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Judgment
Permod Kohli, J.—We are called upon to answer this reference viz 'Whether the Jammu and Kashmir Bank Ltd' (hereinafter to be referred
to as the 'Bank') is a ""State"" or ""Authority"" or an ""Instrumentality"" or ""Agency"" of the State within the meaning of Article 12 of the Constitution of
India arid amenable to writ jurisdiction of this Court.
It would be convenient to make a brief reference to the back-ground which led to this reference before us afresh. In a petition filed by petitioner
Firdous Ahmed Tanki, an employee of the respondent-Bank, a learned Single Judge of this Court referred the matter to Full Bench vide order
dated 6-5-1992 for answering the question referred to hereinabove. On receipt of this reference, the then Chief Justice vide his order dated 20-
10-1992 referred the matter for consideration of the Full Bench. The matter accordingly came to be considered by the Full Bench on 2-11-1992.
The Full Bench noticed an earlier judgment of this Court dated 9-12-1994 passed in LPA (W) No. 34/1984 titled Jagdish Chander Gupta v. J&K
Bank Ltd. and accordingly the petition was admitted to hearing. The matter was finally heard and decided by a Full Bench of this Court vide
judgment dated 5-12-1995 declaring the Bank as an ""Authority"" an ""Instrumentality"" and ""Agency"" of the State as contemplated under Article 12
of the Constitution of India and thus amenable to writ jurisdiction of this Court. The conclusion of the Full Bench is noticed here-under:
We therefore, hold that the Bank is an 'Authority"", an ""Instrumentality"" and ""Agency"" of the State as contemplated under Article 12 of the
Constitution and thus amenable to the writ jurisdiction of this Court. We return the writ petition to the Single Bench for consideration/hearing on the
merits in the light of our afore-said observations.
This judgment of the Full Bench became subject matter of challenge in two Civil Appeals preferred before the Apex Court, both preferred by
the Bank being Civil Appeal No. 1874 of 1997 and Civil Appeal No. 7426 of 1997 titled J&KBank and Ors. v. Firdous Ahmed Tanki and Ors.
and J&K Bank and Ors. v. Chandji Koul respectively. The Apex Court vide its order dated 4-3-2003 remitted the case back to the High Court
after setting aside the judgment dated 5-12-1995 passed by the Full Bench and directed the High Court to examine the matter afresh in the light of
the later judgment of the Hon'ble Supreme Court in Pradeep Kumar Biswas v. Indian Institute of Chemical Biology and Ors. (2002) 6 SCC 111.
The order of the Hon'ble Supreme Court remanding the case to this Court is re-produced here-under:
In our view, it would be just and appropriate that the Full bench of the High Court examines the mater afresh in the light of the judgment of this
Court in Pradeep Kumar Biswas afore-mentioned after considering the facts of the case in details. While examining the same, the High Court may
also take note of the reduction of the share capital of the State, which it is stated, has come to 53%. Without expressing one way or the other, We
set aside the impugned judgment and remit the case to the Full Bench of the High Court for examining the matter afresh in the light of the judgment
in Pradeep Kumar Biswas and Others Vs. Indian Institute of Chemical Biology and Others, .
It is how this reference has again landed before us (Full Bench).
In view of the remand order referred to hereinabove, We are required to examine the status of the Bank and formulate an opinion?. Does it fall
within the purview of an 'authority', or an 'instrumentality' as contemplated under Article 12 of the Constitution of India in the light of two important
factors as noticed by the Hon'ble Supreme Court, (i) reduction in share capital of the State Government from 79.86 % (as on the date of judgment
of the Full Bench on 5-12-195) to 53%; (ii) The impact of the ratio of the judgment of the Hon'ble Supreme Court in case of Pardeep Kumar
Biswas.
We have heard learned Counsel for the parties at length. Vide interlocutory order dated 14-2-2005 the parties were allowed opportunity to file
additional pleadings/documents with a view to up-grade the necessary information relevant for the adjudication of the issue in view of the directions
of the Apex Court.
Mr. Altaf Haqani, learned Counsel appearing for the petitioner has referred to some of the salient features of the Company (Bank) to urge that
the respondent-Bank falls within the bracket of an authority or instrumentality of the State to be subjected to the writ jurisdiction of the High Court.
According to the learned Counsel, the Bank is an authority and instrumentality of the State on account of the following:
(i) The Bank was created by the then Maharaja of the State of Jammu and Kashmir vide a Memorandum dated 19-6-1930 which aimed at
improving economic conditions of his subjects.
(ii) The bank was incorporated as a Government Company;
(iii) The objects of the Company as laid down in its Memorandum of Association are pointer towards the dominance and deep pervasive control
of the State upon the functioning of the Bank;
(iv) The State Government has major share holding and thus, it has both financial and administrative control over the Bank.
(v) Because of its dominance as a majority share holder, State has the capacity and capability to influence the election of private Directors. The
State Government has three nominees as its Directors on the Board of the Bank which inter-alia include the Chairman. The Chairman of the Bank
has to be necessarily a Government nominee. The Government Directors are not to be rotated like other private Directors and continue on the
Board at the pleasure of the State Government.
(vi) No meeting of the Board of Directors of the Bank is permissible without the presence of at least one Government nominee (Director) in the
meeting. Quorum of meeting being two, Chairman and a Govt Director can decide all issues as may be desired by the Govt.
With a view to bring home his point of view and to persuade the Court to hold the bank as an 'Authority' or 'Instrumentality' of the State,
learned Counsel appearing for the petitioner has submitted that the Bank satisfies all the tests laid down by the Apex Court in Pardeep Kumar
Bishwas's case and earlier judgments of the Apex Court in Ajay Hashia and other cases. According to him the Bank having majority share holding
at 53% it has capacity and potential to influence the election of Directors of its Board. Because of the majority holding and three Government
nominees on the Board of Directors including the Chairman all decisions of the Board of Directors are prone to be influenced by the State
Government. This is particularly in respect to the financial transactions, the State being a major player in controlling the finances of the Bank.
Referring to some of the Articles of Association to which reference shall be made hereinafter, he pointed out that the Chairman Commands the
administrative and functional control over the Bank, he is the sole decision making authority under these and he being a Government nominee, he
was more likely to promote the Government agenda, rendering the Bank at least an agency if not a department of the Government.
Refuting the contentions of the learned Counsel for the petitioner, Mr. Z.A. Shah, learned Senior Advocate appearing for the respondent-Bank
has stated that the Bank is a Company simpliciter registered under the Indian Companies Act 1956 like any other Private Company. The share
capital of the Government is reduced to 53%. The Company is listed on stock exchange. It's most of the funding is by public in the form of share
holding and deposits. The Bank performs such functions as are being performed by any Banking Company irrespective of its share holding and
composition. The objects of the bank do not suggest that the Bank is in any manner functioning as an agency of the State Government or is under
its administrative, financial and functional control in any manner. According to learned Counsel the decision making authority of the bank is Board
of Directors which comprises of twelve Directors (presently ten) out of them three Government nominees constitute only l/3rd of the Board.
It is relevant to notice the composition of the Bank and its functioning by reference to its Articles and Memorandum of Association. Admittedly
the Bank came into being through the Memorandum initiated by the Finance and Development Minister of the State of Jammu and Kashmir on 19-
6-1930. The preamble of the Memorandum reads-
In his keen anxiety to improve the economic condition of his subjects, His Highness the Maharaja Bahadur, from time to time, gave verbal
instructions to the under-signed to expedite the consideration of the proposal to establish a State Bank in the State.
This Memorandum suggests the preparation of a draft scheme for establishing a State Bank. It received approval of His Highness on 30-6-
1930. A prospectus was accordingly prepared which suggested the incorporation of a Company in the name of ""Jammu and Kashmir Bank Ltd
with its authorized capital of Rs 50.00 Lakhs, divided into Rs 2.00 Lakh shares of Rs 257- each. The objects as indicated in the Prospectus are:
The objects for which this Company has been formed are amongst others to advance and develop the financial, commercial, industrial and
agriculture interests of the Jammu and Kashmir State by providing a well organized prodata and efficient Banking service in the State.
The respondent- Bank was accordingly incorporated as a Company on 1-10-1930. At the time of its incorporation the State Government had
92% share , whereas private person(s) share holding at that time was as under:
--------------------------------------------------------------------------------
Name of Address & Description Number of share
subscribers taken
--------------------------------------------------------------------------------
Bishandas Major General Rai Bahadur, Dewan
Srinagar. 200
--------------------------------------------------------------------------------
Tej Ram General Treasurer, His Highness
Govt. Srinagar 100
--------------------------------------------------------------------------------
Abdul Hamid Advocate, State Councillor, Jammu 200
--------------------------------------------------------------------------------
Cnandrajoo Advocate, Srinagar; 200
--------------------------------------------------------------------------------
B.N. Pestonjee Merchant, The Bund, Srinagar 150
--------------------------------------------------------------------------------
Sri Bivas Banker, Jammu 200
Magotra
--------------------------------------------------------------------------------
Anand Sarup Retired Asstt. Supdt of Police, Amira
Kadal, Sgr 200
--------------------------------------------------------------------------------
Abdul Aziz Merchant, Sri Ranbir Gunj, Srinagar 200
Mantoo
--------------------------------------------------------------------------------
There-after share holding of the Company, has increased from time to time and presently the authorized capital of the Company is Rs 75.00
Crores divided into 7,50,00,00 equity shares of Rs 10/- each (as is evident from the amended Memorandum and Article of Association placed
before us). The objects of the Company relevant for the purposes of the present controversy are-
(a) to establish and carry on the business of a banking company whereof the Head Office shall be in Srinagar and a Branch in Jammu and such
other Branches or Agencies in India and abroad as may from time to time be determined by the Directors;
(b) The borrowing, raising or taking of money, the lending or advancing of money either upon or without security, the drawing, making, accepting,
discounting, buying, selling collecting and dealing in bills of exchange, hoondees, promissory notes, coupons, drafts, bills of lading, railway receipts,
warrants, debentures, certificates, scrips and other instruments and securities whether transferable or negotiable or not, the granting and issuing of
letters of credit, traveller's cheques and circular notes, the buying, selling and dealing in bullion and specie, the buying and selling of foreign
exchange including foreign bank, the acquiring, holding, issuing, on commission, underwriting and dealing in stock, funds shares, debentures,
debenture stock, bonds, obligations, securities and investments of all kinds, the purchasing and selling of bonds scrips or other forms of securities,
on behalf of constituents or others, the negotiating of loans and advances, the receiving of all kinds of bonds, scrips or valuables on deposit, or for
safe custody or otherwise, the collecting and transmitting of money and securities;
(c) acting as agents for Governments or local authorities or any other person or persons, the carrying on of agency business of any description
excluding the business of a managing agent but including the power to act as attorneys and to give discharges and receipts.
