Liberalisation, Privatisation and the Case for Widening Article 12
Chapter Thirty-Three
Syllabus topic 2, "State: Need for widening the definition in the wake of Liberalisation". This is MU's label word for word, and this chapter is the question it asks.
Pages 152 to 156 of 304
In one line
The State has been withdrawing from direct provision since 1991 while the definition of State has been narrowing since 2002, and the question MU asks is whether the fundamental rights should follow the function out of government hands.
In the wording a student can write in an exam: the economic reforms begun in 1991 replaced State provision with private provision across large parts of the economy, through disinvestment, the opening of sectors previously reserved to the public sector, contracting out, public private partnership, and a shift from ownership to regulation. Article 12 has not been amended, and its judicial interpretation moved in the opposite direction over the same period: the wide instrumentality approach of the 1980s was narrowed in Pradeep Kumar Biswas, which required cumulative financial, functional and administrative domination that is particular and pervasive, and excluded merely regulatory control. The consequence is that functions once performed by bodies bound by Part III are now performed by bodies that are not. Whether the definition should be widened, and if so how, is the question this topic asks.
The two movements, and why they matter together
Set them out separately before combining them, because it is the combination that makes the problem.
The economy moved. Before 1991 the public sector occupied the commanding heights: banking, insurance, telecommunications, aviation, power, steel, coal, and much of manufacturing. A citizen dealing with any of them was dealing with an instrumentality of the State, bound by articles 14, 16 and 21, answerable under article 32. Since 1991 the State has disinvested, opened sectors, licensed private entrants, and in many fields become a regulator rather than a provider.
The doctrine moved. Over the same period the test contracted. Ajay Hasia in 1980 asked whether the body was an instrumentality on six indicia. Pradeep Kumar Biswas in 2002 required cumulative domination, particular and pervasive, and excluded regulatory control. Zee Telefilms in 2005 applied that to a body with a national monopoly over a sport and held it was not State.
Put together, the function leaves the State just as the test stops following it. A private hospital, a private university, a private power distributor, a private airport concessionaire and a privatised bank perform functions that were public within living memory, over people who often have no alternative, and none of them is bound by Part III.
What is actually lost
Be concrete, because an abstract answer here is a weak one.
Equality in employment. Articles 14 and 16 govern recruitment and promotion in a public sector undertaking. After privatisation the same posts are governed by contract and by labour legislation, and the constitutional guarantee of equality of opportunity in public employment simply ceases to apply, because the employment is no longer public.
Liberalisation, Privatisation and the Case for Widening Article 12
Reservation. Reservation under articles 15(4), 15(5), 16(4) and 16(4A) binds the State. It does not bind a private employer, and where the State transfers an undertaking, the obligation goes with it. This is exactly what MU asks in its other recurring question, and the two topics meet here: see [Privatisation and Affirmative Action].
Fairness in contracting. The rule in R.D. Shetty, that every action of the executive must be informed by reason and free from arbitrariness, governs how a public body awards a contract. A private body allocating the same opportunity is under no such duty.
Reasons, hearing and non-arbitrariness generally. The whole apparatus of administrative law that attaches to State action attaches to the body, not to the function.
The direct remedy. Article 32 is itself a fundamental right and cannot be refused for the existence of an alternative remedy. Article 226 is discretionary.
The arguments for widening
The function argument. Part III protects people against the exercise of public power. What matters is that the power is public, not who holds it. If the State may divest itself of constitutional obligations by divesting itself of the enterprise, the obligations are worth only as much as the State's willingness to keep the enterprise.
The monopoly argument. The justification for treating the State differently from a private person is that a person cannot walk away from it. Where a private body holds a monopoly over an essential service, the citizen cannot walk away from it either, and the reason for the special treatment applies unchanged.
The textual argument. Article 12 says "includes", and the definition operates "unless the context otherwise requires". Both phrases invite an interpretation responsive to changed conditions, and the Court used them to widen the definition once already, in the era when the State was expanding. Nothing in the text confines the technique to one direction.
The consistency argument. Ajay Hasia held that the form in which the State chooses to act cannot decide whether a fundamental right applies. Privatisation is a choice of form on the largest possible scale.
The arguments against
The boundary argument. If public function is enough, the definition has no stopping point. Private schools, hospitals, banks, insurers, transport operators and employers all perform functions the State performs somewhere, and treating them all as State would make Part III the general law of the land, which the Constitution did not do. Part III was written against the State because the State is uniquely dangerous, and diluting the distinction weakens rather than strengthens it.
The remedy argument. The gap is smaller than it looks, because article 226 already reaches a public function or a public duty, as Zee Telefilms held. What is lost is the article 32 route, not the substantive protection.
Liberalisation, Privatisation and the Case for Widening Article 12
The legislative argument. Where a private body needs to be bound by an equality obligation, that is properly done by legislation, which can be tailored, debated and confined to the sector. Consumer protection, anti-discrimination provisions in specific fields, sectoral regulators with fairness obligations and licence conditions are the appropriate instruments, and Parliament may enact them under article 35 and its general powers.
