SOM PRAKASH REKHI v. UNION OF INDIA & Anr.

(c) If regulation 16 is a provision which imposes a cut in certain even tualities it is possible to hold that the employee has a certain pensionary right. But if he draws provident fund or gratuity that pension will be pared dowo by a separate rule of deduction from the pension. there is no straining of the language of the regulations to meao, firstly, a right to pension quantified ip: certain: manner and, secondly, a right Management to make deduction from out of that pension if other retiral benefits are drawo by the employee, That appears to be the pension scheme. It follows SOM PRAKASH REKH! V. UNION 115 If this be correct, there is 110 substance in the argument that t11e pension i1seJt is automatically reduced into a smaller scale of pension on the drawal of provjdent fund or gratuity. Pension is one thing, deduction is another. The latter is independent of pension and operates on the pension to amputate it, as it were.

If a law forbids such cut or amputation the pension remains intact. [152B-D] (d) The payment of gratuity or provident fund should not occasion any statutory deduction from the pension as a "set~off''. Otherwise, the solemn provisions ensuring provident fund and gratuity become illusory. Pensions are paid out of regard for past meritorious services. The root of gratuity and the foundation of provident fund are different. Each one is a salutaiy benefaction statutorily guaranteed independently of the other. Even assuming , that by private treaty parties had otherwise agreed to deductions b<fore coming into force. of these b'eneficial enactments they cannot now be depri· It is precisely to guard against such mischief that the non-obstante· and vatory. overriding provisions are engrafted on these statutes. [152F-G] y (e) It is not open to the second respondent to deduct pension any sum based upon regulation 16 read with regulation 13.

If regu lation 16 which now has acquired statutory flavour, having been adapted and con~ tinned by statutory rules, operates contrary to the provisions of the P.F. Act and the Gratuity Act, it must fail as invalid. [153CJ (f) What is discretionary depends on the discretion of the employer. But that power when exercised by an agency of government like the second pondent, must be based upon good faith and due care. If as a measure of reprisal or provoked by the drawal of gratuity, or by resort to legal authorities, · such supplementary benefit is struck off, it will cease to be bona fide or valid. [153D-EJ Pathak, J. (dissenting) On the merits the petitioner should be granted relief as proposed by the mbjority. [154 G] It is difficult to accept the proposition that the Bharat Petroleum Corpora. lion Limited is a "State" within the meaning of Article 12 of the Constitu- tion, but the matter appears to be concluded because of the direction taken by the law since Ramana Dayaram Shetty v.

International Airport Authority [1979] 3 s.C.R. 489 a wider range of debate on the fundamental principles involved in the issue would have been welcomed in view of the implications the Companies fl.owing from the definition of a "government company" in Act, 1956. [154 D] A B c D E F The provisions of the Burmah Shell (Acquisition of Undertakings India) Ac~ 1976 do not alter the basic nature of a "government company". G They are provisions which could well have been applied to a private corpo ration if the Act had selected one for vesting the undertaking in it. Had that been done, they would not have made the private corporation a State. [154F] ORIGINAL JURISDICTION : Writ Petition No. 1212 of 1977. (Under Article 32 of the Constitntion). Petitioner in Person. S. Markendeya and Miss A. Subhashini for Respmdent No. 1. G. B. Pai, 0. C. Mathur and K. l. John for Respondent No. 2. H 116 SUPREME COURT REPORTS [1981] 2 S.C.R, A P. R. Mridul, M. K. Ramamurthi and Jitendra Sharma for the Intervener (The Petroleum Workers' Union) P. N. Tiwari (Secretary of Union) for the Intervener (Petroleum Employees' Union).

B. B. Sawhney and B. P. Ghosh for the Intervener (C. H. Kewal ramani). The Judgmeut of V. R. Krishna Iyer arid O. C. Reddy, JJ. was delivered by Krishna Iyer, J. Pathak, J. gave a dissenting Opinion. KRISHNA IYER, J.-Three seminal issues arise in this little Ii~ har- ""- bouring larger principles. We may state them, each with a quotel to drive home the social stakes, and ihen proceed to the pedestrian factual-legal narrative and discussion. "They (corporations) cannot commit treason, nor be out lawed, nor excommunicated, for they have no souls. " (Edward Coke, Sutton's Hospital Case) A legal power, which projects an awesome portent has been sprung upon the court by the defending respondent-. The Bharat Petroleum Corporation Ltd(') (the Corporation, for short)-as whether a writ will issue under Art. 32 of the Constitution against a government company, belonging, as it does, to an increasing tribe of soulless ubiquity and claiming, as it does, to constitutional immu nity.

This is the first issue to which he will address ourselves. Jawaharlal Nehru warned the Constituent Assembly about problem of poverty and social change : The service of India means the service of the millions It means the ending of poverty and ignorance who suffer. and disease and inequality of opportunity. The ambition of the greatest man of our generation has been to wipe every tear from every eye. That may be beyond us, but as long as there are tears and sufferings, so long our work will not be over. The second question which claims our attention turns ori the peti tioner's plea of alleged stultification of Art. 41 by the State itself re incarnating as a government company, by defending the paring down the pension of the petitioner to a pathetic pittance thus sterilising a directive principle to a decorative paper. (I) Vide Certificate of Incorporation dated 1-8-1977. B c D E F G H SOM PRAKASH REKH! v.

