CASE NOTE: State

Table of Contents

CASE NOTE: STATE.................................................................................................................................................. 1

I. SUKHDEV V. BHAGATRAM, AIR 1975 SC 1331.....................................................................................................1

II. ROMANNA D. SHETTY V. INTERNATIONAL AIRPORT AUTHORITY, AIR 1979 SC 1628.....................................................9
III. AJAY HASIA V. KHALIB MUJIB, AIR 1981 SC 487................................................................................................14
IV. PRADEEP KUMAR BISWAS V. INDIAN INSTITUTE OF CHEMICAL BIOLOGY, (2002) 5 SCC 111..........................................14
V. JANET JEYAPAL V. SRM UNIVERSITY 2015..........................................................................................................14

I. Sukhdev v. Bhagatram, AIR 1975 SC 1331

This Court in Rajasthan State Electricity Board, Jaipur v. Mohan Lal and Ors. (1967) 3 S.C.A. 377 said
that an "authority is a public administrative agency or corporation having quasi-governmental powers
and authorised to administer a revenue-producing public enterprise. The expression "other authorities"
in Article 12 has been held by this Court in the Rajasthan Electricity Board case 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 win in-chide 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 .

37. The concurring Judgment in the Rajasthan Electricity Board case said that the Board was invested
by statute with extensive powers of control over electricity undertakings. The power of the Board to
make rules and regulations and to administer the Act was said to be in substance the sovereign power
of the State delegated to the Board.

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. Such an
authority is not precluded from making a profit for the public benefit. (See Halsbury's Laws of England 3rd.
Ed. Vol. 30 paragraph 1317 at p.682).

- ONGC

43. The Oil and Natural Gas Commission Act. 1959 is an Act to provide for the establishment of a
Commission for the development of petroleum resources and the production and sale of petroleum and
petroleum products produced by it and for matters connected therewith. Article 298 states that the
executive power of the Union and of each State shall extend to the carrying on of any trade or business
and to the acquisition holding and disposal of property and the making of contracts. under Article 73
subject to the provisions of the Constitution, the executive power of the Union shall extend to the matters
with respect to which Parliament has power to make laws; and to the exercise of such rights, authority and
jurisdiction as are exercisable by the Government of India by virtue of any treaty or agreement. The Union
is competent to carry on trade and business in mines and mineral resources. The power of the Union is co-
extensive with the legislative power of the Parliament. The Oil and Natural Gas Commission is established
for the development of petroleum resources and the production and sale of petroleum and petroleum
products. The exploitation of the resources is by the Union through the agency of the statutory
commission. The members of the Commission are appointed by the Central Government. If they want to
resign, resignation has to be sent to the Central Government. Termination of appointment of members is
by the Central Government. The powers and functions of the Commission are those assigned by the
statute and such functions as the Central Government may assign. No industry which will use any of the
gases produced by the Commission as a raw material shall be set up by the Commission without the
previous approval of the Central Government. The capital of the Commission is what has already been
incurred by the Central Government as nonrecurring expenditure in connection with the existing
organisation. The Central Government may also provide to the Commission any further capital which
may be required by the Commission for carrying on its business. The Commission may, with the previous
approval of the Central Government borrow money. The budget is to be in such form as the Central
Government may prescribe. The Commission may not re-appropriate without the previous approval of the
Central Government. The reports, accounts are to be audited by the Comptroller and Auditor-General of
India and these are not only to be forwarded to the Central Government but are also to be laid before
the Parliament. The audit report is also to be before the Parliament. Any land required by the
Commission is to be acquired under the Land Acquisition Act as if it were required by a company. The
Commission is empowered to enter upon any land or premises. The dissolution of the Commission is by
the Central Government.

44. All these provisions indicate at each stage that the creation, composition of membership, the functions
and powers, the financial powers, the audit of accounts, the returns, the capital, the borrowing powers,
the dissolution of the Commission and acquisition of and for the purpose of the company and the powers
of entry are all authority and agency of the Central Government.

- LIC
45. The Life Insurance Act is an Act to provide for the nationalisation of life insurance business in India by
transferring all such business to the Corporation established for the purpose and to provide for the
regulation and control of the business of the Corporation and for matters connected therewith or
incidental thereto….. In the discharge of functions under the Act, the Corporation is guided by directions
in matters of policy involving public interest as the Central Government may give to it. If any question
arises whether a direction relates to a matter of policy involving public interest, the decision of the
Central Government shall be final.

46. The Corporation is to submit to the Central Government an account of activities during the financial
year. The Corporation has the exclusive privilege of carrying on life insurance business in India. On and
from the appointed day, none but the Corporation can carry on life insurance business in India. The sums
assured by policies issued by the Corporation including bonuses shall be guaranteed as to payment in
cash by the Central Government. No suit, prosecution or other legal proceedings shall lie against any
member or employee of the Corporation for anything which is in good faith done or intended to be done
under the Act.

47. The provisions of the Life Insurance Corporation Act amply establish that the Corporation has the
exclusive privilege of carrying on life insurance business. The policies are guaranteed by the Central
Government. If profits accrue from any business other than life insurance business then after making
provision for reserves and other matters, the balance of profit shall be paid to the Central Government.
The report of the activities of the Corporation is to be submitted to the Central Government.
48. The original capital of the Corporation is five crores of rupees provided by the Central Government.
The Central Government may reduce the capital of the Corporation. The Corporation may ask for relief in
respect of certain transactions of the insurer whose controlled business has been transferred to the
Corporation. The relief is granted by the Tribunal. The Tribunal is constituted by the Central Government.
The Central office of the Corporation shall be at such place as the Central Government may specify. In
the discharge of functions under the Act, the Corporation shall be guided by such directions in matters of
policy involving public interest as the Central Government may direct. If any question arises relating to a
matter of policy involving public interest, the decision of the Central Government shall be final. The
accounts of the Corporation shall be audited by auditors who will be appointed with the" previous
approval of the Central Government. The auditors shall submit the report to the Corporation and shall
also forward a copy of the report to the Central Government.

49. If as a result of any investigation undertaken by the Corporation any surplus emerges, ninety-five per
cent of such surplus or such higher percentage thereof as the Central Government may approve shall be
allocated to or reserved for the life insurance policy holders of the Corporation and after meeting the
liabilities of the Corporation the remainder shall be paid to the Central Government or if that Government
so directs be utilised for such purposes and in such manner as that Government may determine. If profits
accrue after making provision for reserves and other matters, the balance shall be paid to the Central
Government. The Central Government shall cause the report of the auditors, the report of the actuaries
and the report giving an account of the activities of the Corporation to be laid before the Parliament. The
provisions of the Companies Act do not apply to the Corporation with regard to winding up. The
Corporation cannot be placed in liquidation except by an order of the Central Government.

50. 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.

- IFC

51. The Industrial Finance Corporation is a body corporate. The authorised capital of the Corporation shall
be ten crores of rupees divided into twenty thousand fully paid up shares of five thousand rupees each.
Ten thousand shares of the total value of five crores of rupees shall be issued in the first instance. The
remaining shares may be issued with the sanction of the Central Government. Of the capital issued in the
first instance, the Central Government and the Reserve Bank of India shall each subscribe for two thousand
shares. Scheduled banks may subscribe for two thousand five hundred shares, Insurance companies,
investment trusts and other like financial institutions for two thousand five hundred shares and co-
operative banks for one thousand shares of the Corporation. It is significant that ordinary citizens cannot
be shareholders. All shares of the Corporation held by the Central Government and the Reserve Bank of
India shall stand transferred to and vest in the Development Bank. As compensation therefore, the
Development Bank shall pay to the Central Government and to the Reserve Bank respectively the face
value of the shares held by that Government and by that Bank. The shares of the Corporation shall be
guaranteed by the Central Government as to the re-payment of the principal and the payment of the
annual dividend at such minimum rate as may be fixed by the Central Government by notification. The
Development Bank means the Industrial Development Bank of India established under (he Industrial
Development Bank of India Act, 1964.

52. The Chairman of the Corporation shall be appointed by the Central Government. Four Directors are
nominated by the Development Bank; two directors are nominated by the Central Government; two
directors are elected by Scheduled Banks; two directors are elected by shareholders of the Corporation
other than the Development Bank. Scheduled Banks and the co-operative banks; two directors are
elected by co-operative banks. The Central Government may remove the Chairman.
54. The Corporation shall furnish to the Central Government statement of assets and liabilities at the
close of the year together with profit and loss account and a report of the working of the Corporation
and the report shall be published in the Official Gazette and shall be laid before Parliament. No provision of
law relating to the winding up of companies or corporations shall apply to the Corporation. The
Corporation shall not be placed in liquidation save by order of the Central Government.

55. The superintendence and the affairs of the Corporation shall be entrusted to a Board. In the discharge
of functions, the Board shall be guided by the Development Bank. If any dispute arises between the
Development Bank and the Board, the dispute shall be referred to the Central Government whose
decision shall be final. The Central Government shall have the power to supersede the Board and
appoint a new Board in its place to function until a properly constituted Board is set up.

