P. Rajagopalan, O.C.J.
1. The Civil Miscellaneous Appeal has been preferred to this Court under Section 116-A of the Representation of the People Act from the order of the Election Tribunal, Nagapattinam, in Election Petition No. 178 of 1957 before it.
2. The election in question was to the Mayuram constituency of the Madras State Assembly, and two members--one to the general seat and one reserved for a member of the scheduled caste--had to be elected. The election was held on nth March, 1957. At this election, G. Narayanaswami Naidu and P. Jayaraj who were the respondents in the election petition were respectively elected to the general and reserved seats. The question at issue in the petition related to the propriety of the rejection of the nomination of C. Krishnamurthi, the election petitioner. First February, 1957, was the date fixed for the scrutiny of the nominations. On that date one of the candidates K. Krishnamurthi--not a party to these proceedings--objected to the nomination of the petitioner C. Krishnamurthi on the ground that the latter held 'an office of profit under the Government of India' in that he was a salaried employee--a Junior Inspector under--the Life Insurance Corporation of India, and was therefore disqualified to stand for election under Article 191(1) of the Constitution. The Article runs:
191 (1).--A person shall be disqualified for being chosen as, and for being, a member of the Legislative Assembly or Legislative Council of a State--
(a) if he holds any office of profit under the Government of India or the Government of any State specified in the First Schedule, other than an office declared by the Legislature of the State by law not to disqualify its holder ;
(a) if he is so disqualified by or under any law made by Parliament.
This objection was upheld and the Returning Officer rejected the nomination of the petitioner. As stated earlier, the other candidates went to the poll and Narayanaswami Naidu and Jayaraj were declared duly elected. C. Krishnamurthi filed the election petition for declaring the election of Narayanaswami Naidu and Jayaraj to be void on the ground that his own nomination had been improperly rejected. Section 100(1) of the Representation of the People Act enacts:
(1) Subject to the provisions of Sub-section (2) if the Tribunal is of opinion.
(c) that any nomination has been improperly rejected....
shall declare the election of the returned candidate to be void.
If therefore C. Krishnamurthi was able to establish that the rejection of his nomination was improper, the Tribunal had to set aside the election. This petition was referred to the District and Sessions Judge of East Tanjore who was appointed as the Election Tribunal.
3. Before the learned Judge two points were urged : (1) that C. Krishnamurthi was not disqualified to stand because the 'office of profit ' that he held was not under the Government of India but under the Life Insurance Corporation--a statutory Corporation created by the Life Insurance Corporation Act (XXXI of 1956). The Tribunal upheld this contention holding that the office of profit which C. Krishnamurthi held did not fall within Article 191(1)(a) of the Constitution. (2) The other point that was considered by the Tribunal related to C. Krishnamurthi being disqualified under Article 191(1)(e). Under Regulations framed by the Corporation by virtue of the powers vested in that behalf by the Life Insurance Corporation Act, 1956, the employees of the Corporation were prohibited from standing for election to the Legislatures, Union and State. It was urged before the Tribunal that these regulations, which bound Krishnamurthi, were a disqualification ' under any law made by Parliament' within Article 191(1)(e). The Tribunal negatived this contention also. This resulted in the Tribunal holding that C. Krishnamurthi was under no disqualification to stand for election, and that his nomination was improperly rejected by the Returning Officer. On this finding the Tribunal declared the election of Narayanaswami Naidu and Jayaraj to be void. It is the correctness of this order that is canvassed by Narayanaswami Naidu, the candidate returned to the general seat, impleading Jayaraj as respondent in this appeal.
4. The questions raised in the appeal, therefore, turn upon (1) whether an employee of the Life Insurance Corporation of India holds an office of profit under the Government of India and (2) whether the Regulations made by the Life Insurance Corporation constitute a law which disqualifies its employees from standing for election within Article 191(1)(e).
5. The words in Article 19(1)(a) 'if he holds any office of profit under the Government of India or the Government of any State' trace their origin to the words 'office of profit under the Grown' used in Sections 24 and 25 of the Succession to the Crown' Act, 1707, of the United Kingdom. But there are no decisions of the English Courts interpreting the expression. The meaning of these words was the subject of critical examination by a Select Committee appointed by the House of Commons which submitted its report in October, 1941. Dealing with the phrase 'office or place of profit under the Crown' this Select Committee stated:
There is no comprehensive statement of the law on this subject which can be regarded as authoritative. The standard constitutional works of reference are mainly concerned with the statutory portion of the law, which of itself is too voluminous to be treated by any one of them exhaustively But there is another portion consisting of ancient resolutions of the House of Commons which, though mostly reinforced or superseded by later legislation, still determine the law in some particulars. Another part of the law is composed of judicial or quasi-judicial decisions of the House on individual cases. Thus the law, as a whole, is composite in character, part statute arid part practice ; it cannot be studied in compilations, but has to be sought for in the original sources--the statute book, the Commons' Journals and the reports of Select Committees.
We have, therefore, no guidance from any direct decisions of the English Courts explaining the import of the relevant phrase.
6. The Advocate-General who appeared for the appellant submitted an able and learned argument on what constituted 'an office of profit under the Government' within Article 191(1)(a).
7. Before, however, referring to the points urged by him it would be convenient to set out the basis on which the Tribunal rested its decision against the appellant. We do so because, it was the same line of argument that was put forward before us by learned Counsel for the respondent. That the 'office' of the Junior Inspector was an 'office', and that such office was an 'office of profit' were not disputed either before the Tribunal or before us. The entire controversy was confined to the question whether that 'office' was held under the Government of India.
8. The Tribunal formulated the following tests for determining whether the office was held under the Government. (1) The source of the fund from which the employee was remunerated : and (2) the authority in whom the power to appoint to the office and of removal therefrom, was vested. The Tribunal analysed the provisions of the Life Insurance Corporation Act and the rules and regulations made thereunder and recorded these, findings. (1) The officer was paid out of the funds belonging to the Corporation which was a legal entity separate from the Government. (a) The power of appointment and removal of officials including that of the Junior Inspector was vested in the Corporation. It wound up with this statement:
That the Corporation apart from the Government is a legal entity with a perpetual succession and common seal and, therefore, the contention that, because the Government of India has provided capital for the Corporation and has large powers of supervision and control over its management, the petitioner must be deemed to be an employee or a person holding an office of profit under the Government of India appears to be untenable.
In reaching this conclusion the Tribunal followed the decision of the Allahabad High Court in Madan Mohan Lal v. Om Prakash : AIR1957All384 , in which it was held that an employee of the Life Insurance Corporation was not 'an employee of the Central Government' for the purposes of the United Provinces Municipalities Act, which carried a disqualification worded similar to Article 191(1)(a) of the Constitution. The learned Advocate-General submitted that the reasoning of the Court below failed to notice recent trends in Government administration, particularly, in the case of post-war modern welfare states, and that it attached too much importance to form ignoring the substance. It would be convenient to refer even at this stage to the decision of the Supreme Court in Maulana Abdul Shukoor v. Rikhab Chand Since reported in : AIR1958Mad254 (not yet reported but the text of which judgment was made available to us by the Advocate-General) in which almost the same line of approach as that of the Tribunal in this case was adopted. The question that arose was as regards the election of the appellant Maulana Abdul Shukoor to the Council of States by the Electoral College of Ajmer. The appellant was declared elected and an unsuccessful candidate filed an election petition. The grounds upon which the election was challenged included inter alia, one that the appellant was holding 'an office of profit under the Union Government.' The office which he held and which, it was stated, brought him within the qualification enacted by the Article 192(1)(a) of the Constitution, which is in terms identical with Article 191(1)(a), was as manager of a school administered by the Administrator of the Durgah Khwaja Sahib, appointed under the provisions of the Central Act XXXVI of 1955. The Election Tribunal upheld the objection of the Election Petitioner and held that the appellant was disqualified under Article 102(1)(a) as holding ' an office of profit under the Government of India'. The Supreme Court allowed the appeal from this decision and the reasons assigned for this reversal were:
Under the Durgah Khwaja Sahib Act (Act XXXVI of 1955) the committees which employed the appellant was a body corporate with perpetual succession and a common seal having the right to sue and be sued in the name of the President of the Committee. The contention urged on behalf of the respondents was that under the Act of 1955 the Committee of management though incorporated was appointed by the Central Government, who also retained the power to remove from office any member of the Committee, and that consequently a person employed by the Committee was under the control and supervision of the Central Government and therefore held an office of profit under the Government of India and this was rejected. Kapur, J., who delivered the judgment of the Court, pointed out that the Constitution itself drew a distinction between the holding of an office of profit under the Government and under any local or other authority subject to the control of either of the said Governments. This latter type of employment also constituted a disqualification, for the officers of the President and Vice-President under Articles 58(2) and 66(4) of the Constitution, where the words 'under any local or other authority subject to the control of any of the said Governments' were used--Words which were not to be found under Article 102. Dealing with the submission, that the fact that the Committee or members of the Committee were removable by the Government of India, who could make bye-laws prescribing the duties and powers of its employees, rendered the employees of the Committee, holders of offices under the Government of India, his Lordship said:The appellant is neither appointed by the Government of India nor is removable by the Government of India nor is he paid out of revenues of India. The power of the Government to appoint a person to an office of profit or to continue him in that office or revoke his appointment at their discretion and payment from out of Government revenues are important factors in determining whether that person is holding an office of profit under the Government, though payment from a source other than Government revenue is not always a decisive factor. But the appointment of the appellant does not come within this test. The test of the power of dismissal by the Government or by an officer to whom such power has been delegated which was pressed in support of his case by the respondent is equally inapplicable to the facts of the present case because the appellant cannot be dismissed by the Government or by a person so authorised by the Government. He is a servant of a statutory body which in the matter of its servants acts within the powers conferred upon it by the statute....the appellant has not been employed by a servant of the Government who is authorised to employ servants for doing some service for the Government nor is he paid out of Indian revenues.
