LEO SAMSON v. SRI LANKAN AIRLINES LTD AND OTHERS

008-SLLR-SLLR-2001-V-1-LEO-SAMSON-v.-SRI-LANKAN-AIRLINES-LTD-AND-OTHERS.pdf


LEO SAMSON
v.
SRI LANKAN AIRLINES LTD AND OTHERS
SUPREME COURT
S.N. SILVA. CJ.
P.R.P. PERERA. J.
BAND ARAN AYAKE. J.
GUNASEKERA. J. ANDISMAIL. J.
SC (FR) APPLICATION NO. 791/98 ANDSC (FR) APPLICATION NO. 797/986™ SEPTEMBER AND 13th NOVEMBER. 2000
Fundamental rights – Rights of employees of Sri Lankan Airlines Ltd -Termination of services – Posting of an officer as Manager. Kuwait -Shareholders Agreement between the Government and Emirates Airlines- Whether in view of the agreement and amended Articles of Associationof Air Lanka, the impugned acts constitute "executive or administrativeaction" ■ Article 12(1) of the Constitution.
The petitioner in Application No. 791/98 alleged that the terminationof his services by letter dated 17. 11. 98 addressed to him by the• Chief Executive Officer of Sri Lankan Airlines Ltd (3rd respondent) isviolative of Article 12(1) of the Constitution. The petitioner in ApplicationNo. 797/98 alleged that inter alia, his being posted as Manager. Kuwaitis violative of Article 12(1) of the Constitution.
A preliminary objection was raised on behalf of Sri Lankan Airlines (the1SL respondent) that consequent upon the Shareholders Agreementsigned by the Government with Air Lanka and Emirates Airlines and theamended Articles of Association of Air Lanka the impugned acts do notconstitute "executive or administrative action." The petitioners cannottherefore invoke the fundamental rights jurisdiction of the court. By thesaid Agreement. Emirates agreed to purchase 40% of the shares of AirLanka. However, it acquired only 26% of shares.
Air Lanka was subsequently renamed Sri Lankan Airways.
According to the amended Memorandum and Articles of Association, thebusiness of the Company was to be conducted by a Board of Directorshaving 7 members. 4 of whom are approved by the Government, thebalance 3 are appointed by Emirates (the Investor) which number
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includes the Managing Director. The Investor was placed in charge of themanagement of the business of the Company. It was submitted on behalfof the 1st respondent that the impugned decisions remain that of theInvestor and the Government has no control over the Board of Directorseven if such decisions need the prior consent of the Board.
Held :
“Executive or administrative action" (within the meaning of ChapterIII of the Constitution) would include executiye or administrativeaction of the State or its agents or instrumentalities.
Per Ismail. J.
“It is clear from the provisions of the Memorandum and Articles ofAssociation and the Shareholders Agreement that the management,power, control and authority over the business of the Company isvested in the Investor and with certain management decisions beingvested exclusively in it."
Per Ismail. J.
“Applying the test of government agency or instumentality, it is clearupon a consideration of the provisions of the amended Articles ofAssociation and the Shareholders Agreement . . . that theGovernment has lost the “deep and pervasive” control exercised byit over the Company earlier. The action taken by Sri Lankan Airlinescannot now be designated “executive or administrative action.”
Cases referred to :
Perera o. University Grants Commission FRD VOL(l) 103: (1978-80)
1 Sri L R 128
Wyetunga v. Insurance Corporation of Sri Lanka (1982) 1 Sri L R 1
Rajastan State Electricity Board. Jaipur v. Mohan Lai AIR (1967)SC 1857
Sukhdev Singh v. Bhagatran AIR (1975) SC 1331
R.D. Shetty v.International Airport Authority AIR (1979) SC 1682
Ajay Hasia v. Khalid Miy ib AIR 1981 SC 487
Som Prakash v. Union of India AIR 1981 SC 212
Rajaratne v. Air Lanka Limited (1987) 2 Sri L R 128 at 146
Wyeratne v. The People's Bank (1984) 1 Sri L R 1
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PRELIMINARY objection to an application for relief for infringment offundamental rights.
S.C. NO 791/98
FaiszMusthapha. P.C. with Dr.Jayampathy Wickramaralneand SaiyeewaJayawardena for petitioner.