(r) to enter into any arrangement or agreement with His Highness Government Jammu and Kashmir,
to act as Bankers for and to pay, receive, collect and remit money, bullion and securities, on behalf of the said Government.
to undertake and transact any other business having objects altogether or in part similar to those of the company which the said Government
may from time to time entrust to the bank including the making of loans to Co-operative credit Banks or for agricultural and industrial purposes;
to obtain from the said Government all rights concession, and privileges that may seem to the Bank's objects or any of them;
to arrange and settle with the said Government the terms and conditions on which such business shall be undertaken by the Bank.
It would be also useful to quote some of the Articles of Association of the Bank referred to and relied upon by the respective contesting parties
before us.
(i) The number of Directors shall not be more than twelve or less than seven. Not more than three of these shall be appointed by the Jammu
and Kashmir Government, who will be called Government Directors, provided that no Director other than a Government Director shall be elected
as Chairman of the Board of Directors.
(ii) xxxxxxxxxxx
(iii) Government Directors will continue in their office so long as their appointment is notcancelled by the Government.
(i) No person other than a permanent resident of Jammu and Kashmir State shall be qualified to act as a Director of the Company except
when such person has been appointed as a Director by the Jammu and Kashmir Government or when such person has been co-opted as an
Additional Director by the Board.
The management of the business of the bank shall be carried on by the Chairman subject to the control of the Board of Directors. The
Directors may exercise all such powers and do all such acts and things as the company is, by its Memorandum of Association or otherwise,
authorized to exercise and do and are not hereby or by statute directed or required to be made exercised or done by the Company in General
Meeting but subject nevertheless to the provisions of the Companies Act, x x x x x x x.
Without prejudice to the general powers conferred by last proceeding clause and of other powers conferred by these Articles the following
powers and authorities are expressly given to and contained upon the Directors-
(a) Subject to the provisions of the Banking Regulation Act, to purchase, buy, take on lease, or otherwise require any land (whether freehold,
leasehold, or otherwise) from any person, including a Director with or without a house or houses, building or buildings thereon in the Jammu and
Kashmir State and elsewhere in India x x x x x.
(c) Subject to the provisions of the banking Regulation Act, to open and establish branches and agencies for the conduct of the Bank's business
from time to time in any part of the Jammu and Kashmir State or India as the Directors may think it expedient to do and to close such branches or
agencies.
(d) To appoint at any time and from time to time by Power of Attorney under the Seal of the Bank any person or persons to be the Attorney or
Attorneys of the Bank for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the
Directors under these Articles) and for such period and subject to such conditions as the Directors may from time to time think fit
x x x x x x.
(e) From time to time frame rules regarding the conditions of service of the employees of the Bank and to nominate and appoint and at pleasure to
remove or suspend as the Directors deem best for the management of the business of the bank, Agents, Officer, Clerks, Engineers, workmen and
all other employees of the bank and to fix all remunerations, salaries and wages to be paid by the Bank to officers of the bank respectively except
in the case of the Chairman and Chief Executive Officer.
(f) To authorize the Chairman or other officers for the time being of the bank to exercise and perform all or any of the powers, authorities and
duties conferred or imposed upon the Directors by the Memorandum of Articles of Association subject to such restrictions and conditions, if any,
as the Directors may think proper.
(p) From time to time provide for the management of the affairs of the Bank at all its Branches and Headoffice in such manner as the Directors shall
think fit.
All the Directors shall retire by rotation except Government Directors with will continue in their offices so long their appointment is not
cancelled by the Government.
The Directors may meet together for the disposal of Business, adjourn and otherwise regulate their meeting as they think fit. The quorum for a
meeting of the Board of Directors of a Company shall be one-third of its total strength (any fraction contained in that one-third being rounded off
as one) or two Directors whichever is higher, one of whom must be a Govt Director. Provided that where at any time number of interested
Directors exceeds or is equal to two-thirds of the total strength, the number of remaining Directors, that is to say the number of the Directors who
are not interested present at the meeting being not less than two shall be the quorum during such time. Questions arising at any meeting shall be
decided by majority of votes. In case of an equality of votes the Chairman shall have a second or casting vote. Save as otherwise expressly
provided by the Companies Act, 1956 a resolution in writing signed by all the Directors shall have the same effect as a resolution passed by the
Directors at their meeting.
(a) The business of the Bank shall be conducted by the Chairman of the Board of Directors subject to the superintendence, control and
direction of the Board of Directors.
(b) Subject to the provisions of the Companies Act, 1956 and the Banking Regulation Act, 1949 the Directors may, from time to time, appoint
one of themselves, who shall be a Government Director, to be the Chairman of the Board of Directors for such period not exceeding five years at
any one time as may be fixed by the Board of Directors. The Chairman shall be the Chief Executive Officer. The Chairman shall not cease to be
the Chairman as a result of his ceasing to hold office as Director, except where he ceases to be a director as a result of some act or omission on his
own.
(c) Subject to the provisions of any law for the time being in force, the Board of Directors shall entrust the Chairman, the management of the whole
of the affairs of the Bank and also delegate to him such powers as may be necessary for carrying on the business of the Bank. The Chairman shall
exercised his powers subject to the superintendence, control and direction of the Board of Directors.
(d) The remuneration of the Chairman or any modification thereof shall be decided by the Board of Directors subject to the concurrence of the
Reserve Bank of India.
The Apex Court has remanded the case for re-examination to the High Court in view of the dictum of Pradeep Bishwas's judgment. It is useful
to refer to relevant extracts from this judgment with a view to find out whether the earlier view held by the Full Bench needs re-consideration,. In
Bishwas's judgment the Apex Court relied upon paras 14, & 17 (3).
By 1975, Mathew, J. in Sukhdev Singh V. Bhaatram Sardar Singh Raghuvanshi noted that the concept of ""State"" in Article 12 had undergone
drastic changes in recent years"". The question in that case was whether the Oil and Natural Gas Commission, the Industrial Finance Corporation
and the Life Insurance Corporation, each of which were public corporations set up by statues, were authorities and therefore within the definition
of State in Article 12. The Court affirmed the decision in Rajasthan SEB v. Mohan Lal and held that the Court could compel compliance of
statutory rules. But the majority view expressed by A.N. Ray, C.J. also indicated that the concept would include a public authority which ""is a
body which has public or statutory duties to perform and which performs those duties and carries out its transactions 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"". 17. For identifying such an agency or
instrumentality he propounded four indicia:
(1) X X X X
(2) x x x x x x
(3) ""The combination of State aid and the furnishing of an important public service may result in a conclusion that the operation should be classified
as a State agency. If a given function is of such public importance and so closely related to governmental functions as to be classified as
governmental agency, then even the presence or absence of State financial aid might be irrelevant in making a finding of State action. If the function
does not fall within such a description, then mere addition of State money would not influence the conclusion.
This judgment and the judgments referred therein seek to define the scope of Article 12 of the Constitution of India. Article 12 reads-
Article 12 - Definition- 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 or under the Control of the
Government of India.
This Article defines ""State"" which interalia include (i) Government; (ii) Parliament of India (iii) Government of State; (iv) Legislature of the
State; (v) all local or other authorities within the territory of India or under the Control of Government of India.
Undoubtedly individuals and private bodies and even Societies and Companies registered under statutes do not fall within the inclusive
definition of State under Article 12. However, such persons and legal entities created under various laws have been brought within the expansive
definition by judicial interpretation. It is no more res-integra that a body can be termed as an instrumentality or an agency of State while performing
public functions and discharging public duties irrespective of its birth by non-legislative action meaning thereby that the source of the existence of
such entity be it statutory or non-statutory is irrelevant. It is only the nature of its activity which becomes a determinative factor to bring it within
purview of instrumentality or authority under Article 12.
Admittedly the respondent-Bank does not fall under first four categories. The Apex Court has interpreted the expression ""authority"" within the
territory of India or under the Control of Govt of India in various judgments. Reference to these judgments is made in paras 12 to 25 of Bishwas's
judgment. We are not burdening this judgment with re-production of all these references. However, we deem it proper to refer to some of them. In
Ajay Hasia and Others Vs. Khalid Mujib Sehravardi and Others, the Apex Court while examining the status of a Society running an Engineering
College laid down the following tests to declare it a State or other authority within the meaning of Article 12.
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 Govern-mental 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.
These tests and other observations made by the Apex Court in P.K. Ramachandra Iyer and Others Vs. Union of India (UOI) and Others, ;
Central Inland Water Transport Corporation Limited and Another Vs. Brojo Nath Ganguly and Another, ; The Mysore Paper Mills Ltd. Vs. The
Mysore Paper Mills Officers' Association and Another, and Chander Mohan Khanna Vs. The National Council of Educational Research and
Training and other[OVERRULED], ; were examined and considered by the Apex Court in Pradeep Bishwas's case. The Hon'ble Apex Court by
majority view concretized the tests to be applied for determination whether a Corporation is a State or an authority or an instrumentality within the
meaning of Article 12 of the Constitution of India, as under:
The picture that ultimately emerges is that the tests formulated in Ajay Hasia are not a rigid set of principles so that if a body falls within any one
of them it must, ex hypothesi, be considered to be a State within the meaning Article 12. The question in each case would be - whether in the light
of the cumulative facts as established, the body is financially,functionally and administratively dominated by or under the control of the Government.
Such control must be particular to the body in question and must be pervasive. If this is found then the body is a State within Article 12. On the
other hand, when the control is merely regulatory whether under statute or otherwise, it would not serve to make the body a State.
The ratio dessidendi in Pradeep Kumar Bishwas's case (Supra) was noticed in a later judgment Zee Telefilms Ltd. and Another Vs. Union of
India (UOI) and Others, . The Court was examining the status of Board of Control for Cricket in India (BCCI) taking into consideration its various
functions. The Court observed:
The facts established in this case show the following;
The Board is not created by a statute;
No part of the share capital of the Board is held by the Government;
Practically no financial assistance is given by the Government to meet the whole or entire expenditure of the Board;
The Board does enjoy a monopoly status in the field of cricket but such status is not State-conferred or State-protected.
There is no existence of a deep and pervasive State control. The control if any is only regulatory in nature as applicable to other similar bodies.
This control is not specifically exercised under any special statute applicable to the Board. All functions of the Board are not public functions nor
are they closely related to governmental functions.
The Board is not created by transfer of a government-owned corporation. It is an autonomous body.
After recording the above observations, it was held:
To these facts if we apply the principles laid down by the seven Judge Bench in Pradeep Kumar Biswas it would be clear that the facts
established do not cumulatively show that the Board is financially, functionally or administratively dominated by or is under the control of the
Government. Thus the little control that the Government may be said to have on the Board is not pervasive in nature. Such limited control is purely
regulatory control and nothing more.
We proceed to examine the status of the bank in the light of the tests so formulated by the Apex Court in the above judgments. This is particularly
in view of the clear directions issued in the present case while remanding the matter.
