Control of Public Corporations

The principal purpose underlying the establishment of public Corporations is to promote economic activity through autonomous bodies. As a matter of fact, these Corporations
The principal purpose underlying the establishment of public Corporations is to promote economic activity through autonomous bodies. As a matter of fact, these Corporations
Control of Public Corporations
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The principal purpose underlying the establishment of public Corporations is to promote economic activity through autonomous bodies. As a matter of fact, these Corporations have been given broad powers and there is no interference by any authority in the exercise of such powers by the Corporations. However, it is felt necessary that some control over these Corporations should be held so that the powers granted to such Corporations may not be arbitrarily exercised or abused, and it may not become the “headless fourth organ” of the government. The various controls are as follows:

  1. Parliamentary Control

Public Corporations are created and owned by the State. They are financed from the funds supplied by the government. They are required to exercise their powers in public interest. It is, therefore, necessary for Parliament to exercise control over these Corporations. There are four techniques adopted to exercise such control:

  1. Constituent Statute : All public Corporations are created by or under statutes passed by Parliament or State Legislatures. All statutory Corporations owe their existence to their constituent statutes. The powers to be exercised by such Corporations can be defined by the statutes. If powers are abused or misused by any Corporation, the Parliament or the State Legislature can supersede or even abolish the said Corporation.

Although this type of control is not frequently employed yet it is a salutory check on the arbitrary exercise of power by the Corporation.Moreover, the constituent statute of a Corporation may require amendments from time to time. In this way, Parliament gets opportunities to discuss the affairs of a Corporation from time to time.

  1. Questions.-Through this technique, members of Parliament can discuss the functioning of Corporations by putting questions to the Minister concerned. In this way, the Parliament ensures accountability of the Corporations.
  2. Debates. -A much more significant and effective method of control is furnished by a debate on the affairs of a public Corporation. Occasions for this may arise when the annual accounts and reports regarding the Corporation are placed before the Parliament for discussion in accordance with the provisions of the constituent statute.

There is no general obligation on the part of all Corporations to present their budget estimates to Parliament. Estimates Committee, therefore, recommended that Corporations should prepare a performance and programme statement for the budget year with the previous year’s statement and it should be made available to Parliament at the time of the annual budget.

  1. Parliamentary Committees.-The most effective Parliamentary control over the affairs conducted by public Corporations is exercised through the Parliamentary Committees. Parliament is too large and busy body and it is not possible for it to probe into details the working of these Corporations. It was in sequel to the recommendations of Menon Committee on Parliamentary Supervision over State undertakings that the Parliament has constituted the Committee on Public Undertakings in 1964. The functions of the Committee are :
  2. To examine the reports and accounts of the public undertakings;
  3. To examine the reports, if any, of the Comptroller and Auditor General on the public Corporations;
  4. To examine in the context of the autonomy and efficiency of the public

Corporations whether their affairs are being managed in accordance with sound business principles and prudent commercial practices.

The recommendations of the Committee are advisory and therefore, not binding on the government.

  • Judicial Control
  • General.-A public Corporation is a juristic person having legal entity to sue and be sued. It is a body corporate with perpetual succession and common seal. Legal proceedings may be instituted by or against a Corporation in its corporate name. Its entity is distinct and separate from government.

Jurisdiction of Courts over a public Corporation is the same as it is over a private or public Company, which can sue and be sued like any ordinary person. Accordingly, a public Corporation is liable for a breach of contract and also in tort for the tortious acts of its servants like any other person. It is bound by a statute.

  1. Traditional View.-The traditional theory has been that, as a public Corporation is created by a statute, it must exercise its power within the four corners of the constituent statute. Therefore, if a Corporation exceeds its authority, the action may be declared ultra vires by the Court. Similarly, a non-statutory government Company has to act within the terms of its memorandum of association and if it acts de hors thereto, the same principles will be applied.

