[Article 12] Unit-Run Canteens Not Controlled Or Financed By Govt Of India, Won't Fall Under Definition Of 'State': Kerala High Court

The Kerala High Court has stated that Unit Run Canteens do not come within the definition of 'state' as provided under Article 12 of the Indian Constitution.

“Merely because the Unit Run Canteens works under the Canteen Stores Department (CSD) and the CSD are founded by the consolidated fund of India, it cannot be said that the Unit Run Canteens is directly controlled and financed by the Government of India, they have an independent stand and are working on separate SOPs, issued from time to time” observed Justice Basant Balaji.

The court was hearing a petition by the employees of a Unit Run Canteen functioning in Pangode Army Headquarters challenging an order to replace these employees with contract workers.

Background

The petitioners are employees of the Unit Run Canteens functioning under the Army Station Head Quarters, Pangode, Thiruvanthapuram. It is governed by the Board of Control of Canteen Services headed by the Minister of Defence. The petitioners are either ex-servicemen or dependant on ex-servicemen and had joined the canteens based on a standard operating procedure (SOP) issued by the respondents.

The petitioners were aggrieved by an order of the respondents which notified that the employees of the Unit Run Canteens would be replaced by contractual employees.

The respondents argued that the writ petition isn't maintainable as the unit-run canteens do not come under the definition of 'state'. In doing so, the respondents pointed out that the Unit Run Canteens are sanctioned based on the recommendation of the CSD head office.

Article 12 provides that “'the State' includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India".

The respondent pointed out that the 3 criteria in the test for determining 'state' under Article 12 of the Indian Constitution are not fulfilled by the unit-run canteens. The three aspects of the test to determine whether an organization comes under the definition of 'other authorities' are 1) creation, 2) finance, and 3) control.

Canteens not a creation of Constitution, Parliament or State Legislature

The respondents submitted that the creation of a unit-run canteen ("URC") arises out of the need for defense personnel posted in a particular unit, and as such, it is not created by any Act but by an order from the Army. Accordingly, it is not the creation of the constitution or parliament or a State Legislature.

The court accepted this argument and observed that “when we apply the test to the facts of the present case, it can be seen that the Unit Run Canteens are not created under any statute or by the parliament or by the legislature; they are created by executive orders, and all the individuals are private individuals. There is no control over administration by the Central Government”.

Canteens financed through regimental funds contributed by defense personnel

Regarding the second criterion, the respondents pointed out that these canteens are financed by regimental funds created through contributions from the defense personnel. It was argued that URCs do not receive any direct pecuniary benefit from the Government of India, nor do the CSDs under any obligation to grant any financial assistance to URCs. There is no direct or indirect funding from any Government authority, it was stated.

The respondents submitted a letter issued by the Ministry of Defence to the Chief of Army Staff, in which they explained the status of the URC and their employees, clarifying that CSD is a department under the Ministry of Defence, and all its employees are Government employees.

While the funds of the department form part of the Consolidated Fund of India, the unit canteens like the Army Head Quarters canteen are private undertakings of the unit concerned, it was argued.

The respondent added that procurement of stores/goods for the URCs can be done only from a CSD depot by making advance payment from their non-public (regimental) funds and the profits of URCs are distributed, utilised as regimental funds by the unit/formations, for the welfare activities of troops and their families after meeting the operational /running expenses of URCs.

It was argued that their funds are non-government funds. Additionally, CSD has no administrative control over the unit canteens or the personnel who are employed by the units under various terms and conditions mutually settled between the units and the employees, they are not Government servants, and therefore, the Ministry has no control over their service conditions and has no jurisdiction over the service conditions of such employees. Thus, there is no direct financial obligation by the State.

The court conceded to this argument and held that the URCs are not supported by public funds, and as such, do not fulfil the second criteria of the test.

“The funds of the CSDs are not from the funds of the Government nor from the consolidated fund of India” observed the court, adding that “they are private undertakings of the unit concerned, and they do not have any administrative control over the units or the personnel who are employed in the unit.”

“Though the CSD funds are from the Consolidated Fund of India, merely because loans are granted from the funds of the CSDs, they cannot be taken as a fund from the Government of India under the Consolidated Fund of India” stated the court

Canteens governed through standard operating procedures by management committee

Regarding the third criteria, control, the respondents submitted that the URCs are managed through a standard operating procedure (SOP), formulated by the URC management committee. The staff members are employed as per qualitative requirements formulated by the URC management.

The respondent submitted a letter issued by the Deputy Directorate, General Canteen Services, Army Headquarters, New Delhi, which specifically points out that all URCs are private undertakings of the unit, and their funds are non-governmental funds. The directorate or the CSD headquarters has no administrative control over the civilian employees of the URC, as they are employed under certain terms and conditions mutually settled between the unit and the employee. The URCs are covered under the Shops and Establishment Act of various States in which URCs are located.

The respondent added that at no stage of engagement does the staff of URCs translate into a permanent employee in the URCs. The individuals signed separate agreements for their engagement as staff URCs, and they are not given permanent employee status. The competent authority is permitted to amend/alter, and issue clarifications regarding the service conditions of the employees of the URC. It is the issue that confers the welfare of the organisation and protects the interest of the organisation. The terms and conditions of employment are also settled between the unit and the employees; and as such, they are not Government servants.

The court accepted the submissions, and held that “as far as the 3rd test is concerned, regarding the control, separate SOPs are formulated by the URC management committee for the day-to-day affairs depending upon the strength of the staff of each URC. The appointment of the staff is done by the station head of each URC and not by the CSDs or by the Army. The URCs thus work as a separate unit under each station headquarters and there is no direct control either by the CSD or by the Ministry of Defence.”

Conclusion

The court also referred to decisions of various high courts in which it was held that the employees of URCs are not government servants and that the URC is not state within the meaning of Article 12 to hold that URCs are not 'state' within the meaning of Article 12.

The court rejected the plea, deciding in favour of the respondent and held that URCs are not 'state' within the meaning of Article 12.

“As far as the facts of this case are concerned, the Central Government has no administrative financial control over the Unit Run Canteens, and they do not have any public duty to perform” concluded the court.

In such a case, the court held that no directions can be issued to the respondent canteen.

Citation: 2024 LiveLaw (Ker) 164

Case Title: Jayakumar and ors. v. Union of India

Case Number: WP(C) No. 2517 of 2020, WP(C) No. 25202 of 2020, WP(C) No. 25209 of 2020, WP(C) No. 25213 of 2020, WP(C) No. 26222 of 2020, WP(C) No. 27478 of 2022, WP(C) No. 27795 of 2021, WP(C) No. 29919 of 2021, WP(C) No. 30508 of 2021, WP(C) No. 30564 of 2021, WP(C) No. 30652 of 2021, WP(C) No. 30668 of 2021, WP(C) No. 30679 of 2021, WP(C) No. 7461 of 2022, WP(C) No. 29383 of 2022, WP(C) No. 35026 of 2022, WP(C) No. 35173 of 2022, WP(C) No. 35231 of 2022, WP(C) No. 35246 of 2022, WP(C) No. 453 of 2023, WP(C) No. 456 of 2023, WP(C) No. 1548 of 2023, WP(C) No. 13827 of 2023, WP(C) No. 16984 of 2023, WP(C) No. 22466 of 2021, WP(C) No. 23782 of 2021, WP(C) No. 27386 of 2020, WP(C) No. 25635 of 2023, WP(C) No. 25814 of 2023, WP(C) No. 17289 of 2023.

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