JUDGMENT (Per : HONOURABLE THE CHIEF JUSTICE MR. S.J. MUKHOPADHAYA) The only question that arises in these cases is whether `Gujarat State Fertilizers and Chemicals Limited' and ` Narmada Valley Fertilizers Company Limited' are `State' within the meaning of Article 12 of the Constitution of I A Division Bench of this Court in Gujarat State Fertilizers Company Ltd. Vs. Association of Officers, G reported in 1995(2) GLH 179 answered the question in negative, and held that Gujarat State Fertilizers Company not a `State' within the meaning of Article 12 and not performing any public duty or function. Learned counsel parties brought to the notice of the Court a Government Circular dated 14th March 2008 bringing the af Companies within the ambit of State Public Sector Undertakings. Therefore, the question has been referred to the Bench to determine whether the Division Bench in Gujarat State Fertilizers Company Ltd. Vs. Associa Officers, G.S.F.C. reported in 1995(2) GLH 179 laid down a correct law or not. 2. For determining the issue, it is relevant to notice certain facts, majority of which were noticed by the Division in the earlier judgment. Gujarat State Fertilizers and Chemicals Limited (hereinafter referred to as `G.S.F.C.' fo was created as a Company under the Companies Act, 1956 (hereinafter referred to as `the Companies Act' for When the earlier case was decided, the Court noticed that as on 16th May 1985, following percentage of shar available with different shareholders: (i) The Governor of Gujarat 49.2% (ii) IDBI, LIC 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 Cooperative Banks and Societies 18.44% 3. Subsequently, as on 4th July 1992, the shareholding of the Governor of Gujarat had come down and it was as fo (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 Company are listed in the Bombay Stock Exchange and are regularly quoted, and frequent transactions in shar place. It is in this background, Division Bench in the earlier case Gujarat State Fertilizers Company Ltd. rejected the contention that major portion of the shareholding is controlled by the Government. 4. The shares Company are listed in the Bombay Stock Exchange and are regularly quoted, and frequent transactions in shar place. It is in this background, Division Bench in the earlier case Gujarat State Fertilizers Company Ltd. rejected the contention that major portion of the shareholding is controlled by the Government. 4. The Division Bench noticed the test laid down by Supreme Court in R.D. Shetty Vs. The International A Authority of India reported in AIR 1979 SC 1628 and Ajay Hasia Vs. Khalid Mujib reported in AIR 1981 S The following factors were culled out for determination whether the Company (G.S.F.C.) can be said to 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 indicat 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 Co 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 Vs. Union of India rep AIR 1981 SC 212 and Tekraj Vasandi alia, K.L. Basandhi vs. Union of India reported in AIR 1988 SC Tekraj Vasandi alia, K.L. Basandhi (supra) Supreme Court was examining whether Institute of Constitutio Parliamentary Studies registered under the Societies Registration Act could be regarded as an agency or instrum of the `State' so as to come within the purview of `State' under Article 12 of the Constitution. The other dec Supreme Court in Rajasthan State Electricity Board, Jaipur v. Mohan Lal reported in AIR 1967 SC 1857 w noticed. It is not necessary to refer to the rest of the decisions as was noticed by the Division Bench, includ Supreme Court decision in L.I.C. vs. Escorts Ltd. reported in AIR 1986 SC 1370 . 5. The other dec Supreme Court in Rajasthan State Electricity Board, Jaipur v. Mohan Lal reported in AIR 1967 SC 1857 w noticed. It is not necessary to refer to the rest of the decisions as was noticed by the Division Bench, includ Supreme Court decision in L.I.C. vs. Escorts Ltd. reported in AIR 1986 SC 1370 . 5. The Division Bench observed that except certain percentage of shares being purchased by the Government of and the Gujarat Industrial Investment Corporation, there is no other financial assistance given by the State Company, the Company has no monopoly status in manufacturing of fertilizer, which was also not the monopoly `State', fertilizer is also being manufactured by private sector companies in India apart from public sector under and `State' has no monopoly in respect thereof, there was no pervasive `State' control over the Company. Thoug part of the shares were held by the Government of Gujarat and Gujarat Industrial Investment Corporation, there other control except presence of its Directors at the time of voting for electing independent persons as Direc Gujarat Industrial Investment Corporation sells its shares, it will have no part to play even in the matter of election Director to the Board. 