SOVEREIGN FUNCTION

The Old and archaic concept of Sovereign immunity that King

can do no wrong still haunts us, where the state claims
immunity for its tortious acts and denies compensation to the
aggrieved party.

MEANING AND ORIGIN

Sovereign immunity is a justification for wrongs committed by
the State or its representatives, seemingly based on grounds of
public policy. Thus, even when all the elements of an actionable
claim are presented, liability can be avoided by this justification.

The doctrine of sovereign immunity is based on the Common
Law principle borrowed from the British Jurisprudence that the
King commits no wrong and that he cannot be guilty of
personal negligence or misconduct, and as such cannot be
responsible for the negligence or misconduct of his servants.
Another aspect of this doctrine was that it was an attribute of
sovereignty that a State cannot be sued in its own courts
without its consent.

This doctrine held sway in Indian courts since the mid
nineteenth century to till recently. When a genuine claim for
damages is brought in the courts, and it is refuted by an
ancient doctrine seemingly having no relevance, there is bound
to be resentment and demands for review. The Indian courts,
in order not let genuine claims be defeated, kept narrowing the
scope of sovereign functions, so that victims would receive
damages.

The Law Commission too in its very first report too
recommended the abolition of this outdated doctrine. But for
various reasons, the draft bill for the abolition of this doctrine
was never passed, and thus it was left to the courts to decide
on the compatibility of this doctrine in accordance with the
Constitution of India.

Before we proceed to discuss the extent of sovereign immunity
as it has been carved out over the years, it is necessary to take
a look at the Article 300 of the Constitution of India which
spells out the liability of the Union or State in act of the
Government.
ARTICLE 300

Initially in India, the distinction between sovereign and non-
sovereign functions was maintained in relation to principle
immunity of Government for the tortuous acts of its servants.
In India, there is no legislation, which governs the liability of
the State. It is article 300 of the Constitution of India, 1950,
which specifies the liability of the Union or State with respect to
an act of the Government.

The Article 300 of the Constitution originated from Section 176
of the Government of India Act, 1935. Under section 176 of the
Government of India Act, 1935, the liability was coextensive
with that of secretary of State for India under the Government
of India Act, 1915, which in term made it coextensive with that
of the East India Company prior to the Government of India
Act, 1858. Section 65 of the Government of India Act, 1858,
provided that all persons shall and may take such remedies and
proceedings against Secretary of State for India as they would
have taken against the East India Company.

It will thus be seen that by the chain of enactment beginning
with the Act of 1858, the Government of India and Government
of each State are in line of succession of the East India
Company. In other words, the liability of the Government is the
same as that of the East India Company before, 1858.

Article 300 reads as:


(1) The Government of India may sue or be sued by
the name of the Union of India and the Government of a
State may sue or be sued by the name of the State any
may, subject to any provision which may be made by Act
of Parliament or of the Legislature of such State enacted
by virtue of powers conferred by this Constitution, sue or
be sued in relation to their respective affairs in the like
cases as the Dominion of India and the corresponding
provinces or the corresponding Indian States might have
sued or been sued if this Constitution had not been
enacted.

(2) If at the commencement of this Constitution

(a) Any legal proceedings are pending to which the
Dominion of India is party, the Union of India shall be
deemed to be substituted for the Dominion in those
proceedings; and

(b) Any legal proceedings are pending to which a Province
or an Indian State is a party, the corresponding State
shall be deemed to be substituted for the province or
the Indian State in those proceedings.
An overview of Article 300 provides that first part of the Article
relates to the way in which suits and proceedings by or against
Government may be instituted. It enacts that a State may sue
and be sued by the name of the Union of India and a State may
sue and be sued by the name of the State.

The Second part provides, inter alia, that the Union of India or
a State may sue or be sued if relation to its affairs in cases on
the same line as that of Dominion of India or a corresponding
Indian State as the case may be, might have sued or been sued
of the Constitution had not been enacted.

The Third part provides that the Parliament or the legislatures
of State are competent to make appropriate provisions in
regard to the topic covered by Article 300(1).








JOURNEY OF THE DOCTRINE

PRE CONSTITUTIONAL ERA

In India the story of the birth of the doctrine of Sovereign
Immunity begins with the decision of Peacock C.J. in P. and O.
Navigation Company v. Secretary of State for India, in which
the terms "Sovereign" and "non sovereign" were used while
deciding the liability of the East India Company for the torts
committed by its servants. In this case the provision of the
Government of India Act, 1858 for the first time came before
the Calcutta Supreme Court for judicial interpretation and C.J.
Peacock determined the vicarious liability of the East India
Company by classifying its functions into "sovereign "and "non
sovereign".

Two divergent views were expressed by the courts after this
landmark decision in which the most important decision was
given by the Madras High Court in the case of Hari Bhan Ji v.
Secretary of State, where the Madras High Court held that the
immunity of the 'East India' company extended only to what
were called the 'acts of state', strictly so called and that the
distinction between sovereign and Non-sovereign functions was
not a well founded one.

