D.R.GURUSHANTAPPA

ABDUL KHUDDUS ANWAR & ORS.

January 27, 1969 •

(J. M. SHELAT, V. BHARGAVA AND C. A, VAIDIALINGAM, JJ.J

Representation of the People Act (43 of 1951), s. 10--Caodidate elected employed in a company owned by Government-If disqual1 1ed Constitution of India Arts. 102(1) and 191(1)-Scope of.

The first respondent was appointed in a undertaking started and managed by the State Government, as its own concern. Later a company was registered and it took over the undertaking.

All the shares in the company were held by the Government though some were in the name of its officers.

The Directors of the Company were appointed by the Government-a Minister \.Vas one of the first Directors of the Company; the appointment of the Secretary of the Company was subject to approval of the Government; and, even in the general working of the c(ompany, Government had the power to issue directions to the Directors which were to be carried out by them.

When the concern was taken over from the Government by the Company, the services of the first respondent were not terminated and he was continued in the same post by the company which he was holding when the concern was being run by the Govern ment. and there was no fresh contract entered into between him and the company.

He was later promoted to the post of Superintendent in the Company, and he successfully contested a seat to the State Legislature.

The appellant an unsucdessful candidate, challenged the election contend ing : (i) that the first respondent when initially appointed to the post was a government servant and, even after that concern was taken over by the company. he continul!d to be in the service of the Government~ and (ii) alternatively, that ever if the first respondent ceased to be Government servant, he still continued to hold an office of profit under the State Government. though technically he was in the employment of the company.

HELD : The first respondent was not holding an office of profit under the State Government.

( i) When the undertaking was taken over by the company as a going conce'rn, the employees working in the undertaking were also taken. over and since. in law, the company had to be treated as an entity distinct and sepa'rate from the Government. the employees, as a result of the transfer of the undertaking, beoame employees of the company and ceased to be employees of the Government.

The first respondent was a workman at the time of the transfer of the undertaking and as a workman, he had, under s. 25FF of the Industrial Disputes Act, become an employee of the new employer. viz. the company.

In view of this provision of law, there was no need for any specific contract being ente'red into between the Government and the first respondent terminating his Government service; nor was there any need for a fresh contract being entered into between the companv and the first respondent to make him an employee of the company. Further, after the undertaking was taken over by the company, the employees, who were workmen, were no longer governed by the S.tate1s Civil Service Regulations. Their conditions o'f service were deter mined by the Standing Orders of the Company which were certified under 425

the Industrial Enwloyment (Standing Order) Act, 1946.

The mere inclusion in the Civil List of the name of a person could not prove that that person was in the service of the Government, unless evidence was tendered to show the circumstances under which the name was included in the Civil List and to exclude the possibility of names of persons other than those in government service being included in the Civil List.

No such evidence was given in this case.

Finally the post, which be was holding while the concern was being run by the Government, ceased to be a Gove'rnment post in the transfer of the undertaking to the company and became a post under the qompany, so that the first respondent ceased to be in Government service by continuing in that post. [429E, G; 430B,

&-HJ

(ii) The fact that the Government had control over the Managing Director and other Directors as well as the power of issuing directions relating to the wo'rking of the company could not lead to the inference that every employee of the company was under . the control of the Government.

The power to appoint and dismiss first respondent did not vest in the Government or in any Government servant. The {M)Wer to control and give directions as to the manner in which the duties of the office were to be performed by the first respondent also did not vest in the Government, but in an officer of the company. Even the power to determine the question of remuneration payable to the first respondent was not vested in the Government which could only lay down rules relating to the conditions of service qf the employees of the company. In the case of election as President or Vice-President, the disqualification

arises even if the candidate is holding an office of profit under the local or any other authority under the control of the Central Government or the State Government, whereas, in the case of a candidate for election as a Member of any of the Legislatures, no such disqualification is laid down by the Constitution if the office of profit is held under the local or any other authority under the control of the Government and ne>t directly under any of the Government. This clearly indicates that in the case of eligibility for election as a member of a Legislature, the holding of an office of profit under a corporate body like a local authority does not bring about disqualification even if the local authority be under. the control of the Government. The me're control of the Government over the authoritv having the power to appoint, dismiss, or control the working of thC officer employed by such authority does not disqualify the officer from hcing a candidate for election as a member of the Legislature in the manner in which sudh disqualification comes into existence for being elected as the President or the Vice-President. [433F; 434H; 435 A-CJ

By s. 10 of the Representation of the People Act, the disqualification is limited to a person holding the office of a managing agent, manager or secretary of a company in the capital of which the Government has not less than 25 % share, and the disqualification does not apply to other employees of the company.

This gives two indications as to the scope of the .disqualification laid down in Arts. 102(1) (a) and 19l(l)(a) of the Constitution.

One is that the holding of an office in a company, in the capital of which the Government has not less than 25 % share, is not covered by the disqualifications laid down in Arts. 102(1)(a) and 191(1) (a), as. othe'rwise, this provision would be redundant. The second is that even Parliament, when passing the Act, did not consider it necessary to disqualify every person holding an office of profit under a Government company, but limited the disqualification to persons holding the office of managing agent, manager or secretary of the company.

The fact that the entire share capital in the company in this case is owned by the Government does not, make any differen.ce.

[435 D-H]

A Gurugobinda &lsu v. Sank<>ri Prasad Ghosal 4' Ors. [1964] 4 S.C.R. 3il and Maulana Abdul Shakur v. Rikhab. Chand,

[1958] S.C.R. 387, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 718 of 1968.

Appeal under s. 116-A of the Representation of the People Act, 1951 from the judgment and order dated November 17, 1967 of the Mysore High Court in Election Petition No. 7 of 1967.

S. V. Gupte, Shyama/a Pappu, S. S. Java/i and Vineet Kumar, for the appellant.

Lily Thomas, for respondent No. 1.

The Judgment of the Court was delivered by

Bhargava, J.

This appeal under section l l 6A of the Representation of the Peoples' Act No. 43 of 1951 (hereinafter referred to as "the Act") has been filed by one of the unsuccessful candidates for election to the Mysore Legislative Assembly from No. 152, Bhadravati Constituency, against the judgment of the High Court of Mysore dismissing his election petition for setting aside the election of the successful candidate, respondent No. 1.

