Gurugobinda Basu vs Sankari Prasad Ghosal And Ors

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 486 of 1963

Decision Date: 14 August 1963

Coram: S.K. Das, Raghubar Dayal, N. Rajagopala Ayyangar, J.R. Mudholkar

In this case the Supreme Court considered an appeal filed on 14 August 1963 by Gurugobinda Basu against Sankari Prasad Ghosal and others. The judgment was authored by Justice S K Das and the bench comprised Justice S K Das, Justice Raghubar Dayal, Justice N Rajagopala Ayyangar and Justice J R Mudholkar. The official citation of the decision is reported in 1964 AIR 254 and 1964 SCR (4) 311, with additional references in subsequent reports.

The petitioner, Gurugobinda Basu, was a chartered accountant who also served as a partner in a firm of auditors. That firm had been appointed as the auditor of two companies that were incorporated under the Indian Companies Act, 1956. One of those companies was wholly owned by the Union Government, while the other was wholly owned by the Government of West Bengal. During the period in question the petitioner was elected as a member of the Lok Sabha.

Two voters from the constituency challenged the election of the petitioner by filing an election petition. The principal ground asserted in the petition was that, at the relevant time, the petitioner held an office of profit under both the Government of India and the Government of West Bengal, which would render him disqualified from being elected under Article 102(1)(a) of the Constitution of India.

The Election Tribunal examined the petition and accepted the contention that the petitioner was indeed holding an office of profit. Accordingly, the Tribunal declared the petitioner's election to the Lok Sabha void. The petitioner then appealed the Tribunal’s decision to the High Court, but the High Court also dismissed the appeal.

The petitioner subsequently obtained a certificate under Article 133(1)(c) of the Constitution, which permitted a further appeal to the Supreme Court. The central issue before the Supreme Court was the proper construction of the expression “under the Government of India or the Government of any State” found in clause (a) of Article 102(1). The petitioner contended that, on a true interpretation of that phrase, he could not be said to hold an office of profit under either the Union Government or the State Government.

To support his position, the petitioner argued that several tests must be applied collectively to determine the existence of an office of profit. These tests included identifying who possessed the power to appoint the individual, who had the authority to remove him, who paid the remuneration, what functions were performed, and who exercised control over the holder. He submitted that all of these factors must be present simultaneously and that the satisfaction of only some of the tests would not be sufficient to conclude that an office of profit existed.

The respondents, on the other hand, maintained that the tests should not be regarded as cumulative. They urged the Court to focus on the substance of the relationship rather than its formal attributes. According to the respondents, the determination of an office of profit should be based on the overall nature of the position, without insisting that every single test be satisfied.

The parties also referred to the relevant statutory provisions. The petitioner cited Article 102(1)(a) of the Constitution, sections 224, 227 and 619 of the Indian Companies Act, 1956, and section 116 of the Representation of the People Act, 1950, arguing that these provisions supported his view that the position did not constitute an office of profit.

The Court observed that the question of whether a person holds an office of profit under the Government does not require that the individual be a servant of the Government or that a master‑servant relationship exist between them. The respondent argued that the various tests traditionally applied to determine an office of profit should not be treated as cumulative and that the inquiry must focus on the substance of the relationship rather than its formal label. In its decision the Court set out several principles. First, it held that a person may be said to occupy an office of profit under the Government even if he is not formally employed by the Government and even where no master‑servant relationship is present. Second, after examining the relevant provisions of the Companies Act, 1956—specifically sections 224, 227, 618 and 619—the Court found that, with respect to the two companies involved, the appellant had been appointed as their auditor by the Central Government, could be removed by the Central Government, was subject to full control by the Comptroller and the Auditor General of India, and had his remuneration fixed by the Central Government under sub‑section (8) of section 224, although the actual payment was made by the companies themselves. Third, the Court explained that when all of the following elements are present in a case—the power to appoint, the power to dismiss, the power to control the performance of duties, and the power to determine remuneration—the individual in question holds the office under the authority that possesses those powers. The Court clarified that it is not essential for all these elements to coexist simultaneously, nor is the source of the remuneration being public revenue decisive. Fourth, the Court concluded that the appellant did indeed hold an office of profit under the Government of India within the meaning of Article 102(1)(a) of the Constitution, rendering him disqualified from being elected as a member of Parliament. The Court distinguished the precedent set in Maulana Abdul Shakur v. Rikhab Chand, [1958] S.C.R. 387, and referred to Ramappa v. Sangappa, [1959] S.C.R. 1167. The judgment was rendered in civil appellate jurisdiction as Civil Appeal No. 486 of 1963, arising from the order of the Calcutta High Court dated 27 September 1962. Counsel for the appellant included S. Chaudhuri, R. C. Deb and S. S. Shukla, while counsel for the respondents Nos. 1 and 2 comprised Hari Prosonna Mukherjee, K. G. Hazra Chaudhari and D. N. Mukherjee. The judgment, delivered on 14 August 1963 by Acting Chief Justice S. K. DAS, noted that the appeal was filed on a certificate under Article 133(1)(c) of the Constitution, that no preliminary objection to the certificate’s competency was raised, and that the appeal was heard on its merits. The appellant, Gurugobinda Basu, is a chartered accountant and a partner in the firm G. Basu and Company, which acted as auditor for entities such as the Life Insurance Corporation of India, Durgapur Projects Ltd. and Hindustan Steel Ltd.

