Holding

The State has a constitutional and fiduciary duty to protect the life and liberty of employees of its public sector undertakings, and therefore must deposit the specified sums for salary payment; the earlier directions remain effective and are not subject to review or clarification by the State.

Summary

The petitioners, employees of various public sector undertakings in Bihar, sought enforcement of their fundamental right to life under Article 21 after prolonged non-payment of salaries, which had resulted in several deaths. The Supreme Court examined whether the States of Bihar and Jharkhand, as shareholders and controllers of these undertakings, bear a constitutional and fiduciary duty to ensure payment of salaries, notwithstanding the corporate veil. Relying on earlier directions dated 9 May 2003 and precedents such as Steel Authority of India Ltd. and Electronics Corporation of India Ltd., the Court held that the States cannot evade liability when human rights are at stake. The Court rejected the States' attempts to seek review or clarification of its earlier orders and affirmed that the directions remain operative. Consequently, the Court directed Bihar to deposit Rs. 50 crore and Jharkhand Rs. 25 crore within eight weeks for salary disbursement, with the monitoring committee to continue its work and the matter to be revisited after six months.

Issues considered

The extent of the State's constitutional obligation under Article 21 to pay salaries of employees of public sector undertakings where arrears have led to loss of life.
Whether the Supreme Court's earlier directions (9 May 2003) are maintainable and can be reviewed or clarified by the State.
The applicability of the doctrine of lifting the corporate veil to impose liability on the State for the undertakings' debts.
The liability of the State of Jharkhand for salaries of employees of BHALCO after its bifurcation.
The relevance of Section 65 of the State Reorganisation Act and Section 79(c) of the Electricity (Supply) Act in this context.

Legislation cited

Electricity (Supply) Act, 1948s. 79(c)
State Reorganisation Act, 1956s. 65

Subjects

Article 21Fundamental rightsHuman rightsPublic sector undertakingsState liabilityCorporate veilSalary arrearsBiharJharkhandState Reorganisation ActFiduciary duty

Judgment

A KAPILA HINGORANI
v.
STATE OF BIHAR

JANUARY 13, 2005

B [N. SANTOSH HEGDE AND S.B. SINHA, JJ.]

Constitution of India, I 950:

Article 2 I-Employees of Public Sector Undertakings in States of Bihar
C and Jharkhand-Non-payment of salary for a long time-leading to loss of
lives-Order of Supreme Court*-Interim applications for implementation of-
Held, human right and fundamental right of employees are to be protected by
State-State has a constitutional obligation and acts in a fiduciary capacity
vis-a-vis performance of its constitutional duties and functions by the public
D sector undertakings as it has constitutional obligations in relation thereto--
State of Bihar in response to the applications filed by the petitioner cannot be
permitted to raise questions which have expressly been rejected-It cannot
seek a review of the said judgment indirectly which it could not do directly--
Even for such matters, an application for clarification would not be
maintainable-state of Bihar cannot take a stand now that it does not have
E any constitutional obligation towards a section of citizens, viz. the employees
of the public sector undertakings who have not been paid salaries for years-
/ts plea that the directions issued were only one-time direction can also not
be accepted-In clause 4 of the direction, it was clearly stated that the State
for the present shall deposit a sum of Rs. 50 crores before the High Court for
p disbursement of salaries to the employees of the Corporation and the matter
was directed to be listed again-The directions of this Court could not be
complied with having regard to the fact that only six crores were left with the
Committee-It is true that a new corporation named as JHALCO has come
into being, but keeping in view of the fact that the State of Jharkhand itself
has given option to the employees of BHALCO, the order of absorption of
G those employees who opt for employment may be passed at an early date-The
employees concerned need not file any undertaking at this stage as the question
as to whether the State of Jharkhand is liable to pay any salary and other
emoluments to the employees of BHALCO is a question which would fall for
decision in an appropriate proceeding-Keeping in view the fact that despite

