Report No. 145
2.3. Agency or instrumentality of the State.-
In order to analyse the link between the State and the undertaking in question, it was necessary to evolve some formula; and that is the principal approach adopted by the Supreme Court in its well-known judgment relating to the International Airports Authority.1 The International Airports Authority is a body corporate constituted under the International Airports Authority Act, 1971. The Director of the Authority had issued a notice, inviting tenders for putting up and running a second class restaurant and two snack bars at the International Airport at Bombay. Tenders were received in response to the notice. Shri R.D. Shetty, the appellant, who was not a tenderer, filed a writ petition which was rejected by the Bombay High Court.
He applied for and obtained special leave to Appeal to the Supreme Court. He urged that the notice inviting tenders by the Airports Authority had stipulated a condition of eligibility, but subsequently the same was changed without any rational justification, as a result of which he could not submit his tender. It was further urged before the Supreme court that the International Airport Authority, being a "State" within the meaning of Article 12 of the Constitution, was bound to give effect to the condition of eligibility set up by it was and not entitled to depart from it at its own sweet will without rational justification.
The Airports Authority contended that since the appellant had not submitted any tender, he had no locus standi to maintain the petition and he had suffered no injury by the grant of licence to one of the respondents. It further raised the contention that the condition of eligibility had no statutory force. Therefore, even if there was any departure from the standard or norm of eligibility, it was not justiciable. The Supreme Court dismissed the appeal on the ground that the appellant had not submitted any tender and he had suffered no injury.
Nevertheless, the Supreme court held that "where the Government is dealing with the public, whether by way of giving jobs or entering into contracts or issuing quotas or licences or granting other forms of largesse, the Government cannot act, arbitrarily at its sweet will, and, like a private individual deal with any person it pleases, but its action must be in conformity with a standard or norm which is not arbitrary, irrational or irrelevant.
The power or discretion of the Government in the matter of grant of largesse including award of jobs, contracts, quotas, licences, etc. must be confined and structured by rational, relevant and non-discriminatory standard or norm and if the Government departs from such standard or norm in any particular case or cases, the action of the Government would be liable to be struck down, unless it can be shown by the Government that the departure was not arbitrary, but was based on some valid principle which in itself was not irrational, unreasonable or discriminatory".
After making the aforesaid observation, the Supreme Court further held that Corporations established by statute or incorporated under law are an instrumentality or agency of the Government, if they satisfied certain tests which may be summed up as under:-
(i) The source of the share capital;
(ii) The extent of State control over the Corporation, and whether it is "deep and pervasive";
(iii) Whether the Corporation has a monopoly status;
(iv) Whether the functions of the Corporation are of public importance and closely related to governmental functions; and
(v) Whether, what belonged to a Government Department formerly was transferred to the Corporation.
After laying down the aforesaid tests, the Supreme Court observed that the list is not exhaustive and by its very nature, it cannot be, because, with increasing assumption of new tasks, growing complexities of management and administration and the necessity of continuing adjustment in relations between the Corporation and Government, calling for flexibility, adaptability and innovative skills, it is not possible to make an exhaustive enumeration of the tests which would invariably and in all cases provide an unfailing answer to the question whether a Corporation is a governmental instrumentality or agency.
The court observed that no one single factor will yield a satisfactory answer to the question and the court will have to consider the cumulative effect of these factors, in arriving at its decision on the basis of facts and circumstances of each case. The court emphasised that since the Corporation is an instrumentality or agency of Government, it would be subject to the same constitutional or public law limitation as the Government.
Referring to the principle of equality before law under Article 14 of the Constitution, the court declared that the rule inhibiting arbitrary action by Government must apply equally where such Corporation is dealing with the public, whether by way of giving jobs or entering into contracts or otherwise, and it cannot act arbitrarily and enter into a relationship with any person it likes at its sweet will. Its action must be in conformity with some principle which meets the test of reason and relevance.
1. R.D. Shetty v. International Airport Authority of India, AIR 1979 SC 1626.
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