Classification of Public Corporations

Classification by manner of creation

The practical significance of this classification is ease of change and degree of autonomy. A statutory corporation is the most stable and the most autonomous, because its constitution cannot be altered without the legislature. A departmental undertaking is the least, because it is simply part of the Government.

Classification by level of government

Central corporations, created by Parliament; State corporations, created by a State legislature; and joint corporations, established by two or more States, sometimes under a central Act. The distinction matters for legislative competence under the Seventh Schedule, and for which government appoints the board and audits the accounts.

Why the classification has legal consequences

An answer that lists categories and stops has missed the point. Three consequences follow from where a body sits.

1. Whether it is the State under Article 12, and therefore whether the fundamental rights bind it and a writ lies against it, depends on the degree of government control, which tends to be highest in social service and developmental bodies and lowest in commercial ones operating in a competitive market. The test is in [Liability of and Control over Public Corporations].

2. Which functions it performs decides which body of administrative law applies. A regulatory commission making regulations is governed by Module II's rules on delegated legislation; the same commission deciding a tariff dispute is governed by natural justice.

3. How it is controlled. A statutory corporation is controlled through its Act, through directions on policy, through the audit of the Comptroller and Auditor General and through the Committee on Public Undertakings. A government company is controlled principally through shareholding.

A worked example

Classify each and state one legal consequence.

1. A State Road Transport Corporation created by an Act, running buses. Commercial and statutory, at the State level. It is liable in tort for the negligence of its drivers like any private employer.
2. A State Housing and Area Development Authority allotting flats by lottery. Social service and statutory. Its allotment decisions must not be arbitrary, and a departure from the announced scheme in one case invites Article 14.
3. An Electricity Regulatory Commission fixing tariffs and deciding consumer complaints. Regulatory. Its regulations are delegated legislation and must be within the parent Act; its adjudication attracts natural justice and the duty to give reasons.
4. A government company incorporated under the Companies Act to manufacture defence equipment, wholly owned by the Union. Commercial in function, a company in form. Whether a writ lies against it turns on Article 12 and the degree of government control.
5. A State Financial Corporation recalling a loan and taking over a unit. Financial. Its recovery powers are statutory and their exercise is subject to fairness and to the review grounds for discretion.

What it does NOT mean

It does not mean the categories are watertight. A single body may be commercial and developmental at once, and a regulator may also be a service provider.

It does not mean the form determines the legal status. A society may be the State and a corporation may not be; what matters is control.

It does not mean commercial corporations are outside administrative law. Their contracts and their employment decisions attract Article 14 where they are the State, and their monopoly position often makes fairness obligations stronger rather than weaker.

Quick revision

1. By function: commercial or industrial; developmental or promotional; financial; social service; regulatory.
2. By creation: statutory corporation, government company, registered society, departmental undertaking, in decreasing order of stability and autonomy.
3. By level: central, State and joint.
4. A government company is one in which the Government holds not less than fifty-one per cent of the paid up share capital.
5. The consequences of classification are whether the body is the State under Article 12, which body of administrative law applies to which of its functions, and how it is controlled.
6. A regulatory commission performs legislative, quasi-judicial and administrative functions and is governed by different rules for each.

Test yourself

1. Classify public corporations and give an example of each class. By function they fall into five classes. Commercial or industrial corporations produce goods or provide services for sale, such as transport undertakings and power generation or manufacturing enterprises. Developmental or promotional corporations exist to promote an activity rather than to profit from it, such as industrial or tourism development corporations. Financial corporations handle public money as banks, insurers or lending institutions. Social service corporations pursue welfare objects, such as housing boards and water supply and sewerage boards. Regulatory corporations and commissions regulate an industry rather than participate in it, such as electricity, telecom and securities regulators. They may also be classified by the manner of their creation into statutory corporations, government companies, registered societies and departmental undertakings, and by level into central, State and joint bodies.

2. Why does the classification of a public corporation matter in law? Because three legal consequences follow from where a body sits. First, whether it is an authority within Article 12, and so bound by the fundamental rights and amenable to a writ, depends on the degree of government control over it, which varies by class. Second, which branch of administrative law applies depends on the function being performed: a regulator making regulations is subject to the law of delegated legislation, while the same regulator deciding a dispute is subject to natural justice and the duty to give reasons. Third, the mode of control differs: a statutory corporation is controlled through its Act, through policy directions, through audit by the Comptroller and Auditor General and through the Committee on Public Undertakings, whereas a government company is controlled chiefly through shareholding.

3. Distinguish a statutory corporation from a government company. A statutory corporation is created by a special Act of the legislature, which is its constitution and which defines its objects, powers, capital and management; it can be altered only by amending that Act, and an act beyond the Act is ultra vires. A government company is incorporated by registration under the Companies Act, with the Government holding not less than fifty-one per cent of the paid up share capital; its constitution is its memorandum and articles of association, which can be altered by the ordinary company procedure, and government control is exercised through shareholding rather than through statute. The statutory corporation is therefore more stable and more autonomous; the government company is more flexible and more easily brought under executive influence.

4. What is distinctive about a regulatory corporation in administrative law? That it combines all three of the functions administrative law distinguishes. It makes regulations, which is a legislative function and is subject to the law of delegated legislation, so the regulations must be within the parent Act, must not offend the Constitution and must satisfy any requirement of publication or consultation. It adjudicates disputes and grants or revokes licences, which is a quasi-judicial function attracting the principles of natural justice and the duty to give reasons. And it administers, which is subject to the ordinary grounds of review of discretion. The combination of investigating, prosecuting and deciding within one body also raises the question of institutional bias discussed under the rule against bias.

5. Is a commercial public corporation outside the reach of administrative law? No. Where the corporation is the State within Article 12, the fundamental rights bind it, so its decisions on employment, contracts and dealings with the public must satisfy Article 14 and cannot be arbitrary, and a writ lies against it under Article 226. Being commercial affects the analysis in some respects: running a business is not a sovereign function, so the corporation is liable in tort like any private employer, and disputes about the performance of a concluded contract are ordinarily for a civil suit or arbitration rather than for a writ court. But the commercial character of the function does not take the body outside public law, and where the corporation holds a monopoly the case for fairness obligations is stronger rather than weaker.