Holding

Bharat Petroleum is a State within Article 12 and the petitioner is entitled to the full pension, with the employer's deductions being illegal.

Summary

Som Prakash Rekhi, a clerk of Burmah Shell Oil Storage Ltd., retired with a pension of Rs.165.99 per month under a 1950 trust deed and was also covered by the Employees Provident Fund Act, 1952 and the Payment of Gratuity Act, 1972. The employer deducted amounts for PF contributions and gratuity, reducing his pension to Rs.40.05 and stopped a supplementary retirement benefit of Rs.86 per month. After Burmah Shell was taken over under the Burmah Shell (Acquisition of Undertakings in India) Act, 1976, the assets and liabilities were vested in the Central Government and then transferred to Bharat Petroleum Corporation Ltd., which the petitioner sued for the full pension. The Court examined whether Bharat Petroleum is a "State" within Article 12, holding that it is an instrumentality of the Government and therefore subject to writ jurisdiction under Article 32. It also held that Sections 12 of the Provident Fund Act and 14 of the Gratuity Act prohibit any deduction from pension on the ground of PF or gratuity payments, rendering the employer's deductions illegal. Consequently, the petitioner was entitled to his full pension and the discretionary supplementary benefit must be considered on its merits.

Issues considered

Whether Bharat Petroleum Corporation Ltd. qualifies as a 'State' within the meaning of Article 12 of the Constitution, making it amenable to a writ under Article 32.
Whether the deductions made from the petitioner's pension under Regulation 16 of the 1950 trust deed are permissible in view of the statutory protections under the Employees Provident Fund Act, 1952 and the Payment of Gratuity Act, 1972.
Whether the supplementary retirement benefit, described as ex gratia, can be lawfully discontinued by the employer.

Legislation cited

Burmah Shell (Acquisition of Undertakings in India) Acts. 10, s. 11, s. 12, s. 3, s. 7, s. 9
Companies Acts. 1956
Employees Provident Fund and Miscellaneous Provisions Acts. 12
Industrial Disputes Acts. 33C(2)
Payment of Gratuity Acts. 14

Subjects

Article 12Stategovernment companyBharat PetroleumpensionProvident FundGratuitydeductionArticle 32fundamental rightsemployee benefits

Judgment

111

SOM PRAKASH REKHI

t. v.
UNION OF INDIA & ANR.
A

November 13, 1980
[V. R. KRISHNA IYER, R. S. PATHAK AND 0. Cl!INNAPPA REDDY, JJ.] B

Constitution of India-Burm.ah Shell (Acquisition of Und.ertakings· in India)
Act, 1976-Cpmpany acquired by the Government and vested in a statutory
corporation-Corporation if State-Test for determining whether a body is State
within the 1n(!a11fng of article 12.

Und~r a voluntary retirement scheme in force iri the company the petitioner, c
a clerk Ill Burmah Shell Oil Storage Ltd., retired voluntarily after qualifying for
pension. The pension payable to him was regulated by the terms of a tmst deed
of 1950 under which a pension fund was set up and regulations were made for
its administration. The petitioner was also covered by a scheme under the
Employees Provident Fund and Miscellaneous Provisions Act, 1952 and to
gratuity under the Payment of Gratuity Act, 1972.
D
The annual pension to which he was entitled under the trnst deed, without
making !he authorised deductions as provided under regulation 16 of the trnst
deed, worked out t6 a sum of Rs. 165.99 per mensem. He was also paid
supplementary retirement benefit of Rs. 1!6/- per month for a period o£ 13 months
after his retirement which was stopped thereafter.

The employer informed the petitioner that from out of his pension of
Rs. 165.99 two deductions were made, one of which was on account of employees E
provident fund payment made to the pensioner and the other on account of
payment of gratuity with the result the pension payable to him was shown as
Rs. 40.05. The company also cut off the monthly payment of Rs. 86/- Mlich
was paid as supplementary retirement benefit on the score that it was ex gratia,
discretionary and liable to be stopped at any time by the employer.
In the meantime the company was statutorily taken over by force of the F
Burmah Shell (Acquisition of Undertakings in India) Act, 19"/6. Thereafter
\the Central Go~ernment took steps to vest the undertaking in the second
respondent, the Bharat Petroleum, which then became the statutory successor of
the petitioner's employer. His pensionary rights such as he had, therefore,
became claimable from the second respondent.
A ?reliminary objection was raised on behalf of the COfPoration that no writ G
~ould lie against the second respondent since it is neither a government depart-
ment nor a statutory corporation but just a company._

HELD : By the Court :
'
The petitioner is entitled to the payment of full pension.
(per majority Krishna Iyer and Chinnappa Reddy, JJ Pathak, J dissenting). H
I. The Bharat Petroleum is State within the meaning of Article 12 of the
Constitution and a writ will lie against it under Article 32. [128A]
112 SUPREME COURT REPORTS [1981] 2 S.C.R.

A (a) The settkd position in law is that any authority under the control of
Government of India comes within the definition of State. On the appointed
day the right title and interest in Burmah Shell did vest in the Central Government
and by virtue of section 3 the Central Government was the transferee of the
und~rtaking. While the formal ownership was cast in the corporate mould, the
.I
reality reaches do\vn to State control. The core fact is that the Central Govern-
ment, through section 7 chose to make over its own property to its own offspring.
B Therefore, the Burmah Shell though a government company is but the alter ego
of the Central Government and must, therefore, be treated as definitionally caught
in the net of State since a juristic veil worn for certain legal purposes cannot
obliterate the true character of the entity for purposes of constitutional law.
[121A; G; 124 D-E]
(b) Corporate personality is a reality and not an iJlusion or fictitious cons-
c truction of the law. It is a legal person. Mer'ely because a company or other legal
person has functional and jural individuality for certain purposes and in certain
areas of law, it does not necessarily follow that for the effective enforcement
of fundamental rights under the constitutional scheme, the Court should not
scan the real character of that entity. In the instant case section 7 gives a
statutory recognition and a status above a mere government company. If the
entity is no more than a company under the Company I.aw or society under
D the law relating to registered societies or cooperative societies one cannot call
it an authority. [124F; !25B, E]

(c) An authority in administrative law is a body having jurisdiction in certain
matters of a public nature. Therefore, the ability conferred upon a person by
the law to alter, by his own will directed to that end, the rights, duties, liabilities
or other legal relations, either of himself or of other persons must be present
ab extra to make a person an "authority". When the person is an 'agent or
E instrument of the functions of the State' the power is public. [125F-H]

SGmetimes the test is formulated, by asking whether the corporation i:!
formed by a statute or under a statute. The true test is not how legal person
is born but why it is created. Apart from discharging functions or doing
business as the proxy of the State there must be an element of ability to affect
legal relations by virtne of power vested in it by law. [126A-B]
F
(d) In the instant case sections 3 and 7 clothe the company with State
functions. Section 7 contemplates that the company should step· into the shoes
of the executive power of the State. The legislative history of the corporation
f-
shows that it is more than a mere company registered under the Companies Act.
Matters like conditions of service of employees, adjudication of disputes relat..
ing to employees, superannuation and welfare funds and so on are regulated
G statutorily unlike in the case of ordinary companies. Sections 9 and 10 create
rights and duties vis a vis the government company itself apart from the
Companies Act. Section 11 specifically gives the Act primacy vis a vis other
laws. Section 12 clothes the Government company with power to take delivery
of the property of Burmah SheJl from every person in whose possession,
custody or control such property may be. Whatever its character antecedent
to the Act all the relevant provisions have transformed · it_ into an instrumen..
H tality of the Central Government with a strong indicia of power to make it ab.
11
authority". It is a limb of the Govefuritent, an agency of the State, a
vicarious creature of statute. [126C-H, 127B-C]
SOM PRAKASH REKlil v. UNION 113

2. Some of the tests laid down by this Court for deciding whether a A
body is State within the m,.ning of Article 12 are :
(i) If the entire share capital of the corporation is held by Government,
it would go a long way towards indicating that the corporation is an instru·
mentality or agency of the Government;
(ii) A finding of State financial support plus an unusual degree of control
over the management and policies might lead, one to characterise an opera· B
tion as State action.
(iii) The existence of deep and pervasive State control may afford an
indication that the Corporation is a State agency or instrumentality.
(iv) Whether the corporation enjoys monopoly status which is State con..
X ferred or State protected is a relevant factor.
(v) If the functions of the corporation are important public ~ctions
c
and related to governmental functions it would be a relevant factor in clrutsi·
tying the corporation as instrumentality or agency of the Government.

(vi) If a department of Government is transferred to a corporatioil:, it
would be a strong factor supportive of the inference that it is an instrumen·
tality of the State. [137E-H]
D
(vii) Where the chemistry of the corporate body answers the test of
State it comes within the definition of Article 12. [136Dl
(viii) Whether the legal person is a corporation created by a statute, as
distinguished from under a statute is not an fuiportant criterion although. it
may be an indicium. [144H]
Airport Authority [1979] 3 S.C.C. 489, UP Warehousing Corporation E
case (Managing Dir{!ctor, UJ>. W.arehousing Corpn. v. V. N. Vaipayee)
[1980] 3 S.C.C. 459 & Sukhdev Singh v. Bhagatram [1975] 3 S.C.R. 619
referred to.
Rajasthan Electricity Board v. Mohan Lal [1967] 3 S.C.R. 377, Sukhdev v.
Bhagatram [1975] 3 S.C.R. 619, Praga Tool Corporation v. C. A. Immanuel
[1969] 3 S.C.R. 773; Heavy Engineering Mazdoor Union v. State of Bihar
[1969] 3 S.C.R. 995, S. L. Aggarwal v. General Manager, Hindustan Steel
Ltd. [1970] 3 S.C.R. 363 & Sabhajit Tewari v. Union of India [1975] 3 S.C.R.
616 distinguished.
3(a) Having regard to the directive in Article 38 and the amplitude.of
the other articles in part IV Government may appropriately embark npon
almost any activity which in a non-socialist republic may fall within ihe
private sector. Any person's employment, entertainment, travel, rest and G
leisure, hospital facility and funeral service may be controlled by the State
and if all these enterprises are executed through government companies,
bureaus, societies, councils, institutes and homes, the citizen may forfeit his
fundamental freedoms vis a _vis these strange beings which are government
in fact but corporate in form. If only fundamental rights were forbidden
access to corporations, companies, bureaus, institutes, councils a~ kindred
bodies which act as agencies of the administration there may be a break- II
down of the nile of law and the constitutional order in a large sector of
governmental activity carried on under the guise of 'jural persons'. It may

- - .._....
114 SUPREME COURT REPORTS (1981] 2 S.C.R,

A pave the way for a new tyranny by arbitrary administrators operated from
behind by Government but unaccountable to part Ill of the Constitution.
The Court caunot assent to an interpretation which leads to such a disastrous
conclusion unless the language of Article 12 offers no other alternative.
[147C-F]

(b) It is dangerous to exonerate corporations from the need to have
B constitutional conscience; and so that interpretation, language permitting,
which makes governmental agencies, whatev'er their mein, an1enable to
constitutional !imitations must be adopted by the court as against the alterna-
tive of permitting them to :flourish as an imperium in imperio. [148A-B}
(c) The common-sense signification of the expression "other authorities
under the control of the Government of India" is plain and there is no
reason to make exclusions on sophisticated grounds such as that the legal person
c must be a statutory corporation, must have power to make laws, must be
created by and not under a statute and so on. [148C]
4(a) It is clear from section II} which relates to the provident fund,
pension, welfare fund and the like that the second respondent has made
provision for the 1ights and interests of the beneficiaries of the trust establish·
ed by Burmah Shell tfor the benefit of persons employed by it. Sub-section
D (1) puts this matter beyond doubt. This obligation of the second respon-
dent is a statutory one and having regard to the provisions of section 11, it
cannot be affected by any instrument or decree or order. The stautory
continuation of a pre-existing liability tO pay pension, provident fund or
gratuity, cannot ~ avoided having regard to section 10. [1500-E]
(b) Assuming that regulation 16 authorities deduction and that discre-
tionary payments, although enjoyed by the employees are liable to be stopped
E section 12 of the Provident Fund Act forbids any such reduction or deduc-
tion out of the benefits in the nature of old age pension on the score of the
payment of contribution to the provident fund. The benignant provision con~
tained in section 12 must receive a benignant construction and even if l~·o
interpretations are permissible, that which furthers the beneficial object should
be preferred. From that perspective the inference is reasonable that the
total quantum of benefits in the riature of old age pension, gratuity or provi·
F dent fUnd, shall not be reduced by reason only of the liability of the employer
for payment of contribution to the fund. The section prevails over the
trust deed. The provident fund accrues by statutory force and section 12
overrides any agreement authorising deductions. The expression 'instrument'
contained in section 15 covers a trust deed and notwithstanding the deduction
that may be sanctioned by the trust deed, the overriding effect of section 14
preserves the pension and immunises it against any deduction attributable to
G the statutory payment of the provident fund. The deduction made by the
second respondent is in that event illeglll. [151A-H]
(c) If regulation 16 is a provision which imposes a cut in certain even-
tualities it is possible to hold that the employee has a certain pensionary
right. But if he draws provident fund or gratuity that pension will be pared
dowo by a separate rule of deduction from the pension. It follows that
there is no straining of the language of the regulations to meao, firstly, a
B right to pension quantified ip: certain: manner and, secondly, a right in the
Management to make deduction from out of that pension if other retiral
benefits are drawo by the employee, That appears to be the pension scheme.
SOM PRAKASH REKH! V. UNION 115

