SOM PRAKASH REKHI v. UNION OF INDIA & ANR (2)

Citation: [1981] 2 S.C.R. 111

Court: Supreme Court of India

Bench: V.R. KRISHNA IYER, R.S. PATHAK, O. CHINNAPPA REDDY

Case summary

[148C] 4(a) It is clear from section II} which relates to the provident fund, pension, welfare fund and the like that the second respondent has made provision for the 1ights and interests of the beneficiaries of the trust establish· ed by Burmah Shell tfor the benefit of...

Judgment text

SOM PRAKASH REKHI v. t. UNION OF INDIA & ANR. November 13, 1980 [V. R. KRISHNA IYER, R. S. PATHAK AND 0. Cl! INNAPPA REDDY, JJ. ] Constitution of India-Burm. ah Shell (Acquisition of Und. ertakings· in India) Act, 1976-Cpmpany acquired by the Government and vested in a statutory corporation-Corporation if State-Test for determining whether a body is State within the 1n(! a11fng of article 12. Und~r a voluntary retirement scheme in force iri the company the petitioner, a clerk Ill Burmah Shell Oil Storage Ltd. , retired voluntarily after qualifying for pension. The pension payable to him was regulated by the terms of a tmst deed of 1950 under which a pension fund was set up and regulations were made for its administration. The petitioner was also covered by a scheme under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 and to gratuity under the Payment of Gratuity Act, 1972. The annual pension to which he was entitled under the trnst deed, without making !

he authorised deductions as provided under regulation 16 of the trnst deed, worked out t6 a sum of Rs. 165. 99 per mensem. He was also paid supplementary retirement benefit of Rs. 1! 6/- per month for a period o£ 13 months after his retirement which was stopped thereafter. The employer informed the petitioner that from out of his pension of Rs. 165. 99 two deductions were made, one of which was on account of employees provident fund payment made to the pensioner and the other on account of payment of gratuity with the result the pension payable to him was shown as Rs. 40. 05. The company also cut off the monthly payment of Rs. 86/- Mlich was paid as supplementary retirement benefit on the score that it was ex gratia, discretionary and liable to be stopped at any time by the employer. In the meantime the company was statutorily taken over by force of the Burmah Shell (Acquisition of Undertakings in India) Act, 19"/6.

Thereafter \the Central Go~ernment took steps to vest the undertaking in the second respondent, the Bharat Petroleum, which then became the statutory successor of the petitioner's employer. His pensionary rights such as he had, therefore, became claimable from the second respondent. A ? reliminary objection was raised on behalf of the COfPoration that no writ ~ould lie against the second respondent since it is neither a government department nor a statutory corporation but just a company. _ HELD : By the Court : ' The petitioner is entitled to the payment of full pension. (per majority Krishna Iyer and Chinnappa Reddy, JJ Pathak, J dissenting). I. The Bharat Petroleum is State within the meaning of Article 12 of the Constitution and a writ will lie against it under Article 32. [128A] (a) The settkd position in law is that any authority under the control of Government of India comes within the definition of State.

On the appointed day the right title and interest in Burmah Shell did vest in the Central Government . I and by virtue of section 3 the Central Government was the transferee of the und~rtaking. While the formal ownership was cast in the corporate mould, the reality reaches do\vn to State control. The core fact is that the Central Government, through section 7 chose to make over its own property to its own offspring. Therefore, the Burmah Shell though a government company is but the alter ego of the Central Government and must, therefore, be treated as definitionally caught in the net of State since a juristic veil worn for certain legal purposes cannot obliterate the true character of the entity for purposes of constitutional law. [121A; G; 124 D-E] (b) Corporate personality is a reality and not an iJlusion or fictitious construction of the law. It is a legal person.

Mer'ely because a company or other legal person has functional and jural individuality for certain purposes and in certain areas of law, it does not necessarily follow that for the effective enforcement of fundamental rights under the constitutional scheme, the Court should not scan the real character of that entity. In the instant case section 7 gives a statutory recognition and a status above a mere government company. If the entity is no more than a company under the Company I. aw or society under the law relating to registered societies or cooperative societies one cannot call it an authority. [124F; ! 25B, E] (c) An authority in administrative law is a body having jurisdiction in certain matters of a public nature. Therefore, the ability conferred upon a person by the law to alter, by his own will directed to that end, the rights, duties, liabilities or other legal relations, either of himself or of other persons must be present ab extra to make a person an "authority".

When the person is an 'agent or instrument of the functions of the State' the power is public. [125F-H] SGmetimes the test is formulated, by asking whether the corporation i:! formed by a statute or under a statute. The true test is not how legal person is born but why it is created. Apart from discharging functions or doing business as the proxy of the State there must be an element of ability to affect legal relations by virtne of power vested in it by law. [126A-B] (d) In the instant case sections 3 and 7 clothe the company with State functions. Section 7 contemplates that the company should step·into the shoes fof the executive power of the State. The legislative history of the corporation shows that it is more than a mere company registered under the Companies Act. Matters like conditions of service of employees, adjudication of disputes relat.. ing to employees, superannuation and welfare funds and so on are regulated statutorily unlike in the case of ordinary companies.

