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DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

STATUS OF PUBLIC CORPORATION UNDER ARTICLE


CONSTITUTION OF INDIA

A
PROJECT REPORT
ON
ADMINISTRATIVE LAW

SUBMITTED TO:

Dr. P Sreedevi
Associate Professor

Rishabh singh
201290 (6th semester)

12 OF THE

An Analysis of Public Corporation


ACKNOWLEDGEMENT

A major research project like this is never the work of anyone alone. The contributions of many
different people, in their different ways, have made this possible. I extend my thanks to my
friends and seniors who greatly supported me, in my research work. Also the support, guidance,
advice throughout the research given by Dr. P Sreedevi is greatly appreciated. Indeed, without
his guidance, I would not be able to put the topic together. The experience has been an interesting
and rewarding one. I would also like to thank all those people who directly or indirectly helped
me through out the making of the project.

RISHABH SINGH
6TH SEMESTER

An Analysis of Public Corporation

ABSTRACT
Most of the Fundamental Rights are claimed against the state and its instrumentalities and not
against private bodies. Art. 13 (2), as stated, bars the state from making any law infringing a
Fundamental Right.
The two important concepts used in this provision, are: state and law. This concept needs
some elucidation.
Fundamental Rights are most claimed mostly against state.
Article 12 gives an extended significance to the term state. Art. 12 clarify the term state
occurring in Art. 13(2), or any other provision concerning Fundamental Rights, have an
expensive meaning.
The most significant expression used in Art. 12 are other authorities. This expression is not
defined in the constitution. It is, therefore, for the Supreme Court, as the Apex Court, to define
this term. It is obvious that wider the meaning attributed to the term other authorities in Art.
12, wider will be the coverage of the Fundamental Rights, i.e. more and more bodies can be
brought within the discipline of the Fundamental Rights.
The interpretation of the term other authorities in Art. 12 has a caused a good deal of difficulty,
and judicial opinion has undergone changes over time. Todays government performs a large
number of functions because of the prevailing philosophy of a social welfare state. The
government acts through natural persons as well as juridical persons. Some functions are
discharged through the traditional government departments and official while some functions are
discharged through autonomous bodies existing outside the departmental structure, such as,
companies, corporations etc.
While the government acts departmentally, or through officials, undoubtedly, falls within the
definition of state under Art. 12, doubts have been cast as regards the character of autonomous
bodies. Whether they could be regarded as authorities under Art. 12 and, thus, be subject to
Fundamental Rights?

An Analysis of Public Corporation

TABLE OF CASES

Rajsthan State Electricity Board v. Mohanlal

Sukhdev v. Bhagatram

Ramanna D. Shetty v. International Airport Authority

Sabhaji Tewary v. India

Som Prakash v. Union of India

Ajay Hasia v. Khalid Mujib

S. C. Chandra, v. State of Jharkhand

An Analysis of Public Corporation


TABLE OF CONTENTS

Objectives

Significance and scope of study

Review of literature

Research methodology

Hypothesis

Introduction

Other Authorities

Status of Public Corporation

Rights and duties of public corporation

Liabilities of public corporation.

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whether state includes the judiciary

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The Following Test to Adjudge

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Conclusion

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Bibliography

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An Analysis of Public Corporation

OBJECTIVES

To analyze the status of public corporation under article 12 of the Indian constitution.

To compare the Indian provision with the laws of another country.

To analyze applicability of public corporation in the economic structure.

To analyze certain decided cases for proper understanding.

To suggest reforms to the existing laws.

SIGNIFICANCE AND SCOPE OF THE STUDY


There are several branches of the science of law. The Administrative Law is a recent branch of
the science of law. In the political science there are few Administrative organs. Certain functions
have been allotted to these organs in the Administrative Machinery. The Administrative law deals
with the structure, functions and powers of the Administrative organs. It also lays down the
methods and procedures which are to be followed by them during the course of remedies which
are available to the persons whose rights and other privileges are damaged by their operations.
This research paper has been prepared to analyze different provision of the administrative law
and its applicability and enforceability in different departments and functionary of the
government. A few numbers of cases and reports have been analyzed in the present paper.

