Supreme Court of India

UNION OF INDIA (RAILWAY BOARD) AND OTHERSversusJ.V. SUBHAIAH AND OTHERS ETC.

Citation: 1995 INSC 905
Decided: 15 December 1995
Disposal: Appeal(s) allowed
Bench: K RAMASWAMYFAIZAN UDDINB N KIRPAL

Holding

Officers, employees and servants appointed by Railway Co‑operative Stores/Societies cannot be treated as railway servants under paragraph 10B of the Railway Establishment Code and are not entitled to parity of status, promotions, or pay.

Summary

The respondents, employed by Railway Employees' Consumer Co-operative Stores registered under the Andhra Pradesh Co-operative Societies Act, 1964, sought declaration from the Central Administrative Tribunal (CAT) that they were regular railway employees in Class‑III posts entitled to salary, promotions and other benefits. The CAT, relying on a Madras Bench decision, granted the relief, which was later confirmed by this Court but remained under review. The Union of India appealed, arguing that the employees of the co‑operative societies are not railway servants under paragraph 10B of the Railway Establishment Code and that the CAT’s reasoning was unsustainable. The Court examined the statutory framework governing co‑operative societies, the definition of a railway servant, and the applicability of Article 14. It held that the officers, employees and servants of the co‑operative stores are appointed, regulated and disciplined under the State Act and its rules, not under the Railway Establishment Code, and therefore cannot be treated on par with railway employees. Consequently, the appeal of the Union of India was allowed and the orders of the CAT were set aside.

Issues considered

The applicability of paragraph 10B of the Railway Establishment Code to employees of Railway Co‑operative Stores registered under the Andhra Pradesh Co‑operative Societies Act.
Whether employees of such co‑operative societies can be deemed 'Railway servants' and entitled to parity of service, promotions, and pay.
The validity of the CAT Madras Bench decision granting railway employee status to these workers.
Whether the denial of such status violates Article 14 of the Constitution.

Legislation cited

Andhra Pradesh Co-operative Societies Act, 1964s. 116-A, s. 116-AA, s. 116-C, s. 121, s. 15, s. 16, s. 19, s. 21, s. 21-A, s. 21-AA, s. 21-B, s. 25, s. 30, s. 31, s. 32, s. 37, s. 50, s. 51, s. 52, s. 53, s. 54, s. 55, s. 56, s. 57, s. 58, s. 59, s. 60, s. 61, s. 62, s. 63, s. 7, s. 76, s. 77, s. 78, s. 79, s. 83-A, s. 9
Factories Acts. 46

Subjects

Railway lawService lawCo-operative societiesEmployment statusArticle 14 equalityCentral Administrative TribunalRailway Establishment CodeWelfare measures

Judgment

A UNION OF INDIA (RAILWAY BOARD) AND OTHERS
v.
J.V. SUBHAIAH AND OTHERS ETC.

DECEMBER 15, 1995

B [K. RAMASWAMY, FAIZAN UDDIN AND B.N. KIRPAL,JJ.]

Service Law: Andhra Pradesh Cooperative Societies Act, 1964-
Emp/oyees of Railway Co-operative Stores registered under the Andhra
Pradesh Co-operative Societies Act, 19M-He/d, not regular Railway
C employees in Class Ill post.

The respondents being employed in Railway Employees Consumer
Cooperative Store registered under Andhra Pradesh Co-operative
Societies Act' 1964, tiled an application before Central Administrative
Tribunal seeking declaration for being treated as regular Railway
D employees in Class-III Posts and for consequential benefits including
arrears of salary. Tribunal allowed the application based on decision of
Madras Bench in Application No. 305/88, which was confirmed by this
court, but the review was pending.

Aggrieved by the order of the tribunal, the Union of India preferred
E
the present appeals. The judgment of this Court in the Madras case was
also re-examined along with this appeal.

