# KAPILA HINGORANI v. STATE OF BIHAR

- **Citation:** [2003] Supp. 1 S.C.R. 175
- **Court:** Supreme Court of India
- **Decided:** 2003-05-09
- **Bench:** V.N. Khare, S.B. Sinha
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/kapila-hingorani-v-state-of-bihar-19181
- **Pages:** 38

## Headnote

B
Constitution of India, 1950:
Articles 12,14,19 21, 23,32 and 300A-Companies!Corporations owned
by State of Bihar-Non-payment of sala1y to employees for a long time, in C
some cases, for a decade or more-Starvation deaths of and/or suicide by
employees/their dependents reported-Writ petition in public interest filed
before Supreme Court involving issues regarding liability of State Government
of Bihar and that of Union of India and State of Jharkhand-Held, State
Government of Bihar has made itself liable to mitigate the sufferings of the D
employees of the public sector undertakings or the Government companiesfnterim directions issued suggesting modalities for disbursement of salaries to
employees-liquidation proceedings of Government Companies to be disposed
of expeditiously-Right of workmen shall be considered in terms of s.529-A of
the Companies Act-liability of the State of Bihar cannot be shifted to the
Union of India-Only because the Union of India allegedly is repository of E
funds raised by it through Central Excise and other levies and impost, the
same by itself would not mean that it is indirectly or vicariously liable for the
failings on the part of the State Public Sector Undertakings-No direction is
issued as against the State of Jharkhand as no step had been taken by the
Central Government in terms of Section 65 of the Bihar Reorganisation Act- F
The investments made by the State in the public sector undertakings in pursuit
of social justice is from public account-ft is in this behalf accountable to the
public through the legislature-If the State or the State agencies have failed
to perform their duties, it cannot under the wrap of financial stringency seek
to shift its liability to the Union of India or lo the State of JharkhandFinancial stringency may not be a grozmd for not issuing requisite directions G
when a question of violation offimdamental right arises-Central Government
to take a decision as regards division of assets of Government companies in
terms of the Bihar State Reorganisation Act-Whether the State is directly or
vicariously liable to pay salaries/remunerations of the employees of the public
sector undertakings or the Government companies in all situations is left H
175
176
SUPREME COURT REPORTS [2003] SUPP. I S.C.R.
A open-Public Interest litigation-Bihar Reorganisation Act, 2000-S.65Companies Act, 1956-S.529-A.
Rural litigation and Entitlement Kendra and Ors. v. State of Uttar
Pradesh and Ors., AIR (1987) SC 359=119861 Supp. SCC 517; B.L. Wadhera
v. Union of India, AIR 1996 SC 2969; All India Imam Organization and Ors.
B v. Union of India and Ors., 119931 3 SCC 584 and State of H.P. v. H.P. State
Recognised and Aided Schools Managing Committee and Ors., 1199514 SCC
507, relied on.
Articles 12 and 21-Although a company incorporated under the
C Companies Ac/, I956 is a juristic person and indispulab(v has a dis/incl and
separa/e entity vis-a-vis its shareholders, !he corporate veil can be pier.:ed
when the corpora/e personality is found to be opposed to justice, convenience
and interest of the revenue or the workmen or against public interest-The
Government companies/public sector undertakings being "State" would be
constitutionally liable to respecl life and liberty of all persons in terms of
D Article 21-They, therefore, must do so in cases of their own employees-The
State mey not be liable in relation to the dcy to dey funclioning of !he
Companies, but its liability would arise on its failure to perform the
constitutional duties and functions by the public sector undertakings, as in
relation thereto the State's constitutional obligations, the State acts in a
fiduciary capacity.
E
Steel Authority of India ltd and Others v. National Union Waterfront
Workers and Ors., 120011 7 SCC I; Electronics Corporation of India ltd. and
Others v. Secretary, Revenue Department, Govt. of Andhra Pradesh and Others,
1199914SCC458; State of UP. and Ors"v. Renusagar Power Company and
F Ors., (19881 4 SCC 59; CI

## Text

_Characters 0–39,461 of 81,504. This is a partial read: ask again with offset=39461 for what follows._

KAP!LA H!NGORANI
A
v.
STATE OF B!HAR
MAY 9, 2003
[V.N. KHARE, CJ. AND S.B. SINHA, J.]
B
Constitution of India, 1950:
Articles 12,14,19 21, 23,32 and 300A-Companies!Corporations owned
by State of Bihar-Non-payment of sala1y to employees for a long time, in C
some cases, for a decade or more-Starvation deaths of and/or suicide by
employees/their dependents reported-Writ petition in public interest filed
before Supreme Court involving issues regarding liability of State Government
of Bihar and that of Union of India and State of Jharkhand-Held, State
Government of Bihar has made itself liable to mitigate the sufferings of the D
employees of the public sector undertakings or the Government companiesfnterim directions issued suggesting modalities for disbursement of salaries to
employees-liquidation proceedings of Government Companies to be disposed
of expeditiously-Right of workmen shall be considered in terms of s.529-A of
the Companies Act-liability of the State of Bihar cannot be shifted to the
Union of India-Only because the Union of India allegedly is repository of E
funds raised by it through Central Excise and other levies and impost, the
same by itself would not mean that it is indirectly or vicariously liable for the
failings on the part of the State Public Sector Undertakings-No direction is
issued as against the State of Jharkhand as no step had been taken by the
Central Government in terms of Section 65 of the Bihar Reorganisation Act- F
The investments made by the State in the public sector undertakings in pursuit
of social justice is from public account-ft is in this behalf accountable to the
public through the legislature-If the State or the State agencies have failed
to perform their duties, it cannot under the wrap of financial stringency seek
to shift its liability to the Union of India or lo the State of JharkhandFinancial stringency may not be a grozmd for not issuing requisite directions G
when a question of violation offimdamental right arises-Central Government
to take a decision as regards division of assets of Government companies in
terms of the Bihar State Reorganisation Act-Whether the State is directly or
vicariously liable to pay salaries/remunerations of the employees of the public
sector undertakings or the Government companies in all situations is left H
175
176
SUPREME COURT REPORTS [2003] SUPP. I S.C.R.
