Case Summary
| Citation | Som Prakash Rekhi v. Union of India (1981) 1 SCC 449 |
| Keywords | Government company, Private entity, pension, retirement, gratuity, Article 12, state, expression “other authorities”, BPCL, infringement, fundamental rights, right to property. |
| Facts | Som Prakash was an employee of the Burmah Shell Oil Storage and Distributing Company of India Ltd. He retired from the company at the age of 50 years and sought a pension under the guidelines framed by the company. He was entitled to receive Rs. 165.99 per month as pension and paid Rs. 86 per month as supplementary retirement benefits for 13 months, which was later stopped. The company informed him that two deductions were made from his pension of Rs. 165.99: one for the EPF payment and the other for the gratuity payment. Thus, the pension payable to him was Rs. 40.05. The monthly supplementary retirement benefit of Rs. 86/—was also cut off, though it was at the discretion of the employer and is liable to be stopped. Som Prakash filed a writ under article 32 against the company, contending that the pension scheme is granted by BPCL, a Government company. |
| Issues | Whether Bharat Petroleum Corporation Ltd., a statutory corporation, was an “authority” in the ambit of the “State” under Article 12? Whether is it justified in the public interest, if not legal, to deduct the petitioner’s pension in the name of giving gratuity and EPF? |
| Contentions | Petitioner’s Arguments: BPCL is a “state” within the meaning of Article 12 since it was a company incorporated after Burmah Shell was nationalized. He also argued that the actions of the BPCL were all unjustified arbitrary and not transparent due to the deductions from his pension and removal of supplementary benefits and it violated his fundamental rights under article 21. BPCL is completely owned by, and comes under the total control of, the Government of India; hence, BPCL is taken to be an extension of the State. Respondent’s Argument: BPCL is not a “state” within the meaning of Article 12 as it is an independent entity separate from the Government. Also contended that the deduction of an amount from the Pension of the Petitioner and ceasing the supplementary benefits are by luck due to compliance with the legal provisions and policies prevalent then. Hence, the actions were not arbitrary. The modifications in the pension policy are purely administrative decisions of existing laws and policies which does not violate fundamental rights. |
| Law Points | Justice Krishna Iyer held that two things are essential for the test of the State: Discharging function or doing business as the proxy of the state by wearing the corporation mask. An element of the ability to affect legal relations by power vested in it by law. BPCL is wholly funded by the Government and the services are carried out on behalf of the Government. It was held to be a “State” within the meaning of Article 12. The expression ‘other authority’ is not confined only to statutory corporations alone but also to a non-statutory body like a government company, a registered society, or bodies that have some nexus with the government. Gratuity and provident funds have two different roots. Payment of both should be independent of the other, and any mutual deductions in an employee’s overall social security benefits are never a complete benefit. |
| Judgement | The Supreme Court clarifies that social security allowances to employees after retirement must be interpreted liberally to promote maximum social justice to the working sections of society. It must prevent any bifurcation and should not mislead with tactful and confusing financial modes. |
| Ratio Decidendi & Case Authority | Article 12 of the Constitution of India: Definition: In this Part, unless the context otherwise requires, “the State” includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India. |
Full Case Details
[The petitioner was a clerk in the Burmah Shell Oil Storage Ltd. He retired at the age of 50 after qualifying for a pension, on April 1, 1973. He was also covered by a scheme under the Employees’ Provident Funds and Family Pension Fund Act, 1952. The employer undertaking was statutorily taken over by the Bharat Petroleum Corporation Ltd. under the Burmah Shell (Acquisition of Undertakings in India) Act, 1976, and the Corporation became the statutory successor of the petitioner employer. His pensionary rights, such as he had, therefore, became claimable from the second respondent. The pensionary provision for the Burmah Shell employees depended on the terms of a Trust Deed of 1950 under which a Pension Fund was set up and regulations were made for its administration.
By virtue of Regulation 13, the petitioner was entitled to a pension of Rs. 165.99 subject to certain deductions which formed the controversy in this case. He was also being paid Supplementary Retirement Benefit of Rs. 86/- per month for a period of 13 months after his retirement which was stopped thereafter. By a letter dated September 25, 1974, the employer (Burmah Shell) explained that from out of the pension of Rs. 165.99 two deductions were authorised by Regulation 16. One such deduction was based on Regulation 16(1) because of Employees’ Provident Fund payment to the pensioner and the other rested on Regulation 16(3) on account of payment of gratuity. Resultantly, the ‘pension payable’ was shown as Rs 40.05.
Further, the petitioner claimed and received his provident fund amount under the PF Act and recovered a gratuity amount due under the Payment of Gratuity Act, 1972. The petitioner was intimated by the Burmah Shell that consequent on his drawal of provident fund and gratuity benefits, the quantum of his pension would suffer a pro tanto shrinkage, leaving a monthly pension of Rs 40/-. Since no superannuated soul can survive on Rs. 40/- per month, the petitioner moved the court challenging the deductions from his original pension as illegal and inhuman and demanding restoration of the full sum which he was originally drawing. According to the petitioner, his right to property under Article 19 had been violated.
The first issue before the Supreme Court was whether a writ could be issued under Article 32 of the Constitution against the BPCL, a government company.]
