In the Ajay Hasia versus Khalid Mujib Sehravardi & Ors. case, the Hon’ble Supreme court laid down sixfold tests for the determination of instrumentality or agency under Article 12 of the Constitution

Article 12 of the Constitution of India is the backbone of our judicial system. To give a context, the Article provides definition of ‘State’ for the purposes of Part III, which contains fundamental rights. Article 12 is a part of Part III of the Indian Constitution. It provides that “the State” includes the following:

1. The government and Parliament of India;

2. The Government and the Legislature of each of the States;

3. All local or other authorities within the territory of India or under the control of the Government of India.

The term other than authorities as appearing in the aforenoted definition had seen a varied approach by the courts in India, and have thus been interpreted with the passage of time. Through their various judgements, the Courts have included within the term ‘legal authority’ like municipalities, District Boards, Panchayats, Improvement Trusts, Port Trusts and Mining Settlement Boards etc.

The Hon’ble Supreme Court of India in the matter of Sukhdev Singh & Ors v. Bagatram Sardar Singh Raghuvanshi and others1 has held that a State is an abstract entity. It can only act through the instrumentality or agency of natural or juristic person.

This instrumentality of the state test further strengthened in the case of Dayaram Shetty v. International Airport Authority of India2 where P.N. Bhagwati J while holding that the International Airport Authority of India is a State within the meaning of Article 12, stated that if a statutory corporation, body or other authority is an instrumentality or agency of the government, it would be an ‘authority’ and therefore ‘State’ within the meaning of that expression in Article 12.

Thus, a private company carrying on a banking business as a scheduled bank, cannot be termed as an institution or company carrying on any statutory or public duty.

Another landmark judgement which came up during the development journey of Article 12 was Ajay Hasia v. Khalid Mujib Sehravardi & Ors.3 In this case, the Hon’ble Supreme court laid down sixfold tests for the determination of instrumentality or agency under Article 12 of the Constitution. These six tests are:

1. Holding of the entire share capital of the corporation by the government is a strong indicator that the corporation is an instrumentality or agency of the government.

2. When almost the entire expenditure of the corporation is funded by the State, it would afford some indication of the corporation being a state instrumentality.

3. Whether the corporation enjoys monopoly status which is State-conferred or State-protected is also a relevant factor.

4. Existence of deep and pervasive State control may be a strong indication that the corporation is a state agency or instrumentality.

5. If the functions of the corporation are of public importance and closely related to an instrumentality or agency of the government.

6. Specifically, if a department of the government is transferred to a corporation, it would be a strong factor supportive of the corporation being an instrumentality or agency of the government.

Therefore, on the conspectus of aforenoted judgements as noted by the Hon’ble Supreme Court, a Writ Petition under Article 226 of the Constitution of India may be maintainable against (i) the State (Government); (ii) an authority; (iii) a statutory body; (iv) an instrumentality or agency of the State; (v) a company which is financed and owned by the State; (vi) a private body run substantially on State funding; (vii) a private body discharging public duty or positive obligation of public nature; and (viii) a person or a body under liability to discharge any function under any statute, to compel it to perform such a statutory function.

Having noted the broad contours of Article 12, it would be relevant to discuss a few day-to-day difficulties which are faced in the legal field quite often. The matters related to private banks are brought before the High Courts under Article 226 of the Constitution of India. One such issue came up before the Hon’ble Supreme Court in the matter of Federal Bank Ltd. v. Sagar Thomas and others4. The issue in that case was with respect to the challenge made by Mr. Sagar Thomas to his order of dismissal from the services of the Bank. The matter travelled up to the Supreme Court on the maintainability of the writ petition under Article 226 of the Constitution. The Hon’ble Supreme court took note of the jurisprudence on this aspect and even took note of various provisions of the Reserve Bank of India Act to trace the powers and authorities of private banks. After taking note of various provisions, the Hon’ble Court reached a conclusion that the control exercised by the Reserve Bank of India on the private banks is in the nature of regulatory only. It was held that merely because the Reserve Bank of India lays the banking policy in the interest of banking system or in the interest of monetary stability or sound economic growth having due regard to the interest of depositors etc. It does not mean that the private companies carrying on business activities of banking, discharge any public function or public duty. Thus, a private company carrying on a banking business as a scheduled bank, cannot be termed as an institution or company carrying on any statutory or public duty.

The Hon’ble Court in the matter of Federal Bank (Supra) was of the view that there may be some compliances arising out of the statutes, which fastens certain duties and statutory responsibilities on the private body, which they are bound to comply with. In such cases, possibly, a writ can be issued for compliances. However, the difficulty in issuing a writ would arise where there is no statutory obligation on the private body and as such, there is no non-compliance of any statutory obligation. It was thus held that when the employee is challenging his termination, such an employee is not trying to enforce any statutory duty on the part of the bank, and that being the position, the writ would not be maintainable.

If these concepts are strictly adhered to and considered a sizeable amount of litigation filed under Article 226 of Constitution of India against private banks can be avoided and even litigant can be saved from a protracted litigation.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.

1. 1975 (1) SCC 421

2. Para 27, (1979) 3 SCC 489

3. 1981 (1) SCC 722

4. (2003) 10 SCC 733