C.B. Capoor, J.C.
1. This petition and C. W. P. No. 26/1960 purport to be under Article 226 of the Constitution of India and as a common question of law arises in both of them I propose to dispose of them by this order.
2. The petitioners and respondent No. 1 to both the petitions (hereinafter to be styled as respondent No. 1) were candidates for election to the Municipal Committee, Nahan. They filed their nomination papers. An objection was raised at the instance of the petitioners that respondent No. 1 was not qualified to seek election, inasmuch as he was a whole time employee in the Nahan Foundry which was entirely owned by the Ministry of Commerce and Industry Government of India and was under the management control and supervision of the Central Government and respondent No. 1 drew his emoluments from and under the Government. Stated in other words the contention is that respondent No. 1 was disqualified from seeking election On account of his holding an office of profit under the Government of India. That contention did not find favour with the Returning Officer and applications in revision filed by the petitioners against the aforesaid order were rejected by the Revising Authority. The petitions under consideration are in the main directed against the last mentioned order. It has also been alleged on behalf of the petitioners, thatthe electoral rolls were not prepared in accordance with law, but this aspect of the matter was not pressed in the course of argument. The other respondents to the petitions are Himachal Pradesh Administration through the Secretary Local Self Government and the Deputy Commissioner, Sirmur District, Nahan.
3. The prayers are that the petitioners were qualified candidates and were entitled to be duly returned from the respective wards from which they had sought election and that respondent No. 2 be directed to issue a notification in the Gazette that they were the duly returned candidates to the Municipal Committee of Nahan, and that respondent No. 3 be directed to administer them the oath of office as members of the aforesaid Municipal Committee.
4. The petitions are opposed by respondents Respondent No, 1 has filed an affidavit and respondents Nos. 2 and 3 have filed written statements. The main, grounds on which the petitions have been opposed are that the orders made by the Returning Officer and the Revising Authority refusing to reject the nomination papers filed by respondent No. 1, Were correct and that the petitions were not maintainable in as much as recourse was not had to the alternative remedy of filing an election petition. It is not disputed that respondent No. 1 was employed in the Nahan Foundry Ltd.
4A. The main question that arises for decision is as to whether under the Municipal Election Rules 1957 framed by the Lieutenant Governor Himachal Pradesh in exercise of the powers vested in him under Sections 242 and 258 of the Punjab Municipal Act, 1911, as applied to Himachal Pradesh, respondent No. 1 was not qualified to seek election to the Municipal Committee Nahan. Disqualifications for membership have been set forth in Rule 7 of the aforesaid rules, and the relevant portion of that Rule runs as below:
''No person shall be 'eligible for election as and for being a member of a Municipal Committee, who .......
(h) is a whole-time salaried official in the service of any Municipal Committee, Notified Area Committee or Cantonment Board or holds any office of profit under the Government of India or the Government of any State other than an office declared by law not to disqualify its holder for being chosen as, and for being, a member of the Territorial Council or the Parliament.'
5. The Memorandum and Articles of Association of the Nahan Foundry Ltd., are on the record and it appears therefrom that the company was registered as a private company tinder the Companies Act. The authorized capital of the company was Rs. one crore divided into 10,000 shares of Rs. 1000/- each. The subscribers to the memorandum of association were (1). C.C. Desai, Secretary to the Government of India, Ministry of Production, for and On behalf of the President of India, (2) C.C. Desai, Secretary to the Government of India, Ministry of Production, (3) M. P. Pai, Joint Secretary to the Government of India, Ministry of Production, (4) B. B. Paymaster, Deputy Secretary to the Government of India, Ministry of Production, (5) U. L. Goswami, Deputy Secretary Planning Commission, (6) A. Baksi, Deputy Secretary to the Government of India, Ministry of Finance, and (7) S. K. Guha Under Secretary to the Government of India, Ministry of Production. The subscriber at Serial No. 1 held 3994 shares and each one of the others held 1 share.
The President has the power to determine in writing the number of directors of the company and to appoint them vide Articles 66 and 67. The directors have the power inter alia to appoint and at their discretion, remove or suspend such managers, secretaries, officers, clerks agents and servants for permanent, temporary or special services, as they may, from time to time, think fit and to determine their powers and duties and fix their salaries or emoluments and to require securities in such instances and to such amount as they think fit, provided that no appointment or removal of any person to a post, the maximum pay of which is Rs. 500/- or more per mensem shall be made without the prior approval of the President, The over-all control of the company vests in the President.