Allowing the appeal of the Union of India, this Court

F HELD : 1. The officers, employees and servants appointed by the
Railway Co-operative Stores/Societies cannot be treated on par with Rail-
way Servants under paragraph lO·B of the Railway Establishment Code,·
nor they can be given parity of status, promotions, scales of pay, incre·
ments etc. The officers, employees and servants appointed under the
provisions in the Co-operative Societies Rules of 1964 would clearly indi·
G cate that registration of the Society, election to the Committee, the term
thereof, rights and liabilities of the members and office bearers are regn·
lated under the Act. Power to appoint officers, employees and servants of
the Society is given to the President or the Committee which is regulated

H
by the bye laws, rules and the Act including service conditions with prior
approval of the Registrar. The appointments of the staff of the estab·
812
-
..
U.0.1. v. J.V. SUBHAIAH 813

lishment, control and disciplinary actions are regulated under the A
provisions of the Act, the Rules and the remedies provided under law :
[826-C-D, 821-F]
Co-operative Central Bank Ltd. & Ors. Etc. v. Additional Indust1ial
Tribunal, Andhra Pradesh, Hyderabad, [1970) 1 SCR 205, relied on.
B
2. Establishment of institutes or clubs though recognised by the
railway was only a welfare measure though their formation being nol
mandatory. The kind of activities conducted depends among other things,
on the funds available to them. If these employees were recognised as
railway employees, it will have a snow balling effect on other welfare
activities carried out by the Railway and other organisations and hence, c
there was no relationship of employer and employee. [822-D-EJ

All India Railway Institute Employees Associations v. Union of India
through the Chaimian, [1990) 1 SCR 594, relied on.
D
3. Appointment to a post or an office under the state is regulated
Under statutory rules either by direct recruitment or appointment by
promotion or appointment by transfer in accordance with the procedure
prescribed and the qualifications specified. Any appointment otherwise,
would be vertical transplantation de hors the rules. [825-A]
E
4. If the employees of the Societies like Co-operative canteens are
declared to be railway servants, there would arise dual control over them
by the Registrar and Railway Administration. [826-C]

M.M. Khan & Ors. v. Union of India & Ors., [1990) 1 SCR 687,
distinguished. F

5. The employees covered by the order of the Madras bench may .be
dealt with by the Railway Administration Appropriately but that could not
form foundation to plead discrimination violating Article 14 of the Con-
stitution. [826-B) G
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 12148 to
12150 of 1995.

From the Judgment and order dated 16th November, 1994 28th
April, 1995 and 16th November, 1994 of the Central Administrative Tbnl. H
814 SUPREME COURT REPORTS [1995] SUPP. 6 S.C.R.

A Hyd. Bench, Hyderabad in O.A. Nos. 749 of 1990, 1546 of 1994 and 141 of '4•
1991 respectively.

K.T.S. Tulsi, A.S.G., N.N. Goswami, Arvind Kumar Sharma, Wasim
Qadri and Vikas Pahwa for the Appellant.

B K. Madhava Reddy, Guntur Prabhakar, D. Prakash Reddy and Ms.
C Ramamurthy for the respondent.

The Judgment of the Court was delivered by

RAMASWAMY, J. Leave granted in all the special leave petitions.
c
The respondents were admittedly appointed in Railway Employees'
Consumer Co-operative Stores at Rajahmundry, Visakhapatnam,
Vijianagaram and Dhannavaram in South-Central Railway. They filed
different 0.As. before the Central Administrative Tribunal (CAT),
D Hyderabad Bench seeking declaration that they are "regular Railway
employees in Class Ill posts" and entitled to be paid regular salary for
continuous service from the date of the respective appointments in the
Societies and also consequential promotion, increments and payment of
arrears of salary. The CAT, Hyderabad Bench following the decision of
the Madras Bench delivered on June 29, 1990 in 0.A. 305/88 allowed the
E O.As. and gave the directions for grant of the reliefs referred to earlier but
payment of salary was directed to be made from the date on which
respective applications were filed. By the time the present Special Leave
Petitions came to be filed, a two-Judge Bench of this Court by order dated
September 7, 1994 made in C.A. No. 2932/91 confirmed the order of the
F CAT, Madras Bench but the review petition was pending. When these
appeals had come up for bearing on October 16, 1995 it was pointed out
to another Bench by the Additional Solicitor General that despite the
dismissal the matter required examination and for that reason notice was
already issued in another case, viz., C.A. @ SLP 24287/95. All the matters
G were accordingly tagged together. After the dismissal of the review petition
a two-Judge Bench by order dated November 13, 1995 referred the matter
to this Bench. Thus these appeals by special leave.

