# FEDERAL BANK LTD v. SAGAR THOMAS AND OTHERS

- **Citation:** [2003] Supp. 4 S.C.R. 121
- **Court:** Supreme Court of India
- **Decided:** 2003-09-26
- **Bench:** Brijesh Kumar, Arun Kumar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/federal-bank-ltd-v-sagar-thomas-and-others-19501
- **Pages:** 33

## Headnote

B
Constitution of India-Articles 12, 226-Whether writ petition
maintainable against Federal Bank by dismissed employee-Held, no;
private company canying on banking business as scheduled bank is not
an institution discharging statutory or public duty-Hence not a state or C
its agency or instrumentality.
Constitution of India-Articles 12 and 226-Banking Regulation Act
1951, ss.5 (c)(a), 22, 35, 35A, 36, 36AA, 36AB, 36 AE, 45-Reserve Bank
of lndia Act, 1934, ss.2(e), 42(6), 46 A-Maintainability of writ petiton by D
employee of Federal Bank challenging dismissal-Whether amenability to
regulation by Reserve Bank of India tan/amounts to Federal Bank
discharging public function or duty-Held; no; mere regulatory provisions
to ensure that activity of private bodies is within a discipline does not
subject company to an ob/;gation which may be enforced by issuance of E
a writ under Article 226 of the Constitution-Companies Act 1956, ss.58A,
227, 233A, 235, 250, 255, 267, 3888-Industrial (Development and
Regulation) Act, 1951, ss.15, /5A, /8A and /BAA.
The first respondent working as Branch Manager in the appellant
Bank was found guilty of certain charges and awarded punishment of F
dismissal. He challenged the dismissal by filing a writ petition in the
High Court. The Bank raised a preliminary objection about the
maintainability of the writ petition contending that it was a private
bank and not a State or its agency or instrumentality, within the
meaning of Article 12 of the Constitution of India. The Single Judge G
and the Division . Bench of the High Court held that the Bank
performed a public duty and therefore the writ petition was
maintainable. The Bank appealed to this court.
Allowing the appeal, the Court
121
H
122
SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A
HELD: I.I. The writ petition against the appellant bank was not
maintainable. A private company carrying on banking business as a
scheduled bank, cannot be termed as an institution or compa~y
carrying on any statutory or public duty. [153-C-El
, ...
"
I
•
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~
1.2. The share capital of t_he appellant bank is not held by. the
B Governor nor any financial assistance is pro~ided by· the State. The
+
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appellant bank does not enjoy any monopoly status nor it can be said
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to be an institution having State protection. The affairs oft~e appellant .
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bank are managed by the Board otD.~r~~~?rrs' el~ct~d by its.s~are~.old,ers.id'
No Governmental agency or officer'ts connected with its affairs nor
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-
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. l. I
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C anyone of them is a member of the'Board of Directors. In the normal
functioning of the private banking com_p.any ther~'is no participation '
or interference of the State or its authorities. It works like any other
private company in the banking busi~ess having no monopoly status
at all. (150-F-H, 151-A]
D
1.3. Any business or commercial activity, may be banking,
manufacturing units or related to any other kind of business generating
resources, employment, production. and resulting in circulation of
money are no doubt, are such which do have impact on the economy
of the country in general. But such activities cannot be public nature.
E
{152-A-BJ
Ajay Hasia v. Khalid Mujib Sehravardi, [1981] f SCC 722 and
Pradeep Kumar Biswas v. Indian Institute of Chemical Biology, (20021 5
sec 111, followed.
F
U.P. State Co-operative Land Development Bank Ltd v. Chandra
Bhan Dubey, AIR (1999) SC 753, explained and distinguished.
Sukhdev Singh v. Bhagatram
1
Sarda; Si~gh Raghuvanshi, [1975) 1
SCC 421; Romana Dayaram Shetty v. Jnternational Airport Authority of
India, (1979] 3 SCC 489; Bank of Baroda Ltd v. Jeewan Lal Mehrotra,
G (1970) 3 sec 677; All India B~nk Employees' Association v. National
Industrial Tribunal, [1962) 3 SCR 265; Air India Statut01y Corporation
v. United Labour Union, 11997) 9 SCC 377; Andi Mukta Sadguru Shree
Muktajee ·vandas Swami Suvarna Jayanti Mahotsav Smarak Trust

## Text

_Characters 0–39,266 of 72,582. This is a partial read: ask again with offset=39266 for what follows._

FEDERAL BANK LTD.
A
V.
SAGAR THOMAS AND OTHERS
SEPTEMBER 26, 2003
[BRIJESH KUMAR AND ARUN KUMAR, JJ.]
