IMPORTANT POINT
Contention that the government would be liable for payment of salaries and other dues of employees of the public sector undertakings cannot be accepted.

JUDGMENT

R.V. Raveendran, J.—

This appeal by special leave is filed by the State of Assam aggrieved by the order dated 14.6.2001 passed by the Division Bench of the Gauhati High Court. By that order the Division Bench upheld the order dated 23.12.1999 of the learned Single Judge in Civil Rule No.2996/1995 allowing respondent’s writ petition and directing the state government to sanction financial assistance by way of grant-in-aid to Cachar and Karimganj District Milk Producers’ Cooperative Union Limited (‘CAMUL’ for short) so as to enable CAMUL to make regular payment of monthly salaries, allowances as also the arrears to its employees.

2. CAMUL is a society registered under the Assam Co-operative Societies Act, 1949 (‘Act’ for short). Respondent, a Trade Union representing the workers of CAMUL, filed the said writ petition (Civil Rule No.2996/1995) contending that the state government formed and registered CAMUL as a co-operative society to run its cattle development project; that its Board of Directors including the Managing Director (always a government servant, on deputation) were appointed by the state government; that the post of the Managing Director of CAMUL was declared to be a post equivalent to a Head of Department under the state government; that initially the entire staff of CAMUL were drawn on deputation from the Veterinary, Agriculture & Co-operative Departments of the state government; that in a phased manner, those employees were reverted back to their Parent Departments and replaced by the staff appointed by CAMUL, through a Selection Board set up by the state government with representatives from the Central Government and National Dairy Development Board; that state government sanctioned the staffing pattern of CAMUL; that from the year 1982-83 onwards the Government was extending financial assistance by way of grants to CAMUL to meet the expenditure (including the expenditure relating to its employees); and that for the years 1994-95 though the state government had sanctioned financial assistance in a sum of Rs. 7 lakhs as grant-in-aid, it was not disbursed and consequently CAMUL did not pay the monthly salaries to its employees from December 1994 onwards. It is contended that state government had all pervasive control over the affairs and management of CAMUL and therefore it should be treated as a department of government of Assam, though registered as a co-operative society by lifting the corporate veil. It was further contended that state government was responsible and liable to pay the salaries and emoluments of the employees of CAMUL and it was not justified in withholding the grant amount. The respondent union therefore sought a direction to the state government to release the arrears of pay and allowances of employees of CAMUL with effect from December 1994 and for a direction to continue to pay the salary and allowances to the employees of CAMUL, every month in future. In addition to the state government (respondent No.1) and its officers (respondents 2 to 4), the Union of India (respondent No.5) and CAMUL and its Managing Director (respondents 6 and 7) were impleaded as parties to the writ petition.

3. The state government opposed the petition. It inter alia contended that the grant-in-aid was extended for helping CAMUL in its different development activities; that under a centrally sponsored scheme, between 1981 to 1986, the earmarked amount was released on 50:50 basis by central and state government with 70% loan component and 30% as grant component; that though the loan component was not repaid by CAMUL, the state government continued the grant-in-aid for purposes of development activities; that the state government had also provided Rs.43.60 lakhs for developing the milk-processing infrastructure of CAMUL; that despite such assistance, CAMUL became defunct and stopped all its activities and thereafter the Silchar Town Milk Supply Project was being run by the state’s dairy development department