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Government cannot be made responsible for the liability of a PSU

In Hindustan Cables Vs. Tapan Kumar Sarkar, the Calcutta High Court held that a company may be under the control of the Central Government. However, in law, it is a separate legal entity. The age old principle of law laid down in Saloman v. Saloman, (1897) still holds fort. A limited company has an independent personality in the eye of law and has an identity separate from its shareholders or Board of Directors. Even a wholly held subsidiary of a company has an independent entity separate from that of the holding company. The Central Government may be the only or single largest shareholder of a limited company, but still the company has a distinct entity and its rights and liabilities cannot be attributed to the Central Government. Government companies do not become agents of the Government so as to bind the Government for their acts, liabilities and obligations as held by the Hon’ble Apex Court in the case of Steel Authority of India Ltd. v. National Union Water Front Workers, (supra). In M/s. Electronics Corporation of India Ltd. v. Secretary, Revenue Department, Govt. of A.P., (supra), the Apex Court emphasised the clear distinction between a company and its shareholder even though the shareholder may be only one i.e. the Central Government or the State Government. In the case of State of Assam v. Barak Upatyaka D. U. Karmachari Sanstha (supra), the Supreme Court observed that a trade union representing the employees of a cooperative society cannot, by filing a writ petition, require the Government to bear and pay the salaries of the employees of the cooperative society, however pervasive the control of the State Government over such society.

The position in law is thus settled. Even if the Government is the sole shareholder of a company, the liabilities of the company cannot be said to be the liability of the Government. No doubt, the principle of ‘lifting of corporate veil’ has made an inroad into the concept of distinct legal entity of a limited company or corporation.

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