We have noticed hereinabove the objects/activities of the Company as indicated in various clauses of its Memorandum and Articles of
Association. Much emphasis is laid on Clauses (e) and ( r) of the Objects. Clause ( e) empowers the Bank to act as an agent for Government or
local authorities or any other person or persons, carrying on agency business of any description. This is one of the banking activity reflected to in
Section 6(b) of the Banking Regulation Act 1949 which has been noticed by us in the later part of this judgment. How this clause can clothe the
bank as an instrumentality of the State is not forthcoming. It is a common knowledge that the Banks are entitled to act as agents for Government or
any other body or even individuals to facilitate their functioning and promote their business. In the era of globalization of business, the Banks are
opening letters of credit, providing various facilities to their customers and with a view to secure moneys and advances and also to ensure that
investment is properly indemnified, it can act as an agent to keep the property purchased or acquired with the moneys of the Bank under safe
hands or at least under its surveillance. These are normal and common business interests. In so far as the activities enumerated in Clause (r) of the
Objects are concerned, the Bank has been authorized to enter into any arrangement or agreement with the J&K Government to act as its Banker
for and to pay, receive collect and remit money, bullion and securities on behalf of the Government; to deal with the Government from time to time
and to advance loans to Cooperative credit Banks or for agricultural and industrial purposes and to obtain such rights and concessions and
privileges that may be permissible under the Objects.
While referring to these Objects in the Memorandum of Association, learned Counsel for the petitioner has urged that the Bank is primarily a
limb of the Government and has been established to discharge Governmental functions. Further reference is made to the Memorandum as existed
at the time of establishment of the Bank. The objects as pointed out in the Memorandum etc are to establish the Bank to improve the economic
and social conditions of the subjects of His Highness. We have carefully examined the Memorandum as also the objects, referred to hereinabove.
The fact that Memorandum contained a stipulation providing for establishment of the Bank to improve the economic, social and financial conditions
of the subjects of His Highness, the then Maharaja does not in any manner establish that the purpose of the Bank was to delegate the
Governmental functions to it. It is an obligation of every Ruler be it a Maharaja or a democratically elected Government to improve the economic
conditions of the citizens from State exchequer or may be through an agency not run by the State. By attempting to promote the economic
conditions of the citizens, the Governmental activities are not delegated in any manner. In the present scenario every Government makes efforts to
bring in more and more Industry, Trade with a view to up-lift the economic conditions of the citizens. The State only lays down a policy for
creating atmosphere to improve financial status of its subjects but by encouraging activity of any company or organization for improving economic
conditions of citizens the Government or the State only provides an opportunity to its citizens for improving their economic conditions. This in no
manner can be termed as a Governmental activity, or an activity close to it.
Clauses (e) or (r) of the Objects are only enabling provisions whereby the Bank can enter into contracts or arrangement with the Government
to achieve its primary objects. Let us take a situation where there is no such clause in the Objects, does it prevent the Bank or the Government
from entering into contract or agreement with each other. The answer is simply 'No"". Under Article 298 of Constitution of India, the Union
Government as also the State Government can carry on any trade or business and acquire and hold the property and enter into contract, There is a
similar provision in the constitution of Jammu and Kashmir contained irk Section 122 which empowers the State Government to enter into contract
and carry on any business or trade. Similarly the Bank (a Company) being a juristic person and legal entity is competent to enter into any lawful
contract With any person or even the Government under the Contract Act. Therefore, notwithstanding absence of any such stipulation or a
condition in the objects of the Bank or its Memorandum the bank can enter into contract and arrangement with the Government and with local
authorities etc. What is relevant is whether the existence and functioning of the Bank is dependant upon its contract/arrangement with the
Government. To enter into some kind of arrangement with the Government is one of the activities of the Bank, irrespective of the consideration that
Bank is established by the State Government. Such a stipulation or Object do not lead to a conclusion or even inference that the Bank is
performing any governmental activity or discharging the governmental functions.
With a view to conceptualize the application of three fundamental tests formulated by Apex Court in Biswas's case namely, ""Functional"",
Financial"" and ""Administrative"" control, we may like to examine over all functioning of the Bank. Article 69 of Articles of Association provides the
composition of the Board of Directors. Board can have maximum 12 and not less than seven Directors. Three of the Directors are necessarily to
be the nominees of the J&K Government who will be called ""Government Directors"". It is also imperative for the Board to elect Government
Nominee as its Chairman. The initial Board at the time of adoption of the Articles comprised of various private Directors as is evident from the
Articles and Memorandum of Association. It is also true that the Government Directors are not removable in ordinary mode as provided under the
provisions of the Companies Act. They are nominated and removable by the Government. However, the fact remains that these Government
nominees on the Board constitute either 1/4th or little above l/3rd of the total strength of the Directors on the Board depending upon the strength of
the Board at a given time. At present as pointed out in the supplementary affidavit there are 10 Directors on the Board as two nominees of the
Reserve Bank of India have been withdrawn. Therefore, the Government Directors constitute almost l/3rd of its total composition in place. Under
Article 71 of the Articles of Association, the Management of the business of the Bank is to be carried on by the Chairman subject to the control of
the Board of Directors. Article 72 gives various powers to the Board of Directors other than the general powers conferred upon it under Article
A reading of Clause (f) of Article 72 reveals that it is the Board of Directors which is empowered to authorize the Chairman or other officers of
the Bank to exercise and perform all or any of the powers, authorities and duties conferred or imposed upon the Directors by the Memorandum or
Articles of Association. The Board is also empowered to impose such restrictions and conditions as it may think proper on the exercise of powers
by the Chairman. A comprehensive reading of Article 72 of the Article of Association of the Bank reveals that it is primarily the Board which is
source of all power and control, for the management and functioning of the Bank. Articles 75 and 76 deal with the Rotation of Directors except the
Government Directors who do not rotate. Article 84 deals with the disposal of business of the Bank and provide the convening of meetings of
Directors. Under this Article the minimum quorum is 1/3rd of its total strength or two Directors, whichever is higher. This Article also makes it
imperative that no quorum shall be complete without the presence of at least one of the Govt Directors in any meeting. However, the decision of
the Board is to be taken by majority of Board Members present in the meeting.
Article 118 which deals with the Management of Business of the Bank clearly provide that the business of the Bank is to be conducted by the
Chairman of the Board of Directors subject to the superintendence, control and direction of the Board of Directors and subject to the provisions of
the Companies Act, 1956.
It has been urged on behalf of the petitioner that since there are three Government nominees on the strength of the Board, the minimum quorum
being 'Two', the business of the Bank can be conveniently conducted with the government nominees alone, excluding the private Directors which
can provide a platform to the Government to carry on its own agenda.
Section 300 of the Companies Act, 1956 imposes an embargo for participation of the interested Directors of Board in the Board Meeting.
This section thus reads:
Inserted director not to participate or vote in Board's proceedings- (1) No director of a company shall, as a Director, take any part in the
discussion of, or vote on, any contract or arrangement entered into, or to be entered into, by or on behalf of the company, if he is in any way,
whether directly or indirectly concerned or interested in the contract or arrangement; nor shall his presence count for the purpose of forming a
quorum at the time of any such discussion or vote, and if he does vote, his vote shall be void.
In view of the mandate of this section when-ever any agenda concerning any business with the government is to be taken up by the Board of
Directors, the Government nominees are dis-qualified to participate.
Mr. Z.A. Shah, learned Counsel appearing for the petitioner has produced record before us along with the supplementary affidavit and has
referred to a Meeting of the Board of Directors held on 27-10-2004. Agenda item No. 12 deals with the enhancement of over draft limit of the
Jammu and Kashmir Government. It is recorded that the Government Director, namely, Mr. B.R. Kundal was excluded from the deliberations of
the meeting being an interested Director. To the same effect is the affidavit filed by Secretary, J&K Bank Ltd to show that when-ever the
Government business is taken up by the Board of Directors of the Bank, the Government nominees are excluded from its participation and voting.
A reference to various articles of Association referred to hereinabove persuaded us to arrive at a conclusion that the Government does not
have any ""functional"" control over the Bank.
Now, coming to the ""Financial"" control, it is pertinent to refer to the Memorandum of Association. Clause V of the Memorandum shows the
authorized capital of the Company is at Rs 75.00 Crores divided into 7,50,0007- shares of Rs 10/- each. Mr. Shah has produced before us the
Annual Reports for the years 2002-2003 and 2004-2005.
Apart from its authorized capital of Rs 75 Crores, financial position of the Bank is revealed from following figures:
------------------------------------------------------------------------
2002-2003 2004-2005
------------------------------------------------------------------------
Equity Shares 48,49,77,000 Crores 48,49,97,000 Crores
------------------------------------------------------------------------
Amount Advanced Rs 8010.95 Crores Rs 11517. 17 Crores
------------------------------------------------------------------------
Reserve Capital Rs 1242.00 Crores Rs 1616.91 Crores
------------------------------------------------------------------------
Net Profit Rs 337.75 Crores Rs 1150.69 Crores
------------------------------------------------------------------------
Annual Business Turn Rs 22686 Crores Rs 33162.01 Crores
Over
------------------------------------------------------------------------
These figures have been noticed to find out Whether the State Government has any financial control over the Bank. State having 53% share
holding and entire capital investment of Bank being only 75 Crores, the Bank has advanced more than Rs 1100 Crores and its annual turn-over
being more than Rs 33000 Crores, it is canfabulous to say that the State Government has any financial control over the Bank. On the contrary the
State Government itself has secured an over draft limit of Rs 1500 Crores from the Bank. The Apex Court in Ramana Dayaram Shetty Vs.
International Airport Authority of India and Others, summarized the factors determinative of financial supremacy over the autonomous character of
a Corporation or Body to clothe it with the status of an Authority or Instrumentality of State. It observed-
(1). One thing is clear that if the entire share capital of the corporation is held by Government, it would go a long way towards indicating that the
corporation is an instrumentality or agency of Government. (2) Where the financial assistance of the State is so much as to meet almost entire
expenditure of the Corporation, it would afford some indication of the Corporation being impregnated with governmental character.
Nothing has been brought on record to even suggest that the financial needs of the Bank are satisfied by the State Government. Facts reveal
the otherway round. The Bank has huge funds at its disposal through public issues and other share holding and deposits and thus is totally
financially independent"" of any State control. Rather the bank is extending a helping hand in meeting financial exigencies of the Government. We
do not find that there is any ""financial"" control of the State over the Bank.
