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ORGANIZATION OF PROTECTION OF HUMAN RIGHTS ANDRIGHTS OF INSURANCE EMPLOYEES AND OTHERSv
PUBLIC ENTERPRISES REFORM COMMISSION AND OTHERSSUPREME COURT
DR. SHIRANI BANDARANAYAKE, J.
DISSANAYAKE, J.
SOMAWANSA. J.
FR 385/2003JUNE 11, 2007JULY 16, 19, 31.2007
Fundamental rights – Article 12, Constitution – Executive or administrativeaction? – Tests?- Conversion of Public Corporations and Government OwnedBusiness undertakings into Public Companies Act – No. 23 of 1987
The two petitioners – trade unions – which represented all the employees ofthe 2nd respondent Sri Lanka insurance Company Ltd (SLIC Ltd) and the 3rdpetitioner an employee of SLIC Ltd, had contended that the decision of the 2ndrespondent SLIC Ltd., to retire employees who have reached the age of 55years on the basis of the letters of retirement already issued and or on thebasis of criteria other than fitness of the employee to work would be aninfringement of Article 12(1). It was also contended that the right of employeesof the 2nd respondent to extension of service beyond the age of 55 years wasa right enjoyed not only when it was a State owned corporation but also whenit was converted into a share based public company under Act 23 of 1987, andthat the employees have always had the right to request for extension ofservice after 55 years up to 60 years of age.
The respondent contended that, the refusal of the petitioners’ extension ofservice do not constitute executive or administrative action.
Held:
Per Dr. Shirani Bandaranayake, J.
“The constitutional guarantee of fundamental rights are directed againstthe State and its organs, however there is no definition of executive oradministrative action in the Constitution, its definition is postulated by thedecisions of this Court which have been arrived at after severaldeliberations at various stages through majority and dissentingjudgment”.
Organization of Protection of Human Rights and Rights of Insurance Employees and others
QQv Public Enterprises Reform Commission and others317
Except the 0.0435% retained by the Secretary to the Treasury for thepurpose of disputed claims to shares, which would have to be allocatedto employees against whom disciplinary inquiries are pending in theevent of they being exonerated there are no share of 2nd respondentSLIC Ltd., held by the Government — SLIC Ltd., did not have a singleDirector representing the Government in its Board of Directors. Nofinancial assistance is being provided to the 2nd respondent SLIC Ltd,,by the Government and it does not enjoy a State conferred or Stateprotected monopoly.
It is evident that the 2nd respondent – SLIC Ltd. is not an instrumentalityor an agency of the Government and there is no deep and pervasiveGovernment control over the 2nd respondent – since the signing of theshare sale and purchase agreement on 11.04.2003.
Per Dr. Shirani Bandaranayake, J.
‘The percentage of the share capital of the relevant institution held by theGovernment the amount of financial assistance given to such aninstitution by the State and the existence of deep and pervasive controlexercised by the Government over an institution in my view are the mostreliable tests that could be applied in deciding whether a particularinstitution would come within the scope and ambit of executive oradministrative action, as a consideration of all the circumstances it isapparent that there is no state control over the 2nd respondent and it isnot an Instrumentality or an agency of the Government’*.
APPLICATION under Article 126 of the Constitution on a preliminary objection
taken.
Cases referred to:-
Leo Samson v Sri Lanka Air Lines Ltd and others 2001 Sri LR 914
Ajay Hajia v Kha/id Mujib AIR 1981 SC 487
S. C. Perera v U. G. C. FRD Vol. 103
Velmurugu v Attorney-General 1981 1 Sri LR 406
Mariadas v Attorney-General FRD Vol. 11 397
Ratnasara Thero v Udugampoia Superintendent of Police 19831 Sri LR 461
Gunawardane v Perera 1983 1 Sri LR 305
Wijetungav Insurance Corporation 1982 1 Sri LR 1
Chandrasenav Paper Corporation FRD Vol 11 281
Rajaratne v Air Lanka Ltd. 1987 2 Sri LR 128
Rajanthan State Electricity Board Jaipur v Mohanfal AIR 1967 SC 1857
Sukhder Singh v Bhagatram AIR 1975 SC 1331
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tn re R. D. Shelty International Airport Authority of India All IR 1979 SC1628
Jayakody v Sri Lanka Insurance and Robinson Hotel Co. Ltd and others2001 1 Sri LR 365
Batty Weerakoon with Chamantha Weerakoon Unamboowe lor petitioner.