9. The points therefore stressed by his Lordship were two (1) the contrast between the scope of the disqualification enacted by Articles 58(2) and 66(4) in the case of the President and Vice-President of India respectively and by Article 102 in the case of members of legislative bodies. Whereas in the former case employment under a local or other authority was also a disqualification, this was not a disqualification in the case of members of the State or Union Legislature. (2) An employee of a legal entity created by statute, where the powers of appointment and dismissal were vested in the such body and whose remuneration came out of the funds of such body could not be treated as holding an office of profit under the Government notwithstanding that the members of the statutory body were themselves appointed by Government and were liable of to be removed by Government.
10. The learned Advocate-General submitted that in the case before the Supreme Court the Government had merely assumed control over the property of a public charity and provided for the proper management of this public trust. It was, therefore, not in any sense the exercise of a sovereign power or the creation of a department of State and therefore furnished no analogy to the present case, where the Government had nationalised the business of the insurance by taking over the assets of companies theretofore transacting life insurance business, had by statute created for itself a monopoly in such business and had created a Corporation for the transaction of what was thereby rendered a State activity.
11. As the question, whether the Life Insurance Corporation is or is not virtually a department of the State or a servant of the Government, would be dependent on the provisions of the statute constituting the Corporation, we shall proceed to analyse them, to determine the precise degree of control and examine whether the amount of control established the identity of the Corporation as part of the Government.
12. The preamble to the enactment, Act XXXI of 1956, recited:
An Act to provide for the nationalisation of life insurance business in India by transferring all such business to a Corporation established for the purpose and to provide for the regulation and control of the business of the Corporation and for matters connected therewith or incidental thereto.
13. Section 3 provided for the establishment of a corporation called the Life Insurance Corporation of India:
a body corporate having perpetual succession and a common seal with power to acquire, hold and dispose of property and which can by its name sue or be sued;
and Section 4 for the appointment by the Government of India of persons who shall constitute the Corporation and lays down the qualifications or disqualifications of the persons to be appointed as members. The original capital of the Corporation was to be five crores of rupees to be provided by the Central Government after due appropriation made by Parliament by law for the purpose (vide Section 5). Section 6 was concerned with the functions of the Corporation, and the section laid on the Corporation the duty of coordinating the business of life insurance in or outside India, and the Corporation was directed so to exercise its powers as to secure that this business was developed to the best advantage of the community. Section 18 provided for the Central and Zonal officers of the Corporation, the locus of the central office being determined by the Central Government and that of each of the zonal offices by the Corporation itself, with the previous approval of the Central Government. Section 21 is important, in that it set the limits to the powers to be exercised by the Central Government in the policy to be followed by the Corporation. That section enacted:
In the discharge of its functions under this Act the Corporation shall be guided by such directions in matters of policy involving public interest as the Central Government may give to it in writing ; and if any question arises whether a direction relates to a matter of policy involving public interest the decision of the Central Government thereon shall be final.
14. Section 23 enabled the Corporation to employ such number of persons as it thought fit in order that it might properly discharge the functions laid upon it by the Act. A separate fund was constituted for the Corporation by Section 24 to which all receipts of the Corporation were to be credited, and payments by the Corporation were to be made therefrom. Section 25 provided for auditors to be appointed by the Corporation with the approval of the Central Government. The Act envisaged that the commercial activities of the Corporation might yield a profit, and Section 28 provided for the destination of the profits thus earned. 25 per cent, of the surplus was to be reserved for the policy-holders and the balance to be utilised for such purpose as the Central Government should determine. The reports of the auditors and of the actuaries relating to the activities of the Corporation were directed to be laid before the Parliament under Section 29 when such reports were received by the Central Government. Section 37 contained a guarantee by the Central Government to the policy-holders 'that their policies when matured, and subject to the terms of the policies, shall be paid over to the beneficiaries under them.' Section 38 enacted that 'the Corporation shall not be wound up except under the orders of the Central Government and in such manner as they may direct.' Section 47 protected from suit, prosecution or other legal proceeding the members of the employees of the Corporation for anything done in good faith under the Act. Section 48 reserved power to the Central Government to make rules to carry out the purposes of the Act, and in particular the terms of office and the conditions of service of members who found the Corporation, were subject to this rule-making power. Similarly rules made by the Central Government might provide for conditions subject to which the Corporation might appoint employees. The rules so made by the Central Government were directed to be laid before Parliament under Section 48(3). Section 49 was concerned with the grant of power to the Corporation to make regulations not inconsistent with the Act and the rules, with the previous approval of the Central Government, and the subjects which, inter alia, these regulations might cover were enumerated in Section 49(2)(b), and these included ' the method of recruitment of employees and agents of the Corporation and terms and conditions of service of such employees or agents '.
15. The learned Advocate-General urged that as the carrying on the business of insurance involved commercial operations, the department had to be conducted on business and commercial lines, making the concern subserve the economic needs of the people of the State, and with a policy co-ordinated to the economic purpose and the social objectives which the Government had in view. Parliament created therefore a Corporation for carrying on this business, but notwithstanding that in form a new legal entity was created still it was virtually a department of Government, with the result that the Corporation was the servant of the State and the employees of the Corporation were the employees of the State. It was in this context that he relied on the provisions of Section 21, which enabled the Central Government to give directions laying down the lines of policy to be followed by the Corporation. He also drew our attention to the terms of Section 48, which vested in Government power to make rules to carry out the purposes of the Act. He further pointed out that the formation of Corporation of this sort was a development of modern times to enable Government to run their commercial activities on business principles.
16. He also pointed out that incorporation of Government departments was known to the law, and that the mere fact of incorporation was not sufficient to deny or negative the incorporated body being either a department of the Government or a servant of the Government. In regard to the last proposition there could be no dispute, because the experiments in the organisation of departments in England have sometimes taken the form of incorporating the officer at the head, as a corporation sole. But when one passes beyond such cases--of which the office of the Postmaster-General is perhaps the most outstanding example--the problem gets complicated; and its solution has baffled jurists and judges. Varying answers have been given which might appear to be contradictory, though several of the decisions and the passages in the writings of the jurists might be explained by reference to the particular approach to the question or the particular consequence flowing from the general theory, with which they were, immediately concerned. We consider it, however, unnecessary to trace the historical phases through which this question has passed or to set out chronologically the decisions rendered on the broad aspects of the problem.
17. The following quotation from Griffith and Street Principles of Administrative Law, pp. 247, 248 and 299 sets out the problems involved for consideration in clear perspective.
The rules for defining at common law ' a servant of the Crown ' are even now lacking in precision. The Courts, when called on to decide whether any public bodies set up by statute in the last hundred years arc agents of the Crown have found the statutes themselves singularly unhelpful, and have refused to lay down definite criteria. The Court of Appeal has decided in Tomlin v. Hannaford L.R. (1950) 1 K.B. 18, (to which we shall refer in due course) that the Transport Commission is not the agent of the Crown, and, therefore it may be assumed that none of the nationalised industries is an agent of the Crown. It is still uncertain whether the social service corporations such as the National Hospital Boards, the Central Land Board and the New Towns Development Corporations are Crown agents. It may be said that there are several criteria which from time to time the Judges have thought relevant. These include : Is the body performing tasks formerly carried on by private enterprise? (Mersey Docks and Harbour Board Trustees v. Gibbs (1866) L.R. 1 H.L. 93 . To what extent is it subject to ministerial control, for example, has it independent discretionary powers (Metropolitan Meat Industry Board v. Shady L.R. (1927) A.C. 899 ,Per Viscount Haldane). Must it consult a Minister before it acts, can a Minister give it directions Is its function one which has historically been regarded as governmental Lane v. Cotton (1701) 1 Ray. 646, Is it incorporated Is it subject to Government audit Is its authority general or local Dunbar v. Guardians of Arde Union (1897) 2 Ir. Rep. 76. Is it a mere domestic body (Powell v. Pratt) L.R. (1936) 2 K.B. 226. Is execution against its property allowed Although Tomlin v. Hannaford L.R. (1950) 1 K.B. 18, does not lend particular support to the view it is submitted that the degree of control exercised by the Government over the body ought to be the determining fact.
