Supreme Court of India
FEDERAL BANK LTD.versusSAGAR THOMAS AND OTHERS
- Citation
- 2003 INSC 515
- Decided
- 26 September 2003
- Disposal
- Appeal(s) allowed
- Bench
- BRIJESH KUMAR
Holding
A private company carrying on banking business as a scheduled bank is not an institution discharging a statutory or public duty and therefore is not a 'State' or 'other authority' under Article 12, making the writ petition non‑maintainable.
Summary
The respondent, Sagar Thomas, a branch manager of Federal Bank, was dismissed after a disciplinary enquiry and challenged the dismissal by filing a writ petition under Article 226 of the Constitution. The High Court held the petition maintainable, deeming the bank a public authority performing a public duty. The bank appealed, arguing that it is a private scheduled bank and not an instrumentality of the State within the meaning of Article 12. The Supreme Court examined whether regulatory control by the Reserve Bank of India and the Companies Act rendered the bank a public authority. It held that mere regulatory oversight does not make a private banking company a State agency and that the bank does not discharge a statutory public function. Consequently, the writ petition was held not maintainable. The appeal was allowed and the High Court's order set aside.
Issues considered
- Whether a private scheduled bank is an 'institution' or 'authority' within Article 12 of the Constitution.
- Whether regulatory control by the Reserve Bank of India makes the bank amenable to writ jurisdiction under Article 226.
- Whether the dismissal of an employee of a private bank can be challenged by a writ when no statutory public duty is involved.
Legislation cited
- Banking Regulation Act, 1949s. 22, s. 35, s. 35A, s. 36, s. 36AA, s. 36AB, s. 36AE, s. 45, s. 46A, s. 5(c)(a)
- Companies Act, 1956s. 227, s. 233A, s. 235, s. 250, s. 255, s. 267, s. 388B, s. 58A
- Industrial Development and Regulation Act, 1951s. 15, s. 15A, s. 18A, s. 18AA
- Reserve Bank of India Act, 1934s. 2(e), s. 42(6), s. 46
Subjects
Writ jurisdictionArticle 12Article 226State instrumentalityPrivate bankPublic dutyBanking Regulation ActDismissal of employeeScheduled bank
Judgment
FEDERAL BANK LTD. A
V.
SAGAR THOMAS AND OTHERS
SEPTEMBER 26, 2003
B
[BRIJESH KUMAR AND ARUN KUMAR, JJ.]
Constitution of India-Articles 12, 226-Whether writ petition
maintainable against Federal Bank by dismissed employee-Held, no;
private company canying on banking business as scheduled bank is not
an institution discharging statutory or public duty-Hence not a state or C
its agency or instrumentality.
Constitution of India-Articles 12 and 226-Banking Regulation Act
1951, ss.5 (c)(a), 22, 35, 35A, 36, 36AA, 36AB, 36 AE, 45-Reserve Bank
of lndia Act, 1934, ss.2(e), 42(6), 46 A-Maintainability of writ petiton by D
employee of Federal Bank challenging dismissal-Whether amenability to
regulation by Reserve Bank of India tan/amounts to Federal Bank
discharging public function or duty-Held; no; mere regulatory provisions
to ensure that activity of private bodies is within a discipline does not
subject company to an ob/;gation which may be enforced by issuance of E
a writ under Article 226 of the Constitution-Companies Act 1956, ss.58A,
227, 233A, 235, 250, 255, 267, 3888-Industrial (Development and
Regulation) Act, 1951, ss.15, /5A, /8A and /BAA.
The first respondent working as Branch Manager in the appellant
Bank was found guilty of certain charges and awarded punishment of F
dismissal. He challenged the dismissal by filing a writ petition in the
High Court. The Bank raised a preliminary objection about the
maintainability of the writ petition contending that it was a private
bank and not a State or its agency or instrumentality, within the
meaning of Article 12 of the Constitution of India. The Single Judge G
and the Division . Bench of the High Court held that the Bank
performed a public duty and therefore the writ petition was
maintainable. The Bank appealed to this court.
Allowing the appeal, the Court H
121
122 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A HELD: I.I. The writ petition against the appellant bank was not
maintainable. A private company carrying on banking business as a
scheduled bank, cannot be termed as an institution or compa~y
carrying on any statutory or public duty. [153-C-El ,...
" I • ' i ~
1.2. The share capital of t_he appellant bank is not held by. the
B Governor nor any financial assistance is pro~ided by· the State. The
+ ·• I rt I t I '. I • j ~fl ' i I . '•
appellant bank does not enjoy any monopoly status nor it can be saidlJ
~ , • . I , I j
to be an institution having State protection. The affairs oft~e appellant .
•. • - . . r-· • , , . ~ f
bank are managed by the Board otD.~r~~~?rrs' el~ct~d by its.s~are~.old,ers.id'
No Governmental agency or officer'ts connected with its affairs nor
• - - ' . I ( ~ .R . 1 • t ' l. I I
C anyone of them is a member of the'Board of Directors. In the normal
functioning of the private banking com_p.any ther~'is no participation '
or interference of the State or its authorities. It works like any other
private company in the banking busi~ess having no monopoly status
at all. (150-F-H, 151-A]
D 1.3. 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, are such which do have impact on the economy
of the country in general. But such activities cannot be public nature.
E {152-A-BJ
Ajay Hasia v. Khalid Mujib Sehravardi, [1981] f SCC 722 and
Pradeep Kumar Biswas v. Indian Institute of Chemical Biology, (20021 5
sec 111, followed.
F U.P. State Co-operative Land Development Bank Ltd v. Chandra
Bhan Dubey, AIR (1999) SC 753, explained and distinguished.
Sukhdev Singh v. Bhagatram Sarda; Si~gh Raghuvanshi, [1975) 1
1
SCC 421; Romana Dayaram Shetty v. Jnternational Airport Authority of
India, (1979] 3 SCC 489; Bank of Baroda Ltd v. Jeewan Lal Mehrotra,
G (1970) 3 sec 677; All India B~nk Employees' Association v. National
Industrial Tribunal, [1962) 3 SCR 265; Air India Statut01y Corporation
v. United Labour Union, 11997) 9 SCC 377; Andi Mukta Sadguru Shree
Muktajee ·vandas Swami Suvarna Jayanti Mahotsav Smarak Trust v. VR.
Rudani, (1989] 2 SCC 69 t; Unnikrishnan, J.P. v. State ofAndhra Pradesh,
H [1993) 1 SCC 645; Life Insurance Corporatio11 of India "· Consumer
FEDERAL BANK LTD. v. SAGAR THOMAS [BRJ.JESH KUMAR, J.] 123
Education & Research Centre, (19951 5 SCC 482; Kumari Shrilekha A
Vidyarthi v. State of Uttar Pradesh, 11991 J I SCC 212; The Praga Tools
Corporation v. Shri C.A. !manual, (1969) I SCC 585 and Executive
Committee of Vaish Degree Colle;;e, Shamli v. Lakshmi Narain, [1976) 2
sec 58, referred to.
21. Merely because the Reserve Bank of India lays down the B
banking policy 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 etc., as provided under s.5 (c)(a) of the
Banking Regulation Act does not mean that the private companies
carrying on the business of or commercial activity of banking, discharge C
any public function or public duty. (152-GJ
2.2. 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. D
[153-DI
CIVIL APPELLATE JURISDICTION: Civil Appeal No. l 06 of200 I.
From the Judgment and Order dated 7.2.2000 of the Kerala High
Court in W.A. No. 1202 of 1999-A. E
A.B. Diwan, Ms. Pooja Sharma, Ms. Sampada Narang, Ms. Vandana
Chug and Rajan Narain for the Appellant.
