Source: Allahabad High Court  

Why in News? 

Recently, the bench of Justice Shekhar B. Saraf and Justice Vipin Chandra Dixit has observed that a company complying with rules and regulations established by the various Ministries and public regulators would not by itself suffice for bringing it within the definition of "State" under Article 12 of the Constitution of India, 1950 (COI).  

• The Allahabad High Court observed this in the matter of M/s Manoj Petroleum and another v. Union of India & Ors.  

What was the Background of M/s Manoj Petroleum and another v. Union of India & Ors. Case? 

• Petitioner no.1 is a partnership firm registered through a partnership deed dated October 2, 2018, between Smt. Sangeeta Pathak and Smt. Sonam Singhal (Petitioner no.2), with the business focus on the sale of petroleum products, grease, distilled water, and other items. 
• Nayara Energy Limited (formerly Essar Oil Limited) received authorization from the Ministry of Petroleum and Natural Gas to distribute franchises for petroleum products. Respondent no.3 issued a letter of appointment to Petitioner no.1 on November 5, 2019, for the sale of Motor Speed Petrol and High-Speed Diesel lubes at a retail outlet located in Bulandshahar, Uttar Pradesh. A franchise agreement was signed on January 6, 2020. 
• On August 18, 2021, respondent no.3 conducted an inspection at the retail outlet and collected samples for testing. The samples were sent to Bharat Petroleum Corporation Limited (BPCL), which reported on August 21, 2021, that the samples failed to meet specifications. 
• Following the BPCL report, respondent no.3 issued a show cause notice on August 26, 2021, alleging violations in the franchise agreement. Petitioner no.1 responded on September 9, 2021, raising concerns about discrepancies in product delivery and issues with the unendorsed samples, casting doubt on the validity of the test report. 
• Despite the explanation provided, respondent no.3 terminated the franchise agreement on December 28, 2021, citing unsatisfactory responses from the petitioner. 
• In response to the termination, petitioner no.1 approached the Central Vigilance Commission (CVC) on January 31, 2022, alleging misuse of power and unlawful termination of the franchise agreement. Petitioner sent a reminder on March 4, 2022, after receiving no response from CVC. 
• Due to inaction from the CVC and other authorities, petitioner no.1 filed a writ petition before the court seeking relief and redressal of grievances. 
• Respondent no.3 raised a preliminary objection on the maintainability of the writ petition, arguing that the dispute is between a private firm and respondent no.3, and should not be adjudicated under the writ jurisdiction as respondent no.3 is not a ‘State’ under Article 12 of the Constitution of India. 
• This petition has been filed in response to the termination of the franchise agreement and the failure to address the grievances raised by petitioner no.1. 

What were the Court’s Observations? 

• The Allahabad High Court has established the following legal principles: 
  • A company or body will be considered a ‘State’ under Article 12 of the Constitution if there is substantial financial, functional, and administrative control by the Government. If such control is established, the company will be amenable to writ jurisdiction. 
  • Even if a private institution performs a public function (such as the sale of essential commodities like petroleum products), it does not automatically bring every dispute involving the institution under writ jurisdiction. The nature of the dispute matters—disputes rooted in private law are not amenable to writ jurisdiction. 
  • The issuance of a writ of mandamus is limited to enforcing public duties. If the duty is purely private in nature, even if it is related to public functions, a writ cannot be issued to enforce it. 
  • Breaches of mutual contracts, without any public law element, cannot be resolved through writ petitions under Article 226. 
• The writ petition was found to be not maintainable as the dispute between the petitioner and respondent no.3 arises out of a private contract, and the respondent is not a ‘State’ under Article 12. 
• The petitioners were advised to pursue alternative dispute resolution mechanisms provided in the franchise agreement, such as grievance redressal or arbitration. 

What is Article 12 of Constitution of India? 

About 

• Article 12 lays down that unless the context otherwise requires, the State includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India. 
• The definition of State is inclusive and provides that State includes the following: 
  • Government and Parliament of India i.e., the Executive and Legislature of the Union. 
  • Government and Legislature of each State i.e., the Executive and Legislature of the various States of India. 
  • All local or other authorities within the territory of India, or under the control of the Government of India. 

Local or Other Authorities Within the Territory of India 

• The expression local authorities is defined in Section 3(31) of the General Clause Act, 1897 as local Authority shall mean a municipal committee, district board, body of commissioner or other authority legally entitled to or entrusted by the Government within the control or management of a municipal or local fund. 
• The expression local authorities usually refer to authorities such as municipalities, District Boards, Panchayats, mining settlement boards, etc. Anybody functioning under the state; owned; controlled and managed by the State and carrying out a public function is a local authority and comes within the definition of the state. 
• The term other authorities have nowhere been defined. Therefore, its interpretation has caused a good deal of difficulty, and judicial opinion has undergone changes over time. 
• The Supreme Court in the case of Union of India v. R.C. Jain (1981) laid down the test for determining which bodies would be considered as a local authority under the definition of State enshrined under Article 12 of the COI. The Court held that if an authority: 
  • Has a separate legal existence 
  • Functions in a defined area 
  • Has the power to raise funds on its own 
  • Enjoys autonomy i.e., self-rule 
  • Is entrusted by statute with functions which are usually entrusted to municipalities, then such authorities would come under ‘local authorities’ and hence would be State under Article 12 of the COI. 

Whether a Body falls Under Article 12 or Not? 

• In R.D Shetty v. Airport Authority of India (1979) Justice P.N Bhagwati gave 5 Point test. This is a test to determine whether a body is an agency or instrumentality of the State and goes as follows – 
  • Financial resources of the State, where the State is the chief funding source i.e. the entire share capital is held by the government. 
  • Deep and pervasive control of the State. 
  • The functional character being Governmental in its essence, meaning thereby that its functions have public importance or are of a governmental character. 
  • A department of Government transferred to a corporation. 
  • Enjoys monopoly status which State conferred or is protected by it. 
  • This was elucidated with the statement that the test is only illustrative and not conclusive in its nature and is to be approached with great care and caution. 

Case Laws  

• University of Madras v. Shanta Bai (1950), the Madras High Court evolved the principle of ‘ejusdem generis’ i.e., of the like nature. It means that only those authorities are covered under the expression ‘other authorities’ which perform governmental or sovereign functions. Further, it cannot include persons, natural or juristic, for example, Unaided universities. 
• Ujjammabai v. the State of UP (1961), the Supreme Court rejected the above restrictive scope and held that the ‘ejusdem generis’ rule could not be resorted to in interpreting other authorities. The bodies named under Article 12 have no common genus running through them and they cannot be placed in one single category on any rational basis.