If this be correct, there is 110 substance in the argument that t11e pension i1seJt A
is automatically reduced into a smaller scale of pension on the drawal of
provjdent fund or gratuity. Pension is one thing, deduction is another. The
latter is independent of pension and operates on the pension to amputate it,
as it were. If a law forbids such cut or amputation the pension remains intact.
[152B-D]
(d) The payment of gratuity or provident fund should not occasion any
deduction from the pension as a "set~off''. Otherwise, the solemn statutory B
provisions ensuring provident fund and gratuity become illusory. Pensions
are paid out of regard for past meritorious services. The root of gratuity
and the foundation of provident fund are different. Each one is a salutaiy
benefaction statutorily guaranteed independently of the other. Even assuming
y , that by private treaty parties had otherwise agreed to deductions b<fore the
coming into force. of these b'eneficial enactments they cannot now be depri·
vatory. It is precisely to guard against such mischief that the non-obstante· and c
overriding provisions are engrafted on these statutes. [152F-G]
(e) It is not open to the second respondent to deduct from the full
pension any sum based upon regulation 16 read with regulation 13. If regu-
lation 16 which now has acquired statutory flavour, having been adapted and con~
tinned by statutory rules, operates contrary to the provisions of the P.F. Act
and the Gratuity Act, it must fail as invalid. [153CJ
D
(f) What is discretionary depends on the discretion of the employer. But
that power when exercised by an agency of government like the second res-
pondent, must be based upon good faith and due care. If as a measure of
reprisal or provoked by the drawal of gratuity, or by resort to legal authorities, ·
such supplementary benefit is struck off, it will cease to be bona fide or valid.
[153D-EJ
Pathak, J. (dissenting) E
On the merits the petitioner should be granted relief as proposed by the
mbjority. [154 G]
It is difficult to accept the proposition that the Bharat Petroleum Corpora.
lion Limited is a "State" within the meaning of Article 12 of the Constitu-
tion, but the matter appears to be concluded because of the direction taken
by the law since Ramana Dayaram Shetty v. International Airport Authority F
[1979] 3 s.C.R. 489 a wider range of debate on the fundamental principles
involved in the issue would have been welcomed in view of the implications
fl.owing from the definition of a "government company" in the Companies
Act, 1956. [154 D]
The provisions of the Burmah Shell (Acquisition of Undertakings in
India) Ac~ 1976 do not alter the basic nature of a "government company". G
They are provisions which could well have been applied to a private corpo-
ration if the Act had selected one for vesting the undertaking in it. Had that
been done, they would not have made the private corporation a State. [154F]

ORIGINAL JURISDICTION : Writ Petition No. 1212 of 1977.
(Under Article 32 of the Constitntion).
Petitioner in Person. H
S. Markendeya and Miss A. Subhashini for Respmdent No. 1.
G. B. Pai, 0. C. Mathur and K. l. John for Respondent No. 2.
116 SUPREME COURT REPORTS [1981] 2 S.C.R,

A P. R. Mridul, M. K. Ramamurthi and Jitendra Sharma for the
Intervener (The Petroleum Workers' Union)
P. N. Tiwari (Secretary of Union) for the Intervener (Petroleum
Employees' Union).
B. B. Sawhney and B. P. Ghosh for the Intervener (C. H. Kewal-
B ramani).

The Judgmeut of V. R. Krishna Iyer arid O. C. Reddy, JJ. was
delivered by Krishna Iyer, J. Pathak, J. gave a dissenting Opinion.

KRISHNA IYER, J.-Three seminal issues arise in this little Ii~ har- ""--
c bouring larger principles. We may state them, each with a quotel to
drive home the social stakes, and ihen proceed to the pedestrian
factual-legal narrative and discussion.

"They (corporations) cannot commit treason, nor be out-
lawed, nor excommunicated, for they have no souls."
D
(Edward Coke, Sutton's Hospital Case)
A legal power, which projects an awesome portent has been
sprung upon the court by the defending respondent-. The Bharat
Petroleum Corporation Ltd(') (the Corporation, for short)-as to
whether a writ will issue under Art. 32 of the Constitution against a
E government company, belonging, as it does, to an increasing tribe of
soulless ubiquity and claiming, as it does, to constitutional immu-
nity. This is the first issue to which he will address ourselves.

Jawaharlal Nehru warned the Constituent Assembly about the
problem of poverty and social change :
F
The service of India means the service of the millions
who suffer. It means the ending of poverty and ignorance
and disease and inequality of opportunity. The ambition
of the greatest man of our generation has been to wipe
every tear from every eye. That may be beyond us, but
G as long as there are tears and sufferings, so long our work will
not be over.
The second question which claims our attention turns ori the peti-
tioner's plea of alleged stultification of Art. 41 by the State itself re-
incarnating as a government company, by defending the paring down
H the pension of the petitioner to a pathetic pittance thus sterilising a
directive principle to a decorative paper.
(I) Vide Certificate of Incorporation dated 1-8-1977.
SOM PRAKASH REKH! v. UNION (Krishna lyer, J.) 117

Law cannot stand aside from the social changes around A
it.
(Justice Brennan in Roth v. United States
354 U.S. 476)
The third problem, not humdrum but heuristic, turns on the
B
construction of the relevant legislations and regulations covered by
the writ petition, remembering the social dynamics of the law of
statutory interpretation. '

This writ petition under Art. 32 relates to a poor employee's small
pension on retirement and the legality of the deductions effected by
the. employer which make the net sum payable traumatically trivial
c
(Rs. 40/-). A principle of wider application is involved beyond the
individual's pensionary fate.

The petitioner was employed as a clerk in the Burmah Shell Oil
Storage Ltd., (Burmah Shell, for short) and retired betimes (at 50)
after qualifying for a pension, on April 1, 1973. He was also D
covered by a scheme under the Employees Provident Funds arid
Family Pension Fund Act, 1952 (for short, the PF Act). The em-
ployer undertaking was statutorily taken over by force of The Bur-
mah Shell (Acquisition of Undertakings in India) Act, 1976 (here-
inafter called the Act). Thereafter, the Central Government, act- E
ing under the statute, took necessary steps for the vesting of the
Undertaking in the second respondent, the Corporation and became
the statutory successor of the petitioner's employer. His pensionary
rights, such as he had, therefore, became claimable from the
second respondent. What was the quantum? Was any cut illegally
effected by Burmah Shell and continued by respondei;tt 2 ? Could a: F
writ be issued against the second respondent in respect of the cut ?
These are the questions argued before us. The petitioner-pensioner,
~eing too poor, Shri Parekh, assigned by the Legal Aid Society,
appeared promptly and argued passionately. At a re-hearing, the
petitioner preferred to make a few brief supplementary submissions on
his own. G

The pensionary provision for the Burmah Shell employees de-
pended on the terms of a Trust Deed of 1950 under which a Pension
Fund was set up and regulations were made for its administration.
Regulations 13 and .15 entitled the petitioner to pension and contain-
ed the formula for quantification. Regulation 13 has a significant H
clause : "less the authorised deductions specified in reg. 16, namely
...... ". The bone of contention between the parties is about these

.......--- ----·~--
118 SUPREME COURT REPORTS [1981] 2 S.C.R.

A deductions and we may set out this Regulation (relevant part) even
here:
16. The authorised deductions to be made in calculating
the amount of a non-contributing member's pension shall
be as follows :
B ( 1) A sum equal to four per cent of such amount stand-
ing to the credit of the member at the relevant date in any
Provident Fund as represents any Company's contributions
to that fund in respect of the period of the member's Accre-
dited Service (including bonuses and interest on such cont,ri-
butions up to that date).
c
(2) A sum equal to four per cent of any amount which
before the relevant date the member has withdrawn from
a Provident Fund in so far as such withdrawal is under the
Rnles of the Provident Fund charged against the period of
the member's Accredited Service (including bonuses and
D interest thereon) or has been paid out to him during his
Accredited Service under the Rules of Provident Fund, to-
gether with interest thereon from the date of such withdrawal
or receipt to the relevant date.
(3) If the Company so elects, a sum not exceeding six
E per cent of the amount of any payments which any company
has made or may make or which any company shall be or
have been required by law to make to the member in con-
nection with the termination of his service with that company
together with interest thereon from the date of payments
down to the relevant date.
F
The Pension Fund, on the vesting of Burmah Shell in Respon- ,
dent 2, came to be administered by the latter under the Burmah }--
Shell (Acquisition of Undertakings in India) (Admjnistration of
Fund) Rules, 1976. The Rules provided for the Government com-
pany, viz. Respondent 2 acting in accordance with the provisions of
G the rules and regulations applicable to or of any law governing the
respective Provident Fund, Welfare Fund or other fund and in force
immediately before the 24th day of January, 1976.

If any legal provision overrode the regulation authorising deduc-
tions the:2nd respondent could and should acf according to the legisla-
H tion. Thus, the statutory rules for administering pensionary matters
direct Respondent 2 to conform to 'any law' governing providen~ fund
and like items. And if, as is contended before us by the petitioner,
SOM PRAKASH REKH! v. UNION (Krish11a Iyer, J.)) 119