Rajinder Sachar and R. Sathish for the Respondent No. l.
Rajan Narain for the Respondent Nos. 2-3.
F
The Judgment of the Court was delivered by
BRIJESH KUMAR, J. : The respondent no. I Sagar Thomas was
working as a Branch Manager in Karunagappally branch of the appellant
Bank, namely, the Federal Bank, having its registered office at Alwaye, G
Kerala. H~ was, however, suspended on 29.5.1982, since a disciplinary
enquiry was ordered into some charges against him for having exceeded
his authority in grant of loans and advances to different parties. The inquiry
officer found him guilty of the charges and ultimately punishment of
dismissal was awarded to the respondent. H
124 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A The respondent no. I challenged the order of his dismissal by filing
a writ petition in the High Court. A preliminary objection about
maintainability of writ petition seems to have been taken, in defence by
the Federal Bank, saying that it is a private bank and not a State or its
agency or instrumentality, within the meaning of Article 12 of the
B Constitution of India, h.ence a 'writ petition under· Article 226 of the
Constitution is not maintainable against it. The leurned single Judge,
however, found that the Federal Bank perfonns public duty and observed
thus:
"As per statutes, the Reserve Bank 'and the Central Government
c exercise all pervading functional; fiduciary and managerial control
over the banking industry. Every ban~ing company is duty bound
to carry on banking, business as per the banking policy unc;t~r,
stringent control of the Reserve Bank in the interest of banking,
system or in the interest of monetary stability of sound economic
D growth, having due regard to the interest of the depositors. The
activities carried on by the bank are vital to public interest and
have potential to affect the socio-economic development and
growth of th~ nation. Banking companies are therefore, public
institutions, accepting deposits from public, financial assistance
from the State through its agencies/instrull)entalities, for the
E
purpose of lending or investment, pursuing banking policy and
engaged in matters of high public interest or performing public
functions, ensuring monetary stability, sound economic growth,
equitable allocation of various funds to efficient use, for the
promotion and growth of economy and welfare of the State. The
F first respondent is, thus, performing a public duty and a positive
obligation towards its employees and customers exists. Therefore,
)t is amenable to writ jurisdiction." .
Ultimately the order passed by the learned single Judge is :
G
" ... .In the light of the above decisions of the Apex Court, I can
very well find that the Federal Bank Ltd., is performing public
duty and as such it comes under the definition of 'other authority'
within the meaning of Article 12 of the Constitution of India and.
as such the writ petition is maintainable before this Com1."
H
FEDERAL BANK LTD. v. SAGAR THOMAS [BRIJESH KUMAR . .I.] 125
Aggrieved by the aforesaid judgment of the learned single Judge, the A
appellant preferred a writ appeal but referring to a decision of this Court
in UP.State Co-operative land Development Bank ltd v. Chandra Bhan
Dubey & Ors. 1 the Division Bench, observed that in an identical fact
situation it was held that writ application would be maintainable, minor
distinctions on facts, here and there, would not make the aforesaid decision B
inapplicable to scheduled banks. With such observations the appeal was
dismissed providing that the learned single Judge shall decide writ petition
on merits. The Federal Bank Ltd. has preferred this appeal, against the
aforesaid judgment of the High Court.
Learned senior counsel appearing for the appellant, so as to indicate C
the structure of the appellant, submits that the Federal Bank Ltd. is a
'company' incorporated under the Indian Companies Act, 1913, now
replaced by the Companies Act, 1956. Its activities are regulated by the
provisions of the Banking Regulation Act, 1949. The entire shareholding
of the company is held by private individuals and entities. The finances D
of the banks are raised by its own resources and efforts, and the profits
of the bank are utilized by the bank for its own purposes. It does not
perform any sovereign function nor does it exercise any authority over a
third person. The nature of the activity of the bank is that of a commercial
undertaking which receives deposits from the individuals and advances
loans and performs other ancillary monetary transactions. The management E
of the bank is in the hands of the Board of Directors. There are 10 Directors,
out of which 7 are selected by the General Body of the shareholders. Two
members are co-opted by the Board of Directors and one of them is
nominated by the Reserve Bank of India. The Board of Directors exercise
the powers of superintendence and control over the bank. The bank is, F
therefore, merely a private limited company; it is neither a 'State' nor any
'authority' within the meaning of Article 12 of the Constitution nor it is
amenable to writ jurisdiction of the High Court. It is also the case of the
appellant bank that services of an employee or an officer of a private body,
cannot be imposed or thrust upon it nor a relief of reinstatement can be
granted. In this connection, the appellant has referred to the reliefs prayed G
for in the writ petition, which are as follows:
"i) a writ of Certiorari or any other appropriate writ, order or
direction quashing Exhibit P3 Enquiry Report and P6 and P7
.J' I. AIR (1999) SC Page 753 H
126 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A orders of the disciplinary authority and the. Board of Directors
as illegal and unsustainable in Jaw;
ii) a wiit of Mandamus or any other appropriate writ, order or
direction commanding the respondents to reinstate the
petitioner with all wages ahd increments in the salary
B
applicable to him as if he had continued in service from the,
date of his suspension; i·
iii) any other appropriate writ, order or direction as this Hon 'ble
Court may deem fit and necessary on the facts and in the
c circumstances of the case and allow this petition with all
costs."
In the light of the prayer made for issue of a writ of certio;·ari for quashing
of inquiry report and the order of punishment and further for issue of a
D writ of mandamus or any other appropriate writ or direction for reinstatement
of the petitioner with all wages and increments etc. as if, he had been
continued in service, a plea in reply has been raised by the appellant that
it being a private body incorporated under the Companies Act, it is not
amenable to writ jurisdiction of· the High Court. It is in the above
E background that the learned Single Judge considered the matter and held
that the Federal Bank Limited is performing public duty, as such it is
covered under the expression of 'other authority', within the meaning of
Article 12 of the Constitution, hence the writ petition is maintainable before
the High Court.
F The question thus, which falls for consideration is as to whether the
appellant bank is a private body or falls within th~ definition of the State
or local or other authorities under the control of the Government. A body
or organization which is an instrumentality or agency of the State or a
company owned and controlled by the State are all included in the
G expression "the State". If it is found that the petitioner falls within the later
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
H whether a writ petition would be maintainable or not and the extent to
FEDERAL BANK LTD. v. SAGAR THOMAS [BRIJESH KUMAR, .J.] 127
which such powers can be exercised. A
In support of their respective contentions learned counsels placed
reliance upon certain decisions of this Court as well as on some decisions
of the High Court.