The Calcutta High Court in one of its earlier cases of Nobin
Chunder Dey v. Secretary of State for India, had taken the view
that in respect of acts done in the exercise of sovereign
function by the East India company no suit could be
entertained against the company.
Again in case of Secretary of State v. Cockraft, the Courts
added a further test that if the State derived benefit from the
exercise of Sovereign powers, it would be liable. No attempt
however has been made in the cases to draw a clear and
coherent distinction between Sovereign and Non-Sovereign
functions at all.
POST INDEPENDENCE

After the commencement of the Constitution, perhaps the first
major case which came up before the Supreme Court for the
determination of liability of government for torts of its
employees was the case of State of Rajasthan v. Vidyawati. In
this case, court rejected the plea of immunity of the State and
held that the State was liable for the tortious act of the driver
like any other employer.

Later, in Kasturi Lal v. State of U.P. the Apex court took a
different view and the entire thing got confused once again. In
this case, the Supreme Court followed the rule laid down in
P.S.O. Steam Navigation case by distinguishing Sovereign and
non-Sovereign functions of the state and held that abuse of
police power is a Sovereign act, therefore State is not liable.
In practice the distinction between the acts done in the exercise
of sovereign functions and that done in non-Sovereign functions
would not be so easy or is liable to create considerable difficulty
for the courts. The court distinguished the decision in
Vidyawati's case as it involved an activity which cannot be said
to be referable to, or ultimately based on the delegation of
governmental powers of the State. On the other hand, the
power involved in Kasturilal's case to arrest, search and seize
are powers characterized as Sovereign powers. Finally the court
expressed that the law in this regard is unsatisfactory and the
remedy to cure the position lies in the hands of the legislature.

The Courts in later years, by liberal interpretation, limited the
immunity of State by holding more and more functions of the
State as non-Sovereign.

In the case of State of M.P. v. Rampratap, the state was made
liable for injury caused by a truck belonging to P.W.D. Similarly,
in Amulya Patnaik v. State of Orissa, the state was held liable
for the death of a person while traveling in a police van by rash
and negligent driving of its driver. In Shyam Sunder v. State of
Rajasthan, the court held the state liable for the tortious act of
a truck driver engaged in the State famine relief work.

To ensure the personal liberty of individuals from abuse of
public power, a new remedy was created by the Apex court to
grant damages through writ petitions under Article 32 and
Article 226 of the Constitution. In the case of Rudal Shah v.
State of Bihar, the Supreme Court for the first time awarded
damages in the writ petition itself. In Bhim Singh v. State of
Rajasthan, then principle laid down in Rudal Shah was further
extended to cover cases of unlawful detention. In a petition
under article 32, the Apex court awarded Rs. 50,000 by way of
compensation for wrongful arrest and detention.

SAHELI, a Women's Resource Centre v. Commissioner of Police,
Delhi, was another bold decision of the Apex court to give
direction to Delhi Administration to pay compensation in case of
death due to police atrocities. In Nilbati Behra v. State of
Orissa, the Apex court awarded the compensation to the
petitioner for the death of her son in police custody. The court
held that the principle of Sovereign immunity does not apply to
the public law remedies under Article 32 and Article 226 for the
enforcement of the fundamental rights.

In a landmark decision in the case of Registered Society v.
Union of India, the Supreme Court of India went a step further
and held that the court's power to grant damage cannot be
limited only when the fundamental right to life and personal
liberty under Article 21 is violated.

The latest case of State of A.P. v. Challa Ramakrishna Reddy on
the point clearly indicates that the distinction between
Sovereign and non-Sovereign powers have no relevance in the
present times. The Apex Court held that the doctrine of
Sovereign immunity is no longer valid.

RECENT DEVELOPMENTS

The courts in successive cases continued with the policy of
narrowing the scope of sovereign immunity, rather than
attempt an express overruling of Kasturilal. Though there were
murmurs of disapproval at the principle of Kasturilal in a
number of cases, the most explicit disapproval came in State of
Andhra Pradesh v. Challa Ramkrishna Reddy.


The petitioner and his father were lodged in a jail, wherein one
day bombs were hurled at them by their rivals, causing the
death of the father and injuries to the petitioner. The victims
were having previous knowledge of the impending attack,
which they conveyed to the authorities, but no additional
security was provided to them. On the contrary, there was
gross negligence since there was a great relaxation in the
number of police men who were to guard the jail on that fateful
day. Thus, on the grounds of negligence a suit was filed by the
petitioner against the Government.


While the case had been dismissed in trial court, the case was
allowed in the High Court, where the Court even while
accepting the principle of Kasturilal, took consideration of
Article 21 of the Constitution and came to the conclusion that
since the Right to Life was part of the Fundamental Rights of a
person, that person cannot be deprived of his life and liberty
except in accordance with the procedure established by law.
Further, by virtue of Maneka Gandhi v. Union of India, the
procedure too should have been fair and reasonable. Thus, the
High Court held that since the negligence which led to the
incident was both unlawful and opposed to Article 21, and that
since the statutory concept of sovereign immunity could not
override the constitutional provisions, the claim for violation of
fundamental rights could not be violated by statutory
immunities. On appeal by the State, the Supreme Court
dismissed the appeal and ruled: The Maxim that King can do
no wrong or that the Crown is not answerable in tort has no
place in Indian jurisprudence where the power vests, not in the
Crown, but in the people who elect their representatives to run
the Government, which has to act in accordance with the
provisions of the Constitution and would be answerable to the
people for any violation thereof. Thus, the ratio of this case
was that sovereign immunity, which is a statutory justification,
cannot be applied in case of violation of fundamental rights,
because statutory provisions cannot override constitutional
provisions. The procedural aspect of this was that aggrieved
persons can successfully file their petitions in trial courts for
tortious acts committed by State, and there is no need to
approach High Court or Supreme Court under Articles 226 or
32.

