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ivil Appeal No. 729 of 1983.
From the Judgment and order dated 20.11.1987 of the Customs Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal No. F/A No. 1325/83 D (Order No. 920/87 D).
WITH Civil Appeal No. 2479 of 1987.
From the Judgment and Order dated 28.2.1986 of the Customs Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal No. ED(SB) (T) 155/7 I C (Order No. 18 1/1986 C).
A.K. Ganguli, Hemant Sharma and Mrs. Sushma Suri for the Appellant in C.A. No. 729188.
Soli J. Sorabjee for the Appellant in C.A. No. 2479 of 1987.
Harish N. Salve, Ravinder Narain, P.K. Ram, D.N. Misra and section Ganesh for the Respondents.
The Judgment of the Court was delivered by: SABYASACHI MUKHARJI, J.
This is an appeal under section 35 L of the Central Excises & Salt Act, 1944 (hereinafter referred to as 'the Act ') from the order of the Customs, Excise and Gold (Control) Appellate Tribunal (hereinafter referred to as 'CEGAT ').
The respondent M/s Jayant Oil Mills Pvt. Ltd.; Hyderabad, manufactures hydrogenated rice bran oil which was sold to industrial consumers.
The said hydrog enated rice bran oil is used as raw material in the manufac ture of soap.
The respondents, M/s Jayant Oil Mills Pvt. Ltd. filed a classification list dated 20th May, 1981 in respect of the said goods classifying the same under Tariff Item 12 for approval and claimed exemption under notifica tion No. 9/60 dated 20th February, 294 1960.
The Assistant Collector of Central Excise, Hyderabad III Division by an order dated 16th June, 1981 (held that the hydrogenated rice bran oil was classifiable under Tariff Item 68 of the Central Excise Tariff (hereinafter referred to as 'CET '), because hydrogenated rice bran oil is solid at the ordinary temperature and therefore should be considered as fat and not as oil.
The Assistant Collector observed that there was one opinion that the said goods could not fall under Tariff Item 12 as it was unfit for human consumption.
The Assistant Collector observed that the said goods was new product after manufacture, having a distinct name, character and .use and as such it fell under Tariff Item 68 CET.
The respondent on the other hand maintained before the Assistant Collector that the said goods was semi solid and still vegetable non essential oil failing under Tariff Item 12 CET.
Being dissatisfied with the order dated 16th June, 1981, the respondent appealed before the Appellate Collector of Central Excise, Madras.
By an order dated 30th November, 1981, the Appellate Collector held that hydrogenated rice bran oil is classifiable under Tariff Item 12 CET and there fore ordered for consequential relief to the respondent.
The order of the Appellate Collector holding that the said products are classifiable under Item 12 CET had not been reviewed by the Central Government under section 36(2) of the Act.
The appellate Collector was therefore of the view that even after the superhardening or hydrogenation vegetable oil did not cease to be oil even it became solid .
The Central Government, Ministry of Finance, Department of Revenue, being of the view that the order of the Appel late Collector was not proper, legal and correct, issued a show cause notice dated 12th May, 1982 to the respondent.
The Central Government informed the respondents in the show cause notice that it appeared to the Government that the hydrogenation of rice bran oil is a process of manufacture which brings into existence a new product known as hydroge nated rice bran oil in commercial parlance having a distinct name, character and use and this end product would have been classified under Item 13 had it been fit for human consump tion It was further observed in the said show cause notice by the Government that as the melting point of the hydroge nated rice bran oil is more than 45degree C it was of the nature of extra hardened, vegetable product which was unfit for human consumption and since it was distinct from vegeta ble 295 non essential oil it would prima facie be classifiable under the residuary item 68 CET.
The respondents were, therefore, called upon to show cause as to why the order of the Appellate Collector should not be set aside and that of the Assistant Collector re stored.
The matter came up before the CEGAT.
The CEGAT noted in its impugned order that the appeal was concluded by the judgment of the five member Bench of the Tribunal in the case of M/s Tata Oil Mills Co. Ltd. (1986 Vol.
and held that the order dated 30th November, 1981 of the Appellate Collector was correct and dismissed the appeal of the appellant.
It is necessary, therefore, to refer to the order of the CEGAT.
The CEGAT noted that vide order dated 16th June, 1981 the Assistant Collector classified the hydrogenated rice bran oil manufactured by the respondents, M/s Jayant Oil Mills Ltd. under Item 68 CET.
The question, therefore, that was urged before this Court was whether the CEGAT was in error in holding that the hydrogenated rice bran oil was a process of manufacture which brought into existence a new product, i.e., hydrogenated rice bran oil.
Indubitably hydrogenation of rice bran oil is a process.
But all processes need not be manufacture.
It must be such a process which transforms the old articles into a goods and changes the identity, use and the purpose of use of the goods undergone by the process.
By the process which can be considered to be manufacture a new identifiable good, in the sense known in the market as such must come into being.
But that is one part of the view.
It appears, however, that the melting point of the hydrogenated rice bran oil is 45degree C and it is in the nature of extra hardened vegetable proc ess which is unfit for human consumption.
It was taken to be classifiable under Tariff Item 68 CET.
Similar are the facts in Civil Appeal No. 2479 of 1987 before us in the matter of Collector of Central Excise, Madras vs M/s Tara Oil Mills Co. Ltd. There also, the CEGAT allowed the appeal of the respondents and held that the extra hardened rice bran oil continued to remain as oil classifiable under Item 12 CET.
It is necessary to decide in both these matters the nature of the product.
Rice bran oil is extracted out of rice bran by solvent extraction method.
After such extraction, rice bran oil obtained is in liquid form.
296 The parties purchase rice bran oil from the market and process it.
The process is reported to be as follows.
The oil is heated to above 80degree C and the impurities are removed by adding exalic acid and caustic lye.
The purified oil is then bleached by heating it to 85degree C to 100degree C and thereby treating with fullers earth.
The processed oil is then hardened by passing it through hydro gen gas.
During hydrogenation, the oil absorbs two atoms of hydrogen and the unsaturated fatty acid present in the oil becomes saturated.
The oil is then in a semi solid condition and its melting point is raised to 45degree C or more.
In the hardened state, the oil looks like vanaspati (or vegeta ble product, to use the Central Excise terminology) but there is a difference in the degree of hydrogenation of the two.
The melting point of vanaspati, which is commonly used as cooking medium, does not exceed 37degree C while the melting point of hardened rice bran oil in dispute before us is between 45 degree C 52 degreeC. At such high melting point, the oils are no longer edible by human beings.
In order to differentiate between edible hydrogenated oils (vanaspati) and super hydrogenated vegetable oils, the latter are referred to as extra hardened oil or super hard ened oil.
The record before us shows that they are also known as 'vegetable tallow ' or 'hard lump ' or 'hardened technical oil of industrial hard oil ' or just 'hardened oil '.
This hardening of oil is necessary for soap making; otherwise, the soap, on coming into contact with water, is likely to become soggy.
The respondent use the hardened oil for soap making within their factories.
Besides its use in soap making, the extra hardened oil is also put to various other industrial uses, such as for application as grease.
The dispute started when the appellants filed their classification list containing the following entry at section No. 3: "3.
Rice Bran Oil processed In barrels exempted *33/63 CE dated 1.3.1963 as amended (*Rule 56A procedure to be followed for out side despatches).
" The Assistant Collector approved the classification under item 12 CET (Vegetable non essential oils, all sorts) with benefit of full exemption from duty under notification No. 33/63 CE dated 1st March, 1963 as claimed by the appel lants for soap making.
The Collector, however, was tenta tively of the opinion that the Assistant Collector 's order was not correct.
In exercise of his power of revision under the then section 35A of the Act, the Collector called upon the appellant to show cause as to why the hardened oil should not be subjected to two stage duty.
After hearing the appellants, the 297 Collector passed the orders by which he confirmed the two stage duty.
Being aggrieved by the Collector 's order, the appellants filed a revision application before the Central Government which, on transfer of the proceedings to the Tribunal, was transferred to the Tribunal.
The matter was heard by a three member Special Bench.
It was resolved that a larger bench should be constituted and a larger bench had been constituted.
It was noted by the Bench that irrespective of the fact whether extra hardened rice bran oil produced by the parties was classified under Item 12 CET of Item 68 CET, it would remain fully exempt.
On behalf of the parties, the respondents herein, it was argued before the Tribunal that hydrogenation or hardening was a process in the course of manufacture of a soap.
The extra hardened oil came into existence during soap manufacture at an intermediary stage and such oil was not a new product by itself.
Secondly, it was urged that even if the extra hard ened oil was considered as a new product, its character still remained that of oil.
It was the same oil though in a hardened or semi solid form.
The form was not material as it only meant that by application of heat at 45degree C or more, it would again turn into liquid oil.
As such, the oil, even in its hardened form, continued to remain under Item 12 CET as it still was essentially oil only.
The process of hydrogenation was intended to make the oil fit for soap making.
Only that part of hydrogenated oil as was fit for human consumption fell under item 13 (vegetable product); the rest remained under item 12 "vegetable non essential oils, all sorts . . " Reference may be made to the decision of this Court in Tungabhadara Industries Ltd. vs The Commercial Tax Offi cer, Kurnool; , There the appellant purchased groundnuts out of which it had manufactured groundnuts oil.
It also refined the oil and hydrogenated it converting it into Venaspati.
It sold the oil in the three states.
Under the Madras General Sales Tax Act, 1939, and the Turnover and Assessment Rules, for determining the taxable turnover the appellant was entitled to deduct the purchase price of the groundnuts from the proceeds of the sale of all groundnut oil.
The High Court, in that case, held that the appellant was entitled to the deduction in respect of the sales of unrefined and refined groundnut oil but not in respect of the sales of hydrogenated oil on the ground that the vanas pati was not "groundnut oil" but a product of groundnut oil.
This Court, however, held that appellant was entitled to the deduction in respect of the sales of hydrogenated groundnut oil also.
The hydrogenated groundnut oil continued to be "groundnut oil", notwithstanding the processing which was merely for the purpose of rendering the 298 oil more stable.
To be groundnut oil two conditions had to be satisfied: it must be from groundnut and it must be "oil".
The hydrogenated oil was from groundnut and in its essential nature it remained an oil.
It continued to be used for the same purposes as groundnut oil which had not under gone the process.
A liquid state was not an essential char acteristic of a vegetable oil; the mere fact that hydrogena tion made it semi solid did not alter its character as an oil.
In our opinion, the same principle would be applicable to the facts and the problem herein.
In this connection, reference may be made to the obser vations of this Court in Charapaklal vs State of Gujarat, AIR 1980 SC 1889 though it was a criminal case, this Court observed therein that vanaspati was essentially an oil although it was a different kind of oil than that oil (be it rapeseed oil, cotton seed oil, groundnut oil, soyabean oil or any other oil) which forms its basic ingredient.
Oil would remain oil if it retained its essential properties and merely because it had been subjected to certain processes would not convert it into a different substance.
In other words, although certain additions had been made to and operations carried out on oil, it would still be classified as oil unless its essential characteristics had undergone a change so that it would be misnomer to call it oil as under stood in ordinary parlance.
Such change was not supported by the evidence in that law.
The Tribunal found so and it is a question of fact that the hydrogenated rice bran oil still remained oil.
On behalf of the interveners, it was further submitted before the Tribunal that Item 12 CET which dealt with vege table non essential oils, all sorts, was a specific, exhaus tive and all pervasive entry and it continued to cover the extra hardened oil.
Our attention was drawn to the different degree of hydrogenation.
It may be appropriate to refer to the relevant Items in the First Schedule to the Central Excise Tariff.
Item 12 provides as follows: "12.
Vegetable non essential oils, all sorts, in or in relation to the manufac ture of which any process is ordinarily car ried on with the aid of power.
" Item 13 provides as follows: "13.
Vegetable Product: 299 'Vegetable Products ' means any vegetable oil or fat which, whether by itself .or in admix ture with any other substances, has by hydrog enation or by any other process been hardened for human consumption.
" The Tribunal, therefore, in our opinion, was right on a conspectus of the relevant factors in coming to the conclu sion that edible rice bran oil falling under Tariff Item 12 CET would even after extra hardening continue to fall under Tariff Item 12 and not fall under Tariff Item 68 because it would be vegetable non essential oils, all sorts, in or in relation to the manufacture of which any process is ordi narily carried on with the aid of power.
In that view of the matter, it would not come within Tariff Item 68.
The Tribu nal, it appears, to us, has considered the technical side of it, the manner of its production, and in view of the princi ple laid down by Tungbhadara Industries Ltd. 's case (supra) which in our opinion was essentially applicable to the facts of this case.
The Tribunal, in our opinion, came to the correct conclusion.
Justice Pendse of the Bombay High Court in IVP Ltd. and Anr.
vs Union of India & Ors., had occasion to consider some aspects of this problem.
It was held by the learned Judge that the plain reading of Item 13 CET indicated that the vegetable products which fell 'under that item must be one for human consumption.
It was not in dispute in that case that the product manufactured by the petitioners was used only for the industrial purposes and not for human consumption and, therefore, Tariff Item 13 could not be attracted.
Whether Tariff Item 12 or Item 68 would be applicable to the products manufactured by the petitioners, it is well settled that resort could not be had to the residuary item if the product comes within the ambit of any other tariff item.
It is, therefore, necessary to ascertain whether Item 12 is applicable for levy of excise duty in respect of hardened vegetable oil.
Tariff Item No. 12 brings in its sweep "vegetable non essential oils of all sorts" and the expression "all sorts" would bring in its ambit hydrogenated oil.
There is hardly any distinction between vegetable oil in liquid form and the hydrogenated oil which is hardened with a melting point higher than 41 C. Apart from the distinction in the physical appearance, there is no distinction between oil and hydrogenated oil which is well supported by the decision of this Court in Tungbhadra 's case (supra) where this Court held that several oils are viscous fluids but those do harden and .
assume semi solid condition on the lowering of the temperature.
