The Shamrao Vithal Co-operative Bank Limited and another Vs Padubidri Pattabhiram Baht and another

@JUDGMENTTAG-ORDER

MRS Sujata Manohar, J.@mdashThe appellants Shamrao Vithal Co-operative Bank Ltd. are a multi-State Co-operative Society. The appellant-society is deemed to have been registered under the Maharashtra Co-operative Societies Act 1960 as well as the Multi- State Co-operative Societies Act 1984. The appellants carry on the business of banking. The 1st respondent had filed a petition under Article 226 of the Constitution in this Court challenging the resolution of the appellant Bank dated 21st of May 1987 and the consequent termination of his services by the appellant-Bank. A learned single Judge of this Court, by his judgment and order dated 31st March 1989, allowed the petition and ordered reinstatement of the first respondent with backwages as set out in the judgment and order. From this judgment the present appeal was filed by the appellants.

2. One of the questions which the learned single Judge was called upon to decide was whether the appellant Bank was "State" within the meaning of Article 12 of the Constitution and whether the writ petition was maintainable against the appellants. The learned single Judge, by his above judgment and order, held that the appellants Bank was "State" within the meaning of Article 12 of the Constitution and hence a writ was maintainable against the appellants.

3. The appeal came up for hearing before a Division Bench of this Court consisting of Pendse and Kapadia, JJ. The Division Bench, in its judgment and order dated 26th February 1992, referred to a decision of a Division Bench of this Court at Nagpur in the case of Narayan Bhange Vs. Maharashtra State Co-operative Land Development Bank Ltd. and Others, . The Division Bench of this High Court at Nagpur had held that the Maharashtra State Co-operative Land Development Bank Limited is "State" within the meaning of Article 12 of the Constitution. It approved the judgment of the learned single Judge herein. The Division Bench at Bombay observed that it is difficult to share the view of the Division Bench at Nagpur in view of certain decisions of the Supreme Court. But it would not be proper for it to take a contrary view because of the decision of the Division Bench at Nagpur. Hence it has referred the following issue to a larger bench for determination :--

"Whether a co-operative society registered under the provisions of the Maharashtra Cooperative Societies Act, 1960 and under the Multi-State Co-operative Societies Act, 1984 falls within the expression "State" under Article 12 of the Constitution of India."

We are therefore required to consider this question.

4. A similar question had arisen in a number of matters before various High Courts and the Supreme Court. We do not propose to refer to all the decisions which have been cited before us. We will refer to a few of the leading decisions on this question.

5. In the case of Ramana Dayaram Shetty Vs. International Airport Authority of India and Others, , the Supreme Court considered the question when a corporate body can be considered as "State" within Article 12. The Supreme Court said that the Government may act through the instrumentality or agency of natural persons; or it may employ the instrumentality or agency of juridical persons to carry out its functions. In a welfare State the functions of Government expand considerably; and often these new tasks are carried out through public corporations. The Supreme Court said that it was not possible to formulate an all-inclusive or exhaustive test which would adequately answer the question when such a corporation becomes an instrumentality or agency of the Government: There are several factors which may have to be considered in determining this question. The Supreme Court summarised its conclusions in paragraph 19 at page 1641. It said, "We have referred to some of these factors and they may be summarised as under : whether there is any financial assistance given by the State, and if so, what is the magnitude of such assistance; whether there is any other form or assistance given by the State, and if so, whether it is of the usual kind or it is extra ordinary, whether there is any control of the management and policies of the corporation by the State and what is the nature and extent of such control, whether the corporation enjoys State conferred or State protected monopoly status and whether the functions carried out by the Corporation are public functions closely related to governmental functions. This particularisation of relevant factors is however not exhaustive and by its very nature it cannot be. Because with increasing assumption of new lacks, growing complexities of management and administration and the necessity of continuing adjustment in relations between the corporation and the Government calling for flexibility, adaptability and innovative skills, it is not possible to make an exhaustive enumeration of the tests which would invariably and in all cases prove an unfailing answer to the question whether a corporation is governmental instrumentality or agency. Moreover even amongst these factors which we have described, no one single factor will yield a satisfactory answer to the question and the Court will have to consider the cumulative effect of these various factors and arrive at its decision on the basis of a particularised inquiry into the facts and circumstances of each case."

