is Rs.

5,62,50,000/- consisting of 5,62,500 shares of Rs. 100 each. The total number of share holders of the Bank is 2749 which consists of Reserve

Bank of India, 73 other institutions and Govt. agencies and 2675 individual shareholders. Out of the total of 5,62,500 shares, Reserve Bank holds

5,18,000 shares i.e., 92%, financial institutions and Govt. agencies 3.4% and individual shareholders 4.6% of the holdings.

That clearly shows that 92% of the shareholding is by financial institutions 3.4% by Governmental agencies while 4.6% alone is in the share-

holding. It is on this basis that it is argued by Mr. Marthandam, if there is accountability event to one share-holder, it would not mean ''under the

control of the Government.''

In order appreciate as to what exactly is the nature of control the Central Government has over the State Bank of India, we would now go to

the ruling of this Court. In V. Ramiah Vs. State Bank of India, , the question arose as to whether the State Bank of India was an ''authority'' within

the meaning of Art. 12 of the Constitution. At pages 315, 316 and 317, it was held as follows :

Having regard to the said considerations, is the State Bank of India a public authority ? The preamble to the State Bank of India Act, 1955, sets

out its objects, namely, the extension of banking facilities on a large scale more particularly in the rural and semi-urban areas and for diverse other

public purposes and to transfer to the State Bank the undertaking of the Imperial Bank of India. Section 3 established the State Bank of India to

carry on the business of banking and other business in accordance with the provisions of the Act and for taking over the undertaking of the

Imperial Bank. The Bank is to be a body corporate with perpetual succession and a common seal. Sections 4 and 5 provide for authorised and

issued capital. It is to be noted that increase or reduction of the authorised capital of Rs. 20 crores can only be done by the Central Government.

Further a specified issued capital of the State Bank stands allotted to the Reserve Bank in lieu of the shares of the Imperial Bank transferred to and

vested in the State Bank. Any increase of the issued capital is controlled by the Reserve Bank subject to the further provision that no increase in

the issued capital beyond Rs. 12,50,00,000/- shall be made without the previous sanction of the Central Government. The Reserve Bank shall at

all times have not less than 50 per cent of the shares and by S. 11 individual holdings are restricted. By S. 13, the Bank shall keep at its central

office a register of shareholders containing the prescribed particulars. Unless otherwise provided by the Central Government by notification, the

central office of the State Bank is to be at Bombay. The State Bank is enjoined by S. 16 to open local offices and maintain its branches. Section

18, which is important, says that

In the discharge of its functioning including those relating to a subsidiary bank, the State Bank shall be guided by such directions in matters of

policy involving public interest as the Central Government may, in consultation with the Governor of the Reserve Bank and the Chairman of the

State Bank, give to it.

The section further provides that all directions given by the Central Government shall be given through the Reserve Bank and, if any question arises

whether a direction relates to a matter of policy involving public interest, the decision of the Central Government thereon shall be final. The Central

Government will constitute the first Central Board of Directors. The composition of the Board should be such that eight of the Directors should be

nominated by the Central Government in consultation with the Reserve Bank to represent and not more than two Managing Directors will be

appointed by the Central Board but with the approval of the Central Government. Apart from these nominations, the Central Government can

make one more nomination of a Director. A Managing Director shall hold office for such term not exceeding a certain period as the Central

Government may fix. In the Constitution of local board or local committees too the Central Government is entrusted with powers of nomination of

Directors to be elected. The powers of removal of the Chairman, Vice-Chairman, in the Central Board are vested in the Central Government. The

Chairman is to receive such salary as the Central Board may determine with the approval of the Central Government.