such law exists, the regulation based deduction ceases to be aJJI A
'authorised deduction'.
By virtue of reg. 13, the petitioner was entitled to a pension o~
Rs. 165.99 subject to certain deductions which form the controversy
in this case. He was also being paid Supplementary Retirement1Bene-
fit of Rs. 86/- per month for a period of 13 months after his retire- B
ment which was stopped thereafter. This stoppage is also assailed
before us.
By letter dated September 25, 1974, the employer (Bunnah Shell)
explained that from out of the pension of Rs. 165.99 two;deduction~
were authorised by reg. 16. One such deduction was based on: reg,
16 ( 1) because of Employees Provident. Fund payment to th~ pensioner c
and the other rested on reg. 16(3) on account of payment of gratuity.
Resultantly, the 'pension payable' was shown as Rs. 40.05. '
The case becomes clear if one more fact is mentioned. The peti-
tioner claimed and received his Provident Fund amount under the PF
Act and recovered a gratuity amount due under the Payment of D
·Gratuity Act, 1972 (for short, the Gratuity Act). It is necessary to
mention that Bunnah Shell was refused exemption, under s. 5, from
the operation of this Act ( vide Annexure F to the Writ Petition). In:
short, two sums, one under the PF Act and the other under the Gratuity
Act, were drawn by the pensioner. Consequent on this, Bunnah Shell
made 2 deductions from the petitioner's pension, taking its stand oJJi E
reg. 16 read with reg. 13 already referred to. Indeed, the company
went even beyond this, in its letter of May 8, 1974, by cutting off the
monthly payment of Rs. 86/- paid as Supplementary Retirement
Benefit on the score that it was ex gratia, discretionary and liable to
be stopped any time by the employer.
F
The petitioner was intimated by the Burmah Shell that ctYnsequent
on his drawal of provident fund and gratuity benefits, the quantum of
his pension would suffer a pro tanto shrinkage, leaving a monthly puny
pension of Rs. 40/-. Since no superannuated soul can survive, inl
Indian indigence and inflationary spiral, on ·Rs. 40/- per month, thei
petitioner has come to this court challenging the deductions from his G
original pension as illegal and inhuman and demanding restdration of
the full sum which he was originally drawing. His right to property
under Art. 19 has . been violated, he claims.
It may well be, as urged by the Corporation, that if reg. 16 does
govern, the deductions, are warranted. Likewise, if the Supplementary H
Retiral Benefit is purely a mercy gesture, savouring of no manner ofl
right nor subject to restrictions on discretionary exercise, the Sudden
120 SUPREME COURT REPORTS (1981] 2 S.C.R.
I•
A stoppage of that sum perhaps not illegal. It may bd heartless, but \'
not necessarily lawless, for a prosperous undertaking, now in the
public sector, which pays over-generous salaries to higher officials and
liberal scales even to its lesser employees, to destroy the pensionary
survival of an erstwhile employee who had served 28 long and fruitful
years of his limited span of life for the profit of his employer.
B •
Justice according to law being the rule, let us examine the validity
of the rival contentions. The employer relies on reg. 16 and the pen-
sioner rests his claim on its invalidity. The mantle of 'Burmah Shell'
has statutorily fallen on 'Bharat Petroleum'(') and it cannot be con-
troverted that if reg. 16, read with reg. 13, be valid the second respon-
c dent can insist on its 'pound of flesh' and claim lawfully that the deduc-
tions made are 'authorised' and the discretion to stop supplementary
pension is charity which can be choked off at pleasure or anger.
A preliminary objection has been raised by Shri G. B. Pai that no
writ will lie against the second respondent since it is neither a govern-
D ment department nor a statutory corporation but just a company and so
the court should reject out of hand this proceeding under Art. 32. We
do see the force of this contention, notwithstanding the observations in
the Airport Authority Case( 2 ), that the status of 'State' will attach to
the govermnent companies like the second respondent.
Let us first look at t11e facts emerging from the Act and then
E superimpose the law in Art. 12 which conceptualises 'State' for the.
purposes of Part Ill. After all, cynicism apart, Mark Twain is good
chewing gum for lawyers : ( 3 )
Get your facts first, and then you can distort them as
much as you please.
F
It is common ground that the present writ petition, invoking Art. 32,
is limited to issuing directions or orders or writs for the enforcement ~
of fundamental rights and the question is whether the addressee. is the
'State' within the meaning of Art. 12 of the Constitution. We will
examine this position more closely a little later, but granting that Art.
G 19 is aimed at State action the contours of 'State', conceptually speak-
ing, are largely confined to Art. 12. We have to study the anatCJ!llly
of the Corporation in the setting of the Act and decide whether it comes
within the scope of that Article. We have only an inclusive definition,
not a conclusive definition. One thing is clear. Any authority under
(I) vide Certificate of Incorporation dated 1-8-1977.
H (2) Romana Dayaram Shetty v. International Airport Authority of India and Ors
[1979] 3 s.c.c. 489.
(3) Mark Twain : Quoted by Rudyard Kipling, from Sea to Sec.
SOM PRAKASH REKHI v. UNION (Krishna Iyer,/.)( 121

the collfrol of the Government of India comes within the definition. A
Before expanding on this theme, we may scan the statutory scheme, thei
purpose of the legislative project and the nature of the juristic instru·
ment it has created for fulfilment of that purpose. Where constitu•
tional fundamentals, vital to the survival of human rights, are at stake
, functional realism, not facial cosmetics, must be the diagnostic tool.
Law, constitutional law, seeks the substance, not merely the form. B
For, one may look like the innocent flower but be tho serpent under it.
The preamble, which ordinarily illumines the object of the statute,
makes it plain that what is' intended and achieved is nationalisation of
an undertaking of strategic importance :
..- AND WHEREAS it is expedient in the public interest c
that the undertakings in India, of Burmah Shell Oil Storage
and Distributing Company of India Limited, should be
acquired in order to ensure that the ownership and control
of the petroleum products distributed and marketed in India
by the said company are vested in the State and thereby so
distributed as best to subserve the common good; D

It is true tl1at what is nationalised is a private enterprise motivated,
undoubtedly, by the need for transferring the ownership and control of
the company and its petroleum products distributed and marketed in
India. Section 3 is important from this angle :
E
3. On the appointed day, the right, title and interest of
Burmah Shell, in relation to its undertakings in India, shall
stand transferred to, and shall vest in the Central Govern-
ment.

This provision lays bare the central object of making the F
... Central Government the proprietor of the undertaking. It hardly
i needs argument to convince a court that by virtue of s. 3, the Central
'\Government is the transferee of the Undertaking. Had a writ pro-

- ceeding been commenced during the period of vesting in the Central
Government, it could not have been resisted on the score .that the
employer is not "the State". The appointed day did arrive and the G
right, title and interest in Burmah Shell did vest in the Central Govern-
ment.

A commercial undertaking although permitted to be run under our
constitutional scheme by Government, may be better managed with\
professional skills and on business principles, guided, of course, by H
social goals, if it were administered with commercial flexibility and
celerity free from departmental rigidity, slow motion procedures and
122 SUPREME COURT REPORTS [1981] 2 S.C.R.

A hierarchy of officers. That is why a considerable part of the public
undertakings is in the corporate sector.
It is interesting that with the industrial expansion, economics was
assisted by jurisprudence and law invented or at least expanded the
corporate concept to facilitate economic developmen" consistently with
B the rule of law. Said Woodrow Wilson, several decades back : (')
There was a time when corporations played a minor part
in our business affairs, but now they play the chief part, and
most men are the servants of corporations.
And Franklin D. Roosevelt mourned : ( 2 )
c Concentration of economic p,ower in all embracing cor-
porations ...... represents private enterprise become a kind
of private government which is a power unto itself-a regi-
mentation of other people's money and other people's lives.
This legal facility of corporate instrument came to be used by the State
D in many countries as a measure of immense convenience especially in;
its commercial ventures. The trappings of personality, liberation from
governmental stiffness and capacity for mammoth growth, together with
administrative elasticity, are the attributes and, advantages of corpora-
tions.
E A corporation is an artificial being, invisible, intangible,
and existing only in the contemplation of the law. Being
the mere creature of the law, it possesses only those proper-
ties which the charter of its creation confers on it, either
expressly, or as incidental to its very existence. Those are
such as are supposed best calculated to effect the object for

' which it was created. Among thei most important are im-
mortality, and, if the expression be allowed, individuality;
properties by which a perpetual succession of many persons
are considered the same, and may act as a single indivi-
dual. ( 8 )

G Although corporate personality is not a modern invention, its adapta-
tion to embrace the wide range of industry . and commerce has a
modern flavour. Welfare States like ours called upon to execute many
economic projects readily resort to this resourceful legal contrivancei
because of its practical advantages without a wee-bit of diminution ill
ownership and control of the Undertaking. The true owner is ~he
H (1) 1912-13 speeches : The New.Freedom, Doubleday & Co. 1913.
(2) Acceptance Speech, Democratic NationaI:eonvcntion, June 27, 1936.
(3) John Marshal, Dartmouth College v. Woodward, 4 Wheaton 518 (1819).

l!I
'
SOM PRAKASH REKHI v. UNION (Krishna Iyer, 1.x 123

.'
-I
State, the real operator is the State and the effective controllerate is thtj
State and accountabilit~ for its actions to the community and to Parlia-
A

ment is of the State. Nevertheless, a distinct juristic person with it.
corporate structure conducts the business, with the added facilities
enjoyed by companies and keeping the quasi-autonomy which come~
~ '
in handy from the point of view of business management. Be it

'
remembered though that while the formal ownership is cast in tho cor- R
porate mould, the reality reaches down to State control. Witk this
I background we have to read s. 7 of the Act which runs thus :
7. (1) Notwithstanding anything contained in sections
3, 4 and 5, the Central Government may, if satisfied that a
Govermnent company is willing to comply, or has complied c
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, ve,rt in the Govermnent
company. . . . (emphasis added) D

The core fact is that the Central Government, through this provision,
chooses to make over, for better management, its awn property to its
own offspring. A government company is a mini-incarnation of
Government itself, made up of its blood and bones and given corporate
shape and status for defined objectives, not beyond. E
Nor is this any isolated experiment in government formally transr
ferring ownership to a company. There are a number of statutory
take-overs in India as in other countries, where the initial vesting i~ in
government, followed by a later transfer to another instrumentality-
may be an existing government company or a corporation created by F
statute or even a society or other legal person. In the present case,
a government company was created anteriorly and by virtue of a noti-
fication under s. 7 it became the transferee of the right, title and interest
. as well as the liabilities of Burmah Shell .
The device is too obviou! for deception that what is done is a
G
formal transfer from government to a government-company as the
notification clearly spells out :
lfl exercise of the poweri conferred by sub-section ( 1)
of Section 7 of the Burmah Shell (Acquisition of Under-
takings in India) Act, 1976 (2 of 1976), the Central Gov-
emment, being satisfied that Burmah-Shell RefineriCll Ltd., a H
6overnment company i1 willing to comply with such terms ·
and conditiO!lll as may be imposed by the Central Go,-emment ·
9-1281 SCI/80

,_ - ""lit"
124 SUPREME COURT REPORTS [J98J] 2 S.C.R.

A hereby directs that the right, title and intere,,t and the
liabilities of Burnwh-Shell Oil S torage and Distributing Co.
of India Ltd. in relation to its undertakings in India, shall,
instead of continuing to vest in the Central Government vest ,

with effect from the twenty fourth day of January, 1976, in
-f,
Bwmah-Shell Refineries Ltd.
B
This is the well-worn legal strategy for government to run economic
and like enterprises. We live in an era of public sector corporations,
the State being the reality behind, Law does not hoodwink itself and
what is but a strategy cannot be used as a strategem :

c
These are the facts when we come to brass tacks. Fact& form the
raw matedal out of which the finished product of judicial finding is -,
fabricated after processing through established lega� principles. Indeed,
in life as in law "it is as fatal as it is cowardly to blink !acts because
they are not to our taste". What, then, ar\' the basic facts available
from the Act ? Constitutional law is not a game of hide and seek
D but prJctical real-life conclusions. So viewed, we are constrained to
hold that Burmah-Shell, a government company though, is but the
alter ego of the Central Government and must, therefore, be; treated
as definitionally caught in the net of 'State' since a juristic veil worn
tor certain legal purposes cannot obliterate the true character of, the
entity for the purposes of constitutional law.
E If we distil the essence of Art. 12 textually and apprehend the
expanded meaning of "State" as interpreted precedentially, we may
solve the dilemma as to whether the Bharat Petroleum is but a double
of Bharat Sarkar. Let us be clear that the jurisprudence bearing on
corporations is not myth but reality. What we mean is that corporate
personality is a reality and not an illusion or fictitious construction of
F
the law, It is a legal person. Indeed, 'a legal person' is any subject
matter other than a human being to which the law attributes personality.
"This extension, for good and sufficient reasons, of the conception of ·r
personality . . . . is one of the most noteworthy feats of the lega1
imagination."(') Corporations are one species of legal persons in
G
vented by the law and invested with a variety of attributes so as to
achieve certain purposes sanctioned by the law. For those purposes,
a corporation or company has a legal existence all its own. The
_)
c!JaracteristiCl! of corporations, their rights and liabilities, functional
autonomy and juristic status, are jurisprudentially recognised as of a
distinct entity even where such corporations are but State agencies or
H instrumentalitie�. For purposes of the Companies Act, 1956, a
government company bas a distinct personality which cannot be con-
(!) �almond, Jurisprudence, 10th Bdn. pp. 324-325.
SOM PRAKASH REKHI V. UNION (Krishna Iyer, JJ 125

fused with the State. Likewise, a statutory corporation constituted A
to carry on a commercial or other activity is for many purposes a dis-
tinct juristic entity not drowned in the sea of St!te, although, in subs-
tance, its existence may be but a projection of tbe State. What wei
wish to emphasise is that _1*rely because a company or other legaj_
person has functional and jural individuality for certaiq purposes and
in~ain_aE~~?.~ fuw, 1t_does_n0_.g~cessadl[Io1fow that fo~-tlleeffe"c· B
live enforcement of fundamental rights under our constitutional scheme,
,\:e shouicfnot scan the real character of that entity; and if it is found
to be a mere agent or surrogate of the State, in fact owned by the
State, in truth controlled by tbe State and in effect an incarnation of\
tbe State, constitutional lawyers must not blink at these facts and
frustrate the enforcement o~ fundamental ri ts des ite tbe inc!usivg
c
definit10n o . t at any authority controlled by the Government
-Of fudia is itself State, Law has many dimensions and fundamental
facts must govern the applicability of fundamental rights in a given
situation]
D
Control by Government of the corporation is writ large in the Act
and in the factum of being a government company. Moreover, here,
s. 7 gives to tbe government company mentioned in it a statutory recog-
nition, a legislatiVe sanction and a status above a mere government
company. If the entity is no more tban a company under the Company
Law or society under _the law relating to registered societies or co- E
operative societies you cannot call it an authority. A ration shop
run by a cooperative store financed by Government is not an authority
being a mere merchant, not a sharer of State power. 'Authority' in
law belongs to the province of power :
F
Authority (in Administrative Law) is a body having
jurisdiction in certain matters of a public nature.(')

Therefore, the "ability conferred upon a person by the law to
alter, by his own will directed to that end, the rights, duties, liabilities
or other legal relations, either of himself or of other persons"(') must G
be present ab extra to make a person an 'authority'. When the
person is an 'agent or instrument of the functions of the Stare' the
power is public. So the search here must be to see whetber the Act
vests authority, as agent or instrument of the State, to affect the legal
relations of oneself oi otbers.
H
(I) The Law Loxicon of British India, P. Ramanatha Aiyar, 1940 p. 101.
(2) Salmond, Jurisprudence, 10th Edn. p. 243.
126 SUPREME COURT REPORTS (1981] 2 S.C.R.