6. In the case of Ajay Hasia and Others Vs. Khalid Mujib Sehravardi and Others, the Supreme Court reiterated the test land down in the case of Ramana Davaram Shetty v. The International Airport Authority of India (supra) with a note of caution. It said (in paragraph 9 at page 496) "...while stressing the necessity of a wide meaning to be placed on the expression other authorities", it must be realised that it should not be stretched so far as to bring in every autonomous body which has some nexus with the Government within the sweep of the expression. A wide enlargement of the meaning must be tempered by a wise limitation. The Supreme Court said that it is immaterial whether the Corporation is created by a statute or under a statute. The test is whether it is an instrumentality or agency of the Government and not as to how it is created. Specifically, if a department of the Government is transferred to a corporation, it would be a strong factor supportive of the inference of the corporation being an instrumentality or agency of the Government.

7. Since these tests were enumerated, several occasions have arisen for applying these tests. We will only consider one or two recent cases.

8. In the case of Tekraj Vasandi alias K.L. Basandhi Vs. Union of India (UOI) and Others, the Supreme Court had to consider whether the Institute of Constitutional and Parliamentary Studies, registered under the Societies Registration Act, 1860, is "Stare" within the meaning of Article 12 of the Constitution. The Supreme Court held that it is not "State" within the meaning of Article 12. While applying the above tests the Supreme Court once again observed that there cannot indeed be a strait jacket formula. It is also not necessary that all the tests should be satisfied for holding an institution to be "State". In a given case some of the features may emerge so boldly and prominently that a second view may not be possible. There may yet be other cases where the matter would be on the border line, and it would be difficult to take one view o the other outright. The Supreme Court also said, in the same vein as in Ajay Hasia''s case, that in a welfare State Government control is very pervasive and in fact touches all aspects of social existence. In the absence of a fair application of the tests, there is a possibility of turning every non-governmental society into an agency or instrumentality of the State. That obviously would not serve the purpose and may be far from reality. A broad picture of the matter has to be taken and a discerning mind has to be applied keeping reality and human experiences in view, so as to reach a reasonable conclusion. There are observations to the same effect in the case of Chander Mohan Khanna Vs. The National Council of Educational Research and Training and other[OVERRULED], .

9. We have to examine the constitution and functioning of the appellant Bank, which is a multi-State co-operative society in the light of these tests in order to decide whether it falls within the definition of a "State" under Article 12. The first aspect that we propose to examine is the aspect of State''s control over the appellants Bank. There are three important pieces of legislation which regulate the functioning of the appellant-Bank. These are the Maharashtra Co-operative Societies Act, 1960, the Multi-State Co-operative Societies Act, 1984, and the Banking Regulation Act, 1949. The Report of the Expert Committee on Multi-State Co-operative Societies Legislation, which -was submitted as far back as February 1972, enunciates in Paragraph 3.9 the co-operative principles which have been since enacted in the Multi-State Co-operative Societies Act, 1984 as well as earlier in the Maharashtra Co-operative Societies Act, 1960. The principles which have come to be recognised as fundamental to co-operative organisations were initially enunciated by the Rockdale Equitable Pioneers Society founded in 1844. These principles are :--

1. Democratic control.

2. Freedom for new members to join, i.e. the principle of open membership.

3. Payment of limited interest on capital.

4. Distribution of surplus among members in proportion of their transactions.

5. Political and religious neutrality.

6. Cash trading.

7. Education of members.

At paragraph 3.15 the Report refers to "Integrated Scheme of Rural Credit" and it sets out that one of the basic principles of this Scheme is that the State should participate in the share capital of various types of cooperatives at different levels to provide the initial momentum and strength to co-operatives.

10. The Book "Training and Extension in the Co-operative Movement" produced by the Food and Agricultural Organisation of the United Nations 1962 also sets out the basic principles of co-operative movement. It says that certain essential features are seen in all forms of co-operatives.

1. They consist of groups of people who join together to do something they cannot very well do as individuals.

2. They aim to provide some service that is necessary or very desirable in the lives of the people concerned.

3. They operate on the basis of self-help that is, the people involved look toward themselves as a group for the solution of their problems.