If a corporation is a servant of the Crown, then its sergeants are also servants of the Crown to whom the Crown Proceedings Act will apply. The rule that one servant of the Crown is not liable for the torts of another will normally prevent an alternative action against the corporation from being brought. Lord Atkin has said that incorporated department can be sued for torts committed by themselves (Mackenzie Kennedy v. Air Council L.R. (1927) 2 K.B. 517 , when the liability is not vicarious.
Dr. Glanville Williams has suggested that none of the new public corporations should be regarded as a Crown servant and that the division of the Corporations into industrial and commercial on the one hand and ' social service ' corporations on the other is not a valuable distinction for this purpose. It is, however, clear that functionally the National Coal Board for example, is less controlled by the Government than the Air Licensing Council and that the corporations do fall into separate groups. The following propositions can be advanced.
First, the National Coal Board, the British Electricity Authority, the British Transport Commission and its Executives and the Air Corporations are not so dependent on the Crown as to have the status of Crown servants. All these corporations have considerable statutory powers ; they administer large and self-contained undertakings ; they have considerable financial responsibility and are, with the exception of the Air Corporations, self-supporting ; the power of the appropriate Minister to give general directions is only exercisable when the national interest is involved. The British Transport Commission has been held not to be a Crown servant or agent. Secondly, the Central Land Board and Air Licensing Councilmay be contrasted with these bodies. These two corporations are, it is suggested, Crown servants. They perform functions which are part of a larger scheme for which a Minister is responsible and their powers are limited. Financially they are utterly dependant on the Ministers and on Parliament. The ministerial power to issue general directions is not restricted to matters affecting the national interest. In Tomlin v. Hannaford L.R. (1950) 1 K.B. 18, Denning, L.J., clearly thought that the Central Land Board exercising its functions ' on behalf of the Minister ' was a Crown servant and in Earl Fitzwilliams Wentworth Estates Co. v. Minister of Town and Country Planning L.R. (1951) 1 K.B. 203 , Birkett, J., said that it might ' from most points of view ' be regarded as a new Government department. Thirdly Regional Health Boards seem to have been created Crown servants. These bodies also act on behalf of the Minister, performing functions primarily entrusted to him. Financially they are dependent and much controversy has followed some economies which the Minister has required; their functions are part of the national health service for which the Minister is undoubtedly responsible. The power of the Minister to control by regulations and discretions is unlimitted.
18. It would thus be seen that though public corporations have had a long, and we might add a distinguished, history, as autonomous organs of Government, particularly for carrying on local administration or for the solution of regional problems, still their use for the purpose of carrying on commercial undertakings or industrial concern is a modern and indeed a post-war development. Sir Arthur Street said of them British Government Since 1918:
Like flowers in spring, they have grown as variously and profusely and with as little regard for conventional patterns. They are even less susceptible of orderly classification: with qausi-Government bodies, a new species often suggests a new genus.
19. It was Professor Friedman who said:
The Public Corporation is emerging as the chosen legal instrument of the Labour Government for the public control of basic industries in an economy still based on private enterprise.
20. Commenting on this Professor Wade observes The Constitutional spect of the Public Corporation'': Article contributed to Current Legal Problems, 1949:
The Public Corporation, as an agency distinct from the usual form of government department over which a political Minister presides, has evolved in its modern guise from the need for resolving two conflicting considerations:
(a) The demand for some form of State intervention, (b) The resistance to a form of nationalisation which would involve direct administration by the Civil Service.
Hence the constitutions of these State agencies have been influenced by the desire to safeguard some of the features of private entrerprise and to avoid the closer control necessarily involved in direct administration by the State. The former is to be seen by the acceptance of the principle that each public utility corporation (as distinct from the regulatory organs or bodies like the National Assistance Board and War Damage Commission) should conduct its affairs on the basis of paying its way ; the latter in the autonomy which each is granted to run the day-to-day administration of its business by a staff which is not in the service of the Crown nor appointed by the machinery of the Civil Service Commission--a staff whose higher ranks are unaccustomed to working under a Minster....
There is a practical limit to the size of any undertaking ; if efficiency is not to be sacrificed to elaboration of structure, an excessive number of tasks cannot be placed on the shoulders of a single Minister and his department....With one exception, the Central Land Board, they are not Crown Corporations. Their legal liabilities do not differ from those of any other corporate bodies save that for some unexplained reason three or four of them enjoy modified exemption from the Limitation Act, 1939. They have not even the protection of the Public Authorities Protection Act as amended by the last-named enactment. It is true, however, that some of their principal statutory duties are expressed in terms so general that they cannot be enforced by any known legal machinery ; though expressed as legal duties they are really no more than declarations of what is the task allotted.
It must be noted that there are broadly two types of public corporations. Of the social service type I shall say nothing because where public corporations are the executive agents they are under the direct control of the Minister. This is not, of course, the case with the industrial and commercial corporations such as the National Coal Board, the Transport Commission with its five executives, the British Electricity Authority, the Gas Council or the proposed Iron and Steel Corporation. The Minister decides the members of the Commission from the type of men likely to inspire the confidence of the rank and file engaged in the concern. The Minister is empowered in each case after consultation with the corporation, to give directions of a general character as to the exercise and performance of the functions of the corporation in relation to matters which appear to him to affect the national interest. In some cases he can order a discontinuance of part of its activities. Reorganisation and schemes involving substantial outlay require his approval....It is the Minister who will have the answer in Parliament in any debate which may arise out of the annual reports which each corporation must render. It is the Minister who can veto the disclosure in these reports of the directions which he may have given to the corporation.
21. Dealing with the exact constitutional position of the Public Corporations created for carrying on nationalised undertaking Professor Scammell says 'Nationalisation in Legal Perspective' in 'The Current Legal Problems, 1952':
The exact constitutional position of the national Corporations in charge of the nationalised undertakings has not yet been fully settled. This question is likely to be of some practical importance in connection with the extent to which judicial control can be exercised. It has been suggested that they fall somewhere between government departments and local authorities. On the one hand Tamlin v. Hannaford L.R. (1950) 1 K.B. 18, decided that they do not rank as government department ; whilst, on the other hand, they are more closely linked with the Government through their parent Minister than are local authorities whose members are elected and who are not subject to receive general directions from a Minister. It is, at any rate, now clear, that being neither servants nor agents of the Crown and their functions not being such as fall within the province of Government, they do not share in the privilege and immunities of the Crown. They are, however, public authorities, and in addition, many of them are given special statutory privileges. Three such privileges are common to a number of national corporations : (1) In the case of some corporations a three-year period of limitation applies. (2) Powers of compulsory acquisition of land are conferred upon certain of these bodies. (3) Transitory power to disclaim certain contracts and leases is conferred upon some of these bodies.
Pausing here, we might summarise the position and analyse the tests for determining the constitutional position of Public Corporation as either a department of Government or as a servant of the State. If the statute in terms answered the question, as it did in the case of the Central Land Board under the County and Town Planning Act, 1947, the need for any further enquiry is obviated. But in the absence of such statutory declaration or provision, the intention of Parliament has to be gathered from the provisions of the statute constituting the Corporation. These provisions have to be judged in the light of the following:
First the incorporation of the body though not determinative is of some significance, as an indication by Parliament of its intention to create a legal entity with a personality of its own, distinct from the State, secondly, the degree of control exercised by the Minister over the functioning of the Corporation is a very relevant factor, a complete dependence on him marking it as really a governmental body, while comparative freedom to pursue its administration being treated as an element negativing an intention to constitute it a Government-agent, this semi-autonomy deriving from the desire to avoid plenary Parliamentary control over the details of its normal administration. Third is the degree of dependence of the Corporation on the Government for its financial needs. Lastly we consider the functional or the historical aspect--some of the decisions laying stress on whether the function discharged by the Corporation could really be treated historically as a pure governmental function--one which pertained to sovereignty or whether it was the administration of a matter merely of local or regional concern.
22. We shall first dispose of the last of the matters we have set out above. There are obvious limitations to the use of history as providing a test for determining what is a sovereign or governmental function. In the first place any rigid adherence to history would be to ignore the basic changes in the concept of Government which the present century particularly the post-war period has witnessed. Even during the nineteenth century, the idea that the function of the State was merely the maintenance of order and justice within its boundaries gave way to what were designate as its secondary functions--the undertaking of activities which are part of social service, the provision to its citizens of encomic security and well-being. Though at one time these beneficent activities were treated as though they were unessential functions of the State, in recent times these have overshadowed what might be termed the purely police function of the State, with the result that the State is now emerging as the potent instrument of national welfare, a transformation from a police to a welfare state. In these circumstances it would be unrealistic and even misleading to proceed by history and say that, if it was not a part of governmental function at an earlier date, the activity now pursued should be denied the status which would have attached to it otherwise. We, therefore, consider the submission of the learned Advocate-General that much emphasis should not be laid on history is well-founded.