A Sometimes the test is formulated, over-simplified fashion, by asking
whether the corporation is formed by a statute or under a statute.
The true test is functional. Not how the legal person is born but why
it is created. Nay more. Apart from discharging functions or doing
business as the proxy of the State, wearing the corporate mask there
must be an element of ability to affect legal relations by virtue of power
B vested in it by law.

In the present instance, the source of both, read in the light of
ss. 3 and 7, is saturated with SJate functions. Avowedly, the statutory
contemplation, as disclosed by s. 7, is that the company should step
into the shoes of the executive power of the State. The legislative
c milieu in which the second respondent came to be !he successor of
Burmah Shell suggests that the former is more than a mere company
registered under the Companies Act. It has a statutory flavour
acquired under s. 7. Moreover, everything about the second respon-
dent in the matter of employees, their provident, superannuation and
welfru:e funds, is regulated statutorily unlike in the case of ordinary
D companies. Sections 9 and 10 deal with these aspects. These two
provisions which regulate the conditions of service and even provide
for adjnclication of disputes relating to employees .indicate that some of
the features of a statutory corporation attach to this government com-
pany. Sections 9 and 10, in terms, create rights and duties vis a vis
the government company itself apart from the Companies Act. An
E ordinary company, even a government company simpliciter has not
the obligation cast on the second respondent by ss. 9 and 10. And
s.11 specifically gives the Act primacy vis a vis other laws. Section
12, although it has no bearing on the specific dispute we are concerned
in this case, is a clear pointer to the statutory charac!er of the govern-
F ment company and the vesting of an authority therein. This provi•ion
elothes the government company with power to take delivery of the
property of Burmah Shell from every person in whose possession,
~ustody or control such property may be. There are other powefs
akin to this one in s. 12. The provision for penalties if any person
meddles with the property of the second respondent emphasises '1le
G special character of this government company. Equally unique is the
protection conferred by s. 16 on the government company and its ofli-
cers and employees "for anything which is, in good faith, done er
mtended to be done under this Act". Such an immunity does not
attach to employees of companies simpliciter, even if they happen to
be government companies. In the same strain is the indemnity coa-
H ferred by s. 18. This review, though skeletal, is sufficient strikingly
to bring home the point that the Corporation we are concerned with is
more than a mere government company. Whatever its character
SOM PRAKASH REKHI V. UNION (Krishna fyel', J.), 127

·antecedent to the Act, the pro~isions we have adverted to have trans- A
formed it into an instrumentality of the Central Government with a
strong statutory flavour super-added and clear indicia of power to
make it an "authority". Although registered as a company under the
Indian Companies Act, the second respondent is clearly a creature of
the statute, the Undertaking having vested in it by force of s. 7 of the
Act. The various provisions to which our attention was drawn, an B
elaboration of which is not called for, emphasise the fact that the
second respondent is not a mere company but much more than that
and has a statutory flavour in its operations and functions, in its powers
· and duties, and in its personality itself, apart from being functionally
and administratively under the thumb of government. lU is a limb of
government, an agency of the State, a vicarious creature of statute' c
working on the wheels of the Acquisition Act. We do not mean to
say that for purposes of Art .. 309 or otherwise this government com-
pany is State but limit our holding to Art. 12 and Part III.

We may now proceed to examine the authorities cited before us
by both sides on this point with special reference to Art. 12 of the D
Constitution vis a vis government companies and like bodies. Shri
G. B. Pai concedes that the recent trend of rulings of this Court has.
brO!ldened the concept of "authorities .... under the control of the
Government of India." For instance, the Airport Authority Case(')
l!lld the U.P. Warehousing Corporation case( 2 ). His submission is
E
tllat the core question which called for decision in those cases did not
demand pronouncement on the larger issue of what is "State" under
Art. 12 and also ran counter to the earlier rulings by larger benches.
True, a tour of the case-law runs zigzag, but guided by principle and
jurii;prudential discernment, it is possible to reach the same destination
to which the two rulings referred to above take us. Shri G. B. Pai F
prei;sed us to reconsider the latest decision~ in view of their error when
read in the perspective of prior rulings by referring the issue to a larger
beech. We will presently explain by examining the earlier cases why
we hold the recent decisions to be right and reconcilable with the broad
npproach in the older authorities. Moreover, rulings of this court are
calculated to settle the law and not to unsettle it by reconsideration in G
season and out merely because it hurts one party or the other or tastes:
sour for one judge or the other. If incompatibility between the ratios
stares us in the face we must clear the confusion by the process suggest·
ed by Shri Pai. But we are satisfied that the Airport Authority
{I) Ramana Dayaram Shttty v. International Airport Authority of India and Ors.
[l979J 3 s.c.c. 489. B
(2) Managing Director Uttar Pradesh Warehousing Coporation and Anr. v. Vljaya
Narayana Vajpayee (1980) 3 SCC 459.
128 SUPREME COURT REPORTS (1981) 2 S.C.R.

A (supra) has been consistently and correctly decided and, being bound
by it, held that a writ will lie against the second respondent under
Art. 32. An explanatory journey is necessary to make good this
ossertion.

The UP Ware housing Corporation case (supra )-the latest on the
B point-related to a statutory corporation and the litigation was by an
employee for wrongful dismissal. One of tbe questions considered there
was the maintainability of a writ petition against a statutory corpora,-
tion at the instance of an employee. The court reviewed many deci-
6ions, Indian and English, and upheld the employee's contention that
the writ could and should issue to such a body if illegality were esta-
c blished. It is significant that pointed reference has been made to
Sukhdev Singh('), Airport Authority (supra), and the judgment of the
House of Lords in Malloch v. Aberdeen Corpn.(2), Sarkaria, J.
advertec' to the observations of Lord Wilberforce that in cases where
there is an element of public employment or service, :ir support by
statute or something in the nature of public office or status, the court
D would correct illegal acts. Of course, the specific question as to
whetl!er such a body conld be regarded as 'State' did not and could
not arise in th(l English case. But it did arise in the Airport Authority
(supra) where Bhagwati, J. launched on an international survey of this
branch of jurisprudence and highlighted the factors which made a legal
pers;:m-a statutory corporation, a government company or even a
E registered society-"an agency or instrumentality of government" and
therefore an 'authority' for purposes of Art. 12. The forensic focus
was turned sharply by one of us (Chinnappa Reddy, J. who was party
to that decision) on the target issue of what it "the State" for purposes
of Part III. The crucial observations which have pertinence to the
F point argued before us deserve excerption and enjoy our affirma-
tion:

/
I find it very bard indeed to discover any distinction on
principle between a person directly under the e;nployment
of the government and a person unden the employment of an
G agency or instrumentality of the governmen~ or a corporation,
set up under a statute or incorporated but wholly owned by
the government. It is self-evident and trite to say that the
function of the State has long since ceased to be confined to
the preservation of the public peace, the exaction of taxes
and the defence, of its frontiers. It is now the function of the
H
(I) Sukhdev Singh v. Bhagatram [1975] 3 S.C.R. 619.
(2) [1971] I WLR 1578.
SOM PRAKASH REKHI v. UNION (Krislll/a Iyer, J.) 129

A
State to secure 'social, economic and political justice', to
preserve 'liberty of thought, expression, belief, faith and
worship', and to ensure 'equality of status and of opportu-
nity'. That is, the proclamation of the people in the preamble
to ttc Constitution. The desire to attain these objectives
has necessarily resulted i'.n intense governmental activity in B
manifoid ways. Legislative and executive activity have
reached very far and have touched very many aspects of a
citizen's life. The government, directly or through the cor-
porations, fct up by it or owned by it, now owns or manages,
a large number of industries and institutions. It is the
biggest builder in the country. Mammoth and minor irri- c
gation projects, heavy and light engineering projects, projects
of various kinds are undertaken by the government. The
government is also the biggest trader in the ccuntry. The
State and the multitudinous agencies and corporation:; set
up by it are the principal purchasers of the produce aucl the
products of our country and they control a vast and complex D
machinery of distribution. The government, its agencies
and instrumentalities, corporations set up by the governinent"
under the statutes and corporations incorporated under the
Companies Act but owned by the Government have thus
become the biggest employers in the country. There is no
good re:;son why, if government is bound to observe the E
equality clauses of the Constitution in the matter of employ-
ment and in its dealings with the employees, the corpora-
tions set up or owned by the govenunent should not be
equally bound and why, instead, such corporations could
become citadels of patronage and arbitrary action. In a
It'
country like ours which teems with population, where the
State, its agencies, its instrumentalities and its corporations
are tile biggest employers and where millions seek cmplc y-
ment anJ security, to confine the applicability of the equality
clauses 0f the Constitption, in relation to matters of employ-
ment, strictly to direct employment under the. governn;ert is G
perhaps to mock at the Constitution and the people. Some
the employee beyond the reach of the rule which denies him
the employee beyond the reach of the rule which denies him
access to a court to enforce a contract oif employment and
denies him the protection of Articles 14 and 16 of tk 0)115-
titution. After all employment in the public sector has H
grown to vast dimensions and employees in the oublio sector
often discharge as onerous duties as civil servant9 and parti-
130 SUPREME COURT REPORTS [1981] 2 S.C.R.
A cipate in activities vital to our country's economy. In grow-
ing realisati01J. of the importance of employment in the pub-
lic sector, Parliament and the Legislatures of the States
have declared persons in the service of local authorities,
government companies and statutory corporatiomi as public
servants and, extended· to them by express enactment the
B protection usually extended to civil servants from suits and
prosecution. It is, therefore, but right that the independence
and integrity of those employed in the public &ector should
be secured as much as the independence and integritv of
servants.
c The compellin~ force of this reasoning in the Indian setting and coe.s-
titutional matrix cannot be missed.
Let us dilate a little on the living essenco of constitutional funda-
mentals if we are net to reduce fundamental rights to paper hope~ Md
people's dupes ! The judicial branch shall not commit breach of faith
with the bill of rights by interpretative exoneration of the State from
D observance of these founding faiths. The higher values enacted into
Part III of the Constitution certainly bind the State in its executive
and legislative branches. They are constitutional guarantees to the
Indian people, not fleeting promises in common enactments. So long
as they last in the National Charter they should not be truncated in
their application unless a contra-indication is clearly written into the
E prescription, a la Arts. 3 lA, 31B and 31 C. Art. 12 is a special defi-
nition with a broader goal. Far from restricting the concept of State
it enlarges the scope to embrace all authorities under tho control of
Government. The constitutional philosophy of a democratic, SOciali1t
Republic mandated to undertake a multitude of socio-economic opera-
tions inspires Part IV and so we must envision the State entering the
F
vast territory of industrial and commercial activity, competitively or
inonopolistically, for ensuring the welfare of the people. This expan-
sive role of the State under Part IV is not played at the expense of
the cherished rights of the people entrenched in Part III aince · both
the sets of imperatives are complementary .and co-exist harmoniously.
G Wherever the Constitution has felt the need to subordinate Part ill to
Part IV it has specificated it and, absent such expression provision,
both flie Parts must and can flonrish happily together given benign
judicial comprehension a la Kera/a v. Thomas(I). There is no inherent
conflict between the two parts if orchestrated humanely. We are at
pains to emphasise this perspective because the substance of Part ill,
H save where the Constitution says so, shall not be sacrificed at the altar
of Part IV by the strategem of incorporation. It is well known, and
(lJ fl976J 2 sec 310.
SOM PRAKASH REKHI v. UNION (Krishna Iyer, J. ): 131

