Kapila Hingorani v. State of Bihar - Judicial Profligacy or Philanthropy

Our constitution, which is arguably the largest written constitution in the world, expressly provides for the proliferating chapter of fundamental Rights and lays down the Directive Principles of State Policy. It covers almost every sphere of state activity and demarcates the legislative, judicial and executive domain. The constitution declares India as a SOVEREIGN SOCIALIST SECULAR DEMOCRATIC REPUBLIC. The ever growing chapter of fundamental Rights constitutes a separate part i.e. Part III of the constitution which is the most cherished part and is responsible for all the constitutional jurisprudence that has developed around the right to life provision. The bare wordings of Article21 No one shall be deprived of his life or personal liberty except according to the procedure established by law are made to work for the common man and hold a celestial significance in the Indian legal scheme of things.

All this assures that a citizen gets the basic minimum necessities for the bare subsistence of a dignified survival. The state is responsible for any violation of the Fundamental Rights of citizens. But where the state itself turns into an assassin, the plight of the citizens can not be ignored. Extravagance.

The Affliction:
It was around January 1992 from when the employees of the state owned corporations of Bihar were deprived of their salaries. It took more than ten years for the judiciary to take notice only when a public spirited citizen and a Supreme Court lawyer Kapila Hingorani filed a writ petition under Art.32 of the constitution of India. According to the petitioner, a newspaper report showed that hundreds of employees of various State- owned corporations, public undertakings or other statutory bodies in Bihar had died due to starvation or committed suicide owing to acute financial crisis resulting in acute financial crisis resulting from non- payment of salaries for a long time. There were nineteen such state- owned sick corporations.

The court was moved by a series of Express reports called Bihar & Bloodless Murder provided a graphic account of how nearly 40,000 employees of the Bihar government & from school and college teachers to typists, clerks, sweepers, accountants & had been reduced to penury, not paid salaries for at least 10 years. In its counter affidavit, the State of Bihar did not deny about the factual statement made in the said writ petition. It, however, alleged that salaries had been paid by some of the statutory bodies while the remaining ones faced financial difficulties. The Supreme Court found the counter affidavit to be self-contradictory. The Supreme Court appointed Mr. P.S. Mishra as the amicus curiae. The petitioner contended that the State could not escape its liability in the matter of payment of salaries to its own employees. The petitioner contended that in view of the deaths and the commission of suicide by employees of the State owned corporations, the SC should issue interim directions for payment of salaries to the employees. It was also contended that the govt. companies should discharge their obligation under Art. 21.

The State contended that since most of the companies are constituted under the Companies Act, 1956, the rights and liabilities of the shareholders would be governed by that act and the liabilities of those companies can not be passed on to the State by taking recourse to the doctrine of lifting the veil. The State further contended that in view of the magnitude of the problem, the liability should be apportioned to the extent of eighty percent and ten percent between the Union of India and the State govt. respectively and the remaining part may be met by sale of properties of the respective companies. The Union of India contended that it could not be charged any kind of liabilities of the State.

In the report submitted by Mr. P.S. Mishra, the amicus curiae, it was submitted that the SC could break the corporate veil of the govt. companies because the State was the sole shareholder of the companies and had deep and pervasive control over the affairs. Since such companies were State under Art.12, neither the Union nor the State of Bihar could escape the liability to enforce the liability to enforce the rights of the citizens under Arts.21 and 23.

The Supreme Court formulated the following questions:
1. Whether in a case like this, the Court would take a sheer legal approach and hold that the corporate veil would not be lifted although the citizens right to life and liberty under Art.21 had been violated?
2. Whether the State of Bihar could be asked to render all assistance to the said companies so as to fulfil its own obligations to comply with the citizens rights under Art. 21 and 23 of the Constitution?
3. Whether the State of Bihar could escape its liability having regard to the human rights problem?
4. Whether the liability of the State of Bihar, could be shifted to the Union of India?

Verdict:
The court adopting a very humane approach and held that the corporate veil can be pierced when the corporate personality is found to be opposed to justice, convenience and interest of the revenue or workmen or against public interest. The court while passing the order held that the employees have a human right as also a fundamental right under Article 21 which the states are bound the protect and not by way of an enforcement of their legal right to arrears of salaries.

