R.R. PILLAI (DEAD) THROUGH LRS.versusCOMMANDING OFFICER HQ S.A.C. (U) AND ORS.

                         [2009) 7 S.C.R. 118


A           R.R. PILLAI (DEAD) THROUGH LRS.
                             V.
       COMMANDING OFFICER HQ S.A.C. (U) AND ORS.
               Civil Appeal No. 3495 of 2005
                          APRIL 28, 2009
8
      (DR. ARIJIT PASAYAT, P. SATHASIVAM AND AFTAB
                        ALAM, JJ.)
         Service Law:

c         Rules regulating the Terms and Conditions of Service of
    Civilian Employees of Air Force Unit Run Canteen paid out of
    non public funds:
        Rules 2, 4 and 24 - Status of an employee of Unit Run
  Cf;mteen in Aimed Forces - Held: They do not get the status
D of Government employees at any stage - On the peculiar facts
  of the case direction issued for payment of Rs.2 lakhs to the
  family of the deceased employee - Regulations for the Air
  Force, 1964, para 1454.
       A reference was made to the three-Judge Bench as
E regards the correctness of the decision in Union of India
  vs. Mohd. Aslam [2001 (1) SCC 720].
         Disposing of the appeals, the Court
        HELD : 1. In As/am's case a Bench of this court
F proceeded on incorrect factual premises inasmuch as
  after noticing that the URCs are not funded from the
  Consolidated Fund of India, it went wrong in concluding
  that the URCs are funded by CSD as well as the articles
  were supplied by the CSD. Unfortunately, it did not notice
G that no such funding is made by the CSD. Further, only
  refundable loans can be granted by the CSD to URCs at
  the rate of interest laid down by it from time to time upon
                                                                    ..
  the application of URCs seeking financial assistance.
  URCs can also take from other Non-Public Funds. Further
H                              118
                     R.R. PILLAI (DEAD) THROUGH LRS. V.               119
                 COMMANDING OFFICER HQ SAC. (U) AND ORS.

           observation regarding supply is also not correct. URCs, A
           in fact, purchase articles from CSD depots and it is not an
           automatic supply and relation between URCs and CSDs
           is that of buyer and seller and not of principal and the
           agent. This Court further went wrong in holding that
           URCs are parts of CSDs when it has been clearly stated B
           that URCs are purely private ventures and their employees
           are by no stretch of imagination employees of the
           Government or CSD. [Para 8] [123-G-H; 124-A-B]
                 1.2 There was no statutory obligation on the part of

-
-<
           the Central Government to provide canteen services to c
           its employees. The profits generated from the URCs are
           not credited to the Consolidated Funds, but are
           distributed to the Non Public Funds which. are used by
           the units for the welfare of the troops. As per para 1454 of
      -;   the Regulations for the Air Force, 1964 the losses incurred D
           by the non public funds are not to be borne by the State.
           [Para 8] [124-C-D]
                Union of India v. Mohd. Aslam 2001 (1) SCC 720- affirmed.
                Union of India and Anr v. Chote Lal 1999 (1) SCC 554 -      E
           dissented from.
                Kona Prabhakara Rao v. M. Seshagiri Rao and Anr 1982
      .    (1) SCC 442; Satrucharla Chandrasekhar Raju v. Vyricherla
JI         Pradeep Kumar Dev and Anr 1992 (4) SCC 404 and Chandra
           Raha and Ors. V Life Insurance Corporation of India 1995         F
           Supp (2) SCC 611 - referred to.
                1.3 The factors highlighted to distinguish Chotelal's


---
           case are without any material. There was no scope for
           making any distinction factually between Aslam's case G
           and Chotelelal's case, Aslam's case was not correctly
           decided. [Para 9] [124-E]
     •
                2. The question whether the URC can be treated as
           an instrumentality of the State does not fall for consi-
           deration as that aspect has not been considered by CAT           H
    120       SUPREME COURT REPORTS              [2009] 7 S.C.R.


A or the High Court. Apparently, on that score alone the
  appeal could have been dismissed. But it is found that
  the High Court placed reliance on Rule 24 to deny the effect
  of the appointment. From Rule 4 read with Rule 2 it is clear
  classification that all employees are first on probation and
B they  shall be treated as temporary employees. After
  completion of five years they might be declared as
  permanent employees. They do not get the status of the
  Government employees at any stage. In As/am's case
                                                                   ..
  CAT's order was passed in 1995. By that time 1999 Rules
c were not in existence and 1984 rules were operative.
  [Para 10] [124-F-H; 125-A]




D
          Union of India vs. Mohd. Aslam 2001 (1) SCC 720 -
    referred to.
       3. It is to be noted that financial assistance is given,
  but interest and penal interest are charged. The URCs can
                                                                                    -
                                                                   '
  also borrow from financial institutions. The reference is


                                                                                    -
  answered by holding that employees of URCs are not
  government servants. [Para 11) [125-A-B]
E      4. Present appellant had questioned validity of Rule
  24. High Court should have considered that challenge in
  the proper perspective. But it is not necessary to examine
  that question as the employee has already expired. But,
  in the peculiar facts of the case we direct that a sum of         ~


F Rs.2 lakhs be paid to his legal representatives within a
                                                                                    ...
  period of three months in full and final settlement of all
  his claims. [Para 12) [125-C-D]
         Delhi Transport Corporation v. D. TC. Mazdoor Congress
    and others AIR 1991 SC 101 - referred to.
G                                                                           .....
                                                                        --.,....__
                      Case Law Reference
          2001 (1) sec 120        affirmed         Para 1
                                                                        •
          1982 (1) sec 442        referred to      Para 5
H         1992 (4) sec 404        referred to      Para 5
                                                 .       .    .
                    R.R. PILLAI (DEAD) THROUGH LRS. V.                 121
                COMMANDING OFFICER HQ S.A.C. (U) AND ORS.