300 Therefore, it is obvious that hydrogenated oil is nothing but hardened vegetable oil which would fall within Item 12 CET for the purpose of central excise duty.
Our attention was drawn to Encyclopaedia Britannica, 1968, Vol.
19 p. 302 where preparation of rice is indicated.
It states as follows: "The Kernel of rice as it leaves the thresher is enclosed by the hull, or husk and is known as paddy or rough rice.
Rough rice is used for seed and feed for livestock, but most of it is milled for human consumption by removing the hulls.
Rice is a good energy food, and is consumed in vast quantities in the Orient.
In the Western Hemisphere, however, rice is not the staple cereal food, except in certain Caribbean islands.
" Our attention was also drawn to certain obserVations of the Tribunal in Vital & Vital Oil Pvt. Ltd. vs Collector of Central Excise, Bombay, where the Tribunal observed that the department advocates assessment of hard ened technical oil under item 68.
This item is only for goods not specified anywhere else.
According to Department, "all other goods not specified elsewhere" is more specific than "vegetable non essential oils, all sorts".
But it has to be borne in mind that the basic rule of construction is that a more specific item should be preferred to one less so.
It does not take much to see whether "goods not speci fied elsewhere" is more specific than "vegetable non essen tial oils" for a product that has an oily nature, is pro duced from an oil has the uses of an oil, and indeed looks like an oil, and is quite commonly accepted and spoken of as an oil and is so related to oil, that it has a little or no chemical.
If hydrogenated oil can harden, so can many oils if subjected to heat loss (in winter or by chilling).
It appears to us, therefore, that Item 12 is more specific than Item 68, for all hardened technical oil not fit for human consumption and such would cover under this category.
In the aforesaid view of the matter, we are of the opinion that the Tribunal particularly emphasised that the hardened technical oil is the same thing as the oil from which it is made.
It is clearly akin to the oil in homo logue, a product of scientific modification but unaltered in its essential character.
Therefore, in our opinion, the Tribunal was right in the conclusion it arrived at.
301 The Tribunal in both the appeals had taken into consid eration all relevant and material factors, and market par lance and borne in mind the correct legal principles.
The decision of the Tribunal, therefore, cannot be assailed.
In the premises, as both the appeals deal with the same facts, these. are dismissed.
There will, however, be no order as to costs.
Y. Lal Appeals dis missed.
| IN-Abs | The question that arises for determination in the ap peals is whether the hydrogenated rice bran oil manufactured by the Respondents, could, as claimed by them, be classified under Tariff Item No. 12.
Respondent herein manufacture hydrogenated rice bran oil, which is used as raw material in the soap making and in other industries.
The Respondent flied a classification list classifying the said product under Tariff Item No. 12 and claimed exemption from payment of excise duty.
The Asstt.
Collector of Central Excise, who dealt with the matter held that the said Roods was a new product after manufacture, having a distinct name, Character and use and u such it fell under Tariff Item 68 CET and not Item 12.
The Respondent preferred an appeal before the Appellate Collec tor of Central Excise, Madras.
The Appellate Collector reversed the order of the Asstt.
Collector and held that hydrogenated rice bran oil is classifiable under Tariff Item 12 CET and granted the consequential relief.
The order of the Collector was confirmed by the Customs, Excise and Gold (Control) Appellate Tribunal.
Hence the appeal under Section 35 L of the Central Excises & Salt Act by the Department.
Dismissing the appeals, the Court, HELD: Indubitably hydrogenation of rice bran 011 Is a process.
But all processes need not be manufacture.
It must be such a process which transforms the old articles Into goods and changes the identity, use and the purpose of use in the goods undergone by the process.
By 292 the process of manufacture a new identifiable goods, in the market as such must come into being.
[295E F] The melting point of the hydrogenated rice bran oil is 45degree C and it is in the nature of extra hardened vegeta ble process which is unfit for human consumption.
It was taken to be classifiable under Tariff Item 68 CET.
[295F] Rice bran oil is extracted out of rice bran by solvent extraction method.
After such extraction rice bran oil obtained is in liquid form.
The parties purchase rice bran oil from the market and process it.
The process is as fol lows.
The oil is heated to above 80degree C and the impuri ties are removed by adding oxalic acid and caustic lye.
The purified oil is then bleached by heating it to 85xC to 100xC and thereby treating with fullers earth.
The processed oil is then hardened by passing it through hydrogen gas.
During, hydrogenation, the oil absorbs two atoms of hydrogen and the unsaturated ferry acid present in the oil becomes saturated.
The oil is then in a semi solid condition and its melting point is raised to 45xC or more.
In the hardened state, the oil looks like Vanaspati (or vegetable product, to use the Central Excise terminology) but there is a difference in the degree of hydrogenation of the two.
[295H; 296A C] In order to differentiate between the edible hydrogenat ed oils (Vanaspati) and super hydrogenated vegetable oils, the latter are referred to as extra hardened oil or super hardened oil.
[296C D] This hardening of oil is necessary for soap making, otherwise, the soap, on coming into contract with water is likely to become soggy.
The Respondents use the hardened oil for soap making in their factories.
Besides its use in soap making, the extra hardened oil is also put to various other industrial uses, such as for application as greases.
[296D E] It is obvious that hydrogenated oil is nothing but hardened vegetable oil which would fail within Item 12 CET for the purpose of Central Excise duty.
[300A] Item 12 is more specific than Item 68, for all hardened technical oil not fit for human consumption and as such, would be covered under this category.
[300G ] Tungabhadara Industries Ltd. vs The Commercial Tax Officer, 293 Kurnool; , , followed.
Champaklal vs State of Gujarat, AIR 1980 SC 1889; IVP Ltd. and Anr.
vs Union of India & Ors., and Vital & Vital Oil Pvt. Ltd. vs Collector of Central Excise, Bombay, , referred to.
|
: Civil Appeal Nos.203 7 2042 of 1977 etc.
From the Judgment and Order dated 21.10.1976 of t he Rajasthan High Court in D.B. Special appeal Nos. 8, 20, 2 2, 26, 27 and 28 of 1976.
A.K. Sen, V.M. Tarkunde, Shanti Bhushan, Sushil Kum ar Jain, N.D.B. Raju, Ram Kalyan Sharma,Jagdish Nandware, K. B. Rohtagi, S.K. Dhingra, R.S. Sodhi and Vineet Kumar for the Appellants.
C.M. Lodha, Badri Dass Sharma, S.D. Khanduja and Ind ra Makwana for the Respondents.
The Judgment of the Court was delivered by VENKATACHALIAH, J.
These appeals, by Special Leave a nd Petitions for grant of Special Leave pertaining to agrari an reform legislation in the State of Rajasthan, arise out of and are directed against the judgment dated 21st Octobe r, 1976, of a full bench of the High Court of Rajasthan, di s missing a batch of special appeals and affirming the jud g ment dated 2.12.1975 of the learned Single Judge of the Hi gh Court rejecting appellants contentions against the legali ty of certain proceedings for the fixation of ceiling on agr i cultural holdings initiated and continued under the Prov i sions of Chapter III B of the Rajasthan Tenancy Act, 195 5.
In the Writ petition filed directly in this Court relie fs similar to those sought before the High Court are claimed.
The principal controversy before High Court in t he proceedings, shorn of its niceties and embellishments, w as whether the proceedings for fixation of ceiling area wi th reference to the appointed dated i.e. 1.4.1966 under Chapt er III B of the Rajasthan Tenancy Act, 1955, 157 ( '1955 Act ' for short) could be initiated and continu ed after the coming into force of the Rajasthan Imposition of Ceiling on Agricultural Holdings Act (Act No. 11 of 197 3) ( '1973 Act ' for short) which w.e.f.1.1.1973 repealed Se c tion 5(6A) and Chapter III B of the old Act, i.e. ' 19 55 Act '.
Chapter III B, pertaining to imposition of ceiling on agricultural holdings, in the State of Rajasthan, was intr o duced into the '1955 Act ' by the Rajasthan Tenancy (Amen d ment) Act, 1960.
As a sequential necessity Section 5 w as amended by the introduction in it of Clause (6A) whi ch defined "ceiling area".
The notified date, as original ly fixed, was 1.4.1965; but owing to the uncertainties impart ed to the implementation of the law by the challenge made to the provisions of Chapter III B before the High Court a nd the interim orders of the High Court staying the operati on of the law, Government had had to re notify 1.4.1966 as t he fresh notified date, after the challenge to the validity of Chapter III B had been repelled by the High Court.
By the time, the '1973 Act ' was brought into for ce disputes touching the determination of the ceiling areas in 33,471 cases had come to be decided in accordance with t he provisions of Chapter III B of the earlier '1955 Act '.
After the '1973 Act ' came into force on 1.1.1973, some 8,4 94 cases for the determination of 'ceiling areas ' under III B of the '1955 Act ' came to be initiated and were sought to be continued under said Chapter III B of the repealed '19 55 Act ' on the view that the repeal of Chapter III B of t he 1955 Act by the 1973 Act ' did not affect the rights accrued and liabilities incurred under the old law.
Appellant s ' principal contention is that after the coming into force of the 1973 Act which, by its 40th Section, repealed Chapt er III B of the ' 1955 Act ', recourse could not be had to t he repealed law for purposes of commencement, conduct a nd conclusion of any proceedings for fixation of ceiling as prescribed under the old law.
This contention has be en repelled by the full bench of the High Court in the judgment under appeal.
The correctness of view of the full ben ch arises for consideration in these appeals.
The factual antecedents in which the controver sy arose before the High Court may be illustrated by the facts of one of the appeals.
In CA 1003(N) of 1977, the appe l lants ' claim to have entered into possession and cultivati on of certain parcels of land pursuant to alleged agreements to sell dated 28.4.1957 said to have been executed in the ir favour by the then land holder, a certain Sri Hari Sing h. The sale deeds were passed only on 22.8.1966, after t he notified date.
Proceed 158 ings for the fixation of ceiling area in the hands of S ri Hari Singh were commenced under the Repealed Chapter III B of the '1955 Act '.
Appellants ' pruchases were held to be hit by Section 30 DD of the said Chapter III B, which prescrib ed certain residential qualifications, which appellants did n ot possess, for the eligibility for recognition of such transfers.
Appellants ' contention is that if the new law had be en applied to the case of the vendor, the transfers in the ir favour would have been held valid and that invoking of Chapter III B of the repealed law was impermissible.
Apart from the facts of individual cases and their particularities the basic question is one of construction whether the provisions of the old law are saved and survive to govern pendi ng cases.
We have heard Sri A.K. Sen, Sri Tarkunde and S ri Shanti Bhushan, learned Senior Advocates for the appellan ts and Sri Lodha, learned Senior Advocate for the State of Rajasthan and its authorities.
The appellant 's principal contention which we perceive as one of construction of statutes is that the later law made manifest, expressly a nd by necessary implication, an intention inconsistent with t he continuance of the rights and obligations under the repeal ed law and that, accordingly, after 1.1.1973, the date of coming into force of the '1973 Act ', no proceedings und er the old law could be initiated or continued.
The points that fall for consideration in these appeals are whether: (a) the scheme contemplated by and the different criter ia and standards for the determination of "ceiling area" envi s aged in the '1973 Act ' and, in particular, having regard to the limited scope of the saving provision of Section 40 thereof which, quite significantly, omits to invoke a nd attract Section 6 of the Rajasthan General Clauses Act 19 55 to the Repeal of Section 5(6A) and Chapter III B of t he '1955 Act ' must be construed and held to manifest an inte n tion contrary to and inconsistent with the keeping alive or saving of the repealed law so as to be invoked in relati on to and applied for the pending cases which had not be en concluded under the old law before the repeal; and (b) that, at all events, even if Section 6 of the Rajasth an General Clauses Act 1955 was attracted and the old law w as saved for the purpose, provisions of the old law could n ot be invoked as no right had been ,"accrued" in favour of 159 the State in relation to the surplus area determinable und er the old law nor any liability "incurred" by the land holde rs under the old law so as to support the initiation of t he proceedings for fixation of 'Ceiling area ' under the old l aw after its repeal.
Re: Contentions (a) In order that this contention, which is presented wi th some perspicuity, is apprehended in its proper prospective a conspectus of the essential provisions of the earlier l aw and later law pertaining to prescription of ceiling on agricultural holdings is necessary.
In 1955, The Rajasthan Tenancy Act 1955 was enacted.
By the Rajasthan Tenancy (Amendment) Act, for the first time, provisions in Chapter III B prescribing a ceiling on hol d ings of agricultural lands got introduced into the '19 55 Act '.
This amending Act of 1960 received Presidential asse nt on 12th March 1960.
The Chapter III B was, by an appropria te notification, brought into force with effect from 15 th December, 1963.
The notified date, under the '1955 Act ', as stated earlier, was 1.4.1965.
Section 5(6A) of the ' 1955 Act ' defined 'Ceiling area '. " "Ceiling area" in relation to land held anywhe re throughout the State by a person in any capacity whatsoeve r, shall mean the maximum area of land that may be fixed as ceiling area under section 30C in relation to such person; " Section 30B in Chapter III B provided: "30B. Definitions For the purposes of this Chapter (a) "family" shall mean a family consisting of a husband and wife, their children and grand children bei ng dependent on them and the widowed mother of the husband so dependent, and (b) "person" in the case of an individual, sha ll include the family of such individual.
" Section 30C providing for the extent of ceiling area said: 160 "30C. Extent of ceiling area The ceiling area for a family consisting of five or le ss than five members shall be thirty standard acres of land; Provided that, where the members of a family exce ed five, the ceiling area in relation thereto shall be increased for each additional member by five standard acre s, so however that it does not exceed sixty standard acres of land.
