(While Airports Authority case settled the question of statutory bodies , the question of non statutory bodies was finally settled by Ajay Hasia case. Import question is not how a judicial person is born but why he is brought into existence. The structure of body in question may be statutory or non statutory . It does not matter what functions it discharge it may be governmental , semi governmental , educational , commercial , banking , social service etc)
Supreme Court of India
Ramana Dayaram Shetty vs The International Airport ... on 4 May, 1979
Now this rule, flowing as it does from Article 14, applies to every State action and since "State" is defined in Article 12 to include not only the Government of India and the Government of each of the States, but also "all local or other authorities within the territory of India or under the control of the Government of India", it must apply to action of "other authorities" and they must be held subject to the same constitutional limitation as the Government. But the question arises what are the "other authorities" contemplated by Article 12 which fall within the definition of 'State' ? on this question considerable light is thrown by the decision of this Court in Rajasthan Electricity Board v. Mohan Lal(1). That was a case in which this Court was called upon to consider whether the Rajasthan Electricity Board was an 'authority' within the meaning of the expression "other authorities" in Art. 12. Bhargava, J., delivering the judgment of the majority pointed out that the expression "other authorities" in Art. 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'. Shah, J., who delivered a separate judgment, agreeing with the conclusion reached by the majority, preferred to give a slightly different meaning to the expression "other authorities". He said that authorities, constitutional or statutory, would fall within the expression "other authorities" only if they are invested with the sovereign power of the State, namely, the power to make rules and regulations which have the force of law. The ratio of this decision may thus be stated to be that a constitutional or statutory authority would be within the meaning of the expression "other authorities", if it has been invested with statutory power to issue binding directions to third parties, the disobedience of which would entail penal consequence or it has the sovereign power to make rules and regulations having the force of law. This test was followed by Ray, C.J., in Sukhdev v. Bhagat Ram (supra). Mathew, J., however, in the same case, propounded a broader test, namely, whether the statutory corporation or other body or authority, claimed to fall within the definition of State', is as instrumentality or agency of Government: if it is, it would fall within the meaning of the expression 'other authorities' and would be State'. Whilst accepting the test laid down in Rajasthan Electricity Board v. Mohan Lal (supra), and followed by Ray, C. J., in Sukhdev v. Bhagat Ram (supra), we would, for reasons already discussed, prefer to adopt the test of Governmental instrumentality or agency as one more test and perhaps a more satisfactory one for determining whether a statutory corporation, body or other authority falls within the definition of 'State'. If a statutory corporation, body or other authority is an instrumentality or agency of Government, it would be an 'authority' and therefore 'State' within the meaning of that expression in Article 12.
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.
Supreme Court of India
Ajay Hasia Etc vs Khalid Mujib Sehravardi & Ors. Etc on 13 November, 1980
Equivalent citations: 1981 AIR 487, 1981 SCR (2) 79
Author: P Bhagwati
Bench: Chandrachud, Y.V. ((Cj), Bhagwati, P.N., Krishnaiyer, V.R., Fazalali, Syed Murtaza, Koshal, A.D.
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.
The case of Pradeep Kumar Biswas Vs. Indian Institute of Chemical Biology & Ors , decided by a 7 Judges Bench has been referred (Ajay Hasia was approved). The majority judgment considered a catena of decisions on the point and it has been observed in paragraph 25 of the judgment : "The tests propounded by Mathew, J. in Sukhdev Singh were elaborated in Ramana and were reformulated two years later by a Constitution Bench in Ajay Hasia . What may have been technically characterized as obiter dicta in Sukhdev Singh (supra) and Ramana (supra) (since in both cases the "authority" in fact involved was a statutory corporation), formed the ratio decidendi of Ajay Hasia (supra)". Thereafter the court has extracted para 11, at page 737-38 of the case of Ajay Hasia (supra), as follows : "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." It is then observed that Ramana's case (supra) noted with approval in Ajay Hasia (supra) and quoted the tests laid down in the case of Ajay Hasia (supra) at page 737 in para 9. It reads 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. (SCC p.507, para 14) (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 (SCC p.508, para 15) (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.
This Court has observed in paragraph 31 as follows : "The tests to determine whether a body falls within the definition of "State" in Article 12 laid down in Ramana (supra) with the Constitution Bench imprimatur in Ajay Hasia (supra) form the keystone of the subsequent jurisprudential superstructure judicially crafted on the subject which is apparent from a chronological consideration of the authorities cited."
After considering a number of decisions it has been observed in para 40 of Pradeep Kumar Biswas (supra) as follows : "The picture that ultimately emerges is that the tests formulated in Ajay Hasia (supra) are not a rigid set of principles so that if a body falls within any one of them it must, ex hypothesi, be considered to be a State within the meaning of Article 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 the control is merely regulatory whether under statute or otherwise, it would not serve to make the body a State."