V.R. KRISHNA IYER, J. – 18. A preliminary objection has been raised by Shri G.B. Pai (Counsel for Respondent 2) that no writ will lie against the second respondent since it is neither a Government department nor a statutory corporation but just a company and so the court should reject out of hand this proceeding under Article 32. We do see the force of this contention, notwithstanding the observations in the Airport Authority case [Ramana Dayaram Shetty v. International Airport Authority of India, AIR 1979 SC 1628] that the status of ‘State’ will attach to the Government companies like the second respondent.
19. Let us first look at the facts emerging from the Act and then superimpose the law in Article 12 which conceptualises ‘State’ for the purposes of Part III. After all, cynicism apart, Mark Twain is good chewing-gum for lawyers: “Get your facts first, and then you can distort them as much as you please.” It is common ground that the present writ petition, invoking Article 32, is limited to issuing directions or orders or writs for the enforcement of fundamental rights and the question is whether the addressee is the ‘State’ within the meaning of Article 12 of the Constitution. We will examine this position more closely a little later, but granting that Article 19 is aimed at State action the contours of ‘State’, conceptually speaking, are largely confined to Article 12. We have to study the anatomy of the Corporation in the
setting of the Act and decide whether it comes within the scope of that Article. We have only an inclusive definition, not a conclusive definition. One thing is clear. Any authority under the control of the Government of India comes within the definition. Before expanding on this theme, we may scan the statutory scheme, the purpose of the legislative project and the nature of the juristic instrument it has created for fulfillment of that purpose. Where constitutional fundamentals, vital to the survival of human rights, are at stake functional realism, not facial cosmetics, must be the diagnostic tool. Law, constitutional law, seeks the substance, not merely the form. For, one may look like the innocent flower but be the serpent under it. The preamble, which ordinarily illumines the object of the statute, makes it plain that what is intended and achieved is nationalisation of an undertaking of strategic importance:
And whereas it is expedient in the public interest that the undertakings in India, of Burmah Shell Oil Storage and Distributing Company of India Limited, should be acquired in order to ensure that the ownership and control of the petroleum products distributed and marketed in India by the said Company are vested in the State and thereby so distributed as best to subserve the common good;
It is true that what is nationalised is a private enterprise motivated, undoubtedly, by the need for transferring the ownership and control of the company and its petroleum products distributed and marketed in India. Section 3 is important from this angle.
On the appointed day, the right, title and interest of Burmah Shell, in relation to its undertakings in India, shall stand transferred to, and shall vest in, the Central Government.
20. This provision lays bare the central object of making the Central Government the proprietor of the Undertaking. It hardly needs argument to convince a court that by virtue of Section 3, the Central Government is the transferee of the Undertaking. Had a writ proceeding been commenced during the period of vesting in the Central Government, it could not have been resisted on the score that the employer is not “the State”. The appointed day did arrive and the right, title and interest in Burmah Shell did vest in the Central Government.
21. A commercial undertaking although permitted to be run under our constitutional scheme by government, may be better managed with professional skills and on business principles, guided, of course, by social goals, if it were administered with commercial flexibility and clarity free from departmental rigidity, slow motion procedures and hierarchy of officers. That is why a considerable part of the public undertakings is in the corporate sector.
22. It is interesting that with the industrial expansion, economics was assisted by jurisprudence and law invented or at least expanded the corporate concept to facilitate economic development consistently with the rule of law. Said Woodrow Wilson, several decades back:
There was a time when corporations played a minor part in our business affairs, but now they play the chief part, and most men are the servants of corporations.
This legal facility of corporate instrument came to be used by the State in many countries as a measure of immense convenience especially in its commercial ventures. The trappings of personality, liberation from governmental stiffness and capacity for mammoth growth, together with administrative elasticity, are the attributes and advantages of corporations. A
corporation is an artificial being, invisible, intangible, and existing only in the contemplation of the law. Being the mere creature of the law, it possesses only those properties which the charter of its creation confers on it, either expressly, or as incidental to its very existence. Those are such as are supposed best calculated to effect the object for which it was created. Among the most important are immortality, and, if the expression be allowed, individuality; properties by which a perpetual succession of many persons are considered the same, and may act as a single individual.
Although corporate personality is not a modern invention, its adaptation to embrace the wide range of industry and commerce has a modern flavour. Welfare States like ours called upon to execute many economic projects readily resort to this resourceful legal contrivance because of its practical advantages without a wee bit of diminution in ownership and control of the Undertaking. The true owner is the State, the real operator is the State and the effective controllerate is the State and accountability for its actions to the community and to Parliament is of the State. Nevertheless, a distinct juristic person with a corporate structure conducts the business, with the added facilities enjoyed by companies and keeping the quasi-autonomy which comes in handy from the point of view of business management. Be it remembered though that while the formal ownership is cast in the corporate mould, the reality reaches down to State control. With this background we have to read Section 7 of the Act which runs thus
7. (1) Notwithstanding anything contained in Sections 3, 4 and 5, the Central Government may, if satisfied that a Government company is willing to comply, or has complied with such terms and conditions as that government may think fit to impose, direct by notification that the right, title and interest and the liabilities of Burmah Shell in relation to any of its undertakings in India, shall instead of continuing to vest in the Central Government, vest in the Government company…. (emphasis added)
The core fact is that the Central Government, through this provision, chooses to make over, for better management, its own property to its own offspring. A Government company is a mini-incarnation of government itself, made up of its blood and bones and given corporate shape and status for defined objectives, not beyond.