4. They do business from the motive of service and not for the purpose of making a profit.

The same co-operative principles are set out, in the First Schedule to the Multi-State Cooperative Societies Act, 1984. Some of the relevant principles are :

1. Membership of a multi-State co-operative society should be voluntary and open without any social, political, or religious discrimination, to all persons who can make use of its services.

2. In a society other than that with institutional membership, individual member should enjoy equal rights of voting -- one member, one vote.

3. Surplus or savings, if any, arising out of the operations of the society belong to the society as a whole, and no individual member has a claim to the surplus.

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7. The affairs of a society should be administered by the management in accordance with democratically expressed will of the members.

8. The management of the society is accountable to its own members.

These principles find expression in various sections of the Multi-State Co-operative Societies Act, 1984. For example, S. 19 provides for membership, S. 22 provides for one vote for one member. S. 29 provides that subject to the rules and bye-law the ultimate authority of a multi-State Co-operative Society shall vest in the general body of its members. S. 30 provides for an annual general meeting of the general body, inter alia, to elect members of the Board. S. 32 provides for a Board of Directors of such a society and S. 42 defines the powers and functions of such a Board, This includes, inter alia, the power to appoint a Chief Executive and such other employees of the society in whom, under S. 45 of the Act, the day to day management of the business of the multi-State Co-operative Society is entrusted. These provisions clearly indicate that the ultimate control and management of a multi-State Co-operative Society vests in the general body of its members subject, of course, to the provisions of the Act.

11. Section 47. of the Multi-State Cooperative Societies Act does provide to the Central Government power to give directions in the public interest. It states that if the Central Government is satisfied that in the public interest or for the purposes of securing proper implementation of co-operative production and other developmental programmes approved or undertaken by the Central Government, or to secure proper management of the business of the multi-State cooperative societies generally, or for preventing the affairs of the multi-State cooperative society being conducted in a manner detrimental to the interests of the members, any depositors or creditors thereof, it is necessary to issue directions to any class of multi-State co-operative societies generally or to any multi-State co-operative society or societies in particular, the Central Government may issue directions. This is a general power of supervision and power to give directions in public interest. It does not prescribe or entail a deep or all pervasive control of the State over the functioning of a multi-State co-operative society which would make it an agency or instrumentality of the State.

12. There are similar provisions under the Maharashtra Co-operative Societies Act, 1960 also. For example, under S. 72 of this Act the final authority of every society registered under the Maharashtra Co-operative Societies Act, 1960 shall vest in a general body of members in general meeting, summoned in such a manner as may be specified in the bye-laws. Section 73 provides that the management of every society shall vest in a committee, constituted in accordance with this Act, the rules and bye-laws, which shall exercise such powers and perform such duties as may be conferred by this Act, the rules and the bye-laws. Therefore, under the general legislation dealing with co-operative societies and also under the special legislation dealing with multi-State co-operative societies, there are clear provisions which would indicate that these societies have to be run on co-operative principles. Final authority vests in the members of the societies. Such societies, in our view, cannot be considered as instrumentalities of the State.

13. The Shamrao Vithal Co-operative Bank Ltd. i.e. the appellant bank was registered under the Co-operative Societies Act, 1904, Since then it is deemed to be registered under the Co-operative Societies Act, 1912; the Bombay Co-operative Societies Act, 1925; the Multi Unit Co-operative Societies Act, 1942; the Maharashtra Cooperative Societies Act, 1960 and Multi State Cooperative Societies Act, 1984. It is a cooperative bank within the meaning of S. 2(10) of the Maharashtra Co-operative Societies Act, 1960. It is a society which is doing the business of banking under S. 5(1)(b) of the Banking Companies Act, 1949. It is deemed to be registered under the Multi-State Cooperative Societies Act, 1984 with effect from 18th August, 1984. The bye-laws of the said bank set out the objects of the bank in Chapter III. The objects of the said Bank are to encourage thrift and promote co-operation among its members and to carry on in Bombay and at such other places as may from time to time be decided, with the approval of the Reserve Bank of India and the Registrar where necessary, the business of banking including borrowing, raising or receiving money from members, non-members, societies, companies, trusts or associations. Under Chapter IV dealing with funds of the said Bank, the Bank is required to raise funds in the following ways :

(i) by issue of shares;

(ii) by receiving deposits;

(iii) by raising loans;

(iv) by donations; etc.

