Definition of Public Corporation

Statutory bodies performing public functions

A Public Corporation is a form of public sector enterprise that is created by a special Act of the Parliament or the State Legislature. This Act defines its powers, functions, rules, and regulations governing its employees and its relationship with government departments. Unlike departmental undertakings, it is a corporate body.

The primary purpose of a public corporation is to carry out public functions or engage in activities that are considered to be in the public interest. These functions can range from providing essential services like electricity, transportation, or communication, to managing financial institutions, insurance services, or promoting specific sectors like industrial development.

Creation and Purpose

Public corporations are established when the government decides that a particular activity or service is important enough to be run under public ownership and control, but requires the flexibility and autonomy of a corporate structure rather than being managed directly as a government department. The special Act that creates it gives it the authority to operate independently, yet remain accountable to the legislature.

Examples in India include the Life Insurance Corporation of India (LIC), the State Bank of India (SBI), the Food Corporation of India (FCI), and various State Road Transport Corporations.

Characteristics

Separate legal entity

One of the key characteristics of a public corporation is that it is a separate legal entity. This means it has an existence distinct from the government. Upon its creation by the special Act, it acquires a separate legal personality.

As a separate legal entity, a public corporation can:

• Enter into contracts in its own name.
• Acquire, hold, and dispose of property in its own name.
• Sue and be sued in a court of law.

This separate status provides it with operational flexibility and allows it to function more like a business enterprise while serving public objectives.

Public accountability

Despite having operational autonomy, a public corporation is ultimately accountable to the public through the Parliament or State Legislature that created it. The special Act lays down the framework for its accountability.

Mechanisms for public accountability include:

• Its annual report and audited accounts are usually submitted to the concerned Ministry, which then tables them in Parliament or the State Legislature.
• The performance and working of the corporation can be discussed in the Parliament or State Legislature.
• Specific committees of the Parliament or Legislature, like the Committee on Public Undertakings, scrutinize the working of public corporations.
• The audit of the corporation's accounts is often conducted by the Comptroller and Auditor General (CAG) or auditors appointed in consultation with the CAG.

This accountability ensures that the corporation operates efficiently and in line with the public interest, preventing misuse of its autonomy.

Subject to government control

While enjoying a degree of autonomy, public corporations are still subject to significant government control. This control is exercised through various means:

• The government appoints the majority of the members of the Board of Directors, including the Chairman and Managing Director.
• The government often has the power to issue directions to the corporation on matters of public policy. The corporation is bound to follow these directions.
• Major financial decisions, investment plans, and borrowing programs may require government approval.
• In some cases, the government may have the power to amend the creating Act or even dissolve the corporation.

The extent of government control varies depending on the specific Act and the nature of the corporation's activities. This control ensures that the corporation functions in alignment with national policies and objectives.

Types of Public Corporations

Public corporations in India can be broadly classified based on the nature of their activities. While this classification is not rigid, it helps in understanding the diverse roles these entities play in the economy and public life.

Service Corporations

These corporations are primarily established to provide essential public services to the citizens. Their main objective is service delivery rather than profit maximisation, although they are expected to operate efficiently and often on a 'no profit, no loss' basis or recover costs.

Examples of Service Corporations in India include:

• State Road Transport Corporations (SRTCs): Providing passenger transportation services within states.
• Electricity Boards (State Electricity Boards - SEBs): Involved in the generation, transmission, and distribution of electricity (though many have been restructured or disaggregated).
• Housing Boards: Focused on providing housing facilities.
• Urban Development Authorities: Responsible for planned development of urban areas.

These corporations address critical infrastructure and social needs directly impacting the daily lives of the populace.

Financial Corporations

These corporations are engaged in financial activities, such as banking, insurance, and providing financial assistance for industrial or agricultural development. They play a crucial role in mobilising savings, providing credit, and insuring risks, thereby contributing to the financial stability and economic growth of the country.

Examples of Financial Corporations in India include:

• Reserve Bank of India (RBI): The central banking institution regulating the Indian banking system. (Though often considered unique due to its monetary policy functions, it fits the statutory corporation model).
• Life Insurance Corporation of India (LIC): A major life insurance provider.
• General Insurance Corporation of India (GIC) and its subsidiaries: Involved in non-life insurance.
• State Bank of India (SBI) and other nationalised banks: Though many are now primarily governed by banking acts, they were initially created or nationalised through special acts and retain characteristics of public corporations in terms of government ownership and control.
• Industrial Finance Corporation of India (IFCI): Providing term finance to large industries.

