008-SLLR-SLLR-1997-V3-PINNAWALA-v.-SRI-LANKA-INSURANCE-CORPORATION-LTD.-AND-OTHERS.pdf
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Pinnawala v. Sri Lanka Insurance Corporation Lid. and Others
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PINNAWALA
v.SRI LANKA INSURANCECORPORATION LTD. AND OTHERS
SUPREME COURT.
G. P. S. DE SILVA. C.J..
RAMANATHAN, J. AND
DR. SHIRAN I BANDARANAYAKE. J.
S.C. APPLICATION NO. 583/95(PR).
MAY 16. AND JUNE 26, 1997.
Fundamental Rights – Extension of Service – Refusal of Extension – ArbitraryExercise of the Employer's Discretion – Article 12(1) of the Constitution.
The application ol the petitioner for the third extension of his services after he hadreached 55 years of age was refused by the employer company on the groundthat he was found wanting in the discharge of his duties.
Held:
In refusing the petitioner's application for an extension of service there was novalid and proper exercise of discretion vested in the respondents; the discretionwas exercised against the petitioner on the basis of findings reached at anex parte inquiry. The exercise of the discretion was arbitrary, devoid of a rationalbasis and was violative of Article 12(1) of the Constitution.
The first respondent company was subject to the control of the state in allimportant matters of policy and arrangement. It was, therefore, a “Governmentalagency or instrumentality" and the impugned act properly fell within the meaningof the expression "executive or administrative action" in Article 126 of theConstitution.
Case referred to:
1. Rajaratne v. Air Lanka Ltd. and Others (1987) 2 Sri L.R. 128APPLICATION for relief for infringement of fundamental rights.
L. C. Seneviratne, P.C. for the petitioner.
Upawansa Yapa, P.C. Solicitor-General with /. Demuni de Silva. S.C. for 1st. 2ndand 9th respondents.
£. D. Wickramanayake with Ms. Anandi Cooray and 0. A. Najeem for 3rd to 8threspondents.
Cur. adv. vult.
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July 16, 1997,
P. S. OE SILVA, C.J.
The petitioner complained that the refusal to grant him his 3rdextension of service beyond the 55th year is violative of thefundamental rights guaranteed to him in terms of Articles 12(1) and12(2) of the Constitution. The petitioner joined the InsuranceCorporation as an Executive in January 1969. In May 1970 he wasappointed as the Personal Assistant to the General Manager. In 1975he was appointed as the Assistant General Manager and in 1980 asthe Deputy General Manager. In December 1993, he was appointedas the General Manager. He was granted the 1st and 2nd extensionsof service but the period of extension of service was limited to 6months. His application for the 3rd extension in service commencingfrom the 15th of September 1995 was refused by letter dated 14.9.95addressed to him by the Chairman of the Sri Lanka InsuranceCorporation Ltd., (2nd respondent). These facts are not in dispute.
In his petition he further avers that a news item appeared in the'Dinamina' newspaper of 11.1.95 alleging that he had been the“Chairman of a committee of five persons from the InsuranceCorporation to collect funds for the UNP election fund." The petitionerhad written to the editor of the Dinamina' denying this allegation.According to the petitioner, the 2nd respondent summoned him to hisoffice and requested him to resign from his post. He had told the 2ndrespondent that the news item was false and requested thatan inquiry be held. However, no inquiry was held in regard to thismatter.
The petitioner pleads that thereafter most of his functions asGeneral Manager were taken away by the 2nd respondentby sending “memos" marked (L), (M). and (N). The result was thatthe petitioner was reduced to the position of a “figure head asGeneral Manager" of the Sri Lanka Insurance Corporation Ltd ,” (1strespondent).
Mr. L. C. Seneviratne for the petitioner submitted that it is not hiscase that the petitioner has a right to an extension of service beyondthe 55th year. Counsel contended that the petitioner has a right to
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make an application for extension of service beyond the 55th yearand that he is entitled to have his application considered fairly andproperly. It was urged that while the matter was within the discretionof the 1st and 2nd respondents, yet the discretion must befairly, reasonably and properly exercised. With these submissions Iagree.
