STATUS OF PUBLIC UTILITIES UNDER

ARTICLE 12 OF THE CONSTITUTION OF INDIA

YOKESHWARI MANIVEL
INTRODUCTION
 The concept of state action is not defined in constitution, “state” is a concept which is
implied in article 12 of constitution against part III in which judicial scrutiny has taken in a
number of cases.
 In most of the cases the Court has analyzed the fact situations existing at the particular
time and made the judicial meaning of the term in tandem with the political and economic
changes and its impact on State and its role in the society.
 In this way an array of public utilities institutions are kept under the purview of judicial
scrutiny.
 “Other Authority”
 In order to extract the true meaning of the term and to further the purpose of fundamental
rights and the judiciary has evolved with barious test of instrumentality or agency under
which various criteria’s are laid out,
 ‘Public Functions Test,’
 other tests being deep and pervasive
 state control test,
 government monopoly test etc.

The cumulative effect of all the tests is necessary to hold an authority as ‘other authority’
and thereby state under Article 12. These tests try to render a meaningful link between
the authority in question and the government.
 DEFINITION OF PUBLIC UTILITIES
 A public utility (PU) is a business or service, which may be
publicly or privately owned, engaged in supplying the public
generally with some commodity or service, such as electricity,
gas, water, transportation, or telephone or telegraph service.
PU are subject to forms of public control and regulation ranging from
local community-based groups to statewide government monopolies.
 PU agency is an organization which maintains infrastructure for a public
service.
PU are subject to various forms of public control and regulations, ranging
from local community based groups to State wide government
monopolies
  PU Services are a set of services provided for large numbers of citizens that justify
government involvement, whether in production, finance or regulation
 Among the core areas for which there is a consensus in favor of government
responsibility are:
 major irrigation works,
 transport services,
 water resources,
 road construction and maintenance,
 education,
 health (promotive, preventive and curative),
 tax collection,
 sanitation and
 social safety nets
 law and order, infrastructure i.e.,

 Public utilities are subject to high degree of social control. They are setup
with public money. Any deficiency in quality or service would immediately
result in a problem. (For example in matter concerning electricity)
ISSUE WITH PUBLIC UTILITES
Public Utilities always serve as monopolies which can exploit customers by
charging high prices,
producing sub-standard products,
providing poor quality service etc.