The Court noted that the appellant, besides being a chartered accountant and a partner in the firm G. Basu and Company, also served as a Director of the West Bengal Financial Corporation, a position to which he had been appointed or nominated by the State Government of West Bengal and which entitled him to receive fees or other remuneration as a director of that corporation. In the period of February‑March 1962 the appellant contested the election to the House of the People from Constituency No. 34, the Burdwan Parliamentary Constituency, a single‑member seat. The election took place in February 1962 and there were only two candidates: the appellant and respondent No. 3 to the present appeal. On 1 March 1962 the appellant was declared elected, having obtained 1,55,485 votes, while his rival secured 1,23,015 votes. Two registered voters of the same constituency filed an election petition on 10 April 1962 challenging the result on two grounds. The first ground alleged that, at the relevant time, the appellant occupied offices of profit under both the Government of India and the Government of West Bengal, a circumstance which under Article 102(1)(a) of the Constitution would disqualify him from being a candidate. The second ground alleged that the appellant had committed certain corrupt practices that vitiated his election; this second allegation was abandoned during the trial and therefore did not form part of the Court’s further consideration. The Election Tribunal examined the matter and concluded that the appellant indeed held offices of profit under both the Central Government and the State Government, and consequently was disqualified from standing for election under Article 102(1)(a). The Tribunal therefore allowed the election petition and declared the appellant’s election to the House of the People void. The appellant appealed this decision to the Calcutta High Court under section 116‑A of the Representation of the People Act, 1951. The High Court dismissed the appeal but, nevertheless, issued a certificate of fitness under Article 133(1)(c) of the Constitution, permitting the appeal to be heard by this Court. The sole question before this Court was whether the appellant was disqualified from being chosen as, and from serving as, a member of the House of the People pursuant to Article 102(1)(a). The answer depended on whether the appellant held any office of profit under the Government of India or under the Government of any State, other than those offices that Parliament had by law declared not to disqualify their holder. The Court observed that it was not seriously contested that the auditor’s position which the appellant occupied as a partner in G. Basu and Company constituted an office of profit. Moreover, the appellant had not contended that any such office of profit had been specifically exempted from disqualification by a parliamentary enactment. Consequently, the arguments presented before the Court focused entirely on the precise scope and meaning of the phrase “under the Government of India or the Government of any State” as it appears in clause (a) of Article 102(1).

In this appeal, the appellant argued that, when the expression in Article 102(1) of the Constitution is interpreted correctly, he does not occupy an office of profit under either the Government of India or the Government of West Bengal. The respondents, on the other hand, maintained that the appellant’s position as auditor constitutes an office of profit for the Government of India in relation to the Life Insurance Corporation of India, Durgapur Projects Ltd., and Hindustan Steel Ltd., and that his role as a director of the West Bengal Financial Corporation, a position to which he was appointed by the Government of West Bengal, also represents an office of profit under the Government of West Bengal. These opposing contentions are the matters that the Court must examine in the present appeal. It is essential to note that if the Court determines that the appellant holds an office of profit under the Government in respect of any one of the four entities mentioned, the appeal must be dismissed. Consequently, it would be unnecessary to decide whether the appellant’s position in the remaining entities also amounts to an office of profit. Accordingly, the Court decided to first consider the two entities that are wholly owned by the Government—namely Durgapur Projects Ltd. and Hindustan Steel Ltd.—and to evaluate the parties’ arguments concerning the appellant’s auditor role in those two companies. Should the Court find that the appellant’s auditor position in either of these companies amounts to an office of profit under the Government of India, there would be no further need to examine his status in the other companies.