Sections 9 and 10 create rights and duties vis a vis the government company itself apart from the Companies Act. Section 11 specifically gives the Act primacy vis a vis other laws. Section 12 clothes the Government company with power to take delivery of the property of Burmah SheJl from every person in whose possession, custody or control such property may be. Whatever its character antecedent to the Act all the relevant provisions have transformed · it_ into an instrumen.. tality of the Central Government with a strong indicia of power to make it ab. authority". It is a limb of the Govefuritent, an agency of the State, a vicarious creature of statute. [126C-H, 127B-C] SOM PRAKASH REKlil v. UNION 113 2. Some of the tests laid down by this Court for deciding whether body is State within the m,.

ning of Article 12 are : (i) 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 instru· mentality or agency of the Government; (ii) A finding of State financial support plus an unusual degree of control over the management and policies might lead, one to characterise an opera· tion as State action. (iii) The existence of deep and pervasive State control may afford an indication that the Corporation is a State agency or instrumentality. (iv) Whether the corporation enjoys monopoly status which is State con.. X ferred or State protected is a relevant factor. (v) If the functions of the corporation are important public ~ctions and related to governmental functions it would be a relevant factor in clrutsi· tying the corporation as instrumentality or agency of the Government.

(vi) If a department of Government is transferred to a corporatioil:, it would be a strong factor supportive of the inference that it is an instrumen· tality of the State. [137E-H] (vii) Where the chemistry of the corporate body answers the test of State it comes within the definition of Article 12. [136Dl (viii) Whether the legal person is a corporation created by a statute, as distinguished from under a statute is not an fuiportant criterion although. it may be an indicium. [144H] Airport Authority [1979] 3 S. C. C. 489, UP Warehousing Corporation case (Managing Dir{! ctor, UJ>. W. arehousing Corpn. v. V. N. Vaipayee) [1980] 3 S. C. C. 459 & Sukhdev Singh v. Bhagatram [1975] 3 S. C. R. 619 referred to. Rajasthan Electricity Board v. Mohan Lal [1967] 3 S. C. R. 377, Sukhdev v. Bhagatram [1975] 3 S. C. R. 619, Praga Tool Corporation v. C. A. Immanuel [1969] 3 S. C. R. 773; Heavy Engineering Mazdoor Union v. State of Bihar [1969] 3 S. C. R. 995, S. L. Aggarwal v.

General Manager, Hindustan Steel Ltd. [1970] 3 S. C. R. 363 & Sabhajit Tewari v. Union of India [1975] 3 S. C. R. 616 distinguished. 3(a) Having regard to the directive in Article 38 and the amplitude. of the other articles in part IV Government may appropriately embark npon almost any activity which in a non-socialist republic may fall within ihe private sector. Any person's employment, entertainment, travel, rest and leisure, hospital facility and funeral service may be controlled by the State and if all these enterprises are executed through government companies, bureaus, societies, councils, institutes and homes, the citizen may forfeit his fundamental freedoms vis a _vis these strange beings which are government in fact but corporate in form.

If only fundamental rights were forbidden access to corporations, companies, bureaus, institutes, councils a~ kindred II bodies which act as agencies of the administration there may be a breakdown of the nile of law and the constitutional order in a large sector of governmental activity carried on under the guise of 'jural persons'. It may - - .. _.... pave the way for a new tyranny by arbitrary administrators operated from behind by Government but unaccountable to part Ill of the Constitution. The Court caunot assent to an interpretation which leads to such a disastrous conclusion unless the language of Article 12 offers no other alternative. [147C-F] (b) It is dangerous to exonerate corporations from the need to have constitutional conscience; and so that interpretation, language permitting, which makes governmental agencies, whatev'er their mein, an1enable to constitutional !

imitations must be adopted by the court as against the alternative of permitting them to :flourish as an imperium in imperio. [148A-B} (c) The common-sense signification of the expression "other authorities under the control of the Government of India" is plain and there is no reason to make exclusions on sophisticated grounds such as that the legal person must be a statutory corporation, must have power to make laws, must be created by and not under a statute and so on. [148C] 4(a) It is clear from section II} which relates to the provident fund, pension, welfare fund and the like that the second respondent has made provision for the 1ights and interests of the beneficiaries of the trust establish· ed by Burmah Shell tfor the benefit of persons employed by it. Sub-section (1) puts this matter beyond doubt. This obligation of the second respondent is a statutory one and having regard to the provisions of section 11, it cannot be affected by any instrument or decree or order.

