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CASE NO.:

Appeal (civil) 992 of 2002

PETITIONER:

PRADEEP KUMAR BISWAS & ORS.

Vs.

RESPONDENT:

INDIAN INSTITUTE OF CHEMICAL BIOLOGY & ORS.

DATE OF JUDGMENT: 16/04/2002

BENCH:

R.C. Lahoti & Doraiswamy Raju

JUDGMENT:

R.C. Lahoti, J.

(for self and on behalf of Doraiswamy Raju, J.)

We have had the advantage of reading the judgment proposed

by our learned sister Ruma Pal, J.. With greatest respect to her, we

find ourselves not persuaded to subscribe to her view overruling

Sabhajit Tewary's case and holding Council for Scientific and

Industrial Research (CSIR) 'the State' within the meaning of Article

12 of the Constitution. The development of law has travelled through

apparently a zig-zag track of judicial pronouncements, rhythmically

traced by Ruma Pal, J. in her judgment. Of necessity, we shall have to

retread the track, for, we find that though the fundamentals and basic

principles for determining whether a particular body is 'the State' or

not may substantially remain the same but we differ in distributing the

emphasis within the principles in their applicability to the facts found.

We also feel that a distinction has to be borne in mind between an

instrumentality or agency of 'the State' and an authority includible in

'other authorities'. The distinction cannot be obliterated.

Article 12 of the Constitution reads as under:

"12. 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."

This definition is for the purpose of attracting applicability of

the provisions contained in Part III of the Constitution dealing with

fundamental rights. It is well-settled that the definition of 'the State'

in Article 12 has nothing to do with Articles 309, 310 and 311 of the

Constitution which find place in Part XIV. Merely because an entity

is held to be the State within the meaning of Article 12, its employees

do not ipso facto become entitled to protection of Part XIV of the

Constitution.

Dr. B.R. Ambedkar explaining the scope of Article 12 and

reason why this Article was placed in the Chapter on Fundamental

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Rights so spoke in the Constituent Assembly :

"The object of the fundamental rights is

two-fold. First, that every citizen must be in a

position to claim those rights. Secondly, they must

be binding upon every authority I shall presently

explain what the word "authority" means upon

every authority which has got either the power to

make laws or the power to have discretion vested

in it. Therefore, it is quite clear that if the

Fundamental Rights are to be clear, then they must

be binding not only upon the Central Government,

they must not only be binding the Provincial

Government, they must not only be binding upon

the Governments established in the Indian States,

they must also be binding upon District Local

Boards, Municipalities, even village panchayats

and taluk boards, in fact, every authority which

has been created by law and which has got certain

power to make laws, to make rules, or make bye-

laws.

If that proposition is accepted and I do not

see anyone who cares for Fundamental Rights can

object to such a universal obligation being

imposed upon every authority created by law

then, what are we to do to make our intention

clear? There are two ways of doing it. One way is

to use a composite phrase such as "the State", as

we have done in article 7; or, to keep on repeating

every time, "the Central Government, the

Provincial Government, the State Government, the

Municipality, the Local Board, the Port Trust, or

any other authority". It seems to me not only most

cumbersome but stupid to keep on repeating this

phraseology every time we have to make a

reference to some authority. The wisest course is

to have this comprehensive phrase and to

economise in words".

(1948 (Vol.VII) CAD 610)

[emphasis supplied]

Thus the framers of the Constitution used the word "the State"

in a wider sense than what is understood in the ordinary or narrower

sense. So far as 'other authorities' are concerned they were included

subject to their satisfying the test of being 'within the territory of

India' or being 'under the control of the Government of India'. It is

settled that the expression 'under the control of the Government of

India' in Article 12 does not qualify the word 'territory'; it qualifies

'other authorities'.

The terms 'instrumentality' or 'agency' of the State are not

to be found mentioned in Article 12. It is by the process of judicial

interpretation nay, expansion - keeping in view the sweep of Article

12 that they have been included as falling within the net of Article 12

subject to satisfying certain tests. While defining, the use of

'includes' suggest what follows is not exhaustive. The definition is

expansive of the meaning of the term defined. However, we feel that

expanding dimension of 'the State' doctrine through judicial wisdom

ought to be accompanied by wise limitations else the expansion may

go much beyond what even the framers of Article 12 may have

thought of.

Instrumentality, Agency, Authority meaning of

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It will be useful to understand what the terms - instrumentality,

agency and authorities mean before embarking upon a review of

judicial decisions dealing with the principal issue which arises for our

consideration.

Black's Law Dictionary (Seventh Edition) defines

'instrumentality' to mean "a means or agency through which a

function of another entity is accomplished, such as a branch of a

governing body." 'Agency' is defined as "a fiduciary relationship

created by express or implied contract or by law, in which one party

(the agent) may act on behalf of another party (the principal) and bind

that other party by words or actions." Thus instrumentality and

agency are the two terms which to some extent overlap in their

meaning; 'instrumentality' includes 'means' also, which 'agency'

does not, in its meaning. 'Quasi- governmental agency' is "a

government sponsored enterprise or Corporation (sometimes called

a government-controlled corporation)". Authority, as Webster

Comprehensive Dictionary (International Edition) defines, is "the

person or persons in whom government or command is vested; often

in the plural". The applicable meaning of the word "authority" given

in Webster's Third New International Dictionary, is 'a public

administrative agency or corporation having quasi-governmental

powers and authorized to administer a revenue-producing public

enterprise'. This was quoted with approval by Constitution Bench in

RSEB's case (infra) wherein the Bench held "This dictionary

meaning of the word "authority" is clearly wide enough to include all

bodies created by a statute on which powers are conferred to carry out

governmental or quasi-governmental functions. The expression

"other authorities" is wide enough to include within it every authority

created by a statute and functioning within the territory of India, or

under the control of the Government of India; and we do not see any

reason to narrow down this meaning in the context in which the words

"other authorities" are used in Art.12 of the Constitution". (emphasis

added)

