Special Civil Application No. 6677 of 2009 and Spl. C.A. Nos. 8101 and 4263 of 2009. Case: Rambhai Ishwarbhai Patel and Anr. Vs Gujarat State Fertilizers and Chemicals Ltd. and Ors.. High Court of Gujarat (India)
| Case Number | Special Civil Application No. 6677 of 2009 and Spl. C.A. Nos. 8101 and 4263 of 2009 |
| Counsel | For Appellant: Mukul Sinha, M.S. Mansuri and Shalin Mehta, Advs. And For Respondents: Kamal Trivedi, Trivedi and Gupta, Advs., Nanavati Associates, Percy Kavina Joshi, Advs. and P.K. Jani, G.P. for Trivedi |
| Judges | S.J. Mukhopadhaya, C.J., Akil Kureshi and Anant S. Dave, JJ. |
| Issue | Companies Act, 1956 - Section 617; Societies Registration Act; Constitution of India - Articles 12 and 226 |
| Citation | 2011 (52) GLR 1197 |
| Judgement Date | April 11, 2011 |
| Court | High Court of Gujarat (India) |
Judgment:
S.J. Mukhopadhaya, C.J.
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The only question that arises in these cases is whether 'Gujarat State Fertilizers and Chemicals Limited' and 'Gujarat Narmada Valley Fertilizers Company Limited' are 'State' within the meaning of Article 12 of the Constitution of India.
A Division Bench of this Court in Gujarat State Fertilizers Co. Ltd. v. Association of Officers, G.S.F.C, reported in 1995 (2) GLH 179, answered the question in negative, and held that Gujarat State Fertilizers Company Ltd. is not a 'State' within the meaning of Article 12 and not performing any public duty or function. Learned Counsel for the parties brought to the notice of the Court a Government Circular dated 14th March, 2008 bringing the aforesaid Companies within the ambit of State Public Sector Undertakings. Therefore, the question has been referred to the Larger Bench to determine whether the Division Bench in Gujarat State Fertilizers Co. Ltd. v. Association of Officers, G.S.F.C, reported in 1995 (2) GLH 179 laid down a correct law or not.
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For determining the issue, it is relevant to notice certain facts, majority of which were noticed by the Division Bench in the earlier judgment. Gujarat State Fertilizers and Chemicals Limited (hereinafter referred to as 'G.S.F.C' for short) was created as a Company under the Companies Act, 1956 (hereinafter referred to as 'the Companies Act' for short). When the earlier case was decided, the Court noticed that as on 16th May, 1985, following percentage of shares were available with different shareholders:
(i) The Governor of
Gujarat 49.2%
(ii) I.D.B.I., L.I.C. and other financial institutions
29.17%
(iii) Nationalised Banks
00.87%
(iv) Indian and Foreign Companies
02.51%
(v) Individual and other Non-Residents and Co-operative Banks and Societies
18.44%
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Subsequently, as on 4th July, 1992, the share-holding of the Governor of Gujarat had come down and it was as follows:
(i) The Governor of
Gujarat 00.23%
(ii) Gujarat State Investment Corporation Ltd.
41.70%
(iii) Gujarat Industrial Investment Corporation
00.10%
(iv) Financial Institutions
38.68%
(v) Banks
00.27%
(vi) Indian and Foreign Companies
01.62%
(vii) Individual and others
19.22%
In terms of numbers, there are approximately 39,000 individual shareholders of the Company. The shares of the Company are listed in the Bombay Stock Exchange and are regularly quoted, and frequent transactions in shares take place. It is in this background, Division Bench in the earlier case Gujarat State Fertilizers Company Ltd. (supra) rejected the contention that major portion of the share-holding is controlled by the Government.
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The Division Bench noticed the test laid down by Supreme Court in R.D. Shetty v. International Airport Authority of India, reported in AIR 1979 SC 1628and Ajay Hasia v. Khalid Mujib, reported in AIR 1981 SC 487. The following factors were culled out for determination whether the Company (G.S.F.C.) can be said to be an instrumentality or an agency of the Government:
(i) If the major share capital of the Company is held by the Government, it would go a long way towards indicating that the Company is an instrumentality or an agency of the 'State'.
(ii) If the financial assistance of the State Government is so much to meet almost the entire expenditure of the Company, it would afford some indication of the Company being impregnated with Governmental character.
(iii) Whether the Company enjoys monopoly status as conferred to the 'State' or protected by the 'State'.
(iv) Whether deep and pervasive control of the 'State' exists over the Company.
(v) If the function of the Company is of public importance and closely related to the Governmental function, and
(vi) If one or other Department of the 'State' is transferred to the Company.