surely within the erudite and experienced ken of our 'fonnding fathers', .A.
that Government embarks on myriad modern commercial activities by
resort to the jurisprudential gift of personification through incorpora-
tion. This contrivance of carrying on business activities by the State
through statutory corporations, government companiei and other
bodies with legal personality, simplifies and facilitates transactions
and operations beyond the traditional and tardy processes of govern- B
mental desks and cells noted for their red tape exercise and drowsy
dharma. But to use the corporate methodology is not to liberate the
State from its basic obligation to obey Part III. To don the mantle of
company is to free the State from the inevitable constraints of govern-
mantaI slow-motion, not to play truant with the great rights. Other- c
wi»e, a cunning plurality of corporations taking over almost every
State business-the post and the rail-road, the T.V. and the radio,
every economic ministry's activity, why, even social welfare work-
wlll cheat the p'eople of Part III rights by the easy plea : ''No admis-
sion for the bill of rights; no State here." From Indian Posts and
Telegraphs Limited to Indian Defence Manufacturers Limited, from D
Social Welfare Board to Back.ward aasses Corporation the nation will
be told that 'the State has ceased to be, save for the non-negotiab~
iOYereign functions; and fundamental rights may sufier eclipse only to
be viewed in museum glass cases. Such a situation will be a treachery
on the founding fathers, a mockery of the Constitution and a govern-
ment by puppetry because the crowd of corporations which have carv- E
ed oat all functions will still be controlled completely by the switch
bollds of bureaucrats and political bosses from remote control rooms
in GOYernment Secretariats. The extended definition of "the State" in
Art. 12 ii; not to be deadened but quickened by judicial construction.
Before our eyes the corporate phenomenon ill becoming ubiquitous.
What wa» archaicly done yesterday by government departments is F
alertly executed to-day by government companies, statutory corpora-
tiOllll and like bodies and this tribe may legitimately increase tomorrow.
This efficiency is not to be purchased at the price of fundamental
rights. As Mathew J. stated ih V. Pumum Thomas v. State of
Kerala(') : G
The Government, is not and should not be as free as an
individual in selecting the recipients for its largesse. Whatever
its activity, the Government is still the Government and will
' be 1ubject to restraints inherent in its position in a demo-
ocatic society. A democratic Government cannot lay down
arbitrary and capricious standards for the choice of persons H
with whom alone it will deal.
(I) AIR 1969 Ker 81.
132 SUPREME COURT REPORTS [1981] 2 S.C.R.

A What's in a name that which we call a rose
By any other name wou"d smell as sweet.(')
And the State is fragrant with fundamental rights whatever the legal
hue or jural cloak of its surrogate. And, to alter, the imagery, Maricha
is Ravana, the misleading golden deer mask notwithstanding!
B
This court in Airport Authority (supra) pointed its unanimous.
finger on these events and portents :
Today with tremendous expansion of welfare and social
service functions, increasing control of material and econo-
mic resources and large scale assumption of industrial and
c commercial activities by the State, the power of the execu-
tive Government to affect the lives o'f the people is steadily
growing. The attainment of socio-eeonomic justice being a
conscious end of State policy, there is a vast and inevitable
increase in the frequency with which ordinary citizens came
into relationship of direct encounter with State power-holders.
D This renders it necessary to structure and restrict the power
of the executive Government so as to prevent its arbitrary
application or exercise.......... .
Today the Government in a welfare State, is the regu-
lator and dispenser of special services and provider of a
large number of benefits, including jobs, contracts, licences,
quotas, mineral rights, etc. The Government pours forth
wealth, money, benefits, services, contracts, quotas and licen-
res. The valuables dispensed by Government take many
forms, but they all share one characteristic. They are steadily
taking the place of traditional forms of wealth. These valu-
ables which derive from relationships of Government are of
many kinds. They comprise social security benefits, cash
grants for political sufferers and the whole scheme of State
. and local welfare. Then again, thousands of people are em-
ployed in the State and the Central Governments and local
authorities. Licences are required before one can engage in
G
many kinds of businesses or work. The power of giving
licences means power to withhold them and this gives control
td the Government or to the agents of Government on the
lives of many people. Many individuals and many more
business enjoy largesse in the form of Government contracts
H .... All these mean growth in the Government largesse and
with the increasing magnitude and range of governmental
(1) Romeo and Julliet I!, ii -43.
SOM PRAKASH REKHI v. UNION (Krishna Iyer, !.) 133

functions as we move closer to a welfare State, more and A·
more of our wealth consists of these new forms.

We do not suggest that there is any vice at all in government undec·
taking commercial or other activities through the facile device of com-
paniei or other bodies. But to scuttle Part III through the alibi of
'company, not State'-'ay, there's the rub !' The rationale of this pro- B·
position is well brought by Bhagwati, J : (I)
So far as India is concerned, the genesis of the emer-
gence of corporations as instrumentalities or agencies of
Government is to be found in the Government of India Reso-
lution on Industrial Policy dated April 6, 1948 where it was
stated inter alia that "management of State enterprise wi.ll as
a rule be through the medium of public corporation under
the statutory control of the Central Government who w\ll
assume such powers as may be necessary to ensure this". It
was in pursuance of the policy envisaged in this and subse-
quent resolutions on industrial policy that corporations were D·
created by Government for setting up and management of
public enterprises and carrying out other public functions.
Ordinarily these functions could have been c:arried out by
Government departmentally through its service personnel,
but the instrumentality or agency of the corporations was
resorted to in these cases having regard to th.e nature of the
task to be performed. The corporations acting as instrumen-
tality or agency dfi Government would obviously be subject
to the same limitations in the field of constitutional and ad-
mlriistralive law as Government itself, though in the eye of
the law, they would be distinct and independent legal entities.
If Government acting through: its officers is subject to certain
constitutional and public law limitations, it must follow a
fortiori that Government acting through the Instrumentality
or agency of corporations should equally be subject to th~
same limitations.
(emphasis added) G'

Article 12 gives the cue to forbid this plea. "Other authorities
...... under the control of the Government of India" are comprehen-
sive enough to take. care of Part III without unduly stretching the
meaning of "the State" to rope in whatever any autonomous body 0\
which has some nexus with government. A wide expansion coupled
ell [1979] 3 sec 489 at 506-507.
134 SUPREME COURT REPORTS [1981] 2 S.C.R.

A with a wise limitation may and must readily and rightly be read into
the last words of Art. 12.

Addressing itself to the question of identifying those bodies which
are agencies or instrumentalities of Government, the court, in Airport
Authority, observed : (')
A corporation may be created in one of two ways. It may
be either established by statute or incorporated under a law
such as the Companies Act, 1956 or the Societies Registration
Act, 1860. Where a corporation is wholly controlled by Gov-
ernment not only in its policy-making but also in carrying
out the functions entrusted to it by the law establishing it
or by the charter of its incorporation, there can be no doubt
that it would be an instrumentality or agency of Govern-
ment. ..... When does such a corporatiO'll become an in-
strumentality or agency of Government ? Is the holding of
the entire share capital of the corporation by Government
D enough or is it necessary that in addition, there should be a
certain amount of direct control exercised by Government
and, if so, what should be the natnre of such control ? Should
the functions which the corporation is charged to carry out
possess any particular characteristic or feature, or is the
natnre of the functions immaterial ? Now, one thing is clear
that if the entire share capital of the corporation is held by
Government, it would go a long way towards indicating that
the corporation is an instrumentaUty or agency of Govern-
ment .... What then are the tests to determine whether a
co'rporation established by statute or incorporated under law
is instrumentality or agency of Government ? It is not
possible to formulate an all-inclusive or exhaustive test which
would adequately answer this question. There is no cut and
dried formula which would provide the correct division of
corporations into those which are Instrumentalities or agen-
ciCll ot Government and those which are not.
(emphasis added)
G
The court proceeded to crystallise the tests to determine the 'State'
completion of corporate bodies. beyond furnishing the full share
capital : (')
But "a finding of State financial support plus an unusual
H degree df control over the management and policies might
(I) Ibid. at 507.
(2) (1979] 3 sec 489 at 508-509.
SOM PRAKASH REKHI v. UNION (Krishna Iyer, J.), 135

lead one to characterise an operation as State action". Vide A
Sukluiev v. Bhagatram('). So also the existence of deep
and pervasive State control may afford an indication that the
Corporation is a State agency or instrumentality. It may also
be a relevant factor to consider whether the corporation en-
joys monopoly status which is State conferred or State pro-
tected. There can be little doubt that State conferred or B·
State protected monopoly status would be higbly relevant in
assessing the aggregate weigbt of the corporalio'.ns' ties to
the State.
There is also anatller factor which may be regarded as
ha viug a bearing on this issue and it is whether the operation ('
of the corporation is an important public function. It has
been held in the United States in a number of cases that the
concept of private action must yield to a conception of State
actio'n where public functions are being performed. Vide
Arthur S. Millers: The Constitutional Law of the 'Security
State.(') ))

If the functions of the corporation are of public import-
ance and closely related to governmental functions, it would
be a relevant factor in classifying the corporation as an ins-
trumentality or agency of Government. This is precisely
what was pointed out by Mathew, J. in Sukhdev v. Bhogat-
E
ram (supra) where the learned Judge said that "institutions
engaged in matters of high public interest or performing pub-
lic functions are by virtue of the nature of the functions per-
formed government agencies. Activities which are too funda-
mental to the society are by definition too important not to
be considered government functions."

Bhagwati, J. dwelt on the functional formula and reasoned : (')
But the decisions show that even this test of public or
governmental character of the function is not easy of appli-
cation and does not invariably lead to the correct inference
because the range of governmental activity is broad and G
varied and fuerely because an activity may be such as may
legitimately be carried on by Government, it does not mean
that a corporation, which is olherwise a private entity, would
be an instrumentality er agency of Government by reason
of carrying on such activity. In fact it is difficult to disting-
H
(1) fl975J 3 sCR 619, 650 : [1975J 1 sec 421, 454.
(2) JO Stanford Law Review 620 at 664.
(3) [1979] 3 sec 489 at 510.
13~ SUPREME COURT REPORTS [1981] 2 S.C.R.
A uish ?etween governmental functions ahd non-governmental
funct10ns. Perhaps_ the distinction between gavernmental
and non-governmental functions is not valid any more in a
social welfare State where the laissez faire is an outmoded
concept and Herbert Spencer's social statics has no
place. · : ... But the public nature of the function, if impreg-
B nated with governmental character or "tied or entwined with
Government" or fortified by some other additional factor ,
may render the corporation an instrumentality or agency of
Government. Specifically, if a department of Government is
transferred to a corporation, it would be a strong factor sup-
portive of this inference.
c
The conclusion is impeccable that if the corporate body is but
an 'instrumentality or agency' of Government, then Part III will tram-
mel its operations. It is a cas~ of quasi-gorvernmental beings, not of
non-State entities. We have no hesitation to hold that where the
chemistry of the corporate body answers the test of 'State' above out-
D
lined it comes within the qefinition in Art. 12. In our constitutional
scheme where the commanding heights belong to the public sector of
the national economy, to grant absolution to government companies
. and their ilk from Part III may be perilous. The court cannot con-
nive at a process which eventually makes fundamental rights as rare as
.B "ro'ses in December, ice in June"(!). Article 12 uses the expression
"other authorities" and its connotation has to be clarified. On this
facet also, the Airport Authority case supplies a solution : (')
If a statutory corporation, body or other authority is an
instrnmentality or agency of the Government, it would be an
'authority' and therefore 'State' within the meaning of that
• expression in Article 12.