REVIEW OF THE LITERATURE


The completion of this paper has required collection of relevant information through a number of
law journals, books by renowned authors on administrative law and several websites. Since
administrative law is not a new concept, a plethora of information can be found very easily.

RESEARCH METHODOLOGY
This project report is based on analytical and descriptive Research Methodology. Secondary
and Electronic resources have been largely used to gather information and data about the topic.
Books and other reference as guided by Faculty have been primarily helpful in giving this
project a firm structure. Websites, dictionaries and articles have also been referred.
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An Analysis of Public Corporation

HYPOTHESIS
Administrative law, though being an ancient means of administration function, cannot be said to
be serving the intended purpose due to several reasons.

INTRODUCTION
Most of the Fundamental Rights are claimed against the state and its instrumentalities and not
against private bodies.1 Art 13 (2), as stated, bars the state from making any law infringing a
Fundamental Right.
The two important concepts used in this provision, are : state and law. These concepts need
some elucidation.
Fundamental Rights are most claimed mostly against state.
Article 12 gives an extended significance to the term state. Art. 12 clarify the term state
occurring in Art. 13(2), or any other provision concerning Fundamental Rights, have an
expensive meaning.
According to Art 12, the term state includes(i)
(ii)
(iii)
(iv)

The Government and Parliament of India:


The Government and the Legislature of a State;
All local authorities; and
Other authorities within the territory of India, or under the control of the Central
Government.

The actions of any of the bodies comprised within the term state as defined in Art. 12 can be
challenged before the courts under Art 13(2) on the ground of violating Fundamental Rights.
The most significant expression used in Art. 12 is other authorities. this expression is not
defined in the constitution. It is, therefore, for the Supreme Court, as the Apex Court, to define
1

Shamdasani v. Central Bank of India. AIR 1952 SC 59; Vidya Verma v. Shivnarain, AIR 1956 SC 108 : (1955) 2
SCR 983.

An Analysis of Public Corporation


this term. It is obvious that wider the meaning attributed to the term other authorities in Art.
12, wider will be the coverage of the Fundamental Rights, i.e. more and more bodies can be
brought within the discipline of the Fundamental Rights.

Other Authorities
The interpretation of the term other authorities in Art 12 has a caused a good deal of difficulty,
and judicial opinion has undergone changes over time. Todays government performs a large
number of functions because of the prevailing philosophy of a social welfare state. The
government acts through natural persons as well as juridical persons. Some functions are
discharged through the traditional government departments and official while some functions are
discharged through autonomous bodies existing outside the departmental structure, such as,
companies, corporations etc.
While the governments act departmentally, or through officials, undoubtedly, falls within the
definition of state under Art. 12,2 doubts have been cast as regards the character of autonomous
bodies. Whether they could be regarded as authorities under Art 12 and, thus, be subject to
Fundamental Rights?
An autonomous body may be a statutory body, i.e., a body set up directly by a statute, or it may
be a non-statutory body , i.e., a body registered under a general law, such as, the Companies Act,
the Societies registration Act, or a State Co-operative Societies Act, etc. Questions have been
raised whether such bodies may be included within the coverage of Art. 12.
RIGHTS AND DUTIES OF PUBLIC CORPORATIONS
A) Status
A public corporation possesses a separate and distinct corporate personality. It is a body
corporate with perpetual succession and a common seal. It can be sued in its own name. They
have been recognized in the constitution. It expressly provides that the state may carry on any
2

K.A. karim and Sons v. I.T.O., 1983 Tax. L.R. 1168; Hujee Moh. Ibrahim v. Gift Tax Officer, 1983 tax. L.R. 1160;
Imperial Chemical Industries ltd. V. Registrar of trade Marks, AIR 1981 Del. 190.

