In the aforesaid case, the Hon’ble Apex Court while approving the distinction made in Steam

Navigation Co.’s case between the sovereign and non-sovereign function observed that the
immunity of crown in the United Kingdom was based on the old feudalistic notions of Justice,
namely, that the King was incapable of doing a wrong. The said common law immunity never
operated in India.
Drawing reference to Peninsular and Oriental Steam Navigation Company v. Secretary of
State for India (1861), the court stated that In India, ever since the time of the East India Company
the sovereign immunity as understood in Common Law had never operated because the East India
Company was discharging two functions:
1. Acts delegated by the Crown
2. Commercial activities independent of the Crown.

The court observed: "The functions of a welfare State are not confined only to maintaining
law and order, but extend to engaging in all activities including industry, public transport,
State trading, etc. In so far as the State activities have such wide ramifications involving not only
the use of sovereign powers but also its powers as employers in so many public sectors, it is too
much to claim that the State should be immune from the consequences of tortious acts of its
employees committed in the course of their employment as such. The Court held that the liability
of the State in respect of the tortious act by its servant within the scope of his employment
and functioning as such was similar to that of any other employer.

With regards to the second issue:

The appellant claimed that the jeep car, the rash and negligent driving of which led to the claim in
the suit, was being maintained “in exercise of sovereign powers” and not as part of any commercial
activity of the State and hence it was covered via sovereign immunity. The court held that the
taking of the jeep car from the repair shop to the Collector’s place has no connection with the
exercise of sovereign power of the state.

HELD: The Court held that the liability of the State in respect of the tortious act by its servant within
the scope of his employment and functioning as such was similar to that of any other employer.
“Act done in the course of employment but not in connection with sovereign powers of the State,
State like any other employer is vicariously liable.”

The court gave a very appreciable decision in this case. Court observed that the modern state is
not a police state. Now the functions of a state is not confined only to maintain law and order. It is
a welfare state, the functions of the state are manifold and all of its function can’t be said to be
done in exercise of sovereign power by the state. It extends to engage in all activities including
industry, trading, public transport etc. So, it is too much to claim that the state should be immune
from the consequences of the tortious acts of its employees committed in the course of their
employment. In modern India the concept of the state itself has undergone a drastic change. Now
the sovereignty vests in the people and the government are responsible to people for its decisions
which is contrary to the provisions of the constitution. The judgement was given in the case and the
observations of the honourable court made us think that we need an Act which can clarify the
position of state liability in a welfare state.