After the nomination papers had been filed, the scrutiny of the nomination papers took place on the 21st January, 1967 and five nomination papers were declared as valid. They were the nomination papers of the appellant, respondent No. 1 and respondents Nos. 2 to 4.

The polling for the Constituency took place on 15th February, 1967, and after the counting of votes, the results were declared on 22nd February, 1967. Respondent No. 1 received 15,862 votes, while the appellant received 13,380 votes. The other three candidates, respondents 2 to 4, were also unsuccessful having received much smaller number of votes. On 5th April, 1957, the appellant filed the election petition challenging the election of respondent No. 1 on a number of grounds, out of which we need mention only one singl.e ground, as the appeal in this Court is confined to that ground alone. It was pleaded that respondent No. 1 was disqualified under Article 191(1)(a) of the Constitution from being chosen as a member of the Legislative Assembly, because he was holding an office of profit under the Government of the Statt of Mysore on the date-of scrutiny. This ground, as well as other grounds taken by the appellant fer challenging the validity of the election of respondent No. 1 were all rejected by the High Court and the election petition was dismissed. Consequently, the appellant has come up in this appeal to this Court.

Though. in this appeal, a number of grounds were raised, Mr.

S. V. Gupte, counsel for the appellant, confined the case to this sole ground of disqualification of respondent No. 1 on the date of scrutiny.

The facts relevant for deciding this issue may now be stated.

A On the date of scrutiny, respondent No. 1 was employed as Superintendent, Safety Engineering Department in the Factory run by the Mysore Iron & Steel Works Ltd., Bhadravati. His salary was more than Rs. 500 per mensem. The past history of the service of respondent No. 1 was that he was appointed in the year 1936 in the Mysore Iron & Steel Works, Bhadravati, which was started by B the Government of Mysore and was being managed by the Government as its own concern. He continued to be a servant of the Government of' Mysore when, in the year 1962, a private !incited Company was registered under the name of Mysore Iron & Steel

Limited, Bhadravati (hereinafter referred to as "the Company") under the Indian Companies Act, 1956, and this Company took C over the Mysore Iron & Steel Works from the Government. Respondent No. 1 had first joined service as a daily worker in 1936, but was promoted as Chargeman, Asstt. Foreman, Foreman and thereafter as Assistant Superintendent which was the post held by him in the year 1962 at the time when the concern was taken over by the Company. Subsequently, he was promoted as Superintendent in the year 1964 and was working on that post at the time D of the election in 1967. It was also the common case of the parties that the shares of the Company were held cent per cent by the Mysore Government, though some of the shares were shown in the names of some of the Officers in the service of the Mysore Government. Under the Articles of Association of the Company, the first Directors of the Company w.ere the Minister-in-charge of E the Industries Portfolio in the Mysore Government, the Secretaries to the Mysore Government in the Finance Department, and in the Commerce and Industries Department, the Managing Director of the Mysore Iron & Steel Ltd., and the Chief Conservator of Forests of the Mysore Government. The Governor of Mysore was entitled to appoint all or a majority of the members of the F Board of Directors so long as the Government of Mysore held not less than 51 per cent of the total paid-up capital of the Company or so long as the Governor continued to be interested in any fiduciary capacity. The Board of Directors could also co-opt one or more individuals as Directors. Thus, the State Government had considerable control in appointment of Directors of the Company as well as in the appointment of the Managing Director who was G to be appointed by the Governor from amongst the Directors nominated by him.

The . Governor was also entitled to appoint from amongst the nominated Directors a Chairman and Vice-Chairman of the Board of Directors. Even. the Secretary of the Company had to be appointed by the Board of Directors after obtaining approval of the Governor. In respect of other employees of H the Company. recruitment and service conditions had to be in accordance with the rules which may be prescribed by the Governor from time to time.

When the concern was taken over from

the Government b) the Company, the services of respondent No. 1 were not terminated and he was continued in the same post by the Company which h~ was holding when the concern was being run by the Government. There was no fresh contract entered into between him and the Company. On these facts, two alternative contentions we.e raised by Mr. Gupte to urge that respondent No. 1 was disq•.ohfied under Art. 19l(l)(a) of the Constitution.

The first argument was that respondent No. l, when initially appointed to a post in the Mysore Iron & Steel Works in 1936, was a government servant and, even after that concern was taken over by the Company, he continued to be in the service of the Mysore Government.

In the alternative, the second contention was that, even if respondent No. 1 ceased to be a government ser vant, he still continued to hold an office of profit under the Government of Mysore though, technically, he was in the employment of the Company.

So far as the tirst point is concerned, reliance is placed pri marily on the circumstance that, when the concern was tak'en over by the Company from the Government, there were no specific agreements terminating the government service of respondent No. 1, or bringing into existence a relationship of master and servant between the Company and respondent No. 1. That cir cumstance, by itself, cannot lead to the conclusion that respondent No. 1 continued to be in government service.

When the undertaking was taken over by the Company as a going concern, the employees working in the undertaking were also taken over and since, in law, the Company has to be treated as an entity distinct and separate from the Government, the employees, as a result of the transfer of the undertaking, became employees of the Company and ceased to be employees of the Government. This position is very clear at least in the case of those employees who were covered by the definition of workmen under the Industrial Disputes Act in whose cases, on the transfer of the undertaking, the provisions of section 25FF of that Act would apply.

Respondent No. l was a workman at the time of the transfer of the undertaking in the year 1962, because he was holding the post of an Assistant Superintendent and was drawing a salary below Rs. 500 per mensem.

As a workman, he would, under s. 25Ff of the Industrial Disputes Act, become an employee of the new employer, viz., the Company, which took over the undertaking from the Mysore Government which was the previous employer.

In view of this provision of law, there was, in fac~ no need for any specitic contract being entered into between the Mysore Government and respondent No. I tem1inating his government scr- Yicc, nor was there any need for a fresh contract bein~ entered into between the Company and respondent No. 1 to ln; ike him an employee of the Company. 8Sup.C.l/6J-9

~UVREME CUURT RbPURTS [l%9J .1 S.C.R.

This position is further clarified by the circumstance that, after the undertaking was taken over by the Company, the employees, who were workmen, were no longer governed by the Mysore Civil Service Regulations.

