Previously, we discussed some textual approaches to Article 12′s definition of “State”. Recall the key question: against which entities can claims of fundamental rights be raised? At one end of the spectrum is the State itself, and at the other end are private individuals performing private acts . There can be no quibble against the early decision of the Supreme Court in Shrimati Vidya Verma v. Shiv Narain Verma, where the Court refused to find an Article 21 violation in the case of one individual being detained by another. Quoting Patanjali Shastri J.’s opinion in A.K. Gopalan, the Court held that “as a rule, constitutional safeguards are directed against the State and its organs and that protection against violation of rights by individuals must be sought in the ordinary law.“
But there are – as we discussed previously – a host of problematic cases that lie between “State” and “individual”. Bodies created by a statute, bodies that whose management has government representatives, bodies under the administrative control of the government, bodies funded entirely by the government, bodies performing government-outsourced tasks, and so on. Which of these fall within Article 12, and why?
The first time the Court was called upon to seriously grapple with these issues was in the 1967 case of Rajasthan State Electricity Board v. Mohan Lal. The case involved a promotion dispute between some workmen and the Rajasthan State Electricity Board. Articles 14 and 16 claims were raised, and consequently, the preliminary question that fell to be determined by the Court was whether the Board came within the purview of Part III, by virtue of being “State” (other authority) under Article 12.
The Rajasthan State Electricity Board was a corporate body that had been constituted under an Act (the Electricity Supply Act, 1948), for the purposes of supplying electricity within the State of Rajasthan. The Board argued that the phrase “other authority” must be read “ejusdem generis” – that is, when a law refers to a number of specific categories, and then ends with a general clause, that general clause must be understood only to contain those things which are part of the common genus to which the specific categories belong. To take a banal example, “BJP, Congress, AAP, TMC and other political parties” does not include the American Democratic Party, because clearly, what is being referred to is Indian political parties. According to the board, the common class running through Article 12 was bodies exercising governmental functions. The Electricity Board, on the other hand, was set up by a statute to carry out commercial activities. Thus – the Board argued – it could not be brought within the ambit of Article 12. It cited decisions from the High Courts of Madras, Mysore and Punjab to contend that Article 12 was limited to “a person or a group of persons who exercise the legislative or executive functions of a State or through whom or through the instrumentality of whom the State exercises its legislative or executive power. In those cases, State Universities had been found not to fall within the ambit of Article 12.
Rejecting this argument – and overturning the judgments of the High Courts – the Supreme Court declined to apply the principle of ejusdem generis, holding that there was no common “genus” running through Article 12. Instead, it turned to the dictionary for the meaning of the word “authority”:
“[Authority means] a public administrative agency or corporation having quasi- governmental powers and authorised to administer a revenue- producing public enterprise.” This dictionary meaning of the word “authority” is clearly wide enough to include all bodies created by a statute on which powers are conferred to carry out governmental or quasi-governmental functions. The expression “other authorities” is wide enough to include within it every authority created by a statute and functioning within the territory of India, or under the control of the Government of India.”
According to this language, the test appears to be two-pronged: either the body is created by a statute, or it is under the control of the government. Subsequently, however, the Court appears to run them together, holding that “the expression “other authorities” in Art. 12 will include all constitutional or statutory authorities on whom powers are conferred by law.” Or, in other words, they key test is a statutory connection between the government and the body in question (“control”, perhaps, is a function of creation by statute). The fact that the functions were commercial were irrelevant, since the State itself could clearly carry out trade and business. Thus, the Board – having been established by Statute – was found to come within the scope of Article 12.
Justice Shah concurred in the judgment, but differed on the reasoning. He approached the issue not from the standpoint of the meaning of “Authority”, but from the place of Article 12 in the Constitution – in particular, at the beginning of Part III. According to Justice Shah, Article 12 must be interpreted in the context of Part III, which guaranteed that fundamental individual rights would not be encroached upon. Therefore, what mattered was whether “the authority was invested with the sovereign power to impose restrictions on very important and basic fundamental freedoms… authorities constitutional or statutory invested with power by law but not sharing the sovereign power do not fall within the expression “State” as defined in Art. 12. Those authorities which are invested with sovereign power i.e., power to make rules or regulations and to administer or enforce them to the detriment of citizens and others fall within the definition of “State” in Art. 12.“
Justice Shah thus placed special importance on “sovereign power”, which he appeared to understand as an ability to affect fundamental freedoms in a far-reaching. Therefore, his reasons for holding that the Board fell within Article 12 was not that it was created by statute, but that:
“The Board is an authority invested by statute with certain sovereign powers of the State. It has the power of promoting coordinated development, generation, supply and distribution of electricity and for that purpose to make, alter, amend and carry out schemes under Ch. V of the Electricity (Supply) Act, 1948, to engage in certain incidental undertakings; to organise and carry out power and hydraulic surveys; to conduct investigation for the improvement of the methods of transmission; to close down generating stations; to compulsorily purchase generating stations, undertakings, mains and transmission lines; to place wires, poles, brackets, appliances, apparatus, etc; to fix grid tariff; to issue directions for securing the maximum economy and efficiency in the operation of electricity undertakings, to make rules and regulations for carrying out the purposes of the Act; and to issue directions under certain provisions of the Act and to enforce compliance with those directions. The Board is also invested by statute with extensive powers of control over electricity undertakings. The power to make rules and regulations and to administer the Act is in substance the sovereign power of the State delegated to the Board.”
