STATUTORY CORPORATION

STATUTORY CORPORATION 

A corporation created by statute, that is owned in part or in whole by a government (examples being are municipal councils, bar councils, universities). 

A public corporation is an SOE (State owned enterprise) set up under a specific enactment by the central or the state governments. Their equivalent in OECD (Organization for Economic Co-operation and Development) countries would be statutory corporations. A statutory corporation is a corporation created by statute. Their precise nature varies by jurisdiction thus they might be ordinary companies/corporations owned by a government with or without other shareholders, or they might be a body without shareholders which is controlled by national or sub-national government to the (in some cases minimal) extent provided for in the creating legislation. In India, Statutory Companies are simply the public organizations that came into existence through a special Act of Indian Parliament. 

The Act provides and defines various functions and powers of a statutory body. The Act also defines various rules and regulations that regulate its employees. Every stator company has a specially defined relationship with various departments of government. Indian definition of statutory companies says that ―, A statutory company or corporation is a special body formed by the legislature. 

This statutory body will have defined and provided functions and powers. It will be financially independent and will have clearly defined regulation over a specific activity or area‖ In discussing this topic we will discuss about the public corporations of India, which is a large country and also our neighboring country. 

the controls over the working of public corporations in India: These Corporations are generally formed to meet the special problems arising out of the execution of large scale irrigation and power projects covering more than one State or for other public undertakings which may require powers and privileges which could not generally be obtained under the Company Law. The Act or statute defines its objectives, powers an functions. 

Statutory corporations are legal entities established by a special act of parliament or by a state or federal legislature. They may be formed by the Companies Act, 2013, or a Society registered under the Societies Registration Act, 1860, or any other comparable statute, but they would be included by Article 12 of the Indian Constitution’s definition and meaning of a state. The financials of the corporations are entirely paid for by the government. The legislative act determines its powers, objectives, and constraints, among other things. Air India, State Bank of India, and Life Insurance Corporation of India are just a few statutory corporation examples. 

Types:

Commercial- ONGC, BHEL 

Developmental- NTPC,NHPC 

Financial-Sick Industry Developmental Corporation 

Social security-LIC 

Characteristics of Statutory Corporations 

The main features of a statutory corporation are: 

● It is a legal entity. 

It is a legal entity for which the government appoints a board of directors to oversee such corporations. The corporation has the authority to engage in contracts and do business in its name. 

● The government owns it. 

The state assists such corporations by totally or partially contributing to their capital. It is wholly owned by the government. 

● Answerable to the Legislative Branch 

A statutory corporation is accountable to the legislature or the state assembly that established it. Parliament has no authority to meddle with statutory corporations’ operations. It can only discuss policy issues and corporate performance as a whole. 

● Own Staffing System 

Even though the government owns and manages a firm, employees are not government servants. The government provides balanced or consistent pay and benefits to employees of diverse firms. They are hired, paid, and governed in accordance with the corporation’s policies. 

● Financial Stability 

A statutory corporation has financial independence or autonomy. It is exempt from budget, accounting, and audit restrictions. It can even borrow money both inside and outside the country with the consent of the government. 

Merits of Statutory Corporations 

The main benefits of the statutory corporation are: 

1. Initiative and flexibility: A statutory corporation’s operations and administration are carried out autonomously, without the intervention of the government, and with its own initiative and flexibility. 

2. Administrative autonomy: A public corporation has the freedom and flexibility to run its activities.

3. Quick judgments: Because there is less file work and formality to complete before making decisions, a public corporation is relatively free of red tape. 4. Service motive: The public corporation’s activities are debated in parliament. This ensures that the public interest is safeguarded. 

5. Efficient employees: Public firms can set their own rules and regulations for remuneration and employee recruiting. It can provide better facilities and more appealing conditions of service to its employees in order to ensure that they work efficiently. 

6. Professional management: The statutory corporation’s board of directors is made up of business experts and government-nominated members from various groups, such as labour and consumers. 

7. Easy to raise capital: Because these firms are wholly controlled by the government, they may readily raise needed funds by issuing low-interest bonds. The public is also comfortable subscribing to these bonds because they are safe. 

These merits of statutory corporations are extremely useful in management and funding processes. 

Demerits of Statutory Corporations 

1. Only on paper: The autonomy and flexibility of public corporations are merely symbolic. Ministers, government officials, and political parties frequently interfere with the smooth conduct of these processes. 

2. Lack of initiative: Public enterprises are not subject to competition and are not motivated by profit. As a result, employees do not take initiative to improve profits and decrease losses. The government compensates the public corporation for its losses. 

3. Rigid structure: The act defines the goals and powers of public corporations, and they can only be changed by modifying the statute or the act. Repealing the statute is a time-consuming and difficult process. 