H 456
KAPILA HINGORANI v. STA TE 457
f _}- this Court's order dated 6th May, 2003, five persons have lost their lives A
owing to non-payment of salaries and keeping in view the order of the Central
Government dividing the assets and liabilities between the States of Bihar and
Jharkhand in relation to certain State Undertakings, State of Bihar is directed
to deposit a sum of Rs.jO crores and the State of Jharkhand a sum of Rs.2j
crores-The Committee constituted by the Patna High Court would continue
B
• to function-The Patna High Court and the Jharkhand High Court would pass
appropriate orders in the liquidation proceedings filed by the States of Bihar
,_. or Jharkhand, as the case may be, as expeditiously as possible-Any amount
paid to the employees concerned shall be subject to the orders passed by the
)> appropriate court of law in this behalf and the amount so paid to them shall
be duly credited. c
In its order dated 9th May, 2003 *, this Court considered the matter
from the human rights aspect as also the fundamental rights of the employees
of the public sector undertakings operating in the State of Bihar-It is made
clear that these directions have not been issued to the Stales of Bihar and
Jharkhand on the premise that they are bound to pay the salaries of the D
employees of the public sector undertakikngs but on the ground that the
>i
employees have a human right as also a fundamental right under Article 2 I
) which the State is bound to protect-These directions as also the directions
issued by this Court on 9th May, 2003* are in furtherance of the human and
fundamental rights of the employees concerned and not by way of an
enforcement of their legal right to arrears of salaries-The amount of salary
E
payable to the concerned employees or workmen would undoubtedly be
adjudicated upon in the proper proceedings.

*Kapila Hingorani v. Stale of Bihar, (2003) Supp. 1 SCR, relied on.
F
l ...
Steel Authority of India Ltd. and Ors. v. National Union Waterfront
Workers and Ors., (2001) 7 SCC 1 and Electronics Corporation ofIndia Ltd.
and Ors. v. Secretary Revenue Department, Govt. ofAndhra Pradesh and Ors.,
(1999) 4 sec 458, referred to.

ORIGINAL APPELLATE JURISDICTION I.A. NOS. 7 AND 9-10. G
IN

WRIT PETITION (C) NO. 488 OF 2002.

(Under Article 32 of the Constitution of India)
H
458 SUPREME COURT REPORTS [2005] I S.C.R.

A Mohan Parasaran, Additional Solicitor General, Prabha Shanker Mishra
(A.C.). Tathagat harsh Vardhan, Ms. Priya Hingorani, Adv. Peitioner-in-person,
Dr. Aman Hingorani, B.B. Singh, Ms. Sunita R. Singh, Rajeev Shanker
Dwiwedi, Amit Kumar, Ashish Kumar, Vishnu Sharma, Gaurav Dhingra,
Ms. Sandhu Goswami, Ms. Sushma Suri for Attonery General for India and
B Ashok Mathur for the Appearing parties.

The following Order of the Court was delivered :

This Court in this case disposed of on 9th May, 2003 since reported in
[2003] 6 SCC I issued certain directions. Those directions need not be
C reproduced herein. Pursuant to or in furtherance of those directions, the State
of Bihar has deposited a sum of Rs. 50 crores. The High Court of Judicature
at Patna has also constituted a committee headed by Hon'ble Mr. Justice
Uday Sinha, a former Judge of the Patna High Court.

A report of the said committee has been placed before us, from a
D perusal whereof it appears that a sum of Rs. 25,98,65,883.00 had been
recommended for payment to the employees of most of the undertakings.
Payment to Bihar State Sugar Corporation \\as said to be in the pipeline ,,
which came to be about Rs. 17 crores. It has been pointed out that BSIDC
and units of other corporations in Jharkhand had not been paid yet and the · \
Committee is left with Rs. 6 crores and odd.
E
An application for clarification has been filed by the Petitioner herein
marked as I.A. No. 7 of 2004 wherein it has been prayed that the Jharkhand
Hill Area Lift Irrigation Corporation Limited (JHALCO) be treated as successor
of Bihar Hill Area Lift Irrigation Corporation (BHALCO) from 15.11.2000
onwards. It has further been contended that employees of Bihar Hill Area
F Lift Irrigation Corporation Ltd. would be absorbed by Jharkhand Hill Area
.4 •
Lift Irrigation Corporation Ltd., only if they forego their claim of salary for
period prior to the respective dates of absorption.

