Executive Control of Public Undertakings
Executive Control of Public Undertakings: Detailed Explanation with Case Law
I. Introduction
What Are Public Undertakings?
Public Undertakings, also known as Public Sector Enterprises (PSEs) or Public Sector Undertakings (PSUs), are government-owned corporations or statutory bodies engaged in commercial or strategic activities. These can be:
Statutory Corporations (created by a statute),
Government Companies (under the Companies Act),
Departmental Undertakings (under direct control of a ministry).
What Is Executive Control?
Executive control refers to the supervision, direction, and regulation exercised by the executive branch (i.e., the government) over these undertakings. It includes:
Appointments and removals of key personnel,
Issuing policy directions,
Budgetary and financial control,
Approval of major decisions (mergers, disinvestment, etc.),
Oversight through line ministries or controlling departments.
II. Nature of Executive Control
Direct Control:
Through departmental undertakings or ministries.
Example: Indian Railways is directly under the Ministry of Railways.
Indirect Control:
Through control of board appointments, funding, audits, and policy directions.
Seen in government companies and statutory corporations.
Control through Legislation:
Statutes creating PSUs often empower the government to issue binding directions on matters of policy.
Parliamentary Oversight:
Though indirect, Parliament exercises control through Public Accounts Committee (PAC), Committee on Public Undertakings (COPU), and budget approvals.
III. Case Law Analysis: Executive Control of Public Undertakings
1. Ajay Hasia v. Khalid Mujib Sehravardi (1981) 1 SCC 722
Facts:
A Regional Engineering College (set up as a society) was denying admission unfairly. The issue was whether it was a “State” under Article 12, given executive involvement.
Holding:
The Supreme Court held that even if a body is formally a society or company, if it is substantially financed and controlled by the government, it is an instrumentality of the State.
Executive control, such as appointment of directors and funding, made it subject to constitutional obligations.
Significance:
This case laid down the “functional and financial control” test to determine when a public undertaking is under government control and hence accountable under the Constitution.
2. Pradeep Kumar Biswas v. Indian Institute of Chemical Biology (2002) 5 SCC 111
Facts:
CSIR, an autonomous body, was argued to be beyond the purview of Article 12. The issue was whether executive control made it a State instrumentality.
Holding:
The Court held that deep and pervasive control by the government made CSIR an instrumentality of the State.
The presence of government control over policy, appointments, and funding was decisive.
Significance:
Reinforced the idea that executive control, not just ownership, determines public accountability of undertakings.
3. Steel Authority of India Ltd. (SAIL) v. National Union Waterfront Workers (2001) 7 SCC 1
Facts:
Concerned the applicability of Contract Labour (Regulation and Abolition) Act to PSUs.
Holding:
The Court emphasized that government policy decisions cannot override statutory protections.
Even though SAIL was under executive control, it had to follow the law like any other employer.
Significance:
While acknowledging government control, the Court clarified that statutory compliance is independent of executive control.
4. LIC of India v. Consumer Education and Research Centre (1995) 5 SCC 482
Facts:
The issue was whether LIC, a public sector corporation, could deny insurance benefits arbitrarily.
Holding:
LIC, being owned, controlled, and managed by the Union Government, is a State under Article 12.
It must act reasonably and fairly, and cannot adopt arbitrary or unfair policies due to its public character.
Significance:
The case emphasized that executive control imposes constitutional responsibilities like adherence to Article 14 (equality before law).
5. Balco Employees' Union v. Union of India (2002) 2 SCC 333
Facts:
The government decided to disinvest its majority stake in BALCO (a PSU), which was challenged on the ground of arbitrariness.
Holding:
The Court held that policy decisions, including disinvestment, are within the executive domain.
Judicial review does not cover economic policies unless they are unconstitutional or illegal.
Significance:
The case clarified that executive control includes the right to restructure, privatize, or disinvest from public undertakings, subject to constitutional limits.
IV. Summary Table: Key Case Law Principles
| Case | Issue | Key Legal Principle |
|---|---|---|
| Ajay Hasia v. Khalid Mujib | Whether a society is a “State” | Functional and financial control test determines status |
| Pradeep Kumar Biswas v. CSIR | Whether CSIR is State under Article 12 | Deep and pervasive executive control makes it “State” |
| SAIL v. Waterfront Workers | Contract labour in PSUs | PSUs must comply with statutory law, despite govt control |
| LIC v. Consumer Education | Denial of insurance rights by PSU | PSUs must act reasonably and are bound by Article 14 |
| BALCO Employees Union v. UoI | Disinvestment of PSU challenged | Executive has policy control; courts won’t interfere |
V. Conclusion
The executive exercises significant control over public undertakings through ownership, appointments, funding, and strategic decisions. However:
This control subjects public undertakings to constitutional and statutory obligations, especially under Article 12 of the Constitution.
The courts have laid down that deep and pervasive control makes such bodies subject to judicial review, ensuring accountability.
At the same time, executive discretion in policy matters (like disinvestment) is generally upheld unless it violates fundamental rights or statutory provisions.
Public undertakings operate at the intersection of public interest and commercial activity, and the executive's control must balance efficiency with transparency and constitutional compliance.
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