S. L. AGARWAL versus GENERAL MANAGER, HINDUSTAN STEEL LTD.

S. L. AGARWAL

GENERAL MANAGER, HINDUSTAN STEEL LTD.

December 19, 1969 [M. HIDAYATULLAH, C.J., A. N. GROVER, A. N. JAGANMOHAN REDDY AND !. D. DUA, JJ.j

A. N. RAY, P.

Constitution of. India, Art. 311-Civil post under Union or State-Post held under Hindustan Steel Ltd. whether such post-Holder whether entitled to ;r:::iction of Article.

The services of t::e appellant as Assistant Surgeon in the Hindustan Steel Ltd., Ranchi wcro terminated purportedly in terms of his contract of employment. In petition under Art. 226 he claimed that the termi-nation was wrongful inasmuch as it was really by way of punishment and Art. 311 of the Constitutic>n had not been complied with. The company resisted the ground by saying that Art. 311 was not applicable ro the appellant since he was employed by corporation and neither belonged to the civil service of the Union nor held civil post under the union. The High Court dismi~ed the appellant's petition. In appeal before this Court by certificate, the appellant contended that since Hindustan Steel was entirely financed by the Government and its management was directly- the responsibility of the 'President, the post was virtually under the Government of India.

HELD : (i) The protection of Art. 311(2) is availab:e to the cate-gories of persons mentioned in els. (a)(b) and (c) of Art. 311(1). Tue appellant did not fall in the categories mentioned in els. (ol and (b). He did hold civil post as opposed to military post but cl. (c) further re· quired that it must be under the Union or State.

In view of the existence of shareholders, of capital raised bY the issuance df shares, and the lack of connection between the finances of the corporation and the Consolidated Fund of the Union, it must be held that Hindustan Steel Ltd. was not department of the Go,·ernment nor were the servants of it holding posts under the S.tate. It had its in-F dependent existence and by the law relating to corporations it was distinct even from its members. In these circumstances the appellant, as an em~ ployee of Hindustan Steel Ltd., did not answer the description df holder of 'a ci.vil post under the Union' as stoted in Art. 311. The High Court was therefore right in not affordin~ him the protection of that Article. [367 D; 369 C-E]

State of Bihar v. Union of India. C.A. Nos. 512-513/69 dt. 19-9-1969 and Fraga Tools Corporation v. C. V. /manual & Ors. C.A. No. 612 1966 dt. 19-2-1969,. applied.

Subodh Ran;an Ghosh v. Sindhri Fertilizers and Chemicals Ltd. A.l.R. 1957 Pat. IO, approved.

M. Verghese v. Union oj India & Ors. A.l.R. 1963 Cal. 421, Lac/uni and Ors. v. Military Secretary to'1he Governrnent _of Bihar, A.I.R. 1956 Pat. 398, Ram Babu Rathaur v. Divisional Mana~er. life Insurance "' Corporation of India, A.LR. 1961 All. 503, Damrvlr.r Vailey Corporation v. Provat Roy, LX C.W.N. 1023 and Tami'" v. fla1111afcrd, [1950] l K.B.D. 18, referred to.

(ii) The contentions sought to be raised by the appellant regarding the validity of the departmental enquiry against him were not touched upon in the High Court's judgment nor mentioned in the proposed grounds filed with the application for certificate. The appellant could not be allowed to urge them for the first time in this Court.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 524 of 1967.

Appeal from the judgment and order dated July 19, 1966 of the Madhya Pradesh High Court in Misc. Petition No. 33 of 1965.

P. Ram Reddy and S. S. Khanduja, for the appellant.

I. N. Shroff, for the respondents.

Shyamala Pappu, C. L. Somesekhar and Vineet Kumar, for the intervener.

The Judgment of the Court was delivered by

Hidayatullah C.J. The appellant, who appeals by certificate granted by the High Court of Madhya Pradesh, was appointed as Assistant Surgeon on probation for one year by the Board of Directors, Hindustan Steel Ltd., Ranchi with effect from Octo-ber 22, 1959. After completing his . period of probation he was employed on contract for 5 years. Ex. P-3 is the Contract • of Service which he entered into with the Company. Under the terms of the contract ihere was further period of probation. During the period of probation the Company could terininate his service without notice and without assigning any reason. On the completion of the period of probation, either side could termi-nate the contract by 3 months' notice without assigning any reason. The Company could also terminate the employment by giving in lieu of notice, three months' salary. This term was applicable till three months immediately before. the end of the period of 5 years. If notice terminating the service was not given three months before the close of the end of 5 years the contract was automatically extended till the incumbent became superannuated on reaching the age of 55 yeats.

The appellant passed the probation period and he was en-titled to three months' notice if his services were to be terminated. The Company maintains certain set of Rules governing the em-ployment of its workmen, in addition to the Standing Orders of the Company. Ex. P-4 represents the procedure for imposing '.l)lajor penalties and for l'llnishment and appeal. These are extracts from the Disciplinary and Appeal Rules.

On September 17, 1964 the appellant was on duty in the Medical Out-Patients Department. He examined one Mrs.

s. L. AGARWAL v. lllNDUSTAN STEEL_ (Hidayatullah, C.J.)