The stautory continuation of a pre-existing liability tO pay pension, provident fund or gratuity, cannot ~ avoided having regard to section 10. [1500-E] (b) Assuming that regulation 16 authorities deduction and that discretionary payments, although enjoyed by the employees are liable to be stopped section 12 of the Provident Fund Act forbids any such reduction or deduction out of the benefits in the nature of old age pension on the score of the payment of contribution to the provident fund. The benignant provision con~ tained in section 12 must receive a benignant construction and even if l~·o interpretations are permissible, that which furthers the beneficial object should be preferred. From that perspective the inference is reasonable that the total quantum of benefits in the riature of old age pension, gratuity or provi· dent fUnd, shall not be reduced by reason only of the liability of the employer for payment of contribution to the fund. The section prevails over the trust deed.

The provident fund accrues by statutory force and section 12 overrides any agreement authorising deductions. The expression 'instrument' contained in section 15 covers a trust deed and notwithstanding the deduction that may be sanctioned by the trust deed, the overriding effect of section 14 preserves the pension and immunises it against any deduction attributable to the statutory payment of the provident fund. The deduction made by the second respondent is in that event illeglll. [151A-H] (c) If regulation 16 is a provision which imposes a cut in certain eventualities it is possible to hold that the employee has a certain pensionary right. But if he draws provident fund or gratuity that pension will be pared dowo by a separate rule of deduction from the pension.

It follows that there is no straining of the language of the regulations to meao, firstly, a right to pension quantified ip: certain: manner and, secondly, a right in the Management to make deduction from out of that pension if other retiral benefits are drawo by the employee, That appears to be the pension scheme. SOM PRAKASH REKH! V. UNION If this be correct, there is 110 substance in the argument that t11e pension i1seJt is automatically reduced into a smaller scale of pension on the drawal of provjdent fund or gratuity. Pension is one thing, deduction is another. The latter is independent of pension and operates on the pension to amputate it, as it were. If a law forbids such cut or amputation the pension remains intact. [152B-D] (d) The payment of gratuity or provident fund should not occasion any deduction from the pension as a "set~off''. Otherwise, the solemn statutory provisions ensuring provident fund and gratuity become illusory.

Pensions are paid out of regard for past meritorious services. The root of gratuity and the foundation of provident fund are different. Each one is a salutaiy benefaction statutorily guaranteed independently of the other. Even assuming y , that by private treaty parties had otherwise agreed to deductions b . Each and every provision 3how3 in no uncertain temu that th6 voice is of the Central Gov~rnment al'ld the hand3 art1 alw of the Central Government. Xll Th~e provisions of the InduMrilll . Pinanee Corporation Act show th&t the Corporfttion i3 in •D•ct managtd and controlled by the Cmtral Gover11m«nt. (emphasis added) TlY italicised portion pithily rums up the meat rA. the matter. It the voice is of the Government and so also the hands, the face will not • hide the soul. There is nothing in this judgment which goes against a government company being regarded as 'State'.

On the contrary, th• thrust of the logic and the generality of the law are far from rllltrictive and apply to all bodiea which fill the bill. Mathew, J. is more pootivo in hi11 conception c1' ·~tate' undet. Art. 12 : (') (I) [1975] 3 SCR. 619 at 635. (2) Ibid. 639 and 641. (3) Sukhdev v. B/wgatram [l91Sj 3 SC! l 619 al 64-4-45. The concept of State has undergone drastic changes in recent years. Today State cannot be conceived of simply as a coercive machinery wielding the thunderbolt of autho· rity. It has to be viewed mainly as a service corporation. "If we clearly grasp the character of the state as a social agent, under>tanding it ratioillally as a form of service and not mystically as an ultimate power, we shall differ ' only in respect of the limits of its ability to render service. " (sec Mac Iver, "The Modem State" 183). xx xx xx A state is an abstruct entity. It can only act through the instrumentality or agency of natural or judicial persons.

Therefore, there is nothing strange in the notion of the state acting through a corporation and making it an agency or instrumentality of the State..... . The tasks of government multiplied with the advent of o· the welfare state and consequently, the framework of civil service administration became increasingly insufficient for handling the new tasks which were often of a specialised and highly technical character. At the same time, 'bureaucracy' came under a cloud. The district of government by civil service, justified or not, was a powerful factor in the development of a policy of public administration through separate corporation which would operate largely according to husiness principles and be separately accountable. The public corporation, therefore, became a third arm of the Government. In Great Britain, the conduct of basic industries through giant corporation is now a pennanent feature of public life.

The Indian situation is an a fortiori case, what with Part IV of the )- Constitution and the Government of India Resolution on Industrial policy of 1956 ? (') Accordingly, the State will progressively assume a predominant and direct responsibility for setting up new industrial undertakings and for developing transport facilities. It will also undertake State trading on an increasing scale. Oi course, mere State aid to a company will not make its actions 2 State actions. Mathew, J. leaned to the view that : ( ) I. Sukhdev v. Bha~atram [1975] 3 SCR 619 at 646. 2. ! bide 650. SOM PRAKASH REKHI v. UNION (Krishna ! ya. J. ) 14 3 .... State financial support plus an unusual degree oi control over the management and policies might lead one to characterise an operation as state action. Indeed, the learned Judge went much farther : (') Another factor which might be considered is whether the operation is an important public function.

