Writ Petitions Not Maintainable Against Private Companies in Banking

In S. Shobha v. Muthoot Finance Ltd., the Supreme Court of India clarified that a private financial institution, such as Muthoot Finance, is not automatically considered a “State” under Article 12 of the Constitution, even if it is regulated by the Reserve Bank of India (RBI). Consequently, it is generally not subject to writ jurisdiction under Article 226, unless it is performing a public function.

The court emphasized that while RBI regulations are binding, they do not constitute state control or transform the institution into a state instrumentality. It further ruled that a private company carrying on banking business as a scheduled bank cannot be considered as performing a public function or duty.

The judgment hinged on the “function test,” a crucial criterion for determining if a private entity is subject to writ jurisdiction. This test requires the entity to be performing a public function or duty.

The following key principles were highlighted by the court:

• For a writ to be issued against a legal entity, it must be an instrumentality or agency of the State, or perform governmental functions, or functions that are of public importance or fundamental to the lives of the people.
• A writ petition under Article 226 may be maintainable against several types of entities, including state government bodies, statutory bodies, state instrumentalities, and private bodies that are discharging a public duty or are substantially funded and owned by the state.
• A writ of mandamus is typically issued to a public body to compel it to perform a public duty imposed by a statute. In rare cases, it may be issued to a private body, but only to enforce a public duty cast upon it by law.
• Merely because a statute requires a company to perform a particular action, it does not acquire the attributes of a statutory body.
• If a private body is discharging a public function, and a denial of rights is connected to that public duty, a public law remedy can be enforced. The duty may be statutory or otherwise, and the source of power is immaterial, but a public law element must be present in the action.
• According to Halsbury’s Laws of England, a “public authority” is a body that performs public statutory duties for the benefit of the public and not for private profit. There is no universal definition of a public authority, and each case is decided on its specific facts.

In essence, the judgment establishes that government regulation of a company does not equate to it being a government body. Therefore, a private company cannot be challenged with a writ petition in the same way as a government agency, unless it is engaged in a public duty.

Post Views: 5