However, the court in this case even while holding that Kasturi
Lals case had paled into insignificance and was no longer of
binding value, did not consider the cases where no fundamental
rights but other legal rights might be violated. The question
that arises is whether in violation of such statutory rights, the
sovereign immunity can be effectively claimed. This issue can
be decided only by a Constitutional bench of seven or more
judges, if the need arises to overrule the Kasturi Lal case.


The aforesaid judicial pronouncements clearly laid down the
earlier approach of judiciary as revealed from various judicial
pronouncements was to make distinction between sovereign
and non-sovereign functions and exempting the government
from tortuous liability in case the activity involved was a
sovereign activity. Later on, there has been significant change
in the judicial attitude with respect to Sovereign and Non-
Sovereign dichotomy as revealed from various judicial
pronouncements where the courts, although have maintained
the distinction between sovereign and non-sovereign functions
yet in practice have transformed their attitude holding most of
the functions of the government as non-sovereign.
Consequently, there has been an expansion in the area of
governmental liability in torts.




SOVEREIGN IMMUNITY UNDER THE MRTP ACT

Section 3 was a saving provision which specified the
undertakings to which the MRTP Act did not apply. By virtue of
the provisions of the section, as originally enacted, public sector
undertakings whose management has been taken over by the
government had been kept outside the purview of the Act.

The section sought to include from the purview of the Act all
undertakings owned, controlled or managed by the Central
and/or the State Government, trade unions or other
associations of workmen, undertakings owned by co-operative
societies and the financial institutions as defined in clause (da)
of section 2 of the Act. The trade practices pursued by these
undertakings were also not subjected to the regulatory
provisions of the Act, even though they may be in the nature of
monopolistic, restrictive, or unfair trade practices. It appeared
that the Act had not been made applicable to public sector
undertakings on the reasoning that such undertakings are
established in furtherance of State Policies to sub-serve public
good and very often they were meant to be a countervailing
measure to combat the concentration of economic power in
private hands. Clauses (a) & (c) of Section 3 referred to
undertakings owned or controlled by a government company
and by a statutory corporation, respectively.

It may be noted that while an undertaking which is merely
controlled, but not owned by a government company or a
corporation would be outside the purview of the MRTP Act, it
is not so in the case of a co-operative society.

The MRTP Act, 1969 is not applicable in the following
situations:-
(a) The undertaking owned or controlled by the Government
or Government companies, as the case may be and which
are engaged in the production of arms and ammunition and
allied items of defence equipment, defence aircraft and
warships, atomic energy, minerals specified in the Schedule
to the Atomic Energy (Control of Production and Use) Order,
1953 and industrial units under the Currency and Coinage
Division, Ministry of Finance, Government of India.
(b) Any restrictive or unfair trade practice expressly
authorised by any law for the time being in force.
(c) A restrictive trade practice flowing from an agreement which
has the approval of the central government or if central is a
party to such agreement.

In addition to the above, any monopolistic trade practice
which was expressly authorised by any enactment for the
time being in force or when it is necessary to
1. meet the defence requirements of the country,
2. ensure maintenance of supply of essential goods and
services, or
3. Give effect to any agreement to which Central
Government is a party.

SOVEREIGN IMMUNITY UNDER THE COMPETITION
ACT

The coverage of the Act is quite wide and based on the activity
performed by the entity, irrespective of its ownership or
organizational form or structure. However, there are exceptions
to this neutrality. Section 2(h) provides an exemption for
activities of the government relatable to sovereign functions of
the government. Section 54 of the Act empowers the Central
Government to exempt the application of any provision of the
Act to an enterprise performing a sovereign function on behalf
of the Central or State Government, through a notification.
Thus, one problem with the wordings of these two sections
taken together is the confusion as to whether an enterprise
carrying out an activity relatable to sovereign functions requires
an express notification by the Central Government by virtue of
Section 54 for exemption; or would anyway be excluded from
the scope of an enterprise under Section 2(h).

Although what a sovereign function is has never been
elucidated by the Commission or Courts in the context of
competition law, interpretation of the term has been carried out
for other legislations. It has been extensively discussed in the
context of understanding the scope of the term other
authorities under the definition of State under Article 12 of the
Constitution, which include bodies that are agencies and
instrumentalities of the State.








