IMPORTANT POINT
Where a cooperative society was not constituted under an Act and State did not exercise any direct or indirect control over its affairs for deep and pervasive control, it would not fall within definition of State provided under Article 12 of the Constitution of India.

Headnote:Constitution of India—Article 12—Himachal Pradesh Cooperative Societies Act, 1968—Sections 31, 34 and 35-B—Kangra Central Cooperative Bank Ltd., a society constituted under the Act—Services of petitioner, the Branch Manager, were terminated after he was found guilty in disciplinary proceedings in terms of Rules framed under the Act—Writ petition dismissed by High Court holding the same not maintainable—Appeal—Question whether respondent was “State” within the meaning of Article 12 of the Constitution?—Society was not constituted under an Act—State had no say in functions of the society—Nothing to show that State exercised any direct or indirect control over the affairs by Society for deep and pervasive control—Respondent did not satisfy any of the tests laid down in Pradeep Kumar Biswas case—High Court committed no error in arriving at a finding that respondent bank was not a State.
       Held : It is not in dispute that the Society has not been constituted under an Act. Its functions like any other Co-operative Society are mainly regulated in terms of the provisions of the Act, except as provided in the bye-laws of the Society. The State has no say in the functions of the Society. Membership, acquisition of shares and all other matters are governed by the bye-laws framed under the Act. The terms and conditions of an officer of the Co-operative Society, indisputably, are governed by the Rules. Rule 56, to which reference has been made by Mr. Vijay Kumar, does not contain any provision in terms whereof any legal right as such is conferred upon an officer of the Society.(Para 9)
       It has not been shown before us that the State exercises any direct or indirect control over the affairs of the Society for deep and pervasive control. The State furthermore is not the majority shareholder. The State has the power only to nominate one director. It cannot, thus, be said that the State exercise any functional control over the affairs of the Society in the sense that the majority directors are nominated by the State. For arriving at the conclusion that the State has a deep and pervasive control over the Society, several other relevant questions are required to be considered, namely: (1) How the Society was created?; (2) Whether it enjoys any monopoly character?; (3) Do the functions of the Society partake to statutory functions or public functions?; and (4) Can it be characterized as public Authority?(Para 10)
       It is well settled that general regulations under an Act, like Companies Act or the Co-operative Societies Act, would not render the activities of a company or a society as subject to control of the State. Such control in terms of the provisions of the Act are meant to ensure proper functioning of the Society and the State or statutory authorities would have nothing to do with its day-to-day functions.(Para 12)
       The decision of the Seven Judge Bench of this Court in Pradeep Kumar Biswas v. Indian Institute of Chemical Biology & Ors., (2002) 5 SCC 111, whereupon strong reliance has been placed, has no application in the instant case. In that case, the Bench was deciding a question as to whether in view of the subsequent decisions of this Court, the law was correctly laid down in Sabajit Tewary Vs. Union of India & Ors. [(1975) 1 SCC 485], and it not whether the same deserved to be overruled. The majority opined that the Council of Scientific and Industrial Research (CSIR) was a ‘State’ within the meaning of Article 12 of the Constitution of India. This Court noticed the history of the formation thereof, its objects and functions, its management and control as also the extent of financial aid received by it. Apart from the said fact it was noticed by reason of an appropriate notification issued by the Central Government that CSIR was amenable to the jurisdiction of the Central Administrative Tribunal in terms of Section 14(2) of the Administrative Tribunals Act, 1985. It was on the aforementioned premises this Court opined that Sabhajit Tewary (supra) did not lay down the correct law. This Court reiterated the following six tests laid down in Ajay Hasia Vs. Khalid Mujib Sehravardi [(1981) 1 SCC 722]:
       “(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 relevant factor ......whether the corporation enjoys monopoly status which is 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.
       (6) ‘Specifically, if a department of Government is transferred to a corporation, it would be a strong factor supportive of this inference’ of the corporation being an instrumentality or agency of Government.”(Para 13)
       As the respondent No.1 does not satisfy any of the tests laid down in Pradeep Kumar Biswas, (supra), we are of the opinion that the High Court cannot be said to have committed any error in arriving at a finding that the respondent-Bank is not a State within the meaning of Article 12 of the Constitution of India.(Para 14)
       The Society has not been created under any statute. It has not been shown before that in terminating the services of the appellant, the Respondent has violated any mandatory provisions of the Act or the rules framed thereunder. In fact, in the writ petition no such case was made out. For the foregoing reasons, the appeal being devoid of any merit is dismissed.(Paras 19 and 20)