The combination of state aid and the furnishing of an important public service may result in a conclusion that the operation should be classified as a state agency. If a given function is of such public importance and so clooely related to governmental functions as to be classified as a governmental agency, then even the presence or absence of state financial aid might be irrelevant in making a finding of state action. If the function does not fall within such a description, then mere addition of state money would not influence the conclusion. It must be notic"-d that the emph~sis is on functionality plus State control rather on the statutory character of the Corporation : (') Institutions engaged in matters of high public interest or ·performing public functions are by virtue of the nature of the function perj'ormed government agencies. Activities which are too fundamental to the society are by definition too important not to be considered government functions.

We may read the ratio from the judgment of Mathew, J. where he says : (') It is clear from the provisions that the Central Government has contributed the original capital of the Corporation, that part of the profit of the Corporation goes to that Government, that the Central Government exercises control over the policy of the Corporation, that the Corporation carries on a business having great public importance and that it enjoys a monopoly in the business. I would draw the same conclusions from the relevant provisions of the Industrial Finance Corporation Act wh;ch have also been referred to in the aforesaid judgment. In these circumstances, I think, these corporations are agencies or instrumentalities of the 'State' and are, therefore, 'State' within the meaning· of Article 12. The fact that these corporations have independent personalities in the eye of (I) Ibid 650. (2) [1975] 3 SCR 619 at 651. (3) Ibid 653-55. law does not mean that they are not subject to the control.

of government or that they are not instrumentalities of the government. These corporatiom are instrumentalities or agencies of the State for carrying on businesses which otherwise would have been run by the State departmentally. If the state had chosen to carry on these businesses through the medium of gove=ent departments, there would have been no question that actions of these department. would be 'state action1<'. Why then should tho actions be not state actions ? xx xx xx .. merely because a corporation has legal personality ol' its own, it does not follow that the corporation cannot be an agent or instrumentality of the state, if it is subject to control of government in all important matters of policy. No doubt, there might be scme distinction between the nature of control exercised by principal ovrr agent and the control exercised by government over public corporation. That, I think is only a distinction in deg;ee.

The crux of the matter is that public corporation is a new typo or Institution which has sprung from the new social and economic functions of government and that it therefore does n. )t neatly fit into old legal categories. lnstead c:A. forcing it into them, the later should be adapted to the needs of changing times and conilitibn~. There is nothing in these observations to confine tho concopt of State to statutory corporations. Nay, the tests are common to any agency or instrumenllllity, the key factor being the brooding pre1ence of the State behind the operation of the body, statutory or other. • A study of Sukhdev's case(') (a Constitution Bench decision of this Court) yields the clear result that the preponderant cooside!

'ations for pronouncing an entity as State agency or instrumentality are financial re<ources of the State being the chief funding source, functional character being governmental in essence, plenary control residing in Government, prior history of the same activity having been carried on by Government and made over to the new body and iODle element of authority or command. Whether the legal person is a corporation created by a statnte, as distinguished from under a statute, is not an important criterion although it may be an indicium. Applying (1) [1975] 3 SCR 619. SOM PRAKASH Rl! KHI v. UNION' (Krishnllj Iyer, J. )i 145 the constellation of criteria collected by us from Airport Authority,(') on a cumulative basis, to the given case, there is enough material to hold that the Bharat Petroleum Corporation is 'State' within the enlarged meaning of Art. 12. The Rajasthan Electricity Board case(') (the majority judgment of Bbargava, J. ) is perfectly compatible with the view we take oil An.

12 or has been expressed in Sukhdev(') and the Airport Authority('). 'The ! ihort question that fell for decision was as o whether the Elactricity Board was 'State'. There was no debate, no discUS&ion ~·and no decision on the issne of excluding from th~ area of 'State', under Art. 12, units incorporated under a statute as against thOie created by a statute. On the other hand, the controversy w8S over the exclusion from the definition of State in Art. 12 corporations e11g11ged in commercial activities. This plea for a narrow meaning waio negatived by Bhargava, J. and in that context the learned Judge explained the signification of "other authorities" in Art. 12 :(') The meaning of the word "authority" given in Webster's Third New International Dictionary, which can be applicable, is "a public administrative agency or corporation having quasi-govermnental powers and authorised to administer a revenue-producing public enterprise.