56. The Corporation may invest its funds in the securities of the Central Government or of any State
Government and may with the approval of the Central Government contribute to the initial capital of the
Unit Trust of India. The Corporation may also subscribe to or purchase the shares of any financial
institution which the Central Government in consultation with the Development Bank may notify in this
behalf. The Corporation may issue and sell bonds and debentures. Bonds and debentures of the
Corporation shall be guaranteed by the Central Government as to the re-payment of the principal and the
payment of interest.

57. The Central Government may issue directions to auditors requiring them to report to it upon the
adequacy of measures taken by the Corporation for the protection of its shareholders and creditors. The
Central Government may appoint the Comptroller and Auditor General of India to examine and report
upon the accounts of the Corporation and expenditure. Every audit report shall be forwarded to the
Central Government and the Government shall cause the same to be laid before both Houses of
Parliament.

58. The Central Government may decide to acquire the shares held by the shareholders other than the
Development Bank. The shareholders shall be paid for the shares so acquired an amount equal to the paid
up value of the shares together with a premium calculated at the rate of one per cent of the paid up value
for every year from the date of issue to the date of acquisition subject to a maximum of ten per cent. After
the acquisition of the shares, the Central Government shall transfer the shares to the Development Bank,
that Bank paying an amount equal to the amount paid by the Central Government for such acquisition.
After such acquisition, the Central Government may direct that the entire undertaking of the Corporation
shall stand transferred to and vest in the Development Bank.

59. These provisions of the Industrial Finance Corporation Act show that the Corporation is in effect
managed and controlled by the Central Government.

- CONCLUSION

60. The Oil and Natural Gas Commission is owned by the Government. It is a statutory body and not a
company. The Commission has the exclusive privilege of extracting petroleum. The management is by the
Government. It can be dissolved only by the Government.

61. The Life Insurance Corporation is owned by the Government The life insurance business is nationalised
and vested in the Corporation. No other insurer can carry on life insurance business. The management is by
the Government. The dissolution can be only by the Government.

62. The Industrial Finance Corporation is under the complete control and management of the Central
Government. Citizens cannot be shareholders. Certain specified institutions like Scheduled Banks,
Insurance Companies, Investment Trusts and Co-operative Banks may apply for the shares. The Central
Government may acquire shares held by shareholders other than the Development Bank. After such
acquisition, the Government may direct that the entire undertaking of the Corporation shall be vested in
the Development Bank. The Corporation cannot be dissolved except by the Government.

63. In the background of the provisions of the three Acts under consideration, the question arises as to
whether these corporations can be described to be authorities with the meaning of Article 12 of the
Constitution. In the Rajasthan Electricity Board case it was said that the power to give directions, the
disobedience of which must be punishable as a criminal offence would furnish one of the reasons for
characterising the body as an authority within the meaning of Article, 12. The power to make rules or
regulations and to administer or enforce them would be one of the elements of authorities contemplated
in Article 12. Authorities envisaged in Article 12 are described as instrumentalities of State action. On
behalf of the State it was contended that the Oil and Natural Gas Commission as well as Industrial Finance
Corporation was not granted immunity from taxation and therefore the liability to be taxed would indicate
that the Corporation was not a State authority. Reference is made to Article 289 which speaks of
exemption of property and income of a State from Union taxation. The liability to taxation will not detract
from the Corporation being an authority within the meaning of Article 12. Article 289 empowers Union to
impose tax in respect of trade or business carried on by or on behalf of a State.

64. The Oil and Natural Gas Commission Act confers power of entry on employees of the Commission upon
any land or premises for the purpose of lawfully carrying out works by the Commission. The members and
employees of the Commission are public servants within the meaning of Section 21 of the Indian Penal
Code. The Commission enjoys protection of action taken under the Act.

65. The Life Insurance Act provides that if any person lawfully withholds or fails to deliver to the
Corporation any property which has been transferred to and vested in the Corporation or wilfully applies
them to purposes other than those expressed or authorised by the Act, he shall, on the complaint of the
Corporation be punishable with the imprisonment which may extend to one year or with fine which may
extend to one thousand of rupees or with both. The Corporation also enjoys protection of action taken
under the Act.

66. The Industrial Finance Corporation Act states that whoever in any bill of lading, warehouse receipt or
other instrument given to the Corporation whereby security is given to the Corporation for
accommodation granted by it wilfully makes any false statement or knowingly permits any false statement
to be made shall be punishable with imprisonment for a term which may extend to two years or with fine
which may extend to two thousand rupees or with both. Further whoever without the consent in writing of
the Corporation uses the name of the Corporation in any prospect or advertisement shall be punishable
with imprisonment for a term which may extend to six months or with fine which may extend to one
thousand rupees or with both. The Corporation enjoys protection of action taken under the Act. A
company incorporated under the Indian Companies Act does not enjoy these privileges.

67. For the foregoing reasons, we hold that rules and regulations framed by the Oil and Natural Gas
Commission, Life Insurance Corporation and the Industrial Finance Corporation have the force of law. 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.

Justice Mathew:
74. The question whether a public corporation of the nature of Oil and Natural Gas Commission, Life
Insurance Corporation or Industrial Finance Corporation is a 'state' within the meaning of Article 12 of the
Constitution is one of far reaching importance.

75. The relevant provisions of the Oil and Natural Gas Commission Act, 1939, have been analysed in the
judgment of my Lord the Chief Justice and I do not think it necessary to set them out here.

76. In Rajasthan Electricity Board v. Mohan Lal this Court had occasion to consider the question whether
the Rajasthan Electricity Board was an authority within the meaning of the expression "other authorities"
in Article 12 of the Constitution. Bhargava, J. delivering the judgment for the majority pointed out that the
expression "other authorities" in Article 12 would include all Constitutional and statutory authorities on
whom powers are conferred by law. The learned judge also said that if any body of persons has authority
to issue directions, the disobedience of which would be punishable as a criminal offence, that would be an
indication that that authority is 'state'. Justice Shah who delivered a separate judgment agreeing with the
conclusion reached by the majority preferred to adopt a slightly different meaning to the words "other
authorities". He said that authorities, Constitutional or statutory, would fall within the expression 'state' as
defined in Article 12 only if they are invested with sovereign power of the State, namely, the power to
make rules or regulations which have the force of law.

77. The test propounded by the majority is satisfied so far as the Oil and Natural Gas Commission
(hereinafter referred to as 'the Commission) is concerned as Section 25 of the Oil and Natural Gas
Commission Act (hereinafter referred to as 'the Act') provides for issuing binding issue binding directions to
third parties not to prevent the employees of the Commission from entering upon their property if the
Commission so directs. In other words, as Section 25 authorises the Commission to issue binding directions
to third parties not to prevent the employees of the Commission from entering into their land and as
disobedience of such directions is punishable under the relevant provision of the Indian Penal Code since
those employees are deemed to be public servants under Section 21 of the Indian Penal Code by virtue of
Section 27 of the Act, the Commission is an 'authority' within the meaning of the expression "other
authorities" in Article 12.

78. Though this would be sufficient to make the Commission a 'state' according to the decision of this
Court in the Rajasthan Electricity Board Case (supra), there is a larger question which has a direct bearing
so far as the other two Corporations are concerned viz., whether, despite the fact that there are no
provisions for issuing binding directions to third parties the disobedience of which would entail penal
consequence, the corporations set up under statutes to carry on business of public importance or which is
fundamental to the life of the people can be considered as 'state' within the meaning of Article 12 That
Article reads.

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.

- State
It is relevant to note that the Article does not define the word 'state'. It only provides that 'state' includes
the authorities specified therein. The question whether a corporation set up under a statute to carry on a
business of public importance is a 'state' despite the fact that it has no power to issue binding directions
has to be decided on other considerations.

79. One of the greatest sources of our strength in Constitutional law is that we adjudge only concrete cases
and do not pronounce principles in the abstract. But there comes a moment when the process of empiric
adjudication calls for more rational and realistic disposition than that the immediate case is not different
from preceding cases.
80. 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. (see Mac Iyer, "The Modern State", 183).

81. To some people state is essentially a class-structure, an organisation of one class dominating over the
other classes'; others regard it as an organisation that transcends all classes and stands for the whole
community. They regard it as a power-system. Some view it entirely as a legal structure, either in the old
Austinian sense which made it a relationship of governors and governed, or, in the language of modern
jurisprudence, as a community 'organized for action under legal rules'. Some regard it as no more than a
mutual insurance society, "others as the very texture of all our life. Some class the stale as a great
'corporation' and others consider it as indistinguishable from society itself Mac. Iyer, "The Modern State",
pp. 3-4.

82. Part IV of the Constitution gives a picture of the services which the state is expected to undertake and
render for the welfare of the people. Article 298 provider, that the executive power of the Union and State
extends to the carrying on of any business or trade. As I said, the question for consideration is whether a
public corporation set up under a special statute to carry on a business or service which Parliament thinks
necessary to be carried on in the interest of the nation is an agency or instrumentality of the State and
would be subject to the limitations expressed in Article 13(2) of the Constitution. A state is an abstract
entity. It can only act through the instrumentality or agency of natural or juridical 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.

85. 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.