23. But on the other hand, the test of function on which he laid considerable emphasis appears to be equally unsafe for identifying a public corporation as a part of the mechanism of the State. To start with, it may be mentioned, that for this purpose, corporations created for Municipal or Local Administrations are not treated as part of the State so as to render the corporators or those employed by the Corporation either as part of Government or as Government servants. Notwithstanding that if 'function' were the sole test, no sensible distinction can be drawn between an activity confined to an area or to a locality and that which extends to the entire territory of the State. Here again there is substance in the learned Advocate-General's argument, that this is traceable to historical reasons and should not therefore be treated as detracting from the soundness of his general argument. As Professor Jenks puts it 'English Local Government':.the great outlines of local government in England were drawn ages before Central Government (as we understand it) came into existence. Central administration as distinct from mere political overlordship, dates from the twelfth century, and is the work of French officials. Local administration is at least five-hundred years older and was probably the unconscious adaptation of primeval Teutonic custom to the conditions of new settlement. But Township and Hundred and Shire carry it back to the days before Alfred, to the dim beginnings of our story, and it was, in fact, only by an integration or union of these smaller groups that England became a nation at all. Consequently, Central Government, when it came, had to reckon with local government as an established fact, and has had to do so ever since.
24. But the functional classification, pure and simple, shows checks when applied universally. The Ministry of Health or the Ministry of Education are undoubtedly departments of Government, and they deal with social services rendered to the community. But if:
education be a social service when supplied by public authority is it an economic service when provided by private persons on the basis of fees and profits and similarly with medical services.' 'Parliament' : A survey by Lord Campion and others.
25. Besides, functional classification itself has its roots in history and historical evolution has not been the same in England and in India. The growth and development of municipal and local administration, and their history have run .on different lines in the two countries, though in this case, the impact of the English conception has tended to induce an almost identical approach to the legal problems involved.
26. Discarding history and the type of service rendered as determining factors Professor Greaves makes this interesting and valuable analysis 'Civil Service in the Changing State.'
Its (of Public Corporations) claim to peculiar treatment derives rather from the intermediate position between independence and complete answerability through a Minister to Parliament. If it be a species of its own it owed this fact to the attempt, which it embodies but by no means always achieves, to combine freedom in day-to-day operation with subordination in general policy, insulation from detailed public inquiry with ultimate responsibility to the public and financial autonomy, so far as the Treasury is concerned, with regulation of its financial framework by statutory provision or ministerial order.
Its personnel and staff are not part of the civil service, but they are in fact public employees, and the pay and appointment of some are determined by outside authority. And since the experiment of removing a specialised service from full Parliamentary control is not so new as has been claimed and has in the past proved both short-lived and unsuccessful it is important to consider whether any new conditions have arisen to make the lessons of the past lose any of their validity.
The forces motivating this type of administrative experiment are curiously opposite, as are the reasons--largely of mutal suspicion--which engendered it. It has been promoted both by business interests suspicious of state departments and by labour anxious to end competitive disorder without producing capitalist monopoly. There is thus embodied in it a compromise between the notion that the hope of personal profit alone ensures efficiency and the belief that efficiency can be secured by full responsibility to the representatives of the public in Parliament on the part of the Controllers of a socially owned service.
In the inter-war period the strongest force was the dislike by businessmen, and, of course, by their spokesman in both Houses of Parliament, of government 'interference' in industry. They were convinced and war-time experience had lent them evidence derived from emerjency conditions, which could be construed into conclusions of general application--that the civil servant could not compete in efficiency with the businessman and that a government department was by definition inferior in practical ability if not in public spirit to a commercial firm. A minister, particularly, if he is weak or is faced by embittered opposition, welcomes an excuse for freeing himself from the need to undergo such cross-examinations. It requires a specially strong awareness of the constitutional proprieties to survive the temptation of escape from Parliamentary supervision, and this all the more so when the escape is offered by interests strongly entrenched in Parliament itself.
26. Almost a similar conclusion is reached by Professor Goodhart who posing the question 'Parliament' : A survey by Lord Campion and others:
If, as I believe, this centralisation of responsibility has in the past been the essential feature of the British method of Government, why has it been discarded in the case of recently nationalised industries
27. Answers it thus 'Parliament' : A survey by Lord Campion and others:
Public administration, when compared with private enterprise, is said to be slow, complex, and incapable of rapid adjustment of changing conditions. The existence of ' red-tape ' is sometimes blamed on the 'bureaucratic mind ' which is said to be over-cautious and unwilling to accept responsibility....The second objection to direct governmental administration of an industry is that it places an undue burden on the Minister and on his senior officials. As he is responsible to Parliament for everything, that is done by his ministry, 'it follows that each new activity must add to his work. He must decide all questions of major policy and he must also see that the executive machinery is running smoothly. He cann6t share this responsibility with anyone else for he alone is answerable to Parliament. If too much of the Minister's time is occupied by executive activities, then he will tend to become an administrator rather than a statesman which is his true function.
The third objection to governmental administration is that it is difficult, if not impossible, for a government department to decentralize. Such decentralization is never possible in the case of a government department because the Minister, even though he has delegated some of his functions to others, must remain responsible for what they are doing.
The fourth objection to government administration is that it may introduce political considerations in the conduct of undertakings which ought to be administered on non-political lines.
It was the recognition that direct Government management of the nationalised undertakings might lead to red-tape, to placing an undue burden on the Minister, to over-centralization of the industry, and to possible political bias in management which led to the creation of the modern Public Corporations in the hope that they could avoid these handicaps....
28. Before we consider the three other matters we have set out earlier, and indeed as facilitating their discussion, it would be convenient if we refer to two decisions, one of the Court of Appeal and the other of Devlin, J., which deal exhaustively with the questions now in debate, Denning, L.J., in Bank Voor Handel v. Statford (1952) 1 All E.R. 314, and we make no apology for making somewhat long extracts from these judgments since they contain in addition references to and a discussion of all the important earlier decisions.
29. The appellant before the Court of Appeal in Tamlin v. Hannaford L.R. (1950) 1 K.B. 18, was the defendant in an action tried before the County Court at Plymouth. The plaintiff was the lessee of a house which was vested in the British Transport Commission under the Transport Act of 1947. The defendant was the sub-tenant of some rooms in the house. The plaintiff sued for possession of the rooms in the occupation of the defendant, and the defendant claimed the protection of the Rent Restriction Acts. The County Court Judge held that as the title to the house was vested in the British Transport Commission it must be deemed to be owned by the Crown, that the Crown was not bound by the Rent Acts, and he made an order for possession. The question debated before the Court of Appeal was whether by reason of the house becoming vested in the British Transport Commission it had become Crown property, the contrary contention being founded on the British Transport Commission being a distinct legal entity--the Corporation--created for certain public purposes and that by reason of the vesting of the house in such a body, it could not be treated as Crown property, Denning, L.J., who delivered the Judgment for the Court, after referring to the view of the County Court Judge that the house ' must be regarded as owned by the Crown and administered by the Transport Commission as Crown agents being now Crown property, is no longer within the scope of the Rent Acts said:
It is, of course, a settled rule that the Crown is not bound by a statute unless there can be gathered from it an intention that the Crown should be bound., and it has been held that, under the rule, the Crown and its servants and agents are not bound by the Rent Restrictions Act. In considering whether any subordinate body is entitled to this Crown privilege the question is not so much whether it is an 'emanation of the Crown ' a phrase which was first used in Gilbert v. Trinity House Corporation L.R. 17 Q.B.D. 795, but whether it is properly to be regarded as the servant or agent of the Crown. In the case of the British Transport Commission this depends on the true construction of the Transport Act, 1947.
The learned Lord Justice then analysed these provisions which bore considerable resemblance to those of the Life Insurance Corporation Act, 1956, in these terms:
The Transport Act, 1947, brings into being the British Transport Commission which is a statutory corporation of a kind comparatively new to English Law. It has many of the qualities which belong to corporations of other kinds to which we have been accustomed. It has, for instance, defined powers which it cannot exceed, and it is directed by a group of men whose duty it is to see that those powers are properly used. It may own property, carry on business, borrow and lend money, just as any other corporation may do, so long as it keeps within the bounds which Parliament has set, but the significant difference in this corporation is that there are no shareholders to subscribe the capital or to have any voice in its affairs. The money which the Corporation needs is not raised by the issues of shares, but by borrowing, and its borrowing is not secured by debentures, but is guaranteed by the Treasury. If it cannot repay the loss falls on the Consolidated Fund of the United Kingdom, that is to say, on the tax-payer. There are no shareholders to elect the directors or to fix their remuneration. If it should make losses and be unable to pay its debts, its property is liable to execution, but it is not liable to be wound up at the suit of any creditor. The tax-payer would, no doubt, be expected to come to its rescue before the creditors stepped in. Indeed, the tax-payer is the universal guarantor of the Corporation. But for him it could not have acquired its business at all, nor could it now continue it for a single day....
