M.K. Paulose vs Cochin Refineries Ltd. on 22 September, 1996

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Kerala High Court
M.K. Paulose vs Cochin Refineries Ltd. on 22 September, 1996
Equivalent citations: (1997) ILLJ 467 Ker
Author: Balakrishnan
Bench: K Balakrishnan, T Ramachandran


JUDGMENT

Balakrishnan, J.

1. In an earlier decision reported in Thomas v. Cochin Refineries Ltd. (1982-II-LLJ-233)(Ker) it was held that the Cochin Refineries Ltd. is not an “instrumentality of the State” within the meaning of Article 12 of the Constitution. These Original Petitions were filed under Article 226 of the Constitution challenging the administrative action of the Cochin Refineries Ltd. The petitioners seek re-consideration of the view taken in Thomas v. Cochin Refineries Ltd. (supra) and they contend that the Cochin Refineries Ltd. is an instrumentality of the State under Article 12 of the Constitution. The Learned Single Judge before whom these petitions came up for consideration was pleased to refer the matter to the Division Bench.

2. Petitioners in these Original Petitions contend that the view taken by the learned Judge in Thomas’ case is not correct in view of the various decisions of the Supreme Court on the point and also due to the subsequent change of ownership of shares of the respondent company.

3. The Cochin Refineries Ltd. is a Company incorporated under the Companies Act. The Company is engaged in refining petroleum products. As far as the shareholding pattern of the Company is concerned, 61.17% of shares are held by Union Government, 5.08% by the State of Keraia and some shares are held by the State owned Corporations and other authorities such as L.I.C. Unit Trust etc. and 16.03% shares are held by public. Formerly, 26% of the shares were held by Philips Petroleum Company of United States of America. The shares held by Philips Petroleum Company were distributed among other share holders and for the time being the shares of the respondent Company are not held by any foreign company. The members of the Board of Directors are appointed by the Government of India and in all policy matters the fi-nal decision is taken by the Government of India i.e., to secure repayment of borrowings, to undertake works involving capital expenditure exceeding Rupees Fifty lakhs, to invest money in securities, to set apart any part of profits to provide fund to provide pensions, gratuities etc. The Board of Directors can elect one of them as Managing Director. Respondent Company is a Government Company as defined under Section 617 of the Companies Act which says that the Government company means any company in which not less than fifty one percent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government company as the case may be.

4. Article 12 defines the expression, “the State”. This definition is used in relation to the fundamental rights guaranteed under Part III of the Constitution and Directive Principles of State Policy contained in Part IV of the Constitution. A large number of authorities were cited to show how the Courts interpreted the expression “the State” in Article 12 of the Constitution. Counsel for the respondent Company contended that the decision in Thomas’ case does not call for; any re-consideration and a view similar to this was taken in Tekraj v. Union of India (1988-1-LLJ-341) (SC). That is in respect of the Institute of Constitutional and Parliamentary Studies (ICPS) registered under the Societies Registration Act, 1860, The Supreme Court held that the objects of the Society were not governmental business but were certainly the aspects which were expected to equip Members of Parliament and the State Legislatures with the requisite knowledge and experience for better functioning. Though the annual contribution from the Government has been substantial it was not the main source of funding. It was in this background the Supreme Court held that ICPS was not a “State” within the meaning of Article 12. We do not think that this decision has any application to the facts in the present case.

5. In another decision reported in Chander Mohan Khanna v. NCERT (1992-II-LLJ-331) (SC) it was held that the National Council of Educational Research & Training was not held to be State within the meaning of Article 12. This decision was rendered on the basis that the activities comprising undertaking of programmes and activities connected with co-ordination of research services and training was not wholly related to Governmental function and the funding was not also exclusively by the Government. The Government control is confined only to proper utilisation of the grant and it was only one of the sources of income. This decision also is not helpful to resolve the controversy. The same view was taken in Sabhajit Tewary v. Union of India (1975-I-LLJ-374)(SC) wherein it was held that the Council of Scientific and Industrial Research is not an authority within the meaning of Article 12 as it was only a society and it was not having a statutory character like O.N.G.C., or the L.I.C. or industrial Finance Corporation.