A open-Public Interest litigation-Bihar Reorganisation Act, 2000-S.65Companies Act, 1956-S.529-A.
Rural litigation and Entitlement Kendra and Ors. v. State of Uttar
Pradesh and Ors., AIR (1987) SC 359=119861 Supp. SCC 517; B.L. Wadhera
v. Union of India, AIR 1996 SC 2969; All India Imam Organization and Ors.
B v. Union of India and Ors., 119931 3 SCC 584 and State of H.P. v. H.P. State
Recognised and Aided Schools Managing Committee and Ors., 1199514 SCC
507, relied on.
Articles 12 and 21-Although a company incorporated under the
C Companies Ac/, I956 is a juristic person and indispulab(v has a dis/incl and
separa/e entity vis-a-vis its shareholders, !he corporate veil can be pier.:ed
when the corpora/e personality is found to be opposed to justice, convenience
and interest of the revenue or the workmen or against public interest-The
Government companies/public sector undertakings being "State" would be
constitutionally liable to respecl life and liberty of all persons in terms of
D Article 21-They, therefore, must do so in cases of their own employees-The
State mey not be liable in relation to the dcy to dey funclioning of !he
Companies, but its liability would arise on its failure to perform the
constitutional duties and functions by the public sector undertakings, as in
relation thereto the State's constitutional obligations, the State acts in a
fiduciary capacity.
E
Steel Authority of India ltd and Others v. National Union Waterfront
Workers and Ors., 120011 7 SCC I; Electronics Corporation of India ltd. and
Others v. Secretary, Revenue Department, Govt. of Andhra Pradesh and Others,
1199914SCC458; State of UP. and Ors"v. Renusagar Power Company and
F Ors., (19881 4 SCC 59; CIT, Madras v. Meenakshi Mills Ltd and Ors.,
(19671 l SCR 934; Workmen employed in Assn. Rubber Industry Ltd,
Bhavnagar v. Associated Rubber Industry Ltd Bhavnagar and Anr., [19851 4
SCC 11; New Horizons ltd. and Anr. v. Union of India and Ors., f19951 I
SCC 478; State of UP. and Ors. v. Renusagar Power Co. and Ors., (19881
4 SCC 59; Hussainbhai Calicut v. The Alath Factory Thezhilali Union,
G Kozhikode and Ors., 119781 4 sec 257; Secretary, H.S.E.B. v. Suresh and
Ors., 1199913 SCC 601; Pradeep Kumar Biswas v. Indian Institute of Chemical
Biology and Ors., (2002) 5 SC 111; Sukhdev Singh and Ors. v. Bhagatram
Sardar Singh Rghuvanshi and Anr., AIR (1975) SC 1331; Ajay Hasia and
Ors. v. Khalid Mujib Sehravardi and Ors., 119811 1 SCC 722 and Chander
H Mohan Khanna v. National Council of Educational Research and Training
KAPILA HINGORANI v. STATE
177
and Ors., 119911 4 SCC 578, relied on.
A
Sabhajit Tewary v. Union of India and Ors., 1197511 SCC 485; stood
overruled. Bhavnagar University v. Palitana Sugar Mill (P) ltd. and Ors.,
120031 2 SCC 111; Dal Chand and Ors. v. Commissioner of Income Tax.
Punjab, (1944) 12 ITR 458 and Juggilal Kamlapat v. Commissioner of Income
Tax. UP., (19691 1 SCR 988 = (1969) 73 ITR 702, referred to.
B
Solomon v. Solomon and Co., (1897) AC 22, referred to.
Article 12 - The term 'life' used in Article 21 of the Constitution of India
has a wide and far reaching concept - It includes livelihood and so many
other facets thereof
C
Board of Trustees of the Port of Bombay v. Dilipkumar Raghavendranath
Nadkarni and Ors., 11983J 1 SCC 124; Olga Tellis and Ors. v. Bombay
Municipal Corporation and Ors., 119851 3 SCC 545; Maneka Gandhi v.