87. A public corporation is a legal entity established normally by Parliament and always under legal
authority, usually in the form of a special statute, charged with the duty of carrying out specified
governmental functions in the national interest, those functions being confined to a comparatively
restricted field, and subjected to control by the executive, while the corporation remains juristically an
independent entity not directly responsible to Parliament Garner : "Public Corporations in the United
Kingdom" in "Government Enterprise" ed. W. Friedmann & J. F. Garner, p. 4. P. A public corporation is not
generally a multi-purpose authority but a functional organisation created for a specific purpose. It has
generally no shares or shareholders. Its responsibility generally is to Government. Its administration is in
the hands of a Board appointed by the competent Minister. The employees of public corporation are not
civil servants. It is. in fact, likely that in due course a special type of training for specialized form of public
service will be developed and the status of the personnel of public corporation may more and more closely
approximate to that of civil service without forming part of it. In so far as public corporations fulfil public
tasks on behalf of government, they are public authorities and as such subject to control by government.

89. The motivation for the creation of public corporation naturally plays much larger part in under-
developed and poor countries than in industrially advanced countries. This accounts for the emergence of
public corporations and the present significance of public enterprise carried on by them. The Government
of India resolution on industrial policy dated April 6, 1948 stated, among other things, 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. The
Government of India Resolution on Industrial Policy dated April 30, 1956 stated : "Government in
Business", S.S. Khera, p. 368 & p. 373 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.

90. The Constitution was framed on the theory that limitation should exist on the exercise of power by the
State. The assumption was that the State alone was competent to wield power. But the essential problem
of liberty and equality is one of freedom from arbitrary restriction and discrimination whenever and
however imposed. The Constitution, therefore, should, wherever possible, be so construed as to apply to
arbitrary application of power against individuals by centers of power. The emerging principle appears to
be that a public corporation being a creation of the State is subject to the Constitutional limitation as the
State itself. The pre-conditions of this are two, namely, that the corporation is created by State, and, the
existence of power in the corporation to invade the Constitutional right of individual.

92. Generally speaking, large corporations have power and this power does not merely come from the
statutes creating them. They acquire power because they produce goods or services upon which the
community comes to rely. The methods by which these corporations produce and the distribution made in
the course of their production by way of wages, dividends and interest, as also the profit withheld and
used for further capital progress and the manner in which and the conditions under which they employ
their workmen and staff are vital bath to the Jives of many people and to the continued supply line of the
country. Certain imperatives follow from this. Both big business and big labour unions exercise much quasi-
public authority. The problems posed by the big corporation is the protection of the individual rights of the
employees. Suggestions are being made that the corporate organisations of big business and labour arc no
longer private phenomena; that they are public organisms and that Constitutional and common law
restrictions imposed upon State agencies must be imposed upon them.

93. The governing power wherever located must be subject to the fundamental Constitutional limitations.
The need to subject the power centers to the control of Constitution require an expansion of the concept
of State action. The historical trend in America of judicial decisions has been that of bringing more and
more activity within the reach of the limitations of the Constitution. "The next step would be to draw
private governments into the tent of state action. This is not a particularly startling proposition, for a
number of recent cases have shown that the concept of private action must yield to a conception of state
action where public functions are being performed" Arthur S. Miller : "The Constitutional Law of the
'Security State'.". 10 Stanford Law Rev. 620 at 664.

97. Does any amount of state help, however inconsequential, make an act something more than an
individual act ? Suppose, a privately owned and managed operation receives direct financial aid from the
State, is an act of such an agency an act of State ? It would be difficult to give a categorical answer to this
question. Any operation or purpose of value to the public may be encouraged by appropriation of public
money and the resulting publicly supported operation can be characterized as a state operation. But such a
rule would seem to go to the extreme. There seems to be no formula which would provide the correct
division of cases of this type into neat categories of State action and private action. Some clue however, to
the considerations which might impel the court in one direction or the other may be obtained from an
examination of the cases in this area. The decisions of the State courts in U.S.A. seem to establish that a
private agency, if supported by public money for its operation would be 'state'. But in all these cases, it has
been found that there was an element of control exercised by the State. Therefore, it may be stated
generally that State financial aid alone does not render the institution receiving such aid a state agency.
Financial aid plus some additional factor might lead to a different conclusion. A mere finding of state
control also is not determinative of the question, since a state has considerable measure of control under
its police power over all types of business operations. It is not possible to assume that the panoply of law
and authority of a state under which people carry on ordinary business, or their private affairs or own
property, each enjoying equality in terms of legal capacity would be extraordinary assistance. A finding I of
state financial support plus an unusual degree of control over the management and policies might lead one
to characterize an operation as state action.

98. 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 government 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.

99. The state may aid a private operation in various ways other than by direct financial assistance. It may
give the organization the power of eminent domain, it may grant tax exemptions, or it may give it a
monopolistic status for certain purposes. All these are relevant in making an assessment whether the
operation is private or savours of state action generally.

110. The relevant provisions of the Life Insurance Corporation Act have been very clearly analysed in the
judgment of my Lord the Chief Justice and it is unnecessary to repeat them. It is clear from the 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 enjoy 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'.

The ultimate question which is relevant for our purpose is whether such a corporation is an agency or
instrumentality of the government for carrying on a business for the benefit of the public. In other words,
the question is, for whose benefit was the corporation carrying on the business ?

II. Romanna D. Shetty v. International Airport Authority, AIR 1979 SC 1628

What are the constitutional obligations on the State when it takes action in exercise of its statutory or
executive power? Is the State entitled to deal with its property in and manner it likes or award a contract
to any person it chooses without any constitutional limitations upon it? What are the parameters of its
statutory or executive power in the matter of awarding a contract or dealing with its property ?

On or about 3rd January, 1977 a notice inviting tenders for putting up and running a second class
restaurant and two Snack bars at the International Airport Bombay was issued by the 1st respondent
Which is a corporate body constituted under the International Airport Authority Act, 43 of 1971.
The main contention urged on behalf of the appellant was that in paragraph (1) of the notice inviting
tenders the 1st respondent had stipulated a condition of eligibility by providing that a person submitting a
tender must be a "registered IInd class Hotelier having at least 5 years experience." This was a condition of
eligibility to be satisfied by every person submitting a tender and if in case of any person, this condition
was not satisfied, his tender was ineligible for being considered. The 1st respondent, being a State within
the meaning of Art. 12 of the Constitution or in any event a public authority, was bound to give effect to
the condition of eligibility set up by it and was not entitled to depart from it at its own sweet will without
rational justification. The 4th respondents had experience of catering only in canteens and did not have 5
years' experience of running a IInd class hotel or restaurant and hence they did not satisfy the condition of
eligibility and yet the 1st respondent accepted the tender submitted by them. This was clearly in violation
of the standard or norm of eligibility set up by the 1 respondent and the action of the 1st respondent in
accepting the tender of the 4th respondents was clearly invalid…… The action of the 1st respondent in
accepting the tender of the 4th respondents had, therefore the effect of denying him equality of
opportunity in the matter of consideration for award of the contract and hence it was unconstitutional as
being in violation of the equality clause.

….

- Why is there a need for public corporations?

Now, it is obvious that the Government which represents the executive authority of the State, may act
through the instrumentality Or agency of natural persons or it may employ the instrumentality or agency
of juridical persons to carry out its functions. In the early days, when the Government had limited
functions, it could operate effectively through natural persons constituting its civil service and they were
found adequate to discharge governmental functions, which were of traditional vintage. But as the tasks of
the Government multiplied the advent of the welfare State, it began to be increasingly felt that the
framework of civil service was not sufficient to handle the new tasks which were often of specialised and
highly technical character. The inadequacy of the civil service to deal with these new problems came to be
realised and it became necessary to force a new instrumentality or administrative device for handling
these new problems. It was in these circumstances and with a view to supplying this administrative need
that the public corporation came into being as the third arm of the Government. As early as 1819 the
Supreme Court of the United States in Mac Cullough v. Maryland(1) held that the Congress has power to
charter corporations as incidental to or in aid of governmental functions and, as pointed out by Mathew, J.,
in Sukhdev v. Bhagat Ram (supra) such federal corporations would ex-hypothesi be agencies of the
Government. In Great Britain too, the policy of public administration through separate corporations was
gradually evolved and the conduct of basic industries through giant corporations has now become a
permanent feature of public life. 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 6th April, 1948 where it was stated inter alia that "management of State enterprises
will as a rule be through the medium of public corporation under tile 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. But the question is how to
determine whether a corporation is acting as instrumentality or agency of Government. It is a question not
entirely free from difficulty.

- How is a corporation created

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. But ordinarily where a corporation is established by
statute, it is autonomous in its working, subject only to a provision, often times made, that it shall be
bound by any directions that may be issued from time to time by Government in respect of policy matter.
So also a corporation incorporated under law is managed by a board of directors or committee of
management in accordance with the provisions of the statute under which it is incorporated. 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 or 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. But, as is quite often the case, a
corporation established by statute may have no shares or shareholders, in which case it would be a
relevant factor to consider whether the administration is in the hands of a board of directors appointed by
Government, though this consideration also may not be determinative, because even while the directors
are appointed by Government, they may be completely free from governmental control in the discharge of
their functions. What then 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.