6. One of the earliest decisions is Rajasthan Stale Electricity Board, Jaipur v. Mohan Lal (1968-I-LLJ-257). The Constitution Bench of the Supreme Court by majority held that the Electricity Board of Rajasthan constituted under the Electricity (Supply) Act, 1948 was “the State” as defined under Article 12 because it was “other Authority” within the meaning of that Article. The Court held that the expression “other Authority” was wide enough to include within it every authority created by a statute, on which powers are conferred to carry out Governmental or quasi- governmental functions and functioning within the territory of India or under the control of Government of India.

7. Another decision of this issue was reported in Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi (1975-I-LLJ-399) (SC). Two questions fell for determination in this case. Firstly, whether statutory corporations could be comprehended within the expression “the State” as defined in Article 12 and secondly, whether the regulations framed by a statutory corporation in exercise of the power conferred by the Statute creating the corporation have the force of law. The Supreme Court answered both these questions in the affirmative at Page 411.

It was held:

“… “the State” as defined in Article 12 comprehends bodies created for the purpose of promoting economic interests of the people and the circumstance that statutory bodies are required to carry on some activities of the nature of trade or commerce does not indicate that they must be excluded from the scope of the expression “the State”.

It was also held that the institutions engaged in matters of high public interest or performing public functions are by virtue of the nature of the function performed, government agencies. Mathew, J., held thus at Page 426:

“The fact that these corporations have independent personalities in the eye of law does not mean that they are not subject to the control of Government or that they are not instrumentalities of the Government. These corporations are instrumentalities or agencies of the State for carrying on business which otherwise would have been run by the State departmentally. If the State had chosen to carry on these business through the medium of Government departments, there would have been no question that actions of these departments would be ‘State actions’. Why then should actions of these corporations be not State actions…”

8. In Ajay Hasia v. Khalid Mujib Sehravardi (1981-I-LLJ-103(SC) the question arose whether the Regional Engineering College which was established and administered and managed by a society registered under the Jammu and Kashmir Registrations of Societies Act, 1898 could be held to be “the State” within the meaning of Article 12. It was held at Page 109:-

“It is really the Government which acts through the instrumentality or agency of the Corporation and the juristic veil of corporate personality worn for the purpose of convenience of management and administration cannot be allowed to obliterate the true nature of the reality behind which is the Government.”

9. Another important decision on this point is the decision reported in R.D. Shetty v. International Airport Authority of India (1979-II-LLJ-217)(SC). The position was explained in detail and it was described as to how the corporation veil could be lifted and the true nature of the corporation could be found. The following guidelines were issued in Para 20 on Page 230:-

“(1) One thing is clear that if the entire share capital of the corporation is held by Government it would go a long way towards indicating that the Corporation is an instrumentality or agency of Government:

(2) ‘Where the financial assistance of the State is so much as to meet almost entire expenditure of the corporation, it would afford some indication of the corporation being impregnated with governmental character’.

(3) “It may also be a relevant factor….whether the corporation enjoys monopoly status which is a State conferred or State protected’.

(4) ‘Existence of deep and pervasive State control may afford an indication that the corporation is a State agency or instrumentality’.

(5) ‘If the functions of the corporation are of public importance and closely related to governmental functions, it would be a relevant factor in classifying the corporation as an instrumentality or agency of Government.”

10. Yet another important decision on this point is reported in Central Inland Water Transport Corpn. Ltd. v. Brojo Nath (1986-II-LLJ-171)(SC). The company in question which was carrying on the business of maintenance and running of river services entered into a scheme of arrangement with the Central Inland Water Transport Corporation Ltd. It was a Government Company owned by Central Government.

It was held at paragraph 70 of the judgment at Page 199:-

“If there is an instrumentality of agency of the State which has assumed the garb of a Government company as defined in Section 617 of the Companies Act, it does not follow that it thereby ceases to be an instrumentality or agency of the State. For the purposes of Article 12 one must necessarily see through the corporate veil to ascertain whether behind that veil is the face of an instrumentality or agency of the State. The Corporation, which is the Appellant in these two Appeals before us, squarely falls within these observations and it also satisfies the various tests which have been laid down”.

