CLAT PG Exam > CLAT PG Notes > Administrative Law > Cheat Sheet: Corporates and Public Undertakings
Cheat Sheet: Corporates and Public Undertakings
1. Concept of State under Article 12
1.1 Constitutional Definition
| Component | Description |
|---|---|
| Article 12 | Defines "State" to include Government and Parliament of India, Government and Legislature of States, and all local or other authorities within the territory of India or under the control of the Government of India |
| Purpose | Determines which entities are bound by fundamental rights under Part III of the Constitution |
| Inclusive Definition | Not exhaustive; courts have expanded the meaning through judicial interpretation |
1.2 Judicial Expansion of State
| Case | Principle Established |
|---|---|
| Rajasthan State Electricity Board v. Mohan Lal (1967) | Statutory corporations performing governmental functions are "State" under Article 12 |
| Sukhdev Singh v. Bhagatram (1975) | Life Insurance Corporation, Oil and Natural Gas Commission, and Industrial Finance Corporation held to be State; performing public functions and state control are key factors |
| Ajay Hasia v. Khalid Mujib (1981) | Established comprehensive test: if an authority is created by statute or has deep and pervasive state control, it is State |
| R.D. Shetty v. International Airport Authority (1979) | Government companies substantially controlled by government are State under Article 12 |
| Som Prakash Rekhi v. Union of India (1981) | Bharat Petroleum Corporation Limited held to be State; government control and public importance are determinative |
| Pradeep Kumar Biswas v. Indian Institute of Chemical Biology (2002) | Autonomous scientific research bodies funded and controlled by government are State |
1.3 Tests for Determining State
| Test | Elements |
|---|---|
| Ajay Hasia Test | 1. Financial control by State; 2. Functional control by State; 3. Administrative control; 4. Deep and pervasive state control; 5. Government monopoly; 6. Public functions of governmental nature |
| Indicia Approach | Multiple factors considered cumulatively: statutory origin, government ownership, government control over management, funding source, sovereign/public functions, monopoly status |
2. Public Undertakings and Corporations
2.1 Types of Public Undertakings
| Type | Description |
|---|---|
| Departmental Undertakings | Operated as departments of government; funded directly from budget; Indian Railways is an example |
| Statutory Corporations | Created by special statute; separate legal entity; Reserve Bank of India, Life Insurance Corporation, Food Corporation of India |
| Government Companies | Registered under Companies Act; at least 51% government ownership; State Bank of India, Bharat Heavy Electricals Limited |
| Public-Private Partnerships | Joint ventures between government and private sector with varying degrees of state control |
2.2 Characteristics of Statutory Corporations
- Created by Act of Parliament or State Legislature
- Possess independent legal personality
- Can sue and be sued in own name
- Powers, duties, and limitations defined by statute
- Separate budget and accounting system
- Subject to audit by Comptroller and Auditor General
- Government exercises control through statute and ministerial oversight
2.3 Government Companies
2.3.1 Definition under Companies Act, 2013
| Provision | Content |
|---|---|
| Section 2(45) | Government company means company in which not less than 51% of paid-up share capital is held by Central Government, or by State Government(s), or partly by Central and partly by State Government(s) |
| Governance | Subject to Companies Act provisions unless specifically exempted |
| Special Audit | CAG has power to conduct supplementary audit under Section 143(5) and (6) |
2.3.2 Constitutional Position
- Article 12 applicability depends on government control and public function nature
- Article 298: State may carry on trade or business
- Articles 19(1)(g) and 301-307 govern state trading activities
3. State Control and Applicability of Article 12
3.1 Deep and Pervasive State Control
| Factor | Indicators of State Control |
|---|---|
| Financial Control | Government funding, budgetary allocation, financial guarantee, capital subscription |
| Administrative Control | Power to appoint directors/management, approval requirements for decisions, government representation on board |
| Functional Control | Government directions binding on entity, policy formulation by government, operational control |
| Monopoly Status | Entity holds government-granted monopoly in sector |
| Public Functions | Performance of sovereign, governmental, or public welfare functions |
3.2 Negative Criteria
- Mere government ownership without control does not make entity State
- Private character retained if entity functions purely on commercial basis without state control
- Regulatory supervision alone insufficient to constitute entity as State
- Nominal government shareholding without management control excludes Article 12 applicability
3.3 Key Judicial Pronouncements
| Case | Held as State |
|---|---|
| Central Inland Water Transport Corp. v. Brojo Nath (1986) | Yes - government company performing public function with state control |