Explanation A 'standard acre ' shall mean the ar ea of land which, with reference to its productive capacit y, situation, soil classification and other prescribed partic u lars, is found in the prescribed manner to be likely to yield ten maunds of wheat yearly; and in case of land n ot capable of producing wheat, the other likely produce there of shall, for the purpose of calculating a standard acre, be determined according to the prescribed scale so as to be equivalent in terms of money value to ten maunds of wheat: Provided that, in determining a ceiling area in terms of standard acres the money value of the produce of wellirrigated (chahi) land shall be taken is being equiv a lent to the money value of the produce of an equal area of un irrigated (barani) land.
" In exercise of the Rule making powers under the '1955 Act ', the State Government framed and promulgated The Rajasth an Tenancy (Fixation of Ceiling of Land) Government Rule s, 1963, which came into force on and with effect fr om 15.12.1963.
Rule 9 required that in order to enable t he Sub Divisional Officer to determine the ceiling area a p plicable to every person under Section 30C of the Act and to enforce the provisions of Section 30E, every land holder a nd tenant in possession of lands, in excess of the ceiling ar ea applicable to him, shall file a declaration within si x months from the notified date.
The law fixed 30 standa rd acres as the ceiling area.
Thereafter, successive amendmen ts were made to Chapter III B of the '1955 Act ' which, whi le maintaining the ceiling at 30 standard acres, howeve r, recognised certain transfers effected after 1958, which we re not originally so recognised in fixing the ceiling.
Aga in (by an amendment) of the year 1970, Section 30 (1) w as deleted.
The 1955 Act itself came to be included in the IX Schedule to the Constitution by a Parliamentary law.
T he challenge to 161 said inclusion was repelled by this Court.
On 1.1.1973, the Governor of the State of Rajasth an promulgated The Rajasthan Imposition of Ceiling on Agrilcu l tural Holdings Ordinance, 1973 under Article 213 of t he Constitution of India.
The Ordinance repealed the corr e sponding provisions relating to ceiling on agricultur al holdings contained in Section 5(6A) and Chapter III B of t he '1955 Act ' except to the extent indicated in the Seco nd proviso to Section 4(1) and Section 15(2) of the said Ordinance.
The Ordinance brought into existence a new concept of and standards for the "ceilingarea".
Certain transfers ma de by the land holders even during the operation of the old l aw were recognised as valid transfers for purposes of comput a tion of ceiling area under the new dispensation broug ht about by the Ordinance.
This Ordinance was replaced by t he 1973 Act which was made operative retrospectively fr om 1.1.1973 being the date of promulgation of the Ordinanc e. Section 40 of the '1973 Act ' repealed, as did the predece s sor Ordinance, both the old law in Chapter III B of t he '1955 Act ' and the earlier Ordinance for which it substituted.
Section 3, Section 4(1), Second Proviso and Section 40 of the 1973 Act require particular notice.
Section 3 provides: "3.Act to override other laws, contracts, etc.
The provisions of this Act shall have effect notwithstandi ng anything inconsistent contained in any other law for t he time being in force, on any custom, usage or contract or decree or order of a court or other authority.
" The Second Proviso to the Explanation appended to Se c tion 4(1) of the Act says: "Provided further that if the ceiling area applicable to a ny person or family in accordance with this section exceeds t he ceiling area applicable to such person or family accordi ng to the provisions of law repealed by section 40, in th at case the ceiling area applicable to such person or fami ly will be the same as was under the provisions of the sa id repealed law."
Section 40 provides: "40.Repeal and savings (1) Except as provided in seco nd proviso to sub section (1) of section 4 and in subsection (2) of Section 15 of this Act, the provisions of clause (6 A) of section 5 and Chapter III B of the Rajasthan Tenancy Act, 2955 (Rajasthan Act 3 of 2955) are hereby repealed except in the Rajasthan Canal Project area wherein such provisio ns shall stand repealed on the date on which this Act com es into force in that area.
(2) The Rajasthan Imposition of Ceiling on Agricu l tural Holdings Ordinance, 1973 (Rajasthan Ordinance I of 1973) is hereby repealed.
(3) Notwithstanding the repeal of the said Ord i nance under sub section (2), anything done or any acti on taken or any rules made under the said Ordinance shall be deemed to have been done, taken or made under this Act a nd section 27 of the Rajasthan General Clauses Act, 29 55 (Rajasthan Act 8 of 1955) shall apply to such repeal a nd re enactment. "
Section 41 contains a statutory declaration that the 'Act ' is for giving effect to the directive principles of State policy towards securing the principles specified in Article 39(b) and (c) of the Constitution of India.
Appellants ' learned counsel contend that when the re is a repeal of a statute followed by a re enactment of a n ew law on the same subject, with or without modification s, Section 6 of the General Clauses Act is not attracted a nd the question as to the extent to which the repealed law is saved would be dependent upon the express provisions of t he later statute or what must be held to be its necessary a nd completing implications.
It was urged that where the repeal is accompanied by a afresh Legislation on the same subject, the new law alone will determine if, and how far, the old law is saved and that in the absence of an express appeal to Section 6 of the General Clauses Act or of express prov i sions to similar effect in the new law itself, the prov i sions of the old law must be held to have been effac ed except whatever had been done, or having effect as if done.
This argument has the familiar ring of what Sulaiman, C J. had said on the matter in Rashid Ahmad vs Mt. Anis Fatima & Ors., AIR 1933 All. 3.
But it 163 must now be taken to be settled that the mere absence of an express reference to Section 6 of the General Clauses Act is not conclusive, unless such omission to invoke Section 6 of the General Clauses Act is attended with the circumstan ce that the provisions of the new law evince and make manife st an intention contrary to what would, otherwise, follow by the operation of Section 6 of the General Clauses Act, t he incidents and consequences of Section 6 would follow.
Appellants ' learned counsel submitted that the legislation in question pertaining, as it did, to the topic of agrarian reform was attendant with the difficulties naturally besetting a task so inextricably intermixed with compl ex and diverse and, indeed, often conflicting socio economic interests had had to go through stages of empirical evol u tion and that having regard to the wide diversity of policy options manifest between the earlier and the later legislations, the conclusion becomes inescapable that t he later legislation, made manifest an intention inconsistent with and contrary to the continuance of the rights a nd obligations under the repealed law.
It was agreed that wi th the experience gained in the implementation of the policy of agrarian reforms embodied in the repealed law, the n ew policy considerations reflected in the new and basical ly different thinking on some of the vital components of t he new policy were evolved and incorporated in the new law, so much so that the repealed and repealing laws represented t wo entirely different systems and approaches to the policy of agrarian reforms and the two systems, with their mark ed differences on basic and essential criteria underlying the ir policies, could not co exist.
It was urged that the stat e ment of objects and reasons appended to the 1973 Bill reco g nised that the legislative policy and technique underlyi ng the old law were ineffective in removing the great dispari ty that persisted in the holdings of agricultural lands or in diluting the concentration of agricultural wealth in t he hands of a few and recognised the necessity "to reduce su ch disparity and to re fix the ceiling area on the agricultur al holdings so that agricultural land may be available f or distribution to land less persons".
It was pointed out th at material criteria relevant to the effectuation of the ne w policy made manifest an intention contrary to the surviv al of the policy under the old law.
The wide changes in t he policy of the later law which reflected a new and basical ly different approach to the matter, included (i) a fundament al rethinking on the concept of the "ceilling area" by reduci ng the 30 standard acres prescribed in the old law to 18 stan d ard acres; (ii) the re definition of the very concept of 'family ' and 'separate unit '; (iii) the point of time wi th reference to which the composition and strength of t he family would require to be ascertained; (iv) a re 164 thinking, and a fresh policy as to the recognition of tran s fers made by land holders including even those transfe rs made during the period of operation of the old law; (v) t he point of time of the vesting of the surplus land in Gover n ment; (vi) the re defining of the principles and prioriti es guiding the distribution of the surplus land to landle ss persons, and (vii) the amount to be paid to the land holde rs for the excess land vesting in the State under the new law .
It was submitted that the two laws the old and t he new envisaged two totally different sets of values a nd policies and were so disparate in their context and effe ct as to yield the inevitable inference that the policy a nd scheme of the later law, by reason alone of the peculiar i ties and distinction of its prescriptions, should be held to manifest an intention contrary to the saving of the old l aw even respective pending cases.
The ceiling laws, it w as submitted, envisage and provide an integrated and inte r connected set of provisions and the marked distinctions in the vital provisions in the two sets of laws rendered t he continued applicability of the old law to any case, n ot already finally concluded thereunder, as impermissible in law as unreasonable in its consequences if permitted.
It w as urged that Section 3 of the 1973 Act was a clinching indic a tor in this behalf when it provided that the provisions of the later law "shall have effect notwithstanding anythi ng inconsistent contained in any other law for the time bei ng in force, or any custom, usage, or contract or decree or order of a Court or other authority" (underlining supplie d) and that the old Act, even if it was, otherwise, held to be in force in relation to pending cases, was clearly ove r borne by Section 3 of the new law.
When there is a repeal of a statute accompanied by reenactment of a law on the same subject, the provisions of the new enactment would have to be looked into not for t he purpose of ascertaining whether the consequences envisag ed by Sec.6 of the General Clauses Act ensued or not Sec. 6 would indeed be attracted unless the new legislation man i fests a contrary intention but only for the purpose of determining whether the provisions in the new statute ind i cate a different intention.
Referring to the way in whi ch such incompatibility with the preservation of old rights and liabilities is to be ascertained this Court in State of Punjab vs Mohar Singh, ; said: "Such incompatibility would have to be ascertained from a consideration of all the relevant prov i sions of the new Law and the mere absence of a saving clause is by itself not material.
The provision of Sec.6 of 165 the General Clauses Act will apply to a case of repeal ev en if there is simultaneous enactment unless a contrary inte n tion can be gathered from the new enactment.
Of course, the consequences laid down in Section 6 of the Act will app ly only when a statute or regulation having the force of a statute is actually repealed" .
Addressing itself to the question whether, having rega rd to the particular provisions of the 1973 Act, the inferen ce that the new law manifests such contrary intention cou ld justifiably be drawn, the High Court observed: "We have, therefore, to examine whether the n ew law expressly or otherwise manifests an intention to wi pe out or sweep away those rights and liabilities which h ad accrued and incurred under the old law . " "Having carefully gone through all the authoriti es cited by the parties as referred to above, we are of opini on that the new Act of 1973 does not have the sweeping effe ct of destroying all the rights accrued and liabilities i n curred under the old law . . " 10.
One of the indicia that the old law was not effac ed is in sec.15(2) of the new Act.
It provides that if t he State Government was satisfied that the 'ceiling area ' in relation to a person as fixed under the old law had be en determined in contravention of that law, a decided ca se could be re opened and inquired into it and the 'ceilin g area ' and the 'surplus area ' determined afresh in accordan ce with the provisions of the old law.
Another indicium is in Sec.40(1) read with the Second Proviso to Sec.4(1) o f ' 1973 Act ' which provides that if the ceiling area applicab le to a person or a family in accordance with the said Se c. 4(1) exceeds the 'ceiling area ' applicable to such perso ns or family, under the old law, then, the 'ceiling are a ' applicable to such person or family would be the same as w as provided under the provisions of the old law.
The High Court relied upon and drew sustenance for i ts conclusion from, what it called, the internal evidence in the Act which, according to the High Court, indicated th at pending cases were governed only by the old law.
The Hi gh Court referred to sec.15(2) inserted by Act No. 8 of 19 76 and what, according to it, necessarily flowed from it in support of its conclusion.
15(2) inserted by Act No. 8 of 1976 166 "(2) Without prejudice to any other remedy that m ay be available to it under the Rajasthan Tenancy Act, 19 55 (Rajasthan Act 3 of 1955), if the State Government, aft er calling for the record or otherwise, is satisfied that a ny final order passed in any matter arising under the prov i sions repealed by Section 40, is in contravention of su ch repealed provisions and that such order is prejudicial to the State Government or that on account of the discovery of new and important matter or evidence which has since come to its notice, such order is required to be re opened, it ma y, at any time within five years of the commencement of th is Act, direct any officer subordinate to it to re open su ch decided matter and to decide it afresh in accordance wi th such repealed provisions." (Emphasis Supplied)
The High Court referring to the opening words of t he above provisions observed: "The opening words of the section 'without prejudice to a ny other remedy that may be available to it under the Rajasth an Tenancy Act, 1955 (Act No. 3 of 1955) ', clearly show th at the pending cases have to be governed by the old law.
If transactions past and closed have to be reopened and decid ed afresh under the provisions of the repealed law, and t he ceiling area under Chapter III of the Rajasthan Tenancy Ac t, 1955, has to be fixed under its repealed provisions, then it must follow as a necessary corollary, that the pending cas es must be decided under the old law.
Sri Lodha, learned counsel for the State of Raja s than submitted that the 'ceiling area ' had to be fixed wi th reference to the notified date i.e. 1.4.1966 by the statut o ry standards prescribed under the Chapter III B of the '19 55 Act '.
The two legislations are complementary to each oth er and constitute two tier provisions.
So far as the cases th at attracted and fell within Chapter III B of 1955 Act, as on 1.4.1966, would continue to be governed by that law as t he fights and obligations created by the said Chapter III B amounted to create rights and incur liabilities.
Shir Lod ha submitted that the view taken by the High Court was unexce p tionable.
On a careful consideration of the matter, we are i n clined to 167 agree with the view taken by the High Court on the poin t.
The reliance placed by appellants ' learned counsel on t he provisions of Sec. 3 of 1973 Act as detracting from t he tenability of the conclusion reached by the High Court on the point is, in our opinion, somewhat tenuous.
The conte n tion of the learned counsel is that the expression "notwit h standing anything inconsistent contained in any other l aw for the time being in force" in Section 3 of the 1973 A ct would exclude the operation of Chapter III B of the '19 55 Act ' which, according to the contention, even if kept ali ve would yet be a 'law for the time being in force ' and, ther e fore, be excluded by virtue of Section 3.
