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THE LEGAL STATUS OF PUBLIC CORPORATIONS AND THEIR EMPLOYEES

Author(s): M. P. Jain
Source: Journal of the Indian Law Institute, Vol. 18, No. 1 (January-March 1976), pp. 1-34
Published by: Indian Law Institute
Stable URL: https://www.jstor.org/stable/43953853
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JOURNAL OF THE INDIAN LAW INSTITUTE

Volume 18 JANUARY-MARCH 1976 Number 1

THE LEGAL STATUS OF PUBLIC CORPORATIONS


AND THEIR EMPLOYEES

M. P. Jain *

THE SUPREME COURT decision in Sukhdev Singh v. Bhagatram1 (herein-


after designated as the Bhagatram case), is a pronouncement of major juris-
prudential significance. The primary focus of the case is on defining the
relationship between a public corporation and its employees but, in the
process, it also explores the nature and status of public corporations and
explains certain aspects of the law relating to delegated legislation and ad-
ministrative directions. The expression 'public corporation' has been used
in this paper in the sense of a body set up by a specific statute to run a public
undertaking. There are quite a few such bodies already functioning in India
such as, the Reserve Bank of India, the Industrial Finance Corporation, the
Life Insurance Corporation, the Central Warehousing Corporation, the Oil
and Natural Gas Commission, etc . The public sector is expanding in the
country every day.2 It employs thousands of persons. For long, the question
of relationship between a public corporation and its employees has been
shrouded in confusion and controversy. It is a well established proposition
that the employees of public corporations ąre not government servants and so
they cannot claim protection of article 311 of the Constitution.3 The ques-
tion, therefore, arises as to what safeguards, if any, they can claim in service
matters vis-a-vis the employing corporation. The instant case removes the
mist to some extent from this area and thus marks a significant step in the
development of Indian administrative law.

*LL.M. (Del.), J.S.D. (Yale), Professor of Law, University of Delhi ; presently


Visiting Professor, Malaya University, Kuala Lumpur.
1. A.I.R. 1975 S.C. 1331.

2, For a general discussion of public undertakings see M.P. Jain and S.N. Iain,
Principles of Administrative Law 529-559 (2nd ed., 1973). °
3. On this question see M.P. Jain, Indian Constitutional Law 691-722 (2nd ed.

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2 /OU RN AL OF THE INDIAN LAW INSTITUTE [Vol. 18 : 1

In the Bhagatram case, the Supreme Court was called up


two main questions : (1) Whether the regulations made by a p
tion defining the terms and conditions of its employees have s
so much so that an order of dismissal made by the corporation
its regulations can be declared invalid and inoperative by the
the employee concerned to a declaration or writ to that effec
corporation an 'authority' under article 12 of the Constitution s
and 16 become applicable to its employees ? Tļie court conside
tions with reference to three public corporations, viz , the Oil
Commission, the Life Insurance Corporation and the Indus
Corporation. Needless to say, the principles evolved by th
Bhagatram case are of wider application and would cover all p
tions established under a central or state law.

II

From the trend of the judicial pronouncements before 1970


that, on the whole, the law was slowly and gradually crystall
of the view that a High Court in the exercise of its power
226 of the Constitution, was entitled to issue a writ holdin
of the employee invalid if he was dismissed by a public corpo
in violation of a requirement in the parent statute, or rules o
made thereunder, or without observing the norms of natu
first case to be nt)ted in this connection is S. R. Tewari v. Dis
Agra.4 The district board in question passed a resolution te
services of the appellant. The appellant challenged the resolut
writ petition under article 226 of the Constitution, and the ma
appeal before the Supreme Court. The main argument urged i
that, in view of the provisions of the Specific Relief Act, the c
issue a writ quashing the board's resolution dismissing the em
only remedy available to the employee against the board was by
for damages. The Supreme Court rejected this contention
while, ordinarily, courts do not enforce specific performa
contract, there were a few exceptions to this general rule. Un
of the Constitution, a civil servant can claim a reasonable
hearing and the coyrt can issue a writ quashing an order o
civil servant passed in violation of that article. Also, in la
ment cases, norms of natural justice have to be observed ;
courts may declare the dismissal of the employee invalid.
courts were invested with the power to declare an act of a sta
invalid, "if by doing the act the body has acted in breach o
obligation imposed by statute , even if by making the declarat
compelled to do something which it does not desire to d

4# A.I.R. 1974 S.C. 1680 (hčrtinafter referred to as the Tewari case).


5, Id at 1682 (emphasis supplied).

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1976] THE LEGAL STATUS OF PUBLIC CORPORATIONS %

emphasized that this rule emanated from the norm that


statutory body are always subject to the statute which has co
must be exercised consistently with the statute, and the court
priate cases, the power to declare an action of the body illega
even if the action relates to determination of employment o
The court depended for this view on Vine v. National Doc
an English case, where the House of Lords had held that the c
a declaration if the dismissal of an employee was a nullity. T
Tewari case, the Supreme Court observed :

Prima facie, jurisdiction of the Court in an appropria


declare an order passed by a statutory body, even if
relates to the termination of the employment of a servan
body, may not be denied.7

On the facts, however, the court gave no relief to the p


it ruled that the safeguard of hearing was available under the
to dismissal by way of punishment and not to terminati
and that the petitioner's case fell in the latter, and not
category.

In Life Insurance Corporation v. Sunil Kumar ,8 the Suprem


that the service of an employee could be terminated by a pu
only in accordance with the rules made by the governme
an employee who was dismissed by the Life Insurance Corpo
holding an enquiry and without giving him an opportunity
required by a rule framed by the government, challenge
The court held the dismissal void and issued a writ to quash
order, directing the corporation not to give effect to the sa
is some discussion by the court in the case as regards the na
tions framed by the corporation. The court emphasized t
Act (the Life Insurance Corporation Act, 1956) was param
override any contrary provisions contained in the rules or t
framed by the central government and the corporation resp
the authority conferred by the Act. Next to the parent Act
rules framed by the central government under section 48 of t

5a. Id. at 1683.

6. [1957] A.C. 488. The dismissal here was by the disciplinary committee of the
National Dock Labour Board. The House of Lords held that the power to dismiss was
vested in the Board aid it could not delegate this power to the committee in question and
so the dismissal was held invalid.

7. Supra note 4 at 1683.


8. A.I.R. 1964 S.C. 847 (hereinafter referred to as the L./.C. case).

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4 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 18 : 1

Then we have the Regulations issued by the Corporatio


49(1) of the Act.. ..the power of the Corporation to make R
is burdened with the condition that these regulations mu
inconsistent with the Act and the rules framed thereunder
any of the provisions contained in the regulations ma
Corporation under S. 49 are found to be inconsistent ei
S. 11(2) or with the Order made by the Central Governme
S. 11(2), they would be invalid.9

It is clear from the above quotation that the court regarded


made by the corporation as having the force of law and as m
the rules or the Act, although the regulations were subservi
and the rules.
Again in Calcutta Dock Labour Board ■ v. Jaffar Imam,™
Court stated categorically that the Calcutta Dock Labour Boa
body, could not dismiss an employee without following t
natural justice. Termination of employment of the employe
was declared to be a quasi-judicial matter. Gajendragadkar, C

In cases where a statutory body or authority is emp


terminate the employment of its employees, the said aut
body cannot be heard to say that it will exercise its power
due regard to the principles of natural justice.11

The court then referred to A.C.C, v. P.N. Sharma 12 and


v. Ram Chand13 and stated :

[I]t has been held that in ascertaining the nature of such proceedings
with a view to decide whether the principles of natural justice ought
to be followed or not, the tests laid down by Lord Reid in Ridge
v. Baldwin14 are relevant.14"

A ruling to the same effect was given by the Constitution Bench of the
Supreme Court in Mafatlal Barot v. Divisional Controller, State Transport,
Metisana .1B A regulation (4b) framed by the State Road Transport Cor-
poration, a statutory body, provided for giving an opportunity of hearing
to an employee before his dismissal. The court asserted thai the service of

9. Id. at 854.
10. A.I.R. 1966 S.C. 282.
11. Id. at 286.
12. A.I.R. 1955 S.C. 1595.
13. A.I.R. 1965 S.C. 1767.
14. r 19641 A C. 40.
14a. Supra note 10 at 286.
15. A.I.R- 1?66 S.C. 1364 (her matter referred to as tne Majatlal narot case).

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19761 THE LÉGAL STATUS OF PUBLIC CORPORATIONS S

a permanent employee cannot be terminated by a statutory


without giving him a reasonable opportunity to show cause wh
removed. In this case, the order of termination passed against
was found to be against the regulation in question as well as against the
principles of natural justice and so was held to be bad in law and was quashed
by issuing the writ of certiorari .