Their conditions of service were determined by the Standing Orders of the Company which were certified under the Industrial Employment (Standing Orders) Act, 1946. These Standing Orders even referred to certain employees as "lent Officers". The reference was obviously to persons who continued to be in the Government service, but whose services were Jent to the Company. It was conceded in the present case that respondent No. 1 was not a lent officer as envisaged by that expression used in the Standing Orders.

Respondent No. I further came to be governed by the Works Service Rules.

It is true that, under the Articles of Association. the Governor had the power to lay down conditions of service ot the employees of the Company; but that cannot mean that the employees of the Company continued. to be in the service of th~ Government. Reliance in this connection was also placed on behalf of the appellant on the fact that the name of respondent No. l appeared in the Mysore Civil List under the heading "Iron and Steel Ltd., Bhadravati" from which an inference was sought to be drawn that respondent No. I must have continued in government service, as, otherwise, his name would not have been included in the Civil List. The mere inclusion in the Civil List of tb.e name of a person cannot be held to prove that that person is in the service of the Govermnent, unless evidence is tendered to show the circumstances under which the name was included in the Civil List and to exclude the possibility of names of persons other than those in government service being included in the Civil List. No such evidence was given in this case.

On the other hand, the same Civil List shows that even the names of certain employees of the Universities in the State are also included in it, and, on the face of it, University employees could not be held to be in government service. The Civil List relied upon clearly is not confined to names of persons in Mysore Government service only, so that this piece of evidence relied on by the appellant also does not establish that respondent No. 1 continued to be in government service after the undertaking was taken over by tb.e Company.

Finally, there is the circumstance that it is not shown that, after the undertaking was taken over by the Company, respondent No. I continued to hold a lien on any Government post.

In fact, the post, which he was holding while the concern was being run by the Mysore Government. ceased to be a Government post on the transfer of the undertaking to the Company and became a post under the CompJny, so thnt respondent No. I ceased to be in govcmruelll service by .; Ollliliuing in tho! pose The first .;, mkrt

tion raised on behalf of the appellant, therefore, fails.

On the second contention that even if respondent No. 1 was not holding a government post, he' must be held to be holding an office of profit under the Government, Mr. Gupte relied o!1 the principles laid down by this Court in Gurugobmda Basu v. Sankari J'rasaa Ghosal and Uthers('). The Court in that case brought out the distinction between an office of profit under the Government and a post in the service of the Government by stating ;-

"We agree with the High Court that for holding an ollice of profit under the liovernment, one need not be in the service of Govermnent and there need be no relationship of master and servant between them. The Constitution itself makes a distinction between 'the holder of an office of profit under the Government' and 'the holder of a post or service under the Govermnent'; see Arts. 309 and 314.

The Constitution has also made a distinction between 'the holder of an office of profit under the Government' and 'the holder of an office of profit under a local or other authority subj.eel to the control of Government'; see Art. 58(2) and 66(4)." The Court then proceeded to consider the earlier decision in the case of Maulana Abdul Shakur v. Rikhab Chand and Anr.(') and held:-

"It is clear from the aforesaid observations that in Maulana Abdul Shakur's case(') the factors which were held to be decisive were : (a) 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 ( b) payment from out of Government revenues, though it was pointed out that payment from a source other than Government revenues was not always a decisive factor." After this reference to Maulana Abdul Shakur's case('), the Court proceeded to apply the principles to the facts of the case before it.

In that case, the question was whether the appellanl was holding an office of profit under the Government of India.

It was pointed out that the appointment of the appellant as also his continuance in office rested solely with the Government of India in respect of the two Companies for which he was employed as an Auditor. His remuneration was also fixed by the Government. The Court assumed for the purposes of the appeal that the two Companies were statutory bodies distinct from Government, but noted the fact that, at the same time, they were Governmem Companies within the meaning of the Indian Companies Act.

Emphasis was laid on the circumstance that, in the performance of his functions, the appellant was controlktl hy tl1e Comptroller

(1) [1964J 4 S.C.R. 311.

(2) [1958] S.C.R. 387.

and Auditor-General who himself was undoubtedly holder of an office of profit under the Government, though there were safeguards in the Constitution as to the tenure of his office aild removability therefrom.

Under Art. 148 of the Constitution, the Comptroller & Auditor-General was appointed by the President and he could be removed from office in like manner and on the like grounds as a Judge of the Supreme Court. The salacy and other conditions of service of the Comptroller & Auditor-General were to be such as might be determined by Parliament by law and, until they were so determined, they were to be as specified in the Second Schedule to the Constitution. Other provisions relating to the Comptroller and Auditor-General were also talren notice of and an inference was drawn from these provisions that the Comptroller and Auditor-General is himself a holder of an office of profit under the Government of India, being appointed by the President, and his administrative powers are such as may be prescribed by the rules made by the President, subject to the provisions of the Constitution and of any law made by Parliament.

The Court then held:-

"Therefore, if we look at the matter from the point of view of substance rather than of form, it appears to us that the appellant, as the holder of an office of profit in the two Government companies, the Durgapur Projects Ltd.,. and the Hindustan Steel Ltd., is really under the Government of India; he is appointed by the Government of India; he is removable from office by the Government of India; he performs functions for two

Govtirnment companies under the control of the Comptroller and Auditor-General who himself is appointed by the President and whose administrative powers may be controlled by rules made by the President."

Thereafter, the Coun proceeded to hoid:-

"In view of these decisions, we cannot acc.ede to the submission of Mr. Chaudhury that the several factors which enter into the determination of this question-the appointing authority, the authority vested with power to terminate the appointment, the authority which deiermines the remuneration, the source from which the remuneration is' paid, and the authority vested with power to control the manner in which the duties of the office are discharged and to give directions in that behalf must all co-exist and each must show subordination to Government and. that it must necessarily follow that if one of the elements is absent, The test of a person holding an office under the Government, Ceniral or State, is not satisfied. 1; he cases we have referred to specifi. cally point out that the circumstance that the source

GURUSHANTAPPA v. ABDUL KHIJDDUS ( Bhar11ava, J.) 433

from which the remuneration is paid is not from public revenue is a neutral factor not decisive of the question.

As we have said earlier, whether stress will be laid on one factor or the other will depend on the facts of each case.

However, we have no hesitation in saying that where the several elements, the power to appoint, the power to dismiss, the power to control and give directiQiis as to the manner in which the duties of the office are to be performed, and the power to determille the question of remuneration are all present in a given case, then the officer in question holds the office under the authority so empowered."