The decisions are not uniform as to whether being an instrnmen-

G
tality or agency of Government ipso jure renders the company or other
similar body 'State'. This again involves a navigation through pre-
cedents and Bhagwil.ti, J. In Airport Authority (supra) has spoken for
the Court, after referring to Rajasthan Ekctricity Board v. Mohan
Lal(') Sukhdev v. Bhagatram(4), Praga Tool Corporation v. C. A.
-
Immanuel('), Heavy Engineering Mazdoor Union v. State of Bihar("),
(1) As Lord Byron lamented in English Bards and Scottish Reviewers.
(2) [1979] 3 sec 489 at 517.
(3) [1967] 3 SCR 377.
H
(4) [1975] 3 SCR 619.
(5) [1969] 3 SCR 773.
(6) [1969] 3 SCR 995 .
SOM PRAKASH REKHI v. UNION (Krishna Tyer,].) 137

S. L. Aggarwal v. General Manager, Hindustan Steel Ltd.,(') and A
Sabhajit Tewari v. Union of India(') :
We may point out here that when we speak of a Corpo-
ration being an instrumentality or agency of Government, we
do not mean to suggest that the Corporation should be an
agent of the Government in the sense that whatever it does
B
should be binding on the Gc<vernment. It is not the rela-
tionship of principal and agent which is relevant and material
but whether the corporation is an instrumentality of the
Government in the sense that a part of the governing power
of the State is located in the Corporation and though the
Corporation is acting on its own behalf and not on behalf of c
the Government, its action is really in the nature of State
action. ( 3 )

Let us cull out from Airport Authority (supra) the indicia ol "other
authorities .... under the contro1 of the Government of India" bring-
ing a corporation within the delinition of "the State". The following D
factors have been emphasised in that ruling as telling, though not
clinching. These characteristics convert a statutory corporation, a
government company, a cooperative society and other registered
society or body into a State and they are not confined to statutory cor-
porations alone. We may decoct the tests for ready reference :
1. "One thing is clear that if the entire share capital of the E
corporation is held by Government. it would go a long way towards
indicating that the corporation is an instrnmentality or agency of
Government."
2. Existence of "deep and pervasive State control may afford an
indication that the Corporation is a State agency or instrumentality." F
3. "It may also be a relevant factor .... whether the corpora-
tion enjoys monopoly status which is the State conferred or State
protected."
4. "If the function~ of the corporation are of public importance
and closely related to governmental functions, it would be a relevant G
fac'tor in classifying the corporation as an instrumentality or agency
of Government."
S. "Specifically, if a department of Government is transferred to
a corporation, it would be a strong factor supportive of this inference"
(l) (1970] 3 SCR 363.
n
(2) [1975] 3 SCR 616.
(3) [l979J 3 sec 489 at 518.
138 SUPREME COURT REPORTS [1981] 2 S.C.R.

A of the c<yporation being an instrumentality or agency of Govern-
ment."

The finale is reached when the cumulative effect of all the re!e-•
vant factors above set out is assessed and once the body is found
to be an instrument or agency of Government, the further conclUllion •
8 emerges that it is 'State' and is subject to the same constitutional
limitations as Government.
This divagation explains the ratio of the Airport A uthori~y
(supra) in its full spectrum. There the main contention was that
the said authority, a statutory corporation, was not State and en-
c forcement of fundamental rights against such a body was impermis-
sible. As is apparent from the extensive discussion above, the
identical issue confronting us as to what are the "other authorities"
contemplated by Art. 12 fell for consideration there. Most of the
rulings relied on by either side received critical attention there and
the guidelines and parameters spelt out there must ordinarily govern
D our decision. A careful study of the features of the Airport Autho-
rity and a government company covered by ss. 7, 9, 10 and 12 of
the Act before us discloses a close parallel except that the Airport
Authority is created by a 3tatute while Bharat Petroleum (notified
under s. 7 of the Act) is recognised by and clothed with rights and
duties by the statute.
E
There is no doubt that Bhagwati, J. broadened the scope of
State under Art. 12 and according to Shri G. B. Pai the observa-
tions spill over beyond the requirements of the case and must be
dismissed as obiter. His submission is that having regard to the
fact that the International Airport Authority is a corporation created
F by statute there was no occasion to go beyond the narrow needs of the
situation and expand upon the theme of State in Art. 12 vis a vis Govern-
ment companies, registered societies and what not. He assails )-
the decision also on another ground, namely, the contradiction
between Sukhdev(I) and Airport Authority('). We will examine
both these contentions and, incidentally, consider what the law laid
G down in the other rulings is. We are free to confess that the propo-
sitions have not been neatly chiselled and presented in any of the
rulings and further, some measure ol' incongruity may be noticed if we
search for the same; but our approach is not to detect contradictions
but to discover a broad consensus it there be any and distil the
law in accordance therewith.
11
(1) [1975]3 SCR 619.
(2) [1979J 3 sec 489.
•
SOM PRAKASH REKHI v. UNION (Krishna Iyer, J.) 139

We may first deal with Tewary's case(') where the question A
mooted was as to whether the C.S.I.R. (Council of Scientific and
Industrial Research) was 'State' under Art. 12. The C.S.I.R. is a
registered society with official and non-official members appointed by
Government and subject to some measure of control by Government
in the Ministry of Science and Technology. The court held it
' was not 'State' as defined in Art. 12. It is significant that the B
court implicitly assented to the proposition that if the society
were really an agency of the Government it would be 'State'. But
on the facts and features present there the character of agency of
Government was negatived. The rulings relied on are, unfortunate-
...,,~ ly, in the province of Art. 311 and it is clear that a body may be
'State' under Part III but not under Part XIV. Ray, C. J., rejected
c
the argument that merely because the Prime Minister was the
President or that the other members were appointed and removed by
Government did not make the Society a 'State'. With great respect,
we agree that in the absence of the other features elaborated in
Airport Authority case(2) the composition of the Governing Body D
alone may not be decisive. The laconic discussion and the limited
ratio in Tewary( 3 ) hardly help either side here.
Shri G. B. Pai hopefully took us through Sukhdev's case(') at
length to demolish the ratio in Airport Authority('). A majority of
three judges spoke through Ray, C. J. while Mathew, J. ratiocinated diff-
erently to reach the same conclusion. Alagiriswamy, J. struck E
a dissenting note. Whether certain statutory corporations were
'State' under Art. 12 was the question mooted there al the instance
of the employees who invoked Arts. 14 and 16. The judgment of
!he learned Chief Justice sufficiently clinches the issue in favour of
the petitioner here. The problem was posed thu~ : ( 6 )
F
In short the question is whether these statutory corpo.
rations are authorities within the meaning of Article 12.
-\. The answer was phrased thus : (')
The employees of these statutory bodies have a statu-
tory status and they are enti!led to declaratioo of being in
G
employment when their dismissal or removal is in contra-
\"ention of statutory provisions. By way of abundant
caution we state that these employees are not servants of
(I) Subhajit Tewary v. Union [1975] 3 SCR 616.
(2) fl979J 3 sec 489.
(3) [1975] 3 SCR 616.
(4) [1975) 3 SCR 619. H
(5) [19751 3 SCR 619 at 624
(6) Ibid. at 624
10-1281 SCI/80
140 SUPREME COURT REPORTS [1981] 2 S.C.R.

A the Union or the State. These statutory bodies are
"authorities" within the meaning of Article 12 of ti.
Constitution.
Thus, the holding was that the legal persons involved there {thrae
corporations, viz. The Oil and Natural Gas Commission, the
8 Industrial Finance Corporation and the Life Insurance Corporation)
were 'State' under Art. 12. The reasoning adopted by Ray, C. J. '
fortifies the argumentation in Airport Authority.(') ,.•
Repelling the State's plea that these bodies were not 'other
authorities' under Art. 12, Ray, C. J. observed:{')
The State undertakes commercial functiOllll in combi-
c nation with Governmental functions in a welfare State.
Govermnental function must be authoritative. It must be
able to impose decision by or under law with authority.
The element of authority is of a binding character. The
rules and regulations are authoritative because these rules
D and regulations direct and control not only the exercise of
powers by the Corporations but also all persons who deal
with these corporations ..... .
The expression "other authorities" in Article 12 has
been held by this Court in the Rajasthan Electricity Board
to be wide enough to include within it every authority crea-
ted by a statute and functioning within the territory of India,
-
or under the control of the Government of India. This
Court further said referring to earlier decisions that tlw
expression "other authorities" in Article 12 include all
constitutional or statutory authorities on whom powers are
conferred by law. The State itself is envisaged undet
F
Article 298 as having the right to carry on trade and busi-
ness. The State llS defined in Article 12 i3 comprehended
to include bodie3 created for tM purpose of promoting eco- f
nomic interests of the peopl6. The circumstance that th•
statutory body is required to carry on some activities of
G the nature of trade or commerce doe• not indicate that tho
Board must be excluded from the scope of the word 'State'.
The Electricity Supply Act showed that the Boord had
power to give directions, the disobedience of which is puni-
shable as a criminal offence. The power to issue directiom
and to enforce compliance is an important Mpect
B ( empha1iK addul)
(1) f1979J 3 sec 489
(2) [1975] 3 SCR 619 at 634-635
SOM PRAKASH REKHI v. UNION (Krishna Iyer, J.) 141

Dealing with governmental purposes and public uuthorities, the court A
clarified : (')
In the British Broadcasting Corporation v. Johns (Ins-
pector of Taxe3) (1965) (1 Ch. 32), it was said that persons
who are created to carry out governmental purpo!!~ enjoy
immunity like Crown 1ervants. Government purpo3u B
include the traditional provinces of Government as well as
non-traditional province3 of Government if the Crown has
constitutionally asserted that they are to be within the pro-
vince of Govern1111!nt . .... .
A public authority is a body which has public or statu-
tory duties to perform and which performs those duties
c
and carrie3 out its transactions for the benefit of the public
and not for privNte profit.
(emphasis added)

Taking up each statute and analysing its provisions the learned 0
Chief Justice concluded(') :
The structure of the Lite Insurance Corporetion indicates
that the Corporation is an agency of the Government carry-
ing on the exclusive bu!inesa of life insurana>. Each and
every provision 3how3 in no uncertain temu that th6 voice
is of the Central Gov~rnment al'ld the hand3 art1 alw of the E
Central Government.
Xll

Th~e provisions of the InduMrilll .Pinanee Corporation
Act show th&t the Corporfttion i3 in •D•ct managtd and
controlled by the Cmtral Gover11m«nt. F
(emphasis added)
TlY italicised portion pithily rums up the meat rA. the matter. It the
voice is of the Government and so also the hands, the face will not
• hide the soul. There is nothing in this judgment which goes against
a government company being regarded as 'State'. On the contrary, G
th• thrust of the logic and the generality of the law are far from
rllltrictive and apply to all bodiea which fill the bill.
Mathew, J. is more pootivo in hi11 conception c1' ·~tate' undet.
Art. 12 : (')
(I) [1975] 3 SCR. 619 at 635. H
(2) Ibid. 639 and 641.
(3) Sukhdev v. B/wgatram [l91Sj 3 SC!l 619 al 64-4-45.
142 SUPREME COURT REPORTS [1981] 2 S.C.R.•

A The concept of State has undergone drastic changes in
recent years. Today State cannot be conceived of simply
as a coercive machinery wielding the thunderbolt of autho·
rity. It has to be viewed mainly as a service corporation.
"If we clearly grasp the character of the state as a
B social agent, under>tanding it ratioillally as a form of service
and not mystically as an ultimate power, we shall differ '
only in respect of the limits of its ability to render service."
(sec Mac Iver, "The Modem State" 183).
xx xx xx

c A state is an abstruct entity. It can only act through
the instrumentality or agency of natural or judicial per-
sons. Therefore, there is nothing strange in the notion of
the state acting through a corporation and making it an
agency or instrumentality of the State ..... .
The tasks of government multiplied with the advent of
o·
the welfare state and consequently, the framework of civil
service administration became increasingly insufficient for
handling the new tasks which were often of a specialised
and highly technical character. At the same time, 'bureau-
cracy' came under a cloud. The district of government by
E civil service, justified or not, was a powerful factor in the
development of a policy of public administration through
separate corporation which would operate largely accord-
ing to husiness principles and be separately accountable.
The public corporation, therefore, became a third arm
of the Government. In Great Britain, the conduct of basic
F industries through giant corporation is now a pennanent
feature of public life.

The Indian situation is an a fortiori case, what with Part IV of the )-
Constitution and the Government of India Resolution on Industrial
policy of 1956 ?(')
G Accordingly, the State will progressively assume a pre-
dominant and direct responsibility for setting up new indus-
trial undertakings and for developing transport facilities.
It will also undertake State trading on an increasing scale.
Oi course, mere State aid to a company will not make its actions
H State actions. Mathew, J. leaned to the view that : ( 2 )
I. Sukhdev v. Bha~atram [1975] 3 SCR 619 at 646.
2. !bide 650.
SOM PRAKASH REKHI v. UNION (Krishna !ya. J.) 14 3

.... State financial support plus an unusual degree A
oi control over the management and policies might lead one
to characterise an operation as state action.
Indeed, the learned Judge went much farther : (')
Another factor which might be considered is whether the
operation is an important public function. The combination B
of state aid and the furnishing of an important public ser-
vice may result in a conclusion that the operation should be
classified as a state agency. If a given function is of such
public importance and so clooely related to governmental
functions as to be classified as a governmental agency, then
even the presence or absence of state financial aid might be c
irrelevant in making a finding of state action. If the func-
tion does not fall within such a description, then mere addi-
tion of state money would not influence the conclusion.