UNION (Krishna lyer, J.) 117 Law cannot stand aside from the social changes around A it. (Justice Brennan in Roth v. United States 354 U.S. 476) The third problem, not humdrum but heuristic, turns on the construction of the relevant legislations and regulations covered by the writ petition, remembering the social dynamics of the law of statutory interpretation. ' This writ petition under Art. 32 relates to a poor employee's small pension on retirement and the legality of the deductions effected by the. employer which make the net sum payable traumatically trivial (Rs. 40/-). A principle of wider application is involved beyond the individual's pensionary fate. The petitioner was employed as a clerk in the Burmah Shell Oil Storage Ltd., (Burmah Shell, for short) and retired betimes (at 50) after qualifying for a pension, on April 1, 1973. He was also covered by a scheme under the Employees Provident Funds arid Family Pension Fund Act, 1952 (for short, the PF Act).

The em ployer undertaking was statutorily taken over by force of The Bur mah Shell (Acquisition of Undertakings in India) Act, 1976 (here inafter called the Act). Thereafter, the Central Government, act took necessary steps for the vesting of the ing under the statute, Undertaking in the second respondent, the Corporation and became the statutory successor of the petitioner's employer. His pensionary rights, such as he had, second respondent. What was the quantum? Was any cut illegally effected by Burmah Shell and continued by respondei; tt 2 ? Could a: writ be issued against the second respondent in respect of the cut ? These are the questions argued before us. The petitioner-pensioner, ~eing too poor, Shri Parekh, assigned by the Legal Aid Society, appeared promptly and argued passionately. At a petitioner preferred to make a few brief supplementary submissions on his own. therefore, became claimable re-hearing, B c D E F G The pensionary provision for the Burmah Shell employees de pended on the terms of a Trust Deed of 1950 under which a Pension Fund was set up and regulations were made for its administration.

Regulations 13 and .15 entitled the petitioner to pension and contain- ed the formula for quantification. Regulation 13 has a significant H clause : "less the authorised deductions specified in reg. 16, namely ...... ". The bone of contention between the parties is about these .......--- ----·~-- 118 SUPREME COURT REPORTS [1981] 2 S.C.R. A deductions and we may set out this Regulation (relevant part) even here:

The authorised deductions to be made in calculating the amount of a non-contributing member's pension shall be as follows : ( 1) A sum equal to four per cent of such amount stand ing to the credit of the member at the relevant date in any Provident Fund as represents any Company's contributions to that fund in respect of the period of the member's Accre dited Service (including bonuses and interest on such cont, ri- butions up to that date). (2) A sum equal to four per cent of any amount which before the relevant date the member has withdrawn from a Provident Fund in so far as such withdrawal is under the Rnles of the Provident Fund charged against the period of the member's Accredited Service (including bonuses and interest thereon) or has been paid out to him during his Accredited Service under the Rules of Provident Fund, to gether with interest thereon from the date of such withdrawal or receipt to the relevant date.

On the appointed day, the right, title and interest of Burmah Shell, in relation to its undertakings in India, shall stand transferred to, and shall vest in the Central Govern ment. A B c D E ... - This provision lays bare the central object of making the F Central Government the proprietor of the undertaking. It hardly i needs argument to convince a court that by virtue of s. 3, the Central '\Government is the transferee of the Undertaking. Had a writ pro ceeding been commenced during the period of vesting in the Central Government, it could not have been resisted on the score . that employer is not "the State". The appointed day did arrive and the G right, title and interest in Burmah Shell did vest in the Central Govern ment. A commercial undertaking although permitted to be run under our constitutional scheme by Government, may be better managed with\ professional skills and on business principles, guided, of course, by H social goals, if it were administered with commercial flexibility and celerity free from departmental rigidity, slow motion procedures and 122 SUPREME COURT REPORTS [1981] 2 S.C.R. A hierarchy of officers.

7. (1) Notwithstanding anything contained in sections 3, 4 and 5, the Central Government may, if satisfied that a Govermnent company is willing to comply, or has complied 'may with such terms and conditions as that Government think fit to impose, direct by notification that the right, title and interest and the liabilities of Burmah Shell in relation to any of its undertakings in India, shall instead of continuing to vest in the Central Government, ve, rt in the Govermnent (emphasis added) company. . . . The core fact is that the Central Government, through this provision, chooses to make over, for better management, its awn property to its own offspring. A government company is a mini-incarnation of Government itself, made up of its blood and bones and given corporate shape and status for defined objectives, not beyond. Nor is this any isolated experiment in government formally transr ferring ownership to a company.

There are a number of statutory take-overs in India as in other countries, where the initial vesting i~ in government, followed by a later transfer to another instrumentality may be an existing government company or a corporation created by statute or even a society or other legal person. In the present case, a government company was created anteriorly and by virtue of a noti fication under s. 7 it became the transferee of the right, title and interest as well as the liabilities of Burmah Shell . c D E F The device is too obviou! for deception that what is done formal transfer from government to a government-company as notification clearly spells out : is a G lfl exercise of the poweri conferred by sub-section ( 1) of Section 7 of the Burmah Shell (Acquisition of Under takings in India) Act, 1976 (2 of 1976), the Central Gov emment, being satisfied that Burmah-Shell RefineriCll Ltd., a 6overnment company i1 willing to comply with such terms · and conditiO!lll as may be imposed by the Central Go,-emment · H 9-1281 SCI/80 ,_ - ""lit" 124 SUPREME COURT REPORTS [J98J] 2 S.C.R. hereby directs that the right, title and intere,,t of Burnwh-Shell Oil Storage and Distributing Co. liabilities of India Ltd. in relation to its undertakings in India, shall, to vest in the Central Government vest, instead of continuing with effect from the twenty fourth day of January, 1976, in Bwmah-Shell Refineries Ltd. and the -f, A B This is the well-worn legal strategy for government to run economic and like enterprises.