Now, we may examine the third test propounded by Bishwas's judgment whether the State has any administrative control. Undoubtedly, the
State Government has the absolute authority and power under the Articles of Association to appoint three Directors on the Board of Directors of
the Bank and one of its nominees is necessarily to be the Chairman. Merely, because the Chairman of the Bank is a Government nominee and it
has at least l/3rd Directors on its Board is not enough to draw an inference that the State has administrative control over the Bank. Administration
of the bank is to be run in accordance with its articles of Association and the provisions of the Companies Act besides the policies and directions
of Reserve Bank of India,. We have already made reference to Articles 71, 72, 84 and 118 of the Articles of Association. The Bank is managed
by the Board of Directors and all decisions are to be taken by majority. Chairman of the bank though is empowered to carry on the business, but
either as an agent of the Board or its delegatee. Clause (e) of Article 72 empowers the Board to open and establish branches and agencies for the
conduct of the Bank's business. Clause (d) further empowers the Board to give power of attorney to any person for performance of any of the
business. Similarly Clause (e) empowers the Board to lay down the conditions of service of its employees. Clause (g) empowers the Board to raise
or borrow money from time to time by bonds, debentures, or promissory notes or by opening current accounts or by receiving advances. Clause
(p) provides for management of the affairs of the Bank at all its Branches and head office in such manner as the Directors think fit.
All these references lead to only one inference that the State has no role much less a dominant role either to run the administration of the Bank
or control its activities even remotely. Even if we lift the corporate veil to peep into the activities, functions and performance of the Bank, it is
suggestive of absolute control of the Board and its officers over the management and its functioning. We are thus unable to convince ourselves that
the State has any ""administrative"" control over the Bank much less a deep pervasive control.
Though the only question referred to us and which we are required to answer is whether the Bank is a ""State"", ""authority"" or an
'Instrumentality"" of the State within the meaning of Article 12 of the Constitution, however, at the time of hearing another allied issue was raised by
the learned Counsel for the petitioner viz, notwithstanding the fact whether the Bank is a State or an authority or its instrumentality within the
meaning of Article 12 of the Constitution, it is still amenable to writ jurisdiction under Article 226 of the Constitution of India, We allowed the
parties to address on this issue too.
Answer to this question hinges upon one factor Whether the Bank is discharging a public duty or performing public functions. We proceed to
examine this aspect of the matter.
Article 12 of the Constitution of India falls in Chapter III of the Constitution of India and is relevant for the purposes of enforcement/protection
of the fundamental rights.
Article 226(1) of the Constitution of India which vests the High Court with powers to issue writs is quoted for reference:
Power of High Courts to issue certain writs - (1) Notwithstanding anything in Article 32 every High Court shall have powers, throughout the
territories in relation to which it exercises jurisdiction, to issue to any person or authority, including in appropriate cases, any Government, within
those territories, directions, orders or writs, including (writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari, or
any of them, for the enforcement of any of the rights conferred by Part-Ill and for any other purpose)
Apart from the enforcement or protection of fundamental rights, the writ jurisdiction of the Court can also be exercised under Article 226 of
the Constitution for any other purpose provided the authority or the person is enjoined upon a public duty and there is failure to discharge such a
duty.
With a view to impress upon the Court that the Bank is discharging public duties, Mr. Haqani, learned Counsel appearing for the petitioner has
referred to various provisions of the Banking Regulation Act 1949. We will briefly refer to the provisions relied upon by the learned Counsel
hereinafter. Section 5 of this Act defines the expression, ""Banking"", ""Banking Company"" and, ""Banking Operation"" under sub-sections (b) (e) and
(ca) respectively. Same are quoted here-under:
(b) ""banking"" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or
otherwise, and withdrawals by cheque draft, order or otherwise;
(c) ""banking Company"" means any company which transacts the business of banking.
(aa) ""banking policy"" means any policy which is specified from time to time by the Reserve Bank in the interest of the Banking system or in the
interest of monetary stability or sound economic growth having due regard to the interests of the depositors, the volume of deposits and other
resources of the bank and the need for equitable allocation and the efficient use of these deposits and resources.
Section 6 enlists the Forms of business in which a Banking Company may engage, which inter-alia include the borrowing, raising, or taking up
of money, the lending or advancing of money either upon or without security, the drawing, making accepting discounting, buying, selling, collecting
and dealing in bills of exchange, hoondees, promissory notes, warrants, debentures, certificates, scrips and other instruments and securities and
number of such other activities as are relevant to and related to the Banking business in general Sub-section (b) of Section 6 further empowers a
Banking Company to act as agent for any Government or local authority or any other person or persons. Sub-section (e) further deals with the
right of the Banking Company for contracting for public and private loans etc.. A perusal of this section would reveal that the Banking activities
enumerated hereinabove are almost the same as have been prescribed in the Articles of Association of the respondent Bank, Section 10A of this
Act provides qualifications of the members on the Board of Directors. Section 22 of the Act make it mandatory for any Banking Company to hold
a licence issued by the Reserve Bank of India before it commences the Banking business. Section 27 further makes it obligatory to file monthly
returns to the Reserve Bank of India in the prescribed Forms and Section 29 requires a Banking Company to prepare a balance sheet and profit
and loss account and Section 30 provides for compulsory Audit,
Based upon these provisions which tend to regulate the functions of the Banking Company, it is submitted that the respondent Bank is
discharging a public duty and should be subjected to writ jurisdiction irrespective of its status as a State or its authority or instrumentality envisaged
under Article 12 of the Constitution of India. In case Andi Mukta Sadguru Shree Muktajee Vandas Swami Suvarna Jayanti Mahotsav Smarak
Trust and Others Vs. V.R. Rudani and Others, , the Apex Court while considering the jurisdiction of the High Court under Article 226 of the
Constitution of India for grant of mandamus against a body performing public duty held:
Here again we may point out that mandamus cannot be denied on the ground that the duty to be enforced is not imposed by the statute.
Commenting on the development of this law, Professor de Smith states: ""To be enforceable by mandamus a public duty does not necessarily have
to be one imposed by statute. It may be sufficient for the duty to have been imposed by charter, common law, custom or even contract: We share
this view. The judicial control over the fast expanding maze of bodies affecting the rights of the people should not be put into watertight
compartment. It should remain flexible to meet the requirements of variable circumstances. Mandamus is a very wide remedy, which must be easily
available 'to reach injustice wherever it is found. Technicalities should not come in the way of granting that relief under Article 226. We, therefore,
reject the contention urged for the appellants on the maintainability of the writ petition.
In view of the dictum of the afore-said judgment, it is argued on behalf of the petitioner that the activities of the Bank detailed under the
Memorandum and Articles of Association or under the provisions of Banking Regulation Act, 1949, amount to performance of ""public duty"" and
public functions"" and thus it is amenable to writ jurisdiction of this Court, without it being the State or its instrumentality.
Mr. Z.A. Shah, learned Counsel appearing for the respondent Bank has argued with vehemence that a duty or function to be termed as public
duty or public function must emanate from statutory provisions. We find that various activities of a Bank including its dealings with the public for the
purposes of accepting the deposits advancing loans and other Banking activities are normal commercial transactions of the Bank which are not
specific to the respondent Bank but which are otherwise to be discharged by every and any private Banking Company, having no share holding
from the State and all such activities being common and normal commercial/business activities cannot be termed as a ""public duty"" or a 'public
function'.
We may refer to some of the decisions of the Apex Court, relevant for the purposes of the controversy before us.
In case The Praga Tools Corporation Vs. Shri C.A. Imanual and Others, , the question under consideration was whether a Company registered
under the Companies Act being a non statutory body is amenable to writ jurisdiction of the High Court and a mandamus can be issued at the
instance of workmen. In this case the The Praga Tools Corporation was incorporated as a Company under the Indian Companies Act, 1930. At
the time of filing of the writ petition the Union Government and the Government of Andhra Pradesh held 56% and 32% of its shares and the
balance 12% shares were held by private individuals. The Union Government had the power to nominate the Company's Directors. Some
settlement came into being between the workmen's Union and the Company. Subsequently the Company decided to retrench some of its workmen
due to financial crunch. This action of the Company was challenged before the High Court in writ petition. A Division Bench of the High Court held
that the Company being one registered under the Companies Act and not having the statutory duty or function to perform is not amenable to writ
jurisdiction for a mandamus or any other writ. The Apex Court while considering the status of the Company held-
The company being a non-statutory body and one incorporated under the Companies Act there was neither a statutory nor a public duty imposed
on it by a statute in respect of which enforcement could be sought by means of a mandamus, nor was there in its workmen any corresponding legal
right for enforcement of any such statutory or public duty. The High Court, therefore, was right in holding that no writ petition for a mandamus or
an order in the nature of mandamus could lie against the company.
In case VST Industries Ltd. v. v. VST Industries Workers Union and Anr. (2001) 1 SCC 298, a Company incorporated under the
Companies Act dealing with the manufacture and sale of cigarettes set up a Canteen being run through a Contractor. The employees of the
Canteen invoked the writ jurisdiction seeking a declaration that they are the employees of the Company and claimed monetary and other benefits.
The Company was under an obligation to establish a canteen u/s 46 of the Factories Act. The writ Court held that establishment of the Canteen
being a statutory obligation upon the Company, the Company was considered to be discharging a public duty and thus held amenable to writ
jurisdiction under Article 226. This view of the writ Court was confirmed by a Division Bench. Hon'ble Supreme Court of India in appeal against
the judgment of High Court considered the status of the Company and nature of its activities including its statutory obligation to establish a canteen.
The Apex Court observed.
In the present case, the appellant is engaged in the manufacture and sale of cigarettes will not involve any public function. Incidental to that activity
there is an obligation u/s 46 of the Act to set up a canteen when the establishment has more than 250 workmen. That means, it is a condition of
service in relation to a workman providing better facilities to workmen to discharge their its property and maintain their own health or welfare. In
other it is flly a labour welfare device for the benefit of its workforce unlike a provision where the Pollution Control Act makes it obligatory even on
a private Company not to discharge certain effluents. In such cases public duty is owed to the public in general and not specifically to any person
or group of persons. Further the damage that would be caused in not observing them is immense. If merely, what can be considered a part of the
conditions of service of a lyorfcmafl is violated then we do not think there is any justification to hold that such activity will amount to public duty.
Thus, we are view that the High Court fell into error that the appellant is le to writ jurisdiction.
Dismissed employees of International Crops Research Institute (ICRISAT), an informal association of about 50 government and
nongovernmental bodies and co-sponsored by the United Nations, invoked writ jurisdiction of the High Court of Karnataka challenging their
termination. Writ petitions were dismissed by the High Court holding the body not amenable to writ jurisdiction under Article 226. In an appeal G.