Mr. Gupte, from these views expressed by the Court, sout to draw the inference that the primary consideration for determining whether a person holds an office of profit under a Government is the amount of control which the Government exercises over that officer. In the present case, he relied on the circumstance that all the shares of the Company are not only owned by the Mysore Government, but the Directors of the Company are appointed by the Government-a Minister was one of the first Directors of the Company; the appointment of the Secretary to the Company is subject to approval of the Government; and, even in the general working of the Company, Government has the power to issue directions to the' Directors which must be carried out by them. If was urged that respondent No. 1 was directly under the control of the Managing Director who is himself appointed by the Governmeni and may even be a 'lent officer' holding a permanent post under the Government. Respondent No. 1, thus, must be held to be working under the control of the Government exercised through the Managing Director.

We are unable to accept the proposition that the mere fact that the Government had control over the Managing Director and other Directors as well as the power of issuing directions relating to the working of the Company can lead io the inference that every employee of the Company is under the control of the Government.

The power of appointment and dismissal of respondent No. 1 vested in the Managing Director of the Company and not in the Government. Even the directions for the day-to-day work to be nerformed by respondent No. 1 could only be issued by the Managing Director of the Company and not bv the Government. The indirect control of the Government which might arise because of the power of the Government to appoini the Managing Director and to issue directions to the Company in its general working does not bring respondent No. 1 directly under the control of the Government.

In Gurugobinda Basu's case('), . the position was quite different. In that case. the appellant was appointed by

(I) [t964J4S.C.R. 311.

the Government and was liable to be dismissed by the Government. His day-to-day working was controlled by the Comptroller and Auditor-General who was a servant of the Government and was not in any way an office-bearer of the two Companies concerned. In fact, the Court had no hesitation in holding that the appellant in that case was holding an office of profit under the Government, because the Court found that the several elements which existed were the power to appoint, the power to dismiss, the power to control and give directions as to the manner in which the duties of the office are to be performed, and the power to determine the question of remuneration.

All these elements being present, the Court did not find any difficulty in finding that the appellant was holding an office of profit under the Government. In the case before us, the position is quite different. The power to appoint and dismiss respondent No. 1 does not vest in the Government or in any government servant.

The power to control and give directions as to the manner in which the duties of the office are to be performed by respondent No. 1 also does not vest in the Government, but in an officer of the Company. Even the power to determine the question of remuneration payable to respondent No. 1 is not vested in the Government which can only lay down rules relating to the conditions of service of the employees of the Company.

We are unable to agree that, in these circumstances, the indirect control exercisable by the Government because of its power to appoint the Directors and to give general directions to the Company can be held to make the post of Superintendent, Safety Engineering Department, an office of profit under the Government.

In this connection, a comparison between Arts. 58(2) and 66 ( 4), and Arts. l 02 (1) and 191 (l )(a) of the Constitution is

of significant help. In Arts. 58(2) and 66(4) dealing with e!igi- F bility for election as President or Vice-President of India, the Constitution lays down that a person shall not be eligible for election if he bolds any office of profit under the Government of India or the Government of anv State or under anv local or other authoritv subiect to the control of anv of the said Governments.

In Articles 102(l)(a) and 19l(l)(a) dealing with membershio of either House of Parliament or State Legislature, the disquali- G • fication arises only if the person holds any office of profit under the Government of India or the Government of any State other than an office declared by Parliament or State Legislature by law not to disqualify its holder.

Thus, in the case of election as President or Vice-President, the disqualification arises even if the candidate is holding an office of orofit under a local or any other H authority under the control of the Central Government or the State Government. whereas, in the case of a candidate for election as a Member of any of the Lep; islatures. no such disqualification

GURUSHANTAPPA v. ARDUL KHUDDUS ( Bhargava, .T.) 435

is laid down by the Constitution if the office of profit is held under a local or any other authority under the control of the Governinents and not directly under any of the Governments. This clearly indicates that in the case of eligibility for election as a member of a Legislature. the holding of an office of profit under a corporate body like a local authority does not bring about disqualification even if that local authority be under the control of the Government. The mere control of the Government over the authority havinj!: the power to appoint, dismiss, or control the working of the officer employed by such authority does not disqualify that officer from being a candidate for election as a member of the Legislature in the manner in which such disqualification comes into existence for being elected as the President or the Vice-President.

The Company, in the present case. no doubt did come under the control of the Government and respondent No. 1 was holding an office of profit under the Company; but, in view of the distinction indicated above. it is clear that the disqualification laid down under Art. 191 (I) (a) of the Constitution was not intended to apply to the holder of such an office of profit.

It also appears to us that it was in view of this limited spplication of the disqualification laid down in Arts. 102(1) (a) 1141d 191 (I ) (a) of the Constitution that Parliament made an additional provision in section 10 of the Act by laying down that "a person shall be disqualified if. and for so long as, he is a managing agent. manager or secretary of anv company or corp0ration (other than

a co-operative society) in the capital of which the appropriate Government has not less than twenty-five per cent share." It is to be noted that the Parliament. in enacting this section, limited the disqualification to a person holding the office of a managing agent. manager or secret3rv of a company, and not to other employees of the Company. This provision, thus, gives two indications as to the scope of the disqualification laid down in Arts. 102

( 1 )(a) and 191 ( 1 )(a) of the Constitution.

One is that the holding of an office in a company, in the capital of which the Government has not less than 25 per cent share, is not covered bv the disqualificatiom laid down in Arl~. 102(1) (a) and 191 ( 1 ) (a). as, otherwise, this provision would be redundant.

The second is that even Parliament. when passing the Act, did not consider it necessary to disqualify every person holding an office of profit under a Government Company, but limited the disqualification to persons holding the office of managing agent, manager or secretary of the Company. The fact that the entire share capital in the Company in the case before us is owned by the Government does not, in our opinion, make any difference. Under the Articles of Association, it is clear that, though, initially, all shares were held by the Government, it is possible that private citizens may also hold shares in the Company. In fact, there are provisions indicating that shares held by certain shareholders can f ass

by succession to members of their family or can even be transferred by gift to them.