A prayer therefore has been made to clarify the order dated 9th May,
G 2003 as to whether the State of Bihar or State of Jharkhand or both would
be required to pay the unpaid salary to the employees of BHALCO.

Another interlocutory application being I.A. No. 9 of 2004 has been
filed by the petitioner praying therein for a direction upon the Respondent
State of Bihar and/or State of Jharkhand to deposit sufficient sum of money
H with the Hon'ble Patna High Court so that at least the employees of the
KAP ILA HIN GORAN Iv. ST ATE 459
!).
corporations listed in the order dated 9th May, 2003 be paid their salaries. A
Counter affidavits affinned by Shri Ashok Kumar Choudhary, Chainnan,
Bureau of Public Enterprises, Government of Bihar, Patna have been filed on
behalf of the State of Bihar both in I.A. No. 7 and I.A. No. 9 of 2004. In the
counter affidavit filed in I.A. No. 7 of 2004, it has been contended that the
Government of Bihar will initiate liquidation proceedings in respect of B
BHALCO and having regard to the offer made by the State of Jharkhand no
relief should be granted by this Court to the employees of the said corporation
as they may still close to exercise their option to get absorbed in JHALCO.

In the counter affidavit filed in I.A. No. 9 of 2004, the State of Bihar C
has been contended that the direction issued by this Court in its order dated
9th May, 2003 being extraordinary in nature and by way of one time
arrangement only, no direction should be issued directing the State of Bihar
to make any further payment.

The State of Jharkhand has also been impleaded as a party herein and D
it has filed a counter-affidavit affirmed by one Shri Binod Kumar Venna,
"'< Managing Director, JHALCO, Ranchi wherein a contention is raised that
BHALCO is still under the control of the State of Bihar. It has further been
affinned that in stead and place of BHALCO, a new corporation known as
JHALCO has been incorporated and registered to the Registrar of Companies, E
Jharkhand on or about 22nd March, 2002. The said JHALCO is, thus, said
to be new corporation and nothing to do with BHALCO and in any event, it
is not the successor of BHALCO.

It is not in dispute that pursuant to or in furtherance of the directions
issued by this Court, the Central Government has exercised its jurisdiction F
under Section 65 of the States Reorganization Act.

Union of India has filed an affidavit wherein it has been contended that
winding up applications have already been filed by the State of Bihar in
relation to the following eighteen companies:
G
"I. Bihar State Industries Development Corporation

2. Bihar State Leather Development Corporation

3. Bihar State Electronics Development Corporation

4. Bihar State Sugar Corporation Limited H
460 SUPREME COURT REPORTS [2005] 1 S.C.R.

A 5. Bihar State Medicine and Chemical Development Corporation

6. Bihar State Fruit and Vegetables Development Corporation

7. Bihar State Agro Industries Corporation

8. Bihar State Textiles Corporation Limited
B
9. Bihar State Small Industries Corporation Limited

I0. Bihar State Handlooms and Handicrafts Corporation

11. Bihar State Forest Development Corporation Limited
c 12. Bihar State Export Development Corporation Limited

13. Bihar State Construction Corporation Limited

14. Bihar State Bridge Construction Corporation Limited

D 15. Bihar State Police Building Construction Corporation Limited

16. Bihar State Water and Sewage Disposal Board

17. Bihar State Panchayati Raj Finance Development Corporation
Limited . 1

E 18. Bihar State Film Development and Finance Corporation Limited"

It is, therefore, contended that in that view of the matter, no order was
required to be passed under Section 65 in relation thereto.

It was further contended that eight companies, names whereof are noticed
F hereinbelow, operate within the territories of Bihar and as such no order of
bifurcation was required to be passed:
). .
"!. North Bihar Industrial Area Development Authority

2. Darbhanga Industrial Area Development Authority
G 3. Patna Area Development Authority

4. Muzaffarpur Area Development Authority

5. Darbhanga Area Development Authority

H 6. Gaya Area Development Authority
KAP ILA HINGORANI v. ST ATE 461

I ), 7. Electricity Corporation Limited A

8. Bhagalpur Regional Development Authority, Bhagalpur"

So far as other companies which are operating both within the territories
of States of Bihar and Jharkhand are concerned, a direction in respect of the
following four companies orders for division of assets and liabilities has B
already been issued:

