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LAIBILITY OF PUBLIC CORPORATIONS

A Research Submitted in The Fulfilment for The Course Administrative Law for The
Attaining Degree Of B.A., LL. B (Hons.) During the Academic Year Of 2019-2020

SUBMITTED BY-

AKHIL KUMAR GOYAL

Roll no. 1809

SUBMITTED TO

FR. PETER LADIS F.

ASSISTANT PROFESSOR OF LAW

February, 2020

CHANAKYA NATIONAL LAW UNIVERSITY, MITHAPUR, PATNA, 800001

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ACKNOWLEDGEMENT
I would like to thank my faculty, FR. Peter Ladis F., whose guidance helped me a lot with structuring
my project.

I owe the present accomplishment of my project to my friends, who helped me immensely with
materials throughout the project and without whom I couldn’t have completed it in the present way.

I would also like to extend my gratitude to my parents and all those unseen hands that helped me out
at every stage of my project.

THANK YOU

AKHIL KUMAR GOYAL

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INDEX

No Content Page No

1 INTRODUCTION 4

2 MEANING 5

3 OBJECT 6

4 CHARACTERISTICS 6

5 CLASSIFICATION 7

6 PUBLIC CORPORATION; WHETHER STATE UNDER 7

ARTICLE 12 OF THE CONSTITUTION
7 STATUS OF PUBLIC CORPORATION 8

8 RIGHTS OF PUBLIC CORPORATION 8

9 POWERS OF PUBLIC CORPORATION 8

10 DUTIES OF PUBLIC CORPORATION 9

11 LIABILITIES OF PUBLIC CORPORATION 9

12 CONCLUSION 14

13. BIBLIOGRAPHY 14
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1. INTRODUCTION

A statutory corporation is a corporation created by statute. Their precise nature varies by jurisdiction
thus they might be ordinary companies/corporations owned by a government with or without other
shareholders, or they might be a body without shareholders which is controlled by national or sub-
national government to the (in some cases minimal) extent provided for in the creating legislation.

A public corporation is that form of public enterprise which is created as an autonomous unit, by a
special Act of the Parliament or the State Legislature.

Since a public corporation is created by a Statute; it is also known as a statutory corporation.

The Statute defines the objectives, powers and functions of the public corporation. Life Insurance
Corporation of India, the Indian Airlines, the Air India International, Oil and Natural Gas
Commission etc. are some examples of public corporations, in India.

Public corporation is like a company which is artificial creature of law. It can sue or can be sued just
like other corporation. It has a separate supreme and legal identity and can enter into a contract.

Public corporation has a perpetual succession and can acquire, hold, and dispose of property. It has a
common seal and is managed and controlled by the state government or central government.

The liability of public corporations is extensive and is separate from the government. The is liable
for breach of contract, tort and even criminal liability.

AIMS AND OBJECTIVE OF STUDY-

 A literature review
 to find out the liability of Public Corporation,
 to give certain suggestions after analyzing the topic
HYPOTHESIS
The researcher presumes that-
 Public Corporation are administrative agencies.
 Public corporation require to undergo the test of judicial review.
 There can be writ against the actions of Public corporation
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RESEARCH METHODOLOGY-
This project is based upon doctrinal method of research.
 METHOD- The method of writing followed in the course of this research project is
primarily analytical.

 SOURCES OF DATA- The following secondary sources of data have been used in the
project-
Articles, Books and Websites.

2. MEANING

No statute or court has ever attempted or been asked to define the expression public corporation. It
has no regular from and no specialized function. It is employed wherever it is convenient to confer
corporate personality.

In S.S Dhanoa v. MCD1-

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.

3. OBJECT

It can be used as a sword by Minister in exercising influence over its activities by issuing directives
of a general nature, by making appointments of chairman and members, by controlling its borrowing
etc. It can also be used as shield to protect the government from embarrassing questions in
parliament by pleading its autonomy.

As observed by the supreme court in Som Prakash Rekhi v. Union of India, a commercial
undertaking although run under the constitutional scheme of the governments better managed with

1
1991 AIR 1745
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professional skill and on business principles, guided by social goals, free from departmental rigidity,
slow motion procedure and hierarchy of officers. The trappings of personality, liberation from
government stiffness and capacity for mammoth growth, together with administrative elasticity are
attributes and advantages of corporation.