The admitted facts are that the respondents were appointed by the
respective Railway Co-operative Stores registered under the Andhra
H Pradesh Co-operative Societies Act, 1964 as amended from time to time.
U.0.1. v. J.V. SUBHAIAH [RAMASWAMY, J.] 815

The Co-operative Stores were organised by the Railway Administration as A
social welfare measure to inculcate thrift and cooperative spirit in the
management of the societies, distribution of essential commodities and
lending of credit facilities etc. to the members of the societies. Under the
bye- laws, respective societies consist of serving members of the Railway
Administration at the respective places. Normally these societies are B
formed at railway junctions. They are organised under the instructions
issued by the Railway Administration in the Railway Establishment Manual
(non-statutory orders). Working of the societies are supervised by the
welfare officers appointed by the Railway Administration. It is in dispute
as to whether salaries to welfare officers are paid by the societies con-
cerned or by the Railway Administration but that is not material for C
disposal of these appeals. It is also not in dispute that one- third of the
members of the societies are nominated by the Railway Administration.

Shri Tulsi, learned Additional Solicitor General contended, on the
facts, that Co-operative Stores registered under the Co-operative Societies D
Act, a State Act and the articles of association or the bye-laws of the
societies are sanctioned by the Registrar of Co-operative Societies (for
short, "the Registrar") of the concerned State appointed by the State
Government under the respective State Acts. The constitution of the
societies is regulated and registered under the State Act. Appropriate law,
rules and bye- laws provide that the General Body of the society peri- E
odically elects the members of the committee which in turn elects the
President or general body itself elects the President, for a specified term.
The President and the committee, as the case may be, is empowered to
appoint the officers, employees and servants of the Stores according to its
bye-laws. The Registrar under the respective Acts, has supervision and F
control over the working of the societies and its employees. In case of
dispute between the society and its members or the society and its officers
or employees, the same is resolved by an arbitrator under the Act and
appeal thereunder is provided to a Tribunal constituted or an appellate
forum specified. The jurisdiction of a civil court stands excluded in respect
of the said disputes. Salaries to the staff are paid by the society. Railway G
Establishment Manual prescribes procedure for organisation of the welfare
activities, one of which is establishment of consumer credit co-operative
societies or house building societies. The share capital , though deducted
from the salary of the member-employees, is only by way of an amenity to
enable them to organise, as a co-operative movement, for sale-help and H
816 SUPREME COURT REPORTS [1995] SUPP. 6 S.C.R.

A thrift. The Administration has no control over selection, appointment and
••
payment of salaries to the staff of the society. No qualifications are
prescribed in that behalf. It is due to administrative exigencies of the
concerned Stores or the Societies that appointment or dismissal can be
made by the President/committee as per the procedure prescribed under
B the respective Acts or the Rules or bye-laws made thereunder. Thereby the
Railway Administration has no managerial or administrative control over
the staff of the Stores/Societies. The conditions of service of the officers of
the Railway Administration are not applicable to them. If the Society is
liquidated by tile Registrar for its mismanagement the employees of the
Societies seek the remedy only against the Societies. The societies have not
C been impleaded as respondents. The ratio in M.M. Khan & Ors. v. Union
of India & Ors., [1990] Supp. SCC 191 cannot be applied to the employees
of the societies/Stores. The rent-free accommodation and provision of
electricity to the Stores and medical facilities to the employees are ex-
tended as a part of the welfare measure withaut creating an obligation on
D the part of the Railway Administration to treat them as Railway employees.
In M.M. Khan's case recognised cooperative canteens were organised as a
part of the statutory duty under Section 46 of the Factories Act where
employees are 100 or above in number but below 250. The ratio laid down
therein is inapplicable to the facts of these appeals, Shri K. Madhava reddy,
E learned senior counsel and Mrs. Chandan Ramamurthy, learned counsel
for the respondents contended that the ratio of M.M. Khan's case applies
on all fours to the facts of these appeals. Co-operative Stores/Societies have
been organised at the instance of the Railway Administration. Their work
is controlled and supervised by the Welfare Officer appointed by the
Railway Administration and subsidy is being paid by the Railway Ad-
F ministration. The society is merely an intervening agency or veil between
the Railway Administration and the employees of the Cooperative
Store/Societies. The Railway Administration admittedly gives facilities like
railway passes, quarters on nominal rent, free medical aid and other
amenities given to the regular officers and servants of the Railway Ad-
G ministration from time to time. The Railway Board issues circulars from
time to time to control,organise and supervise the working of the Stores.
The Railway Establishment Manual itself is a complete code in that behalf.
Merely because the Railway A<lministration kept its arms as an intervening
agency between the Stores and the employees, it cannot disown its liability
H to treat the employees appointed by the Stores/Societies (like canteen
U.0.1. v. J.V.SUBHAIAH [RAMASWAMY,J.] 817