This even tenor of development of the law received a jolt by a Division


Bench of the Supreme Court consisting of Shelat and Vaidialingam, JJ., in
U.P . State Warehousing Corporation v. Chandra Kiran Tyagi.1Q An employee
was dismissed by the Warehousing Corporation, a statutory body. The
enquiry held prior to his dismissal neither followed the principles of natural
justice, nor did it conform with the regulations framed by the corporation
itself under the power conferred on it by the parent statute. The court
noted some of the old English cases and the Tewari case and ruled that a
court would not issue a declaration to enforce a contract of personal
service except when, inter alia , a statutory body "has acted in breach of a
mandatory obligation, imposed by a statute." It further ruled that in viola-
ting a regulation, the corporation could not be said to have acted "in breach
of any mandatory provision of the Act resulting in the order being declared
as void or ultra vires. The non-compliance with the regulations, at the most,
will result in the order of dismissal being wrongful, attracting the normal
rule in such matters of making the appellant liable for damages."17 A few
quick comments on this pronouncement may be in order at this stage.
Firstly, while the court had noted some old English cases, it failed to take
note of the celebrated case of Ridge v. Baldwin which had set a new trend
in judicial thinking in the United Kingdom, and then in the whole of the
Commonwealth, as regards the concept of quasi-judicial.18 Secondly, the
court failed to take note of its own earlier pronouncements, such as, the
Calcutta Dock Labour Board case, the Mafatlal Barot case, or the L.I.C. case,
which have been noted above. Thirdly, the court failed to discuss the nature
of the regulations made by the corporation. As noted above, in the Mafatlal
Barot case, the dismissal of an employee by a statutory corporation was held
to be bad because of its non-conformity with a regulation framed by the
corporation aa well as with the principles of natural justice. Also,
the observations, cited above, made by the court in the LJ.C. case clearly
supported the view that the regulations had a binding effect. The court in

16. A.Ī.R. 1970 S.C. 1244 (hereinafter designated as the Tyagi case).
17. Id. at 1253*
18. Supra note 14. About this case, Wade says : "...the case is án important
landmark and it is already cleať that it has done much to repair the damige which had
been done to audi alteram partem as a general principle."
Administrative Law 185 (2nd ed., 1967). The case has been commented upon very widely
in thô common law world and has been noted and followed in a large number of cases in
India, see supra note 2 at 110.

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6 Journal op thè indián law institute [Voi. is : i

the Tyagi case failed to explain as to why it did not then reg
tions as binding, and why the dismissal of an employee by th
ignoring its own regulation could not lead to a declaration of
as being invalid. Fourthly, the court appears to have take
narrow view of the phrase "mandatory provision" or "statut
used in the Tewari case. The court appears to have thought
expression had reference only to a provision in the parent A
cover delegated legislation made under the Act which, of cou
tenable view to take in the context of the pronouncemen
Supreme Court in the L./.C. case or the Mafatlal Barot cas
court regarded the relationship between the corporation and
more or less 'contractual', while the cases cited above (especia
Barot case and the Calcutta Dock Labour Board case, where the court had
applied the concept of natural justice) had clearly tended to treat it as a
matter of 'status' in so far as it requires that no employee could be dismissed
without observing the principles of natural justice, or a norm laid down
under statutory authority. There is no getting away from the fact that the
Tyagi case was in conflict with the earlier cases, particularly, the Mafatlal
Barot case which was a decision of the Constitution Bench.

Ill

In Indian Airlines Corporation v. Sukhdeo Rai,10 an employee of the


Indian Airlines Corporation, a body set up by an Act of Parliament, was
dismissed by the corporation after holding an enquiry. The employee filed
a suit arguing that the enquiry had been conducted in breach of the proce-
dure laid down in the regulations which the corporation had framed under
section 45 of the Air Corporation Act, 1953, and that, therefore, his dismis-
sal was illegal and void. The corporation argued that the only relief to
which the employee was entitled was damages and that a declaration that
his service be continued should not be granted.
Under section 45 of the Act in question, the corporation was empowered
to make regulations "for the administration of the afFairs of the corporation
and for carrying out its functions", with "the prior approval of the Central
Government", and "by notification in the official gazette". These regula-
tions could not be inconsistent with the Act and the rules made by the
central government under section 44 of the Act.
All the courts up to the High Court rejected the corporation's conten-
tion and accepted the employee's argument and granted the declaration
prayed for. The High Court, in the second appeal, took the view that the
corporation was under a statutory obligation to observe the procedure laid
down in the regulations, and that as this had not been done, the order of

19. A.I.R. I97I S.C. 1828 (hereinafter referred to as the Airlines case).

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Í9Í6] THE légal status of public CORPORATIONS 7

dismissal was illegal and void. When, however, the matter


the Supreme Court on appeal from the High Court, Shelat,
cipated in the Tyagi case,20 delivering the court's opinion t
the regulations in question governing the relationship bet
tion and its employees, though made by the corporation u
conferred by the statute", "merely embody the -terms
service in the corporation but do not constitute a statutor
the kind of contracts which the Corporation can make wi
the grounds on which it can terminate them."21 The co
view that the corporation was not under any 'obligation' t
to the employee. Therefore, although the court accepted t
the enquiry in the instant case was not held in conformity
regulations, nevertheless, it ruled that the remedy for the
lations was only by way of a suit for damages and the
could not be declared to be invalid or inoperative. What
above about the Tyagi case applies mutatis mutandis to
also. Like the Tyagi case, it was also in direct conflict
Barot case and earlier cases.
Considering the Airlines ruling in the administrative law survey, 1971, 22
this author had characterised it as 'very controversial' and 'unsatis-
factory'. It was difficult to appreciate the holding that the regulations made
by a public corporation were not binding. It is true that the bye-laws made
by a co-operative society, or a registered society, or a company registered
under the Companies Act, have been held to be 'non- statutory' or as 'direc-
tions'.23 But, as observed in the annual survey :
A statutory body is not in the same class as a co-operative society.
The courts can issue writs against a statutory body but not against
merely a registered society....Pr/ma facie , therefore, there is no reason
why the regulations made by a statutory body be treated as not
having the force of law, particularly when the regulations are to be
approved by central government and are to be published in the official
gazette.23®
It was noted that in Megna Mills v. Ashoka Marketing Ltd.™ bye-laws
made by a recognised association under the Forward Contracts (Regulation)
Act, 1952 had been held to be mandatory.
In the Airlines case, the court sought to draw a distinction between bye-
laws made by a statutory body affecting the public and those affecting the

20. Supra note 16.


21. Supra note 19 at 1834.
22. VII A.SJJL > 199 (1971)*
23. Co-operative Credit Bank v. Industrial Tribunal , Hyderabad , A.I R. lf/70 S.C. 245;
see also VI A.SJL. 80 (1970).
23a. Supra note 22 at 200*
24, A.I.R. 1971 S.C. 166; see also supra note 22.

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g JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 18 : 1

employees of the body itself and ruled that while the former wou
and enforceable', the latter would not be so. It was submitte
distinction, could not "logically be drawn when the source of po
regulations is one and the same. Bye-laws made by municipal
or universities25 (or port trusts) have been held to be binding. Th
fore, no reason why the regulations made by a statutory corpor
be treated differently even if they affect merely its employees."2
the Airlines case, the law relating to 'directions', and the distin
'directions' and 'rules' had become 'technical and complicated
therefore, made that the "status of the bye-laws made by statuto
tions under statutory authorisation needs to be reconsidered."250
Supreme Court in the Bhagatram case has done so ; it has recons
the status of the regulations framed by the statutory corpo
overruled the Airlines case.
The riddle of the Airlines ruling can be solved if one were t
deeper into the whole matter and try to discern the basic at
judges constituting the Bench. The fact remains that the att
judges was coloured by the concept of 'master and servant' relat
judges imported that concept of private law into the area of pu
ting to statutory corporations. It is well known that, in the pas
law treated the relationship between master and servant as purely
and the remedy for breach of contract could only be damages an
performance. A service contract could not specifically be enf
common law, nor could a declaration or writ be issued for t
Shelat, J., highlighted this rule of common law in the Airlines
following words :

It is a well settled principle that when there is a purported te


tion of a contract of service, a declaration, that the contract of se
still subsisted, would not be made in the absence of special c
tances because of the principle that Courts do not ordinarily
specific performance of service.26
But it is also true that this traditional private law concept has b
a great deal in modern times.27 In India itself, in several areas,
servant concept no longer applies. For example, the area of
management relationship is no longer regarded as purely contra

25. See, Trustees , Port of Bombay v. Premier Automobiles , A.I.R. 1971


25a. Supra note 22 at 200.
25b. Id at 201.
26. Supra note 19 at 1829.
27. See infra, sec. Vll.
28. The jurisdiction which is granted to Industrial Tribunal by the Industrial
Disputes Act is not the jurisdiction of merely administering the existing laws
and enforcing existing contracts. Industrial Tribunals have the right even to
vary contracts of service between the employer and the employees ...
Ço -operative Credit Bank v. Industrial Tribunal Hyderabad , supra note 23 at 253.