Holey who complained of eold, headache and weakness. It appears that Mrs. Holey complained of some misbehaviour on the part of the appellant and her husband reported the matter to the Chief Medical Officer of the Bhilai Steel Plant where the appellant was then posted. The Chief Medical Officer asked for the explanation of the appellant on September 21, 1964, I but the appellant aenied the allegation. Some enquiry was then held. The appellant in his appeal submits that he was not given copy of the written complaint received from Mr. and Mrs. Holey. On October 5, 1964 some witnesses were examined in · the presence of the appellant. Two days previously the state-ments of Mr. and Mrs. Holey were also recorded. The enquiry was being held by th~ Commercial Manager. The appellant then sent notice to Mr. and Mrs. Holey charging them with defamation and actually filed suit on November 17, 1964 demanding damages. On December 15, 1964 the General Manager ter-minated his services with effect from March 15, 1965, that is to say, after the expiry of three months' notice under the contract. It was stated in the order that the services were being terminat-l ed in terms of his employment.The appellant thereupon filed petition under Art. 226 of the Constitution in "the High Court of Madhya Pradesh claiming inter-alia that his services were wrongly terminated without giv-ing him the protection granted by Art. 311 of the Constitution. He also complained of breach of the principles of natural justice inasmuch as the enquiry was not proper. His contention was that although the action was ostensibly taken according to the terms of the contract of employment, he was really punished and he was entitled, therefore, to the protection of Art. 311 of the Constitution. The Company resisted the ground by saying that Art. 311 was not applicable to the appellant inasmuch as he was employed by Corporation and neither belonged to the civil service of the Union nor held civil post under the Union. The High Court in its judgment ruled that the protection of Art. 311 of the Constitution was not available in the case because the appellant was not entitled to it.

It appears that this was the only point urged in the High Court In the appeal before us -attempt was made to enlarge the case by arguing other points, namely, that the enquiry was not properly conducted, that the principles of natural justice · .' were violated and that the appellant had no opportunity of de.-fending himself. None of these points is touched upon in the High Court's judgment and it appears that in the High Court only the constitutional question was raised. Otherwise, one would expect the High Court to have said something about it, or the appellant to have said so in the application for certificate or in

We decline to

the proposed grounds filed with that application. allow these fresh grounds to be urged.

The question that arises in this case is : whether the em-, ployees of Corporation such as the Hindustan Steel Ltd., are eatit!ed to the protection of Art. 311 ? This question can only be answered in favour of the appellant if we hold that the appel-lant held civil post under the Union. It was conceded before us that the appellant could not be said to belong to the civil service of the Union or the State. Art. 311, on which this con-tention is based, reads as follows :

"311. Dismissal, removal or reduction in rank of persons employed in civil capacities under the Union or State.

(1) No person who is member of civil service of the Union or an all-India service or civil service or State or holds .a civil post under the Union or State shall be dismissed or removed by an authority subordinate to that by which he was appointed.

(2) No such person as aforesaid shall be dismis-sed or removed or reduced in rank- until he has been given reasonable opportunity of showing cause against the action proposed to. be taken in regard to him;

Provided that this clause shall not apply-

(a) where person is dismissed or removed or reduced in rank on the ground of conduct which has led to his conviction on criminal charge;

(b) where an authority empowered to dismiss or

remove person or to reduce him in rank is satisfied that some reasons, to be recorded by .. that authority in writing, it is not reasonably practicable to give to that person an opportunity of showing cause; or

(c) where the President or Governor, as the case may be. is satisfied that in the interest of the security of the State it is not expedient to give to that person such an opportunity.

( 3) If any question arises whether it is reasonably practicable to give to any person an opportunity of showing cause under clause (2). the decision thereon of the authority empowered to. dismiss or remove such person or to reduce him in rank. as the case may be, shall be final:'

s. L. AGARWAL v. HINDUSTAN STEEL (Hidayatullah, C.J.) 367

Clause (2) of the article, which gives the protection open' with the words "no such pzrson as aforesaid" and these words take one back to clause (1) whkh describes the person or per-s0ns to whom the p«ote;;tion L intended to go. Cb;3~ (!) speaks cf (i) p~rsom who arc member" cf (a) Civil Service of the Uab:i, or (b) an AU-India S:i-vice or (c) Civil Service of State, or (ii) hold civil post under the Union or State. (a). (b) and (c) refer to the standing services which have been created in the Union and the· States and which are permanently main-tained in strength. In addition to the standing services there are certain posts which are outside the permanent services.-The last category in Art. 311 (I) therefore speaks of such posts on the civil side as opposed to the military side. Incumbents of such posts also receive protection.

In the present case the appellant did not belong to any of the permanent services. He held post which was not borne on any of the standing services. It was, however, civil post as opposed to military post. So far the appellant's case is clear but the clause speaks further that such posts must be under the Union or State. The question thus is whether the servant em-ployed here can be said to have held the post under the Union or State ? The appellant contends that since Hindustan Steel Limited is entirely financed by the Government and its manage-ment is directly the responsibility of the President, the post is virtually under the Government of India.