SOVEREIGN FUNCTIONS AND NON SOVEREIGN
FUNCTIONS
NEED FOR DISTINCTION

The Supreme Court has emphasized upon the significance of
making such a distinction as in the present time when, in the
pursuit of their welfare ideal, the various governments

naturally and legitimately enter into many commercial and
other undertakings and activities which have no relation with
the traditional concept of governmental activities in which the
exercise of sovereign power is involved. Therefore, it is
necessary to limit the area of sovereign powers, so that acts
committed in relation to nongovernmental and nonsovereign
activities did not go uncompensated.
INTERPRETATION

The immunity of the crown in the United Kingdom was based
on the feudalistic notions of justice, namely, that the King was
incapable of doing wrong, and, therefore, of authorizing or
instigating one, and that he could not be sued in his own courts
Now that we have, by our constitution, established a
Republican form of Government, and one of its objectives is to
establish a socialistic State with its varied industrial and other
activities, employing a large army of servants, there is no
justification, in principle, or in public interest, that the State
should not be held liable for its acts.

However, as the Competition Act, 2002, specifies that any
activity of the Government relatable to the sovereign functions
of the Government including all departments of Central
Government dealing with atomic energy, space, defence and
currency are excluded from the Acts purview, establishing a
distinction between the sovereign and non-sovereign functions
becomes inevitable.
Thus, an attempt has been made to distinguish the sovereign
and non-sovereign functions with the help of principles laid
down in the various judgments rendered by the Apex Court.

However, as no interpretation of the term sovereign functions
in context of Section 2(h) of the Comeptition Act, 2002 exists,
the differentiation has to be made with the help of
interpretation of the term as has been carried out for other
legislations.


On the question of 'what is sovereign function', different
opinions have been given time and again and attempts have
been made to explain in different ways:

1. Primary and Inalienable Functions:

Krishna Iyer J. in Bangalore Water Supply case said that
the definition of 'industry' although of wide amplitude can
be restricted to take out of its purview certain sovereign
functions of the State limited to its 'inalienable functions'.

As to what are inalienable functions, Lord Watson, in
Coomber v. Justices of Berks, describes the functions
such as administration of justice, maintenance of order
and repression of crime, as among the primary and
inalienable functions of a constitutional Government.


However, the Supreme Court has also held that the definition
can include the regal primary and inalienable functions of the
State, though statutory delegated functions to a Corporation
and the ambit of such functions cannot be extended so as to
include the activities of a modern State and must be confined to
legislative power, administration of law and judicial power

2. Regal & Non-Regal:

Isaacs, J. in his dissenting judgment in The Federated
Sate School Teachers' Association of Australia v. The
State of Victoria, concisely states thus at p. 585: "Regal
functions are inescapable and inalienable. Such are the
legislative power, the administration of laws, the exercise
of the judicial power. Non-regal functions may be
assumed by means of the legislative power. But when
they are assumed the State acts simply as a huge
corporation, with its legislation as the charter. Its action
under the legislation, so far as it is not regal execution of
the law is merely analogous to what of a private company
similarly authorised.

These words clearly mark out the ambit of the regal functions
as distinguished from the other powers of a State.
3. Governmental Functions:

What is meant by the use of the term "sovereign", in
relation to the activities of the State, is more accurately
brought out by using the term "governmental" functions
although there are difficulties here also inasmuch as the
Government has entered largely new fields of industry.
Therefore, only those services which are governed by
separate rules and constitutional provisions, such as
Articles 310 and 311 should, strictly speaking, be
excluded from the sphere of industry by necessary
implication.


4. Constitutional Functions:

The learned judges in the Bangalore Water Supply &
Severage Board v. A. Rajappa a Sewerage Board case
seem to have confined only such sovereign functions
outside the purview of 'industry' which can be termed
strictly as constitutional functions of the three wings of
the State i.e. executive, legislature and judiciary.

However, the concept is still the same with insubstantial
differences between the terms. This can be noticed by the
following observation by the Court in Nagendera Rao and Co. v.
The State of Andhra Pradesh, as to which function could be,
and should be, taken as regal or sovereign function has been
recently examined by a Bench of the Court, where in the words
of Hansaria J, the old and archaic concept of a sovereignty does
not survive as sovereignty now vests in the people. It is
because of this that in an Australian case the distinction
between sovereign and non-sovereign functions was
categorised as regal and non-regal. In some cases the
expression used is State function, whereas in some
Governmental function.
TESTS

1. Nature and form of activity:

"It is now increasingly necessary to abandon the lingering
fiction of a legally indivisible State, and of a feudal conception
of the Crown, and to substitute for it the principle of legal
liability where the State, either directly or through incorporated
public authorities, engages in activities of a commercial,
industrial or managerial character. The proper test is not an
impracticable distinction between governmental and non-
governmental function, but the nature and form of the activity
in question."


2. The Dominant nature test

(a) Where a complex of activities, some of which
qualify for exemption, others not, involves employees on
the total undertaking, or some departments are not
productive of goods and services if isolated, even then,
the predominant nature of the services and the integrated
nature of the departments as explained in the

Corporation of Nagpur, will be the true test. The whole
undertaking will be 'industry' although those who are not
'workmen' by definition may not benefit by the status.

(b) Sovereign functions, strictly understood, (alone)
qualify for exemption, not the welfare activities or
economic adventures undertaken by government or
Statutory bodies.