The parties did not dispute that Hindustan Steel Ltd. and Durgapur Projects Ltd. qualify as government companies pursuant to section 2(18) read with section 617 of the Indian Companies Act, 1956. The record also shows that the Government of West Bengal owns all the shares of Durgapur Projects Ltd., while the Union Government owns all the shares of Hindustan Steel Ltd. The Court then turned to section 619 of the Indian Companies Act, 1956, which provides, in relevant part: “(1) In the case of a Government company, the following provisions shall apply, notwithstanding anything contained in sections 224 to 233. (2) The auditor of a Government company shall be appointed or re‑appointed by the Central Government, on the advice of the Comptroller and Auditor‑General of India. (3) The Comptroller and Auditor‑General of India shall have power— (a) to direct the manner in which the company’s accounts shall be audited by the auditor appointed under sub‑section (2) and to give such auditor instructions in regard to any matters relating to the performance of his functions as such; (b)” This statutory provision indicates that the appointment of the auditor in a government company is made by the Central Government, based on the advice of the Comptroller and Auditor‑General, thereby linking the auditor’s role directly to the Government.

In the provisions quoted, the Comptroller and Auditor-General of India is authorised to order a supplementary or test audit of a Government company’s accounts to be performed by any person or persons that the Comptroller may designate for that purpose. For the conduct of such an audit, the Comptroller may require any designated person or persons to be supplied with information or additional information, and may prescribe the form in which that information is to be furnished, by issuing either a general or a special order.

The auditor who conducts the audit is required to forward a copy of his audit report to the Comptroller and Auditor-General of India. Upon receipt of the report, the Comptroller may, at his discretion, make comments on the report or supplement it in any manner that he deems appropriate. Those comments or supplements are then to be placed before the company’s annual general meeting, and they must be presented at the same time and in the same manner as the original audit report.

These provisions demonstrate that, notwithstanding section 224 of the Companies Act which generally empowers every company to appoint an auditor at each annual general meeting, the appointment of an auditor for a Government company is exclusively a function of the Central Government, which must act on the advice of the Comptroller and Auditor‑General of India. Section 224(7) provides that an auditor appointed under section 224 may be removed before his term expires only by a resolution of the company in a general meeting, after obtaining prior approval of the Central Government. The remuneration of such auditors is fixed in accordance with sub‑section (8) of section 224.

However, sub‑section (7) of section 224 does not apply to a Government company because the auditor of a Government company is not appointed under section 224 but under sub‑section (2) of section 619. Consequently, both the appointment and the removal of the auditor of a Government company rest solely with the Central Government. Under sub‑section (3) of section 619, the Comptroller and Auditor‑General exercises control over the auditor in several respects, including the manner in which the company’s accounts are to be audited, and he may issue instructions to the auditor on any matter relating to the performance of the auditor’s functions.

The Comptroller also has the authority to conduct a supplementary or test audit of the company’s accounts by authorising any person or persons for that purpose. In effect, the Comptroller and Auditor‑General of India exercises complete control over the auditors of Government companies. While the powers and duties of auditors of companies other than Government companies are set out in section 227 of the Act, sub‑section (1) of section 619 expressly excludes the application of section 227 to Government companies.

It was explained that a Government company was governed by section 619 of the Act, and therefore the provisions of that section applied to it. Section 619‑A required that when the Central Government was a member of a Government company, an annual report describing the company’s work and affairs had to be prepared and placed before both Houses of Parliament together with a copy of the audit report and any comments made by the Comptroller and Auditor‑General. Section 620 authorized the Central Government, by way of a notification, to declare that any provision of the Act except sections 618, 619 and 639 would not apply to a particular Government company.