23. Nor is this any isolated experiment in government formally transferring ownership to a company. There are a number of statutory takeovers in India as in other countries, where the initial vesting is in government, followed by a later transfer to another instrumentality – may be an existing government company or a corporation created by statute or even a society or other legal person. In the present case, a Government company was created anteriorly and by virtue of a notification under Section 7 it became the transferee of the right, title and interest as well as the liabilities of Burmah Shell.
24. The device is too obvious for deception that what is done is a formal transfer from government to a Government company as the notification clearly spells out:
In exercise of the powers conferred by sub-section (1) of Section 7 of the Burmah Shell (Acquisition of Undertakings in India) Act, 1976 (2 of 1976), the Central Government, being satisfied that Burmah Shell Refineries Ltd., a Government company is willing to comply with such terms and conditions as may be imposed by the Central Government, hereby directs that the right, title and interest and the liabilities of Burmah Shell Oil Storage and Distributing Co. of India Ltd. in relation to its undertakings in India, shall, instead of continuing to vest in the Central Government vest with effect from the twenty-fourth day of January 1976, in Burmah Shell Refineries Ltd.
This is the well-worn legal strategy for government to run economic and like enterprises. We live in an era of public sector corporations, the State being the reality behind. Law does not hoodwink itself and what is but a strategy cannot be used as a stratagem.
25. These are the facts when we come to brass tacks. Facts form the raw material out of which the finished product of judicial finding is fabricated after processing through established legal principles. Indeed, in life as in law “it is as fatal as it is cowardly to blink facts because they are not to our taste”. What, then, are the basic facts available from the Act? Constitutional law is not a game of hide and seek but practical real-life conclusions. So viewed, we are constrained to hold that Burmah Shell, a Government company though, is but the alter ego of the Central Government and must, therefore, be treated as definitionally caught in the net of ‘State’ since a juristic veil worn for certain legal purposes cannot obliterate the true character of the entity for the purposes of constitutional law.
26. If we distil the essence of Article 12 textually and apprehend the expanded meaning of “State” as interpreted precedentially, we may solve the dilemma as to whether the Bharat Petroleum is but a double of Bharat Sarkar. Let us be clear that the jurisprudence bearing on corporations is not myth but reality. What we mean is that corporate personality is a reality and not an illusion or fictitious construction of the law. It is a legal person. Indeed, ‘a legal person’ is any subject-matter other than a human being to which the law attributes personality. “This extension, for good and sufficient reasons, of the conception of personality … is one of the most noteworthy feats of the legal imagination.” Corporations are one species of legal persons invented by the law and invested with a variety of attributes so as to achieve certain purposes sanctioned by the law. For those purposes, a corporation or company has a legal existence all its own. The characteristics of corporations, their rights and liabilities, functional autonomy and juristic status, are jurisprudentially recognised as of a distinct entity even where such corporations are but State agencies or instrumentalities. For purposes of the Companies Act, 1956, a Government company has a distinct personality which cannot be confused with the State. Likewise, a statutory corporation constituted to carry on a commercial or other activity is for many purposes a distinct juristic entity not drowned in the sea of State, although, in substance, its existence may be but a projection of the State. What we wish to emphasise is that merely because a company or other legal person has functional and jural individuality for certain purposes and in certain areas of law, it does not necessarily follow that for the effective enforcement of fundamental rights under our constitutional scheme, we should not scan the real character of that entity; and if it is found to be a mere agent or surrogate of the State, in fact owned by the State, in truth controlled by the State and in effect an incarnation of the State, constitutional lawyers must not blink at these facts and frustrate the enforcement of fundamental rights despite the inclusive definition of Article 12 that any authority controlled by the Government of India is itself State. Law has many dimensions and fundamental facts must govern the applicability of fundamental rights in a given situation.
27. Control by government of the corporation is writ large in the Act and in the factum of being a Government company. Moreover, here, Section 7 gives to the Government Company mentioned in it a statutory recognition, a legislative sanction and status above a mere Government Company. If the entity is no more than a company under the company law or society under the law relating to registered societies or cooperative societies you cannot call it an authority. A ration shop run by a cooperative store financed by government is not an authority, being a mere merchant, not a sharer of State power. ‘Authority’ in law belongs to the province of power: “Authority (in Administrative Law) is a body having jurisdiction in certain matters of a public nature.” Therefore, the “ability conferred upon a person by the law to alter, by his own will directed to that end, the rights, duties, liabilities or other legal relations, either of himself or of other persons” must be present ab extra to make a person an ‘authority’. When the person is an ‘agent or instrument of the functions of the State’ the power is public. So the search here must be to see whether the Act vests authority, as agent or instrument of the State, to affect the legal relations of oneself or others.