The above decision clearly establishes that if the Company is functioning under the Government and if there is deep and pervasive financial control over the affairs of the Company it could only be held that the Company would come within the definition “the State” under Article 12 of the Constitution. It is true that the Company is a separate juristic personality but if the Company is carrying on governmental function and carrying on business which otherwise would have been run by the State departmentally such corporations or agencies have to be construed as State. If the majority of the shares are held by the Government and the policy decisions are decided by the Government and even if the Company enjoys a monopoly status it is not divested of its character of an instrumentality of the State.

11. In the instant case, as already noticed, the majority of shares are held by the Union Government, State Government and other State owned Corporations and Nationalised Banks. Of the remaining shares, only a fractional number of shares is held by the public. The distribution of petroleum products is a vital governmental function. After the nationalization of petroleum companies the distribution of petroleum products is through governmental agencies. In respect of the activities of the Company there is deep and pervasive control by the Government. In view of the fact that Philips Petroleum Company is divested of all its shares is an additional factor to hold that the company has now become a ‘State’ within the meaning of Article 12. The, earlier decision reported in K.M. Thomas v. Cochin Refineries Ltd. (supra), to the effect that Cochin Refineries Ltd. is not an instrumentality of the State is not correct in view of the changed circumstances. We overrule that decision and hold, that the Cochin Refineries Ltd. is a “State” within the meaning of Article 12 of the Constitution.

12. O.PNo. 10726/1990: Petitioner in this, original petition is a graduate in Mechanical Engineering and he passed the degree with high distinction. In 1986 the respondent Company invited applications for apprenticeship training. Petitioner was selected for apprentice course along with three others. According to the petitioner, he successfully completed the training. The grievance of the petitioner was that he was not appointed after the successful completion of training. It is contended by the petitioner that, it was stated in Ext.P2 notification, that, after apprenticeship training and subject to availability of vacancies, Graduate apprentices who are found suitable are eligible to be considered for one year training under the Company’s training scheme. Petitioner has stated in the original petition that he was not given appointment and he lost several opportunities in getting employment in other companies as he was awaiting the order of appointment in the second respondent company. Petitioner prays that there shall be a direction to appoint petitioner in an existing vacancy of graduate trainee.

13. A detailed reply affidavit is filed, wherein it is contended that Ext.P2 advertisement was issued on September 7, 1986 inviting applications from Engineering Graduates for training under the ‘Apprentices Act’ for a period of one year as graduate apprenticeship and it contained a clause that after the completion of the apprenticeship training, subject to the availability of vacancies, Graduate Apprentices who are found suitable are eligible to be considered for one year training under the first respondent’s training scheme. Twenty-five graduate engineers including eight Mechanical Engineers were taken for apprenticeship training. Among eight Mechanical Engineers one discontinued and the remaining seven including the petitioner completed their training in 1988. Towards the end of their training the apprentices were interviewed by a Selection Committee. The Section Committee ranked the general candidates in the order of their merit. Ext.R2(c) is the list prepared by the 5 committee. Petitioner was ranked as No. 6. Rank No. 1 among the general candidates and one scheduled caste candidate were absorbed for one year Engineering Training. Thereafter in April 1990, the management committee took a decision to discontinue the Engineering Training Scheme and introduce recruitment for Management Training Scheme both in the technical and non-technical line. Petitioner though completed his training in April 1988 could not be taken for training as he was ranked No. 6. At no point of time the petitioner or other trainees were given any promise or assurance that they will be absorbed in the regular services of the company.

14. We heard the petitioner’s counsel and the counsel for the respondents. Counsel for the petitioner could not point out any clause or provision by which the petitioner was entitled to get appointment as a matter of right. The apprentice training was conducted on the basis of provisions contained in “Apprenticeship Act, 1961”. There is no provision in the Apprenticeship Act by which an apprentice trainee would be given right of appointment. Petitioner had only a preferential claim to be considered for appointment. In fact the petitioner was considered for Engineering Graduate training but as he was ranked No. 6 in the list, he was not given appointment. It is pertinent to note that the petitioner has not challenged Ext.R2(c) ranking. So long as the petitioner has no right to get appointment, he is not entitled to the mandamus writ. O.P.No. 10726/90 is without any merit and it is dismissed.