The Articles of Association lay down that the Company shall be a private limited company within the meaning of the Indian Companies Act, 1956, and, though the shares in the capital of the Company are under the control of the Board of Directors, they have been given the liberty to allot, grant option over or otherwise dispose of the shares at such time and to such persons, and in such manner and upon such terms as they may think proper.

Under this power, the Directors can allot shares to private individuals. It is under art. 34 of the Articles of Association that a shareholder is given the power, by way of gift or for or without any pecuniary consideration. to transfer anv share in the capital of the Company to the wife or husband of such member, or to a son, daughter. father. mother, grandson. grand-daughter, brother, sister. nephew or niece of such member or the wife or husband of any person standing in such relationship to the transferring member. Devolution of shares, consequent to the death of a member. on his heirs is also recognised by the Articles of Association.

Jn these circumstances, the principles which will applv to the Company will be on a par with those applicable to other Government Companies or Comoanies in which the Government holds more than 25 per cent of the share capital. The Company cannot, therefore, be treated as either being equivalent to the Government or to be an agent of the Government. so that the control exercised by its Directors or the Managing Director over respondent No. I cannot be held to he control exercised by the Government.

Mr. Gupte, in this connection. also urged that we should pierce the veil of the Company being a separate juristic and legal entitv, apart from the Government which owns all the shares in the Company, and hold that, in fact, the Company should be equated with the Government of Mysore itself. In our opinion. in the oresent case, no question of piercin~ the veil can arise in view of the provisions of section 10 of the Act which specificallv deals with disqualification for membefllhiP of persons holding offices under a Companv in which a Government holds shares.

That section limits the scone of disaualification ta holders of three narticular offices onlv and in camnanies in which the •lrnre-halding of the Government is not less than 25 ner cent. This provision clearly indicates that. for nurooses of determinin!! disqualification for candidature to a Le!!islature, it would not be appropriate to attempt to lift the veil and eauate a Comoanv with the Government merely hecause the share-caoital of the Comnanv is contributed hy the Government. The discussion of the relevant Constitutional provisions above also sunnorts this view. Jn the nresent case, therefore, respondent No. 1 cannot be held to be holding an

nffic~ of rrofit 11nder the C"10vemrnent of Mysore and was not dis-

GURUSHANIAPPA v. ABDUL KHUDDUS (Bhargava, /.) 437

qualified from being chosen as a member of the Assembly of the State.

The appeal fails and is dismissed with costs.

Y.P.

Appeal dismissed.

D.R.GURUSHANTAPPA

ABDUL KHUDDUS ANWAR & ORS

January 27, 1969

M. SHELAT

V. BHARGAVA

Representation of the People Act

s. 10

Constitution of India

Arts. 102(1) and 191(1)

s. 25F

Industrial Disputes Act

Civil Service Regulations

Central Government

s. 10

Representation of the People Act

Arts. 102(1)

Arts. 102(1)(a) and 191(1)

Parliament

[1964] 4 S.C.R. 3

s. 116

Representation of the People Act, 1951

S. V. Gupte

Shyama/a Pappu

S. S. Java

Vineet Kumar

Lily Thomas

Bhargava

Mysore Legislative Assembly

High Court of Mysore

21st January, 1967

15th February, 1967

22nd February, 1967

5th April, 1957

Article 191(1)(a)

Government of the Statt of Mysore

S. V. Gupte

Mysore Iron & Steel Works Ltd.,

Bhadravati

Mysore Iron & Steel Works, Bhadravati

Government of' Mysore

Mysore Iron & Steel

Limited, Bhadravati

Indian Companies Act, 1956

Mysore Iron & Steel Works

Mysore Government

Mysore Iron & Steel Ltd.

Mysore

Government of Mysore

Gupte

Art. 19

Industrial Disputes Act

section 25F

s. 25F

Industrial Disputes Act

Arts. 309 and 314

Art. 58(2) and 66(4)

Maulana Abdul Shakur

Government of India

Art. 148

Supreme Court

Second Schedule

Durgapur Projects Ltd.

Hindustan Steel Ltd.

Chaudhury

Gurugobinda Basu

Arts. 58(2) and 66

Arts. 58(2) and 66(4)

Articles 102(l)(a) and 19

Art. 191

Arts. 102(1)

section 10

Arts. 102

Companies Act

art. 34

section 10


smoR ELECTRICITY WORKS LTD.

TIIE GUJARAT ELECTRICITY BOARD AND ANR.

January 29, 1969

(J, C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.] Elfctricity (Supply) Act, 1948, Ss. 2(8) and 19(1 )(b)(ii)-Expres. sion 'maxinzum demand'-Construction of-Conditions precedent for en .. cbling Electricity Board to nzake direct supply in area of a licensee.

The appellant carried on the business f generating and distributin.g electriqal" energy within a specified area under a licence granted t? 1t under the Indian Electricity Act, 1910.

The respondent, Gu1a_rat Electricity Board agreed with the second respondent company to give direct supply of electricity to its factory which wa~ witin the area of supply of the appellant. The appellant brought a suit agamst the respon- .

den~ for declaration that the agreement between the first and the second respondents without its consent was illegal and ultra vires lhe powers of the first respondent under the Electricity (Supply) Act., 1948, and sought an injunction restraining the first respondent from IDlplementmg the decision.

The appellant's case was that the first respondent was not entitled to give direct supply to the second respondent as the "maximum 'demand" of the appellant at the time of the request of the second respondent was 262 to 349 KVA between September and December, 1959, and therefore. mdre than twice the "maximum dem3nd" of the second respondent which had never exceeded 40 tq 45 KV A. The first respondent dontended, however, that the

0 maximum demand" of the appeJlant company at the time of request was less than twice the "maximum demand" of 398 KVA asked for bv the second respondent from the first respondent. The trial court held that the first respondent's decision to give direct supply to the second respondent was ultra vires its power under section 19 (l)(b)(ii) of the Act. However, the first appellate court allowed an appeal and the High Court dismissed a further appeal holding, inter alia, that by virtue of s. 1'9(1)(b)(ii) the comparison required to be made was between the maximum demand of the licensee on the Board at the time of request for direct supply based on electiicity actually supplied and taken during some reasonable period immediately preceding the time of request for dircc( supply, and the maximum demand whi<1h the applicant wants to keep the Board ready on tap when supplying electricity to the applicant.

On appeal to this the Court, HELD : The appellant was entitled to the grant of a decree in terms of the trial court's deci'ee.