29. In the present instance, the source of both, read in the light of Sections 3 and 7, is saturated with State functions. Avowedly, the statutory contemplation, as disclosed by Section 7, is that the company should step into the shoes of the executive power of the State. The legislative milieu in which the second respondent came to be the successor of Burmah Shell suggests that the former is more than a mere company registered under the Companies Act. It has a statutory flavour acquired under Section 7. Moreover, everything about the second respondent in the matter of employees, their provident, superannuation and welfare funds, is regulated statutorily unlike in the case of ordinary companies. Sections 9 and 10 deal with these aspects. These two provisions which regulate the conditions of service and even provide for adjudication of disputes relating to employees indicate that some of the features of a statutory corporation attach to this Government Company. Sections 9 and 10, in terms, create rights and duties vis-a-vis the Government Company itself apart from the Companies Act. An ordinary company, even a Government company simpliciter has not the obligations cast on the second respondent by Sections 9 and 10. And, Section 11 specifically gives the Act primacy vis-a-vis other laws. Section 12, although it has no bearing on the specific dispute we are concerned with in this case, is a clear pointer to the statutory character of the Government company and the vesting of an authority therein. This provision clothes the Government company with power to take delivery of the property of Burmah Shell from every person in whose possession, custody or control such property may be. There are other powers akin to this one in Section 12. The provision for penalties if any person meddles with the property of the second respondent emphasises the special character of this Government Company. Equally unique is the protection conferred by Section 16 on the Government Company and its officers and employees “for anything which is, in good faith, done or intended to be done under this Act”. Such an immunity does not attach to employees of companies simpliciter, even if they happen to be Government companies. In the same strain is the indemnity conferred by Section 18. This review, though skeletal, is sufficient strikingly to bring home the point that the Corporation we are concerned with is more than a mere Government company. Whatever its character antecedent to the Act, the provisions we have adverted to have transformed it into an instrumentality of the Central Government with a strong statutory flavour superadded and clear indicia of power to make it an “authority”. Although registered as a company under the Indian Companies Act, the second respondent is
clearly a creature of the statute, the Undertaking having vested in it by force of Section 7 of the Act. The various provisions to which our attention was drawn, an elaboration of which is not called for, emphasise the fact that the second respondent is not a mere company but much more than that and has a statutory flavour in its operations and functions, in its powers and duties, and in its personality itself, apart from being functionally and administratively under the thumb of government. It is a limb of government, an agency of the State, a vicarious creature of statute working on the wheels of the Acquisition Act. We do not mean to say that for purposes of Article 309 or otherwise this Government Company is State but limit our holding to Article 12 and Part III.
32. Let us dilate a little on the living essence of constitutional fundamentals if we are not to reduce fundamental rights to paper hopes and people’s dupes! The judicial branch shall not commit breach of faith with the bill of rights by interpretative exoneration of the State from observance of these founding faiths. The higher values enacted into Part III of the Constitution certainly bind the State in its executive and legislative branches. They are constitutional guarantees to the Indian people, not fleeting promises in common enactments. So long as they last in the National Charter they should not be truncated in their application unless a contra-indication is clearly written into the prescription, a la Articles 31A, 31B and 31C. Article 12 is a special definition with a broader goal. Far from restricting the concept of State it enlarges the scope to embrace all authorities under the control of government. The constitutional philosophy of a democratic, socialist republic mandated to undertake a multitude of socio-economic operations inspires Part IV and so we must envision the State entering the vast territory of industrial and commercial activity, competitively or monopolistically, for ensuring the welfare of the people. This expansive role of the State under Part IV is not played at the expense of the cherished rights of the people entrenched in Part III since both the sets of imperatives are complementary and coexist harmoniously. Wherever the Constitution has felt the need to subordinate Part III to Part IV it has specificated it and absent such express provision, both the Parts must and can nourish happily together given benign judicial comprehension a la Kerala v. N.M. Thomas [AIR 1976 SC 490].There is no inherent conflict between the two parts if orchestrated humanely. We are at pains to emphasise this perspective because the substance of Part III, save where the Constitution says so, shall not be sacrificed at the altar of Part IV by the stratagem of incorporation. It is well known, and surely within the erudite and experienced ken of our ‘founding fathers’, that government embarks on myriad modern commercial activities by resort to the jurisprudential gift of personification through incorporation. This contrivance of carrying on business activities by the State through statutory corporations, government companies and other bodies with legal personality, simplifies and facilitates transactions and operations beyond the traditional and tardy processes of governmental desks and cells noted for their red tape exercise and drowsy dharma. But to use the corporate methodology is not to liberate the State from its basic obligation to obey Part III. To don the mantle of company is to free the State from the inevitable constraints of governmental slow motion, not to play truant with the great rights. Otherwise, a cunning plurality of corporations taking over almost every State business – the post and the rail-road, the T.V. and the radio, every economic ministry activity, why, even social welfare work – will cheat the people of Part III rights by the easy plea: “No admission for the bill of rights; no State here”. From Indian Posts and Telegraphs Limited to Indian Defence Manufacturers Limited, from Social Welfare Board to
Backward Classes Corporation, the nation will be told that ‘the State has ceased to be, save for the non-negotiable sovereign functions; and fundamental rights may suffer eclipse only to be viewed in museum glass cases. Such a situation will be a treachery on the founding fathers, a mockery of the Constitution and a government by puppetry because the crowd of corporations which have carved out all functions will still be controlled completely by the switchboards of bureaucrats and political bosses from remote control rooms in Government Secretariats. The extended definition of “the State” in Article 12 is not to be deadened but quickened by judicial construction. Before our eyes the corporate phenomenon is becoming ubiquitous. What was archaically done yesterday by Government departments is alertly executed today by Government companies, statutory corporations and like bodies and this tribe may legitimately increase tomorrow. This efficiency is not to be purchased at the price of fundamental rights.