The Central Government has also got an effective voice in the fixation of remuneration to the Vice-Chairman. The bank, among its other duties,

should not act as the agent of the Reserve Bank of India for Paying, receiving, collecting and remitting money, bullion and securities on behalf of

any Government in India. The State Bank under S. 40 should furnish to the Central Government and the Reserve Bank within a stated time its

balance sheet together with the profit and loss account and the auditors'' report on the working of the State Bank during the period covered by the

accounts. The auditors also are required to make a report to the Central Government. The Central Government is also vested with power to

remove any difficulties in respect of certain matters by issuing specific orders and also in consultation with the Reserve Bank and by notification in

official gazette, make rules to carry out the purposes of this Act. The Central board can make regulations only after consultation with the Reserve

Bank and with the previous sanction of the Central Government not inconsistent with the Act and the rules made thereunder to provide for all

matters for which provision is expedient for the purpose of giving effect to the provisions of the Act. Disposal of profits is dealt with by S. 38 which

says that -

After making provision for bad and doubtful debts, depreciation in assets, equalisation of dividends, contribution to staff and superannuation funds

and for all other matters for which provision is necessary by or under this Act or which are usually provided for by banking companies, the State

bank may, out of its net profits, declare a dividend

The rate being determined by the Central Board subject to the provisions of para 6 of Schedule I.

Having regarded to these provisions of the Act, particularly the public purpose which it is meant to serve, the extensive Government control over

the bank including several matters of policy, appointment and removal, fixation of remuneration of particular officers of the Central Board and the

power of nomination and appointment of directors, the statutory audit subject to Government control, the obligation of the bank to send returns to

the Central Government, the obligation of the auditor also to forward audit reports to the Central Government and the power of the Central

Government to wind up the bank, there can be no doubt, in my opinion, that the State Bank of India is a public authority. It is also clearly charged

with public duties by various provisions of the Act in respect of several matters. It is impossible to say that on ground of the provision for disposal

of profits, the State Bank of India is a commercial concern constituted for gain. The disposal of profits as provided by S. 38 is not the primary

object of the establishment of the State Bank but it is incidental to the nature of the business transaction by the bank. I hold, therefore, that the

State Bank is public authority, a corporation within the meaning of S. 45 of the Specific Relief Act, and an authority within the meaning of Art. 226

of the Constitution. But whether and to what extent it is subject to judicial control or interference with, under or outside that article, is a different

matter which I shall immediately proceed to consider.

This ruling was upheld by the Division Bench of this Court in appeal in W.A. Nos. 180 of 1963, dated 22nd December, 1966 vide Ramiah (V.)

Vs. State Bank of India, . It was held page 429 :

In the light of these facts, it is necessary to further discuss the criteria for this test, argued by Sri M. K. Nambiar before the learned Judge

(Veeraswami, J.) namely, whether the organisation derives its existence from statutes, whether it is incorporated by a special statute, whether it is

controlled by Government, and its functions are, partly or wholly, the functions of Government. Sri Thiruvenkatachari, no doubt, contents that even

commercial organisations, with profit sharing and the earning of profits as essential components of their objectives, and which thus belong to the

private sector, if we may so term it, may owe their existence to statutes certainly, several did so in the United Kingdom. But the point is not this.

The point is that as far as the State Bank of India is concerned, as the learned Judge (Veeraswami, J.) has conclusively shown, by an elaborate

analysis of the State Bank of India Act, 1955, which need not be recapitulated here, the bank is largely state owned, several of its functions are

controlled by Government, it has to obey the directive of the Government in vital respects, and even apart from its assets, its bodies of

management are partly governmental in composition. Under these circumstances, there can be no doubt that the State Bank of India is a ''Public

authority'' indisputably, it is an ""authority"" within the scope of Art. 226 of the Constitution.

Therefore, we are unable to accept argument of Mr. Marthandam that the liability to account to shareholders other than the Central Government

and governmental financial institution would make the State Bank of India to go out of the control of the Central Government.

The reason why the State Bank of India has not specifically come to be included under S. 4(1)(c) of the Shops Act has already been seen and

we cannot accept the argument of Mr. A. Ramachandran, the learned Counsel when he contends that the inclusion of Reserve Bank is a point in

his favour to hold that in the absence of such specific mention of State Bank of India, the exemption may not apply.