               1999 (1) sec 554           dissented from Para 6              A
               1995 Supp (2) SCC 611 referred to             Para 8

               AIR 1991 SC 101            referred to        Para 12

               CIVILAPPELLATE JURISDICTION: Civil Appeal No. 3495            B
          of 2005
               From the Judgement and Order dated 23.01.2003 of the
          Hon'ble High Court of Kerala at Ernakulam in O.P. No. 34353
          of 2002 (S)
.,                                     WITH                                  c
               Civil Appeals Nos. 3557 of 2005
               Civil Appeals Nos. 3559 of 2005

     'I        Civil Appeals Nos. 3560 of 2005                               D
               Civil Appeals Nos. 3561 of 2005
               P.P. Rao, Arvind Kumar Shukla, Purushottam S.T., Sahar
          Bakht, Utsav Sindhu, M.P. Vinod, R.D. Upadhayay, with him for
          the Appellant( s).
                                                                             E
              A. Saran, A.S.G., AmitAnand Tiwari, Sanchit Guru, Shalini
          Kumar, B.V. Balaram Das, Sushma Suri, B.K. Prasad, Sumant
     ..   Bhardwaj, Mridula Roy Bharadwaj, with him for the
          Respondent(s).

               The Judgement of the Court was delivered by                   F

               DR. ARIJIT PASAYAT, J.
                1. Doubting correctness of the view of this Court in Union
          of India v. Mohd. Aslam (2001 (1) SCC 720) reference has
          been made to a three-Judge Bench and that is how these             G
          appeals are before this Bench. The controversy lies within a
          very narrow compass.
              2. The issue is as to the status of an employee of Unit Run
          Canteen in Armed Forces. While admitting Civil Appeal              H
    122       SUPREME COURT REPORTS                    [2009] 7 S.C.R.


A No.3495/2005 the matter was referred to a larger Bench as
  noted above and other cases were tagged with Civil Appeal
  No.3495 of 2005. We shall deal with the factual scenario in Civil
  Appeal No.3495 of 2005 and after deciding the legal issues
  involved, apply the decision to the other appeals.
B       3. Appellant Shri R.R. Pillai was recruited as Airman in the
  Indian Air force on 7.10.1967 and was discharged from service
  on 31.10.1988 as Junior Warrant Officer as he sought for
  premature retirement from service. Before his discharge he had
  been looking after the affairs of the Unit-Run-Canteen (in short
C the 'URC'). After discharge he was engaged as Manager of
  URC at Southern Air Command on an honorarium of Rs.1,000/
  -P.M. w.e.f 1.2.1989. Para 6 of the appointment letter clearly
  stated that the appointment was governed by the terms and
  conditions as laid down in Air HQ letter No.20728/P/Org dated
D 31st Janua1y, 1984 issued under the relevant Regulations. The
  terms and conditions of service of canteen employees are
  covered by the rules called "The Rules regulating the Terms and
  Conditions of Service of' Civilian Employees of Air Force Unit
  Run Canteen paid out of Non Public Funds".
E      4. According to the appellant the view taken in Mohd
    Aslam's case (supra) is the correct view, it is stated that even if
    Canteen Store Department (in short the 'CSD') was not the
    source of funding, other parameters clearly cover the employees
    in question of Government service.
F
        5. Reference is made to certain decisions to support the
  stand, e.g., Kona Prabhakara Rao v. M. Seshagiri Rao and
  Anr. (1982 (1) SCC 442 (para 9) and Satruchar/a
  Chandrasekhar Raju v. Vyricherla Pradeep Kumar Dev and
G Anr._(1992 (4) SCC 404 at 412). Even if full funding is not there
  partial funding by quality discount is there which is the test for
  determining as to which employee is a government servant.
  Reference is also made to certain subsequent decisions in
  which As/am's case (supra) has been referred to. It is pointed
H out that on the date the OAs were decided, Aslam's case (supra)
                R.R. PILLAI (DEAD) THROUGH LRS. V. COMMANDING 123
              OFFICER HQ SAC. (U) AND ORS. [DR. ARIJIT PASAYAT, J.]

            was applicable and therefore de facto doctrine would apply. In        A
            any event, it is stated that Rule 24 cannot take out the benefits
            in the manner done. The High Court had not considered the
            challenge to Rule 24. It is pointed out that the decision which
            has been given can only be re-considered for compelling reasons
            and the view taken in Aslam's case (supra) is a possible view.        B
            In any event, the appointing body is an instrumentality of State
            and, therefore, Articles 14 and 16 of the Constitution of India,
            1950 (in short the 'Constitution') are applicable·. With reference
            to Section 23 of the Indian Contract Act, 1923 (in short the
            'Contract Act') it is stated that Section 23 of the Contract Act      c
            clearly prohibits the appointments in the manner done.