"1. Bihar State Road Transport Corporation
J.
2. Bihar State Housing Board
* 3. Bihar State Electricity Board c
4. Bihar State Pollution Control Board"

It is stated that no decision as regard 18 companies have been taken by
the States of Bihar and Jharkhand. The case of one company known as Bihar
State Cooperative Milk Producer's Federation (COMFED) is said to be
~~. D
For the purpose of division of assets of the companies which have been
operating within the territories of States of Bihar and Jharkhand, it is stated:

"8. That as per the orders issued by the Ministry of Home Affairs, the
assets, liabilities and employees of the most of the companies have E
been divided between the States of Bihar and Jharkhand. However,
in respect of the Corporations such as Bihar State Warehousing
Corporation, Bihar State Hydro Electric Power Corporation, Bihar
State Text Book Publishing Corporation Limited, Bihar State Finance
Corporation and Bihar State Food and Civil Supplies Corporation, it F
was decided that these Corporations will continue to function as inter-
state Corporations in the States of Bihar and Jharkhand. Accordingly,
it was decided to divide the shares of these Corporations as well as
the representation of the two States in their respective Board of
Directors."
G
A Committee has also been constituted for monitoring the progress of
implementation of orders passed by the Central Government comprising of
the Chief Secretary, Bihar or his/ her nominee and Chief Secretary, Jharkhand
or his/her nominee. The said committee is required to meet at least once in
a month and submit a progress report to the Ministry of Home Affairs.
H
462 SUPREME COURT REPORTS [2005] 1 S.C.R.

A Mr. B.B. Singh, learned counsel appearing on behalf of the State of
Bihar would submit that the State has no liability to pay the salaries of the
employees of the statutory corporations/ companies incorporated under the
Indian Companies Act. Reliance in this behalf has been placed on Steel
Authority of India Ltd. and Ors. v. National Union Waterfront Workers and
B Ors., [200 I] 7 SCC I and Electronics Corporation of India ltd. and Ors. v.
Secretary, Revenue Department, Govt. of Andhra Pradesh and Ors., [1999]
4 sec 458.
·'-
The learned counsel would contend that the statutory corporations/ other
public undertakings being not completely under the control of the State, the
C remedy of the employee, if any, is to file appropriate applications before the
Company Judge before whom winding-up applications in relation to 18
companies have been filed or to approach the appropriate Industrial Court in
that behalf.

In its order dated 9th May, 2003, this Court considered the matter from
D the human rights aspects as also the fundamental rights of the employees of
the public sector undertakings operating in the State of Bihar holding :

"We, however, hasten to add that we do not intend to lay down a law,
as at present advised, that the State is directly or vicariously liable to
pay salaries/remunerations of the employees of the public sector
E undertakings or the Government companies in all situations . We, as
explained hereinbefore, only say that the State cannot escape its
liability when a human rights problem of such magnitude involving
the starvation deaths and/or suicide by the employees has taken place
by reason of non-payment of salary to the employees of Public Sector
Undertaking for such a long time. We are not issuing any direction
F as against the State of Jharkhand as no step had admittedly been
taken by the Central Government in terms of Section 65 of the State
Reorganisation Act and furthermore as only four public sector
undertakings have been transferred to the State of Jharkhand in respect
whereof the petitioner does not make any grievance."
G
It has been contended before us that after passing of the aforementioned
order, five of employees have died due to non-payment of their salaries.