This argument ignores some fundamental concepts in rela-tion to incorporated companies. In support of the contention that the post must be regarded as one under the Union the ap-F pellant relies on some obiter observations of single Judge in M. Verghese v. Union of India and others(1).- In that case the petitioners were drivers working for the Durgapur Project under Hindustan Steel Limited. The learned Judge considered the question by analysing the set up of Hindustan Steel Limited. He found that it was Government company and private limited company, although it did not include in its name any notice that it was private company. He referred in detail to the various provisions in the Articles of Association as also in the Indian Companies Act which rendered the ordinary company law inapplicable in cert~in respects .. and conferred unlimited powers of management on the President {)f India and his nominees. He also found that Hindustan Steel Limited was entirely owned by the Union of India. From this the learned Juqge wished to infer that Hindustan Steel Limited was really department of the Government but he did not express this opinion and decided ll)A.l.R.1963Cal.421.

:the case on another point. The appellant contends that the con-clusion which the learned single Judge did not draw in the Cal-.cutta case is the conclusion to draw in this appeal. We must, according to him, hold that there is no difference between Hin-dustan Steel Limited and Department of the Government and that the service under Hindustan Steel Limited is service under the Union.

On the other hand, in State of Bihar v. Union of India and Anr. (') Hindust~n Steel Limited was not held to be "State" for purposes of Art. 131. The question whether Hindustan Steel Limited was subject to the jurisdiction of the High Court under Arts. 226 and 227 was left open. In dealing with the above conclusion, reference was made to the incorporation of Hindus-tan Steel Limited as an independent company and thus dis-tinct entity. In Praga Tqo/s Corporation v. C. V. !manual and Ors.(') it was pointed out that company in which 88% of the capital was subscribed by the Union ·and the State Govern-ments could not be regarded as equivalent to Government be-cause being registered under the Companies Act it had sepa-rate legal existence and could not be said to be either Gov-ernment Corporation or an industry run by or under the autho· rity of the Union Government. Similar views were also expres-sed in the High Courts. In Lachmi and Others v. Military Sec-retary to the Government of Bihar('), the expression "civil post under the Union or the State" was held to mean that the civif post must be 'in the control of the State and that it must be open to the State to abolish the post or regulate the conditions of service. Although the case concerned Mali employed in Raj Bhavan, it was held that it was not post under the State even though the funds of the State were made available for paying his salary. In later_ ca•e-Subodh Ranjan Ghosh v. Sindhri Fer. tilizers and Chemicals Ltd.(' )-the employees of the Sindhri Fertilizers were held not entitled to the protection of Art. 311. Our brother Ramaswami (then Chief Justice) noticed that the corporation was completely owned by the Union Government; that the Directors were to be appointed by the President of India who could also issue directions. He1 nevertheless . held that in the eye of law the company was separate entity and had separate legal existence. In our judgment the decision in the Patna case is correct. It has also the support of decision re· ported in Ram ,Babu Rathaur v. Divisional Manager, Life In· surance Corporation of India(') and another in Damodar Valley 'Corporation v. Provat Roy([6]). Our brother Ramaswami relied

(I) Civil Appeals Nos. 512-513 etc. of 1969 decided on 19.9.1969.

(2) Civil Appeal No. 612 of 1966 decided on February 19, 1969.

(3) A.l.R. 1956 Pat. 398.

(4) A.LR. 1957 Pat. IO.

{5) A.LR. 1961 All. 503.

(6) LX C.W.N. 1023.

s. L. AGARWAL v. HINDUSTAN STEEL (Hidayatullah, CJ.) 369-

in particular upon an English case Tamlin v. Hannaford('). 1111 that case it was held in relation to business that although the minister was really !µcharge, the corporation was different from. the Crown and the services of the corporation were not civil ser-· vices. Justice P. B. Mukherjee of the Calcutta High Court, to. whose judgment we referred earlier distinguished the Englisa case by pointing out certain differences between the Corporation in that case and Hindustan Steel Limited. He pointed out that (a) in the English Corporation no shareholders were required to· subscribe the capital O! to have § voice in the affair, (b) the capital was raised by borrowing and not by issuance of shares, ( c) the loss fell upon the consolidated fund and ( d) the corpo--ration was non-profit making. In our judgment these differences rather accentuate than diminish the applicability of the principle laid down in the English case to our case. The existence of shareholders, of capital r_aised by the issuance of shares, the lack of connection between . the finances of the corporation and th,J consolidated fund of the Union rather make out greater in-dependent existence than that of the corporation in the English case. We must, therefore, hold that the corporation which is Hindustan Steel Limited in this case is not department of the· Government nor are the servants of it holding posts under the· State. It has its independent existence and by law relating to Corporations it is distinct even from its members. In these cir-cumstances, the appellant, who was' an employee of Hindustan Steel Limited, does not answer the description of holder of 'a civil post under the Union' as stated in the article. The appel-lant was not entitled to the protection of Art. 311. The High· Court was therefore right in not affording him the ' protection. The appeal fails and is dismissed but in the circumstances of the case we make no order about costs.

· Appeal dismissed-

(I) [19Si)j l K.~)'.>.,J,8 ...