A 'Government Company', can be understood as a company that has more than 51% of paid-up share capital held by the Central Government or by any State Government, or partly by the Central and partly the State Government, & further, includes a company that is a subsidiary of that Government Company. A 'State', on the other hand, according to Article 12 of the Indian Constitution, includes Government and Parliament of India, and the Government and Legislature of the States, and all local or 'other authorities' within India or which is under the control of the Indian Government.

This Article would focus on the provisions that define government companies, its features as to how a company qualifies to become a government company, how it is differentiated from other kinds of companies, with special focus on Public Companies, the interpretation of 'other authorities', and further analyses the impact of considering a government company as state in itself, by looking into the fundamental rights involved, and other obligations present.

Government Company: Definition And Features

Before delving into the concept of Government Company, it is necessary to look into the meaning of a 'Company'. A Company can be said to be an organization of people joining together for the common purpose of doing business with profit motive. Under §2(20) of the Companies Act, 2013, A Company can be defined as a "company which has been incorporated under the CA, 2013 or under any other company law present previously" . While there are different types of companies, generally divided into private and public entities, other classifications include Statutory Companies, Registered Companies, Foreign Companies among others. One of those classifications, includes Government Companies.

Government Company, u/s 2(45) of the CA, 2013, can be understood as "any company that has, not less than 51% of its paid-up share capital, held by the Central or one or more State Governments, or partly by the Central and partly by the State Governments" . The phrase 'paid-up share capital', can further be understood from §2(64) of the CA, 2013, as the "The total amount of money credited as paid-up, equivalent to the amount received as paid-up for the company's issued shares."

Simply put, Government company is an organisation with at least 51% of the aggregate amount received or credited as 'paid-up share capital' held by the Central Government or State Government, either jointly or individually. It's mandatory, for the purpose of this clause that, the 'paid-up share capital' is treated as the 'total voting power', wherein those shares are given that provide the shareholders different rights as to dividends or vote, against the ordinary "one share, one vote", in accordance to the Companies Act (Issue of Share Capital with Differential Voting Rights) Rules, 2001 .

For instance, LIC, incorporated under the LIC Act, 1956, is not considered to be a Government Company as the same has not been formed under the CA, 2013 or any other previous Company Law. It comes under the purview of a Public Financial Institution. A Government Company, though similar to a Public limited Company, is different from the latter. The primary difference lies in the definition itself, where, for government company, 51% of shares are held by the government, in a public limited company, shares are owned by public with a minimum paid up capital which will be prescribed.

Furthermore, as mentioned in the definition, a Government Company includes a Subsidiary of the it as well. Since, the Companies Act is silent on whether 'any company' would mean that a Government Company can be either a Public or a Private company, it is construed that a government company can be incorporated as either a Public or a Private company , by fulfilling the conditions mentioned in §2(71) and §2(68) of the CA, 2013. However, it is pertinent to note that, though the Company may be registered as Private Ltd. Company, its management & control would nevertheless be with Government .

Additionally, in accordance to the Notification dt. 5th June, 2015 , it's not mandatory for a Government Company to use the words 'Private Ltd.' or 'Ltd.' in case of a Private Ltd. Company or a Public Ltd. Company. This in itself mean to say that a Government Company can be either Public or Private, although not expressly provided. additionally, as provided in the case of Saloman (1897)" , a company established under CA, 2013, has a separate existence & therefore, is considered to be a juristic person having a distinct identity from its members.

Similarly, for a government company, "though government contributes majority share-capital, along with president or governor, as the case may be, holds its majority shares", status of separate legal entity remains unaffected. Additionally, in Electronics Corpn. of India Ltd. (2012), it was held by the court, the tax exemptions enjoyed by holding a property of the Central Government, is not to be enjoyed by a government company as it has a separate legal existence from being a government institution.

Article 12 Under The Constitution On India

Art. 12 of the Constitution as previously stated, is an inclusive article which states the institutions which the purview of 'state'. One of the primary objectives with regard to the interpretation of the word 'state' is due to the concept of fundamental rights. Fundamental Rights, forming a very significant part of the Supreme document of Indian Constitution, is guaranteed to every individual in the country to be claimed against the 'State' and their officials. Hence, it's significant to grasp, what comes under 'state'. In the definition of state under Art. 12 of the Constitution, it primarily includes, Government and Parliament, Government & state legislatures, all the local and other authorities which are within the Indian territory or under central government's control.

