Introduction:

In a significant judgment, the Allahabad High Court addressed the scope of Article 12 of the Indian Constitution concerning private entities. The case involved M/S Manoj Petroleum and another (the petitioners) and Nayara Energy Limited (formerly Essar Oil Limited), an oil refining and marketing company. The central issue was whether Nayara Energy could be classified as ‘State’ under Article 12, thereby making it amenable to writ jurisdiction.

Background:

The petitioners entered into a franchise agreement with Nayara Energy for the sale of petroleum and diesel products at a retail outlet in Bulandshahr, Uttar Pradesh. On August 18, 2021, Nayara Energy conducted an inspection, revealing anomalies in product samples. Subsequently, a show-cause notice was issued on August 26, 2021, and despite the petitioners’ response, the franchise agreement was terminated on December 28, 2021, citing violations. Challenging this termination, the petitioners filed a writ petition, asserting that Nayara Energy functioned as an instrumentality of the state and thus fell under the definition of ‘State’ in Article 12.

Petitioners’ Arguments:

The petitioners contended that:

• Public Duty and State Control: Nayara Energy, authorized by the Union Ministry of Petroleum and Natural Gas to distribute petroleum products, performs a public duty. Given that petroleum is an essential commodity regulated by the government, Nayara Energy should be considered an ‘extended hand’ of the Union of India, thereby qualifying as ‘State’ under Article 12.
• Comparison with State-Run Enterprises: Nayara Energy’s operations are akin to those of government-owned companies like Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL), which are recognized as ‘State’ under Article 12. Therefore, Nayara Energy should be similarly classified.

Respondents’ Arguments:

Counsel for Nayara Energy countered that:

• Independent Operations: Despite operating in the same sector as IOCL, BPCL, and HPCL, Nayara Energy is a private entity with independent administrative and financial control. The government neither owns nor manages its operations, distinguishing it from state-run enterprises.
• Absence of Pervasive Government Control: Nayara Energy is neither created under a statute nor subject to deep and pervasive state control. Its compliance with regulations does not equate to being under government control.
• Nature of the Dispute: The dispute arises from a private contractual agreement between two private entities, lacking any public law element. Therefore, it is not subject to writ jurisdiction.

Court’s Analysis and Judgment:

The bench, comprising Justice Shekhar B. Saraf and Justice Vipin Chandra Dixit, deliberated on the applicability of Article 12 to Nayara Energy. Key observations included:

• Definition of ‘State’ under Article 12: The term ‘State’ encompasses the Government and Parliament of India, the Government and Legislature of each State, and all local or other authorities within Indian territory or under government control. Determining whether an entity falls under ‘other authorities’ requires examining factors like financial, functional, and administrative control by the government.
• Pervasive Government Control: The Court emphasized that mere compliance with regulations does not render a private entity as ‘State.’ The entity must be under deep and pervasive government control, which was not evident in Nayara Energy’s case.
• Comparison with Other Sectors: Accepting the petitioners’ logic would imply that all private banks and telecom companies, which comply with government regulations, would also be classified as ‘State.’ This is not the case, as compliance alone does not constitute government control.
• Nature of the Dispute: The dispute stemmed from a private contractual relationship without any public law element. Such matters are not amenable to writ jurisdiction.

Based on these considerations, the Court concluded that Nayara Energy does not qualify as ‘State’ under Article 12. Consequently, the writ petition challenging the termination of the franchise agreement was dismissed as not maintainable.

Conclusion:

This judgment underscores that mere compliance with governmental regulations does not transform a private entity into a ‘State’ under Article 12. The entity must be subject to deep and pervasive government control to be classified as such. Additionally, private contractual disputes lacking a public law element are not within the purview of writ jurisdiction.