4. Conflict of interests: The board of directors is appointed by the government, and their job is to manage and operate enterprises. Because there are so many people, it’s probable that their interests will collide. The corporation’s smooth operation may be impeded as a result of this. 

5. Unfair practices: A public corporation’s governing board may engage in unfair activities. To hide inefficiencies, it may demand an exorbitant price. 6. Suitability: The public company is appropriate for projects that require 1. Monopolistic powers. 

2. Acts or statutes that grant exceptional authority. 

3. Allotment of government grants regularly. 

4. A good balance of public accountability and operational autonomy

Features : 

A public corporation seeks to combine the flexibility of private enterprise with public ownership and accountability. The features of statutory corporation are as follows:- 

(1) Management: Statutory corporations are managed by the Board of Directors, appointed by the government. 

(2) Accountability: Statutory Corporation is accountable to public & parliament. Hence it is account and audited by the Comptroller & Auditor General of India (CAG). This ensures public accountability. 

(3) Appointment: They can freely recruit people and can give promotions and transfers to any employee according to the company requirement. 

(4) No Interference: Statutory Corporation can have its own pattern. There is no political interference in day to day working of the corporation. 

(5) Objectives: It works on profit objective and as such its activities are commercial in nature. 

(6) Service motive: The primary motive of the corporation is public service rather than private profits. It is, however, expected to operate in a business-like manner. 

(7) Financial independence: It enjoys financial autonomy. Its initial capital and borrowings are provided by the government but it is supposed to be self-supporting. It can borrow money from the public is empowered to plough back its earnings. 

The Statutory Boards or Corporation which had been formed in India are: (1) The Damodar Valley Corporation— 1948. 

(2) The Industrial Finance Corporation—1948. 

(3) The Rehabilitation Finance Administration—1948. 

(4) The Employees‘ Insurance Corporation— 1948. 

(5) The Reserve Bank of India—1948. 

(6) The Air Transport Corporation—1953. 

(7) The State Bank of India—1955; and 

(8) The Life Insurance Corporation—1956. 

The public corporations need not to have a memorandum of association or the article of association as they have to strictly follow the special status. They have their own policies and procedures within the scope of the power provided by the act.

In India, the different forms of control to which the public corporation may be subject to are: Parliamentary Control, Control by the Public, Government Control, Judicial control and Central agency control. Parliamentary Control: These public corporations are solely controlled by the government. As public authorities they are subject to the normal controls of constitution and administrative laws to supervision by the Minister, who in turn is answerable to Parliament, and by Courts through the control which they exercise over administrative authorities. The annual reports of these corporations are submitted to the government of India giving an account of the activities and then they are laid before both the houses of the parliament. Under the Insurance Corporation Act, 1956, besides the auditor‘s report and annual report, the report of the actuaries containing the result of an investigation made by the actuaries into the financial condition of the business of the Corporation should also be so laid. The parliamentary control over the public corporation is confined to only broad criticisms and the day to day functioning of the public corporation is outside the functioning of parliamentary control over the public corporations. Control by the public: The public also has control over the public corporations in India. These corporations are owned by the government and created by special statutes. These corporations are autonomous in functioning. These corporations are built up for the overall good of the nation and the public. So, the public can also control the public corporations. 

Government Control: In the framework of economic planning in India, the policies, investment decisions and programs for growth and expansion of public corporations have to be co-ordinated with national priorities and the mobilization and allocation of resources. Even when investment and expenditure decisions of some of these enterprises do not depend on governmental budgetary support, their overall impact on the economy through backward and forward linkages, their decision to buy equipment from indigenous sources or import, and their claim on total economic resources (especially in the core sector) may be so important as to require their reconciliation with national planning objectives. Similarly, wage and employment policies of different public enterprises with implications for other enterprises and the national economy are subjected to the same overall co-ordination. There are thus a number of areas where the intervention of the government in the management of public corporations is inevitable in the interests of national planning for this type of economy. 

Central Agency Control: Central agency controls over central public enterprises in India operate as follows: i. Board level appointments of the chief executives and full-time directors are made by the Appointments Committee of the Cabinet consisting of the Minister-in-Charge of the administrative ministry concerned, Minister-in-Charge of Home Affairs and the Prime Minister. These appointments are made on the basis of the recommendations of the Public Enterprises Selection Board under the Department of Personnel. ii. Project Appraisal Division and various

sectoral divisions of the Planning Commission play an important role in the authorization of major capital projects of individual public enterprises, while the Commission also monitors progress of projects during construction and of units under production. iii. Public Investment Board, which is headed by Secretary (Expenditure) and is an interministerial committee of ministerial secretaries, authorizes major capital investments including those of public enterprises. iv. Bureau of Industrial Costs and Prices in the Ministry of Industry makes recommendations in respect of prices which are administered by government. v. Bureau of Public Enterprises in the Ministry of Industry monitors budgetary implementation and performance of public enterprises and issues guidelines for periodic wage settlements. vi. Labour Ministry regulates employment policies, provides general guidance on industrial relations and intervenes through its agencies in industrial disputes involving public enterprises. vii. Home Ministry has a watchdog role through the Central Vigilance Commission, Central Bureau of Investigation, and Central Industrial Security Force. viii. Commissioner for Scheduled Castes and Tribes may receive direct representations from economically and socially backward communities in regard to the placement and promotion of their members in public enterprises. 