B
Constitution of India-Articles 12, 226-Whether writ petition
maintainable against Federal Bank by dismissed employee-Held, no;
private company canying on banking business as scheduled bank is not
an institution discharging statutory or public duty-Hence not a state or C
its agency or instrumentality.
Constitution of India-Articles 12 and 226-Banking Regulation Act
1951, ss.5 (c)(a), 22, 35, 35A, 36, 36AA, 36AB, 36 AE, 45-Reserve Bank
of lndia Act, 1934, ss.2(e), 42(6), 46 A-Maintainability of writ petiton by D
employee of Federal Bank challenging dismissal-Whether amenability to
regulation by Reserve Bank of India tan/amounts to Federal Bank
discharging public function or duty-Held; no; mere regulatory provisions
to ensure that activity of private bodies is within a discipline does not
subject company to an ob/;gation which may be enforced by issuance of E
a writ under Article 226 of the Constitution-Companies Act 1956, ss.58A,
227, 233A, 235, 250, 255, 267, 3888-Industrial (Development and
Regulation) Act, 1951, ss.15, /5A, /8A and /BAA.
The first respondent working as Branch Manager in the appellant
Bank was found guilty of certain charges and awarded punishment of F
dismissal. He challenged the dismissal by filing a writ petition in the
High Court. The Bank raised a preliminary objection about the
maintainability of the writ petition contending that it was a private
bank and not a State or its agency or instrumentality, within the
meaning of Article 12 of the Constitution of India. The Single Judge G
and the Division . Bench of the High Court held that the Bank
performed a public duty and therefore the writ petition was
maintainable. The Bank appealed to this court.
Allowing the appeal, the Court
121
H
122
SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A
HELD: I.I. The writ petition against the appellant bank was not
maintainable. A private company carrying on banking business as a
scheduled bank, cannot be termed as an institution or compa~y
carrying on any statutory or public duty. [153-C-El
, ...
"
I
•
'
i
~
1.2. The share capital of t_he appellant bank is not held by. the
B Governor nor any financial assistance is pro~ided by· the State. The
+
·•
I
rt
I
t
I
'.
I
•
j
~fl
'
i
I
.
'•
appellant bank does not enjoy any monopoly status nor it can be said
~
,
•
. I
, lJ
I j
to be an institution having State protection. The affairs oft~e appellant .
•.
•
-
. .
r-·
•
,
,
.
f
~
bank are managed by the Board otD.~r~~~?rrs' el~ct~d by its.s~are~.old,ers.id'
No Governmental agency or officer'ts connected with its affairs nor
• -
-
' ~ . I
(
. R
. l. I
1 • I
t
'
C anyone of them is a member of the'Board of Directors. In the normal
functioning of the private banking com_p.any ther~'is no participation '
or interference of the State or its authorities. It works like any other
private company in the banking busi~ess having no monopoly status
at all. (150-F-H, 151-A]
D
1.3. Any business or commercial activity, may be banking,
manufacturing units or related to any other kind of business generating
resources, employment, production. and resulting in circulation of
money are no doubt, are such which do have impact on the economy
of the country in general. But such activities cannot be public nature.
E
{152-A-BJ
Ajay Hasia v. Khalid Mujib Sehravardi, [1981] f SCC 722 and
Pradeep Kumar Biswas v. Indian Institute of Chemical Biology, (20021 5
sec 111, followed.
F
U.P. State Co-operative Land Development Bank Ltd v. Chandra
Bhan Dubey, AIR (1999) SC 753, explained and distinguished.
Sukhdev Singh v. Bhagatram
1
Sarda; Si~gh Raghuvanshi, [1975) 1
SCC 421; Romana Dayaram Shetty v. Jnternational Airport Authority of
India, (1979] 3 SCC 489; Bank of Baroda Ltd v. Jeewan Lal Mehrotra,
G (1970) 3 sec 677; All India B~nk Employees' Association v. National
Industrial Tribunal, [1962) 3 SCR 265; Air India Statut01y Corporation
v. United Labour Union, 11997) 9 SCC 377; Andi Mukta Sadguru Shree
Muktajee ·vandas Swami Suvarna Jayanti Mahotsav Smarak Trust v. VR.
Rudani, ( 1989] 2 SCC 69 t; Unnikrishnan, J.P. v. State of Andhra Pradesh,
H [1993) 1 SCC 645; Life Insurance Corporatio11 of India "· Consumer
FEDERAL BANK LTD. v. SAGAR THOMAS [BRJ.JESH KUMAR, J.] 123
Education & Research Centre, (19951 5 SCC 482; Kumari Shrilekha A
Vidyarthi v. State of Uttar Pradesh, 11991 J I SCC 212; The Praga Tools
Corporation v. Shri C.A. !manual, (1969) I SCC 585 and Executive
Committee of Vaish Degree Colle;;e, Shamli v. Lakshmi Narain, [1976) 2
sec 58, referred to.