 Therefore, to avoid such undesirable practices, the government

maintains a constant observation over the operations of public utility
services. Further, any deficiency in products and quality of service
manufactured by public utility agencies would have far reaching
negative impact on the society.
 Therefore strict rules and regulations have been laid down with
regard to their accountability, transparency, performance and
functioning
 Though they are governed by statutory rules, the government
regulation fails to be completely effective. Therefore, recent tendency is
towards government ownership, control and management of these
undertakings.
 The following reasons have prompted the State ownership of public
utilities: The Legal Services Authorities Act, 1987 (Act No. 39 OF 1987)
A. “Difficulties in effective regulation” can be removed by direct government
ownership and management.
B. The “need for co-ordination” can be met more effectively if all these
undertakings are under government ownership, management and control.
C. Substitution of profit motive by service motive is practicable only when these
undertakings are owned and managed by the government.
D. In a planned economy, the key services which are clothed with public interest
should necessarily be in Public or State sector. The Industrial Policy
Resolution of 1956 declares that the public utility service will, as far as
possible, be under State ownership and management.
NATURE AND SCOPE THE CONCEPT OF
STATE ACTION UNDER ARTICLE 12
 Article 12 reads as: In this part, unless the context otherwise requires, “the
State” includes the Government and Parliament of India and the
Government and the Legislature of each of the State and all local or other
authorities within the territory of India or under the control of the
Government of India.
 According to Article 12, the term ‘State’ includes:
 The Government and Parliament of India: the term “State” includes Government of India
(Union Executive) and the Parliament of India (i.e., the Union Legislature)
 The Government and the Legislature of a State i.e., the State Executive and the
legislature of each state.
 All local authorities; and
 Other authorities within the territory of India; or under the control of the Central
Government.
 Art. 12 clarifies that the term ‘state’ occurring in Art. 13(2), or
any other provision concerning Fundamental Rights, has an
expansive meaning.
 The framers of the Constitution used the words ‘the State’ in a
wider sense than what is understood in the ordinary or
narrower sense.
 The word ‘includes’ suggests that the definition is not
exhaustive.
 The expanding dimension of the words ‘the State’ through the
judicial interpretation must be within the limitation otherwise the
expansion may go much beyond what even the framers of
Article 12 may have thought of.
A. GOVERNMENT AND THE
LEGISLATURE
 It is explicitly mentioned in Article 12 that State includes
Parliament of India and the State Legislature and State Executive
by virtue of the functions and powers exercised by these bodies.
 Besides, Article 32 empowers the Supreme Court to issue writs
against the Government of India as well as the State Government.
 Article 226 expressly includes government as one of the persons
against whom a writ may be issued
 Khajoor Singh v. Union of India AIR 1961 SC 532,
 Pratap Singh Khairon v. State of Punjab AIR 1964 SC 72,
 State of Bombay v. Laxmidas AIR 1952 Born. 468.
B. AUTHORITIES UNDER THE CONTROL
OF GOVERNMENT OF INDIA
 Territory of India: Territory of India should be taken to mean
territory of India as defined in Article 1(3).
 According to Article 1(3) the territory of India shall comprise
the territories of the States, the Union Territories specified in
the first schedule and such other territories as may be
acquired
Masthan Sahib v. Chief Commissioner, Pondicherry, AIR 1963 SC
533
C. LOCAL AUTHORITIES
 Local Authority: according to sub-section (31) of Section 3 of the General
Clauses Act, 1897 :
“Local Authority” shall mean a municipal committee, district board, body of
commissioner or other authority legally entitled to or entrusted by the
Government within the control or management of a municipal or local fund.
 According to Entry 5 of the List II of 7th Schedule ‘ local government’
includes municipal corporation, improvement trust, district boards, mining
settlement authorities and other local authorities for the purpose of local