33. This Court in Airport Authority pointed its unanimous finger on these events and portents:
Today with tremendous expansion of welfare and social service functions, increasing control of material and economic resources and large scale assumption of industrial and commercial activities by the State, the power of the executive Government to affect the lives of the people is steadily growing. The attainment of socioeconomic justice being a conscious end of State policy, there is a vast and inevitable increase in the frequency with which ordinary citizens came into relationship of direct encounter with State power-holders. This renders it necessary to structure and restrict the power of the executive Government so as to prevent its arbitrary application or exercise. . . .
Today, the Government in a welfare State, is the regulator and dispenser of special services and provider of a large number of benefits, including jobs, contracts, licences, quotas, mineral rights etc. The government pours forth wealth, money, benefits, services, contracts, quotas and licences. The valuables dispensed by government take many forms, but they all share one characteristic. They are steadily taking the place of traditional forms of wealth. These valuables which derive from relationships to government are of many kinds. They comprise social security benefits, cash grants for political sufferers and the whole scheme of State and local welfare. Then again, thousands of people are employed in the State and the Central Governments and local authorities. Licences are required before one can engage in many kinds of businesses or work. The power of giving licences means power to withhold them and this gives control to the government or to the agents of government on the lives of many people. Many individuals and many more businesses enjoy largesse in the form of Government contracts… All these mean growth in the government largesse and with the increasing magnitude and range of governmental functions as we move closer to a welfare State, more and more of our wealth consists of these new forms.
We do not suggest that there is any vice at all in government undertaking commercial or other activities through the facile device of companies or other bodies. But to scuttle Part III through the alibi of ‘company, not State’ – ‘ay, there’s the rub!’ The rationale of this proposition is well brought out by Bhagwati, J:
So far as India is concerned, the genesis of the emergence of corporations as instrumentalities or agencies of government is to be found in the Government of India Resolution on Industrial Policy dated April 6, 1948 where it was stated inter alia that “management of State enterprise will as a rule be through the medium of public corporation under the statutory control of the Central Government who will assume such powers as may be necessary to ensure this”. It was in pursuance of the policy envisaged in this and subsequent resolutions on industrial policy that corporations were created by government for setting up and management of public enterprises and carrying out other public functions. Ordinarily these functions could have been carried out by government departmentally through its service personnel, but the instrumentality or agency of the corporations was resorted to in these cases having regard to the nature of the task to be performed. The corporations acting as instrumentality or agency of government would obviously be subject to the same limitations in the field of constitutional and administrative law as government itself, though in the eye of the law, they would be distinct and independent legal entities. If government acting through its officers is subject to certain constitutional and public law limitations, it must follow a fortiori that government acting through the instrumentality or agency of corporations should equally be subject to the same limitations, (emphasis added)
34. Article 12 gives the cue to forbid this plea. “Other authorities… under the control of the Government of India” are comprehensive enough to take care of Part III without unduly stretching the meaning of “the State” to rope in whatever any autonomous body which has some nexus with government. A wide expansion coupled with a wise limitation may and must readily and rightly be read into the last words of Article 12.
35. Addressing itself to the question of identifying those bodies which are agencies of instrumentalities of government, the court, in Airport Authority, observed:
A corporation may be created in one of two ways. It may be either established by statute or incorporated under a law such as the Companies Act, 1956 or the Societies Registration Act, 1860. Where a corporation is wholly controlled by government not only in its policy-making but also in carrying out the functions entrusted to it by the law establishing it or by the charter of its incorporation, there can be no doubt that it would be an instrumentality or agency of government….When does such a corporation become an instrumentality or agency of government? Is the holding of the entire share capital of the corporation by government enough or is it necessary that in addition, there should be a certain amount of direct control exercised by government and, if so, what should be the nature of such control? Should the functions which the corporation is charged to carry out possess any particular characteristic or feature, or is the nature of the functions immaterial? Now, one thing is clear that if the entire share capital of the corporation is held by government, it would go a long way towards indicating that the corporation is an instrumentality or agency of government….. What than are the tests to determine whether a corporation established by statute or incorporated under law is an instrumentality or agency of government? It is not possible to formulate an all-inclusive or exhaustive test which would adequately answer this question. There is no cut and dried formula which would provide the correct division of corporations into those which are instrumentalities or agencies of government and those which are not. (emphasis added)
36. The court proceeded to crystallise the tests to determine the ‘State’ complexion of corporate bodies, beyond furnishing the full share capital:
“But a finding of State financial support plus an unusual degree of control over the management and policies might lead one to characterise an operation as State action”. [Vide Sukhdev v. Bhagatram, (1975) 1 SCC 421]. So also the existence of deep and pervasive State control may afford an indication that the Corporation is a State agency or instrumentality. It may also be a relevant factor to consider whether the corporation enjoys monopoly status which is State conferred or State protected. There can be little doubt that State conferred or State protected monopoly status would be highly relevant in assessing the aggregate weight of the corporations’ ties to the State.