Union of India, AIR (1978) SC 597; Satwant Singh v. A.P.O., New Delhi, D
AIR 1967 SC 1836; Kharak Singh v. State of UP., AIR (1963) SC 1295;
Sharda v. Dharampal, JT (2003) 3 SC 399; Common Cause, a Registeed
Society v. Union of India, AIR (1997) SC 1539; Prabha Dutt v. Union of
India, AIR (1982) SC 6; Police Commissioner, Delhi v. Registrar, Delhi High
Court, AIR (1997) SC 95; D.K. Basu v. State of West Bengal, AIR (1997) SC
10; State of Maharashtra v. M.P. Vashi, AIR 1996 SC 1; Unnikrishnan v. E
State of A.P., 1199311 SCC 645; T.M.A. Pai Foundation v. State of Karnataka,
(2002] 8 SCC 481; CERC v. Union of India, AIR (1995) SC 922; State of
Punjab v. M.S. Chawla, AIR (1997) SC 125; M.C. Mehta v. Union of India,
AIR (1987) SC 965; APPCB v. M.V. Naidu, AIR (1999) SC 822; Visakha
v. State of Rajasthan, AIR (1997) SC 3011; AEPC v. A.K. Chopra, 119991 2
SCC 34; Hinch Lal Tiwari v. Kamala Devi and Ors., 120011 6 SCC 496; S.K. F
Mastan Bee v. General Manager South Central Railway, 120031 1 SCC 184;
People's Union for Democratic Rights and Ors. v. Union of India and Ors.,
1198213 SCC 235; State of Gujarat v. Hon 'ble High Court of Gujarat, 119981
7 SCC 392 and S.M.D. Kiran Pasha v. Government of Andhra Pradesh and
Ors., 119901 l sec 328, referred to.
G
Andhra Pradesh State Road Transport Corporation v. The Income Tax
Officer and Anr., 119641 7 SCR 17; Western Coalfield.~ ltd. v. Special Area
Development Authority Korba and Anr., 119821 2 SCR 1, Hem Chand etc. v.
The Delhi Cloth and General Mills Co. Ltd. and Anr. etc., 119771 3 SCC 483
and Som Prakash Rekhi v. Union of India and Anr., !198112 SCR 111, cited. H
178
SUPREME COURT REPORTS [2003] SUPP. I S.C.R.
A
Article 298 r/w. Articles 14,19,21and300A-A liability can be fastened
both upon the owner as also the operator of the company under certain
situations-Concept of accountability arises out of the power conferred on an
authority-The Government of the State of Bihar for all intent and purport is
the sole share holder of the Companies concerned Although in law its liability
B towards the debtors of the Company may be confined to the shares held by it,
but having regard to the deep and pervasive control it exercises over the
Government companies in the matter of enforcement of human rights and/or
rights of the citizen of life and liberty, the State has also an additional duty
to see that the rights of employees of such corporations are not infringedIn relation to statutory authority, the State had also the requisite power to
C issue necessary directions which were binding upon them, as for example,
Section 79 (c) of Electricity (Supply)Act, ./948 -
The power of the State in
the sphere of exercise of its constitutional power including those contained in
Article 298 of the Constitution inheres in it a duty towards public, whose
money is being invested-Article 298 confers a prerogative upon the State to
carry on trade or business-While doing so the State must fulfill its
D constitutional obligations-It must oversee protection and preservation of the
rights as adumbrated in Articles 14, I 9,2 I and 300-A of the Constitution .
E
United States v. Fleet Factors Corp., 20 ELR 20832=(1990) 901 F 2d
1550; referred to.
Directive Principles of the State Policy and the Fundamental DutiesThe States of India are welfare States-They having regard to the constitutional
provisions adumbrated in the Constitution and in particular Part IV thereof
laying down the Directive Principles of the State Policy and Part IV-A laying
down the Fundamental Duties are bound to preserve the practice la maintain
p the human dignity-The failure on the part of the State in a case of this nature
must also be viewed from the angle that the statutory authorities have failed
and/or neglected to enforce the social welfare legislations enacted in this
behalf e.g. Payment of Wages Act, Minimum Wages Act etc.-Such welfare
activities as adumbrated in Part IV of the Constitution indisputably would cast
a duty upon the State being a welfare State and its statutory authorities to do
G all things which they are statutorily obligated to perform.
Human Rights: Public Sector Undertakings-Employees-Non-payment
of salary-The State cannot escape its liability when a human right problem
of such magnitude involving the starvation deaths and/or suicide by the
H employees have taken place by reason of non-payment of salary to the
KAP ILA HINGORANI v. STA TE
179
employees of public sector undertakings for such a long time-The right to A
development in the developing countries is itself a human right--The same
has been made a part of WTO and GATT-The Universal Declaration of
Human Rights, 1948-The Protection of Human Rights Act, 1993-lnternational
Covenant in Economic, Social and Cultural Rights, I 966.
Chameli Singh and Ors. v. State o UP. and Anr., (1996( 2 SCC 549; B
Kishen Pattnayak and Anr. v. State of Orissa, (1989) Supp. 1 SCC 258;
Mis. Shantisar Builders v. Naryan Khimalal Totame and Ors., (1990( 1 SCC
520; P.G. Gupta v. State of Gujarat and Ors., (1995( Supp. 2 SCC 182 and
Ahmedabad Municip!ll Corporation v. Nawab Khan Guiab Khan and Ors.,
(1997( 11 sec 121, referred to.
"Human Rights and Indian Values" by Justice M. Rama Jois; "The
Future of Human Rights" by Prof Upendra Baxi; The World Trade
Organization law, Practice and Policy (Oxford) by Matusushita Schoenbaum
and Mauroidis; referred to.
c
Interpretation of Constitution: Interpretation of the Constitution or D
statutes would change from time to time-Being a living organ, it is ongoing
and with the passage of time, law must change-New rights may have to be
found out within the constitutional scheme-Horizons of constitutional law
are expanding-A statute should be interpreted in the light of the International
Treaties and Conventions-Interpretation of Statutes.
Chairman, Railway Board and Ors. v. Mrs. Chandrima Das and Ors.,
AIR (2000) SC 988, relied on.
Al/MS Students Union v. Al/MS and Ors., (2002( 1 SCC 428; Jagdish
Saran and Ors. v. Union of India, (1980( 2 SCC 768 and The State of
E
Maharashtra v. Dr. Praful B. Desai, JT (2003) 3 SC 382, referred to.
