Rishabh ADMIN LAW Project

DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY VISAKHAPATNAM, A.P., INDIA

STATUS OF PUBLIC CORPORATION UNDER ARTICLE 12 OF THE

CONSTITUTION OF INDIA

A

PROJECT REPORT

ON

ADMINISTRATIVE LAW

SUBMITTED TO:

Dr. P Sreedevi

Associate Professor

Rishabh singh201290 (6th semester)

An Analysis of Public Corporation

ACKNOWLEDGEMENT

A major research project like this is never the work of anyone alone. The contributions of many

different people, in their different ways, have made this possible. I extend my thanks to my

friends and seniors who greatly supported me, in my research work. Also the support, guidance,

advice throughout the research given by Dr. P Sreedevi is greatly appreciated. Indeed, without

his guidance, I would not be able to put the topic together. The experience has been an

interesting and rewarding one. I would also like to thank all those people who directly or

indirectly helped me through out the making of the project.

RISHABH SINGH

6TH SEMESTER

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ABSTRACT

Most of the Fundamental Rights are claimed against the state and its instrumentalities and not

against private bodies. Art. 13 (2), as stated, bars the ‘state’ from making any ‘law’ infringing a

Fundamental Right.

The two important concepts used in this provision, are: ‘state’ and ‘law’. This concept needs

some elucidation.

Fundamental Rights are most claimed mostly against ‘state’.

Article 12 gives an extended significance to the term ‘state’. Art. 12 clarify the term ‘state’

occurring in Art. 13(2), or any other provision concerning Fundamental Rights, have an

expensive meaning.

The most significant expression used in Art. 12 are “other authorities”. This expression is not

defined in the constitution. It is, therefore, for the Supreme Court, as the Apex Court, to define

this term. It is obvious that wider the meaning attributed to the term “other authorities” in Art.

12, wider will be the coverage of the Fundamental Rights, i.e. more and more bodies can be

brought within the discipline of the Fundamental Rights.

The interpretation of the term ‘other authorities’ in Art. 12 has a caused a good deal of

difficulty, and judicial opinion has undergone changes over time. Today’s government performs

a large number of functions because of the prevailing philosophy of a social welfare state. The

government acts through natural persons as well as juridical persons. Some functions are

discharged through the traditional government departments and official while some functions are

discharged through autonomous bodies existing outside the departmental structure, such as,

companies, corporations etc.

While the government acts departmentally, or through officials, undoubtedly, falls within the

definition of ‘state’ under Art. 12, doubts have been cast as regards the character of autonomous

bodies. Whether they could be regarded as ‘authorities’ under Art. 12 and, thus, be subject to

Fundamental Rights?

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TABLE OF CASES

Rajsthan State Electricity Board v. Mohanlal

Sukhdev v. Bhagatram

Ramanna D. Shetty v. International Airport Authority

Sabhaji Tewary v. India

Som Prakash v. Union of India

Ajay Hasia v. Khalid Mujib

S. C. Chandra, v. State of Jharkhand

TABLE OF CONTENTS

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Objectives 7

Significance and scope of study 7

Review of literature 7

Research methodology 7

Hypothesis 8

Introduction 8

Other Authorities 9

Status of Public Corporation 9

Rights and duties of public corporation 9

Liabilities of public corporation. 11

whether “state” includes the judiciary 15

The Following Test to Adjudge 16

Conclusion 18

Bibliography 19

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OBJECTIVES

To analyze the status of public corporation under article 12 of the Indian constitution.

To compare the Indian provision with the laws of another country.

To analyze applicability of public corporation in the economic structure.

To analyze certain decided cases for proper understanding.

To suggest reforms to the existing laws.

SIGNIFICANCE AND SCOPE OF THE STUDY

There are several branches of the science of law. The Administrative Law is a recent branch of

the science of law. In the political science there are few Administrative organs. Certain functions

have been allotted to these organs in the Administrative Machinery. The Administrative law

deals with the structure, functions and powers of the Administrative organs. It also lays down the

methods and procedures which are to be followed by them during the course of remedies which

are available to the persons whose rights and other privileges are damaged by their operations.

This research paper has been prepared to analyze different provision of the administrative law

and its applicability and enforceability in different departments and functionary of the

government. A few numbers of cases and reports have been analyzed in the present paper.

