Because the government has chosen to set it up as a society rather than a government department or statutory body, the Supreme Court has ruled, making it clear that what matters is how much control the government exercises over its functioning and decision-making, and not the legal form it adopts, an organisation cannot escape constitutional scrutiny simply.
The observations came as a bench of justices Prashant Kumar Mishra and Augustine George Masih upheld a Delhi high court ruling that declared the National Book Trust (NBT) an instrumentality of the government and therefore ‘State’ within the meaning of Article 12 of the Constitution.
The court said the government cannot sidestep its constitutional obligations by carrying out activities through separately registered entities, but clarified that merely receiving government grants, performing public functions or having some government involvement would not automatically make an organisation an arm of the State.
This has to be assessed by looking at the overall relationship between the two, rather than treating any one factor as decisive, it added. Applying this test to the NBT, the bench found that the government was involved in virtually every important aspect of the trust’s functioning, beginning with its creation and extending to its management, finances and decision-making. Senior counsel Sanjay Jain assisted the court as amicus curiae. Furthermore, the government’s influence also extends to the trust’s financial affairs. Its finance ministry representative functions as the financial adviser, its annual reports and audited accounts have to be submitted to the government, and its accounts are maintained in a form prescribed by the government in consultation with the Comptroller and Auditor General (CAG). The CAG, the court pointed out, is also empowered to audit its accounts while changes to specified aspects of the trust’s rules and objectives require government approval.
Upholding the high court’s 2012 ruling, the bench dismissed the NBT’s appeal, holding that the government’s involvement in the trust was sufficiently deep and pervasive to bring it within the constitutional definition of ‘State’. Because it was registered as a society and generated a substantial part of its income independently through the sale of books, the trust had argued that it could not be treated as a government instrumentality.
The court explained that the test is whether the government exercises such “deep and pervasive control” over an organisation that its financial, functional and administrative autonomy is substantially circumscribed. Rejecting this argument, the court said that the source of an organisation’s income cannot be examined in isolation from the larger structure governing its functioning.