21. Merely because the Reserve Bank of India lays down the B
banking policy in the interest of the banking system or in the interest
of monetary stability or sound economic growth having due regard to
the interests of the depositors etc., as provided under s.5 (c)(a) of the
Banking Regulation Act does not mean that the private companies
carrying on the business of or commercial activity of banking, discharge C
any public function or public duty. (152-GJ
2.2. Regulatory provisions to ensure such activity carried on by
private bodies work within a discipline, do not confer any such status
upon the company nor put any such obligation upon it which may be
enforced through issue of a writ under Article 226 of the Constitution. D
[153-DI
CIVIL APPELLATE JURISDICTION: Civil Appeal No. l 06 of200 I.
From the Judgment and Order dated 7.2.2000 of the Kerala High
Court in W.A. No. 1202 of 1999-A.
E
A.B. Diwan, Ms. Pooja Sharma, Ms. Sampada Narang, Ms. Vandana
Chug and Rajan Narain for the Appellant.
Rajinder Sachar and R. Sathish for the Respondent No. l.
Rajan Narain for the Respondent Nos. 2-3.
The Judgment of the Court was delivered by
F
BRIJESH KUMAR, J. : The respondent no. I Sagar Thomas was
working as a Branch Manager in Karunagappally branch of the appellant
Bank, namely, the Federal Bank, having its registered office at Alwaye, G
Kerala. H~ was, however, suspended on 29.5.1982, since a disciplinary
enquiry was ordered into some charges against him for having exceeded
his authority in grant of loans and advances to different parties. The inquiry
officer found him guilty of the charges and ultimately punishment of
dismissal was awarded to the respondent.
H
124
SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A
The respondent no. I challenged the order of his dismissal by filing
a writ petition in the High Court. A preliminary objection about
maintainability of writ petition seems to have been taken, in defence by
the Federal Bank, saying that it is a private bank and not a State or its
agency or instrumentality, within the meaning of Article 12 of the
B Constitution of India, h.ence a 'writ petition under· Article 226 of the
Constitution is not maintainable against it. The leurned single Judge,
however, found that the Federal Bank perfonns public duty and observed
thus:
c
D
E
F
G
H
"As per statutes, the Reserve Bank 'and the Central Government
exercise all pervading functional; fiduciary and managerial control
over the banking industry. Every ban~ing company is duty bound
to carry on banking, business as per the banking policy unc;t~r,
stringent control of the Reserve Bank in the interest of banking,
system or in the interest of monetary stability of sound economic
growth, having due regard to the interest of the depositors. The
activities carried on by the bank are vital to public interest and
have potential to affect the socio-economic development and
growth of th~ nation. Banking companies are therefore, public
institutions, accepting deposits from public, financial assistance
from the State through its agencies/instrull)entalities, for the
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,
)t 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, I can
very well find that the Federal Bank Ltd., is performing public
duty and as such it comes under the definition of 'other authority'
within the meaning of Article 12 of the Constitution of India and.
as such the writ petition is maintainable before this Com1."
.J'
FEDERAL BANK LTD. v. SAGAR THOMAS [BRIJESH KUMAR . .I.] 125
Aggrieved by the aforesaid judgment of the learned single Judge, the A
appellant preferred a writ appeal but referring to a decision of this Court
in UP.State Co-operative land Development Bank ltd v. Chandra Bhan
Dubey & Ors. 1 the Division Bench, observed that in an identical fact
situation it was held that writ application would be maintainable, minor
distinctions on facts, here and there, would not make the aforesaid decision B
inapplicable to scheduled banks. With such observations the appeal was
dismissed providing that the learned single Judge shall decide writ petition
on merits. The Federal Bank Ltd. has preferred this appeal, against the
aforesaid judgment of the High Court.