Under clause 5(b) of Chapter IV of the Bye-laws, as amended after Multi State Co-operative Societies Act, 1984 came into force, it is provided that the authorised share capital of the bank shall be Rs. 5,00,00,000/- divided into 20,00,000 shares of Rs. 25/- each and the same may be increased or reduced with the previous sanction of the General Body, subject to the approval of the Central Registrar, Chapter VI deals with allotment of shares. Chapter VIII deals with transfer of interest and nomination. Chapter VIII deals with General Meeting. Bye-laws 36 of Chapter VIII provides as follows:

"Subject to the provisions of the Act, the final authority of the Bank shall vest in the General Body of members in General Meeting in the manner specified hereinafter."

Bye-laws 38 deals with the functions of the Annual General Meeting. Bye-law 39 deals with Special General Meeting. Bye-law 46 inter alia lays down that at the General Meeting all questions shall be decided by a majority of those present and voting. Chapter IX of the Bye-laws deals with the power of the Board of Directors. Bye-law 60 deals with the power of the Board of Directors including the power to make appointment of salaried employees, power to incur expenditure for carrying on business of the bank etc. Chapter IX-A of the Bye-laws deals with the power, functions and duties of the Chief Executive. Chapter XII deals with Secretary and Manager. Chapter XIII deals with power to give loans. Chapter XVII deals with constitution of the Reserve Fund of the co-operative bank.

14. A bare perusal of the above bye-laws indicates clearly that there is no deep and pervasive control of the Government over the said bank.

15. The learned single Judge placed much importance on the Banking Regulation Act, 1949 which applies to the appellant-society because it also happens to be a co-operative bank. In the first place, all provisions of the Banking Regulation Act do not apply to cooperative banks. Section 3(c) of the Banking Regulation Act, 1949 states that nothing in this Act shall apply to (a) a primary agricultural credit society, (b) a co-operative land mortgage bank and (c) any other co-operative society, except in the manner and to the extent specified in Part V. Part V makes substantial departures from the Banking Regulation Act as far as co-operative banks are concerned. Some of the sections of the Act on which the learned single Judge has relied, do not apply to co-operative banks. Thus, for example S. 35-B under which amendments of provisions relating to appointments of managing directors, etc., are subject to the previous approval of the Reserve Bank, do riot apply (o a co-operative bank. Even if we assume broadly that under the Banking Regulation Act the Reserve Bank has regulatory powers over all kinds of banks including co-operative banks, that, in our view, is not sufficient to make such organisations, agencies or instrumentalities of the State. We have a large number of such regulatory kinds of organisations. For example, the Companies Act regulates the working of public and private limited companies in the country. This Act lays down detailed provisions, for example, regarding the manner of holding annual general meetings, the manner of holding meetings of the Board of Directors, how resolutions have to be passed by these bodies, how these companies have to be registered or wound up and so on. This does not make such companies, agencies or instrumentalities of the State simply because the State has enacted a law to regulate the working of such companies. The Indian Partnership Act regulates the functioning of partnership firms. Such regulatory laws cannot be construed ipso facto as providing full or substantial State control over the functioning of the organisations governed by such laws. The Banking Regulation Act, 1949 also does not prescribe any all pervasive stale control over all banks covered by it which would make the banks an agency or instrumentality of the State. The learned single Judge has erred in relying so heavily on it.

16. In a number of cases the different High Courts have been required to consider whether a co-operative society can be considered as a State under Article 12. To a Full Bench decision in the case of P. Bhaskaran and Others Vs. Additional Secretary, Agricultural (Co-operation) Department, Trivandrum and Others, , the Kerala High Court negatived the contention that a co-operative society can be considered as an instrumentality or agency of the State. The Kerala High Court observed that in the case of a cooperative society there is no deep and pervasive state control. The management of the societies does not vest in the Government or in the representatives of the Government. The management is under the effective control of a committee elected by the members of the societies. The statutory regulation or restriction in the functioning of the societies is not "an imprint of State under Article 12".