This contention has been negatived by the High Court and in our opini on rightly by placing reliance on the pronouncements of th is Court in Rao Shiv Bahadur Singh and Anr vs The State of Vindhya Pradesh, ; and ' Chief Inspector of Mines vs K.C. Thapar, ; The High Court he ld that the expression "law for the time being in force" do es not take within its sweep a law 'deemed to be in force ' and that, accordingly, the opening words of Sec. 3 relied up on by the Appellants ' learned counsel will not have an overri d ing effect so as to exclude the old law.
A saving provision in a repealing statute is n ot exhaustive of the rights and obligations so saved or t he rights that survive the repeal.
It is observed by this Court in 1.T. Commissioner, U.P. vs Shah Sadiq & Sons, at 1221: " . .In other words whatever rights are expressly saved by the 'savings ' provision stand saved.
Bu t, that does not mean that rights which are not saved by t he 'savings ' provision are extinguished or stand ipso fac to terminated by the mere fact that a new statute repealing t he old statute is enacted.
Rights which have accrued are sav ed unless they are taken away expressly.
This is the princip le behind Sec.6(c), . "
We agree with the High Court that the scheme of the 1973 A ct does not manifest an intention contrary to, and inconsiste nt with, the saving of the repealed provisions of sec.5(6 A) and Chapter III B of '1955 Act ' so far as pending cases a re concerned and that the rights accrued and liabilities i n curred under the old law are not effaced.
Appellant 's co n tention (a) is, in our opinion, insubstantial.
Re: Contention(b): This takes us to the next question whether in the prese nt cases 168 even if the provisions of Sec. 6 of the Rajasthan Gener al Clauses Act, 1955, are, attracted, the present cases did n ot involve any rights "accrued" or obligations "incurred" so as to attract the old law to them to support initiation or continuation of the proceedings against the land holde rs after the repeal.
It was contended that even if the prov i sions of the old Act were held to have been saved it cou ld not be said that there was any right accrued in favour of the State or any liability incurred by the land holders in the matter of determination of the 'ceiling area ' so as to attract to their cases the provisions of the old law.
T he point ' emphasised by the learned counsel is that the exces s land would vest in the State only after the completion of the proceedings and upon the land holder signifying h is choice as to the identify of the land to be surrendere d. Clauses (c) and (e) of Sec.6 of the Rajashtan Gener al Clauses Act, 1955, provide, respectively, that the repeal of an enactment shall not, unless a different intention a p pears, "affect any right privilege, obligation, or liabil i ty, acquired, accrued, or incurred under any enactment so repealed" or "affect any investigation legal proceeding or remedy in respect of any such right, privilege, obligatio n, liability, fine, penalty, forfeiture, or punishment as aforesaid.
" For purposes of these clauses the "right" must be "accrued" and not merely an inchoate one.
The distincti on between what is and what is not a right preserved by Secti on 6 of the , it is said, is often one of great fineness.
What is unaffected by the repeal is a rig ht 'acquired ' or 'accrued ' under the repealed statute and n ot "a mere hope or expectation" of acquiring a right or liber ty to apply for a right.
In Lalji Raja vs Firm Hansraj, ; th is Court dealing with the distinction between the "abstra ct rights" and "specific rights" for the purpose of the oper a tion of Sec. 6 of said: "That a provision to preserve the right accru ed under a repealed Act 'was not intended to preserve t he abstract rights conferred by the repealed Act .
It only applied to specific rights given to an individual up on happening of one or the other of the events specified in statute ' See Lord Atkin 's observations in Hamilton Gell vs White, The mere right, existed at t he date of repealing statute, to take advantage of provisio ns of the statute repealed is not a 'right accrued ' within t he meaning 169 of the usual saving clause see Abbot vs Minister for Land s, and G. Ogden Industries pry. Ltd. vs Luca s, 15.
To ascertain whether these were 'accrued ' rights and 'incurred ' liabilities a reference Section 30E of the r e pealed law is necessary.
30 E of 1955 Act provides: "30 E. Maximum land that can be held and restri c tion on future acquisitions: (1) Notwithstanding anything contained in this A ct or in any other law for the time being in force, no pers on shaH, as from a date notified by the State Government in this behalf: (a) Continue to hold or retain in his possessi on in any capacity and under any tenure whatsoever land in excess of the ceiling area applicable to him, or (b) acquire, by purchase, gift, mortgage, assig n ment, lease, surrender or otherwise or by devolution or bequest, any land so as to effect an increase in the exte nt of his holding over the ceiling area applicable to him; Provided that different dated may be so notifi ed for different areas of the State.
(2) Every person, who, on such date, is in posse s sion of land in excess of the ceiling area applicable to him or who thereafter comes into possession of any land by acquisition under clause (b) of sub section (1), shal l, within six months of such date or within three months of acquisition, as the case may be, make a report of su ch possession or acquisition to, and shall surrender su ch excess land to the State Government and place it at t he disposal of the Tehsildar within the local limits of who se jurisdiction such land is situate.
. . . (Omitted as unnecessary) 170 (3) Any person failing intentionally to make a report or to surrender land as required by sub section ( 2) shall, on conviction, be punishable with a fine which m ay extend to one thousand rupees.
(4) Without prejudice and in addition to su ch conviction and fine the person retaining possession of a ny land in excess of the ceiling area applicable to him sha ll be deemed to be a trespasser liable to ejectment from su ch excess land and to pay penalty in accordance with clause ( a) of sub section (i) of section 183; Provided that the lands, from which a person sha ll be so ejected shaH, as for as may be, un encumbered lands.
(5) All lands coming to the State Government by surrender under sub section (2) or by ejectment under su b section (4) shall vest in it free from all encumberances.
. . (Omitted as unnecessary)" The rights and obligations under this provision had h ad to be determined with reference to the notified date i. e. 1.4.1966.
Referring to analogous provision of the Maharas h tra Agricultural Lands (Ceiling on Holdings) Act, 1961, th is Court in Raghunath vs Maharashtra, ; at 57 observed: "The scheme of the Act seems to be to determine t he ceiling area of each person (including a family) with refe r ence to the appointed day.
The policy of the Act appears to be that on and after the appointed day no person in t he State should be permitted to hold any land in excess of t he ceiling area as determined under the Act and that ceili ng area would be that which is determined as on the appoint ed day. "
Again in Bhikoba Shankar Dhumal (dead) by LRs.& Ors.vs Mohan Lal Punchand Tathed & Ors., 18 at 228, it was observed: "A close reading of the aforesaid provisions of the Act shows that the determination of the extent of su r plus land of a holder has to be made as on the appointed day.
If 171 any person has at any time after the fourth day of Augus t, 1959, but before the appointed day held any land (includi ng any exempted land) in excess of the ceiling area, su ch person should file a return within the prescribed peri od from the appointed day furnishing to each of the Collecto rs within whose jurisdiction any land in his holding is situa t ed, in the form prescribed containing the particulars of a ll land held by him.
If any person acquires, holds or com es into possession of any land including any exempted land in excess of the ceiling area on or after the appointed da y, such person has to furnish a return as stated above with in the prescribed period from the date of taking possession of any land in excess of the ceiling area . . "
A contention similar to the one urged for the appellan ts here that the title respecting the surplus land would ve st in the Government upon such land being taken possession of by Government after the declaration regarding the surpl us was noticed in that case.
But, it was held that the liabil i ty to surrender the surplus land would date back to t he appointed day.
This Court said: " .Any other construction would make t he Act unworkable and the determination of the extent of su r plus land of a holder ambulatory and indefinite . "
This was again reiterated in State of Maharashtra vs Ann a purnabai and Ors., [1985] Supp.SCC 273 at 275.
This Cou rt said: "Section 21 of the Act no doubt states that t he title of the holder of the surplus land would become vest ed in the State Government only on such land being taken po s session of after a declaration regarding the surplus land is published in Official Gazette.
But the liability to surre n der the surplus land relates back to the appointed day in case of those who held land in excess of the ceiling on t he appointed day.
Therefore, even if the holder dies befo re declaration of any part of his land as surplus land, t he surplus land is liable to be determined with reference to his holding on the appointed day . "
It is, therefore, seen that the right of the Sta te to take over excess land vested in it as on the appoint ed day and only the quantification remained to be worked out.
As observed by Lord Morris, in 172 Director of Public Works vs Ho Po Sang, [1961] 2 All.E. R. 721.
"It may be, therefore, that under some repealed enactment, a right has been given, but that, in respect of it, so me investigation or legal proceeding is necessary.
The right is then unaffected and preserved.
It will be preserved even if a process of quantification is necessary.
But there is a manifest distinction between an investigation in respect of a right and an investigation which is to decide whether so me right should be or should not be given.
On a repeal t he former is preserved by the Interpretation Act.
The latter is not.
The above passage was referred to with approval in M. section Shivananda vs K.S.R.T. Corpn., ; at 81. 18.
We agree with the High Court that the right of the State to the excess land was not merely an inchoate rig ht under the Act, but a right "accrued" within the meaning of sec.6 (c) of the Rajasthan General Clauses Act, 1955, a nd the liability of the land owner to surrender the excess la nd as on 1.4.1986 was a liability "incurred" also within t he meaning of the said provision.
There is no substance in contention (b) either.
These Appeals, Special Leave Petitions and t he WritPetition, accordingly, fail and are dismissed.
In t he circumstances of the case, there will be no order as to costs.
N.P.V. Appeals & Petitions dismissed.
| IN-Abs | Chapter III B of the Rajasthan Tenancy Act, 1955 pr e scribing a ceiling on holdings of agricultural lands, a nd cl.(6A) of section 5, defining 'ceiling area ' were introduc ed into the Act by the Rajasthan Tenancy (Amendment) Act, 196 0.
The notified date under the 1955 Act was 153 1.4.1966.
Subsequentiy, on 1.1.1973, by the Rajasthan Imp o sition of Ceiling on Agricultural Holdings Ordinance, 197 3, these provisions were repealed, except to the extent ind i cated in the second proviso to section 4(1) and section 15(2) of t he Ordinance.
Certain transfers made by the landholders, ev en during the operation of the old law, were recognised as valid transfers for the purpose of computation of ceili ng area under the new dispensation brought about by the Ord i nance.
The Ordinance was replaced by the 1973 Act wi th retrospective effect from 1.1.1973.
Section 40 of the A ct repealed both the old law in Chapter III B of the 1955 A ct and the earlier Ordinance.
After the 1973 Act came into force on 1.1.1973 cases f or determination of 'ceiling areas ' under Chapter III B of t he 1955 Act came to be initiated and were sought to be conti n ued under the repealed Chapter III B against the appellan ts including the appellants in C.A. No. 1003(N) of 1977 w ho claimed to have entered into possession and cultivation of certain parcels of land, pursuant to agreements to se ll dated 28.4.1957, said to have been executed, in their favo ur by the then land holder.
The sale deeds in this case we re passed on 22.8.1966, after the notified date.
Proceedin gs for the fixation of ceiling area in the hands of the th en land holder were commenced under the repealed Chapter II IB of the 1955 Act, and the purchases in question were held to be hit by section 3ODD of the repealed Chapter III B, as appe l lants did not possess the residential qualifications, pr e scribed by the section for the eligibility for recogniti on of such transfers.
The appellants approached the High Court, contendi ng that after the coming into force of the 1973 Act which by section 40, repealed Chapter III B of the 1955 Act, recourse cou ld not be had to the repealed law for purposes of commencemen t, conduct and conclusion of any proceedings for fixation of ceiling as prescribed under the old law.
Rejecting the contention of the appellants, the Hi gh Court held that the new Act of 1973 did not have the swee p ing effect of destroying all the rights accrued and liabil i ties incurred under the old Act.
The correctness of the view of the High Court, w as challenged in the appeals before this Court.
Some other wr it petitions were also filed directly in this Court.
On the questions whether (a) the scheme contemplated by the 1973 Act and the different criteria and standards f or the determination of ceiling area envisaged in it and, in particular, having regard to the 154 limited scope of the saving provision of section 40 which, qui te significantly, omitted to invoke and attract section 6 of t he Rajasthan General Clauses Act 1955 to .he repeal of section 5(6 A) and Chapter III B of the '1955 Act ', must be construed a nd held to manifest an intention contrary ' to and inconsiste nt with the keeping alive or saving of the repealed law so as to be invoked in relation to and applied for the pendi ng cases which had not been concluded under the old law befo re the repeal; and (b) even if section 6 of the Rajasthan Gener al Clauses Act 1955 was attracted and the old law was saved f or the purpose, provisions of the old law could not be invok ed as no right had been "accrued" in favour of the State in relation to the surplus area determinable under the old l aw nor any liability incurred by the land holders under the o ld law so as to support the initiation of the proceedings f or fixation of ceiling area under the old law after its repea l. Dismissing the appeals, Special Leave Petitions and Wr it Petitions, this Court, HELD: 1.1 When there is a repeal of a statute accomp a nied by re enactment of a law on the same subject, t he provisions of the new enactment would have to be looked in to not for the purpose of ascertaining whether the consequenc es envisaged by section 6 of the General Clauses Act ensued or n ot but only for the purpose of determining whether the prov i sions in the new statute indicate a different intentio n. [164F G] State of Punjab vs Mohan Singh, referr ed to.
1.2 Mere absence of an express reference to section 6 of t he General Clauses Act is not conclusive, unless such omissi on is attended with the circumstance that the provisions of t he new law evince and make manifest and intention contrary to what would, otherwise, follow by the operation of the Se c tion, the incidents and consequences of section 6 would follo w. [163A B] B. Bansgopal vs Emperor, AIR 1933 All 669 referred to.
1.3 The scheme of the Rajasthan Imposition of Ceiling on Agricultural Holdings Act, 1973 does not manifest an inte n tion contrary to, and inconsistent with, the saving of t he repealed provisions of section 5(6A) and Chapter III B of t he Rajasthan Tenancy Act, 1955 so far as pending cases a re concerned, and the rights accrued and liabilities incurr ed under the old law are not effaced.
The indicia that the o ld law was not effaced are in section 15(2) and section 40(1) read wi th second proviso to section 4(1) of the new Act.