With the pronouncements in N. Masthan Sahib Vs. The Chief

Commissioner, Pondicherry and Anr. (1962) Supp.1 SCR 981 and

K.S. Ramamurthy Reddiar Vs. Chief Commissioner, Pondicherry

and Anr. (1964) 1 SCR 656 it is settled that Article 12 of the

Constitution has to be so read :

"12. In this part, unless the context otherwise requires, the

'State' includes

(i) the Government and Parliament of India,

(ii) the Government and the Legislature of each State,

(iii) (a) all local or other authorities within the territory of India,

(b) all local or other authorities under the control of the

Government of India."

The definition of the State as contained in Article 12 is inclusive and

not conclusive. The net of Article 12 has been expanded by

'progressive' judicial thinking, so as to include within its ken several

instrumentalities and agencies performing State function or entrusted

with State action. To answer the principal question in the context in

which it has arisen, incidental but inseparable issues do arise: Wide

expansion but how far wide? Should such wide expansion be not

subject to certain wise limitations? True, the width of expansion and

the wisdom of limitations both have to be spelled out from Article 12

itself and the fundamentals of constitutional jurisprudence.

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We now deal with a series of decisions wherein tests were

propounded, followed (also expanded) and applied to different entities

so as to find out whether they satisfied the test of being 'the State'.

A review of judicial opinion

Though judge-made law is legend on the issue, we need not

peep too much deep in the past unless it becomes necessary to have a

glimpse of a few illuminating points thereat. It would serve our

purpose to keep ourselves confined, to begin with, to discerning the

principles laid down in Rajasthan State Electricity Board, Jaipur

Vs. Mohal Lal and Ors. (1967) 3 SCR 377, Sukhdev Singh and

Ors. Vs. Bhagatram Sardar Singh Raghuvanshi and Anr. (1975) 1

SCC 421, Ramana Dayaram Shetty Vs. The International Airport

Authority of India and Ors. (1979) 3 SCC 489, Ajay Hasia etc. Vs.

Khalid Mujib Sehravardi and Ors. etc. (1981) 1 SCC 722 and Som

Prakash Rekhi Vs. Union of India and Anr. (1981) 1 SCC 449

which have come to be known as landmarks on the State

conceptualisation . Out of these five decisions, R.D. Shetty and Som

Prakash are three-Judges Bench decisions; the other 3 are each by

Constitution Bench of five-Judges.

The Constitution Bench decision in Rajasthan State

Electricity Board (RSEB)'s case was delivered by a majority of 4:1.

V. Bhargava, J. spoke for himself and K. Subba Rao, C.J. and M.

Shelat and G.K. Mitter, JJ. J.C. Shah, J. delivered his dissenting

opinion. We will refer to majority opinion only. The Court quoted

the interpretation placed by Ayyangar, J. from the pronouncement of

seven-Judges Bench of this Court in Smt. Ujjam Bai Vs. State of

Uttar Pradesh and Anr. (1963) 1 SCR 778 that the words 'other

authorities' employed in Article 12 are of wide amplitude and capable

of comprehending every authority created under a statute and though

there is no characterisation of the nature of the "authority" in the

residuary clause of Article 12 it must include every authority set up

under a statute for the purpose of administering laws enacted by the

Parliament or by the State including those vested with the duties to

make decisions in order to implement those laws. The Court refused

to apply the doctrine of ejusdem generis for interpretation of the

'other authorities' in Article 12. "Other authorities" in Article 12

include, held the Court, "all constitutional or statutory authorities on

whom powers are conferred by law" without regard to the fact that

some of the powers conferred may be for the purpose of carrying on

commercial activities or promoting the educational and economic

interests of the people. Regard must be had (i) not only to the sweep

of fundamental rights over the power of the authority, (ii) but also to

the restrictions which may be imposed upon the exercise of certain

fundamental rights by the authority. This dual phase of fundamental

rights would determine "authority". Applying the test formulated by

it to Rajasthan State Electricity Board, the Court found that the Board

though it was required to carry on some activities of the nature of

trade or commerce under the Electricity Supply Act, yet the statutory

powers conferred by the Electricity Supply Act on the Board included

power to give directions, the disobedience of which is punishable as a

criminal office and therefore the Board was an authority for the

purpose of Part III of the Constitution.

