STATUS OF PUBLIC UTILITIES UNDER ARTICLE 12 OF

THE CONSTITUTION OF INDIA

SUBMITTED TO-

Prof. Dr. P.K. MUSHA

Faculty of Law

SUBMITTED BY-

DEEPAK GAUR

LL.M. {CBCS}

Semester 3rd

Roll No. - 12

BRANCH

CONSTITUTION AND LEGAL ORDER

 STATUS OF PUBLIC UTILITIES UNDER ARTICLE 12 OF
THE CONSTITUTION OF INDIA

SYNOPSIS

 Introduction
 Definition of Public Utilities
 Nature and Scope the Concept of State Action under
article 12
o Government and the Legislature
o Authorities under the Control of Government of
India
o Local Authorities
o Other Authorities
 Status of public utilities through Judicial Interpretation
of ‘Other authorities’
 Public utilities bodies under ‘other authority’
 Conclusion
 Bibliography

2|Page
 INTRODUCTION

The concept of State Action is not defined in the Constitution rather it is a concept which is
implied in Article 12 of the Constitution of India. The Article is the first article in Part III of
the Constitution and it enlists the fundamental rights guaranteed to the people. Defining State
was necessary as the Fundamental Rights are expressly guaranteed against the State. The
Article has been put to judicial scrutiny in a number of cases. In most of the cases the Court
has analyzed the fact situations existing at the particular time and made the judicial meaning
of the term in tandem with the political and economic changes and its impact on State and its
role in the society. In this way an array of public utilities institutions are kept under the purview
of judicial scrutiny.

Though the language in Article 12 is plain, the term ‘other authority’ is put to test quite a
number of times. In order to extract the true meaning of the term and to further the purpose of
fundamental rights the judiciary has evolved the test of instrumentality or agency under which
various criteria’s are laid out, one such important test is ‘Public Functions Test,’ other tests
being deep and pervasive state control test, government monopoly test etc. The cumulative
effect of all the tests is necessary to hold an authority as ‘other authority’ and thereby state
under Article 12. These tests try to render a meaningful link between the authority in question
and the government.

Despite playing its role as ‘social engineer’ while analyzing the cases what can be seen is that
the various tests acts as a limitation upon the further enlargement of the concept of State Action
though constitution framers intended to give wide meaning to Article 12. The response of the
judiciary towards the changing socio-economic transformations is also evident from the
observations given in the judgment. In this background the Chapter presents a careful analysis
of the development and scope of the definition of State under Article 12 and also how the strait
jacket formulation of the tests to determine the State Action concept has made the law static in
extending its application to private bodies exercising public functions.

3|Page
 DEFINITION OF PUBLIC UTILITIES

A public utility is a business or service, which may be publicly or privately owned, engaged in
supplying the public generally with some commodity or service, such as electricity, gas, water,
transportation, or telephone or telegraph service. Privately owned public utilities most often
operate within a designated area through an exclusive franchise granted by the legislature,
public service commission, or other regulatory agency, and their operation is strictly regulated
by the franchisor. Public utilities are subject to forms of public control and regulation ranging
from local community-based groups to statewide government monopolies.1

A public utility agency is an organisation which maintains infrastructure

for a public service. Public utilities are subject to various forms of public control and
regulations, ranging from local community based groups to State wide government
monopolies. Public utilities are those business undertakings which provide necessary services
to the society at large. Public Utility Services are a set of services provided for large numbers
of citizens in which there are potentially significant market failures (broadly interpreted to
include equity as well as efficiency) that justify government involvement, whether in
production, finance or regulation. 2Among the core areas for which there is a consensus in
favour of government responsibility are: law and order, infrastructure i.e., major irrigation
works, transport services, water resources, road construction and maintenance, education,
health (promotive, preventive and curative), tax collection, sanitation and social safety nets.

Business or service which is engaged in regularly supplying the public with

some commodity or service which is of public consequences and need based public utility
services. Public utilities are subject to high degree of social control. They are setup with public
money. Any deficiency in quality or service would immediately result in a problem. For
example in matter concerning electricity, where the electricity wires are in an exposed manner
unattended by the concerned authority or if the railway tracks are not properly laid, there would
be a considerable loss or danger to human life. Especially utility service like water, if the
water is contaminated or is in scarcity, it would lead to social turbulence which invites social
criticisms. Public Utilities always serve as monopolies which can exploit customers by
charging high prices, producing sub-standard products, providing poor quality service etc.

1
Stilpon Nestor and Ladan Mahboobi–“ Privatisation of Public Utilities: The Oecd Experience”. Apr 23, 1999.
2
Paul A.Grout, “Private Delivery of Public Services”,The report based on Professor Grout’s keynote address at
the European Commission’s Eurosocial Taxation Conference, Mexico, 24th – 28th November 2008.

4|Page
Therefore, to avoid such undesirable practices, the government maintains a constant
observation over the operations of public utility services. Further, any deficiency in products
and quality of service manufactured by public utility agencies would have far reaching negative
impact on the society. Therefore strict rules and regulations have been laid down with regard
to their accountability, transparency, performance and functioning. 3

Public utilities are often natural monopolies because the infrastructure required to produce and
deliver a product such as electricity or water is very expensive to build and maintain.4

As a result, they are often government monopolies, or if privately owned, the sectors are
specially regulated by a public utilities commission.5 Private utilities, also called investor-
owned utilities, are owned by investors,6 and operate for profit, often referred to as a rate of
return.

Though they are governed by statutory rules, the government regulation fails to be completely
effective. Therefore, recent tendency is towards government ownership, control and
management of these undertakings.

The following reasons have prompted the State ownership of public utilities: 7

(i) “Difficulties in effective regulation” can be removed by direct government

ownership and management.
(ii) The “need for co-ordination” can be met more effectively if all these undertakings
are under government ownership, management and control.
(iii) Substitution of profit motive by service motive is practicable only when these
undertakings are owned and managed by the government.
(iv) In a planned economy, the key services which are clothed with public interest
should necessarily be in Public or State sector. The Industrial Policy Resolution of
1956 declares that the public utility service will, as far as possible, be under State
ownership and management.