6. Following were the Directors of the Board when the Division Bench decided the case: "1. Shri Jaykrishna Harivallabhdas, Chairman (Nominated by the Government of Gujarat), Industrialist. 2. Shri Arvind N. Mafatlal, Industrialist. 3. Shri H.M. Patel, L.C.S. (retired). 4. Shri Arvind N. Lalbhai, Industrialist. 5. Shri R.B. Amin, Industrialist. 6. Shri T.K. Patel, Member of Parliament and Chairman, Gujarat State Co-operative Marketing Society Limited. 7. Shri Rohit C. Mehta, Industrialist 8. Shri F.N. Rana, IAS (retired). 9. Shri L.R. Dalal, ICS, Chief Secretary to the Government of Gujarat). 10. Shri M.D. Rajpal, LAS, Additional Chief Secretary to the Government of Gujarat. 11. Dr. S.K. Subramanian, (Nominated by the Industrial Development Bank of India). 12. Shri F.J. Heredia, LAS, Managing Director, (Nominated by the Government of Gujarat)." 7. Out of the aforesaid nominees, persons at Sr. Nos. 1, 9, 10 and 12 were nominees of Government of Gujarat, Director at Sr.No.11 was the nominee of the Industrial Development Bank of India. The other Directors were e persons in their own right. 12. Shri F.J. Heredia, LAS, Managing Director, (Nominated by the Government of Gujarat)." 7. Out of the aforesaid nominees, persons at Sr. Nos. 1, 9, 10 and 12 were nominees of Government of Gujarat, Director at Sr.No.11 was the nominee of the Industrial Development Bank of India. The other Directors were e persons in their own right. Even persons nominated by the Government of Gujarat and its Chairman are industria 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 Comp Division Bench came to a definite conclusion that the Company is not a `State' within the meaning of Article 1 Constitution. 8. The Government Circular dated 14th March 2008, which was referred by the parties, due to which this Court the matter to Larger Bench, relates to requirement of prior approval of the Government in certain matter by t 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) Sachivaiaya, Gandhinagar Dated 14-03-2008 Read: 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 obtain approval of the Government for various activities/matters by the State Public Sector Enterprises (PSEs). As the e scenario of the country, as also the environment in which PSEs are working, has changed considerably over the ye to enable Government to effectively monitor the working of the PSEs in order to fulfill its development and objectives, the issue of obtaining prior approval of the Government for some additional matters/activities by the sta as also to modify the existing instructions in some aspects, was under the consideration of Government. Afte consideration, and in supersession of the instructions contained in the-. Circular referred to in the preambl 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 obt the State Public Sector Undertakings (Boards, Corporations, Companies etc.) for the following matters/ activities:- Corporate Affairs 1. Amendment in the Memorandum of Association or Articles of Association; 2. Amendment in the Memorandum of Association or Articles of Association; 2. 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 D in case of companies totally owned by the State Government. But in PSEs not entirely owned by government, the app of Directors is done by the shareholders. In such case, the prior approval of the government should be obtaine selection of the Directors. In case a Memorandum of Understanding or Shareholders' Agreement entered into b authorizes it to appoint Directors, approval of the Government should be obtained before doing so. Prior approv Government should also be obtained by PSEs when appointing Directors in their subsidiary companies. Economy & Finance 3. If the PSE is signing a new Memorandum of Understanding (MOU) or Shareholders' Agreement (SHA) or making am in an existing one, then Government approval must be taken after it is signed but before a formal legal agreement is into, if there is any financial implication as a result of the MOU or SHA. 4. Incurring .capital expenditure on new projects, modernization, diversification, etc. in excess of Rs.100 crore, or equal PSE's net worth, whichever is lower. 