This article has been written by Mahesh R pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Introduction

Part III of the Constitution of India is arguably its most important part. It is because it is in Part III that fundamental rights are enshrined. Since fundamental rights are mostly guarantees to the people of India against arbitrary action of the ‘state’, the definition of ‘state’ provided in Article 12 assumes great significance.

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According to the inclusive definition provided in Article 12 of the Constitution of India, the state includes:

  • The government and Parliament of India;
  • The government and the legislatures of the states;
  • All local authorities and
  • Other authorities within the territory of India, or under the control of the Government of India.

Except for the expression ‘Other Authorities’, all other terms are self explanatory.  Over the last 7 decades, the concept of ‘Other Authorities’ under Article 12 has undergone tremendous transformation. The Supreme Court of India gave birth to the concept of ‘agency or instrumentality of the state’ which brought within the ambit of the definition of state several institutions that apparently cannot be grouped together with the Union or state governments, Parliament or state legislatures or local bodies.

This article attempts to enumerate important judgements of the Supreme Court and a few High Courts to give a comprehensive understanding of the concept of agency or instrumentality of the state.

Pre-‘instrumentality’ era

Following  the judgement of Madras High Court in the case ‘University of Madras vs. Shanta Bai (1954)’, the doctrine of Ejusdem Generis (of a like nature)  was considered to be the guiding principle that helped decide whether a body or institution fell within the ambit of Other Authorities. As per this principle, a body like a university does not constitute a ‘state’ as it is not similar to the government or legislatures or local authorities.

However, in Smt. Ujjam Bai vs. State of Uttar Pradesh (1962), the Supreme Court held that the principle of Ejusdem Generis is not useful in interpreting the expression ‘other authorities’. The Apex Court held that there is no genus in Article 12. In other words, there is no single thread running through the other constituents of the state, about which there is no confusion.

In Rajasthan State Electricity Board vs. Mohan Lal and Ors. and others, the Supreme Court held that the expression “other authorities” in Article 12 includes all constitutional or statutory authorities on whom powers are conferred by law. It does not matter, even if some of the powers conferred are for the purpose of carrying on commercial activities. According to Article 19 (1) (g), the state has the right to carry on trade or business.

Instrumentalities of the state under Article 12 of the Constitution

The instrumentalities of the state under Article 12 of the Indian Constitution are various entities that are formed by the government to carry out its functions and achieve its objectives. These instrumentalities include:

  1. Government companies: These are companies in which the government holds a majority stake (more than 50%). They are established under the Companies Act, 2013, and are subject to the same laws and regulations as private companies. However, they are considered to be instrumentalities of the State because of the government’s control over their operations.
  2. Public corporations: These are entities created by a special act of Parliament or a state legislature. They are not subject to the Companies Act, 2013, and have a separate legal personality. Public corporations are typically established to undertake specific functions or projects that are considered to be in the public interest.
  3. Statutory authorities: These are bodies created by a statute (law) to perform specific functions. They may be either autonomous or subordinate to a government department. Statutory authorities are often given special powers and privileges, such as the power to make regulations or to acquire land.
  4. Local governments: These are bodies responsible for the administration of specific areas, such as cities, towns, or villages. Local governments are typically elected by the people living in the area, and they have a range of powers and responsibilities, such as providing public services, regulating land use, and enforcing laws.
  5. Other entities: In addition to the four main types of instrumentalities listed above, there are a number of other entities that may also be considered to be instrumentalities of the state. These include:
  • Universities and educational institutions
  • Hospitals and other healthcare institutions
  • Cultural and sports organisations
  • Charitable trusts and foundations

The instrumentalities of the state play a vital role in the functioning of the government and the delivery of public services. They are also subject to a number of legal and constitutional requirements, such as the requirement to act in the public interest and to be accountable to the people.

Sukhdev Singh & others. vs. Bhagatram Sardar Singh Raghuvanshi and Anr.  can be considered the turning points as far as the expression ‘other authorities’ in Art. 12 is concerned. In this landmark case, Justice K. K. Mathew gave birth to the doctrine of agency or instrumentality of the state. The question in front of the Apex Court in this case was whether the Life Insurance Corporation of India, ONGC and the Industrial Finance Corporation fell within the ambit of the state under Article 12. In this case, the Supreme Court held that even in the absence of the power to make rules that are binding on the general public, a corporation can be held to be ‘state’ if such corporation is a statutory one having the power to make its own rules. More importantly and interestingly, the Court said that a state, being an abstract entity, can only act through the instrumentality or agency of natural or juridical persons. Therefore, if the state acts through a corporation, such corporation becomes an agency or instrumentality of the State. Thus, the key question is whether the body in question is acting as an agency or instrumentality of the government.

Interestingly, in Sabhajith Tewari vs. Union of India (1975), which was delivered by the same constitutional bench on the same day as the Sukhdev Singh judgement, it was held that a body registered under a statute that was not performing an important state function or which was not under the pervasive control of the state cannot be considered an instrumentality of the state for the purpose of Article 12.

In R. D. Shetty vs. International Airport Authority of India, the Supreme Court formulated a test to see whether a body can be called an instrumentality of the state. The components of the test are as follows:

  • If the entire share capital of the corporation is held by the government, it would go a long way towards indicating that the corporation is an instrumentality or agency of the government.
  • Where the financial assistance of the State is so great as to meet almost the entire expenditure of the corporation, it would afford some indication of the corporation being impregnated with governmental character.
  • Existence of deep and pervasive governmental control.
  • Existence of any state conferred or state protected monopoly status.
  • Functions carried out by the corporation are public functions or closely related to governmental functions.
  • Finally, if a department of government is transferred to a corporation, it would be a strong factor supportive of this inference that the corporation is an instrumentality or agency of government.

