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CASE NO.:

Appeal (civil) 106 of 2001

PETITIONER:

Federal Bank Ltd.

RESPONDENT:

Sagar Thomas & Ors.

DATE OF JUDGMENT: 26/09/2003

BENCH:

Brijesh Kumar & Arun Kumar.

JUDGMENT:

JUDGMENT

Brijesh Kumar, J.

The respondent no.1 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, Kerala.

He 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.

The respondent no.1 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

Constitution of India, hence a writ petition under Article 226 of the

Constitution is not maintainable against it. The learned single Judge,

however, found that the Federal Bank performs public duty and observed

thus:

"As per statutes, the Reserve Bank and the Central

Government exercise all pervading functional, fiduciary

and managerial control over the banking industry. Every

banking company is duty bound to carry on banking

business as per the banking policy under stringent control

of the Reserve Bank in the interest of banking system or

in the interest of monetary stability of sound economic

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 the nation.

Banking companies are therefore, public institutions,

accepting deposits from public, financial assistance from

the State through its agencies/instrumentalities, for the

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 first respondent

is, thus, performing a public duty and a positive

obligation towards its employees and customers exists.

Therefore, it is amenable to writ jurisdiction."

Ultimately the order passed by the learned single Judge is :

"....In the light of the above decisions of the Apex Court,

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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 Court."

Aggrieved by the aforesaid judgment of the learned single Judge, the

appellant preferred a writ appeal but referring to a decision of this Court

in U.P.State Co-operative Land Development Bank Ltd. vs. Chandra

Bhan Dubey & Ors. , 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 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 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

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 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, 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 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 orders of the disciplinary

authority and the Board of Directors as illegal and

unsustainable in law;

ii) a writ of Mandamus or any other appropriate writ,

order or direction commanding the respondents to

reinstate the petitioner with all wages and

increments in the salary applicable to him as if he

had continued in service from the date of his

suspension;

iii) any other appropriate writ, order or direction as

this Hon'ble Court may deem fit and necessary on

the facts and in the circumstances of the case and

allow this petition with all costs."

In the light of the prayer made for issue of a writ of certiorari for

quashing of inquiry report and the order of punishment and further for

issue of a 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

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above 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.

The question thus, which falls for consideration is as to whether

the appellant bank is a private body or falls within the definition of the

State or local or other authorities under the control of the Government.

A body 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

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 whether a writ petition would be maintainable or not and the

extent to which such powers can be exercised.

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 Biswas Vs. Indian Institute of Chemical Biology & Ors ,

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 were elaborated in Ramana and were reformulated

two years later by a Constitution Bench in Ajay Hasia . What may have

been technically characterized as obiter dicta in Sukhdev Singh (supra)

and Ramana (supra) (since in both cases the "authority" in fact involved

was a statutory corporation), formed the ratio decidendi 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 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." It is then observed

that Ramana'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

737 in para 9. It reads as follows :

"(1) One thing is clear that if the entire share capital of

the corporation is held by Government, it would

go a long way towards indicating that the

corporation is an instrumentality or agency of

Government. (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 afford some indication of

the corporation being impregnated with

governmental character. (SCC p.508, para 15)

(3) It may also be a relevant factor .. whether the

corporation enjoys monopoly status which is

State-conferred or State-protected (SCC p.508,

para 15)

(4) Existence of deep and pervasive State control

may afford an 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

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functions, it would be 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 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 :

"The tests to determine whether a body falls

within the definition of "State" in Article 12 laid

down in Ramana (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

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 :

"The picture that ultimately emerges is that the

tests formulated 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 cumulative facts as

established, the body is financially, functionally

and administratively dominated by or under the

control of the Government. Such control must be

particular to the body in question and must be

pervasive. If this is found then the body is a State

within Article 12. On the other hand, when the

control is merely regulatory whether under statute

or otherwise, it would not serve to make the body a

State."

The appellant then refers to a decision in Bank of Baroda Ltd.

vs. Jeewan Lal Mehrotra , 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 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 (1) where a

public 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...."

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.

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(supra) has 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 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 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-operative 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 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 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 of Uttar 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 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, 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 a Guarantee Fund under Section 9 of

the Act for the purpose of meeting losses that might accrue on account of

loans advanced by the Land Development Banks. The Guarantee Fund

is maintained by the Finance Department of the State Government. On

the basis of the facts noted above, the Court took the view that the

U.P.State Co-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.

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

pervasive. Its officers head the institution. U.P.Land Development Bank

is constituted as the only State level Bank in the State. Under the

statutory 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 case will have no application to the present case and

the same has been wrongly followed and relied upon by the High Court

to dismiss the appeal.