cases) as its employees. The decision of the Madras Bench of the CAT A
since upheld by this Court in an appeal and review petition also having
been dismissed, the employees appointed by the respective Stores in
Southern Railway and South-Central Railway form a class discharging the
same duties. Therefore, the respondents cannot be denied their Constitu-
tional right to have equal treatment as had by the regular Railway B
employees. Smt. Chandan Ramamurthy placed strong reliance on yet
another decision of a two-Judge Bench of this Court in Parimal Chandra
Raha & Ors.. v. Life fllsurance Corporation of India & Ors. , [1995] Supp. 2
sec 611.
In view of the respective contentions a question giving rise to far- C
reaching consequences emerges for decision in these appeals. The question
is whether the officers, employees and servants appointed by a Co-opera-
tive Society/Sto1es registered under the Co-operation Societies Act of a
State or Societies Registration Act (for short, 'the Society') and organised
as a welfare measure to inculcate co-operative movement, self-help and D
thrift among the officers and servants of Railway Administration, can be
declared to be regularly appointed Railway employees? Whether they are
Railway employees defined under the Railway Establishment Manual and
entitled to all the consequential benefits? Before adverting to the instruc-
tions in the Railway Establishment Manual, it would be profitable to
consider the legal setting of the appointments of the employees and ser- E
vants of the Society. In this case since admittedly the A.P. Co-operative
Societies Act (7 of 1964) for short 'the Act') is applicable, its provisions
and of the predecessor Acts repealed thereunder and of the Rules made
thereunder as amended from tin1e to time and bye-laws of the society are
required to be examined. The Act was enacted with a view to encourage p
co-operative movement, inculcate thrift and self-help and to organise the
societies on democratic lines. The right to form a society is a statutory
right and is not a fundamental right. A Society registered under Section 7,
on compliance with and conforming to the requirements laid down therein
and the rule made thereunder, is body corporation under Section 9. The
Registrar is empowered under Section 15 to divide the area of operation G
of the Society or amalgamate Societies for their day to day better working.
The amendment to the bye-laws shall be approved by the Registrar and
registered under Section 16. The .rights and liability of the members are
regulated in Chapter III subject to Section 21. Section 19 regulates the
eligibility of a member and other qualifications. Section 21 prescribes H
818 SUPREME COURT REPORTS [1995] SUPP. 6 S.C.R.

A disqualification for membership of the Society. Section 21-A prescribes
disqualification for membership of the committee of the society. Section
21-AA envisages cessation of membership of a committee and the
reinstatement under Section 21-B. Election and the right to vote is regu-
lated by Section 25. Management of the society is regulated by Section 30.

B The ultimate authority of the society vests in its general body vide
Section 30 (l)(a). It would be subject to the other provisions of the Act
and the Rules and bye-laws made thereunder. Section 31 prescribes the
procedure for constitution of a committee and their duties and respon-
sibilities etc. Section 32 prescribes procedure for holding general body
C meeting of the Society and the committee and sub-section (4) thereof
employers the Registrar to appoint a Special Officer with remuneration for
the management of the committee. Section 37, with an non-obstante clause
and subject to the execution of an agreement, empowers the Society to
deduct the share capital or any amount from monthly salary or wages
D payable to a member of the Society. The duration of elected body is five
years. Chapter VII consists of Section 50 to 60 for audit, enquiry, inspection
and surcharge for the mismanagement and recovery of the amounts found
mismanaged or defalcated from the members of the committee or the
officers or servants of the Society. Chapter VIII deals with settlement of
disputes. It consists of Sections 61 to 63. Sub-section (1) of Section 61 with
E a non-obstante clause provides that any dispute touching upon the constitu-
tion, management or the business of the Society other than a dispute
regarding disciplinary action taken by the Society or its committee against
a paid employee of the Society, shall be resolved by arbitration on a
reference under Section 62 and recovery of the monies due to it. Chapter
IX deals with winding up of and cancellation of the registered Societies,
F
Liquidator gets appointed to wind up the Society. Chapter X deals with
execution of the decisions, decrees or orders. Chapter XI provides for
constitution of a Co-operative Tribunal, appointment of the members of
the Tribunal, appeal thereto, revision to the Registrar and review of the
orders has been provided in Section 76, 77 and 78. Chapter XII deals with
G offences and penalties.

