1. This appeal is directed against the judgment and order of Lentin J. dated 22nd July, 1981 dismissing the appellants' writ petition with no order as to costs. The learned Judge held that Mazgaon Docks Ltd., 1st respondent, was not 'the State' within the meaning of Article 12 of the Constitution of India. He also held that, in any event, there was no merit in the challenge to the constitutional validity of some of the rules in the Mazgaon Docks Officers (Conduct, Discipline and Appeal) Rules, 1977.
2. Article 12 of the Constitution states, in the context of Part III of the Constitution, that 'the State' includes 'other authorities under the control of the Government of India.'
3. The Supreme Court has delivered a series of judgments dealing with the concept of 'the State' under Article 12. These judgments are reviewed in the judgment in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Gangually, : (1986)IILLJ171SC . This judgment reaffirms the tests in this behalf laid down in the judgment in Ajay Hasia v. Khalid Mujib Sehrawardi : (1981)ILLJ103SC :
'(1) One thing is clear that if the entire share capital of the corporation is held by Government, it would go a long way towards indicating that the Corporation is an instrumentality or agency of Government.
(2) Where the financial assistance of the State is so much as to meet almost entire expenditure of the Corporation, it would afford some indication of the Corporation being impregnated with governmental character.
(3) It may also be a relevant factor . . . . whether the Corporation enjoys monopoly status which is the State conferred or State protected.
(4) Existence of deep and pervasive State control may afford an indication that the Corporation is a State agency or instrumentality.
(5) If the functions of the Corporation are of public importance and closely related to governmental functions, it would be a relevant factor in classifying the Corporation as an instrumentality or agency of Government.'
4. In its judgment in Som Prakash Rekhi v. Union of India quoted in the Central Inland Water Transport Corporation's case (supra), the Supreme Court emphasised 'that merely because a company or other legal person has functional and jural individuality for certain purposes and in certain areas of law, it does not necessarily follow that for the effective enforcement of fundamental rights under our constitutional scheme, we should not scan the real character of that entity; and if it is found to be a mere agent or surrogate of the State, in fact owned by the State, in truth controlled by the State and in effect an incarnation of the State, constitutional lawyers must not blink at these facts and frustrate the enforcement of fundamental rights despite the inclusive definition of Article 12'.
5. In the Central Inland Water Transport Corporation's case (supra) the Supreme Court observed that if there was an instrumentality or agency of the State which had assumed the garb of a Government company as defined in Section 617 of the Companies Act, it did not follow that it hereby ceased to be an instrumentality or agency of the State. For the purpose of Article 12 one had necessarily to se through the corporate veil to ascertain whether behind that veil was the face of an instrumentality or agency of the State.
6. Upon the touchstone of these judgments, we turn to examine the constitution of the Mazgaon Docks Ltd. (now called 'the Company') The entire share capital share capital of the Company is owned by the President of India. Article 102 of the Articles of Association of the Company empowers the President from time to time to determine the number or its Directors. By virtue of Article 102, the Chairman of the Company's Board of Directors and the Government representatives on the Board are appointed by the President. Other members of the Board are appointed by the President in consultation with the Chairman of the Board. The remuneration payable to the Directors is fixed by the President. The President has the power to remove any Director from office at any time and he may do so in his absolute discretion. Article 105 states that the business of the Company shall be managed by the directions of the President as are issued by him from time to time under Article 182. Article 139A deals with the powers of the Directors, but it provides that the Chairman shall reserve for the decision of the President any proposals or decisions of the Directors in any matter which in, his opinion, is of such importance as to be reserved for the President's approval and no action shall be taken by the Company in respect of such matter until the President's approval has been obtained. Specifically, the Directors are obliged to reserve for the decision of the President any programme of capital expenditure exceeding Rs. 50 lakhs; the appointment of the General Managers of constituent units; the authorisation to raise the amount of the company's capital and the terms and conditions thereof; the approval of the company's five year and annual plans of development and its capital budget : the approval of the company's revenue budget where there is an element of deficit which is proposed to be met by obtaining funds from the Government; the approval of agreements involving foreign collaboration proposed to be entered into by the company; any matter relating to the sale, lease, exchange, mortgage and/or disposal of the whole or part of the company's undertaking; any matter relating to the promotion of companies, partnership or profit sharing arrangements and the acquisition of shares of any other company. Article 182 reads thus :
'Notwithstanding anything contained in any of these Articles the President may from time to time, issue such directions or instructions as he may consider necessary in regard to the affairs or the conduct of the business of the Company or Directors thereof and in like manner may vary and annul any such direction or instruction. The Directors shall duly comply with and give immediate effect to directions or instructions so issued. In particular, the President shall have power :
(i) to call for such returns, accounts and other information with respect to the property and activities of the Company as may be required from time to time, and
(ii) to give directions to the Company as to the exercise and performance of its functions in matters involving national security of substantial public interest and to ensure that the Company gives effect to such directions'.