An Analysis of Public Corporation


trade, industry, business or service either itself or through a corporation owned or controlled by it
to the exclusion of the citizens.
B) Rights
A public corporation is a legal entity and accordingly, like any other legal person, it can sue for
the enforcement of its legal rights. It should not, however, be forgotten that it is not a natural
person, but merely an artificial person, and, therefore, cannot be said to be a citizen within the
meaning of the citizenship act, 1955. Therefore, a corporation cannot claim any fundamental
right conferred by the constitution only on citizens. The rights conferred by the part 3 of the
constitution can be enforced not only against the state but also against all local authorities.
C) Powers
There is no doubt that a statutory corporation can do only those acts a s are authorized by the
statute creating it, and that powers of such corporation do not extend beyond it. A statutory
corporation must act within the framework of its constitution. Its express provision and necessary
implication must at all events be observed carefully. If it fails to act in conformity with law, the
action is ultra vires and invalid.
D) Duties
A statutory corporation being an instrumentality of the state must exercise its power in just, fair
and reasonable manner. Its approach must be beneficial to the general public. It must act bona
fide. Wide powers conferred on corporations are subject to inherent limitation and they should be
exercise honestly and in good faith.3
E) Lifting of veil
In the expanding horizon of modern jurisprudence, lifting of corporate veil is permissible. The
court can look behind the veil to see the real face of the corporation.

Mahesh Chandra vs U.P financial corporation. 1993 2 SCC 279: AIR 1993 SC 935.

An Analysis of Public Corporation


LIABILITIES OF PUBLIC CORPORATION
A) Liabilities in contracts
A public corporation can enter into contract and can sue and be sued for breach thereof. Since a
public corporation is not government department, the provisions of article 299 of the constitution
do not apply to it and a contract entered into between a public corporation and a private
individual need not satisfy the requirements laid down in article 299.
B) Liability for crimes
A public corporation may be held vicariously liable for offences commited by its servants in the
course of employment, eg. Libel, fraud, nuisance, contempt of court, etc. since, however, it is
artificial person, it cannot be held liable for any offence which can be committed only by a
natural person.
C) Liability to pay tax
In the absence of grant of immunity in a statute, a public corporation is subject to payment of tax
and other duties like any other person under the relevant laws. The fact that the corporation is
wholly owned or controlled by the government of property in possession of the corporation
belongs to the government does not ipso facto exempt the corporation from payment of taxes as
it cannot be said to be government.
CORPORATE CHARACTER
Substantially similar provision in all the acts provide for the establishment of the public
corporations as a body corporate with perpetual succession and a common seal and power to
hold land without license in mortmain. The acts do not state specifically that the public
corporations are to be in the same footing as any private legal person in respect to legal duties,
charges, etc.
GOVERNMENT CONTROL
A clear point of distinction between the public corporation and the private company lies in the
statutory facility for control of the public corporation by the minister, who is, in turn, responsible
to parliament. Examples of this control and its scope will be examined below where specific
types of public corporation are dealt with. Apart from this area of control there are four other
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An Analysis of Public Corporation


areas of control: parliamentary control, control by the means of companies act, consumer
control and judicial control by the courts. Parliamentary control is achieved through debates,
questions and scrutiny by select committees either in general terms or on those occasions when
some specific financial item is questioned as a result of auditing.
JUDICIAL CONTROL
In the case of most public corporation, and the nationalized industries in particular, there appear
to be few opportunities to challenge their acts as being ultra vires. It is difficult to identify
precisely why this should be the case but there are some broad indications. In the first place, the
statutory powers and responsibilities of many public corporations are quite widely drawn so that
proof of an ultra vires act could be quite difficult. Secondly, government control, eg in the
context of financial sanction for various projects, programmers or schemes may provide a filter
to guard against anything which might be ultra vires. Finally, where the functions of a public
corporation are undertaken mainly through contracts, it is that contractual forum which is focus
of attention so that the main concern is with the law of contract and whether the terms of any
contract have been fulfilled.
In Rajsthan State Electricity Board v. Mohanlal,4 the Supreme Court ruled that a State
electricity board, set up by statute, having some commercial functions to discharge, would be an
authority under Art. 12. The Court emphasized that it is not a material that some of the powers
conferred on the concerned authority are of commercial nature. This is because under Art. 298,
the government is empowered to carry on any trade or commerce does not, therefore give any
indication that the Board must be excluded from the scope of the word state is used in Art.
12.
In Sukhdev v. Bhagatram,5 three statutory bodies, viz., Life Insurance Corporation, Oil and
Natural Gas Commission and the Finance Corporation, were held to authorities and, thus, fall
within the term state in Art. 12. These corporations do have independent personalities in the
eyes of the law, but that does mean that they are not subject to the control of the government or
that they are not instrumentalities of the government.6
4

AIR 1967 SC 1857 : (1967) 3 SCR 377.