3
World Bank, “India Inclusive Growth and Service Delivery: Building on India’s Success, Development Policy
Review,” (Report No.34580-IN, Washington, DC: World Bank, 2006), pg. 31-32
4
Steven N. Durlauf and Lawrence E. “Public Utility Pricing and Finance” Frank A. Wolak from The New
Palgrave Dictionary of Economics, Second Edition, 2008.
5
"Where Growth Centers". The Salina Evening Journal. Salina, Kansas. November 6, 1922. p. 13.
Retrieved March 17, 2015 – via Newspapers.com.
6
Energy Dictionary Investor Owned Electric Utilities Investor-Owned Utilities: Asleep at the Switch or Above
the Law?
7
The Legal Services Authorities Act, 1987 (Act No. 39 OF 1987)

5|Page
 NATURE AND SCOPE THE CONCEPT OF STATE ACTION
UNDER ARTICLE 12

Most of the Fundamental rights provided to the citizens are claimed against the State and its
instrumentalities and not against the private bodies. Art. 13(2), bars the ‘state’ from making
any ‘law’ infringing a Fundamental Right. Art. 12 gives an extended significance to the term
‘state’. Art. 12 clarifies that the term ‘state’ occurring in Art. 13(2), or any other provision
concerning Fundamental Rights, has an expansive meaning. The framers of the Constitution
used the words ‘the State’ in a wider sense than what is understood in the ordinary or narrower
sense. The word ‘includes’ suggests that the definition is not exhaustive. The expanding
dimension of the words ‘the State’ through the judicial interpretation must be within the
limitation otherwise the expansion may go much beyond what even the framers of Article 12
may have thought of.8
Article 12 reads as: 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
State and all local or other authorities within the territory of India or under the control of the
Government of India.

According to Article 12, the term ‘State’ includes:

(i) The Government and Parliament of India: the term “State” includes Government of India
(Union Executive) and the Parliament of India (i.e., the Union Legislature)
(ii) The Government and the Legislature of a State i.e., the State Executive and the legislature
of each state.

(iii) All local authorities; and

(iv) Other authorities within the territory of India; or under the control of the Central
Government.

o GOVERNMENT AND THE LEGISLATURE

It is explicitly mentioned in Article 12 that State includes Parliament of India and the State
Legislature and State Executive by virtue of the functions and powers exercised by these

8
Pradeep Kumar Biswas v. Indian Institute of Chemical Biology, (2002) 5 SCC 111: JT 2002 (4) SC 146, per
seven judge bench, ; Bengal Immunity Co. Ltd. v. State of Bihar, AIR 1955 SC 661

6|Page
bodies. Besides, Article 32 empowers the Supreme Court to issue writs against the Government
of India as well as the State Government and also Article 226 expressly includes government
as one of the persons against whom a writ may be issued.9 In case of legislature also Article 32
and 226 are enforceable and this was held on many occasions by the Court. 10 As was observed
in the Reference case11 by Gajendragadkar S., Article 12 defines the State as including the
legislature of such State and so prima facie the power conferred on the High Court under Article
226 (1 can in proper case be exercised even against the legislature.37

o AUTHORITIES UNDER THE CONTROL OF

GOVERNMENT OF INDIA

Territory of India: Territory of India should be taken to mean territory of India as defined in
Article 1(3).12 According to Article 1(3) the territory of India shall comprise the territories of
the States, the Union Territories specified in the first schedule and such other territories as may
be acquired.
Dr. Ambedkar while moving this amendment for the inclusion of the word “Under the
control of government of India” which were not there in the draft Constitution Article. He
explained that this amendment was thought necessary because apart from the territories which
form part of India, there may be other territories which may not form part of India, but may
none-the-less be under the control of the Government of India. There are many cases occurring
now in international affairs where territories are handed over to other countries for the purposes
of administration either under a mandate or trusteeship. I think it is desirable that there ought
to be no discrimination so far as the citizens of India and the residents of those mandated or
trusteeship territories are concerned in fundamental rights. It is therefore desirable that this
amendment should be made so that the principle of Fundamental Rights may be extended to
the residents of those territories as well.
In the case of Masthan Sahib v. Chief Commissioner,13 the court held that the
territory of India for the purposes of Article 12 means the territory of India as defined in Article
1(3). The judges of the majority decision analyzed each issue and came to the conclusion that

9
Khajoor Singh v. Union of India AIR 1961 SC 532, Pratap Singh Khairon v. State of Punjab AIR 1964 SC 72,
State of Bombay v. Laxmidas AIR 1952 Born. 468.
10 AIR 1965 SC 7
11 Id. (In this case a non-member was detained by an order of the legislature for contempt of the House and he
had moved the High Court for Habeas Corpus. It was held that such a writ against the legislature is
maintainable).
12
Masthan Sahib v. Chief Commissioner, Pondicherry, AIR 1963 SC 533
13
1962 AIR 797

7|Page
Pondicherry is not comprised within the territory of India as specified under clause (3) of
Article 1 of the Constitution. Article 1(3) says that the territory of India shall comprise of–
1. The territories of the States;

2. The Union territories specified in the First Schedule;

3. Such other territories as may be acquired.

By an agreement signed between Government of France and Government of India, the
government of India took over the administration of the French establishments in India which
included the territory of Pondicherry. A treaty of cession was signed but not ratified according
to the French law. Therefore, Government of India had been administering the territory of
Pondicherry under the Foreign Jurisdiction Act, 1947 which is based on the fact that it is outside
India and not a part of the territory of India.

o LOCAL AUTHORITIES
Local Authority: according to sub-section (31) of Section 3 of the General Clauses Act, 1897
“Local Authority” shall mean a municipal committee, district board, body of commissioner or
other authority legally entitled to or entrusted by the Government within the control or
management of a municipal or local fund. According to Entry 5 of the List II of 7 th Schedule ‘
local government’ includes municipal corporation, improvement trust, district boards, mining
settlement authorities and other local authorities for the purpose of local self-government or
village administration. Village panchayat is also included within the meaning of the term local
authority14. In Mohammad Yasin v. Town Area Committee15 , the Supreme Court held that the
Bye-laws of a Municipal Committee charging a prescribed fee on the wholesale dealer was an
order by the State Authority contravened Article 19(1) (g). These bye-laws in effect and in
substance have brought about a total stoppage of the wholesale dealers’ business in the
commercial sense. The Supreme Court has ruled that to be characterized as a ‘local authority’
the authority concerned must have separate legal existence as a corporate body, it must not be
a mere government agency but must be legally an independent entity; it must function in a
defined area and must ordinarily, wholly or partly, directly or indirectly, be elected by the
inhabitants of the area. It must also enjoy a certain degree of autonomy either complete or