$. L. Gunasekera with Priyantha Jayawardena for 2nd respondent.
Nerin Pulle, SSC for 1st and 3rd to 6th respondents.
December 12, 2007
DR. SHIRANI BANDARANAYAKE, J.
The 1st and 2nd petitioners are two trade unions, duly registeredunder the Trade Union Ordinance, which represent all theemployees of the 2nd respondent and the 3rd petitioner was anemployee of the 2nd respondent. The petitioners stated that theemployees of the 2nd respondent have always had the right torequest for extensions of service after the age of 55 years up to 60years of age. This, according to the petitioners, had been thepractice from the time of the establishment of the InsuranceCorporation of Sri Lanka. The petitioners alleged that the right ofemployees of the 2nd respondent to extensions of service beyondthe age of 55 years was a right they enjoyed not only when it wasa state owned Corporation, but also when it was converted into ashare-based Public Company under Act, No. 23 of 1987. Accord-ingly the petitioners submitted that by the decision of the 2ndrespondent to retire employees, who have reached the age of 55years on the basis of the letters of retirement already issued and/oron the basis of criteria other than fitness of the employee to workconsidering the health and service record, irremediable loss wouldbe caused to the said employees and would be an infringement ofthe petitioners’ fundamental rights guaranteed in terms of Article12(1) of the Constitution.
This Court granted leave to proceed for the alleged infringementof Article 12(1) of the Constitution.
When this matter was taken for hearing several preliminaryobjections were raised by the learned Senior State Counsel for the1st, 3rd, 4th, 5th and 6th respondents and the learned Counsel for
Organization of Protection of Human Rights and Rights of Insurance Employees and others
SC v Public Enterprises Reform Commission and others (Dr. Shirani Bandaranayake. J.) 319
the 2nd respondent. Learned Senior State Counsel, accordinglytook up the following preliminary objections:
The refusal of the petitioners, extensions of service do notconstitute executive or administrative action within themeaning of Article 126 of the Constitution; and
This application is time barred.
Learned Counsel for the 2nd respondent, whilst associatinghimself entirely with the aforementioned preliminary objections alsoraised the following preliminary objections:
The 1st and 2nd petitioners are Trade Unions which donot have corporate personality and therefore have nofundamental rights guaranteed to them by the Cons-titution;
the 3rd petitioner had made an application to the LabourTribunal which granted him compensation in a sum of Rs.260,850/- and that order was set aside in appeal by HighCourt of the Western Province and therefore he is notentitled to any relief in terms of section 31B(5) of theIndustrial Disputes Act;
Since there is no allegation whatsoever of the violation of afundamental right of any person by the 2nd respondent, thepetitioners cannot be granted any relief against the 2ndrespondent; and
Article 126 only permits a petitioner to make an applicationin respect of the violation of a fundamental right of suchpetitioner and relief only in respect of such petitioner.
At the hearing it was agreed that out of the aforementionedpreliminary objections only the items No. 01, 02 and 03 would betaken into consideration.
The refusal of the petitioners extension of service do notconstitute executive or administrative action within themeaning of Article 126 of the Constitution.
Learned Senior State Counsel contended that on severalgrounds it is evident that this application should be dismissed in
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limine, as the impugned decision of the 2nd respondent to refuseextensions of service to its employees and more specifically to the3rd petitioner, is clearly a decision outside the scope of executiveor administrative action in terms of Article 126 of the Constitution.Accordingly his position was that the 1st and 3rd to 6th respondentshave no control as the 2nd respondent has ceased to be an agencyof the Government.
Learned Senior State Counsel specifically submitted that since11.04.2003, upon the signing of the Share Sale and PurchaseAgreement, the Government of Sri Lanka ceased to have anycontrol and/or authority in the management of the 2nd respondent.Moreover, since 11.04.2003 there was not even a single Directorrepresenting the Government in the Board of Directors of the 2ndrespondent Company.