On behalf of the appellant, a decision in the case of Pradeep Kumar B
Biswas v. Indian Institute of Chemical Biology & Ors. 2 decided by a 7
Judges Bench has been referred. The majority judgment considered a
catena of decisions on the point and it has been observed in paragraph 25
of the judgment : "The tests propounded by Mathew, J. in Sukhdev Singh 3
were elaborated in Ramancr and were refonnulated two years later by a C
Constitution Bench in Ajay Hasia 5 What may have been technically
characterized as obiter dicta in Sukhdev Singh (supra) and Romana (supra)
(since in both cases the "authority" in fact involved was a statutory
ccrporntion), furmeri the rnti(, dec;rlendi of Ajay Hasia (supra)". Thereafter
the court has extracted para 11, at page 737-38 of the case of Ajay Hasia
(supra), as follows : "The concept of instrumentality or agency of the D
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 it would
have to be decided, on a consideration of the relevant factors, whether the
company or society is an instrumentality or agency of the Government so
as to come within the meaning of the expression 'authority' in Article 12." E
It is then observed that Ramona's case (supra) noted with approval in Ajay
Hasia (supra) and quoted the tests laid down in the case of Ajay Hasia
(supra) at page 73 7 in para 9. It reads as follows :"
(I) One thing is clear that if the entire share capital of the
corporation is held by Government, it would go a long way F
towards indicating that the corporation is an instrumentality
or agency of Government. (SCC p. 507, para 14)
(2) Where the financial assistance of the State is so much as to
meet almost entire expenditure of the corporation, it would G
afford some indication of the corporation being impregnated
with governmental character. (SCC p. 508, para 15)
2. [2000] 5 sec page 111
3. Sukhdev Singh v. Bhagatram Sardar Singh Raglmvanshi. [1975] I SCC 421
4. Ramana Dayaram Shelly v. International Airport Authority of India, (1979] 3 SCC 489
5. Ajay Hasia v. Khalid Mujib Sehravardi, (1981] I sec 722. H
128 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A (3) It may also be a relevant factor .. whether the corporation 4
enjoys monopoly status which is State-conferred or State-
protected (SCC p. 508, para 15)
1
(4) Existence of deep and pervasive State control may afford an I
B indication that the corporation is a State agency or
instrumentality. (SCC p. 508, para 15)
(5) If the functions of the corporation are of public importance
and closely related to governmental functions, it would be
.-
c a relevant factor in classifying the corporation as an
instrumentality or agency of Government. (SCC p. 509, para
'
16)
(6) 'Specifically, if a department of Government is transferred
~
to a corporation, it would be a strong factor supportive of
D this inference' of the corporation being an instrumentality or
agency of Government. (SCC p. 510, para 18)"
..-
This Court has· observed in paragraph 31 as follows :
E "The tests to detennine whether a body falls within the definition
of "State" in Article 12 laid down in Romana (supra) with the
Constitution Bench imprimatur in Ajay Hasia (supra) form the
keystone of the subsequent jurisprudential superstructure judicially
crafted on the subject which is apparent from a chronological
F consideration of the authorities cited."
After considering a number of decisions it has been observed in para 40
of Pradeep Kumar Biswas (supra) as follows :
G "The picture that ultimately emerges is that the tests fonnulated
in Ajay Hasia (supra) 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 of Article 12. The
question in each case would be - whether in the light of the
H cumulative facts as established, the body is financially, functionally
'4'
FEDERAL BANK LTD. v. SAGAR THOMAS [BR I.I ESH KUMAR, .I.] ! 29
and administratively dominated by or under the control of the A
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." B
The appellant then refers to a decision in Bank of Baroda Ltd. v.
Jeewdn Lal Mehrotra6 which is a decision of a three Judge Bench, wherein
it has been laid down that a contract of service could not be enforced on
a private employee. Needless to say that the case is related to the services
of an employee of a Scheduled bank. Our attention has been particularly C
.drawn to paragraph 3 of the judgment where it is observed :
" ..... The law as settled by this court is that no declaration to
enforce a contract of personal service will be normally granted.
The well recognized exceptions to this rule are (I) where a public D
servant has been dismissed from service in contravention of
Article 311, (2) where re-instatement is sought of a dismissed
worker under the industrial law by labour or industrial tribunals,
(3) where a statutory body has acted in breach of a mandatory
obligation imposed by statute .... "
E
However, so far the above proposition is concerned, learned counsel
for the respondent submitted that the point relates to the merits of the matter
which is yet to be gone into by the learned Single Judge in case it is found
that a writ petition is maintainable.
U.P. State Co-operative Land Development Bank Ltd. (supra) has F
been relied upon by the Division Bench while passing the impugned order
dismissing the appeal. We may examine the position as involved in that
case in some detail. It is registered as a Co-operative society under the
provisions of the U.P.Co-operative Societies Act. While holding it to be
an instrumentality of the State, the Court took note of the fact that though G
registered as a co-operative society, it was constituted under the provisions
of the U.P.Co-operative Land Development Bank Act, 1964. The Managing
Director and the Chief General Manager of the Bank are officials of the
State, who are at the helms of the affairs of the Bank. The service rules
J
6. [1970} 3 sec page 677
130 SUPREME COURT REPORTS [2003) SUPP. 4 S.C.R.
A for the employees and officers of the Bank were framed by the State
Government in exercise. of powers under Section 30 of the U.P.Co-
opcrative Land Development Bank Act, 1964. The rules are called the
U.P.Co-operative Land Development Banks Rules, 1971, which lay down
the conditions of services of the employees. The Institutional Service
B Boards constituted under Section 122 of the Co-operative Societies Act has
also framed service rules according to which dismissal of an employee can
be ordered only after its approval by the Institutional Service Board. The
U.P. State Co-operative Land Development Bank Ltd. is the only bank
constituted under the provisions of the U .P. Co-operative Land Development
C Bank Act and there cannot be any other State level Land Development
Bank for the whole of the State. Apart from the fact that the Bank had
exclusive jurisdiction over the whole of the State ofUttar Pradesh, the other
Land Development Banks could also be made members of the U.P. State
Co-operative Land Development Bank, in any number, as the Registrar of
the Co-operative Societies may deem it necessary. It is further found that
D the Registrar of the Co-operative Societies, U.P. is the trustee for the
purpose of securing the fulfillment of the obligations of the State Land
Development Bank to the holders of debentures issued by the Board of
Directors. The Board of Directors are entitled to issue debentures from time
to time with the previous sanction of the State Government and the trustee,
E against the unconditional guarantee by the State Government for the
repayment in full of the principal and interest thereon, or on the security
of mortgages, charges or hypothecations etc. The State Government
constitutes ~ Guarantee Fund under Section 9 of the Act for the purpose
of meeting losses that might accrue on account of loans advanced by the
F Land Development Banks. The Guarantee Fund is maintained by the
'·
r
Finance Department of the State Government. On the basis of the facts
noted above, the Court took the view that the U.P. State C:o-operative Land
Development Bank Ltd., though registered as a Co-operative society, is an
instrumentality of the State and its employees have a statutory protection
under the statutory rules.
G
It is quite apparent that the decision in the case of U.P. State Co-
operative Land Development Bank Ltd (supra) would in no way be
applicable to the case in hand. The participation and control of the State
in the whole activity of the U.P. Land Development Bank Ltd. is all
H pervasive. Its officers head the institution. U.P. Land Development Bank
,
t:::.
FEDERAL BANK LTD. v. SAGAR THOMAS [BRIJESH KUMAR, .I.] 131
is constituted as the only State level Bank in the State. Under the statutory A
provision there cannot be any other Land Development Bank at the State
level. The government guarantees repayment in the event of losses suffered
by the Bank and with the approval of the State, the Bank may also issue
debentures. To cap it all the service conditions of the employees are
governed by the statutory rules. It is submitted by the appellant that this B
case will have no applicatior: to the present case and the same has been
wrongly followed and relied upon by the Hig? Court to dismiss the appeal.
Shri Rajinder Sachar, learned senior counsel appearing for the
respondent, refers to a Constitution Bench decision in· All India Bai!,k C
Employees' Association v. National Industrial Tribunal & Ors. 7 • Our
attention has been particularly drawn to the observations made at page 299
of the report wherein it is observed as follows:-
" ... .If it was not the Reserve Bank oflndia, the only other authority
that could be entrusted with the function would be the Finance D
Ministry of the Government of India and that department would
necessarily be guided by the Reserve Bank having regard to the
intimate knowledge which the Reserve Bank has of the banking
structure of the country as a whole and of the affairs of each bank
in particular...... ". E
It has been referred to indicate that the control of the Reserve Bank oflndia
over all the banks would be as ·if the control is in place ofFinance Ministry,
Government of India.