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1$16] ŤBÉ LEGAL STATUS OF PUBLIC CORPORATIONS 9

number of restrictions have come to be imposed on the right of


ment to dismiss the labour.29 The employees of the central or s
ment are protected under article 311 of the Constitution.30 In t
municipal corporations, universities, etc., courts freely apply th
natural justice to cases of dismissal of the employees.31 In Sirsi
v. C.K.F. Tellis ,32 the dismissal of an employee by the municipali
of a rule framed by it under statutory power was held illegal and
rules were held binding on the municipality. In Prabhakar R
Jodh v. A.L. Pande ,33 the dismissal of a teacher by a college aff
university was quashed because it was held to violate the "Co
framed by the university concerned which was treated as havin
force.34 In spite of this development in judicial thinking, in the
case, the court still sought to apply the traditional common-law
master-servant to the employees of public corporations and appr
question of status of corporation's regulations through the s
private law. The court ignored not only the erosion of the d
mentioned above, but also that it was not suitable to the area of
that it should be applied strictly to a private employer, that
corporation was not to be regarded as a mere private employ
extension and projection of the state itself, and that the employe
corporations would have no safeguard left if the regulations of
regulating the service conditions of their employees were treate
'directory' and not mandatory in nature, fhe Airlines case w
only logically unsound but it also failed to appreciate the developi
porary trends in the area of public law and clung to the worn-o
of common law which had already lost much of its validity, rele
rationale in modern times.

IV

The Oil and Natural Gas Commission was established by th


Natural Gas Commission Act, 1959 ; the Life Insurance Corporat
Life Insurance Corporation Act, 1956 and the Industrial Finan
tion by the Industrial Finance Corporation Act, 1948. Each of th

29. East India Hotels v. Their Workmen , A.I.R. 1974 S.C. 696; I.E. & C.
Kapur , A.I.R. 1974 S.C. 1629.
30. Supra note 3.

31. Bool Chand v. Chancellor , Kurukshetra University , A.I.R. 1968 S.


Jain and S.N. Jain, supra note 2 at 110; S.N Jain, Wrongful Dismissal of
-Judicial Remedies Available to Him, 6 Jour, of Const, and Pari. Studies 1 at
32, A.I.R. 1973 S.C. 855.
33. (1965) 2 S.C.R. 713.

34. Also see Vai s h College v. Lakshmi Nar ay an i A.LR. 1974 All. 1,

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10 JOURNAL OF THE JNDĪAN LAW 1NST1ŤUTÉ (Vol. 18 : 1

tes creates a two-tier system of delegated legislation. Firstly, the


government is given power to make rules to give effect to the provis
the Act34" and, secondly, each corporation lias been given power t
regulations.35 The Oil and Natural Gas Commission and the Life In
Corporation can make regulations with the previous approval of the c
government by notification in the official gazette. The Industrial
Corporation can make regulations with the previous approval of the I
trial Development Bank. The regulations could not be inconsistent wit
Act and the rules made thereunder. The regulations could provide
alia, for the terms and conditions of appointment and service, scales
etc., of the employees of the corporation concerned. In the Bhagatram
the corporations contended, as had been done earlier in the Airline
that the regulations made by them laying down service conditions af
matters of internal management ; that the regulations had no force o
but were binding only as a contract because the employment of each em
was contractual. The employees, on the other hand, argued that the r
tions were made under statutory provisions and were, therefore, 'self-b
in character', and that the regulations had the force of law inasmuch
statutory authorities had no right to depart from them.

Ray, C.J., delivering the majority opinion,36 upheld the contentio


the employees. He adopted a simplistic and straight forward app
and applied the first principles of administrative law relating to dele
legislation87 with a view to ascertaining the nature of the regulations
by the corporations. He pointed out that "Rules, Regulations, Sc
By-laws, orders made under statutory powers are all comprised in de
legislation."38 Delegated legislation was made by a person or body by
of the powers conferred by a statute and, if validly made, it had the fu
and effect of a statute. The powers of statutory bodies were derived,
trolled and restricted by statutes which created them and the rules and
regulations framed thereunder. "Any action of such bodies in excess of their
powers or in violation of the restrictions placed on their powers is
ultra vires. The reason is that it goes to the root of the power of such
corporations and the declaration of nullity is the only relief that is granted
to the aggrieved party."39 There was no substantial difference between

34a. See ss. 31, 48 and 42 respectively of the relevant Acts.


35. See ss. 32, 49 and 43 respectively of the relevant Acts.
36. Ray, C.J., and Chandrachud and Gupta, J J.
37. M.P. Jain and S.N. Jain, supra note 2 at 21-101*
38. Supra note 1 at 1336. Taking of the use of the different terminology, order, rule
or a regulation, Allen observes, "In any case, the distinction is one of name rather than of
substance, since there is no difference in actual legal validity between these variously named
sub-laws" : Law and Orders 92 (1965).
39. Supra note 1 at 1337.

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1976] THE LEGAL STATUS OF PUBLIC C0BP0RAT10NŚ Í1

'rules' and 'regulations' inasmuch as both were made under po


ferred by the statute and 'rules' and 'regulations' framed in e
statutory power were ultra vires . Therefore, the 'regulations' w
tive. Each of the corporations under its parent statute was em
make regulations defining the terms and conditions of service of
loyees and, therefore, the form and content of the contract b
corporation and its employees was "prescriptive and statutory."4
point, the Chief Justice observed :

The noticeable feature is that these statutory bodies have no


hand in framing the conditions and terms of service of their
loyees. These statutory bodies are bound to apply the term
conditions as laid down in the regulations. The statutory
are not free to make such terms as they think fit and pr
Regulations prescribe the terms of appointment, conditio
service and procedure for dismissing employ ees.... These regul
are not only binding on the authorities but also on the public.4

The Chief Justice ruled that

a regulation is not an agreement or contract but a law bindin


corporation, its officers, servants and the members of the publ
come within the sphere of its operation. The doctrine of ultra
as applied to statutes, rules and orders should equally apply to
regulations and any other subordinate legislation.42

He further ruled that the statutory regulations of the corporatio


employees a statutory status and impose restriction on the emplo
employee with no option to vary the conditions."43 An ordinary
a case of master and servant contractual relationship enforce
contractual terms. The remedy in such contractual relationship
because personal service was not capable of enforcement. But
Justice stated :

In cases of statutory bodies there is no personal element whatsoever


because of the impersonal character of statutory bodies. In the
case of statutory bodies it has been said that the element of public
employment or service and the support of statute require observance
of rules and regulations. Failure to obserye requirements by statu-

40. Id. at 1338

41* Ibid.

42. Id. at 1340.

43. Id. at 1341*

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12 JOURNAL OF THE INDIAN LA W INSTITUTE [Vol. 18:1

tory bodies is enforced by courts by declaring dismissal i


of rules and regulations to be void.44

The Chief Justice thus came to the conclusion that the re


ed by the corporations had the force of law and that "the em
statutory bodies have a statutory status and they are entitl
of being in employment when their dismissal or removal is i
of statutory provisions."45
The Chief Justice considered further whether a statutor
could be regarded as a 'state' within the scope of article 12 o
tion.46 He referred to Rajasthan State Electricity Board v
which the Supreme Court had held that an 'authority' is a p
trative agency or corporation having quasi-government
authorised to administer a revenue-producing public ent
case the court had ruled further that the expression "other
article 12 of the Constitution included all constitutional or
rities on whom powers were conferred by law. The circums
statutory body was required to carry on some activities
trade or commerce did not indicate that it should be exclude
of the word 'state'. The Chief Justice adopted the following
the Halsbury's Laws of England :

A pubic authority is a body. ..which has public or statutor


perform and which performs those duties and carries out
tions for the benefit of the public and not for private p
an authority is not precluded from making a profit for
benefit....47"

The Chief Justice then proceeded to analyse the statu


relating to each of the corporations in question. The Oil
Commission has been established for developing the petrole
the country. The commission has to discharge such function
conferred on it by the statute and may be assigned to i

44. Ibid.
45. Id-aX 1348.
46. Art. 12 of the Indian Constitution tuns as tollow : "In this Part, unless tne
context otherwise requires. 'the state' includes the Government and Parliament of India
and the Government and the Legislature of each of the States and all local or other autho-
rities within the territory of India or under the control of the Government of India. The
expression "In this Part" in this definition refers to part III of the Constitution entitled
fundamental rights.
47. A.I.R. 1967 S.C. 1857. -

47a. 30 Halsbury's Laws o] England p. oo¿, para ļiuru cu., iw/, w


Supra ûote 1 at 1342.

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1976] THE LEGAL STATUS OF PUBLIC CORPORATIONS 13

government from time to time. Members of the commissio


by the central government and if any member wants to
submit his resignation to the government. The funds of
comes from the central government. It can borrow money
approval of the central government and its budget is to be in such
form as may be prescribed by the government. The commission's accounts
are to be audited by an auditor appointed by the Comptroller and
Auditor-General of India and the reports are to be sent to the central
government which has to lay them before Parliament. The commission is
empowered to enter upon any land or premises for the purpose of lawfully
carrying out works and it can be dissolved only by the central govern-
ment. The Life Insurance Corporation has been created to effectuate the
government policy of nationalising the life insurance business. All the assets
and liabilities of the erstwhile insurance companies were transferred to it. In
the discharge of its duties, the corporation is to be guided by directions issued
by the central government in respect of matters of policy involving public
interest. The audit reports, etc ., of the corporation are to be laid before Parlia-
ment by the central government ; its members are appointed by the central
government and if it makes any profit, it has to go to the government. Policies
issued by the corporation are guaranteed by lhe central government which alone
can place the corporation into liquidation. As regards the Industrial Finance
Corporation, the central government exercises several powers. The corporation
is to furnish to the government an annual report of its assets and liabilities which
is to be laid before Parliament. The corporation can be placed in liquidation
only by an order of the central government which has the power to supersede
the managing board of the corporation and appoint a new interim board until
a properly constituted board is set up. There are several other aspects of the
functioning of the corporation controlled by the central government. The
corporation itself has some coercive powers, e.g., if any industrial undertaking
defaults in meeting its liabilities to it, the corporation has a right to take over
the management and possession of the undertaking concerned. Each of the
corporations also enjoys several privileges which an ordinary company does
not enjoy, e.g., each corporation enjoys protection of action taken under
the Act.