The contention of the learned Counsel for the petitioners in thisregard was based on the submission made by the 2nd respondentin its objections at paragraph 3.1, where it was stated that,
“The entire case of the petitioners is founded upon the
alleged conduct of the 2nd respondent in refusing extensions ofservice to the 3rd petitioner and other unnamed and unidentifiedemployees of the 2nd respondent…. which according to thepetition itself occurred in June 2003 while the ‘privatization’ tookplace in April 2003'.
Based on the aforementioned position, learned Counsel forthe petitioners contended that this statement projected a patentlyfalse position. It had been the understanding of the petitionersthat the infringement of their fundamental right in terms of Article12(1) of the Constitution had commenced with the privatization ofthe Sri Lanka Insurance Corporation Ltd., and was revealed tothe petitioners only by the 1st respondent's letter dated07.07.2003 (P26). Accordingly the petitioners' contention wasthat the sale of the State’s 90% of shares of the 2nd respondentby the Government through the 1st respondent under the PublicEnterprises Reform Commission Act, that necessary steps toprotect the rights of the employees of the Company to security ofservice, which included the right to be considered for yearlyextensions of service after they had completed 55 years of age
Organization of Protection of Human Rights and Rights of insurance Employees and others v
QC Public Enterprises Reform Commission and others (Dr. Shirani Bandaranayake. J.)321
(as amended later to 57 years), has not been taken.
Having stated the position taken by the respondents and thepetitioners let me now turn to consider whether the refusal of thepetitioners’ extension of service constitute executive oradministrative action within the meaning of Article 126 of theConstitution.
The 2nd respondent’s affidavit is quite revealing in this regard asit contains the relevant details pertaining to pre 2003 and post 2003position. Accordingly, the 2nd respondent was initially incorporatedin terms of the Insurance Corporation Act, No. 2 of 1961 and wasknown as the Insurance Corporation of Ceylon. The status of the2nd respondent had changed in 1993 as it was converted into acompany incorporated under the Companies Act in terms of theConversion of Public Corporations and Government OwnedBusiness Undertakings into Public Companies Act, No. 23 of 1987.Since the conversion, the 2nd respondent was known as the SriLanka Insurance Corporation Ltd.
A Director of the 2nd respondent had averred in his affidavitthat since the said incorporation in 1993 until 11.04.2003, the2nd respondent was wholly owned by the Government of SriLanka.
The contention of the respondents was that this positionchanged on 11.04.2003 with the Government of Sri Lanka enteringinto an agreement for the sale of shares of the 2nd respondent withMilford Holdings (Pvt.) Ltd., Greenfield Pacific E. M. Holdings Ltd.,The Distilleries Company of Sri Lanka Aitken Spence and Co. Ltd.,and Aitken Spence Insurance (Pvt.) Ltd. (2R1). Accordingly theGovernment of Sri Lanka had sold 45 million shares representing90% of the issued share capital of the 2nd respondent on11.04.2003 to Milford Holdings (Pvt.) Ltd and Greenfield Pacific E.M. Holdings Ltd. in terms of the agreement 2R1. Under the saidagreement, provision was also made to give an option to thepermanent employees of the 2nd respondent to purchase thebalance 10% of the issued shares of the 2nd respondent. Suchquantity of shares, which were not purchased by the saidemployees were to be purchased by the said Milford Holdings(Pvt.) Ltd., and Greenfield Pacific E.M. Holdings Ltd., and until such
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time the said shares were purchased by the employees of the 2ndrespondent and/or the said two Companies, the Government of SriLanka were to retain ownership of the said 5 million shares.Further, provision was made in the said agreement that theGovernment of Sri Lanka,
“shall have no special right to the Company (i.e. the 2ndrespondent) (including without limitation the right to nominateDirectors of the Company), but the seller (i.e. the Government ofSri Lanka) be entitled to exercise the voting rights attached tosuch employee shares."