REVIEW OF THE LITERATURE

The completion of this paper has required collection of relevant information through a number of

law journals, books by renowned authors on administrative law and several websites. Since

administrative law is not a new concept, a plethora of information can be found very easily.

RESEARCH METHODOLOGY

This project report is based on analytical and descriptive Research Methodology. Secondary

and Electronic resources have been largely used to gather information and data about the topic.

Books and other reference as guided by Faculty have been primarily helpful in giving this

project a firm structure. Websites, dictionaries and articles have also been referred.

HYPOTHESIS

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Administrative law, though being an ancient means of administration function, cannot be said to

be serving the intended purpose due to several reasons.

INTRODUCTION

Most of the Fundamental Rights are claimed against the state and its instrumentalities and not

against private bodies.1 Art 13 (2), as stated, bars the ‘state’ from making any ‘law’ infringing a

Fundamental Right.

The two important concepts used in this provision, are : ‘state’ and ‘law’. These concepts need

some elucidation.

Fundamental Rights are most claimed mostly against ‘state’.

Article 12 gives an extended significance to the term ‘state’. Art. 12 clarify the term ‘state’

occurring in Art. 13(2), or any other provision concerning Fundamental Rights, have an

expensive meaning.

According to Art 12, the term ‘state’ includes-

(i) The Government and Parliament of India:

(ii) The Government and the Legislature of a State;

(iii) All local authorities; and

(iv) Other authorities within the territory of India, or under the control of the Central

Government.

The actions of any of the bodies comprised within the term ‘state’ as defined in Art. 12 can be

challenged before the courts under Art 13(2) on the ground of violating Fundamental Rights.

The most significant expression used in Art. 12 is “other authorities”. this expression is not

defined in the constitution. It is, therefore, for the Supreme Court, as the Apex Court, to define

this term. It is obvious that wider the meaning attributed to the term “other authorities” in Art.

1 Shamdasani v. Central Bank of India. AIR 1952 SC 59; Vidya Verma v. Shivnarain, AIR 1956 SC 108 : (1955) 2 SCR 983.

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12, wider will be the coverage of the Fundamental Rights, i.e. more and more bodies can be

brought within the discipline of the Fundamental Rights.

Other Authorities

The interpretation of the term ‘other authorities’ in Art 12 has a caused a good deal of difficulty,

and judicial opinion has undergone changes over time. Today’s government performs a large

number of functions because of the prevailing philosophy of a social welfare state. The

government acts through natural persons as well as juridical persons. Some functions are

discharged through the traditional government departments and official while some functions are

discharged through autonomous bodies existing outside the departmental structure, such as,

companies, corporations etc.

While the governments act departmentally, or through officials, undoubtedly, falls within the

definition of ‘state’ under Art. 12,2 doubts have been cast as regards the character of autonomous

bodies. Whether they could be regarded as ‘authorities’ under Art 12 and, thus, be subject to

Fundamental Rights?

An autonomous body may be a statutory body, i.e., a body set up directly by a statute, or it may

be a non-statutory body , i.e., a body registered under a general law, such as, the Companies Act,

the Societies registration Act, or a State Co-operative Societies Act, etc. Questions have been

raised whether such bodies may be included within the coverage of Art. 12.

RIGHTS AND DUTIES OF PUBLIC CORPORATIONS

A) Status

A public corporation possesses a separate and distinct corporate personality. It is a body

corporate with perpetual succession and a common seal. It can be sued in its own name. They

have been recognized in the constitution. It expressly provides that the state may carry on any

2 K.A. karim and Sons v. I.T.O., 1983 Tax. L.R. 1168; Hujee Moh. Ibrahim v. Gift Tax Officer, 1983 tax. L.R. 1160; Imperial Chemical Industries ltd. V. Registrar of trade Marks, AIR 1981 Del. 190.

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trade, industry, business or service either itself or through a corporation owned or controlled by it

to the exclusion of the citizens.