The protection of the interests of all these--tax-payer, user and beneficiary--is entrusted by Parliament to the Minister of Transport. He is given powers over this corporation which are as great as those possessed by a man who holds all the shares is a private company, subject, however, as such a man is not, to a duty to account to Parliament for his stewardship. It is the Minister who appoints the directors--the members of the Commission--and fixes their remuneration, They must give him any information he wants, and, lest they should not prove amenable to his suggestions as to the policy they should adopt, he is given power to give them directions of a general nature in matters which appear to him to affect the national interest, as to which he is the sole judge, and they are then bound to obey. These are great powers, but still we cannot regard the corporation as being his agent, any more than a company is the agent of the shareholders or even of a sole shareholder. In the eye of the law the corporation is its own master and is answerable as fully as any other person or corporation. It is not the Crown and has none of the immunities or privileges of the Crown. Its servants are not civil servants, and its property is not Crown property. It is as much bound by Acts of Parliament as any other subject of the King. It is, of course, a public authority and its purposes, no doubt, are public purposes but is not a Government department nor do its powers fall within the province of Government.
We do not find it very useful to draw analogies from other bodies which are differently constituted and differently controlled and exist for different purposes. The Territorial Forces Association, for instance, is not concerned with commercial matters, but with the defence of the realm, which is essentially the province of Government, and it is, therefore, to be considered as agent of the Crown. The Post Office is the nearest analogy. It is, of course, concerned with commercial matters, but it is, neverthelsss, a government department and its servants are civil servants. That is, however, an anomaly due to its history. The carriage of mail was a Crown monopoly long before the Postmaster-General was incorporated. But the carriage of passengers and goods is a commercial concern which has never been the monopoly of anyone and we do not think that its unification under State control is any ground for conferring Crown privileges on it.
The only fact in this case which can be said to make the British Transport Commission a servant or agent of the Crown is the control over it which is exercised by the Minister of Transport, but there is ample authority both in this Court, and in the House of Lords for saying that such control as he exercises is insufficient for the purpose. When Parliament intends that a new corporation, should act on behalf of the Crown, it, as a rule, says so expressly, as it did in the case of the Central Local Board by the Town and County Planning Act, 1947, which was passed on the very same day as the Transport Act, 1947. In the absence of any such express provision, the proper inference in the case, at any rate, of a commercial corporation is that it acts on its own behalf, even though it is controlled by a Government department. In our opinion therefore, the British Transport Commission is not a servant or agent of the Crown and its property is as such subject to Rent Restriction Acts as the property of any other person.
An useful and instructive commentary on Tamlin v. Hannaford (1949) 2 All E.R. 328 : L.R. (1950) 1 K.B. 18, is to be found in the judgment of Devlin, J., in Back Voor Handel v. Slatford (1952) 1 All E.R. 314 (324). The question which the learned Judge had to consider was whether the custodian of enemy property was or was not within the Income-tax Act. He would not be if he was the agent of the Grown acting on its behalf or a servant of the Crown. In dealing with this matter Devlin, J., said:
The most recent decision on this topic is that of the Court of Appeal in Tamlin v. Hannaford (1949) 2 All E.R. 328 : L.R. (1950) 1 K.B. 18 in which the Court formulated the question as being whether the person or body claiming Crown privilege was properly to be regarded as the servant or agent of the Crown. In the earlier cases looser expressions had been used and references made to ' emanations ' of the Crown, ' shields ', 'arms and hands' and even in one case to the ' contagion ' of Crown immunity. These expressions, were criticised by the Privy Council in International Railway Co. v. Niagara Parks Corporation (1941) 2 All E.R. 462 as well as in Tamlin v. Hannaford (1949) 2 All E.R. 328 : L.R. (1950) 1 K.B. 18. Both tribunals expressed a preference for the term ' servant or agent' over such undefined words as ' emanation '. I, of course, accept this view, but I would respectfully observe that the term 'servant or agent' gives an appearance of precision which may on this subject-matter be misleading. Before the days of the constitutional monarchy, it would have been easy to ascertain who were the King's servants by looking in each case to see whether the ordinary incidents of the relationship of master and servant were present. Most of the great offices of State have their origin in the appointment by the King of men who owed to him personally the same duty of obedience that every servant owes to his master. But from the time that the king became constitutionally bound to act on the advice of his Ministers the ordinary master and servant relationship ceased. It is no longer practicable or useful to inquire whether a Secretary of State has to do what the King tells him to do. Meticulous devotion to theory might have kept the relationship alive as a legal fiction, but even as a fiction it has been largely ignored and overlaid. When the powers and duties of the executive had in the nineteenth century to be extended to match the increasing complexity of Government, the process was not performed by adding to the powers and duties of the Sovereign which he would be presumed to instruct a Minister to exercise for him, but by bestowing the power or imposing the duty directly on the appropriate Minister. Instead of expressly extending the limits of the prerogative to cover such matters as, for example, education and health, it was simpler to provide for the appointment first of Boards and then of Ministers and to give to them necessary powers. Similarly, since Parliament could not, without openly disregarding the theory of the King's supremacy and making him answerable to Parliament, require him to discharge specific duties, it was necessary to lay the task on the Minister or servant.
This has produced some uncertainty about what exactly a lawyer means when he talks of ' the Crown '. There are passages in Maitland's Constitutional History of England which are illuminating on the topic. As Maitland says, the Crown is a convenient term, but one which is often used to save the asking of difficult questions. It is a description of the powers that formerly at common law were exercised by the King in person and that latterly have been bestowed by statute on the King in council or on various Ministers. There is, I think, uncertainty about what is meant by the Crown and uncertainty about who are its servants or agents. The only thing that is-reasonably certain is that service or agency is not in this connection to be ascertained in the ordinary way. This is clear from the fact that in what is the first and leading authority on this topic, Mersey Docks v. Cameron (1865) 11 H.L. Cases 464. the term is plainly not used in any precise sense. Blackburn, J. treated the exemption as extending not only to servants of the great departments of state who ' might strictly be called the servants of the Crown ' but also to persons who ' might be considered in consimili casu'. Those he defined as persons whose occupation (the case was concerned with exemption from rates) was for purposes which were all public purposes.
of that kind which, by the constitution of this country, fall within the province of Government, and are committed to the Sovereign. The claim is wide enough to include such persons as Justices of the peace, who are not in any sense servants of the Crown, but whose occupation of Courts, etc., is for public purposes within Blackburn, J.s. description; seeCoomber v. Berks, JJ. (1883) 9 A.C. 61. In Mersey Docks v. Cameron (1865) 11 H.L. Cases 464 Lord Wenbury, L.C. described public purposes as
such as are required and created by the Government of the country, and are therefore to be deemed part of the use and service of the Crown. and Lord Cranworth (ibid 508) spoke of extending ' the shield of the Crown to what might more fitly be described as the public Government of the country.'
In Coember v. Berks, JJ. (1883) 9 A.C. 61 , Lord Blackburn referred to 'purposes of the administration or those purposes of the Government which are, according to the theory of the Constitution, administered by the Sovereign'. Earlier he had referred to preservation of order and prevention of crime as among 'the most important functions of Government' and had said that' by the constitution of this country these functions do, by common right, belong to the Crown.' In Tunnicliffe v. Brikdale Overseers (1888) 20 Q.B. 455., Lord Esher, M.R., refers to.
...persons who must be considered as servants of the Crown, because entrusted with the performance of duties forming part of the functions of the Sovereign. These citations and the consideration which I have earlier set out, satisfy me that the expression ' servants or agents of the Crown ' when used in Tamlin v. Hannaford (1949) 2 All. E.R. 328 and other authorities is used notionally or descriptively and not definitely. The description 'servant of the Crown' has a meaning of course that as 'public servant' has a meaning, but it has no longer a precise legal meaning. It appears at first sight to afford an exact criterion for determining Crown privilege, but on inspection the apparition fades into the same insubstantiality that has dissolved the. ' emanation ' and other metaphors which have merged from the nebula. I respectfully think that the best and most accurate descriptive phrases are those used by Scott, L.J. in London County Territorial and Auxiliary Forces Association v. Nicholas L.R. (1949) 1 K.B. 35. and I shall return to them later.
I have said enough to show that I cannot accept the first submission of the counsel for the plaintiffs that the Custodian is a servant of the Crown in the strict sense. The submission fails because there is not, in my view, any strict sense at all, and I have dwelt on the matter because I think that the submission confuses the inquiry. It makes one suppose that the problem can be solved by looking for what are normal incidents of ordinary service and counting their presence or absence as determinative. Submission to orders lies at the heart of the service or agency, and, if the obligation to obey cannot be discovered, I do not think it avails to search for other quite usual inciBents'of ordinary service. The plaintiffs point out that the Custodian is appointed by the Board of Trade. So-are many other functionaries such as the Public Trustee and the Official Receiver, and, if there be a doubt whether such functionaries are servants of the Crown, there can be none in the case of those Judges and Magistrates who are appointed by the Lord Chancellor and can be removed by himj Likewise the servants of many public boards and corporations are appointed by a Minister of the Crown. The Custodian, like any civil servant, is paid out of the Consolidated Fund--so also, I suppose, are the Speaker of the House of Commons and all judicial officers. So, a private person may appoint a trustee for a certain purpose, pay him, and reserve the right to direct him on a number of matters but he does not thereby make him his servant.