The analogy of the concept of State action as developed in the United States may not, however, be
altogether out of place while considering this question. The decisions of the court in the United States
seem to suggest that a private agency, if supported by extraordinary assistance given by the State, may be
subject to the same constitutional limitations as the State. Of course, it may be pointed out that "the
State's general common law and statutory structure under which its people carry on their private affairs,
own property and contract, each enjoying equality in terms of legal capacity, is not such State assistance as
would transform private conduct into State action". But if extensive and unusual financial assistance is
given and the purpose of the Government in giving such assistance coincides with the purpose for which
the corporation is expected to use the assistance and such purpose is if public character, it may be a
relevant circumstance supporting an extensive that the corporation is an instrumentality or agency of
Government. The leading case on the subject in the United States is Kerr v. Eneck Pratt Free Library(1). The
Library system in question in this case was established by private donation in 1882, but by 1944, 99 per
cent of the system's budget was supplied by the city, title to the library property was held by the city,
employees there paid by the city payroll officer and a high degree of budget control was exercised or
available to the city government. On these facts the Court of Appeal required the trustees managing the
system to abandon a discriminatory admission policy for its library training courses. It will be seen that in
this case there was considerable amount of State control of the library system in addition to extensive
financial assistance and it is difficult to say whether, in the absence of such control it would have been
possible to say that the action of the trustees constituted State action. Thomas P. Lewis has expressed the
opinion in his article on "The meaning of State Action" (60 Colombia Law Review 1083) that in this case "it
is extremely unlikely that absence of public control would have changed the result as long as 99% of the
budget of a nominally private institution was provided by government. Such extensive governmental
support should be sufficient identification with the Government to subject the institution to the provisions
of the Fourteenth Amendment".

- Financial support

It may, therefore, be possible to say that where the financial assistance of the State is so much as to meet
almost entire expenditure of the corporation, it would afford some indication of the corporation being
impregegnated with governmental character. But where financial assistance is not so extensive, it may not
by itself, without anything more render the corporation an instrumentality or agency of government, for
there are many private institutions which are in receipt of financial assistance from the State and merely
on that account, they cannot be classified as State agencies. Equally a mere finding of some control by the
State would not be determinative of the question "since a State has considerable measure of control under
its police power over all types of business operations". But 'a finding of State financial support plus an
unusual degree of control over the management and policies might lead one to characteristic an operation
as State action" vide Sukhdev v. Bhagatram(1). 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 corporation's ties to the State. Vide the
observations of Douglas, J., in Jackson v. Metropolitan Edison Co.(2) 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. It
was pointed out by Douglas, J., in Evans v. Newton(3) that "when private individuals or groups are
endowed by the State with powers or functions governmental in nature, they become agencies or
instrumentalities of the State". Of course, with the growth of the welfare State, it is very difficult to define
what functions are governmental and what are not, because, as pointed out by Villmer, L.J., in Pfizer
v.Ministry of Health,(4) there has been, since mid-Victorian times, "a revolution in political thought and a
totally different conception prevails today as to what is and what is not within the functions of
Government".

- Public importance

Douglas, J., also observed to the same effect in New York v. United States(1): " A State's project is as much
a legitimate governmental activity whether it is traditional or akin to private enterprise, or conducted for
profit." A State may deem it as essential to its economy that it own and operate a railroad, a mill, or an
irrigation system as it does to own and operate bridges, street lights, or a sewage disposal plant. What
might have been viewed in an earlier day as an improvident or even dangerous extension of state activities
may today be deemed indispensable. It may be noted that besides the so called traditional functions, the
modern State operates a multitude of public enterprises and discharges a host of other public functions. 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 (supra) 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 government agencies. Activities which are too
fundamental to the society are by definition too important not to be considered government functions."

We find that the same test of public or governmental character of the function was applied by the
Supreme Court of the United States in Evans v. Newton (supra) and Smith v. Allwight.(1) But the decisions
show that even this test of public or governmental character of the function is not easy of application and
does not invariably lead to the correct inference because the range of governmental activity is broad and
varied and merely because an activity may be such as may legitimately be carried on by Government, it
does not mean that a corporation, which is otherwise a private entity, would be an instrumentality or
agency of Government by reason of carrying on such activity. In fact, it is difficult to distinguish between
governmental functions and non-governmental functions. Perhaps the distinction between governmental
and non-governmental functions is not valid any more in a social welfare State where the laissez faire is an
outmoded concept and Herbert Spencer's social statics has no place. The contrast is rather between
governmental activities which are private and private activities which are governmental. (Mathew, J.
Sukhdev v. Bhagatram (supra) at p. 652). But the public nature of the function, if impregnated with
governmental character or "tied or entwined with Government" or fortified by some other additional
factor, may render the corporation an instrumentality or agency of Government. Specifically, if a
department of Government is transferred to a corporation, it would be a strong factor supportive of this
inference.

- Factors that can be taken into consideration

It will thus be seen that there are several factors which may have to be considered in determining whether
a corporation is an agency or instrumentality of Government. We have referred to some of these factors
and they may be summarised as under: whether there is any financial assistance given by the State, and if
so, what is the magnitude of such assistance whether there is any other form of assistance, given by the
State, and if so, whether it is of the usual kind or it is extraordinary, whether there is any control of the
management and policies of the corporation by the State and what is the nature and extent of such
control, whether the corporation enjoys State conferred or State protected monopoly status and
whether the functions carried out by the corporation are public functions closely related to
governmental functions. This particularisation of relevant factors is however not exhaustive and by its very
nature it cannot be, because with increasing assumption of new tasks, growing complexities of
management and administration and the necessity of continuing adjustment in relations between the
corporation and Government calling for flexibility, adapt ability and innovative skills, it is not possible to
make an exhaustive enumeration of the tests which would invariably and in all cases provide an unfailing
answer to the question whether a corporation is governmental instrumentality or agency. Moreover even
amongst these factors which we have described, no one single factor will yield a satisfactory answer to the
question and the court will have to consider the cumulative effect of these various factors and arrive at its
decision on the basis of a particularised inquiry into the facts and circumstances of each case. "the
dispositive question in any stale action case," as pointed out by Douglas, J., in Jackson v. Metropolitan
Edison Company (supra) "is not whether any single fact or relationship presents a sufficient degree of state
involvement, but rather whether the aggregate of all relevant factors compels a finding of state
responsibility." It is not enough to examine seriatim each of the factors upon which a corporation is
claimed to be an instrumentality or agency of Government and to dismiss each individually as being
insufficient to support a finding of that effect. It is the aggregate or cumulative affect of all the relevant
factors that is controlling. Now, obviously where a corporation is an instrumentality or agency of
Government, it would, in the exercise of its power or discretion, be subject to the same constitutional or
public law limitations as Government. The rule inhibiting arbitrary action by Government which we have
discussed above must apply equally where such corporation is dealing with the public, whether by way of
giving jobs or entering into contracts or otherwise, and it cannot act arbitrarily and enter into relationship
with any person it likes at its sweet will, but its action must be in conformity with some principle which
meets the test of reason and relevance.

- Present Case

We may examine, in the light of this discussion, whether the 1st respondent, namely, the International
Airport Authority of India,, can be said to be an authority falling within the definition of 'State' in Article 12.
It is necessary to refer to some of the provisions of the International Airport Authority Act, 1971
(hereinafter referred to as the Act) for the purpose of determining this question. Sub-section (1) of section
3 of the Act provides that the Central Government shall constitute an authority to be called the
International Airport Authority of India, to whom we shall hereafter refer as the 1st respondent. Sub-
section (2) states that the 1 st respondent shall be a body corporate having perpetual succession and a
common seal and sub-section (3) enacts that the Ist respondent shall consist of a Chairman to be
appointed by the Central Government, the Director General of Civil Aviation exofficio and not less than
six and not more than thirteen members to be appointed by the Central Government. The term of office
of every member of the 1st respondent is prescribed by sub-section (1) of section 5 to be 3 years, but the
Central Government is given under the Proviso power to terminate the appointment of any member
who is not a servant of the Government after giving him notice as also to terminate at any time the
appointment of any member who is a servant of the Government. The power to remove a member in
certain specified circumstances is also vested in the Central Government under section 6. Section 32, sub-
section (1) provides that as from the date appointed by the Central Government all properties and other
assets vested in the Central Government for the purposes of the airport and administered by the Director
General of Civil Aviation immediately before such date shall vest in the 1st respondent and all debts,
obligations and liabilities incurred, all contracts entered into and all matters and things engaged to be done
by, with or for the Central Government immediately before such date shall be deemed to have been
incurred, entered into and engaged to be done by, with or for the 1st respondent. This sub-section also
says that all non-recurring expenditure incurred by the Central Government for or in connection with the
purposes of the airport upto the appointed date and declared to be capital expenditure by the Central
Government shall be treated as the capital provided by the Central Government to the 1st respondent
and all sums of money due to the Central Government in relation to the airport immediately before the
appointed date shall be deemed to be due to the 1st respondent. The 1st respondent is also given the
power to institute or continue all suits and other legal proceedings instituted or which could have been
instituted by or against the Central Government for any matter in relation to the airport and every
employee holding any office under the Central Government immediately before the appointed date solely
or mainly for or in connection with the affairs of the airport shall be treated as on deputation with the 1st
respondent. Sub-section (1) of section 12 also enacts similar provisions with regard to the air navigation
services and the buildings used exclusively for such services immediately before the appointed date. The
functions of the 1st respondent are specified in section 16: sub-section (l) provides that, subject to the
rules, if any, made by the Central Government in this behalf, it shall be the function of the 1st respondent
to manage the airports efficiently and sub-section (2) casts an obligation on the 1 st respondent to provide
at the airports such services and facilities as are necessary or desirable for the efficient operation of air
transport services and certain specific functions to be performed by the 1st respondent are particularised
in sub-section (3). These. functions were, until the appointed date, being carried out by the Central
Government but now under Section 16 they are transferred to the ] st respondent. Section 20 provides
that after making provision for reserve funds, bad and doubtful debts, depreciation in assets and an other
matters which are usually provided for by companies, the 1st respondent shall pay the balance of its
annual net profits to the Central Government. Section 21 requires the 1st respondent to submit for the
approval of the Central Government a statement of the programme of its activities during the
forthcoming financial year as well as its financial estimate in respect thereof at least three months before
the commencement of each financial year and section 24 provides that the accounts of the 1st respondent
shall be audited annually by the Comptroller and Auditor General and the accounts as certified by the
Comptroller and Auditor General or any other person appointed by him in this behalf, together with the
audit report thereon, shall be forwarded to the Central Government and the Central Government shall
cause the same to be laid before both Houses of Parliament. The 1st respondent is also required by section
25 to prepare and submit to the Central Government, as soon as may be after the end of each financial
year, a report giving an account of its activities during the financial year and this report has to be laid
before both Houses of Parliament by the Central Government. The officers and employees of the 1st
respondent are deemed by section 28 to be public servants and section 29 gives them immunity from suit,
prosecution or other legal proceeding for anything in good faith done or intended to be done in pursuance
of the Act or any rule or regulation made under it. Section 33 confers power on the Central Government
to temporarily divest the 1st respondent from the management of any airport and to direct the 1st
respondent to entrust such management to any other person. The Central Government is also
empowered by section 34 lo supersede the 1st respondent under certain specified circumstances.
Section 35 gives power to the Central Government to give directions in writing from time to time on
questions of policy and provides that the 1 st respondent shall in the discharge of its functions, and
duties, be bound by such directions. Section 36 confers rule making power on the Central Government
for carrying out the purposes of the Act and power to make regulations is conferred on the 1st
respondent under section 37. Section 39 provides that any regulation made by the 1st respondent under
any of the clauses (g) to (m) of sub-section (2) of section 37 may make it Penal to contravene such
regulation.

