Companies Not 'State' U/Art 12 Merely Because They Comply With Rules & Regulations Of Ministries, Public Regulators: Allahabad HC

The Allahabad High Court has observed that a company complying with rules and regulations established by the various Ministries and public regulators would not by itself suffice for bringing it within the definition of "State" under Article 12 of the Constitution, With this, the bench held that 'Nayara Energy' (formerly Essar Oil Limited), an oil refining and marketing company, does not fall under the definition of 'State' under Article 12 of the Constitution. A bench of Justice Shekhar B. Saraf and Justice Vipin Chandra Dixit clarified that Nayara Energy is distinguishable from government-owned companies like IOCL, BPCL, and HPCL as these state-run companies operate under the extensive functional, financial, and administrative control of the Government of India. In contrast, Nayara Energy operates independently, without such pervasive government control. With this, the bench rejected the petitioner's argument that since the sale of petroleum products, being an inflammable product, is strictly governed by entries 52 and 53 in List 1 of the seventh schedule to the Constitution of India, Nayara Energy, which deals in this area, would also fall under the definition of State under Article 12. The Court said that if the logic of the petitioner were to hold good, then all banks public (such as SBI, PNB, etc) or the private (such as HDFC, ICICI, AXIS, Induslnd, Federal Bank, Kotak Mahindra) would fall within the definition of 'State' under Article 12 of the Constitution of India as entry 45 in List 1 of the seventh schedule to the Constitution of India contains 'Banking'. However, the same isn't true. “Similarly, if one were to look into the telecom industry, it is only the government-controlled company like BSNL that are treated as 'State' while private companies such as Vodafone, Airtel and Jio do not fall within the meaning of 'State' and are not amenable to writ jurisdiction. The fact that private companies such as Vodafone, Airtel, Jio, HDFC Bank, ICICI Bank, Axis Bank, Induslnd Bank, Federal Bank, Kotak Mahindra Bank amongst others comply with the rules and regulations established by the various Ministries and public regulators such as the Reserve Bank of India (RBI) and Telecom Regulatory Authority of India (TRAI) do not by itself bring them within the meaning of 'State' under Article 12 as none of these companies are under the pervasive control (functionally, financially and/or administratively) of the Government of India,” the bench remarked. The case in brief In brief, the petitioner had moved the High Court challenging the termination of a franchise agreement between Petitioners (M/S Manoj Petroleum and another) and Respondent No. 3 (Nayara Energy Limited), a company which has acquired an authorisation from Union Ministry of Petroleum and Natural Gas to distribute franchise for sale and purchase of essential commodities like petroleum and diesel products. Essentially, Petitioners were granted a franchise for the sale of petroleum and diesel products at a retail outlet in Bulandshahr, Uttar Pradesh. However, an inspection was conducted on August 18, 2021, by the officials of Nayara Energy, and thereafter, a report from BPCL highlighted several anomalies in the product samples, which led to a show-cause notice being issued to Petitioners on August 26, 2021 by Nayara Energy. Despite the Petitioners' detailed response, the franchise agreement was terminated due to alleged violations on December 28, 2021. At the very outset, a preliminary objection was raised by Nayara Energy's counsel with regard to the maintainability of the present writ petition. It was contended that since the dispute was between petitioners and Nayara Energy, the Court should not adjudicate the same in its extraordinary writ jurisdiction on the ground that Nayara Energy is not 'State' as per Article 12 of the Constitution of India. Arguments advanced Addressing the preliminary objections raised by Nyara Energy's counsels, the Petitioner's counsel, Senior Advocate Arun Kumar Gupta, submitted that since Nayara Energy has been granted the authority for the sale of essential commodities, such as petroleum products, it is prohibited to sell these commodities in the open market. Therefore, it was argued that Nayara Energy, being the 'extended hand' of the Union of India, comes under the aegis of the Central Government and is ultimately discharging functions in the public interest on behalf of the Union of India and would, therefore, fall under Article 12. It was also submitted that Nayara Energy's work is comparable to that of other oil companies, such as HPCL, BPCL, and IOCL, which are 'state' as they work on behalf of respondent no.1 to distribute franchises of retail outlets for the sale of petroleum and allied products. On the other hand, the counsels for the respondents submitted that even though Nayara Energy is operating in the...

Companies Not 'State' U/Art 12 Merely Because They Comply With Rules & Regulations Of Ministries, Public Regulators: Allahabad HC

Sparsh Upadhyay

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