We live in an era of public sector corporations, the State being the reality behind, Law does not hoodwink itself and what is but a strategy cannot be used as a strategem : -, These are the facts when we come to brass tacks. Fact& form the raw matedal out of which the finished product of judicial finding fabricated after processing through established lega� principles. Indeed, in life as in law "it is as fatal as it is cowardly to blink !acts because they are not to our taste". What, then, ar\' the basic facts available from the Act ? Constitutional law is not a game of hide and but prJctical real-life conclusions. So viewed, we are constrained to hold that Burmah-Shell, a government company though, is but alter ego of the Central Government and must, therefore, be; treated as definitionally caught in the net of 'State' since a juristic veil worn tor certain legal purposes cannot obliterate the true character of, the entity for the purposes of constitutional law.

If we distil the essence of Art. 12 textually and apprehend expanded meaning of "State" as interpreted precedentially, we may solve the dilemma as to whether the Bharat Petroleum is but a double of Bharat Sarkar. Let us be clear that the jurisprudence bearing on corporations is not myth but reality. What we mean is that corporate personality is a reality and not an illusion or fictitious construction of the law, It is a legal person. Indeed, 'a legal person' is any subject­ matter other than a human being to which the law attributes personality. "This extension, for good and sufficient reasons, of the conception of lega1 personality . . . . is one of the most noteworthy feats of in­ imagination. "(') Corporations are one species of legal persons vented by the law and invested with a variety of attributes so as achieve certain purposes sanctioned by the law. For those purposes, a corporation or company has a legal existence all its own.

The functional c!JaracteristiCl! of corporations, their rights and liabilities, autonomy and juristic status, are jurisprudentially recognised as of a distinct entity even where such corporations are but State agencies or 1956, a instrumentalitie�. For purposes of the Companies Act, government company bas a distinct personality which cannot be con- (!) �almond, Jurisprudence, 10th Bdn. pp. 324-325. ·r _) c D E F G H SOM PRAKASH REKHI V. UNION (Krishna Iyer, JJ 125 fused with the State. Likewise, a statutory corporation constituted to carry on a commercial or other activity is for many purposes a dis tinct juristic entity not drowned in the sea of St!te, although, in subs tance, its existence may be but a projection of tbe State. What wei legaj_ wish to emphasise is that _1*rely because a company or other person has functional and jural individuality for certaiq purposes and in~ain_aE~~?.~ fuw, 1t_does_n0_.g~cessadl[Io1fow that fo~-tlleeffe"c· live enforcement of fundamental rights under our constitutional scheme, ,\:e shouicfnot scan the real character of that entity; and if it is found to be a mere agent or surrogate of the State, in fact owned by State, in truth controlled by tbe State and in effect an incarnation of\ facts and tbe State, constitutional lawyers must not blink at frustrate the enforcement o~ fundamental ri inc!usivg t at any authority controlled by the Government definit10n o -Of fudia is itself State, Law has many dimensions and fundamental facts must govern the applicability of fundamental rights in a given situation] ts des ite tbe . Control by Government of the corporation is writ large in the Act and in the factum of being a government company.

Moreover, here, s. 7 gives to tbe government company mentioned in it a statutory recog nition, a legislatiVe sanction and a status above a mere government company. If the entity is no more tban a company under the Company Law or society under _the law relating to registered societies or co operative societies you cannot call it an authority. A ration shop run by a cooperative store financed by Government is not an authority being a mere merchant, not a sharer of State power. 'Authority' in law belongs to the province of power : Authority (in Administrative Law) is a body having jurisdiction in certain matters of a public nature. (') A B c D E F Therefore, the "ability conferred upon a person by the law to alter, by his own will directed to that end, the rights, duties, liabilities or other legal relations, either of himself or of other persons"(') must G be present ab extra to make a person an 'authority'.

When the person is an 'agent or instrument of the functions of the Stare' the power is public. So the search here must be to see whetber the Act vests authority, as agent or instrument of the State, to affect the legal relations of oneself oi otbers. H (I) The Law Loxicon of British India, P. Ramanatha Aiyar, 1940 p. 101. (2) Salmond, Jurisprudence, 10th Edn. p. 243. A B c D E F G H 126 SUPREME COURT REPORTS (1981] 2 S.C.R. Sometimes the test is formulated, over-simplified fashion, by asking the corporation is formed by a statute or under a whether statute. The true test is functional. Not how the legal person is born but why it is created. Nay more. Apart from discharging functions or doing business as the proxy of the State, wearing the corporate mask there must be an element of ability to affect legal relations by virtue of power vested in it by law. It has a statutory In the present instance, the source of both, read in the light of ss.