Accordingly out of the said balance of 10% of shares, 0.1229%(61,441 shares) were opted to be taken as shares by theemployees and 9.8336% (4,916,807 shares) were purchased bythe Milford Holdings (Pvt.) Ltd., the proceeds of which had beendistributed among the employees. The balance 0.0435% (21,750shares) was retained by the Secretary to the Treasury in respect ofdisputed claims to shares and the shares, which would be allocatedto employees against whom disciplinary inquiries were pending, inthe event of them being exonerated. The said Director of the 2ndrespondent had further averred in his affidavit that after 11.4.2003when 90% of the issued share capital of the 2nd respondent wassold to the aforementioned two Companies, the Government of SriLanka ceased to have any control in the management of the 2ndrespondent (except to the extent that it had the voting powersordinarily enjoyed by any shareholder of a Company of limitedliability) and did not even have a Director representing it on theBoard of Directors of the 2nd respondent.
On a consideration of the aforementioned circumstances, thequestion arises as to whether the 2nd respondent can be regarded asan agency and/or institute or instrumentality of the Government after11.04.2003. Supporting his contention that since 11.04.2003, the 2ndrespondent had ceased to be an agency or an instrumentality of theGovernment, learned Senior State Counsel relied on the decision inLeo Samson v Sri Lankan Air Lines Ltd. and Othersf-^.
In that matter the petitioners had complained of the terminationof service and posting of an officer as Manager, Kuwait by the SriLanka Air Lines Ltd..which in their view was violative of Article 12(1)
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SC PubSc Enterprises Reform Commission and others (Or. Shirani Bandaranayake. J.)323
of the Constitution. A preliminary objection was raised on behalf ofthe Sri Lanka Air Lines Ltd., that consequent to the shareholderagreement signed by the Government with Air Lanka and EmiratesAirlines and the amended Articles of Association of Air Lanka, theimpugned acts do not constitute executive or administrative action.Further it was stated that the amended Memorandum and Articlesof Association, the business of the Company was to be conductedby a Board of Directors having 7 members, 4 of whom wereappointed by the Government and the other 3 members wereappointed by Emirates, which number included' the ManagingDirector. It was held by a Divisional Bench of this Court that on aconsideration of the provisions of the Memorandum and Articles ofAssociation and the shareholders Agreement that the control andauthority over the business of the Company was vested in theinvestor. Applying the test of government agency or instrumentality,and referring to the decision of Bhagwati, J. (as he then was) inAjay Hasia v Khafid Mujift2 Ismait, J. in his judgment (supra)stated that,
it is clear upon a consideration of the provisions of theamended Articles of Association and the ShareholdersAgreement… that the Government has lost the deep andpervasive’ control exercised by it over the Company earlier. Theaction taken by Sri Lankan Airlines cannot now be designated'executive or administrative action’. ”
The Constitutional guarantees of fundamental rights are clearlydirected against the state and its organs S. C. Perera v UniversityGrants Commission^3>. According to Article 17 of the Constitution,
"every person shall be entitled to apply to the Supreme Court, asprovided by Article 126, in respect of the infringement orimminent infringement, by executive or administrative action, ofa fundamental right to which such person is entitled under theprovisions….."
However, there is no definition of executive or administrativeaction in the Constitution. Its definition is postulated by thedecisions of this Court, which has been arrived at, after severaldeliberations at various stages through majority and dissentingjudgments Velmurugu v Attorney-GeneraMariadas v Attorney
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General5), Ratnasara Thero v Udugampola, Superintendent ofPoliced), Gunawardene v Perera<7>.
The decision in Wijetunga v insurance Corporation^5) could inthis context be cited as a case in point, where serious considerationwas given to the question of the relationship between the thenInsurance Corporation and the State. Referring to this questionSharvananda, A.C.J. (as he then was) stated that,
7s it a Department of Government or servant or instrumentalityof the State? Whether the Corporation should be accorded thestatus of a Department of Government or not must depend onits Constitution, its powers, duties and activities. These are thebasic factors to be considered. One must see whether theCorporation is under government control or exercisesgovernmental functions. For determining the integralrelationship between the State and the Corporation we have toexamine the provisions of the statute by which the Corporationhas been established. ”
In Wijetunga's case (supra), the Supreme Court, afterconsidering the provisions of the Insurance Corporation, Act, No. 2of 1961, took the view that even if the functional test orgovernmental control test is applied, the Corporation cannot beidentified as an organ of the State and its action cannot bedesignated ‘executive or administrative' action in terms of Articles17 and 126 of the Constitution.