Praga Tools Corporation Vs. C.V. Imanual and Ors. (1969)

1 SCC 585 may not be of much relevance. The question posed before

the Court was not one referable to Article 12 of the Constitution. The

question was whether a prayer seeking issuance of a mandamus or an

order in the nature of mandamus could lie against a company

incorporated under the Companies Act wherein the Central and the

State Governments held respectively 56 and 32 per cent shares. The

two-Judge Bench of this Court held that the company was a separate

legal entity and could not be said to be either a government

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Corporation or an industry run by or under the authority of the Union

Government. A mandamus lies to secure the performance of a public

or statutory duty in the performance of which the petitioner has a

sufficient legal interest. A mandamus can issue to an official or a

society to compel him to carry out the terms of the Statute under or by

which the society is constituted or governed and also to companies or

Corporations to carry out duties placed on them by the Statute

authorizing their undertaking. A mandamus would also lie against a

company constituted by a Statute for the purpose of fulfilling public

responsibilities. The Court held that the company being a non-

statutory body with neither a statutory nor a public duty imposed on it

by a Statute, a writ petition for mandamus did not lie against it. The

limited value of this decision, relevant for our purpose, is that because

a writ of mandamus can issue against a body solely by this test it does

not become 'State' within the meaning of Article 12.

In Sukhdev Singh & Ors. Vs. Bhagatram Sardar Singh

Raghuvanshi and another (supra), question arose whether Oil and

Natural Gas Commission, the Industrial Finance Corporation and Life

Insurance Corporation are 'authorities' within the meaning of Article

12. The case was decided by a majority of 4:1. A.N. Ray, CJ

speaking for himself and on behalf of Y.V. Chandrachud and A.C.

Gupta, JJ. held that all the three were statutory Corporations, i.e.,

given birth by Statutes. The circumstance that these statutory bodies

were required to carry on some activities of the nature of trade or

commerce did not make any difference. The Life Insurance

Corporation is (i) an agency of the Government (ii) carrying on the

exclusive business of Life Insurance (i.e. in monopoly), and (iii) each

and every provision of the Statute creating it showed in no uncertain

terms that the Corporation is the voice and the hands of the Central

Government. The Industrial Financial Corporation is in effect

managed and controlled by the Central Government, citizens cannot

be its shareholder. ONGC (i) is owned by the Government, (ii) is a

statutory body and not a company and (iii) has the exclusive privilege

of extracting petroleum. Each of the three, respectively under the three

Acts under which they are created, enjoy power to do certain acts and

to issue directions obstruction in or breach whereof is punishable as

an offence. These distinguish them from a mere company

incorporated under the Indian Companies Act. The common features

of the three are (i) rules and regulations framed by them have the

force of law, (ii) the employees have a statutory status, and (iii) they

are entitled to declaration of being in employment when the dismissal

or removal is in contravention of statutory provisions. The learned

Chief Justice added, by way of abundant caution, that these provisions

did not however make the employees as servants of the Union or the

State though the three statutory bodies are authorities within the

meaning of Article 12 of the Constitution.

Mathew, J. recorded his separate concurring opinion. As to

ONGC he hastened to arrive at a conclusion that the Commission was

invested with sovereign power of the State and could issue binding

directions to owners of land and premises, not to prevent employees

of the Commission from entering upon their property if the

Commission so directs. Disobedience of its directions is punishable

under the relevant provisions of the Indian Penal Code as the

employees are deemed to be public servants. Hence the Commission

is an authority. As to the other two Corporations, viz., LIC and IFC,

Mathew, J. entered into a short question and began by observing that

in recent years the concept of State has undergone drastic change.

"Today State cannot be conceived of simply as a coercive machinery

wielding the thunderbolt of authority". Having reviewed some

decisions of United States and English decisions and some other

authorities, he laid down certain principles with which we will deal

with a little later and at appropriate place. He observed that

institutions engaged in matters of high public interest or performing

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public functions are, by virtue of the nature of the function performed

by them, governmental agencies. He noticed the difficulty in

separating vital government functions from non-governmental

functions in view of the contrast between governmental activities

which are private and private activities which are governmental. For

holding Life Insurance Corporation "the State" he relied on the

following features : (i) the Central Government has contributed the

original capital of the Corporation, (ii) part of the profit of the

Corporation goes to Central Government, (iii) the Central

Government exercises control over the policy of the Corporation, (iv)

the Corporation carries on a business having great public importance,

and (v) it enjoys a monopoly in the business. As to Industrial

Financial Corporation he relied on the circumstances catalogued in the

judgment of A.N. Ray, J. The common feature of the two

Corporations was that they were instrumentalities or agencies of the

State for carrying on business which otherwise would have been run

by the State departmentally and 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". At the end Mathew, J. made it clear that he

was expressing no opinion on the question whether private

Corporations or other like organizations though they exercise power

over their employees which might violate their fundamental rights

would be the State within the meaning of Article 12. What is 'state

action' and how far the concept of 'state action' can be expanded,

posing the question, Mathew J. answered "..it is against State

action that fundamental rights are guaranteed. Wrongful individual

acts unsupported by State authority in the shape of laws, customs, or

judicial or executive proceeding are not prohibited. Articles 17, 23

and 24 postulate that fundamental rights can be violated by private

individuals and that the remedy under Article 32 may be available

against them. But by and large, unless an act is sanctioned in some

way by the State, the action would not be State action. In other

words, until some law is passed or some action is taken through

officers or agents of the State, there is no action by the State." So also

commenting on the relevance of 'state help' and 'state control' as

determinative tests, Mathew, J. said "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."

Alagiriswami, J. recorded a dissenting opinion which however

we propose to skip over. It is pertinent to note that the dispute in

Sukhdev Singh Vs. Bhagat Ram was a service dispute and the

employees were held entitled to a declaration of being in employment

when their dismissal or removal was in contravention of statutory

provisions; the rules and regulations framed by corporations or

commission were found having the force of law, being delegated

legislation and these statutory bodies were held to be 'authorities'

within the meaning of Article 12.