self-government or village administration.
 In case of Ajit Singh v. State of Punjab, AIR 1967 SC 856 ,Village
panchayat is also included within the meaning of the term local authority.
D. OTHER AUTHORITIES
 Other Authorities: The term ‘other authorities’ in
Article 12 has nowhere been defined.
 Neither in the Constitution nor in the general clauses
Act, 1897 nor in any other statute of India.
 Therefore, its interpretation has caused a good deal
of difficulty, and judicial opinion has undergone
changes over time.
STATUS OF PUBLIC UTILITIES THROUGH
JUDICIAL INTERPRETATION OF ‘OTHER
AUTHORITIES’

AT 1954
 In the case of University of Madras v. Santa Bai (AIR 1954
Mad.67), the Madras High Court held that ‘other authorities’ could
only indicate authorities of like nature, i.e., ejusdem generis. So
construed it could only mean authorities exercising governmental or
sovereign functions. It cannot include persons, natural or juristic.
Such as, a university unless it is ‘maintained by the State’.
AT 1967
 In Electricity Board, Rajasthan v. Mohan Lal (AIR 1967 SC 1857),
the Supreme Court held that ‘other authorities’ would include all
authorities created by the constitution or statute on whom powers are
conferred by law. It was not necessary that the statutory authority
should be engaged in performing government or sovereign functions.
 The court emphasized that it is not material that some of the power
conferred on the concerned authority are of commercial nature. This
is because under Art. 298 the government is empowered to carry on
any trade or commerce.
 Thus, the court observed : “ The circumstances that the Board under
the Electricity Supply Act is required to carry on some activities of the
nature of trade or commerce does not, therefore give any indication
that the “Board” must be excluded from the scope of the word ‘State’
is used in Article 12.
AT 1975
 The next important case relating to the interpretation of the term
‘other authorities’ is, Sukhdev Singh V. Bhagatram (AIR 1975
SC 1331) , The Supreme Court, following the test laid down in
Electricity Board Rajasthan’s Case by 4:1 majority has stated
that the three statutory bodies viz., LIC, ONCG & FCI were held
to be ‘authorities’ and thus fall within the term ‘State’ in Article
12.
 In simple terms, Statutory corporations are agencies or
instrumentalities of the state for carrying on trade or business
which otherwise would have been carried out by the state
departmentally. Therefore it has to be seen whether a body is
acting as an agency or instrumentality of the state.
AT 1981
 Bhagwati, J., discussed in detail various factors relevant for determining whether a
body is an instrumentality or agency of the state. These factors as they were finally
summarized by him in Ajay Hasia V. Khalid Mujib, (AIR 1981 SC 487) are:
 If the entire share capital of the corporation is held by the government, it would go a long
way towards indicating that the corporation is an instrumentality or authority of the government.
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
government character.
Whether the corporation enjoys monopoly status which is state conferred or state protected.
Existence of deep and pervasive state control may afford an indication of that the corporation
is a state agency or instrumentality.
If the functions of the corporation are of public importance and closely related to
government functions it would be relevant factor in classifying a corporation as an
instrumentality or agency of government.
If a department of the government is transferred to corporation it would be a strong factor
supporting the inference of the corporation being an instrumentality or agency of government.
 PUBLIC UTILITIES BODIES UNDER
‘OTHER AUTHORITY’
PUBLIC CORPORATIONS
 In India, Supreme Court in a number of decisions held that Public Corporations and Undertakings fall
within the definition of State, therefore these corporations and undertakings are subject to Part III of the
Constitution. Now there is little indeterminacy as to the status of Corporation in relation to Article 12 of
the Constitution. Thus State Bank of India, Food Corporation of India, State Financial Corporation,
Central Inland Water Transport Board, Steel Authority of India Limited, Warehousing Corporation etc.
would fall in the category of ‘State’ and their acts have to be in conformity with the Fundamental Rights.