(c) Even in departments discharging sovereign functions,
if their core units which are industries and they are
substantially severable, then they can be considered to
come within Section 2(j), the definition of industry.

(d) Constitutional and competently enacted legislative
provisions may well remove from the scope of the Act
categories which otherwise may be covered thereby.

As per the Bangalore Water-Supply case sovereign
functions "strictly understood" alone qualify for
exemption; and not the welfare activities or economic
adventures undertaken by the Government. This is not all.
A rider has been added that even in the departments
discharging sovereign functions, if there are units which
are industries and they are substantially severable, then
they can be considered to be an industry. As to which
activities of the Government could be called sovereign
functions strictly understood, has not been spelt out in
the aforesaid case.

3. In relation to what are "sovereign" and what are "non-
sovereign" functions, this Court in Chief Conservator of
Forests and Anr. v. Jagannath Maruti Kondhare and Ors.,
holds;

We may not go by the labels. Let us reach the hub. And
the same is that the dichotomy of sovereign and non-
sovereign functions does not really exist - it would all
depend on the nature of the power and manner of its
exercise, as observed in of Nagendra Rao case.

As per the decision in this case, one of the tests to
determine whether the executive function is sovereign in
nature is to find out whether the State is answerable for
such action in courts of law. It was stated by Sahai, J.
that acts like defence of the country, raising armed forces
and maintaining it, making peace or war, foreign affairs,
power to acquire and retain territory, are functions which
are indicative of external sovereignty and are political in
nature. They are, therefore, not amenable to the
jurisdiction of ordinary civil court inasmuch as the State is
immune from being sued in such matters. But then,
according to this decision the immunity ends there.

It was then observed that in a welfare State, functions of
the State are not only the defence of the country or
administration of justice or maintaining law and order but
extends to regulating and controlling the activities of
people in almost every sphere, educational, commercial,
social, economic, political and even martial. Because of
this the demarcating line between sovereign and non-
sovereign powers has largely disappeared. The aforesaid
shows that if we were to extend the concept of sovereign
function to include all welfare activities the ratio in
Bangalore Water Supply case would get eroded, and
substantially. We would demur to do so on the face of
what was stated in the aforesaid case according to which
except the strictly understood sovereign function, welfare
activities of the State would come within the purview of
the definition of industry; and not only this, even within
the wider circle of sovereign function, there may be an
inner circle encompassing some units which could be
considered as industry if substantially severable.

4. Predominant Nature of the Activity:
As referred in part (a) of the Dominant Nature Test, the
Court in the Corporation of
Nagpur case evolved another test when there may be
cases where the said two departments may not be in
charge of a particular activity or service covered by the

definition of sovereign function but also in charge of other
activity or activities falling outside the definition. In such
cases a working rule may be evolved to advance social
justice consistent with the principles of equity. In such
cases the solution to the problem depends upon the
answer to the question whether such a department is
primarily and predominantly concerned with activity
relatable to the sovereign function or incidentally
connected therewith.

It was also held in the same case that that in a modern
State the sovereign power extents to all the statutory
functions of the State except to the business of trading
and industrial transactions undertaken by in its quasi-
private personality. Also, the regal functions described as
primary and inalienable functions of State though
statutorily delegated to a corporation are necessarily
excluded from the purview of the definition. Such regal
functions shall be confined to legislative power,
administration of law and judicial power.

In N. Nagendra Rao & Co. v. State of A.P, defines
nonsovereign functions as discharge of public duties under a
statute, which are incidental or ancillary and not primary or
inalienable function of the State. This decision holds that the
State is immune only in cases where its officers perform
primary or inalienable functions such as defence of the country
administration of justice, maintenance of law and order.

The court gave an example where a search or seizure affected
under such law could be taken to be an exercise of power
which may be in domain of inalienable function. Whether the
authority to whom this power is delegated is liable for
negligence in discharge of duties while performing such
functions is a different matter. But when similar powers are
conferred under other statute as incidental or ancillary power to
carry out the purpose and objective of the Act, then it being an
exercise of such State function which is not primary or
inalienable, an officer acting negligently is liable personally and
the State vicariously.

In fact, all governmental functions cannot be construed either
primary or inalienable sovereign function. Hence even if some
of the functionaries under the and Act could be said to be
performing sovereign functions of the Government that by itself
would not make the dominant object of the Act to be sovereign
in nature.

Various decisions rendered by the Supreme Court prior to and
after the decision in Bangalore Water Supply v. A. Rajappa had
been discussed by the Supreme Court in the case of State of UP
v. Jai Bir Singh where the court inter alia wished to enter a
caveat on confining sovereign functions to the traditional so
described as 'inalienable functions' comparable to those
performed by a monarch, a ruler or a non-democratic
government. The concept of sovereignty in a constitutional
democracy is different from the traditional concept of
sovereignty which is confined to 'law and order', 'defence', 'law
making' and 'justice dispensation'. In a democracy governed by
the Constitution the sovereignty vests in the people and the
State is obliged to discharge its constitutional obligations
contained in the Directive Principles of the State Policy in Part -
IV of the Constitution of India. From that point of view,
wherever the government undertakes public welfare activities in
discharge of its constitutional obligations, as provided in part-IV
of the Constitution, such activities should be treated as
activities in discharge of sovereign functions. Therefore, such
welfare governmental activities cannot be brought within the
fold of industrial law by giving an undue expansive and wide
meaning to the words used in the definition of industry
regarding immunity to sovereign powers.
POSITION IN THE UK
CROWN IMMUNITY
THE PRINCIPLE