Basi Reddy Vs. International Crops Research Instt. and Another, the Hon'ble Supreme Court observed:
A writ under Article 226 can lie against a ""person"" if it is a Statutory body pr performs a public function or discharges a public pr statutory duty
(Praga Tools Corporation V. C.A. Imanual, Shri Anadi Mukta Sadguru Trust v. V.R. Rudant SCC at p. 698 and VST Industries Ltd v. Workers'
Union). ICRISAT has not been set up by a statute nor are its activities statutorily controlled. Although, it is not easy to define what a public
function or public duty is, it can reasonably be said that such functions are similar to or closely felted to those performable by the State in its
sovereign capacity. The primary activity of ICTISAT is to conduct research and training programmes in the sphere of agriculture purely on a
voluntary basis. A service voluntarily undertaken cannot be said to be a public duty. Besides ICRISAT has a role which extends beyond the
territorial boundaries of India and its activities are designed to benefit people from all over the world. While the Indian public may be the
beneficiary of the activities of the Institute, it certainly cannot be said that ICRISAT owes a duty to the Indian public to provide research and
training facilities.
In case General Manager, Kisan Sahkari Chini Mills Ltd., Sultanpur, U.P. Vs. Satrughan Nishad and Others, , a writ application presented by
terminated workmen of the Sugar Mills Cooperative Society under the U.P. Cooperative Societies Act was allowed by the High Court and the
directions issued for regularization of their services. When matter was taken up two questions were considered in this case by the Apex Court-
(i) Whether the body falls within the definition of State or its instrumentality under Article 12 of the Constitution of India;
(ii) Whether a mandamus can be issued under Article 226 or the Constitution against a person or authority irrespective of it being an authority
within the meaning of Article 12.
In answer to the first question after relying upon the case of Pradeep Kumar Biswas and Others Vs. Indian Institute of Chemical Biology and
Others, , the Apex Court observed as under:
From the decisions referred to above, it would be clear that the form in which the body is constituted, namely, whether it is a society or a
cooperative society or a company, is not decisive. The real status of the body with respect to the control of Government would have to be looked
into. The various tests as indicated above, would have to be applied and considered cumulatively. There can be no hard and fast formula and in
different facts/situations, different factors may be found to be overwhelming and indicating that the body is an authority under Article 12 of the
Constitution. In this context, bye-laws of the Mill would have to be seen. In the instant case, in one of the writ applications filed before the High
Court, it was asserted that the Government of Uttar Pradesh held 50% shares in the Mill which fact was denied in the counter affidavit filed on
behalf of the State and it was averred that majority of the shares were held by cane growers. Of course, it was not said that the Government of
Uttar Pradesh did not hold any share. Before this Court, it was stated on behalf of the contesting respondents in the counter affidavit that the
Government of Uttar Pradesh held 50% shares in the Mill which was not denied on behalf of the Mill. Therefore, even if it is taken to be admitted
due to non-traverse, the share of the State Government would be only 50% and not entire. Thus, the first test laid down is not fulfilled by the Mill.
It has been stated on behalf of the contesting respondents that the Mill used to receive some financial assistance from the Government. According
to the Mill, the Government had advanced some loans to the Mill. It has nowhere been stated that the State used to meet any expenditure of the
Mill much-less almost of the entire one, but, as a matter of fact, it operates on the basis of self generated finances. There is nothing to show that the
Mill enjoys monopoly status in the matter of production of sugar. A perusal of the bye-laws of the Mill would shoe that its membership is open to
cane growers, other societies, Gram Sabha, State Government etc and under Bye-law 52, a committee of Management consisting of fifteen
members is constituted, out of whom, five members are required to be elected by the representatives of individual members, three out of the
cooperative society and other institutions and two representatives of financial institutions besides five members who are required to be nominated
by the State Government which shall be inclusive of the Chairman and Administrator. Thus, the ratio of the nominees of the State Government in
the Committee is only l/3rd and the management of the committee is dominated by 2/3rd non-government members. Under the bye-laws, the State
Government can neither issue any direction to the Mill nor determine its policy as it is an autonomous body. The State has no control at all in the
functioning of the Mill much less a deep and pervasive one. The role of the Federation, which is the apex body and whose ex officio Chairman-
cum-Managing Director is the Secretary, Department of Sugar Industry and Cane, Government of Uttar Pradesh is only advisory and to guide its
members. The letter sent by the Managing Director of the Federation on 22-11-1999 was merely by way of an advice and was in the nature of a
suggestion to the Mill in view of its deteriorating financial condition. From the said letter, which is in the advisory capacity, it cannot be inferred that
the State had any deep and pervasive control over the Mill. Thus, we find none of the indicia exists in the case of the Mill, as such, the same being
neither an instrumentality nor an agency of the Government cannot be said to be an authority and, therefore, it is not State within the meaning of
Article 12 of the Constitution.
In answer to second question, the Apex Court considering the earlier judgments noticed hereinabove observed as under:
Learned Counsel appearing on behalf of the contesting respondents submitted that even if the Mill is not an authority within the meaning of
Article 12 of the Constitution, writ application can be entertained as mandamus can be issued under Article 226 of the Constitution against any
person or authority which would include any private person or body. The learned Counsel appearing on behalf of the appellant, on the other hand,
submitted that mandamus can be issued against a private person or body only if the infraction alleged is in performance of public duty. Reference in
this connection may be made to the decisions of this Court in Shri Anadi Mukta Sadguru Shree Muktajee vandas Swami Suvarna Jayanti
Mahotsav Sampark Trust v. V.R. Rudant in which this Court examined the various aspects and distinction between an authority and a person and
after analysis of the decisions referred in that regard came to the conclusion that it is only in the circumstances when the authority or the person
performs a public function or discharges a public duty that Article 226 of the Constitution can be invoked.
(Emphasis supplied)
In case Federal Bank Ltd. Vs. Sagar Thomas and Others, the Hon'ble Supreme Court considered whether the Banking activities by a private
Company fall within the purview of ""public duty"" or ""public function"". Further the Apex Court while examining the application of various Regulatory
provisions incorporated under the Companies Act 1956; Industries (Development and Regulations) Act 1951; Reserve Bank of India Act 1954
and Banking Regulation Act, 1949 to a private Banking Company in the context of various Banking activities formulated the question to be
answered which thus reads:
The question thus, which falls for consideration is as to whether the appellant Bank is a private body or falls within the definition of the State or
local or other authorities under the control of the Government. A body of organization which is an instrumentality or agency of the State or a
company owned and controlled by the State are all included in the expression, ""the State"". If it is found that the petitioner falls within the latter
category, there would be no hurdle in holding that such a body or organization would undoubtedly be amenable to the writ jurisdiction under
Article 226 of the Constitution of India. On the other hand, if it is found that the appellant is a private body, in that event it may have to be
examined whether a writ petition would be maintainable or not and the extent to which such powers can be exercised.
After framing above question the Apex Court noticed celebrated judgments in Pradeep Kumar Biswas and Others Vs. Indian Institute of
Chemical Biology and Others, ; 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, ; Ramana Dayaram
Shetty Vs. International Airport Authority of India and Others, ; Ajay Hasia and Others Vs. Khalid Mujib Sehravardi and Others, and various
other judgments on the subject and after examining above referred and other judgments observed as under:
From the decisions referred to above, the position that emerges is that a writ petition under Article 226 of the Constitution of India may be
maintainable against (i) the State (Government); (ii) an authority; (iii) a statutory body; (iv) an instrumentality or agency of the State; (v) a Company
which is financed and owned by the State; (vi) a private body run substantially on State funding; (vii) a private body discharging public duty or
positive obligation of public nature; and (viii) a person or a body under liability to discharge any function under any statute, to compel it to perform
such a statutory function.
The Hon'ble Supreme Court further noticed the application of the Regulatory provisions of various statutes, referred to above and in particular
reference to a Company registered under the Companies Act, carrying on the Banking activities and observed:
A company registered under the Companies Act for the purposes of carrying on any trade or business is a private enterprise to earn livelihood
and to make profits out of such activities. Banking is also a kind of profession and a commercial activity, the primary motive behind it can well be
said to earn returns and profits. Since time immemorial, such activities have been carried on by individuals generally. It is a private affair of the
company though the case of nationalized banks stands on a different footing. There may well be companies, in which majority of the share capital
may be contributed out of the State funds and in that view of the matter there may be more participation or dominant participation of the State in
managing the affairs of the company. But in the present case we are concerned with a banking company which has its own resources to raise its
funds without any contribution or shareholding by the State. It has its won Board of Directors elected by its shareholders. It works like any other
private company in the banking business having no monopoly status at all. Any company carrying on banking business with a capital of five lakhs
will become a scheduled bank. All the same, banking activity as a whole carried on by various banks undoubtedly has an impact and effect on the
economy of the country in general. Money of the shareholders and the depositors is with such companies, carrying on banking activity. The banks
finance the borrowers on any given rate of interest at a particular time. They advance loans as against securities. Therefore, it is obviously
necessary to have regulatory check over such activities in the interest of the company itself, the shareholders, the depositors as well as to maintain
the proper financial equilibrium of the national economy. The banking companies have not been set up for the purposes of building the economy of
the State; on the other hand such private companies have been voluntarily established for their own purposes and interest but their activities are
kept under check so that their activities may not go wayward and harm the economy in general. A private banking company with all freedom that it
has, has to act in a manner that it may not be in conflict with or against the fiscal policies of the State and for such purposes, guidelines are
provided by Reserve Bank so that a proper fiscal discipline, td conduct its affairs in carrying on its business, is maintained. Sd SS td ensure
adherence to such fiscal discipline, if need be, at times even the management of the company can be taken over. NoftethekiU, observed earlier,
these are all regulatory measures to keep check and provide guidelines and not a participatory dominance or control over the affairs of the
company. For other companies in general carrying on other business activities, may be manufacturing, other industries or any business, such checks
are provided under the provisions of the companies Act, as indicated earlier. There also, the main consideration is that the company itself may riot
sink because of its own mismanagement or the interest of the shareholders or people generally may not be jeopardized for that reason. Besides
taking care of such interest as indicate above, there is no other interest of the State, to control the affairs and management of the private
companies. Care is taken in regard to the industries covered under the Industries (Development and Regulation) Act, 1951 that their production,
which is important for the economy, may not go down, yet the business activity is carried on by such companies or corporations which only
remains a private activity of the entrepreneurs/companies.
Again in paras 29 and 33 while referring to Banking business it hag been observed by the Apex Court:
There are a number of such companies carrying on the profession of banking. There is nothing which can be said to be close to the
governmental functions. It is an old profession in one form or the other carries on by individuals or by a group of them. Losses incurred in the
business are theirs as well as the profits. Any business or commercial activity, may be banking, manufacturing units or related to any other kind of
business generating resources, employment, production and resulting in circulation of money are no doubt, such which do have impact on the
economy of the country in general. But such activities cannot be classified as one falling in the category of discharging duties or functions of a public
nature.