lt will be seen from these provisions that there are certain features of the 1 st respondent which are
eloquent and throw considerable light on the true nature of the 1st respondent. In the first place, the
chairman and members of the 1st respondent are all persons nominated by the Central Government and
the Central Government has also the power to terminate their appointment as also to remove them in
certain specified circumstances. The Central Government is also vested with the power to take away the
management of any airport from the 1st respondent and to entrust it to any other person or authority and
for certain special reasons, the Central Government can also supersede the Ist respondent. The Central
Government has also power to give directions in writing,, from time to time on questions of policy and
these directions are declared binding on the 1st respondent. The 1st respondent has no share capital but
the capital needed by it for carrying out its functions is provided wholly by the Central Government. The
balance of the not profit made by the Ist respondent after making provision for various charges, such as
reserve funds, had and doubtful debts depreciation in assets etc. does not remain with the 1st respondent
and is required to be paid over lo the Central Government. The 1st respondent is also required to submit to
the Central Government for its approval a statement of the programme of its activities as also the financial
estimate and it must follow as a necessary corollary that the 1st respondent can carry out only such
activities and incur only such expenditure as is approved by the Central Government. The audited accounts
of the 1st respondent together with the audit report have to be forwarded to the Central Government and
they are required to be laid before both Houses of Parliament. So far as the functions of the 1st
respondent are concerned, the entire department of the Central Government relating to the
administration of airports and air nevigation services together with its properties and assets, debts,
obligations and liabilities, contracts, causes A of action and pending litigation is transferred to the 1st
respondent and the 1st respondent is charged with carrying out the same functions which were, until the
appointed date, being carried out by the Central Government. The employees and officers on the 1st
respondent are also deemed to be public servants and the 1st respondent as well as its members, officers
and employees are given immunity for anything which is in good faith done or intended to be done in
pursuance of the Act or any rule or regulation made under it. The 1st respondent is also given power to
frame Regulations and to provide that contravention of certain specified Regulations shall entail penal
consequence. These provisions clearly show that every test discussed above is satisfied in the case of the
1st respondent and they leave no doubt that the 1st respondent is an instrumentality or agency of the
Central Government and falls within the definition of 'State' both on the 'narrow view taken by the
majority in Sukhdev v. Bhagat Ram (supra) as also on the broader view of Mathew, J., adopted by us.

III. Ajay Hasia v. Khalib Mujib, AIR 1981 SC 487

We may point out that this very question as to when a corporation can be regarded as an 'authority' within
the meaning of Art. 12 arose for consideration before this Court in R. D. Shetty v. The International Airport
Authority of India & Ores. There, in a unanimous judgment of three Judges delivered by one of us
(Bhagwati, J) this Court pointed out:
"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 6th April,
1948 where it was stated inter alia that "management of State enterprises 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
sub-sequent 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 corporation 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 instrumentality or agency of corporations should
equally be subject to the same limitations."

The Court then addressed itself to the question as to how to determine whether a corporation is acting as
an instrumentality or agency of the Government and dealing with that question, 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. But ordinarily where a corporation is established by
statute, it is autonomous in its working, subject only to a provision, often times made, that it shall be
bound by any directions that may be issued from time to time by Government in respect of policy matters.
So also a corporation incorporated under law is managed by a board of directors or committee of
management in accordance with the provisions of the statute under which it is in corporate. 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. But, as is quite often the case, a
corporation established by statute may have no shares or shareholders, in which case it would be a
relevant factor to consider whether the administration is in the hands of a board of directors appointed by
Government though this consideration also may not be determinative, because even where the directors
are appointed by Government, they may be completely free from governmental control in the discharge of
their functions. What then are 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
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."

The Court then proceeded to indicate the different tests, apart from ownership of the entire share capital:

" .... if extensive and unusual financial assistance is given and the purpose of the Government in giving such
assistance coincides with the purpose for which the corporation is expected to use the assistance and such
purpose is of public character, it may be a relevant circumstance supporting an inference that the
corporation is an instrumentality or agency of Government..... It may therefore be possible to say that
where the financial assistance of the State is so much as to meet almost entire expenditure of the
corporation, it would afford some indication of the corporation being impregnated with governmental
character ..........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] 3 SCR 619 at 658. 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 corporation's 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. Vide Arthur S. Miller: "The Constitutional Law of the Security State" (10)
Stanford Law Review 620 at 664)." "It may be noted that besides the so-called traditional functions, the
modern state operates as multitude of public enterprises and discharges a host of other public functions. 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 (supra) where the learned
Judge said that "institutions engaged in matters of high public interest of performing public functions are
by virtue of the nature of the functions performed government agencies. Activities which are too
fundamental to the society are by definition too important not to be considered government functions."

The court however proceeded to point out with reference to the last functional test:

"......... the decisions show that even this test of public or governmental character of the function is not
easy of application and does not invariably lead to the correct inference because the range of
governmental activity is broad and varied and merely because an activity may be such as may legitimately
be carried on by Government, it does not mean that a corporation, which is otherwise a private entity,
would be an instrumentality or agency of Government by reason of carrying on such activity. In fact, it is
difficult to distinguish between governmental functions and non- governmental functions. Perhaps the
distinction between governmental and non-governmental functions is not valid any more in a social
welfare State where the laissez faire is an outmoded concept and Herbert Spencer's social statics has no
place. The contrast is rather between governmental activities which are private and private activities which
are governmental. [Mathew, J. Sukhdev v. Bhagatram (supra) at p. 652]. But the public nature of the
function, if impregnated with governmental character or "tied or entwined with Government" or fortified
by some other additional factor, may render the corporation an instrumentality or agency of Government.
Specifically, if a department of Government is transferred to a corporation, it would be a strong factor
supportive of the inference."

These observations of the court in the International Airport Authority's case (supra) have our full approval.

The tests for determining as to when a corporation can be said to be a instrumentality or agency of
Government may now be called out from the judgment in the International Airport Authority's case. These
tests are not conclusive or clinching, but they are merely indicative indicia which have to be used with care
and caution, because while stressing the necessity of a wide meaning to be placed on the expression
"other authorities", it must be realised that it should not be stretched so far as to bring in every
autonomous body which has some nexus with the Government within the sweep of the expression. A wide
enlargement of the meaning must be tempered by a wise limitation. We may summarise the relevant tests
gathered from the decision in the International Airport Authority's case as follows

(1) "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."
(2) "Where the financial assistance of the State is so much as to meet almost entire expenditure of the
corporation, it would afford some indication of the corporation being impregnated with governmental
character."

(3) "It may also be a relevant factor.......whether the corporation enjoys monopoly status which is the State
conferred or State protected."

(4) "Existence of deep and pervasive State control may afford an indication that the Corporation is a State
agency or instrumentality."

(5) "If the functions of the corporation 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."

(6) "Specifically, if a department of Government is transferred to a corporation, it would be a strong factor

supportive of this inference of the corporation being an instrumentality or agency of Government."