The legal doctrine of Crown immunity as it is applied in
England and Wales holds that unless Parliament intends
otherwise, onerous legislation does not apply to the Crown.
Consequently, the Crown is not bound by statute unless the
contrary is expressly stated, or unless there is a necessary
implication to be drawn from the provisions of the Act that the
Crown was intended to be bound, or there can somehow be
gathered from the terms of the relevant Act an intention to
that effect.

CROWN IMMUNITY UNDER UK COMPETITION LEGISLATION

Section 73 of the Competition Act (CA) 1998 expressly
provides that the Crown is bound by the CA, but that the
Crown cannot be criminally liable, nor can it be liable for any
penalty, as a result. The provision was applied in the
Independent Schools price fixing case, in which one school,
the Royal Hospital School, was part of the Greenwich Hospital
trust and had the Secretary of State of Defence as its sole
trustee. As a result, it was legally protected by Crown
immunity from the payment of penalties under the
Competition Act and so was not fined.

In addition, powers to enter premises and to seek warrants to
do so are curtailed, in particular where those premises are
occupied by a government department, or otherwise for
purposes of the Crown, and the Crown is not a party to the
agreement or conduct under investigation.

Part 3 of the Enterprise Act (EA) 2002 relating to merger
control does not expressly state that the Crown is bound.
Section 236 states that the Crown is bound by Part 8 relating
to the enforcement of certain consumer legislation, which
indicates that the omission in respect of mergers was
intentional. Consequently, mergers between Crown bodies
(such as, for example, NHS Foundation Trusts) would appear
to fall outside the jurisdiction of the EA, although a sale of an
enterprise by a Crown body to a non-Crown enterprise would
not.
BODIES THAT FORM PART OF THE CROWN

The Crown extends to all bodies and persons acting as
servants or agents of the Crown, whether in its private or
public capacity, including all elements of central government,
from Ministers of the Crown downwards. Government
departments, civil servants, members of the armed forces and
other public bodies or persons are, therefore, included within
the scope of the immunity.

Many non-ministerial public bodies (sometimes referred to as
"corporations aggregate" created by Act of Parliament) are
Crown bodies, headed by a statutory office-holder or board
and staffed by civil servants, and which have their own
statutory powers and enjoy varying degrees of independence
from the minister who is responsible for them to Parliament.
However, their status varies, and is usually set out in the
legislation establishing them; for example, the OFT carries out
its functions on behalf of the Crown.
However, the CA 1998 expressly excludes the Competition
Commission from Crown status, so it enjoys no privilege,
status or immunity of the Crown.

Where the status of a public corporation is not set out by
statute, the proper inference, at least for commercial
corporations, is that it acts on its own behalf, even though it is
controlled to some extent by a government department. The
fact that a Minister of the Crown appoints the members of
such a corporation, is entitled to require them to give him
information and is entitled to give them directions of a general
nature does not make the corporation his agent. The
inference that a corporation acts on behalf of the Crown is
more readily drawn where its functions are not commercial
but are connected with matters such as the defence of the
realm, which are essentially the province of government.

Case law on this point includes Tamlin v Hannaford in which
the British Transport Commission, set up by the Transport Act
1947 (now repealed) to run the nationalised railways was held
not to be within the doctrine of Crown immunity. Under the
Act, the Minister of Transport could appoint the members of
the Commission and given them directions. It was however
held that: "These are great powers but still we cannot regard
the corporation as being [the Minister's] agent, any more than
a company is the agent of the shareholders, or even a sole
shareholder.

In the eye of the law, the corporation is its own master and is
answerable as fully as any other person or corporation. It is
not the Crown and has none of the immunities or privileges of
the Crown. Its servants are not civil servants, and its property
is not Crown property...It is of course a public authoritybut it
is not a government department nor does its powers fall
within the province of Government".

In BBC v Johns (Inspector of Taxes), the BBC claimed to be
exempt from income tax. It claimed crown immunity as an
emanation of the crown and the court had to decide whether
the BBC was subject to judicial review. The court held that the
BBC was not a statutory creature; it did not exercise statutory
functions; and it was not in any general way subject to
statutory guidance. The traditional view of the BBC is that it
does not exercise a governmental function, and is therefore
not subject to judicial review.

BIRDS EYE VIEW

The high degree of deregulation and liberalisation that
currently characterises the UK economy necessarily means
that state intervention in the UK is likely to be less frequent,
and therefore poses fewer competition law issues, than in
those EU member states where the state still plays a more
predominant role in providing commercial services.

However, the extent of privatisation in the UK and the
increasing use of public/private partnerships and sub-
contracting arrangements will continue to raise issues relating
to the role of the state in providing commercial services in the
UK.