The Constitution Bench decision of this Court in Steel Authority of
India ltd. (supra) and Electronics Corporation of India Ltd. (supra), which
H has been relied upon by Mr. Singh had been considered by this Court in its
KA PILA HINGORANI v. ST ATE 463
11 order dated 9th May, 2003 holding : A
"Thus, the law as stated therein is not of universal application. The
ratio of the said decisions must be applied having regard to the fact
situation obtaining therein [See Bhavnagar University v. Pa/itana
Sugar Mill (P) Ltd and Ors., [2003] 2 SCC 111 (Para 59). It has its
limitations in its applications, as exceptions exist in several areas" B
This Court further relying upon the doctrine of 'lifting the corporate
,,J. veil' observed:

... "The Government companies/public sector undertakings being 'States'
would be constitutionally liable to respect life and liberty of all personsc
in terms of Article 21 of the Constitution of India. They, therefore,
must do so in cases of their own employees. The Government of the
State of Bihar for all intent and purport is the sole shareholder.
Although in law, its liability towards the debtors of the Company
may be confined to the shares held by it but having regard to the deep
and pervasive control it exercises over the Government companies; in D
~
the matter of enforcement of human rights and/or rights of the citizen
of life and liberty, the State has also an additional duty to see that the ·
rights of employees of such corporations are not infringed.

The right to exercise deep and pervasive control would in its tum
make the Government of Bihar liable to see that the life and liberty
E
clause in respect of the employees is fully safeguarded. The
Government of the State of Bihar, thus, had a constitutional obligation
to protect life and liberty of the employees of the Government owned
companies/corporations who are the citizens of India. It had an
additional liability havine regard to its right of extensive supervision F
I J... over the affairs of the company."

As regards the statutory corporation, it was further noticed:

"In relation to statutory authority, the State had also the requisite
power to issue necessary directions which were binding upon them,
G
as for example, Section 79(c) of Electricity (Supply) Act."

This Court further observed that the State has a constitutional obligation
and acts in a fiduciary capacity vis-a-vis performance of its constitutional
duties and functions by the public sector undertakings as it has constitutional
obligations in relation thereto. H
464 SUPREME COURT REPORTS (2005] I S.C.R.

A The State of Bihar in response to the applications filed by the petitioner
herein cannot, in our opinion, be permitted to raise questions which have
expressly been rejected. It cannot seek a review of the said judgment indirectly
which could not do directly. Even for such matters, an application for
clarification would not be maintainable. [See Ram Chandra Singh v. Savitri
B Devi, JT (2004) 6 SC 93].

We, therefore, do not appreciate the stand taken by the State of Bihar
now that it does not have any constitutional obligation towards a section of
citizens, viz., the employees of the public sector undertakings who have not
been paid salaries for years.
c We also do not appreciate the submissions made on behalf of the State
of Bihar that the directions issued were only one-time direction. In clause 4
of the direction, it was clearly. stated that the State for the present shall
deposit a sum of Rs. 50 crores before the High Court for disbursement of
salaries to the employees of the Corporations. Furthermore, the matter had
D been directed to be placed again after six months.

[emphasis supplied] _,.

It is really a matter of regret that despite statutory power as also the
power of control vested in the State of Bihar either under the statutes or in
E terms of Articles and Memorandum of Association of the respective
Government Companies, it did not exercise the same and now raised a
contention that the State had no effective control over the functions of the
said public sector undertakings. The States of Bihar and JharkhanC:,
indisputably, can exercise their statutory power and in discharge thereof can
issue requisite directions as is permissible in law.
F
We have herebefore noticed the operative part of the report of the +·
Committee.

It would appear therefrom that the directions of this Court could not be
complied with having regard to the fact that only six crores were left with the
G Committee. Before us a chart has been submitted showing the approximate
amount involved for payment of arrears of salaries in relation to the following
corporations:

"Name of undertaking Approximate amount admittedly involved
for payment of arrears
H
'
"! "'

KAPILA HINGORANI v. ST ATE 465

Bihar State Sugar Corporation Rs. 130 crores A
j~
Bihar State Leather Industries Development Rs. 62.45 crores
Corporation/Bihar Finished Leathers
Bihar State Industrial Development Corporation Rs. 61. 72 crores

Bihar State Agro Industries Development Rs. 60. 73 crores B
Corporation
Bihar State Construction Corporation Rs. 37.50 crores
.... Bihar State Handloom & Handicraft Corporation Rs. 18 crores
?- Bihar State Small Scale Industrial Development
Corporation
Rs. 18 crores
c
Bihar State Medicine & Chemical Rs. 9 .46 crores
Development Corporation
Bihar State Panchyati Raj Financial Rs. 3.75 crores
Corporation D
Bihar State Electronic Dev. Corporation Rs. 2.51 crores
-'<'
Bihar State Fruit & Vegetable Development Rs. 1.8056 crores
Corporation
Bihar State Vastraya (Textile) Corporation Rs. 0.70 crores E
Bihar State Film Development & Financial Rs. 55,000 per month
Corporation since August 2002"