Supreme Court of India
Federal Bank Ltd vs Sagar Thomas & Ors on 26 September, 2003
A reference has then been made to Air India Statutory Corporation & Ors. Vs. United Labour Union & Ors. , a decision of a three Judge Bench. It has been held that the industry carried on by Air India under authority of central government would involve public law element even though its activity may be commercial in nature. It was held that the Air India was being run by the Airport Authority of India of the Central Government and there was element of deep and pervasive governmental control. Initially it was a statutory authority under the International Airports Authority of India Act, 1971. Later it was amalgamated with National Airports Authority and thereafter it is constituted as a Company under the Companies Act. In that context, it has been held, if the company is run wholly or partially by the share capital floated from public exchequer, it gives indication of its control by the appropriate government. On consideration of a number of decisions on the point, the Court found the following principles which may be considered, for coming to a conclusion whether any public element is involved or not, the paragraph 26 of the decision, reads as under :
"(1) The constitution of the corporation or instrumentality or agency or corporation aggregate or corporation sole is not of sole material relevance to decide whether it is by or under the control of the appropriate Government under the Act.
(2) If it is a statutory corporation, it is an instrumentality or agency of the State. If it is a company owned wholly or partially by a share capital, floated from public exchequer, it gives indicia that it is controlled by or under the authority of the Appropriate Government.
(3) In commercial activities carried on by a corporation established by or under the control of the appropriate government having protection under Articles 14 and 19(2), it is an instrumentality or agency of the State.
(4) The State is a service corporation. It acts through its instrumentalities, agencies or persons - natural or juridical.
(5) The governing power, wherever located, must be subject to the fundamental constitutional limitations and abide by the principles laid in the Directive Principles.
(6) The framework of service regulations made in the appropriate rules or regulations should be consistent with and subject to the same public law, principles and limitations.
(7) Though the instrumentality, agency or person conducts commercial activities according to business principles and are separately accountable under their appropriate bye-laws or Memorandum of Association, they become the arm of the Government.
(8) The existence of deep and pervasive State control depends upon the facts and circumstances in a given situation and in the altered situation it is not the sole criterion to decide whether the agency or instrumentality or persons is by or under the control of the appropriate Government.
(9) Functions of an instrumentality, agency or person are of public importance following public interest element.
(10) The instrumentality, agency or person must have an element of authority or ability to effect the relations with its employees or public by virtue of power vested in it by law, Memorandum of Association or bye-laws or Articles of Association.
(11) The instrumentality, agency or person renders an element of public service and is accountable to health and strength of the workers, men and women, adequate means of livelihood, the security for payment of living wages, reasonable conditions of work, decent standard of life and opportunity to enjoy full leisure and social and cultural activities to the workmen.
(12) Every action of the public authority, agency or instrumentality or the person acting in public interest or any act that gives rise to public element should be guided by public interest in exercise of public power or action hedged with public element and is open to challenge. It must meet the test of reasonableness, fairness and justness.
(13) If the exercise of the power is arbitrary, unjust and unfair, the public authority, instrumentality, agency or the person acting in public interest, though in the field of private law, is not free to prescribe any unconstitutional conditions or limitations in their actions."
One of the important factors to be considered is, if it is a statutory corporation, an instrumentality or agency of the State or a company owned wholly or partially by a share capital floated from public exchequer, it gives indicia that it is controlled by and under the authority of the Appropriate Government. We find that it is this factor which brings in public element. Paragraph 61 of the judgment reads:- "The legal right of an individual may be founded upon a contract or a statute or an instrument having the force of law. For a public law remedy enforceable under Article 226 of the Constitution, the action of the authority needs to fall in the realm of public law - be it a legislative act of the State, an executive act of the State or an instrumentality or a person or authority imbued with public law element. The question requires to be determined in each case. However, it may not be possible to generalise the nature of the action which would come either under public law remedy or private law field nor is it desirable to give exhaustive list of such actions.......The distinction between public law and private law remedy has now become thin and practically obliterated."
Is Judiciary within the term state ?