" This diclionary meaning of the word "authority" is clearly wide enough to include all bodies created by a statute on which powers are conferred to carry out governmental or quasigovernmental functions. The expression "other authorities" is wide enough to include within it every authority created by a statute and functioning within the territory of India, or under the control of the Government df ;India; and we do not see any reason to narrow down this meaning in the context in which the words "other authorities" are used in Art. 12 of the Constitution. xx xx xx These decisions of the Court support our view that the expression "other authorities" in Art. 12 will include all constitutional on statutory authorities on whom powers conferred may be for the purpose of carrying on commercial activities. Under the Constitution, the State is itself envisaged as having the right to carry on trade or business as (ll [1979J 3 sec 489. (2) [1967] 3 SCR 377 at 385-86. (3) [1975] 3 SCR 619.

(4) [1979] 3 SCR 489. mentioned in Art. 19(1}(g). In Part IV, the State has been given the same meaning as in Art. 12 and one of the Directive Principles laid down in Art. 46 is that the State shall promote with special care the educational and economic interests of the weaker sections of the people. The State, ' as defined in Art. 12, is thus comprehended to include bodies created for the purpose <Jf promoting the educational and economic interests of the people. The State, as constituted [Jy our Constitution, is further specifically empowered under Art. 298 to carry on any trade or business. The circumstance that the Board under the Electricity Supply Act is required to carry on some activities of the nature of trade or commerce does not, therefore, give any indication that the Board must be excluded from the scope of the word "State as used in Art. 12. The meaning of the learned judge is unmistakable that "the State" in Art.

12 comprehends bodies created for the purpose of promoting economic activities. These bodies may be statutory corporations, registered societies, government companies or other like entities. The court was not called upon to consider this latter aspect, but to the extent to which the holding goes, it supports the stand of the petitioners. We are not disposed to discuss more cases because two constitution benches and two smaller benches have already pronounced on the amplitude of "other authorities" in Art. 12. Even so, a passing reference may be made to a few more cases. In Praga Tools Corporation v. Immanuel(') this court was called upon to consider the enforceability of two industrial settlements against the management which was a company with substantial share-holding for the Union .. ,. Government and the Government of Andhra Pradesh. There was no spedlic reference to Art.

12 as such although it was mentioned early in the judgment that the company was a separate legal entity and could not be said to be "either a governnient corporation or an industry run by or under the authority of the Union Government. " It must be noticed that 12% shares in the company were held by private individuals and nothing more is known about the plenary control by Government and other features we have referred to earlier in this judgment. On the other hand, the short passage, part of which we have extracted, almost suggests that a government corporation may stand on a different footing from Praga Tools Corporation (supra). If so, it supports the view we have taken. The Hindustan (I) [1969] 3 SCR 773. SOM PRAKASH REKH! v. UNION (Krishna Tyer, J. ) 147 Steel case(') which was cited at the bar, considered the question as to whether an employee of that company was holding a post under the Union or a State so as to claim the protection of Art. 311.

This claim was negatived, if we may say so, rightly. In the present case, Art. 12 is in issue and not Art. 311 and, therefore, that citation is an act of superero'gation. The Vaish College case(") which too was referred, related to the status of the managing committee of a college and the enforceability of the contractual rights of a teacher by writ under Art. 226. That problem is extraneous to our case and need not detain us. Imagine the possible result of holding that a government company, being just an entity created under a statute, not by a statute, it is not 'State'. Having regard to the directive in Art. 38 and the amplitude of the other Articles in Part TV Government may appropriately embark upon almost any activity which in a non-socialist republic may faR within the private sector. Any person's employment, entertainment, travel, rest and leisure, hospital facility and funeral service may I} be controlled by the State.

And if all these enterprises are executed through government companies, bureaus, societies, councils, institutes and homes, the citizen may forfeit his fundamental freedoms vis-a-vi$ these strange beings which are government in fact but corporate in form. If only fundamental rights were forbidden access to corporations, companies, bnreaus, institutes, councils and kindred bodies which act as agencies of the Administration, there may be a breakdown of the role of law and the constitutional order in a large sector of governmental activity carried on under the guise of 'jural persons'. It may pave the way for a new tyranny by arbitrary administrators operated from behind by Government bnt unaccountable to Part III of the Constitution. We cannot assent to an inter-pretation which \ - leads to such a disastrous conclusion unless the language of Art. 12 offers no other alternative.

It is well known that "corporations have neither bodies to be kicked, nor souls to be damned" and Government corporations are mammoth organisations. If Part III of the Constitμtion is halted at G· the gates of corporations Justice Louis D. Brandeis's observation will be proved true : The main objection to the very large corporation is that it makes poss;ble-and in many cases makes inevitablcthe exercise of industrial absolutism. (I) S. L. Agarwal v. General Manager, Hindustan Steel Ltd. [1970] 3 SCR_363. (2) Vaish College v. Lakshmi Narain [1976] 2 SCR 1006. (1981] 2 S. C. R. It ii dangerou8 to exonerate corporations from the need to have constitutional conscience; and so, that interpretation, language permitting, which makes governmental agencies, whatever their mein, amenable to con£titutional limitations must be adopted by the court as against the alternative of permitting them to flourish as an imperium in imperio.