| Zee Telefilms v. Union of India (2005) | Board of Control for Cricket in India (BCCI) held NOT to be State - private body without state control |
| Binny Ltd. v. Sadasivan (2005) | No - government shareholding alone without functional control insufficient |
| Electricity Board, Rajasthan v. Mohan Lal (1967) | Yes - statutory corporation performing governmental function |
4. Consequences of Being State under Article 12
4.1 Constitutional Obligations
| Obligation | Description |
|---|---|
| Part III Applicability | Bound by fundamental rights; actions must not violate Articles 14, 19, 21, etc. |
| Article 14 | Equality before law; non-arbitrary action; reasonableness in classification and decision-making |
| Article 19 | Cannot violate citizens' freedoms under Article 19(1) except by reasonable restrictions under clauses (2)-(6) |
| Article 21 | Must respect right to life and personal liberty; procedural fairness mandatory |
| Writ Jurisdiction | Subject to writ jurisdiction under Articles 32 and 226 |
4.2 Remedies Against State Entities
- Writ petitions maintainable in Supreme Court under Article 32
- Writ petitions maintainable in High Courts under Article 226
- Administrative law principles applicable: natural justice, reasonableness, non-arbitrariness
- Actions subject to judicial review on grounds of illegality, irrationality, and procedural impropriety
- Mandamus, certiorari, prohibition, quo warranto available against state entities
5. Judicial Control over Public Undertakings
5.1 Grounds of Judicial Review
| Ground | Scope |
|---|---|
| Illegality | Action beyond powers conferred by statute or memorandum; violation of statutory provisions |
| Irrationality | Decision so unreasonable that no reasonable authority would have taken it; Wednesbury unreasonableness |
| Procedural Impropriety | Violation of natural justice principles (audi alteram partem, nemo judex in causa sua); failure to follow prescribed procedure |
| Proportionality | Sanction or action disproportionate to objective sought; emerging ground in Indian law |
| Legitimate Expectation | Frustration of legitimate expectation without reasonable justification |
5.2 Principles of Natural Justice
5.2.1 Audi Alteram Partem
- Right to notice before adverse action
- Right to hearing and present case
- Right to know reasons for decision
- Opportunity to rebut adverse material
5.2.2 Nemo Judex in Causa Sua
- Rule against bias: no person shall be judge in own cause
- Pecuniary bias, personal bias, subject-matter bias, departmental bias must be avoided
- Test is reasonable suspicion of bias, not actual bias
5.3 Relevant Case Law
| Case | Principle |
|---|---|
| Maneka Gandhi v. Union of India (1978) | Procedure established by law must be fair, just, and reasonable; expanded Article 21 |
| A.K. Kraipak v. Union of India (1969) | Natural justice principles applicable even when statute silent; administrative fairness required |
| Central Inland Water Transport v. Brojo Nath (1986) | Arbitrary termination clauses in government contracts violative of Article 14 |
| Delhi Transport Corporation v. D.T.C. Mazdoor Congress (1991) | Government companies must act fairly and reasonably as per Article 14 |
6. Contractual Relations and Public Undertakings
6.1 Article 14 in Contractual Matters
| Aspect | Legal Position |
|---|---|
| Arbitrary Action | State and its instrumentalities cannot act arbitrarily even in contractual matters |
| Reasonableness | Contract terms must be fair and reasonable; unconscionable terms may be struck down |
| Equality | Similarly situated parties must be treated equally in contract award and execution |
| Termination | Arbitrary termination without reason violates Article 14 |
6.2 Public Procurement Principles
- Transparency in tendering process mandatory
- Competition must be fair and open
- Pre-qualification criteria must be reasonable and non-discriminatory
- Evaluation criteria must be objective and disclosed in advance
- Deviation from tender conditions requires justification
- Arbitrary rejection of lowest bid impermissible
6.3 Leading Judgments
| Case | Holding |
|---|---|
| Ramana Dayaram Shetty v. International Airport Authority (1979) | State must act fairly in contractual matters; cannot arbitrarily choose contractors |
| Kasturi Lal v. State of Jammu & Kashmir (1980) | Article 14 applicable to government contracts; arbitrary contract award violates equality |
| Tata Cellular v. Union of India (1994) | Arbitrary and unreasonable conditions in tenders violate Article 14 |
| Michigan Rubber v. State of Karnataka (2012) | Limited judicial review in contractual matters; courts interfere only when action arbitrary or mala fide |
7. Liability of Public Undertakings
7.1 Tortious Liability
| Aspect | Position |
|---|---|
| General Rule | Public undertakings liable in tort like private entities |
| Sovereign Immunity | No immunity for commercial or non-sovereign functions |
| Vicarious Liability | Liable for acts of employees in course of employment |
| Statutory Functions | No immunity when performing statutory duties negligently |
7.2 Constitutional Tort
- State liable for violation of fundamental rights even without statutory liability
- Compensation payable for infringement of Articles 14, 19, 21, etc.