The Division Bench also referred to other decisions of Supreme Court in Somprakash v. Union of India, reported in AIR 1981 SC 212 and Tekraj Vasandi alias K.L. Basandhi v. Union of India, reported in AIR 1988 SC 469. In Tekraj Vasandi @ K.L. Basandhi (supra), Supreme Court was examining whether Institute of Constitutional and Parliamentary Studies registered under the Societies Registration Act could be regarded as an agency or instrumentality of the 'State' so as to come within the purview of 'State' under Article 12 of the Constitution. The other decision of Supreme Court in Rajasthan State Electricity Board, Jaipur v. Mohan Lai, reported in AIR 1967 SC 1857was also noticed. It is not necessary to refer to the rest of the decisions as was noticed by the Division Bench, including the Supreme Court decision in L.I.C. v. Escorts Ltd., reported in AIR 1986 SC 1370.
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The Division Bench observed that except certain percentage of shares being purchased by the Government of Gujarat and the Gujarat Industrial Investment Corporation, there is no other financial assistance given by the State to the Company, the Company has no monopoly status in manufacturing of fertilizer, which was also not the monopoly of the 'State'; fertilizer is also being manufactured by private sector companies in India apart from public sector undertakings and 'State' has no monopoly in respect thereof, there was no pervasive 'State' control over the Company. Though, some part of the shares were held by the Government of Gujarat and Gujarat Industrial Investment Corporation, there was no other control except presence of its Directors at the time of voting for electing independent persons as Directors. If Gujarat Industrial Investment Corporation sells its shares, it will have no part to play even in the matter of election of any Director to the Board.
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Following were the Directors of the Board when the Division Bench decided the case:
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Shri Jaykrishna Harivallabhdas, Chairman (Nominated by the Government of Gujarat), Industrialist.
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Shri Arvind N. Mafatlal, Industrialist.
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Shri H.M. Patel, I.C.S. (retired).
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Shri Arvind N. Lalbhai, Industrialist.
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Shri R.B. Amin, Industrialist.
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Shri T.K. Patel, Member of Parliament and Chairman, Gujarat State Co-operative Marketing Society Limited.
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Shri Rohit C. Mehta, Industrialist
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Shri F.N. Rana, I.A.S. (retired).
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Shri L.R. Dalai, I.C.S., (Chief Secretary to the Government of Gujarat).
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Shri M.D. Rajpal, I.A.S., Additional Chief Secretary to the Government of Gujarat.
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Dr. S.K. Subramanian, (Nominated by the Industrial Development Bank of India).
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Shri F.J. Heredia, I.A.S., Managing Director, (Nominated by the Government of Gujarat).
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Out of the aforesaid nominees, persons at Sr. Nos. 1,9, 10 and 12 were nominees of Government of Gujarat, and the Director at Sr. No. 11 was the nominee of the Industrial Development Bank of India. The other Directors were eminent persons in their own right. Even persons nominated by the Government of Gujarat and its Chairman are industrialists of repute, thereby the Division Bench noticed that the Board so constituted consisted of eminent independent persons.
Having noticed the aforesaid fact and that none of the tests is fulfilled by the Gujarat State Ferltilizer Company, the Division Bench came to a definite conclusion that the Company is not a 'State' within the meaning of Article 12 of the Constitution.
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The Government Circular dated 14th March, 2008, which was referred by the parties, due to which this Court referred the matter to Larger Bench, relates to requirement of prior approval of the Government in certain matter by the State Public Sector Enterprises, relevant portion of which reads as under:
Requirement of prior approval of
Government by the State Public
Sector Enterprises.Government of Gujarat
Finance Department
GR No. JNV-1007-FM4-A(BPE)
Sachivalaya, GANDHINAGAR
Dated 14-03-2008Read: Government Circular, Finance Department No. JNV-1480-224-A dated 18-2-1980.
Preamble
Instructions have been issued by the State Government vide Circular referred to in the Preamble above, for obtaining prior approval of the Government for various activities/matters by the State Public Sector Enterprises (P.S. Es.). As the economic scenario of the country, as also the environment in which P.S. Es. are working, has changed considerably over the years, and to enable Government to effectively monitor the working of the P.S. Es. in order to fulfil its development and financial objectives, the issue of obtaining prior approval of the Government for some additional matters/activities by the State P.S. Es., as also to modify the existing instructions in some aspects, was under the consideration of Government. After careful consideration, and in super session of the instructions contained in the Circular referred to in the Preamble above, Government is pleased to decide as under:
Resolution:
The prior approval of the State Government in the Bureau of Public Enterprises, Finance Department must be obtained by the State Public Sector Undertakings (Boards, Corporations, Companies etc.) for the following matters/activities:
Corporate Affairs
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Amendment in the Memorandum of Association or Articles of Association;
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There is no need to take the prior approval for Directors appointed to the Board of Directors by financial institutions, debenture holders and organizations with whose assistance the project has been set up. Government is appointing Directors in case of companies totally owned by the State Government. But in P.S. Es. not entirely owned by Government, the appointment of Directors is done by the shareholders. In such case, the prior approval of the Government should be obtained before selection of the Directors. In case a Memorandum of Understanding or Shareholders' Agreement entered into by a P.S.E. authorizes it to appoint Directors, approval of the Government should be obtained before doing so. Prior approval of the Government should also be obtained by P.S. Es. when appointing Directors in their subsidiary companies.
Economy & Finance:
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If the P.S.E. is signing a new Memorandum...
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