14
Ajit Singh v. State of Punjab, AIR 1967 SC 856
15
AIR 1952 SC 115.

8|Page
partial, must be entrusted by statute with such governmental functions and duties as are usually
entrusted to locally like health and education, water and sewerage, town planning and
development roads, markets, transportation, social welfare services, etc. Finally, such body
must have the power to raise funds for furtherance of its activities and fulfilment of its
objectives by levying taxes, rates, charges or fees.

o OTHER AUTHORITIES
Other Authorities: The term ‘other authorities’ in Article 12 has nowhere been defined.
Neither in the Constitution nor in the general clauses Act, 1897 nor in any other statute of
India. Therefore, its interpretation has caused a good deal of difficulty, and judicial opinion
has undergone changes over time.

STATUS OF PUBLIC UTILITIES THROUGH JUDICIAL

INTERPRETATION OF ‘OTHER AUTHORITIES’

Today’s government performs a large number of functions because of the prevailing

philosophy of a social welfare state. The government acts through natural persons as well as
juridical persons. Some functions are discharged through the traditional governmental
departments and officials while some functions are discharged through autonomous bodies
existing outside the departmental structure, such as, companies, corporations etc. Hence, the
term ‘other authorities’ has been interpreted by the following judicial pronouncements in
accordance with the facts and circumstances of different cases.

In the case of University of Madras v. Santa Bai16, the Madras High Court held that ‘other
authorities’ could only indicate authorities of like nature, i.e., ejusdem generis. So construed it
could only mean authorities exercising governmental or sovereign functions. It cannot include
persons, natural or juristic. Such as, a university unless it is ‘maintained by the State’.
But in Ujjammabai v. State of U.P.17, The Court rejected this restrictive interpretation
of the expression ‘other authorities’ given by the Madras High Court and held that the ejusdem
generis rule could not be resorted to the in interpreting tis expression. In Article 12 the bodies
specifically named are the Government of Union and the States, the Legislature of the Union

16
AIR 1954 Mad.67
17
AIR 1962 SC 1621

9|Page
and States and local authorities. There is no common genus running through these named
bodies nor can these bodies so placed in one single category on any rational basis.
In Electricity Board, Rajasthan v. Mohan Lal18, the Supreme Court held that ‘other
authorities’ would include all authorities created by the constitution or statute on whom powers
are conferred by law. It was not necessary that the statutory authority should be engaged in
performing government or sovereign functions. The court emphasized that it is not material
that some of the power conferred on the concerned authority are of commercial nature. This is
because under Art. 298 the government is empowered to carry on any trade or commerce. Thus,
the court observed : “ The circumstances that the Board under the Electricity Supply Act is
required to carry on some activities of the nature of trade or commerce does not, therefore give
any indication that the ‘Board” must be excluded from the scope of the word ‘State’ is used in
Article 12.
The next important case relating to the interpretation of the term ‘other
authorities’ is, Sukhdev Singh V. Bhagatram19, The Supreme Court, following the test laid
down in Electricity Board Rajasthan’s Case by 4:1 majority has stated that the three statutory
bodies viz., LIC, ONCG & FCI were held to be ‘authorities’ and thus fall within the term ‘State’
in Article 12. These corporations were created by the statutes, had the statutory power to make
binding rules & regulations and were subject to the pervasive governmental control. These
corporations do have independent personalities in the eyes of law, but that does not mean that
“they are not subject to the control of the government or they are not instrumentalities of the
government. 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. The employees are entitled to claim protection of Articles
14 and 16 against the corporations. Mathew, J., in a separate but concurring judgement, held
that the Public Corporations is a new type of institution which sprang from the new social and
economic functions of the government, and instead of classifying it into old legal category, it
should be adopted to the changing time and conditions. The State being an abstract entity, could
undertake trade or business as envisaged under Article 298 through an agency, instrumentality
or juristic person. He preferred a broader test that if the functions of the Corporation are of
public importance and closely related to governmental functions it should be treated an agency

18
AIR 1967 SC 1857
19
AIR 1975 SC 1331

10 | P a g
e
or instrumentality of government and hence a ‘State’ within the ambit of Article 12 of the
Constitution.
In simple terms, Statutory corporations are agencies or instrumentalities of the state for
carrying on trade or business which otherwise would have been carried out by the state
departmentally. Therefore it has to be seen whether a body is acting as an agency or
instrumentality of the state.

The approach in Sukhdev Singh case, was reiterated with approval in R D

Shetty V. International Airport Authority20, Bhagwati, J., speaking for the Court, pointed out
the corporations acting as instrumentality or agency of government would obviously be subject
to the same limitation in the field of constitutional or administrative as the government itself,
though in the eye of the law they would be distinct and independent legal entities. If the
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.
Bhagwati, J., discussed in detail various factors relevant for
determining whether a body is an instrumentality or agency of the state. These factors as they
were finally summarized by him in Ajay Hasia V. Khalid Mujib,21 are:
1. if the entire share capital of the corporation is held by the government, it would go a long
way towards indicating that the corporation is an instrumentality or authority of the
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 government character.
3. 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 of that the
corporation is a state agency or instrumentality.
5. If the functions of the corporation are of public importance and closely related to
government functions it would be relevant factor in classifying a corporation as an
instrumentality or agency of government.

20
AIR 1979 SC 1628
21
AIR 1981 SC 487

11 | P a g
e
 6. If a department of the government is transferred to corporation it would be a strong factor
supporting the inference of the corporation being an instrumentality or agency of
government.
The Supreme Court ruled in the instant case that where a corporation in an instrumentality
or agency of the government, it must be held to be an authority under Article 12.However,
these tests are not conclusive or clinching, and it must be realised that it would 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. Following this approach, it was held that
the international Airport Authority constituted under the International Airport Agency
Act, 1971 was an authority and, therefore, ‘State’ within the meaning of Article 12.
“The concept of the instrumentality or agency of the government is not limited to a corporation
created by statute but is equally applicable to a company or society.”