The "maximum demand" as defined in section 2(8) of the Act has relation only to an existing state of facts and there can be no maximum demand in relation to a future period.

On a true construction of section 19(1) (b)(ii), what is required to be compared for determining the applicability of the clause with the maximum demand of the licensee on the Board at the time of request fo'r direct upply, was the

11maximun1 'demand" by the appliaant on the licensee at that time and not any hypothetical or anticipated demand which the applicant may call upon the Board be ready to supply, The phrase "supplied and taken" in s. 2(8) shows that the ascertaimnent of maximum demand is dependent upon the electricity actually supplied and taken in any particular period in the p .. t and not electricity which may be supplied and taken in a future period.

[444B]

ELECT\'. WORKS v. ELECTY. BOARD (Ramaswamy, J.) 439

There was no force in the respondent's contention that the words "asked for by any such person" must be construed to mean any hypothe

trical or anticipated demand which the applicant may call upon the Board to be rc.:iJy to supply. Such an interpretation \vould be inconsistent with the definition of .. maxin1urn demand" in section 2( 8) of the Act.

There was no reason \.\hy 1he phrase "maximum denu-1nd'' in section 19(1)(b)(ii) of the Act should be given two different meanings one for the Jicensee and the other for the consumer ask in~ for the m:1ximt1m den1and. H cannot be '.'>l1Pf10sed thll th~ legislature (onten1platcd th:t1 the phntsc "maximum dem:ind" should he dvt>n two ditrcreni manin•!,,, in lh~ s;1m~ claus~. 1444Ci I • •

CIVIL APPELLATE JURISDICT.!ON : Civil Appeals Nos. J52 and 453 of 1966.

Appeals by special leave from the judgment and order, dated July 4, 1964 of the Gujarat High Court in Second Appeals Nos. 33 and 34 of 1964.

P.A. Mehta, B. K. Mehta, K. L. Hathi and Atiqur Rehman, for the appclla(\t (in both the appeals).

l. N. Shroff, for respondent No. I (in both the appeals).

H. L. A11a11d and K. B. Mehta, for respondent No. 2 (in both the appeals).

The Judgment of the Court was delivered by Ramaswami, J.

The appellant, the Sihor Electricity Works Ltd., is a public limited company carrying on the business of generating and distributing electrical energy under the licence granted to it under the Indian Electricity Act, 1910, having its supply area within the limits of Sihor Town situated in the district of Bhavna1rnr in Saurashtra. The first respondent is the Gujarat Electricity Board 'which is a Corporation constituted under the Electricity (Supply) Act. 1948 for the purposes of generation. supply and distribution of electricity in the State of Gujarat.

The recond respondent is the Saurashtra Electrical and Metal Industries (Private) Ltd., a private limited company carryirig on the business of manufacturing electrical accessories etc. and having its factorv at Sihor within the area of supply of the appellant comnanv. The aopellant company was originally generating and

distributing electricitv but at the relevant time it was a distributing licensee distributing the energy purchased in bulk from the first respondent within its area of supply.

The appellant brought a suit against the respondents in the Court of Civil Judge (Junior Division) of Sihor being Civil Suit

No. 45 &I' 1960 to Obtain a declaration that the decision of the first respondent as contained in its letters dated 3rd June. 1960 and 24th October, 1960 to give direct supPlY to the factory of the second respondent within the area of supply of the appellant and without its consent was illegal and ultra vires its powers under

the Electricity (Supply) Act, '1948 (Act No. 54 of 1948) (here inafter called the Act), and for a permanent injunction restrain ing the first respondent from implementing the said decision .. The case of the appellant was that the first respondent was not entitled to give direct supply to the second respondent as the 'maximum demand' of the appellant at the time of request of the second respondent was more than twice the 'maximum demand' asked for by the second respondent. The appellant company alleged that the maximum demand of the appellant company in the relevant period. namely, September 1959 to December 1959 was between 262 to 349 KY A while the maximum demand of the second respondent had never exceeded 40 to 45 KV A. The first respondent contested the suit on the ground that the decision was legal and proper because the maximum demand of the appellant company at the time of request was less than twice the maximum demand 'asked for' by the second respondent from the first respondent. It was contended that the demand 'asked for' by the second respondent was 398 KY A, and. therefore, the first respondent was entitled in law to give direct supply to the second respondent. The trial Judge held that the decision of the first respondent to give direct supply of electricity to the second respondent was ultra vires the power of the first respondent under section 19(1)(b)(ii) of the Act and was, therefore, null and void and gave a declaration to that effect in favour of the appellant. The trial Judge, however, refused to grant the consequential relief of injunction on the ground that the Board being a public authority could be expected to respect the law laid down by the Court and it was, therefore, not necessary to issue any injunction against the respondents, Aggrieved by the decree passed by the trial Judge the two respondents filed separate appeals in the District Court. The appellant preferred a cross-abjection contending that the trial Judge was in error in refusing to grant injunction. The appeals and the cross-abjection were heard by the District Judge of Bhavnagar and by a common judgment delivered on 12th October, 1963, the District Judge a, ccepted the contentions urged on behalf of the respondents and allowed the appeals.

The District Judge held that the jurisdiction of the Civil Court to entertain the suit was excluded by reason of s. 76( n .Jf the Act and the dispute between the parties being a dispute covered by that section could be determined only in the manner provided by that section, viz., by arbitration. The District Judge also decided that the maximum demand asked for by the second respondent was in excess of 50 per cent of the maximum demend of the appellant at the time of request for direct supply and the first respondent was enti&d to give direct supply of electrical energy to the second respondent under s. 19(1)(b)(ii) of the Act. The District Judge accordingly found that the suit was liable to fail not only for want of jurisdiction but also on merits and accordingly a!Jowed the apPeals and

ELECTY. WORKS v. ELECIY. BOARD (Ramaswamy, J.) 44i

dismissed the suit. Thereafter, the appellant preferred appeals to the High Court of Gujarat being Civil Second Appeals Nos. 33 and 34 of 1964. The said appeals came for hearing before Mr.

Justice P. N. Bhagwati, who dismissed the same by a common judgment dated 4th July, 1964. The learned Judge took the view that the Court had jurisdiction to hear the suit as the provision for arbitration under s. 7 6 of the Act was inserted in the statute not in the interest of public good but for the benefit of individuals and therefore either party can waive the right to insist on arbitration.