7. It is clear, then, that the entire share capital of the Company is held by the Government. There is, as the Articles quoted above show, a deep and pervasive Government control of the Company. It also appears that the Company receives financial assistance from the Government. In that the Company manufactures sensitive naval equipment and vessels for defence purposes, its functions are of public importance and closely related to the governmental function. The tests laid down in Ajay Hasia's case (supra) are, therefore, substantially satisfied. As was observed in the Bharat Petroleum case, it is not relevant that the company has functional and jural individuality. Upon scanning the real character of the Company, we have no doubt that it is an agent of the Government, owned by it and controlled by it. It is an instrumentality of the Government that has assumed the garb of a Government company as defined in Section 617 of the Companies Act. In our view, therefore, the company is 'the State' within the meaning of Article 12 of the Constitution.
8. This brings us to the constitutional challenge to some of the Mazgaon Dock Officers Conduct, Discipline and Appeal Rules (now called 'the Rules') Before us Mr. Singhvi, learned counsel for the appellants, has restricted the challenge to Rules 6(d)(ii), 6(j), 7, 10, 12, 15(d), 19(c) and 21.
9. Rule 6 concerns dealings with foreigners, foreign missions, etc. By reason of clause (i) of sub-rule (d) thereof the company's officers shall not stay as guest of foreign nationals in India. Mr. Singhvi contrasted the provisions of clause (i) with those of clause (ii) which provides that officers should not wholly or partly let out or share with foreign nationals their residential accommodation without the prior permission of the competent authority. Mr. Singhvi submitted that clause (i) was arbitrary and officers were put to great hardship.
10. We may at the outset observe that it is necessary to look at the Rules having regard to the sensitive nature of the work done by the company, and, therefore, by its officers. The object of Rule 6(d) is to preclude the officers from accepting in India the hospitality of foreigners and thereby owning an obligation to foreigners. Such obligation might endanger the secrecy of information or knowledge that the officers may have. The provisions of Rule 6(d)(i), so viewed, does not appear to us to be arbitrary or violative of a constitutional provision.
11. Sub-rule (j) of Rule 6 requires the officers or their wives when joining a school or language classes conducted by an organisation controlled or subsidised by a foreign cultural organisation to obtain the prior permission of the competent authority. The competent authority is, as defined by Rule 3(1), the Managing Director of the company or any other authority empowered by him in this behalf. Mr. Singhvi's apprehension was that the competent authority would not reply to applications for such permission in good time so that the courses would be completed before permissions were received.
12. We must assume (i) that the permission applied for under this and other rules would not be unreasonably withheld and (ii) that it would be accorded or refused, as the case may be, within a period of time reasonable in the context of the permission applied for. There is no reason, therefore, for us to assume that the permission sought for in the context or Rule 6(j) would not be responded to within a reasonable time or to consider striking down the provision on that account.
13. Rule 7 states that no officer shall, without the previous consent in writing of the competent authority, apply for a patent or exclusive privilege in respect of any invention made by him when in the service of the company. If granted such patent or exclusive privilege, the rule requires that he should permit the company the unqualified right to adopt and use it without being obliged to pay any royalty or other consideration therefor. The officer may not assign, charge or transfer the patent or exclusive privilege without the previous consent in writing of the competent authority and without providing it for use by the company free of charge. The company may take over such patent or exclusive privilege for such consideration as the Managing Director may fix.