B) Rights

A public corporation is a legal entity and accordingly, like any other legal person, it can sue for

the enforcement of its legal rights. It should not, however, be forgotten that it is not a natural

person, but merely an artificial person, and, therefore, cannot be said to be a citizen within the

meaning of the citizenship act, 1955. Therefore, a corporation cannot claim any fundamental

right conferred by the constitution only on citizens. The rights conferred by the part 3 of the

constitution can be enforced not only against the “state” but also against all “local authorities”.

C) Powers

There is no doubt that a statutory corporation can do only those acts a s are authorized by the

statute creating it, and that powers of such corporation do not extend beyond it. A statutory

corporation must act within the framework of its constitution. Its express provision and necessary

implication must at all events be observed carefully. If it fails to act in conformity with law, the

action is ultra vires and invalid.

D) Duties

A statutory corporation being an instrumentality of the state must exercise its power in just, fair

and reasonable manner. Its approach must be beneficial to the general public. It must act bona

fide. Wide powers conferred on corporations are subject to inherent limitation and they should be

exercise honestly and in good faith.3

E) Lifting of veil

In the expanding horizon of modern jurisprudence, lifting of corporate veil is permissible. The

court can look behind the veil to see the real face of the corporation.

3 Mahesh Chandra vs U.P financial corporation. 1993 2 SCC 279: AIR 1993 SC 935.

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LIABILITIES OF PUBLIC CORPORATION

A) Liabilities in contracts

A public corporation can enter into contract and can sue and be sued for breach thereof. Since a

public corporation is not government department, the provisions of article 299 of the constitution

do not apply to it and a contract entered into between a public corporation and a private

individual need not satisfy the requirements laid down in article 299.

B) Liability for crimes

A public corporation may be held vicariously liable for offences commited by its servants in the

course of employment, eg. Libel, fraud, nuisance, contempt of court, etc. since, however, it is

artificial person, it cannot be held liable for any offence which can be committed only by a

natural person.

C) Liability to pay tax

In the absence of grant of immunity in a statute, a public corporation is subject to payment of tax

and other duties like any other person under the relevant laws. The fact that the corporation is

wholly owned or controlled by the government of property in possession of the corporation

belongs to the government does not ipso facto exempt the corporation from payment of taxes as

it cannot be said to be “government”.

CORPORATE CHARACTER

Substantially similar provision in all the acts provide for the establishment of the public

corporations as “a body corporate with perpetual succession and a common seal and power to

hold land without license in mortmain. The acts do not state specifically that the public

corporations are to be in the same footing as any private legal person in respect to legal duties,

charges, etc.

GOVERNMENT CONTROL

A clear point of distinction between the public corporation and the private company lies in the

statutory facility for control of the public corporation by the minister, who is, in turn, responsible

to parliament. Examples of this control and its scope will be examined below where specific

types of public corporation are dealt with. Apart from this area of control there are four other

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areas of control: parliamentary control, control by the means of companies act, ‘consumer’

control and judicial control by the courts. Parliamentary control is achieved through debates,

questions and scrutiny by select committees either in general terms or on those occasions when

some specific financial item is questioned as a result of auditing.

JUDICIAL CONTROL

In the case of most public corporation, and the nationalized industries in particular, there appear

to be few opportunities to challenge their acts as being ultra vires. It is difficult to identify

precisely why this should be the case but there are some broad indications. In the first place, the

statutory powers and responsibilities of many public corporations are quite widely drawn so that

proof of an ultra vires act could be quite difficult. Secondly, government control, eg in the

context of financial sanction for various projects, programmers or schemes may provide a filter

to guard against anything which might be ultra vires. Finally, where the functions of a public

corporation are undertaken mainly through contracts, it is that contractual forum which is focus

of attention so that the main concern is with the law of contract and whether the terms of any

contract have been fulfilled.

In Rajsthan State Electricity Board v. Mohanlal,4 the Supreme Court ruled that a State

electricity board, set up by statute, having some commercial functions to discharge, would be an

‘authority’ under Art. 12. The Court emphasized that it is not a material that some of the powers

conferred on the concerned authority are of commercial nature. This is because under Art. 298,

the government is empowered to carry on any trade or commerce does not, therefore give any

indication that the “Board’ must be excluded from the scope of the word ‘state’ is used in Art.

12.”