Romesh de Silva. P.C. with Palitha Kumarasinghe. Hiran de Alwis andSugath Caldera for Is' respondent.
U. Egalahewa State Counsel for Attorney-General.
S.C. NO 797/98
D.S. Wyesinghe. P.C. withSanjeewaJayawardenaand Ms. PriyadharshiniDias for petitioner.
Romesh de Silva. P.C. with Palitha Kumarasinghe. Hiran de Alwis andSugath Caldera for 1M. 3rt. S’*1. 7th and 8th respondents.
U. Egalahewa State Counsel for Attorney-General.
Cur. adv. vult.
January 11, 2001.
ISMAIL, J.The petitioner in SC (FR) Application No . 791/98 hassought a declaration that the letter dated 17. 11.98 of the ChiefExecutive Officer of Sri Lankan Airlines Limited, terminatinghis services is null and void and that it is in violation ofhis fundamental right to equality under Article 12(1) of theConstitution.
The petitioner in SC (FR) Application 797/98 has sought,inter alia, a declaration that his promotion to Grade Mil beante-dated to take effect from May 1995 instead of April 98:that he be reverted to his substantive post as Route Manager.Middle East and Asia, and that his posting as Manager.Kuwait, referred to in the directive dated 23. 11. 98. be
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declared null and void and that his fundamental right toequality guaranteed to him under Article 12(1) of theConstitution has been violated;
These two Applications were taken up together in view ofthe preliminary objection raised on behalf of Sri LankanAirlines Limited that the impugned acts of its management,referred to in the respective petitions, do not constitute‘executive or administrative action’ and that the petitionerscannot therefore invoke the fundamental rights jurisdiction ofthis court.
The jurisdiction of the Supreme Court to grant reliefagainst any infringement or imminent infringement offundamental rights recognized by Chapter 111 of theConstitution is restricted to cases of such interference byexecutive or administrative action. The expression ‘executiveor administrative’ action has not been defined. However, thetrend of our decisions has been to construe it as beingequivalent to actions of the government or of an organ orinstrument of the government. In Perera v. University GrantsCommission111, it was observed that the expression executive oradministrative action would include “executive oradministrative action of the State or its agencies orinstrumentalities”.
It was pointed out in Wijetunga v. Insurance Corporation ofSri Lanka121, that Article 4(d) of the Constitution mandated allorgans of the Government to respect, secure and advance thefundamental rights enshrined in it and that “action by theorgans of the government alone constitutes the executive oradministrative action that is a sine qua non or basic toproceedings under Article 126.” While there can be no doubtthat the expression would include official acts of allgovernment departments and its officers, a problem could beenvisaged when the acts of entities other than that of thegovernment are being questioned.
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In India the meaning of “other authorities" which fallwithin the definition of State in Article 12, which reads asfollows, has been considered in several cases.
“In this Part, unless the context otherwise requires, ‘theState' includes (i) the Government and Parliament of India.
the Government and the legislature of each State and
(a) all local or other authorities within the territory ofIndia, (b) all local or other authorities under the control ofthe Government of India."
The majority judgment in Rqjastan State Electricity Board.Jaipur v. Mohan Lai01, adopted the test that a statutoryauthority “would be within the meaning of 'other authorities'if it has been invested with statutory power to issue bindingdirections to the parties, the disobedience of which wouldentail penal consequences or it has the sovereign power tomake rules and regulations having the force of law".
Ray C.J. adopted this in his judgment in Sukhdeu Singh v.Bhagatram141. Mathew, J. observed, in a concurringjudgment.that the concept of 'State' has changed radically in recentyears. He said:
“the question for consideration is whether a publiccorporation set up under a special statute to carry on abusiness or service which Parliament thinks necessary tobe carried on in the interest of the nation is an agency orinstrumentality of the State and would be subject to thelimitations expressed in Article 13(2) of the Constitution.A State is an abstract entity. It can only act through theinstrumentality or agency of natural or juridical persons.Therefore, there is nothing strange in the notion of theState acting through a corporation and making it anagency or instrumentality of the State."