[167G; 165E] 155 1.4 The High Court was right in holding that the openi ng words of section 15(2) "without prejudice to any other reme dy that may be available to it under the Rajasthan Tenancy Ac t, 1955" clearly showed that the pending cases had to be go v erned by the old law, and if transactions past and clos ed had to be reopened and decided afresh under the provisio ns of the repealed law, and the ceiling area under Chapter I II of the 1955 Act had to be fixed under its repealed prov i sions, then it must follow, as a necessary corollary, th at the pending cases must be decided under the old law, a nd that the expression "law for the time being in force" d id not take within its sweep a law "deemed to be in force" an d, therefore, the opening words of section 3 of 1973 Act would n ot have an overriding effect so as to exclude the old la w. [167A D] Rao Shiv Bahadur Singh and Anr.
vs The State of Vindh ya Pradesh; , and Chief Inspector of Mines vs K.C. Thapar; , referred to.
A saving provision in a repealing statute is n ot exhaustive of the rights and obligations so saved or t he rights that survive the repeal.
[167D E] 1.
T. Commissioner U.P. vs Shah Sadiq and Sons, AIR 19 87 SC 1217 @ 1221 referred to.
3.1 For purpose of clauses (c) and (e) of the Rajasth an General Clauses Act, 1955, the "right" must be "accrued" a nd not merely an inchoate one.
the distinction between what is and what is not a right preserved by section 6 of the Gener al 'Clauses Act is often one of great fineness.
What is una f fected by the repeal is a right 'acquired ' or 'accrue d ' under the repealed statute and not "a mere hope or expect a tion" of acquiring a right or liberty to apply for a righ t. [168E] 3.2 The right of the State to the excess land was n ot merely an inchoate right under the Rajasthan Tenancy Ac t, 1955, but a right "accrued" within the meaning of section 6(c) of the Rajasthan General Clauses Act, 1955.
[172D] The rights and obligations under section 30E of the 1955 A ct had had to be determined with reference to the notified da te i.e. 1.4.1966.
The right of the State, to take over exce ss land, vested in It as on the appointed date, and only t he quantification remained to be worked out.
The liability of the land owner to surrender the excess land as on 156 1.4.1966 was a liability "incurred" also within the meani ng of the said provision.
[170E;171H; 172D] Lalji Raja vs Firm Hansraj, ; ; Raghuna th vs Maharashtra; , at 57; Bhikoba Shank ar Dhumal (dead) by LRs & Ors.
vs Mohan Lal Punchand Tathed Ors.
; , at 228; State of Maharashtra vs Annapurnabai and Ors., [1985] Supp.
SCC 273 at 275; Direct or of Public Works vs Ho Po Sany, ; a nd M.S. Shivananda vs K.S.R. Corpn., ; at 81 r e ferred to.
|
ivil Appeal No. 2106 of 1989.
From the Judgment and Order dated 15.7.1987 of the Gauhati High Court in Second Appeal No. 22 of 1981.
274 N.D. Garg and Rajeev Garg for the Appellant.
Anil Dev Singh, Ms. Indu Goswami, P. Parmeshwaran and Ms. Sushma Suri for the Respondents.
The Judgment of the Court was delivered by RAY, J.
Special leave granted.
Heard arguments of both the parties.
This appeal on special leave is against the judgment and decree passed by the Gauhati High Court on July 15, 1987 in Second Appeal No. 22 of 1981 reversing the judgment and decree dated July 24, 1981 made by the Additional District Judge, West Tripura District, Agartala setting aside the judgment and decree passed by the Munsiff, Sadar, Tripura in Title Suit No. 33 of 1973 dismissing the Suit without costs.
The plaintiff appellant was enrolled as a Constable No. 66922 189 under 92 Bn, BSF in Tripura and he was serving as such since 1966.
He alleged to have been confirmed in the said post while so posted to B.O.P. at Ajgar Rahamanpur being a member of the 6th platoon under B. Company Commander Radhanagar.
In 1971, he was granted leave from 25.10.71 to 30.10.1971 on account of the death of his father.
As the Sradh ceremony could not be performed within the aforesaid time and he was suffering from serious illness he made an application requesting for extension of leave supported by a medical certificate.
On December 12, 1971 the appellant received a communication from the Commandant stating that as he was absent without leave from 31.10.1971 so he (the Commandant) was of the opinion that because of this absence without leave for a long period his further retention in service was undesirable.
He proposed to dismiss him from service.
The appellant was asked to submit his explanation against the imposition of this penalty before December 25, 1971.
The appellant sent a telegram on December 21, 1971 but without any redress.
On January 5, 1972 he received an order from the Commandant, 92 Bn.
BSF informing him that he had been dismissed from service.
On January 10, 1972 the appel lant again prayed for permitting him to join his service but he was not allowed to do so.
The appellant preferred an appeal to the Inspector General, BSF (Police), Government of Tripura on February 1, 1972 which was received by him on February 3, 1972.
No relief was granted to him.
275 The appellant as plaintiff after serving a notice under Section 80 of the Code of Civil Procedure and as no redress was given to him, filed Title Suit No. 33 of 1973 in the Court of Munsiff, Sadar, Tripura for a declaration that the order of dismissal from service was illegal and he was still in service.
The defendants respondents contested the Suit and plead ed that the plaintiff was absent from duty from 31.10.1971 without any leave at a critical time when India was at war with Pakistan.
The Commandant, 92 Battalion, BSF by notice dated December 15, 1971 intimated him that his retention in service was undesirable because of his absence for a long period and as such it was proposed to dismiss him from service.
He was given opportunity to urge anything in his defence but he did not avail of it by sending any reply.
He was therefore, dismissed from service by the Commandant by order dated January 5, 1972 in accordance with the provi sions of and the Rules flamed thereunder.
The Munsiff held that the plaintiff was given reasonable opportunity before the Commandant dismissed him from serv ice.
The suit was, therefore, dismissed.
Against the said judgment and decree the plaintiff filed an appeal which was registered as Title Appeal No. 7 of 1979 in the Court of Additional District Judge, West Tripura District Agartala.
The said appeal was allowed and the suit was decreed.
It was held that the impugned order of dismiss al from service was illegal and bad as the same was not made by Security Force Court and no such Court was constituted.
The order passed by Commandant under Section 11(2) of the Act read with Rule 177 of the Rules of 1969 cannot be up held.
It was also held that the impugned order was bad as it was contrary to the constitutional mandate embodied in Article 311 of the Constitution of India as no opportunity of hearing was given and the procedural safe.
guards as contained in Chapters VII to XI of the Rules were not fol lowed for arriving at a decision of guilt against the appel lant by Security Force Court.
Feeling aggrieved by the said judgment and decree the respondents preferred a second appeal being S.A. No. 22 of 1981 in the Gauhati High Court.
On July 15, 1987 the High Court decreed the said appeal on reversing the judgment and decree of the lower appellate court and dismissing the suit holding inter alia that the order of dismissal from service in question had been made in accordance with the 276 powers conferred on the Commandant, B.S.F. under the provi sions of Section 11(2) and (4) of read with Rule 177 of Border Security Force Rules, 1969.
It was also held that this was an independent power conferred upon the Commandant apart from the power conferred upon the Security Force Court under Section 48 of the said Act for imposition of punishment of dismissal from service in respect of the offences specified in Section 19 of the said Act.
The plaintiff appellant filed the instant appeal on special leave against the said judgment and decree passed by the High Court in the said Second Appeal.
The only challenge to the judgment in appeal is that the order of dismissal dated January 5, 1972 passed by the Commandant is illegal and unwarranted in as much as there was no order made by the Security Force Court for passing the impugned order of dismissal for an offence made under Section 19 of the following the procedure contained in chapters VII to XI of the Rules framed under Section 141 of the .
The has been enacted with a view to provide for the constitution and regulation of an armed force of the Union for ensuring the security of the borders of India and for matters connected therewith, by the Parlia ment and the same has been enforced by Notification No. S.O. 732 dated the 20th February, 1969.
Section 4 of to be referred to hereinafter in short as BSF Act provides that: "There shall be an armed force of the Union called the Border Security Force for ensuring the security of the borders of India.
" Sub Section (2) further provides that: "Subject to the provisions of this Act, the Force shall be constituted in such manner as may be prescribed and the conditions of serv ice of the members of the Force shall be such as may be prescribed.
" Section 10 says that: "Subject to the provisions of this Act and the rules, the 277 Central Government may dismiss or remove from the service any person subject to this Act.
" Section 11 which is very relevant for the decision of the instant case is quoted herein below: "(1) The Director General or any Inspector General may dismiss or remove from the service or reduce to a lower grade or rank or the ranks any person subject to this Act other than an officer.
(2) An officer not below the rank of Deputy InspectorGeneral or any prescribed officer may dismiss or remove from the service any person under his command other than an officer or a subordinate officer of such rank or ranks as may be prescribed.
(3) Any such officer as is mentioned in sub section (2) may reduce to a lower grade or rank or the ranks any person under his command except an officer or subordinate officer.
(4) The exercise of any power under this section shall be subject to the provisions of this Act and the rules.
" Chapter III specifies the offences under the BSF Act.
Section 19 of the said Chapter states that: "Any person subject to this Act who commits any of the following offences, that is to say: (a) absents himself without leave; or (b) without sufficient cause overstays leave granted to him; or (c) being on leave of absence and having received information from the appropriate authority that any battalion or part thereof or any other unit of the Force, to which he belongs, has been ordered on active duty, fails, without sufficient cause, to rejoin without delay; or . . . . . . etc.
278 shall, on conviction by a Security Force Court, be liable to suffer imprisonment for a term which may extend to three years or such less punishment as is in this Act mentioned.
" All the offences incorporated in Chapter III are convictable by the Security Force Court.
Chapter IV which starts from Section 48 provides for punishment to be awarded by the Security Force Courts in respect of the of fences specified therein as under: "(a) death; (b) imprisonment which may be for the term of life or any other lesser term but excluding imprisonment for a term not exceeding three months in Force custody; (c) dismissal from the service; . . . . . etc.
" Section 50 further provides that: "A sentence of a Security Force Court may award in addition to, or without any one other punishment, the punishment specified in clause (c) of sub section (1) of Section 48, and any one or more of the punishments specified in clauses (e) to (1) (both inclusive of that sub section.)" Chapter VII deals with the procedure of Secu rity Force Courts.
Chapter IX prescribes the procedure to be followed by Security Force Courts for thai of offences.
The Central Government has framed Rules in exercise of powers conferred by sub section (1) and (2) of Section 141 of the BSF Act, 1968 (Act 47 of 1968).
These Rules are known as BSF Rules, 1969.
Rule 177 prescribes that: "The Commandant may, under sub section (2) of Section 11, dismiss or remove from the service any person under his 279 command other than an officer or a subordinate officer.
" On a consideration of the provisions of the BSF Act, it is evident that the services of the enrolled persons under the BSF Act are governed by the provisions of the Act as well as the Rules framed thereunder.
It is also evident that Chapter III which starts with Section 14 of the said act specifies the various offences under the Act.
Section 19 of the said Chapter refers amongst others the following offences: "(a) absents himself without leave; or (b) without sufficient cause overstays leave granted to him; or (c) being on leave of absence and having received information from the appropriate authority that any battalion or part thereof or any other unit of the Force, to which he belongs, has been ordered on active duty, fails, without sufficient cause to rejoin without delay; or . . etc.
" All these offences are to be tried by the Security Force Court which will punish the offenders with sentences as provided in the Act.
Section 48 specifically provides that the Security Force Court may inflict punishment in respect of the following offences committed by the person subject to the said Act according to the following scale: "(a) death; (b) imprisonment which may be for the term of life or any other lesser term but excluding imprisonment for a term not exceeding three months in Force custody; (c) dismissal from service . . . . . . etc.
" Section 50 further provides that: "A sentence of a Security Force Court may award in addition to, or without any one other punishment, the punish 280 ment specified in clause (c) of sub section (1) of Section 48. . " A procedure has been provided by BSF Rules for trial of the offences by the Security Force Court and for awarding of punishment.
The order of dismissal of the appellant from service was assailed mainly on the ground that it was not made in accordance with the provisions of the Act and the Rules framed thereunder in as.
much as there was no trial by the Security Force Court nor any order of punishment was awarded by the Security Force Court as required under the provisions of the Act.
Section 11(2) of the Act empowers the Commandant who is the Prescribed Officer to dismiss or remove from service any person under his command other than an officer or a subordinate officer of such rank or ranks subject to the provisions of the said Act and the Rules.
It has been urged that unless and until the offence of absence without leave or overstaying leave granted to a member of the Service, without sufficient cause is tried by the Secu rity Force Court and punishment is awarded therefore as provided in Section 48 and Section 50 of the said Act, the impugned order of dismissal from service by the Commandant for absence without leave and for overstaying leave without sufficient cause, is illegal and as such it is liable to be quashed and set aside.
It has been further submitted that the power of the Commandant as a Prescribed Officer under Section 11(2) being subject to sub section 4 of Section 11 i.e. the exercise of this power is subject to the provisions of the Act and the Rules, that is the Commandant is not competent to dismiss the appellant from service unless the Security Force Court has tried the appellant and awarded punishment in accordance with the procedure prescribed by the Act and the Rules framed thereunder.
The power of the Commandant to order a member of the Force other than an Officer or Subordinate Officer from service as provided under the Act read with Rule 177 of the Rules is subject to the limitation that unless the Security Force Court passes an order of conviction and sentence on the delinquent member of the Force following the procedure prescribed, such an order cannot be made and enforced.
It has, therefore, been submitted that the impugned judgment rendered by the High Court which held that the power under Section 11(2) read with Rule 177 of the said Rules was an independent power conferred on the Prescribed Authority i.e. the Commandant, is not in accordance with law and as such the same requires to be set aside.