6. The question for consideration is if the aforesaid company can be called a department or agent of the Central Government.
7. A corporation aggregate is can incorporated group of co-existing persons as for example a registered Company. A company is in law something different from its share-holders or members. The property of the company is not in law the property of the shareholders. The debts and liabilities of the company are not attributed in law to its members. The company may become insolvent while its members remain rich Contracts may be made between the company and a share-holder as if between two persons entirely distinct from each other. The share-holders may become so reduced in number that there is only one left but he and the company will be distinct persons for all that, vide Jurisprudence by Sir John Salmond, Tenth Edition, pages 327 and 328.
8. It would thus appear that even thoughthere may be one share-holder only of a company, the company will be an entity distinctfrom its shareholder.
9. It has been held in some of the English cases that a Court of law is unwilling to pierce the veil of corporate entity and to examine the reality beneath, and the aforesaid observation was relied upon by a Division Bench of the Patna High Court in the case of Subodh Ranjan Ghosh v. Sindri Fertilisers and Chemicals Ltd., reported in AIR 1957 Pat 10. The observation is based on the principle that incorporation is a recognised method of creating a legal entity and if an entity has an existence in the eye of law it is not the function of the Court to dive into the depths of such a legal entity. The object of incorporation is that a corporate body may acquire a legal personality and that object would, be defeated, if the personality so created is ignored and its inner depth is probed in.
10. The facts of the case Tamlin v. Hannaford, (1949) 2 All ER 327 were as below:
The plaintiff was the lessee of a house at Plymouth which formerly belonged to the Great Western Railway but became vested in the British Transport Commission under the Transport Act, 1947, and the defendant was the subtenant of some rooms in the house which constituted a separate dwelling within the meaning of the Rent Restriction Act; The plaintiff sued for possession of the room and the defendant claimed the protection of the Rent Restriction Act. The county court Judge held that the house must be regarded as owned by the Crown and administered by the Transport Commission as agents of the Crown, and, as the Crown was not bound by the Rent Acts, he made an order for possession. The Court of Appeal reversed his decision On the ground that the British Transport Commission was not a servant or agent of the Crown and its property was as much subject to the Rent Restriction Acts as the property of any other person. It further held that 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 Land Board by the Town and Country Planning Act, 1947 which was passed on the same day as the Transport Act, 1947 and that 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.
11. The facts of the case of R. v. South Wales Traffic Licensing Authority, Ex parte Ebbw Vale Urban District Council reported in (1951) 1 All ER 806 were as below:
Red and White Services, Ltd., an Omnibus Company, the shares of which had been acquired by the British Transport Commission under the Transport Act, 1947, applied to the Licensing Authority for the South Wales traffic area under Section 72(4) of the Road Traffic Act, 1930, for a modification of the conditions attached to their road service licence so as to enable them to increase their scale of fares. The Ebbw Vale Urban District Council applied to the Divisional Court for an order of prohibition prohibiting the licensing authority from hearing and determining the application of Red And White Services, Ltd., on the ground that, as the services provided by the company were services provided by the British Transport Commission, the jurisdiction of the licensing authority was excluded by virtue of Section 65(1) of the Act 1947. The Divisional Court found that the Commission were providing the road service in question or that it was provided by an agent of the Commission, and granted an order of prohibition.
The Court of appeal held that although the shares of the company were owned by the commission and control of the company was vested in the commission, the commission and the company were distinct legal entities, and, in the absence of a contract of agency the company could not be said to be the agent of the commission; the commission did not itself provide the service, but secured or promoted its provision by the company, nor was the service provided by any person acting as agent for the commission; and, therefore, Section 65(1) of the Act of 1947 did not apply to exclude Section 72, of the Act of 1930, and the Licensing Authority had jurisdiction to entertain the company's application.