AIR 1975 SC 1331 : (1975) 1 SCC 421.
6
Ibid.,
5

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The question was considered more thoroughly in Ramanna D. Shetty v. International Airport
Authority,7 the international Airport Authority, a statutory body, was held to be an authority.
The Supreme Court also developed the general proposition that an instrumentalities or agency
of the government would be regarded as an authority or state within Art. 12 and laid down
some tests to determine whether a body could be regarded as an instrumentality or not. Where a
corporation is an instrumentality or agency of the government, it would be subject to the same
constitutional or public law limitation as the government itself. In this case, the Court was
enforcing the mandate of Art.14 against the Corporation.
By now though the question of statutory bodies had been settled, as stated above, yet that of the
non-statutory bodies, still continued to cause confusion and difficulty. In several cases hitherto, a
government company incorporated under the Indian Companies Act had been held to be not an
authority under Art. 12.8 In Sabhaji Tewary v. India,9 a case decided after Sukhdev, the
Supreme Court ruled that the Indian Council of Scientific Research, a body registered under the
Societies Registration Act (thus a non-statutory body), but under good deal of government
control and funding, was not a state.
There were judicial observations in Sukhdev to the effect that even a non-statutory body could
be treated as an authority under Art 12.If it would be regarded as an instrumentality or agency
of the government. But this observation did not affect the judicial thinking in Sabhajit.10 Again
the Supreme Court made observation in Raman suggesting that a non-statutory body could be
regarded as an authority if it could be regarded as an instrumentality of the government, but the
actual body involved there was statutory in nature.
Burmah Shell was nationalized and vested in the Government itself under the Burham Shell
(Acquisition of Undertaking in India) Act, 1976. The Act provided that the undertaking would be
vested in a government company. Accordingly, the undertaking was taken over by the Bharat
Petroleum Corporation, a government company registered under the Indian Companies Act. The
question was whether Bharat petroleum which was neither a government department nor a
7

AIR 1979 SC 1628 : (1979) 3 SCC 489.


R.D. Singee v. Secretary, B.S.S.I. Corp., AIR 1974 Pat. 212; M.L. Nohria v. Ins. Corp. of India, AIR 1979 P and H
183; Abdul Ahmad v. Govt. Woollen Mill, AIR 1979 J and K 57.
9
AIR 1975 SC 1329 : (1975) 1 SCC 485.
10
AIR 1975 SC 1329 : (1975) 1 SCC 485.
8

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statutory body but merely a company could be regarded as an authority and so state under
Art.12.
In Som Prakash v. Union of India,11 the company was held to fall under Art. 12. The Court
emphasized that the true test for the purpose whether the body was an authority or not was not
whether it was formed by statute, or under a statute, but it was functional. In the instance case,
the key factor was the brooding presence of the state behind the operations of the body,
statutory or other. In this case, the body was semi-statutory and semi-non-statutory. It was nonstatutory in origin (as it was registered); it also was recognized by the Act in question and, thus,
had some statutory flavour in its operations and functions. In this case, there was formal
transfer of the undertaking from the Government to a government company. The company was
thus regarded as the alter ego of the Central Government. The control by the Govt. over the
corporation was writ large in the Act and in the factum of being a government company. Agency
of a State would mean a body which exercises public functions.12
The question regarding the status of a non-statutory body was finally clinched in Ajay Hasia v.
Khalid Mujib,13 where society registered under the Societies Registration Act running the
regional engineering college, sponsored, supervised and financially supported by the Govt., was
held to be an authority. Money to run the college was provided by the State and Central
Governments. The State Govt. could review the functioning of the college and issue suitable
instructions if considered necessary. Nominees of the State and Central Governments were
members of the societies including its Chairman. The Supreme Court ruled that where
corporation is an instrumentality or agency of the government, it must be held to be an authority
under Art. the concept of instrumentality or agency of the govt. is not limited to a corporation
created by a statute but is equally applicable to a company or society thus, a registered
society was held to be an authority for the purpose of Art. 12. Ajay Hasia has initiated a new
judicial trend, viz., that of expanding the significance of the term authority.
WHETHER STATE INCLUDES THE JUDICIARY
11

AIR 1981 SC 212 : (1981) SSC 449.