In Ramanna Dayaram Shetty Vs. The International Airport

Authority of India & Ors. (supra), the dispute related to trends

within the domain of administrative law. A question arose whether

International Airport Authority of India (IA, for short) was within the

scope of 'other authorities' in Article 12 so as to be amenable to

Article 14 of the Constitution. P.N. Bhagwati, J. who delivered the

judgment for the three-Judge Bench stated the ratio of Rajasthan

State Electricity Boards case, in these words :

"The ratio of this decision may thus be

stated to be that a constitutional or statutory

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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".

He then referred to what he termed as a 'broader test' laid down

by Mathew, J. in Sukhdev Singh's case and said that judgment by

Mathew, J. provided 'one more test and perhaps a more satisfactory

one' for determining whether a statutory corporation, body or other

authority falls within the definition of 'the State' and the test is___"If a

statutory corporation, body or other authority is an instrumentality or

agency of government, it would be an authority and therefore 'the

State' within the meaning of the expression in Article 12." Having

minutely examined the provisions of the International Airport

Authority Act, 1971 he found out the following features of IA :- (i)

The Chairman and Members are all persons nominated by the Central

Government and Central Government has power to terminate the

appointment or remove them; (ii) The Central Government is vested

with the power to take away the management of any airport from the

IA; (iii) The Central Government has power to give binding directions

in writing on questions of policy; (iv) The capital of IA needed for

carrying out its functions is wholly provided by Central Government;

(v) The balance of net profit made by IA, after making certain

necessary provisions, does not remain with the IA and is required to

be taken over to the Central Government; (vi) The financial estimates,

expenditure and programme of activities can only be such as approved

by Central Government; (vii) The Audit Accounts and the Audit

Report of IA, forwarded to the Central Government, are required to be

laid before both Houses of Parliament; (viii) It was a department of

the Central Government along with its properties, assets, debts,

obligations, liabilities, contracts, cause of action and pending

litigation taken over by the IA; (ix) IA was charged with carrying out

the same functions which were being carrying out by the Central

Government; (x) The employees and officials of IA are public

servants and enjoy immunity for anything done or intended to be

done, in good faith, in pursuance of the Act or any rules or regulations

made by it; (xi) IA is given (delegated) power to legislate and

contravention of certain specified regulations entails penal

consequences. Thus, in sum, the IA was held to be an instrumentality

or agency of the Central Government falling within the definition of

the State both on the narrower view propounded in the judgment of

A.N. Ray, CJ and broader view propounded by Mathew, J. in

Sudhdev Singh's case.

Ajay Hasia etc. v. Khalid Mujib Sehravardi and Ors. etc.

(supra), is a Constitution Bench judgment wherein P.N. Bhagwati, J.

spoke for the Court. The test which he had laid down in Ramanna's

case were summarized by him as six in number and as under:

"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.

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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 government 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."

The footnote to the tests, as put by him, is "if on a consideration of

all these relevant factors it is found that the corporation is an

instrumentality or agency of government, it would, be an

authority, and therefore, 'the State' within the meaning of Article 12.

Bhagwati, J. placed a prologue to the above said tests emphasizing

the need to use care and caution, "because while stressing the

necessity of a wide meaning to be placed on the expression "other

authorities", it must be realized 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."

In Ajay Hasia, the 'authority' under consideration was a

society registered under the Jammu & Kashmir Registration of

Societies Act, 1898, administering and managing the Regional

Engineering College, Srinagar. The College was sponsored by the

Government of India. The prominent features of the society indicated

complete financing and financial control of the Government, complete

administrative control over conducting of the affairs of the society and

administration and assets of the College being taken over by the State

Government with the prior approval of the Central Government.

These are some of the material features. Some of the observations

made by the Court during the course of its judgment are pertinent and

we proceed to notice them quickly. The society could not be equated

with the Government of India or the Government of any State nor

could it be said to be 'local authority', and therefore, should have

come within the expression of 'other authorities' to be 'the State'.

The Government 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. With the enlargement of

governmental activities, specially those in the field of trade and

commerce and welfare, corporation is most resourceful legal

contrivance resorted to frequently by the Government. Though a

distinct juristic entity came into existence because of its certain

advantages in the field of functioning over a department of the

Government but behind the formal ownership cast in the corporate

mould, the reality is very much the deeply pervasive presence of the

Government. It is really the Government which acts through the

instrumentality or agency of the Corporation and the juristic veil of

corporate personality is worn for the purpose of convenience of

management and administration which cannot be allowed to obliterate

the true nature of the reality behind which is the Government.

Dealing at length with the corporate contrivance, the Court summed

up its conclusion by saying that if a Corporation is found to be a mere

agency or surrogate of the Government, 3 tests being satisfied viz., (i)

in fact, owned by the Government, (ii) in truth, control by the

Government, and (iii) in effect, an incarnation of the Government,

then the Court would hold the Corporation to be Government, and

therefore, subject to constitutional limitations including for

enforcement of fundamental rights. The Court went on to say that

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where a Corporation is an instrumentality or agency of the

Government, it must be held to be an 'authority' for Article 12.

