Liability of and Control over Public Corporations

In one line

A public corporation is liable in contract and in tort like any other legal person, and it is controlled by Parliament, by the Government, by the auditor and by the courts, the last of which depends on whether it counts as the State.

In the words a student can write in an exam: a public corporation, having a separate legal personality, is liable in contract, in tort and in crime in its own name, and Article 299 does not apply to its contracts because they are not made in the exercise of the executive power of the Union or a State. It is controlled in four ways: by Parliament or the State legislature through its annual report and accounts, questions and the Committee on Public Undertakings; by the Government through appointment of the board and directions on policy; by audit, ordinarily by the Comptroller and Auditor General; and by the courts, which exercise writ jurisdiction over it if it is an authority within Article 12, and otherwise entertain ordinary civil proceedings.

Liability

Contractual liability

The corporation contracts in its own name, and its contracts are governed by the ordinary law of contract and by its own statute and regulations.

Article 299 does not apply. That Article governs contracts made in the exercise of the executive power of the Union or of a State. A statutory corporation is a distinct legal person and its contracts are its own, not the Government's, so the three formal requirements discussed in [Contractual Liability of the State] have no application. This is a favourite examination point, because students apply Article 299 to everything.

The corporation is nevertheless bound by its Act: a contract beyond its objects or powers is ultra vires and void, since the corporation exists only to the extent its statute permits.

Where the corporation is the State within Article 12, its contracting is also subject to Article 14, so a tender may not be awarded arbitrarily.

Tortious liability

The corporation is liable for the torts of its servants committed in the course of employment, on ordinary principles of vicarious liability. Article 300 does not apply, because it concerns suits by and against the Government; the corporation is sued in its own name under its own Act.

The sovereign function defence is not available to it in the ordinary case, since running a transport service, a bank or a factory is precisely the kind of activity that N. Nagendra Rao and Co. v. State of Andhra Pradesh, AIR 1994 SC 2663, places outside the primary and inalienable functions of the State: [Sovereign and Non-Sovereign Functions].

Criminal liability

A corporation, being a legal person, can be prosecuted for offences that do not require imprisonment as the only punishment, and its officers may be liable personally where the statute so provides.