3 and 7, is saturated with SJate functions. Avowedly, the statutory contemplation, as disclosed by s. 7, is that the company should step into the shoes of the executive power of the State. The legislative milieu in which the second respondent came to be !he successor of Burmah Shell suggests that the former is more than a mere company registered under the Companies Act. flavour acquired under s. 7. Moreover, everything about the second respon dent in the matter of employees, their provident, superannuation and welfru:e funds, is regulated statutorily unlike in the case of ordinary companies. Sections 9 and 10 deal with these aspects. These two provisions which regulate the conditions of service and even provide for adjnclication of disputes relating to employees .indicate that some of the features of a statutory corporation attach to this government com pany. Sections 9 and 10, in terms, create rights and duties vis a vis the government company itself apart from the Companies Act.

An ordinary company, even a government company simpliciter has not the obligation cast on the second respondent by ss. 9 and 10. And s.11 specifically gives the Act primacy vis a vis other laws. Section 12, although it has no bearing on the specific dispute we are concerned in this case, is a clear pointer to the statutory charac!er of the govern ment company and the vesting of an authority therein. This provi•ion elothes the government company with power to take delivery of the property of Burmah Shell from every person in whose possession, ~ustody or control such property may be. There are other powefs akin to this one in s. 12. The provision for penalties if any person '1le meddles with the property of the second respondent emphasises special character of this government company. Equally unique is the protection conferred by s. 16 on the government company and its ofli cers and employees "for anything which is, in good faith, done er mtended to be done under this Act".

Such an immunity does not attach to employees of companies simpliciter, even if they happen to In the same strain is the indemnity coa be government companies. ferred by s. 18. This review, though skeletal, is sufficient strikingly to bring home the point that the Corporation we are concerned with is its character more than a mere government company. Whatever SOM PRAKASH REKHI V. UNION (Krishna fyel', J.), 127 ·antecedent to the Act, the pro~isions we have adverted to have trans formed it into an instrumentality of the Central Government with a strong statutory flavour super-added and clear indicia of power make it an "authority". Although registered as a company under the Indian Companies Act, the second respondent is clearly a creature of the statute, the Undertaking having vested in it by force of s. 7 of the Act. The various provisions to which our attention was drawn, an elaboration of which is not called for, emphasise the fact second respondent is not a mere company but much more than and has a statutory flavour in its operations and functions, in its powers · and duties, and in its personality itself, apart from being functionally lU is a limb of and administratively under the thumb of government. government, an agency of the State, a vicarious creature of statute' working on the wheels of the Acquisition Act.

We do not mean to say that for purposes of Art .. 309 or otherwise this government com pany is State but limit our holding to Art. 12 and Part III. We may now proceed to examine the authorities cited before us by both sides on this point with special reference to Art. 12 of Constitution vis a vis government companies and like bodies. Shri G. B. Pai concedes that the recent trend of rulings of this Court has. brO!ldened the concept of "authorities .... under the control of Government of India. " For instance, the Airport Authority Case(') l!lld the U.P. Warehousing Corporation case(2 ). His submission tllat the core question which called for decision in those cases did not demand pronouncement on the larger issue of what is "State" under Art. 12 and also ran counter to the earlier rulings by larger benches. True, a tour of the case-law runs zigzag, but guided by principle and jurii; prudential discernment, it is possible to reach the same destination to which the two rulings referred to above take us.

Shri G. B. Pai prei; sed us to reconsider the latest decision~ in view of their error when read in the perspective of prior rulings by referring the issue to a larger beech. We will presently explain by examining the earlier cases why we hold the recent decisions to be right and reconcilable with the broad npproach in the older authorities. Moreover, rulings of this court are calculated to settle the law and not to unsettle it by reconsideration in season and out merely because it hurts one party or the other or tastes: sour for one judge or the other. If incompatibility between the ratios stares us in the face we must clear the confusion by the process suggest· the Airport Authority ed by Shri Pai. But we are satisfied that {I) Ramana Dayaram Shttty v. International Airport Authority of India and Ors. [l979J 3 s.c.c. 489. (2) Managing Director Uttar Pradesh Warehousing Coporation and Anr. v. Vljaya Narayana Vajpayee (1980) 3 SCC 459.

A B c D E F G B 128 SUPREME COURT REPORTS (1981) 2 S.C.R. A (supra) has been consistently and correctly decided and, being bound respondent under by it, held that a writ will lie against the second Art. 32. An explanatory journey is necessary to make good ossertion. B c D E F G H It is significant that pointed reference has been made The UP Ware housing Corporation case (supra )-the latest on the point-related to a statutory corporation and the litigation was by an employee for wrongful dismissal. One of tbe questions considered there was the maintainability of a writ petition against a statutory corpora, tion at the instance of an employee. The court reviewed many deci- 6ions, Indian and English, and upheld the employee's contention that the writ could and should issue to such a body if illegality were esta blished. Sukhdev Singh('), Airport Authority (supra), and the judgment of the House of Lords in Malloch v.