This line of approach to the meaning of other authorities has been finally
confirmed in Som Prakash Rekhi V. Union of India22. Applying the criteria laid down in the
International Airport Authority case, the Supreme Court reached the conclusion that there is
enough material to hold that the Bharat Petroleum Corporation registered as a company under
the Companies Act, is State within the enlarged meaning of Art. 12. Consequent upon takeover
of Burmah Shell under the Burmah Shell (Acquisition of Undetakings in India) Act, 1976, the
right, title and interest of the company stood transferred and vested in the Government of India.
Thereafter, the Central Government took necessary steps for vesting the undertaking in the
BPC Ltd. which became the statutory successor of the petitioner employer. Krishna Iyer,
J., speaking for himself and Chinnapa Reddy. J., Pathak, J. concurring, observed that the
various provisions of the Act of 1976 have transformed the corporation into an instrumentality
of the Central Government with a strong statutory flavour super-added are clear indicia of
power to make it an ‘authority’. Although registered as a company under the Companies Act,
the BPC is clearly a creature of the statute, a limb of government, an agency of the State and is
recognized and clothed with rights and duties by the Statute.
In Ajay Hasia v. Khalid Mujib23, the question arose whether the Regional
Engineering College, Srinagar, established, administered and managed by a society registered

22
(1981) 1 SCC 449; AIR 1981 SC 212. In Som Prakash these factors are laid down in SCC p. 471 and in AIR
at 225. It may be noted that Krishna Iyer, J., who wrote Som Prakash opinion, was common to both the cases
and since the decision in both the cases were pronounced on the same day it is natural, that Krishna Iyer, J., fully
knew what was being said by his brother Bhagwati, J., in Ajay Hasia.
23
(1981) 1 SCC 722; AIR 1981 SC 487

12 | P a g
e
under the J & K Registration of Societies Act, was a State within the meaning of Article
12. Bhagwati, J., speaking for the unanimous five judge-bench, reiterated that the tests for
determining as to when a corporation falls within the definition of State in Article 12 is whether
it is an instrumentality or agency of government. The enquiry must be not how the juristic
person is born but why it has been brought into existence. It is, therefore, immaterial whether
the corporation is created by the statute or under a statute. The concept of instrumentality or
agency of government, is not limited to a corporation created by the statute but is equally
applicable to a company or society considering the relevant factors as explained in
the International Airport Authority case.24 Applying this criterion, it was held that the Society
registered under the J&K Registration of Societies Act was an instrumentality or agency of the
State and the Central Government, for the reason that these governments had full control of the
working of the society and the society was merely a projection.
Following the law laid down in the Ajay Hasia case25, the Indian Statistical
Institute26, Indian Council of Agricultural Research27, Sainik School Society28, U.P. State
Cooperative Land Development Bank Ltd.29, all societies registered under the Societies
Registration Act; Project and Equipment Corporation of India Ltd., a Government of India
Undertaking30; Food Corporation of India31, a statutory corporation; the Steel Authority of
India Ltd., a public limited company owned, controlled and supervised by the Central
Government32; the Indian Oil Corporation, a company registered under the Companies Act of
2013, a State-aided school, whose employees enjoy statutory protection and which is subject
to regulations made by the State education department 33; a medical college run by a municipal
corporation34; several electricity boards35 created on the lines of Rajasthan Electricity Board;
Central Government and two State Governments36; a Government Company constituted as a

24
Raman Dayanand Shetty v. International Airport Authority of India, (1979) 3 SCC 489; AIR 1979 SC 1628
25
Ajay Hasia v. Khalid Mujib, 1981) 1 SCC 722; AIR 1981 SC 487
26
B.S. Minhas v. Indian Statistical Institute,(1983) 4 SCC 582; AIR 1984 SC 363
27
P.K. Ramchandra Iyer v. Union of India, (1984) 2 SCC 141; S.M. Illyas (Dr.) v. Indian Council For
Agriculture Research, (1993) 1 SCC 182
28
All India Sainik School Employees’ Association v. Sainik Schools Society, 1989 Supp (1) SCC 205
29
U.P. State Cooperaive Land and Development Bank Ltd. v. Chandra Bhan Dubey, AIR 1999 SC 753
30
A.L. Kalra v. Project and Equipment Corpn., (1984) 3 SCC 316
31
Workmen of FCI v. FCI, (1985) 2 SCC 136; Food Corporation of India Workers’ Union v. Food Corpn. Of
India, (1996) 9 SCC 439
32
Bihar State Harijan Kalyan Parishad v. Union of India, (1985) 2 SCC 644; Balbir Kaur v. Steel Authority of
India, (2000) 6 SCC 493
33
Manmohan Singh Jaitla v. Governor, Union Territory of Chandigarh, 1984 Supp. SCC 540
34
Dinesh Kumar v. Motilal Nehru Medical College, Allahabad,(1985) 3 SCC 542
35
Rohtas Industries Ltd. v. Bihar S.E.B., 1984 Supp SCC 161 and Surya Narain Yadav v. Bihar S.E.B., (1985) 3
SCC 38; W.B. State Electicity Board v. Desh Bandhu Ghosh,(1985) 3 SCC 116
36
Central Inland Water Transport Corp. Ltd. v. Brojo Nath Ganguly,(1986) 3 SCC 156

13 | P a g
e
development authority under a State town Planning Act 37; regional rural banks established
under the Regional Rural Banks Act, 197638; port trusts created under the Major Port Trusts
Act, 1889 or 196339 have been held to be “other authorities” within the meaning of Article 12.
In this expansive trend, there have been some discordant notes as well. One such example is
furnished by Tekraj Vasandi v. U.O.I., where the Supreme Court held the ‘Institute of
Constitutional and Parliamentary Studies’, a society registered under the Societies Registration
Act, 1860, as not being an ‘authority’ under Article 12, The Institute is a registered society
receiving grants from the Central Government and having the President of India, Vice-
President and the Prime Minister among its honorary members. The Central Government
exercises a good deal of control over the Institute. Inspite of the government funding and
control, the court has refused to hold it as an authority.