The Competition Act does contain an exclusion from these
prohibitions for "services of general economic interest" and
"revenue-producing monopolies" (paragraph 4, Schedule 3).
The exclusion aims to ensure that the Chapter I and Chapter
II prohibitions are not applied in such a way as to compromise
the provision of certain public services by undertakings
engaged in services of general economic interest and
revenue-producing monopolies. The exclusion also ensures
that such undertakings receive the same treatment under the
Competition Act as under Article 86(2) of the EC Treaty.
Although the extent of liberalisation of the UK economy means
that the exclusion will apply in a small number of cases, it is
likely to be of most relevance to industries which are the
subject of universal service obligations or some other public
interest objective, such as the postal and broadcasting sectors.

POSITION IN UNITED STATES OF AMERICA
THE STATE ACTION EXEMPTION
IN GENERAL

In American Constitutional law, a doctrine known as sovereign
immunity bars suits against the federal and state governments
in most circumstances. The Supreme Court has had many
opportunities to explore the scope of the immunity enjoyed by
the States. However,

Congress has waived the federal governments immunity across
a broad range of substantive law, and the Court, therefore, has
had little opportunity to decide when claimants are entitled to
recover for deprivations despite the lack of Congressional
consent.


The Constitution nowhere refers to sovereign immunity. Rather,
it is a doctrine from English law that the Court has assumed
was silently imported into American law.

The doctrine is derived from the laws and practices of our
English ancestors; and is beyond question that from the time
of Edward the First until now the King of England was not
suable in the courts of that country. And while the
exemption of the United States and of the several States
from being subjected as defendants to ordinary actions in
the courts has since that time been repeatedly asserted
here, the principle has never been discussed or the reasons
for it given, but it has always been treated as an established
doctrine.
The federal government may not be sued unless it waives its
sovereign immunity. This was codified in the US by the
enactment of the Foreign Sovereign Immunities Act of 1976
(the Act). Section 1605 (a) of the Act incorporates commercial
activity as an exception. The rationale for adopting such an
approach was expressed by Lord Denning as a foreign
government which enters into an ordinary commercial
transaction with a trader.must honour his obligations like other
traders: and if it fails to do so it be subject to the same laws
and amenable to the same tribunals as they are. The Act
mandates that whether government conduct is commercial is to
be determined by the course of conduct or particular
transaction or act, rather than by reference to its purpose
(Section 1603 (d) of the Act).


The principal test was developed both by the statute and the
courts to determine whether sovereign activity is commercial or
not. It looks at the outward form of the conduct that the
foreign state performs or agrees to perform such as whether it
was a market transaction which could be conducted by a
private party.



CONTRACTING OUT AND THE CIRCULAR A-76


Contracting out--outsourcing--the provision of services by the
government has a long history. Most of this activity takes
place between agency contracting officers and selected
private vendors of services. This is especially true in
connection with Department of Defense contracts for private
military services in Iraq and with Federal Emergency
Management Agency ("FEMA") contracts after Hurricane
Katrina
Sometimes outsourcing is conducted under OMB's Circular A-76
process, which requires that competitive sourcing involve
private vendors. This process permits government services to
be outsourced only after a review process and makes "inherent"
government functions ineligible to be outsourced at all.


This Circular A-76 describes certain nondelegable functions as
"inherently governmental" activities. These activities involve:

(1) Binding the United States to take or not to take some
action by contract, policy, regulation, authorization, order,
or otherwise;

(2) Determining, protecting, and advancing economic,
political, territorial, property, or other interests by military
or diplomatic action, civil or criminal judicial proceedings,
contract management, or otherwise;

(3) Significantly affecting the life, liberty, or property of
private persons; or

(4) Exerting ultimate control over the acquisition, use, or
disposition of United States property (real or personal,
intangible), including establishing policies or procedures
for the collection, control, or disbursement of
appropriated and other federal funds.


UNDER COMPETITION LAW

The judiciary may create public restraints and immunize
anticompetitive behavior through case law. A brief review of the
U.S. experience illustrates how judicially-created immunities can
be created and expanded in scope over time. For example, the
state action exemption is a judicially-created exemption to
antitrust scrutiny, arising from the 1943 case of Parker v.
Brown. In Parker, a raisin producer attempted to enjoin
enforcement of a mandatory California program that controlled
the marketing and sale of agricultural products. The effect of
Parker was to shield anticompetitive state laws and their private
party beneficiaries that fall within the state action exemption. In
California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc.,
the Supreme Court created a two-pronged test for a private
party to determine what accounts for permissible state
supervision and exemption from antitrust scrutiny. Under this
two-pronged test, a party must show that its conduct in
question is: (1) "clearly articulated and affirmatively expressed
as state policy;" and (2) "actively supervised by the state itself."
In the twenty-five years since Midcal, the scope of the state
action exemption has grown.