Section 79(1)(a) provides that "it shall be an offence under the Act,
if a committee, an officer, employee or any member of the society wilfully
makes a false return or furnishes false information, on a lawful order or
H direction issued" under the Act. Clause (aa) provides that "if the commit-
U.0.1. v. J.V.SUBHAIAH [RAMASWAMY,J.] 819

tee, an officer, employee or any member of the society furnishes false A
information to gain admission or to continue as member of a society
etc.,it/he shall be liable for prosecution as envisaged under the Act. Special
Courts are empowered to take cognizance and try an offence against the
officers etc. constituted under Section 83-A.

Section 116-A with a non-obstante clause gives power in chapter IVX . B
to the Registrar to constitute a common cadre for the categories of
employee for certain societies enumerated thereunder. Section 116-AA
equally gives power to him to abolish the centralised services for certain
categories of employees. Section 116-C empowers the societies with prior
approval of the Registrar to fix staffing pattern, qualifications, pay-scales C
and other allowances. In case of a society receiving financial aid from the
Government, appointment or removal of the Chief Executive of the society
by what:·••r name called of any society should be made only with the prior
approval of the Registrar as per sub-section (2) of Section 116-C. Section
121 bars the jurisdiction of courts and provides that no order, decision or
action taken or direction issued under the Act by an arbitrator, liquidator, D
Registrar or Tribunal etc. shall be liable to be called in question in any
court. The rights and liabilities are subject to the bye-laws, Rules and the
Act. The Society owes its existence and continuance by its efficient and
proper management by the Committee assisted in its day-to-day manage-
ment by its staff. E

Rules 28 and 29 of the Co-operative Societies Rules of 1964 (for
short', "the Rules 11) provide as under:

"28. Officers and servants of societies : (1) No society shall appoint
any person as its paid officer or servant in any category of service, F
unless he possesses the qualification and furnishes the security as
specified by the Registrar, from time to time, for such category of
service in the society or for the class of societies to which it belongs.

(2) No society shall retain in service any paid officer or servant, if G
he does not, acquire qualifications, or furnish the security, as is
referred to sub-rule (1) within such time as the Registrar may
direct.

{3) The Registrar may, for special reasons, relax in respect of any
paid officer or servant, the provisions of this rule in regard to the H
820 SUPREME COURT REPORTS (1995) SUPP. 6 S.C.R.

A qualifications he should possess of the security he should furnish.

(4) No society shall appoint as its paid officer or servant in any
category of service any person who is related to any director or
member of the committee of a financing bank to which the society
is affiliated except with the prior approval of the Registrar.
B
(5) Notwithstanding an)thing contained in the bye- laws/special
bye-laws, service regulations or common cadre regulations of the
co-operative societies, every paid servant and officer of a society,
other than those in the last grade service, shall retire from service
c on the afternoon of the last date of the month in which he attains
the age of 58 years.

29. Appointment of Secretary : Every financing bank, every credit
society with limited liability and a working capital of not less than
Rupees one lakh shall appoint a paid secretary. The paid secretary
D shall be disqualified for being appointed as, and for being a
member of the committee of the financing bank, the society or the
mortgaged bank, as the case may be :"