The Court held that any of the above factors taken individually cannot be a deciding factor. The court has to consider the cumulative effect of answers to all the above questions, with reference to the facts and circumstances of each individual case. Applying this test, the Supreme Court held the International Airport Authority of India to be a state under Article 12.

In Ajay Hasia vs. Khalid Mujib Sehravardi (1981), Regional Engineering College, Srinagar, a society registered under the Jammu and Kashmir Registration of Societies Act, 1898, was held  by the Supreme Court to be a state. The judgement in this case was interesting because, although the Supreme Court reiterated the validity of the 6 point test formulated by it in the R. D. Shetty case, the Court relied almost exclusively on the test of the existence of deep and pervasive governmental control. Additionally, the judgement significantly watered down the effect of the judgement in the Sabhajit Tewary case.

In Chander Mohan Khanna vs. NCERT (1991), the Supreme Court held the NCERT to not be a state under Article 12. The Court relied on the fact that NCERT was an autonomous body whose activities were not wholly related to governmental functions. The governmental control was low and the government did not fund NCERT wholly. Thus, the case did not satisfy the requirements of the state under Article 12 of the Constitution. 

In Pradeep Kumar Biswas vs Indian Institute of Chemical Biology (2002), the Supreme Court gave further clarity to the test it had formulated in the R. D. Shetty and Ajay Hasia cases by declaring that the key question to be asked is whether a body is under deep and pervasive control of the government and whether the body is financially, administratively and functionally dominated by the government. If the answers to the above questions are affirmative, a body is ‘state’’ even despite its non-statutory nature. However, the Court also mentioned that when the control is merely regulatory, whether under statute or otherwise, it would not serve to make the body an instrumentality of the state.

In Zee Telefilms Ltd. and Anr. vs. Union of India (2005), the question before the Supreme Court was whether the Board of Control for Cricket in India (BCCI) was an agency or instrumentality of the state. The Court relied upon the following established facts in coming to a decision:

  • BCCI is not a statutory body
  • The government does not own any share capital in the BCCI.
  • BCCI does not receive any financial assistance from the government.
  • BCCI’s monopoly status in the field of cricket is neither State conferred nor State protected.
  • There is no deep and pervasive state control.

Based on the above facts, the Supreme Court held that BCCI is not an instrumentality of the state.

Doctrine of instrumentality of state in India

The doctrine of instrumentality of the state is a legal principle that states that a state is not liable for the acts of its agents or instrumentalities, even if those acts are illegal or unconstitutional. This doctrine is based on the idea that a state is a sovereign entity and cannot be held liable for the actions of its employees or agents.

In India, the doctrine of the instrumentality of the state has been interpreted in a number of cases. In the case of State of Rajasthan v. Union of India, the Supreme Court of India held that the state is not liable for the acts of its agents or instrumentalities, even if those acts are illegal or unconstitutional. The court reasoned that the state is a sovereign entity and cannot be held liable for the actions of its employees or agents.

However, the doctrine of the instrumentality of the state is not absolute. In some cases, the state may be held liable for the acts of its agents or instrumentalities. For example, in the case of the Bhopal Gas Leak Disaster (Union Carbide Corporation v. Union of India), the Supreme Court of India held that the state could be held liable for the acts of its agents or instrumentalities if those acts were ultra vires or illegal.

The doctrine of instrumentality of the state is a complex legal principle that has been interpreted in a number of cases in India. The doctrine is based on the idea that a state is a sovereign entity and cannot be held liable for the actions of its employees or agents. However, the doctrine is not absolute and the state may be held liable for the acts of its agents or instrumentalities in some cases.

The doctrine of the instrumentality of the state has a number of implications for the Indian legal system. First, it means that the state cannot be sued for the acts of its agents or instrumentalities, even if those acts are illegal or unconstitutional. Second, it means that the state is not liable for the torts of its employees or agents, even if those torts are committed in the course of their employment. Third, it means that the state is not liable for the contracts of its agents or instrumentalities, even if those contracts are entered into on behalf of the state.

The doctrine of instrumentality of state is a fundamental principle of Indian law that has a number of important implications for the Indian legal system. The doctrine is based on the idea that a state is a sovereign entity and cannot be held liable for the actions of its employees or agents. However, the doctrine is not absolute and the state may be held liable for the acts of its agents or instrumentalities in some cases.

Conclusion

The brief discussion above shows that not only did the judiciary expand the definition of State under Article 12 by bringing into existence the doctrine of ‘Agency or Instrumentality of the State’, it also formulated several tests over the years to find whether a body is such instrumentality. The concept of instrumentality was invoked for the first time before the liberalisation of the Indian economy. Since 1991, there have been changes in the nature of several public sector corporations, like BSNL (formerly a department of the Central Government). Many such corporations today carry out mostly commercial functions. Their being considered instrumentalities of the state may act as fetters on them. On the other hand, at least some of the purely private bodies, like the BCCI, carry out seemingly public functions. Considering these factors, it is certain that the concept of instrumentality will undergo further transformation in the coming decades.

References

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