A nine-Judge Bench of this Court in Naresh Shridhar Mirajkar & Ors. v. State of Maharashtra & Anr., [1966] 3 SCR 744 referred to the judgment in Prem Chand Garg Prem Chand Garg vs Excise Commissioner, U. P
Gajendragadkar, CJ., who delivered the leading and majority judgment stated at page 765 of the Reports:
"ln support of his argument that a judicial decision can be corrected by this Court in exercise of its writ jurisdiction under Article 32(2), Mr. Setalvad has relied upon another decision of this Court in Prem Chand Garg v. Excise Commissioner, U. P. Allahabad (supra) . In that case, the petitioner had been required to furnish security for the costs of the respondent under rule 12 of order 35 of the Supreme Court Rules. By his petition filed under Article 32, he contended that the rule was invalid as it placed obstructions on the fundamental right guaranteed under Article 32 to move the Supreme Court for the enforcement of fundamental rights. This plea was upheld by the majority decision with the result that the order requiring him to furnish security was vacated. In appreciating the effect of this decision, it is necessary to bear in mind the nature of the contentions raised before the Court in that case. The rule itself, in terms, conferred discretion on the court. while dealing with applications made under Article 32, to impose such terms as to costs as to the giving of security as it thinks fit. The learned Solicitor General who supported the validity of the rule, urged that though the order requiring security to be deposited may be said to retard or obstruct the fundamental right of the citizen guaranteed by Article 32(1), the rule itself could not be effectively challenged as invalid, because it was merely discretionary; it did not impose an obligation on the court to demand any security; and he supplemented his argument by contending that under Article 142 of the Constitution, the powers of this court were wide enough to impose any term or condition subject to which proceedings before this Court could be permitted to be conducted. He suggested that the powers of this Court under Article 142 were not subject to any of the provisions contained in Part III including Article 32(1). On the other hand, Mr. Pathak who challenged the validity of the rule, urged that though the rule was in form and in substance discretionary, he disputed the validity of the power which the rule conferred on this Court to demand security .. It would thus be seen that the main controversy in the case of Prem Chand Garg centered round the question as to whether Article 145 conferred powers on this Court to make rules, though they may be inconsistent with the constitutional provisions prescribed by Part III. Once it was held that the powers under Article 142 had to be read subject not only to the fundamental rights, but to other binding statutory provisions, it became clear that the rule which authorised the making of the impugned order was invalid. It was in that context that the validity of the order had to be incidentally examined. The petition was made not to challenge the order as such, but to challenge the validity of the rule under which the order was made. Once a rule was struck down as being invalid, the order passed under the said rule had to be vacated. It is difficult to see how this decision can be pressed into service by Mr. Setalvad in support of the argument that a judicial order passed by this Court was held to be subject to the writ jurisdiction of this Court itself .. ".
In view of this decision in Mirajkar's case (supra) it must be taken as concluded that judicial proceedings in Supreme Court are not subject to the writ jurisdiction thereof. (However , When judiciary is acting on the administrative side or its rule making power under article 145 then it will be covered within the term state.)
Supreme Court of India
Union Of India & Ors vs R. C. Jain & Ors on 17 February, 1981
(Delhi Development Authority was held to be a local body in this judgment)
Let us, therefore, concentrate and confine our attention and enquiry to the definition of 'Local Authority' in Sec.3(3) of the General Clauses Act. A proper and careful scrutiny of the language of Sec.3(31) suggests that an authority in order to be a local Authority, must be of like nature and character as a Municipal Committee, District Board or Body of Port Commissioners, possessing, therefore, many, if not all, of the distinctive attributes and characteristics of a Municipal Committee, District Board, or Body of Port Commissioners, but, possessing one essential feature, namely, that it is legally entitled to or entrusted by the Government with, the control and management. Of a municipal or local fund. What then are the distinctive attributes and characteristics, all or many of which a Municipal Committee, District Board or Body of Port Commissioners shares with any other local authority? First, the authorities must have separate legal existence as Corporate bodies. They must not be mere Governmental agencies but must be legally independent entities. Next, they must function in a defined area and must ordinarily, wholly or partly, directly or indirectly, be elected by the inhabitants of the area. Next, they must enjoy a certain degree of autonomy, with freedom to decide for themselves questions of policy affecting the area administered by them. The autonomy may not be complete and the degree of the dependence may vary considerably but, an appreciable measure of autonomy there must be. Next, they must be entrusted by Statute with such Governmental functions and duties as are usually entrusted to municipal bodies, such as those connected with providing amenities to the inhabitants of the locality, like health and education services, water and sewerage, town planning and development, roads, markets, transportation, social welfare services etc. etc. Broadly we may say that they may be entrusted with the performance of civic duties and functions which would otherwise be Governmental duties and functions. Finally, they must have the power to raise funds for the furtherance of their activities and the fulfillment of their projects by levying taxes, rates, charges, or fees. This may be in addition to moneys provided by Government or obtained by borrowing or otherwise. What is essential is that control or management of the fund must vest in the authority.
In Municipal Corporation of Delhi v. Birla Cotton, Spinning & Weaving Mills Delhi & Anr., Hidayatullah, J., described some of the attributes of local bodies in this manner:
"Local bodies are subordinate branches of governmental activity. They are democratic institutions managed by the representatives of the people. They function for public purposes and take away a part of the government affairs in local areas. They are political sub divisions and agencies which exercise a part of State functions. As they ale intended to carry on local self-government the power of taxation is a necessary adjunct to their other powers. They function under the supervision of the Government".
In Valjibhai Muljibhai Soneji and Anr. v. The State of Bombay (Now Gujarat) & Ors. one of the questions was -11 whether the State Trading Corporation was a local Authority as defined by Sec. 3(31) of the General Clauses Act, 1897. It was held A that it was not, because it was not an authority legally entitled to or entrusted by the Government with, control or management of a local fund. It was observed that though the Corporation was furnished with funds by the Government for commencing its business that would not make the funds of the Corporation 'local funds'.