F
Missouri v. Hoffan, 252 US 416, referred to.
"Some Reflections on the Reading of Statutes" by Justice Frankfurther,
referred to.
CIVIL ORIGINAL JURISDICTION : Writ Petition (C) No. 488 of G
2002.
Soli J. Sorabjee, Attorney General, P.S. Mishra, Shanti Bhushan, Rakesh
Dwivedi, Amarendra Sharan, Tathagat Harsh Vardhan, Vishnu Sharma, Ms.
Swarupa Reddy, Aman Hingorani, Ms. Priya Hingorani, Ms. Kapila Hingorani,
B.B. Singh, Saket Singh, Prateek Jalan, Ms. Sushma Suri, Amit Kumar, M.P. H
180
SUPREME COURT REPORTS [2003) SUPP. I S.C.R.
A Jha, Ram Ekbal Roy and Anil K. Chopra for the appearing parties.
In-person for Petitioner
The following Order of the Court was delivered:
If at all and to what extent the Government of the State of Bihar is
B vicariously liable for payment of arrears of salaries to the employees of the
State owned corporations, public sector undertakings or the statutory bodies
is the core question involved in this writ petition.
It appears from the records that various Government companies/public
C sector undertakings, details whereof are stated hereunder have not paid salaries
to their workmen and other employees for a long time resulting in death of
several persons and miseries brought to a large number of families as would
appear from the following:
Statement As of 12.3.2003
D S.
Name of Public
No.
Undertaking
No. of
Date from
Employee which salary
is due
Nos. of Death
of Employees
E
I. Bihar State Agro Industries
Development Corporation
630
May-93
2. Bihar State Medicine &
265
Chemical Development
Corporation
Aug-93
F 3. Bihar State Handloom &
Handicraft Corpn.
4. Bihar State Small Scale
Industrial Development
Corporation
G 5. Bihar State Sugar Corporation
429
In Headquarter from May
1996 in Unit from 1993
141
In Headquarter from
April 1995. In Unit from
April 1993
9240
From January 2000 in
Headquarter. In Unit from
April 1992
6. Bihar
State
Leather
471
From March 1993
Development Corpn.
H
70
II
3
36
467
13
KAPILA HINGORANI v. ST A TE
181
6a. Bihar Finished Leathers
35
A
7. Bihar State Industrial
1551
In Headquarters from July
125
Development Corporation
200 l in Unit from Feb.
1993
8. Bihar State Electronic
157
Corporation
9. Bihar State
Vastraya
50
Corporation
10. Bihar
State
Film
8
Development & Financial
Corporation
11. Bihar State
Fruit
&
16
Vegetable Development
Corporation
12. Bihar
State
Seed
137
Development Corpn.
13. Bihar
State
Fishries
42
Development Corporation
14. Bihar State Food & Civil
Supplies Corpn.
1716
15. Bihar State Panchayati Raj
130
Financial Corpn.
16. Bihar State Construction
657
Corpn.
17. Bihar State Road Transport
Corporation
18. Bihar
State
Khadi
Gramdhyog Board
5580
75
In Headquarter upto date.
5
In Unit from April 1998
Nov.-96.
Nil
Aug.-02
Nil
From Aug.-94
From May 1999
5
Before May 2000 due of32 5
to 40 months
Pending from till 40 325
months
From March 1996
7
In
Headquarter from
55
January 1995. In Unit from
January 1992
Headquarter+ In sum units 205
from Nov. 1998 Balance in
from December 1993 Note:
Payment of Salaries 71
NA
Staff in non-plan (upto
B
c
D
E
F
G
H
A
B
182
SUPREME COURT REPORTS [2003] SUPP. 1 S.C.R.
date) due from April 94
19. Bihar Hill Area Lift
684
Irrigation Corpn.
Staff Salaries
NA
A newspaper report as regard non-payment of salary for a long time
resulting in starvation highlighted the case of one Chandan Bhattacharya, son
of an employee of the Bihar State Agro-Industries Development Corporation
who tried to immolate himself. The incident was widely reported, inter alia,
C in 'The Hindustan Times', Delhi Edition, on 19.9.2002 under the caption
"Empty coffers drive staff to self-immolation bids". The said Chandan
Bhattacharya later on succumbed to the bum injuries suffered by him.
Jn this writ petition, the writ petitioner, a public spirited citizen and a
Supreme Court lawyer, alleged that apart from plight of the employees of the
D public sector undertakings or the statutory authorities, even the teaching and
non-teaching staff of Aided and Unaided Schools, Madrassas and Colleges
have been facing a similar fate. We, however, as at present advised do not
intend to deal with the same. According to the petitioner, from a newspaper
report it would appear that about 250 employees died due to starvation or
E committed suicide owing to acute financial crisis resulting from non-payment
of remunerations to them for a long time. The report further goes on to say
that the leader of the opposition in the Bihar Assembly had alleged that over
I 000 employees died "due to lack of salary for a period ranging from four
months to 94 months".
p
In its counter affidavit, the State of Bihar does not deny about the
factual statement made in the said writ petition. Its stand, however, is that
salaries are being paid by the statutory authorities, the details whereof are in
the following terms:
"In the following 26 undertakings, salary payments are upto date
G
(as on 30.9.2002) and are continuing on a regular basis as per reports
from the Corporation:-
5.
Bihar State Financial Corporation Ltd.
6.