There is also another factor which may be regarded as having a bearing on this issue and it is whether the operation of the corporation is an important public function. It has been held in the United States in a number of cases that the concept of private action must yield to a conception of State action where public functions are being performed…. If the functions of the corporation are of public importance and closely related to governmental functions, it would be a relevant factor in classifying the corporation as an instrumentality or agency of Government. This is precisely what was pointed out by Mathew, J., in Sukhdev v. Bhagatram where the learned Judge said that ‘institutions engaged in matters of high public interest or performing public functions are by virtue of the nature of the functions performed by government agencies’. Activities which are too fundamental to the society are by definition too important not to be considered government functions”
37. The conclusion is impeccable that if the corporate body is but an ‘instrumentality or agency’ of government, then Part III will trammel its operations. It is a case of quasi- governmental beings, not of non State entities. We have no hesitation to hold that where the chemistry of the corporate body answers the test of ‘State’ above outlined it comes within the definition in Article 12. In our constitutional scheme where the commanding heights belong to the public sector of the national economy, to grant absolution to government companies and their ilk from Part III may be perilous. The court cannot connive at a process which eventually makes fundamental rights as rare as “roses in December, ice in June”. Article 12 uses the expression “other authorities” and its connotation has to be clarified. On this facet also, the Airport Authority case supplies a solution.
If a statutory corporation, body or other authority is an instrumentality or agency of the government, it would be an “authority” and therefore ‘State’ within the meaning of that expression in Article 12.
38. The decisions are not uniform as to whether being an instrumentality or agency of government ipso jure renders the company or other similar body ‘State’. This again involves a navigation through precedents and Bhagwati, J. in Airport Authority has spoken for the court, We may point out here that when we speak of a corporation being an instrumentality or agency of government, we do not mean to suggest that the corporation should be an agent of the government in the sense that whatever it does should be binding on the Government. It is not the relationship of principal and agent which is relevant and material but whether the corporation is an instrumentality of the government in the sense that a part of the governing power of the State is located in the corporation and though the corporation is acting on its own behalf and not on behalf of the government, its action is really in the nature of State action.
39. Let us cull out from Airport Authority the indicia of “other authorities … under the control of the Government of India” bringing a corporation within the definition of “the State”. The following factors have been emphasised in that ruling as telling, though not clinching. These characteristics convert a statutory corporation, a Government company, a cooperative society and other registered society or body into a State and they are not confined to statutory corporations alone.
40. The finale is reached when the cumulative effect of all the relevant factors above set out (see p. 1) is assessed and once the body is found to be an instrumentality or agency of government, the further conclusion emerges that it is ‘State’ and is subject to the same constitutional limitations as government.
41. This divagation explains the ratio of the Airport Authority in its full spectrum. There the main contention was that the said authority, a statutory corporation, was not State and enforcement of fundamental rights against such a body was impermissible. As is apparent from the extensive discussion above, the identical issue confronting us as to what are the “other authorities” contemplated by Article 12 fell for consideration there. Most of the rulings relied on by either side received critical attention there and the guide-lines and parameters spelt out there must ordinarily govern our decision. A careful study of the features of the Airport Authority and a Government company covered by Sections 7, 9, 10 and 12 of the Act before us discloses a close parallel except that the Airport Authority is created by a statute while Bharat Petroleum (notified under Section 7 of the Act) is recognised by and clothed with rights and duties by the statute.
42. There is no doubt that Bhagwati, J. broadened the scope of State under Article 12 and according to Shri G.B. Pai the observations spill over beyond the requirements of the case and must be dismissed as obiter. His submission is that having regard to the fact that the International Airport Authority is a corporation created by statute there was no occasion to go beyond the narrow needs of the situation and expand upon the theme of State in Article 12 vis-a-vis Government companies, registered societies and what not.
44. Shri G.B. Pai hopefully took us through Sukhdev case at length to demolish the ratio in Airport Authority. A majority of three judges spoke through Ray, C.J., while Mathew, J. ratiocinated differently to reach the same conclusion. Alagiriswamy, J., struck a dissenting note. Whether certain statutory corporations were ‘State’ under Article 12 was the question mooted there at the instance of the employees who invoked Articles 14 and 16. The judgment of the learned Chief Justice sufficiently clinches the issue in favour of the petitioner here. The problem was posed thus:
In short the question is whether these statutory corporations are authorities within the meaning of Article 12. The answer was phrased thus; The employees of these statutory bodies have a statutory status and they are entitled to declaration of being in employment when their dismissal or removal is in contravention of statutory provisions. By way of abundant caution we state that these employees are not servants of the Union or the State. These statutory bodies are “authorities” within the meaning of Article 12 of the Constitution.
Thus, the holding was that the legal persons involved there (three corporations, viz., the Oil and Natural Gas Commission, the Industrial Finance Corporation and the Life Insurance Corporation) were ‘State’ under Article 12. The reasoning adopted by Ray C.J. fortifies the argumentation in Airport Authority.
45. Repelling the State’s plea that these bodies were not ‘other authorities’ under Article 12, Ray, C.J. observed:
The State undertakes commercial functions in combination with governmental functions in a welfare State. Governmental function must be authoritative. It must be able to impose decision by or under law with authority. The element of authority is of a binding character. The rules and regulations are authoritative because these rules and regulations direct and control not only the exercise of powers by the corporations but also all persons who deal with these corporations….
