Article 12 of the Constitution of India in relation to

Nationalized Banks

By Suhail Singh, Associate at Lex Indis Law Offices

Definition of Nationalized Banks:

Nationalization of banks refers to the transfer of bank owned by private sector
into the public ownership of a national government by acquiring a majority stake
of more than 50% by the state or central government.

Article 12 defines the state as:

In this part, unless the context otherwise requires, "the State" includes the
Government and Parliament of India and the Government and the Legislature
of each of the States and all local or other authorities within the territory of
India or under the control of the Government of India.
In other words, for the purposes of Part III of the constitution, the state
comprises of the following:

A. Government and Parliament of India i.e the Executive and Legislature

of the Union.
B. Government and Legislature of each State i.e the Executive and
Legislature of the various States of India.
C. All local or other authorities within the territory of India.
D. All local and other authorities who are under the control of the
Government of India. 1

Debate and Controversy:

Around the expression of Article 12 i.e “other authorities”, which has evolved
overtime:

1
https://www.drishtiias.com/daily-updates/daily-news-analysis/state-under-article-12-of-the-constitution
  Earlier, a restrictive interpretation was given to this term, i.e, the
authorities exercising governmental or sovereign function would
only be covered under other authorities.
 The liberal interpretation says that it is not necessary for an
authority to be engaged in sovereign or governmental function to
come under the definition of the state. The bodies like State
Electricity Board, LIC, ONGC and IFC also come under “other
authorities”.
In R.D Shetty v. Airport Authority of India Justice P.N Bhagwati gave 5 Point
test. This is a test to determine whether a body is an agency or instrumentality
of the state and goes as follows –
i. Financial resources of the State, where State is the chief funding
source i.e.the entire share capital is held by the government.
ii. Deep and pervasive control of the State
iii. The functional character being Governmental in its essence,
meaning thereby that its functions have public importance or are
of a governmental character.
iv. A department of Government transferred to a corporation.
v. Enjoys “monopoly status” which State conferred or is protected
by it.2

However, not all Statutory Bodies can be termed as ‘State’. Both statutory an
non-statutory bodies can be considered as a ‘State’ provided they get financial
resources from the government and “have deep pervasive control of
government and with functional characters.” ONGC, Delhi Transport
Corporation, IDBI, and Electricity Boards are referred as a ‘State’. However,
entities such as NCERT cannot be considered a ‘State’ as they are not
substantially financed by the government control is not pervasive.

Judgments in relation to Nationalised Banks and Article 12 of the Indian

Constitution with relevant paragraphs:

2
https://www.drishtiias.com/daily-updates/daily-news-analysis/state-under-article-12-of-the-constitution
In P.V. Nayak vs. Syndicate Bank and Ors. [(1979) 49 COMP CAS 387] it was
held as under:

Para 22- “Held that the Syndicate Bank which came into existence by virtue of
the provisions of the Act is an “authority” and fall within the
meaning of the word “State” as used in art. 12 of the Constitution”.

Para 31- “The Syndicate Bank established under the provisions of the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1970, is
“State” as defined in art. 12 of the Constitution”.

In Sukhdev Ratilal Patel vs. Chairman, Bank of Baroda and Ors. [(1976) 2
SLR 144 (DB)] was of the following view:
Para 5 - “A conspectus of provisions which we have analysed of the present
Act leaves no doubt that the present Bank is also a State within the
meaning of Art. 12 as per the aforesaid settled tests”.