Aberdeen Corpn. (2), Sarkaria, J. advertec' to the observations of Lord Wilberforce that in cases where there is an element of public employment or service, :ir support by statute or something in the nature of public office or status, the court would correct illegal acts. Of course, the specific question as whetl!er such a body conld be regarded as 'State' did not and could not arise in th(l English case. But it did arise in the Airport Authority (supra) where Bhagwati, J. launched on an international survey of this branch of jurisprudence and highlighted the factors which made a legal pers;:m-a statutory corporation, a government company or even a registered society-"an agency or instrumentality of government" and therefore an 'authority' for purposes of Art. 12. The forensic focus was turned sharply by one of us (Chinnappa Reddy, J. who was party to that decision) on the target issue of what it "the State" for purposes of Part III. The crucial observations which have pertinence to point argued before us deserve excerption and enjoy our affirma tion: / I find it very bard indeed to discover any distinction on principle between a person directly under the e;nployment of the government and a person unden the employment of an agency or instrumentality of the governmen~ or a corporation, set up under a statute or incorporated but wholly owned by the government.

It is self-evident and trite to say that the function of the State has long since ceased to be confined to the preservation of the public peace, the exaction of taxes and the defence, of its frontiers. It is now the function of the (I) Sukhdev Singh v. Bhagatram [1975] 3 S.C.R. 619. (2) [1971] I WLR 1578. SOM PRAKASH REKHI v. UNION (Krislll/a Iyer, J.) 129 It is justice', State to secure 'social, economic and political preserve 'liberty of thought, expression, belief, faith and worship', and to ensure 'equality of status and of opportu nity'. That is, the proclamation of the people in the preamble to ttc Constitution. The desire to attain these objectives has necessarily resulted i'.n intense governmental activity in manifoid ways. Legislative and executive activity have reached very far and have touched very many aspects of a citizen's life. The government, directly or through the cor porations, fct up by it or owned by it, now owns or manages, a large number of industries and institutions. biggest builder in the country.

Mammoth and minor irri gation projects, heavy and light engineering projects, projects of various kinds are undertaken by the government. The government is also the biggest trader in the ccuntry. The State and the multitudinous agencies and corporation:; set up by it are the principal purchasers of the produce aucl the products of our country and they control a vast and complex machinery of distribution. The government, its agencies and instrumentalities, corporations set up by the governinent" under the statutes and corporations incorporated under the Companies Act but owned by the Government have become the biggest employers in the country. There is no good re:;son why, if government is bound to observe equality clauses of the Constitution in the matter of employ ment and in its dealings with the employees, the corpora tions set up or owned by the govenunent should not be equally bound and why, instead, such corporations could a become citadels of patronage and arbitrary action.

In country like ours which teems with population, where State, its agencies, its instrumentalities and its corporations are tile biggest employers and where millions seek cmplc y ment anJ security, to confine the applicability of the equality clauses 0f the Constitption, in relation to matters of employ ment, strictly to direct employment under the. governn; ert is perhaps to mock at the Constitution and the people. Some the employee beyond the reach of the rule which denies him the employee beyond the reach of the rule which denies him access to a court to enforce a contract oif employment and denies him the protection of Articles 14 and 16 of tk 0)115- titution. After all employment in the public sector has grown to vast dimensions and employees in the oublio sector often discharge as onerous duties as civil servant9 and parti- A B c D E It' G H 130 SUPREME COURT REPORTS [1981] 2 S.C.R. A B cipate in activities vital to our country's economy.

In grow ing realisati01J. of the importance of employment in the pub lic sector, Parliament and the Legislatures of the States have declared persons in the service of local authorities, government companies and statutory corporatiomi as public servants and, extended· to them by express enactment the protection usually extended to civil servants from suits and prosecution. It is, therefore, but right that the independence and integrity of those employed in the public &ector should be secured as much as the independence and integritv of servants. c The compellin~ force of this reasoning in the Indian setting and coe.s titutional matrix cannot be missed. D E F Let us dilate a little on the living essenco of constitutional funda mentals if we are net to reduce fundamental rights to paper hope~ Md people's dupes ! The judicial branch shall not commit breach of faith with the bill of rights by interpretative exoneration of the State from observance of these founding faiths.

The higher values enacted into Part III of the Constitution certainly bind the State in its executive and legislative branches. They are constitutional guarantees to Indian people, not fleeting promises in common enactments. So long as they last in the National Charter they should not be truncated in their application unless a contra-indication is clearly written into the prescription, a la Arts. 3 lA, 31B and 31 C. Art. 12 is a special defi nition with a broader goal. Far from restricting the concept of State it enlarges the scope to embrace all authorities under tho control of Government. The constitutional philosophy of a democratic, SOciali1t Republic mandated to undertake a multitude of socio-economic opera- tions inspires Part IV and so we must envision the State entering the vast territory of industrial and commercial activity, competitively or inonopolistically, for ensuring the welfare of the people.

This expan sive role of the State under Part IV is not played at the expense of the cherished rights of the people entrenched in Part III aince · both the sets of imperatives are complementary .and co-exist harmoniously. Wherever the Constitution has felt the need to subordinate Part ill to Part IV it has specificated it and, absent such expression provision, both flie Parts must and can flonrish happily together given benign judicial comprehension a la Kera/a v. Thomas(I). There is no inherent conflict between the two parts if orchestrated humanely. We are at pains to emphasise this perspective because the substance of Part ill, H save where the Constitution says so, shall not be sacrificed at the altar of Part IV by the strategem of incorporation. It is well known, and G (lJ fl976J 2 sec 310. SOM PRAKASH REKHI v. UNION (Krishna Iyer, J. ): 131 facilitates surely within the erudite and experienced ken of our 'fonnding fathers', that Government embarks on myriad modern commercial activities by resort to the jurisprudential gift of personification through incorpora tion.

