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these notes contain everything about constituion of india
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‘STATE’ UNDER ARTICLE 12
“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.”
Tests to decide which “other authorities” could be considered as agencies or instrumentalities of state
The cumulative effect of all the following factors has to be seen:
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Som Prakash Rekhi v. Union of India (1981) 1 SCC 449 [VR Krishna Iyer, O Chinappa Reddy and RS Pathak, JJ]
[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.]
(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
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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
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
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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.
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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
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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:
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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,
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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;