Deewan Singh v. Rajendra Prasad Arvedi, (2007) 10 SCC 528, 542 : AIR 2007 SC 767, it is difficult to extract
precisely the principle on which the judgment proceeded.
13
AIR 1981 SC 487 : (1981) 1 SCC 722.
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The definition of State under Article 12 of the Constitution does not explicitly mention the
Judiciary. Hence, a significant amount of controversy surrounds its status vis-a-vis Part III of the
Constitution. Bringing the Judiciary within the scope of Article 12 would mean that it is deemed
capable of acting in contravention of Fundamental Rights. It is well established that in its nonjudicial functions, the Judiciary does come within the meaning of State. However, challenging a
judicial decision which has achieved finality, under the writ jurisdiction of superior courts on the
basis of violation of fundamental rights, remains open to debate[xix].
On the one hand, the Judiciary is the organ of the State that decides the contours of the
Fundamental Rights. Their determination, of whether an act violates the same, can be right or
wrong. If it is wrong, the judicial decision cannot ordinarily be said to be a violation of
fundamental rights. If this were allowed, it would involve protracted and perhaps unnecessary
litigation, for in every case, there is necessarily an unsatisfied party. On the other hand, not
allowing a decision to be challenged could mean a grave miscarriage of justice, and go
unheeded, merely because the fallibility of the Judiciary is not recognized.
The erroneous judgment of subordinate Court is subjected to judicial review by the superior
courts and to that effect, unreasonable decisions of the Courts are subjected to the tests of Article
14 of the Constitution.
The Bombay High Court expressed the view that the Judgment of the Court cannot be challenged
for violation of Fundamental Rights.
In the case of Naresh v. State of Maharashtra,
The issue posed before the Supreme Court for consideration whether judiciary is covered by the
expression State in Article 12 of the Constitution. The Court held that the fundamental right is
not infringed by the order of the Court and no writ can be issued to High Court. However in yet
another case, it was held that High Court Judge is as much a part of the State as the executive.
In Rati Lal v. State of Bombay , it was held that Judiciary is not State for the purpose of Article
12. But Supreme Court in cases of A.R. Antulay v. R.S. Nayak and N. S. Mirajkar v/s State of
Maharashtra, it has been observed that when rule making power of Judiciary is concerned it is
State but when exercise of judicial power is concerned it is not State.
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In Amir abbas v. State of M.B., the Court made the following observation: Denial of equality
before the law or the equal protection of the laws can be claimed against executive or legislative
process but not against the decision of a competent tribunal.

The Following Test to Adjudge


In Ajay Hasia, the Supreme Court laid down the following tests to adjudge whether a body is an
instrumentality of the government or not:
(1) If the entire share capital of the body is held by the government, it goes a long way towards
indicating that the body is an instrumentality of the government.
(2) Where the financial assistance given by the government is so large as to meet almost entire
expenditure of the body, it may indicate that the body is impregnated with governmental
character.
(3) It is relevant factor if the body enjoys monopoly status which is conferred or protected by
the state.
(4) Existence of deep and pervasive state control may afford an indication that the body is a
state instrumentality.
(5) If the functions performed by the body are of public importance and closely related to
governmental functions, it is a relevant factor to treat the body as an instrumentality of the
government.
Mere regulatory control whether under statute or otherwise would not serve to make a body a
part of the State. Hence when the facts revealed:
(1) The Board of Control of Cricket in India was not created by statute;
(2) No part of the share capital of the Board was held by the Government;
(3) Practically no financial assistance was given by the Government to meet the whole or entire
expenditure of the Board;
(4) The Board did enjoy a monopoly status in the field of cricket but such status is not State
conferred or State protected.

