AFGIS Is State Under Article 12, Says Supreme Court

The Supreme Court has set aside the Delhi High Court's view that the Air Force Group Insurance Society (AFGIS) is not 'State' under Article 12 of the Constitution. A Bench of Justice Sanjay Karol and Justice Vipul M. Pancholi allowed the civil appeal arising out of SLP(C) No. 27366 of 2023 and restored the writ petition of AFGIS employees for fresh adjudication on merits.

Background

AFGIS was set up in 1976 under the Societies Registration Act, 1860, with the sanction of the President of India, to run a welfare and insurance scheme for Air Force personnel and their families. By a special meeting on 27 December 2016, the Board of Trustees decided to revise pay scales in line with the Sixth Central Pay Commission. However, on 13 February 2017, the Board resolved to sever any linkage with Central Government Pay Commissions, and on 22 May 2017 employees were asked to sign acceptance of the revised terms.

The employees moved the Delhi High Court under Article 226. By a common judgment dated 1 February 2023, a Division Bench dismissed the petitions, holding that AFGIS is a self-contained, self-funded society without deep and pervasive governmental control. Relying on Ajay Hasia, Pradeep Kumar Biswas, and Chander Mohan Khanna, the High Court concluded that AFGIS did not satisfy the tests under Article 12 and that historical pay parity with Central Government scales did not create an enforceable right or convert the Society into an instrumentality of the State.

The Supreme Court's Reasoning

The Supreme Court took a different view on the constitutional status of AFGIS. It emphasised the nature of insurance for armed forces personnel, observing that protection of service members continues even after superannuation, and that insurance is a critical instrument for safeguarding their physical and mental well-being, dignity and economic security. Such welfare, the Court held, operates as part of the State's continuing obligation, and AFGIS in effect functions as a conduit for discharging that obligation.

The Court also recorded a telling inconsistency in AFGIS's own stand. AFGIS had earlier claimed to be 'Government' for the purpose of obtaining exemption from service tax, on the footing that it was under the control of the Ministry of Defence. In the writ proceedings, however, it resisted the employees by denying that very governmental character. The Court observed that an organisation cannot be 'Government' for one purpose and not for another.

Holding

The Supreme Court held that AFGIS is 'State' within the meaning of Article 12 of the Constitution. The writ petition before the High Court is therefore maintainable. The petition, pending since 2017, has been restored to the Delhi High Court with a request to decide it expeditiously on the employees' grievance regarding withdrawal of pay parity with Central Government Pay Commission scales.

Takeaway

Bodies discharging welfare functions for the armed forces cannot blow hot and cold on their governmental character to suit the litigation at hand; once they hold themselves out as Government for fiscal benefits, that stand will weigh against them when employees invoke Article 226.