This doctrine of agency and state instrumentality wasadopted in R.DI Shetty v. International Airport Authority151.Bhagwati. J. said;
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“While accepting the test laid down in RajasthanElectricity Board v. Mohan Lalisapra) and followed by Ray
J. in Sukhdev Singh v. Bhagatram(supra), we would, forreasons already discussed, prefer to adopt the test ofGovernmental instrumentality or agency as one more testand perhaps a more satisfactory one for determiningwhether a statutory corporation, body or other authorityfalls within the definition of ‘State.’ If a statutorycorporation, body or other authority is an instrumentalityor agency of Government, it would be an ‘authority’ andtherefore ‘State’ within the meaning of that expression inArticle 12.“
In Ajay Hasia v. Khalid Mujib161, Bhagwati, J. whileaffirming the broader test of agency and state instrumentalityformulated by Mathew, J. in Sukhdev’s case added that ifagencies or instrumentalities of the government were not heldto be “other authorities”, it would be the easiest thing for thegovernment to assign to a plurality of corporations almostevery state business or economic activity and thereby cheatthe people of the fundamental rights guaranteed to them.Bhagwati, J. then formulated the relevant tests fordetermining whether a corporation was an agency orinstrumentality of the government adding that they were notlimited in their application to a corporation created by statutebut that it was equally applicable to a company or a society.According to him the factors that could be taken into accountas being relevant in determining whether a corporation is anagency or instrumentality of the government are whether theentire share capital is being held by the government; whetherthe financial assistance being provided by the State is to theextent that it meets almost the entire expenditure of theundertaking; whether the corporation enjoys a state conferredor a state protected monopoly status and whether there is adeep and pervasive government control of the corporation.
In Som Prakash v. Union of India171, Krishna Iyer. J.delivering the judgment of the majority stated;
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"A study of Sukdhev’s case(supra) . . . yields theclear result that the preponderant considerations forpronouncing an entity as State agency or instrumentalityare (i) financial resources of the State being the chieffunding source, (ii) functional character beinggovernmental in essence, (iii) plenary control residing inGovernment, (iv) prior history of the same activity havingbeen carried on by the Government and made over to anew body, and (v) some element of authority or command.Whether the legal person is a corporation created by astatute, as distinguished from under a statute, is not animportant criteria although it may be an indicium."
After a review of the Indian authorities referred to above.Atukorale, J. in Rajaratne v. Air Lanka Limited181, was inclinedto adopt the test of governmental agency or instrumentalityand was of the view that it was a more rational and meaningfultest. He stated that the expression ‘executive oradministrative'action in Article 17 and 126 of our Constitutionshould be given a broad and not a restrictive construction. Hetook into account the following matters as being relevant inrespect of Air Lanka Ltd. when considering a similar objectionin April 1987 and concluded that its acts fell within the ambitof the expression executive or administrative action'.
The subscribers to the Memorandum of Associationconsisted of 7 persons of whom 4 were individuals and theother three were Corporations. Three of the individualswere those who held the offices of the Secretary to theCabinet, the Secretary to the Ministry of Finance andPlanning and the Secretary to the Treasury. The threeCorporations consisted of the Bank of Ceylon, the People'sBank and the Ceylon Shipping Corporation which aresemi-government organizations.
The Board of Directors was enjoined to ensure that in thedisposal or allotment of the shares the total holding ofshares in the capital of the company by or on behalf of the
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Government shall not be at any time less than 60% of theissued capital for the time being.
On the basis of the Government holding of 60% of theissued capital, it was entitled to nominate a majority ofDirectors and the business of the company was managedby the state.
More than 90% of the issued share capital was helddirectly by the Government whilst the Peoples’s Bank andBank of Ceylon held virtually the balance.
Air transport services was earlier a function that wascarried on by the Government under the name of AirCeylon through the Department of Civil Aviation.
He found that the cumulative effect of these factorsand features rendered Air Lanka an agent or organ of thegovernment and its actions were therefore designated asexecutive or administrative action’. Atukorale. J. concluded;
“All the above circumstances enumerated by me show thatAir Lanka is no ordinary company. It has been brought intoexistence by the Government, financed almost wholly bythe Government and managed and controlled by theGovernment through its nominee directors. It has been socreated for the purpose of carrying out functions of greatpublic importance which was once carried out by theGovernment. . . ”
Air Lanka was incorporated on 11. 01. 79 under theCompanies Ordinance as a limited liability company and wasowned solely by the Government. However, since 30. 03. 98there has been a change in this position after the Governmententered into a Share Sale and Purchase Agreementconsequent to which 40% of its shares were to be sold toEmirates, a company incorporated in the Emirate of Dubai,which operates the international airline of the United Arab
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Emirates. However, at present the Emirates holds only 26% ofthe shares of Air Lanka Limited.
