M. Tirupathaiah and ors. Vs. Rayalaseema Paper Mills Ltd. and ors. - Court Judgment

Excerpt:
sica - maintainability of writ petition - sections 617 and 619 of companies act, 1956, sick industrial companies (special provisions) act and articles 12 and 14 of constitution of india - writ petition filed against respondent company by workmen claiming reinstatement - writ petition against company maintainable only if it was 'state' within meaning of article 12 - majority of shares not held by government - management not entrusted to government or to directors representing it - no deep and pervasive control of government over affairs of company - company was not even government company within meaning of companies act - held, writ petition not maintainable as respondent company not 'state' within meaning of article 12. - - if the said test is satisfied, then that body could be.....orderb. sudershan reddy, j. 1. the first respondent-m/s. rayalaseema paper mills limited was promoted by m/s. t.g. vasanth gupta & associates during 1974-75 with a equity participation of the andhra pradesh industrial development corporation (apidc). it is registered under the provisions of the companies act, 1956. the said company appears to have availed loans from various financial institutions including the idbi and with such financial assistance set up a plant on the banks of river tungabhadra, near kurnool and started its commercial production during 1979. the unit was established to make use of the waste material and forest material to manufacture the paper of required sizes. the first respondent-company appears to have run profitably upto 1985 and for whatever reasons started.....

Judgment:
ORDER

B. Sudershan Reddy, J.

1. The first respondent-M/s. Rayalaseema Paper Mills Limited was promoted by M/s. T.G. Vasanth Gupta & Associates during 1974-75 with a equity participation of the Andhra Pradesh Industrial Development Corporation (APIDC). It is registered under the provisions of the Companies Act, 1956. The said company appears to have availed loans from various financial institutions including the IDBI and with such financial assistance set up a plant on the banks of river Tungabhadra, Near Kurnool and started its commercial production during 1979. The unit was established to make use of the waste material and forest material to manufacture the paper of required sizes. The first respondent-company appears to have run profitably upto 1985 and for whatever reasons started incurring losses thereafter. The unit was closed down during 1989 and thereafter the matter has been referred to the Board for Industrial and Financial Reconstruction (BIFR) for rehabilitation. The BIFR having registered the case declared the company as a sick company under the provisions of the Sick Industrial Companies (Special Provisions) Act. It is not necessary to notice the further details as to what transpired before the BIFR.

2. During 1994 even while the proceedings were pending before the BIFR, the company was on the verge of liquidation. The present promoters have come forward and taken over the reins of the respondent company in terms of the rehabilitation scheme sanctioned by the BIFR vide its order dated 7-8-1995. There is no dispute whatsoever that the new promoters have invested enormous amounts and reopened the company during January, 1996. The new promoters claim to have paid huge outstanding amounts to a tune of Rs.33.00 crores to the banks and financial institutions, which remained unpaid by the erstwhile promoters. For whatever reasons, even the present promoters could not successfully sustain the company and in the process the company again got closed during March, 1998 and continues to be under closure.

3. It appears that the BIFR, in the facts and circumstances, sanctioned a modified rehabilitation scheme and accordingly directed the banks to provide the required working capital facilities, vide its order dated 2-8-1999. The banks preferred appeals before the AAIFR and obtained interim stay orders. It is unnecessary to notice the further details thereof.

4. The fact remains that the first respondent-company, in terms of the orders of the BIFR dated 7-8-1995, represented by the new promoters entered into a Memorandum of Understanding (MOU) with the registered unions of the workmen. As per the said MOU all the eligible permanent workmen were taken back into the company and paid salaries upto March, 1998. The case of the petitioners is that they are also entitled for the benefit of MOU and accordingly seek appropriate directions directing the first respondent-company to admit them into the service under the present management.

5. It is the case of the first respondent company that all those who were eligible for such reinstatement have been reinstated in terms of the MOU. It is also the case of the first respondent company that all the petitioners herein are the management staff who were engaged by the erstwhile management prior to 1989 before the closure of the company and the new management is not under any obligation to provide employment to such management staff.