This contrivance of carrying on business activities by the State through statutory corporations, government companiei and other bodies with legal personality, simplifies and transactions and operations beyond the traditional and tardy processes of govern mental desks and cells noted for their red tape exercise and drowsy dharma. But to use the corporate methodology is not to liberate the State from its basic obligation to obey Part III. To don the mantle of company is to free the State from the inevitable constraints of govern mantaI slow-motion, not to play truant with the great rights. Other wi»e, a cunning plurality of corporations taking over almost every State business-the post and the rail-road, the T.V. and the radio, every economic ministry's activity, why, even social welfare work wlll cheat the p'eople of Part III rights by the easy plea : ''No admis sion for the bill of rights; no State here.

" From Indian Posts and Telegraphs Limited to Indian Defence Manufacturers Limited, from Social Welfare Board to Back.ward aasses Corporation the nation will be told that 'the State has ceased to be, save for the non-negotiab~ iOYereign functions; and fundamental rights may sufier eclipse only to be viewed in museum glass cases. Such a situation will be a treachery on the founding fathers, a mockery of the Constitution and a govern ment by puppetry because the crowd of corporations which have carv ed oat all functions will still be controlled completely by the switch bollds of bureaucrats and political bosses from remote control rooms in GOYernment Secretariats. The extended definition of "the State" in Art. 12 ii; not to be deadened but quickened by judicial construction. Before our eyes the corporate phenomenon ill becoming ubiquitous. What wa» archaicly done yesterday by government departments alertly executed to-day by government companies, statutory corpora tiOllll and like bodies and this tribe may legitimately increase tomorrow.

This efficiency is not to be purchased at the price of fundamental rights. As Mathew J. stated ih V. Pumum Thomas v. State of Kerala(') : The Government, is not and should not be as free as an individual in selecting the recipients for its largesse. Whatever its activity, the Government is still the Government and will be 1ubject to restraints inherent in its position in a demo ocatic society. A democratic Government cannot lay down arbitrary and capricious standards for the choice of persons with whom alone it will deal. (I) AIR 1969 Ker 81. .A. B c D E F G H ' A B c D G H 132 SUPREME COURT REPORTS [1981] 2 S.C.R. What's in a name that which we call a rose By any other name wou"d smell as sweet. (') And the State is fragrant with fundamental rights whatever the hue or jural cloak of its surrogate. And, to alter, the imagery, Maricha is Ravana, the misleading golden deer mask notwithstanding! This court in Airport Authority (supra) pointed its unanimous. finger on these events and portents : Today with tremendous expansion of welfare and social service functions, increasing control of material and econo mic resources and large scale assumption of industrial and commercial activities by the State, the power of the execu tive Government to affect the lives o'f the people is steadily growing.

The attainment of socio-eeonomic justice being a conscious end of State policy, there is a vast and inevitable increase in the frequency with which ordinary citizens came into relationship of direct encounter with State power-holders. This renders it necessary to structure and restrict the power of the executive Government so as to prevent its arbitrary application or exercise .......... . Today the Government in a welfare State, is the regu lator and dispenser of special services and provider of a large number of benefits, including jobs, contracts, licences, quotas, mineral rights, etc. The Government pours wealth, money, benefits, services, contracts, quotas and licen res. The valuables dispensed by Government take many forms, but they all share one characteristic. They are steadily taking the place of traditional forms of wealth. These valu ables which derive from relationships of Government are of many kinds.

They comprise social security benefits, cash grants for political sufferers and the whole scheme of State . and local welfare. Then again, thousands of people are em ployed in the State and the Central Governments and local authorities. Licences are required before one can engage in many kinds of businesses or work. The power of giving licences means power to withhold them and this gives control td the Government or to the agents of Government on the lives of many people. Many individuals and many more business enjoy largesse in the form of Government contracts .... All these mean growth in the Government largesse and with the increasing magnitude and range of governmental (1) Romeo and Julliet I!, ii -43. A· B· D· SOM PRAKASH REKHI v. UNION (Krishna Iyer, !.) 133 functions as we move closer to a welfare State, more and more of our wealth consists of these new forms. We do not suggest that there is any vice at all in government undec· taking commercial or other activities through the facile device of com paniei or other bodies.

But to scuttle Part III through the alibi of 'company, not State'-'ay, there's the rub !' The rationale of this pro- position is well brought by Bhagwati, J : (I) So far as India is concerned, the genesis of the emer gence of corporations as instrumentalities or agencies of Government is to be found in the Government of India Reso lution on Industrial Policy dated April 6, 1948 where it was stated inter alia that "management of State enterprise wi.ll as a rule be through the medium of public corporation under the statutory control of the Central Government who w\ll assume such powers as may be necessary to ensure this". It was in pursuance of the policy envisaged in this and subse quent resolutions on industrial policy that corporations were created by Government for setting up and management of public enterprises and carrying out other public functions. Ordinarily these functions could have been c:arried out by Government departmentally through its service personnel, but the instrumentality or agency of the corporations was resorted to in these cases having regard to th.e nature of the task to be performed.