In Sukhdev v. Bhagatram,5 three statutory bodies, viz., Life Insurance Corporation, Oil and

Natural Gas Commission and the Finance Corporation, were held to ‘authorities and, thus, fall

within the term ‘state’ in Art. 12. These corporations do have independent personalities in the

eyes of the law, but that does mean that “they are not subject to the control of the government or

that they are not instrumentalities of the government.”6

4 AIR 1967 SC 1857 : (1967) 3 SCR 377.5 AIR 1975 SC 1331 : (1975) 1 SCC 421.6 Ibid.,

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The question was considered more thoroughly in Ramanna D. Shetty v. International Airport

Authority,7 the international Airport Authority, a statutory body, was held to be an ‘authority’.

The Supreme Court also developed the general proposition that an ‘instrumentalities’ or ‘agency’

of the government would be regarded as an ‘authority’ or ‘state’ within Art. 12 and laid down

some tests to determine whether a body could be regarded as an instrumentality or not. Where a

corporation is an instrumentality or agency of the government, it would be subject to the same

constitutional or public law limitation as the government itself. In this case, the Court was

enforcing the mandate of Art.14 against the Corporation.

By now though the question of statutory bodies had been settled, as stated above, yet that of the

non-statutory bodies, still continued to cause confusion and difficulty. In several cases hitherto,

a government company incorporated under the Indian Companies Act had been held to be not an

‘authority’ under Art. 12.8 In Sabhaji Tewary v. India,9 a case decided after Sukhdev, the

Supreme Court ruled that the Indian Council of Scientific Research, a body registered under the

Societies Registration Act (thus a non-statutory body), but under good deal of government

control and funding, was not a ‘state’.

There were judicial observations in Sukhdev to the effect that even a non-statutory body could

be treated as an ‘authority’ under Art 12.If it would be regarded as an instrumentality or agency

of the government. But this observation did not affect the judicial thinking in Sabhajit.10 Again

the Supreme Court made observation in Raman suggesting that a non-statutory body could be

regarded as an ‘authority’ if it could be regarded as an instrumentality of the government, but the

actual body involved there was statutory in nature.

Burmah Shell was nationalized and vested in the Government itself under the Burham Shell

(Acquisition of Undertaking in India) Act, 1976. The Act provided that the undertaking would be

vested in a government company. Accordingly, the undertaking was taken over by the Bharat

Petroleum Corporation, a government company registered under the Indian Companies Act. The

question was whether Bharat petroleum – which was neither a government department nor a

7 AIR 1979 SC 1628 : (1979) 3 SCC 489.8 R.D. Singee v. Secretary, B.S.S.I. Corp., AIR 1974 Pat. 212; M.L. Nohria v. Ins. Corp. of India, AIR 1979 P and H 183; Abdul Ahmad v. Govt. Woollen Mill, AIR 1979 J and K 57.9 AIR 1975 SC 1329 : (1975) 1 SCC 485. 10 AIR 1975 SC 1329 : (1975) 1 SCC 485.

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statutory body but merely a company – could be regarded as an “authority” and so “state” under

Art.12.

In Som Prakash v. Union of India,11 the company was held to fall under Art. 12. The Court

emphasized that the true test for the purpose whether the body was an ‘authority’ or not was not

whether it was formed by statute, or under a statute, but it was ‘functional’. In the instance case,

the key factor was “the brooding presence of the state behind the operations of the body,

statutory or other”. In this case, the body was semi-statutory and semi-non-statutory. It was non-

statutory in origin (as it was registered); it also was recognized by the Act in question and, thus,

had some “statutory flavour” in its operations and functions. In this case, there was formal

transfer of the undertaking from the Government to a government company. The company was

thus regarded as the “alter ego” of the Central Government”. The control by the Govt. over the

corporation was writ large in the Act and in the factum of being a government company. Agency

of a State would mean a body which exercises public functions.12

The question regarding the status of a non-statutory body was finally clinched in Ajay Hasia v.