On the basis of the analysis of the provisions of the various statutes


creating the corporations in question the Chief Justice characterised them
as "authority and agency of the Central Government," or that "the voice
is that of the Central Government," or that the "corporation is in effect
managed and controlled by the Central Government." The Chief Justice
also ruled that the power to make rules or regulations and to administer or
enforce them, "would be one of the elements of authorities contemplated in
Art 12." The corporations were, therefore, declared to be 'authorities' within
the meaning of article 12 of the Constitution.
Mathew, J., concurred with the majority in a separate, thoughtful,
opinion. His opinion is marked by a scholarly analysis of the nature of the

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14 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 18 : 1

modern state and he has examined the nature of the public corpo
some depth. Referring to Bhargava, J.'s observation in the Rajast
city Board case4* that if any body of persons had authority to issu
the disobedience of which would be punishable as a criminal of
would be an indication that that authority was 'state', Mathew, J
himself to the larger question : Whether a corporation, like the Li
Corporation or the Industrial Finance Corporation, which
under a statute to carry on a business of public importance
which was fundamental to the life of the people, could b
as 'authority' under article 12 of the Constitution when it ha
to issue binding directions to third parties, the disobedience o
would entail penal consequences ? Mathew, J., pointed out that th
of state had undergone drastic changes in recent years and the 's
was to be viewed as a 'service corporation' and not simply as
machinery'. This was evidenced in India by the directive pr
state policy in the Constitution of India,49 which gave "a pic
services which the state is expected to undertake and render for the
welfare of the people." Article 298 of the Constitution extends the executive
power of the centre and the states to any business or trade. The 'state' can
only act through the instrumentality or agency of natural or juridical persons.
''Therefore, thtere is nothing strange in the notion of the state acting through
a corporation and making it an agency or instrumentality of the
State."50 The public corporation has thus emerged into a third arm of the
government. "In so far as public corporations fulfil public tasks on behalf of
government, they are public authorities and as such subject to control by
government " 51

Mathew, J., then emphasized that the Indian Constitution was framed on
the theory that limitation should exist on the exercise of power by the state.
The essential problem of liberty and equality is one of freedom from arbitrary
restriction and discrimination whenever and however imposed. He, therefore,
enunciated a very salient principle :

The Constitution, therefore, should, whenever possible, be so cons-


trued as to apply to arbitrary application of power against indivi-
duals by centres of power. The emerging principle appears to be
that a public corporation being a creation of the State is subject to
the constitutional limitation as the State itself. The preconditions
of this are two, namely, that the corporation is created by State,

48. Supra note 47.


49. Arts. 36 to 51 of the Indian Constitution.
50. Supra note 1 at 1350.
51. Id. at 1351.

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1976] THE LEGAL STATUS OF PUBLIC CORPORATIONS 15

and, the existence of power in the corporation to invade


constitutional right of individual.52

He thus expounded the eternal principle of modern democrat


ment : "The governing power wherever located must be sub
fundamental constitutional limitations."520 Applying this princip
corporations, he concluded that they should be treated as 'agenc
trumentalities' of the 'state' and, therefore, 'state' within articl
Constitution, because of their following characteristics : the or
of the corporations was contributed by the central government ;
profit went to that government ; the central government exercised c
the policy of the corporations ; the corporations carried on a busin
public importance and enjoyed a monopoly in the business. A
Mathew, J., the fact that "these corporations have independent p
in the eye of law does not mean that they are not subject to th
the government or that they are not instrumentalities of the gov
He elucidated this point further in the following words :

The fact that the agent is subject to the direction of the pri
does not mean that he has no legal personality of his ow
Likewise, merely because a corporation has legal personality
own, it does not follow that the corporation cannot be an ag
instrumentality of the state, if it is subject to control of governm
in all important matters of policy.54

It is necessary at this stage to underline one significant


Mathew, J.' s opinion. While in the instant case, the question sp
related to the nature of public corporations vis-a-vis article 12,
judges' observations are so wide in scope that they can plau
interpreted to cover not only public corporations as such, but e
ment companies and other non- statutory government undertaki
to these bodies as well the character of 'authority' under article 1
has been considered at some length later in this paper. 54a

On the other question, namely, the binding nature of the re


he substantially agreed with the conclusions reached by the Chi
He emphasized that the common law principle of master and
incompatible with the modern, large and impersonal corporate

52. Ibid.

52a. Id. at 1352.

53. Id. at 1356.

54. Id. at 1357.

54a. See infra sec. VI.

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16 JOURNAL OF THE INDIAN LA W INSTITUTE [Vol. 18 : 1

conducting large-scale government enterprises. Mathew, J.,


put the matter in the right perspective as regards the n
corporations. As instrumentalities of the government, these
claim freedom from the restraints to which the government itself was
subject.
Alagiriswami, J., in his dissenting opinion adopted practically the same
approach as had been adopted by Shelat, J., in the Airlines case. Accord-
ing to him, "service or employment is basically a contract which is deeply
rooted in private law" and, therefore, regulations standardising or formulat-
ing conditions of service cannot be regarded as having statutory force.
According to him, the character of the regulations "is further diluted by
the nature of the subject-matter covered by them." The regulations dealing
with service conditions could not, therefore, be treated as having statutory
force since employment was a contractual matter, and breach of these
conditions could not be regarded as a breach of a statutory provision.55
Alagiriswami, J., thus approached the question of the nature of regulations
from the angle of their subject-matter. This approach, it is submitted, is
hardly tenable. It is difficult to accept the argument that merely because
the regulations deal with service matters, they become the less binding than
if they were dealing with any other matter. The essential point to under-
line here is that regulations are made under statutory power. They should,
therefore, have the force of law irrespective of their subject-matter. It has
never been argued so far that if the 'rules' made by the government deal
with the terms and conditions of service, they would not have statutory force
because employment is contractual. If, therefore, 'rules' have a statutory
force irrespective of their subject-matter, so should the 'regulations' as
logically it is hard to distinguish between 'rules' and 'regulations' as both are
made under statutory authorization. The only difference is that 'rules' are
made by the government and 'regulations' by the corporation, but this
should hardly be of any significance because the source of power is one and
the same statute in both cases.

Alagiriswami, J., further argued that the regulations made by a statutory


public corporation stood on the same footing as the rules and regulations
framed by a company registered under the Companies Act.56 This argument
also, it is submitted, is hardly tenable. It is difficult to accept the position
that a statutory corporation stands on the same footing as any company
incorporated under the Companies Act. Public corporations form a distinct
class by themselves. For setting up such a corporation, the concerned legis-
lature has to enact a specific statute and the corporation functions within
the framework of the specific statute giving life to it. It discharges a func-
tion on behalf of the state and, therefore, the state has an intimate interest

55. Supra note 1 at 1367.


56. Id. at 1368.

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19761 THE LEGAL STATUS OF PUBLIC CORPORATIONS 17

in its working, A company, on the other hand, is the


enterprise without any sort of governmental enterprise
difficult to treat a public corporation on a footing pari
pany. Ray, C.J., very convincingly met this point thus :

The source of the power for making rules and regulat


case of Corporation created by a statute is the statu
company incorporated under the Companies Act is not
the Companies Act but comes into existence in accord
provisions of the Act. It is not a statutory body becau
created by the statute. It is a body created in accordan
provisions of the statute.57

Alagiriswami, J., referred to Kruse v. Johnson** a ni


English case, in which the Queen's Bench Division was cal
whether a bye-law made by a county council was invalid
unreasonableness. Before deciding the question, Lord Rus
ing the nature of a 'bye-law', stated that it was

an ordinance affecting the public, or some portion of


imposed by some authority clothed with statutory pow
something to be done or not to be done, and accompan
sanction or penalty for its non-observance.... Further,
this consequence - that, if validly made, it has the
within the sphere of its legitimate operation.580

Contrasting the regulations with the above observation


J., stated that the regulations "apply only to the employ
tion. They do not affect the public or any portion of the
order something to be done or not to be done accompanie
or penalty for its non-observance."59 A similar argument
J., in the Airlines case as well.60 But Lord Russell's state
can hardly be used to deny the force of law to the r
Russell was merely trying to explain in a general wa
bye-law and not lay down a binding norm applicable to a
tions. His emphasis really was on the later part of his ob
if validly made, the bye-laws had the force of law. In
being considered in the Kruse case aré comparable to the 'r
phraseology and it has never been suggested that a 'ru

57. Id. at 1339.


58. (1898) 2 Q.B. 91.
58a. Id. at 96.
59. Supra note 1 at 1372.
60. Supra note 19.