It must be notic"-d that the emph~sis is on functionality plus State
control rather on the statutory character of the Corporation : (') D
Institutions engaged in matters of high public interest or
·- performing public functions are by virtue of the nature of
the function perj'ormed government agencies. Activities
which are too fundamental to the society are by definition
too important not to be considered government functions. E
We may read the ratio from the judgment of Mathew, J. where
he says : (')
It is clear from the provisions that the Central Go-
vernment has contributed the original capital of the Corpo-
ration, that part of the profit of the Corporation
goes to that Government, that the Central Government
exercises control over the policy of the Corporation, that
the Corporation carries on a business having great public
importance and that it enjoys a monopoly in the business.
I would draw the same conclusions from the relevant pro-
visions of the Industrial Finance Corporation Act wh;ch G
have also been referred to in the aforesaid judgment. In
these circumstances, I think, these corporations are agen-
cies or instrumentalities of the 'State' and are, therefore,
'State' within the meaning· of Article 12. The fact that these
corporations have independent personalities in the eye of
(I) Ibid 650.
H
(2) [1975] 3 SCR 619 at 651.
(3) Ibid 653-55.
144 SUPREME COURT REPORTS [l'J81J 2 S.C.R.

A law does not mean that they are not subject to the control.
of government or that they are not instrumentalities of the
government. These corporatiom are instrumentalities or
agencies of the State for carrying on businesses which
otherwise would have been run by the State departmentally.
If the state had chosen to carry on these businesses through
B
the medium of gove=ent departments, there would have
been no question that actions of these department. would be
'state action1<'. Why then should tho actions be not state
actions ?

c xx xx xx

.. merely because a corporation has legal person-
ality ol' its own, it does not follow that the corporation
cannot be an agent or instrumentality of the state, if it is
subject to control of government in all important matters
D of policy. No doubt, there might be scme distinction bet-
ween the nature of control exercised by principal ovrr agent
and the control exercised by government over public cor-
poration. That, I think is only a distinction in deg;ee. The
crux of the matter is that public corporation is a new typo
or Institution which has sprung from the new social and
economic functions of government and that it therefore does
n.)t neatly fit into old legal categories. lnstead c:A. forcing
it into them, the later should be adapted to the needs of
changing times and conilitibn~.

There is nothing in these observations to confine tho concopt of
F State to statutory corporations. Nay, the tests are common to any
agency or instrumenllllity, the key factor being the brooding pre1ence
of the State behind the operation of the body, statutory or other.

A study of Sukhdev's case(') (a Constitution Bench decision of •
this Court) yields the clear result that the preponderant cooside!'ations
G
for pronouncing an entity as State agency or instrumentality are finan-
cial re<ources of the State being the chief funding source, functional
character being governmental in essence, plenary control residing in
Government, prior history of the same activity having been carried
on by Government and made over to the new body and iODle ele-
ment of authority or command. Whether the legal person is a cor-
H poration created by a statnte, as distinguished from under a statute,
is not an important criterion although it may be an indicium. Applying
(1) [1975] 3 SCR 619.
SOM PRAKASH Rl!KHI v. UNION' (Krishnllj Iyer, J.)i 145

the constellation of criteria collected by us from Airport Authority,(') A
on a cumulative basis, to the given case, there is enough material to
hold that the Bharat Petroleum Corporation is 'State' within the en-
larged meaning of Art. 12.

The Rajasthan Electricity Board case(') (the majority judgment
of Bbargava, J.) is perfectly compatible with the view we take oil B
An. 12 or has been expressed in Sukhdev(') and the Airport Autho-
rity('). 'The !ihort question that fell for decision was as o whether
the Elactricity Board was 'State'. There was no debate, no discUS&ion
~·and no decision on the issne of excluding from th~ area of
'State', under Art. 12, units incorporated under a statute as against
thOie created by a statute. On the other hand, the controversy w8S C
over the exclusion from the definition of State in Art. 12 corporations
e11g11ged in commercial activities. This plea for a narrow meaning
waio negatived by Bhargava, J. and in that context the learned Judge
explained the signification of "other authorities" in Art. 12 : (')
The meaning of the word "authority" given in Webster's D
Third New International Dictionary, which can be appli-
cable, is "a public administrative agency or corporation
having quasi-govermnental powers and authorised to ad-
minister a revenue-producing public enterprise." This dic-
lionary meaning of the word "authority" is clearly wide
enough to include all bodies created by a statute on which E
powers are conferred to carry out governmental or quasi-
governmental functions. The expression "other authorities"
is wide enough to include within it every authority created
by a statute and functioning within the territory of India,
or under the control of the Government df ;India; and we
do not see any reason to narrow down this meaning in the F
context in which the words "other authorities" are used in
Art. 12 of the Constitution.
xx xx xx
These decisions of the Court support our view that the
expression "other authorities" in Art. 12 will include all G
constitutional on statutory authorities on whom powers con-
ferred may be for the purpose of carrying on commercial
activities. Under the Constitution, the State is itself envi-
saged as having the right to carry on trade or business as
(ll [1979J 3 sec 489.
(2) [1967] 3 SCR 377 at 385-86. H
(3) [1975] 3 SCR 619.
(4) [1979] 3 SCR 489.
146 SUPREME COURT REPORTS (1981] 2 S.C.R.

A mentioned in Art. 19(1}(g). In Part IV, the State has
been given the same meaning as in Art. 12 and one of
the Directive Principles laid down in Art. 46 is that the State
shall promote with special care the educational and economic
interests of the weaker sections of the people. The State, '
as defined in Art. 12, is thus comprehended to include
B bodies created for the purpose <Jf promoting the educational
and economic interests of the people. The State, as con-
stituted [Jy our Constitution, is further specifically empower-
ed under Art. 298 to carry on any trade or business. The
circumstance that the Board under the Electricity Supply
Act is required to carry on some activities of the nature of
c trade or commerce does not, therefore, give any indication
that the Board must be excluded from the scope of the word
"State as used in Art. 12.
The meaning of the learned judge is unmistakable that "the State" in
Art. 12 comprehends bodies created for the purpose of promoting
D economic activities. These bodies may be statutory corporations,
registered societies, government companies or other like entities. The
court was not called upon to consider this latter aspect, but to the
extent to which the holding goes, it supports the stand of the
petitioners.
E We are not disposed to discuss more cases because two constitu-
tion benches and two smaller benches have already pronounced on the
amplitude of "other authorities" in Art. 12. Even so, a passing
reference may be made to a few more cases. In Praga Tools Corpo-
ration v. Immanuel(') this court was called upon to consider the
enforceability of two industrial settlements against the management
F which was a company with substantial share-holding for the Union
Government and the Government of Andhra Pradesh. There was no
..,.
spedlic reference to Art. 12 as such although it was mentioned early
in the judgment that the company was a separate legal entity and
could not be said to be "either a governnient corporation or an
industry run by or under the authority of the Union Government."
G
It must be noticed that 12 % shares in the company were held by
private individuals and nothing more is known about the plenary
control by Government and other features we have referred to earlier
in this judgment. On the other hand, the short passage, part of which
we have extracted, almost suggests that a government corporation
H may stand on a different footing from Praga Tools Corporation
(supra). If so, it supports the view we have taken. The Hindustan
(I) [1969] 3 SCR 773.
SOM PRAKASH REKH! v. UNION (Krishna Tyer, J.) 147

Steel case(') which was cited at the bar, considered the question as A
to whether an employee of that company was holding a post under
the Union or a State so as to claim the protection of Art. 311. This
claim was negatived, if we may say so, rightly. In the present case,
Art. 12 is in issue and not Art. 311 and, therefore, that citation is an
act of superero'gation. The Vaish College case(") which too was
B
referred, related to the status of the managing committee of a college
and the enforceability of the contractual rights of a teacher by a
writ under Art. 226. That problem is extraneous to our case and
need not detain us.

Imagine the possible result of holding that a government company, C
being just an entity created under a statute, not by a statute, it is not
'State'. Having regard to the directive in Art. 38 and the amplitude
of the other Articles in Part TV Government may appropriately em-
bark upon almost any activity which in a non-socialist republic may
faR within the private sector. Any person's employment, entertain-
ment, travel, rest and leisure, hospital facility and funeral service may I}
be controlled by the State. And if all these enterprises are executed
through government companies, bureaus, societies, councils, institutes
and homes, the citizen may forfeit his fundamental freedoms vis-a-vi$
these strange beings which are government in fact but corporate
in form. If only fundamental rights were forbidden access to corpo-
rations, companies, bnreaus, institutes, councils and kindred bodies E
which act as agencies of the Administration, there may be a break-
down of the role of law and the constitutional order in a large sector
of governmental activity carried on under the guise of 'jural persons'.
It may pave the way for a new tyranny by arbitrary administrators
operated from behind by Government bnt unaccountable to Part III
of the Constitution. We cannot assent to an inter-pretation which F
\ - leads to such a disastrous conclusion unless the language of Art. 12
offers no other alternative.

It is well known that "corporations have neither bodies to be
kicked, nor souls to be damned" and Government corporations are
mammoth organisations. If Part III of the Constitµtion is halted at G·
the gates of corporations Justice Louis D. Brandeis's observation will
be proved true :
The main objection to the very large corporation is that
it makes poss;ble-and in many cases makes inevitablc-
the exercise of industrial absolutism.
(I) S. L. Agarwal v. General Manager, Hindustan Steel Ltd. [1970] 3 SCR_363.
(2) Vaish College v. Lakshmi Narain [1976] 2 SCR 1006.
1-i8 SUPREME COURT REPORTS (1981] 2 S.C.R.

A It ii dangerou8 to exonerate corporations from the need to have con-
stitutional conscience; and so, that interpretation, language permitting,
which makes governmental agencies, whatever their mein, amenable
to con£titutional limitations must be adopted by the court as against
the alternative of permitting them to flourish as an imperium in im-
perio.
B
The common-sense signification of the expression "other autho-
ritie11 under the control of the Government of India" is plain and
there is no reason to make exclusions on sophisticated grounds such
as that the legal person must be a statutory corpo~ation, must have
power to make laws, must be created by and no! under a statute
C and so on. The jurisprudence of Third World countries cannot afford
the luxury against which Salmond cavilled (') :
Partly through the methods of its historical development,
and partly through the influence of that love of subtlety
which has always been the besetting sin of the legal mind
D onr law is filled with needless distinctions, which add enor-
mously to its bulk and nothing to its value, while they
render a great part of it unintelligible to any but the expert.
Having concluded the discussion on the amenability of the res-
pondent-company to Part III we proceed to consider the merits of
the ca£e on the footing that a writ will issue to correct the illegality
E if there be violation of Arts. 14 and 19 in the order deducting from
the pension of the petitioner two sums of money mentioned right at
the beginning.
We may now proceed to consider the substantial questions raised
by the petitioner to invalidate the deductions from his original pension
}' on the ground of his drawal of provident fund and gratuity. The
justification for such deduction is claimed to be regulation 16 and its
antidote is urged to be a provision in the two respective enactments
relating to provident fund and payment of gratuity, namely, ss. 12 and
14.
The petitioner retired voluntarily under an extant voluntary retire-
ment scheme. The quantum of pension was regulaJed by that scheme.
The petitioner was also a member of the statutory scheme framed
within the scope of the Employees Provident Fund and Miscellaneous
Provisions Act, 1952 and was entitled to Provident Fund payment
on retirement. Likewise, he was entitled to payment under the
,ff Gratuity Act, 1972. These vrere the statutory rights which he en-
joyed. Being a non-contributory member of the Pension Fund of
(I) Salmond, Jurisprudence, 10th Edn. p. 51.
SOM PRAKASH REKHI v. UNION (Krishna !ya, J.} U9

Burmah Shell under the Trust Deed set up by it, he earned his pension. A
But the Trust Deed contained many regulations. The normal annual
pension under the regulations worked out to a sum of Rs. 165.99 per
month for the petitioner. Regulation 16 provided fqr certain "autho-
rl$ed deductions" from the amount or pension of non-contributing
members. The quantification of these deductions was provided for
in the said regulation. If these deductions were not to be made, the B
petitioner would be eligible for his pension of Rs. 165.99 and Rs. 86
per month by way of Supplementary Retirement Benefits which, he
awerted was a part of the pensionary benefits. This was being paid
by the Burmah Shell to its employees and naturally this obligation
devolved on the successor second respondent under the statutory
rules framed in this behalf [Burmah Shell (Acquisition or Under-
c
takings of India) (Administration of Fund) Rules, 1976]. But, by
lotter dated August 10, 1973, the petitioner was informed that a sum
of Rs. 56.12 would be deducted as an 'authorised deduction' pursuant
to reg. 16 mentioned above. The cause for this was the drawal of
the provident fund amount. Likewise, when the gratuity was drawn D
by the petitioner, another letter dated October 24, 1973 was issued
to him that there would be a further reduction of th\: pension. When
the petitioner complained to the appropriate authority that Burmah
Shell was declining to pay the gratuity, a direction was issued to the
management to pay the sum of gratuity due. Thereupon, a turther
deduction of Rs. 68.81 from the monthly pension of the petitioner
was effected as an 'authorised deduction' under reg. 16(3). The
diicretionary payment by way of retirement benefits, namely,
R$. 86/- per month was also stopped, maybe because the petitioner
litigatively withdrew gratuity and provident fund. The pitiable posi-
t.ion was that the petitioner found himself with a miserable amount
of Rs. 40.06 per month, a consequence directly attributable to his F
r~ving provident fund and gratuity amounts. Of course, legality

.. cannot be tested on the size of the sum and the court must examine
the merits de hors any sympathy.

