I dont think that there is any written rule banning Government or Institutional team. They are getting Government sponsorship from Odisha govt. for Junior teams.
Probably they wanted Mumbai Delhi exclusive ISL territory and Institutional teams come from these two cities mostly.
Goa and Kolkata have shown that both I-league and ISL teams can co-exist in one place.
Institutional teams are not banned in IL per se. They would be allowed if these teams make their operations separate from the mother organisation administratively and financially. But most of them are run as CSR of the mother organisation, hence not possible (and not desirable also, from the mother org's POV) to segregate. Plus, being Govt undertakings, they are pathetic at self marketing, so cannot survive independently.
However, if I am not wrong, this 'rule' is for the top tier only; they are allowed in IL II in their current avatars.
Comments
Probably they wanted Mumbai Delhi exclusive ISL territory and Institutional teams come from these two cities mostly.
Goa and Kolkata have shown that both I-league and ISL teams can co-exist in one place.
However, if I am not wrong, this 'rule' is for the top tier only; they are allowed in IL II in their current avatars.
I have no issue if they keep it like Ozone Bengaluru City FC or something.