If on a consideration of these relevant factors it is found that the corporation is an instrumentality or

agency of government, it would, as pointed out in the International Airport Authority's case, be an
'authority' and, therefore, 'State' within the meaning of the expression in Article 12.

We may point out that it is immaterial for this purpose whether the corporation is created by a statute or
under a statute. The test is whether it is an instrumentality or agency of the Government and not as to how
it is created. The inquiry has to be not as to how the juristic person is born but why it has been brought
into existence. The corporation may be a statutory corporation created by a statute or it may be a
Government Company or a company formed under the Companies Act, 1956 or it may be a society
registered under the Societies Registration Act, 1860 or any other similar statute. Whatever be its genetical
origin, it would be an "authority" within the meaning of Article 12 if it is an instrumentality or agency of the
Government and that would have to be decided on a proper assessment of the facts in the light of the
relevant factors. The concept of instrumentality or agency of the Government is not limited to a
corporation created by a statute but is equally applicable to a company or society and in a given case it
would have to be decided, on a consideration of the relevant factors, whether the company or society is an
instrumentality or agency of the Government so as to come within the meaning of the expression
"authority" in Article

- Definition of state and Parts III & IV

12. It is also necessary to add that merely because a juristic entity may be an "authority" and therefore
"State" within the meaning of Article 12, it may not be elevated to the position of "State" for the purpose
of Articles 309, 310 and 311 which find a place in Part XIV. The definition of "State" in Article 12 which
includes an "authority" within the territory of India or under the control of the Government of India is
limited in its application only to Part III and by virtue of Article 36, to Part IV: it does not extend to the
other provisions of the Constitution and hence a juristic entity which may be "State" for the purpose of
Parts III and IV would not be so for the purpose of Part XIV or any other provision of the Constitution.

The decision in Sukhdev Singh v. Bhagat Ram (1975) 3 SCR 619 was also strongly relied upon by the learned
counsel for respondents Nos. 6 to 8 but we fail to see how this decision can assist the respondents in
repelling the reasoning in the International Airport Authority's case or contending that a company or
society formed under a statute can never come within the meaning of the expression "authority" in Article
12. That was a case relating to three juristic bodies, namely, the Oil and Natural Gas Commission, the
Industrial Finance Corporation and the Life Insurance Corporation and the question was whether they were
"State" under Article 12. Each of these three juristic bodies was a corporation created by a statute and the
Court by majority held that they were "authorities" and therefore "State" within the meaning of Article 12.
The Court in this case was not concerned with the question whether a company or society formed under a
statute can be an "authority" or not and this decision does not therefore contain anything which might
even remotely suggest that such a company or society can never be an "authority". On the contrary, the
thrust of the logic in the decision, far from being restrictive, applies to all juristic persons alike, irrespective
whether they are created by a statute or formed under a statute.

- Present Case

It is in the light of this discussion that we must now proceed to examine whether the Society in the present
case is an "authority" falling within the definition of "State" in Article 12. Is it an instrumentality or agency
of the Government? The answer must obviously be in the affirmative if we have regard to the
Memorandum of Association and the Rules of the Society. The composition of the Society is dominated by
the representatives appointed by the Central Government and the Governments of Jammu & Kashmir,
Punjab, Rajasthan and Uttar Pradesh with the approval of the Central Government. The monies required
for running the college are provided entirely by the Central Government and the Government of Jammu
& Kashmir and even if any other monies are to be received by the Society, it can be done only with the
approval of the State and the Central Governments. The Rules to be made by the Society are also required
to have the prior approval of the State and the Central Governments and the accounts of the Society
have also to be submitted to both the Governments for their scrutiny and satisfaction. The Society is also
to comply with all such directions as may be issued by the State Government with the approval of the
Central Government in respect of any matters dealt with in the report of the Reviewing Committee. The
control of the State and the Central Governments is indeed so deep and pervasive that no immovable
property of the Society can be disposed of in any manner without the approval of both the
Governments. The State and the Central Governments have even the power to appoint any other person
or persons to be members of the Society and any member of the Society other than a member
representing the State or the Central Government can be removed from the membership of the Society
by the State Government with the approval of the Central Government. The Board of Governors, which
is in charge of general superintendence, direction and control of the affairs of Society and of its income
and property is also largely controlled by nominees of the State and the Central Governments. It will thus
be seen that the State Government and by reason of the provision for approval, the Central Government
also, have full control of the working of the Society and it would not be incorrect to say that the Society is
merely a projection of the State and the Central Governments and to use the words of Ray, C.J. in Sukhdev
Singh's case (supra), the voice is that of the State and the Central Governments and the hands are also of
the State and the Central Governments. We must, therefore, hold that the Society is an instrumentality or
agency of the State and the Central Governments and it is an 'authority' within the meaning of Art. 12.

If the Society is an "authority" and therefore "State" within the meaning of Article 12, it must follow that it
is subject to the constitutional obligation under Article 14.

IV. Pradeep Kumar Biswas v. Indian Institute of Chemical Biology, (2002) 5 SCC 111

- Facts
In 1972 Sabhajit Tewary, a Junior Stenographer with the Council of Scientific and Industrial Research (CSIR)
filed a writ petition under Article 32 of the Constitution claiming parity of remuneration with the
stenographers who were newly recruited to the CSIR. His claim was based on Article 14 of the Constitution.
A Bench of five judges of this Court denied him the benefit of that Article because they held in Sabhajit
Tewari V. Union of India that the writ application was not maintainable against CSIR as it was not an
"authority" within the meaning of Article 12 of the Constitution. The correctness of the decision is before
us for re- consideration.
The immediate cause for such re-consideration is a writ application filed by the appellants in the Calcutta
High Court challenging the termination of their services by the respondent No.1 which is a unit of CSIR.
They prayed for an interim order before the learned Single Judge. That was refused by the Court on the
prima view that the writ application was itself not maintainable against the respondent No.1. The appeal
was also dismissed in view of the decision of this Court in Sabhajit Tewary's case .

- Inclusive definition
That an 'inclusive' definition is generally not exhaustive is a statement of the obvious and as far as Article
12 is concerned, has been so held by this Court . The words 'State' and 'Authority' used in Article 12
therefore remain, to use the words of Cardozo , among "the great generalities of the Constitution" the
content of which has been and continues to be supplied by Courts from time to time.

Initially the definition of State was treated as exhaustive and confined to the authorities or those which
could be read ejusdem generis with the authorities mentioned in the definition of Article 12 itself. The next
stage was reached when the definition of 'State' came to be understood with reference to the remedies
available against it. For example, historically, a writ of mandamus was available for enforcement of
statutory duties or duties of a public nature . Thus a statutory corporation, with regulations framed by such
Corporation pursuant to statutory powers was considered a State, and the public duty was limited to those
which were created by statute.
The decision of the Constitution Bench of this Court in Rajasthan Electricity Board vs. Mohan Lal & Ors.
(1967) 3 SCR 377 is illustrative of this. The question there was whether the Electricity Board - which was a
Corporation constituted under a statute primarily for the purpose of carrying on commercial activities
could come within the definition of 'State' in Article 12. After considering earlier decisions, it was said:

"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 are conferred by law. It is not at all
material that some of the powers conferred may be for the purpose of carrying on commercial activities".

By 1975 Mathew, J. in Sukhdev Singh & Ors. v. Bhagatram Sardar Singh Raghuvanshi & Ors. noted that
the concept of "State" in Article 12 had undergone "drastic changes in recent years". The question in that
case was whether the Oil and Natural Gas Commission, the Industrial Finance Corporation and the Life
Insurance Corporation each of which were public corporations set up by statutes were authorities and
therefore within the definition of State in Article 12. The Court affirmed the decision in Rajasthan State
Electricity Board V. Mohan Lal (supra) and held that the Court could compel compliance of statutory rules.
But the majority view expressed by A.N. Ray, CJ also indicated that the concept would include a public
authority which:

" 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. Such an authority is not precluded
from making a profit for the public benefit".

(emphasis added) The use of the alternative is significant. The Court scrutinised the history of the
formation of the three Corporations, the financial support given by the Central Government, the utilization
of the finances so provided, the nature of service rendered and noted that despite the fact that each of the
Corporations ran on profits earned by it nevertheless the structure of each of the Corporations showed
that the three Corporations represented the 'voice and hands' of the Central Government. The Court came
to the conclusion that although the employees of the three Corporations were not servants of the Union or
the State, "these statutory bodies are 'authorities' within the meaning of Article 12 of the Constitution".

Mathew J in his concurring judgment went further and propounded a view which presaged the subsequent
developments in the law. He said:
"A state is an abstract entity. It can only act through the instrumentality or agency of natural or juridical
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.."

For identifying such an agency or instrumentality he propounded four indicia:

(1) "A finding of the state financial support plus an unusual degree of control over the management and
policies might lead one to characterize an operation as state action."

(2) "Another factor which might be considered is whether the operation is an important public function."

(3) "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 a governmental functions as to be classified as a government 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."

(4) "The ultimate question which is relevant for our purpose is whether such a corporation is an agency or
instrumentality of the government for carrying on a business for the benefit of the public. In other words,
the question is, for whose benefit was the corporation carrying on the business?"

