ers, public corporations are subject to four distinct layers of control:
A. Judicial Control Because public corporations are independent legal entities, they are subject to the jurisdiction of civil and constitutional courts. Judicial
PUBLIC CORPORATIONS
QUESTION BANK
Q1. Define public corporation. Explain fully the Reserve Bank of India.
Q2. Write a full-dressed note on the parliamentary control of the public corporation in India.
Q.3. State the necessity of public corporations and the various modes of keeping control of them.
Q.4. What mean by the public corporation? How do the legislative & Government keep control of it?
1. State Bank Of India.
2. Reserve Bank Of India.
3. Life Insurance Corporation of India.
I. Introduction
II. Classification of Public Enterprises
1. Government Departmental Undertakings
a. Structure:
b. Financing:
c. Personnel:
2. Government Companies
a. Definition:
b. Flexibility:
3. Public Corporations (Statutory Corporations)
a. Autonomy:
b. Personnel:
III. Constitutional Framework
1. Article 298:
2. Article 19(6)(ii):
IV. Core Instances of Public Corporations
1. Reserve Bank of India (RBI)
a. Constitution
b. Objective:
c. Management:
d. Regulatory Powers:
2. State Bank of India (SBI)
a. Constitution:
c. Management & Functions:
3. Life Insurance Corporation of India (LIC)
c. Management & Evolution:
d. Note on Modern Legal Status:
e. Act was amended via the Finance Act, 2021
V. Control Mechanisms Over Public Corporations
A. Judicial Control
1. The Doctrine of Ultra Vires
2. Constitutional Writ Jurisdiction (Status as "State" under Article 12)
B. Executive (Government) Control
1. Appointment and Removal:
2. Financial Control:
3. Statutory Directives:
4. Rule-Making Power:
C. Parliamentary Control
1. Statutory Alteration:
2. Parliamentary Questions:
3. House Debates:
4. The Committee on Public Undertakings (COPU):
D. Public and Consumer Control
1. Consumer Councils & Advisory Bodies:
2. Public Interest Litigation (PIL):
3. The Consumer Protection Act, 2019:
The modern State has completely transitioned from a restrictive regulatory body into a comprehensive welfare State. Beyond its traditional duties of national defense and the administration of justice, the State actively engages in trade, commerce, industry, and the distribution of public services. These multi-dimensional economic activities are carried out through various structural entities collectively known as public enterprises.
The term "public enterprises" encompasses all state-owned, state-controlled, or state-funded agencies engaged in commercial production, manufacturing, or service-rendering activities. These public sector undertakings are broadly classified into three distinct structural models:
1. Departmental Undertakings: Managed directly by government ministries (e.g., the Indian Railways).
2. Statutory Corporations (Public Corporations): Created by bespoke legislation passed by Parliament or State Legislatures (e.g., the Reserve Bank of India, Life Insurance Corporation).
3. Government Companies: Registered under the prevailing corporate legislation (the Companies Act, 2013).
This is the oldest and most traditional form of public enterprise. Examples include the Indian Railways and historic Postal & Telegraph departments.
a. Structure: These undertakings are organized as regular branches of a government department and are headed by a Cabinet Minister who is directly answerable to the Parliament.
b. Financing: They are financed through annual budgetary appropriations from the Consolidated Fund of India, and all revenues generated are paid directly into the state treasury.
c. Personnel: The staff are regular civil servants subject to standard government discipline, rules, and constitutional protections (such as Article 311).
A Government Company is an enterprise incorporated under the Companies Act, 2013 (which replaced the legacy Companies Act, 1956).
a. Definition: Under Section 2(45) of the Companies Act, 2013, a Government Company means any company in which not less than 51% of the paid-up share capital is held by the Central Government, by any State Government(s), or jointly by both.
b. Flexibility: This model was introduced to eliminate red tape, civil service bureaucracy, and procedural bottlenecks. Examples include Bharat Electronics Ltd. (BEL) and Bharat Heavy Electricals Ltd. (BHEL).
c. Personnel: A government company possesses a distinct corporate personality. Its employees are governed by independent employment contracts and are not treated as civil servants.
A Public Corporation is a corporate entity established directly by a specific, dedicated statute enacted by Parliament or a State Legislature.
a. Autonomy: It is wholly owned by the State but possesses a distinct, independent legal identity separate from the government. It operates beyond standard parliamentary estimating, treasury pooling, or civil accounting procedures.
b. Personnel: Its employees are recruited independently under statutory regulations and are not civil servants. Landmark examples include the Reserve Bank of India (RBI), the State Bank of India (SBI), and the Life Insurance Corporation of India (LIC).
The Constitution of India explicitly provides the framework for the state's commercial expansion:
1. Article 298: Extends the executive power of the Union and the States to carry on any trade, business, industry, or commercial venture, including the acquisition, holding, and disposal of property.