Learned senior counsel appearing for the appellant, so as to indicate C
the structure of the appellant, submits that the Federal Bank Ltd. is a
'company' incorporated under the Indian Companies Act, 1913, now
replaced by the Companies Act, 1956. Its activities are regulated by the
provisions of the Banking Regulation Act, 1949. The entire shareholding
of the company is held by private individuals and entities. The finances D
of the banks are raised by its own resources and efforts, and the profits
of the bank are utilized by the bank for its own purposes. It does not
perform any sovereign function nor does it exercise any authority over a
third person. The nature of the activity of the bank is that of a commercial
undertaking which receives deposits from the individuals and advances
loans and performs other ancillary monetary transactions. The management E
of the bank is in the hands of the Board of Directors. There are 10 Directors,
out of which 7 are selected by the General Body of the shareholders. Two
members are co-opted by the Board of Directors and one of them is
nominated by the Reserve Bank of India. The Board of Directors exercise
the powers of superintendence and control over the bank. The bank is, F
therefore, merely a private limited company; it is neither a 'State' nor any
'authority' within the meaning of Article 12 of the Constitution nor it is
amenable to writ jurisdiction of the High Court. It is also the case of the
appellant bank that services of an employee or an officer of a private body,
cannot be imposed or thrust upon it nor a relief of reinstatement can be
granted. In this connection, the appellant has referred to the reliefs prayed G
for in the writ petition, which are as follows:
"i)
a writ of Certiorari or any other appropriate writ, order or
direction quashing Exhibit P3 Enquiry Report and P6 and P7
I. AIR (1999) SC Page 753
H
A
B
c
126
SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
orders of the disciplinary authority and the. Board of Directors
as illegal and unsustainable in Jaw;
ii)
a wiit of Mandamus or any other appropriate writ, order or
direction commanding the respondents to reinstate the
petitioner with all wages ahd increments in the salary
applicable to him as if he had continued in service from the,
date of his suspension;
i ·
iii)
any other appropriate writ, order or direction as this Hon 'ble
Court may deem fit and necessary on the facts and in the
circumstances of the case and allow this petition with all
costs."
In the light of the prayer made for issue of a writ of certio;·ari for quashing
of inquiry report and the order of punishment and further for issue of a
D writ of mandamus or any other appropriate writ or direction for reinstatement
of the petitioner with all wages and increments etc. as if, he had been
continued in service, a plea in reply has been raised by the appellant that
it being a private body incorporated under the Companies Act, it is not
amenable to writ jurisdiction of· the High Court. It is in the above
E background that the learned Single Judge considered the matter and held
that the Federal Bank Limited is performing public duty, as such it is
covered under the expression of 'other authority', within the meaning of
Article 12 of the Constitution, hence the writ petition is maintainable before
the High Court.
F
The question thus, which falls for consideration is as to whether the
appellant bank is a private body or falls within th~ definition of the State
or local or other authorities under the control of the Government. A body
or organization which is an instrumentality or agency of the State or a
company owned and controlled by the State are all included in the
G expression "the State". If it is found that the petitioner falls within the later
category, there would be no hurdle in holding that such a body or
organization would undoubtedly be amenable to the writ jurisdiction under
Article 226 of the Constitution of India. On the other hand, if it is found
that the appellant is a private body in that event it may have to be examined
H whether a writ petition would be maintainable or not and the extent to
FEDERAL BANK LTD. v. SAGAR THOMAS [BRIJESH KUMAR, .J.] 127
which such powers can be exercised.
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.
A
On behalf of the appellant, a decision in the case of Pradeep Kumar B
Biswas v. Indian Institute of Chemical Biology & Ors. 2 decided by a 7
Judges Bench has been referred. The majority judgment considered a
catena of decisions on the point and it has been observed in paragraph 25
of the judgment : "The tests propounded by Mathew, J. in Sukhdev Singh3
were elaborated in Ramancr and were refonnulated two years later by a C
Constitution Bench in Ajay Hasia5 What may have been technically
characterized as obiter dicta in Sukhdev Singh (supra) and Romana (supra)
(since in both cases the "authority" in fact involved was a statutory
ccrporntion), furmeri the rnti(, dec;rlendi of Ajay Hasia (supra)". Thereafter
the court has extracted para 11, at page 737-38 of the case of Ajay Hasia
(supra), as follows : "The concept of instrumentality or agency of the D
Government is not limited to a corporation created by a statute but is
equally applicable to a company or society and in a given case it would
have to be decided, on a consideration of the relevant factors, whether the
company or society is an instrumentality or agency of the Government so
as to come within the meaning of the expression 'authority' in Article 12." E
It is then observed that Ramona's case (supra) noted with approval in Ajay
Hasia (supra) and quoted the tests laid down in the case of Ajay Hasia
(supra) at page 73 7 in para 9. It reads as follows :"
(I)
One thing is clear that if the entire share capital of the
corporation is held by Government, it would go a long way F
towards indicating that the corporation is an instrumentality
or agency of Government. (SCC p. 507, para 14)
(2)
Where the financial assistance of the State is so much as to
meet almost entire expenditure of the corporation, it would G
afford some indication of the corporation being impregnated
with governmental character. (SCC p. 508, para 15)
2.
[2000] 5 sec page 111
3.
Sukhdev Singh v. Bhagatram Sardar Singh Raglmvanshi. [1975] I SCC 421
4.
Ramana Dayaram Shelly v. International Airport Authority of India, (1979] 3 SCC 489
5.