The net effect of these statutory provisions was that, for Durgapur Projects Ltd. and Hindustan Steel Ltd., the appellant had been appointed as auditor by the Central Government. The same Government also possessed the power to remove the auditor, and the Comptroller and Auditor‑General exercised full control over the auditor’s functions. Although the company paid the remuneration, the amount of the remuneration was fixed by the Central Government under subsection (8) of section 224 of the Act.

In view of these facts, the central issue before the Court was whether the appellant occupied an office of profit under the Central Government. The Court then turned to article 102(1) of the Constitution, which provides that a person was disqualified from being chosen as, or sitting as, a member of either House of Parliament if he or she held any office of profit under the Government of India or the Government of any State, unless Parliament had by law declared that the office did not disqualify its holder.

The Court noted that the sole question for determination was whether the auditor’s position, which the appellant unquestionably held with respect to Durgapur Projects Ltd. and Hindustan Steel Ltd., was an office of profit under the Government of India. Counsel for the appellant, identified as Mr Chaudhuri, argued that the expression “under the Government” in article 102(1)(a) implied subordination to the Government. He advanced five tests of subordination: (1) whether the Government made the appointment; (2) whether the Government had the right to remove or dismiss the holder; (3) whether the Government paid the remuneration; (4) what functions the holder performed and whether those functions were performed for the Government; and (5) whether the Government exercised any control over the performance of those functions. He contended that all five tests had to be satisfied simultaneously, and that the satisfaction of only some of the tests was insufficient to bring the holder of the office under the Government. On that basis, he claimed that both the Election Tribunal and the High Court had erred in holding that the appellant was a holder of an office under the Government, because they had misinterpreted the scope and effect of the expression “under the Government” in article 102(1)(a).

In this appeal, the petitioner asserted that the tribunal and the High Court erred in declaring him a holder of an office under the Government because they misinterpreted the phrase “under the Government” found in article 102(1)(a) of the Constitution. He argued that the three tests concerning remuneration, the performance of functions, and the exercise of control were not satisfied in the present circumstances. Specifically, he pointed out that his salary was paid by the company, although the amount was fixed by the Government; that he performed his duties for the company rather than for the Government; and that his supervision was exercised by the Comptroller and Auditor‑General, an entity distinct from the Government. The respondents, on the other hand, contended that the tests were not required to be cumulative as the petitioner suggested, and that the substantive nature of the relationship must be examined by weighing all relevant factors in each case. They maintained that the most important considerations were the power of appointment and dismissal, and that, in the context of a company wholly owned by the Government, the fact that remuneration was fixed by the Government, the functions were performed for the company, and control was exercised by the Comptroller and Auditor‑General, together with the appointment and dismissal powers, effectively placed the petitioner under the Government that appointed him. The respondents also clarified that no allegation had been made that Durgapur Projects Limited or Hindustan Steel Limited constituted a Government department or an emanation of the Government, a point previously examined in the case of Narayanaswamy v. Krishnamurthi. They argued that, because the two companies were incorporated under the Companies Act 1956, they were separate legal entities distinct from the Government, yet, relying on section 619 and related provisions of the Companies Act, they maintained that an auditor appointed and removable by the Central Government qualified as a holder of an office of profit under the Government in respect of a wholly Government‑owned company. The Court agreed with this submission, holding that an individual need not be a government servant nor be in a master‑servant relationship to occupy an office of profit under the Government. The Constitution itself distinguishes between a holder of an office of profit under the Government and a holder of a post or service under the Government, as reflected in articles 309 and 314, and further separates an office of profit under the Government from an office of profit under a local or other authority subject to Government control, as indicated by articles 58(2) and 66(4).

The Court examined the distinction articulated in Articles 58(2) and 66(4) of the Constitution, which separates “the holder of an office of profit under the Government” from “the holder of an office of profit under some other authority that is subject to Government control.” To illustrate this distinction, the Court referred to the earlier decision in Maulana Abdul Shakur v. Rikhab Chand and another, reported in I.L.R. [1958] Mad‑513 and (1958) S.C.R. 387. In that case the appellant had been employed as the manager of a school that was run by a committee of management formed under the provisions of the Durgah Khwaja Saheb Act, 1955. The appellant’s appointment had been made by the administrator of the Durgah, and his remuneration was a modest Rs 100 per month. The legal issue before the Court was whether, in view of Article 102(1)(a) of the Constitution, the appellant was disqualified from being chosen as a member of Parliament because he held an office of profit.