12. One Om Parkash was originally a salaried employee of the Bharat Life Insurance Company Ltd. The management of the aforesaid company was taken over by the Central Government on 19th of January 1956, when the Life Insurance (Emergency Provisions) Ordinance 1956 came into force and also on 21st of March 1956 when the Life Insurance (Emergency Provisions) Act No. 9 of 1956 came into force. He was then a member of the Municipal Board Chandausi. Section 13(d)(f) of the U.P. Municipalities Act inter alia provided that a person shall be disqualified for being a member of a Board if he is in service of the State or the Central Government and one Madan Mohan Lal who was also a member of the aforesaid Board challenged the right of Om Parkash to continue as a member of the Board alter the coming into force of the Life Insurance Ordinance and Act referred to above. Under the Life Insurance Corporation Act 1956, the Central Government had vast powers to regulate the Constitution and the powers of the Corporation. It was held by Mehrotra J. in the case reported in Madan Mohan Lal v. Om Parkash, AIR 1957 All 384, that the Life Insurance Corporation had a distinct legal entity and that it could not be said to be a department of the Central Government and employees of the Corporation could not be said to be in the service of the Central Government.
13. A case under the Life Insurance Corporation Act of 1956, reported in 14 ELR 21: (AIR 1958 Mad 343), Narayanaswamy Naidu v. C. Krishnamurthi, went up to the Madras High Court also. One of the questions before that Court was as to whether an employee of the Life Insurance Corporation held an office of profit under the Central Government and as such was disqualified from being elected as a member of the Madras State Assembly. It was held that even though initially capital was contributed by Government, the members of the Corporation were appointed by the Government and the Government had very large powers of control and supervision over the activities of the Corporation, the Corporation was neither a department nor an agent of the Government and service under the Corporation was not service under the Government of India within Article 191 (1)(a) of the Constitution. The relevant portion of that Article runs as below:
'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.'
14. So far as the holding an office of profit under, the Government of India is concerned, there is no material difference between the aforesaid provision of the Constitution and Rule 7 of the Municipal Election Rules referred to above.
15. The Madarsa Dargah Khawaja Sahib Akbari was a school managed and run by the Government of Nizam Haiderabad until 1959 under an Act of 1950. The management was vested in an Administrator who was appointed by the Central Government and was to work under the control of the Central Government. In February, 1955 Maulana Abdul Shakoor was appointed as manager with an honorarium of Rs. 100/- per month by the Administrator of the Dargah Committee. Under the Dargah Khawaja Sahib Act 1955 which came into force on 1st of March, 1956, the administration, control and management of the Dargah Endowment was vested to a committee which was a body corporate with perpetual succession and common seal. The members of the committee were appointed by the Central Government and the Central Government in consultation with the committee appointed an Administrator of the Dargah who was to be the ex-offlcio. Secretary of the Committee. His salary was fixed by the Central Government and was to be paid out of the Dargah Endowment Funds.
The committee which exercised its powers through the Administrator was entitled to appoint, suspend and dismiss servants of the Dargah. Maulana Abdul Shakoor filed two nomination papers on 28th of February, 1956 and the third one on the 1st of March, 1956. The Returning Officer rejected first two nomination papers but accepted the third on the ground that on 1st of March, 1956, the Maulana did not hold any office under the Government, as on that day the Dargah Khawja Sahib Act of 1955 had) come into force. The Election Tribunal by a majority held that the aforesaid Maulana held an office of profit under the Government even on 1st of March, 1956. On appeal it was held by the Supreme Court that though the Committee of the Dargah Endowment was to be appointed by the Government of India it was a body corporate with perpetual succession and that the fact that the Committee or the members of the Committee were removable by the Government of India and that the Committee could make bye-laws prescribing the duties and the powers of its employees could not convert the servants of the Committee into holders of office of profit under the Government of India and as the Maulana was not appointed by the Government of India nor was removable by that Government nor was he paid out of the revenues of India he did not hold an office of profit under the Government. It was further held that according to Article 102 (1)(a) of the Constitution what purported to be the dis-qualification wag the holding of art office of profit under the Government and not the holding or an office of profit under any other authority even though that authority be subject to the control of the Government vide 13 ELR 149: (AIR 1958 SC 52), Maulana Abdul Shakoor y. Rikhab Chand.