Shri Rajinder Sachar, learned senior counsel appearing for

the respondent, refers to a Constitution Bench decision in All India Bank

Employees' Association Vs. National Industrial Tribunal & Ors. .

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 of India, the

only other authority that could be entrusted with

the function would be the Finance Ministry of the

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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......".

It has been referred to indicate that the control of the Reserve Bank of

India over all the banks would be as if the control is in place of Finance

Ministry, Government of India.

A reference has then been made to Air India Statutory

Corporation & Ors. Vs. United Labour Union & Ors. , 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 of India of

the Central Government and 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 thereafter it is

constituted as a Company under the Companies Act. In that context, it

has been held, if the company is run wholly or partially by the share

capital floated from public exchequer, it gives indication of its control by

the appropriate government. On consideration of a number of decisions

on the point, the Court found the following principles which may be

considered, for coming to a conclusion whether any public element is

involved or not, the paragraph 26 of the decision, reads as under :

"(1) The constitution of the corporation or

instrumentality or agency or corporation

aggregate or corporation sole is not of sole

material relevance to decide whether it is by

or under the control of the appropriate

Government 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,

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), 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.

(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 framework of service regulations made

in the appropriate rules or regulations should

be consistent with and subject to the same

public law, principles and limitations.

(7) Though the instrumentality, agency or

person conducts commercial activities

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according to business principles and are

separately accountable under their

appropriate bye-laws or Memorandum of

Association, they become the arm of the

Government.

(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 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 of authority or ability to

effect the relations with its employees or

public by virtue of power vested in it by law,

Memorandum of Association or bye-laws or

Articles of Association.

(11) The instrumentality, agency or person

renders an element of public service and is

accountable to health and strength of the

workers, men and women, adequate means

of livelihood, the security for payment of

living wages, reasonable conditions of work,

decent standard of life and opportunity to

enjoy full leisure and social and cultural

activities to the workmen.

(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 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, 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 wholly or partially by a share capital floated 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 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

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or a person or authority imbued with public law

element. The question requires to be determined 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 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 Trust & Ors. Vs. V.R.Rudani & Ors. 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 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 performance of public duty. 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 to issue the writ 'in the nature of

mandamus'. Article 226 confers 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".

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 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....."

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 or body

performing 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 paragraph 15 of the above 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

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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 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

function by way of imparting education to

students. They are subject to the rules and

regulations of the affiliating University. Their

activities are closely supervised by the University

authorities. Employment in such institutions,

therefore, is not devoid of any public character. So

are the service conditions of the academic staff. ....

The service conditions of the academic staff are,

therefore, not purely of a private character. It has

super-added protection by University decisions

creating a legal right-duty relationship between the

staff and the management. When there is

existence of this relationship, mandamus cannot be

refused to the aggrieved party."

On this basis, it is submitted in reply that those features by reason of

which it has been held that a writ of mandamus would lie against a

private management, are not present in the case in hand. A reference to

para 12 of the Andi Mukta's case (supra) has been made, where it has

been held that no writ would issue where dismissal was not in violation

of any statutory provision. No reinstatement could be ordered.

Shri Sachar then refers to Unni Krishnan, J.P. & Ors. Vs.

State of Andhra Pradesh & Ors. a Constitution Bench judgment. In

reference to para 79 it is submitted that educational institutions discharge

public duties irrespective of the fact they receive aid or 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 lie.

In this connection Life Insurance Corporation of India &

Anr. vs. Consumer Education & Research Centre & Ors . also has

been referred to, which in turn refers to Kumari Shrilekha Vidyarthi

Vs. State of Uttar Pradesh , holding that arbitrariness, even in

contractual obligation of public character is violative of Article 14 of the

Constitution. the Court held that rates of premium must be reasonable

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.

The appellant in reply also referred to The Praga Tools

Corporation Vs. Shri C.A.Imanual & Ors. , where it was 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 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.

Executive Committee of Vaish Degree College, Shamli &

Ors. Vs. Lakshmi Narain & Ors. , was also referred to on the

proposition that contract of personal service cannot ordinarily be

enforced.

From the decisions referred to above, the position that

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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 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

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

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 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 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 :

"2(e) scheduled bank" means a bank included in

the Second Schedule;"

Sub-section (6) of Section 42 of the RBI Act has been referred to indicate

the control which is exercised by the Reserve Bank of India on 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 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

(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 (1 of 1956), or an 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 bank, -

(i) the aggregate value of whose paid-up capital

and reserves 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, 1949 (10 of 1949),

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conducting its affairs to the detriment of the

interests of its depositors, or

(iii) which goes into liquidation or otherwise

ceases to carry on banking business:

xxx xxx xxx

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 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 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 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 :-

"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 employee of a banking company shall be

deemed to be a public servant for the purposes of

Chapter IX of the Indian Penal Code (45 of 1860).]