Notwithstanding the absence of words like ''instrumentality'' or ''agency'' under S. 4(1)(c) of the Shops Act, it should be our endeavor to find

out the nature of control, the Government of India has over the State Bank of India. The composition of the Central Board under S. 19 and the

power of the Central Government to appoint Directors and clauses (a) (b) (ca) (cb) (d) and (e) are very important. Section 10A of the Banking

Regulation Act deals with the Board of Directors of the banking Company. The term of office of the Chairman is fixed by the Central Government

under S. 20(1) of Act 23 of 1955. In the same section under sub-s 1A his services are terminable by Central Government. Under S. 21 six

members of the local Board are nominated by Central Government. Section 24 postulates removal of directors by Central Government. Under S.

25, even casual vacancies are to be filled up by the Central Government. The salary of the Chairman under S. 27(2) is determined by the Central

Government, likewise the Vice-Chairman''s salary under S. 29(2). In Chapter VI, S. 35 is important. The various sub-sections clearly postulate

that the acquiring of the business of other banks must be only with the sanction of the Central Government. Section 37, talks of creation of reserve

fund in the following manner :

The State Bank shall establish a Reserve Fund which shall consist of -

(a) the amount held in the Reserve Fund of the Imperial Bank transferred to the State Bank on the appointed day; and

(b) such further sums as may be transferred by it to the State Bank out of its annual net profits before declaring a dividend.

Section 40(1) is yet another important section which is quoted below :

Section 40(1) : The State Bank shall furnish to the Central Government and to the Reserve Bank (within three months from the 31st day of

December, as on which its Books are closed and balanced) its balance sheet, together with the profit and loss account and the auditors'' report on

the working of the State Bank during the period covered by the accounts;

Provided that the Central Government may, after consultation with the Reserve Bank, extend the said period of three months by such further

period, not exceeding three months, as it may think fit.

The power of the Central Government to make rules is contained under S. 49 while under S. 50 it is the Central Board, after consulting with the

Reserve Bank and with the previous sanction of the Central Government that gets the power to make regulations. Therefore there is a practically

every conceivable control by the Central Government. Consequently, we have to necessarily hold that in view of these provisions immense or

extensive control is exercised by the Central Government.

In Som Prakash v. Union of India AIR 1982 SC 212, it is observed thus :

If we distill the essence of Art. 12 textually and apprehend the expanded meaning of ""State"" as interpreted precedentially, we may solve the

dilemma as to whether the Bharat Petroleum is but a double of Bharat Sarkar. Let us clear that the jurisprudence bearing on corporations is not

myth but reality. What we mean is that corporate personality is a reality and not an illusion or fictitious construction of the law. It is a legal person.

Indeed ''a legal person'' is any subject-matter other than a human being to which the law attributes personality. ""This extension, for good and

sufficient reasons, of the conception of personality ... is one of the most noteworthy feats of the legal imagination."" Salmond, jurisprudence, 10th

Edn. pp. 324-325, Corporations are one species of legal persons invented by the law and invested with a variety of attributes so as to achieve

certain purposes sanctioned by the law. For those purposes, a corporation or company has a legal existence all its own. The characteristics of

corporations, their rights and liabilities, functional autonomy and juristic status, are jurisprudentially recognised as of a distinct entity even where

such corporations are but State agencies or instrumentalities. For purposes of the Companies Act, 1956, a Government Company has a distinct

personality which cannot be confused with the State. Likewise, a statutory corporation constituted to carry on a commercial or other activity is for

many purposes a distinct juristic entity not drowned in the sea of State, although, in substance, its existence may be but a projection of the State.

What we wish to emphasise is that merely because a company or other legal person has functional and rural individuality for certain purposes and

in certain areas of law, it does not necessarily follow that for the effective enforcement of fundamental rights under our constitutional scheme, we

should not scan the real character of that entity; and if it is found to be a mere agent or surrogate of the State, in fact owned by the State, in truth

controlled by the State and in effect an incarnation of the State. Constitutional lawyers must not blink at these facts and frustrate the enforcement of

fundamental rights despite the inclusive definition of Art. 12 that any authority controlled by the Government of India is itself State. Law has many

dimensions and fundamental facts must govern the applicability of fundamental rights in a given situation.

