Statutory Public Corporations and its Liabilities

In a welfare State, not all trade, business or commerce is left to private enterprise. In the modern democratic World, to some extent, government also participates in this activity. This is so because welfare State seeks to
In a welfare State, not all trade, business or commerce is left to private enterprise. In the modern democratic World, to some extent, government also participates in this activity. This is so because welfare State seeks to
Statutory Public Corporations and its liabilities
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In a welfare State, not all trade, business or commerce is left to private enterprise. In the modern democratic World, to some extent, government also participates in this activity. This is so because welfare State seeks to ensure social security and social welfare for the common mass. With the view to establish a socialistic pattern of society,’ it participates in trade, commerce and business. The political philosophy of the 20th Century has thus, impelled the government to enter into trade and commerce with a view to making such enterprises pursue public interest and making them answerable to the society at large.

Once the government entered the field of trade and commerce, it became increasingly evident that the governmental machinery hitherto employed merely for the maintenance of law and order was wholly inadequate and unsuitable for business exigencies, which demanded a flexible approach. It was, therefore, felt necessary to evolve a device which combined the advantages of flexibility with public accountability. It was in response to this need that the institution of Public Corporation grew.

Public Undertakings

When trading or social service functions are carried on by the government through a Public Corporation, a government department or a government company, it is called a Public Undertaking, e. g., Railway Department, State Trading Corporation, State Electricity Board.

Structurally, public undertakings can there, be classified into three broad categories:

  1. Public Corporations,
  2. Departmental Undertakings, and
  3. Government Companies.

Any one of these organisational forms can be preferred by the government according to the nature of the enterprise as is considered convenient in order to undertake and fulfil multifarious welfare and service commitments. The government may undertake to accomplish its socio-economic objectives through its own departments, or through autonomous Public Corporations or through Government Companies. The choice between the various alternatives is a matter of policy.

Public Corporations: Statutory Public Undertakings

Where an undertaking is created by a statute, it is known as public Corporation.

Public enterprises play today a pivotal role in the economy of India. This development has been facilitated by certain Constitutional provisions and economic policies. With a view to achieving the object of ‘Socialist democratic republic, Constitutional protection is afforded to “State monopoly’.

Under Article 19(6) the State can carry on any trade or industry by itself or through a Corporation owned or controlled by it to the complete or partial exclusion of citizens. The Directive Principles of State policy contained in

Article 39 (b) and (c) enjoined the State to direct its policy towards securing:

  1. That the ownership and control of material resources of the Community are so distributed as best to subserve the common good; and
  2. That the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment. The Industrial Policy Resolution of 1948 clearly indicated that the management of State enterprises will as a rule be through the medium of Public Corporation. All these factors led the growth of Public Undertakings as an instrument for the economic structurization of the Country because in a public body accountability, freedom of action, public purpose and conscience, corporate spirit and concern for consumer could be legitimately expected.


A public Corporation may be defined as an agency created by a statute of legislature, running a service on behalf of the government, but as an independent legal entity with funds of its own and largely autonomous in management. It has no regular form and no specialised function. It is employed wherever it is convenient to confer corporate personality.

In Sukhdev Singh v. Bhagatram,  Mathew, J. elucidates :

“The crux of the matter is that public Corporation is a new type of institution which has sprung from the new social and economic functions of government and that it therefore does not neatly fit into old legal categories. Instad of forcing it into them, the latter should be adapted to the needs of changing times and conditions.”

Garner rightly enunciates:

“A public Corporation is a legal entity established normally by Parliament and always under legal authority, usually in the form of a special statute charged with the duty of carrying out specified governmental functions in the national interest, those functions being confined to a comparatively restricted field, and subjected to control by the Executive, while the Corporation remains juristically an independent entity not directly responsible to Parliament.”

In Halsbury’s Laws of England a Corporation is defined as ‘a body of persons (in the case of Corporation aggregate) or an office (in the case of Corporation sole) which is recognised by law as having a personality which is distinct from the separate personalities of the members of the body or the personality of the individual holder for the time being of the office in question”

A Corporation is defined in Dhana v. Municipal Corporation, Delhi in the following terms:

“A Corporation is an artificial being created by law having legal entity entirely separate and distinct from the individuals who compose it with the capacity of continuous existence and succession, notwithstanding changes in its membership. In addition, it possesses the capacity as such legal entity of taking, holding and conveying property, entering into contracts, suing and being sued, and exercising such other powers and privileges as may be conferred on it by the law of its creation just as a natural person may.