The corporations acting as instrumen- tality or agency dfi Government would obviously be subject to the same limitations in the field of constitutional and ad mlriistralive law as Government itself, though in the eye of the law, they would be distinct and independent legal entities. If Government acting through: its officers is subject to certain constitutional and public law limitations, it must follow a fortiori that Government acting through the Instrumentality or agency of corporations should equally be subject to th~ same limitations. (emphasis added) G' Article 12 gives the cue to forbid this plea. "Other authorities ...... under the control of the Government of India" are comprehen- sive enough to take. care of Part III without unduly stretching meaning of "the State" to rope in whatever any autonomous body 0\ which has some nexus with government. A wide expansion coupled ell [1979] 3 sec 489 at 506-507.

134 SUPREME COURT REPORTS [1981] 2 S.C.R. A with a wise limitation may and must readily and rightly be read into the last words of Art. 12. Addressing itself to the question of identifying those bodies which are agencies or instrumentalities of Government, the court, in Airport Authority, observed : (') A corporation may be created in one of two ways. It may be either established by statute or incorporated under a law such as the Companies Act, 1956 or the Societies Registration Act, 1860. Where a corporation is wholly controlled by Gov ernment not only in its policy-making but also in carrying out the functions entrusted to it by the law establishing it or by the charter of its incorporation, there can be no doubt that it would be an instrumentality or agency of Govern ment. ..... When does such a corporatiO'll become an in Is the holding of strumentality or agency of Government ? the entire share capital of the corporation by Government enough or is it necessary that in addition, there should be a certain amount of direct control exercised by Government and, if so, what should be the natnre of such control ? Should the functions which the corporation is charged to carry out possess any particular characteristic or feature, or natnre of the functions immaterial ? Now, one thing is clear that if the entire share capital of the corporation is held by Government, it would go a long way towards indicating that the corporation is an instrumentaUty or agency of Govern ment .... What then are the tests to determine whether a co'rporation established by statute or incorporated under law is instrumentality or agency of Government ? It is not possible to formulate an all-inclusive or exhaustive test which would adequately answer this question.

There is no cut and dried formula which would provide the correct division of corporations into those which are Instrumentalities or agen ciCll ot Government and those which are not. (emphasis added) The court proceeded to crystallise the tests to determine the 'State' completion of corporate bodies. beyond furnishing capital : (') But "a finding of State financial support plus an unusual degree df control over the management and policies might (I) Ibid. at 507. (2) (1979] 3 sec 489 at 508-509. D G H SOM PRAKASH REKHI v. UNION (Krishna Iyer, J.), 135 lead one to characterise an operation as State action". Vi de Sukluiev v. Bhagatram('). So also the existence of deep and pervasive State control may afford an indication that the Corporation is a State agency or instrumentality. It may also be a relevant factor to consider whether the corporation en- joys monopoly status which is State conferred or State pro- tected.

There can be little doubt that State conferred or State protected monopoly status would be higbly relevant in assessing the aggregate weigbt of the corporalio'.ns' ties the State. There is also anatller factor which may be regarded as ha viug a bearing on this issue and it is whether the operation It has of the corporation is an important public function. been held in the United States in a number of cases that the concept of private action must yield to a conception of State actio'n where public functions are being performed. Vide Arthur S. Millers: The Constitutional Law of the 'Security State. (') If the functions of the corporation are of public import ance and closely related to governmental functions, it would be a relevant factor in classifying the corporation as an ins trumentality or agency of Government. This is precisely what was pointed out by Mathew, J. in Sukhdev v. Bhogat ram (supra) where the learned Judge said that "institutions engaged in matters of high public interest or performing pub lic functions are by virtue of the nature of the functions per formed government agencies.

Activities which are too funda mental to the society are by definition too important not to be considered government functions. " Bhagwati, J. dwelt on the functional formula and reasoned : (') But the decisions show that even this test of public or governmental character of the function is not easy of appli cation and does not invariably lead to the correct inference because the range of governmental activity is broad and varied and fuerely because an activity may be such as may legitimately be carried on by Government, it does not mean that a corporation, which is olherwise a private entity, would be an instrumentality er agency of Government by reason of carrying on such activity. In fact it is difficult to disting- (1) fl975J 3 sCR 619, 650 : [1975J 1 sec 421, 454. (2) JO Stanford Law Review 620 at 664. (3) [1979] 3 sec 489 at 510. A B· (' )) E G H A B c D .B 13~ SUPREME COURT REPORTS [1981] 2 S.C.R. uish ?etween governmental functions ahd non-governmental funct10ns.

Perhaps_ the distinction between gavernmental and non-governmental functions is not valid any more in a social welfare State where the laissez faire is an outmoded statics has no concept and Herbert Spencer's place. · : ... But the public nature of the function, if impreg nated with governmental character or "tied or entwined with Government" or fortified by some other additional factor , may render the corporation an instrumentality or agency of Government. Specifically, if a department of Government is transferred to a corporation, it would be a strong factor sup portive of this inference. social The conclusion is impeccable that if the corporate body is but an 'instrumentality or agency' of Government, then Part III will tram It is a cas~ of quasi-gorvernmental beings, not of mel its operations. non-State entities. We have no hesitation to hold chemistry of the corporate body answers the test of 'State' above out lined it comes within the qefinition in Art.