- Remedy exists even when no other remedy available
- Basis: constitutional mandate to protect fundamental rights
7.3 Key Cases on Liability
| Case | Principle |
|---|---|
| Nilabati Behera v. State of Orissa (1993) | Compensation for violation of Article 21 in custodial death; public law remedy for constitutional tort |
| Rudul Shah v. State of Bihar (1983) | Illegal detention after acquittal violates Article 21; compensation awarded |
| Common Cause v. Union of India (1999) | State liable for death in police custody; constitutional tort remedy available |
| State of Maharashtra v. Ravikant S. Patil (1991) | Government servant's tortious act makes State vicariously liable |
8. Parliamentary and Legislative Control
8.1 Accountability Mechanisms
| Mechanism | Description |
|---|---|
| Parliamentary Questions | Ministers answer questions on functioning of public undertakings in Parliament |
| Committee on Public Undertakings | Examines reports, accounts, and working of public undertakings; 22 members (15 Lok Sabha, 7 Rajya Sabha) |
| CAG Audit | Comptroller and Auditor General audits accounts of statutory corporations and government companies |
| Annual Reports | Public undertakings submit annual reports laid before Parliament or State Legislature |
| Parliamentary Debates | Performance and policies discussed during budget and other debates |
8.2 CAG's Role
- Constitutional authority under Articles 148-151
- Audits accounts of Union and States, including public undertakings
- Audit reports submitted to President/Governor and laid before Parliament/Legislature
- Performance audit in addition to financial audit
- Section 143(5) and (6) of Companies Act, 2013 empowers supplementary audit of government companies
8.3 Committee on Public Undertakings
- Established in 1964 for Parliament; similar committees in State Legislatures
- Examines whether undertakings functioning efficiently and according to sound business principles
- Reviews reports and accounts
- Investigates matters of substantial importance
- Cannot examine policy matters but reviews implementation
9. Right to Information and Public Undertakings
9.1 RTI Act, 2005 Applicability
| Provision | Content |
|---|---|
| Section 2(h) | Defines "public authority" to include bodies owned, controlled, or substantially financed by government; non-government organizations substantially financed by government |
| Scope | Public undertakings, statutory corporations, and government companies covered |
| Information Disclosure | Must disclose information relating to public activities; exemptions under Section 8 |
| Proactive Disclosure | Section 4 mandates suo motu disclosure of specified information |
9.2 Exemptions from Disclosure
- Section 8: Information affecting sovereignty, security, strategic interests
- Trade secrets, commercial confidence, intellectual property
- Information received in fiduciary capacity
- Cabinet papers and records of deliberations
- Infringement of privilege of Parliament or State Legislature
- Information that would impede investigation or prosecution
- Personal information unrelated to public activity
9.3 Judicial Interpretation
| Case | Principle |
|---|---|
| Institute of Chartered Accountants v. Shaunak Satya (2011) | Professional regulatory bodies performing public functions are public authorities under RTI Act |
| Indian Olympic Association v. Veeresh Malik (2011) | Body substantially funded by government is public authority even if constituted under Societies Registration Act |
| CBSE v. Aditya Bandopadhyay (2011) | Disclosure cannot be denied merely because information in third-party hands; exemptions must be interpreted narrowly |
10. Privatization and Disinvestment
10.1 Modes of Privatization
| Mode | Description |
|---|---|
| Disinvestment | Sale of government shareholding; may be partial or complete |
| Strategic Sale | Sale of substantial shareholding along with transfer of management control to private party |
| Asset Sale | Sale of specific assets of public undertaking |
| Public Offering | Offer of shares to public through stock exchange; government retains control if majority retained |