According to the respondents the allegations contained inthe ‘Dinamina' newspaper referred to above had nothing to dowith the refusal of the petitioner’s application for the 3rd extensionof service. The 2nd respondent in his affidavit admits that heissued the memos marked (L), (M) and (N). According to the2nd respondent, these memos were issued by him consequentupon a decision taken by the Board of Directors of the1st respondent (2R18); the decision to issue the "memos" waspursuant to a loss of confidence in the petitioner “based on severalallegations made by the members of the staff and trade unions ofhis improper exercise of duties and functions." In his affidavit hefurther avers "this also prompted me to appoint a committee ofinquiry" comprising Messrs. Ghazzali and W, M, M. F. P. Perera "toexamine and report on these allegations." It is the case for therespondents that the decision to refuse the petitioner's application forthe 3rd extension of service was based largely, if not entirely,on the reports of the committee of inquiry comprisingMr. Ghazzali and Mr. Perera (vide the extracts from the minutes of theBoard Meetings 2R25 and 2R25(a) and the Board Paper 2R26).Moreover the 2nd respondent specifically avers that the petitionerwas not granted his extension of service “not because of his politicalaffiliations but due to the fact that the Board of Directors took the viewthat he was found wanting in the discharge of his duties and hadacted negligently in controlling some areas of work. A detailedaccount of these matters are given in the Board Paper dated 1.8.95,a copy of which is annexed hereto, marked 2R26 and is pleaded aspart and parcel of his affidavit." 2R26 unequivocally states that thecommittee of inquiry was appointed to report on "the variousallegations that are made by the members of the staff at variouslevels and trade unions…".
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The point that needs to be stressed and is of decisive importanceis that at no time was the petitioner summoned before the committeeof inquiry and questioned in regard to the allegations made againsthim. His explanation was not called for either by the committee ofinquiry or by the 2nd respondent. It was submitted on behalf of therespondents that the conclusions of the committee of inquiry werebased on the documents prepared by the petitioner himself; thatthere was no need to call for an explanation from the petitionerbecause the 1st and 2nd respondents did not intend to takedisciplinary action against him. With these submissions, I am afraid, Icannot agree. If the petitioner was informed of the allegations againsthim and if he was given a fair hearing he may well have given asatisfactory explanation, or even shown the falsity of the allegationsmade against him. Admittedly, he was never given an opportunity ofbeing heard on the alleged acts of negligence which according tothe respondents, resulted in a loss of confidence. The petitioner wasat no time made aware of the reasons for the alleged loss ofconfidence in him. It is thus manifest that the petitioner was refusedhis application for an extension of services on the basis of allegationsin respect of which he was not heard and of which he was totallyunaware. There was no valid and proper exercise of the discretionvested in the 1st and 2nd respondents; the discretion was exercisedagainst the petitioner on the basis of findings reached at an ex parteinquiry. Thus the exercise of the discretion was arbitrary, devoid of arational basis, and was violative of Article 12(1).
It was strongly urged on behalf of the respondents both by thelearned Solicitor General and Mr. E. D. Wickremanayake that, in anyevent, the application must fail for the reason that the act complainedof does not constitute “executive or administrative action” within themeaning of Article 126 of the Constitution. Counsel emphasized thatthe 1st respondent was since February, 1993, a limited liabilityCompany incorporated under the provisions of the Companies ActNo. 17 of 1982. It is governed by the Memorandum of Association(2R3) and the Articles of Association (2R4) like any other publiccompany. Mr. Wickremanayake submitted that there was nothing toprohibit the Board of Directors from taking a decision "to go public" at
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any time. In short, the submission was that the 1st respondentCompany was nothing but a commercial venture and could not beproperly called an "organ of the State".
It seems to me, however, that the picture that emerges from areading of the documents filed of record is entirely different. TheMemorandum of Association (2R3) shows that one of its primaryobjects is "to succeed and carry on the business carried on by theInsurance Corporation of Sri Lanka, established under the provisionsof the Insurance Corporation Act No. 2 of 1961.” In other words, it isthe successor to the public corporation. 2R3 is signed by Secretaryto the Treasury. In regard to the issued share capital, the Articles ofAssociation (2R4) provides as follows: “In terms of section 2(3) of theConversion of Public Corporations or Government Owned BusinessUndertakings into Public Companies Act No. 23 of 1987 the entiretyof the first issued share capital of the Company will be allotted by theRegistrar of Companies to the Secretary to the Treasury (in his officialcapacity) for and on behalf of the State. Thereafter the Secretary tothe Treasury is entitled to sell or dispose the entirety or any part ofsuch shares at any given interval on the basis of a written directivereceived from the Minister in charge of Finance of the State.” It is tobe noted that the decision to dispose of the shares is not by theBoard of Directors.
2R5 refers to a Special General Meeting of the shareholders heldon 5.9.94. The venue was the Ministry of Finance and theshareholders present were (1) The Secretary to the Treasury; (2) TheDeputy Secretary to the Treasury; and (3) The Director General(Ministry of Finance). Letter dated 14.12.93 (2R15) sent by theSecretary to the Treasury unequivocally directs the Chairman of theCompany to appoint the petitioner as General Manager. Thedocuments Y14, Y15, Y16 and Y17 establish the fact that theSecretary to the Treasury has control over the extension of serviceand promotion of the employees.