5. Establishing new Companies in the public sector or joint/associate sector, joint ventures, subsidiaries and Special Pu Vehicles (SPV) in India, where the equity investment of the PSE is in excess of Rs.100 crore in any one project, or exc of the net worth of the PSE in any one project, or exceeds 15% of the net worth of the PSE in all joint ventures/suo put together. Establishing of new Companies/joint ventures/subsidiaries/SPV Abroad and opening of offices Abroa require the prior approval of Government in all cases, irrespective of the amount involved. 6. Entering into technology joint ventures, strategic alliances and obtaining technology and know-how by purchase or o arrangement, subject to Government guidelines as may be issued from time to time. 7. Disinvestment of any nature leading to reduction in shareholding either in the PSE or in its subsidiary, whether such subsidiary is in India or outside; Performance Related 8. Quarterly results should be sent to Government in the standard prescribed format, if any. However, the. results will no require prior approval of Government. 9. 7. Disinvestment of any nature leading to reduction in shareholding either in the PSE or in its subsidiary, whether such subsidiary is in India or outside; Performance Related 8. Quarterly results should be sent to Government in the standard prescribed format, if any. However, the. results will no require prior approval of Government. 9. Declaration of dividend where the PSE has defaulted in the payment/ repayment of loans/interest. Personnel Related 10. Changes in the pay scale or service conditions of employees, where such changes are not within the guidelines of the Government, and overall modification in the pay scales of employees; 11. Paying bonus or any ex-gratia sum in lieu of bonus, where such payment is not in accordance with Government Guide Instructions; 12. Matters concerning public policy of the state or concerning National Security; 13. Any proposal which is not • in accordance with general or specific instructions of the Government; 14. Matters in which approval of Government is legally required. Policy Related Since the ultimate responsibility of companies that are subsidiaries to a PSE rests on Government and such subs also a public sector enterprise, it is resolved that the above instructions shall apply in equal measure to all subsid State PSEs and such subsidiaries will also be required to obtain the prior approval of Government in all th mentioned matters/activities. It shall be the responsibility of the Government nominees on the Board of Directors of PSEs to support the po Government and to immediately draw Government's attention to any deviation in Board decisions, either in financ or in transparency, from the existing policies or instructions of Government. All the concerned officers of all administrative departments and Public Sector Enterprises are directed to strictly fo above-mentioned instructions. By order and' in the name of the Governor of Gujarat, Arvind Agarwal Secretary, Finance Depa From the aforesaid Circular, it will be evident that it relates to Public Sector Undertaking and the Companies in qu 9. According to the Respondent-G.S.F.C., it does not perform any function partaking the nature of public duties o action. The constitution of the Company clearly goes to show that it is not a Government Company as define Sec.617 of the Companies Act, 1956. Thus, in absence of any such relevant facts and materials, the writ petitio maintainable. According to the Respondent-G.S.F.C., it does not perform any function partaking the nature of public duties o action. The constitution of the Company clearly goes to show that it is not a Government Company as define Sec.617 of the Companies Act, 1956. Thus, in absence of any such relevant facts and materials, the writ petitio maintainable. Counsel for the Respondent-G.S.F.C. referred to Article 140 of the Articles of Association of the Company provides that the Government will be entitled to nominate one-third of the Directors only (presently 2 Directors o and one of whom would be Chairman. He would submit that petitioners are not correct in creating a picture as Directors are appointed by the State Government. Two-third Directors are appointed on the Board of Director holding of equity shares, and except nominating some of the Directors, `State' has no other role to play. 10. It was submitted that after the Division Bench judgment, the shareholding pattern of the Company has unde sea-change, and the holding of Government of Gujarat has come to `zero' percent. The Government of Gujarat d exercise any power, control or authority over the management of the business and affairs of the Company. G.S autonomous in deciding its own affairs. It is neither financially nor administratively dominated by or under the co the State