2. Article 19(6)(ii): Empowers the State to create complete or partial state monopolies. It allows the State to enact laws creating commercial systems or statutory corporations to execute specific trades, businesses, or industries to the complete or partial exclusion of private citizens.
a. Constitution: Established under the Reserve Bank of India Act, 1934. It is a body corporate possessing perpetual succession, a common seal, and the legal capacity to sue and be sued in its own name.
b. Objective: Operates as the nation's central bank, tasked with regulating the issuance of bank notes, securing monetary stability, maintaining currency reserves, and managing the credit and macroeconomic structure of the country.
c. Management: Governed by a Central Board of Directors comprising a Governor, Deputy Governors, and specialized directors appointed by the Central Government under Section 8 of the Act.
d. Regulatory Powers: Under the Banking Regulation Act, 1949, the RBI possesses sweeping regulatory powers over all banking institutions in India. It can issue or revoke banking licenses, inspect books of accounts, conduct financial investigations, direct lending policies, and formulate schemes for the mandatory amalgamation or liquidation of distressed banking institutions.
a. Constitution: Established under the State Bank of India Act, 1955, taking over the assets, liabilities, and operations of the historic Imperial Bank of India. It operates as a body corporate with perpetual succession and a common seal.
b. Objective: Founded to expand integrated banking facilities rapidly across rural, semi-urban, and unbanked regions of India, aligning commercial banking with national development goals.
c. Management & Functions: Governed by a Central Board, the SBI works closely with the Central Government and the RBI. By statute, it acts as the primary fiscal agent of the RBI across India. It receives, collects, and remits public revenue, bullions, and securities on behalf of the state, and is statutory required to submit its audited balance sheets and performance reviews to the RBI and the Central Government.
a. Constitution: Established under the Life Insurance Corporation Act, 1956, which nationalized the private insurance sector. It functions as a body corporate with a common seal and full property rights.
b. Objective: Founded to conduct life insurance business within and outside India, ensuring the mobilization of public savings for community welfare and national infrastructure development.
c. Management & Evolution: Managed by a Central Board of Directors appointed by the Central Government.
d. Note on Modern Legal Status: While historically operating as a completely closed statutory corporation funded by a Rs. 5 crore government grant, the LIC
e. Act was amended via the Finance Act, 2021 to structurally convert LIC into a public-listed corporation, facilitating an Initial Public Offering (IPO). This amendment changed its capital structure into shares while retaining majority government ownership and its status as an instrumentality of the State. It remains fully liable in courts for breaches of contract and tortious civil wrongs committed by its agents.
To prevent the arbitrary exercise or abuse of vast commercial powe
review relies on two primary doctrines:
Public corporations must operate strictly within the legal boundaries set by their enabling acts. Any action, contract, or regulation that exceeds these statutory limits is void.
Case Law: Ramana Dayaram Shetty v. International Airport Authority of India, (1979) 3 SCC 489
Ruling: The Supreme Court held that public corporations cannot act arbitrarily or fitfully when distributing state largesse (contracts, jobs, tenders, or licenses). They must follow transparent, non-discriminatory, and lawful procedures. If a corporation acts arbitrarily, its choices will be struck down under Article 14.
Because statutory corporations perform functions that are public or governmental in nature, they are classified as an "authority" or an "instrumentality of the State" under Article 12 of the Constitution. Consequently, they are directly subject to fundamental rights obligations and the writ jurisdictions of the Supreme Court (Article 32) and the High Courts (Article 226).
Case Law: Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi, (1975) 1 SCC 421
Facts: An employee of the Oil and Natural Gas Commission (ONGC) was dismissed from service in violation of the statutory regulations framed by the corporation under its parent Act. The employee filed a writ petition seeking a mandamus for reinstatement.
Ruling: The Constitution Bench of the Supreme Court held that statutory corporations like ONGC, LIC, and IFC are instrumentalities of the Central Government. They are "State" under Article 12. Their rules and regulations have the force of law, and a writ of mandamus can be issued to compel them to comply with their statutory obligations and reinstate wrongfully dismissed employees.
Since the executive branch finances and establishes these corporations, it maintains oversight through several methods:
1. Appointment and Removal: The Central or State Government retains the absolute statutory right to appoint, suspend, or remove the Chairman, Managing Directors, and members of the governing Board.
2. Financial Control: Major capital expenditures, borrowing terms, and the appropriation of surplus funds require formal approval from the Ministry of Finance.
3. Statutory Directives: Enabling Acts contain provisions empowering the appropriate Ministry to issue binding written directives on matters of overarching national policy and public interest.
4. Rule-Making Power: The government holds the primary power to draft the overarching rules that dictate the corporation's governance frameworks.
Public corporations are accountable to the legislature that created them through four mechanisms:
1. Statutory Alteration: Since corporations are creatures of statute, Parliament retains the power to amend their enabling Acts, reduce their authority, or dissolve them entirely.
2. Parliamentary Questions: Members of Parliament can ask ministers questions about the performance, efficiency, and policy choices of public corporations during Question Hour.
3. House Debates: Parliament reviews and debates a corporation's performance when its annual audits, financial accounts, and operational reports are tabled before the House.
4. The Committee on Public Undertakings (COPU): Established in 1964, this permanent parliamentary committee examines the reports, accounts, and business health of designated public undertakings. It ensures that public corporations are managed according to sound business principles and prudent commercial practices, and submits its findings directly to Parliament.
To ensure that public corporations remain responsive to the citizens they serve, additional checks have been introduced:
1. Consumer Councils & Advisory Bodies: Statutory consultative committees are formed within major public service utilities (e.g., electricity, rail, and telecom advisory panels) to represent public interests and address grievances.
2. Public Interest Litigation (PIL): Citizens can approach High Courts or the Supreme Court via PILs to challenge systemic mismanagement, corruption, or environmental damage caused by public corporations.
3. The Consumer Protection Act, 2019: (Which replaced the legacy 1986 Act). Public corporations offering commercial services
such as transport, banking, and insurance
fall under the definition of "service providers." Consumers can sue public corporations before District, State, and National Consumer Dispute Redressal Commissions for service deficiencies or unfair trade practices.
Prof. .S. D. Bhosale