Judicial Control: The judiciary also controls the public corporations in India. As statutory corporations or the public corporations itself are created by the statutes. The judiciary has a powerful control over the public corporations. Different powers are vested to the public corporations by the judicial system. The judicial system consists of judges and courts. If there is any misuse of power by the public corporations then the corporation is answerable to the judicial system of the state of India. These are the various types of controls over the working of public corporations in India. Public corporations are autonomous systems but still they are controlled by the above forces. These corporations are created by statute and these are created for the overall welfare of the people of the state. So the proper functioning of these corporations is very important. This control over the working of public corporations helps these corporations to function properly and to create maximum benefit. Parliamentary control over Public Corporation: In the State establishing the Corporations it is often provided that their annual reports should be submitted to the Government of India giving an account of the activities and then laid before both the Houses of Parliament. Under the Insurance Corporation Act, 1956, besides the auditor‘s report and annual report, the report of the actuaries containing the result of an investigation made by the actuaries into the financial condition of the business of the Corporation should also be so laid. The Parliamentary control over the function of the statutory corporations is confined to broad featured criticism and day to day functioning is outside the purview of such control. The member‘s right to ask questions about the public undertakings and general debates especially the budget debate provide the occasions for such

criticism. The Estimates Committee of the House of the People has often been making suggestions with a view to proper working to the Damodar Valley Corporation and the Oil and Natural Gas Commission and other Corporations. A Committee of the Parliamentary Congress party under the chairmanship of Shri V.K. Krishna Menon has also gone into the matter and made certain recommendations. Amongst other things it has suggested the appointment of a Committee of the Lok Sabha for exercise of continuous broad supervision. The Committee has made recommendations with a view to make Parliament‘s control ―real and gainful‖ by watching the functioning of the Corporations. It is difficult to say exactly how this Committee shall work in such a manner that it makes the Parliamentary supervision ―real and gainful‖ and at the same time not provide an instrument of interference into the normal working of the Corporations. 

PROBLEMS OF CONTROL OF PUBLIC UNDERTAKINGS: The problem of control of public enterprises is thus not of a single uniform pattern. The channels of control vary with the organizational form of the enterprise. Even the substantive content of control varies from one public enterprise to another according to its exact socioeconomic role. Lastly, the very history of the organization of an enterprise in the public sector sometimes has a bearing on the system of control. Thus, while a departmental undertaking is under the full control of the minister, companies and corporations are free of detailed ministerial or parliamentary control and enjoy a large measure of operational autonomy. Secondly, there is no significant difference in the matter of control between statutory corporations and government companies. Thirdly, there exists some confusion in the matter of division of responsibilities between the government and the management of the enterprise in the field of public accountability. Instruments of Control Public control over public enterprises is exercised through three main agencies – the minister, the parliament and special agencies. Ministerial Control Generally, the ministerial Control is exercised in the fields of administration and finance. 

In the administrative field the controlling powers of the minister concerned are exercised in the following matters: 1. The power of issuing directives is by far the most important power to be exercised by a minister. Clause 48 of the Damodar Valley Corporation enjoins upon it to be guided by such instructions on questions of policy as may be given to it by the Central Government. A subclause of the same clause lays down that, if any dispute arises between the Central Government and the Corporation as to whether a question is or is not a question of policy, the decision of the Central Government shall be final. 2. The government can institute enquiries into the working of a corporation. Such an inquiry committee was appointed in the case of the Damodar Valley Corporation in 1952. 3. The government is authorized to frame rules and regulations to facilitate the working of these enterprises. It can prescribe forms, lay down procedures and even prescribe the activities to be undertaken. 4. If a particular board of management fails to carry out the purposes for