Features of Public Corporations –

public Corporations, whether created by or under statutes, possess the following chief characteristics-

  1. A public Corporation is created by or under a statute. It operates an activity on behalf of the government in public interest. It discharges functions of a governmental character.
  2. A public Corporation possesses an independent corporate personality. It is a body corporate with perpetual succession and common seal. It can sue and be sued in its corporate name.
  3. A public Corporation has those rights and exercises those functions entrusted to it by its constituent statute by which it is created. Any action of such Corporation, not expressly or impliedly authorised by the statute is ultra vires and cannot bind the Corporation. Such ultra vires action has no legal effect whatsoever.
  4. A public Corporation can possess, hold and dispose of property by its corporate name.
  5. Depending on the provisions of the statute by or under which a public Corporation is created such Corporation is by and large an autonomous body. The Corporation is its own master in day-to-day management and administration.
  6. The constituent statute may delegate rule-making power to a public Corporation. Such rules, regulations and bye-laws are binding and enforceable unless they are ultra vires the enabling Act and the Constitution of India.
  7. A public Corporation created by or under a statute is a ‘State’ within the definition of the term in Article 12 of the Constitution, and therefore, is subject to the Writ jurisdiction of the Supreme Court under Article 32 and of the High Courts under Article 226 of the Constitution.
  8. Employees of a public Corporation do not hold a ‘Civil Post’ under the Union or the State within the meaning of Part XIV of the Constitution of India.
  9. A public Corporation is not a ‘citizen’ within the meaning of Part II of the Constitution and therefore, it cannot claim the benefits of those Fundamental Rights which have been guaranteed only to the citizens.
  10. Since a public Corporation is neither a department nor an organ of the government, it cannot claim the privilege of the government to withhold documents.

Liabilities of Public Corporations

  1. Liability in Contracts

A public Corporation can enter into contract. It can sue and be sued for breach of contract. Since a public Corporation is a statutory public undertaking, it can do only those acts which are authorised by the statute either expressly or by necessary implication. If any requirement has been laid down in the constituent statute or in the rules, regulations or bye-laws of the Corporation, it must be complied with.37 Whatever is not expressly or impliedly authorised by the constituent statute can be said to be prohibited and must be held to be ultra vires.

The contract which is ultra vires is void ab initio and cannot be ratified as held in the case of Lakshmanswami vs LIC . No rights can be said to have accrued in favour of a private individual and no corresponding duty of a Corporation arises for breach of a contract, which is void.

Accordingly the Corporation incurs no liability. Since a Corporation is neither an agency nor a department of the government, the requirements of valid government contract as laid down in Article 299 of the Constitution do not apply to Corporation contracts.

The requirement of a statutory notice of two months as laid down under Section 80 of Civil Procedure Code before filing a suit against the government does not apply in case of a suit against a public corporation.

  • Liability in Torts

A public Corporation can be sued for the torts committed by its servants provided the act is within the powers of the Corporation and that it would be actionable if committed by a private individual. But the Corporation would not be liable if the act of the servant is ultra vires the powers of the Corporation or is such that it could under no circumstances have authorised its servant to commit it. For acts which are ultra vires, the servant would be personally liable.

A statute creating a public Corporation may exclude liability for acts done by its servants in good faith under the Act.

For example, Section 28 of the Oil and Natural Gas Commission Act, 1959 lays down :

“No suit, prosecution or other legal proceedings shall lie against the Commission or any member or employee of the Commission for anything which is in good faith done or intended to be done in pursuance of this Act or of any rule or regulation made thereunder”.

The immunity so conferred on public Corporations for tortious acts committed by its servants is unjustifiable and against the principle of equality embodied in the provisions of the Constitution. Commenting on such protection clause it is rightly state :

“In the modern welfare State, when the State is entering into business activities of all kinds, the protection clause in the statutes establishing Corporations seems to be incongruous and unjustified”.

In M.C. Mehta v. Union of India 1987, Oleon gas had escaped from Shriram Chemical and Fertilizer Company, Delhi, causing injury to people. The Supreme Court held that the liabilities of industries engaged in hazardous or dangerous activities are absolute even when the injury occurs on account of an accident in such activities. Making the rule of strict liability absolutely strict, the Court observed that an enterprise which is engaged in hazardous or inherently dangerous industry owes an absolute liability to the community to conduct its affairs with the highest standards of safety and to compensate if harm is caused to any one due to accident.

  • Liability for Crimes

A public Corporation may also incur liability for offences committed by its servants in the course of employment. However, since it is an artificial person having corporate identity, it cannot be punished with death or imprisonment. It follows that a Corporation cannot be found guilty of an offence for which the punishment is death or imprisonment. A Corporation can also not be held liable for an offence which can only be committed by a natural person, e.g. bigamy.

But a public Corporation can be held vicariously liable for offences committed by its agents, servants and employees, e.g. libel, fraud, and public nuisance.



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