15. O.P.No. 11037/1992: Petitioner’s wife -late Dr. T. Rugmini Amma was holding ten shares of Rs. 100/- each of the respondent company. Rugmini Amma died on June 27, 1987. Petitioner has four children through his deceased wife. According to the petitioner his wife had executed a will on September 17, 1983 and the same was registered with Ernakulam Sub-Registry. Consequent to the death of Rugmini Amma, the will had taken effect on June 27, 1987. As per the will, the fixed deposits and movable will vest on her legal representatives on her death. After the death of Rugmini Amma, petitioner along with his sons applied for transfer of shares in their names. Petitioner was asked to produce an indemnity bond. According to the petitioner, he executed the bond but it is alleged that respondent company has not effected the transfer of shares and hence this original petition.

16. Respondent company contended that it is not known whether the will executed by the petitioner’s wife is true and genuine and the company cannot take the risk in case some other parties claim right over these shares. It is also contended that petitioner has got other efficacious remedies as he can approach the Company Law Board.

17. We heard the petitioner’s counsel and the counsel for the respondent. Petitioner’s wife executed a registered Will and she died in 1987. On her death the Will had taken effect. As per the Will petitioner and his four children are entitled to get transfer of shares, held by deceased Rugmini Amma. Respondent company did not effect the transfer of snares, as the company may suffer damage if any other person claims right over them, for which the company asked the indemnity bond and the petitioner produced the indemnity bond to the satisfaction of the company. Under the above circumstances, we do not think that there is any justification in not transferring the shares in favour of the petitioner and his four children, as per the application filed by the petitioner. The transfer of shares is requested in respect of ten shares. We do not think that the petitioner can file a petition before the Company Law Board and seek appropriate remedies as there is not much dispute about the title to the shares.

18. In the result, we direct the first respondent to transfer the shares to the petitioner and his children on the basis of the application made by them. The transfer of shares will be effected in 5 accordance with the Company Law at the earliest, at least within a period of one month from the date of receipt of the copy of this judgment. O.P.No. 11037 of 1992 is disposed of as above.

19. O.P.NO. 3114 of 1985: This Original Petition is filed against the dismissal of petitioner from service. Petitioner was working as an Operator A in Cochin Refineries Ltd. On March 8, 1984 an explosion took place in the Cochin Refineries. According to the respondent Company, the explosion was caused by the sudden escape of Hydrogen, Hydro-carbon vapours from the reformer unit in the process area to the Naphtha Tank No. 30 resulting in formation of massive vapour cloud which on contact with hot source in the utility were ignited. According to the management of the Company, the explosion was due to the negligence of the petitioner. Disciplinary proceedings were initiated against the petitioner and an enquiry officer was appointed. The enquiry officer by a detailed report found the petitioner guilty of negligent conduct and on the basis of his findings, the petitioner was served with a notice of punishment and by Ext.P27, he was ordered to be dismissed from service.

20. In the Original Petition, petitioner has alleged that there was absolutely no evidence to hold that there was negligence on the part of the petitioner. According to the petitioner, the Company was not taking necessary security measures. The fire was due to various causes. According to the petitioner he was made a scapegoat for the entire incident. Petitioner also alleges that a High Power Commission was appointed by the Government of India and the report of the High Power Commission was suppressed and the petitioner is made to suffer for the negligence of various other officers and the lack of security measures taken by the Company.

21. Detailed counter-affidavit is filed by the first respondent. An additional courter-affidavit is also filed. Petitioner was served with Ext.P7 show-cause notice. An enquiry was conducted. Petitioner initially participated in the proceedings and he filed an affidavit and he produced certain documents. Petitioner later did not participate in the enquiry proceedings and based on the finding of the report the petitioner was dismissed from service.