Bihar State Credit & Investment Corporation
H
7.
Bihar State Agriculture Marketing Board
KAPILA HINGORANI v. STATE
183
8.
Bihar State Forest Development Corporation
A
9.
Bihar State Pollution Control Board
10. Bihar State Warehousing Corporation
11. Bihar State Tourism Development Corporation
12. Bihar State Text Book Corporation
B
13. Bihar State Minerals Development Corporation
14. Bihar State Housing Board
15. Bihar State Police Building Construction Corporation
Bihar State Bridge Construction Corporation
c
16.
17. Bihar State Electricity Board
18. Bihar State Hydro-electric Power Corporation
19. Patna Industrial Area Development Authority
D
20. North Bihar Industrial Area Development Authority
21. Darbhanga Industrial Area Development Authority
22. Patna Regional Development Authority
23. Muzaffarpur Regional Development Authority
E
24. Darbhanga Regional Development Authority
25. Gaya Regional Development Authority
26. Bhagalpur Regional Development Authority
27. Bihar State Water & Sewerage Board
F
28. Bihar State Minorities Finance Corporation
29. Bihar State Export Corporation, and
30. Tenughat Vidyut Corporation."
As regards the Bihar State Road Transport Corporation, it is contended G
that 50% of salary was paid to the employees as directed by this Court in
Civil Appeal No. 7290 of 1994. The State contends that with a view to clear
the dues, the Corporation would require approximately a sum of Rs.160.35
crores.
However, in relation to the 16 Undertakings, according to the State, the H
184
SUPREME COURT REPORTS [2003] SUPP. I S.C.R.
A financial implication would be as under:
s.
Name of
No. of
Salary
ApproxiDeaths
Cause
No. Undertaking
employees Due
mate
reported
of death
Since
Amount
by corpn. as
involved
reported
B "
Bihar State
471+259 March 1993 Rs.62.45
.> .>.
Nil
Not
Leather
in Bihar
Cr ores
Applicable
Industries
Finished
Development
Leather
Corpn
c 34. Bihar State
265
Aug. 93.
Rs.9.46
Nil
-doPharmaceuticals
crores
& Chemicals
Development
Corpn.
D 35. Bihar State
429
Hqrs-May
Rs.18
23
5 from
Handloom
1996, Units crores
illness,
Powerloom &
1993
Rest not
Handicrafts Dev.
reported
Corpn.
E
36. Bihar State
141
HQ Apr. 94 Rs.18
Nil
NA
Small Ind.
Units April, crores
Corporation
93
37. Bihar State
9240
HQ Jan, 00 Rs.130
4
Illness
F
Sugar Corpn.
Units April
crores
92
38. Bihar State Agro 630
May '93
Rs. 60.73
As in para
Ind. Dev. Corpn.
crores
III above
G 39. Bihar State
1551
HQ-July, 01
Rs.61.72 Nil
NA
Industrial
Units Feb.,
crores
Development
93
Corpn.
40. Bihar State
157
HQ up Date
Rs. 2.51
Nil
-doH
Electronics Dev.
Units April,
crores
KAPILA HINGORANI v. STATE
185
Corpn.
'98
A
41. Bihar State
50
Nov.,96
Rs.0.70
Nil
-doTextile
crore
Corporation
42. Bihar State Film
08
Aug.,02
Rs. 55,000
Nil
-doB
Dev. & Fin.
Per month
Corpn.
43. Bihar State
16
Aug., 94
Rs.1.8056
Nil
-doFn1its &
Crores
Vegetable Dev.
c
Corpn.
44. Bihar State
137
May, 99
Rs. 4.53
5
Inadequate
Seeds Dev.
crores
Medical
Corpn.
Treatment
D
45. Bihar State
42
32-40 months
Rs. I crore
Nil
NA
Fisheries
upto March,
Development
00 Update
Corpn.
from
March,00
E
46. Bihar State Food 1716 Upto 40
Rs.16.56
Nil
-doand Civil
Months
crores
Supplies
Corporation
47. Bihar State
130
Mar '96
Rs.3.75
Nil
-doF
Panchayati Raj
crores
Finance
Corporation
48. Bihar State
657
HQ Jan, 1995
Rs.37.50
Nil
-doG
Construction
Unit 'Jan,
crores
Corpn.
1992
49. Bihar Hill Area
684
Being
Being
Nil
-doLift Irrigation
Collected
collected
Corpn.
H
186
SUPREME COURT REPORTS [2003] SUPP. I S.C.R.
A
The State accepts that although the Managing Director of the Bihar
B
c
D
E
F
G
H
State Small Industries Corporation had initially reported that 14 of its
employees died in harness and 9 after retirement, but in the subsequent report
the Managing Director stated that there is no report regarding suicide or
death due to starvation of any of the employees of the Corporation. It is
averred:
" ... The Managing Director of the Bihar Panchayati Raj Finance
Corporation had initially reported that 3 employees of the Corporation
had died, but had not given any details about the date and cause of
their deaths. In his subsequent report the Managing Director reported
that there was no report regarding the suicide or death due to starvation
of any employee of the corporation. The Managing Director of the
Bihar State Sugar Corporation had initially reported that 4 employees
of the Corporation had died for want of proper treatment. In this
subsequent report the Managing Director has reported that the
employees' Union has submitted a list of 241 employees who have
died or become disabled. Similarly, the Company Secretary of the
Bihar State Seeds Corporation had initially reported that 4 employees
of the Corporation have died during the period when salary was not
paid. Subsequently, the Company Secretary has reported that 5
employees of the Corporation have died for want of proper treatment.