Crown status is clearly enjoyed by all those officers of State who obtain it by virtue of the fact that their predecessors were once truly servants of the King ; likewise it extends to their subordinates. It must extend also to those new officers created by Parliament who, by the designation that it confers on them, such as Minister of the Crown, Parliament clearly intends shall have the same status. It is when Parliament creates a new office without any clear dessignation that the difficulty arises. . . . Is the ' province of Government' that attracts Crown immunity co-extensive with the general executive Government of the country Or is the immunity restricted to those discharging duties, which, judged by some historical test or otherwise, fall peculiarly within the functions of the Sovereign? There are authorities which point either way and some of the dicta which I have cited above may be said to support either contention.
If the custodian is an officer of the executive at all, I think he must have Crown status, for his duties bring him within the sphere of two of the most ancient and peculiar prerogatives of the Crown--the power to make war, including the power to take for itself the property of an enemy found within the realm, and the power to make peace.
In the case of a commercial corporation control may be unimportant. In the case of an official who has functions of a Governmental character, it is, I think, a matter to be given considerable weight. If Parliament intended the Custodian to act, as it were, in opposition to the prerogative, it is hardly likely he would have been subordinated in so many matters to the Board of Trade.
The law as stated by Devlin, J., has to be understood subject to the comment made on it by House of Lords affirming his decision (Bank Voor Handel En Scheepvarrt v. Administrator of Hungarian Property L.R. 1954 A.C. 584, comment which has immediate application to the point under discussion before us. Lord Reid observed (at p. 616):
It was suggested by Devlin, J., at one point in his judgment in this case that there is now no such thing as a servant of the Crown in the strict sense. I cannot agree. Ministers are pre-eminently Her Majesty's servants . . a purist might find some anomaly in that because by constitutional practice the Sovereign can only act on the advice of a Minister. But no one denies that Ministers come within the category of servants of the Crown for the present purpose. And with regard to others I can see no difficulty at all. The Crown (through or with the advice of a Minister) controls them and directs their activities in a way which to my mind makes the term ' servant' quite appropriate. In my judgment the question whether the custodian is a servant of the Crown depend on the degree of control which the Crown through its Ministers can exercise over him in the performance of his duties. The fact that a statute has 'authorised his appointment, is, I think, immaterial, but the definition in the statute of his rights, duties and obligations is highly important. In the ordinary way, a civil servant's duties are not prescribed, though his salary may be fixed in Parliament and I have no doubt that he is a servant of the Crown. But when a statute creates an office it may give to the holder more or less independence from ministerial control so that the officer has to a greater or less extent a discretion which he alone can exercise, and it may be that the grant of any substantial independent discretion takes the officer out of the category of servants of the Crown for the present purpose.
Having considered the question carefully we are unable to distinguish the case before us from that which Denning, L.J., had to deal with in Tamlin v. Hannaford L.R. (1950) 1 K.B. 18 : (1949) 2 All.E.R. 328. Though in common with post-war egislation creating public corporation there is a reservation of power in favour of the Government or the Minister in a form of which the earliest is perhaps Section 3(1) of the Goal Industry Nationalisation Act which ran:
3(1) : The Minister may, after consultation with the Board give to the Board directions of a general character as to the exercise and performance by the Board of their functions in relation to matters appearing to the Minister to affect the national interest, and the Board shall give effect to any such directions.
30. Corresponding to Section 21 of the Life Insurance Corporation Act the same provisions occurred in the Transport Act which was the subject of consideration at the hands of Denning, L.J., and was held not sufficient to render the Corporation a department of State.
31. The only distinguishing feature on which some stress was laid was insurance was a nationalised business.
32. In this connection the learned Advocate-General urged that the Union and the States had under the Constitution a right to carry on business as part of their governmental functions and that this indeed was implied or inherent in the social objectives envisaged as the ideal which the Constitution holds up. He pointed out that if, without any attendant legislation, a business activity was set up by the Government, there could be no doubt that the activity would be governmental in its essence notwithstanding its being also commercial. The next step in the argument was that the existence of legislation would or ought to, make no difference. Legislation he said became necessary for the creation of a body for the management of the Life Insurance Corporation for two reasons : (1) There was an acquisition of the assets of the existing companies which was effected by a process different from the compulsory acquisition under the general acquisition Acts. (2) The Government created for themselves the sole ownership of that business, in other words, they excluded private enterprise from this field. For these purposes legislation was essential. So far there could be no dispute, nor any doubt, that at that stage it was open to the Government to have created a wing, so to speak, of the Ministry of Finance or the Ministry of Economics to carry on this insurance business. But this was not what was done. The Government did not desire to assume the responsibility for the day-to-day administration. For that purpose, Parliament created an autonomous Corporation, though sufficient power to control and guide its general policy was vested in the Government. The object and purpose of the statute was the creation of a body autonomous in regard to its day-to-day administration and free from ministerial control except as to broad lines of policy, and therefore outside plenary Parliamentary surveillance, save perhaps in regard to the directions given by the responsible minister under Section 21. It was this freedom that was sought to be achieved by the creation of a separate legal entity in the form of a statutory Corporation. There was not, therefore, merely a difference in form between a department of the Government and this statutory Corporation but one in substance. The necessary concomitant of the form, with this difference in substance was to remove it, so to speak, from its character as a Government department and to render it the same type of body as that with which Lord Denning had to deal in Tamlin's case L.R. (1950) 1 K.B. 18. It appears to us therefore that in these circumstances it would run counter to the very intentions of Parliament to hold that the newly created body was either a Government department of a servant or agent of the Government.
33. We shall next examine some consequences which would follow if such Corporations were held to be Government departments in order to ascertain how far these afford a confirmation of the view we have just now expressed.
34. If a public Corporation created under a statute be held to be a Government department or at least a servant or agent of the Government, it would logically follow that persons employed by these Corporations would be persons holding posts in a public service in connection with the affairs of the Union or of the State, dependant upon whether the Corporation was created by the Union or the State Legislature. If so the Common law rule that service under the Crown was held at pleasure embodied in Article 311 of the Constitution as well as the constitutional safeguards which the article provides for Government servants, would be attracted to determine the conditions of service under such bodies. This question has come up before the Courts on several occasions and has been uniformly answered against the applicability of Article 311 to such employees. These decisions dealt with two types of cases ; (1) those in relation to Municipal employees or employees of local authorities as defined by the General Clauses Act including in this category employees of State Regional authorities such as Port Trusts, (2) Public Corporations created for carrying on state undertakings. The decisions, however, drew no essential distinction as regards the principles applicable as between the two categories. Falling under the first head was Mangal Sain v. State of Punjab , which was concerned with an executive officer of a Committee. The learned Judges of the Punjab High Court held that the service of such officer was not governed by Article 311. They negatived this contention urged on behalf of the officer by pointing out that Chapter XIV of the Constitution in which Article 311 is found opens with Article 308 in which ' State ' is defined as meaning a State specified in Part A or Part B of the First Schedule. This definition they contrasted with Article 12 where the expression ' State ' was for the purpose of Part III defined so as to include the Government and Parliament of India and the Government and Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India. From this they drew the inference that an employee of a local authority was not an employee of the State within Article 308 and therefore not within Article 311. The learned Judges also referred to Article 321 under which Parliament or the Legislature of a State may provide for vesting in the Union Public Service Commission or the State Public Service Commission, as the case may be, additional functions in regard to services under any local authority or other body corporate, constituted by law or of any public institution. This was treated as a clear indication that a civil servant of the State or of the Union in Article 311, etc., was not the same as those in the service of a local authority or body corporate constituted by law or any public institution. Bibhuti Bhusan v. Damodar Valley Corporation : AIR1953Cal581 , fell under the second head and related to an employee of the Damodar Valley Corporation. Bose, J., of the Calcutta High Court held that it was not necessary that the terms or conditions of service of the servants of the Corporation should conform to the requisites of Chapter XIV of the Constitution and that no notice to show cause need precede the termination of their services as required by Article 311(2). The learned Judge in repelling an argument that an employee of Corporation was a servant of the Union or the State Government said:
The agreement of service. . . . shows that the appointment was made by and under an order of the respondent Corporation. The different provisions of the Damodar Valley Corporation Act, 1948, indicate that the Corporation has a separate and independent existence and is a different entity from the Union or State Government. This Corporation has properties vested in it under the Act. It has its own fund and its functions and duties are defined in the Act. It may be that this Corporation has been set up by the Government for the purpose of discharging certain functions of the Union or the State Government, but there can be no doubt that it has a separate existence and cannot be considered as a part of the Union or State Government. Just as the Corporation of Calcutta discharges certain duties and functions which are to be performed by the State Government so also certain functions and duties of the Union and the State Governments have been allocated to the Damodar Valley Corporation but the Corporation performs these duties and functions as a separate entity.