It has, however, been urged on behalf of the State that the power conferred on the Commandant as Prescribed Authori ty under Section 281 1(2) to dismiss any person under his command from the service read with Rule 177 of the said Rules is an independ ent power as held by the High Court and as such the impugned order of dismissal from service of the appellant passed by the respondent is not at all arbitrary or illegal.
We have scrutinised the relevant provisions of the BSF Act as well as the BSF Rules framed thereunder and we have no hesitation to hold that the power under Section 11(2) of the Act empowering the Prescribed Authority i.e. the Comman dant to dismiss or remove from service any person under his command other than an officer or a subordinate officer read with Rule 177 of the said Rules is an independent power which can be validity exercised by the Commandant as a Prescribed Officer and it has nothing to do with the power of the Security Force Court for dealing with the offences such as absence from duty without leave or overstaying leave granted to a member of the Force without sufficient cause and to award punishment for the same.
The provision of sub section 4 of Section 11 which enjoins that the exercise of the power under the aforesaid Section shall be subject to the provisions of the Act and the Rules does not signify that the power to dismiss a person from service by the Commandant for his absence from duty without leave without any reasonable cause or for overstaying leave without suffi cient cause and holding him as undesirable cannot be exer cised unless the Security Force Court has awarded punishment to that person in accordance with the procedure prescribed by law.
The Prescribed Authority i.e. the Commandant is competent to exercise the power under Section 11(2) of the said Act and to dismiss any person under his command as prescribed under Rule 177 of the BSF Rules.
It is also to be noticed in this connection that Rule 6 of the said Rules has specifically provided that in regard to matters not specifi cally provided in the Rules it shall be lawful for the Competent Authority to do such thing or take such action as may be just and proper in the circumstances of the case.
In this case though any procedure has not been prescribed by the Rules still the Commandant duly gave an opportunity to the appellant to submit his explanation against the proposed punishment for dismissal from service for his absence from duty without any leave and overstaying leave without suffi cient cause.
The appellant did not avail of this opportunity and he did not file any show cause to the said notice.
Thus the principle of natural justice was not violated as has been rightly held by the High Court.
No other point has been urged before us by the learned counsel appearing on behalf of the appellant.
282 In the premises aforesaid, we do not find any merit in this appeal which is accordingly dismissed without costs.
The judgment and decree of the High Court in S.A. No. 22 of 1981 is confirmed.
N.V.K. Appeal dis missed.
| IN-Abs | The appellant was enrolled as a Constable in the BSF and was serving as such since 1966.
He was confirmed in the said post.
In 1971, he was granted leave from October :25, 1971 to October 30, 1971 on account of the death of his father.
As the Shrad ceremony could not be performed within the aforesaid time, and he was suffering from serious illness he made an application requesting for extension of leave sup ported by a medical certificate.
On December 12, 1971, the appellant received a communication from the Commandant stating that as he was absent without leave from October 31, 1971, that because of such absence without leave for a long period his further retention in service was undesirable, and that it was proposed to dismiss him from service.
He was asked to submit his explanation against the imposition of this penalty.
The appellant sent a telegram on December 21, 1971, but without any redress.
On January 5, 1972 he re ceived an order of the Commandant informing him that he had been dismissed from service.
On January 10, 1972, the appel lant again sent an application requesting that he may be permitted to join his service, but he was not allowed to do so.
The appellant preferred an appeal to the Inspector General, BSF on February 1, 1972 but no relief was granted.
The appellant after serving a notice under section 80 of the Code of Civil Procedure filed a civil suit for a decla ration that the order of dismissal from service was illegal and he was still in service.
The respondent contested the suit and pleaded that the appellant was absent from duty from October 31, 1971 without any leave at a critical time when India was at war with Pakistan, and that the Commandant by his notice dated 15 December 1971 intimated: that his retention in service was undesirable because of his absence for a long period, that he was given an opportunity to urge his defence which he did not avail of by sending 272 any reply, and that the Commandant had therefore dismissed him from service by his order dated January 5, 1972.
The Munsiff held that the appellant had been given a reasonable opportunity before the Commandant dismissed him from serv ice, and dismissed the civil suit.
The appeal filed by the appellant was allowed by the Additional District Judge and the suit was decreed.
It was held that the order of dismissal from service was illegal and bad, as the same was not made by the Security Force Court and no such court had been constituted.
The Order passed by the Commandant under section 11(2) of the Border Security Force Act and read with rule 177 of the Rules could not therefore be upheld.
It was further held that the order was bad as it was contrary to the constitutional mandate embodied in Article 311 of the Constitution, as no opportu nity of hearing was given, and the procedural safeguards contained in Chapters VII to XI of the Border Security Rules were not followed.
The High Court decreed the second appeal preferred by the respondents, reversed the judgment and decree of the lower appellate court, and dismissed the suit.
It was held that the order of dismissal of the appellant from service had been made in accordance with the powers conferred on the Commandant, BSF under the provisions of section 11(2) and (4) of the read with rule 177 of the Border Security Forces Rules, 1969.
It was fur ther held that this was an independent power conferred upon the Commandant apart from the power conferred upon the Security Force Court under section 28 for imposition of the punishment for dismissal from service in respect of offences specified in section 19 of the Act.
In the appellant 's appeal to this Court, it was contend ed that unless and until the offence of absence without leave or overstaying leave granted to a member of the serv ice, without sufficient cause is tried by the Security Force Court and punishment is awarded therefor as provided in sections 48 and 50 of the Act, the order of dismissal from service by the Commandant is illegal and as such it is liable to be quashed and set aside.
Dismissing the appeal, it was, HELD: 1.
The Prescribed Authority i.e. the Commandant is competent to exercise the power under section 11(2) of the BSF Act and to dismiss any person under his command as prescribed under Rule 177 of the BSF Rules.
[281E F] 273 2.
The has been enacted with a view to provide for the constitution and regulation of an armed force of the Union for ensuring the security of the borders of India and for matters connected therewith.
The services of the enrolled persons under the Act are governed by the provisions of the Act as well as the Rules framed thereunder.
[276D E] 3.
All the offences mentioned under sections 14 and 19 of the Act are to be tried by the Security Force Court, which will punish the offenders with sentences as provided in the Act.
A procedure has been provided by the BSF Rules for trial of the offences by the Security Force Court and for awarding of punishment.
[279E; 280B] 4.
The power under Section 11(2) empowering the Comman dant who is the Prescribed Authority to dismiss or remove from service any person under his command other than an officer or a subordinate officer read with rule 177 of the Rules is an independent power which can be validly exercised by the Commandant as a Prescribed Officer, and it has noth ing to do with the power of the Security Force Court for dealing with the offences, such as absence from duty without leave or overstaying leave granted to a member of the Force without sufficient cause and to award punishment for the same.
[281B D] 5.
Rule 6 of the Rules has specifically provided that in regard to matters not specifically provided in the Rules it shall be lawful for the Competent Authority to do such thing or take such action as may be just and proper in the circum stances of the case.
[281F] In the instant case, though any procedure has not been prescribed by the Rules, still the Commandant duly gave an opportunity to the appellant to submit his explanation against the proposed punishment for dismissal from service for his absence from duty without any leave and overstaying leave without sufficient cause.
The appellant did not avail of this opportunity and he did not file any show cause to the said notice.
Thus the principle of natural justice was not violated as has been rightly held by the High Court.
[281G H]
|
ivil Appeal No. 4042 of 1988.
From the Judgment and Order dated 17.12.
1987 of the Bombay High Court in W.P. No. 1048 of 1982.
S.C. Gupta and M.N. Shroff for the Appellant.
Anil Dev Singh, Ms. Nayana Buch, M.J. Paul, Kailash Vasdev, Ms. Subhashini and Mrs. Kitty Kumarmangalam for the Respondents.
The Judgment of the Court was delivered by THOMMEN, J.
This civil appeal by special leave is di rected against judgment dated 17.12.1987 of the High Court of Bombay in Writ Petition No. 1048 of 1982 instituted by the appellant, which is a Co operative Credit Society.
The 1st respondent is a Federation representing the employees of the appellant amongst others.
Setting aside the award of the Industrial Tribunal, the High Court held that the appellant was liable to pay its employees bonus at the rate of 20 per cent of its total annual earnings for the years 1975 76, 1976 77 and 1977 78.
The principal contention urged at the Bar against the impugned judgment is that the High Court went wrong in directing the appellant to pay bonus without regard to various amounts invested by it as permitted under the rele vant provisions of the Maharashtra Cooperative Societies Act, 1960 (the "Co operative Societies Act") and other amounts carried forward to its reserve fund.
The appellant 's counsel contends that the High Court did not correctly read the provisions of Section 6(d) of the (The "Bonus Act") and item (4) of the Third Schedule to the said Act.
Counsel further contends that the High Court was not justified in.
placing reliance on the Explanation to the Third Schedule to the Bonus Act as 268 it has no relevance to co operative societies.
The Explana tion, he says, is relevant only to items (1), (2) and (3) of the Third Schedule to the Bonus Act.
We shall now read the relevant provisions.
Section 6 of the Bonus Act refers to various sums which are deductible from gross profits.
It reads: "6.
Sums deductible from gross profits.
The following sums shall be deducted from the gross profits as prior charges, namely: (d) such further sums as are specified in respect of the employer in the Third Sched ule.
" The employer in question being a co operative society, it is item (4) of the Third Schedule to the Bonus Act that is applicable.
That reads: Item Category of employer Further sums to be deducted NO.
(2) (3) 4.
Co operative Society (i) 8.5 per cent of the capital invested by such society in its establishment as evidenced from its books of accounts at the commencement of the accounting year; (ii) such sums as has been carried forward in res pect of the accounting year to a reserve fund under any law relating to co operative societies for the time being in force.
269 In column (3) of item (4), two types of amounts are deductible from the gross profits as prior charges.
Firstly, 8.5 per cent of the capital invested by a co operative society in its establishment is deductible.
Secondly, amounts carried forward to a reserve fund in compliance with any provisions of law relating to co operative societies are also deductible.
(The expression 'capital ' is not defined under the Bonus Act.
It must, therefore, be understood in the sense in which that expression is generally understood.
That means all amounts which are classified as capital in contrast to revenue must qualify for deduction subject to the limit of 8.5 per cent, provided such capital is invested by the society in its establishment as evidenced by its books of accounts at the commencement of the accounting year.
Any such capital upto 8.5 per cent is thus deductible.
Furthermore, all sums which have been carried forward in respect of the relevant accounting year to a reserve fund as required under any law applicable to co operative societies for the time being in force are also deductible from gross profits.) This means that reserve fund created in terms of Section 66of the Co operative Societies Act is deductible under item (4) of the Third Schedule to the Bonus Act.
Section 66 reads.
(1) Every society which does, or can, derive a profit from its transactions shall maintain a reserve fund.
(2) Every society shall carry at least one fourth of the net profits each year to the reserve fund; and such reserve fund may sub ject to the rules made in this behalf, if any, be used in the business of the society or may, subject to the provisions of section 70, be invested, as the State Government may by general or special order direct, or may, with the previous sanction of the State Government, be used in part for some public purpose likely to promote the objects of this Act, or for some such purpose of the State, or of local interest: Provided that, the Registrar may, having regard to the financial position of any socie ty or class of societies, fix the contribution to be made to the reserve fund under this sub section at a lower rate, but not lower than one tenth of the net profits of the society or societies concerned." Accordingly, all such amounts held by the society as reserve fund in terms of Section 66 of the Co operative Societies Act must qualify for deduction.
The minimum re serve fund that is required to be 270 maintained by Section 66 of the Co operative Societies Act is one fourth of the net profits of each year.
(If larger amounts are carried forward to the reserve fund in terms of Section 66, all such amounts will come within the ambit of item (4) of the Third Schedule to the Bonus Act and qualify for deduction.) Accordingly, we hold that 8.5 per cent of the capital invested by the society in its establishment as disclosed by its books of accounts, together with amounts carried forward to a reserve fund in compliance with Section 66 and other provisions of the Co operative Societies Act read with the rules made thereunder (See Rule 54 of the Maharashtra Co operative Societies Act, 1954) will be de ductible in terms of Section 6 of the Bonus Act.
We must, however, point out that the High Court was not justified in placing any reliance on the Explanation to the Third Schedule to the Bonus Act for that has, as tightly pointed out by the appellant 's counsel, no relevance to a co operative society.
In this connection, we place on record that counsel on both sides agree that reference to 20 per cent in paragraph 11 of the judgment was wrong in respect of the year 1975 76.
They agree that for that year, the correct figure is 18.78 per cent.
Accordingly, we hold that reference to 20 per cent in paragraph 11 of the impugned judgment must be read as 18.78 per cent for the year 1975 76 and 20 per cent for the succeeding two years.
Subject to what we have stated above, we hold that the High Court was right in directing the appellant society to pay bonus to its employees.
The society is liable to pay bonus at the rate of 20 per cent for the years 1976 77 and 1977 78 and 18.78 per cent for the year 1975 76.
In the circumstances, the appeal must fail and is ac cordingly dismissed.
The parties shall bear their respective costs.
| IN-Abs | The appellant Co operative Society has filed this appeal by special leave against the High Court 's order passed in a writ petition filed by it whereby the High Court set aside the award of the Industrial Tribunal.
The High Court in the impugned order held that the appellant is liable to pay to its employees bonus at the rate of 20 per cent of its total annual earnings for the years 1975 76, 1976 77 and 1977 78.
The appellant contends that the High Court went wrong in directing the appellant to pay bonus with regard to various amounts invested by it as permitted by the relevant provi sions of the Maharashtra Cooperative Societies Act 1960, and the amounts carried forward to its reserve fund.
According to the appellant, the High Court neither read the provisions of Sec.
6(d) of the Bonus Act 1965 correctly nor was it justified in relying on the Explanation to the 3rd Schedule to the Bonus Act.
Dismissing the appeal subject to the modification indi cated in the judgment hereinbelow, this Court, HELD: The expression "capital" is not defined under the Bonus Act.
It must therefore be understood in the sense in which that expression is generally understood.