In Lakshamanaswami v. L.I.C. of India 1963,  the Company passed a resolution donating a sum of Rs. 2 lakhs to a trust from the amount to be paid to the shareholders.

Under the Articles of Association, the Company was not authorised to make such donation. The Supreme Court held that the resolution was ultra vires.

  1. Modern View.-In course of time, the Courts have been expanding the scope and extent of their control over public undertakings beyond the confines of the doctrine of ultra vires. The Courts have been conscious of the fact that a ‘welfare State’ acts through statutory Corporations and Companies. Thus, Corporation have become ‘a third arm’ of the government. The functions which they perform are otherwise to be performed by the government. Being a creation of State, a public Corporation must be subject to the same constitutional limitations as the State itself. Moreover, statutory Corporations and government Companies are held to be ‘other authorities’ and as such, ‘State’ within the meaning of Article 12 of the Constitution. There is no reason why these Corporations should not be subject to the same judicial control as the government itself. However, statutory Corporations are subject to the Writ jurisdiction of the Supreme Court and High Courts, Explaining the philosophy of judicial control of public undertakings in Fertilizer Corporation Kamgar Union v. Union of India 1981, Krishna lyer, J. observed that Public Sector has assumed great significance in India. Public enterprises are owned by the people and those who run them are accountable to the people. Public enterprises are autonomous, this autonomy is vital to effective business management. But judicial control of public power is essential to ensure that it does not behave in an irresponsible manner.

Judicial activism is reflected in the decision of the Supreme Court in Bharat Petroleum Management Staff Pensioners v. Bharat Petroleum Corporation 1988, In this case the facts were that the Management Staff of Burma Shell Company was transferred to Bharat Petroleum Corporation, a government Company by an Act of Parliament. Caltex India Ltd., another Company, was also acquired by Hindustan Petroleum Corporation, a ‘sister concern owned by the Central Government’. Pension rates of the employees were increased by Hindustan Petroleum Corporation, and similar benefit was claimed by the employees of Bharat Petroleum. The Supreme Court observed: “If the similarly situated sister concern like Hindustan Petroleum Corporation can admit appropriate rise in the pension, we see no justification as to why the respondent-Company should not do so” Accordingly, the Supreme Court held that the Management Staff of Burma Shell was also entitled to hike in the pension at par with the staff of erstwhile Caltex India Ltd.

General principles. -Judicial activism in exercising control over public Corporations is based on the general principles of functional jurisprudence.

In Sukhdev Singh v. Bhagatram 1975, Mathew, J. observed : “State is an abstract entity and it acts through the instrumentality or agency of natural or juridical persons. Thus, a Corporation is an agency or instrumentality of the State. A public Corporation being a creation of the State is subject to the same constitutional limitation as the State itself”

Thus, in Mahabir Auto Stores v. Indian Oil Corporation 1990, the petitioner firm was carrying on business of sale and distribution of lubricants since 18 years. The respondent-Corporation, a Government Company, stopped the supply of materials suddenly and abruptly. A petition for Writ of mandamus was filed but the High Court dismissed it. The Company approached the Supreme Court. It was pleaded by the Corporation that it was Company registered under the Companies Act, 1956 and was not subject to the Writ jurisdiction. Moreover, the dispute fell within the realm of contract and the petition was not maintainable. Rejecting both of the pleas, the Supreme Court held that

  • The Corporation, a government Company, was organ and instrumentality of the State under Article 12 of the Constitution; and
  • Every activity of a public authority including contractual is subject to reason and rule of law, should not be arbitrary and meet the test. of Article 14. There is, thus, shift from conceptual to functional jurisprudence.
  • Government Control

Since Government is the custodian of public interest, it also exercises control and supervision over the affairs of public Corporations. However, government control does not mean governmental interference in the day-to-day working of the Corporation, which is highly destructive of the idea of autonomy necessary for the success of any commercial or service undertaking. There is not any uniform pattern of governmental control over all statutory public Corporations. However, there are various techniques of governmental control in the following shapes :