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is JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 18 : 1

employees would not have the force of law. In the Sirsi Municipal
on the other hand, a rule made by a municipal body (comparable
law in the Kruse case) applicable to the municipal employees was h
ing on the municipality by the Supreme Court. Even on technical
'employees' constitute ťa part of the public' ; the authority making
lations is 'clothed with statutory powers.' Generally speaking, if r
made by a corporation are not observed by the employees, it may
disciplinary action being taken against them and there is 'sanction
But the matter needs to be looked at not in technical terms but in a wider
perspective and it does not appear to be proper to think always in terms of an
'imperative theory of law', in terms of 'sanctions' or 'punishments' or 'penal-
ties' for breach of law. This narrow view of law has been criticised by many
modern jurists.
Alagiriswami, J., took a restrictive view of the scope of article 12
of the Constitution. He sought to interpret it in the sense of a 'local
authority' and, in this connection, referrred to the definition of the term
'local authority' as given in the General Clauses Act. He also argued that
none of the corporations exercised the power of the 'state' and so it could
not be treated as a 'state' or 'authority' for the purposes of article 12. Accor-
ding to him, "in order that an institution must be an 'authority', it should
exercise part of the sovereign power or authority of the state."62

A few comments arising out of the above-mentioned judicial observations


concerning the scope of article 12 may be made at this stage. It is submitted
that the observations of Alagiriswami, J , ignore the full logic of article 12.
Article 12 uses the words "all local or other authorities". The word 'or' should
be read as a disjunctive and, therefore, the expression 'other authorities' in
article 12 should not be read merely in the same sense as 'local authorities', but
should be given a wider connotation. The purpose of article 12 is to give an
extended significance to the term 'state' for the purpose of application of the
fundamental rights under part III of the Constitution and there is no reason
why its scope should be curtailed or that it should be narrowly interpreted.
To the extent it is logically possible, authorities created by the state which
seek to affect the fundamental rights of the people should be brought within
the scope of article 12. At any rate, bodies created by statutes must be com-
prised within the scope of article 12. Many bodies, such as universities, have
already been treated as authorities and, in principle, there appears to be
hardly any difference between a 'university' and a 'public corporation' from
this point of view. A public corporation is being increasingly used as a
modern administrative technique through which the state seeks to discharge

61, Supra note 32.


62. Supra note 1 at 1369.

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1976] THE LEGAL STATUS OF PUBLIC CORPORATIONS 1$

a large number of functions and such bodies should not be given imm
from judicial control or restraints arising out of the fundamental righ
of the Constitution if rights of the people are injured by them. When a
ture enacts a law to set up a corporation, appropriates public money t
assigns a monopoly to it of an undertaking, and confers various other p
on it, it appears difficult to argue that such a body does not exercise po
the state. In a large number of cases, the High Courts have issued wri
such bodies treating them as 'authorities' under article 226. On this po
Mathew, J. 's thesis that public corporations be treated as 'instrument
of the state and, therefore, 'authorities' irrespective of the fact whethe
have power to issue directions, the disobedience of which would be pun
as a criminal offence, is more convincing and opportune.

Alagiriswami, J., referred to the English cases, British Broadca


Corporation v. Jones ,63 and Tamlin v. Hannaford,6* in support of his
that a statutory commercial corporation could not be treated as 'autho
for purposes of article 12. It is submitted that the United Kingdo
nothing like article 12 and, therefore, prima facie, English cases a
relevant or germane to the point at issue. Nevertheless, a close l
these cases would show that they hardly give countenance to the
argument. In both these cases, the point involved was whether sta
bodies could be deemed to be the agents of the Crown, and not wh
these bodies were 'authorities' or not. In the British Broadcasting Corpo
case, the court ruled that the corporation which was chartered by the C
could not claim immunity in respect of its income from the income-tax
was available to the Crown because, the corporation was an auton
body and could not be treated as the Crown's agent. Similarly, in
Tamlin case, it was held that the British Transport Commission, a stat
body, was not a servant or agent of the Crown and, therefore, cou
claim for its property, as the Crown property could, exemption from
Rent Restrictions Act and that its property would be as much subject
ordinary law of the land as the property of any other person. These c
therefore, only lay down that a statutory corporation may not be tre
an agent of the government creating it unless the relevant statute give
indication to that effect. It is also axiomatic that such a corporation h
autonomous character and a distinct personality of its own. But the re
question to consider is whether such a body can be regarded as an 'autho
under article 12. The relationship of master and servant between the s
tory body and the government is not a necessary element for treating
body as an 'authority' for purposes for article 12. Many administr
bodies which are not agents of the government have been held t
authorities both under article 12 as well as article 226. For exa

63. [1965] Ch. 32.


64. (1949) 2 AU E.R. 327.

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20 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 18 : 1

ćases have been cited above where writs were issued to such bodies
as the Dock Labour Board, the Road Transport Corporation, etc . Simil
local government units, like district boards or municipal corporations,
created by state governments, are not regarded as the 'agents' or the 'se
of the parent governments, and yet these bodies are regarded as 'auth
Lastly, it is interesting to note that in the Tamlin case, Denning,
characterised the Transport Commission as a 'public authority',65 sayi
"It is, of course, a public authority, and its purposes, no doubt, are pu
purposes." These cases do not, therefore, clinch the issue that a
corporation is not an authority. On the other hand, the Tamlin case le
support to the view that such a body may be treated as an 'authority'.

This appears to be the right place to enter into a caveat with respe
some of the observations made by Mathew, J., in his admirable op
He characterised these bodies as 'agents or instrumentalities' of the go
ment creating them. Tt is, however, submitted that the word 'instrum
tality' denotes the position of public corporations much more accu
than the expression 'agent'. The same comment would apply to the ma
opinion delivered by the Chief Justice in so far as it also describe
corporations as 'agencies' of the central government because of the pe
range of control exercised by it over them.65a Juristic thought nowher
treats such bodies as 'agents' of the parent government, nor is it nece
to hold so for the purpose of treating any of these bodies as 'authority
article 12. As Wade points out :

The legal relationship of master and servant demands that th


master shall have complete control of what the servant does. This
test is not satisfied, in the case of public corporation, merely becaus
the minister may appoint and dismiss the members, or give direc-
tions 'of a general character', or (probably) because he can give any
kind of directions.86

In India also, so far the judicial thinking has been not to treat public
rations as 'agents' or 'servants' of the government creating them
position is as well established in India as it is in the United Kingdo
Bhagatram case does not question this proposition nor should Mathew,
observations be taken to dilute it in any way. The preferable wa
characterise a statutory corporation will be that it is an administ
instrumentality of the concerned government, having its own personali
assigned sphere of action. It is not necessary at all to hold furthe
there also exists between them the relationship of master and serv

65. Id. at 329.


65a. See supra note 1 .
66. Supra note 18 at 39.

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1976 J THE LÉGAL STATUS OF PUBLIC CORPORATIONS 2Í

can be regarded as an 'authority' without importing the private law


of 'agency' as well. In this connection, it will be in order to ref
American case, McCulloch v. Maryland ,67 in which a bank inco
under an Act of Congress was held to 1>e an instrumentality of the
States government for the application of the doctrine of immunity o
mentalities.

To treat a public corporation as an 'authority' under article 12 w


treating it as an 'agency' of the government will avoid some an
complications. Such a corporation cannot then automatically cl
advantage of any exemption in its favour which is granted by a sta
the government. For example, thè propositions stated in the tw
cases cited above will remain valid in India as well, viz , a corporatio
claim for its property the same immunity as is available to the gov
nor can it claim exemption from taxation for its income. Furth
Ray, C.J., and Mathew, J., made it expressly clear that by hold
public corporation as an 'authority' for purposes of article 12, it
follow that the employees of such bodies will become government e
for purposes of article 311. 68 In -Dr. S.L. A garyval v. General Man
Hindustan Steel Ltd .,69 it was held that the employees of a gov
company are not employees of the government and so they cannot c
benefit of article 311. This proposition remains valid even if
corporation is treated as an 'authority' and hence a 'state' under art
This will not convert its servants into government servants, for th
'state' is used in part XIV of the Constitution in a narrower sense a
ing the 'central' or 'state' government, while the word 'state' in artic
been used in an enlarged sense. Therefore, to hold a corporation as
under article 12 does not necessarily make it a 'state' for purposes of
308 to 323.

A few other cases cited by Alagiriswami, J., in support of his thesis that
a public corporation is not an 'authority' do not appear to be germane to the
point. For example, in Heavy Engineering Mazdoor Union v. State of Bihar ^

67 ģ 4 Wheat. 316 (1819). For a discussion on the doctrine oi immunity of instru*


mentalities, see supra note 3 at 358-360. It is to be noted that for purposes o* this doctrine,
courts do not draw any distinction between the government and its instrumentalities even
though the latter may be statutory corporations having their distinct personalities. For
the purposes of 'immunity' doctrine, a government and its statutory bodies are treated alike*
The idea is that not only a government, but even its instrumentalities, should be left free to
carry on their own functions without interference by the other goverameni. There is, thus,
no conclusive argument against treating a statutory body, having its own distinct persona-
lity, as an instrumentality 9 of the government and thus an 'authority' under article 12 oi
the Constitution of India.