The respondent argued that sections 5 and 9 of the Durgah Khwaja Saheb Act, 1955 gave the Government of India the authority to appoint and remove members of the committee of management as well as to appoint the administrator, albeit in consultation with the committee. According to that argument, the appellant therefore functioned under the control and supervision of the Government of India and consequently occupied an office of profit under the Government. The Court rejected this contention. It emphasized that the statutory provisions merely placed the committee within the sphere of Government supervision; they did not make the members of the committee, or the appellant, officers of the Government. The Court reiterated the principle that a holder of an office of profit under the Government must be appointed by the Government, be removable by the Government, and typically receive remuneration out of Government revenues.

Subsequently, counsel for the petitioner, Mr Chaudhuri, urged the Court to apply the earlier decision in his favour. He asserted that the present appellant occupied offices of profit in Durgapur Projects Ltd. and Hindustan Steel Ltd., both companies being incorporated under the Indian Companies Act. He further submitted that the fact that the Comptroller and Auditor‑General or the Government of India exercised some degree of control over these companies did not diminish the appellant’s status as a holder of an office of profit under the companies.

The Court found this line of argument unconvincing. It noted that, unlike the appellant in Maulana Abdul Shakur’s case, the present appellant’s appointment was not made by the Government, nor was the appellant removable by the Government. In the earlier case, the appointment had been effected by the administrator of the Durgah’s committee, and dismissal could also be effected by that same body. The Court quoted its earlier observation that although the Committee of the Durgah Endowment is appointed by the Government of India, it is a corporate entity with perpetual succession that operates within the confines of its founding Act. The mere fact that the Committee or its members can be removed by the Government, or that the Committee can prescribe bylaws governing its employees, does not transform the employees into holders of offices of profit under the Government. The appellant in that case was neither appointed nor removable by the Government, nor was his salary drawn from the revenues of India.

The Court reiterated the two decisive factors identified in the Maulana Abdul Shakur judgment: (a) the power of the Government to appoint a person to an office of profit, to continue him in that office, or to revoke his appointment at its discretion, and (b) the source of the remuneration, specifically whether it is paid out of Government revenues. While acknowledging that payment from a non‑government source is not always a decisive consideration, the Court stressed that the appointment and continuance of the present appellant rest solely with the Government of India in relation to the two companies, and his remuneration is fixed by the Government. Consequently, the Court concluded that the appellant does hold an office of profit under the Government.

The Court explained that the determination of whether a person holds an office of profit under the Government depends chiefly on two considerations. The first consideration is the power of the Government to appoint the person to the position, to retain him in that position, or to revoke his appointment at the Government’s discretion. The second consideration is whether the remuneration for the position is drawn from Government revenues. The Court noted, however, that receipt of salary from a source other than Government revenue is not invariably decisive. In the earlier judgment in Maulana Abdul Shakur’s case, the Court identified these two factors as decisive. Applying the same test to the present matter, the Court observed that both the appointment of the appellant and his continued tenure in the two companies are entirely under the authority of the Government of India, and that his salary is also fixed by the Government. For the purposes of this appeal, the Court assumed that the two companies are statutory bodies separate from the Government, yet it stressed that they are Government companies within the meaning of the Indian Companies Act, 1956, with the Government holding one hundred per cent of the shares. The Court further pointed out that in the performance of his duties, the appellant is subject to the control of the Comptroller and Auditor‑General, who himself is undeniably a holder of an office of profit under the Government, notwithstanding the constitutional safeguards concerning his tenure and removal.