The learned Judge, however, held that the true effect of s. 19(1)(b)(ii) was that "the comparison required to be made was between the maximum demand of the licensee on the Board at the time of request for direct supply which would of course be maximum demand based on electricity actually supplied and taken during some reasonable period immediately preceding the time of request for direct supply and the maximum demand which the applicant wants to keep the Board ready on tap when supplying electricity to the applicant". These appeals are brought by special leave from the judgment of the Gujarat High Court dated 4th July, 1964 in Second Appeals Nos. 33 and 34 of 1964.

The question of law presented for determination in this case is whether the High Court was right in holding that section 19 (I)

(b)(ii) of the Act prescribed that a comparison must be made between the actual maximum demand of the licensee company and the anticipated maximum demand of the consumer before the Electricity Board can decide to give direct supply to the consumer within the area of supply of the licensee company.

Section 19(1) of the Act states :-

"The Board may, subject to the provisions of this Act, supply electricity to any licensee or person requiring such supply in any area in which a scheme sanctioned under Chapter V is in force;

Provided that the Board shall not- ( a) supply electricity for any purpose directly to any licensee for use in any part of the area of supply of

a bulk-licensee without the consent of the bulk-licensee, unless the licensee to be supplied has an absolute right of veto on any right of the bulk-licensee to supply electricity for such purpose in the said part of such area, or unless the bulk-licensee is unable or unwilling to supply electricity for such purpose in the said part of such area on reasonable terms and conditions and within a reasonable time, or

(b) supply electricity for any purpose to any persons, not being a licensee for use in any part of the

lJPKEME COURl REPORTS [l969j 3 S.C.R.

area of supply of a licensee without the consent of the A licensee, unless- ( i) the actual effective capacity of the licensee's generating station computed in accordance with paragraph IX of the First Schedule at the time when such supply was required was Jess than twice the maximum demand asked for by any such person; or B

(ii) the maximum demand of the licensee, being a distributing licensee and taking a supply of energy in bulk is, at the time of the request, less than twice the maximum demand asked for by any such person; or

(iii) the licensee is unable or unwilling to_ supply c electricity for such purpose in the said part of such area on reasonable terms and conditions and within a reasonable time/'

Section 2 ( 8) of the Act delines 'maximum demand' as follows :-

" 'Maximum demand' in relation to any period shall, unless otherwise provided in any general or special order of the State Government, mean twice the largest number of kilowatt-hours or kilo-volt-ampere-hours supplied and talc.en during any consecutive thirty minutes in that period".

Section 18 deals with general duties of the Board and reads

"Subject to the provisions of this Act, the Board shall be charged with the general duty of promoting the coordinated development of the generation, supply and distribution of electricity within the State in the most efficient and economical manner, with particular reference to such development in areas not for the time being served or adequately served by any licensee, and without prejudice to the generality of the foregoing provisions it shall be the duty of the Board-

(a) to prepare and carry out schemes sanctioned under Chapter V;

( b) to supply electricity to owners of controlled stations and to licensees whose stations are closed down under this Act; ( c) to supply electricity as soon as practicable to any other licensees or persons requiring such supply and whom the Board may be competent under this Act so to supply."

Section 26 of the Act clothes the Board with all powers and obligations of a licensee under the Electricity Act, 1910, with this

ELECTY. WORKS v. ELEC'fY. IJOARD (Ramci:>1vamy, /.) HJ

exception that certain sections, including section 22 relating to the duties and 'obligations of a licensee, are declared not to apply to the Board. Since section 22 is excepted from its applicauon to the Board, it is evident that unlike a licensee under the Electricity Act, 1910, the Board is under no obligation to supply electricity to any person applying to it for supply. Section 49 of the Act empowers the Board to fix the terms and conditions on which it will supply electricity to a person other than a licensee and that power is conferred in wide terms subject only to the provisions ot the Act and any regulations which may be made by the Board in that behalf.

The legal position therefore is that the. Board cannot supply electricity to any licensee or a person other than a licensee unless the Board 1s competent to do so under the Act.

Under Section 19(1) the Board would ordinarily be competent to supply electricity to a licensee or to a person requiring such supply m any area in which a scheme sanctioned under Chapter V 1s in force. But there are two provisos which limit the genera! power of the Board to supply electrji; ity. Proviso (a) relates to a case of a licensee requiring supply of electricity in any part of the area of supply ot a bulk licensee. Proviso (b) is material to the present case. This proviso enjoins the Board not to supply electricity for any purpose to any person other than a licensee for use in any part of the area of the licensee unless the case falls within any of the three clauses, namely, clauses (i), (ii) and (iii). The intention of the legislature seems to be that if any person requires supply of electricity for any purpose for use in any part of the area of supply of a licensee, he must approach the licensee in the first instance and the licensee alone must have the right to supply electricity to him unless of course the licensee consents to his taking of supply of electricity from the Board in which event the Board would be free to supply electricity to him.

This provision was apparently enacted with a view to protect the interest of the licensee who has incurred capital expenditure in putting up generating plants, transformers, mains and transmission lines and who should be therefore entitled to secure a reasonable return by having a sufficient number of consumers to take the electricity which may be generated by the licensee or which .may be taken in bulk by the licensee from the Board. But the legislature engrafted certain exceptions to this rule by enacting clauses (i), (ii) and (iii) and providing that in cases covered by any of these clauses, the Board shall be at liberty to supply electricity to any person applying to it for supply despite the want of consent of the licensee. It is common ground that the exceptions set out in clauses (i) and (iii) do not apply to the present case and the only exception relied on by the respondents is that set out in clause (ii). On behalf of the respondents it was contended that the High Court has takon a correct view with regard to the interpretation of s. 19(1)(b)(ii) of the

Act and the first respondent was entitled to supply electricity to the second respondent without the consent of the appellant as the conditions oi clause (ii) of the sub-section have been satisfied.