Ajay Hasia v. Khalid Mujib Sehravardi, (1981] I sec 722.
H
128
SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A
(3)
It may also be a relevant factor .. whether the corporation
4
enjoys monopoly status which is State-conferred or Stateprotected (SCC p. 508, para 15)
1
(4)
Existence of deep and pervasive State control may afford an
I
B
indication that the corporation is a State agency or
instrumentality. (SCC p. 508, para 15)
(5) If the functions of the corporation are of public importance
and closely related to governmental functions, it would be
.-
c
a relevant factor in classifying the corporation as an
'
instrumentality or agency of Government. (SCC p. 509, para
16)
(6)
'Specifically, if a department of Government is transferred
~
D
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 :
E
"The tests to detennine whether a body falls within the definition
of "State" in Article 12 laid down in Romana (supra) with the
Constitution Bench imprimatur in Ajay Hasia (supra) form the
keystone of the subsequent jurisprudential superstructure judicially
crafted on the subject which is apparent from a chronological
F
consideration of the authorities cited."
After considering a number of decisions it has been observed in para 40
of Pradeep Kumar Biswas (supra) as follows :
G
"The picture that ultimately emerges is that the tests fonnulated
in Ajay Hasia (supra) are not a rigid set of principles so that if
a body falls within any one of them it must, ex hypothesi, be
considered to be a State within the meaning of Article 12. The
question in each case would be - whether in the light of the
H
cumulative facts as established, the body is financially, functionally
'4'
J
FEDERAL BANK LTD. v. SAGAR THOMAS [BR I.I ESH KUMAR, .I.] ! 29
and administratively dominated by or under the control of the A
Government. Such control must be particular to the body in
question and must be pervasive. If this is found then the body is
a State within Article 12. On the other hand, when the control is
merely regulatory whether under statute or otherwise, it would not
serve to make the body a State."
B
The appellant then refers to a decision in Bank of Baroda Ltd. v.
Jeewdn Lal Mehrotra6 which is a decision of a three Judge Bench, wherein
it has been laid down that a contract of service could not be enforced on
a private employee. Needless to say that the case is related to the services
of an employee of a Scheduled bank. Our attention has been particularly C
.drawn to paragraph 3 of the judgment where it is observed :
" ..... The law as settled by this court is that no declaration to
enforce a contract of personal service will be normally granted.
The well recognized exceptions to this rule are (I) where a public D
servant has been dismissed from service in contravention of
Article 311, (2) where re-instatement is sought of a dismissed
worker under the industrial law by labour or industrial tribunals,
(3) where a statutory body has acted in breach of a mandatory
obligation imposed by statute .... "
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.
E
U.P. State Co-operative Land Development Bank Ltd. (supra) has F
been relied upon by the Division Bench while passing the impugned order
dismissing the appeal. We may examine the position as involved in that
case in some detail. It is registered as a Co-operative society under the
provisions of the U.P.Co-operative Societies Act. While holding it to be
an instrumentality of the State, the Court took note of the fact that though G
registered as a co-operative society, it was constituted under the provisions
of the U .P.Co-operative Land Development Bank Act, 1964. The Managing
Director and the Chief General Manager of the Bank are officials of the
State, who are at the helms of the affairs of the Bank. The service rules
6.
[1970} 3 sec page 677
130
SUPREME COURT REPORTS [2003) SUPP. 4 S.C.R.
A for the employees and officers of the Bank were framed by the State
Government in exercise. of powers under Section 30 of the U.P.Coopcrative Land Development Bank Act, 1964. The rules are called the
U.P.Co-operative Land Development Banks Rules, 1971, which lay down
the conditions of services of the employees. The Institutional Service
B Boards constituted under Section 122 of the Co-operative Societies Act has
also framed service rules according to which dismissal of an employee can
be ordered only after its approval by the Institutional Service Board. The
U.P. State Co-operative Land Development Bank Ltd. is the only bank
constituted under the provisions of the U .P. Co-operative Land Development
C Bank Act and there cannot be any other State level Land Development
Bank for the whole of the State. Apart from the fact that the Bank had
exclusive jurisdiction over the whole of the State ofUttar Pradesh, the other
Land Development Banks could also be made members of the U.P. State
Co-operative Land Development Bank, in any number, as the Registrar of
the Co-operative Societies may deem it necessary. It is further found that
D the Registrar of the Co-operative Societies, U.P. is the trustee for the
purpose of securing the fulfillment of the obligations of the State Land
Development Bank to the holders of debentures issued by the Board of
Directors. The Board of Directors are entitled to issue debentures from time
to time with the previous sanction of the State Government and the trustee,
E against the unconditional guarantee by the State Government for the
repayment in full of the principal and interest thereon, or on the security
of mortgages, charges or hypothecations etc. The State Government
constitutes ~ Guarantee Fund under Section 9 of the Act for the purpose
of meeting losses that might accrue on account of loans advanced by the
F Land Development Banks. The Guarantee Fund is maintained by the
Finance Department of the State Government. On the basis of the facts
noted above, the Court took the view that the U.P. State C:o-operative Land
Development Bank Ltd., though registered as a Co-operative society, is an
instrumentality of the State and its employees have a statutory protection
under the statutory rules.