The court directed the HC to dispose of all liquidation proceedings in respect of government corporations owned and controlled by the state government as expeditiously as possible and pass interim orders for the sale and disposal of the properties thereof for utilization of the same towards payment of salaries of the employees. A three-member committee of retired and sitting judges was to be constituted to scrutinize the liability of the government companies and submit a report to the HC in three months. The Bihar government would bear expenses of the committee and the HC would issue necessary directions to the committee from time to time.

The interim order was given by a bench comprising Chief Justice V N Khare and Justice S B Sinha. The Court directed the State to deposit Rs. 50 crore within two months of the judgment before the Patna High Court for its disbursal to the employees. The High Court shall be entitled to issue requisite directions to the said committee from time to time as and when it deems fit and proper; the Chief Justice said pronouncing the interim order. The High Court, however, in its discretion, may direct disbursement of some funds to the needy employees on ad hoc basis so as to enable them to sustain themselves for the time being, the Chief Justice said.

The supreme court provided 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. The amount of Rs. 50 crores should be deposited in two installments. Half of the amount shall be payable within one month and the balance amount within a month thereafter. The High Court shall see to it that the sum so deposited and otherwise received from any source including by way of sale of assets of the Government Companies/Public Sector Undertakings be paid proportionately to the concerned employee wherefore, the parties may file their claims before it.

Interestingly the Supreme Court also impleaded the State of Jharkhand as a respondent in terms of the liabilities of the State in a State owned corporation JHALCO. So, the court in its final decree directed:
1. The High Court to dispose of all liquidation proceedings in respect of the Government companies owned and controlled by the State of Bihar as expeditiously as possible.

2. A committee not consisting of more than three members chaired by a retired High Court Judge or a sitting District Judge may be appointed who may scrutinize the assets and liabilities of the companies and submit a report to the High Court as expeditiously as possible preferably within three months from the date of constitution of the committee.

3. 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. The amount of Rs. 50 crores be deposited in two installments. Half of the amount shall be payable within one month and the balance amount within a month thereafter. The High Court shall see to it that the sum so deposited and/or otherwise received from any source including by way of sale of assets of the Government Companies/Public Sector Undertakings be paid proportionately to the concerned employee wherefore, the parties may file their claims before it.

4. The Central Government was directed to take a decision as regards division of assets and liabilities of the Government companies/public sector undertakings in terms of the provisions of the State Reorganisation Act, 2000.

5. That the matter be placed again after six months. In view of the 5th direction, the matter was placed before the court on Jan 13, 2005 where the court directed the State of Jharkhand was asked to submit Rs. 25 crores before the High Court. The Committee then constituted found that a sum of Rs. 25, 98, 65,883.00 had been due for payment to the employees of the govt. undertakings. The court again ordered the State of Bihar to submit an amount of Rs. 50 crores before the High Court.

Conclusion
All these directions issued by the Supreme Court were not on the premise that the State is 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 Art.21 which the States are bound to protect in any condition.

The case of Kapila Hingorani v. State of Bihar has been another case where the court has added another gem to the crown of human rights jurisprudence and reaffirmed that the states responsibility of protecting fundamental rights can not be dispensed with, neither in the name of lack of resources nor divided responsibility under the so-called federal structure. The judiciary has been increasingly viewed as an institution to the saviour of people and such moves only reaffirm public faith that is reposed on it as a last resort.

In view of the failure on the part of the statutory authorities to enforce the social welfare legislations e.g. Payment of Wages Act, Minimum Wages Act etc which has resulted in such an abysmal situation, the increasing domain of judicial scrutiny may either be viewed as a balancing mechanism only to be found in a democracy where there is an inherent unison in the functioning of the three wings of the State even provided with a standard separation of powers or can be viewed as an intruding tendency scooping heed under the inefficacy of one wing of the State. At the end it is a win-win situation both for the common man and for the legal academician who considers it as an added feather in circlet of the growing constitutional and legal framework.

The author can be reached at: [email protected]

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