  1. Appointment and removal :Generally, the power to appoint and remove the Chairman and the Members of a public Corporation is vested in the Government by the constituent statute. This is the most effective means of control over a public Corporation. In some statutes, the terms of office of a member is left to be determined by the government. In some case, the government is empowered to remove a member of the Corporation.
  2. Finance : Effective control over a public Corporation is held when such Corporation has to depend on the government for Finance, This provides teeth to the governmental control over the working of the Corporation. A constituent statute may provide for previous approval of the government undertaking any capital expenditure exceeding a specified amount such as section 35 of the Aur Corporation Act 1953. It may also require the public Corporation to submit to the government its programme and budget for the next year and to submit the same in advance.
  3. Directives.-An important technique evolved to reconcile governmental control with the autonomy of the undertaking is to authorise the government to issue directives to public undertaking on matters of “policy, without interfering with the matters of day to day administration” Government may be given power by a statute to issue such directives as it may consider necessary on questions of policy affecting the manner in which a Corporation may perform its functions. These directives will be followed by the Corporation. Sometimes, a statute may also provide that if “any question arises whether a direction relates to a matter of policy involving public interest, the decision of the Central Government therein shall be final”, e.g. section 21 of the Life Insurance Corporation Act, 1956; section 34 (1) of the Air Corporation Act, 1953.
  4. Rules and Regulations.-As is usual, a constituent statute providing for creation of a public Corporation contains provisions for making rules and regulations.

Under such provisions, the Central Government is empowered to make rules ‘to give effect to the provisions of the Act.’ Under other provision, the Corporation is authorised to make regulations with the prior approval of the Central Government’, but ‘not inconsistent with the Act and the Rules made thereunder’ for enabling it to discharge its functions under the Act. In this way, even in case of framing rules and regulations, the Government is given upper hand. Regulations promulgated without prior approval of the government cannot be held valid. In a case where there is inconsistency between the rules and regulations, the rules would prevail and the regulations will have to give way to the extent of inconsistency with the rules made by the Central Government.

  • Suggestions.-There is need of compromise between the autonomy of a statutory public Corporation in the matters of day to day administration and the control which must be exercised by a welfare State over such Corporation. The never-ending problem is the reconciliation between these two antinomics-autonomy and control. A uniform pattern cannot be suggested. The balance between the two antinomics has to vary from enterprise to enterprise as well as the organisational form of enterprise.
  • Public Control

Public Corporations are created for the public and they are required to conduct their affairs in the public interest. In the ultimate analysis, public enterprises are owned by the people and those who run them are accountable to the people. It is therefore, highly desirable that the public corporations must respond to the need and the opinion of the people. Effective public control over these agencies may be exercised through the following channels: –

  1. Mass media. -In a free society, mass media plays a significant role. Such machinery not only reflects public opinion but also creates public opinion by informative and investigative journalism. By exposing political interference, bureaucratic red tapism, corruption and insufficiency, mass media can go a long way in making these agencies respond to the public interest. At times, a single newspaper can be so effective that it can influence public bodies’ policies and action by discovering and publishing facts which embarrass or discredit the government agencies.

In India, this control mechanism is highly weak because Television and Radio are not independent and autonomous bodies but mere government departments. Press is also largely dependent on the government for financial assistance (in the form of advertisements) and newsprint. Due to these factors, mass media in India has not been able to play its role of exercising control over the affairs of public bodies in public interest.

  1. Consumer councils. These are bodies established under the authority of the statute constituting the Corporations concerned with the object of enabling ‘consumers’ to ventilate their grievances, or make their views known to the Corporations.

The outstanding examples of consumer councils are to be found in the Electricity and Gas Industries.