The common-sense signification of the expression "other authoritie11 under the control of the Government of India" is plain and there is no reason to make exclusions on sophisticated grounds such as that the legal person must be a statutory corpo~ation, must have power to make laws, must be created by and no! under a statute and so on. The jurisprudence of Third World countries cannot afford the luxury against which Salmond cavilled (') : Partly through the methods of its historical development, and partly through the influence of that love of subtlety which has always been the besetting sin of the legal mind onr law is filled with needless distinctions, which add enormously to its bulk and nothing to its value, while they render a great part of it unintelligible to any but the expert.

Having concluded the discussion on the amenability of the respondent-company to Part III we proceed to consider the merits of the ca£e on the footing that a writ will issue to correct the illegality if there be violation of Arts. 14 and 19 in the order deducting from the pension of the petitioner two sums of money mentioned right at the beginning. We may now proceed to consider the substantial questions raised by the petitioner to invalidate the deductions from his original pension }' on the ground of his drawal of provident fund and gratuity. The justification for such deduction is claimed to be regulation 16 and its antidote is urged to be a provision in the two respective enactments relating to provident fund and payment of gratuity, namely, ss. 12 and 14. The petitioner retired voluntarily under an extant voluntary retirement scheme. The quantum of pension was regulaJed by that scheme.

The petitioner was also a member of the statutory scheme framed within the scope of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 and was entitled to Provident Fund payment on retirement. Likewise, he was entitled to payment under the ,ff Gratuity Act, 1972. These vrere the statutory rights which he enjoyed. Being a non-contributory member of the Pension Fund of (I) Salmond, Jurisprudence, 10th Edn. p. 51. SOM PRAKASH REKHI v. UNION (Krishna ! ya, J. } U9 Burmah Shell under the Trust Deed set up by it, he earned his pension. But the Trust Deed contained many regulations. The normal annual pension under the regulations worked out to a sum of Rs. 165. 99 per month for the petitioner. Regulation 16 provided fqr certain "authorl$ed deductions" from the amount or pension of non-contributing members. The quantification of these deductions was provided for in the said regulation.

If these deductions were not to be made, the petitioner would be eligible for his pension of Rs. 165. 99 and Rs. 86 per month by way of Supplementary Retirement Benefits which, he awerted was a part of the pensionary benefits. This was being paid by the Burmah Shell to its employees and naturally this obligation devolved on the successor second respondent under the statutory rules framed in this behalf [Burmah Shell (Acquisition or Undertakings of India) (Administration of Fund) Rules, 1976]. But, by lotter dated August 10, 1973, the petitioner was informed that a sum of Rs. 56. 12 would be deducted as an 'authorised deduction' pursuant to reg. 16 mentioned above. The cause for this was the drawal of the provident fund amount. Likewise, when the gratuity was drawn by the petitioner, another letter dated October 24, 1973 was issued to him that there would be a further reduction of th\: pension.

When the petitioner complained to the appropriate authority that Burmah Shell was declining to pay the gratuity, a direction was issued to the management to pay the sum of gratuity due. Thereupon, a turther deduction of Rs. 68. 81 from the monthly pension of the petitioner was effected as an 'authorised deduction' under reg. 16(3). The diicretionary payment by way of retirement benefits, namely, R$. 86/- per month was also stopped, maybe because the petitioner litigatively withdrew gratuity and provident fund. The pitiable posit. ion was that the petitioner found himself with a miserable amount of Rs. 40. 06 per month, a consequence directly attributable to his r~ving provident fund and gratuity amounts. Of course, legality cannot be tested on the size of the sum and the court must examine . the merits de hors any sympathy. The petitioner's attempt to recover his full pension under s.

33C(2) of the Industrial Disputes Act failed since that jurisdiction was more than that of an executing court and there should be a substantive order creating the obligation before enforcement could follow. The liability for the payment of full pension was that of Burmah Shell, but, by virtue of ss. 3 and 4 of the Act, all the assets and liabilities vested in the Central Government and thereafter, in the second respondent. Section 10 of the Act relates to provident fund, . - ~,.... t ,,,. , superannuation, welfare fund and the like. Section 10(3) is. important : 10(3). The Government company in which the undertaking of Burmah Shell in India are directed to be vested shall, as soon as may be after the date of vesting, constitute.

in respect of the moneys and other assets which are transferred to, and vested in, it under this section, one or more trusts having objects as similar to the objects of the existing trusts as in the circumstances may be practicable, so, however, that the rights and interests of the beneficiaries of the ·trust referred to in sub-section (1) are not, in any way, prejudiced or diminished. (emphasis added)· Follow-up steps were accordingly taken and there is no quarrel over it. It is clear, therefore, that the second respondent has made provision for the rights and interests of the beneficiaries of the Trust established by Bunnah Shell for the benefit of the persons employed by it. Section 10(1) puts this matter beyond doubt. This obligation of the second respondent is a statutory one and having regard· to the provisions of s. 11, it cannot be affected by any instrument or decree or order.

