Statutory Corporations

Statutory corporations are legal entities established by a special act of parliament or by a state or federal legislature. They may be formed by the Companies Act, 2013, or a Society registered under the Societies Registration Act, 1860, or any other comparable statute, but they would be included by Article 12 of the Indian Constitution’s definition and meaning of a state. The financials of the corporations are entirely paid for by the government. The legislative act determines its powers, objectives, and constraints, among other things. Air India, State Bank of India, and Life Insurance Corporation of India are just a few statutory corporation examples.

Characteristics of Statutory Corporations

The main features of a statutory corporation are:

• It is a legal entity.

It is a legal entity for which the government appoints a board of directors to oversee such corporations. The corporation has the authority to engage in contracts and do business in its name.

• The government owns it.

The state assists such corporations by totally or partially contributing to their capital. It is wholly owned by the government.

• Answerable to the Legislative Branch

A statutory corporation is accountable to the legislature or the state assembly that established it. Parliament has no authority to meddle with statutory corporations’ operations. It can only discuss policy issues and corporate performance as a whole.

• Own Staffing System

Even though the government owns and manages a firm, employees are not government servants. The government provides balanced or consistent pay and benefits to employees of diverse firms. They are hired, paid, and governed in accordance with the corporation’s policies.

• Financial Stability

A statutory corporation has financial independence or autonomy. It is exempt from budget, accounting, and audit restrictions. It can even borrow money both inside and outside the country with the consent of the government.

Merits of Statutory Corporations

The main benefits of the statutory corporation are:

1. Initiative and flexibility: A statutory corporation’s operations and administration are carried out autonomously, without the intervention of the government, and with its own initiative and flexibility.
2. Administrative autonomy: A public corporation has the freedom and flexibility to run its activities.
3. Quick judgments: Because there is less file work and formality to complete before making decisions, a public corporation is relatively free of red tape.
4. Service motive: The public corporation’s activities are debated in parliament. This ensures that the public interest is safeguarded.
5. Efficient employees: Public firms can set their own rules and regulations for remuneration and employee recruiting. It can provide better facilities and more appealing conditions of service to its employees in order to ensure that they work efficiently.

6. Professional management: The statutory corporation’s board of directors is made up of business experts and government-nominated members from various groups, such as labour and consumers.

7. Easy to raise capital: Because these firms are wholly controlled by the government, they may readily raise needed funds by issuing low-interest bonds. The public is also comfortable subscribing to these bonds because they are safe.

These merits of statutory corporations are extremely useful in management and funding processes.

Demerits of Statutory Corporations

1. Only on paper: The autonomy and flexibility of public corporations are merely symbolic. Ministers, government officials, and political parties frequently interfere with the smooth conduct of these processes.
2. Lack of initiative: Public enterprises are not subject to competition and are not motivated by profit. As a result, employees do not take initiative to improve profits and decrease losses. The government compensates the public corporation for its losses.
3. Rigid structure: The act defines the goals and powers of public corporations, and they can only be changed by modifying the statute or the act. Repealing the statute is a time-consuming and difficult process.

4. Conflict of interests: The board of directors is appointed by the government, and their job is to manage and operate enterprises. Because there are so many people, it’s probable that their interests will collide. The corporation’s smooth operation may be impeded as a result of this.

5. Unfair practices: A public corporation’s governing board may engage in unfair activities. To hide inefficiencies, it may demand an exorbitant price.

6. Suitability: The public company is appropriate for projects that require

   1. Monopolistic powers.

   2. Acts or statutes that grant exceptional authority.

   3. Allotment of government grants regularly.

   4. A good balance of public accountability and operational autonomy.

Conclusion

A statutory corporation is a non-constitutional entity established by the parliament. Statutory corporations have the power to enact legislation and make decisions on behalf of their respective states or countries. A statutory power authorises legislation or the process of enacting laws. A Cabinet decision should be passed to establish this body. E.g., NHRC, SHRC, FCI, RBI, etc.