                 6. Learned counsel for the Union on the other hand
            submitted that Aslam's case (supra) proceeded on erroneous
            factual basis. It proceeded on the basis as if the canteen or the
            establishment in question was funded by the CSD. The issue is         D
            not whether it is an instrumentality of the State. Issue is whether
            the concerned employees are government employees. It is
•           submitted that Union of India and Anr. v. Chote Lal (1999 (1)
            sec 554) clearly applies to the facts of the case.
                 7. It is submitted that unit run canteen is amenable to Shops    E
            and Commercial Establishments Statutes because tl:le
            appointment cannot be made dehors the Rules. There is no
       ~
            prescribed qualification or age limit. Similarly there is no grade
            or cadre. Therefore, it cannot be said that the concerned
            employees are holders of civil posts.                                 F

                   8. In the case of Asiam's case (supra) a Bench of this court
             proceeded on incorrect factual premises inasmuch as after
             noticing that the URCs are not funded from the Consolidated
'..          Fund of India, it went wrong in concluding that the URCs are .
                                                                                G
      ..     funded by CSD as well as the articles were supplied by the
             CSD. Unfortunately, it did not notice that no such funding is made
             by the CSD. Further, only refundable loans can be granted by
             the CSD to URCs at the rate of interest laid down by it from
           . time to time upon the application of URCs seeking financial
(
y                                                                               H
    124       SUPREME COURT REPORTS                   [2009] 7 S.C.R.


A assistance. URCs can also take from other Non-Public Funds.
  Further observation regarding supply is also not correct. UR Cs,
  in fact, purchase articles from CSD depots and it is not an
  automatic supply and relation between URCs and CSDs is that
  of buyer and seller and not of principal and the agent. This Court
B further went wrong in holding that UR Cs are parts of CSDs when
  it has been clearly stated that URCs are purely private ventures
  and their employees are by no stretch of imagination employees
  of the Government or CSD. Additionally, in Asiam's case (supra)
  reference was made to Chandra Raha and Ors. V. Life
C Insurance Corporation of India (1995 Supp (2) SCC 611). The
  Bench hearing the matter unfortunately did not notice that there
  was no statutory obligation on the part of the Central Government
  to provide canteen services to its employees. The profits
  generated from the URCs are not credited to the Consolidated
D Funds, but are distributed to the Non Public Funds which are
  used by the units for the welfare of the troops. As per para 1454
  of the Regulations for the Air Force, 1964 the losses incurred
  by the non public funds are not to be borne by the State.             •

E        9. The factors highlighted to distinguish Chotelal's case
    (supra) in our considered opinion are without any material. There
                                                                        ,
    was no scope for making any distinction factually between
    Aslam's case (supra) and Chotelelal's case (supra). In our view,
    therefore, Aslam's case (supra) was not correctly decided.

F       10. The question whether the URC can be treated as an
  instrumentality of the State does not fall for consideration as
  that aspect has not been considered by CAT or the High Court.
  Apparently, on that score alone we could have dismissed the
  appeal. But we find that the High Court placed reliance on Rule
G 24 to deny the effect of the appointment. From Rule 4 read with
  Rule 2 it is clear classification that all employees are first on
  probation and they shall be treated as temporary employees.
  After completion of five years they might be declared as
  permanent employees. They do not get the status of the
H Government employees at any stage. In Aslam's case (supra)
     R.R. PILLAI (DEAD) THROUGH LRS. V. COMMANDING 125
   OFFICER HQ SAC. (U) AND ORS. [DR. ARIJIT PASAYAT, J.]

 CAT's order was passed in 1995. By that time 1999 Rules were           A
 not in existence and 1984 rules were operative.
       11. It is to be noted that financial assistance is given, but
 interest and penal interest are charged. The URCs can also
 borrow from financial institutions. The reference is answered
 by holding that employees of URCs are not government                   B
 servants.
       12. The High Court has come to an abrupt conclusion about
 validity of Rule 24, distinguishing the decision of this Court in
 Delhi Transport Corporation v. D. T. C. Mazdoor Congress and           c
 others (AIR 1991 SC 101). Present appellant had questioned
  validity of Rule 24. High Court should have considered that
  challenge in the proper perspective. But it is not necessary to
  examine that question as the original employee R.R. Pillai has
  already expired. But, in the peculiar facts of .the case we direct    D
  that a sum of Rs.2 lakhs be paid to his legal representatives
· within a period of three months in full and final settlement of all
  his claims.
        13. The applications for intervention are dismissed.·
      14. This order shall operate in respect of the appeal filed       §
 by the deceased through his 1egal heirs and other appeals by
 the Union of India.
        15. The appeals are disposed of accordingly.

 G.N.                                        Appeals disposed of.