The Government also entered into a ShareholdersAgreement on 30. 03. 98 with Air Lanka Limited and thepurchaser Emirates (Investor) for an initial period of ten years.In terms of the said Agreement, the management, power,control, authority over and responsibility for the business andaffairs of the Company is vested with Emirates for theimplementation of an approved business plan. Section 2.2.1 ofthe Agreement further provides that in matters over which theInvestor exercises such power, control and authority, theInvestor shall not be required to refer such matters to or seekthe approval at a General Meeting of the company or the Boardof Directors and that such matters shall be validly conductedwithout such reference or consent. If was also stipulated thatfor the avoidance of doubt, such power, control and authorityis vested in the Investor notwithstanding its status as minorityshareholder in the Company.
Air Lanka Limited changed its name to Sri Lankan AirlinesLimited and it was so incorporated on 09. 05. 99.
The Memorandum and Articles of Association, as amended,provide for the business of the Company to be conducted bythe Board of Directors, which consists of seven Directors, fourof whom are to be appointed by the Government and threeexclusively by the Investor. The Board appoints the ManagingDirector and a Finance Director as nominated by the Investorfrom among the nominee Directors appointed by the Investor.The Managing Director manages the business of the Companyand is in turn accountable to the Board for its management.The senior management of the Company reports to him and hehas to keep the Chairman informed and shall take his adviceinto consideration.
The quorum necessary for the transaction of the businessof the Board is for any four Directors to be present in person.
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of whom at least two must be Nominee Directors appointed bythe Investor and at least two appointed by the Government. Nodecision can be taken at any General Meeting unless a quorumis present and it should include at least one authorizedrepresentative of the Investor. Thus the Government has nocontrol over the Board as the decisions of the Board have to betaken by both the representatives of the Government and theInvestor, both voting in favour of such decision.
It is clear from the provisions of the Memorandum andArticles of Association and the Shareholders Agreementthat the management, power, control and authority over thebusiness of the Company is vested in the Investor and withcertain management decisions being vested exclusively in it.Although the written consent of the Board of Directors isnecessary for certain decisions, it has been pointed out thatthe decisions complained of in these cases do not come withinthe matters stipulated in the clause needing the prior consentof the Board. Such decisions remain that of the Investor andthe Government has.no control over the Board of Directorseven if such decisions need the prior consent of the Board.
The following observations of Sharvananda, CJ. inWijeratne v. The People's Bank191, can be appropriatelyconsidered in resolving the question as to whether Sri LankanAirlines is an agency of the state or its instrumentality.
“When a corporation is wholly controlled not only in itspolicy making but also in the execution of its functions itwould be an instrumentality or agency of the State. On theother hand, where the Directors of the Corporation, thoughappointed by the government with a direction to carry outgovernmental policies, are otherwise free from the fettersof governmental control in the discharge of their functions,the corporation cannot be treated as instrumentality oragency of the State. It is not possible to formulate anall inclusive or exhaustive test to determine whether aparticular corporation is acting as an instrumentality or
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agency of the government for its action to be labelledexecutive or administrative action. Mere finding of somecontrol would not be determinative of the question. Theexistence of deep and pervasive State control may afford anindication that a corporation is a State agency."
Applying the test of government agency orinstrumentality, it is clear upon a consideration of theprovisions of the amended Articles of Association and theShareholders Agreement referred to above that theGovernment has lost the “deep and pervasive" controlexercised by it over the Company earlier. The action taken bySri Lankan Airlines cannot now be designated 'executive oradministrative action’. I therefore uphold the preliminaryobjection and hold that this Court has no jurisdiction toentertain the Applications of the petitioners. BothApplications are accordingly dismissed without costs.
S.N. SILVA, CJ.P. R. P. PERERA J.DR. S. A. BAND ARANAYAKE. J.P. S. GUNASEKERA J.Preliminary objection upheld.Applications dismissed.
1 agree.I agree.1 agree.I agree.