A conspectus of these provisions would clearly indicate that registra-
tion of the society, election to the committee, the term thereof, rights and
E liabilities of the members and office bearers are regulated under the Act.
Power to appoint officers, employees and servants of the society is given
to the president or the committee, as the case may. They are regulated by
the bye-Jaws, Rules and the Act. Their service conditions are regulated by
those provisions with prior approval of the Registrar. A sample bye-laws
F of the society relating to the Consumer Stores at Rajahmundry has been
placed before us. It shows that under bye- law 19, the management of the
affairs of the society, subject to the resolutions passed from time to time
by the general body or the committee from time to time, "shall vest in the
managing committee". Under bye-law 20, .he general body elects, amongst
themselves, a President, a Secretary, an Assistant Secretary. Under bye-
G laws 23, subject to the resolutions passed by the managing committee from
time to time, several officers of the society shall have the powers to manage
the society as enumerated thereunder. Sub-bye-law (2) therefore, provides
that Society shall appoint a paid Manager who, among other things, shall
be responsible to carry on day-to-day work of the society on sound lines.
H Under sub-law (3), the managing committee is empowered to prescribe
U.0.1. v. J.V.SUBHAIAH [RAMASWAMY,J.] 821

from time to time the strength of the establishment of the society and the A
scales of pay and allowances admissible to each member appointed by the
President. Under sub-law (3)(c), the President shall have the power to fine,
suspend or dismiss the members of the establishment. Except in the case
of fine, a appeal shall lie to the Committee against every order awarding a
punishment by the President. Under bye-law 27 (2), no officer or servant B
shall remain in any category of service in the society, if he does not furnish
security as prescribed by the Registrar. The other bye-laws are not
relevant for the purpose of these cases.

It would thereby be clear that the power to prescribe strength of the
establishment appointment of the staff of the Society, its officers, C
employees and servants, and their scale of pay are regulated by bye-laws,
Rules and Act. Disciplinary control lies with the president and the Com-
mittee. The disciplinary action against its employees is excluded from the
arbitration proceedings, by operation of Section 60. For offences etc. are
prosecuted under the Act, the jurisdiction of the civil court is excluded D
Appointment of the officers, employees and services of the Society is
regulated by the provisions of the Act, Rules and the bye-laws as self-con-
tained scheme and code. The Society enjoys autonomy as a body corporate
subject to the provisions of the Act, Rules and bye-laws. It enjoys exclusive
' .. power to appoint and keep disciplinary control over the staff in its estab-
lishment. The tenure is subject to bye-laws, Rules and Act and law. so long E
as the Society is not liquidated as per law, In Co-operative Ce11tral Ba11k
Ltd. & Ors. v. Additio11al lndustlial T1ibwzal, Andhra Pradesh, Hyderabad,
[1969] 2 SCC 43 this Court had held that Industrial Disputes Act would
apply to the employees appointed under the Act by the Co-operative
Central Bank. It would, thereby, be clear that appointments of the staff of F
the establishment, control and disciplinary actions are regulated under the
provisions of the Act, the Rules and the remedies provided under law.

The question, therefore, emerges whether the officers, employees
and servants appointed by Co-operative Society organised under the Rail-
way Establishment Manual could be treated as Railway servants. Paragraph G
lOB of the Indian Railway Establishment Code defines "Railway Servant"
to mean "a person who is a member of a service or who holds a post under
the administrative control of the Railway Board and includes a post in the
Railway Board". In other words, a person must be appointed to a service
or a holder of a post under the administrative control of the Railway Board H
822 SUPREME COURT REPORTS (1995] SUPP. 6 S.C.R.

A including a post in the Railway Board itself. Admittedly, respondents are
not members of the service nor do they hold post under the administrative
control of the Railway Board. They seek party only on the basis of the rule
laid down by this Court in M.M. Khan's case (supra).

B Before dealing with the effect of the ratio of M.M. Khan's case, it
would be appropriate to deal with yet another decision rendered on the
same day by the same Bench which was argued in the same batch but a
separate Judgment was rendered, viz., All India Railway Institute
Employees' Association v. Union of India through the Chainnan, (1990] 2
SCC 542 to which one of us, K. Ramaswamy, J., was a member .Therein
C the question was whether the employees appointed in the institutes or clubs
maintained by the Railway employees as welfare measure could be treated
as Railway employees on par with Railway canteen employees (statutory
or non-statutory recognised canteens). This Court recognising that the
establishment of the institutes or clubs, though recognised by the Railway,
D was only a welfare measure, had held that formation of the institutes or
clubs was not mandatory. They are established as a part of the welfare
measure for the Railway staff and the kind of activities they conduct,
depends, among other things, on the funds available to them. The activities
have to conform to the objects since by their very nature the funds are not
only limited but keep on fluctuating. The institutes or clubs and the benefits
E that would flow on them will depend upon the budgetary provisions for
the institutes and clubs and keep flowing from time to time. If the
employees working in the institutes or clubs are recognised as Railway
employees it will have snow-balling effect on other welfare activities carried
out by the Railway and similar activities carried "on by all other organisa-
F lions". In the light of those factual matrices, it was held that there was no
relationship of employer and employee between the Railway Administra-
tion and the employees engaged in the institutes and clubs. Neither law nor
facts spell out such relationship.