A reference is also made to Section 35 of the Banking Regulation Act

which provides for inspection of any banking company and its books of

accounts by the Reserve Bank on the direction issued by the Central

Government. Under sub-section (1A) it is provided that without

prejudice to sub-section (1) 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 company. Sub-section (4) of Section 35 provides as under:

"(4) The Reserve Bank shall, if it has been directed

by the Central Government to cause an inspection

to be made, and may, in any other case, report to

the Central Government on any inspection [or

scrutiny] made under this section, and the Central

Government, if it is of opinion after considering

the report that the affairs of 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 Government, seems

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 winding up of the

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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 terms and

conditions as it may think fit to impose."

Section 35-A empowers the Reserve Bank to give directions, which reads

as under :

"35A. Power of the Reserve Bank to give

directions.- (1) Where the Reserve Bank is

satisfied that :-

(a) in the [public interest]; or

[(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 banking company; or

(c) to secure the proper management of any

banking company generally,

it is necessary to issue directions to banking

companies generally 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.

(2) The Reserve Bank may, on representation

made to it or on its own motion, modify or cancel

any direction issued under sub-section (1), 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."

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.- (1)The Reserve Bank may -

(a) caution or prohibit banking companies or any

banking company in particular against entering

into any particular transaction or class of

transactions, and generally give advice to any

banking company;

(b) xxx xxx xxx

(c) xxx xxx xxx

(d) xxx xxx

(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

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require an officer of the banking company to

discuss any such matter with an officer of

the Reserve Bank;

(ii) xxx xxx

(iii) xxx xxx

(iv) appoint one or more of its officers to

observe the manner 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.]

(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 provision is

quoted below :

"(1) 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 necessary so to do, the Reserve Bank

may, for reasons to be recorded in writing, by

order, remove from office, with effect from such

date as may be specified in the order, [any

chairman, director,] chief executive officer (by

whatever name called) or other officer or

employee of the banking company.

(2) to (5) xxx xxx

(6) Where an order under sub-section (1) has been

made, the Reserve Bank may, by order in writing,

appoint a suitable person in place of [the chairman

or director] or chief executive officer or other

officer or employee who has been removed from

his office under that sub-section, with effect from

such date as may be specified in the order.

(7) to (8) xxxx xxxx"

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 (1) reads as under :

"36AB. Power of Reserve Bank to appoint

additional directors.- (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:

xxx xxxx"

Section 36AE has also been referred to which empowers the Central

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Government to acquire undertakings of banking companies in the

interests 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 banking company and to prepare scheme of

reconstitution of amalgamation of a banking company.

In view of the aforesaid provisions it is submitted that the

control of the Reserve Bank of India and the Central Government is all

pervasive over the banking companies, they can cause an inspection to be

made, can make 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 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 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. Such regulatory control is also exercised over other

companies as well, registered under the Companies 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-section (1) 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

commercial practices; or

(b) that any company is being 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

(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 auditor, in the audit report shall include all the matters required

to be included in an auditor's report under Section 227 of the Companies

Act and the matters as the Central Government may, also direct to

include. The Central Government is also authorized to direct any

particular person to furnish such information or additional information to

the auditor and failure to do so shall render such person liable to be

punished by imposition of fine. The Central Government, on

consideration of the report is 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

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company on the application of the shareholders and submit the report to

the Central Government. Similar power for investigation is also vested

under Section 237 of the Act. The company by a special resolution or

court by an order can declare that affairs of the company ought to be

investigated by an 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 otherwise for fraudulent or

unlawful purpose. Then a reference 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 permissible

to be taken in the public interest. Section 255 falls in the 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

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 (1) and (2) of

Section 58-A read as under :

"58 A. (1) The Central Government may, in

consultation with the 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.

(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

(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....."

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 any person 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 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 of the industrial undertaking in certain eventualities. The same

reads as under :

"15. Power to cause investigation to be made

into scheduled industries or industrial

undertakings.- Where the Central 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

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substantial fall in the 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

undertakings as the case may be, for which,

having regard to the economic conditions

prevailing, there is no justification; or

(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 could have been or can be

avoided; or

(iii) there has been or is likely to be a rise in the

price 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, for which

there is no justification; or

(iv) it is necessary to take any such action as is

provided in this chapter for the purpose of

conserving any resources of national

importance which are utilized in the industry

or the industrial undertaking or

undertakings, as the case may be; or

(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 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

make 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 18-A,

which falls under Chapter III-A, reads as under :

"18-A. Power of Central Government to assume

management or control of an industrial

undertaking in certain cases - (1) If the Central

Government is of opinion that-

(a) an industrial undertaking to which directions

have been issued in pursuance of Section 16

has failed to comply with 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 of

Section 16), is being managed in a manner

highly detrimental to the scheduled industry

concerned or to public interest.