Sabhajit Tewary was decided by the same Bench on the same day as Sukhdev Singh (supra). The
contentions of the employee was that CSIR is an agency of the Central Government on the basis of the CSIR
Rules which, it was argued, showed that the Government controlled the functioning of CSIR in all its
aspects. The submission was somewhat cursorily negatived by this Court on the ground that all this "will
not establish anything more than the fact that the Government takes special care that the promotion,
guidance and co-operation of scientific and industrial research, the institution and financing of specific
researches, establishment or development and assistance to special institutions or departments of the
existing institutions for scientific study of problems affecting particular industry in a trade, the utilisation of
the result of the researches conducted under the auspices of the Council towards the development of
industries in the country are carried out in a responsible manner."

Although the Court noted that it was the Government which was taking the "special care" nevertheless the
writ petition was dismissed ostensibly because the Court factored into its decision two premises:

i) "The society does not have a statutory character like the Oil and Natural Gas Commission or the Life
Insurance Corporation or Industrial Finance Corporation. It is a Society incorporated in accordance with the
provisions of the Society's Registration Act", and

ii) "This Court has held in Praga Tools Corporation V. Shri C.A. Imanual & Ors.

[1969] 3 SCR 773, Heavy Engineering Mazdoor Union v. The State of Bihar & Ors. [1969] 3 SCR 995 and in
S.L. Agarwal v. General Manager Hindustan Steel Ltd.

[1970]3 SCR 363 that the Praga Tools Corporation, Heavy Engineering Mazdoor Union and Hindustan Steel
Ltd. are all companies incorporated under the Companies Act and the employees of these companies do
not enjoy the protection available to Government servants as contemplated in Article 311. The companies
were held in these cases to have independent existence of the Government and by the law relating to
corporations.

These could not be held to be departments of the Government".

With respect, we are of the view that both the premises were not really relevant and in fact contrary to the
'voice' and 'hands' approach in Sukhdev Singh. Besides reliance by the Court on decisions pertaining to
Article 311 which is contained in Part XIV of the Constitution was inapposite. What was under
consideration was Art. 12 which by definition is limited to Part III and by virtue of Art. 36 to Part IV of the
Constitution. As said by another Constitution Bench later in this context:

"Merely because a juristic entity may be an "authority" and therefore "State" within the meaning of Article
12, it may not be elevated to the position of "State" for the purpose of Articles 309, 310 and 311 which find
a place in Part XIV. The definition of "State" in Article 12 which includes an "authority" within the territory
of India or under the control of the Government of India is limited in its application only to Part III and by
virtue of Article 36, to Part IV: it does not extend to the other provisions of the Constitution and hence a
juristic entity which may be "State" for the purpose of Parts III and IV would not be so for the purpose of
Part XIV or any other provision of the Constitution. This is why the decisions of this Court in S.L. Aggarwal v.
Hindustan Steel Ltd., and other cases involving the applicability of Article 311 have no relevance to the
issue before us".

Normally, a precedent like Sabhajit Tewary which has stood for a length of time should not be reversed,
however erroneous the reasoning if it has stood unquestioned, without its reasoning being 'distinguished'
out of all recognition by subsequent decisions and if the principles enunciated in the earlier decision can
stand consistently and be reconciled with subsequent decisions of this Court, some equally authoritative.
In our view Sabhajit Tewary fulfills both conditions.

Side-stepping the majority approach in Sabhajit Tewary, the 'drastic changes' in the perception of 'State'
heralded in Sukhdev Singh by Mathew, J and the tests formulated by him were affirmed and amplified in
Ramana v. International Airport Authority of India . Although the International Airport Authority of India is
a statutory corporation and therefore within the accepted connotation of State, the Bench of three Judges
developed the concept of State. The rationale for the approach was the one adopted by Mathew J in
Sukhdev Singh:

" In the early days, when the Government had limited functions, it could operate effectively through
natural persons constituting its civil service and they were found adequate to discharge governmental
functions, which were of traditional vintage. But as the tasks of the Government multiplied with the advent
of the welfare State, it began to be increasingly felt that the frame work of civil service was not sufficient to
handle the new tasks which were often of specialised and highly technical character. The inadequacy of the
civil service to deal with these new problems came to be realised and it became necessary to forge a new
instrumentality or administrative device for handling these new problems. It was in these circumstances
and with a view to supplying this administrative need that the public corporation came into being as the
third arm of the Government".

From this perspective, the logical sequitur is that it really does not matter what guise the State adopts for
this purpose, whether by a Corporation established by statute or incorporated under a law such as the
Companies Act or formed under the Societies Registration Act, 1860. Neither the form of the Corporation,
nor its ostensible autonomy would take away from its character as 'State' and its constitutional
accountability under Part III vis-a-vis the individual if it were in fact acting as an instrumentality or agency
of Government.

As far as Sabhajit Tewary was concerned it was 'explained' and distinguished in Ramana saying: "The Court
no doubt took the view on the basis of facts relevant to the constitution and functioning of the Council that
it was not an 'authority', but we do not find any discussion in this case as to what are the features which
must be present before a corporation can be regarded as an 'authority' within the meaning of Art.12. This
decision does not lay down any principle or test for the purpose of determining when a corporation can be
said to be an 'authority'. If at all any test can be gleaned from the decision, it is whether the Corporation is
'really an agency of the Government'. The Court seemed to hold on the facts that the Council was not an
agency of the Government and was, therefore, not an 'authority' ".

The tests propounded by Mathew, J in Sukhdev Singh were elaborated in Ramana and were re-formulated
two years later by a Constitution Bench in Ajay Hasia v. Khalid Mujib Sehravardi . What may have been
technically characterised as 'obiter dicta' in Sukhdev Singh and Ramana (since in both cases the "authority"
in fact involved was a statutory corporation), formed the ratio decidendi of Ajay Hasia. The case itself dealt
with a challenge under Article 32 to admissions made to a college established and administered by a
Society registered under the Jammu & Kashmir Registration of Societies Act 1898. The contention of the
Society was that even if there were an arbitrary procedure followed for selecting candidates for admission,
and that this may have resulted in denial of equality to the petitioners in the matter of admission in
violation of Article 14, nevertheless Article 14 was not available to the petitioners because the Society was
not a State within Art. 12.

The Court recognised that:

" Obviously the Society cannot be equated with the Government of India or the Government of any State
nor can it be said to be a local authority and therefore, it must come within the expression "other
authorities" if it is to fall within the definition of 'State' ".

But it said that:

"The courts should be anxious to enlarge the scope and width of the Fundamental Rights by bringing within
their sweep every authority which is an instrumentality or agency of the government or through the
corporate personality of which the government is acting, so as to subject the government in all its myriad
activities, whether through natural persons or through corporate entities, to the basic obligation of the
Fundamental Rights".

It was made clear that the genesis of the corporation was immaterial and that:

" The concept of instrumentality or agency of the government is not limited to a corporation created by a
statute but is equally applicable to a company or society and in a given case it would have to be decided,
on a consideration of the relevant factors, whether the company or society is an instrumentality or agency
of the government so as to come within the meaning of the expression "authority" in Article 12".

Ramana was noted and quoted with approval in extenso and the tests propounded for determining as to
when a corporation can be said to be an instrumentality or agency of the Government therein were culled
out and summarised as follows:

(1) 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.

(2) Where the financial assistance of the State is so much as to meet almost entire expenditure of the
corporation, it would afford some indication of the corporation being impregnated with governmental
character.

(3) It may also be a relevant factor..whether the corporation enjoys monopoly status which is State
conferred or State protected.

(4) Existence of deep and pervasive State control may afford an indication that the corporation is a State
agency or instrumentality.
(5) 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.

(6) Specifically, if a department of Government is transferred to a corporation, it would be a strong factor

supportive of this inference of the corporation being an instrumentality or agency of Government.

In dealing with Sabhajit Tewary the Court in Ajay Hasia noted that since Sabhajit Tewary was a decision
given by a Bench of Five Judges of this Court it was undoubtedly binding. The Court read Sabhajit Tewary
as implicity assenting to the proposition that CSIR could have been an instrumentality of agency of the
Government even though it was a Registered Society and limited the decision to the facts of the case. It
held that the Court in Sabhajit Tewari :

" did not rest its conclusion on the ground that the council was a society registered under the Societies
Registration Act, 1860, but proceeded to consider various other features of the council for arriving at the
conclusion that it was not an agency of the government and therefore not an 'authority'".

The conclusion was then reached applying the tests formulated to the facts that the Society in Ajay Hasia
was an authority falling within the definition of "State" in Article 12.

On the same day that the decision in Ajay Hasia was pronounced came the decision of Som Prakash Rekhi
v. Union of India . Here too, the reasoning in Ramana was followed and Bharat Petroleum Corporation was
held to be a 'State' within the "enlarged meaning of Art.12". Sabhajit Tewary was criticised and
distinguished as being limited to the facts of the case. It was said:

"The rulings relied on are, unfortunately, in the province of Art.311 and it is clear that a body may be
'State' under Part III but not under Part XIV. Ray, C.J., rejected the argument that merely because the Prime
Minister was the President or that the other members were appointed and removed by Government did
not make the Society a 'State'. With great respect, we agree that in the absence of the other features
elaborated in Airport Authority case (1979) 3 SCC 489:

(AIR 1979 SC 1628) the composition of the Government Body alone may not be decisive. The laconic
discussion and the limited ratio in Tewary (1975) 3 SCR 616 : (AIR 1975 SC 1329) hardly help either side
here."