A reference has then been made to Air India Statutory Corporation F
& Ors. v. United Labour Union & Ors. 8• a decision of a three Judge Bench.
It has been held that the industry carried on by Air India under authority
of central government would involve public law element even though its
activity may be commercial in nature. It was held that the Air India was
being run by the Airport Authority ofindia of the Central Government and G .
there was element of deep and pervasive governmental control. Initially it
was a statutory authority under the International Airports Authority of India
Act, 1971. Later it was amalgamated with National Airports Authority and
7. [1962] 3 SCR page 265
s. [1997) 9 sec page 3 77 H
132 SUPREME COURT REPORTS [2Q03] SUPP. 4 S.C.R.
A thereafter it is constituted as a Company under the• Companies Act. In that
' I j • '
context, it has been held, if the company is run wholly or partially by the
i '1 ,, t • j ~1.J I
\\
sha~e capltai floated.fro1n pubi'i'c ~~ch~~ii'e~, it gives iddication of its control
by the appropriat~ g0verni~~nt. On· cdn~idefation: of ii ~uni\jer of decisions
~ i: ,II'~ ~ If. ,I~ .- IJ j:• It\'. • • ·~1'1' ~t· I •
on the pomt, the. Court found tile follow1hg prmc1ples which may be
, h til i 1 - 11t• J ' ( I . J
. f I .. ....,. -
B considered, for coming tO a conclusion whether any 'public element is
involved or not, the paragraph 26.of the decision, reads as under :
· .,. -1 • • ' • ... r , '• J ~-1 ~u ' ' ti t .~. ' 1 1 t J
, 1 • ' 1 'Lr• t 1 , , , '. '' t ·;,.._Jo 1 •1 •rt f ' •
"(l) The constitution of the corp'oratiori or instrumentality or
, agency ,or corporation
•·i,., 1·
aggregate
l .... ·4 '' 'J:1.~~""'!';
or corporation
t''J.JflJllJf'!iri ,1,l
.. ,
sole is not
';,i I .1t 1
C "· J ~ ,1, 1q:,, n , ~(.sp,~~!!l~!t;rJ~! r~~t;Y~Rf~ 1w,,9r,c},d~,;Y.~1~f?_e~)t is by or under
1 the, control of the appn;>p1:i~te Gov.ernment under the Act.
(2) If it is a statutory corporation, it is an instrumentality or
agency of the State. If it is a company owned wholly or
partially by a share capital, floated from public exchequer,
D it gives indicia that it is controlled by or under the authority
of the Appropriate Government.
(3) In commercial activities carried on by a corporation
established by or under the control of the appropriate
government having protection under Articles 14 and 19(2),
E it is .an instrumentality or agency of the State.
(4) The State is a service corporation. It acts through its
instrumentalities, agencies or persons - natural or juridical.
{
F (5) The governing.power, wherever located, must be subject to
the fundamental constitutional limitations and abide by the
principles laid in the Directive Principles.
(6) The fra~ework of service regulations made in the appropriate
rules or regulations should be consistent with and subject to
G the same public law, principles and limitations.
(7) Though the instrumentality, agency or person conducts
commercial activities according to business principles and
are separately accountable under their appropriate bye-laws.
H or Memorandum of Association, they become the arm of the
FEDERAL BANK LTD. v. SAGAR THOMAS [BRJJESI-1 KUMAR. J.] 133
Government. A
(8) The existence of deep and pervasive State control depends
upon the facts and circumstances in a given situation and in
the altered situation it is not the sole criterion to decide
whether the agency or instrumentality or persons is by or B
under the control of the appropriate Government.
(9) Functions of an instrumentality, agency or person are of
public importance following public interest element.
(10) The instrumentality, agency or person must have an element C
· of authority or ability to effect the relations with its employees
· o~ public by virtue of power vested in it by law, Memorandum
of Association or bye-laws or Articles of Association.
( 11) The .instrun:ientality~ agency or person renders an element of D
public service and 1s accountable to health and strength of .
the workers, men and women, adequate means oflivelihood,
the security for payment of living wages, reasonable
conditions of work, decent standard of life and opportunity
to enjoy f\111 leisure and social and cultural activities to the
workmen. E
'
(12) Every action of the public authority, agency or instrumentality
or the person acting in public interest or any act that gives
rise to public element should be guided by public interest in
exercise of public power or action hedged with public F
element and is open to challenge. It must' meet the test of
reasonableness, fairness and justness.
(13) If the exercise of the power is arbitrary, unjust and unfair,
the public authority, instrumentality, agency or the person
acting in public interest, though in the field of private law, G ·
is not free to prescribe any unconstitutional conditions or
limitations in their actions."
One of the important factors to be considered is, if it is a statutory
corporation, an instrumentality or agency of the State or a company owned H
134 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A wholly or partially by a share capital floateJ from public exchequer, it gives
indicia that it is controlled by and under the authority of the Appropriate
Government. We find that it is this factor which brings in public element.
Paragraph 61 of the judgment reads:-
"The legal right of an individual may be founded upon a contract
B or a statute or an instrument having the force of law. For a public
·law remedy enforceable under Article 226 of the Constitution, the
action of the authority needs to fall in the realm of public law -
be it a legislative act of the State, an executive act of the State
or an instrumentality or a person or authority imbued with public
c law element. The question requires to be detennined in each case.
However, it may not be possible to generalise the nature of the
action which would come either under public law remedy or
private law field nor is it desirable to give exhaustive list of
such actions....... The distinction between public law and
D private law remedy has now become thin and practically
obliterated."
Shri Sachar then referred to a decision of this Court in Andi Mukta
Sadguru Shree Muktajee Vandas Swami Suvarna Jayanti Mahotsav Smarak
E Trust & Ors. v. V.R. Rudani & Ors. 9 case. It has been held in this case that
the college in question which was managed by a trust registered under the
Bombay Trusts Act was amenable to writ jurisdiction and a direction could
be issued to the institution to make the payment of arrears of salary and
other benefits to the teacher. It is further submitted that if a private body
F discharges a public duty it would be amenable to the writ jurisdiction.
Paragraph 17 of the judgment has been particularly referred to, which reads \
as under :
"There, however, the prerogative writ of mandamus is confined
only to public authorities to compel perfonnance of public duty.
G The 'public authority' for them mean every body which is created
by statute - and whose powers and duties are defined by statute.
So government departments, local authorities, police authorities,
and statutory undertakings and corporations, are all 'public
authorities'. But there is no such limitation for our High Courts
H 9. [1989] 2 sec page 691
FEDERAL BANK LTD. v. SAGAR THOMAS [BRIJESH KUMAR, .T.] 135
to issue the writ 'in the nature of mandamus'. Article 226 confers A
wide powers on the High Courts to issue writs in the nature of
prerogative writs. This is a striking departure from the English
Law. Under Article 226, writs can be issued to "any person or
authority". It can be issued "for the enforcement of any of the
fundamental rights and for any other purpose". B
Shri Sachar has also stressed upon the observation made in the later part
of para 19 and para 20 where it has been observed:
" ..... Any attempt to equate the scope of the power of the High
Court under Article 226 of the Constitution with that of the C
English courts to issue prerogative writs is to introduce the
unnecessary procedural restrictions grown over the years in a
comparatively small country like England with a unitary form of
government into a vast country like India functioning under a
federal structure ..... " D
Para 20
" .... The words "any person or authority" used in Article 226 are,
therefore, not to be confined only to statutory authorities and
instrumentalities of the State. They may cover any other person E
or body perfom1ing public duty ....... What is relevant is the nature
of the duty imposed on the body. The duty must be judged in the
light of positive obligation owed by the person or authority to the
affected party ..... "
While making his submissions in reply, the appellant referred to
F
paragraph 15 of the aqove judgment wherein it has been observed that if
the rights are purely of a private character, no mandamus can be issued.