The expression “other authorities” in Article 12 has been held by this Court in the Rajasthan State Electricity Board case [Rajasthan Electricity Board v. Mohan Lal, AIR 1967 SC 1857] to be wide enough to include within it every authority created by a statute and functioning within the territory of India, or under the control of the Government of India. This Court further said referring to earlier decisions that the expression “other authorities” in Article 12 will include all constitutional or statutory authorities on whom powers are conferred by law. The State itself is envisaged under Article 298 as having the right to carry on trade and business. The State as defined in Article 12 is comprehended to include bodies created for the purpose of promoting economic interests of the people. The circumstance that the statutory body is required to carry on some activities of the nature of trade or commerce does not indicate that the Board must be excluded from the scope of the word ‘State’. The Electricity Supply Act showed that the Board had power to give directions, the disobedience of which is punishable as a criminal offence. The power to issue directions and to enforce compliance is an important aspect,
Dealing with governmental purposes and public authorities, the court clarified:
In the British Broadcasting Corporation v. Johns (Inspector of Taxes) [(1965) 1 Ch. 32], it was said that persons who are created to carry out governmental purposes enjoy immunity like Crown servants. Government purposes include the traditional provinces of government as well as non-traditional provinces of government if the Crown has constitutionally asserted that they are to be within the province of government. . . .
A public authority is a body which has public or statutory duties to perform and which performs those duties and carries out its transactions for the benefit of the public and not for private profit, (emphasis added)
46. Taking up each statute and analysing its provisions the learned Chief Justice concluded:
The structure of the Life Insurance Corporation indicates that the Corporation is an agency of the government carrying on the exclusive business of life insurance. Each and every provision shows in no uncertain terms that the voice is that of the Central Government and the hands are also of the Central Government.
These provisions of the Industrial Finance Corporation Act show that the Corporation is in effect managed and controlled by the Central Government, (emphasis added)
The italicised portion pithily sums up the meat of the matter. If the voice is of the government and so also the hands, the face will not hide the soul. There is nothing in this judgment which goes against a Government company being regarded as ‘State’. On the contrary, the thrust of the logic and the generality of the law are far from restrictive and apply to all bodies which fill the bill.
47. Mathew, J. is more positive in his conception of ‘State’ under Article 12:
The concept of State has undergone drastic changes in recent years. Today State cannot be conceived of simply as a coercive machinery wielding the thunderbolt of authority. It has to be viewed mainly as a service corporation:
If we clearly grasp the character of the state as a social agent, understanding it rationally as a form of service and not mystically as an ultimate power, we shall differ only in respect of the limits of its ability to render service.
A state is an abstract entity. It can only act through the instrumentality or agency of natural or judicial persons. Therefore, there is nothing strange in the notion of the State acting through a corporation and making it an agency or instrumentality of the State.
The tasks of government multiplied with the advent of the welfare State and consequently, the framework of civil service administration became increasingly insufficient for handling the new tasks which were often of a specialised and highly technical character. At the same time, ‘bureaucracy’ came under a cloud. The distrust of government by civil service, justified or not, was a powerful factor in the development of a policy of public administration through separate corporations which would operate largely according to business principles and be separately accountable.
The public corporation, therefore, became a third arm of the government. In Great Britain, the conduct of basic industries through giant corporation is now a permanent feature of public life.
The Indian situation is an a fortiori case, what with Part IV of the Constitution and the Government of India Resolution on Industrial Policy of 1956:
Accordingly, the State will progressively assume a predominant and direct responsibility for setting up new industrial undertakings and for developing transport facilities. It will also undertake State trading on an increasing scale.
48. Of course, mere State aid to a company will not make its actions State actions. Mathew, J. leaned to the view that:
State financial support plus an unusual degree of control over the management and policies might lead one to characterise an operation as state action.
Indeed, the learned Judge went much farther:
Another factor which might be considered is whether the operation is an important public function. The combination of State aid and the furnishing of an important public service may result in a conclusion that the operation should be classified as a State agency. If a given function is of such public importance and so closely related to governmental functions as to be classified as a governmental agency, then even the presence or absence of state financial aid might be irrelevant in making a finding of state action If the function does not fall within such a description, then mere addition of State money would not influence the conclusion.
It must be noticed that the emphasis is on functionality plus State control rather than on the statutory character of the Corporation:
Institutions engaged in matters of high public interests or performing public functions are by virtue of the nature of the function performed government agencies. Activities which are too fundamental to the society are by definition too important not to be considered government functions.
49. We may read the ratio from the judgment of Mathew, J. where he says:
It is clear from those provisions that the Central Government has contributed the original capital of the corporation, that part of the profit of the corporation goes to that Government, that the Central Government exercises control over the policy of the Corporation, that the Corporation carries on a business having great public importance and that it enjoys a monopoly in the business. I would draw the same conclusions from the relevant provisions of the Industrial Finance Corporation Act which have also been referred to in the aforesaid judgment. In these circumstances, I think, these corporations are agencies or instrumentalities of the ‘State’ and are, therefore, ‘State’ within the meaning of Article 12. The fact that these corporations have independent personalities in the eye of law does not mean that they are not subject to the control of government or that they are not instrumentalities of the government. These corporations are instrumentalities or agencies of the State for carrying on businesses which otherwise would have been run by the State departmentally. If the State had chosen to carry on these businesses through the medium of Government Departments, there would have been no question that actions of these departments would be ‘State actions’. Why then should the actions be not State actions?