That means all amounts which are classified as capital in contrast to revenue must qualify for deduction subject to the limit of 8.5 per cent, provided such capital is invested by the Society in its establishment as evidenced by its books of accounts at the commencement of the accounting year.
Any such capital upto 8.S per cent is thus deductible.
Further more, all sums which have been carried forward in respect of the relevant accounting year to a reserve fund as required under any law applicable to Co operative Societies for the time being in force are also deductible from gross profits.
[269B D] 267 Accordingly all such amounts held by the Society as reserve fund in terms of Sec. 66 of the Co operative Socie ties Act must qualify for deduction.
[269H] If larger amounts are carried forward to the reserve fund in terms of Sec. 66, all such amounts will come within the ambit of item (4) of the 3rd Schedule to the Bonus Act and qualify for deduction.
[270A B]
|
riminal Appeal 573 of 1988.
From the Judgment and Order dated 9.8.1988 of the Bombay High Court in W.P. No. 627 of 1988.
417 Sirish Gupta and V.B. Joshi for the Appellant.
V.C. Mahajan, A. Subba Rao, P. Parmeswaran, A.S. Bhasme and A.M. Khanwilkar for the Respondents.
The Judgment of the Court was delivered by section RATNAVEL PANDIAN, J.
This appeal by special leave under Article 136 of the Constitution of India is preferred against the Judgment made in Criminal Writ Petition No. 627/88 on the file of the High Court of Judicature at Bombay dismissing the writ petition filed by the appellant assail ing the validity and legality of the order of detention dated 28th April 1988 passed against him by the Joint Secre tary, Ministry of Finance (Department of Revenue), Govern ment of India, New Delhi under Section 3(1) of the Conserva tion of Foreign Exchange and Prevention of Smuggling Activi ties Act, 1974 (hereinafter referred as the 'Act ') with a view to preventing the appellant from indulging in activi ties prejudicial to the augmentation of country 's foreign exchange resources.
The detaining authority on the material placed before him arrived to a conclusion that the detenu (appellant) was indulging in receiving and making payments in India unautho risedly under instructions from a person residing abroad in violation of the provisions of the Foreign Exchange Regula tion Act, 1973 and reached his subjective satisfaction that the said unauthorised and illegal transactions carried on by the detenu had affected the foreign exchange resources of the country adversely and hence it was necessary to direct the detention of the detenu by the impugned order.
The appellant having become unsuccessful before the High Court, has now approached this Court assailing the order of deten tion on several grounds.
But the learned counsel for the appellant confined his argument only on the ground of undue delay caused by the Central Government in disposing of the representation of the detenu in violation of Article 22(5) of the Constitution of India.
According to the learned counsel, the detenu had forwarded his representation dated 16.6.88 through the Superintendent of the Central Prison, Bombay to the detaining authority and the Central Government and he received the order of rejection dated 19th July 1988 on 26th July 1988 i.e. after a period of 40 days from the date of making his representation.
A contention based on the delay of 40 days in the disposal of the representation was advanced before the High Court which for the reasons men tioned in paragraph 3 of its judgment based on the explana tion given in the subsequent return 418 dated 5th August 1988 filed by the Under Secretary, Ministry of Finance, Government of India had rejected the same though was not satisfied with the earlier return of the detaining authority.
The explanation given in the subsequent return recites that the representation forwarded by the detenu was received in the COFEPOSA Section of Ministry of Finance on June 27, 1988 and that after receiving the comments from the sponsoring authority on 11.7.88 the file was forwarded to Central Government.
Meanwhile the representation forwarded to the detaining authority was rejected on 11.7.88 itself.
The said file was received in the office of the Minister of State (Revenue) on 12.7.88 but the Minister of State was on tour and on his return the representation was forwarded to the Finance Minister on 17.7.88 and the file was received back in COFEPOSA Section on 19.7.88 and the order of rejec tion was communicated to the detenu who received it on 26th July 1988.
This explanation has been accepted by the High Court.
The learned counsel for the appellant has vehemently argued before us that there had been undue and unexplained delay of 11 days between the date of submission of the representation by the detenu to the Superintendent of Cen tral Prisons, Bombay for transmission to the Central Govern ment and the date of receipt of the representation by the Ministry of Finance and this unexplained delay has vitiated the order of detention.
It is seen from the impugned judgment, a similar conten tion was also raised before the High Court but that conten tion has not been properly disposed of.
When this contention was urged before us, the learned counsel for the respondent sought time for filing an affidavit from the Jail Superin tendent showing the date of communication of the representa tion to the Government.
Accordingly, an affidavit dated 17.3.89 sworn by the Superintendent of Prisons, Bombay was filed attempting to explain the delay that had occasioned in transmitting the representation.
The explanation reads thus: "I say that 16.6.88 is the date of receipt of the detenu 's representation and the said representation was forwarded to the Ministry on 22.6.88.
Further I have to submit that on 19th June, 1988 there was a holiday being Sunday.
" From the above explanation, it is clear that though the detenu had handed over the representation to Superintendent of Central Prison on 16.6.88, the latter has callously ignored it and left the same unattended for a period of 7 days and forwarded the same to the Government at his pleasure on 22.6.88.
This Superintendent of 419 Central Prison has not given any satisfactory and Convincing explanation as why he had kept the representation with himself except saying that during the period of 7 days there was a Sunday.
This Court in Abdul Karim and Others vs State of West Bengal; , held: "The right of representation under Article 22(5) is a valuable constitutional right and is not a mere formality.
" This view was reiterated in Rashid SK.
vs State of West Bengal, while dealing with the constitutional requirement of expeditious consideration of the petitioner 's representation by the Government as spelt out from Article 22(5) of the Constitution observ ing thus: "The ultimate objective of this provision can only be the most speedy consideration of his representation by the authorities concerned, for without its expeditious consideration with a sense of urgency the basic purpose of af fording earliest opportunity of making the representation is likely to be defeated.
This right to represent and to have the representa tion considered at the earliest flows from the constitutional guarantee of the right to personal liberty the right which is highly cherished in our Republic and its protection against arbitrary and unlawful invasion.
" It is neither possible nor advisable to lay down any rigid period of time uniformly applicable to all cases within which period the representation of detenu has to be dis posed of with reasonable expedition but it must necessarily depend on the facts and circumstances of each case.
The expression 'reasonable expedition ' is explained in Sabir Ahmed vs Union of India, ; as follows: "What is 'reasonable expedition ' is a question depending on the circumstances of the particu lar case.
No hard and fast rule as to the measure of reasonable time can be laid down.
But is certainly does not cover the delay due to negligence, callous inaction avoidable red tapism and unduly protracted procrastina tion.
" See also Vijay Kumar vs State of Jammu and Kashmir and Other, ; and Raisuddin Alias Babu Tamchi vs State of Uttar 420 Pradesh and Another, ; Thus when it is emphasised and re emphasised by a series of decisions of this Court that a representation should be considered with reasonable expedition, it is imperative on the part of every authority, whether in merely transmitting or dealing with it, to discharge that obligation with all reasonable promptness and diligence without giving room for any complaint of remissness, indifference or avoidable delay because the delay, caused by slackness on the part of any authority, will ultimately result in the delay of the dis posal of the representation which in turn may invalidate the order of detention as having infringed the mandate of Arti cle 22(5) of the Constitution.
A contention similar to one pressed before us was exam ined by this Court in Vijay Kumar 's case (supra) wherein the facts were that the representation of the detenu therein dated 29.7.81 was forwarded to Government by the Superin tendent of Jail on the same day by post followed by a wire less message, but according to the Government, the represen tation was not received by them.
Thereafter, a duplicate copy was sent by the Jail Superintendent on being requested and the same was received by the Government on 12.8.81.
Considering the time lag of 14 days in the given circum stances of that case, this Court though over looked the same and allowed the Writ Petition on the subsequent time lag, made the following observation: "The Jail authority is merely a communicating channel because the representation has to reach the Government which enjoys the power of revoking the detention order.
The intermediary authorities who are communicating authorities have also to move, with an amount of prompti tude so that the statutory guarantee of af fording earliest opportunity of making the representation and the same reaching the Government is translated into action.
The corresponding obligation of the State to consider the representation cannot be whittled down by merely saying that much time was lost in the transit.
If the Government enacts a law like the present Act empowering certain au thorities to make the detention order and also simultaneously makes a statutory provision of affording the earliest opportunity to the detenu to make his representation against his detention, to the Government and not the detaining authority, of necessity the State Government must gear up its own machinery to see that in these cases the representation 421 reaches the Government as quick as possible and it is considered by the authorities with equal promptitude.
Any slackness in this behalf not properly explained would be denial of the protection conferred by the statute and would result in invalidation of the order.
" Reverting to the instant case, we hold that the above observation m Vijay Kumar 's case will squarely be applicable to the facts herein.
Indisputably the Superintendent of Central Prison of Bombay to whom the representation was handed over by the detenu on 16.6.88 for mere on ward trans mission to the Central Government has callously ignored and kept it in cold storage unattended for a period of 7 days, and as a result of that, the representation reached the Government 11 days after it was handed over to the Jail Superintendent.
Why the representation was retained by the Jail Superintendent has not at all been explained in spite of the fact that this Court has permitted the respondent to explain the delay in this appeal, if not before the High Court.
In our view, the supine indifference, slackness and callous attitude on the part of the Jail Superintendent who had unreasonably delayed in transmitting the representation as an intermediary, had ultimately caused undue delay in the disposal of the appellant 's representation by the Government which received the representation 11 days after it was handed over to the Jail Superintendent by the detenu.
This avoidable and unexplained delay has resulted in rendering the continued detention of the appellant illegal and consti tutionally impermissible.
We, therefore, allow this Criminal Appeal by setting aside the judgment of the High Court, quash the impugned detention order and direct the detenu to be set at liberty forthwith.
Y.L. Appeal allowed.
| IN-Abs | The appellant was detained pursuant to an order of detention passed against him under Section 3(1) of the , with a view to prevent him from in dulging in activities prejudicial to the augmentation of country 's foreign exchange resources.
The detaining authori ty on consideration of the material placed before him came to the conclusion that the appellant was indulging in re ceiving and making payments in India unauthorisedly under instructions from a person residing abroad in violation of the provisions of the Foreign Exchange Regulations Act, 1973 and that the said unauthorised and illegal transactions carried on by him and affected adversely the foreign ex change resources Of the country and as such his detention was necessary.
The appellant assailed his detention before the High Court and being unsuccessful filed this appeal.
Before this Court Counsel for the appellant confined his arguments only to the ground of undue delay caused by the Central Government in disposing of the representation made by the detenu which was calculated to be of 40 days.
The Respondents explained the delay in the counter affidavit filed by it but still according to the appellant 's counsel there has been undue and unexplained delay of 11 days be tween the date of submission of the representation by the detenu to the Superintendent of the Central Prison, Bombay for transmission to the Central Government and the date of receipt of the representation by the Ministry of Finance and, he argued, that this unexplained delay has vitiated the order of detention.
416 Allowing the appeal, this Court, HELD: It is neither possible nor advisable to lay down any rigid period of time uniformly applicable to all cases within which period the representation of the detenu has to be disposed of within reasonable expedition but it must necessarily depend on the facts and circumstances of each case.
[419F] Rashid S.K.v.
State of West Bengal, Sabir Ahmed vs Union of India, ; ; Vijay Kumar vs State of Jammu and Kashmir and Others, ; and Raisuddin alias Babu Tamchi vs State of U.P. and Anr.
, ; ; When it is emphasised and re emphasised by a series of decisions of this Court that a representation should be considered with reasonable expedition, it is imperative on the part of every authority, whether in merely transmitting or dealing with it, to discharge that obligation with all reasonable promptness and diligence without giving room for any complaint of remissness, indifference or avoidable delay, because the delay caused by slackness on the part of any authority will ultimately result in the delay of the disposal of the representation which in turn may invalidate the order of detention as having infringed the mandate of Article 22(5) of the Constitution.
[420A B] In the instant case, the supine indifference, slackness and callous attitude on the part of the jail Superintendent who had unreasonably delayed in transmitting the representa tion as an intermediary, had ultimately caused undue delay in the disposal of the appellant 's representation by the Government which received the representation 11 days after it was handed over to the Jail Superintendent by the detenu.
This avoidable and unexplained delay has resulted in render ing the continued detention of the appellant illegal and constitutionally impermissible.
[421D E] Abdul Karim and Others vs State of West Bengal, ; referred to.
|
ivil Appeal No 3177 of 1982.
From the Judgment and Order dated 24 ' 81 of the Orissa High Court in Original Jurisdiction Case No. 233 of 1977.
N K Das and A P Mohanty for the Appellant G L. Sanghi R K Mehta, Ms. Mona Mehta and J R Das for the Respondents The Judgment of the Court was delivered by SHARMA, J.
The question which arises in this appeal by special leave from the decision of the Orissa High Court in a writ case is whether the "estate" of Lord Jagannath has PG NO 734 vested in the State of Orissa as a result of the notification dated 18.3.1974 issued under section 3 A of the Orissa Estates Abolition Act, 1951 (hereinafter referred to as the Act) or the said notification is ultra vires and fit to be quashed.
The writ petition in the High Court was filed by a number of persons claiming to be Sevaks and worshippers of Lord Jagannath, the presiding deity of the famous Jagannath temple.
The management of the temple and the properties including the intermediary interest is in the hands of a trust which was impleaded as a respondent in the case.
Besides, the State of Orissa and Collector, Puri, the Administrator, Jagannath temple, the Jagannath Committee were also made parties.
They, however, do not support the writ petitioners and agree with the State that the "estate" has vested under the impugned notification.
The Act was passed in 1952 for the purpose of abolishing all the rights in land of intermediaries between the raiyats and the State of Orissa by whatever name known and for vesting the same in the State.
Section 3 authorises the State Government to declare by a notification any estate specified therein to have passed to and become vested in the State.
The result of such a notification is dealt with in section 5.