68. Supra note 1 at 1348, 1357«


69. A.I.R. 1970 S.C. 1150

7Q. A.I.R. 1970 S.C. 82.

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H JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 18 : i

it was held that a central government company was not an agent of th


government and, therefore, an industry run by it cannot be regarded
industry carried on by or under the authority of the central governm
Therefore, the appropriate government to refer an industrial dispute in
an enterprise for adjudication was the state government and not the ce
government. This proposition remains valid even when a statutory corp
tion is held to be an 'authority' as it does not render it ipso facto an 'ag
of the central government. In Gurushantappa v. Abdul Khaddus ,71 it wa
that an employee in a government company owned by the government di
hold an 'office of profit' under the concerned government. This ruling h
bearing on the status of public corporations as 'authority' under article
The proposition laid down in Gurushantappa will not be affected in the
bit by holding a public corporation as an 'authority' and its servants wi
come to hold an 'office of profit' under the government. Several other
have been cited but they relate to 'government companies' registered und
Companies Act and do not refer at all to statutory corporations. These
merely lay down the principle that a government company cannot be tre
as an 'agent' of the government which creates it. In none of these cases
it been considered whether a statutory body can be regarded as an 'autho
urider article 12. It has already been emphasized above that it i
necessary to characterise a body as an 'agent' of the government holding
an 'authority'. The two are entirely unrelated and distinct concepts.

Alagiriswami, J., stated in his opinion that an institution to b


'authority' should exercise4 'part of the sovereign power or authority o
State."72 He further stated : "The distinction between governmental func
and commercial functions is, therefore, clear enough. Even in the U
States of America this distinction is clearly kept in mind."73

This raises the following questions : Can a rational distinction be dra


between 'governmental or quasi-governmental' function and 'non-go
mental' function exercised by the government ? Can a 'commercial' fun
discharged by the government be treated as a 'non-governmental' function
all purposes ? To answer the last question first, it is well established
when a 'commercial' function is exercised through a department, it doe
cease to be a governmental function for all purposes. For example, when
central government runs railways departmentally, the employees engag
funning railways are all considered to be government servants and are ent
to the protection of article 3 11. 74 The difficulty in separating 'governm

71. A.I.R. 1969 S.C. 744.


72« Supra note 1 at 1369.
73. Ibid.

74. See Parshottam Lcl Dhirgra V. UrJcn of hdia, A.l.R. 1958 S.C. 36: Moti Ram
V. NĶF . Rty., A.l.R. 1964 S.C. 600,

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1976] THE LEGAL STATUS OF PUBLIC CORPORATIONS 23

from 'non-governmental' functions in the modern times wil


necessary to do so, to find a suitable test to adjudge as to w
mental or quasi-governmental function. Should the concept
functions be related to the functions as were carried out by
eighteenth century or the nineteenth century, such as, defence,
maintenance of law and order, etc. ? Obviously, it is not poss
the concept of a modern state. Mathew, J., has discusse
role of the modern activist state and has referred to the view
political thinkers for the purpose. It is, therefore, subm
appears to be no substance or reality underlying the dist
'governmental' and 'non-governmental' function. There is, h
saying the fact that the courts do at times resort to this fic
But the point to underline here is that if they do so, they
to achieving certain preferred end results. For example, in
of governmental tortious liability, the distinction is drawn b
and non-sovereign functions so as to decide whether the gov
held liable for a tortious action of its servants.75 As has
where,7* in this area, the courts have over the time been holding
functions as 'non-sovereign' because the courts have an end re
increasing the scope of state liability for torts committed by its
comes necessary for the courts to adopt such a fiction becau
in this area is a historical anomaly, extremely archaic, and
with the changing times and the òourts are faced with the pr
an obsolete law somewhat viable in modern conditions wher
tions on a large canvas and thus there are vast occasions of in
being infringed by actions of government servants. Accordingly
do justice to the individuals by adopting the fiction of decl
undertaken by the government as 'non-sovereign', and limi
of 'sovereign' function, as far as possible, to the functions
state during the nineteenth century. But, as against this
matter of issuing writs under article 32 or 226, a distinction bet
and 'non-soveign' functions becomes irrelevant, for the judic
with the definite purpose of expanding state tortious liability
writ jurisdiction, will result in many individual grievances g
Take another example, in India, while article 285 exempt
the central government, irrespective of the use to which it
from state taxation, article 289 exempts from central gove
only that income of the states which does not accrue to them
cial enterprises. The implication here is that while, ordi
business' carried on by a state could have been regarded as a
and thus be entitled to exemption from the central governm
a possibility is now ruled out. The policy of the Constitution

75. Supra note 2 at 468-475; supra note 3 at 740. Also, VILI A.S.I.
76. Supra note 3 at 358.

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24 JOURNAL OF THE INDIAN LA W INSTITUTE [Vol. 18 : 1

central taxing should not be crippled by the states expanding their


activities and then claiming exemption from central income-t
crippling the central taxation, it will also lead to an unfavourable c
between private enterprises and state enterprises. But article 2
possibly be used to argue that there is essentially a dichotomy
'commerciar and 'governmental' functions for all purposes. Articl
specific object in view and its operation should be limited to t
only.

It is true that in the United States of America, in some cases, a distinc-


tion has been drawn by the Supreme Court between 'governmental' and
'commercial' functions. Alagiriswami, J., referred to this point and cited
New York v. United States 77 and a few other American cases, to buttress his
thesis that a statutory commercial corporation could not be regarded as
'authority' because it exercises a 'non- governmental' function. The real
position, however, is that the American cases in which such a distinction has
been drawn have a definite purpose in view. These cases relate to the area
of the doctrine of 'immunity of instrumentalities.' There was a time in the
United States of America when the doctrine was given a very broad scope
and activities of one government and its instrumentalities were held immune
from taxation by the other government.78 Then, a time came when the
courts began to realise that such a wide operation of the doctrine was not
only unduly restricting the taxing powers of the governments, but also
creating a privileged class of people who did not pay taxes to the government
without, at the same time, conferring any raciprocal benefit on it. The court
also became exercised over the prospect of lederial government's taxing powers
being curtailed too much if the states were to expand their commercial
activities and claim exemption for all such activities from the federal taxation.
Thus, there started a judicial effort to limit the breadth of the 'immunity'
doctrine vis-a-vis the states. Therefore, in South Carolina v. United States ,79
the Supreme Court drew a line of distinction between taxation by the federal
government of the ''historically recognised governmental functions of a
State", and "business engaged in by a State of a kind which theretofore had
been pursued by private enterprise." In New York v. United States ,80 the
U.S. Supreme Court denied the claim of the state for immunity from federal
taxation in respect of sale of bottled mineral water by a New York stale
public benefit corporation. Thus, by distinguishing between the so-called
'governmental' and 'commercial' functions of ihe states, the court was able
to bring the states' commercial activities within the scope of federal taxation*

77. 326 U.S. 572 ( 1 946)*


78. Supra note 3 at 358-60,

79. 199 U.S. 437 (1905),


f $J* Supra not« 77*

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J 976 J THE LEGAL STATUS OF PUBLIC CORPORATIONS 25

In fact, in this case, two dissenting judges, Douglas and Black,


against this judicial approach of the majority. They emphasiz

A State's project is as much a legitimate governmental


whether it is traditional, or akin to private enterprise, or c
for profit.... What might have been viewed in an earlier d
improvident or even dangerous extension of state activi
today be deemed indispensable... any activity in which
engages within the limits of police power is a legitimate
mental activity.... Each is an exercise of its power of sover
none would concede that the sovereign powers of the State
limited to those which they exercised in 1787.80"

However, the fact remains that when the majority of the


Court drew a distinction between 'sovereign' and 'commercial'
the states, they had a definite policy in mind, viz, that the central
should not be unduly curtailed. These cases cannot be rega
down an eternal rule that there is an immutable distinction, f
between governmental and commercial functions. It is submitt
cept or norm from one jurisprudence should not be applied to
prudence mechanically, without appreciating its underlying poli
In fact, the observations of Douglas and Black, JJ., denote tha
^ the United States are not happy at the distinction being drawn
mercial' and 'governmental' functions. It only goes to show th
real dichotomy between the various functions exercised by th
and if the courts adopt any such distinction, they do so to ach
ferred objective. There is no justification to transplant any su
in India for purposes of article 12 so as to deny the status of
the statutory bodies. In India, the preferred value to achiev
control over the newly- emerging and diversifying instrumenta
corporation which is achieved by characterising them as 'auth
article 12. Only by doing so, they are brought within the
fundamental rights part of the Constitution. These bodie
powers and immense potentialities to injure the rights of the
not merely a question of regulating the rights of the empl
these corporations, but that of the rights of the people wi
come into contact during the course of their operation. To ke
of the fold of article 12 is to give them a licence to ride rough
rights of the people without any control. In India especiall
justification for distinguishing between 'commercial' and other
under article 298, the executive power of the centre and the s
extended "to the carrying on of any trade or business." Th

80a. Id. at 591, 596.