As part of a more general push to combat public restraints, the
FTC recently undertook a comprehensive study of the state
action exemption through a State Action Task Force.
The State Action Task Force Report concluded that over time
courts have weakened limitations on the doctrine. Both the
"clear articulation" and "active supervision" requirements have
been the subject of varied and controversial interpretation,
sometimes resulting in unwarranted expansions of the
exemption. The criteria for "active supervision" remain unclear.
Because of its opaqueness, the active supervision requirement
has not adequately limited exemptions under the state action
doctrine. There is also some lack of clarity as to the "clear
articulation" prong. One set of cases, particularly those that
have reached the Supreme Court, has interpreted the "clear
articulation" prong to allow states broadly to displace
competition as a result of a legislative grant of general
corporate powers. The Supreme Court expanded what
constitutes clear articulation. In Town of Hallie v. City of Eau
Claire, the Supreme Court held that the "clear articulation" test
was satisfied when the anticompetitive conduct was the
"foreseeable result" of a state statute. This foreseeable result
standard has led courts to allow significant anticompetitive
behavior to be shielded through "clear articulation" by either a
general state authority or through a broad regulatory regime.












CONCLUSION

1. Words and Phrases, Permanent Edition, Volume 39A with
reference to "sovereign

power" records:

The "sovereign powers" of a government include all the
powers necessary to accomplish its legitimate ends and
purposes. Such powers must exist in all practical
governments. They are the incidents of sovereignty, of
which a state cannot devest itself. .... In all
governments of constitutional limitations "sovereign
power" manifests itself in but three ways. By exercising
the right of taxation; by the right of eminent domain;
and through its police power.

So, sovereign function in the new sense may have very wide
ramification but essentially sovereign functions are primary
inalienable functions which only State could exercise. Thus,
various functions of the State, may be ramifications of
'sovereignty' but they all cannot be construed as primary
inalienable functions. Broadly it is taxation, eminent domain and
police power which covers its field. It may cover its legislative
functions, administration of law, eminent domain, maintenance
of law and order, internal and external security, grant of
pardon. So, the dichotomy between sovereign and non-
sovereign function could be found by finding which of the
functions of the State could be undertaken by any private
person or body. The one which could be undertaken cannot be
sovereign function. In a given case even in subject on which
the State has the monopoly may also be non-sovereign in
nature. Mere dealing in subject of monopoly of the State would
not make any such enterprise sovereign in nature. Absence of
profit making or mere quid pro would also not make such
enterprise to be inside the ambit of sovereign functions

2. Regal functions are inescapable and inalienable. Such are
the legislative power, the administration of laws, the exercise
of the judicial power, Non-regal functions may be assumed
by means of the legislative power. But when they are
assumed the State acts simply as a huge corporation, with
its legislation, the charter. Its action under the legislation, so
far as it is not regal execution of the law is merely analogous
to that of a private company similarly authorised. This clearly
mark out the ambit of the regal functions as distinguished
from the other powers of a State. This shows that as per the
Corporation of Nagpur case those functions alone which are
inalienable can be called sovereign.

3. In welfare State, functions of the State are not only defence
of the country or administration of justice or maintaining law
and order but it extends to regulating and controlling the
activities of people in almost every sphere, educational,
commercial, social, economic, political and even marital. The
demarcating line between sovereign and non-sovereign
powers for which no rational basis survives has largely
disappeared. Therefore, barring functions such as
administration of justice, maintenance of law and order and
repression of crime etc. which are among the primary and
inalienable functions of a constitutional Government, the
State cannot claim any immunity.

4. At present, one of the major debates is privatization. A test
suggested by the Courts in India is to work out if the
function of the sovereign could have been delegated to a
private party. For anyone who has studied the administrative
state here and abroad, the most complicated question is to
understand where the line between public and private is
drawn. Often the effort is abandoned as unproductive. Yet
when confronted with the phenomenon of "privatization,"
the question becomes irresistible; one is compelled to
discover whether a line (or some approximation of it) can be
drawn. Identifying the continuing role for the state in the
context of privatization implicates the public-private
distinction and its connection to democratic political theory.

To decide if privatization has reached its limits, we must
know whether inherent sovereign functions of government
are being delegated. Certain exercises of public authority in
the liberal state still must be performed by government.
These duties are nondelegable, or at least not delegable
without continuing governmental oversight. But certain
government functions may be so fundamental as not to be
transferable to private hands under any circumstances.

6. Expressions of the "public interest" are often used to justify
the role of government in our liberal democratic state.
Governmental agencies have been empowered to protect the
"public interest, convenience, and necessity." But that
phrase may be used offensively to curb genuine competition
which at times may go against the very purpose of the
phrase. The privatization movement also challenges
expansive notions of the public interest. But this debate is
hard to conclude.

7. As history demonstrates, the line between public and private
regularly shifts over time. Private law traditionally
encompassed the common law of contract, torts, and
property that regulate relations among individuals. These
relations are often umpired and regulated by government.
Additionally, the Constitution and courts continuously expand
or contract the private category through definitions of
industry, property or privacy. Each time it does, the role of
government is expanded or inhibited accordingly.

8. The need of the State to have extraordinary powers cannot
be doubted. But with the conceptual change of statutory
power being statutory duty for sake of society and the
people the claim of a common man or ordinary citizen
cannot be thrown out merely because it was done in
exercise of its sovereign functions. Needs of the State, duty
of its officials and right of the citizens are required to be
reconciled so that the rule of law in a welfare State is not
shaken.