Following the decision in Wijetunga v Insurance Corporation(supra), a similar view was taken in Chandrasena v PaperCorporationK9), where it was held that, in terms of Act, No. 49 of1957, the Paper Corporation was not an instrumentality of thegovernment for the action in question to come within the scope of'executive or administrative action’.
In Rajaratne v Air Lanka Ltd.O°>, Atukorale, J. referred to severaldecisions of our Supreme Court and of the Indian Supreme Courtin deciding that Air Lanka was an agent or organ of the Governmentand its action could be designated as executive or administrativeaction for the purpose of granting relief in terms of Article 126 of theConstitution.
Organization of Protection of Human Rights and Rights of Insurance Employees and others v
SC Public Enterprises Reform Commission and others (Dr. Shirani Bandaranayake. J.)325
Considering the test applicable in determining, whether aparticular institution would come within the meaning of executive oradministrative action in terms of Article 126 of the Constitution, itwould be of paramount importance to examine, briefly thedecisions in Rajanthan State Electricity Board, Jaipur vMohanfaW, Sukhder Singh v Bhagatrani'2) and Ajay Hasia vKhaiid Mujib Schravardi (supra).
In Rajanthan State Electricity Board, Jaipur (supra) thequestion, which arose was whether the Rajanthan Electricity Boardwas an authority within the meaning of 'other authorities’ in termsof Article 12 of the Indian Constitution. Article 12 of the IndianConstitution states that,
"/n this part, unless the context otherwise, requires, ‘the State’includes the Government and Parliament of India and theGovernment and Legislature of each of the States and all localor other authorities within the territory of India or under thecontrol of the Government of India."
Considering the question at issue Bhagwati, J. (as he then was),delivering the majority judgment held that the phrase 'otherauthorities’ included all statutory authorities on whom powers areconferred by law.
In Sukhder Singh v Bhagatram Sardan (supra) the questionwhich arose was whether the Oil and Natural Gas Commission, LifeInsurance Corporation and Industrial Finance Corporation areauthorities within the meaning of Article 12 of the IndianConstitution. Considering the issue at hand, Mathew, J., expressedthe view that, in order to answer the question, it would benecessary to ascertain for whose benefit the Corporations werecarrying on their business and stated that,
"When it is seen from the provisions of that Act that onliquidation of the Corporation, its assets shoufd be dividedamong the shareholders, namely; the Central and Stategovernments and others, if any, the implication is clear that thebenefit of the accumulated income would go to the Central andState governments."
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The position taken by Mathew, J., in Sukhder Singh (supra) wascited with approval by Bhagwati, J., (as he then was) in Ajay Hasiav Khalid Mujib (supra), where the Court considered whether asociety registered under the Societies Registration Act is an'authority’ falling within the definition of ‘state’ in terms of Article 12of the Indian Constitution. In the process of considering thisquestion, Bhagwati, J., (as he then was) summarised the relevanttests, which were culled out from the decision in ft. D. SheltyInternational Airport Authority of Indian stating that,
'‘These tests are not conclusive or clinching, but they are merely
indicative indicia which have to be used with care and caution
The said tests as stated by Bhagwati, J. (as he then was) are asfollows:
"(a) … if the entire share capital of the Corporation is held byGovernment, it would go a long way towards indicating thatthe Corporation is an instrumentality or agency ofGovernment:
where the financial assistance of the State is so much as tomeet almost entire expenditure of the Corporation, it wouldafford some indication of the Corporation beingimpregnated with governmental character;
it may also be a relevant factor… whether the Corporationenjoys monopoly status which is the State conferred orState protected;
existence of ‘deep and pervasive’ State control may affordan indication that the Corporation is a State agency orinstrumentality;
if the functions of the Corporation are of public importanceand closely related to governmental functions, it would be arelevant factor in classifying the Corporation as aninstrumentality or agency of Government; and
specifically, if a department of the Government istransferred to a Corporation it would be a strong factorsupportive of this inference of the Corporation being aninstrumentality or agency of Government.”