4. CHARACTERISTICS

It can be said that a corporation created by or under a statute possesses the following main
characteristics:

1. A corporation is established by or orders a statute. It possesses an independent corporate

personality and it is an entity different from the union or the state government. It is a body
corporate with perpetual succession and a common seal. It can sue and be sued in its own
name.

2. There may be several members or shareholders of a corporation. The law however knows
only one body corporate. Juristic personality of corporation is distinct from its individual’s
members.

3. A corporation having nether soul nor body ,it acts through natural person.

4. A corporation exercises its rights, performs its functions and discharges its duties and
obligations entrusted to it by its constituent statute or charter by which it is created.

5. Every action of a corporation not expressly or impliedly authorized by the statute or charter is
ultra vires and having no legal effect whatsoever.

6. The doctrine of ultra vires, however must be interpreted and applied reasonably. All
incidental and consequential actions should be held legal and lawful.

7. A corporation can possess, hold and dispose of property.

8. An appropriate government may issue directives relatives to policy matters. The corporations
are bound by them and have to act in accordance with such directions.
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9. The constituent statute or charter may issue directive relating to policy matter. The
corporation is bound by them and has to act in accordance with such directions.

10. Employees of a corporation do not hold civil post under the union or the state within the
meaning of the constitution.

5. CLASSIFICATION

In India public corporations may be classified into four ill-assorted main groups:

 Commercial corporation
 Development corporation
 Social corporation
 Financial corporation

Commercial Corporation: this group includes those corporations which perform commercial and
industrial functions. The managing body of a commercial corporation resembles the board of
directors of a public company. As their functions are commercial in nature they are supposed to be
financially self-supporting and they are also expected to earn profit.

Development Corporation: the modern state is a welfare state. As a progressive state it exercises
many non-sovereign functions also. Development corporations have been establishment with a view
to encourage national progress by promoting developmental activities.

Social Corporation: Corporation which have been establishment for the purpose of providing social
services to the citizens on behalf the government are not commercial in nature and therefore, are not
expected to be financially self-supporting.

Financial Corporation: This group includes financial institutions, like reserve bank of India state
bank of India, Industrial Finance Corporation of India, Life insurance corporation of India and film
financing corporation. They advance loans to institutions carrying on trade, business or industry on
such terms and conditions as may be agreed upon. They may provide credits to those institutions
which find it difficult to avail of the same or which do not find it possible to have recourse to capital
issue methods’
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6. PUBLIC CORPORATION; WHETHER STATE UNDER ARTICLE 12 OF THE

CONSTITUTION

Article 12 of the constitution defines state as inclusive of central and the state governments,
parliament and state legislatives, local and other authorities in Sukhdev Singh v. Bhagatram Sardar
Singh Raghuvanshi2 ...Oil and natural Gas Commission, Life Insurance Corporation and industrial
finance corporation were to be.

7. STATUS OF PUBLIC CORPORATION

A public corporation possesses a separate and distinct corporate personality. It is a body corporate
with perpetual succession and common seal. It can sue and be sued in its own name. Public
corporation has been recognized in the constitution. It expressly provides that the state may carry on
any trade, industry business or service either itself or though a corporation owned or controlled by it
to the exclusion of citizens.

8. RIGHTS OF PUBLIC CORPORATION

A public corporation is a legal entity and accordingly, like any other legal person, it can sue for the
enforcement of its legal rights. It is a artificial person, and therefore, it cannot claim any fundamental
right which is conferred by the citizen only on the citizens. All the same its shareholders, being
citizens, can claim protection of those fundamental rights. But the rights conferred by part III of the
constitution can be enforced not only against the “state” but also against all “local or other authority”.

9. POWERS OF PUBLIC CORPORATION

There is no doubt that a statutory corporation can do only those acts as are authorized by the statute
creating it, and that power of such corporation do not extend beyond it. A statutory corporation must
act within the framework of its constitution.

2
AIR 1975 SC 1331.
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10. DUTIES OF PUBLIC CORPORATION

A statutory corporation being an instrumentality of the state must exercise its power in just, fair and
reasonable manner. Its approach must be beneficial to the general public. It must act bona fide. Wide
powers conferred on corporations are subject to inherent limitation that they should be exercised
honestly and in good faith.

11. LIABILITIES OF PUBLIC CORPORATION

The public sector plays a key role in the economic development of India the sectors which reflect
state Monopoly are run and managed by the state order through their own departments or by forming
governmental companies or by creating public sector undertakings examples of public corporations
are RBI air India ONGC state Trading Corporation LIC etc.

