College as State

Can a government college be recognised as the State under the Companies Act? This is a main contention that was raised, especially in cases of discriminatory practices that are alleged to have happened in these colleges. In such cases can the college be tried under Article 14? These are a few questions that arise when learning company law. Certain judicial decisions throw light on this.

Ajay Hasia v. Khalid Majid:

The case was with respect to admission in the regional engineering college. The admission procedure consisted of 2 steps: written examination and a viva. A student who had scored well in the written exam did not qualify for admission due to lower score in the viva. At the same time a student with lower marks in the written test qualified due to higher marks in the viva. Challenging this practice, a writ was filed claiming violation of Article 14, the right to equality. The issues raised whether the college could be considered a state. If so, then could the actions of the college be considered to be in violation of Article 14 of the Indian Constitution.

It was held that a government company can imply a state. The basic finding was that individual, company or institution that was under the state’s control was considered an extension of the state and hence they would be liable if a writ petition was filed against them. The Court listed a few conditions:

  • Entire share of capital is held by government would imply the company being an instrument of the government and the state
  • Enjoyment of enjoy monopoly status either state conferred or state protected by the company
  • Financial assistance or aid for the functioning of the company is an indicator that it is an instrument of state
  • State’s control over the functioning of company’s activities clarify its status as a government instrument
  • If functions are of public interest, then a company can be considered state agency
  • Transfer of government department to a company is an indicator of company being a state agency

These are few guidelines that the court listed for classifying as company as a part of state under Article 12, in order to determine state liability. This was the main takeaway from the case.

R.V Dnyansagar v. Maharashtra Industrial and Technical Consultancy Organisation Ltd:

The petition was filed by an employee of the respondent company under article 226 seeking directions of the High Court for the respondents to pay him the amount of arrears of salary along with other consequential benefits. The petitioner claimed that the respondent-company was a deemed Government company within the meaning of section 619B of the Companies Act, as it was a joint venture of corporations of the State Government and nationalised banks and the entire share capital of the said company was held by them and, therefore, the respondent-company was a State or agency/instrumentality of the State within the meaning of article 12. The main issue was whether the respondent company fell under the ambit of Government company as under Section 617 of the Companies Act and under Article 12 of the Constitution.

The court held that while discussing if a company is a state as per Article 12 of the Indian Constitution, a lot of questions need to be answered including whether the company is under the control of the government and the whether the company is financially or functionally governed by the government.

In this case it was held that the company was not a government company within the scope of Section 617 of the Companies Act and therefore the company could not be regarded as State under Article 12 of the Constitution. Section 617 of the Companies Act defines a Government Company. According to this definition, a government company is one that is associated with state agency or instrumentality.  if there is a state agency or instrumentality that has assumed the attire of a Government Company it does not mean that it thereby terminates to be an agency or instrumentality of the State. One must certainly look through the corporate veil to determine whether the face behind the veil is that of an agency or instrumentality of the state.

Aishwarya Says:

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