These entities are vital for the functioning of the financial sector and implementation of national economic policies.

Industrial Corporations

These corporations are involved in manufacturing, production, or processing activities, often in sectors considered strategic or requiring large-scale investment beyond the capacity of the private sector at the time of their establishment. Their objectives may include achieving self-sufficiency in certain goods, regional development, or preventing monopolies.

Examples of Industrial Corporations in India include:

• Food Corporation of India (FCI): Primarily involved in procurement, storage, and distribution of food grains for public distribution and food security.
• Oil and Natural Gas Corporation (ONGC): Engaged in the exploration and production of crude oil and natural gas. (Now a public limited company but historically fits this category).
• Steel Authority of India Limited (SAIL): A major steel producer. (Also now a public limited company).
• Coal India Limited (CIL): The largest coal producer in the world. (Also now a public limited company).

While many large industrial public sector undertakings have transitioned from statutory corporations to government companies over time, the concept originated with statutory bodies like FCI. These corporations aim to drive industrial development and meet specific production targets.

Control Mechanisms

Despite their operational autonomy and separate legal entity status, public corporations are subject to various controls to ensure they function in the public interest and achieve their objectives. These controls are exercised by different branches of the government.

Legislative Control

The Parliament (at the central level) or the State Legislature (at the state level) is the ultimate authority controlling public corporations, as they are created by legislative acts. This control is crucial for ensuring public accountability.

Methods of Legislative Control include:

• Discussions and Debates: The performance and activities of public corporations can be discussed during parliamentary sessions, budget debates, or specific debates on public sector enterprises.
• Questions: Members of Parliament/Legislature can ask questions to the concerned minister regarding the working of the corporation.
• Annual Reports and Accounts: The annual reports and audited accounts of public corporations are laid before the Parliament/Legislature. This allows legislators to review their financial health and operational performance.
• Committee on Public Undertakings (COPU): This specialized parliamentary committee examines the reports and accounts of public undertakings, including public corporations, and reports to Parliament on their efficiency and autonomy. This is a very important mechanism for detailed scrutiny.
• Amendment of Act: The creating Act can be amended by the legislature to change the powers, functions, or structure of the corporation.

Legislative control ensures that the corporation remains accountable to the elected representatives of the people.

Executive Control

The Government (the executive branch), primarily through the concerned Ministry, exercises significant control over the day-to-day functioning and strategic direction of public corporations.

Methods of Executive Control include:

• Appointment of Board Members: The government appoints the Chairman, Managing Director, and other directors on the Board of the corporation. This allows the government to influence the leadership and decision-making.
• Issuance of Directions: The concerned Ministry can issue general or specific directions to the corporation on matters of policy, particularly those affecting public interest. Public corporations are usually bound to comply with these directions.
• Approval of Plans and Budgets: Major investment plans, capital expenditure, borrowing programs, and annual budgets often require the approval of the concerned Ministry or the government.
• Financial Control: The government may exercise control over pricing policies, allocation of resources, and grant financial support or guarantees.
• Removal of Directors: The government usually has the power to remove directors or supersede the board under certain circumstances.

Executive control ensures that the corporation's policies and operations are aligned with the government's overall economic and social objectives.

Judicial Control

Public corporations are also subject to the jurisdiction of the Courts in India. As separate legal entities, they can sue and be sued.

Aspects of Judicial Control include:

• Enforcement of Contracts: Courts can hear cases related to contractual disputes involving public corporations.
• Writs: Since many public corporations perform public functions and are considered 'State' under Article 12 of the Constitution, their actions can be challenged through Writs (like Mandamus, Certiorari, Prohibition) in High Courts and the Supreme Court if their actions are arbitrary, unconstitutional, or violate fundamental rights or statutory provisions.
• Labour Disputes: Disputes related to employees of the corporation can be brought before appropriate labour courts or tribunals, and eventually the higher judiciary.
• Legal Compliance: Courts can examine whether the corporation is acting within the powers granted by its creating Act and other relevant laws.

Judicial control ensures that public corporations act according to the law, uphold constitutional principles, and do not exceed their authority, providing a mechanism for grievance redressal against their actions.