On the same basis, in the case of Chandra Mohan Khanna v. NCERT40 NCERT, has been
held to be outside the scope of Article 12. NCERT is a society registered under Societies
Registration Act. It is largely an autonomous body; its activities are not wholly related to
governmental functions; governmental control is confined mostly to ensuring that its funds are
properly utilized; its funding is not entirely from government sources.
Another example of the expansive interpretation of the expression ‘other authorities’ in
Art. 12 is furnished by the decision of the Supreme Court in Pradeep Kr. Biswas V. Indian
Institute of Chemical Biology41. In this case, the Supreme Court held that the Council of
Scientific and Industrial Research (CSIR) is an authority under Art. 12 and was bound by Art.
14. The Court has ruled that the “Control of the Government in CSIR is ubiquitous. The court
has now laid down the following proposition for identification of ‘authority’ within Art. 12.
The question in each case would be – whether in the light of the cumulative facts as established,
the body is financially, functionally and administratively dominated by or under the control of
the government. Such control must be particular to the body in question and must be pervasive.
If this is found then the body is a state within Article 12. On the other hand, when control is
merely regulatory whether under statute or otherwise it would not serve to make the body a
state.

37
Star Enterprises v. City and Industrial Development Corpn. Of Maharastra Ltd., (1990) 3 SCC 280
38
Prathama Bank v. Vijay Kumar Goel, (1989) 4 SCC 441
39
Dwarkadas Marfatia & Sons v. Board of Trustees of the Port of Bombay, (1989) 3 SCC 293
40
AIR 1992 SC 76
41
(2002) 5 SCC 111

14 | P a g
e
 PUBLIC UTILITIES BODIES UNDER ‘OTHER AUTHORITY’

(a) Public Corporations

A public corporation is a hybrid organization combining the features of a business company

and a government department.42 Their powers are set out in the Acts which created them and
they are empowered to make regulations subject to the doctrine of ultra vires.140 Corporations
have emerged in Indian scenario on account of the transformations in the nature of
governmental functions in a Welfare State and they are regarded as the third arm of the
government. The genesis of the emergence of corporations in India as instrumentalities and
agencies of government can be found in the Government of India Resolution on Industrial
Policy.43 The reason behind this was that the civil service was found inadequate to discharge
governmental functions, which were of traditional vintage. Article 298 of the Indian
Constitution44 also empowers the State to carry on a business or trade by virtue of its 'executive
power.'45

In India, Supreme Court in a number of decisions held that Public Corporations and
Undertakings fall within the definition of State, therefore these corporations and undertakings
are subject to Part III of the Constitution. Now there is little indeterminacy as to the status of
46
Corporation in relation to Article 12 of the Constitution. Thus State Bank of India, Food
47
Corporation of India, State Financial Corporation,48 Central Inland Water Transport
Board,49 Steel Authority of India Limited,50 Warehousing Corporation51 etc. would fall in the
category of ‘State’ and their acts have to be in conformity with the Fundamental Rights.

42
D.D. BASU, ADMINISTRATIVE LAW 345 (2000). (“A public corporation is set created by a statute
whenever it is intended to take over some industry or social service from private enterprise and to run it in
public interest. Instead of giving over the public corporation which has a separate legal entity and can carry on
the function with autonomy subject to the ultimate control of Parliament and the Government., mainly on policy
matters, so as to safeguard the interest of the public.”).
43
Ramana Dayaram Shetty vs The International Airport, 1979 AIR 1628, 1979 SCR (3)1014
44
art. 298 of CONSTITUTION OF INDIA
45
UDAI RAJ UDAI, FUNDAMENTAL RIGHTS AND THEIR ENFORCEMENT 690 (2011).
46
State Bank of India v. Kalpaka Transport Company, AIR 1979 Born. 250.
47
Workmen , Food Corporation of India v. Food Corporation of India (1985) 2 SCC 136; Satpal v. Himachal
Pradesh Food Corporation (1977) SLR 447.
48
Gujarat State Financial Corporation v. Lotus Hotels Pvt. ltd. AIR 1983 SC 848
49
Balbir Kaur v. Steel Authority of India Ltd. (2006) 6 SCC 493.
50
Steel Authority of India ltd v. National Union Water Front (2001) 7 SCC 1.
51
K.L. Mathew v. Union of India AIR 1974 Ker.4; U. P. Warehousing Corpn. v. Vinay AIR 1980 SC at 845-46

15 | P a g
e
 In the 145th Report of the Law Commission, 52 Bureau of Public Enterprises have
recommended that Public Sector Undertakings must be excluded from the purview of Article
12 so as to ensure avoidance of judicial review and interference by the Courts in the functioning
of these Undertakings. But it was found to be-not-a proper measure to-be adopted for-dealing
with the difficulties experienced by PSU in the matter of award of contracts, rejection of
tenders, service matters and the like arising out of the present applicability of Article 12 to such
undertakings. It was also concluded that such an amendment will be against the constitutional
philosophy and would take away a large slice of activities, conducted practically under the
control of the State, from the ambit of fundamental rights especially Article 14 of the
Constitution.53

(b) Government Companies

Apart from corporations created by statute there are a number of non statutory companies
sprung up with the advent of State into the commercial sphere. These are to all intents and
purposes, limited liability companies registered under the Companies Act. But owing to the
fact that the Government is the owner of the share capital or the major portion thereof, these
companies raise the question whether they should be treated as government or public bodies
for any purposes. It was held by the Supreme Court that “unless entrusted with any public
duties, by statute54 or it constitutes an agency of the government,” no relief can be had against
a government company, in a proceeding against Article 32 or 226 of the Constitution. 55

Notwithstanding the predominant Government control, Government Company

was not identified with the Government and the employees could not invoke Article 311 (2) 56
The reason is that there is no relationship of master and servant between these employees and
the State: The status of a government company is only for the purposes of that Act, namely, to
confer upon it special rights and obligations. Later the position regarding the applicability of
Article 311 (2) transformed with the decision of Supreme Court in U. P. Warehousing Corpn.