The federalism and separation argument. Deciding that a whole class of private activity is bound by Part III is a policy judgment with large economic consequences, and a court reaching it by reinterpreting a definition is doing what a legislature should do.
The middle positions
Most serious writing does not take either extreme, and an answer that presents the middle ground is doing better than one that picks a side.
Function-specific application. A body is State for the purposes of the particular function it performs publicly, and not for everything it does. Article 12's own words, "unless the context otherwise requires", would support this, and it mirrors the treatment of the judiciary in [Is the Judiciary "State"?].
Duty-specific application through article 226. Leave article 12 alone and develop the public duty jurisdiction, which is what the Court has in fact done. Its weakness is that it gives a forum rather than a right.
Obligations that travel with the enterprise. Require, by the terms of the disinvestment or the concession, that the transferee assume specified obligations. This is a contractual and regulatory solution to a constitutional problem, and it is the one governments have generally adopted.
Horizontal application of particular rights. Some rights in Part III already bind private persons: article 15(2) on access to shops, public restaurants, hotels, places of public entertainment, wells, tanks, bathing ghats, roads and places of public resort; article 17 on untouchability; article 23 on traffic in human beings and forced labour; and article 24 on the employment of children. The Constitution therefore already knows how to bind a private person where it wants to, and the argument from that is two-edged: it shows the technique exists, and it shows the drafters used it selectively.
Writing the answer
MU's question is "explain the need for redefining the State in view of the policy of economic liberalisation", or "in the backdrop of liberalisation justify the need to widen the nature and scope of Article 12". Both invite a case for widening, and a good answer makes that case without pretending the other side does not exist.
A structure that works: what article 12 is and why it matters; how the definition was widened when the State expanded, with Rajasthan Electricity Board, R.D. Shetty and Ajay Hasia; how it was narrowed in Pradeep Kumar Biswas and Zee Telefilms; what liberalisation did over the same period; what is actually lost, with the concrete examples above; the arguments each way; the middle positions; and a conclusion. The conclusion that the material supports is that the gap is real, that article 226 has absorbed part of it, and that the part it has not absorbed, the substantive application of equality to bodies exercising monopoly public power, is the part that still needs an answer.
Liberalisation, Privatisation and the Case for Widening Article 12
A worked example
A State sells its entire shareholding in a State-owned bank to a private group. Before the sale, the bank reserved posts under articles 16(4) and 16(4A), followed a published and non-arbitrary recruitment procedure, and was answerable under article 32. After the sale it does none of these. A candidate refused a reserved post asks what the Constitution now gives her.
Article 12. Apply Pradeep Kumar Biswas. No shareholding, no funding, no particular and pervasive control; banking regulation applies to the whole sector and is regulatory. The bank is no longer State. So articles 14 and 16 do not bind it and article 32 does not lie.
Reservation. Articles 16(4) and 16(4A) are enabling provisions addressed to the State. They do not bind a private employer, and no obligation to reserve survives the transfer unless the terms of the sale imposed one.
Article 226. Banking is a public function in a loose sense, but recruitment by a private employer is ordinarily a matter of contract, and the writ jurisdiction is generally declined for it. So the article 226 route, which answers the Zee Telefilms problem, does not obviously answer this one.
What is actually left. Labour legislation, any anti-discrimination provision that binds private employers in the field, the terms of the disinvestment if they imposed obligations, and nothing else of constitutional force.
The point MU's question is asking. The function has not changed and the power over the candidate has not changed. What changed is who holds it, and on the present law that decides whether the Constitution applies. Whether that should be so is the argument, and a good answer gives the case for widening, the boundary and remedy objections against it, and at least one of the middle positions.
Quick revision
- Two movements: the State withdrew from provision after 1991, and the definition of State narrowed after 2002. The problem is the combination.
- What is lost: articles 14 and 16 in employment, reservation, the duty of non-arbitrariness in contracting, and the article 32 remedy.
- For widening: public power is what Part III is about; monopoly removes the citizen's exit; "includes" and "unless the context otherwise requires" invite it; and Ajay Hasia said form cannot decide.
- Against: no stopping point; article 226 already covers public duty; legislation is the proper instrument; and it is a policy judgment.
- Middle positions: function-specific application, the article 226 public duty route, obligations attached to the transfer, and the horizontal rights the Constitution already has in articles 15(2), 17, 23 and 24.
Liberalisation, Privatisation and the Case for Widening Article 12
Test yourself
1. Describe the two movements, in the economy and in the doctrine, and explain why the combination is the problem.
2. Name four things that are lost when a public sector undertaking is privatised.
3. Give three arguments for widening the definition and three against.
4. Set out four middle positions between leaving article 12 alone and abandoning it.
5. Which provisions of Part III already bind private persons, and what does their existence prove, for and against?
6. Answer MU's stem: "In the backdrop of Liberalisation justify the need to widen the nature and scope of Article 12 of the Constitution.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.