Judgement Key Points

The ratio decidendi regarding the powers of the Central Registrar, as derived from the provided legal document, is that the Registrar's authority is primarily regulatory and supervisory in nature rather than executive or controlling. The Registrar has the power to constitute the managing committee of a cooperative society through election or appointment, including the appointment of additional members to represent specific interests. The Registrar also has the authority to confirm or replace appointed members and to regulate the qualifications and security conditions for officers and employees of the society. Furthermore, the Registrar holds the power to place officers or employees under suspension if necessary, and such suspension can be effected without the need for prior approval if directed by the Registrar. The Registrar's role is thus to ensure compliance with the statutory provisions, rules, and bye-laws, and to oversee proper governance rather than to exercise deep and pervasive control over the society's day-to-day functioning (!) (!) (!) (!) (!) .

JUDGMENT

S.B. Sinha, J.—The petitioner was working as a Branch Manager in the Kangra Central Co-operative Bank Ltd. (Respondent No.2, “Society”). A disciplinary proceeding was initiated against him purporting to be in terms of Rule 56(b) of the Kangra Central Co-operative Bank Employees (Terms of Employment and Working Conditions) Rules, 1980 (for short the “Rules”) read with Section 35-B(4) of the Himachal Pradesh Co-operative Societies Act, 1968 (for short the “Act”). He was found guilty therein. The Managing Director of the Society, by an order dated 18/11/1993, terminated his services purported to be in exercise of his power under Rule 2(p) of Appendix 1(a) of the Rules. In the meantime, an Administrator was appointed by the State to manage its affairs. The appellant herein preferred an appeal against the said order terminating his services before the Administrator on or about 2.12.1993. However, the Administrator had no occasion to deal with the said appeal. By an order dated 18.11.1995, the Board of Directors of the Respondent No. 2 dismissed the said appeal. He reached the age of superannuation on 30th September, 1996.

2. The appellant filed a writ petition before the High Court of Himachal Pradesh at Shimla, inter alia, praying for quashing of the order of termination dated 18.11.1995, as also the order of the appellate authority dated 16.1.1996. He further prayed for grant of all consequential benefits pursuant to or in furtherance of the quashing of the said order of punishment.

3. The writ petition filed by the appellant was based on the premise that the 1st respondent is a ‘State’ within the meaning of Article 12 of the Constitution of India. A Division Bench of the Himachal Pradesh High Court, by reason of the impugned judgment and order dated 6.6.2003, dismissed the said writ petition holding that the writ petition was not maintainable. The appellant is, thus, before us.

4. Mr. Vijay Kumar, learned counsel appearing on behalf of the appellant submitted that the High Court committed a serious error in coming to the conclusion that respondent No.1 is not a ‘State’ within the meaning of Article 12 of the Constitution of India. According to the learned counsel, the activities of the Co-operative Society being to lend money to the agriculturists, the same would come within the purview of the law laid down by a Seven Judge Bench of this Court in Pradeep Kumar Biswas vs. Indian Institute of Chemical Biology & Ors. reported in (2002) 5 SCC 111. It was further contended that in terms of the provisions of the Rules framed under the Himachal Pradesh Co-operative Societies Act, 1968, the respondent No.1 was obligated to comply with the principles of natural justice. It was submitted that the impugned order is violative of the provisions of the Rules as, inter alia, a copy of the inquiry report was not supplied to the Appellant, it was wholly unsustainable.

5. Mr. J.S. Attri, the learned Additional Advocate General for the State of Himachal Pradesh, on the other hand, would support the judgment contending that it is not a case where the State had deep and pervasive control over the affairs of the Society. It was pointed out that out of three directors in the Board, the State could appoint one. The decision of the Board of Directors in all matters is final. The membership of the State in the Co-operative Society was limited.

6. The legislature of the State of Himachal Pradesh enacted the Himachal Pradesh Co-operative Societies Act, 1968; some of the relevant provisions whereof are:

“31. Final authority in co-operative society:—The final authority in a co-operative society shall vest in the general body of members in a general meeting:

Provided that where the bye-laws of a co-operative society provide for the constitution of a smaller body consisting of delegates of the society elected or selected in accordance with such bye-laws, the smaller body shall exercise such powers of the general body as may be prescribed or as may be specifie

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2006 Supreme(SC) 397

IMPORTANT POINTWhere a cooperative society was not constituted under an Act and State did not exercise any direct or indirect control over its affairs for deep and pervasive control, it would not fall within definition of State provided under Article 12 of the Constitution of India.

Cases Referred (8)

IMPORTANT POINT
Where a cooperative society was not constituted under an Act and State did not exercise any direct or indirect control over its affairs for deep and pervasive control, it would not fall within definition of State provided under Article 12 of the Constitution of India.