It is further observed that if the management of the college is purely a
private body with no public duty, mandamus would not lie. But it has been
held that the college run by a private trust was affiliated to the university G
to which public money is paid as government aid. It is then observed :
" ... Public money paid as government aid plays a major role in the
control, maintenance and working of educational institutions. The
> aided institutions like government institutions discharge public H
136 SUPREtVtE•COURT REPORTSl2003] Sl'.JPP. 4 S.C.R.
A function by way' Of ·imparting· education. to students. They are·
subject to the rules ·and regulations of the affiliating University.
Their activities areclosely supervised by the University authorities.
Employment in such institutions; therefore; is not.devoid of any
public character.·So1are'the •service conditions -of ,the academic
staff. .... The service 'conditions~ of the academi.c staff are,
B
therefore, not purely of a private character .. It has super~added
protection by University.. ,decisions _creating a legaL r!ght;duty
relationship between.th~·staff. and the m.anagen:ient. .yvpe_"!;there
is existence of this relationship, mandafl!U? ca!1not be r~f!J~ed to
the aggrieved party."· '": .·,,H . : ·.•. 1 •. , :1 1 , •...• ,
c
On thjs basis, it is submitted in.reply that those features by reason of which
it has been held that a 'Yrit of mandamus would lie against a private
management, are not present in the case in hand.' A reference to para t 2
ofthe Andi Mukta's cas~ (supra) has been made, where it has been held ·
D that no writ would issue where dismissal was not in violation of any
statutory provision. No ~einstatement' could be ordered.
Shri Sachar then refers to Unni· Krishnan,> J.P. & Ors. v. State of
Andhra Pradesh & Ors. 10, a Constitution Bench judgment. In reference to
E para 79 it is submitted that educational institutions discharge public duties
irrespective of the fact .they. receive. aid·o~ not. The absence of aid does
not detract from the public nature of the duty. The submission, therefore,
is that even though a body .or institution may be a private body but if the
duty that it discharges is that of a public nature, a writ would l~e.
F In this connection Life Insurance Corporation of India & Anr. v.
Consumer Education & Rese~rch·C~nt;·e & Ors: 11 , also has been referred
to, which in tum refers to K1~ma;; Shrilekha Vidyarthi v. State of Uttar
Pradesh 12 , holding that arbitrarin~ss, 'even in contractual obligation of
public character is violati~e of A.'rticle '14 of the Constitution, the Court held
G that rates of premium .must b~ ;easonable and acceptable. ·It cannot be
unjust and excessive. Thus the touchstone of test is the reasonableness and
non-arbitrariness of the action even in the contractual matters of the State
or its agencies and instrumentalities.
10. [1993] 1 sec page 645
H 11. [1995) s sec page 482
12. [1991) 1 SCC page 212
FEDERAL BANK LTD.v«SAGAR THOMAS [BRIJESH KUMAR. J.] 137
The appellant in reply also referred to The Praga Tools Corporation A
v. Shri C.A.lmanual & Ors. 13 whe_re it ~as held that a company registered
under the Companies Act is neither statutory nor any public duty is
imposed on it by any statute in respect of which enforcement would be
sought by means of a mandamus. Mandamus lies to secure the purpose of
a public or statutory duty. No mandamus or order of reinstatement of an B
office which is essentially of a private character can be issued. A
mandamus can be issued to compel the official of a society to carry out
the terms of the statute under or by which the society is constituted or
governed and also to companies or corporations to carry out duties placed
on them by the statutes authorizing their undertakings. C
Executive Committee of Vaish Degree College, Shandi & Ors. v.
Lakshmi Narain & Ors. 14 was also referred to on the proposition that
coptract of personal service cannot ordinarily be enforced.
D
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 (Govt); (ii) 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 E
on State funding; (vii) a private body discharging public duty or positive
obligation of public nature (viii) a person or a body under liability to
discharge any function under any Statute, to compel it to perform such a
statutory function.
Learned senior counsel appearing for the respondent has drawn our
F
attention to the various provisions of the Reserve Bank of India Act, 1934
(for short 'the RBI Act'), the Banking Regulation Act, 1941 and the
Industries (Development and Regulation) Act, 1951 so as to emphasise that
there is deep and all pervasive statutory control and the control of the G
Central Government over the Scheduled Banks. It is submitted that these
banks discharge functions of public nature and owe the statutory
responsibilities, hence there is an element of public law, involved in the
activities of the Bank. Section 22 of the Banking Regulation Act provides
13. [1969] I SCC page 585
14. [1976] 2 sec ss H
138 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A for Licensing of banking companies. No company can carry on banking
business in India unless it holds a licence issued by the Reserve Bank
subject to such conditions as may be imposed. Before issuing any licence
·the Reserve Bank may satisfy itself about the conditions as laid down under
sub-section (3) of Section 22 as to whether the company fulfills those
B conditions or not.
The appellant is one of the Scheduled Banks, definition of which as
provided in the Reserve Bank of India Act, has been referred to which
says :
C "2(e) scheduled bank" means a bank included in the Second
Schedule;"
Sub-section (6) of Section 42 of the RB1 Act has been referred to
indicate the control which is exercised by the Reserve·Bank of India on
D the banking companies. It reads as under :
"(6) The Bank shall, save as hereinafter provided, by notification
in the Gazette of India, -
(a) direct the inclusion in the Second Schedule of any bank not
E already so included which carries on the business of banking [in
India] and which -
(i) has a paid-up capital and reserve of an aggregate value of
not less than five lakhs of rupees, and
F
(ii) satisfies the Bank that its affairs are not being conducted in
a manner detrimental to the interests of its depositors, and
(iii) [is a State co-operative bank or a company] as defined
[section 3 of the Companies Act, 1956 (I of 1956), or an
G institution notified by the Central Government in this behalf]
or a corporation or a company incorporated by or under any
law in force in any place[outside India];
(b) direct the- exclusion from that Schedule of any scheduled
H bank, -
FEDERAL BANK LTD. v. SAGAR THOMAS [BRIJESH KUMAR. J.] 139
(i) the aggregate value of whose paid-up capital and reserves A
becomes at any time less than five lakhs of rupees, or
(ii) which is, in the opinion of the Bank after making an
inspection under section 35 of the Banking Regulation Act,
I 949 (I 0 of 1949), conducting its affairs to the detriment of B
the interests of its depositors, or
(iii) which goes into liquidation or otherwise ceases to carry on
banking business:
xxx xxx xxx c
The Preamble of the RBI Act has also been referred to, which reads
as follows :
"An Act to Constitute a Reserve Bank of India - Whereas it is D
expedient to constitute a Reserve Bank of India to regulate the
issue of Bank notes and the keeping of reserves with a view to
securing monetary stability in [India] and generally to operate the
currency and credit _system of the country to its advantage;
And whereas in the present.disorganization of the monetary E
systems of the world it is not possible to determine what will be
suitable as a permanent basis for the Indian monetary system;
But whereas it is expedient to make temporary provision on
the basis of the existing monetary system, and to leave the F
question of the monetary standard best suited to India to be
considered when the international monetary position has become
sufficiently clear and stable to make it possible to frame permanent
measures".
