Public corporations and public undertakings: status, classification, liability and control
Administrative Law · Unit V · Topic 16 of 18 · 6 min read
On this page
Cases checked to exist. Read the judgment before quoting a holding.
Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.
1. Meaning and development
A public corporation is a body corporate created by or under a statute, owned and controlled by the State, to carry on a commercial, industrial, financial or social service activity in the public interest. In India they grew out of the policy of a mixed economy with a commanding role for the public sector:
- the Industrial Policy Resolutions of 1948 and 1956 reserved key industries for the State;
- statutory corporations followed: the Damodar Valley Corporation (1948), the nationalised Reserve Bank (1949), the Air Corporations (1953), the Life Insurance Corporation (1956), the Oil and Natural Gas Commission and the Food Corporation of India, and State Road Transport and Electricity Boards;
- bank nationalisation (1969) and many government companies extended the sector;
- from 1991 liberalisation and disinvestment reduced it, and several corporations were converted into companies or privatised.
Reasons for choosing the corporate form: freedom from departmental red tape and Treasury control, commercial flexibility in finance and staffing, continuity of management, and the ability to sue and be sued and own property in its own name.
2. Characteristics
January 2026 asked for these and for the legal status.
- Created by statute (or registered as a company under the Companies Act), which defines its powers, functions and relationship with Government.
- Separate legal entity, with perpetual succession and a common seal; it can sue and be sued, contract and hold property in its own name.
- Owned by the State, wholly or substantially; capital comes from the Government.
- Managed by a board appointed by the Government, which can usually issue directions on policy.
- Financial autonomy: it raises and spends its own revenue, subject to audit, and is not governed by the ordinary budget procedure.
- Its employees are not civil servants, so Article 311 does not apply to them, though Articles 14 and 16 do where the corporation is “State”.
- Public purpose: profit is not its only aim; it serves a public interest defined by statute.
3. Legal status
A public corporation is not the Government and is not a department of it. In Andhra Pradesh State Road Transport Corporation v. Income-tax Officer, 1964 INSC 56, AIR 1964 SC 1486, the Corporation claimed that its income was the income of the State and so immune from Union taxation under Article 289. The Court rejected the claim: the Corporation, though wholly owned and controlled by the State, was a separate legal person, and its income was its own. In England, Tamlin v. Hannaford (Court of Appeal, 1949) held that the British Transport Commission was not a servant or agent of the Crown and did not share the Crown's immunities.
At the same time, for the purpose of fundamental rights, a statutory corporation is “State” under Article 12. In Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi, 1975 INSC 44, (1975) 1 SCC 421, the Oil and Natural Gas Commission, the Life Insurance Corporation and the Industrial Finance Corporation were held to be “other authorities”, and their regulations were held to have the force of law, so that an employee dismissed in breach of them could get a declaration of continuance in service. Ramana Dayaram Shetty (1979) and Ajay Hasia (1980) gave the tests for when a government company or society is an instrumentality of the State; Pradeep Kumar Biswas (2002) restated them as whether the body is financially, functionally and administratively dominated by the Government.
4. Classification
A frequent 6-mark question. Classify by function:
- Commercial and industrial corporations, running a business: State Road Transport Corporations, State Electricity Boards (now largely corporatised), Air India before its privatisation in 2022.
- Financial corporations: Life Insurance Corporation, Industrial Finance Corporation, State Financial Corporations, Reserve Bank of India.
- Development corporations: Damodar Valley Corporation, housing and urban development authorities, industrial development corporations.
- Social service corporations: the Employees' State Insurance Corporation.
- Regulatory and promotional bodies: commodity boards, the National Highways Authority.
Classify by form:
- Departmental undertakings, run directly by a ministry (Indian Railways, until recently ordnance factories, which were corporatised in 2021);
- Statutory corporations, created by a special Act (LIC, FCI, ESIC);
- Government companies, registered under the Companies Act, in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, a State Government or both (section 2(45) of the Companies Act, 2013).
5. Liability
June 2025 asked for “the extent of their liability”. Because a corporation is a separate legal person, it is liable in contract and tort in the same way as a private company. Article 300 does not apply to it, and it cannot claim sovereign immunity. It is liable vicariously for the torts of its employees acting in the course of employment (bus accidents involving State transport corporations are the everyday example, dealt with under the Motor Vehicles Act, 1988). Its contracts need not comply with Article 299 unless made on behalf of the Government. Statutory protection for action in good faith may protect individual officers, but not the corporation from ordinary civil liability, unless the statute clearly so provides. It is also amenable to the writ jurisdiction under Article 226 where it is “State” or performs a public duty.
6. Control
- Ministerial (governmental) control. Appointment and removal of board members; power to issue directions on questions of policy; approval of capital expenditure and borrowing; the power to call for returns and reports. The balance is delicate: too much control destroys autonomy; too little destroys accountability.
- Parliamentary control. Questions and debates; annual reports and accounts laid before Parliament; audit by the Comptroller and Auditor General (Articles 148 to 151 and the CAG's Act of 1971, where the statute provides for it); the Committee on Public Undertakings, set up by the Lok Sabha in 1964, which examines the reports, accounts and working of public undertakings; the Public Accounts Committee and the Estimates Committee in their fields.
- Judicial control. Writs under Articles 32 and 226 where the corporation is State; suits for breach of contract or tort; challenges to regulations as ultra vires; and the Article 14 duty to act fairly in employment and contracts.
- Public and consumer control. Consumer commissions under the Consumer Protection Act, 2019, users' councils, Right to Information requests, and sector regulators such as the electricity regulatory commissions.
How this is examined
January 2026: “Discuss the characteristics and legal status of public corporations”, and a note on classification. June 2025: “Critically examine the development of public corporations in India and the extent of their liability.” Write sections 1 to 3 for the first, section 4 for the note, and sections 1, 3 and 5 for the second, each ending with a paragraph on control from section 6.
Now try the real questions: Administrative Law past question papers.