For the discussion held above, in our view, a private company carrying on banking business as a scheduled bank, cannot be termed as an
institution or a company carrying on any statutory or public duty. A private body or a person may be amendable to writ jurisdiction only where it
may become necessary to compel such body or association to enforce any statutory obligations or such obligations of public nature casting positive
obligation upon it. We don't find such conditions are fulfilled in respect of a private company carrying on a commercial activity of banking. Merely
regulatory provisions to ensure such activity carried on by private bodies work within a discipline, do not confer any such status upon the company
nor put any such obligation upon it which may be enforced through issue of a writ under Article 226 of the Constitution. Present is a case of
disciplinary action being taken against its employee by the appellant Bank. The respondent's service with the Bank stands terminated. The action of
the Bank was challenged by the respondent by filing a writ petition under Article 226 of the Constitution of India. The respondent is not trying to
enforce any statutory duty on the part of the Bank. That being the position, the appeal deserves to be allowed.
(Emphasis supplied)
In case Binny Ltd. and Another Vs. V. Sadasivan and Others, , while considering the right of employees of a private Company, contract of
service, by noting power of judicial review of the High Court under Article 226 of the Constitution, the Apex Court observed in para 11 as under:
Judicial review is designed to prevent the cases of abuse of power and neglect of duty by public authorities. However, under our Constitution,
Article 226 is couched in such a way that a writ of mandamus could be issued even against a private authority. However, such private authority
must be discharging a public function and the decision sought to be corrected or enforced must be in discharge of a public function. The role of the
State expanded enormously and attempts have been made to create various agencies to perform the governmental functions. Several corporations
and companies have also been formed by the Government to run industries and to carry on trading activities. These have come to be known as
public sector undertakings. However, in the interpretation given to Article 12 of the Constitution, this Court took the view that many of these
companies and corporations could come within the sweep of Article 12 of the Constitution. All the same time, there are private bodies also which
may be discharging public functions. It is difficult to draw a line between public functions and private functions when they are being discharged by a
purely private authority. A body is performing a ""public function"" when it seeks to achieve some collective benefit for the public or a section of the
public and is accepted by the public or that section of the public as having authority to do so. Bodies therefore exercise public functions when they
intervene or participate in social or economic affairs in the public interest.
On consideration of various decisions some of which we have noticed hereinabove, the Apex Court further observed:
29 Thus, it can be seen that a writ of mandamus or the remedy under Article 226 is pre-eminently a public law remedy and is not generally
available as a remedy against private wrongs. It is used for enforcement of various rights of the public or to compel public/statutory authorities to
discharge their duties and to act within their bounds. It may be used to do justice when there is wrong exercise of power or a refusal to perform
duties. This writ is admirably equipped to serve as a judicial control over administrative actions. This writ could also be issued against any private
body or person, specially in view of the words used in Article 226 of the Constitution. However, the scope of mandamus is limited to enforcement
of public duty. The scope of mandamus is determined by the nature of the duty to be enforced, rather than the identity of the authority against
whom it is sought. If the private body is discharging a public duty imposed on such body, them public law remedy can be enforced. The duty cast
on the public body may be either statutory or otherwise and the source of such power is immaterial, but nevertheless, there must be the public law
element in such action. Sometimes, it is difficult to distinguish between public law and private law.
(Emphasis supplied)
Finally, the Apex Court held as under:
Applying these principles, it can very well be said that a writ of mandamus can be issued against a private body which is not 'State"" within the
meaning of Article 12 of the Constitution and such body is amenable to the jurisdiction under Article 226 of the Constitution and the High Court
under Article 226 of the Constitution can exercise judicial review of the action challenged by a party. But there must be a public law element and it
cannot be exercised to enforce purely private contracts entered into between the parties.
We have hereinfore noticed various judgments of the Apex Court on the subject. To summarize the penultimate observations; power of judicial
review under Article 226 of the Constitution can be exercised by the High Court -
(i) against the State, in respect to its decision actions and functions;
(ii) against the ""authority"" or ""instrumentality"" of the State:- to prevent the abuse of power and negligence of duty by such authorities and
instrumentalities;
(iii) against a person, a body discharging public duties or public functions. The public duty cast may be statutory or otherwise and where it is
otherwise the body or the person must be shown to owe that duty or obligation to the public involving the public law element. Similarly for
ascertaining the discharge of public function, it must be established that the body or the person was seeking to achieve some collective benefit for
the public or a section of it and the authority to do so must be accepted by the public.
On noticing various activities of the Bank and applying the afore-said tests, We hold-
The activities/function of the Jammu and Kashmir Bank Ltd or for that matter any other Banking Company carrying on Banking business are not in
the nature of either ""public duties"" or public functions, so as to attract a writ of mandamus.
Application of various laws including the Companies Act 1956; the Banking Regulations Act 1949 and Reserve Bank of India Act 1954 and
other statutes that may be applicable are only regulatory provisions to regulate the functioning of the Bank to secure and safeguard the financial
interests of its customers and persons who deal with the Bank. All these regulatory provisions have been enacted in public interest. However, these
regulatory provisions do not clothe the Bank with the status of an authority nor does it enjoin upon it a public duty or public function while carrying
on its banking/business activities including dealing with its employees. We are saying so in the context of any private individual dealing with public.
Let us take the case of an individual who deals with grocery or eatables. Such an individual deals with public at large and is also subjected to
various laws like registration under the Shops and Establishment Act wherein he is under an obligation not only to get his establishment register with
competent authority but also to disclose his status as that of an individual, partnership or a company; number of employees employed by him,
working hours of the establishment, nature of business being carried on etc etc. An eatery is also required to obtain a licence under the Food
Adulteration Act from the Municipal Corporation and to keep the eatables fit for human consumption. All these statutory provisions are regulatory
in nature and have been enacted in public interest. Violation of any of the statutory provisions also make the individual liable for punishment under
law. The fact that an individual dealing with public is under various statutory obligations to perform certain functions and the obligations does not
make his functions a public duty or public functions and subject him to the power of judicial review of the High Court under Article 226. He is
purely a private person carrying on business activities for personal gain, without any public duty, though there may be public element in his/its
functions or activities.
In order to assume jurisdiction under Article 226, it is necessary that the person or a body or an association of persons is performing a public
duty or a public function. What activities or functions should be possibly considered as a public duty or public function has been answered by the
Apex Court in Zee Telefilms Ltd (Supra) wherein the Apex Court said:
Be that as it may, it cannot be denied that the Board does discharge some duties like the selection of an Indian cricket team, controlling the
activities of the players and others involved in the game of cricket. These activities can be said to be akin to public duties or State functions and if
there is any violation of any constitutional or statutory obligation or rights of other citizens, xxxxxxxxxx x an aggrieved party can always seek a
remedy under the ordinary course of law or by way of a writ petition under Article 226 of the Constitution.
In G. Bassi Reddy (Supra) the Hon'ble Supreme Court further observed:
Although, it is not easy to define what a public function or public duty is, it can reasonably be said that such functions are similar to or closely
related to those performable by the State in its sovereign capacity.
From the above observations, it can conveniently be inferred that public duties/public functions are those which are akin to and closely related
with the governmental functions or emanate from statutory obligations.
By no yard-stick the functions to be performed by the Banking Company can be said to be akin to governmental functions, to bring it within
the compass of ""public duty"" or ""public functions"" to enable us to compel the Bank to surrender to the jurisdiction of this Court under Article 226
or for that matter to enable the Court to assume jurisdiction.
We may also notice herein that the above observations do not mean that in no circumstance this Court can exercise the power of judicial
review against the Bank. A distinction has to be drawn between failure to observe the statutory duty and an obligation (s) towards its employees
and individuals which are non-statutory in nature.
In case where the respondent- Bank fails to file its statutory returns before the Reserve Bank of India or for that matter the Registrar of
Companies or commits any statutory breach of its obligation under any statute, the statement made by us hereinabove that we cannot compel the
respondent- Bank to surrender to the jurisdiction of this Court, cannot be utilized as a sweeping statement not to compel the Bank to exercise its
statutory duties In an eventuality where the Bank or for that matter any organization dealing with public fails to discharge a statutory duty and such
failure affects the public at large or is considered to be against the public interest, the Court can exercise its writ jurisdiction to compel the
performance of statutory duties. However, the case of individual like the employees of the Bank which are governed by the contracts or settlement
between the employees and the management cannot be enforced nor its breach rectified by exercising the power of judicial review, it being purely
in the realm of contractual or private rights not governed or regulated by statutory provisions.
To sum up, We may say the action complained of must have relation with the discharge of a public duty or a public function by any
organization, Corporation or a Company or a Society or person to exercise the power of judicial review.
For our conclusions hereinabove we answer the reference by holding:
(a) The Jammu and Kashmir Bank Ltd is neither the State nor an authority or instrumentality of the State within the meaning of Article 12 of the
Constitution of India;
(b) The Bank does not perform any public duty or public functions while dealing with its employees or carrying out its normal commercial and
business activities as a Banking Company so as to make it amenable to writ jurisdiction under Article 226 of the Constitution of India read with
Section 103 of the Constitution of Jammu and Kashmir.
We also do not feel necessary to record our reasons for dis-agreement with the earlier Full Bench decision dated 5-9-1995 firstly because the
said judgment stands set aside by Hon'ble Supreme Court and secondly in view of development of law in later judgments.
In view of our answer to reference, resultantly the writ petitions are not maintainable. It will be a futile exercise if we remand the case to the
writ Court for a formal declaration of dismissal. We therefore, dismiss the writ petitions here only.
Y.P. Nargotra J.
I have very carefully read the well written draft judgment prepared by Brother Kohli in which he has taken the view that J&K Bank Ltd is not
'an authority' for the purposes of Article 12 or Article 226 of Constitution of India so as to be amenable to writ jurisdiction of this Court. Despite
highest regards which I undoubtedly have for my Brother, I have not been able to persuade myself to agree with the view expressed for the
reasons to follow.
The question arising for consideration before us is whether the Jammu and Kashmir Bank Ltd. falls within the definition of ""State"" as
contemplated by Article 12 of the Constitution of India. Article 12 reads as under:
Definition. 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 or under the control of Government of India.
A bare perusal of the above Article shows that the definition of the State in the Article includes the Government of India, Parliament of India,
Governments of the States, Legislatures of States, local authorities, as also other authorities. The Jammu and Kashmir Bank (hereinafter called the
Bank) contends that it does not come within the term ""other authorities"" hence is not a State while the petitioners contend that it does fall within the
term.
A Division Bench of this Court considered the question as to whether the J&K Bank comes within the definition of State as contemplated by
Article 12 of the Constitution and held that it cannot be termed as an 'authority' for the purpose of Article 12 and therefore, is not State by
observing in Jagdish Chander Gupta v. Jammu and Kashmir Bank and Ors. WP No. 84/1984 as follows:
It has no deep and pervasive State control."" Its administrative control is vested in the Board of Directors majority of them are from the General
Public. Administration of respondent-Bank is vested in the Board of Directors and not in the State Government, from among the public it can have
seven members on the board of directors who are in no way connected with the State Government.