Section 46-A of the Banking Regulation Act provides as under :- G
"46A. Chairman, director, etc., to be public servants for the
purposes of Chapter IX of the Indian Penal Code.- [Every
Chairman who is appointed on a whole-time basis, managing
,) director, director, auditor] liquidator, manager and any other H
'.
140 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A employee of a banking company shall be deemed to be a public
servant for the purposes of Chapter IX ofthe Indian Penal Code
(45 of 1860).]
A reference is also made to Section 35 of the Banking Regulation Act'.
B ·~hich. pr~vides for inspection of any banking -company and its books of
a~c,~unt~ by the R eserv~ Bank on the direction issued by the· Central '
0
<i .
Government. Under sub-se~tion (IA) it is provided that without prejudice
to sub-section (I) it may at any time cause a scrutiny to be made by any
one or more of.its officers, of the affairs of any banking company. The
report of the inspection or the scrutiny are· to be furnished to the banking
C company. Sub-section (4) of Section 35 provides as under: · .. · · . .
~ ' -~ '! .\ ,i. ..
.
-·
"(4) The Reserve B~nkshall, tfit'.~asbe~ di~t~~Yth~-~nttal'_ <'.:; .;_ · , .
1
Government to cause an in~pectidn:to' be'ltiade, and m'8)1, ,ln any " : ~- -~-
. other case, report~ to the Centr~t G<'.J:.Y~mmcnt 'Orf any· insi;iectioo..··. •. \. j .•
·.[or scrutiny1 inade:urider this secrlon;.afia tne Central Government, . ·. .'' .{ ~- · . " •
if it is of opinion after corisidefing the ·repoit that the affairs (){ · · · ·
the banking company are being conducted to the detriment of the
interests of its depositors, may, after giving such opportunity to
the banking company to make a representation in connection with
the report as, in the opinion of the Central Governme11\ seems
E reasonable, by order in writing -
(a) prohibit the banking company from receiving fresh deposits;
(b) direct the Reserve Bank to apply under section 38 for the
F winding up of the banking company:
Provided that the Central Government may defer, for such period
as it may think fit, the passing of an order under this sub-section,
or cancel or modify any such order, upon such tenns and
conditions as it may think fit to impose."
G
Section 35-A empowers the Reserve Barik to give directions, which reads
as under :
"35A. Power of the Reserve Bank to give directions.- (l) Where
H the Reserve Bank is satisfied that :- · \.
FEDER.AL BANK LTD. v. SAGAR THOMAS [BR!JESH KUMAR, .I.] 141
(a) Jn the {public interest}; or A
[(aa) in the interest of banking policy; or]
(b) to prevent the affairs of any banking company being
conducted in a manner detrimental to the interests of the
depositors or in a manner prejudicial to the interests of the B
banking company; or
(c) to secure the proper management of any banking company
generally,
it is necessary to issue directions to banking companies generally C
or to any banking company in particular, it may, from time to
time, issue such directions as it deems fit, and the banking
companies or the banking company, as the case may be, shall be
bound to comply with such directions.
D
(2) The Reserve Bank may, on representation made to it or on its
own motion, modify or can~el any direction issued under sub-
section (I), and in so modifying or cancelling any direction may
impose such conditions as it thinks fit, subject to which the
modification or cancellation shall have effect."
E
Section 36 of the Banking Regulation Act which enumerates further
powers and functions of Reserve Banks has also been referred to. The
relevant part of Section 36 reads as under :
"36. Further powers and functions of Reserve Banks.- (l) The F
Reserve Bank may -
{a) <;aution 'Or prohibit banking companies or any banking
· compa1'!y in particular against entering into any particular
transaction or class of transactions, and generally give
. company;
advice to any banking G,
142 SUPREME COURT REPORTS (2003) SUPP. 4 S.C.R.
A (i) require the banking company to call a meeting of its
directors for the purpose of considering any matter relating
to or arising out of the affairs of the banking company; or
require an officer of the banking company to discuss any
such matter with an -officer of the Reserve Bank;
B (ii) xxx xxx
(iii) xxx xxx
(iv) appoint one or more of its officers to observe the manner
C. in which the affairs of the banking company or of its offices
or branches are being conducted and make a report thereon;
(v) require the banking company to make, within such time as
may be specified in the order, such changes in the management
as the Reserve Bank may consider necessary.]
D
(2) & (3) xxx xxx"
Section 36AA deals with Power of Reserve Bank to remove managerial
and other persons from office. The relevant part of the provisio·n is quoted
E below:
"(I) Where the Reserve bank is satisfied that in the public interest
or for preventing the affairs of a banking company being conducted
in a manner detrimental 'to the interests· of the depositors or for.
securing the proper management of any banking company it is
F
necessary so to do, the Reserve Bank may, for reasons to be
recordec! in writing, by order, remove from office, with effect
from !>uch date as may be specified in the order, [any chainnan,
director,] chief executive officer (by whatever name called) or
other officer or employee of the banking company.
G
• (2) to (5) xxx xxx
(6) Where an order under sub-section (I) has been made, the
Reserve Bank may, by order in writing, appoint a suitable person
H in place of [the chairman or director] or chief executive officer
,.
FEDERAL BANK LTD. 1'. SAGAR THOMAS [BRIJESH KUMAR . .1.) 143
or other officer or employee who has been removed from his A
office under that sub-section, with effect from such date as may
be specified in the order.
(7) to (8) xxxx xxxx"
B
Section 36AB of the Banking Regulation Act empowers the Reserve Bank
to appoint additional directors of the banking company in the interest of
the company or its depositors. Sub-section (I) reads as under :
"36AB. Power of Reserve Bank to appoint additional directors.- C
(1) If the Reserve Bank is of [opinion that in the interest of
banking policy or in the public interest or] in the interests of the
banking company or its depositors it is necessary so to do, it may,
from time to time by order in writing, appoint, with effect from
such date as may be specified in the order, one or more persons
to hold office as additional directors of the banking company: D
xxx xxxx"
Section 36AE has also been referred to which empowers the Central
Government to acquire undertakings of banking companies in the interests E
of the depositors, the banking policy or for the better provision of credit
generally or of credit to any particular section of the community or in any
particular area. Lastly, our attention has been drawn to provisions contained
in Section 45 of the Banking Regulation Act which empowers the Reserve
Bank to apply to Central Government for suspension of business by a F
banking company and to prepare scheme ofreconstitution of amalgamation
of a banking company.
Jn view of the aforesaid provisions it is submitted that the control of
the Reserve Bank oflndia and the Central Government is all pervasive over
the banking companies, they can cause an inspection to be made, can make G
scrutiny of the working and accounts of the banking company, can remove
the Chairman or appoint additional directors, the functioning of the
banking company can also be suspended, the undertaking can also be
acquired. It is further submitted that the Reserve Bank of India has been
> constituted to regulate issue of bank notes and for keeping reserves with H
144 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A a view to secure and maintain monetary stability in the country. It is with
that end in view that powers have been vested in the Reserve Bank of India
to keep proper check on the working and functioning of ·the banking
companies as also in the interest of the depositors and the own interest of
the banking company. Such a nature of control indicates that the Banking
B Companies discharge functions of public nature.
As against the submission made on behalf of the respondent regarding
control of the Reserve Bank of India over the banking companies, the
appellant submits that such measures as indicated by reference to the
provisions of the Banking Regulation Act are only regulatory in nature.