17. In the case of Banabihari Tripathy Vs. Registrar of Co-operative Societies and Another, , the Full Bench of the Orissa High Court has also held that a cooperative society, on merely getting registered under the Co-operative Societies Act, does not acquire any status of becoming an authority to render it amenable to the writ jurisdiction of the High Court. The supervisory powers given to the Registrar are with a view to securing better working of the societies and to give them guidance of well trained and expert officers. That by itself does not make such a society "State" under Article 12.

18. A Full Bench of the Madras High Court in the case of Non-Govt. School Pensioners'' Association and Another Vs. State of West Bengal and Others, has also come to the same conclusion. We respectfully agree with these judgments.

19. It is, however, submitted that a cooperative bank, as in the present case, performs an important public function and that itself is sufficient for coming to the conclusion that it is "State" under Article 12. It is submitted before us that in a welfare State the definition of "governmental function" has to be widened to include within its scope all functions which are of public importance. Hence any organisation which performs a public function must be considered as State under Article 12. In our view, this is too broad a proposition. We have to bear in mind the note of caution sounded by the Supreme Court in the cases of Ajay Hasai (supra) and Tekraj Vasandi (re. the Institution of Constitutional and Parliamentary Studies supra). Every organisation which carries out a function which is of public importance does not necessarily become "State" under Article 12. Conferment of "Statehood" depends upon various other factors also, such as the nexus of such organisations with the State, the extent of State control, whether it is entirely financed by the State or by private individuals, whether, the same function was originally carried out by a Department of the State and so on. There may be many functions of public importance which can be performed by private organisation also. We have a large number of organisations doing important social work vital to the community. There are, for example, organisations which look after, educate and train handicapped persons or the blind, provide them with jobs and rehabilitate them. There are private charitable organisations which may provide free or subsidised housing to the poor or free medical aid. They may supply text-books to poor students, freeships and scholarships. There may be private organisation engaged in transport of goods and men. They perform functions which are, undoubtedly of public importance; and they subserve a public need. But this does not necessarily make such organisations "State" under Art. 12. Banking is undoubtedly a function of public importance. In fact, the nationalised banks do carry out these functions under the control of the State. But that does not mean that banks which are not so controlled, or banks which are set up by private organisations or co-operative societies become" State" under Article 12. In a welfare State, many activities which are often carried on by private organisations are undertaken by the State, in such cases the Supreme Court has said that we must look at the overall position of the organisation in the light of the other tests also, especially when the function of the organisation is not such as can be carried on only by the State or is not connected with governmental functions.

20. In the case of Som Prakash v. Union of India, reported in , the Supreme Court was required to consider whether Bharat Petroleum Corporation Limited was "State" within the meaning of Article 12 of the Constitution. The Supreme Court said (at page 224) that 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. But the decisions show that even this test of public or govern- mental character of the function is not easy of application and does not invariably lead to the correct inference because the range of governmental activity is broad and varied, and merely because an activity may be such as may legitimately be carried on by Government, it does not mean that a corporation, which is otherwise a private entity, would be an instrumentality or agency of Government by reason of carrying on such activity. Therefore, simply because an organisation carries on an activity of public importance, it does not automatically become "State" under Art. 12, unless it also fulfills some of the other tests.

21. In the case of Sri Kohaseema Cooperative Central Bank Ltd. v. N. Seetarama Raju, reported in AIR 1990 A P 171 : 1990 Lab IC 63, the Full Bench of the Andhra Pradesh High Court held that a cooperative bank did not perform functions of public importance which were closely related to governmental functions and hence declined to characterise a co-operative bank as "State" under Art. 12.

22. In the case of Pritam Singh Gill Vs. State of Punjab and Others, , the Full Bench of the Punjab and Haryana High Court held that the Punjab State Co-operative Land Mortgage Bank registered under the Punjab Co operative Societies Act was not instrumentality of the State and hence was not "other authority" within the meaning of Art. 12.