52
Law Commission 145th Report150 on Article 12 of the Constitution and Public Sector Undertakings
(02/10/2015) available at http://lawcommissionofindia.nic.in/101-169/Report145.pdf.
53
CONSTITUTION OF INDIA art. 14
54
Agarwal v. Hindustan Steel AIR 1970 SC 1150 at para.10, approved in R.D Shetty v. International Airport
Authority AIR 1979 SC 1928 at para. 30; Heavy Engineering Mazdoor Union v. State of Bihar AIR 1970 SC
1150.
55
Praga Tool Corporation v. Immanuel AIR 1969 SC 1306; CF Guru Gobindh v. Sankari Prasad AIR 1964 SC
254.
56
Sabhajit Tewary v. Union of India, 1975 (3) SCR 616

16 | P a g
e
v. Vinay,57 and Kalra v. Projects & Equipment Corpn.58 and it was held that even though
Article 311 (2)59 may not be attracted to a government company yet, when a government
company or a public corporation constitutes an agency or instrumentality of the State for the
purposes of Article 12 of the Constitution, the principles underlying Article 311 (2) should be
applicable to employees of this category of government companies as for principles of natural
justice read with Article 12.

As regards Article 12 of the Constitution too, the consensus of opinion in the

High Court was that notwithstanding the share or management control by the government, a
government company did not lose its juristic entity as a company registered under the
Companies Act, 1956 so as to be identified with the State under Article 12. But this stand was
later changed with the decision of the Supreme Court in R.D. Shetty case and Ajay Hasia.60 In
Som Prakash Rekhi v. Union of India 61wherein for the first time Supreme Court encountered
the question as to whether a Government Company is a ‘State’ or not, and it was held that
Government Company is a ‘State’ under Article 12.

For the application of state agency it is immaterial whether a corporation has been
created by or under a statute.62 What is essential is that the company must exercise some
function of the government and should be acting on behalf of the government and not on its
own behalf. By applying this test Central Water Transport Corporation ltd,v. Brojo Nath
Gangulay63 a government company was held as a ‘State’ within the meaning of Article 12.
Court held an unconscionable term in the employment contract of the respondent as invalid as
per Section 16 and 23 of Indian Contract Act, 187264 as it afforded only a less bargaining power
to the employee. The term was held to be opposed to the public policy as it affected the rights
and interest of the employees and created a sense of insecurity.

57
AIR 1980 SCC at 845-46.
58
AIR 1984 SC 1361 at para. 20.
59
Sabhajit Tewary v. Union of India, 1975 (3) SCR 616
60
In Ajay Hasia, V.R. Krishna Iyer J. held that the enquiry has to be not as to how the juristic person is born but
why it has been brought into existence. The same test has been applied by him in Som Prakash Rekhi v. Union
of India AIR 1981 SC 212.
61
1981 (1) SCC 449; AIR 1981 SC 222 decided on the same day (Nov. 30, 1980) on which Ajay Hasia was
decided.
62
MINHAS v. Indian Statistical Institute AIR 1984 SC 363, Ramachandra v. Union of India AIR 1984 SC 541;
Sabhajt Tewary v. Union of India AIR 1975 SC 1`329.
63
1986 (3) SCC 156; AIR 1986 SC 1571
64
Indian Contract Act, § 16 defines undue influence

17 | P a g
e
 In Air India Statutory Corporation & ors.v. United Labour Association & ors.,
65
the Court directed that all contract workers shall be regularized as employees of the Air India
Ltd. It is pertinent to note the view expressed by the Court, according to the Court “while
interpreting the Act, judicial orientation should shift towards public law orientation rather than
private law. Such an interpretation would elongate the spirit and purpose of the Constitution.
The individual interest must give way to the broader purpose of establishing social and
economic justice.”

But subsequently, this case was overruled in Steel Authority of India ltd. v. National
Union, Water Front Workers66 wherein Court held that abolition of prohibition of contract
labour under Section of the Contract Labour (Regulation and Abolition) Act, 1970 will not
automatically become the employees of the principal employer. The main thrust behind this
decision is the New Economic Policy of 1991 and not the socio economic principles which
were put into limelight in Air India.The decision also restricted the scope of public law by
holding that the divide between public law and the private law is material only with regard to
the remedies availed for enforcing rights and not in regard to interpretation of the statute.

In BALCO v. Union of India67 it was held disinvestment which is a policy

decision of the government have consistently refrained from interfering economic decisions
because of the fact that economic expediencies lack administrative adjudication. It was also
held that Article 12 does not place any embargo on an instrumentality from changing its
character. By holding so Court invalidated the claim of the employees of the BALCO that the
disinvestment policy of the Union to disinvest and transfer 51% of shares of Bharat Aluminum
Company ltd. is invalid. It was the claim of the employees that disinvestment affects the rights
given to them under Article 14 and 16 of the Constitution.

As far as the economic or political policy decision is concerned government enjoys

immunity and the Court can strike down a policy decision only if it is arbitrary, discriminatory
or mala fide.68 This position was affirmed in the recent case of State of Madhya Pradesh &
ors. v. Mala Banerjee69wherein it was held that “where a policy is contrary to law or is in

65
AIR 1997 SC 645
66
(2001) 7 SCC 1
67
2002 (2) SCC 333.
68
Permian Basin Area Rate cases 390 U.S. 747 (1968)
69
2015 (3) SCALE 721

18 | P a g
e
violation of the provisions of Constitution or arbitrary or irrational the Courts must perform
their constitutional duties by striking it down.”

In Mysore Paper Mills ltd. v. Mysore Paper Mills Officers' Association 70 Mysore
Paper Mills was held to be a State since more than 97% of the share capital was contributed by
the state government and the company was entrusted with important public duties obliging to
undertake, permit, and sponsor rural development. Besides out of 12 directors 5 are government
and department persons and other directors were also to be appointed with the concurrence of
the government which shows that the state government has deep and pervasive control over the
said company. In Balmer Lawrie & Co. Ltd & ors. v. Partha Sarathi Sen Roy & ors.,71 by
applying the test in Pradeep Kumar Biswas Court held that the company is an ‘authority’
amenable to writ jurisdiction of the High Court.

Thus we have seen the cases where the public policy of the realm and the fundamental
rights of the individual came face to face. Though Court can strike out public policy it can be
done sparingly. In the era of LPG most of the policy decisions are done through executive
actions and with least consideration of the individual rights. In such situations by giving leeway
to the policy decisions, the judiciary should be giving wide scope for public policy at the cost
of fundamental rights of the individual. It can also be seen that after Pradeep Kumar Biswas
the cumulative effect of all the criteria is a mandatory condition to hold an authority as ‘State’
and it limits the scope of Article 12 as well as of fundamental rights.