Here itself we have few comments to offer. Firstly, the

distinction between 'instrumentality and agency' on the one hand, and

'authority (for the purpose of 'other authorities')' on the other, was

totally obliterated. In our opinion, it is one thing to say that if an

entity veiled or disguised as a Corporation or a society or in any other

form is found to be an instrumentality or agency of the State then in

that case it will be the State itself in narrower sense acting through its

instrumentality or agency and therefore, included in 'the State' in the

wider sense for the purpose of Article 12. Having found an entity

whether juristic or natural to be an instrumentality or agency of the

State, it is not necessary to call it an 'authority'. It would make a

substantial difference to find whether an entity is an instrumentality or

agency or an authority. Secondly, Ajay Hasia was the case of a

registered society; it was not an appropriate occasion for dealing with

corporations or entities other than society. On the inferences drawn

by reading of the Memorandum of Association of the society and

rules framed thereunder, and subjecting such inferences to the tests

laid down in the decision itself, it was found that the society was an

instrumentality or agency of the State and on tearing the veil of

society what was to be seen was the State itself though in disguise. It

was not thereafter necessary to hold the society an 'authority' and

proceed to record "that the society is an instrumentality or the agency

of the State and the Central Government and it is an 'authority' within

the meaning of Article 12", entirely obliterating, the dividing line

between 'instrumentality or agency of the State' and 'other

authorities'. This has been a source of confusion and misdirection in

thought process as we propose to explain a little later. Thirdly, though

six tests are laid down but there is no clear indication in the judgment

whether in order to hold a legal entity the State, all the tests must be

answered positively and it is the cumulative effect of such positive

answers which will solve the riddle or positive answer to one or two

or more tests would be enough to find out a solution. It appears what

the court wished was reaching a final decision on an overall view of

the result of the tests. Compare this with what was said by Bhagwati,

J. in Ramanna's case. We have already noticed that in Ajay Hasia,

Bhagwati, J. has in his own words summarized the test laid down by

him in Ramanna's case. In Ramanna's case he had said that the

question whether a corporation is governmental instrumentality or

agency would depend on a variety of factors which defy exhaustive

enumeration and moreover even amongst these factors described in

Ramanna's case "the Court will have to consider the cumulative

effect of these various factors and arrive at its decision." "It is the

aggregate or cumulative effect of all the relevant factors that is

controlling".

Criticism of too broad a view taken of the scope of the State

under Article 12 in Ramanna's case invited some criticism which

was noticed in Som Prakash Rekhi's case (infra). It was pointed out

that the observations in Ramanna's case spill over beyond the

requirements of the case and must be dismissed as obiter; that IA is a

Corporation created by a statute and there was no occasion to go

beyond the narrow needs of the situation and expand the theme of the

State in Article 12 vis--vis government companies, registered

society, and what not; and that there was contradiction between

Sukhdev Singh's case and Ramanna's case.

On 13.11.1980, the Constitutional Bench presided over by Y.V.

Chandrachud, C.J. and consisting of P.N. Bhagwati, V.R. Krishna

Iyer, S. Murtaza Fazal Ali and A.D. Koshal, JJ. delivered the

judgment in Ajay Hasia's case, speaking through P.N. Bhagwati, J..

It is interesting to note that on the same day another three-Judges

Bench consisting V.R. Krishna Iyer, O. Chinnappa Reddy and R.S.

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Pathak, JJ. delivered judgment in Som Prakash Rekhi v. Union of

India and another (supra). V.R. Krishna Iyer, J. speaking for

himself and O. Chinnappa Reddy, J. delivered the majority opinion.

R.S. Pathak, J. delivered a separate opinion.

The Court in Som Parkash Rekhi v. Union of India and

another (supra), was posed with the question __ whether Bharat

Petroleum Corporation Ltd., a statutory corporation, was an

'authority', and therefore 'the State' under Article 12. Certain

observations made by Krishna Iyer, J. are pertinent. To begin with, he

said, "any authority under control of the Government of India comes

within the definition." While dealing with the corporate personality, it

has to be remembered that "while the formal ownership is cast in the

corporate mould, the reality reaches down to State control". The core

fact is that the Central Government chooses to make over, for better

management, its own property to its own offspring. A Government

Company is a mini-incarnation of Government itself, made up of its

blood and bones and given corporate shape and status for defined

objectives and not beyond. The device is too obvious for deception.

A Government Company though, is but the alter ego of the Central

Government and tearing of the juristic veil worn, would bring out the

true character of the entity being 'the State'. Krishna Iyer, J. held it to

be immaterial whether the Corporation is formed by a statute or under

a statute, the true test is functional. "Not how the legal person is born

but why it is created." He further held that both the things are

essential: (i) discharging functions or doing business as the proxy of

the State by wearing the corporate mask, and (ii) an element of ability

to affect legal relations by virtue of power vested in it by law. These

tests, if answered in positive, would entail the Corporation being an

instrumentality or agency of the State. What is an 'authority'?

Krishna Iyer, J. defined 'authority' as one which in law belongs to the

province of power and the search here must be to see whether the Act

vests authority, as agent or instrumentality of the State, to affect the

legal relations of oneself or others. He quoted the definition of

'authority' from the Law Lexicon by P. Ramnath Iyer to say

"Authority is a body having jurisdiction in certain matters of a public

nature" and from Salmond's Jurisprudence, to say that the "ability

conferred upon a person by the law to alter, by his own will directed

to that end, the rights, duties, liabilities or other legal relations, either

of himself or of other persons,' must be present ab extra to make a

person an 'authority'." He held BPL to be "a limb of Government and

agency of the State, a vicarious creature of statute", because of these

characteristics, which he found from the provisions of the Act which

created it and other circumstances, viz., (i) it is not a mere company

but much more than that, (ii) it has a statutory flavour in its operations

and functions, in its powers and duties and in its personality itself,

(iii) it is functionally and administratively under the thumb of

Government; and (iv) the Company had stepped into the shoes of the

executive power of the State and had unique protection, immunity and

powers. In conclusion Krishna Iyer, J. held that the case of BPL was

a close parallel to the Airport Authority's case (Ramanna's case)

excepting that Airport Authority is created by a statute while BPL is

recognized by and clothed with rights and duties by the statute.