In M.M. Khan's case (supra), establishment of a canteen was one of
G the mandatory requirements as a part of efficient Railway Administration.
Where the employees are 250 and above, Section 46 of the Factories Act
mandates the industrial establishment to establish and maintain canteens.
If the employees arc 100 and above, though it was not mandatory but
maintenance of a canteen under the Railway Establishment Manual is a
H Part of the Railway Administration. In that factual and legal setting, this
U.0.1. v. J.V. SUBHAIAH [RAMASWAMY,J.] 823

Court was to consider the effect of non- statutory recognised canteens A
registered under the Co-operative Societies Act and the staff appointed in
those societies. It was held that the management of the Societies was
controlled by the Railway Administration by appointing a Chairman or
Secretary as a member of the Society. The nominees of the Railway
Administration are statutorily obligated to bring to the notice of the B
Railway Administration all the management and affairs of the committee
which is likely to affect the interests of the Railway Administration in its
capacity as the. owner of the premises and furniture equipments etc. It the
decision of the committee is likely to be of a considerable magnitude it is
required to be brought to the notice of the Railway Administration. The
General Manager of the .Railway has supervisory control over the manage- C
ment of the committee as per the provisions contained in the Railway
Manual. For the purpose of giving subsidy for wages, the rates of pay and
allowances to the staff canteen employees are regulated by the Manual.
Revision of the scales of pay and dearness allowance to the managing
committee was also regulated therein. The Railway Administration had D
given directions from time to time to ensure compliance of those require-
ments. This Court also intervened and pending appeals, gave directions to
• pay to the canteen employees equal pay on par with regular employees of
the Railway Administration and compliance was enforced by orders of this
I .. Court. Their service conditions are regulated by the instructions. The
employees in the canteens are also entitled to free medical treatment as E
out-door patients in Railway hospitals etc. In the backdrop of those facts
and the Rules, this Co.urt had held that the employees appointed, even in
non- statutory recognised canteens registered under Co-operative Societies
Act or the recognised canteens, would be entitled to claim the status of
Railway servants.
F
Shri Madhava Reddy, in all frankness admitted that there is a
dichotomy of dual control exercised by the Registrar under the Act and
the control by the Railway Administration. But he contends that since the
staff appointed by the Co-operative Societies running canteens are treated
as Railway servants the same ratio should be extended to the employees G
appointed by the Co-operative Stores/Society since this is also a welfare
amenity totally controlled by the Railway Administration and 10 per cent
subsidy is also regularly given.

It is not necessary to embark upon a detailed examination into the H
824 SUPREME COURT REPORTS (1995] SUPP. 6 S.C.R.

A instructions given in various paragraph Nos. 2901 to 2909 in chapter 29 of
Railway Manual (Placed before us) dealt with by the CAT Madras Bench
in its judgment. Suffice it to state that ·admittedly instructions have been
issued to regulate the systematic organisation and management of the
Stores/Societies. The Government, as a welfare measure, gives 10 per cent
B subsidy to enable the society lo manage its affairs supervised by the
Welfare Officer of the Railway Department. Employees become members
of the Societies by contributing towards share capital. Initial amount is paid
by the Railway Administration and is later deducted from their salary. It
also gives free accommodation for housing the Stores, electricity, free
medical aid in its hospitals to those employed by the Stores. In the Manual
C it is specially stated that they are entitled to travelling passes when they go
to attend that committee meetings. Even otherwise the facilities extended
are optional and are only a part of on-going welfare measure.