Khalid Mujib,13 where society registered under the Societies Registration Act running the

regional engineering college, sponsored, supervised and financially supported by the Govt., was

held to be an “authority”. Money to run the college was provided by the State and Central

Governments. The State Govt. could review the functioning of the college and issue suitable

instructions if considered necessary. Nominees of the State and Central Governments were

members of the societies including its Chairman. The Supreme Court ruled that where

corporation is an instrumentality or agency of the government, it must be held to be an authority

under Art. “the concept of instrumentality or agency of the govt. is not limited to a corporation

created by a statute but is equally applicable to a company or society……” thus, a registered

society was held to be an ‘authority’ for the purpose of Art. 12. Ajay Hasia has initiated a new

judicial trend, viz., that of expanding the significance of the term “authority”.

WHETHER “STATE” INCLUDES THE JUDICIARY

11 AIR 1981 SC 212 : (1981) SSC 449.12 Deewan Singh v. Rajendra Prasad Arvedi, (2007) 10 SCC 528, 542 : AIR 2007 SC 767, it is difficult to extract precisely the principle on which the judgment proceeded. 13 AIR 1981 SC 487 : (1981) 1 SCC 722.

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The definition of State under Article 12 of the Constitution does not explicitly mention the

Judiciary. Hence, a significant amount of controversy surrounds its status vis-a-vis Part III of the

Constitution. Bringing the Judiciary within the scope of Article 12 would mean that it is deemed

capable of acting in contravention of Fundamental Rights. It is well established that in its non-

judicial functions, the Judiciary does come within the meaning of State. However, challenging a

judicial decision which has achieved finality, under the writ jurisdiction of superior courts on the

basis of violation of fundamental rights, remains open to debate[xix].

On the one hand, the Judiciary is the organ of the State that decides the contours of the

Fundamental Rights. Their determination, of whether an act violates the same, can be right or

wrong. If it is wrong, the judicial decision cannot ordinarily be said to be a violation of

fundamental rights. If this were allowed, it would involve protracted and perhaps unnecessary

litigation, for in every case, there is necessarily an unsatisfied party. On the other hand, not

allowing a decision to be challenged could mean a grave miscarriage of justice, and go

unheeded, merely because the fallibility of the Judiciary is not recognized.

The erroneous judgment of subordinate Court is subjected to judicial review by the superior

courts and to that effect, unreasonable decisions of the Courts are subjected to the tests of Article

14 of the Constitution.

The Bombay High Court expressed the view that the Judgment of the Court cannot be challenged

for violation of Fundamental Rights.

In the case of Naresh v. State of Maharashtra,

The issue posed before the Supreme Court for consideration whether judiciary is covered by the

expression ‘State’ in Article 12 of the Constitution. The Court held that the fundamental right is

not infringed by the order of the Court and no writ can be issued to High Court. However in yet

another case, it was held that High Court Judge is as much a part of the State as the executive.

In Rati Lal v. State of Bombay , it was held that Judiciary is not State for the purpose of Article

12. But Supreme Court in cases of A.R. Antulay v. R.S. Nayak and N. S. Mirajkar v/s State of

Maharashtra, it has been observed that when rule making power of Judiciary is concerned it is

State but when exercise of judicial power is concerned it is not State.

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http://www.lawctopus.com/academike/authorities-article-12-constitution/#_edn19


In Amir abbas v. State of M.B., the Court made the following observation: Denial of equality

before the law or the equal protection of the laws can be claimed against executive or legislative

process but not against the decision of a competent tribunal.

The Following Test to Adjudge

In Ajay Hasia, the Supreme Court laid down the following tests to adjudge whether a body is an

instrumentality of the government or not:

(1) If the entire share capital of the body is held by the government, it goes a long way towards

indicating that the body is an instrumentality of the government.

(2) Where the financial assistance given by the government is so large as to meet almost entire

expenditure of the body, it may indicate that the body is impregnated with governmental

character.

(3) It is relevant factor if the body enjoys monopoly status which is conferred or protected by

the state.

(4) Existence of deep and pervasive state control may afford an indication that the body is a

state instrumentality.

(5) If the functions performed by the body are of public importance and closely related to

governmental functions, it is a relevant factor to treat the body as an instrumentality of the

government.

Mere regulatory control whether under statute or otherwise would not serve to make a body a

part of the State. Hence when the facts revealed:

(1) The Board of Control of Cricket in India was not created by statute;

(2) No part of the share capital of the Board was held by the Government;

(3) Practically no financial assistance was given by the Government to meet the whole or entire

expenditure of the Board;

(4) The Board did enjoy a monopoly status in the field of cricket but such status is not State

conferred or State protected.