Krishna Iyer, J. having culled out the several tests from Ramanna's

case added a clinching footnote the finale is reached when the

cumulative effect of all the relevant factors above set out is assessed

and once the body is found to be an instrumentality or agency of

Government, the further conclusion emerges that it is 'the State' and

is subject to the same constitutional limitations as Government and it

is this divagation which explains the ratio of Ramanna's case.

The three-Judges Bench in The Workmen, Food Corporation

of India Vs. Food Corporation of India, (1985) 2 SCC 136, held

Food Corporation of India to be an instrumentality of the State

covered by the expression 'other authority' in Article 12. It was

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found : (i) FCI was set up under the Food Corporation Act, 1964 (ii)

initial capital was provided by Central Government and capital could

be increased in such manner as the government may determine; (iii)

the Board of Directors in whom the management of the Corporation is

to vest shall act according to instructions on question of policy given

by the Central Government; (iv) the annual net profit of FCI is to be

paid to the Central Government; (v) annual report of its working and

affairs is to be laid before the Houses of Parliament; (vi) statutory

power conferred to make rules and regulations for giving effect to the

provisions of the parent act as also to provide for service matters

relating to officers and employees.

The Mysore Paper Mills Ltd. has been held by a two-Judges

Bench in Mysore Paper Mills Ltd. Vs. The Mysore Paper Mills

Officers Association and Anr. JT 2002 (1) SC 61, to be an

instrumentality and agency of the State Government, the physical

form of company being a mere cloak or cover for the Government.

What is significant in this decision is that the conclusion whether an

independent entity satisfies the test of instrumentality or agency of the

government is not whether it owes its origin to any particular Statute

or Order but really depends upon a combination of one or more of the

relevant factors, depending upon the essentiality and overwhelming

nature of such factors in identifying the real source of governing

power, if need be, by piercing the corporate veil of the entity

concerned.

What is 'Authority' and when includible in 'other authorities',

re: Article 12

We have, in the earlier part of this judgment, referred to the

dictionary meaning of 'authority', often used as plural, as in Article

12 viz. 'other authorities'. Now is the time to find out the meaning to

be assigned to the term as used in Article 12 of the Constitution.

A reference to Article 13(2) of the Constitution is apposite. It

provides ___ "The State shall not make any law which takes away or

abridges the right conferred by this part and any law made in

contravention of this clause shall, to the extent of the contravention,

be void". Clause (3) of Article 13 defines 'law' as including any

Ordinance, order, bye-law, rule, regulation, notification, custom or

uses having in the territory of India the force of law. We have also

referred to the speech of Dr. B.R. Ambedkar in Constituent

Assembly explaining the purpose sought to be achieved by Article

12. In RSEB's case, the majority adopted the test that a statutory

authority "would be within the meaning of 'other authorities' if it has

been invested with statutory power to issue binding directions to the

parties, disobedience of which would entail penal consequences or it

has the sovereign power to make rules and regulations having the

force of law". In Sukhdev Singh's case, the principal reason which

prevailed with A.N. Ray, CJ for holding ONGC, LIC and IFC as

authorities and hence 'the State' was that rules and regulations

framed by them have the force of law. In Sukhdev Singh's case,

Mathew J. held that the test laid down in RSEB's case was satisfied

so far as ONGC is concerned but the same was not satisfied in the

case of LIC and IFC and, therefore, he added to the list of tests laid

down in RSEB's case, by observing that though there are no statutory

provisions, so far as LIC and IFC are concerned, for issuing binding

directions to third parties, the disobedience of which would entail

penal consequences, yet these corporations (i) set up under statutes,

(ii) to carry on business of public importance or which is fundamental

to the life of the people ___ can be considered as the State within the

meaning of Article 12. Thus, it is the functional test which was

devised and utilized by Mathew J. and there he 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

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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. The State is an

abstract entity. It can only act through the instrumentality or agency

of natural or juridicial 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". It is pertinent to note that

functional tests became necessary because of the State having chosen

to entrust its own functions to an instrumentality or agency in

absence whereof that function would have been a State activity on

account of its public importance and being fundamental to the life of

the people.

The philosophy underlying the expansion of Article 12 of the

Constitution so as to embrace within its ken such entitites which

would not otherwise be the State within the meaning of Article 12 of

the Constitution has been pointed out by the eminent jurist H.M.

Seervai in Constitutional Law of India (Silver Jubilee Edition, Vol.1).