The Court then turned to the constitutional provisions governing the office of the Comptroller and Auditor‑General of India. Under Article 148 of the Constitution, the Comptroller and Auditor‑General is appointed by the President and may be removed from office on the same grounds and in the same manner as a Judge of the Supreme Court. The salary and other conditions of service of the Comptroller and Auditor‑General are to be determined by Parliament by law; until such law is enacted, they are to be as specified in the Second Schedule to the Constitution. Clause (4) of Article 148 further provides that, after ceasing to hold the office, the Comptroller and Auditor‑General is ineligible for any further appointment under the Government of India or under any State government. Clause (5) states that, subject to the Constitution and any parliamentary legislation, the administrative powers of the Comptroller and Auditor‑General shall be as may be prescribed by rules made by the President after consultation with the Comptroller and Auditor‑General. Finally, Article 149 requires the Comptroller and Auditor‑General to perform duties and exercise powers in relation to the accounts of the Union, the States, and any other authority or body as may be prescribed by law made by Parliament. These provisions confirm that the Comptroller and Auditor‑General himself holds an office of profit under the Government of India, a fact that influences the analysis of the appellant’s own position.

Until a specific provision is made for that purpose, the Comptroller and Auditor‑General is required to perform the duties and to exercise the powers concerning the accounts of the Union and of the States that were previously conferred on, or could be exercised by, the Auditor General of India immediately before the Constitution came into force, with respect to the accounts of the Dominion of India and of the Provinces respectively. The reports prepared by the Comptroller and Auditor‑General of India that relate to the Union’s accounts must be submitted to the President, whereas the reports that relate to the accounts of a State must be submitted to the Governor of that State. From these provisions, the Court observed that the Comptroller and Auditor‑General himself holds an office of profit under the Government of India because he is appointed by the President and his administrative powers are those that may be prescribed by rules made by the President, subject to the Constitution and to any law enacted by Parliament. Considering the matter on its substance rather than on its form, the Court held that the appellant, who occupies an office of profit in the two Government‑owned companies Durgapur Projects Ltd. and Hindustan Steel Ltd., is effectively under the Government of India; he is appointed by the Government of India, he can be removed from his position by the Government of India, and he performs functions for those two Government companies under the control of the Comptroller and Auditor‑General, who, as noted, is appointed by the President and whose administrative powers may be regulated by rules made by the President. The Court then referred to the decision in Ramappa v. Sangappa, where the issue was whether a holder of a village office who possessed a hereditary right to the office was disqualified under Article 191 of the Constitution, the counterpart of Article 102, for membership of the State Legislature. The judgment in that case explained that the Government makes the appointment to the office, even if the statute leaves the Government without any choice but to appoint the heir who satisfies the statutory requirements; consequently, the office is held because of the Government’s appointment and not merely because of a hereditary right, and the inability of the Government to refuse the appointment does not change that conclusion. That decision reiterated that the decisive test for disqualification is the existence of an appointment by the Government. In light of those decisions, the Court could not accept the argument presented by counsel for the appellant that, in order to determine whether a person holds an office under the Government, every one of the several factors – the appointing authority, the authority empowered to terminate the appointment, the authority that fixes the remuneration, the source of the remuneration, and the authority that controls the manner in which the duties are performed and gives directions – must be present together.

It was observed that the various factors which determine whether an office is held under the Government must all be present together and each of those factors must demonstrate subordination to the Government. Consequently, if any one of those elements is missing, the test for a person holding an office under the Central or State Government is not satisfied. The authorities referred to earlier expressly state that the source of the remuneration, when it does not come from public revenue, is merely a neutral consideration and is not decisive of the question of office of profit. The Court further noted that the emphasis placed on one factor rather than another will depend upon the particular facts of each case. Nevertheless, the Court expressed no hesitation in holding that when all the relevant elements—namely the power to appoint, the power to dismiss, the power to control the manner in which the duties of the office are to be performed, and the power to determine the remuneration—are concurrently exercised in a given situation, the person concerned undeniably holds the office under the authority that possesses those powers. On the basis of the foregoing reasoning, the Court concluded that both the Election Tribunal and the High Court were correct in finding that the appellant, in his capacity as auditor of the two Government companies, occupied an office of profit under the Government of India within the meaning of Article 102(1)(a) of the Constitution. Accordingly, the appellant was disqualified from being chosen as, and from being, a member of either House of Parliament. The Court held that it was unnecessary to entertain the additional question of whether the appellant also held an office of profit under the Government of India or under the Government of West Bengal by virtue of his role as auditor for the Life Insurance Corporation of India or as a Director of the West Bengal Financial Corporation. For these reasons, the appeal was dismissed with costs, and the order of dismissal was affirmed.