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Report No. 145

5.7. Arguments against amendment: business principles.-

The argument that the management of undertakings in the public sector should be conducted on sound business principles may appear very attractive at the first sight, and no one can deny that this ideal should be kept by each undertaking before itself and implemented as far as possible. But, in stressing this argument, one need not overlook the fact that in some form or other, these undertakings possess a public element, as their very name indicates. From the fact that they possess such a public element, certain consequences conceivably follow, one of which is that their actions sought to be open to judicial review on certain well defined grounds.

This is not the place for entering into a detailed exposition of the grounds for judicial review of State action. But it is well understood that violation of the law, non-compliance with the procedure laid down in law, want of sufficient factual material, perversity in coming to a conclusion, acting mala fide or on collateral considerations and (according to recent developments), unreasonableness, are some of the important grounds for such judicial review. These grounds become applicable in theory, where the action is that of the State. No doubt, one can legitimately ask the question why the court should insist on the observance of the relevant norms embraced by the grounds mentioned above, in the case of public sector undertakings.

The answer must be found, and can be found without much difficulty, in the very fact that these are "public". Constitutional scholars have written at length on the various indicia which are considered relevant in order to constitute an undertaking into a "State". But, for the present purpose, it is sufficient to mention that in some form or other, these undertakings have a connection with the State and the public:-

"By extending the executive power of the Union and each of the States to the carrying on of any trade or business, Article 298 does not, however, convert either the Union of India or any of the States which collectively form the Union into a merchant buying and selling goods or carrying on either trading or business activity; for the executive power of the Union and of the States, whether in the field of trade or business or in any other field, is always subject to Constitutional limitations and particularly the provisions relating to Fundamental Rights, in Part III of the Constitution and is exercisable in accordance with and for the furtherance of the Directive Principles of State Policy prescribed by Part IV of the Constitution."1

As regards the public character of the public sector undertakings, the Supreme Court has observed that it must be kept in mind that the employment under the public undertakings is a public employment and a public property. It is not only the undertakings, but also the society, which has a stake in them for their proper and efficient working.2 This connection has many facts, several of which have been stressed or highlighted in the Judicial decisions on the subject dealing with the concept of "State" as embracing public sector undertakings. But the golden thread that binds them all together, is the broad proposition that there is a public element.

This public element is occasionally traced to the fact that the undertaking in question owed its existence to a statute. At times, it is the nature of the functions which they perform that receives emphasis from the courts. The financial support given by the State may also be regarded as relevant, along with other factors. The concept of "instrumentality or agency of State", often relied on in this contexts, is another way of saying that these undertakings are projections of the State or emanations of the personality of the State.

The degree of control or the intensity of the inter-link between the State and the undertaking will naturally differ from undertaking to undertaking; but the essential idea is the connection between the State (in the conventional sense) and the particular undertaking. No particular test is sufficient or conclusive in itself; so many criteria may be kept in mind. The result reached, is not on the exclusive application of one or two criteria, but on an evaluation, in toto, of the nature and character of the undertaking.

One particular undertaking may be nothing but the "alter ego" of the State because the bond between that undertaking and the Government is very strong and fully visible-which is why the expression "deep and pervasive control" is often employed in judicial pronouncements. Such undertakings will be easily regarded as falling within the ambit of the "State". At the other extreme, may be a undertaking whose link with the State is thin and fragile; in such a case, it may be difficult to call it "State". Take, again, the financial aspect.

An undertaking may be substantially dependent on the resources of the Government and the court may find it easy to hold it as "State". At the opposite extreme, there might stand an undertaking in which the financial stakes of the Government are minor or negligible; the court may be justified in adopting a cautious approach before declaring such an undertaking to be a "State". But all these apparently heterogeneous criteria essentially pay homage to the central criterion, which assesses the link between the State and the undertaking in order to find out the existence, nature and extent of the "public" character of the undertaking.

1. Central Inland Water Transport Corporation Ltd. v. Broia Nath, AIR 1986 SC 1571 (1588-89).

2. D.T.C. v. Workers, 1990 Suppl (2) SCALE 1 (P.B. Sawant, J.).

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