Corporation is like company it is a artificial creation of law having legal entity separate and distinct
form from the individual who composed it it has perpetual succession and can acquire Hold and
dispose of property enter into contract so and can be sued and excise such other powers and
privileges as may be conferred on it by law.

The characteristics of a corporation created by under Institute may be set out as under
1. A public corporation established by or under a statute
2. It is a body coperation with perpetual succession and the common seal
3. However it is an independent corporate personality with different different from
government
4. It can acquire Hold and dispose of property
5. It can be sued and can sue in its own name
6. It can have several members and shareholders however it has its own juristic personality
distinct from that of such person
7. any act of cooperation which is not expressly or impliedly authorised by the by institute for
charter is ultravirus and has no legal effect whatsoever
8. all the control and management of public corporation may be wasted in Government of
India or government of state in the eyes of law it manages its Day To day affairs on its own.
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9. Since corporation is created under Institute it is a state for the purpose of article 12 of the
Indian Constitution therefore writ petition can be filed against state under article 32 and
article 226 of the Constitution.
10. employee of a public corporation do not hold a civil post under the union or a state under
the constitution.
11. A corporation is not a citizen of India and therefore cannot avail of those fundamental
rights which are available only to Indian citizens as far instance the right conferred by article
19 of the constitution.
12. A corporation can be made liable for the breach of contract for a tort.

Public corporation has 6 liabilities

1. liability in contract law
2. liability under the law of torts
3. liability and the criminal law
4. liability under constitution of India
5. liability to pay tax
6. Crown privilege.

Liability under contract law

Public corporation is not a department of Government and hence Article 299 of the Constitution of
India does not apply to public corporations . public corporation can sue and can be sued for the
breach of contract and further it can enter into contract in its own name. Further, Section 80 of CPC
does not apply to the public corporations.
A public corporation can enter into a contract and can sue and can be suit for the breach of contract
since it is not a department of government the requirement of government contract under article 299
of the Constitution of India does not apply to contracts entered into by it likewise the requirement of
statutory notice under Section 80 of the Civil Procedure Code before filing of a Suit against the
government does not apply to the suits against Public Corporation.

Liability under Law of Torts

Liability under the law of torts being a separate legal entity a public corporation is liable in torts like
any other person it is liable in torts for the acts of its servants and employees to the same extent is the
private employs would be liable for the doctrine of vicarious liability at times Institute creates a
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corporation extent some degree of immunity to it and its servants and Employees with regard to the
acts committed by them in good faith in discharge of the duty.
Public corporations are vicariously liable for any tort committed by a servant for employees but it is
not liable for the acts done in good faith by its employees or service while discharging their duties if
it is provided under the statute and has given immunity to such public corporations. Public
corporations are separate legal entities and hence are liable for the torts as any other person.

Liability under criminal law

A public corporation can become vicariously liable for the crimes committed by the servants and
employees in the course of employment as far is instance for fraud, libel, contempt of court etc.
however public corporation cannot be held liable for those affairs which can be Om committed only
by a natural person as for instance bigamy or rape.
Public corporations are vicariously liable for any crime committed by its servents or employees for
example fraud libal contempt of court etc. in the course of employment. since public corporation is
artificial person it cannot be held liable for the offences committed by natural person for example
rape or bigamy.

Liability under the constitution of India

After the landmark judgement of Supreme Court in the case of Sukhdev Singh vs bhagatram3 it is not
well settled that a public corporation is a state with the meaning of article 12 of the Constitution of
India and therefore fundamental rights can be in force against it by invoking its resolution of the high
court under article 226 and article 32 in the supreme court thereof.

Liabilities to pay Taxes

Public corporations are liable to pay taxes and cannot able for the tax exemption available to the
government under article 289 of the Constitution of India.

Crown privilege
A public corporation is a public authority but not a government department therefore cannot claim
Crown privilege.

Control of Public Corporation

3
AIR 1975 SC 1331.
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Control of public corporation generally speaking very wide powers are conferred on public
corporation so they so that they may promote economic and social activities of the country it is
therefore necessary that proper control be exercised over them is an arbitrary fashion so they may not
misuse or abuse the power conferred on them process control is not exercised such Corporation may
then into what to apply described as the headless fourth organ of the government.

