Company with 3% government shares deemed instrumentality under Article 12 due to decisive government control and representation

Kerala HC held that the respondent company constitutes an instrumentality of the Union of India under Article 12 of the Constitution, making it amenable to writ jurisdiction. Despite the State Government holding only 3% shares, the company had decisive government representation through two directors out of twelve on the Board, with SIDBI nominating one-third of directors including Chairman and Managing Director. The court noted that both State and Central Governments specifically considered the respondent as a Central Government company, with accounts audited by the Comptroller and Auditor General treating it as a deemed Government company. The company was also recognized as an accredited Government agency for public works. The HC reversed the single judge's finding that the writ petition was not maintainable and remanded the matter for consideration on merits.

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Issues Involved:
1. Whether the writ petition is maintainable against the 1st respondent company under Article 12 of the Constitution of India.
2. Whether the 1st respondent company qualifies as an instrumentality of the State under Article 12.

Summary:

Issue 1: Maintainability of the Writ Petition

This appeal challenges the judgment of the learned Single Judge, which refused to consider the writ petition on merits, citing that the 1st respondent company is not a State under Article 12 of the Constitution of India. The learned Single Judge relied on K.J. Johnson v. Kerala Industrial and Technical Consultancy and others [ILR 1992 (1) Kerala 808] to conclude that the writ petition is not maintainable.

Issue 2: Instrumentality of the State

The appellants argued that the 1st respondent is a Public Sector Undertaking/Government Company, established by the Industrial Development Bank of India (IDBI) and the Government of Kerala, among others. Approximately 95% of its shares are held by the Government or statutory corporations, making it a Government Company under the Companies Act, 2013. The company is listed as a Union Government Company on the Ministry of Corporate Affairs portal and is categorized as a Public Sector Undertaking in its GST Registration certificate. The Comptroller and Auditor General of India (CAG) audits its accounts annually, and it is recognized as a deemed government company by the CAG. The 1st respondent is also an Accredited Government Agency for Public Works in the State, and its status as a public sector undertaking is admitted in various communications.

The appellants contended that the deep and pervasive control exercised by the State through its instrumentalities over the 1st respondent company was overlooked by the learned Single Judge. They argued that the company's administrative and financial control lies with the Board of Directors, nominated by shareholder banks and the Government of Kerala. The Articles of Association reserve significant powers for the SIDBI, including the nomination of 1/3rd of the Directors and the Chairman and Managing Director. The appellants relied on various judgments, including Ajay Hasia Etc. vs Khalid Mujib Sehravardi & Ors. [1981 AIR 487], to argue that the 1st respondent satisfies the tests for being considered a State under Article 12.

The respondents argued that mere shareholding by SIDBI, ICICI, Government of Kerala, and Public Sector Banks does not confer the status of the State on the company. They contended that State control should be direct by the State or Central Government and not through other instrumentalities. The respondents relied on several judgments, including Chander Mohan Khanna V. National Council of Educational Research [(1991) 4 SCC 578], to support their contention.

The Court considered the divergent views of different High Courts on similar entities. The Patna High Court in Asok Kumar Singh and others v. Bihar Industrial and Technical Consultancy Organisation Limited and others held that BITCO, under similar circumstances, is an instrumentality of the State. In contrast, the Bombay High Court in R.V Dnyansagar v. Maharashtra Industrial and Technical Consultancy Organisation Limited held that the Maharashtra equivalent of the 1st respondent is not an instrumentality of the State.

Upon reviewing the Memorandum and Articles of Association and other documents, the Court noted that the 1st respondent is a company with public entities as shareholders, recognized as a public sector enterprise by the Central and State Governments. The company is controlled by its public sector shareholders, with the Government of Kerala nominating two directors and the SIDBI having a decisive role in policy matters. The Court found that the learned Single Judge's reliance on K.J. Johnson was misplaced, as the 1st respondent is indeed an instrumentality of the State under Article 12.

Conclusion: The Court held that the 1st respondent company is an instrumentality of the Union of India under Article 12 of the Constitution of India and is amenable to writ jurisdiction. The judgment under appeal was set aside, and the writ petition was remanded to the learned Single Judge for consideration on merits.

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