The Central Government may, by notified order,

authorize any person or body of persons to take

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over the management of the 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

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 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 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 for proper economic

growth and stability of the country.

A company registered under the Companies Act for the

purposes of carrying on any trade or business is a private enterprise to

earn livelihood and to make profits out of such activities. Banking is also

a kind of profession and a commercial activity, the primary motive

behind it can well be said to earn returns and profits. Since time

immemorial, such activities have been carried on by individuals

generally. It is a private affair of the company though case of nationalized

banks stands on a different footing. There may, well be companies, in

which majority of the share capital may be contributed out of the State

funds and in that view of the matter there may be more participation or

dominant participation of the State in managing the affairs of the

company. But in the present case we are concerned with a banking

company which has its own resources to raise its funds without any

contribution or shareholding by the State. It has its own Board of

Directors elected by its shareholders. It works like any other private

company in the banking business having no monopoly status at all.Any

company carrying on banking business with a capital of five lacs will

become a scheduled bank. All the same, banking activity as a whole

carried on by various banks undoubtedly has an impact and effect on the

economy of the country in general. Money of the shareholders and the

depositors is with such companies, carrying on banking activity. The

banks finance the borrowers on any given rate of interest at a particular

time. They advance loans as against securities. Therefore, it is obviously

necessary to have regulatory check over such activities in the interest of

the company itself, the shareholders, the depositors as well as to maintain

the proper financial equilibrium of the national economy. The Banking

companies have not been set up for the purposes of building economy of

the State on the other hand such private companies have been voluntarily

established for their own purposes and interest but their activities are kept

under check so that their activities may not go wayward and harm the

economy in general. A private banking company with all freedom that it

has, has to act in a manner that it may not be in conflict with or against

the fiscal policies of the State and for such purposes, guidelines are

provided by the 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, if need 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 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

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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 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 Regulation) Act, 1951 that their production which is

important for the economy may not go down yet the business activity is

carried on by such companies or corporations which only remains a

private activity of the entrepreneurs/companies.

Such private companies would normally not be amenable to

the writ 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 Pollution) 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 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 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) 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 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 is connected with the

affairs of the appellant bank nor anyone of them is a member of the

Board of Directors. In the normal functioning of the private banking

company there is no participation 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

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 the Reserve Bank of India under a

Statute or the Central Government. Even if it 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-functioning 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 normal functioning such occasions

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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.

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 incurred in

the business are theirs as well as the profits. Any business or commercial

activity, may be banking, manufacturing units or related to any other kind

of business generating resources, employment, production and resulting

in circulation of money are no doubt, are such which do have impact on

the economy of the country in general. But such activities cannot be

classified one falling 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 argument even if it may be assumed that one

or the other test as provided 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 be relevant.

We may now consider the two decisions i.e. Andi Mukta

(supra) and the U.P. State Co-operative Land Development Bank

Ltd.(supra)upon which much reliance has been placed on behalf of the

respondents to show that a writ would lie against the appellant company.

So far the decision in the case of U.P. 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 (supra). It is no doubt held that a Mandamus can be issued to any

person or authority performing public duty, owing positive obligation to

the affected party. The writ petition was held to be maintainable since

the teacher whose services were terminated by the institution was

affiliated to the university and was governed by the Ordinances, casting

certain 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 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 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 to these provisions failing which certain

consequences follow as indicated in the Act itself. Provision regarding

acquisition of a banking company by 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 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

termed as an institution or company carrying on any statutory or public

duty. A private 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

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fulfilled in respect of a private company carrying on a commercial

activity of banking. Merely regulatory provisions to ensure such activity

carried on by private bodies work within a discipline, do not confer any

such status upon the company nor 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 terminated. The action of the Bank was challenged by the

respondent by filing a writ petition under Article 226 of the Constitution

of India. The respondent is not trying to enforce any statutory duty on

the part of the Bank. That being the position, the appeal deserves to be

allowed.

In the result, the appeal is allowed and the judgment and

order passed 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.

AIR 1999 SC Page 753

(2002) 5 SCC page 111

Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi, (1975) 1 SCC 421

Ramana Dayaram Shetty v. International Airport Authority of India, (1979) 3 SCC 489

Ajay Hasia v. Khalid Mujib Sehravardi, (1981) 1 SCC 722

1970(3) SCC page 677

1962 (3) SCR page 265

1997(9) SCC page 377

1989(2) SCC page 691

10. 1993 (1) SCC page 645

1995(5) SCC page 482

1991(1) SCC page 212

1969 (1) SCC page 585

(1976) 2 SCC 58

1