6. The short question that falls for consideration is as to whether the petitioners are entitled for any relief in this writ petition? Whether a writ of Mandamus lies against the first respondent company compelling it to take the petitioners herein into the service in terms of Memorandum of Agreement dated 17-1-1989 as reiterated in Memorandum of Understanding dated 6-1-1995 signed on 13/14-1-1995 between the management and workers' union?

7. There is no dispute whatsoever that the first respondent-company is registered as a company under the provisions of the Companies Act, 1956. May be at the relevant time when the company was incorporated, the APIDC participated in the venture and had some shares in the company. But there is nothing on record to suggest that the APIDC or the State Government as such had majority of shares in the company. There is nothing to suggest that the APIDC or the State Government as such exercised any deep and pervasive control over the activities of the first respondent company. The affidavit filed by the petitioners is totally silent on this aspect of the matter. On the other hand, in the counter affidavit filed by the first respondent company it is stated that the APIDC has merely invested a sum of Rs.3.12 crores by way of share capital into the company. After the present management had taken over by the new promoters, an amount of Rs.100.00 crores were invested into the company by way of share capital, thereby reducing the APIDC totally into an insignificant minority shareholder. There is no reply affidavit controverting these facts. In the circumstances, we find it difficult to hold that the first respondent-company is an authority within the meaning of Article 12 of the Constitution of India.

8. Sri J. Venugopala Rao, learned counsel for the petitioners, however, relied upon the decision of the Supreme Court in Mysore Paper Mills Ltd., v. Mysore Paper Mills Officers' Association, : (2002)ILLJ1088SC in support of his submission that the first respondent-M/s. Rayalaseema Paper Mills Limited is an instrumentality of the State. The Supreme Court having reviewed the entire case law on the subject observed that the definition of 'the State' and 'other authority' within the meaning of Article 12 of the Constitution of India has a specific purpose and that is for Part-III of the Constitution, and not for making it a Government or department of the Government itself. This is the inevitable consequence of the 'other authorities' being entities with independent status distinct from the State and this fact alone does not militate against such entities or institutions being agencies or instrumentalities to come under the net of Article 12. The concept of instrumentality or agency of the Government is not to be confined to entities created under or which owe their origin to any particular statute or order but would really depend upon a combination of one or more of relevant factors, depending upon the essentiality and overwhelming nature of such factors in identifying the real source of governing power, if need be, piercing the corporate veil of the entity concerned.

9. It is required to notice that the law declared by the Supreme Court is in the light of the facts that were available on record in the said case. The Supreme Court noticed that the appellant company therein is a government company as envisaged in Section 617 attracting Section 619 of the Companies Act, that more than 97% of the share capital has been contributed by the State Government and the financial institutions controlled and belonging to the Government of India on the security and undertaking of the State Government, that the memorandum of association entrusts the appellant company with important public duties obligating to undertake, permit, sponsor rural development for social and economic welfare of the people in rural areas by undertaking programmes to assist and promote activities for the growth of national economy which are akin and related to the public duties of the State, that out of 12 directors 5 are government and departmental persons, besides other elected directors also are to be with the concurrence and nomination of the Government, and the various other forms of supervision and control will go to show that the State Government has deep and pervasive control of the appellant-Company therein and its day-to-day administration. It is under those circumstances, the Supreme Court came to the conclusion that the appellant company there is nothing but an instrumentality and it was of the State Government.

