October 2, 2022

Development of Article 12- The Horizon of ‘other authority’ under Article 12.

3 SCR 377 the supreme Court was called upon to consider whether the Rajasthan Electricity Board was an ‘authority’ within the meaning of the expression ‘other authorities’ in Article 12.

Bhargava, J. who delivered the judgment of the majority pointed out that the expression ‘other authorities’ in Article 12 would include all constitutional and statutory authorities on whom powers are conferred by law.

The Judge also said that if anybody of persons has authority to issue directions, the disobedience of which would be publishable as a criminal of- fence, that would be an indication that the concerned 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 fail 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 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 consequences or it has the sovereign power to make rules and regulations having the force of law.

Sukhdev v. Bhagat Ram

The test propounded in above case, was followed by Ray, C J, in Sukhdev v. Bhagat Ram, [1975] 1 SCC 421.

Mathew, J. however, in the same case propounded a broader test. The learned Judge emphasised that the concept of ‘State’ had undergone drastic changes in recent years and today ‘State’ could not be conceived of simply as a coercive machinery wielding the thunderbolt of authority; rather it has to be viewed mainly as a service corporation.

He expanded on this dictum by stating that the emerging principle appears to be that a public corporation being an instrumentality or agency of the ‘State’ is subject to the same constitutional limitations as the ‘State’ itself.

The preconditions of this are two, namely, that the corporation is the creation of the ‘State’ and that there is existence of power in the corporation to invade the constitutional rights of the individual.

Ramanna Shetty v. International Airport Authority

The Court in Ramanna Shetty v. International Airport Authority, [1979] 3 SCR 1014 accepted and adopted the rational of instrumentality or agency of State put forward by Mathew, J., and spelt out certain criteria with whose aid such an inference could be made.

In the case, the court said that it was not possible to formulate an all-inclusive or exhaustive test which would adequately answer this question. There is no out and dried formula which would provide the correct division of corporations into those which are instrumentalities or agencies of Government and those which are not.

The Court said whilst formulating the criteria that analogical aid can be taken from the concept of State Action as developed in the United States wherein the U.S. Courts have suggested that a private agency if supported by extra-ordinary assistance given by the State may be subject to the same constitutional limitations as the State. It was pointed out that the State’s general common- law and statutory structure under which its people carry on their private affairs, own property and enter into contracts, each enjoying equality in terms of legal capacity, is not such assistance as would transform private conduct into State Action.

“But if extensive and unusual financial assistance is given and the purpose of such assistance coincides with the purpose for which the corporation is expected to use the assistance and such purpose is of public character, it may be a relevant circumstance supporting an inference that the corporation is an instrumentality or agency of the Government”.

On the question of State control, the Court in R.D. Shetty’s case (supra) clarified that some control by the State would not be determinative of the question, since the State has considerable measure of control under its police power over all types of business organisations. But a finding of State financial support plus an unusual degree of control over the management and policies of the corporation might lead to the characterisation of the operation as State Action. Whilst deliberating on the functional criteria namely, that the corporation is carrying out a governmental function. the Court emphasised that classification of a function as governmental should not be done on earlier day perceptions but on what the State today views as an indispensable part of its activities, for the State may deem it as essential to its economy that it owns and operate a railroad, a mill or an irrigation system as it does to own and operate bridges street lights or a sewage disposal plant.

The Court also reiterated in R.D. Shetty’s case (supra) what was pointed out by Mathew, J. in Sukhdev v. Bhagatram that “Institutions engaged in matters of high public interest or public functions are by virtue of the nature of the functions performed government agencies. Activities which are too fundamental to the society are by definition too important not to be considered government functions.”

The above discussion was rounded off by the Court in R.D. Shetty’s case (supra) by enumerating the following five factors namely,

(1) financial assistance given by the State and magnitude of such assistance

(2) any other form of assistance whether of the usual kind or extraordinary

(3) control of management and policies of the corporation by the State-nature and extent of control

(4) State conferred or State protected monopoly status and

(5) functions carried out by the corporation, whether public functions closely related to governmental functions, as relevant criteria for determining whether a corporation is an instrumentality or agency of the State or not, though the Court took care to point out that the enumeration was not exhaustive and that it was the aggregate or cumulative effect of all the relevant factors that must be taken as controlling.

Ajay Hasia v. Khalid Mujib

The criteria evolved by this Court in Ramanna Shetty’s case (supra) were applied by this Court in Ajay Hasia v. Khalid Mujib, [1981] 2 SCR 79 where it was further emphasised that:

“Where constitutional fundamentals vital to the maintenance of human rights are at stake, functional realism and not facial cosmetics must be the diagnostic tool for constitutional law must seek the substance and not the form. Now it is obvious that the Government may through the instrumentality or agency of natural persons or it may employ the instrumentality or agency of judicial persons to carry out its functions. It is really the Government which acts through the instrumentality or agency of the corporation and the juristic veil of corporate personality worn for the purpose of convenience of management and administration cannot be allowed to obliterate the true nature of the reality behind which is the Government …… (for if the Government acting through its officers is subject to certain constitutional limitations it must follow a fortiorari that the Government acting through the instrumentality or agency of a corporation should be equality subject to the same limitations”.

On the canon of construction to be adopted for interpreting constitutional guarantees the Court pointed out: “…. constitutional guarantees … should not be allowed to be emasculated in their application by a narrow and constructed judicial interpretation. The Courts should be anxious to enlarge the scope and width of the fundamental rights by bringing within their sweep every authority which is an instrumentality or agency of the Government or through the corporate personality of which the Government is acting, so as to subject the Government in all its myriad activities, whether through natural persons or through corporate entities to the basic obligation of the fundamental rights.”

In this case the Court also set at rest the controversy as to whether the manner in which a corporation is brought into existence had any relevance to the question whether it is a State instrumentality or agency.

The Court said that it is immaterial for the purpose of determining whether a corporation is an instrumentality or agency of the State or not whether it is created by a Statute or under a statute:

“the inquiry has to be not as to how the juristic person is born but why it has been brought into existence. The corporation may be a statutory corporation created by statute or it may be a Government company or a company formed under the Companies Act, 1956 or it may be a society registered under the Societies Registration Act, 1860 or any other similar statute”.

It would come within the ambit of Article 12, if it is found to an instrumentality or agency of the State on a proper assessment of the relevant factors. It will thus be seen that Court has not permitted the corporate device to be utilised as a barrier ousting the constitutional control of the fundamental rights. Rather the Court has held:

“It is dangerous to exonerate corporations from the need to have constitutional conscience, and so that interpretation, language permitting, which makes governmental agencies whatever their main amenable to constitutional limitations must be adopted by the court as against the alternative of permitting them to flourish as an imperium in imperio”.

Conclusion

The Court has throughout the last few years expanded the horizon of Article 12 primarily to inject respect for human-rights and social conscience in our corporate structure. The purpose of expansion has not been to destroy the raison deter of creating corporations but to advance the human rights jurisprudence.

Whenever a new advance is made in the field of human rights, apprehension is always expressed by the status quosits that it will create enormous difficulties in the way of smooth functioning of the system and affect its stability.

It is through creative interpretation and bold innovation that the human rights jurisprudence has been developed in our country to a remarkable extent and this forward march of the human rights movement cannot be allowed to be halted by unfounded apprehensions expressed by status quosits.

REFERENCE

M.C. Mehta and Anr vs Union Of India; 1987 AIR 1086, 1987 SCR (1) 819