Government. A copy of the shareholding pattern as on 30.06.2009 has been enclosed, which is repr hereunder: 11. Learned counsel for the petitioner would contend that the State Government by Circular dated 14th March 2 now taken control over the Boards, Corporations, Companies, etc. but the Circular as quoted above will show th Government has no direct control over the Company. There is nothing on record to come to a different conclusio than that as held by the Division Bench pursuant to different decisions of the Supreme Court as referred to above background, it will not be desirable to refer to any further decisions of Supreme Court or other Courts in abs anything on record to differ with the finding. 12. On hearing the parties, we come to the following conclusions so far as Gujarat State Fertilizers and Ch Limited:- (i) The Company has been constituted under the Companies Act and not by any Act of the Legislature. (ii) The `State' has no role in the matter of functioning of the Company. 12. On hearing the parties, we come to the following conclusions so far as Gujarat State Fertilizers and Ch Limited:- (i) The Company has been constituted under the Companies Act and not by any Act of the Legislature. (ii) The `State' has no role in the matter of functioning of the Company. It does not exercise any financial, funct administrative control over the Company, much less an unusual degree of control over the managem policies of the Company. (iii) Acquisition of shares and other matters pertaining to management and affairs of the Company are governe the Act. (iv) Terms and conditions of service of employees of the Company are governed by providing negotiations and undertaking, like any other private contract between employer and employee, and there are no statutory regulations framed by the `State' laying down the conditions of service of the employees of the Company. (v) The State Government does not hold any shares in the Company. (vi) The `State' nominates only two Directors, who are industrialists; rest of the Directors, who are in major nominated by others. (vii) The business and other activities of the Company are purely of commercial nature, which neither perfor public function nor public duty. It does not carry on its business for the benefit of the public. Thus, the cumulative factors together show that Gujarat State Fertilizers and Chemicals Limited is not an instrum of the `State'. 13. The writ petition - Special Civil Application No. 4263 of 2009 was filed by the petitioner challenging the orde 31st March 2009 passed by the Gujarat Narmada Valley Fertilizers Company Limited (hereinafter referred to respondent-Company'). By the said letter, the contract of employment of the petitioner as General Manager h concluded and he has been relieved from the post. 14. The respondent-Company has raised the question of maintainability of the petition on the ground that it i `State' within the meaning of Article 12 of the Constitution, and, therefore, the writ petition under Article 226 Constitution is not maintainable. 15. Apart from Gujarat State Investment Limited, Gujarat State Fertilizers and Chemicals Limited holds good num shares of the respondent-Company. Two cases of the Gujarat State Fertilizers and Chemicals Limited havin referred to the Larger Bench, along with them, this case has also been referred to the Larger Bench. 16. 15. Apart from Gujarat State Investment Limited, Gujarat State Fertilizers and Chemicals Limited holds good num shares of the respondent-Company. Two cases of the Gujarat State Fertilizers and Chemicals Limited havin referred to the Larger Bench, along with them, this case has also been referred to the Larger Bench. 16. Gujarat Narmada Valley Fertilizers Company Limited (`G.N.F.C.' for short) was incorporated on 10th May 19 promoted by G.S.F.C. along with others. It is a Public Limited Company. There is nothing on the record to show t a wholly owned undertaking of the Government of Gujarat or a Government Company as defined under Sec.617 Companies Act. The respondents have taken the plea that it is not a `State' or instrumentality of the `State' or `au within the meaning of Article 12 of the Constitution of India. 