Court case(1975) 1 SCC 421

Employees of the Oil and Natural Gas Commission, the Life Insurance Corporation and the Industrial Finance Corporation were dismissed in breach of the service regulations which those corporations had framed under their parent statutes. They sought a declaration that the dismissals were void and that they continued in service. The corporations contended that they were not 'State', that the regulations were mere contractual terms, and that the only remedy was damages for wrongful dismissal.

By majority the Court held that the three corporations are 'State'. Ray CJ reasoned that they are created by statute, perform public functions, enjoy State financial backing and monopoly or near-monopoly status; their regulations, made under statutory power, have the force of law and bind the corporation. Mathew J's concurring opinion introduced the 'instrumentality or agency' test: where a corporation is an agency of government, judged by State financial support, control, monopoly status and public importance of its functions, it is 'State'. Alagiriswami J dissented, treating the relationship as master and servant. The employees were entitled to a declaration that they remained in service.