G
It is quite apparent that the decision in the case of U.P. State Cooperative Land Development Bank Ltd (supra) would in no way be
applicable to the case in hand. The participation and control of the State
in the whole activity of the U.P. Land Development Bank Ltd. is all
H pervasive. Its officers head the institution. U.P. Land Development Bank
'·
r
,
t:::
FEDERAL BANK LTD. v. SAGAR THOMAS [BRIJESH KUMAR, .I.] 131
is constituted as the only State level Bank in the State. Under the statutory A
provision there cannot be any other Land Development Bank at the State
level. The government guarantees repayment in the event of losses suffered
by the Bank and with the approval of the State, the Bank may also issue
debentures. To cap it all the service conditions of the employees are
governed by the statutory rules. It is submitted by the appellant that this B
case will have no applicatior: to the present case and the same has been
wrongly followed and relied upon by the Hig? Court to dismiss the appeal.
Shri Rajinder Sachar, learned senior counsel appearing for the
respondent, refers to a Constitution Bench decision in· All India Bai!,k C
Employees' Association v. National Industrial Tribunal & Ors. 7• Our
attention has been particularly drawn to the observations made at page 299
of the report wherein it is observed as follows:-
" ... .If it was not the Reserve Bank oflndia, the only other authority
that could be entrusted with the function would be the Finance D
Ministry of the Government of India and that department would
necessarily be guided by the Reserve Bank having regard to the
intimate knowledge which the Reserve Bank has of the banking
structure of the country as a whole and of the affairs of each bank
in particular ...... ".
It has been referred to indicate that the control of the Reserve Bank oflndia
over all the banks would be as ·if the control is in place ofFinance Ministry,
Government of India.
E
A reference has then been made to Air India Statutory Corporation F
& Ors. v. United Labour Union & Ors. 8• a decision of a three Judge Bench.
It has been held that the industry carried on by Air India under authority
of central government would involve public law element even though its
activity may be commercial in nature. It was held that the Air India was
being run by the Airport Authority ofindia of the Central Government and G .
there was element of deep and pervasive governmental control. Initially it
was a statutory authority under the International Airports Authority of India
Act, 1971. Later it was amalgamated with National Airports Authority and
7.
[1962] 3 SCR page 265
s.
[1997) 9 sec page 3 77
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132
SUPREME COURT REPORTS [2Q03] SUPP. 4 S.C.R.
A thereafter it is constituted as a Company under the Companies Act. In that
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context, it has been held, if the company is run wholly or partially by the
sha~e capltai floated.fro1n pubi'i'c ~~ch~~ii'e~, it gives iddication of its control
by the appropriat~ g0verni~~nt. On· cdn~idefation: of ii ~uni\jer of decisions
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on the pomt, the. Court found tile follow1hg prmc1ples which may be
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B considered, for coming tO a conclusion whether any 'public element is
involved or not, the paragraph 26.of the decision, reads as under :
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"(l) The constitution of the corp'oratiori or instrumentality or
, agency ,or corporation aggregate or corporation sole is not
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C "· J ~ ,1,1q:,, n , ~(.sp,~~!!l~!t;rJ~! r~~t;Y~Rf~ 1w,,9r,c},d~,;Y.~1~f?_e~)t is by or under
1 the, control of the appn;>p1:i~te Gov.ernment under the Act.
(2) If it is a statutory corporation, it is an instrumentality or
agency of the State. If it is a company owned wholly or
partially by a share capital, floated from public exchequer,
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it gives indicia that it is controlled by or under the authority
of the Appropriate Government.
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(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 fra~ework 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 according to business principles and
are separately accountable under their appropriate bye-laws.
or Memorandum of Association, they become the arm of the
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FEDERAL BANK LTD. v. SAGAR THOMAS [BRJJESI-1 KUMAR. J.] 133
Government.
(8)
The existence of deep and pervasive State control depends
upon the facts and circumstances in a given situation and in
A
the altered situation it is not the sole criterion to decide
whether the agency or instrumentality or persons is by or B
under the control of the appropriate Government.
(9)
Functions of an instrumentality, agency or person are of
public importance following public interest element.