The statutory continuation of a pre-existing liability to pay pension, provident fund or gratuity, cannot be avoided having regard to s. 10. Shri Pai contends that the very root of the claim to pension is the Trust Deed which is to be read integrally. Regulation 16 is part and parcel of the right to pension and cannot ·be divorced from reg. 13. Indeed, these regulations arc so intertwined that the "authorised deductions" are an inextricable part of the right to pension. If this j approach be correct and if there be no other legal prohibition in making the deductions, the conclusion is convincing that the quantum of pension must sustain the authorised deduction immediately provident fund and gratuity are drawn. The counter argument of Shri Parekh is that there is a statutory prohibition against any deduction from the pension if the ground is drawal of provident fund or gratuity amount.

In view of the statutory taboo he contends, that the deduction is unauthorised even if the contract or trust may provide so. So, the crucial question is whether there is. a statutory ban on any diminution in the pension because of provident fund and gratuity benefits having been availed of. The PF Act and the Gratuity Act contain certain protective provisions whose true import falls for construction· and is decisive of the point in dispute. SOM PRAKASH REKHI v. UNION (Krishna Iyer, ]. ) ' 151 Let us assume for a moment that reg, 16 authorises deductions and that discretionary payments, although enjoyed by the employees, is fotble to be stopped. The question is whether s. 12 of the PF Act forbids any such reduction or deduction out of the benefits in the nature of old age pension on the score of the payment of contribution to the provident fund. We may extract s. 12 here for, according to Shri Parekh, the language speaks for itself : 12.

No employer in relation to an establishment to which any scheme or the insurance scheme applies shall, by reason only of his liability for the payment of any contribution to the Fund or the Insurance Fund or any charges under this Act or the scheme, reduce, whether directly or indirectly, the wages of any employee to whom the scheme of the Insurance Scheme applies or the total quantum <Yf benefits in the nature of old age pension, gratuity, provident fund or Life Insurance to which the employee is entitled under the terms of his employment, express or implied. (emphasis addcdi; We take the view that this be;iignant provision must receive a benignant construction and, even if two interpretations are permissible, that which furthers the beneficial object should be preferred. From ..

that perspective, the inference is reasonable that the total quantum of benefits in the nature of old age ponsion, gratuity or provident fund, shall not be reduced by reason only of the liability of the employer for payment of contribution to the fund. The Section prevails over the Trust Deed. The provident fund accrues by statutory force and s. 12 override; any agreement authorising deductions, argues Shri Parekh. ' A similar result holds good even under the Gratuity Act. Section 14 of that Act reads thus : 14. The provisions of this Act or any rule made thereunder shall have effect notwithstanding anything inconsistent .. therewith contained in any enactment other than this Act or in any instrument or contract having effect by virtue of any enactment other than this Act. The expression "instrument" certainly covers a Trust Deed and, notwithstanding the deduction that may be sanctioned by the Trust Deed, the overriding effect of s.

14 preserves the pension and im-j inunises it against any deduction attributable to the statutory payment of the provident fund. The deduction made by the second respondent is, i'n that event, illegal. Shri Pai argues that no reduction of retiral benefit is ef! ected because the entitlement to pension under reg. 13 is itself conditioned by the clause for deduction and has no separate amplitude del hors the 'authorised deduction' spelt out in reg. 16 Let us examine theBC rival contentiom. If reg. 16 is a provision which imposes a cut in certain eventualities it is possible to ho1d that the employee has a certain pensionary right. But if he draws P. F. or gratuity that pension will be pared down by a separate rule of deduction from the pension.

It follows that there is no straining of the language of the regulations to mean, firstly, a right to pension quantified in certain manner and, secondly, a right in the Management to make deduction from out of that pension if other retiral benefits are drawn by the employee. That appears to be the pension scheme. If this be correct, there is no substance in the argume'nt that the pension itself is automatically reduced into a smaller scale of pension on the drawal of provident fund or gratuity. Pension is one thing, deduction is another. The latter is independent of pensio'n and operates on tht pension to amputate it, as it were. If a law forbids such cut or amputation the pension remains intact. The public policy behind the provisions of ss. 10. 12 and 14 of the respective statutes is clear.