 State Bank of India v. Kalpaka Transport Company, AIR 1979 Born. 250.
 Workmen , Food Corporation of India v. Food Corporation of India (1985) 2 SCC 136;
 Satpal v. Himachal Pradesh Food Corporation (1977) SLR 447.
 Gujarat State Financial Corporation v. Lotus Hotels Pvt. ltd. AIR 1983 SC 848
 Balbir Kaur v. Steel Authority of India Ltd. (2006) 6 SCC 493.
 Steel Authority of India ltd v. National Union Water Front (2001) 7 SCC 1.
 K.L. Mathew v. Union of India AIR 1974 Ker.4;
 U. P. Warehousing Corpn. v. Vinay AIR 1980 SC at 845-46
GOVERNMENT COMPANIES
 Apart from corporations created by statute there are a number of non statutory
companies sprung up with the advent of State into the commercial sphere.
 These are to all intents and purposes, limited liability companies registered under
the Companies Act. But owing to the fact that the Government is the owner of the
share capital or the major portion thereof, these companies raise the question
whether they should be treated as government or public bodies for any purposes.
 It was held by the Supreme Court that “unless entrusted with any public duties,
by statute or it constitutes an agency of the government,” no relief can be had
against a government company, in a proceeding against Article 32 or 226 of the
Constitution.
 By applying the government control test Central Water Transport Corporation
ltd,v. Brojo Nath Gangulay (1986 (3) SCC 156) What is essential is that the
company must exercise some function of the government and should be acting
on behalf of the government and not on its own behalf. Hence, government
company was held as a ‘State’ within the meaning of Article 12.
 In Air India Statutory Corporation & ors.v. United Labour Association & ors.,
AIR 1997 SC 645 the Court directed that all contract workers shall be regularized
as employees of the Air India Ltd. It is pertinent to note the view expressed by the
Court, according to the Court “while interpreting the Act, judicial orientation should
shift towards public law orientation rather than private law. Such an interpretation
would elongate the spirit and purpose of the Constitution.
 The individual interest must give way to the broader purpose of establishing social
and economic justice
 But this case overruled in Steel Authority of India ltd. v. National Union, Water
Front Workers (6 (2001) 7 SCC 1 ) wherein Court held that abolition of
prohibition of contract labour under Section of the Contract Labour (Regulation
and Abolition) Act, 1970 will not automatically become the employees of the
principal employer.
 The decision also restricted the scope of public law by holding that the divide
between public law and the private law is material only with regard to the
remedies availed for enforcing rights and not in regard to interpretation of the
statute.
 As far as the economic or political policy decision is concerned
government enjoys immunity and the Court can strike down a
policy decision only if it is arbitrary, discriminatory or mala fide.
 In the recent case of State of Madhya Pradesh & ors. v. Mala
Banerjee2015 (3) SCALE 721 wherein it was held that “where
a policy is contrary to law or is in violation of the provisions of
Constitution or arbitrary or irrational the Courts must perform
their constitutional duties by striking it down.”
REGISTERED SOCIETIES
 Applying the rationale in Ajay Hasia several non-statutory bodies were also
held to be authorities under Article 12.
 The Council for Indian School Certificate Examinations (CBSE), a society for
imparting education and holding examinations was held to be an authority.
 Same was relied in Vibhu Kapoor v. Council of ISC Examinations(AIR
1985 Del 142.) Indian Council of Agricultural Research (P.K.
RamachandraIyer v. Union of India AIR 1984 SC 541. )
 Sainik School were held to be an authority since it was ‘fully funded’ by the
Central and state Government and the Central Government exercises
complete control over it.
 In Sheela Barse v. Secretary, Children Aid Society,((1987) 3 SCC 50 ) a
registered body having Chief Minister of Maharashtra as the ex-officio
President and the Minister of Social Welfare as the Vice President was held to
be amenable to Article 12.
 Similarly, in Chander Mohan Khanna v. NCERT, (1991) 4 SCC
578. National Council of Educational Research and Training, a
largely autonomous body was held to be outside the purview of
Article 12 since its activities are not wholly related to
governmental functions; government control is mostly confined
to ensuring that its funds are properly utilized and because its
funding is not entirely from the government sources.
NATIONALIZED BANKS
 The question whether banks are ‘state’ or not had been
answered in a number of cases.
 In Krishna Reddy v. Canara Bank AIR 2002 Kant. 100. As per
various decisions nationalized banks are purely an
instrumentality of state under Article 12 of the Constitution.
 In State Bank of India, Canara Bank v. Ganesan, (1981) 1
LLJ 64) Madras High Court held that “nationalized banks are
falling within the ambit of the other authority, the right to get
salary is a right to property and the nationalized banks shouldn’t
act arbitrarily and illegally withholding the salary of their
employees for the period during which they had worked. (Ranjit
Kumar Rajak v. Union of India (2009) 5 Bom CR 227. )
 In the case of nationalized banks, the test which is applied is
‘test of control.’ As mentioned in the 145th Report of Law
Commission of India “tests are not exhaustive sometimes one or
other factor may come to be emphasized but essentially, it is the
totality of the circumstances which would be taken into account.
 The fact that share contribution of the government is very
dominant may, along with other factors become material, as
happened in the case of Hyderabad Commercials v. Indian
Bank & ors. 1991 (2) Supp. SCC 340 wherein Court has
recognized Indian Bank as ‘instrumentality of state’ and directed
to perform its function honestly to serve its customers
 CONCLUSION
 The words ‘State’ and ‘Authority’ used in Article 12 remain as great generalities of the
Constitution the content of which has been and continuously supplied by the Court from
time to time. Initially the definition was treated as exhaustive and confined to the
authorities or those which could be read ejusdem generis with the authorities mentioned
in the definition of Article 12.
 The next stage was reached when the ‘State’ came to be identified with the conferment of
sovereign power by law. A considerable change happened when Mathew J. applied the
test of instrumentality and agency i.e. ‘the voice and hands approach’ in Sukhdev Singh,
according to which the government must be acting through the body in question.
 R.D. Shetty and Ajay Hasia took the test to another level and established that the
cumulative effect of the entire test i.e. government monopoly, public functions, financial
and administrative control, transfer of a government department as necessary to call an
entity as an ‘instrumentality or agency’ and thereby ‘other authority’ under Article 12.
 These tests were crystallized and became a single test in Pradeep Kumar
Biswas which stated that if a body or entity if financially functionally and
administratively controlled by the government, then the body or authority can be
held as a state.
 Constitution should be kept adept to meet the social transformation. This role is
in the hands of the judiciary. Now non-state actors are the power-centers in the
society. Most of the essential services are at their hands and there is a diminution
in the role of the state as ‘service provider.’
 In this context the judiciary needs to relook into the feasibility of tests are devised
by the Court under Article 12 to enforce fundamental rights against private
sectors. A declaration of private actors as ‘State’ is necessary because of the
changing role of State in the light of the neo-liberal reforms inducted from 1991
onwards.
 Now the most of the functions traditionally performed by the states are performed
by private actors. If the fundamental rights are rendered ineffective against
private bodies when they violate fundamental right it is a clear negation of
constitutional values and principles.
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