  1. Membership: In other cases, Parliament has arranged for members of certain of the public Corporations to be nominated by local authorities and other bodies interested in the functions of the particular Corporation.’ Thus, the Members of Hospital Management Committees are appointed by the Regional Hospital Boards after consultation with local health authorities, executive councils and other officials, as required by the statute. Sometimes, such consultation is made mandatory. Some statutes also provide that certain members of a council must possess particular qualifications.
  2. Consumers and Public Undertakings.- There is a clear tendency on the part of the Consumers to approach Courts for the purpose of ventilating their grievances. More and more cases are coming before the Courts in which one or the other public enterprise is a party. One development which has taken place in this area is the growth of the concept of public interest litigation through some organisation. However the courts have granted appropriate relief even to individuals customers wherever justice required.

In Rohtas Industries Ltd. v. Bihar State Electricity Board 1984, the consumer contended that “the supply of electricity being a monopoly service conducted by an agency of the State, it must be carried out reasonably and not arbitrarily” and “such reasonableness should be reflected in the price fixation and if the prices fixed are arbitrary, they are liable to be called in question before the Supreme Court on the said ground.” The Supreme Court held that an agency or instrumentality of the government must act in conformity with the principles which meet the test of reasonableness.

In the case of ONGC v. Assn. of ONGC 1990, some industrial undertakings had entered into contracts with the ONGC for supply of natural gas to them for a fixed period. When the contracts were entered into, the Central Government had no power to fix price. In this way, they were commercial contracts pure and simple between the Corporation and private parties. After the contract period was over, new contracts were entered into from time to time and prices were also raised. The industries challenged the said action by filing Writ Petitions in the High Court of Gujarat. The High Court allowed the petitions holding that ONGC being a public utility undertaking was bound to supply gas on ‘cost plus’ basis. The Corporation approached the Supreme Court. The Supreme Court held that ONGC cannot be said to be a public utility undertaking and, therefore, it was necessary that price must be fixed on ‘cost plus’ basis only. The Court ruled that ONGC had power to revise price of gas and the undertakings were not entitled to demand supply as of right, without contracts.

An interesting question of law arose in Santosh Singh v. Divl. Engineer, Telephones, Shilong 1990, for non-payment of disputed amount, the petitioner’s telephone was disconnected. The Department also disconnected another telephone of the petitioner in respect of which ‘admittedly’ nothing was outstanding. The said action was challenged.The Department placed reliance on Rule 443 of the Posts and Telegraphs Manual under which the department was empowered to disconnect any telephone or telephones if there was default by the subscriber in payment of dues in respect of any other telephone also.Negativing the contention, the Court set aside the order of the Department.

  • The Consumer Protection Act, 1986.-With the view “to provide for better protection of the interests of consumers and for that purpose to make a provision for the establishment of consumer councils and other authorities for the settlement of consumer disputes and for matters connected therewith,” Parliament enacted the Consumers Protection Act, 1986. There is provision under the Act for establishment of Consumer Protection Councils, known as Central Council and State Council.  The objects to be achieved by these councils are to promote and protect the rights of the consumers such as:
  • The right to be protected against the marketing of goods which are hazardous to life and property;
  • The right to be informed about the quality, quantity, potency, purity, standard and price of goods so as to protect the consumer against unfair trade practices;
  • The right to be assured, wherever possible, access to a variety of goods at competitive prices;
  • The right to be heard and to be assured that consumers’ interests will receive due consideration at appropriate forums;
  • The right to seek redressal against unfair trade practices or unscrupulous exploitation of consumer; and
  • The right to consumer education.

The Act also provides for setting up machinery to settle consumer disputes. For that purpose, consumer protection redressal agencies at District level, State level and Central level are created. The procedure to be followed by such bodies is also laid down under the Act. Non-compliance with the order made by such bodies is made penal and even minimum sentence is also mentioned. Any action taken by any member, officer or person of such bodies in good faith is also given protection.


As has been discussed so far, the position is clear that Public Corporations must be autonomous in their day to day working and the government should not interfere in their daily business. However, it is also necessary that monopolistic powers conferred on such Corporations should not be abused or arbitrarily exercised and they should not become the ‘fourth branch’ of the government.



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