35. The status of the Managing Director of the Patiala State Bank who was also the economic adviser to the Government of the Patiala State was the question decided by S. Mohany v. P. & E. P. States Union A.I.R. 1954 Pepsu 136, which in its essential facts really fell on the other side of the line. The Bank of Patiala was owned by the State and controlled and managed by the State Government and this was the basis for the argument that the Managing Director of that Bank held a civil post under Article 311. Though it was incorporated by law the learned Judges recorded a finding that it was not an independent and separate legal entity, that is, it was not an institution which was a distinct legal person apart from the State. The learned Judges also negatived the argument of the Advocate-General that the Bank was ' other authority within the territory of India ' within Article 12 of Constitution. They said:
The Bank of Patiala is, thus a commercial concern of the Pepsu Government, financed, managed and controlled by the Government though in its internal management the Government obtains full and complete assistance from the Board of Directors set up by it for the more efficient and businesslike running of the bank and the present arrangements do not make it an independent and distinct legal entity or corporation and so it cannot be divorced from the civil administration of the State Government.
The learned Judges, however, held that the termination of the service was in accordance with the contract of employment and therefore did not give rise to any complaint to be remedied by Court under Article 226.
36. Nagendra Kumar v. Commissioner, Port of Calcutta : AIR1955Cal56 , dealt with a case of an employee of the Calcutta Port Trust. The case before the Court proceeded on the admission by the counsel that Article 311 did not govern the conditions of service of the employees. Similarly, in P.P. Bose v. Commissioner for Port of Calcutta : AIR1957Cal720 , it was conceded that Article 311 did not apply to an employee under the Calcutta Port Trust. The learned Judge cited the decision of the Damodar Valley Corporation : AIR1953Cal581 , as supporting this concession. Chaturbhuj v. Bihar State Corporation Bank Ltd. : AIR1955Pat223 related to an employee of the Bihar State Co-operative Bank which was an incorporate body. The learned Judges recorded:
It is true that the State Government does exercise some control over the Co-operative Bank by virtue of the authority given under some of the provisions of the Bihar and Orissa Co-operative Societies Act, 1935. That does not, however, mean that the petitioner holds a civil post under the State of Bihar. There are many enactments under which the State Government exercises control over statutory bodies or local authorities constituted by statute. That does not, however, mean that persons who serve under those statutory bodies or local authorities hold civil posts under the State of Bihar within the meaning of Article 311 of the Constitution of India.
37. The High Court of Patna had to consider the position of an employee of the Sindri Fertilisers in Subodh Benjan v. Sindri Fertilisers and Chemicals, Ltd. : (1957)IILLJ686Pat . This was a public corporation created by the statute. The petitioner complained that he was discharged from service without notice and without opportunity to show cause and without consultation with the Union Public Service Commission, these being alleged as violations of Articles 311 and 320 of the Constitution. How this company came to be formed was briefly this. The Government of India had a fertiliser project at Sindri. This company was formed to take over its assets. The petitioner had originally been in the service of the Government of India but with the consent of the petitioner his services were terminated and he accepted service under the Company from the same date. The question, however, raised was whether the service under the Company was still service under Government. The argument for the affirmative was based on the ownership and control of the Company being vested completely in the Union Government. All the shares issued were held either by the President of India or by the Secretary of the Ministry of Production. The company was formed with, a capital of Rs. 30,00,00,000 consisting of three lakhs of shares valued at Rs. 1,000 each. Out of these 2,99,999 shares were held by the President in his official capacity and the remaining one by the Secretary of the Production Ministry. The directors of the company were appointed by the President who had also authority under the Articles of the Association to remove any director from office in his discretion. It was, therefore, contended that the management of the company was subject to the full control of the Union Government not only in the matters of policy but also in every other matter. 'The power to give directions was contained in Article no which ran : 'to issue such directives as he considers necessary in regard to the conduct of the business.' The submission on behalf of the petitioner was that the Company was ' an emanation ' of the Union without having any independent legal existence. This argument was negatived, the grounds being (1) that the Company was a legal entity having a separate legal existence being different from the shareholders, namely, the President of India and the Secretary to the Government ; (2) financially, the Company was a separate entity having its own share capital ; (3) the Company was a public authority. Its purposes were public purposes and it was not a Government department. Reference was made to Tamlin's case: Tamlin v. Hannaford L.R. (1950) 1 K.B. 18 and it was held that the reasoning in that decision concluded the point against the petitioner.
38. Rangnath Misra v. Chairman, District Board : AIR1957Pat333 , related to an employee of a District Hoard. The contention that Article 311 applied to the petitioner was repelled without argument by stating that the Service under the District Board did not attract Article 311.
39. State of Punjab v. Prem Parkash , was a similar case concerning an employee of a Municipal Council. The learned Judges said that the Municipality dealt exclusively with local affairs as distinguished from that related to the State at large or the general public. Their servants performed merely a municipal as distinguished from a State function.
40. The learned Advocate-General pointed out that these decisions would not affect his main thesis and that they could be explained on the basis of the historical background of Article 311. In addition it might be urged that the expression 'public services and posts in connection with the affairs of the Union and of any State' occurring in Article 309 ought to receive a limited construction so as to exclude service under 'a local authority or other body corporate constituted by law' in the light of the provisions in Article 321. Besides it is obvious that though a person employed in the public service holds an office of profit, the converse that every person who holds an office of profit is a person falling within Article 311 does not follow. We are, therefore, not inclined to hold that notwithstanding the logic of it, the inapplicability of Article 311 by itself and without anything more takes a service outside Article 191(1)(a).
41. The question whether debts of the statutory public Corporations, such as we have on hand, would have priority in payment in bankruptcy or in a winding up sometimes has come up before the Courts. In Metropolitan Meat Industry Board v. Sheedy L.R. (1927) A.C. 899, the Privy Council held that the amounts due to the Meat Board were not entitled to priority as Crown debts. The Meat Board was constituted under the Meat Industry Act, New South Wales. The Board was appointed by Government who could veto its decisions. But the Board had wide powers and a considerable amount of discretion. Lord Haldane said that even if the Minister had powers to interfere with the acts of administration they did not become his acts as distinguished from those of the Board. That they were an incorporated body was not really determinative but the matters which were held to be relevant were (1) the wide discretion that was vested in the Board ; (2) that the receipts of the Board did not form part of the general revenues ; (3) lastly that the charges which the Board levied went into a fund of its own.
42. If this point regarding priority had to be decided on the terms of the Indian Companies Act or the Insolvency Acts in India, the debts due to statutory corporations like the one before us would certainly not be 'debts due to the State'. Further the Revenue Recovery Acts whereby 'sums due to the State' and 'the Union Governments' could be recovered by summary process without recourse to suits could not be held to apply to debts due to Public Corporations notwithstanding that such Corporations might be performing public functions. In fact it is by specific provisions in statutes that such summary processes are extended to sums other than revenue or taxes due to Government. Again Article 149 of the Limitation Act enacts a special rule of limitation for suits by and on behalf of Central Government or any State Government. It would need much straining of language to hold that a suit by such public Corporations could be held to fall within this provision particularly when it is read in conjunction with Article 146-A which refers to suits by local authorities. Next we have the provision in Section 80, Civil Procedure Code,. regarding the notice that must precede any suit against Government, Union and State. Here again no decision has ever held that it was applicable to any other body than Government departments as such, i.e., that it was applicable to public Corporations, notwithstanding that the functions which the latter discharge might form part of a legitimate activity of the Government of the State or Union. In line with this we have the provisions of the Civil Procedure Code, Order 29. This again cannot apply to any person other than the Government strictly so called. Lastly reference may be made to Article 285 of the Constitution which refers to the property of the Union and provides for its exemption from all state taxation. Could it for a moment be contended that this would include the property 'of Corporations created by the Union Government The net result of this discussion therefore is that a public Corporation of the type before us cannot be identified with the State or be treated as the servant or agent of the State.
43. The learned Advocate-General referred us to Section 2(a)(1) of the Industrial Disputes Act where a reference is made to the Central Government as being the appropriate Government in relation to disputes concerning an industry 'carried on by or under the authority of the Central Government'. Phrases of the same type occur in the definition of 'employer' in Section 2(g) of that Act but these do not advance the position. We are unable to hold that the mere fact that the provisions of the Industrial Disputes Act are made applicable to public corporations or that the Central Government are designated the appropriate authority in such cases, necessarily connotes that the body constituted for carrying on the business is thereby rendered a department of the Government. This has to be judged with reference to other criteria such as the degree of control and other relevant matters to which we have already referred, and we consider that the provision in the Industrial Disputes Act does not throw any light or furnish any answer to the question now under discussion.
44. Our final conclusion therefore is that the Insurance Corporation is no wise different from the Transport Commission which was held not to be a department of State by Denning, L.J. As the Supreme Court has pointed out, Articles 48 and 66 do throw some light on the question, and they incline us to hold that service under the Insurance Corporation is not service under Government of the Union, within Article 191(1)(a) of the Constitution.