The majority and the concurrence represent two approaches to Article 12, which we may label the “legal approach” and the “functional approach”. The legal approach begins with a certain understanding of the paradigm case of the “State” (the government itself”, and assimilates to “State” those entities that seem to bear a close family resemblance to it. This translates into entities that the government itself creates, or seems to have near-complete control over. The “functional approach”, on the other hand, starts from the perspective of the individual, and the individual’s guaranteed rights that act as limits upon the sovereign power of the State. Bodies that can affect those rights in a manner similar to that of the State, are – under this view – assimilated to the State. The crucial difference between the two approaches is evident if we consider the fact that under Justice Shah’s approach, had the electricity distribution been entirely outsourced to a private party (say, Reliance), it too would have fallen within the ambit of Article 12.
Subsequently, however, in Sukhdev Singh v. Bhagat Ram, a majority of the Court read Rajasthan Electricity Board to have established the narrower proposition that Article 12 was attracted if the body had the power to issue directions whose disobedience could be punished by criminal law, or if it had the power to make, administer and enforce rules and regulations. That case involved three public corporations – the Oil and Natural Gas Corporation, the Life Insurance Corporation and the Industrial Finance Corporation. The majority’s narrow decision holding all three corporations to fall within the meaning of “State”, although clearly correct under both the majority and the concurrence opinions in Rajasthan Electricity Board does not, however, get us very far in a conceptual understanding of Article 12.
Such an analysis was provided by Justice Mathew, in a concurring opinion, although it is extremely difficult to determine a coherent ratio from that judgment. In the beginning, Justice Mathew seemed to adopt both the legal and the functional approach, merging them into one test, which he called “the agency and instrumentality” approach. Entering into a lengthy historical disquisition, he argued that as the role of the State changed from merely establishing law and order to providing for the public welfare, much of those welfare functions began to be performed through the means of corporations. The key observations comes in paragraph 90 of the judgment:
” The Constitution was framed on the theory that limitation should exist on the exercise of power by the State. The assumption was that the State alone was competent to wield power. But the essential problem of liberty and equality is one of freedom from arbitrary restriction and discrimination whenever and however imposed. The Constitution, therefore, should, wherever possible, be so construed as to apply to arbitrary application of power against individuals by centers 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 pre-conditions of this are two, namely, that the corporation is created by State, and, the existence of power in the corporation to invade the Constitutional right of individual.”
The intriguing point about this paragraph is that it is based on a non-sequitur. If the Constitution ought to apply to wherever there is arbitrary application of power be centers of power, it does not follow – at all – a corporation must be State-created to fulfill those conditions (again, Reliance is a classic example). In other words, in substance, Justice Mathew put forward an argument for the functional approach, but in conclusion, he subordinated it entirely to the legal approach. In fact, he takes the majority and concurring opinions in Vidya Verma, and holds that the requirements laid out in both must be satisfied for Article 12 to be attracted!
Immediately afterwards, however, he moved away from that conclusion, noting that:
“Generally speaking, large corporations have power and this power does not merely come from the statutes creating them. They acquire power because they produce goods or services upon which the community comes to rely.”
The rest of the opinion is devoted to a meandering analysis that seems to constantly shift back and forth between some variants of the legal and the functional approach, talking about financial aid, tax exemptions, control over management policies, public functions… and ultimately comes to rest somewhere midway, expressed as:
” The ultimate question which is relevant for our purpose is whether such a corporation is an agency or instrumentality of the government for carrying on a business for the benefit of the public.”
“Agency or instrumentality” is not a self-interpreting term, however, and the true test, after the judgments in Rajasthan Electricity Board and Bhagat Ram, was still fuzzy. It would be up to later judgments to clarify it.