16. Subodh Ranjan Ghosh was appointed as a Shift Charge Engineer in the Sindri Fertiliser Project on 15-11-48 for a term of 5 years by the Ministry of Industry and Supply of the Government of India. In the year 1951 a private limited company was constituted called Sindri Fertiliser and Chemicals Ltd., which was owned completely by the Government of India and the management of which was entrusted to a Board of Directors nominated by the President of India and acting under his direction and control. The share capital of the company was Rs. Three Thousand Lacs consisting of three lacs of shares valued at Rs. one thousand each. The President of India was allotted 2,99,999 shares and the Secretary of the Production Ministry, was allotted one share. After the Company was constituted the assets of the Fertiliser Project were transferred to the said Company with effect from 15-11-59. Subodh Ranjan Ghosh was discharged from his services by the Company in terms of the contract of service by paying him six months salary in lieu of notice. He filed a petition under Article 226 of the Constitution of India for the quashing of the order of discharge on the ground that the said order was in conflict with the Article 311 of the Constitution of India. A question arose as to whether he held a civil post under the Union and it was answered in the negative by a Division Bench of the Patna High Court presided over by Ramaswami C.J. and Raj-kishore Parshad J. vide AIR 1957 Pat 10 referred to above.
17. The aforesaid case was followed by the same High Court in the year 1958, in the' case or Baleshwar Parshad v. Agent, State Bank of India, AIR 1958 Pat 418 and an employee of the State Bank of India was not held to be a civil servant of the Union Government and as such not entitled to the protection afforded by Articles 311 and 320 of the Constitution.
18. On behalf of the petitioners it has been contended that the aforesaid Patna cases were distinguishable from the facts of the instant cases in as much as in the former there was no question as to whether the petitioners were disqualified from seeking election. I do not think that the aforesaid is a distinction in principle. Broadly speaking the question that arises in the instant cases and arose in the aforesaid Patna cases was as to whether, an employee of Company could be said to be an employee of the Government.
19. In the case of Bibhuti Bhusan v. Damodar Valley Corporation, reported in AIR 1953 Cal 581 it was held that the different provisions of the Damodar Valley Corporation Act, 1948 indicated that the Corporation had a separate and independent existence and was a different entity from the Union or the State Governments and that its servants could not be treated as officers holding a civil post under the Union or the State Government.
20. On behalf, of the petitioners reliance was placed upon Section 617 of the Indian Companies Act, Act No. 1 of 1956. That section reads as below:--
'For the purposes of Sections 618, 619 and 620 Government company means any company in which not less than 5.1 per cent oi the share capital is held by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments.'
and it was contended that as in the Nahan Foundry Company the Central Government held virtually all the shares it was a Government company and its employees were the servants of the Government of India. It will have been noticed that it is only for the purposes of three specified sections that a Government company was defined as indicated above.
21. Section 618 provides that no Government company formed after the commencement of this Act shall appoint a managing agent. Section 619 provides that notwithstanding anything contained in Sections 224 to 233 the provisions set forth in Sub-section (2) of Section 619 will apply to a Government company. Those provisions relate to the appointment of an auditor on the advice of the Comptroller and Auditor-General of India and to the power of the Comptroller and Auditor-General of India to direct the manner in which the company's accounts shall be audited and to conduct a supplementary or test audit of the company's accounts by such persons as he may authorize in this behalf, and Section 620 empowers the Central Government to direct by a notification in the official Gazette that any of the provisions of the Act (other than Sections 618, 619 and 639), shall not apply to any Government company, or shall apply to any such company, only with such exceptions, modifications and adaptations, as may be specified in the notification.
22. It is thus clear that a company which has conveniently been denned as a Government company is not a Government company for all purposes, and that definition cannot, be read for the purposes of Article 191 of the Constitution, or the rules prescribing disqualification for election to the municipal committees. Thus the Nahan Foundry Ltd., cannot be said to be Government Company for the purposes of Rule 7 (h) of the Municipal Rules, 1957, framed by the Lieutenant Governor, Himachal Pradesh.
23. On behalf of the petitioners reliance was placed upon a ruling of the Madhya Pradesh High Court reported in 15 ELR 467: (AIR 1959 Madh Pra 141), Ramakant Kesheorao Huldurkar v. Bhikulal Laxmich and Chandak. The facts of that case were that Shaw Wallace and Co., were the managing agents of three companies, A and Co., B. and Co., and C. and Co, The respondent was the coal auditor of A. and Co., and B. and Co. His salary was paid from the central office of the Shaw Wallace and Co. He also acted asthe coal auditor of C. and Co., and the labour officer of all the three companies when he was directed to do so by the Chief Mechanical Engineer of Shaw Wallace and Co. When he worked for C. and Co., a proportionate amount of his salary and allowances were debited to C. and Co. The Union Government held more than 25 per cent of the shares in C, and Co. In view of the aforesaid findings it was held that the respondent held an office of profit under the Union Government and was, therefore, disqualified from being a member of the House of the People under Section 7(e) of the Representation of the People Act.
