Supreme Court: Registration as Society Does Not Insulate Government-Controlled Bodies from Article 12 Scrutiny

The Supreme Court has ruled that an organization cannot evade constitutional scrutiny under Article 12 of the Constitution merely by adopting the legal form of a registered society. A bench comprising Justices Prashant Kumar Mishra and Augustine George Masih held that the determinative factor is the extent of deep and pervasive control exercised by the government over the body's financial, functional, and administrative autonomy, rather than the nomenclature under which it operates.

The judgment, delivered on November 6, 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. The Trust had contested this classification, maintaining that its registration as a society and its generation of substantial income through book sales established its autonomous character. Rejecting this argument, the bench clarified that the source of an organization's income cannot be examined in isolation from the larger structure governing its functioning.

What constitutes deep and pervasive control for Article 12 purposes?

The Court held that deep and pervasive control requires the government to substantially circumscribe the body's financial, functional, and administrative autonomy, assessed through the overall relationship rather than isolated factors such as funding or registration status.

The bench emphasised that the constitutional inquiry must focus on the substance of the relationship between the body and the government. It explained that the test is whether the government exercises such deep and pervasive control over an organisation that its autonomy is substantially circumscribed. This assessment must consider the overall relationship between the two, rather than treating any single factor as decisive. The Court further clarified that merely receiving government grants, performing public functions, or having some government involvement would not automatically make an organization an arm of the State.

Government control over National Book Trust

Applying this test to the NBT, the bench found that the government was involved in virtually every important aspect of the Trust's functioning. The Trust was established through a government resolution in 1957 and reorganized in 1962. Its Chairman is appointed by the government and holds office at its pleasure. Government representatives from the Ministries of Education, Finance, and Information and Broadcasting form part of its governing body and executive committee, which exercises control over its administration.

The government's influence extends to the Trust's financial affairs. The Finance Ministry's representative functions as the financial adviser. The Trust's annual reports and audited accounts must 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 is empowered to audit its accounts, while changes to specified aspects of the Trust's rules and objectives require government approval. The bench observed that these provisions cannot be characterized as isolated instances of ordinary regulatory supervision.

Registration and revenue generation not decisive

The Trust argued that its registration as a society and its independent revenue generation through book sales precluded classification as a State instrumentality. The Court rejected this submission, holding that financial assistance from the government is an important consideration but not the only one. The bench stated that the fact a body earns its own revenue does not establish that it functions independently of the government. The judgment also drew a distinction between performing a public function and being an instrumentality of the State, noting that the publication and dissemination of books, by themselves, may not constitute an exclusively governmental function.

Consequences of Article 12 classification

Recognition as 'State' under Article 12 renders the NBT amenable to writ jurisdiction and requires it to comply with fundamental rights guaranteed under Part III of the Constitution. This includes the obligation to ensure that its actions are not arbitrary or discriminatory. Senior Counsel Sanjay Jain assisted the Court as amicus curiae in the matter.