Private Finance Company Is Not a "State" for Article 12; Writs Not Maintainable Unless Public Function Is Shown

A Bench of Justices J.B. Pardiwala and R. Mahadevan heard Special Leave Petitions challenging a Division Bench order which held that Muthoot Finance Ltd., a non-banking finance company, did not qualify as a "State" under Article 12 of the Constitution and that writ petitions under Article 226 were not maintainable against it.

The Court dismissed the petitions and affirmed the High Court's view that a private finance company was not amenable to writ jurisdiction merely by being regulated by the Reserve Bank of India or by virtue of carrying on finance business. The Bench reiterated that the question turned on the "function" test and whether a body discharged a public duty or governmental function. The Court, in its reasoning, observed: "We may sum up thus: (1) For issuing writ against a legal entity, it would have to be an instrumentality or agency of a State or should have been entrusted with such functions as are Governmental or closely associated therewith by being of public importance or being fundamental to the life of the people and hence Governmental. (2) A writ petition under Article 226 of the Constitution of India may be maintainable against (i) the State Government; (ii) Authority; (iii) a statutory body; (iv) an instrumentality or agency of the State; (v) a company which is financed and owned by the State; (vi) a private body run substantially on State funding; (vii) a private body discharging public duty or positive obligation of public nature; and (viii) a person or a body under liability to discharge any function under any Statute, to compel it to perform such a statutory function. (3) Although a non-banking finance company like the Muthoot Finance Ltd. with which we are concerned is duty bound to follow and abide by the guidelines provided by the Reserve Bank of India for smooth conduct of its affairs in carrying on its business, yet those are of regulatory measures to keep a check and provide guideline and not a participatory dominance or control over the affairs of the company. (4) A private company carrying on banking business as a Scheduled bank cannot be termed as a company carrying on any public function or public duty. (5) Normally, mandamus is issued to a public body or authority to compel it to perform some public duty cast upon it by some statute or statutory rule. In exceptional cases a writ of mandamus or a writ in the nature of mandamus may issue to a private body, but only where a public duty is cast upon such private body by a statute or statutory rule and only to compel such body to perform its public duty. (6) Merely because a statue or a rule having the force of a statute requires a company or some other body to do a particular thing, it does not possess the attribute of a statutory body. (7) If a private body is discharging a public function and the denial of any rights is in connection with the public duty imposed on such body, the public law remedy can be enforced. The duty cast on the public body may be either statutory or otherwise and the source of such power is immaterial but, nevertheless, there must be the public law element in such action. (8) According to Halsbury's Laws of England ... there cannot be any general definition of public authority or public action. The facts of each case decide the point."

Background The dispute arose after the petitioner, S. Shobha, obtained a loan on pledge of gold from Muthoot Finance Ltd. and challenged the company's actions — including sale proceeds realised after auction — before the High Court by way of writ petitions. The Single Judge had entertained the petitions and recorded that the financier had acted contrary to an interim order; the Division Bench, however, observed that the Company was "a private Company registered under the law. It is not a 'State'" and that "the writ petitions would not lie against the respondent – Company." The petitioner appeared as a party-in-person before the High Court and argued COVID-19 circumstances warranted entertainment of the petitions.

The Supreme Court examined precedent including LIC of India v. Escorts Ltd., R. v. Criminal Injuries Compensation Board and Datafin to apply the public-function or public-duty test. The Bench held that regulatory oversight by the RBI did not convert a private non-banking finance company into a State instrumentality or confer writ-amenability absent a statutory public duty. The Court noted that the remedies available to the petitioner included civil proceedings, arbitration (the loan agreement contained an arbitration clause), and approach to the RBI Ombudsman.

The High Court had, while finding the petitions not maintainable, ordered protection of parties' interests by keeping Rs.24,39,085 deposited in the Court Registry, directing investment as a Fixed Deposit in a nationalized bank for up to three years, permitting the petitioner to receive interest (but not to raise a loan on the FD), and allowing either party to pursue civil or arbitration remedies within three months. The Supreme Court dismissed the petitions but observed that the petitioner could seek appropriate legal remedies, including before the RBI Ombudsman; pending applications stood disposed of.

Case No.: SPECIAL LEAVE PETITION(C) NOS.2625-2627 OF 2025 (Arising out of Diary No(s). 1061/2025) Case Title: S SHOBHA v. MUTHOOT FINANCE LTD. Appearances: (List advocates if available, for both sides using the format) For the Petitioner(s): S. Shobha (party-in-person) For the Respondent(s): Muthoot Finance Ltd. (represented by counsel; names not indicated in the order)