24. It may respectfully be pointed out that in that case there is no discussion of the question as to how the Rewa Coal Fields Ltd., could be considered to be a company owned by the Government merely because the Government had more than 25 per cent share in the capital of that company. If persons other than Government are also shareholders of a company, it is difficult to understand as to how can the employees of that company be said to be employees of the Government.
25. On behalf of the petitioners reliance was also placed upon the following two rulings:--
(1) A ruling of the Bombay High Court, reported in 13 ELR 334: (AIR 1958 Bom 314) Dr. Deorao Lakshman Anande v. Keshav Lakshman Borkar.
(2) A ruling of the Allahabad High Court; State of Uttar Pradesh v. Audh Narain Singh, reported in 1961 All LJ 372 : (AIR 1961 All 515).
26. In the first case the Employees' State Insurance Act, 1948 provided for the establishment of the employees State Insurance Corporation by the Central Government. It was to consist of representatives of the Central Government and State Government, of employers and employees and of the medical profession. Its principal officers were appointed by the Central Government and it had to work under the control and supervision of the Government. It empowered the State Governments to make arrangements for giving medical benefits and treatment to employees with the approval of the corporation. The rules made by the Bombay Government provided for the maintenance of a list of Insurance Medical Practitioners, i.e., medical practitioners who had undertaken to provide medical services to employees under the rules in response to applications called for by the Government and whose services were accepted by Surgeon-General they could be removed from the State Government and could resign by giving notice to the Surgeon-General, Their remuneration was fixed by the State Government and the expenses were partly met out of the revenues of the State. They were allowed to have private practice. Dr. Deorao Lakshman was an Insurance Medical Practitioner included in that list. A question arose as to whether he held office of profit under the Bombay Government and the question was answered in the affirmative.
27. It would thus appear that in the aforesaid case it was the liability of the State Government to make arrangement for giving medical benefits and treatment to the employees and that the remuneration of the Insurance Medical Practitioners was also to be paid partly out of the funds of the State Government, and that the State Surgeon-General had a lot of say in the appointment and removal of the Insurance Medical Practitioners. The aforesaid case, is therefore, distinguishable from the facts of the instant case in which the power to appoint and remove the employees of the Nahan Foundry vested in the Directors of the Company.
28. It was held in the Allahabad case that a Tehvildar appointed by the Government Treasurer held a civil post under the State and was entitled to the benefit; of Article 311, even though he was not appointed directly by the State. It appears from a perusal of the judgment that it has been expressly provided in the Treasury Manual that a tehsildar shall not be a servant of the State and the decision is thus vulnerable and open to criticism.
29. It is again significant that in the Constitution there is a difference in the phraseology of Articles 101 and 191 which prescribe disqualifications 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 and Articles 58 and 66 which respectively lay down the disqualifications for being appointed President and Vice President of India. The holding of an office of profit under any local or other authority subject to the control of the Government of India or the Government of any State is a disqualification for the office of the President or the Vice President but is not a disqualification for the membership of either House of Parliament or the Legislative Assembly or Legislative Council of a State. The aforesaid is not a disqualification under Rule 7(h) of the Municipal Rules, 1957, referred to above. If the intention of the Rule-making body had been that the holding of an office of profit under any local or any other authority subject to the control of the Government of India or the Government of the State should also be a disqualification for seeking election to the municipal committee nothing would have been easier than to have made a specific provision to that effect. It would thus appear that the mere fact that the Nahan Foundry Ltd., was under the control of the Government of India would not lead to the conclusion that the Nahan Foundry was a Government Company or that the employees of the Nahan Foundry held office of profit under the Government of India.
30. I am, therefore, of the opinion, that respondent No. 1 did not hold any office of profit under the Government of India and was not disqualified from being elected. The petitions are devoid of force and are dismissed with costs. Let a copy of this order be placed on the record of Civil Writ Petition No. 26/60.