14. The phraseology employed in this rule leaves no doubt that it is meant to apply only to patents or exclusive privileges in respect of inventions made on the basis of knowledge or experience gained in the service of the company. There is nothing unreasonable in requiring the officer to obtain the previous consent of the competent authority in regard to an application for a patent or exclusive privilege in respect of such invention or in requiring him to permit its use by the company free of charge. The Rule also provides that in case the company acquires the patent as exclusive privilege it would be for a consideration fixed by the Managing Director. Having regard to the limited class of inventions covered by this rule, viz., those borne out of knowledge or experience gained in the company's employment, its provisions appear reasonable.
15. Rule 10(a) provides that no officer shall, except with the previous sanction of the competent authority, give evidence in connection with any enquiry conducted by any person, committee or authority. But this is 'save as provided in sub-rule (c)'. Sub-rule (c) excludes from the purview of sub-rule (a) evidence given at any enquiry before an authority appointed by Government, Parliament, a State Legislature, statutory corporation or Government company and evidence given in a judicial enquiry and a departmental enquiry. The exclusion covers almost all known and legitimate forms of inquiries. There is nothing unreasonable in requiring an officer to obtain previous sanction before giving evidence in any more esoteric form of enquiry.
16. Rule 12 prevents an officer, except with the previous sanction of the competent authority, from conducting or participating in the editing or management of any newspaper or periodical. An employee of the 1st respondent must obviously not undertake such activity. The rule also prevents him, except with the previous sanction of the competent authority or for the bona fide discharge of his duties, from participating in a radio or television broadcast or contributing any article to any newspaper or periodical. The rigour or this provision is, however, offset by the proviso leaving no ground for complaint. It states that no such sanction shall be required if such broadcast or such contribution is of a purely literary, artistic or scientific character.
17. Rule 15 deals with gifts. Sub-rule (a) thereof places an embargo upon an officer accepting or permitting any member of this family or any other person acting on his behalf from accepting any gift. The expression 'gift' includes free transport, board, lodging or other service or pecuniary advantage when provided by any person other than a near relative or a personal friend. Sub-rule (b) permits the acceptance of gifts from near relatives on the occasions of wedding anniversaries, funerals or religious functions, but the officer is required to make a report in writing to the competent authority if the value of the gift exceeds Rs. 500/-. On the occasions specified in sub-rule (b), an officer may accept gifts from his personal friends but is obliged to report in writing to the competent authority if the value of any such gift exceeds Rs. 250/-. Under sub-rule (d) an officer shall not, in any other case, accept or permit any member of his family or any other person acting on his behalf to accept any gift without the sanction of the competent authority if the value thereof exceeds Rs. 250/-.
18. The expression 'acting on his behalf' is relevant. It suggests that reports as aforesaid shall be made when gifts exceeding the values prescribed are received by members of the officer's family to his knowledge. Only to such gifts can the provisions of the rule apply. Now it is true that gifts of the values or Rs. 500/- and Rs. 250/- made on the occasions of marriages and such like by relations and friends are in these days, somewhat petty. We do not, however, think that this creates any constitutional infirmity which would entitle us to strike down the rule. We would, rather, recommend to the company and the Bureau of Public Enterprises, which has framed the Model Conduct, Discipline and Appeal Rules upon which the impugned Rule are based, to modify the Rules so as to bring them in accord with these inflationary times.
19. In regard to Rule 19(c) also we must make similar recommendations. It is unrealistic to expect officers to report to the competent authority every transaction concerning moveable property, including shares, debentures, fixed deposits, etc. owned or held by him in his own name or in the name of a member of his family if the value of such property exceeds Rs. 2,500/-. In our view, while the figure of Rs. 2,500/- needs upward modification, there is no restriction that invites the quashing of the rule.
20. The last of rules challenged before us is Rule 21. It states that no officer of the company shall engage himself or participate in any demonstration which involves the incitement to an offence, breach of the peace or the commission of a misconduct. It is not every demonstration which an officer cannot take part in. It is only such demonstrations as involve incitement to an offence, breach of the peace or the commission of a misconduct. There is clearly nothing unreasonable or arbitrary in requiring officers to abstain from participating in such demonstrations.
21. In the result, while we do not share the learned single judge's view that the company is not 'the State' within the meaning of Article 12, we concur with him in his finding that none of the Rules is constitutionally invalid.
22. The appeal, therefore, fails and is dismissed.
23. No order as to costs.