12. In our constitutional scheme where the commanding heights belong to the public sector of the national economy, to grant absolution to government companies . and their ilk from Part III may be perilous. The court cannot con- nive at a process which eventually makes fundamental rights as rare as "ro'ses in December, ice in June"(!). Article 12 uses the expression "other authorities" and its connotation has to be clarified. On facet also, the Airport Authority case supplies a solution : (') that where If a statutory corporation, body or other authority is an instrnmentality or agency of the Government, it would be an 'authority' and therefore 'State' within the meaning of that expression in Article 12. The decisions are not uniform as to whether being an instrnmen tality or agency of Government ipso jure renders the company or other similar body 'State'. This again involves a navigation through pre cedents and Bhagwil.ti, J. In Airport Authority (supra) has spoken for the Court, after referring to Rajasthan Ekctricity Board v.

Mohan Lal(') Sukhdev v. Bhagatram(4), Praga Tool Corporation v. C. A. Immanuel('), Heavy Engineering Mazdoor Union v. State of Bihar("), - (1) As Lord Byron lamented in English Bards and Scottish Reviewers. (2) [1979] 3 sec 489 at 517. (3) [1967] 3 SCR 377. (4) [1975] 3 SCR 619. (5) [1969] 3 SCR 773. (6) [1969] 3 SCR 995 . • G H • SOM PRAKASH REKHI v. UNION (Krishna Tyer,].) 137 S. L. Aggarwal v. General Manager, Hindustan Steel Ltd.,(') and Sabhajit Tewari v. Union of India(') : A We may point out here that when we speak of a Corpo ration being an instrumentality or agency of Government, we do not mean to suggest that the Corporation should be an agent of the Government in the sense that whatever it does should be binding on the Gc<vernment. It is not the rela tionship of principal and agent which is relevant and material but whether the corporation is an instrumentality of Government in the sense that a part of the governing power of the State is located in the Corporation and Corporation is acting on its own behalf and not on behalf of the Government, its action is really in the nature of State action.

(3 ) though Let us cull out from Airport Authority (supra) the indicia ol "other authorities .... under the contro1 of the Government of India" bring ing a corporation within the delinition of "the State". The following factors have been emphasised in that ruling as though not clinching. These characteristics convert a statutory corporation, a registered government company, a cooperative society and other society or body into a State and they are not confined to statutory cor porations alone. We may decoct the tests for ready reference : telling,

1. "One thing is clear that if the entire share capital of corporation is held by Government. it would go a long way towards indicating that the corporation is an instrnmentality or agency of Government. " B c D E

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

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

"If the function~ of the corporation are of public importance and closely related to governmental functions, it would be a relevant fac'tor in classifying the corporation as an instrumentality or agency of Government. " S. "Specifically, if a department of Government is transferred to a corporation, it would be a strong factor supportive of this inference" (l) (1970] 3 SCR 363. (2) [1975] 3 SCR 616. (3) [l979J 3 sec 489 at 518. G n 138 SUPREME COURT REPORTS [1981] 2 S.C.R. of the c<yporation being an instrumentality or agency of Govern ment. " The finale is reached when the cumulative effect of all the re!e-• is found vant factors above set out is assessed and once the body to be an instrument or agency of Government, the further conclUllion emerges that it is 'State' and is subject to the same constitutional limitations as Government. • A 8 c ratio of This divagation explains the the Airport A uthori~y (supra) in its full spectrum.

No employer in relation to an establishment to which any scheme or the insurance scheme applies shall, by reason only of his liability for the payment of any contri bution to the Fund or the Insurance Fund or any charges under this Act or the scheme, reduce, whether directly or indirectly, the wages of any employee to whom the scheme of the Insurance Scheme applies or the total quantum <Yf benefits in the nature of old age pension, gratuity, provident fund or Life Insurance to which the employee is entitled under the terms of his employment, express or implied. c (emphasis addcdi; D We take the view that this be; iignant provision must receive a benig nant construction and, even if two interpretations are permissible, that which furthers the beneficial object should be preferred. From that perspective, the inference is reasonable that the total quantum of benefits in the nature of old age ponsion, gratuity or provident fund, shall not be reduced by reason only of the The Section employer for payment of contribution to the prevails over the Trust Deed. The provident fund accrues by statu- tory force and s. 12 override; any agreement authorising deductions, ' argues Shri Parekh. liability of fund. A similar result holds good even under the Gratuity Act. Section 14 of that Act reads thus :

The provisions of this Act or any rule made there under shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than this Act or in any instrument or contract having effect by virtue of any enactment other than this Act. E F G The expression "instrument" certainly covers a Trust Deed and, notwithstanding the deduction that may be sanctioned by the Trust im-j Deed, the overriding effect of s. 14 preserves the pension and inunises it against any deduction attributable to the statutory payment H of the provident fund. The deduction made by the second respon- dent is, i'n that event, illegal. ... .. 152 SUPREME COURT REPORTS [1981] 2 S.C.R. A B c D Shri Pai argues that no reduction of retiral benefit is ef!ected because the entitlement to pension under reg. 13 is itself conditioned by the clause for deduction and has no separate amplitude del hors the 'authorised deduction' spelt out in reg.