We live in a welfare State, in a 'socialist' republic, under a Constitutio'n with profound concern for the weaker clasres including workers (Part IV) welfare benefits such as pensions, payment of provident fund and gratuity are in fulfilment of the Directive Principles. The payment of gratuity or providdlt fund should not occasion any deduction frdm the pension as a "se~ oft". Otherwise, the solemn statutory provisions ensuring provide11t fund and gratuity become illusory. Pensions are paid out of regard for past meritorious services. The root of gratuity and the foundation of provident fund are different. Each one is a salutary be'nefaetion statutorily guaranteed independently of the other. Evell assuming that by private treaty partie~ had ot~rwise agreed lo deductions before the coming into force of these beneficial enactments they cannot now be deprivatory. It is precisely to guard ..

against such mischief that the non-ob•tante and overriding μrovisiot\s are engrafted on these ~tatutes. We must realise that the pension scheme came into existence prior to the two beneficial statute11 and Parliament when enacting the~e Je~slations must have clearly intended extra benefits being conferred o'n employees. Such a conrequence will follow only if over and above the normal pension, the benefits of provident fund and gratuity are enjoyed. On the othe. r hand, it consequent on the receipt of o-:~~-~· _,_ SOM PRAKASH REKHI v. UNION (Krishna Iyer,/. ) 153 these benefits there is a proportionate reduction in the pension, there A. is 'no real benefit to the employee because the Management takes away by the left hand what it seems to confer by the right, maJcin& • the legislation itself left-handed. To hold that on receipt of gratuity 3nd provident fUnd the pension of the employe_e may be reduced pro tanto is to frustrate the supplementary character of the benefits.

Indeed, that is why by ss. 12 and 14 overriding effect is imparted and reduction in the retiral benefits on account of provident fund and gratuity derived by the employee is frowned upon. We, accordingly, hold that it is not open to the second respondent to deduct from the full pension any sum based upon reg. 16 read with reg. 13. If reg. 16 which now has acquired statutory flavour, havin& been adapted and continued by statutory rules, operates contrary to the provisions of the P. F. Act and the Gratuity Act, it must fail as invalid. We uphold the contention of the petitioner. The only point that survives turns on the stoppage of the discretionary supplementary pensionary benefit. What is discretionary depends on the discretion of the employer. But that power when exercised by an agency of government like the second respondent, must be based upon good faith and due care.

If as a measure of reprisal or provoked by the drawal of gratuity, or by resort to legal authorities, such supplementary benefit is struck off, it will cease to be bona fide or valid. We have no material to hold that the second respondent has independently considered this matter and so we direct that if the petitioner moves the second respondent stating his case for the continuance of the supplementary benefit, it will be considered on it~ merits uninlluences by extraneous factors. We do not think it right or necessary to issue any further direction. We hold that the petitioner is entitled to his full pension. of Re. 165. 99. We further hold that, on appropriate representation by him, the second respondent shall consider the grant or stoppage of the supplementary pensionary benefit on its merits. The petition is allowed with costs which we quantify at Rs. 2,000/- Shri Parekh representa that this sum may be directed to be paid to the Legal Aid Society in the Supreme Court.

We appreciate this gesture of counsel and direct the Registry to act accordingly. • • Social justice is the conscience of our Constitution, the State is the promoter of economic justice, the founding faith which sustains the Constitution and the country is I'ndian humanity. The public sector is a model employer with a social conscience not an artificial person without soul to be damned or body to be burnt. The stance that, by deductions and discretionary withholdini of payment, a public 1ector 154 SUPREl\fE COURT REPORTS [1981] 2 S. C. R. company may reduce an old man's pension to Rs. 40/- from Rs. 250/- is unjust, even if it be assumed to be legal. Law and justice must be on talking terms and what matters under our constitutional • scheme is not merciless law but humane legality. The true strength and stability of our polity is society's credibility in social justice, not perfect legalise; and this case does disclo'se indifference to this fundameulal vaJue. We are aware that, Shri G.

B. Pai, for the Management, did urge that 'principle' was involved and that settlements had been reached between Labour and Management on many issues. We do appreciate the successful exercises of the Management in reaching just settlements with its employees but wonder whether the highest principle of our constitutional culture is not empathy with every little individual. PATHAK, J. --I must confess to some hesitation in accepting ·~~ proposition that the Bharat Petroleum Corporation Limited is a "Srnte" within the meaning of Art. 12 of the Constitution. But in view of the direction taken by the law in this Court since Ramana Dayaram Shelly v. l11ter11atio11al Airport Authority(') I find I must lean in favour of that co'nclusion. I would have welcomed a wider range of debate before us on the fundamental principles involved in the issue and on the implications flowing from the definition ;" '. he Companies Act, 1956 of a "Government Company", but perhaps a future case may provide that.

As regards the Bunnah Shell (Acquisition of Undertakin~ in India) Act, 1976 I am unable to see any support for the proposition in the provisions of that Act. The provisions will apply to any Government ('ompany, and they do not alter the basic nature of that company. They are provisions which could well have been applied to a private corporation, if the Act had selected one for vesting the undertaking in it. Would that have made the private corporation a "Statei' ? On the merits of the petitioner's claim I need say no more than t;tiat l agree with my learned brothers that the petitioner should be granted the relief proposed by them. ' l'. B. R. Petition <11lowcd. • (I) fl979] 3 S. C. R. 489.