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Report No. 275

3.7 A special mention is required to be made of the case of Sabhajit Tewary v. Union of India,39(Sabhajit Tewary case), decided on the same day as the Sukhdev Singh case, where the Apex Court took a contrary view holding that the Council of Scientific and Industrial Research (CSIR) was not 'other authority' for the following reasons -

(a) that it did not have a statutory character like ONGC, LIC or IFC but was merely a society incorporated in accordance with the provisions of Societies Registration Act; and

(b) that the employees of CSIR did not enjoy the protection available to government servants as contemplated under Article 311 of the Constitution.

3.8 Later in 1978, in the case of Bangalore Water Supply and Sewerage Board v. A. Rajappa,40while dealing with the terms 'regal' and 'sovereign' functions, the Supreme Court held that such terms are used to define the term 'governmental' functions, despite the fact that there are difficulties that arise while giving such a meaning to the said terms, for the reason that the government has entered the field of industry. Thus, only such services should be excluded from the sphere of industry, by necessary implication, which are governed by separate rules and Constitutional provisions such as Articles 310 and 311.

3.9 Thereafter in the landmark decision of Ramana Dayaram Shetty v. International Airports Authority of India,41(International Airports Authority case) the Supreme Court held as under:

A corporation may be created in one of two ways. It may be either established by statute or incorporated under a law such as the Companies Act 1956 or the Societies Registration Act 1860. Where a Corporation is wholly controlled by Government not only in its policy making but also in carrying out the functions entrusted to it by the law establishing it or by the Charter of its incorporation, there can be no doubt that it would be an instrumentality or agency of Government.

But ordinarily where a corporation is established by statute, it is autonomous in its working, subject only to a provision, often times made, that it shall be bound by any directions that may be issued from time to time by Government in respect of policy matter. So also a corporation incorporated under law is managed by a board of directors or committee of management in accordance with the provisions of the statute under which it is incorporated.

When does such a corporation become an instrumentality or agency of Government? Is the holding of the entire share capital of the Corporation by Government enough or is it necessary that in addition, there should be a certain amount of direct control exercised by Government and, if so, what should be the nature of such control? Should the functions which the corporation is charged to carry out possess any particular characteristic or feature, or is the nature or the functions immaterial?

Now, 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. But, as is quite often the case, a corporation established by statute may have no shares or shareholders, in which case it would be a relevant factor to consider whether the administration is in the hands of a board of directors appointed by Government, though this consideration also may not be determinative, because even while the directors are appointed by Government, they may be completely free from governmental control in the discharge of their functions.

What then are the tests to determine whether a corporation established by statute or incorporated under law is an instrumentality or agency of Government? It is not possible to formulate an all-inclusive or exhaustive test which would adequately answer this question 'there is no cut 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.

3.10 In the case of Ajay Hasia v. Khalid Mujib Sehravardi,42 (Ajay Hasia case) where a Regional Engineering College whose administration was carried on by a society registered under the Societies Act 1898, question arose as to whether it could fall under the definition of 'State' and thus be amenable to the writ jurisdiction of the Supreme Court under Article 32. It was held by the Court that a society is not on the same footing as the Government of India or the Government of any State, so what remains to be seen is whether it would fall under the ambit of 'other authorities'.

The Court emphasised that the concept of agency or instrumentality of the Government is not limited to a corporation created by a statute but is equally applicable to a company or a society and in each individual case it would have to be decided, on a consideration of relevant factors. The Court laid down the relevant tests to determine the existence of State agency or instrumentality, relying on the International Airport Authority case, summarised as follows:

1. 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. Whether the corporation enjoys a monopoly status which is State conferred or State protected.

4. Whether the State has a 'deep and pervasive' control over it.

5. If the functions of the entity are of public importance and closely related to governmental functions.

6. If a department of Government itself is transferred to a corporation.

3.11 The Court added that these tests were not conclusive or clinching but they were merely indicative indicia which have to be used with care and caution, while stressing the necessity of a wide meaning to be placed on the expression 'other authorities'.

3.12 In Pradeep Kumar Biswas v. Indian Institute of Chemical Biology,43(Pradeep Kumar Biswas case) the majority view had been that the tests laid down in Ajay Hasia case were not rigid set of principles so that a body falling within one of them must be considered to be 'State'. The question in each case would be whether on facts the body is financially, functionally, and administratively dominated by, or under the control of the Government.

Additionally, such control must be pervasive. Mere regulatory control, whether statutory or otherwise is not sufficient. If these conditions are met, then a body can be called 'State'. In this case the decision rendered in Sabhajit Tewary case was overruled and it was held by the majority that CSIR was 'State' within the meaning of Article 12 of the Constitution.

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