"The Constitution should be so interpreted that the governing power,

wherever located, must be subjected to fundamental constitutional

limitations. . . . . . . . . . . . . Under Article 13(2) it is State action of a

particular kind that is prohibited. Individual invasion of individual

rights is not, generally speaking, covered by Article 13(2). For,

although Articles 17, 23 and 24 show that fundamental rights can be

violated by private individuals and relief against them would be

available under Article 32, still, by and large, Article 13(2) is directed

against State action. A public corporation being the creation of the

State, is subject to the same constitutional limitations as the State

itself. Two conditions are necessary, namely, that the Corporation

must be created by the State and it must invade the constitutional

rights of individuals"(Para 7.54). "The line of reasoning developed

by Mathew J. prevents a large-scale evasion of fundamental rights by

transferring work done in Govt. Departments to statutory

Corporations, whilst retaining Govt. control. Company legislation in

India permits tearing of the corporate veil in certain cases and to look

behind the real legal personality. But Mathew J. achieved the same

result by a different route, namely, by drawing out the implications of

Article 13(2)" (Para 7.57 ibid).

The terms instrumentality or agency of the State are not to be

found mentioned in Article 12 of the Constitution. Nevertheless they

fall within the ken of Article 12 of the Constitution for the simple

reason that if the State chooses to set up an instrumentality or agency

and entrusts it with the same power, function or action which would

otherwise have been exercised or undertaken by itself, there is no

reason why such instrumentality or agency should not be subject to

same constitutional and public law limitations as the State would

have been. In different judicial pronouncements, some of which we

have reviewed, any company, corporation, society or any other entity

having a juridical existence if it has been held to be an

instrumentality or agency of the State, it has been so held only on

having found to be an alter ego, a double or a proxy or a limb or an

off-spring or a mini-incarnation or a vicarious creature or a surrogate

and so on __ by whatever name called __ of the State. In short, the

material available must justify holding of the entity wearing a mask

or a veil worn only legally and outwardly which on piercing fails to

obliterate the true character of the State in disguise. Then it is an

instrumentality or agency of the State.

It is this basic and essential distinction between an

'instrumentality or agency' of the State and 'other authorities' which

has to be borne in mind. An authority must be an authority sui juris

to fall within the meaning of the expression 'other authorities' under

Article 12. A juridical entity, though an authority, may also satisfy

the test of being an instrumentality or agency of the State in which

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event such authority may be held to be an instrumentality or agency

of the State but not the vice versa.

We sum up our conclusions as under:-

(1) Simply by holding a legal entity to be an instrumentality or

agency of the State it does not necessarily become an authority

within the meaning of 'other authorities' in Article 12. To be an

authority, the entity should have been created by a statute or under

a statute and functioning with liability and obligations to public.

Further, the statute creating the entity should have vested that

entity with power to make law or issue binding directions

amounting to law within the meaning of Article 13(2) governing

its relationship with other people or the affairs of other people __

their rights, duties, liabilities or other legal relations. If created

under a statute, then there must exist some other statute conferring

on the entity such powers. In either case, it should have been

entrusted with such functions as are governmental or closely

associated therewith by being of public importance or being

fundamental to the life of the people and hence governmental.

Such authority would be the State, for, one who enjoys the powers

or privileges of the State must also be subjected to limitations and

obligations of the State. It is this strong statutory flavour and

clear indicia of power __ constitutional or statutory, and its

potential or capability to act to the detriment of fundamental rights

of the people, which makes it an authority; though in a given case,

depending on the facts and circumstances, an authority may also

be found to be an instrumentality or agency of the State and to that

extent they may overlap. Tests 1, 2 and 4 in Ajay Hasia enable

determination of Governmental ownership or control. Tests 3, 5

and 6 are 'functional' tests. The propounder of the tests himself

has used the words suggesting relevancy of those tests for finding

out if an entity was instrumentality or agency of the State.

Unfortunately thereafter the tests were considered relevant for

testing if an authority is the State and this fallacy has occurred

because of difference between 'instrumentality and agency' of the

State and an 'authority' having been lost sight of sub-silentio,

unconsciously and un-deliberated. In our opinion, and keeping in

view the meaning which 'authority' carries, the question whether

an entity is an 'authority' cannot be answered by applying Ajay

Hasia tests.

(2) The tests laid down in Ajay Hasia's case are relevant for the

purpose of determining whether an entity is an instrumentality

or agency of the State. Neither all the tests are required to be

answered in positive nor a positive answer to one or two tests

would suffice. It will depend upon a combination of one or

more of the relevant factors depending upon the essentiality and

overwhelming nature of such factors in identifying the real

source of governing power, if need be by removing the mask or

piercing the veil disguising the entity concerned. When an

entity has an independent legal existence, before it is held to be

the State, the person alleging it to be so must satisfy the Court

of brooding presence of government or deep and pervasive

control of the government so as to hold it to be an

instrumentality or agency of the State.

CSIR, if 'the State'?

Applying the tests formulated hereinabove, we are clearly of the

opinion that CSIR is not an 'authority' so as to fall within the meaning

of expression 'other authorities' under Article 12. It has no statutory

flavour __ neither it owes its birth to a statute nor is there any other

statute conferring it with such powers as would enable it being

branded an authority. The indicia of power is absent. It does not

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discharge such functions as are governmental or closely associated

therewith or being fundamental to the life of the people.

We may now examine the characteristics of CSIR. On a careful

examination of the material available consisting of the memorandum

of association, rules and regulations and bye-laws of the society and

its budget and statement of receipts and outgoings, we proceed to

record our conclusions. The Government does not hold the entire

share capital of CSIR. It is not owned by the Government. Presently,

the Government funding is about 70% and grant by Government of

India is one out of five categories of avenues to derive its funds.