Organization ot Protection of Human Rights and Rights of Insurance Empioyees and others v
SC Public Enterprises Retoim Commission and others (Dr. Shkani Baotfaranayake. J.)327
Having stated the Indian decisions in relation to the matter inissue and specially the tests identified by the Indian SupremeCourt, let me now turn to consider the question in hand pertainingto this application.
As stated earlier, except the 0.0435% retained by the Secretaryto the Treasury for the purpose of disputed claims to shares, whichwould have to be allocated to employees against whom disciplinaryinquiries are pending in the event of they being exonerated, thereare no shares of the 2nd respondent held by the Government. InLeo Samson’s case {supra), where this Court had held that the actsof Sri Lankan Airlines Ltd. do not constitute executive oradministrative action, Emirates had acquired only 26% of theshares although they had agreed to purchase 40% of the shares ofAir Lanka.
Moreover, in terms of the amended Memorandum and Articles ofAssociation of the Sri Lankan Airlines Ltd., the business of theCompany was to be conducted by a Board of Directors havingseven (7) members out of which four (4) were approved by thegovernment.
Learned Senior State Counsel for the 1st and 3rd to 6threspondents submitted that the 2nd respondent did not have asingle Director representing the Government in the Board ofDirectors of the 2nd respondent. Furthermore, it was stated that, nofinancial assistance is being provided to the 2nd respondent by theGovernment and that it does not enjoy a State conferred or Stateprotected monopoly status.
In the circumstances, on the basis of the test stipulated inInternational Airport Authority of India (supra), it is evident that the2nd respondent is not an instrumentality or agency of theGovernment and there is no deep and pervasive Governmentcontrol over the 2nd respondent since the signing of the ShareSale and Purchase Agreement on 11.04.2003 <2R1).
Our attention was also drawn to the decision in Jayakody v SriLanka Insurance and Robinson Hotel Co. Ltd. and Others^ 14> wherethis Court had held that the State had the effective ownership andcontrol over the Sri Lanka Insurance and Robinson Hotel Co. Ltd.
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It is to be clearly borne in mind that Jayakody (supra) wasdecided in 2001, prior to the privatization of the 2nd respondentCorporation. For the purpose of the present application what isrelevant would be the Share Sale and Purchase Agreementdated 11.04.2003 (2R1) which clearly stipulates that except forthe 0.0435% of share retained by the Secretary to the Treasury,the rest of the shares were purchased by the 2ndrespondent.
Thus it is to be noted that since 11.04.2003, the character ofthe the then Sri Lanka Insurance had been changed from itsprevious status and a comparison suggestive of State controlbased on the position of the 2nd respondent prior to 11.04.2003cannot be considered for the purpose of this application.
The percentage of the share capital of the relevant institutionheld by the Government, the amount of financial assistancegiven to such an institution by the State and the existence ofdeep and pervasive control exercised by the Government overan institution, in my view are the most reliable tests that could beapplied in deciding whether a particular institution would comewithin the scope and ambit of executive or administrative actioncontemplated in terms of Article 126 of the Constitution. On aconsideration of all the circumstances of this application it isapparent that there is no State control over the 2nd respondentand it is not an instrumentality or an agency of theGovernment.
In such circumstances I uphold the preliminary objectionraised by the learned Senior State Counsel for the 1st and 3rd to6th respondents with which the learned Counsel for the 2ndrespondent associated himself entirely that the refusal of thepetitioners’ extensions of service does not constitute executiveor administrative action within the meaning of Article 126 of theConstitution.
Since the said preliminary objection has been upheld I see noreason to indulge in an examination of the other preliminaryobjections raised by learned Counsel for the respondents.
SC Rambukwella v United National Party and others329
For the reasons stated above, this application is dismissed inlimine.
I make no order as to costs.
DISSANAYAKE, J.- I agree.
SOMAWANSA, J.- I agree.
Application dismissed.