C Such regulatory control is also exercised over other companies as well;
registered under the Companie,s Act, 1956. In this connection, a reference
has been made to Section 233A of the Companies Act which empowers
the Central Government to direct special audit of the companies in certain ·
eventualities. For example as indicated in sub-clauses (a) to (c) of sub-
D section (I) of Section 233A, which reads as under :
"233A. (1) Where the Central Government is of the opinion -
(a) that the affairs of any company are not being managed in
accordance with sound business principles of prudent
E commercial practices; ·or
(b) that any company is beirig managed in a manner likely to·
cause serious injury or damage to the interests of the trade,
industry or business to which it pertains; or
F (c) that the financial position of any company is such as to
endanger its solvency; ......... "
The report of the special audit is to be submitted to the Central Government
by the Chartered Accountants deputed for special audit. The special
G auditor, in the audit report shall include all the matters required to be
included in an auditor's report under Section 227 ofi:he Companies Act
and the matters as the Central Government may, also direct.to include. The
Central Government is also. autho6zed to direct any_ particular person to
furnish such information or additional foformation .to the auditor and ·
H failure to do so shall render such person liable to be punished by imposition
FEDERAL BANK LTD. v. SAGAR THOMAS [BRl.IESH KUMAR. J.] 145
• of fine. The Central Governn1ent, on consideration of the report is A
empowered to take such action as provided under the Act or any other law
for the time being in force. Section 235 of the Companies Act empowers
the Central Government to appoint one or more competent persons as
inspectors to investigate the affairs of any company on the application of
the shareholders and submit the report to the Central Government. Similar B
power for investigation is also vested under Section 237 of the Act. The
company by a special resolution or court by an oider can declare that affairs
of the company ought to be investigated by al). inspector appointed by the
Central Government, where the business of the company is being conducted
with intent to defraud its creditors, members or any other persons or C
otherwise for fraudulent or unlawful purpose. Then a refereryce has been
made to Section 250 of the Companies Act which empowers the Central
Government to impose restriction upon the transfer of shares and debentures
of the company. Any transfer of shares made during the period of the
restriction, would be void under clause (a) of sub-section (2). Such actions
are pennissible to be taken in the public interest. Section 255 falls in the D
Chapter II pertaining to directors and constitution of Board Of Directors
which mandates for retirement of directors in given proportion by-rotation.
Section 267 places restrictions on appointment of Managing Directors.
Such persons who are undischarged insolvents or at any time have been
adjudged so or having been convicted by a Court of an offence involving E
moral turpitude. So far the financial aspect is concerned, the Central
Government has powers in that regard as well and in that connection our
attention has been drawn to Section 58-A. Sub-sections (I) and (2) of
Section 58-A read as under :
"58 A. (I) The Central Governtnent may, in consultation with the
F
Reserve Bank of India, prescribe the limits up to which, the
manner in which and the conditions subject to which deposits may
be invited or accepted by a company either from the public or
from its members.
G
(2) No company shall invite, or allow any other person to invite
or cause to be invited on its behalf, any deposit unless -
(a) such deposit is invited or is caused to be invited in accordance
with the rules made under sub-section (1), and H
146 SUPREME COURT REPORTS (2003] SUPP. 4 S.C.R.
A (b) an advertisement, including therein a statement showing the
financial position of the company, has been issued by the
company in such form and in such manner as may be
prescribed ..... "
B Under Section 388 B the Central Government is empowered to state a case
and refer to the High Court where in certain circumstances it considers that
ahy persoi1 concerned in conduct and the management of the affairs of the
company is not fit to hold the office of Director or any other office, to make
an inquiry into the case and record its decisions in that regard. On the basis
C of the report of the High Court the Central Government has power to
remove such a person as the Director or as the case may be.
A reference has also been made to certain provisions of Industries
(Development and Regulation) Act, 1951. Section 15 empowers the
Central Government to cause investigation to be made into the affairs
D of the industrial undertaking in certain eventualities. The same reads as
under :
"I 5. Power to cause investigation to be made into scheduled
industries or industrial undertakings. - Where the Central
E Government is of the opinion that -
(a) in respect of any scheduled industry or industrial undertaking
or undertakings -
(i) there has been, or is likely to be, a substantial fall in the
F
volume of production in respect of any article or class of
articles relatable to that industry or manufactured or produced
in the industrial undertaking or undertl,lkings as the case may
be, for which, having regard to the economic conditions
prevailing, there is no justification; or
G
(ii) there has been, or is likely to be,· marked deterioration in the
quality of any article or class of articles relatable to that
industry or manufactured or produced in the industrial
undertaking or undertakings, as the case may be, which
H could have been or can be avoided; or
FEDERAL BANK LTD. v. SAGAR THOMAS [BRI.JESH KUMAR. J.] 147
(iii) there has been or is likely to be a rise in the price of any A
article or class of articles relatable to that industry or
manufactured or produced in the industrial undertaking or
unde1takings, as the case may be, for which there is no
justification; or
(iv) it is necessary to take any such action as is provided in this
B
chapter for the purpose of conserving any resources of
national impo1tance which are utilized in the industry or the
industrial undertaking or undertakings, as the case may be;
or
c
(b) any industrial undertaking is being managed in a manner
highly detrimental to the scheduled industry concerned or to
public interest];
the Central Government may make or cause to be made a full and D
complete investigation into the circumstances of the case by such
person or body of persons as it may appoint for the purpose,"
Section 15-A also empowers the Central Government to investigate into
the possibility of running or restarting the industrial undertaking which: is
being wound up by or under the supervision of the High Court and to m<1ke E
an application in that regard to the High Court. Chapter III-A provides for
direct management or control of industrial undertakings by Central
Government in certain cases. Relevant part of Section I 8-A, which falls
under Chapter III-A, reads as uuder :
F
"18-A. Power of Central Government to assume management or
control of an industrial undertaking in certain cases - (I) 1f the
Centrai Government is of opinion that-
(a) an industrial undertakine: to which directions have been
~
issued in pursuance of Section 16 has failed to comply with
G
such directions, or
(b) an industrial undertaking in respect of which an investigation
has been made under Section 15 (whether or not any
- directions have been issued to the undertaking in pursuance H
148 SUPREME COURT REPORTS [2003) SUPP. 4 S.C.R.
A of Section 16), is being managed in a manner highly
detrimental to the sd.eduled industry concerned or to public
interest.
The Central Government may, by notified order, authorize any
person or body of persons to take over the management of the
B whole or any part of the undertaking or to exercise in respect of
the whole or any part of the undertaking such functions of control
as may be specified in the order ..... "
Section 18-AA empowers the Central Government to take over the
C industrial undertaking without investigation in the given circumstances.
In view of the provisions indicated above under the Companies Act
and the Industrial (Development and Regulation) Act, it is submitted that
the nature and the control over the companies is more or less of the same
D degree and nature as the control exercised over the banking companies
under the Banking Regulation Act. There is control and supervision over
the functioning and working and the conduct of business of the companies.
A watchful eye is kept over the interest of the share holders, the interest
of the company itself as well as over the production of company, even
E managing director can be removed by the Central Government. It has also
the powers, as indicated above, to take over the management of a company.
Such powers are drastic; nonetheless they remain regulatory in nature in
the interest of the industry, the company, the shareholders and in the
general interest since production of goods of importance is most essential
F for proper economic growth and stability of the country.