(10) The instrumentality, agency or person must have an element C
·
of authority or ability to effect the relations with its employees
· o~ public by virtue of power vested in it by law, Memorandum
of Association or bye-laws or Articles of Association.
( 11) The .instrun:ientality~ agency or person renders an element of D
public service and 1s accountable to health and strength of
.
the workers, men and women, adequate means oflivelihood,
the security for payment of living wages, reasonable
conditions of work, decent standard of life and opportunity
to enjoy f\111 leisure and social and cultural activities to the
workmen.
'
(12) Every action of the public authority, agency or instrumentality
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or the person acting in public interest or any act that gives
rise to public element should be guided by public interest in
exercise of public power or action hedged with public F
element and is open to challenge. It must' meet the test of
reasonableness, fairness and justness.
(13) If the exercise of the power is arbitrary, unjust and unfair,
the public authority, instrumentality, agency or the person
acting in public interest, though in the field of private law, G ·
is not free to prescribe any unconstitutional conditions or
limitations in their actions."
One of the important factors to be considered is, if it is a statutory
corporation, an instrumentality or agency of the State or a company owned H
134
SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A wholly or partially by a share capital floateJ from public exchequer, it gives
indicia that it is controlled by and under the authority of the Appropriate
Government. We find that it is this factor which brings in public element.
Paragraph 61 of the judgment reads:-
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"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 or a person or authority imbued with public
law element. The question requires to be detennined in each case.
However, it may not be possible to generalise the nature of the
action which would come either under public law remedy or
private law field nor is it desirable to give exhaustive list of
such actions....... The distinction between public law and
private law remedy has now become thin and practically
obliterated."
Shri Sachar then referred to a decision of this Court in Andi Mukta
Sadguru Shree Muktajee Vandas Swami Suvarna Jayanti Mahotsav Smarak
E Trust & Ors. v. V.R. Rudani & Ors. 9 case. It has been held in this case that
the college in question which was managed by a trust registered under the
Bombay Trusts Act was amenable to writ jurisdiction and a direction could
be issued to the institution to make the payment of arrears of salary and
other benefits to the teacher. It is further submitted that if a private body
F discharges a public duty it would be amenable to the writ jurisdiction.
Paragraph 17 of the judgment has been particularly referred to, which reads
as under :
"There, however, the prerogative writ of mandamus is confined
only to public authorities to compel perfonnance of public duty.
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The 'public authority' for them mean every body which is created
by statute - and whose powers and duties are defined by statute.
So government departments, local authorities, police authorities,
and statutory undertakings and corporations, are all 'public
authorities'. But there is no such limitation for our High Courts
H 9.
[1989] 2 sec page 691
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FEDERAL BANK LTD. v. SAGAR THOMAS [BRIJESH KUMAR, .T.] 135
to issue the writ 'in the nature of mandamus'. Article 226 confers A
wide powers on the High Courts to issue writs in the nature of
prerogative writs. This is a striking departure from the English
Law. Under Article 226, writs can be issued to "any person or
authority". It can be issued "for the enforcement of any of the
fundamental rights and for any other purpose".
B
Shri Sachar has also stressed upon the observation made in the later part
of para 19 and para 20 where it has been observed:
" ..... Any attempt to equate the scope of the power of the High
Court under Article 226 of the Constitution with that of the C
English courts to issue prerogative writs is to introduce the
unnecessary procedural restrictions grown over the years in a
comparatively small country like England with a unitary form of
government into a vast country like India functioning under a
federal structure ..... "
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Para 20
" .... The words "any person or authority" used in Article 226 are,
therefore, not to be confined only to statutory authorities and
instrumentalities of the State. They may cover any other person E
or body perfom1ing public duty ....... What is relevant is the nature
of the duty imposed on the body. The duty must be judged in the
light of positive obligation owed by the person or authority to the
affected party ..... "
While making his submissions in reply, the appellant referred to
paragraph 15 of the aqove judgment wherein it has been observed that if
the rights are purely of a private character, no mandamus can be issued.
F
It is further observed that if the management of the college is purely a
private body with no public duty, mandamus would not lie. But it has been
held that the college run by a private trust was affiliated to the university G
to which public money is paid as government aid. It is then observed :
" ... Public money paid as government aid plays a major role in the
control, maintenance and working of educational institutions. The
aided institutions like government institutions discharge public H
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136
SUPREtVtE•COURT REPORTSl2003] Sl'.JPP. 4 S.C.R.
function by way' Of ·imparting· education. to students. They are·
subject to the rules ·and regulations of the affiliating University.
Their activities areclosely supervised by the University authorities.