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26 JOURNAL OF TBE INDIAN LAW INST1TVTÉ [Vol. 18 : 1

provisions in the Constitution where 'state' and 'corporation'


treated on the same footing.81

The truth remains, as has been noted by Mathew, J., that public
tions depict a new growth and cannot be fitted neatly into already
concepts. A new jurisprudence has to , evolve around these bo
position will be adequately met if all statutory bodies are treated a
ties' within the fold of article 12 irrespective of the nature of
assigned to them. The public corporations may be regarded as
distinct personality of their own so that their identity does not m
the government creating them ; nor is it essential to treat them as t
of the parent government. These bodies have their own functions to
and they do so subject to the control of the government but not n
as its agent. The regulations made by such a body, being statutory in
should be regarded as binding on the corporation itself, on its emplo
on all those who deal with it. This formulation appears to meet the
adequately.

VI

The submission made above that a statutory authority should b


as an 'authority' under article 12, without requiring it to fulfil the
being an 'agent' of the government, now finds support from anothe
of the Supreme Court in Sabhajit Tewary v. Union of India82 (a sim
ment as in the Sukhdev Singh case). The Council of Scientific and I
Research is registered as a society under the Societies Registration
Prime Minister is its ex-officio President. Its governing body co
inter alia, some persons appointed by the central government, repr
the ministry under which the council falls and the Ministry of
and one or more members appointed by the Government of India.
The government is empowered to terminate the membership of any or all
the members at any time. The governing body has the right of managing the
affairs of the council and to frame bye-laws with the sanction of the Govern-
ment of India. All these provisions are made in the rules applying to the
council. Under the Government of India (Allocation of Business) Rules,
1961, the council falls under the Department of Science and Technology.
The question was whether the council could be regarded as an authority under
article 12. It was argued, on the basis of the features of the council
mentioned above, that the council was really an 'agency' of the governine
The judges constituting the Bench were those who sat on the Bench deciding
the Bhagatram case. The Chief Justice delivering the unanimous opinion of

81. See, for example art. 31 (2 A) and art. 19 (6) (ii) of the Constitution«
82. A.I.R. 1975. S.C. 1329.

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1976] THE LEGAL STATUS OF PUBLIC CORPORATIONS 27

the court, rejected the contention characterising it as 'unso


argument was :

The Society does not have a statutory character like the


Natural Gas Commission.... It is a society incorporated in ac
with the provisions of the Societies Registrasion Act.82a

The features of the council, mentioned above, according to t


not establish anything more than
the fact that the Government takes special care that the pro
guidance and co-operation of scientific and industrial resear
institution and financing of specific researches... the ut
of the result of the researches conducted under the auspice
Council towards the development of industries in the count
carried out in a reasonable manner.82"

The court then referred to the several cases in which it had been held
that the employees of the government companies registered under the Com-
panies Act did not enjoy the protection of article 311. The companies were
held in those cases to have an existence independent of the government and
not as 'departments' of the government.88 The council was thus held to be
"not an authority within the meaning of Art. 12 of the Constitution".
The implication of the above pronouncement is clear : a non-statutory
body is not an 'authority', howsoever pervasive the government control over
it. From this premise, it can plausibly be argued in the reverse direction
that a statutory body is an 'authority', and the question of government
control over it is irrelevant. It has been submitted above that that should be
the law so that the scope of article 12 is not unduly curtailed and the large
number of statutory bodies which are created in modern times are not freed
from the constraints of fundamental rights. This norm will also avoid confu-
sion and complication which may otherwise arise if such questions are raised :
Whetí can a statutory body be regarded as an 'agency' of the government ?
How deep, pervasive or wide should be the 'control' exercisable by a govern-
ment over a statutory body, or what should be the relation between the two
to make the corporation an 'agency' of the government ? It is common
knowledge that government control is not uniform in range over all statutory
bodies created by it.
A word needs to be said here about the character of 'non-statutory'
bodies created by the government to discharge some functions. The question
is : Should a 'non- statutory' body be regarded as not an 'authority' irrespec-
tive of the pervasiveness of government control over it ? Here the better view

82a. Id. at 1330.


82b. Id. at 1331.

83. See also Praga Toots Corporation v. C.V. Immanuel, A.I.R. 1969. S.C 1306 and
supra notes 69 and 70*

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28 JOURNAL OF THE INDIAN LA W INSTITUTE [Vol. 18:1

appears to be that while, ordinarily, a non-statutory body may not


'authority', there may be circumstances, like the extent of government c
over it, or its intimate relationship with the government, which may m
an 'authority' under article 12. There are several reasons as to why
necessary and prudent to take this view. If 'non-statutory' bodies ar
regarded as 'authority' whatever the circumstances, it will promote a ten
on the part of the government increasingly to adopt the 'non-statu
structure and avoid setting up 'statutory' bodies. This is already happen
to some extent in so far as there is presently a tendency to resort mor
more to 'company structure' for government undertakings rather than
'statutory' structure for them, although both are subject to practically s
government control, perhaps the former is subject to more extensive go
ment control than the latter. The only difference betweeft them is m
form, rather than of substance : the one is set up under a statute and
other is just registered under a general statute. As regards functions, go
ment control, and other aspects of government corporation relationshi
statutory corporation and the government company are practically on th
basis, and yet a government company is treated as not an 'authority', a
statutory corporation is regarded as an 'authority', even thoug
capacity of the former to affect fundamental rights is no less than that
latter.

A reference to the observations ofMathew, J., in the Bhagatram


shows that he was thinking of corporations in the broader sense and n
the narrower sense of 'statutory bodies' merely. Note, for instance
following observation made by him :

Generally speaking, large corporations have power and this power


dofes not merely come from statutes creating them. They acquire
power because they produce goods or services upon which tķe
community comes to rely.... The problem posed by the big corporation
is the protection of the individual rights of the employees. Sugges-
tions are being made that the corporate organisations of big business
and labour are no longer private phenomena ; that they are public
organisms and that constitutional and common law restrictions
imposed upon State agencies must be imposed upon them.84

Justice Mathew referred approvingly to the decisions of the cou


in the United States where the view had been taken that a pr
agency, if supported by public money for its operation, would be 's
when the state exercised some element of control over it. He emphasized
while the state financial aid alone would not render the institution recei

84. Supra note 1 at 1352*

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1976] THE LEGAL STATUS OF PUBLIC CORPORATIONS 29

such aid as a state agency, "Financial aid plus some additional facto
lead to a different conclusion." He then stated : "A finding of state
support plus an unusual degree of control over the management a
might lead one to characterise an operation as state action."85

He also mentioned other tests which miąht indicate a func


public function, e.g., the combination of state financial aid a
furnishing of an important public service ; the function being of s
importance and so closely related to governmental functions as to
fied as a governmental agency, in which case even the absence of st
cial aid might be irrelevant in making it a state action, etc. In
analysis of the concept of 'state' and 'governmental functions', Ma
was guided by the new social welfare philosophy of 'state'. In rega
question whether the three corporations in question could be
'authority' for purposes of article 12, Mathew, J., did not la
stress on their 'statutory character' as on the concept of 'agency
mentality' of the state- a concept which could apply to 'statutory
to non-statutory bodies. There , was thus enough in Mathew, J. 's
to support the proposition that a non- statutory body could be re
an 'authority' if its relationship with the government was such as
terise it as an instrumentality of the government. This line of tho
have had far-reaching impact on the development of administrati
India but, for the present, further development in this direction h
a setback by the Supreme Court's pronouncement in the Sabhaj
Mathew, J., was also a member of the Bench deciding the case, bu
curred in the court's view, without any dissent or demur and wit
rating his views in the Bhagatram case. Anyway, it is submitted t
a 'non-statutory' body stands in such a relation with the governm
be deemed to be its 'instrumentality', it should then be characteri
'authority' under article 12. There is nothing in the phraseology o
12 to militate against this view. It may not be irrelevant in this c
to point out that over time, the courts have been progressively ex
the range of bodies which are subject to the writ of mandamus. T
which may be said to have started with the Praga case86 still cont
is gathering strength.87

VII

There appears to be one more question worth considering here which


has not been raised in the Bhagatram case or the Airlines case but which
%

85. Id. at 1354.


86. Supra note 83.

87. Supra note 2 at 347-50. See also S.N. Jain, Bodies to Which Mandamus can be
Issued, 15 J. I.L.I. lo9 (1973). Also VIII A.S.I.L. 259 (1972) ; IX A.S.I.L. 285 (1973).

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30 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 18 : 1

appears to be not only relevant but of considerable significan


tion is : Whether or not a public corporation will be required
principles of natural justice if it seeks to dismiss an employ
discussion in these two cases centres around the binding natur
lations made by the corporation laying down the procedure
against the employees. In the Airlines case, the court held the
to be non-binding and refused to hold the dismissal of the em
without going into the question whether the employee could i
justice or not.88 In the Bhagatram case, on the other hand, th
were held binding and the dismissal of the employee was held i
of noil-conformity with these regulations.89 But, again, th
applicability of natural justice was not considered by the cour
less, even after the Bhagatram case, the question still remains r
area of corporation-employee relationship, for it may be that
may fail to make a regulation laying down the procedure for in
the employees, or, in the alternative, may make a regulation l
only perfunctory, sketchy or inadequate procedure. In such a
employee of a corporation may have to fall back upon th
natural justice to challenge his dismissal.