However, in view of the discrepancy in the two reports of these
corporations, the concerned Managing Directors have been asked to
make a thorough investigation into the causes of these deaths and to
submit detailed reports in the matter.
I say that the employees Union of the Bihar Hand loom, Powerioom
and Handicrafts Development Corporation has submitted to the
Managing Director of the Corporation a list of 7 employees and 2
wives of employees who have died. The cause of death of 4 employees
has not been specified, while 3 employees and 2 wives of employees
are stated to have died due to financial hardship. The Managing
Director of the corporation has reported that no case of suicide or
starvation death by employees of their dependents have been reported
to the Corporation but the submissions of the employees union is
being verified. The Managing Director has been asked to make a
thorough investigation into the causes of these deaths and to submit
a detailed report in the matter."
KAPJLA HINGORANI v. STA TE
187
The records of this case bear out that deaths had occurred owing to A
starvation or malnutrition. The fact that the employees have not been paid
their salaries for a long time; in some cases for a decade or more; stands
admitted.
The Affidavit of the State of Bihar, purported to have been based on
reports of the Managing Director of same Undertaking does not inspire B
confidence. The statements made therein are self-contradictory and
inconsistent. It smacks of lack of bona fide and is full of ~fterthoughts.
The stand of the State of Bihar on law is that having regard to the fact
that most of the undertakings or companies are registered or incorporated C
under the Indian Companies Act, 1956, the rights and liabilities of the
shareholders would be governed by the provisions of the said Act and the
liability of the said companies cannot be passed on to the State by taking
recourse to the doctrine of 'lifting the veil' or otherwise.
Keeping in view the complexity of the matter, this Court appointed D
Shri P.S. Mishra, a senior counsel of this Court, as amicus curiae. Shri
Amarendra Sharan also assisted the court.
The learned amicus curiae has, inter alia, submitted that the independent
investigation revealed that the head offices of the Government companies are
situated in rented premises. It was contended that all shares are owned by the E
State and in some of the cases only one share had been allotted in the name
of the nominee of the Government of the State of Bihar. The allegations of
the writ petitioner to the effect that there had been starvation deaths and/or
suicide by the employees of the public sector undertakings are correct.
Mr. Shanti Bhushan, learned senior counsel appearing on behalf of the F
State of Bihar, would submit that having regard to the magnitude of the
problem, it would be just and proper if liability is directed to be met to the
extent of 80 per cent by the Union of India and that the State Government
will bear the burden to the extent of I 0 per cent thereof and the remaining
may be realised from the sale of properties belonging to the respective G
companies. The learned counsel would submit that pursuant to or in furtherance
ofa decision of the Full Bench of the Patna High Court in C.W.J.C. No.5015
of 1996, liquidation proceedings of the Government companies have been
initiated and they are pending before the Company Judge of the Patna High
Court. Mr. Shanti Bhushan would urge that having regard to the well-settled
principle of law that a company registered under the Indian Companies Act H
188
SUPREME COURT REPORTS [2003] SUPP. I S.C.R.
A is a juristic person, its rights and liabilities must be determined in terms
thereof and not de 'hors the same. Strong reliance, in this behalf, was placed
on Steel Authority of India Ltd and Ors. v. National Union Water.front Workers
and Ors., [200 I) 7 SCC I and Electronics Corporation of India Ltd and Ors.
v. Secretary, Revenue Department, Govt. of Andhra Pradesh and Ors., [ 1999)
B 4 sec 458.
Mr. Soli J. Sorabjee, the learned Attorney General appearing on behalf
of Union of India submitted that neither in law nor in equity the Union of
India can be fastened with any liability of the State. The learned counsel
would contend that this Court, with a view to do justice to the parties, may
C direct that an official liquidator be appointed in respect of all the companies
and the learned company judge may further be directed to dispose of the
winding up applications as expeditiously as possible wherein having regard
to the provision contained in Section 598A of the Companies Act the dues
of employees will have primacy. Mr. Sorabjee would urge that the learned
Company Judge may also be directed to look into the Human Right aspect
D of the matter.
Mr. Mishra, learned amicus curiae, would submit that there is no reason
as to why the burden of the State should be shifted to the Union of India and
having regard to the provisions of Articles 21 and 23 of the Constitution of
India, this Court is entitled to pierce the corporate veil of the Government
E companies which are 'States' within the meaning of Article 12 of the
Constitution of India. According to Mr. Mishra, it is beyond any cavil of
doubt that the State for all intent and purport was the sole shareholder of
those companies and as such it cannot escape its liability having regard to the
fact that it had deep and pervasive control including financial control over
F the affairs of the said companies. Mr. Mishra would urge that as indisputably
the corporations owned and controlled by the State of Bihar are 'State' within
the meaning of Article 12 of the Constitution of India, neither they nor the
State of Bihar can escape their liability from enforcing the rights of the
citizens of India under Articles 21 and 23 of the Constitution of India.
G
Mr. Mishra would submit that the Full Bench of the Patna High Court
has referred to certain decisions of this Court which did not deal with an
issue of this nature nor it took notice of different facets of Article 21 of the
Constitution of India which would include a right to food, shelter and other
basic amenities. Non-payment of lawful salary to the employees, Mr. Mishra
H would submit, would fall within the definition of 'forced labour' which is
KAPILA HlNGORANl v. STATE
189
prohibited by Article 23 of the Constitution of India. In support of his A
contentions, Mr. Mishra placed strong reliance on People's Union for
Democratic Rights and Ors. v. Union of India and Ors., [ 1982] 3 SCC 235,
Board of Trustees of the Port of Bombay v. Dilipkwnar Raghvendranath
Nadke>rni and Ors., [ 1983] I SCC \24 and Olga Tellis and Ors. v. Bombay
Municipal Corporation and Ors., [I 985] 3 SCC 545.