Employment in such institutions; therefore; is not.devoid of any
public character.·So1are'the •service conditions -of ,the academic
staff. .... The service 'conditions~ of the academi.c staff are,
therefore, not purely of a private character .. It has super~added
protection by University .. ,decisions _creating a legaL r!ght;duty
relationship between.th~·staff. and the m.anagen:ient. .yvpe_"!;there
is existence of this relationship, mandafl!U? ca!1not be r~f!J~ed to
the aggrieved party."·
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On thjs basis, it is submitted in.reply that those features by reason of which
it has been held that a 'Yrit of mandamus would lie against a private
management, are not present in the case in hand.' A reference to para t 2
ofthe Andi Mukta's cas~ (supra) has been made, where it has been held ·
D that no writ would issue where dismissal was not in violation of any
statutory provision. No ~einstatement' could be ordered.
Shri Sachar then refers to Unni· Krishnan,> J.P. & Ors. v. State of
Andhra Pradesh & Ors. 10, a Constitution Bench judgment. In reference to
E para 79 it is submitted that educational institutions discharge public duties
irrespective of the fact .they. receive. aid·o~ not. The absence of aid does
not detract from the public nature of the duty. The submission, therefore,
is that even though a body .or institution may be a private body but if the
duty that it discharges is that of a public nature, a writ would l~e.
F
In this connection Life Insurance Corporation of India & Anr. v.
Consumer Education & Rese~rch·C~nt;·e & Ors: 11 , also has been referred
to, which in tum refers to K1~ma;; Shrilekha Vidyarthi v. State of Uttar
Pradesh12, holding that arbitrarin~ss, 'even in contractual obligation of
public character is violati~e of A.'rticle '14 of the Constitution, the Court held
G that rates of premium .must b~ ;easonable and acceptable. ·It cannot be
unjust and excessive. Thus the touchstone of test is the reasonableness and
non-arbitrariness of the action even in the contractual matters of the State
or its agencies and instrumentalities.
10. [1993] 1 sec page 645
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11. [1995) s sec page 482
12. [1991) 1 SCC page 212
FEDERAL BANK LTD.v«SAGAR THOMAS [BRIJESH KUMAR. J.] 137
The appellant in reply also referred to The Praga Tools Corporation A
v. Shri C.A.lmanual & Ors. 13 whe_re it ~as held that a company registered
under the Companies Act is neither statutory nor any public duty is
imposed on it by any statute in respect of which enforcement would be
sought by means of a mandamus. Mandamus lies to secure the purpose of
a public or statutory duty. No mandamus or order of reinstatement of an B
office which is essentially of a private character can be issued. A
mandamus can be issued to compel the official of a society to carry out
the terms of the statute under or by which the society is constituted or
governed and also to companies or corporations to carry out duties placed
on them by the statutes authorizing their undertakings.
C
Executive Committee of Vaish Degree College, Shandi & Ors. v.
Lakshmi Narain & Ors. 14 was also referred to on the proposition that
coptract of personal service cannot ordinarily be enforced.
From the decisions referred to above, the position that emerges is that
a writ petition under Article 226 of the Constitution of India may be
maintainable against (i) the State (Govt); (ii) Authority; (iii) a statutory
body; (iv) an instrumentality or agency of the State; ( v) a company which
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is financed and owned by the State; (vi) a private body run substantially E
on State funding; (vii) a private body discharging public duty or positive
obligation of public nature (viii) a person or a body under liability to
discharge any function under any Statute, to compel it to perform such a
statutory function.
Learned senior counsel appearing for the respondent has drawn our F
attention to the various provisions of the Reserve Bank of India Act, 1934
(for short 'the RBI Act'), the Banking Regulation Act, 1941 and the
Industries (Development and Regulation) Act, 1951 so as to emphasise that
there is deep and all pervasive statutory control and the control of the G
Central Government over the Scheduled Banks. It is submitted that these
banks discharge functions of public nature and owe the statutory
responsibilities, hence there is an element of public law, involved in the
activities of the Bank. Section 22 of the Banking Regulation Act provides
13. [1969] I SCC page 585
14. [1976] 2 sec ss
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138
SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A for Licensing of banking companies. No company can carry on banking
business in India unless it holds a licence issued by the Reserve Bank
subject to such conditions as may be imposed. Before issuing any licence
·the Reserve Bank may satisfy itself about the conditions as laid down under
sub-section (3) of Section 22 as to whether the company fulfills those
B conditions or not.
The appellant is one of the Scheduled Banks, definition of which as
provided in the Reserve Bank of India Act, has been referred to which
says :
C
"2( e) scheduled bank" means a bank included in the Second
Schedule;"
Sub-section (6) of Section 42 of the RB1 Act has been referred to
indicate the control which is exercised by the Reserve·Bank of India on
D the banking companies.