The petitioner's attempt to recover his full pension under s. 33C(2)
G
of the Industrial Disputes Act failed since that jurisdiction was more
than that of an executing court and there should be a substantive
order creating the obligation before enforcement could follow.

The liability for the payment of full pension was that of Burmah
Shell, but, by virtue of ss. 3 and 4 of the Act, all the assets and H
liabilities vested in the Central Government and thereafter, in the
second respondent. Section 10 of the Act relates to provident fund,

. - ~,.... t ,,,.,
15 0 SUPREME COURT REPORTS (1981] 2 S.C.R.

A superannuation, welfare fund and the like. Section 10(3) is.
important :
10(3). The Government company in which the under-
taking of Burmah Shell in India are directed to be vested
shall, as soon as may be after the date of vesting, constitute.
B in respect of the moneys and other assets which are trans-
ferred to, and vested in, it under this section, one or more
trusts having objects as similar to the objects of the existing
trusts as in the circumstances may be practicable, so, how-
ever, that the rights and interests of the beneficiaries of the
·trust referred to in sub-section (1) are not, in any way,
c prejudiced or diminished.
(emphasis added)·

Follow-up steps were accordingly taken and there is no quarrel over
it. It is clear, therefore, that the second respondent has made pro-
D vision for the rights and interests of the beneficiaries of the Trust
established by Bunnah Shell for the benefit of the persons employed
by it. Section 10(1) puts this matter beyond doubt. This obliga-
tion of the second respondent is a statutory one and having regard·
to the provisions of s. 11, it cannot be affected by any instrument or
decree or order. The statutory continuation of a pre-existing liability
E to pay pension, provident fund or gratuity, cannot be avoided having
regard to s. 10.

Shri Pai contends that the very root of the claim to pension is the
Trust Deed which is to be read integrally. Regulation 16 is part and
parcel of the right to pension and cannot ·be divorced from reg. 13.
F Indeed, these regulations arc so intertwined that the "authorised de-
ductions" are an inextricable part of the right to pension. If this j
approach be correct and if there be no other legal prohibition in
making the deductions, the conclusion is convincing that the quantum
of pension must sustain the authorised deduction immediately provi-
dent fund and gratuity are drawn. The counter argument of Shri
G Parekh is that there is a statutory prohibition against any deduction
from the pension if the ground is drawal of provident fund or gratuity
amount. In view of the statutory taboo he contends, that the deduc-
tion is unauthorised even if the contract or trust may provide so. So,
the crucial question is whether there is. a statutory ban on any diminu-
tion in the pension because of provident fund and gratuity benefits
H having been availed of. The PF Act and the Gratuity Act contain
certain protective provisions whose true import falls for construction·
and is decisive of the point in dispute.
SOM PRAKASH REKHI v. UNION (Krishna Iyer, ]. ) ' 151

Let us assume for a moment that reg, 16 authorises deductions A
and that discretionary payments, although enjoyed by the employees,
is fotble to be stopped. The question is whether s. 12 of the PF Act
forbids any such reduction or deduction out of the benefits in the
nature of old age pension on the score of the payment of contribution
to the provident fund. We may extract s. 12 here for, according to
Shri Parekh, the language speaks for itself : B
12. No employer in relation to an establishment to
which any scheme or the insurance scheme applies shall,
by reason only of his liability for the payment of any contri-
bution to the Fund or the Insurance Fund or any charges
under this Act or the scheme, reduce, whether directly or c
indirectly, the wages of any employee to whom the scheme
of the Insurance Scheme applies or the total quantum <Yf
benefits in the nature of old age pension, gratuity, provident
fund or Life Insurance to which the employee is entitled
under the terms of his employment, express or implied.
(emphasis addcdi; D

We take the view that this be;iignant provision must receive a benig-
nant construction and, even if two interpretations are permissible,
... that which furthers the beneficial object should be preferred. From
that perspective, the inference is reasonable that the total quantum
of benefits in the nature of old age ponsion, gratuity or provident E
fund, shall not be reduced by reason only of the liability of the
employer for payment of contribution to the fund. The Section
prevails over the Trust Deed. The provident fund accrues by statu-
tory force and s. 12 override; any agreement authorising deductions,
argues Shri Parekh. '
F
A similar result holds good even under the Gratuity Act. Section
14 of that Act reads thus :

.. 14. The provisions of this Act or any rule made there-
under shall have effect notwithstanding anything inconsistent
therewith contained in any enactment other than this Act
or in any instrument or contract having effect by virtue of G
any enactment other than this Act.
The expression "instrument" certainly covers a Trust Deed and,
notwithstanding the deduction that may be sanctioned by the Trust
Deed, the overriding effect of s. 14 preserves the pension and im-j
inunises it against any deduction attributable to the statutory payment H
of the provident fund. The deduction made by the second respon-
dent is, i'n that event, illegal.
152 SUPREME COURT REPORTS [1981] 2 S.C.R.

A Shri Pai argues that no reduction of retiral benefit is ef!ected
because the entitlement to pension under reg. 13 is itself conditioned
by the clause for deduction and has no separate amplitude del hors
the 'authorised deduction' spelt out in reg. 16 Let us examine theBC
rival contentiom. If reg. 16 is a provision which imposes a cut in
certain eventualities it is possible to ho1d that the employee has a
B
certain pensionary right. But if he draws P.F. or gratuity that pen-
sion will be pared down by a separate rule of deduction from the
pension. It follows that there is no straining of the language of the
regulations to mean, firstly, a right to pension quantified in certain
manner and, secondly, a right in the Management to make deduction
c from out of that pension if other retiral benefits are drawn by the
employee. That appears to be the pension scheme. If this be correct,
there is no substance in the argume'nt that the pension itself is auto-
matically reduced into a smaller scale of pension on the drawal of
provident fund or gratuity. Pension is one thing, deduction is
another. The latter is independent of pensio'n and operates on tht
D pension to amputate it, as it were. If a law forbids such cut or
amputation the pension remains intact.

The public policy behind the provisions of ss. 10. 12 and 14 of
the respective statutes is clear. We live in a welfare State, in a
'socialist' republic, under a Constitutio'n with profound concern for
the weaker clasres including workers (Part IV) welfare benefits such
as pensions, payment of provident fund and gratuity are in fulfilment
of the Directive Principles. The payment of gratuity or providdlt
fund should not occasion any deduction frdm the pension as a "se~
oft". Otherwise, the solemn statutory provisions ensuring provide11t
fund and gratuity become illusory. Pensions are paid out of regard
F for past meritorious services. The root of gratuity and the founda-
tion of provident fund are different. Each one is a salutary be'nefae-
tion statutorily guaranteed independently of the other. Evell
assuming that by private treaty partie~ had ot~rwise agreed lo

G
deductions before the coming into force of these beneficial enact-
ments they cannot now be deprivatory. It is precisely to guard
against such mischief that the non-ob•tante and overriding µrovisiot\s
..
are engrafted on these ~tatutes.

We must realise that the pension scheme came into existence prior
to the two beneficial statute11 and Parliament when enacting the~e
Je~slations must have clearly intended extra benefits being conferred
H o'n employees. Such a conrequence will follow only if over and above
the normal pension, the benefits of provident fund and gratuity are
enjoyed. On the othe.r hand, it consequent on the receipt of

o-:~~-~· _,_
SOM PRAKASH REKHI v. UNION (Krishna Iyer,/.) 153

these benefits there is a proportionate reduction in the pension, there A.
is 'no real benefit to the employee because the Management takes
away by the left hand what it seems to confer by the right, maJcin&
• the legislation itself left-handed. To hold that on receipt of gratuity
3nd provident fUnd the pension of the employe_e may be reduced
pro tanto is to frustrate the supplementary character of the benefits.
Indeed, that is why by ss. 12 and 14 overriding effect is imparted B
and reduction in the retiral benefits on account of provident fund
and gratuity derived by the employee is frowned upon. We,
accordingly, hold that it is not open to the second respondent to
deduct from the full pension any sum based upon reg. 16 read with
reg. 13. If reg. 16 which now has acquired statutory flavour, havin&
been adapted and continued by statutory rules, operates contrary to c
the provisions of the P .F. Act and the Gratuity Act, it must fail
as invalid. We uphold the contention of the petitioner.

The only point that survives turns on the stoppage of the dis-
cretionary supplementary pensionary benefit. What is discretionary
depends on the discretion of the employer. But that power when D
exercised by an agency of government like the second respondent,
must be based upon good faith and due care. If as a measure of
reprisal or provoked by the drawal of gratuity, or by resort to legal
authorities, such supplementary benefit is struck off, it will cease to be
bona fide or valid. We have no material to hold that the second
respondent has independently considered this matter and so we E
direct that if the petitioner moves the second respondent
stating his case for the continuance of the supplementary benefit, it
will be considered on it~ merits uninlluences by extraneous factors.
We do not think it right or necessary to issue any further direction.

We hold that the petitioner is entitled to his full pension. of Re. F
165.99. We further hold that, on appropriate representation by him,
the second respondent shall consider the grant or stoppage of the
supplementary pensionary benefit on its merits. The petition is allowed

- with costs which we quantify at Rs. 2,000/- Shri Parekh representa
that this sum may be directed to be paid to the Legal Aid Society
in the Supreme Court. We appreciate this gesture of counsel and
G

• direct the Registry to act accordingly.
•
Social justice is the conscience of our Constitution, the State is
the promoter of economic justice, the founding faith which sustains the
Constitution and the country is I'ndian humanity. The public sector
is a model employer with a social conscience not an artificial person H
without soul to be damned or body to be burnt. The stance that, by
deductions and discretionary withholdini of payment, a public 1ector
154 SUPREl\fE COURT REPORTS [1981] 2 S.C.R.

A company may reduce an old man's pension to Rs. 40/- from Rs.
250/- is unjust, even if it be assumed to be legal. Law and justice
must be on talking terms and what matters under our constitutional
scheme is not merciless law but humane legality. The true strength •
and stability of our polity is society's credibility in social justice, not
perfect legalise; and this case does disclo'se indifference to this funda-
B meulal vaJue. We are aware that, Shri G. B. Pai, for the Management,
did urge that 'principle' was involved and that settlements had been
reached between Labour and Management on many issues. We do
appreciate the successful exercises of the Management in reaching just
settlements with its employees but wonder whether the highest principle
of our constitutional culture is not empathy with every little individual.
c
PATHAK, J.--I must confess to some hesitation in accepting ·~~
proposition that the Bharat Petroleum Corporation Limited is a
"Srnte" within the meaning of Art. 12 of the Constitution. But in
view of the direction taken by the law in this Court since Ramana
Dayaram Shelly v. l11ter11atio11al Airport Authority(') I find I must
D lean in favour of that co'nclusion. I would have welcomed a wider
range of debate before us on the fundamental principles involved in
the issue and on the implications flowing from the definition ;" '.he
Companies Act, 1956 of a "Government Company", but perhaps a
future case may provide that.
E As regards the Bunnah Shell (Acquisition of Undertakin~ in
India) Act, 1976 I am unable to see any support for the proposition
in the provisions of that Act. The provisions will apply to any
Government ('ompany, and they do not alter the basic nature of that
company. They are provisions which could well have been applied
to a private corporation, if the Act had selected one for vesting the
F undertaking in it. Would that have made the private corporation a
"Statei' ?
On the merits of the petitioner's claim I need say no more than

-•
t;tiat l agree with my learned brothers that the petitioner should be
granted the relief proposed by them. '
G l'.B.R. Petition <11lowcd.

(I) fl979] 3 S.C.R. 489.