Home Legal News Private Financial Institutions Can’t Be Considered ‘State’ Under Article 12 Of Constitution: Allahabad High Court

Private Financial Institutions Can’t Be Considered ‘State’ Under Article 12 Of Constitution: Allahabad High Court

by Shreya
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The Allahabad High Court on Thursday reiterated that private financial institutions, carrying business or commercial activity, may be performing public duties, but cannot be considered to be covered under the definition of “State” under Article 12 of the Constitution.

Case Background and Court’s Observations

The observation was mad by Justices Naheed Ara Moonis and Vivek Varma in a writ petition filed against HDFC Bank through Advocate Manoj Kumar Mishra, seeking interest-free extension of the loan period in accordance with the circular issued by the Reserve Bank of India due to Covid-19.

The Division Bench concurred with the submission made by Bank’s counsel, Advocate Abhinav Gaur, that the writ petition is not maintainable in as much as HDFC Bank is a private entity. It held, “the writ petition against such entity is not maintainable before the High Court.

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Reliance in this regard was placed on Federal Bank Ltd. v. Sagar Thomas and others, (2003) 10 SCC 733, whereby the Supreme Court had held that,

Any business or commercial activity, may be banking, manufacturing units or related to any other kind of business generating resources, employment, production and resulting in circulation of money are no doubt, such which do have impact on the economy of the country in general. But such activities cannot be classified as one falling in the category of discharging duties or functions of a public nature.

In this case, the Supreme Court allowed an appeal preferred against a High Court order entertaining the writ petition of an ex-employee of the bank, seeking reinstatement.

It was observed therein that none of the six factors, as enumerated in Ajay Hasia v. Khalid Mujib, (1981) 1 SCC 722 1970, were fulfilled in case of the private financial institutions. The six factors are:

  • If the entire share capital of the corporation is held by Government, it indicates that the Corporation is an instrumentality or agency of the Government;
  • Where financial assistance of the State is so much as to meet almost entire expenditure of the Corporation, it would afford some indication of the corporation being impregnated with governmental character;
  • Whether the corporation enjoys monopoly status which is State conferred or State protected;
  • Existence of deep and pervasive State control may afford an indication that the Corporation is a State agency or instrumentality;
  • If the functions of the corporation of public importance and closely related to governmental functions, it would be a relevant factor in classifying the corporation an instrumentality or agency of Government;
  • If a department of Government is transferred to a corporation, it would be a strong factor supportive of this inference of the corporation being an instrumentality or agency of Government.

In view of this settled position of law, the writ petition was dismissed as not maintainable.

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