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(5) There was no existence of deep and pervasive State control and the control, if any, is only

regulatory in nature as applicable to other similar bodies.

(6) The Board as not created transfer of government owned corporation and was an autonomous

body.

The Court noted that the union of India has been exercising certain control over the activities of

the Board. In regard to organizing cricket matches and travel of the Indian team abroad as also

granting of permission to allow the foreign teams abroad as also granting of permission to allow

the foreign teams to come to India. The Court also assumed that even if there was some element

of public duty involved in the discharge of the Board’s functions the Board would not be an

authority for the purpose of Art. 12.

In the absence of any authorization, if a private body chooses to discharge any functions or

duties which amount to public duties or State functions which is not prohibited by law then it

may be considered to be an instrumentality of the State.14

In S. C. Chandra, v. State of Jharkhand,15 the Supreme Court came dangerously close to

creating confusion in relation to the concepts of instrumentality of the State. The judgment of

this case was a common one and involved, amongst others Bharat Coking Coal Limited. Without

any discussion whatsoever the Court appears to have approved the view taken by Division Bench

of the Jharkhand High Court that BCCL was “not an instrumentality of the State as per section

617 of the Companies Act as its dominant function was raise to coal and sale and imparting

education was not its dominant function.”

In Sabhajit tewary, the Council of Scientific and Industrial Research (CSIR) was held to not an

“authority under Art. 12. Now, the Supreme Court has overruled Tewary holding it to be

erroneous. CSIR has now been held to be an “authority” under Art. 12.16

Bombay Port Trust is an instrumentality of the State and hence an “authority” within the

meaning of Article 12 and amenable to writ jurisdiction of the Court.17

14 Zee Telefilms Ltd. v. Union of India, (2005) 4 SCC 649 : AIR 2005 SC 2677.15 (2007) 8 SCC 279 : AIR 2007 SC 3021.16 Pradeep Kumar Biswas v. IICB, 2002 5 SCC 111 : (2002) 4 JT 146.17 Jamshed Harmushiji Wadia v. Board of trustees, Port of Mumbai, (2004) 3 SCC 241 : AIR 2004 SC 1815.

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The multiple test as laid down by the majority view in Pradip Biswas is to be applied for

ascertaining whether a body is a State within the meaning of Art. 12.18

CONCLUSION

The status of public corporation under Art 12 of the Constitution in India is the State. Above we

had seen the various cases where the some corporation held “authority” or the “State” and the

Supreme Court has also given many views regarding the public Corporation. In the absence of

any authorization, if a private body chooses to discharge any functions or duties which amount to

public duties or State functions which is not prohibited by law then it may be considered to be an

18 Ajit Shingh v. State of Punjab, AIR 1967 SC 856 : (1967) 2 SCR 143.

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instrumentality of the State. ‘State’ within Art 12 and laid down some tests to determine whether

a body could be regarded as an instrumentality or not. Where a corporation is an instrumentality

or agency of the government, it would be subject to the same constitutional or public law

limitation as the government itself. In this case, the Court was enforcing the mandate of Art.14

against the Corporation. The most significant expression used in Art. 12 is “other authorities”.

This expression is not defined in the constitution. It is, therefore, for the Supreme Court, as the

Apex Court, to define this term. It is obvious that wider the meaning attributed to the term “other

authorities” in Art. 12, wider will be the coverage of the Fundamental Rights, i.e. more and more

bodies can be brought within the discipline of the Fundamental Rights.

BIBLIOGRAPHY

Books Referred:

1. Durga Das Basu, Administrative Law (Kamal Law House, Calcutta, 5th edn., 1998).

2. M P Jain and S N Jain, Principles of Administrative Law (Wadhawa, Nagpur, 2001).

3. Wade and Forsyth, Administrative Law, 9th Edn., Oxford Publication.

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4. I.P. Massey, Administrative Law, Sixth Edition, Eastern Book Company.

Websites referred

lawcommissionofindia.nic.in/101-169/report145.pdf, last accessed on 20th March, 2015.

https://archive.org/.../elementsofpublic032357mbp/elementsofpublic03235, last accessed

on 21st March, 2015

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