(c) Registered Societies

Applying the rationale in Ajay Hasia several non-statutory bodies were also held to be
authorities under Article 12. The Council for Indian School Certificate Examinations (CBSE),
a society for imparting education and holding examinations was held to be an authority in
Vibhu Kapoor v. Council of ISC Examinations72 Indian Council of Agricultural Research
73
Sainik School were held to be an authority since it was ‘fully funded’ by the Central and
state Government and the Central Government exercises complete control over it. Similarly, in
Sheela Barse v. Secretary, Children Aid Society,74 a registered body having Chief Minister of

70
AIR 2002 SC 609 at para. 6; Federation of Railway Officers Association v. Union of India 2003(4) SCC 289.
71
2013 (2) SCJ 818
72
AIR 1985 Del 142.
73
P.K. RamachandraIyer v. Union of India AIR 1984 SC 541.
74
(1987) 3 SCC 50

19 | P a g
e
Maharashtra as the ex-officio President and the Minister of Social Welfare as the Vice
President was held to be amenable to Article 12.

In Tekraj v. Union of India75 the Supreme Court has held the Institute of Constitutional and
Parliamentary Studies as not being an ‘authority’ under Article 12. The institute was receiving
grants from the Central Government and has the President of India, Vice-President and the
Prime Minister among its honorary members. The Central Government exercises a good deal
of control over the Institute. But in spite of Government funding and control, the Court has
refused to hold it as an authority with the remark that “ICPS is a case of its type-typical in
many ways and the normal tests may perhaps not properly apply to test its character.”

Similarly, in Chander Mohan Khanna v. NCERT,76 National Council of Educational

Research and Training, a largely autonomous body was held to be outside the purview of
Article 12 since its activities are not wholly related to governmental functions; government
control is mostly confined to ensuring that its funds are properly utilized and because its
funding is not entirely from the government sources. In Zee Telefilms the Court held that
‘BCCI’ is not a State taking into account the fact that it is not financially, functionally and
administratively under the control of the Government. Subsequently in Sindhi Education
Society v. Chief Secretary, Govt. of NCT of Delhi77 it was held that unless all the three aspects
of state control viz; ‘financial control,’ ‘managerial control’ and ‘administrative control’ are
exercised by the State over any other authority, society, organization or private body it will not
be permissible to term that society, organization or body is State. Thus it can be seen that in
the case of registered societies extensive state control is mandatory. The functional test, grant
in-aid cannot play a prominent role here.

(d) Nationalized Banks

The question whether banks are ‘state’ or not had been answered in a number of cases. 78 As
per various decisions nationalized banks are purely an instrumentality of state under Article 12
of the Constitution. In State Bank of India, Canara Bank v. Ganesan, 79 Madras High Court
held that “nationalized banks are falling within the ambit of the other authority, the right to get

75
AIR 1988 SC 469
76
(1991) 4 SCC 578.
77
I.T. 2010 (7) SC 98
78
Krishna Reddy v. Canara Bank AIR 2002 Kant. 100.
79
(1981) 1 LLJ 64

20 | P a g
e
salary is a right to property and the nationalized banks shouldn’t act arbitrarily and illegally
withholding the salary of their employees for the period during which they had worked.”80

In the case of nationalized banks, the test which is applied is ‘test of control.’ As
mentioned in the 145th Report of Law Commission of India “tests are not exhaustive
sometimes one or other factor may come to be emphasized but essentially, it is the totality of
the circumstances which would be taken into account. The fact that share contribution of the
government is very dominant may, along with other factors become material, as happened in
the case of Hyderabad Commercials v. Indian Bank & ors.81 wherein Court has recognized
Indian Bank as ‘instrumentality of state’ and directed to perform its function honestly to serve
its customers.

CONCLUSION

The words ‘State’ and ‘Authority’ used in Article 12 remain as great generalities of the
Constitution the content of which has been and continuously supplied by the Court from time
to time. Initially the definition 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. The next stage was reached when the ‘State’ came to be identified with the conferment of
sovereign power by law. A considerable change happened when Mathew J. applied the test of
instrumentality and agency i.e. ‘the voice and hands approach’ in Sukhdev Singh, according to
which the government must be acting through the body in question. R.D. Shetty and Ajay Hasia
took the test to another level and established that the cumulative effect of the entire test i.e.
government monopoly, public functions, financial and administrative control, transfer of a
government department as necessary to call an entity as an ‘instrumentality or agency’ and
thereby ‘other authority’ under Article 12. These tests were crystallized and became a single
test in Pradeep Kumar Biswas which stated that if a body or entity if financially functionally
and administratively controlled by the government, then the body or authority can be held as a
state.

Constitution should be kept adept to meet the social transformation. This role is
in the hands of the judiciary. Now non-state actors are the power-centers in the society. Most

80
Ranjit Kumar Rajak v. Union of India (2009) 5 Bom CR 227.
81
1991 (2) Supp. SCC 340

21 | P a g
e
of the essential services are at their hands and there is a diminution in the role of the state as
‘service provider.’ In this context the judiciary needs to relook into the feasibility of tests are
devised by the Court under Article 12 to enforce fundamental rights against private actors. A
declaration of private actors as ‘State’ is necessary because of the changing role of State in the
light of the neo-liberal reforms inducted from 1991 onwards. Now the most of the functions
traditionally performed by the states are performed by private actors. If the fundamental rights
are rendered ineffective against private bodies when they violate fundamental right it is a clear
negation of constitutional values and principles. The US doctrine of state action can serve as a
tool to interpret and include private actors as ‘State’ under Article 12. For the same purpose
the following chapter analyses the US doctrine of State Action by giving emphasis to the
various tests employed by the Court in finding state action in private actions and actors.

22 | P a g
e
 BIBLIOGRAPHY

 ARTICLES REFERED:

 "Where Growth Centers". The Salina Evening Journal. Salina, Kansas.