Ms. Hingorani, the petitioner appearing in person, would contend that
the State cannot escape its liability in the matter of payment of salaries to its
own employees; although ostensibly they are working in the companies
incorporated under the Indian Companies Act.
B
According to the petitioner starvation deaths and/or commission of C
suicide by the employees of the State owned corporation being admitted, this
Court should issue interim directions for payment of salaries to the employees.
Ms. Hingorani would contend that the Government companies or corporations
will have to discharge their constitutional obligations in terms of Article 21
of the Constitution of India. In support of the said contention, reliance has D
been placed on Andhra Pradesh State Road Transport Corporation v. The
Income Tax Officer and Anr., [1964] 7 SCR 17, Western Coalfields ltd v.
Special Area Development Authority, Korba and Anr., [1982] 2 SCR 1, Hem
Chand etc. v. The Delhi Cloth & General Mills Co. ltd and Anr. etc., [1977]
3 SCC 483 and Som Prakash Rekhi v. Union of India and Anr., [ 1981] 2 SCR E
111.
The case at hand poses a large number of complex questions such as:-
I.
Whether in a case of this nature, the Court would take a sheer
legalistic approach in holding that the corporate veil would not
be lifted although its conscience stands satisfied that there has F
been violations of citizens' right to life and liberty as adumbrated
under Article 21 of the Constitution of India?;
2.
Whether having regard to the admitted position that the
Government Companies or Corporations referred to hereinbefore
are States within the meaning of Article 12 of the Constitution G
of India, the State of Bihar having deep and pervasive control
over the affairs thereof can be held to be liable to render all
assistance to the said companies so as to fulfill its own and/or the
corporations' obligations to comply with the citizens' right under
Articles 2 l and 23 of the Constitution of India?;
H
190
SUPREME COURT REPORTS [2003] SUPP. I S.C.R.
A
3.
Whether the State of Bihar can escape its liability having regard
to the human rights problem involved in the matter?
B
c
4.
Whether in a case of this nature the liability of the State ofBihar,
if any, can be shifted to the Union of India?
A Company incorporated under the Companies Act is a juristic
person. A company indisputably has a distinct and separate entity visa-vis its shareholders.
This Court in Electronics Corporation of India ltd 's case (supra) opined:
"A clear distinction must be drawn between a company and its
shareholder, even through that shareholder may be only one a11d that
the Central or a State Government. In the eye of the law, a company
registered under the Companies Act is a distinct legal entity other
than the legal entity or entities that hold its shares."
Yet again, a Constitution Bench of this Court in Steel Authority of
D India's case (supra) noticed the following decisions to hold that a company
incorporated under the Companies Act being a juristic person would be
governed by the Companies Act.:
E
F
G
H
"Jn Ramana Dayaram Shetty v. International Airport of India (Ramana
Dayaram Shetty v. International Airport Authority of India, [1979] 3
SCC 489 : [1979] 3 SCR 1014) a three-Judge Bench of this Court
laid down that corporations created by the Government for setting up
and management of public enterprises and carrying out public
functions, act as instrumentalities of the Government; they would be
subject to the same limitations in the field of constitutional and
administrative laws as the Government itself, though in the eye of the
law they would be distinct and independent legal entities. There, this
Court was enforcing the mandate of Article 14 of the Constitution
against the respondent - a Central Government corporation.
Managing Director, U.P. Warehousing Corpn. v. Vijay Narayan
Vajpayee, ([1980] 3 SCC 459 : [1980] SCC (L&S) 453 : [1980] 2
SCR 773) dealt with a case of dismissal of the respondent employee
of the appellant Corporation in violation of the principles of natural
justice. There also the Court held the Corporation to be an instrumentality of the State and extended protection of Articles 14 and 16
of the Constitution to the employee taking the view that when the
KAPILA HINGORANI v. STATE
191
Government is bound to observe the equality clause in the matter of A
employment the corporations set up and owned by the Government
are equally bound by the same discipline.
In Ajay Hasia v. Khalid Mujib Sehravardi, Ajay Hasia v. Khalid
Mujib Sehravardi, ([I 98 I] I SCC 722 : [ 1981] SCC (L&S) 258 :
(1981] 2 SCR 79) the question decided by a Constitution Bench of B
this Court was : whether Jam mu and Kashmir Regional Engineering
College, Srinagar, registered as a society under the Jammu and
Kashmir Registration of Societies Act, 1898, was 'State' within the
meaning of Article 12 of the Constitution so as to be amenable to writ
jurisdiction of the High Court. Having examined the memorandum of C
association and the Rules of the Society, the Court decided that the
control of the State and the Central Government was deep and
pervasive and the Society was a mere projection of the State and the
Central Government and it was, therefore, an ins_trumentality or agency
of the State and the Central Government and as such an authorityState within the meaning of Article 12.