On the aforesaid observations the Division Bench held that Jammu and Kashmir Bank Ltd. is not an agency or instrumentality of the State and
would not be therefore, termed as ""an authority"" for the purpose of Article 12 of the Constitution of India.
The above view expressed by the Division Bench in Jagdish Chander Gupta's case came up for re-consideration before a Full Bench of this
Court in SWP No. 960/90 Firdous Ahmad Tanki v. Jammu and Kashmir Bank Ltd. and SWP No. 1137/94 Chand Ji Koul v. J&K Bank Ltd.
The Full Bench after considering the Articles of Association and various aspects of the functioning of the Bank and relying upon the following
factors held the Jammu and Kashmir Bank Ltd. to be an ""authority"" within the meaning of Article 12 of Constitution of India and hence amenable
to writ jurisdiction of this Court:-.
State Govt. has 79.86 per cent of the entire share capital of the Bank.
Out of 10 Directors 3 have to be nominees of the State Govt. and others have to be elected.
Because the State Govt. has 79.86 per cent of the share capital which means in other words that the State govt. enjoys an overwhelming vast
control and power amongst the share holders, it holds as absolute power and authority to influence the election of the non-governmental Directors.
It goes without saying that a share holder who has 80 per cent of total share capital in his pocket is fully competent and powerful enough to elect all
the Directors because the other group of share holders have mere 20 per cent of the share is in no position to influence the election of Directors.
The Govt. Directors are not removable except by order of Government.
The Govt. Directors do not retire by rotation but the nongovernmental Directors retire by rotation.
The Chairman of the Bank has to be Govt. Director because he enjoys a powerful status in the functioning of the Bank.
The Chairman of the Bank exercises vast and full control over the functioning of the Bank because in him are vested powers of administration
and Executive control.
The business of the bank has to be exercised and controlled by the Board of Directors and because the State Govt. has absolute power and
authority, both to nominate as also to elect the Directors, all the directors in the Board are dependent upon the State Govt. in every respect and
therefore, State Govt. exercises full control and power upon these Directors, thus exercises power and control over the bank.
This is more evident because the quorum of any meeting of Board of Directors is 3, one of whom must be a Government Director, It is quite
possible and conceivable that Chairman conducts business of the Bank by calling meeting of the Board of Directors and this meeting is attended by
only 3 Govt. Directors and none else and yet quorum being complete the business is legitimately exercised, carried on and concluded.
The powers, authority and control to elect directors, because of vast overwhelming majority share holding also carries with it power to remove
Directors elected with the support of the Govt.
In effect and substance and by all reckoning and consideration, the State Govt. being, exclusive repository of the power to elect even private
Directors, can every time decide who all would be elected private Directors because without the support of the State Govt. nobody can get
elected as private Director of the Bank.
The Full Bench relied upon the judgments of the Supreme Court rendered, in Ramana Dayaram Shetty v. International Airport Authority of
India AIR 1991 SC 1628, Ajay Hasia v. Khalid Mujib Sehravardi : AIR1991SC487 , Central Inland Water Transport Corporation Limited and
Another Vs. Brojo Nath Ganguly and Another, , M.C. Mehta and another Vs. Union of India and others, , and concluded that all the judgments
cited above right from International Airport Authority upto M.C. Mehta, Ajay Hasia, Som Parkash Rekhi and Central Water Corporation being
along the line have consistently and unanimously taken the view that the tests as laid down in International Airport Authority were still valid and held
good in determining whether a Corporation, a company or society was ""an authority"" within the ambit and meaning of Article 12 or not. The Full
Bench then applying the test of deep and pervasive State control"" over the above quoted factors found the Jammu and Kashmir Bank Ltd. an
authority"" contemplated by Article 12 of the Constitution of India being an instrumentality and agency of the State and thus amenable to writ
jurisdiction of this Court.
J & K Bank Ltd., appealed before the Supreme court against the above judgment of the Full Bench in Civil Appeals No. 1874/97 and
7426/97. As during the pendency of the appeals Judgment in Pradeep Kumar Biswas and Others Vs. Indian Institute of Chemical Biology and
Others, had come to be rendered on the subject in issue, therefore, the Supreme Court has remitted the case back to us by observing:
In our view it would be just and appropriate that the Full Bench of the High Court examines the matter afresh in the light of the judgment of this
Court in Pardeep Kumar Biswas aforementioned after considering the facts of the case in detail. While examining the same the High Court may
also take note of the reduction of share capital of the State which it is stated has come to 53 per cent. Without expressing one way or the other,
we set aside the impugned judgment and remit the case to the Full Bench of the High Court for examining the matter afresh in the light of the
judgment in Pradeep Kumar Biswas and Others Vs. Indian Institute of Chemical Biology and Others, .
We have heard the learned Counsel for the parties and perused the record of the case.
In Ramana Dayaram Shetty Vs. International Airport Authority of India and Others, the Supreme court laid down the following parameters and
guidelines for identifying a body as coming within the definition of ""other authorities"" in Article 12.
One thing is clear that if the entire share capital is held by the Government, it would . go a long way towards indicating that the Corporation is an
instrumentality or agency of the 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 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 are of public importance and closely related to governmental functions, it would be a relevant factor in
classifying the corporation as an instrumentality or agency of Government.
'Specifically, if a department of Government is transferred to a corporation, it would be a strong factor supportive of this inference' of the
corporation being an instrumentality or agency of Government.
(extracted from Pradeep Kumar Biswas and Others Vs. Indian Institute of Chemical Biology and Others, .
The above tests propounded for determining as to whether a Corporation can be said to be an instrumentality or the agency of the Government
were later on accepted by a Constitution Bench of the Supreme court in the case of Ajay Hasia and Others Vs. Khalid Mujib Sehravardi and
Others, in which it was observed:
We may point out that it is immaterial for this purpose whether the corporation is created by a Statute or under a Statute. The test is whether it is
an instrumentality or agency of the Government and as to how it is created. The enquiry has to be not as to how juristic person is born but why it
has been brought into existence. The Corporation may be a statutory corporation created by a statute or it may be a Government company or
company formed under the Companies Act, 1956 or it may be a society registered under the Societies Registration Act, 1860 or any other similar
statute. Whatever it be genuine reason, it would be an authority within the meaning of Article 12, if it is an instrumentality or agency of the
Government and that would have to be decided on the proper assessment of the facts in the light of the relevant factors. The concept of
instrumentality or agency of the Government is not limited to a corporation created by a statute but is equally applicable to a company or society
and in a given case, but would have to be decided on a consideration of relevant factors whether the company or society is an instrumentality or
agency of the Government so as to come within the meaning of expression ""authority"" in Article 12.
In Ajay Hasia's case the Supreme Court went one step further from the guidelines laid down in Ramana Dayaaram Shetty's case (supra) and
held that the society registered under the Societies Registration Act could also be an instrumentality of State for the purpose of term ""other
authorities"" in Article 12. This part of the judgment of the Constitution Bench in Ajay Hasia was in direct conflict or was seen as being in direct
conflict with the earlier Constitution Bench decision rendered in Sabhajit Tewary Vs. Union of India (UOI) and Others, which had held that a body
registered under a statute and which was not performing important State functions or which was not under the pervasive control of the State cannot
be considered as an instrumentality of the State for the purpose of Article 12. After Ajay Hasia case the Supreme
Court once again considered the law on the subject as to how the question whether a body is an authority within the meaning of Article 12
could be determined, in Pradeep Kumar Biswas and Others Vs. Indian Institute of Chemical Biology and Others, . Their Lordships held that the
judgment in Sabhajit Tewary 's case was delivered on the facts of that case hence can not be considered as having laid down any principle of law.
Constitution Bench while accepting the ratio laid down in Ajay Hasia's case observed:
Perhaps this rather over enthusiastic application of the broad limits set by Ajay Hasia may have persuaded this Court to curb the tendency in
Chunder Mohan Khanna v. National Council of Education Research and Training. The court referred to the tests formulated in Sukhdev Singh,
Ramana, Ajay Hasia, Som Parkash Rekhi, but striking a note of caution said that ""these are merely indicative indicia and are by no means
conclusive or clinching in any case"". In that case, the question arose whether the National Council of Education Research & Training (NCERT)
was a ""State"" as defined under Article 12 of the Constitution. NCERT is a society registered under the Societies Registration Act. After
considering the provisions of its Memorandum of Association as well as rules of NCERT, this Court come to the conclusion that since NCERT
was largely an autonomous body and activities of NCERT were not wholly related to Governmental functions and that the Govt. control was
confined only to proper utilization of grants and since its funding was not entirely from Govt. resources, the case did not satisfy the requirements of
State under Article 12 of the Constitution. The Court relied principally on the decision of Tekraj Vasandi v. Union of India. However, as far as
decision in Sabhajit Tewari v. Union of India was concerned, it was noted that the ""decision has been distinguished and watered down in
subsequent decisions.
Their Lordships after discussing the case law laid down the following parameters for determining whether a particular body could be termed aa
State"" for the purpose of Article 12.
40-The picture that ultimately emerges is that the tests formulated in Ajay Hasia are not a rigid set of principles so that if a body falls within any one
of them it must, ex hypothie, be considered to be a State within the meaning of Article 12. The question in each case would be- whether in the light
of the cumulative facts as established , the body is financially, functionally and administratively dominated by or under the control of the
government. Such control must be particular to the body in question and must be pervasive. If this is found then the body is a State within Article
On the other hand, when the control is merely regulatory whether under statute or otherwise, it would not serve to make the body a State.
In Zee Tele films Ltd. v. Union of India a 5 Judge Constitution Bench of the Supreme Court was considering whether Board of Control for
Cricket in India falls within the definition of the State as contemplated under Article 12 of the Constitution. Their lordships after noticing the 'ratio
decendi' of Pradeep Kumar Biswas 's case held that it does not fall within the ambit of Article 12. Their lordships observed:
There can be no two views about the fact that the Constitution of this country is a living organism and it is the duty of courts to interpret the same to
fulfil the needs and aspirations of the people depending on the needs of the time. In Article 12 the term "" other authorities"" was introduced at the
time of framing of the Constitution with a limited objective of granting judicial review of actions of such authorities which are created under statute
and which discharge State functions. However, because of the need of the day the Supreme Court in Rajasthan State Electricity Board, Jaipur Vs.
Mohan Lal and Others, and 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, noticing the socio-
economic policy of the country thought it fit to expand the definition of the term "" other authorities"" to include bodies other than statutory bodies.
This development of law by judicial interpretation culminated in the judgment of the seven -Judge Bench in the case of Pradeep Kumar Biswas and
Others Vs. Indian Institute of Chemical Biology and Others, . It is to be noted that in the meantime the socio-economic policy of the Government
of India has changed and the State is today distancing itself from commercial activities and concentrating on governance rather than on business.