10. In the affidavit filed in support of the writ petition there is not even a whisper as to what are the amounts at all that were invested by the APIDC as a shareholder in the first respondent company. The details of the Board of Management are not stated in the affidavit. How many directors representing the State were included in the Board of Management is not known. The bye-laws or Memorandum of Association is not made available for the perusal of this Court in order to appreciate as to whether the State Government or the APIDC exercised any deep and pervasive control over the affairs and management of the first respondent-company. On the other hand, in the counter affidavit filed by the first respondent-company it is stated in categorical terms that the even at the inception of the company only an amount of Rs.3.12 crores was invested by APIDC by way of share capital. The new promoters after taking over the company have invested Rs.100.00 crores into the company by way of share capital thereby reducing the APIDC into an insignificant minority shareholder. It is thus clear that the majority of the shares not held in the first respondent-company by the Government or by any department of the Government. The management of the first respondent-company is not entrusted mainly to the State Government or to the directors representing the State Government. There is nothing on record suggesting any deep and pervasive control of the government over the affairs and management of the first respondent-company.

11. Be it noted that in the counter affidavit filed by the Industries Department, it is stated that the first respondent-company is a private company registered under the Companies Act. It is thus clear that the company is not even registered as a Government Company attracting the provisions of sections 617 and 619 of the Companies Act, 1956. In the circumstances, it is not possible to hold that the first respondent-company is an instrumentality of 'the State' or 'other authority' within the meaning of Article 12 of the Constitution of India.

12. The learned counsel also relied upon another decision of the Supreme Court in Pradeep Kumar Biswas v. Indian Institute of Chemical Biology, : [2002]3SCR100 . The Supreme Court reiterated that the question in each case would be: whether on facts the body is financially, functionally and administratively dominated by, or under the control of, the Government. Such control must be particular to that body and must be pervasive. If the said test is satisfied, then that body could be characterised as a State. The Court further observed that mere regulatory control, whether statutory or otherwise, is not sufficient to declare a body to be a State or other authority within the meaning of Article 12 of the Constitution. On facts, however, the Court came to the conclusion that the Indian Institute of Chemical Biology to be an authority within the meaning of Article 12 of the Constitution of India. The Supreme Court noticed that from the Rules and Regulations, 1999 of CSIR, the dominant role played by the Government of India in the Governing Body of CSIR is evident. The Director General who is ex officio Secretary of the Society is appointed by the Government of India. Furthermore, the members of the Governing Body who are there ex officio are nominated by the President and their membership can also be terminated by him and the Prime Minister is the ex officio President of CSIR. The control of the Government in CSIR is ubiquitous. The Governing Body is required to administer, direct and control the affairs and funds of the Society and, under Rule 43, has authority 'to exercise all the powers of the Society subject nevertheless in respect of expenditure to such limitations as the Government of India may from time to time impose'. Furthermore, various service rules and orders, pay scales and reservation rules applicable to the government servants are made applicable to the employees of CSIR. Moreover, CSIR cannot lay down or change the terms and conditions of service of its employees and any alteration in the bye-laws can be carried out only with the approval of the Government of India. Such is the deep and pervasive control of the Government of India in the matter of management of CSIR.

13. It is under those circumstances, the Supreme Court came to the conclusion that the Government of India exercised deep and pervasive control and in fact no major decisions as such would ever be taken by CSIR itself without prior consent and permission of the Government of India.

14. In the instant case, we have already noticed that the particulars mentioned in the affidavit filed in support of the writ petition are bereft of required details. On the basis of such vague and indefinite allegations, it is not possible for this Court to record any finding that the first respondent company is an instrumentality of the 'State' or 'other authority' within the meaning of Article 12 of the Constitution of India.

15. For the aforesaid reasons, we hold that the writ petition as against the first respondent company is not maintainable. The first respondent company by no stretch of imagination could be characterised as a 'State' or 'other authority' within the meaning of Article 12 of the Constitution of India. The question of granting any relief enforcing the fundamental rights guaranteed by Article 14 of the Constitution of India as such does not arise.

16. For the aforesaid reasons, we do not find any merit in this writ petition. The same shall accordingly stand dismissed. No order as to costs.

17. However, we make it clear that we have not expressed any opinion whatsoever on the question as to whether the petitioners are entitled for any relief as against the first respondent company. The remedies of the petitioners are left open. It is needless to observe that if the petitioners avail any such remedy, the same shall have to be considered on its own merits uninfluenced by the observations, if any, made in this order.