22. In the additional counter-affidavit filed on February 22, 1991 it is stated that the petitioner was working as Operator A and on March 8, 1984 in the 11 p.m. to 7 a.m. shift petitioner, was handling the plant shutdown operation of naphtha/reformer unit. He did not take proper care to maintain the required liquid levels in RV4 and RV 5. As a result of this, hydro-carbon vapours and hydrogen had leaked out from high, pressure vessels into the atmosphere through tank No. 30. It resulted in explosion and fire causing death of 4 persons and extensive damages to the properties of the Company and the public to the tune of about Rs. 10 crores. It was found that the loss of liquid levels and consequent leaking of hydro-carbon vapours and hydrogen into the atmosphere was due to the carelessness and negligence of the petitioner in carrying out his duties as Operator A of these units. The petitioner did not follow the instructions laid down under the normal shutdown procedure. The above said acts of the petitioner constituted grave misconduct as per the standing orders of the Company. Petitioner was issued with show cause notice calling upon him to explain why disciplinary action should not be taken against him. Petitioner submitted Ext.P2 reply. As it was not satisfactory, Ext.P3 charge-sheet was framed against him. An enquiry was conducted and one Koshy Varghese, Officer on special duty was appointed as Enquiry Officer. Notices were issued to the petitioner by the Enquiry officer. Petitioner submitted an application to defer the enquiry. The Enquiry officer proceeded with the enquiry though it was adjourned at the instance of the petitioner. Petitioner applied for certified copies of pre-recorded statement of management witnesses. The Enquiry Officer offered him the facility to inspect and take copies of the documents. Thereafter one witness by name Narayanan was examined. Petitioner did not cross-examine the witness. The enquiry was adjourned to May 16, 1985. Petitioner and his co-worker who was assisting him were absent on that day. The enquiry was adjourned to May 30 and the petitioner was informed thereof by registered post. But the notice was not served on the petitioner in the address furnished by him. Again the enquiry was adjourned to June 12, 1985. The notice sent to the petitioner returned with the endorsement “addressee gone out” and “not known”. Another letter sent to the petitioner in the address furnished by him was returned with the endorsement “no such addressee in the locality”. There was a strike by the workers of the Company on May 11, 1985. Petitioner participated in the strike. Several attempts were made to serve the notice on the petitioner and thereafter the enquiry was completed and the Executive Director considered the enquiry report and show cause notice was issued to the petitioner and on consideration of the entire matter the petitioner was ordered to be dismissed from service vide Ext.P27 order dated October 17, 1985. It is contended by the respondent Company that there was no procedural irregularity or illegality in the enquiry proceedings.

23. We heard petitioner’s counsel and counsel for the first respondent. Elaborate arguments were advanced on behalf of the petitioner. The main thrust of the arguments was that the Enquiry Officer did not afford sufficient opportunity to the petitioner to defend his case. It is also contended that the petitioner was not negligent and the Enquiry officer went wrong in finding that the petitioner was responsible for the explosion.

24. As regards the first contention, there is ample evidence to the effect that the petitioner was attempted to be served with notice by the Enquiry Officer. The petitioner himself furnished his address to the respondent Company. Notices were sent in that address but these notices could not be served on the petitioner. It is important to note that the petitioner wanted to adjourn the enquiry proceedings. According to the petitioner, the enquiry should have been conducted after the submission of the report by the High Power Commission appointed by the Government of India. It is clear that the petitioner wanted to protract the enquiry proceedings. That is why he avoided the notices sent by the Enquiry Officer. Petitioner did not participate in the enquiry. We do not think there was violation of the principles of natural justice.

25. As regard the second contention, we do not find any material on record to show that the petitioner was not responsible for the explosion that took place in the first respondent Company. There is a detailed report by the Enquiry Officer. Several witnesses were examined in the enquiry proceedings. The report of the Enquiry Officer is a finding of facts. We do not find anything to show that the report is either incorrect or fallacious.

26. It may also be noticed that the petitioner is a workman employed in the respondent Company. As against Ext.P27 dismissal order, he has got other efficacious remedy. He had not chosen to avail such alternative remedy. He filed the Original Petition during the pendency of the enquiry proceedings. He was ordered to be dismissed from service during the pendency of this O.P. As the petitioner has got other alternative remedy, we do not think that the petitioner is justified in seeking a prayer for quashing Ext.P27. Without prejudice to the petitioner’s right to seek other appropriate remedies, we dismiss the Original Petition.

Original Petition Nos. 3114 of 1985 and 10726 of 1990 are dismissed and O.P.No. 11037 of 1992 is disposed of as above.

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