M J Antony: Does public law apply to private firms?

OUT OF COURT

Since the powers conferred on the high courts in the country by the Constitution is vast, questions of all hues are raised before them. Contractual and labour questions are also taken straightaway to the high courts in writ petitions, instead of raising them in the civil or industrial courts. In two recent cases involving Binny Ltd and Ciba Specialty Chemicals Ltd, the Supreme Court drew the line for such petitions.

The issue in both cases belonged basically to the realm of industrial disputes. The lower staff of the company were allegedly driven to accept the managerial tag to avoid legal obligations. They were later dismissed without proper notice. When the issue was taken to the Madras High Court in a writ petition, it held that the termination was illegal. The Bombay High Court, in the Ciba case, had doubts over its role and, therefore, a full bench considered the question. It concluded that it had no jurisdiction to deal directly with labour disputes. Appeals from both the judgements, contradicting each other, landed in the Supreme Court. It approved of the Bombay High Court view.

There are two aspects to the problem. First, the fundamental rights angle. The employees invoked the non-discriminatory provision in Article 14 and the right to life and livelihood in Article 21. Second, the employment contract, enabling the management to terminate an employee by merely giving him a short notice, was challenged as illegal and violative of Section 23 of the Contract Act, which invalidates agreements against public policy.

The companies argued that the high court could not issue a writ of mandamus to a private authority that is discharging its functions on the basis of a contract entered into between the employer and the employees. The only remedy available to the employees is to move a civil court.

In such cases, the courts have been reluctant to exercise their power of judicial review. Whenever the power was exercised against employees of private limited companies, it was based only on the basis of the public law element involved in the issue. Two recent cases illustrates the position. In GM, Kisan Sahkar Chini Mills vs Satrughan Nishad (2003), the workers filed writ petitions in the Allahabad High Court asserting that they were permanent workers. The cooperative sugar mill opposed the petitions contending that the high court could not go into the question in a writ petition. The Supreme Court approved of the latter view.

In Federal Bank vs Sagar Thomas (2003), the Kerala High Court held that the bank was performing a public duty and, therefore, it was included in the definition of "other authorities" in Article 12 of the Constitution which deals with state. On appeal, the Supreme Court declared that a private company carrying on business of a scheduled bank could not be termed as carrying on a statutory or public duty.

"Any business or commercial activity, whether banking, manufacturing or similar activity generating resources, employment, production and resulting in circulation of money which do have an impact on the economy of the country in general, cannot be classified as one falling in the category of those discharging duties or functions of a public nature," the court had held in that case. However, in the case of public sector undertakings, the rule might be different as in the case of Delhi Transport Corporation vs DTC Mazdoor Congress (1991). In that case, the Supreme Court ruled that the rule of termination violated Article 14 as the absolute power to terminate employees was against public policy.

In the present judgement, it clarified the law further and underlined that "the public policy principles can be applied to employment in public sector undertakings in appropriate cases, but the same cannot be applied to private bodies." There are sufficient safeguards in labour law to protect employees in the private sector.

However, the Supreme Court has not totally shut the doors of the high court to such petitions. "If the private body is discharging a public function and the denial of any right is in connection with the public duty imposed on such body, the public law remedy (like the writ of mandamus) can be enforced. The duty cast on the public body may be either statutory or otherwise and the source of such power is immaterial, but there must be the public law element in such action."

Very often, it is difficult to distinguish between public law and private law remedies. This is especially so when the government and its arms are increasingly employing contractual techniques at all levels. The power must be used for lawful purposes and not unreasonably. The power of judicial review in such cases would depend upon the nature of the contractual power and its use. Therefore, the last word on this issue has not yet been said.