It has further been placed before us that as regards Bihar State Road
Transport Corporation, Bihar State Khadi Gramdhoyog Board, Bihar State & F
Food Civil Supplies Corporation and Bihar State Seed Corporation,
J .+. approximate amount involved for payment of arrears of salaries and assets
and liabilities divided have been shown in the following terms:
"Name of Undertaking Approximate amount Status
involved for payment
G
of arrears of salaries
Bihar State Road Rs. 160.35 crores Assets and Liabilities
Transport Corporation divided at the ratio of
65 :3 5 vi de order dated
14.1.2004
H
466 SUPREME COURT REPORTS [2005] I S.C.R.

A Bihar State Khadi Rs. 37.50 crores Assets and liabilities
Gramdhoyog Board divided vide Order
dated 13.9.2004
Bihar State & Food Rs. 16.56 crores Assets and liabilities
Civil Supplies divided at the ratio of 3: 1
B Corporation vide order dated
13.9.2004

B ihar State Seed Rs. 4.53 crores Assets and liabilities
Corporation divided at the ratio of
78:22 vide order dated
c 13.9.2004"
As regards BHALCO, it was contended ·that the approximate amounl
involved for payment of arrears and salaries is not available as the said
corporation continues to be under the control of the State of Bihar.

It is true, as has been contended on behalf of the State of Jharkhand,
D that a new corporation named as JHALCO has come into being, but keeping
in view of the fact that the State of Jharkhand itself has given option to the
employees of BHALCO, the order of absorption of those employees who opt
for employment may be passed at an early date and not later than six weeks
from date. The concerned employees need not file any undertaking at this
E stage as the question as to whether the State of Jharkhand is liable to pay any
salary and other emoluments to the employees of BHALCO is a question
which would fall for decision in an appropriate proceedings.

Keeping in view of the fact that despite this Court's our order dated 9th
May, 2003, five persons have lost their lives owing to non-payment of salaries
F and keeping in view of the order of the Central Government dividing the
assets and liabilities between the States of Bihar and Jharkhand in relation to
Bihar State Road Transport Corporation, Bihar State Khadi Gramdhoyog
+·
Board, Bihar State & Food Civil Supplies Corporation and Bihar State Seed
Corporation, etc., we direct the State of Bihar to deposit a sum of Rs. 50
G crores and the State of Jharkhand a sum of Rs. 25 crores within eight weeks
from date.

The Committee headed by Justice Uday Sinha would continue to
function. The High Court of Judicature at Patna and the Jharkhand High
Court are hereby requested to pass appropriate orders in the liquidation
H proceedings filed by the States of Bihar or Jharkhand, as the case may be, as
KAPILA HIN GORAN Iv. STATE 467
expeditiously as possible and preferably within a period of six months from A
the date of communication of this order.

Any amount paid to the employees concerned shall be subject to the
order(s) passed by the appropriate court of law in this behalf and it goes
without saying that the amount so paid to them shall be duly credited.
B
We make it clear that we have not issued aforementioned directions to
the States of Bihar and Jhakhand on the premise that they are bound to pay
the salaries of the employees of the public sector undertakings but on the
ground that the employees have a human right as also a fundamental right
under Article 21 which the States are bound to protect. The directions, which C
have been issued by this Court on 9th May, 2003 as also which are being
issued herein, are in furtherance of the human and fundamental rights of the
emplcyees concerned and not by way of an enforcement of their legal right
to arrears of s<;laries. The amount of salary payable to the concerned employees
or workmen wouid undoubtedly be adjudicated upon in the proper proceedings.
However, these directions are issued which are necessary for their survival. D
Undoubtedly, any amount paid by Justice Uday Sinha Committee pursuant to
these faections shall be duly credited for.

These applica(ions are disposed of with the aforementioned directions.
Put up the matter after six months.
E
R.P. Matters are pending.

) ~