17. Theshares of the G.N.F.C. are listed at Bombay Stock Exchange and National Stock Exchange and are traded. According to the respondent-Company, the investment by Gujarat Sate Investment Limited is to the 21.38% in the share capital of the respondent-Company. The current shareholding pattern of the respondent-Co has been enclosed at Annexure R-1 wherein the shareholding pattern as on 31st July 2010 has been shown as unde "GUJARAT NARMADA VALLEY FERTILIZERS COMPANY LIMITED. P.O: NARMADANAGAR, DIST.: BHARUCH-392015 Gujarat High Court Case Information System Page 14 of 20 18. The Memorandum and Articles of Association of the G.N.F.C. has been enclosed at Annexure R-2, which that the respondent-Company can carry on in India and in any part of the world, the business of processing, con producing, manufacturing, formulating, using, buying, acquiring, storing, packaging, selling, transporting, distr importing, exporting and disposing of all types of fertilizers, chemicals, heavy chemicals, acids, alkalies, agro-ch and their by-products, derivatives and mixtures thereof, maintaining and rendering assistance and services of every kind of any description for selling, exchanging, altering, improving and dealing in artificial and other fer heavy chemicals, agro-chemicals and their by-products of every description, whether required for civil, comme military defence purposes and requirements or otherwise. It also deals with petrochemicals, plastics, me melamine, etc. It also deals with petrochemicals, plastics, me melamine, etc. The objects incidental or ancillary to the attainment of the main objects include purchase, take o mortgage or in exchange hire or otherwise acquire any movable or immoveable property and any rights or pri which the Company may think necessary apart from other objects, like carrying on business of consultants and a manufacture, import, export, etc. The following persons subscribed and formed into a Company in pursuance Memorandum of Association at the initial stage: Dated this 21st day of April, 1976 19. It appears that some confusion has taken place because of the letter dated 4th November 2008 issued by Bu Public Enterprises, Finance Department, Government of Gujarat in continuation of earlier letter dated 14th Marc Therein, requirement of prior approval of Government by the State Public Sector Enterprises, as mentioned in the letter dated 14th March 2008, was clarified. It is relevant to notice the letter dated 4th November 2008, which h relied upon by the counsel for the petitioners, which is quoted hereunder: "GOVERNMENT OF GUJARAT Bureau of Public Ente Finance Depa Block No.4, 8th Sardar B Gandhinagar 3 No. JNV-1007-FM4-4-A (p 4th Novemb To Chairman & Managing Director Gujarat Narmada Valley Fertilizers Co. Ltd. P.O. Narmadanagar 392 015 Dist. Bharuch Managing Director Gujarat State Fertilizers & Chemicals Ltd. P.O. Fertilizer Nagar Vadodara 391750 Managing Director Gujarat Alkalies & Chemicals PO Petrochemicals Vadodara 391346 Managing Director Gujarat Industrial Power Company Petrochemicals P.O. Vadodara 391346 Sub: Requirement of prior approval of Government by the State Public Sector Enterprises- Ref: G.R.F.D.No.JNV-1007-FM4-A(BPE)dated 14/3/2008 Sir/Madam, The State Government has issued a Government Resolution No. JNV-1007-FM4-A (BPE) dated 14/3/2008 (copy enclosed) that prior approval of Government should be taken on certain issues by the State public Sector Enterprises. An issue has ari whether the G.R. is applicable to the joint sector companies, ie. Gujarat Narmada Valley Fertilizer Company Ltd., Guja Fertilizers & Chemicals Ltd., Gujarat Alkalies & Chemicals Ltd., and Gujarat Industrial Power Company Ltd. The is examined by the State Government. An issue has ari whether the G.R. is applicable to the joint sector companies, ie. Gujarat Narmada Valley Fertilizer Company Ltd., Guja Fertilizers & Chemicals Ltd., Gujarat Alkalies & Chemicals Ltd., and Gujarat Industrial Power Company Ltd. The is examined by the State Government. The Government is of the opinion that since the State Government has invested substanti fund in these companies, either directly or through other companies/boards/corporations controlled by the Government, a Government provides the services of very senior administrative officers to these companies on deputation, it is expected t companies should manage their affairs keeping in mind the broad objectives of the Government in setting up the PSEs., ie development and progress of the State and for the betterment and well being of the people. With a view to achieve these ob the senior Government officers posted in these companies as Managing Directors are expected to obtain prior approv Government on the matters contained in the G.R. dated 14/3/2008, before putting up such matters to the Board of decision. words, the Managing Directors of these companies should put up the matter covered in the G.R. dated 14/3/2008 to their r Board of Directors only after obtaining approval of the State Government. It is requested that the above mentioned instructions