November 6, 1922
 Energy Dictionary Investor Owned Electric Utilities Investor-Owned Utilities:
Asleep at the Switch or Above the Law?
 Hina Doon, The Doctrine of State Action —The Politics of Law Making,
NALSAR S.L.R. 1-21 (2009)
 Paul A.Grout, “Private Delivery of Public Services”,The report based on
Professor Grout’s keynote address at the European Commission’s Eurosocial
Taxation Conference, Mexico, 24th – 28th November 2008.
 Steven N. Durlauf and Lawrence E. “Public Utility Pricing and Finance”
Frank A. Wolak from The New Palgrave Dictionary of Economics, Second
Edition, 2008
 Stilpon Nestor and Ladan Mahboobi–“ Privatisation of Public Utilities: The
Oecd Experience”. Apr 23, 1999
 World Bank, “India Inclusive Growth and Service Delivery: Building on
India’s Success, Development Policy Review,” (Report No.34580-IN,
Washington, DC: World Bank, 2006)

 BOOKS REFFERED:

 D.D. BASU, ADMINISTRATIVE LAW 345 (2000).

 UDAI RAJ UDAI, FUNDAMENTAL RIGHTS AND THEIR
ENFORCEMENT 690 (2011).
 V.N. SHUKLA, THE CONSTITUTION OF INDIA 27 (2003)
 VII CONSTITUTIONAL ASSEMBLY DEBATES 953 (1949)

 CASES REFFERED
 A.L. Kalra v. Project and Equipment Corpn., (1984) 3 SCC 316
 Agarwal v. Hindustan Steel AIR 1970 SC 1150
 Ajay Hasia v. Khalid Mujib, 1981) 1 SCC 722; AIR 1981 SC 487
 Ajit Singh v. State of Punjab, AIR 1967 SC 856
 All India Sainik School Employees’ Association v. Sainik Schools Society,
1989 Supp (1) SCC 205
 B.S. Minhas v. Indian Statistical Institute,(1983) 4 SCC 582
 Balbir Kaur v. Steel Authority of India Ltd. (2006) 6 SCC 493.
 Balbir Kaur v. Steel Authority of India, (2000) 6 SCC 493
 Bengal Immunity Co. Ltd. v. State of Bihar, AIR 1955 SC 661
 Bihar State Harijan Kalyan Parishad v. Union of India, (1985) 2 SCC 644

23 | P a g
e
 Central Inland Water Transport Corp. Ltd. v. Brojo Nath Ganguly,(1986) 3 SCC
156
 CF Guru Gobindh v. Sankari Prasad AIR 1964 SC 254.
 Dinesh Kumar v. Motilal Nehru Medical College, Allahabad,(1985) 3 SCC 542
 Dwarkadas Marfatia & Sons v. Board of Trustees of the Port of Bombay, (1989)
3 SCC 293
 Federation of Railway Officers Association v. Union of India 2003(4) SCC 289
 Food Corporation of India Workers’ Union v. Food Corpn. Of India, (1996) 9
SCC 439
 Gujarat State Financial Corporation v. Lotus Hotels Pvt. ltd. AIR 1983 SC 848
 Heavy Engineering Mazdoor Union v. State of Bihar AIR 1970 SC 1150
 K.L. Mathew v. Union of India AIR 1974 Ker.4
 Khajoor Singh v. Union of India AIR 1961 SC 532,
 Krishna Reddy v. Canara Bank AIR 2002 Kant. 100.
 Manmohan Singh Jaitla v. Governor, Union Territory of Chandigarh, 1984
Supp. SCC 540
 Masthan Sahib v. Chief Commissioner, Pondicherry, AIR 1963 SC 533
 Mohammad Yasin v. Town Area Committee AIR 1952 SC 115.
 P.K. RamachandraIyer v. Union of India AIR 1984 SC 541
 P.K. Ramchandra Iyer v. Union of India, (1984) 2 SCC 141
 Pradeep Kumar Biswas v. Indian Institute of Chemical Biology, (2002) 5 SCC
111:
 Praga Tool Corporation v. Immanuel AIR 1969 SC 1306
 Pratap Singh Khairon v. State of Punjab AIR 1964 SC 72,
 Prathama Bank v. Vijay Kumar Goel, (1989) 4 SCC 441
 R.D Shetty v. International Airport Authority AIR 1979 SC 1928
 Raman Dayanand Shetty v. International Airport Authority of India, (1979) 3
SCC 489; AIR 1979 SC 1628
 Ramana Dayaram Shetty vs The International Airport, 1979 AIR 1628,
 Rohtas Industries Ltd. v. Bihar S.E.B., 1984 Supp SCC 161
 S.M. Illyas (Dr.) v. Indian Council For Agriculture Research, (1993) 1 SCC
182
 Sabhajit Tewary v. Union of India, 1975 (3) SCR 616
 Satpal v. Himachal Pradesh Food Corporation (1977) SLR 447
 Star Enterprises v. City and Industrial Development Corpn. Of Maharastra Ltd.,
(1990) 3 SCC 280
 State Bank of India v. Kalpaka Transport Company, AIR 1979 Born. 250

24 | P a g
e
  State of Bombay v. Laxmidas AIR 1952 Born. 468.
 Steel Authority of India ltd v. National Union Water Front (2001) 7 SCC 1
 Surya Narain Yadav v. Bihar S.E.B., (1985) 3 SCC 38
 U. P. Warehousing Corpn. v. Vinay AIR 1980 SC
 U.P. State Cooperaive Land and Development Bank Ltd. v. Chandra Bhan
Dubey, AIR 1999 SC 753
 W.B. State Electicity Board v. Desh Bandhu Ghosh,(1985) 3 SCC 116
 Workmen , Food Corporation of India v. Food Corporation of India (1985) 2
SCC 136
 Workmen of FCI v. FCI, (1985) 2 SCC 136

 STATUTES REFERED

 Law Commission 145th Report150 on Article 12 of the Constitution and

Public Sector Undertakings (02/10/2015) available at
http://lawcommissionofindia.nic.in/101-169/Report145.pdf.
 National Highways Act of India, 1998,
 The Central Road Fund Act, 2000,
 THE CONSTITUTION OF INDIA,1950
 The Control of National Highways (Land and Traffic) Act, 2002
 The Industrial Disputes Act, 1947
 The Legal Services Authorities Act, 1987 (Act No. 39 OF 1987)
 The Railways Act, 1989

25 | P a g
e