(M)erely because a corporation has legal personality of its own, it does not follow that the corporation cannot be an agent or instrumentality of the State, if it is subject to control of government in all important matters of policy. No doubt, there might be some distinction between the nature of control exercised by principal over agent and the control exercised by government over public corporation. That, I think is only a distinction in degree. The crux of the matter is that public corporation is a new type of institution which has sprung from the new social and economic functions of government and that it therefore does not neatly fit into old legal categories. Instead of forcing it into them, the later should be adapted to the needs of changing times and conditions.
50. There is nothing in these observations to confine the concept of State to statutory corporations. Nay, the tests are common to any agency or instrumentality, the key factor being the brooding presence of the State behind the operations of the body, statutory or other.
51. A study of Sukhdev case yields the clear result that the preponderant considerations for pronouncing an entity as State agency or instrumentality are financial resources of the State being the chief finding source, functional character being governmental in essence, plenary control residing in government, prior history of the same activity having been carried on by government and made over to the new body and some element of authority or command. Whether the legal person is a corporation created by a statute, as distinguished from under a statute, is not an important criterion although it may be an indicium. Applying the constellation of criteria collected by us from Airport Authority, on a cumulative basis, to the given case, there is enough material to hold that the Bharat Petroleum Corporation is ‘State’ within the enlarged meaning of Article 12.
52. The Rajasthan Electricity Board case (the majority judgment of Bhargava, J.) is perfectly compatible with the view we take of Article 12 or has been expressed in Sukhdev and the Airport Authority. The short question that fell for decision was as to whether the Electricity Board was ‘State’. There was no debate, no discussion and no decision on the issue of excluding from the area of State under Article 12, units incorporated under a statute as against those created by a statute. On the other hand, the controversy was over the exclusion from the definition of State in Article 12 corporations engaged in commercial activities. This plea for a narrow meaning was negatived by Bhargava, J. and in that context the learned Judge explained the signification of “other authorities” in Article 12:
The meaning of the word “authority” given in WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY, which can be applicable, is “a public administrative agency or corporation having quasi-governmental powers authorised to administer a revenue-producing public enterprise”. This dictionary meaning of the word “authority” is clearly wide enough to include all bodies created by a statute on which powers are conferred to carry out governmental or quasi-governmental functions. The expression “other authorities” is wide enough to include within it every authority created by a statute and functioning within the territory of India, or under the control of the Government of India; and we do not see any reason to narrow down this meaning in the context in which the words “other authorities” are used in Article 12 of the Constitution.
These decisions of the court support our view that the expression “other authorities” in Article 12 will include all constitutional or statutory authorities on whom powers conferred may be for the purpose of carrying on commercial activities. Under the Constitution, the State is itself envisaged as having the right to carry on trade or business as mentioned in Article 19(1)(g). In Part IV, the State has been given the same meaning as in Article 12 and one of the directive principles laid down in Article 46 is that the State shall promote with special care the educational and economic interests of the weaker sections of the people. The State, as defined in Article 12, is thus comprehended to include bodies created for the purpose of promoting the educational and economic interests of the people. The State, as constituted by our Constitution, is further specifically empowered under Article 298 to carry on any trade or business. The circumstance that the Board under the Electricity Supply Act, is required to carry on some activities of the nature of trade or commerce does not, therefore, give any indication that the Board must be excluded from the scope of the word “State” as used in Article 12.
The meaning of the learned Judge is unmistakable that “the State” in Article 12 comprehends bodies created for the purpose of promoting economic activities. These bodies may be statutory corporations, registered societies, Government companies or other like entities. The court was not called upon to consider this latter aspect, but to the extent to which the holding goes, it supports the stand of the petitioners.
54. Imagine the possible result of holding that a Government company, being just an entity created under a statute, not by a statute, it is not ‘State’. Having regard to the directive in Article 38 and the amplitude of the other Articles in Part IV government may appropriately embark upon almost any activity which in a non-socialist republic may fall within the private sector. Any person’s employment, entertainment, travel, rest and leisure, hospital facility and funeral service may be controlled by the State. And if all these enterprises are executed through Government companies, bureaus, societies, councils, institutes and homes, the citizen may forfeit his fundamental freedoms vis-a-vis these strange beings which are government in fact but corporate in form. If only fundamental rights were forbidden access to corporations, companies, bureaus, institutes, councils and kindred bodies which act as agencies of the Administration, there may be a breakdown of the rule of law and the constitutional order in a large sector of governmental activity carried on under the guise of ‘jural persons’. It may pave the way for a new tyranny by arbitrary administrators operated from behind by government but unaccountable to Part III of the Constitution. We cannot assent to an interpretation which leads to such a disastrous conclusion unless the language of Article 12 offers no other alternative.
55. It is well known that “corporations have neither bodies to be kicked, nor souls to be damned” and Government corporations are mammoth organisations
It is dangerous to exonerate corporations from the need to have constitutional conscience; and so, that interpretation, language permitting, which makes governmental agencies, whatever their mien, amenable to constitutional limitations must be adopted by the court as against the alternative of permitting them to flourish as an imperium in imperio.
56. The common sense signification of the expression “other authorities under the control of the Government of India” is plain and there is no reason to make exclusions on sophisticated grounds such as that the legal person must be a statutory corporation, must have power to make laws, must be created by and not under a statute and so on.