which it was set up or if it fails to carry out the directives issued by the government, the latter can supersede it and appoint a new board. 5. Under certain conditions, the government can remove from office any member of the management board. 6. The government is empowered to appoint the chairman and members of the board of management and the managing director. In addition, the government retains the power of approval of appointment to posts carrying salaries above a certain limit, namely, Rs. 2,250 a month. Ministers exercise control over the working of public undertakings in the financial field as follows: 1. The government also controls the fixation of prices of goods produced by the enterprises as well as the quantum and rate of payment for services rendered. These matters cannot be settled on purely economic grounds and wider issues of public interest have to be kept in view. 2. The approval of the government is required regarding the forms for maintaining the accounts of the enterprise and for their audit. Usually the audit of accounts is done by the auditors appointed by the government. 3. The sanction of the government is necessary to (i) sanction capital expenditure above a certain amount, (ii) for approving variation in estimates of over 10%, and (iii) for matters connected with borrowings, investments, securities, distribution of profits, etc. For instance, in the case of the Hindustan Steel (Private) Limited, approval of the central government is necessary for increase of capital, issue of new shares, reduction of capital, borrowing of money and its terms, issue of bonds, debentures and other securities, any programme of capital expenditure for an amount exceeding Rs. 40 lakhs, winding up of the company, etc. 4. Ministers are authorised to appoint a financial adviser on the governing board of a corporation. Such adviser, as has been described above in the case of the DVC, exercises a sort of veto over matters affecting expenditure and the financial policy of the government. Parliamentary Control over Public Enterprises Public enterprises are owned by the state and are created by investment from public funds and must, therefore, be subject to the accountability to which all activities financed from public funds are subjected, namely., to the parliament which is not merely the custodian of public funds but also represents the shareholders, that is, the tax-payers. ―The relation between the Parliament and public enterprises has to be considered within the overall equation of the parliament-ministerenterprise relationship. Members of parliament feel a keen sense of responsibility for the efficiency and achievements of public enterprises. They, therefore, want ministers to answer for the shortcomings and difficulties and failures of the public enterprises. Faced with this detailed and continuous scrutiny by parliament, the responsible minister has little choice but to keep himself informed on all matters that relate to a public enterprise including matters of day-today administration.” Report on Public Undertakings, any act or omission of an act, which directly affects the fulfillment of (prescribed) objectives and obligations cannot be described as a mere matter of day-today administration. In the same way, all matters except those which have a bearing on any established policy of government, should ordinarily be treated as matters of routine administration. Parliamentary control over public enterprises is

exercised principally through questions, adjournment motions, debates and parliamentary committees. We shall now briefly discuss these instruments. 

Questions: There has been considerable discussion on the scope of admissibility of questions relating to the working of public corporations and government companies and certain broad principles have been laid down. These principles and guidelines do not make any distinction between a corporation and a company. Debates: The performance of public undertakings can form the subject of debate in parliament in several ways, namely, raising half an hour discussion or of two hours‘ debate on any enterprise, moving a motion of adjournment if the matter is of urgent public importance, debate on the president‘s address, debates on bills and resolutions, and budget debates. Reports: Every statutory corporation is obliged under law to submit an annual report on its policies, activities and programmes during the previous year to the government. This report is also expected to indicate the nature of activities and programmes to be undertaken next year. A copy of such a report together with the report of the auditors is laid before both houses of parliament. Parliamentary Committees: The parliamentary committee on Public Undertakings consists of not more than fifteen members, ten from the Lok Sabha and five from the Rajya Sabha, elected by the concerned house every year from amongst its members according to the principle of proportional representation by means of the single transferable vote. However, a minister cannot be elected as a member and in case a member of the committee becomes a minister in future he ceases to be a member of the committee with immediate effect. The term of office is one year but there is no bar to re-election of the same members. One of the members is elected as the chairman of the committee. 

Method # 1. Holding Debates in Parliament: A debate ‗on the performance or some other issue relating to public enterprises may be initiated during the budget debates or by moving resolution on any topic or by short discussion on matters of urgent public importance or ” calling the attention” of the House to some urgent matter during discussions on reports of enquiry or on presentation of the annual reports. 

Method # 2. Parliamentary Question: Of all parliamentary devices the most commonly used to secure accountability is the Parliamentary Questions asked by the members. 

Method # 3. Parliamentary Committee: Special Committees of Parliament examine the various aspects of the functioning of public enterprises. There is a great advantage in examining by a Committee of Parliament. In the case of debates and questions, it is the Minister who speaks on behalf of the public undertaking. But during the examination by a committee the chairman and other officials of the enterprise get an opportunity to explain their point of view across the table. 

Liabilities:

In contract: Article 299: not applicable 

Section 80 of CPC: requirement of Statutory Notice : Not applicable Liability in Torts : Article 300: Applicable : Libel/Deceit/ Maliciaous Prosecution Vicarious Liability of Its Servant: Assault Defamation etc: exception Good faith Not protected under Artcie 311, but Employees are subject to labour laws . Covered under Article 12 

Hence writs.