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(5) There was no existence of deep and pervasive State control and the control, if any, is only
regulatory in nature as applicable to other similar bodies.
(6) The Board as not created transfer of government owned corporation and was an autonomous
body.
The Court noted that the union of India has been exercising certain control over the activities of
the Board. In regard to organizing cricket matches and travel of the Indian team abroad as also
granting of permission to allow the foreign teams abroad as also granting of permission to allow
the foreign teams to come to India. The Court also assumed that even if there was some element
of public duty involved in the discharge of the Boards functions the Board would not be an
authority for the purpose of Art. 12.
In the absence of any authorization, if a private body chooses to discharge any functions or duties
which amount to public duties or State functions which is not prohibited by law then it may be
considered to be an instrumentality of the State.14
In S. C. Chandra, v. State of Jharkhand,15 the Supreme Court came dangerously close to
creating confusion in relation to the concepts of instrumentality of the State. The judgment of
this case was a common one and involved, amongst others Bharat Coking Coal Limited. Without
any discussion whatsoever the Court appears to have approved the view taken by Division Bench
of the Jharkhand High Court that BCCL was not an instrumentality of the State as per section
617 of the Companies Act as its dominant function was raise to coal and sale and imparting
education was not its dominant function.
In Sabhajit tewary, the Council of Scientific and Industrial Research (CSIR) was held to not an
authority under Art. 12. Now, the Supreme Court has overruled Tewary holding it to be
erroneous. CSIR has now been held to be an authority under Art. 12.16
Bombay Port Trust is an instrumentality of the State and hence an authority within the
meaning of Article 12 and amenable to writ jurisdiction of the Court.17
14

Zee Telefilms Ltd. v. Union of India, (2005) 4 SCC 649 : AIR 2005 SC 2677.
(2007) 8 SCC 279 : AIR 2007 SC 3021.
16
Pradeep Kumar Biswas v. IICB, 2002 5 SCC 111 : (2002) 4 JT 146.
17
Jamshed Harmushiji Wadia v. Board of trustees, Port of Mumbai, (2004) 3 SCC 241 : AIR 2004 SC 1815.
15

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The multiple test as laid down by the majority view in Pradip Biswas is to be applied for
ascertaining whether a body is a State within the meaning of Art. 12.18

CONCLUSION
The status of public corporation under Art 12 of the Constitution in India is the State. Above we
had seen the various cases where the some corporation held authority or the State and the
Supreme Court has also given many views regarding the public Corporation. In the absence of
any authorization, if a private body chooses to discharge any functions or duties which amount to
public duties or State functions which is not prohibited by law then it may be considered to be an
18

Ajit Shingh v. State of Punjab, AIR 1967 SC 856 : (1967) 2 SCR 143.

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instrumentality of the State. State within Art 12 and laid down some tests to determine whether
a body could be regarded as an instrumentality or not. Where a corporation is an instrumentality
or agency of the government, it would be subject to the same constitutional or public law
limitation as the government itself. In this case, the Court was enforcing the mandate of Art.14
against the Corporation. The most significant expression used in Art. 12 is other authorities.
This expression is not defined in the constitution. It is, therefore, for the Supreme Court, as the
Apex Court, to define this term. It is obvious that wider the meaning attributed to the term other
authorities in Art. 12, wider will be the coverage of the Fundamental Rights, i.e. more and more
bodies can be brought within the discipline of the Fundamental Rights.

BIBLIOGRAPHY
Books Referred:
1. Durga Das Basu, Administrative Law (Kamal Law House, Calcutta, 5th edn., 1998).
2. M P Jain and S N Jain, Principles of Administrative Law (Wadhawa, Nagpur, 2001).
3. Wade and Forsyth, Administrative Law, 9th Edn., Oxford Publication.
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4. I.P. Massey, Administrative Law, Sixth Edition, Eastern Book Company.
Websites referred

lawcommissionofindia.nic.in/101-169/report145.pdf, last accessed on 20th March, 2015.

https://archive.org/.../elementsofpublic032357mbp/elementsofpublic03235, last accessed


on 21st March, 2015

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