45. It was next urged by the learned Advocate-General that to hold that an employee of the Life Insurance Corporation did not hold an office of profit under the Crown would defeat the very purpose of Article 191(1) and would in effect bring in the evils which that Article was intended to obviate. In this connection he urged that the result of holding that such employees did not hold an office of profit under Government would enable the party in power, if so minded, to reward their supporters in Parliament with appointments under the Corporation and that the very existence of parliamentary democracy would be threatened by such unwholesome practices springing up. We are unable to uphold this argument. The power of appointment of the employees of the Corporation as distinct from the members of the Corporation is under the statute vested in the Corporation itself, and without impairing the autonomy for which the statute makes provision, the Government of the day cannot interfere with this power. There may be the possibility of an abuse of power by the Minister. We cannot, however, consider the possibility of an abuse of power or of patronage as a legitimate or proper criterion for construing the provisions of the Constitution. In this connection it has to be remembered that Parliament is vested with plenary power to designate any office of profit as not entailing a disqualification for being a member of the Legislature. Viewed in conjunction with this, it might very well be that when Parliament set up semi-autonomous bodies of the type we have in the present case, its intention was not to disqualify such officeholders from sitting in Parliament. In other words, by the very form, imparted to the body set up, Parliament might be taken to have evinced its intention not to disqualify such office-holders. But this apart, we feel that this approach is far too much involved in political considerations as to be capable of being taken into account in a mere interpretation of the Constitution.
46. In this connection we cannot omit from considerations the provisions contained in Sections 7 and 8 of the Representation of the People Act, 1951, as a parliamentary exposition or commentary on the meaning of the expression 'office of profit' under the Union or State in Article 191 and which are designed to supplement the disqualifications contained in the Constitution. The provisions in Section 7 which we have in mind is Sub-clause (e):
7. A person shall be disqualified for being chosen as, and for being, a member of either House of Parliament or of the Legislative Assembly or Legislative Council of a State.--
(e) if he is a director or managing agent of or holds any office of profit under, any company or corporation (other than a co-operative society) in the capital of which the appropriate Government has not less than twenty-five per cent. Share.
and Section 8 (1):
Notwithstanding anything contained in Section 7--
(e) a person shall not be disqualified under Clause (e) of that section by reason of his being a director unless the office of such director is declared by Parliament by law to so disqualify its holder.
(f) a disqualification under Clause (e) of that section shall not, in the case of a director take effect where the law making any such declaration as is referred to in Clause (a) of this section in respect of the office of such director or has come into force after the director has been chosen a member of Parliament or of the Legislature of a State, as the case may be, until the expiration of six months after the date on which such law comes into force or such longer period as the Election Commission may in any particular case allow.
Without doubt, these provisions would apply to the directors and employees of Public Corporations which have a share capital. Such Corporations might be formed for nationalised institutions. The Damodar Valley Corporation, whose set-up we have described earlier, would fall within this category. Public Corporations having a share capital formed for nationalised undertakings like the Reserve Bank or the State Bank would also be comprehended within this class.
47. These provisions made it clear that these bodies are not treated as departments of the State but that on grounds of public policy, their employees are disqualified from standing for election to the legislative bodies only of the 'appropriate Government'' which has control over or a financial interest in, such companies or Corporations. If the contention urged on behalf of the Advocate-General were to be accepted, the provision would in large part be superfluous in view of Articles 102(1) and 192(1) of the Constitution particularly in the form in which Section 7(e) stood when originally enacted in 1951. It then ran:
(e) if he is a director or managing agent of, or holds any office of profit under, any corporation in which the appropriate Government has any share or financial control.
Further the provision regarding Directors (as distinguished from Managing Directors and employees) of such bodies contained in Section 8(1)(e) and (f) appears to us to militate against the appellant's submission, in that parliamentary legislation positively disqualifying the incumbent is rendered necessary before the disqualification could operate and even then subject to the qualifications set out in Sub-section (f).
48. In our opinion, these provisions are a pointer that Parliament was not unmindful of the political considerations adverted to by the Advocate-General in regard to the ensuring of the purity of administration and the avoidance of the evil of graft and these therefore afford us a further indication that the phrase 'office of profit under the Government' in Article 191(1)(a) cannot be construed in the wide sense urged before us by the learned Advocate-General.
49. We, therefore, hold that the Tribunal was right in treating Krishnamurthi as not disqualified by Article 191(1)(a) from standing for election to the State Assembly.
50. The second point urged by the learned Advocate-General was that C. Krishnamurthi was disqualified under Article 191(1)(e). This provision reads:
191(1).--A person shall be disqualified for being chosen as, and for being, a member of the Legislative Assembly or Legislative Council of a State.
(e) if he is so disqualified by or under any law made by Parliament.
Section 49 empowers the Corporation to make regulations to provide for all matters for which provision is expedient for the purpose of giving effect to the provisions of the Act. In particular the Corporation is enabled to make these regulations to provide for:
49 (1)(A).--The methods of recruitment of employees and agents of the Corporation and the terms and conditions of service of such employees or agents.
Under the power thus conferred the Corporation has framed regulations, and among these, Regulation 29 reads:
29.--No employee shall take an active part in politics or in any political demonstration or stand for election as member for a Municipal Council, District Board or any Legislative Body.
Two questions arise on this regulation: (1) Whether it imposes a disqualification for being a member of the Legislature ; (2) whether this disqualification could properly be described as one imposed 'by or under any law made by Parliament'. The Election Tribunal upheld the respondent's contention, that a regulation made by the Corporation under section. 49 would not constitute a disqualification imposed 'by or under any law made by Parliament'. It therefore did not consider the first point which we set out above.
51. That the Article in the Constitution draws a distinction between a disqualification imposed 'by' a law made by Parliament and one imposed 'under' a law made by Parliament would appear to admit of no doubt. Nor is that distinction far to seek. A disqualification would be imposed 'by' a law made by Parliament when the Parliamentary statute directly enacts the disqualification or imposes a prohibition upon certain persons to stand for election. The words 'under a law' would, in our judgment, signify those cases where the disqualification is not to be found in the Parliamentary statute itself but is imposed by virtue of powers enabling this to be done ; in other words, where it is imposed by a law made by a subordinate law-making authority. Examples are numerous which bring out this distinction. For instance there are statutes which set up Corporations and which in terms incorporate those bodies. The Life Insurance Corporation created under the Life Insurance Act, 1956, is an illustration of such a method of incorporation. So are Municipal Corporations, Cantonment Boards, which are incorporated by the State and Central Legislation. As contrasted with this, we have companies and co-operative societies which attain incorporation by registration under the Companies Act and the Cooperative Societies Act respectively. This latter category is properly designated as incorporated 'under' a statute. It is this idea which is expressed in the following passage in Stroud's Judicial Dictionary dealing with the word 'by' ; 'A Company 'incorporated by Act of Parliament' means one which 'by' an act is brought into existence, and does not include a company incorporated 'under' an Act; therefore, a power to invest in the shares, etc., of a company incorporated 'by' an Act does -not include the shares, etc., of a company registered under The Companies Act, 1862, (Re Smith L.R. (1896) 2 Ch. 590.' This distinction is too well known to need any further elaboration.
52. Learned Counsel for the respondent urged that though a rule made by the Central Government under Section 48 of the Act would be 'a law by Parliament, a regulation made by the Corporation would not be such a law'. We feel unable to perceive this distinction. The ultimate sanction for the rule is the Act of Parliament--the Life Insurance Act--and the validity of the rule rests on the power of the Parliament to delegate, so to speak, a subordinate legislative power to the Central Government ; and so long as the power to delegate does not exceed well-known limits, the rule made in pursuance of the delegation has the same validity and the same characteristic as a law made directly by Parliament. If this were the rationale behind the binding character of a rule framed by the Central Government, we do not see how this principle would not apply to the Regulations made by the Corporation under a valid regulation making power. Parliament has a wide power in choosing the mechanism by which subordinate legislation could be brought into existence, and we can see no principle in drawing any distinction between the repositories of this power, as having any effect upon the result and legislation being properly described as a law made 'under' an Act of Parliament. The basis upon which the Election Tribunal has rejected the point urged on behalf of the appellant must therefore be held to be erroneous.
53. Learned Counsel for the respondents urged that even if the Regulation made by the Insurance Corporation be a law which satisfied the last part of Article 191(1)(e), still it did not impose a disqualification upon the employees of the Corporation from being members of the Legislature. The argument was that Regulation 29 was merely a rule of conduct prescribed for the employees of the Corporation, the breach of which might result in disciplinary action being taken against them, but that it did not render the employees disqualified for standing for election. Though the point is not free from difficulty, we have reached the conclusion that this argument of the respondents must be rejected. We see no distinction between a legal prohibition against a person standing for election, and the imposition of a disqualification on him so to stand. It might be that the object of the regulation was to ensure that the employees of the Corporation bestowed undivided attention upon their duties as such employees, but this does not militate against the prohibition operating as a disqualification. If a person is disabled by a lawful command of the Legislature, issued directly or mediately, from standing for election, it is tantamount to disqualifying him from so standing. We, therefore, hold that Regulation 29 framed by the Life Insurance Corporation constituted a 'law' which disqualified C. Krishnamurthi from standing for election under Article 191(1)(e) of the Constitution.
54. The appeal is accordingly allowed and as the improper rejection of the nomination paper was the only ground urged for the setting aside of the election and we have rejected this contention, this election petition 178 of 1957 fails and is dismissed There will be no order as to costs.