Control by Government of the Corporation is writ large in the Act and in the factum of being a government company. Moreover, here, S. 7

gives to the government company mentioned in it a statutory recognition, a legislative sanction and a status above a mere government company. If

the entity is no more than a company under the Company Law or Society under the law relating to registered societies or co-operative societies

you cannot call it an authority. A ration shop run by a cooperative store financed by Government is not an authority, being a mere merchant, not a

sharer of State power. ''Authority'' in law belongs to the province of power :

Authority (in Administrative Law) is a body having jurisdiction in certain matters of a public nature. The Law Lexicon of British India, P.

Ramanatha Aiyar, 1940 (P. 101)

Therefore, the ""ability conferred upon a person by the law to alter, by his own will directed to that end, the rights, duties, liabilities or other legal

relations, either of himself or of other persons"". Salmond, Jurisprudence, 10th edition, page 243, must be present ab extra to make a person an

''authority'', when the person is an ''agent or instrument of the functions of the State'' the power is public. So the search here, must be to see

whether the Act vests authority, as agent or instrument of the State, to affect the legal relations of oneself or others.

Similarly in one of the recent pronouncements, the Supreme Court had occasion to deal with the question whether Indian Council of Agricultural

Research is an authority within the meaning of Art. 12 of the Constitution of India. In P.K. Ramachandra Iyer and Others Vs. Union of India

(UOI) and Others, , it was held after referring to the earlier cases to which we have made a reference already at page 547 in paragraphs 10 and

11 as follows :

Apart from the criteria devised by the judicial dicta the very birth and its continued existence over half a century and its present position would

leave no one in doubt that ICAR is almost an inseparable adjunct of the Government of India having an outward form of being a Society, it could

be styled as a Society set up by the State and, therefore, would be an instrumentality of the State.

ICAR started as a Department of the Government of India having an office in the Secretariat even though it was a Society registered under the

Societies Registration Act. It was wholly financed by the Government of India. Its budget was voted upon as part of the expenses incurred in the

Ministry of Agriculture. Even when its status underwent a change, it was declared as an attached office of the Government of India. The Control of

the Government of India permeates through all its activities and it is the body to which the Government of India transferred Research Institutes set

up by it. In order to make it financially viable, a cess was levied meaning thereby that the taxation power of the State was invoked, and the

proceeds of the tax were to be handed over to ICAR for its use. At no stage, the control of the Government of India ever financed and since its

inception it was set up to carry out the recommendations of the Royal Commission on Agriculture. In our opinion, this by itself is sufficient to make

it an instrumentality of the Stage.

Therefore the statutory personality by itself will not in any manner belittle an establishment being under the control of Government of India. Of

course one distinguishable feature between the State Bank of India and the Reserve Bank of India is the nature of control. No doubt section 38 of

the State Bank of India Act, may be one of the distinguishing features. However, that very aspect of the matter had been dealt with by

Veeraswamy, J., as he then was, in V. Ramiah Vs. State Bank of India, which passage we have already extracted. If, therefore, the disposal of

profits is not the primary object of the establishment of the State Bank of India, but only incidental to the nature of business transaction by the

Bank, that may not stand in the way of our conclusion. In final, we may say

the voice of Jacob''s voice, but the hands are the hands of Esau.

In the case of the Nationalised Banks, the voice is Jacob''s voice (Central Government) and the hands are the hands of Jacob. However, as

regards State Bank of India, it can be said without hesitation that the voice is Jacob''s voice (Central Government), but the hands are the hands of

Esau (the State Bank of India).

In the result we dismiss the appeals and allow the writ petition Nos. 11029/81; 1730/84; 155/81 and 9563/83. However, having regard to the

nice question of law, we do not want to mulct the parties with costs. Therefore, each party do bear their respective costs.

Mohan J.J.S.J.

After the pronounced judgment, Mr. learned Counsel prayed for leave to appeal to the Supreme Court. We do not think that this is a fit case

in which leave should be granted because we have merely applied the various rulings of the Supreme Court.