We are unable to accept this argument. In our opinion, the maximum demand' as denned in section 2(8) of the Act has relation oruy to an existing state of facts and there can be no max1mmn demand in relat10n to a futu(e period'" and, therefore, on a true construction of section 19(l)(b)(ii) of the Act what is required to be compared for determining the applicability of the clause with the maxinmm demand of the licensee on the Board at the time of request for direct supply, was the 'maximum demand' by the applicant on tl1e licensee at that time and not any hypothetical or anucipated demand which the applicant may call upon the Board be ready to supply. It is manifest that section 2 ( 8) of the Act gives a technical meaning to the expression 'maximum demand' by. defining it as twice the largest number of kilowatt hours or k.Jlo-volt, ampere . hours supplied and taken during any consecutive thirty minutes in any particular period. It follows from the language of the definition that the concept of maximum demand is a concept ba>cd on existing facts and it is not possible to think of a maximwn demand in relation to a future point of time.

Reference should be made in this connection to the phrase "supplied and taken" in section 2(8) of the Act. This phrase also shows that the ascertainment of maximum demand is dependent upon the electricity actually supplied and taken in any particular period in the past and not electricity which may be supplied and taken in a future period. In other words, the 'maximum demand' as defined in s. 2 ( 8) of the Act has always reference to a past period and there can be no maximum demand in relation to a future period. On behalf of the respondents attention was invited to the words "asked for by any such person" in section J9(J)(b)(ii) of the Act.

But these words are inserted in the section merely by way of description and they must be construed to mean that the Board will make direct supply only when the applicant makes a request for such direct supply from the Board and not otherwise. It is not possible to accept the argumC!llt of the respondents that the words "asked for by any such person" must be construed to mean any hypothetical or anticipated demand which the applicant may call upon the Board to be ready to supply.

Such an interpretation would be inconsistent with the definition of 'maximum demand' in section 2 ( 8) of the Act.

We also see no reason why the phrase 'maximum demand' in section 19(1)

(b) (ii) of the Act should be given two different meanings one for the licensee and the other for the consumer asking for the maxi .. mum demand. It cannot be supposed that the legislature contemp lated that tl1e phrase maxinrnm demand' should be given two different meanings in the 'amc clause.

'.E

ELECTY. WORKS v. ELECTY. l30ARD (Ramaswami, J.) 445

It was pointed out on behalf of the respondents that if the phrase 'maximum demand' in section 19(1)(b)(ii) of the Act is given the technical meaning as !Ilentiond in section 2 ( 8) ?f the Act, hardship may be caused m certam cases.

It was said that an applicant may not be taking electritity supplied by the licensee and may still be desirous of taking electricity from the Board for the first time. Such an applicant would have no maximum demand at the time of request for direct supply but when asking for direct supply he is required to intimate to the Board what is the maximum demand he would require.

It was said that the applicant may have a potential peak demand which the licensee may not be able to supply.

In such a case it was not reasonable to require the applicant to approach the licensee in the first instance and thereafter make an application to the Board. It was also argued that there was no reason why the applicability of clause (ii) should be restricted only to persons taking electricity supplied by the licensee. In our opinion, there is no warrant for this argument.

As we have already indicated the language of section 19 (I ) (b )(ii) of the Act must be construed in the light of the definition of 'maximum demand' contained in section 2 ( 8) of the Act. Upori that construction it is clear that the applicability of clause (ii) is restricted to persons taking electricity supplied by the licensee. There is also no hardship caused to an applicant who may not 'take electricity supplied by the licensee and who may be desirous' of taking electricity for the first time from the Board in view of his anticipated requirements.

It is open to such an applicant to take recourse to the provision of clause (iii) of section 19 ( 1) (b) of the Act which provides that the Board may supply electricity direct without the consent of the licensee if the later is unable and unwilling to supply electricity for the purpose of the applicant on reasonable terms and conditions and within a reasonable time. In our opinion, no anomaly or inconvenience would result if the construction contended for on behalf of the appellant with regard to section 19 (I )(b )(ii) of the Act is accepted.

If our interpretation of s. 19(1 )(b) (ii) of the Act is correct, the appellant is entitled to the grant of a decree in terms of the trial Court's decree.

It is pointed out by Mr. Justice Bhagwati in his judgment that right up to' the end of December, 1959 the maximum off take of electricity by the second respondent from the appellant was not more than 50 KV A. The maximum demand of the licensee on that period was 291 KVA, and so, the conditions of s. 19( 1 )(b )(ii) of the Act were not satisfied.

It follows that the first respondent was not entitled under that clause to supply H electricity direct to the second respondent.

For the reasons expressed we hold that the judgment of the Gujarat High Court in Second Appeals Nos. 33 and 34 of 1964 L8 Sup Cl/69-10

dated 4th July, 1964 and of the District Judge of Bhavnagar dated 12th October, 1963 should be set aside and the judgment and decree of the Civil Judge (Junior Division) at Sihor dated 31st March, 1960 should be restored. The apPt<als are accordingly allowed with costs in this Court and the High Court.

R.K.P.S.

Appeals allowed.

smoR ELECTRICITY WORKS LTD

TIIE GUJARAT ELECTRICITY BOARD AND ANR

January 29, 1969

C. SHAH

V. RAMASWAMI

A. N. GROVER, JJ.

Ss. 2(8) and 19(1 )(b)(ii)

Indian Electricity Act, 1910

section 19

s. 1

section 2(8)

section 19(1)

s. 2(8)

section 2( 8)

section 19(1)(b)(ii)

CIVIL APPELLATE JURISDICT.!ON

P.A. Mehta

B. K. Mehta

K. L. Hathi

Atiqur Rehman

N. Shroff

H. L. A11a11d

K. B. Mehta

Ramaswami

Sihor Electricity Works Ltd.

Indian Electricity Act, 1910

Sihor Town

Saurashtra

Gujarat Electricity Board

Gujarat

Sihor

section 19(1)(b)(ii)

Bhavnagar

12th October, 1963

Ramaswamy

High Court of Gujarat

P. N. Bhagwati

4th July, 1964

s. 7

s. 19(1)(b)(ii)

Gujarat High Court

section 19

Section 19(1)

First Schedule

Section 2

Section 18

Section 26

section 22

section 22

Electricity Act, 1910

Section 49

Section 19(1)

s. 19(1)(b)(ii)

section 2(8)

section 19(l)(b)(ii)

section 2

section 2(8)

s. 2

section 2

section 19(1)

section 19(1)(b)(ii)

section 2

section 19

section 2

section 19

section 19

s. 19(1 )(b)

Bhagwati

s. 19( 1 )(b )(ii)