It is seen that service conditions of the employees, officers and
D servants of the Stores/Societies are not regulated by the Railway Ad-
ministration. They arc governed by the bye-laws of the Societies subject to
control and sanction by the Registrar under the State Act or the relevant
provisions. There is no obligation on the part of the Railway Administra-
tion to provide security for those employees. The disciplinary control by
the Society concerned is subject to other laws and is exclusively domestic
E in character. The Railway Establishment Code is not applicable to them.
•· '
Their appointment is subject to bond prescribed by the Registrar. The
arrears of funds or misappropriated amounts etc. are recoverable under
the provisions of the State Act and the Rules made thereunder. The
Services of the staff are liable to termination in terms of the State Act,
F Rules and bye-laws.

In other words, there is a dual control over the staff by the Society
and the Registrar. In that behalf, the Railway Administration has no role
to play. If the subsidy is considered to be a controlling factor and the
Societies/Stores as an intervening agency or veil between the Railway
G Administration and the employees, the same principle would equally be
extendible to the staff, teachers, professors appointed in private education-
al institutions receiving aid from the appropriate State/Central Government
to claim the status of Government employees. Equally, other employees
appointed in other Co-operative Stores/Societies organised by appropriate
H Government would also be entitled to the same status as Government

1
U.0.1. v. J.V. SUBHAIAH [RAMASWAMY, J.] 825

servants. Appointment to a post or an office under the State is regulated A
under the statutory rules either by direct recruitment or appointment by
promotion from lower ladder to higher service or appointment by transfer
in accordance with the procedure prescribed and the qualifications
specified. Any appointment otherwise would be vertical transplantation
into services de hors the rules. Appointment through those institutions B
becomes gate-way for back door entry into Government service and would
be contrary to the prescribed qualifications and other conditions and
recruitment by Public Service Commission or appropriate agencies. As
contended, if the employees of the societies like co-operative canteens are
declared to be railway servants, there would arise dual control over them
by the Registrar and Railway Administration but the same was not brought C
to the attention of the court when MM Khan's case was decided.

It is true that the order of the two-Judge Bench of this Court had
upheld that order of the CAT, Madras Bench which had become final.
With due and great respect to our learned brethren constituting the Bench, D
these fee.lures noted by us do not appear to have been put up for their
consideration and so they did not have occasion to consider the impact as
envisaged hereinbefore. The Bench merely stated thus :

"..... The Tribunal has examined in detail Chapter XXIX of the
Indian Railway Establishment Manual and has preferred to paras E
2901 to 2909. Based on the provisions of the Railway Manual and
taking into consideration the actual working of the Stores, the
Tribunal has come to the conclusion that the employees working
in the co-operative stores are in fact and in law, the employees of
the Railway Establishment. We have been taken through the judg- F
ment of the Tribunal and other relevant material on record. We
see no ground to interfere with the reasoning and the conclusion
reached by the Tribunal... .. ".

In view of the above discussion and in view of the legal setting
referred to hereinbefore, we are of the considered view that the Bench had G
not laid down any law except approving the reasoning and conclusion
reached by the Madras Bench of the CAT. The Madras Bench had merely
referred to the provisions in the Manual and proceeded on the premise
that they gave rise to a legal base to treat the employees of the stores as
the Railway employees. The reasoning is wholly illegal and unsustainable H
026 SUPREME COURT REPORTS (1995) SUPP. 6 S.C.R.

A for the reasons stated above.
The principle of equality enshrined under Article 14 of the Constitu-
tion, as contended for the respondents, does not apply since we have
already held that the order of the CAT, Madras Bench is clearly unsus-
tainable in law and illegal which can never form basis to hold that the other
B employees are invidiously discriminated offending Article 14. The
employees covered by the order of the Madras Bench may be dealt with
by the Railway adw;nistration appropriately but that could not form foun-
dation to plead discrimination violating Article 14 of the Constitution.

We, therefore, have no hesitation to hold that the officers, employees
C and servdnts appointed by the Railway Co-operative Stores/Societies can-
not be treated on par with Railway servants under paragraph lOB of the
Railway Establishment Code nor they can be given parity of status, promo-
tions, scales of pay, increments etc. as ordered by the CAT, Hyderabad
Bench.
D
The appeals are accordingly allowed and the OAs stand dismissed
but, in the circumstances, with costs.

A.R. Appeals allowed.

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