Types of control of public corporations

Public operations can be controlled by
1. judicial control
2. governmental control
3. parliamentary control and
4. public control judicial control
Public corporations are answerable in the in a court of law to the same extent as any private or public
company they can be suit for breach of contract and for Tots committed by the servants in the course
of employment as a public corporation is a state under article 12 of the Constitution of India and like
petition can be filed against them under article 32 and article 226 they also cannot claim crown
privilege.
In LIC of India vs. consumer Education Research Centre,4 the supreme court observed that LIC must
act reasonably and fairly mens depleting the terms and conditions of insurance policy and when
framing the rates of premium.

Governmental control
Public corporations are financially dependent on government the latter can effectively exercise a
good degree of control over them the present act of public corporation May also authorise the
government to supersede abolish a dissolved it if the corporation exceeds its authority OBB uses its
power all the such a power me not bi frequently invoked by the government it serves as an efficient
check on the functioning of cooperation likewise Institute May empower the government to Institute
investigation and enquiry into the working of corporations this provision also act as a check on
misuse or abuse of its power by a Public Corporation.

Parliamentary Control

4
1995 AIR 1811.
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Since parliamentary control over public corporations established by under Institute passed by
Parliament or a state legislature the power vested in them are also Defined by legislature search
power exceeded or abuse the legislature can amend the relevant act or even provide for The
supersession dissolution of pollution again misuse of the Parliament can formulate questions on the
working of such corporations to which the Minister in charge has to provide satisfactory answer on
the floor of the house similarly debates on the affairs of public corporations are often held in
Parliament lastly Parliament has constituted A committee known as committee on public undertaking
under 1964 to excise whether the affairs of public corporations are being managed in accordance
with the sound business principles or commercial practices this committee is empowered to examine
the reports and accounts of public corporate corporations including reports if any may be made by
the computer and Auditor General of India.

Public control
Consumer Council has been set up under the law so that the consumer make their views known to the
corporation in effective machinery has to be provided so that consumers can ventilate their grievance
and obtain necessary redressal several gas and electric consumer Council have been set up all over
the country with a fair measure of success control over public corporation is also made available
under the consumers Protection Act 1986 public operations are covered by this act which provides
for the establishment of consumer protection Council both at the centre and the state level under the
said that consumers can also approach a three-tier hierarchy of consumer court for compensation and
redressal against defective goods and deficient services of which seller for service provider including
Public Corporation.

Liabilities in contract: A public corporation can enter into contract and can sue and ca be sued for
breach thereof. A public corporation can enter into a contract between a public corporation and
private individual.
Liabilities in torts: A public corporation is liable in tort like any other person. It will be liable for
the tortuous acts committed by its servants and employees to the same extent as a private employer
of full age and capacity would have been. A corporation may be held liable for libel, deceit or
malicious prosecution though it cannot be sued for tortuous acts of a personal nature, such as assault,
personal defamation, etc. Similarly it can sue for tortuous acts of any person, such as libel, slander
etc.
Liabilities for crime: a public corporation may also be held vicariously liable for offences
committed by its servants in the curse of employment. Libel, fraud, nuisance, contempt of court etc.
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since, however, it is an artificial person it cannot be held liable for any offence which can be
committed only by a natural person.
Liability for pay tax: In the absence of grant of immunity in a statute, a public corporation is
subject to payment of tax or other duties like any other person under the relevant laws. The fact that
the corporation is wholly owned or controlled by the government or the property in possession of the
corporation belongs to the government does not ipso facto exempt the corporation from payment of
taxes.

12. CONCLUSION

From the above discussion it is clear that public corporation must be autonomous in their day by day
working and there should be no interference by the government in it. At the same time the wide
power conferred upon such corporation should not be abused or arbitrarily exercised and they should
not become the fourth branch of the government.

13. BIBLIOGRAPHY

‘Corporation’, Available from: http://www.businessdictionary.com/definition/corporation.html

‘Public Corporation’ Availabe from: http://en.wikipedia.org/wiki/Public_corporation

‘State owned enterprises in india: Reviewing the evidence’ available from:

http://www.oecd.org/corporate/ca/corporategovernanceofstate-ownedenterprises/42095406.pdf

‘What are statutory companies?’ available from: http://www.thegeminigeek.com/what-are-

statutory-companies/

Shailaza,B. ’Parliamentary control over public corporation in India’, available from:

http://www.shareyouressays.com/111326/parliamentary-control-over-public-corporation-in-india

‘What are statutory corporations?’ Available from:

http://www.indiastudychannel.com/resources/125343-What-Statutory-Corporations.aspx

‘Public or statutory corporation forms of management and organizations’, available from:-

http://freemba.in/articlesread.php?artcode=127&stcode=8&substcode=9