23. In the case of V.I. Khalifa Vs. Satubha Tanubhai Vaghela, a single Judge of the Gujarat High Court also held that a cooperative bank was not State under Art. 12 because there was nothing in the bye-laws of the society to suggest that there was any overriding control over the bank by the State in its management. Our attention was, however, drawn to a decision of the Division Bench of this Court in the case of State Bank of India Vs. Transport Co. Pvt. Ltd. and Another, . In that case the Division "Bench noted that the State Bank of India and its subsidiaries are statutory corporations. In making several appointments forming the structure of these Corporations, the Government''s role is quite clear. Even in the matter of laying down policy involving public interest, the State Bank shall be guided by the directions given by the Central Government in consultation with the Governor of the Reserve Bank and the Chairman of the State Bank of India. And if any question arises whether a direction relates to a matter of policy involving public interest, the decision of the Central Government thereon shall be final. The Court said that the nationalised banks are the agencies of the Government which has a large hand in controlling their policies. It said, it cannot be forgotten that it is the voice and the hand of the State that is effectively felt in all the activities of nationalised banks. The Court also added that banking, undoubtedly, is an activity vital to the life of the community and it is undoubtedly a business of great public importance. This being the nature of the institution and also its powers, there cannot be any doubt that the State Bank of India is either "State" or "other authority" within the meaning of that expression in Art. 12. These observations do not apply to the present case. The Division Bench of the Bombay High Court took into account the fact that the Central Government had a controlling hand over the State Bank of India and other nationalised banks. It was this factor coupled with the nature of the functions performed by the State Bank of India that led the Court to the conclusion that the State Bank of India was "State" under Article 12.

24. A Multi-State Co-operative Bank cannot be compared, in the manner of its functioning, with the State Bank of India at all. As set out earlier, the Central Government does not have any all pervasive control over a Multi-State Co-operative Bank. Hence, merely because banking function is of public importance, this factor itself is not sufficient to make the appellant bank "State" or "other authority" under Article 12.

25. In the case of Narayan Bhange Vs. Maharashtra State Co-operative Land Development Bank Ltd. and Others, the Nagpur Bench of our High Court held that the Maharashtra State Co-operative Land Development Bank Limited was "State" or "other authority" under Art. 12. In doing so, the Nagpur Bench relied upon the judgment of the learned single Judge in the present case. The Nagpur Bench relied upon two factors only for the purpose of holding that the Maharashtra Slate Co-operative Land Development Bank was "State" within the meaning of Art. 12. It said (at page 474) that the Maharashtra State Co-operative Land Development Bank Limited is a creature of the statute and it is discharging public functions which the State could have discharged through its agency. Hence it held that the Bank was a State. In our opinion, the Division Bench, over emphasised the fact that the Bank was a creature of the statute. As the Supreme Court has repeatedly said, the manner in which an organisation is created is not of any direct relevance. What is required to be seen is whether there is pervasive State control over its management and functioning. Moreover, merely because an organisation performs functions of public importance, one cannot hold that the organisation is "State" under Article 12. The only other factor which the Nagpur Bench looked at was the fact that the Bank was regulated by laws enacted by the State. Such regulatory laws as we have said earlier, arc enacted to cover a large number of organisations. The laws which regulate the functioning of such organisations are presumably enacted in public interest. This does not mean that any of these organisations, if they perform public functions, automatically become "State" under Article 12. In our view the above decision does not apply tests to determine when an organisation can be considered as "State" under Art. 12, correctly.

26. In the present case, for reasons set out above we are of the view that the learned single Judge erred in holding that the appellant Bank is "State" under Art. 12.

27. Accordingly, we answer the (issue) which is referred to us as follows :

28. A co-operative society, registered under the provisions of the Maharashtra Cooperative Societies Act, 1960 and under the Multi-State Co-operative Societies Act, 1984, which carries on the business of banking, and is therefore governed by the Banking Regulation Act, 1949 does not thereby fall within the expression "State" under Article 12 of the Constitution of India. The appellant bank cannot, therefore, be considered as "State" under Art. 12.

29. A writ cannot, therefore, be maintained against the appellant bank. This disposes of the entire appeal. Hence the appeal is allowed and the writ petition is dismissed.

30. In the circumstances there will be no order as to costs.

31. Appeal allowed.