should be implemented strictly. Yours fa (Arvind A Commissioner ( Secretary, Finance Depa 20. Learned counsel for the petitioners would contend that by the aforeasaid letter dated 4th November Government of Gujarat has clarified that Gujarat Narmada Valley Fertilizers Company Limited and Gujara Fertilizers and Chemicals Company Limited and two other Companies are also required to take prior approval p to the letter dated 14th March 2008, and therefore, the respondent-Company is a Government of Gujarat Unde The respondent-State of Gujarat has filed a reply affidavit and stated that the aforesaid Resolution was issued to th Public Sector Enterprises, such as Boards, Corporations and the Government Companies u/Sec.617 of the Com Act, wherein majority of the shareholding is of the State Government with the assistance of financial insti debenture holders and/or other organizations, which are governed by their own constitutions, memorand association and/or articles of association. In such cases, since the Government is required to effectively mon working of the State Public Sector Enterprises, in order to fulfil the development, the Resolution dated 14th Marc was issued. In such cases, since the Government is required to effectively mon working of the State Public Sector Enterprises, in order to fulfil the development, the Resolution dated 14th Marc was issued. So far as the issue of control and supervision with regard to other joint sector companies, such as Gujarat N Valley Fertilizers Company Limited and Gujarat State Fertilizers and Chemicals Ltd. is concerned, the same is ex by the State Government in the letter dated 4th November 2008. The Government has found that it has control ov companies only to the extent of its shareholding and from that point of view, the broad objective of the State can b care of by directing its officers posted in such companies to seek prior approval of the Government before putting matters concerning the interest of the `State' before the Board of such joint sector companies. It has taken a speci that for the purpose of Article 12 of the Constitution of India, such companies could not be said to be under d pervasive administrative, functional and financial control of the State Government. These are essentially managed by their respective Boards of Directors as provided by their respective Memorandum of Associati Articles of Association. 21. In the present case, there is nothing on record to suggest that the State Government has any share in Gujarat N Valley Fertilizers Company Limited as no specific evidence is brought on record. Gujarat State Fertilizers and Ch Limited , which has 19.80% share, is not a `State' within the meaning of Article 12 of the Constitution of India. Th of Gujarat has taken a specific plea that as it has no deep and pervasive administrative, functional and financial and the respondent-Company is an entity managed by its Board of Directors. 22. We have noticed that G.N.F.C. has been constituted under the Companies Act and not by any State Act. Th Government has no role in the matter of functioning of the Company. It does not exercise any financial, functi administrative control over the Company. Acquisition of shares and other matters pertaining to management and of the Company are governed under the Companies Act. The business and other activities of the Company are commercial in nature. It does not perform any public function nor any public duty. The Company do not carry business for the benefit of public. Acquisition of shares and other matters pertaining to management and of the Company are governed under the Companies Act. The business and other activities of the Company are commercial in nature. It does not perform any public function nor any public duty. The Company do not carry business for the benefit of public. Thus, as the cumulative effect together shows that Gujarat Narmada Valley Fe Company Limited is not an instrumentality of the `State'. 23. In view of our finding as recorded above, we hold that both the Companies, i.e. Gujarat State Fertiliz Chemicals Limited and Gujarat Narmada Valley Fertilizers Company Limited, are neither `State' as defined under 12 of the Constitution of India nor an instrumentality or authority of the State, and therefore, writ petition under 226 of the Constitution of India is not maintainable against them. The judgement rendered by Division Bench dec the case of Gujarat State Fertilizers Company Ltd. Vs. Association of Officers, G.S.F.C. reported in 1995(2 179 is thus affirmed. All the three writ petitions being not maintainable are dismissed. There shall be no order as to.