D
The principle laid down in the aforementioned cases that if the
Government acting through its officers was subject to certain
constitutional limitations, a fortiori the Government acting through
the instrumentality or agency of a corporation should equally be subject
to the same limitations, was approved by the Constitution Bench and E
it was pointed out that otherwise it would lead to considerable erosion
of the efficiency of the fundamental rights, for in that event the
Government would be enabled to override the fundamental rights by
adopting the stratagem of carrying out its function through the
instrumentality or agency of a corporation while retaining control F
over it. That principle has been consistently followed and reiterated
in ail subsequent cases - see Delhi Transport Corpn. v. D. TC. Mazdoor
Congress, [1991] Supp I SCC 600: (1991] SCC (L&S) 1213, Som
Prakash Rekhi v. Union of India, (1981] 1 SCC 449: [1981] SCC
(L&S) 200, Manmohan Singh Jail/a v. Commr., Union Territory of
Chandigarh, (1984] Supp SCC 540 : [1985] SCC (L&S) 269, P.K. G
Ramachandra Iyer v. Union of India, [1984] 2 SCC 141 : [1984]
SCC (L&S) 214, A.l. Katra v. Project and Equipment Co17m. of
India ltd., [1984] 3 SCC 316: [1984] SCC (L&S) 497, Central
Inland Water Transport Corpn. Ltd v. Brojo Nath Ganguly (Central
Inland Water Transport Corpn. Ltd v. Brojo Nath Ganjuly, [i 986) 3 H
192
A
B
c
SUPREME COURT REPORTS (2003] SUPP. I S.C.R.
SCC 156 : (1986] SCC (L&S) 429 : (1986) I ATC I 03, CV Raman
V. Bank of India, c v Raman V. Bank of India, [ 1988] 3 sec I 05 :
(1988] SCC (L&S) 687, Lucknow Development Authority v. M.K.
Gupta. (1994] I SCC 243, Star Enterprises v. City and Industrial
Development Corpn. of Maharashtra ltd., (1990] 3 SCC 280, l/C of
India v. Consumer Education & Research Centre, (1995] 5 SCC 482)
and G.B. Mahajan v. Jalgaon Municipal Co11ncil, (1991) 3 SCC 91.
We do not propose to burden this judgment by adding to the list and
referring to each case separately.
We wish to clear the air that the principle, while discharging public
functions and duties the government companies/corporations/societies
which are instrumentalities or agencies of the Government must be
subjected to the same limitations in the field of public law -
constitutional or administrative law - as the Government itself, does
not lead to the inference that they become agents of the Centre/State
Governmentjor all purposes so as to bind such Government for all
D
their acts, liabilities and obligations under various Central and/or
State Acts or under private law.
(Emphasis supplied)
Thus, the law as stated therein is not of uriversal application. The ratio
E of the said decisions must be applied having regard to the fact situation
obtaining therein See Bhavnagar University v. Palitana Sugar Mill (P) Ltd.
and Ors., (2003) 2 SCC 111 - (Para 59). It has its limitations in its applications,
as exceptions exist in several areas.
It is now well-settled that the corporate veil can "in certain situations be
pierced or lifted. The principles behind the doctrine is a changing concept
F and it is expanding its horizon as was held in the State of UP. and Ors. v.
Renusagar Power Company and Ors., (1988] 4 SCC 59. The ratio of the said
decision clearly suggests that whenever a corporate entity is abused for an
unjust and inequitable purpose, the court would not hesitate to lift the veil
and look into the realities so as to identify the persons who are guilty and
G liable therefor.
The proposition that a company although may have only one shareholder
will be distinct juristic person as adumbrated in Salomon v. Salomon and
Co., ( 1897) AC 22, has time and again been visited the application of doctrine
of lifting the corporate veil in revenue and taxation matters. See Dal Chand
H and Ors. v. Commissioner of Income Tax, Punjab, (1944] 12 ITR 458 and
KAPILA HINGORANI v. STATE
193
Juggilal Kamlapat v. Commissioner of Income Tax, U.P., [1969) 1 SCR 988 A
= ( 1969) 73 !TR 702.
The corporate veil indisputably can be pierced when the corporate
personality is found to be opposed to justice, convenience and interest of the
revenue or workman or against public interest. See C./. T. Madras v. The
Meenakshi Mills ltd and Ors., [1967) 1 SCR 934; Workmen Employed in B
Assn. Rubber Industry Ltd., Bhavnagar v. Associated Rubber Industry ltd.,
Bhavnagar and Anr. (1985) 4 SCC 11; New Horizons Ltd. and Anr. v. Union
of India and Ors., (1995) 1 SCC 478; State of U.P. and Ors. v. Renusagar
Power Co. and Ors., [1988) 4 SCC 59; Hussainbhai, Calicut v. The Alath
Factory Thezhilali Union, Kozhikode and Ors., (1978) 4 SCC 257; and C
Secretary H.S.E.B. v. Suresh and Ors., (1999) 3 SCC 601.
The test that a public sector undertaking or Government company can
be a 'State' within the meaning of Article 12 of the Constitution, only when
it discharges some sovereign functions, has been given a go-bye by this
Court in a recent decision in Pradeep Kumar Biswas v. Indian Institute of D
Chemical Biology and Ors., (2002) 5 SCC 111. Disagreeing with the decision
of this Court in Sabhajit Tewary v. Union of India and Ors., (1975] I SCC
485, it was held that the premises whereupon the ratio of the said decision
was based was not correct and followed the precedents like Sukhdev Singh
and Ors. v. Bhagatram Sardar Singh Raghuvanshi and Anr., AIR (1975) SC
1331 and Ajay Hasia and Ors. v. Khalid Mujib Sehravardi and Ors., (1981] E
I SCC 722. This Court further held that the decision in Chander Mohan
Khanna v.