| Closure/Liquidation | Winding up of loss-making or non-viable undertakings |
10.2 Constitutional and Legal Issues
- Article 300 empowers government to hold property and enter contracts
- No constitutional bar to privatization of public undertakings
- Statute creating corporation may restrict alienation of assets
- Employees' rights under Article 14 and service law must be protected
- National security and public interest considerations in strategic sectors
- Parliamentary approval may be required for disinvestment in statutory corporations
10.3 Judicial Review of Disinvestment
| Case | Holding |
|---|---|
| Centre for Public Interest Litigation v. Union of India (2012) - 2G | Natural resources allocation must be fair, transparent, and non-arbitrary; excessive deviation from policy impermissible |
| Balco Employees Union v. Union of India (2002) | Disinvestment policy decision not justiciable unless mala fide, arbitrary, or violative of statutory provisions |
| Delhi Science Forum v. Union of India (1996) | Limited judicial review of economic policy; courts examine process, not merits of policy |
11. Corporate Governance in Public Undertakings
11.1 Governance Framework
| Aspect | Features |
|---|---|
| Board Composition | Mix of government nominees, independent directors, and functional directors; guidelines by DPE (Department of Public Enterprises) |
| Memorandum of Understanding | MoU between administrative ministry and PSU setting performance targets |
| Autonomy | Navratna, Maharatna, Miniratna classifications grant operational and financial autonomy |
| Accountability | Accountable to Parliament through ministry; CAG audit; performance evaluation |
11.2 Classifications for Autonomy
| Category | Criteria |
|---|---|
| Maharatna | Navratna status, listed on stock exchange, net worth over Rs. 10,000 crore, net profit over Rs. 2,500 crore; enhanced powers up to Rs. 5,000 crore |
| Navratna | Miniratna Category I, excellent rating for three years, composite score of 60+ under performance MoU; investment powers up to Rs. 1,000 crore |
| Miniratna Category I | Profit-making for three years, positive net worth; delegation of powers for investment up to Rs. 500 crore |
| Miniratna Category II | Profit-making for three years, positive net worth; limited financial powers |
11.3 DPE Guidelines
- Department of Public Enterprises issues guidelines for corporate governance
- Functional directors appointment based on professional competence
- Independent directors to constitute at least one-third of board
- Audit committees, remuneration committees mandatory
- Performance evaluation linked to compensation
- Transparency and disclosure norms
12. Employees' Rights in Public Undertakings
12.1 Service Conditions
| Aspect | Position |
|---|---|
| Article 14 Applicability | Employees have right to equality; arbitrary action in service matters violative of Article 14 |
| Natural Justice | Principles of natural justice applicable in disciplinary proceedings |
| Statutory Protection | Industrial Disputes Act, 1947 applicable unless expressly excluded |
| Contractual Terms | Employment governed by contract and service regulations; arbitrary changes impermissible |
12.2 Judicial Review of Service Matters
- Courts review disciplinary action for compliance with natural justice
- Punishment disproportionate to misconduct can be set aside
- Non-compliance with service rules renders action invalid
- Arbitrary denial of promotion or benefits violates Article 14
- Legitimate expectation doctrine protects employees from arbitrary policy changes
12.3 Relevant Precedents
| Case | Principle |
|---|---|
| Central Inland Water Transport v. Brojo Nath (1986) | Arbitrary termination clause in service rules struck down as violative of Article 14 |
| Managing Director, ECIL v. B. Karunakar (1993) | Natural justice must be followed even in cases of termination simpliciter if stigma attached |
| U.P. State Brassware Corporation v. Uday Narain Pandey (2006) | Employees of government companies entitled to procedural fairness and equality |
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