Receipts from other sources such as research, development,

consultation activities, monies received for specific projects and job

work, assets of the society, gifts and donations are permissible sources

of funding of CSIR without any prior permission/consent/sanction

from the Government of India. Financial assistance from the

Government does not meet almost all expenditure of the CSIR and

apparently it fluctuates too depending upon variation from its own

sources of income. It does not enjoy any monopoly status, much less

conferred or protected by Government. The governing body does not

consist entirely of Government nominees. The membership of the

society and the manning of its governing body - both consist

substantially of private individuals of eminence and independence

who cannot be regarded as hands and voice of the State. There is no

provision in the rules or the byelaws that the government can issue

such directives as it deems necessary to CSIR and the latter is bound

to carry out the same. The functions of the CSIR cannot be regarded

as governmental or of essential public importance or as closely related

to governmental functions or being fundamental to the life of the

people or duties and obligations to public at large. The functions

entrusted to CSIR can as well be carried out by any private person or

organization. Historically it was not a department of government

which was transferred to CSIR. There was a Board of Scientific and

Industrial Research and an Industrial Research Utilisation Committee.

The CSIR was set up as a society registered under the Societies

Registration Act, 1860 to coordinate and generally exercise

administrative control over the two organizations which would tender

their advice only to CSIR. The membership of the society and the

governing body of the council may be terminated by the President not

by the Government of India. The governing body is headed by the

Director General of CSIR and not by the President of Society (i.e. the

Prime Minister). Certainly the board and the committee, taken over

by CSIR, did not discharge any regal, governmental or sovereign

functions. The CSIR is not the offspring or the blood and bones or the

voice and hands of the government. The CSIR does not and cannot

make law.

However, the Prime Minister of India is the President of the

society. Some of the members of the society and of the governing

body are persons appointed ex-officio by virtue of their holding some

office under the Government also. There is some element of control

exercised by the government in matters of expenditure such as on the

quantum and extent of expenditure more for the reason that financial

assistance is also granted by the Government of India and the later

wishes to see that its money is properly used and not misused. The

President is empowered to review, amend and vary any of the

decisions of the governing body which is in the nature of residual

power for taking corrective measures vesting in the President but then

the power is in the President in that capacity and not as Prime

Minister of India. On winding up or dissolution of CSIR any

remaining property is not available to members but 'shall be dealt

with in such manner as Government of India may determine'. There

is nothing special about such a provision in Memorandum of

Association of CSIR as such a provision is a general one applicable to

all societies under Section 14 of the Societies Registration Act, 1860.

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True that there is some element of control of the government but not

a deep and pervasive control. To some extent, it may be said that

Government's presence or participation is felt in the society but such

presence cannot be called a brooding presence or the overlordship of

government. We are satisfied that the tests in Ajay Hasia's case are

not substantially or on essential aspects even satisfied to call CSIR an

instrumentality or agency of the State. A mere governmental

patronage, encouragement, push or recognition would not make an

entity 'the State'.

On comparison, we find that in substance CSIR stands on a

footing almost similar to the Institute of Constitutional and

Parliamentary Studies (in Tekraj Vasandi @ K.L. Basandhi Vs.

Union of India & Ors., (1988) 1 SCC 236) and National Council of

Educational Research and Training (in Chander Mohan Khanna Vs.

NCERT, (1991) 4 SCC 578), and those cases were correctly decided.

Strong reliance was placed by the learned counsel for the

appellants on a notification dated 31.10.1986 issued in exercise of the

powers conferred by sub-Section (2) of Section 14 of the

Administrative Tribunals Act, 1985 whereby the provisions of sub-

Section (3) of Section 14 of the said Act have been made applicable to

the Council of Scientific and Industrial Research, "being the society

owned or controlled by government". On point of fact we may state

that this notification, though of the year 1986, was not relied on or

referred to in the pleadings of the appellants. We do not find it

mentioned anywhere in the proceedings before the High Court and not

even in the SLP filed in this Court. Just during the course of hearing

this notification was taken out from his brief by the learned counsel

and shown to the Court and the opposite counsel. It was almost

sprung as a surprise without affording the opposite party an

opportunity of giving an explanation. The learned Attorney General

pointed out that the notification was issued by Ministry of Personnel,

Public Grievances and Pensions (Department of Personnel and

Training) and he appealed to the Court not to overlook the practical

side in the working of the government where at times one department

does not know what the other department is doing. We do not

propose to enter into a deeper scrutiny of the notification. For our

purpose, it would suffice to say that Section 14 of the Administrative

Tribunals Act, 1985, and Article 323A of the Constitution to which

the Act owes its origin, do not apparently contemplate a society being

brought within the ambit of the Act by a notification of Central

Government. Though, we guardedly abstain from expressing any

opinion on this issue as the present one cannot be an occasion for

entering into that exercise. Moreover, on the material available, we

have recorded a positive finding that CSIR is not a society "owned or

controlled by Government". We cannot ignore that finding solely by

relying on the contents of the notification wherein we find the user of

relevant expression having been mechanically copied but factually

unsupportable.

For the foregoing reasons, we are of the opinion that Council

for Scientific and Industrial Research (CSIR) is not the State within

the meaning of Article 12 of the Constitution. Sabhajit Tewary's case

was correctly decided and must hold the field. The High Court has

rightly followed the decision of this Court in Sabhajit Tewary. The

appeal is liable to be dismissed.

J.

( R.C. Lahoti )

.J.

( Doraiswamy Raju )

April 16,2002

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