“What’s in a name that which we call a rose By any other name would smell as sweet. And the State is fragrant with fundamental rights whatever the legal hue or jural cloak of its surrogate”         

-Jusitce Kirshna Iyer in Som Prakash Lekhi

                                                                                                                                          

(This blog is in pursuance to the earlier blog on the Ratlam Municipality Case, the same can be accessed by clicking here)

In the Ratlam case, the hon’ble apex Court had considered whether a municipal council came under the ambit of article 12. The question of law was similar in the instant case. The respondent, however, was not a municipal body but a corporate entity, namely, Bharat Petroleum. The Central government by enacting Burmah Shell (Acquisition of Undertakings in India) Act, 1976 (hereinafter the ‘Act’) acquired a company, namely, Burmah Shell Oil Storage Limited.  Subsequently, the Central government transferred the rights and liabilities of the acquired company to Bharat Petroleum (hereinafter the ‘second respondent’).   

Date of Judgement: 13 November 1980.

Composition of the Bench: Full bench of Hon’ble Justice Mr Krishnaiyer authoring thie majority opinion for himself and Hon’ble Justice Mr. O.C. Reddy. Hon’ble Justice R.S. Pathak penned a separate but concurring judgement.

Jurisdiction: The original jurisdiction of the Hon’ble Court was invoked under article 32 of the Constitution.

At this juncture it would be expedient to acquaint ourselves with the facts of the case.

Facts

The petitioner was employed in the Burma Shell Oil Storage Ltd. Upon attaining the age of 50 years, he became eligible for pension and hence took voluntary retirement. The pension of the petitioner depended on the terms of a Trust Deed of 1950. It was pursuant to this trust deed that a pension fund, under which the petitioner was a beneficiary, was set up.

 As has been adverted earlier the corporation was acquired by the Central government and subsequently vested in the second respondent. In other words, the pension was now claimable against the second respondent (Bharat Petroleum). The petitioner was aggrieved on account of deduction in the pension. He was eligible for a monthly sum Rs. 165.99   and an additional gratuity pay of Rs.86. The same was reduced to a paltry sum of Rs.40.05 on account of two deductions.  

Positing such deductions to be inhumane, illegal and an effrontery to his right to property under article 19, the petitioner moved the Supreme Court under Article 32, praying that the original pension amount be restored. It was in defence to this writ that the counsel for the second respondent claimed to be outside the purview of article 12. The present blog will restrict itself to the issue of maintainability of the writ petition.

Deciphering why the Government vested liabilities to Bharat Petroleum

In a welfare state, the government is tasked with additional responsibilities in order to ensure that the social goals are met. In the Indian context these social goals are envisaged in part 4 of the Constitution. To meet these goals, states are expressly allowed to partake in trade and commerce by virtue article 298 of the Constitution. To partake in such trade and commerce, governments set up corporations.

Corporate entities enjoy multiple administrative advantages over a governmental department directly tasked with trade and business. People with specific professional skill sets can be roped in to perform specific tasks that warrant specific expertise. There is administrative flexibility, contrary to the departmental rigidity that is very often associated with governmental departments. Furthermore, the slow motion of procedure on account of tortuous leadership hierarchy can be subverted. Apart from being bereft of this governmental stiffness and having administrative elasticity, corporate enjoy two additional benefits by virtue of being a juristical person-

1. Immortality
2. Individuality

Juristic Veil

On account of these practical advantages welfare states like ours readily delegate such functions to corporations. Most importantly, such delegation of assets and liabilities accrues without depreciating the ownership and control of the state. Amply clear after a perusal of section 7 of the act in the instant case that Burmah Shell was statutorily controlled by the Central government –

“Notwithstanding anything contained in sections 3, 4 and 5, the Central

Government may, if satisfied that a Government company is willing to comply, or has complied with such terms and conditions as that Government may think fit to impose, direct by notification that the right, title and interest and the liabilities of Burmah Shell in relation to any of its undertakings in India, shall instead of continuing to vest in the Central Government, vest in the Government company.”

A government company is a mere “offspring” of the State. Made up of the “bloods and bones” of the state and given corporate shape and status for defined objectives.  The Court opined that the company was an “alter ego” of the Central government. A juristic veil could not destroy the true character o the entity for the purpose of Constitutional law.  Insulating such “surrogates of the Government” from the enforcement of fundamental rights would be perilous to the rule of law. Governments could exploit the citizenry under the veil of being a corporation despite such a corporation being shepherded at the whims and fancies of the government.  

Test

The Court opined that to ascertain whether an entity is an instrumentality of the state, instead of simply considering whether a body is constituted under a statute, a more functional test should be adopted. The following points should be considered while determining whether an entity is an instrumentality of the state-

1. If the entire share capital is held by the government, it would go a long way in indicating that the corporation is an instrumentality of the government.
2. Existence of deep and pervasive state control.
3. Whether the corporation enjoys a monopoly status which is state conferred or state protected.
4. If functions of the corporation are of public importance and closely related to governmental functions.
5. If department of government is transferred to a corporation.

Having accorded a cumulative assessment to all these factors would help one ascertain whether an organisation is an instrumentality, obviating the need for making exclusions on sophisticated grounds, like, the entity being created under and not by a statute (as was posited in the present case).

Being statutorily controlled the deep and pervasive state interest was amply evident in the present case. The public importance and proximity to government functions is also self evident. Respondent two (Bharat Petroleum) was thus deemed to be amenable to article 12. The writ was hence maintainable.

As a denouement this writer deems it apposite to point out that the crux of this judgement is this- having a separate juristic personality would not mean that the organisation cannot an instrumentality of the state. The jurisprudential salience of this judgement was not in the genesis of a novel judicial doctrine, but, in crystallisation the existing doctrine of instrumentality. The contours of the doctrine which were hitherto helter-skelter were limpidly delineated by Iyer J.

To appreciate how nebulous the jurisprudence was at the time of this judgement, let us shift our attention to the judgement of Pathak J. who delivered a separate but concurring judgement. He cavilled against the inclusion of Bharat Petroleum as state.  Had the government vested the rights and liabilities in a privately owned corporation instead of state owned Bharat Petroleum, would the private entity still be tantamount to state under article 12 as well, wondered Pathak J. in his laconic obiter. However, on account of the established jurisprudence (on account of a catena of judgements like the Air Authority Case, UP Warehouse case, Rajasthan Electricity Board case) lordship deemed it prudent to side with his brother judge in the instant case.      

This helps one better appreciate the jurisprudential importance of this case. What Iyer J. achieves was crystallising the existing jurisprudence in the form of the six points, consequently, reconciling the previous holdings of the apex Court, ensuring that mere legal technicalities like having a separate juristic personality cannot be exploited as a Constitutional loophole to transgress the fundamental rights of the citizenry.