Y18 is another significant letter addressed to the 2nd respondentby the Director General, Ministry of Finance. It gives an indication ofthe extent of the control exercised by the Ministry in regard tomanagement of the 1st respondent. The letter reads thus:-
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"07 April 1994Ministry of FinanceGeneral TreasuryDepartment of FiscalPolicy & Economic AffairsThe Secretariat, Colombo 1.
The Chairman;
Sri Lanka Insurance Corporation Ltd.,
No. 21, Vauxhall Street,
Colombo 1.
Dear Sir.
Audit of the 1993 Accounts of the Sri LankaInsurance Co. Ltd., and National Insurance Co. Ltd.I forward herewith a copy of the letter addressed to the CompanySecretary conveying a directive of the Secretary to the Treasury asthe sole shareholder of the Company.
The Secretary to the Treasury has directed that an AGM be heldearly in order to appoint an Auditor.
The Secretary to the Treasury has directed that you draft suitableand explicit Terms of Reference for the audit of accounts of SLIC Ltd.,for 1993. Please note that the Terms of Reference should coveradequately an analysis of the key financial indicators, includingsolvency margins and networth which highlight the performance ofyour company during 1993 and should be similar to the Terms ofReference you drafted to call bids from international auditors for thefinancial year 1992.
Please forward Terms of Reference of the auditors early forinformation of the Secretary to the Treasury.
Yours faithfully
Sgd.
Director General."
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Y20 is another letter addressed to the 1st respondent by theSecretary to the Ministry of Finance directing the collection ofdividends from “Government owned Companies’’ and the transferof surplus balances to the "Treasury deposit Account."
On a consideration of the aforesaid documents, I am of the viewthat the 1st respondent is subject to the control of the State in allimportant matters of policy and management. The documents showthe "pervasive character of the control" exercised by the State. Thenature of the incorporation is not the decisive test. In Rajaratne v. AirLanka Ltd., and others(1>, Atukorale J., considered the meaning of theexpression “executive or administrative action” in Article 126. After acareful and exhaustive review of the important decisions of theSupreme Court of India and of this court the learned Judgeexpressed himself as follows:
"The expression ‘executive or administrative action’ has notbeen defined in our Constitution. It excludes the exercise of thespecial jurisdiction of this court under Article 126 in respect of theacts of the legislature or the judiciary. Article 4 of the Constitutionmandates that the fundamental rights enshrined in Part III ‘shall berespected, secured and advanced by all the organs of thegovernment'. An examination of our decisions indicate that thisexpression embraces actions not only of the government itself butalso of organs, instrumentalities or agencies of the government.The government may act through the agency of its officers. It mayalso act through the agency of juridical persons set up by theState by, under or in accordance with a statute. The demands andobligations of the modern welfare State have resulted in analarming increase in the magnitude and range of governmentalactivity. For the purpose of ensuring and achieving the rapiddevelopment of the whole country by means of public economicactivity the government is called upon to embark on a multitude ofcommercial and industrial undertakings. In fact a stage has nowbeen reached when it has become difficult to distinguish betweengovernmental and non-governmental functions. This distinction isnow virtually non-existent. The rigid and tardy procedurescommonly associated with governmental departments and the red
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tapism inherent in such slow motion procedures have compelledthe government to resort to the device of public corporations tocarry on these numerous commercial and industrial undertakingswhich require professional skills of a highly specialised andtechnical nature. But by resorting to this device of the corporateentity the government cannot be permitted to liberate itself from itsconstitutional obligations in respect of fundamental rights which itand its organs are enjoined to respect, secure and advance. In thecircumstances I am of opinion that the expression ‘executive oradministrative action’ in Articles 17 and 126 of the Constitutionshould be given a broad and not a restrictive construction. I amtherefore inclined to adopt the test of governmental agency orinstrumentality propounded in the later decisions of the IndianCourts as being a more rational and meaningful test than the "sovereign power test relied upon by learned President's Counsel.”
Having regard to the documentary evidence placed before us byboth the petitioner and the 2nd respondent, I hold that the 1strespondent is a "governmental agency or instrumentality" and theimpugned act properly falls within the meaning of the expression“executive or administrative action” in Article 126 of the Constitution.The petitioner is accordingly entitled to a declaration that thefundamental right guaranteed to him under Article 12(1) has beeninfringed.
Mr. Seneviratne submitted that the petitioner does not now claim"reinstatement". He confines his claim to compensation. In hispetition he has 'asked for rupees five million as compensation. On aconsideration of the totality of the facts and circumstances of thiscase, I direct the first respondent to pay the petitioner a sum ofRs. 70,000/- {Seventy thousand) as compensation and a sum ofRs. 5000/- (Five thousand) as costs.
RAMANATHAN, J. – I agree.
DR. SH1RANI BANDARANAYAKE, J. – I agree.
Relief granted.