A company registered under the Companies Act for the purposes of
caffying on any trade or business is & 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
G 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. 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
H may be more participation or dominant participation of the State in
FEDERAL BANK LTD. 1" SAGAR THOMAS lBRIJESH KUMAR . .I.] 149
managing the affairs of the company. But in the present case we are A
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
own Board of Directors elected by its sharehold::!rs. 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 lacs wi 11 B
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 c
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 economy of the State
on the other hand such private companies have been voluntarily established D
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 the E
Reserve Bank so that a proper fiscal discipline, to conduct its affairs in
carrying on its business, is maintained. So as to ensure adherence to such
fiscal discipline, ifneed be, at times even the management of the company
can be taken over. Nonetheless, as observed earlier, these are all regulatory
measures to keep a check and provide guideline and not a participatory F
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 not sink because of its own
mismanagement or the interest of the shareholders or people generally may G
not be jeopardized for that reason. Besides taking care of such interest as
indicated above, there is no other interest of the State, to control the affairs
and management of the private companies. The care is taken in regard to
the industries covered under the Industries (Development and Regulati6n)
Act, 1951 that their production which is important for the economy may H
150 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A not go down yet the business activity is carried on by such companies or
corporations which only remains a private acrivity of the entrepreneurs/
companies.
Such private companies would normally not be amenable to the writ
B jurisdiction under Article 226 of the Constitution. But in certain
circumstances a writ may issue to such private bodies or persons as there
may be statutes which need to be complied with by all concerned including
the private companies. For example, there are certain legislations like the
Industrial Disputes Act, the Minimum Wages Act, the Factories Act or for
maintaining proper environment say Air (Prevention and Control of
C Polluiion).Act, 1981 or Water (Prevention and Control of Pollution) Act,
1974 etc. or statutes of the like nature which fasten certain duties and
responsibilities statutorily upon such private bodies which they are bound
to comply with. If they violate such a statutory provision a writ would
certainly be issued for compliance of those provisions. For instance, if a
D private employer dispense with the service of its employee in violation of
the provisions contained under the Industrial Disputes Act, in innumerable
cases the High Court interfered and have issued the writ to the private
bodies and the companies in that regard. But the difficulty in issuing a writ
may arise where there may not be any non-compliance or violation of any
E statutory provision by the private body. In that event a writ may not be
issued at all. Other remedies, as may be available, may have to be resorted
to.
The six factors which have been enumerated in the case of Ajay Hasia
(supra) and approved in the later decisions in the case of Ramana (supra)
F and the seven Judges Bench in the case of Pradeep Kumar Biswas (supra)
may be applied to the facts of the present case and see as to those tests
apply to the appellant bank or not. As indicated earlier, share capital of
the appellant bank is not held at all by the government nor any financial
assistance is provided by the State, nothing to say which may meet almost
G the entire expenditure of the company. The third factor is also not answered
since the appellant bank does not enjoy any monopoly status nor it can be
said to be an institution having State protection. So far control over the
affairs of the appellant bank is concerned, they are managed by the Board
of Directors elected by its shareholders. No governmental agency or officer
~
H is connected with the affairs of the appellant bank nor anyone of them is
j
I
FEDERAL BANK LTD.1·. SAGAR THOMAS [BRJJESl-I KUMAR . .1.] 151
a member of the Board of Directors. In the normal functioning of the A
private banking company there is no pai1icipation or interference of the
State or its authorities. The statutes have been framed regulating the
financial and commercial activities so that fiscal equilibrium may be kept
maintained and not get disturbed by the mal-functioning of such companies
or institutions involved in the business of banking. These are regulatory B
measures for the purposes of maintaining the healthy economic atmosphere
in the country. Such regulatory measures are provided for other companies
also as well as industries manufacturing goods of importance. Otherwise
these are purely private commercial activities. It deserves to be noted that
it hardly makes any difference that such supervisory vigilance is kept by C
the Reserve Bank oflndia under a Statute or the Central Government. Even
ifit was with the Central Government in place of the Reserve Bank of India
it would not have made any difference, therefore, the argument based on
the decision of All India Bank Employees' Association (supra) does not
advance the case of the respondent. It is only in case of mal-functioni1.g D
of the company that occasion to exercise such powers arises to protect the
interest of the depositors, shareholders or the company itself or to help the
company to be out of the woods. In the times of nonnal functioning such
occasions do not arise except for routine inspections etc. with a view to
see that things are moved smoothly in keeping with fiscal policies in
general. E
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 carried on by
individuals or by a group of them. Losses incur~ed in the business are theirs F
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, are such which do have impact on the economy
of the country in general. But such activities cannot be classified one falling G
I
in the category of discharging duties, functions of public nature. Thus the
case does not fall in the fifth category of cases enumerated in the case of
Ajay Hasia (supra). Again we find that the activity which is carried on by
the appellant is not one which may have been earlier carried on by the
government and transferred to the appellant company. For the sake of H
152 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A argument even if it may be assumed that one or the other test as provided " I
in the case of Ajay Hasia (supra) may be attracted that by itself would not
be sufficient to hold that it is an agency of the State or a company carrying
on the functions of public nature. In this connection, observations made
in the case of Pradeep Kumar Biswas (supra) quoted earlier would also
B be relevant.
~~
We may now consider the two decisions i.e. Andi Mukta (supra) and
the UP. State Co-operative Land Development Bank ltd. (supra)upon
which much reliance has been placed on behalf of the respondents to show
C that a writ would lie against the appellant company. So far the decision
in the case of UP. State Co-operative Land Development Bank ltd. (supra)
is concerned, it stands entirely on a different footing and we have
elaborately discussed it earlier.
The other case which has been heavily relied upon is Andi Mukta
D (supra). It is no doubt held that a Mandamus can be issued to any person
or authority perfoniling public duty, owing positive obligation to the
affected party. The writ petition was held· to be maintainable since the
teacher whose services were tern1inated by the institution was affiliated to
the university and was governed by the Ordinances, casting certain
E obligations which it owed to that petitioner. But it is not the case here. Our
attention has been drawn by the learned counsel for the appellant to
paragraphs 12, 13 and 21 of the decision (Andi Mukta) to indicate that even
according to this case no writ would lie against the private body except
where it has some obligation to discharge which is statutory or of public
F character.
Merely because the Reserve Bank of India lays the banking policy
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
G depositors etc. as provided under Section 5(c)(a) of the Banking Regulation
Act does not mean that the private companies carrying on the business of
or commercial activity of banking, discharge any public function or public
duty. These are all regulatory measures applicable to those carrying on
commercial activity in banking and these companies are to act according
H to these provisions failing which certain consequences follow as indicated
FEDERAL BANK LTD. v. SAGAR THOMAS [BRI.IESH KUMAR, .I.] 153
in the Act itself. Provision regarding acquisition of a banking company by A
the Government, it may be pointed out that any private property can be
acquired by the Government in public interest. It is now judicially accepted
norm that private interest has to give way to the public interest. If a private
property is acquired in public interest it does not mean that the party whose
property is acquired is performing or discharging any function or duty of B
public character though it would be so for acquiring authority.
For the discussion held above, in our view, a private company
carrying on banking business as a scheduled bank, cannot be tenned as an
institution or company carrying on any statutory or public duty. A private C
body or a person may be amenable 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
ofa private company carrying on a commercial activity of banking. Merely
regulatory provisions to ensure such activity carried on by private bodies D
work within a discipline, do not confer any such status upon the company
nor puts 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.
Respondent's service with the bank stands terrninated. The action of the E
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.
In the result, the appeal is allowed and the judgment and order passed F
by the High Court is set aside and the writ petition is held to be not
maintainable. There will, however, be no order as to costs.
S.M. Appeal allowed.
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