The tests to determine whether a body falls within the definition of 'State' in Article 12 laid down in
Ramana with the Constitution Bench imprimatur in Ajay Hasia form the keystone of the subsequent
jurisprudential superstructure judicially crafted on the subject which is apparent from a chronological
consideration of the authorities cited.

- CSIR

For the purpose of coordinating and exercising administrative control over the working of the two research
bodies already set up by the Department of Commerce, and to oversee the proper utilisation of the
Industrial Research Fund, by a further resolution dated 26th September 1942, the Government of India
decided to set up a Council of Industrial Research on a permanent footing which would be a registered
society under the Registration of Societies Act, 1860. Pursuant to the resolution, on 12th March, 1942 the
CSIR was duly registered. Bye-laws and Rules were framed by the Governing Body of the Society in 1942
which have been subsequently revised and amended. Unquestionably this shows that the CSIR was
'created' by the Government to carry on in an organized manner what was being done earlier by the
Department of Commerce of the Central Government. In fact the two research bodies which were part of
the Department of Commerce have since been subsumed in the CSIR.

These objects which have been incorporated in the Memorandum of Association of CSIR manifestly
demonstrate that CSIR was set up in the national interest to further the economic welfare of the society by
fostering planned industrial development in the country. That such a function is fundamental to the
governance of the country has already been held by a Constitution Bench of this Court as far back as in
1967 in Rajasthan Electricity Board v. Mohan Lal (Supra) where it was said:

"The State, as defined in Art.12, is thus comprehended to include bodies created for the purpose of
promoting the educational and economic interests of the people".

Incidentally, the CSIR was and continues to be a non-profit making organization and according to clause (4)
of CSIR's Memorandum of Association, all its income and property, however derived shall be applied only
'towards the promotion of those objects subject nevertheless in respect of the expenditure to such
limitations as the Government of India may from time to time impose'.

The dominant role played by the Government of India in the Governing Body of CSIR is evident. The
Director- General who is ex-officio Secretary of the Society is appointed by the Government of India
[Rule 2(iii)]

The control of the Government in the CSIR is ubiquitous. The Governing Body is required to administer,
direct and control the affairs and funds of the Society and shall, under Rule 43, have authority 'to
exercise all the powers of the Society subject nevertheless in respect of expenditure to such limitations
as the Government of India may from time to time impose'. The aspect of financial control by the
Government is not limited to this and is considered separately. The Governing Body also has the power
to frame, amend or repeal the bye-laws of CSIR but only with the sanction of the Government of India.
Bye-law 44 of the 1942 Bye-laws had provided 'any alteration in the bye-laws shall require the prior
approval of the Governor General in Council'.

- Notification

Besides a new fact relating to CSIR has come to light since the decision in Sabhajit Tewary which
unequivocally vindicates the conclusion reached by us and fortifies us in delivering the coup de grace to
the already attenuated decision in Sabhajit Tewary. On 31st October 1986 in exercise of the powers
conferred by sub-section (2) of Section 14 of the Administrative Tribunals Act, 1985, the Central
Government specified 17th November 1986 as the date on and from which the provisions of sub-section
(3) of Section 14 of the 1985 Act would apply to CSIR 'being the Society owned and controlled by
Government'.

V. Janet Jeyapal v. SRM University 2015

3. In order to appreciate the controversy involved in this appeal, which lie in a narrow compass, it is
necessary to set out the relevant facts.

(a) The S.R.M. University-respondent No.1 herein is the Institution engaged in imparting high education in
various subjects. The Central Government has, therefore, on the advise of University Grants Commission
(in short “UGC”) declared respondent No.1 as “Deemed University” by issuing a notification under Section
3 of the University Grants Commission Act, 1956 (in short “the UGC Act”). Respondent No.1 is, therefore,
subjected to ensuring compliance of all the provisions of UGC Act in its functioning.
(b) The appellant is holding M.Sc. and P.hd. in applied Biology. She was appointed as a Lecturer in the
Department of Bio-technology in the Faculty of Sciences and Humanity in the SRM University-respondent
No.1. By order dated 05.05.2010, she was promoted as Senior Lecturer w.e.f. 01.04.2010.

(c) On 14.02.2012, the appellant was served with a memo calling upon her to show cause as to why
disciplinary action should not be taken against her for the alleged failure to take classes of the students of
B.Sc. Third Year degree course and M.Sc. First Year degree course. The appellant submitted her replies on
15.02.2012 and 20.02.2012 denying the allegations and claiming that she took classes for both the courses.

(d) Thereafter, another memo dated 22.02.2012 was issued by the Registrar in-charge of the University
referring certain complaints given against her by the students. Refuting the charges, the appellant
submitted her reply on 29.02.2012.

(e) Dissatisfied with the explanation given by the appellant, respondent No.1-SRM University constituted
an Enquiry Committee and the appellant appeared before the said Committee on 02.03.2012 and stated
that she was not furnished the documents and the copies of the complaints. Thereafter she submitted a
detailed explanation on 26.03.2012.

(f) Thereafter the appellant received a notice dated 04.04.2012 mentioning therein that the same shall be
treated as one month’s notice and she would be relieved from the services w.e.f. 04.05.2012. According to
the appellant, she received the notice on 16.04.2012.

(g) Challenging the said notice, the appellant filed Writ Petition No. 12676 of 2012 before the High Court.
By order dated 08.04.2013, the Single Judge of the High Court allowed the writ petition, quashed the
termination notice and directed the respondents to reinstate the appellant into service.

(h) Against the said order, respondent No.1 herein filed Writ Appeal No. 932 of 2013 before the High Court.
By impugned judgment dated 04.07.2013, the Division Bench of the High Court allowed the appeal. It was
held that the writ petition filed by the appellant against respondent No.1 was not maintainable as
according to the Division Bench, respondent No.1 is neither a State nor an authority within the meaning of
Article 12 of the Constitution of India and hence it cannot be subjected to writ jurisdiction of the High
Court under Article 226 of the Constitution to examine the legality and correctness of the dismissal order.
The Division Bench, therefore, did not examine the merits of the case made out by the appellant
successfully before the Single Judge. The Division Bench, however, granted liberty to the appellant to
approach the Tribunal for ventilating of her grievance on merits.

(i) Aggrieved by the said judgment, the appellant has preferred this appeal by way of special leave before
this Court.

Submissions of Mr. Harish Salve were many fold. According to him, while deciding the question as to
whether the writ lies under Article 226 of the Constitution of India against any person, juristic body,
organization, authority etc., the test is to examine in the first instance the object and purpose for which
such body/authority/organization is formed so also the activity which it undertakes to fulfill the said
object/purpose.

Mr. Harish Salve submitted that perusal of these authorities/decisions would go to show that there has
been a consistent view of all the learned authors and the Courts all over the world including in India that
the approach of the Court while deciding such issue is always to test as to whether the concerned body is
formed for discharging any "Public function" or "Public duty" and if so, whether it is actually engaged in
any public function or/and performing any such duty.
According to Mr. Harish Salve, once it is proved that the activity undertaken by the authority has a public
element then regardless of the form of such authority it would be subjected to the rigor of writ jurisdiction
of Article 226 of the Constitution.

Learned counsel then urged that in the light of several decisions of this Court, one cannot now perhaps
dispute that "imparting education to students at large" is a "public function" and, therefore, if any body or
authority, as the case may be, is found to have been engaged in the activity of imparting education to the
students at large then irrespective of the status of any such authority, it should be made amenable to writ
jurisdiction of the High Court under Article 226 of the Constitution.

Learned counsel further pointed out that the case in hand clearly shows that respondent No. 1 - a juristic
body is engaged in imparting education in higher studies and what is more significant is that respondent
No. 1 is conferred with a status of a “Deemed University" by the Central Government under Section 3 of
the UGC Act. These two factors, according to Mr. Harish Salve, would make respondent No. 1 amenable to
writ jurisdiction of the High Court under Article 226 because it satisfies the twin test laid down for
attracting the rigor of writ jurisdiction of the High Court.

Having heard learned counsel for the parties and on perusal of the record of the case, we find force in the
submissions urged by Mr. Harish Salve.

Finding(s): This we say for the reasons that firstly, respondent No. 1 is engaged in imparting education in
higher studies to students at large. Secondly, it is discharging "public function" by way of imparting
education. Thirdly, it is notified as a "Deemed University" by the Central Government under Section 3 of
the UGC Act. Fourthly, being a “Deemed University”, all the provisions of the UGC Act are made applicable
to respondent No. 1, which inter alia provides for effective discharge of the public function - namely
education for the benefit of public. Fifthly, once respondent No. 1 is declared as “Deemed University"
whose all functions and activities are governed by the UGC Act, alike other universities then it is an
"authority" within the meaning of Article 12 of the Constitution. Lastly, once it is held to be an "authority"
as provided in Article 12 then as a necessary consequence, it becomes amenable to writ jurisdiction of High
Court under Article 226 of the Constitution.