Therefore, the situation prevailing at the time of Sukhdev Singh is not in existence at least for the time being. Hence, there seems to be no need to
further expand the scope of ""other authorities"" in Article 12 by judicial interpretation at least for the time being. It should also be borne in mind that
in a democracy there is a dividing line between a State enterprise and a non-State enterprise, which is distinct, and the judiciary should not be an
instrument to erase the said dividing line unless, of course, the circumstances of the day require it to do so.
In order to answer the question whether the Bank is 'other authority' within the meaning of Article 12 of the Constitution we shall have to
consider on the cumulative established facts as to whether the Bank is financially, functionally and administratively under the domination or control
of J&K Government and if the answer comes in affirmative then further it is to be seen whether such control is particular to the Bank, and is not
mere regulatory under a statute or otherwise.
The established and admitted facts which were noticed by the Full Bench in its judgment quoted above continue to be the same except that the
share capital of the State has come down from 79.86% to 53% and number of Directors which was ten earlier now is eight. Out of eight Directors
three are Government Directors out of which one Government Director is Chairman of the Board of Directors of the Bank. In the budget speech
of this year i.e. 2006-2007 The Finance Minister has stated on the floor of the House that State is going to reduce its share capital in the Bank to
51 per cent.
Now it is to be seen whether on the basis of available facts in the light of cumulative effect thereof can the Bank be said to be financially,
functionally and administratively dominated by or under the control of the Government. The J&K Bank Ltd. is a Government company registered
under the Companies Act, 1956. Section 617 of the Companies Act defines Govt. company as follows:
Definition of ""Government Company"":- For the purposes of this Act Government, company means any company in which not less than fifty-
one percent of paid up share capital is held by the Central Government, or by any State Government or Governments or partly by the Central
Government and partly by State Government and includes a company which is a subsidiary of Govt. company as thus defined.
The State owns 53% of the share capital in the Bank which is 2% more than the minimum share capital required for the Bank to be a
Government company. If at any time the State Government would reduce its share capital in the Bank to less than 51 percent the Bank as a
necessary consequence shall lose its status of being a Government company. Therefore for maintaining its existence as a Government company the
Bank depends upon the State Government's maintaining share capital at more than 51 per cent. This fact is indicative of State's complete financial
domination over the Bank. The investment made by the State in owning 53 per cent share capital cannot be termed as a pure and simple
investment in the Bank for earning profit. The State by maintaining its share holding at more than 51 per cent can be seen to be protecting the
character of the Bank of being a Government Company. Therefore, by the financial support the pervasive financial domination of the State
Government over the bank can legitimately be inferred.
As per Clause 6 of Articles of Association the power of allotment of shares exclusively vests in the Directors of the Bank at their absolute
discretion in such a manner and to such a person as they in their absolute discretion think fit. This clause reads as under:
Subject to the provisions of the Companies Act, 1956 the allotment of so many of the said shares in the original capital as have not been allotted
at the date of the registration of these Articles shall exclusively appertain to, and be vested in the Directors at their absolute discretion, who shall
have the power to allot all or any of such shares as fully or in part paid up in such manner and to such person or persons as they, in their absolute
discretion, shall think fit.
As per Clause 69 of Articles of Association the number of Directors prescribed is to be more than 12 and not less than 7 out of which not
more than 3 shall be appointed by the Jammu and Kashmir Government to be called Government Directors. The Government Directors as per this
clause are to continue in their offices so long as their appointment is not cancelled by the Government. It is also provided in the clause that no other
Director than the Government Director shall be elected as a Chairman of the Board of Directors. Clause 71 of Articles of Association deals with
the management of the Business of the Bank. It provides:
The management of the business of the Bank shall be carried on by the Chairman subject to the control of the Board of Directors. The
Directors may exercise all such powers and do all such acts and things as the company is, by its Memorandum of Association or otherwise ,
authorized to exercise and do and are not hereby or by statute directed or required to be made exercised or done by the company in General
Meeting but subject nevertheless to the provisions of Company Act and of these presents and to any rules not being inconsistent with these
presents from time to time made by the company in General Meeting provided that no such rules shall invalidate any prior act of the Directors
which would have been valid if such rules have not been made.
Clause 75 provides:
That all the Director shall retire by rotation except Government Directors who will continue in their offices so long their appointment is not
cancelled by the Government.
Clause 84 lays down as follows:
The Director may meet together for the disposal of Business, adjourn, and otherwise regulate their meeting as they think fit. The quorum for a
meeting of the Board of Directors of a company shall be one-third of its total strength (any fraction contained in that one-third being rounded off as
one), or two Directors, whichever is higher, one of whom must be a Govt. Director. Provided that where at any time number of interested
Directors exceeds or is equal to two thirds of the total strength, the number remaining Directors, that is to say, the number of the Directors who are
not interested present at the meeting being not less than two shall be the quorum during such time. Questions arising at any meeting shall be decided
by majority of votes. In case of an equality of votes the Chairman shall have a second or casting vote. Save as otherwise expressly provided by the
Companies Act, 1956 a resolution in writing signed by all the Directors shall have the same effect as a resolution passed by the Directors at their
meeting.
Clause 118 of Articles of Association of the Bank provides as follows:
118(a) The business of the Bank shall be conducted by the Chairman of the Board of Directors subject to the superintendence, control and
direction of the Board of Directors.
(b) Subject to the provisions of Companies Act, 1956, and the Banking regulation Act, 1949 the Director, may from time to time, appoint one of
themselves, who shall be a Government Director, to be the Chairman of the Board of Directors for such period not exceeding five years at any one
time as may be fixed by the Board of Directors. The Chairman shall be the Chief Executive Officer. The Chairman shall not cease to be the
Chairman as a result of his ceasing to hold office as Director, except where he ceases to be a Director as a result of some act or omission of is
own.
(c) Subject to the provisions of any law for the time being in force, the Board of Directors shall entrust the Chairman, the management of the whole
of the affairs of the Bank and also delegate to him such powers as may be necessary for carrying on the business of the Bank. The Chairman shall
exercise his powers subject to the superintendence, control and direction of the Board of Directors.
d) The remuneration of the Chairman or any modification thereof shall be decided by the Board of Directors subject to the concurrence of the
Reserve Bank of India.
Deep analysis of these clauses of the Articles of Association would show that the functional control of the Government through its nominated
Directors over the Bank is manifest and pervasive. Out of eight Directors which the Bank has, three are the appointees of the Government. They
are thus directly under the direct administrative control of the Government. Out of these three Directors, one has necessarily to be the Chairman of
the Board of Directors. Therefore, the Chairman is also the one who has been appointed by the Government. In terms of Clauses 71 and 118
Chairman is responsible for conducting the management of business of the Bank albeit under the control of the Board of Directors. The
Government Directors have to tow the line of the Chairman in view of their position being appointees of the Government. Rest of the five Directors
can also not afford to oppose the Chairman in any matter of management of the business for the reason of their having been elected by the direct
support of the Government, a holder of 53% share holding and always being under the threat of removal. The necessary minimum number for
composing the quorum of a board meeting for transacting the business is three (number of the Government Directors is also three) out of which one
of whom has necessarily to be a Govt. Director. In such situation, the Government is in a position to influence and control every decision of the
Board of Directors.
Section 300 of the Companies Act, 1956 provides:
Interested director not to participate or vote in Board's proceedings.- (1) No director of a company shall, as a director, take any part in the
discussion of, or vote on, any contract or arrangement entered into, or to be entered into by or on behalf of the company, if he is in any way,
whether directly of indirectly, concerned or interested in the contract or arrangement; nor shall his presence count for the purpose of forming a
quorum at the time of any such discussion or vote; and if he does vote, his vote shall be void.
(xxxxxx)
It has been contended that since Section 300 bars a director from participation in the discussion or a vote on any contract or arrangement
entered into or to be entered into by the company, if he in any way directly or indirectly concerned or interested in such contract or arrangement,
therefore, Government Directors cannot influence the decision of the Board of Directors on any matter of the Bank even if the Government may be
interested in it. I cannot accept the contention. For finding out functional control of the government over the functions to be performed by the Bank
it is not relevant as to whether a Government director can participate in the discussion or voting on a contract or arrangement to be made by the
Bank with the Government. The functional control of the Government is required to be seen from the manner in which the Bank functions generally
in conducting its business. The Principal authority responsible for managing the business of the Bank is the Chairman. The Chairman is man of the
Government. Though the functioning of Chairman is subject to the control of Board of directors but in view of the fact that two Directors of the
Board are appointees of the Government and remaining five having been elected With the support of the Government, cannot afford to oppose
Chairman, the control of the Board cannot be anything but an illusory control. For all practical purposes therefore, Chairman remains all powerful
and in the position where he can bulldoze his way. Thus Government's functional domination and control over the Bank through its Chairman and
Government nominated and Government supported Directors can be seen to be all pervasive and not mere regulatory in nature.
Government directly exercises administrative control over the Chairman and its two Government directors of the Bank who in terms of the articles
of Association can not be removed except by the Government itself.
The Board of Directors as already said is under the strong domination of the chairman therefore, the Government is in a position to maintain its
administrative control over all the functions and functionaries of the Bank.
Such being the position of the Bank I cannot hold the bank not to be an agency or instrumentality of the State so as to allow the State to infringe
the fundamental rights of its citizens and its own employees with impugnity simply because it is conducting business through a company alongwith
some private share-holders. It would be apt here to quote the following observations of the Supreme Court made in Som Parkash Rekhi v. Union
of India :
Imagine the possible result of holding that a Government company, being just an entity created under a statute, not by a statute, it is not State
Having regard to the directive in Article 38 and the amplitude of the other Articles in Part-IV Govt. may appropriately embark upon almost any
activity which in a non-socialist republic may fall within the private sector. Any person's employment, entertainment, travel, rest and leisure, hospital
facility and funeral service may be controlled by the State. And if all these enterprises are executed through Government companies, bureaus,
societies, councils, institutes and homes, the citizen may forfeit his fundamental freedoms vis-s-vis these strange beings which are Government in
fact but corporate in form. If only fundamental rights were forbidden access to corporations, companies, bureaus, institutes, councils and kindred
bodies which act as agencies of the administration there may be break-down of the rule of law and the constitutional order in a large sector of
Government activity carried on under the guise of' jural persons'. It may pave the way for a new tyranny by arbitrary administrators operated from
behind by Government by unaccountable to Part III of the constitution. We cannot assent to an interpretation which leads to such a disastrous
conclusion unless the language of Article 12 offers no other alternative.
For the aforesaid reasons I hold the Jammu and Kashmir Bank Limited to be an' authority' within the definition of Article 12 of the Constitution
of India, and thus State to be amenable to the writ jurisdiction of this Court vested u/s 103 of the Constitution of Jammu & Kashmir read with
Article 226 of the Constitution of India and accordingly answer the reference. All these writ petitions shall now be listed before the appropriate
Bench for disposal.