Prior to the Airlines case, the courts did apply natural justic
dismissal of an employee by a statutory body as is evident from
Dock Labour Board case90 and other cases.91 Doubts appear
thrown on the viability of these rulings by the Airlines decisi
tenor of Shelat, J.'s opinion impliedly ruled out the applicabili
justice in the circumstances under consideration. As stated abo
approached the matter from the angle of the master-servant r
pure and simple. He specifically cited with approval the P
case, Vidyodaya University Council vģ Linus Silva,92 where it
that a university was not bound to observe the norms of natura
dismissing a professor. The Privy Council went purely by the
concept of master-servant and failed to take note of the new an
initiated by the House of Lords' pronouncement in Ridge v.
the Ridge case, the dismissal of a constable by the watch commi
tory body, without observing natural justice was held to b
Vidyodaya University case has been subjected to much adverse

88. Supra note 19.

89. Supra note 1 .


90. Supra note 10.
91. Supra note 31.
92. (1964) 3 All E.R. 865.
93. Supra note 14. See also supra note 2 at 110

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1976] THE LEGAL STATUS OF PUBLIC CORPORATIONS 31

many scholars.94 The main contention, advanced by the comme


has been that a statutory authority cannot be put in the same categ
priavte employer, and that to such a body the private law principle o
and servant cannot be applied ; that it is in the public interest that
authorities should adopt proper standards of fair procedure and act a
to reasonable criteria in exercising their disciplinary powers over th
public service. Bradley insists :

If judicial control means anything, it must include power in


court to intervene whenever an individual suffers through the fail
of a public authority to observe minimum requirements of f
procedure.95

Since then, the House of Lords has rendered another significant d


in Malloch v. Aberdeen Corporation ,96 The corporation dismissed a
teacher without giving him an opportunity of hearing. Under the r
legislation, the teacher's appointment was held to be 'during pleasure'
he could be dismissed without assigning any reason. The corpo
opposed the teacher's claim for a hearing on the ground of master-
relationship as well as on the ground that it was not bound to as
reason for his dismissal and, therefore, hearing would serve no usef
pose. The corporation argued that at common law a master was not
to hear his servant before dismissing him. Nevertheless, by a major
House of Lords declared the teacher's dismissal invalid. Lord Wilberf orce
put the matter in the right perspective when he observed :

The appellant's challenge to the action taken by the respondents


raises a question, in my opinion, of administrative law. The res-
pondents are a public authority, the appellant holds a public position
fortified by statute. The considerations which determine whether he
has been validly removed from that position go beyond the mere
contract of employment, though no doubt including it. They are, in
my opinion, to be tested broadly on arguments of public policy and
not to be resolved on narrow verbal distinctions .97

94. Jaffe, English and American Judges as Law Makers 26 (1969) S.A. de Smith,
Judicial Review of Administrative Action 200-2 (1973) ; Bradely, Natural Justice and
Academic Freedom, (1965) Camb . L.J. 3 ; S.M. Thio, Sacking of Professors, 28 Mod . L.R .
475 (1965); G. Ganz, Public Law Principles Applicable to Dismissal from Employment
30 Mod . L.R. 288-91 (1967).

95. Bradley, supra note 94 at 5. Also see, supra note 22 at 208.


96. (1971) 2 All E.R. 1278. See also, VIII A.S.LL . 258-9 (1972).
97. (1971) 2 All E.R. 1278 at 1293 (emphasis supplied).

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32 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 18 : 1

Lord Wilberforce further observed that the argument that in m


servant cases

one is normally in the field of the common law of contract inter


partes , so that principles of administrative law, including those of
natural justice, have no part to play . . . must be carefully used. It
involves the risk of a compartmental approach which, although
convenient as a solvent, may lead to narrower distinctions than are
appropriate to the broader issues of administrative law.98

The learned Lord emphasized that the exclusion of the rules of natu
justice "must be confined to what have been called pure master and ser
cases," which he took to mean

cases in which there is no element of public employment or service,


no support by statute, nothing in the nature of an office or a status
which is capable of protection. If any of these elements exist, then
in my opinion, whatever the terminology used, and even though in
some inter partes aspects the relationship may be called that of
master and servant, there may be essential procedural requirements
to be observed, and failure to observe them may result in a dismissal
being declared to be void."

Characterising the Vidyodaya University case as one in which su


distinction had been lost sight of, and where the mere allocation o
label - master and servant - had been thought decisive against an administ
law remedy, he observed :

I must confess that I could not follow it in this country in so far as


it involves a denial of any remedy of administrative law to analogous
employments.100

Lord Wilberforce took the view that the employment involved in Vid
daya University case was "one of a sufficiently public character, or
partaking sufficiently of the nature of an office, to attract appropriate reme
of administrative law."101 The learned Lord further held that the rigou
the principle that a person holding an office 'at pleasure' had no right t
heard before being dismissed

is often, in modern practice, mitigated for it has come to be per-


ceived that the very possibility of dismissal without reason being

98. Id. at 1294.


99. Ibid.
100. Id. at 1295.
101. Ibid .

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1976] THE LEGAL STATUS OF PUBLIC CORPORATIONS 33

given - action which may vitally affect a man's career or his p


-makes it all the more important for him, in suitable circums
to be able to state his case and, if denied the right to do so,
able to have his dismissal declared void.101a

He then went on to observe :

So, while the courts will necessarily respect the right, for
reasons of public policy, to dismiss without assigned reasons,
should not, in my opinion, prevent them from examining the
work and context of the employment to see whether elemen
rights are conferred on him expressly or by necessary impli
and how far these extend.102

Lord Wilberforce concluded that the teacher should not have been denied
the right of being heard. The resolution of the concerned authority dismis-
sing him was accordingly quashed.

The Malloch case seeks to undo the effect of the Vidyodaya University
case. Lord Wilberforce makes it quite clear that the question whether rules
of natural justice should apply to a particular situation or not is not one to be
answered on 'narrow verbal distinctions' but is ultimately a question of 'public
policy' which means that it involves the balancing of various factors. The
Malloch case seeks to confine the doctrine of master-servant relationship
purely to private employment where there is no element of public employ-
ment.103 Even the right to dismiss without assigned reasons does not rule
out hearing in case of employment having some public character. The
Malloch case was cited by the Supreme Court in the Vidya Ram case,101 and
from the tenor of the opinion of Mathew, J., it would appear that he did not
approve of the Vidyodaya University ruling. In the Bhagatram case, again,
Mathew, J., approvingly referred to the Malloch case and ruled that the
employment under a public corporation was 'public employment' and Mthere-
fore the employee should have the protection which appertains to public
employment."106 From this observation it logically follows that in case of
dismissal, an employee of such a corporation would be entitled to natural
justice. Ray, C.J., also observed generally that "whenever a man's rights are
affected by decision taken under statutory powers, the Court would presume
the existence of a duty to observe the rules of natural justice and compliance

101a. īd . at 1295-96.
102. Ibid.

103. See comment on the case in VIII A.S Ī.L . 258-9 (1972). Also, 35 Mod. L.R.
(1972).
104. Vidya Ram Misra v. The Managing Committee , Shri Jai Narain College, A.I.R.
1972 S.C. 1450. For comment see VIII A.S. I.L 257 ( 1972).
105. Supra note 1 at 1359.

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34 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 18: 1

with rules and regulations imposed by statutes/'106 In K. C


man, I. F. Corporation ,107 the Madras High Court applied
bias- a component of natural justice - to a statutory corpo
of dismissal of an employee, by-passing the Airlines case.108
Over time, the courts in India have expanded the sco
quasi-judicial concept a great deal.109 The Malloch case depic
the administrative law which severely restricts the operation
doctrine of master-servant which was based on the outmod
superiority of the master and the inferiority of the servan
several factors, and also taking into account the observatio
C.J., and Mathew, J., noted above, one can presume that a
public corporation can claim natural justice in case of h
service. The position thus appears to be that if a public
regulation prescribing procedure for enquiries against
employee can take advantage of the regulation as it is
corporation. If there is no such regulation, or if the re
accord fully with the norms of natural justice,110 the emp
the concept of natural justice. A public corporation ca
obligation to give to its employees an opportunity of b
dismissing them simply by failing to make the requisite r
purpose.

106. Id. at 1341.


107. A.I.R.1973 Mad. 122.
108. See IX A.S.LL. 270 (1973).
109. Supra note 2 at 102-128. See also supra note 108 at 258-762.
110. InFurneUv. Whangerei High Schools Board , [197311 All E.R. 400, the Privy
Counil has held by a irajority that when regulations lay down a 'detailed and elaborate9
procedure for inquiries, and the procedure is not unfair, natural justice may not be implied
to supplement the procedure.

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