With regard to the authorities & instrumentalities involved within- 'State' definition, local & other authorities also form a part. While local authorities include those of District boards, Panchayats, Municipalities , Port trusts, etc. under Article 12, the most disputed is that of 'other authorities'. The interpretation for 'other authorities', has evolved through various judgements, to even include those authorities that are non-governmental. Earlier, it was interpreted that since 'other authorities' has been used after mentioning government, legislature, parliament and local authorities, it would be reasonable to associate the phrase with those which engage in governmental/sovereign functions (ejusdem generis rule) .

However, SC subsequently rejected the stance mentioned above in the case of Mohan Lal (1967)" and subsequently held that 'other authorities' include "all authorities created by the Constitution/ statute on whom law confers the power". Court further stated that it isn't necessary for the authority to perform any sovereign function. The issue on 'what' may be included under the purview of 'other authorities' to be considered as state under Art. 12 of the Constitution.

Implications Of Considering Government Company As 'State'

Consideration or non-consideration of a government company as state has several implications on parties including the government, company, and most importantly the individuals dealing with them. firstly, it is conspicuously established that remedy for violation of fundamental rights can be made available through Art. 32 or Art. 226 , but limited to suits against the state. However, those government companies who do not come under the purview of state under Art. 12 of the Constitution, would not be liable as the claim against violation of fundamental rights, would not be valid.

In other words, bringing a government company under purview of state would make it subject.to "discipline of fundamental rights" i.e., its actions & decisions may be/challenged with reference to the fundamental rights it violates. Besides, such government company also becomes/subject to the concerns of administrative law, & to the writ power of the Supreme Court & High Court, as the case may be. Under art. 32 & 226 of Constitution.

A pertinent point to be noted with regard to this concern is that, presently, the SC is expanding to include several bodies, statutory and non-statutory corporations under the purview of state, to ensure that there is no disadvantage for people to claim fundamental rights or file writ petition. This leads to the observation that wider the concept of 'other authority' under Art. 12, wider would be the coverage of fundamental rights.

This opinion can be evident from the words of Bhagwati.J in the Ajay Hasia Case, wherein, it was noted that, "a modern government functions on the philosophy of welfare of a.state and for the same, undertakes various socio-economic functions. " However, performance of such functions, cannot exempt it from obedience to the fundamental rights.

This form of adoption is primarily for reducing the slow-motion process, and should not be allowed/to play with the basic/human rights. Henceforth, it is very evident that Fundamental rights, being a significant facet of constitution, must be performed by the company/corporations, and violation of such rights, being behind the veil of not coming under the purview of state is not encouraged, even by the courts in India.

Besides, with respect to issue of writs, a writ may be issued by either the High Court or the Supreme Court to the Government of India, who can execute the same by the concerned authority by exercising its control over that authority in question. This may be possible in case of government companies which are under pervasive control of the government. One the contrary, this may not happen if a government company is not declared to be state under Art. 12 of the Constitution. Being a non-state government company, since the government would not have control in the functional sense on the company, an order cannot be passed against the government company for either enforcement of a fundamental right or be subject to any writs.

Currently, considering the need to broaden the definition of 'state' under Article 12 of the Constitution, as highlighted by Justice Bhagwati, the government must have the ability to control the functions of the concerned authority. However, if this is not feasible, the government can only exert such powers over the executive or administrative body. Consequently, companies that are not recognized as part of the 'state' would continue to infringe on fundamental rights without facing any liability.

Besides, the above implications, another legal implication lies with respect to the objective of 'welfare state' . The government, with the primary goal of creating a 'welfare state,' engages in activities like establishing quality health services, roads, and education. When a government company is declared to fall under the definition of 'state,' it must align its services with the government's objective of establishing a 'welfare state.' Although these companies are set up for business purposes, their main objective, under government control, should not be limited to making profits but should also focus on welfare goals.

From the above implications, while recognizing a government company as a 'state' under Article 12 appears to benefit those interacting with the company, it also means the company must assume greater responsibility and accountability. This designation imposes significant liability on the government company, as it is treated like a 'state' in cases of fundamental rights violations and is subject to the writ jurisdiction of the High Court and Supreme Court.

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