In substance the intermediary concerned is divested of the notified interests and becomes entitled to compensation to be computed in the manner indicated in the Act.
By an amendment section 3 A was included in the Act permitting the State Government to issue a single notification in respect of a class or classes of intermediaries in the whole or a part of the State.
By a further amendment in 1963 Chapter II A was inserted in the Act, making special provisions for public trusts.
Clause (e) of section 13 A described "trust estate" as an estate the whole of the net income whereof is dedicated exclusively to charitable or religious purposes.
Admittedly the estate belonging to Lord Jagannath is included in the expression "trust estate".
Provisions were made in Chapter II A for entertaining claims and determining nature of the estates claimed to be trust estates and announcing the decision by notification.
The effect of such a determination was, as mentioned in section 13 I(1) to save the estate from vesting under a notification issued under s 3 or 3 A. 4.
A notification under section 3 of the Act was issued in respect to the estate of Lord Jagannath on 27.4.1963 and on the same date another notification under Chapter II A followed declaring the estate as trust estate.
Consequently the deity was not divested of the estate.
In 1970 Chapter PG NO 735 II A was repealed.
In 1974 the Act was further amended and "trust estate" which was not included in the definition section of the original Act was defined in clause (oo) in the following terms (excluding the Explanation which is not relevant for the present case): 0"(oo) 'trust estate ' means an estate the whole of the net income whereof under any trust or other legal obligation has been dedicated exclusively to charitable or religious purposes of a public nature without any reservation of pecuniary benefit to any individual: Provided that all estates belonging to the Temple of Lord Jagannath at Puri within the meaning of the Shri Jagannath Temple Act, 1955 and all estates declared to the trust estates by a competent authority under this Act prior to the date of coming into force of the Orissa Estates Abolition (Amendment) Act, 1970, shall be deemed to be trust estates.
On 18.3.1974 the impugned notification under section 3 A, as quoted below, was issued: "The 18th March 1974 S.R.O. No. 184/74 In exercise of the powers conferred by sub section (1) of section 3 A of the Orissa Estates Abolition Act, 195 l (Orissa Act I of 1952), the State Government do hereby declare that (i) the intermediary interests of all intermediaries whose estates have been declared as trust estates under Chapter Il A of the said Act; (ii) those in respect of which claims and references made under the said chapter were pending on the date of commencement of the Orissa Estates Abolition (Amendment Act, 1970 (Orissa Act 33 of 1970); and (iii) the intermediary interests of all intermediaries in respect of all estates other than those which have already vested in the State have passed to and become vested in the State free from all encumbrances.
PG NO 736 (No. 13699 EA I ND 1/74 R) By order of the Governor S.M. Patnaik Commissioner cum Secretary to Government.
" In this background the writ application was filed in the High Court challenging the notification.
The High Court rejected the claim of the petitioner and dismissed the writ application by the impugned judgment.
The learned counsel for the petitioner has contended that as a result of the decision under Chapter II A declaring Lord Jagannath 's estate a "trust estate" the same must be deemed to have been excluded from the scope of the Act, and this result in the eye of law became final and cotinued to remain effective even after the repeal of Chapter II A Reliance was placed on Section 5 of the Orissa General Clauses Act and it was argued that the right which the petitioner acquired under Section 13 1 as a result of the decision cannot disappear on the repeal of this Chapter The learned counsel proceeded to urge that as a result of the said decision the estate in question went completely out of the ambit of the Act and for this reason when in 1974 the Act was further amended it was considered necessary to define "trust estate" in Section 2 of the Act and to expressly include Lord Jagannath 's estate within the expression with a view to set at rest any controversy in this regard.
According to the learned counsel the intention of the legislature is clearly to permanently spare the petitioner 's estate from the of the Act In our view the argument has no merit and must be rejected.
It is true that an order was passed under s 13 G declaring the petitioner 's estate as a trust estate" and further by the insertion of clause (oo) in s 2 the petitioner 's estate continued to be a 'trust estate", but the question is as to what is the legal effect flowing from such a declaration This aspect is dealt within s 13 I, which is quoted as under (omitting sub section (2) which is not relevant in the present context): "13 1.
Effect of orders passed under section 13 G: (I) All estates declared under this Chapter to be trust estates by the Tribunal or the High Court, as the case may be, shall he deemed to have been excluded from the operation of the vesting notification and never to have vested in the State in pursuance thereof." (emphasis added) PG NO 737 It is manifest from the language of the Section that it saves a ' 'trust estate" so declared under section 13 G from the operation of a notification issued under section 3 or 3 A, but does not extend the benefit any further The provisions do not confer protection from the Act itself and cannot be interpreted to clothe it with a permanent immunity from being vested by a later notification issued under the Act Such an estate could be vested in the State of Orissa by a subsequent notification was made clear by clause (b) of s 13 K which reads as follows: "(a) .
(b) 'nothing in this Chapter shall be deemed to debar the State Government from vesting any trust estate by the issue of a notification under Section 3." Sections 7 A, 8 A, 8 D and X E of the Act include special provisions for a trust estate and unmistakably indicate that trust estates" are within the purview of the Act The benefit they receive from a declaration under section 13 G is limited and referable only to a vesting notification issued earlier.
There is thus, no merit in the argument of the learned counsel for the appellant that the petitioner 's estate could not be vested in the State by a notification issued subsequently 7.
We accordingly hold that there is no infirmity in the notification dated 18.3.1974 issued under section 3 A of the Act The appeal fails and is dismissed but in the circumstances without costs.
| IN-Abs | Orissa Estates Abolition Act, 1951 was enacted to abolish all the rights in the land of intermediaries between the raiyats and the State of Orissa by whatever name known and for vesting the same in the State.
Section 3 authorises the State Government to declare by a notification any estate specified therein to have passed to and become vested in the same State, i.e., the intermediary concerned is divested of the notified interests and becomes entitled to compensation.
By an amendment section 3 A was included in the Act permitting the State Government to issue a single notification in respect of a class or classes of intermediaries in the whole or a part of the State.
By a further amendment in 1963 Chapter Il A was inserted in the Act making special provisions for public trusts.
Clause (e) of s.13 A described "trust estate".
provisions were made in Chapter II A for entertaining claims and determining the nature of the estates claimed to be trust estates and announcing the decision by notification.
The effect of such a determination was.
as mentioned in section 13 , to save the estate from vesting under a notification issued under section 3 or 3 A. A notification under section 3 of the Act was issued in respect of the estate of Lord Jagannath on 27 4 1963, and on the same date another notification under section 13 C., Chapter lI A followed declaring the estate as "trust estate".
The consequence was the diety was not divested of the estate.
In 1970 Chapter Il A was repealed.
By insertion of clause (oo) in section 2 in 1974 the said estate continued to be "trust estate." On 18.3.1974 a notification under section 3 A was issued declaring the estate of the diety to have vested in the State.
A writ petition was filed in the High Court challenging the validity of the said notification, which was dismissed.
PG NO 732 PG NO 733 In the appeal to this Court, on behalf of the appellant it was contended that as a result of the decision under chapter Il A declaring Lord Jagannath 's estate a "trust estate" the same must be deemed to have been excluded from the scope of the Act and this decision became final and continued to remain effective even after the repeal ot ' Chapter II A.
The right which was acquired under section 13 I cannot disappear on the repeal of Chapter Il A as the estate in question went completely out of the ambit of the Act.
The intention of the Legislature to include Lord Jagannath 's estate within the expression "trust estate" in cl.
(oo) in section 2 by the Amending Act 1974 was clearly to spare the said estate permanently from the mischief of the Act.
Dismissing the appeal, this Court, HELD: l.
There is no infirmity in the notification dated 18.3.1974 issue under.
3 A of the Act.[737El 2.
It is manifest from the language of section 13 l that it saves a "trust estate" so declared under section 13 G from the operation of a notification issued under section 3 or 3 A, but does not extend the benefit any further.
The provisions do not confer protection from the Act itself and cannot be interpreted to clothe it with a permanent immunity from being vested by a later notification issued under the Act.
[737A BI 3.
Sections 7 A, X A, 8 D and 8 E of the Act include special provisions for a trust estate and unmistakably indicate that "trust estates" are within the purview of the Act.
The benefit they receive from a declaration under section 13 (. is limited and referable only to a vesting notification issued earlier.
[737Dl
|
ivil Appeal No. 2977 of 1984.
From the Judgment and Order dated 18.2.1982 of the Calcutta High Court in S.A.T. No. 87 of 1981.
D.K. Sen, Dr. Meera Agarwal and R.C. Mishra for the Appel . lants.
A.K. Sen, S.K. Banerjee and P.K. Mukerjee for the Re spondents.
The Judgment of the Court was delivered by K.N. SAIKIA, J.
This defendants ' appeal by special leave is from the judgment and order of the High Court of Calcutta dated 18th February, 1982 in S.A.T. No. 87 of 1981 summarily dismissing the Second Appeal against the appellate order in T.A. No. 381 of 1980 which affirmed the judgment and decree in title suit No. 56 of 1966.
The instant second respondent Narendra Nath Mukherjee leased out the land measuring 6 cottas 5 chittaks 30 sq.
at 512/A Russa Road, now known as 34/A Shyama Prasad Mukher jee Road, Calcutta, by a registered lease deed dated 26th September, 1946, hereinafter referred to as 'the lease ', at the first instance for a period of 10 years from 1st April, 1946 but if the lessee did not fail to pay the rent to the lessor and rates and taxes to the municipality during .that period, the lease would be extended for a further period of 5 years i.e. upto 31st March, 1961 at the rent of Rs.250 in place of Rs.200 per month; and if he continued to do like wise, it would be extended for a further period of 5 years, that is, upto 31st March, 1966, at a monthly rent of Rs.300 in place of Rs.250; and if he continued to do likewise, during the period of 20 years, he would be entitled to obtain extension for a further maximum period of one year at a rent of Rs.500 per month in place of Rs.300 per month.
405 The instant appellants are stated to have exercised their option of extension at the expiry of 10 years for a period of 5 years i.e. from 1st April, 1956 to 31st March, 1961 on increased rental of Rs.250 per month and then for the second term of 5 years from 1st April, 1961 to 31st March, 1966 at the increased rental of Rs.300 per month.
During the lease, on 31st March, 1959 the instant second respondent by a registered instrument transferred the land to the first respondent who thereby became the landlord.
Alleging that the instant appellants failed to exercise the option of extension for one year at an enhanced rent of Rs. 500 and also failed to give peaceful and vacant possession of the land to him, the instant first respondent as plain tiff instituted title suit No. 56 of 1966 for ejectment khas, possession and mesne profits.
The instant appellants as defendants contested the suit by filing a joint written statement stating, inter alia, that they did not exercise option of renewal after the expiry of the original term of 10 years as they became thika tenants from 28th February, 1949 i.e. on the date of commencement of the Calcutta Thika Tenancy Act, 1949 as admitted by the plaintiff 's predecessor in interest, the instant second respondent, in Miscellaneous Execution case No. 126 of 1953 (Thika) before the Controller under the Calcutta Thika Tenancy Act, 1949, hereinafter referred to as 'the Act ', and by both the respondents in Misc.
Judicial Case No. 74 of 1958 (Thika) before the said Controller.
It was also stated that they (appellants) always paid rent at the rate of Rs.200 per month and never any enhanced rent; and that the first respondent 's claim for the differential rent was also rejected in the first respond ent 's suit No. T.S. 80 of 1965 and the appeal therefrom was also rejected and ultimately the special leave petition (Civil No. 1363/ 80) was also dismissed by the Supreme Court on 10th March, 1980.
T.S. No. 56 of 1966 was decreed by the Trial Court wherefrom the appeal, being T.A. No. 381 of 1980 was also dismissed.
The Additional District Judge while dismissing T.A. 381/80 relied on the decision of the Calcutta High Court, since reported in , holding that as the lease was for a period of 20 years and not for a period of 12 years sub section (5)(b) of Section 2 of the Act had no application; and that the respondents were not barred by waiver, estoppel, res judicata or principles analogous thereto because of the Misc.
case No. 74 of 1958 filed by the second respondent under Section 5 of the Act as there could be no question of giving a status under the Act when in the facts of the case such a status was not available.
The Second Appeal being S.A.T. 87 of 1981 having also been summarily dismissed by the High Court by the impugned order, the appellants have preferred this Appeal by special leave.
406 Mr. D.K. Sen, the learned counsel for the appellants submits, inter alia, that there could be no controversy about the appellants ' status of thika tenants in view of the fact that the lease was at the first instance for 10 years only and its first and subsequent extensions were contingent on the appellants ' regular payment of rents, rates and taxes and enhancement of rent; that contingency did not happen as they did not pay any enhanced rent, but simply were holding over; that the second respondent who is the predecessor in interest of the first respondent, admitted the Thika Tenants status of the appellants in the earlier proceedings before the Controller and were therefore estopped from questioning that status; and that the learned Courts below erred in ignoring these vital pieces of evidence.
Mr. Shankar Ghosh the learned counsel for the respond ents refuting submits that the lease having clearly been for a period of 20 years, the appellants have rightly been held not to be thika tenants under the Act; and that there could be no estoppel against a statute.
Two questions are, therefore, to be decided in this appeal, namely, whether the instant appellants acquired the status of thika tenants in respect of the lease; and whether there was estoppel, waiver, acquiesance or res judicata on the part of the respondents as in earlier proceedings they treated the appellants as thika tenants before the Control ler.
The Act was passed in 1949 to make better provisions relating to the law of landlord and tenant in respect of thika tenancies in Calcutta.
It came into force on the day on which the Calcutta Thika Tenancy Ordinance, 1948 ceased to operate.
Section 2(5) in Chapter I defined "thika tenant" as follows: "(5) "thika tenant" means any person who holds, whether under a written lease or other wise, land under another person, and is or but for a special contract would be liable to pay rent, at a monthly or at any other periodical rate, for that land to that another person and has erected or acquired by purchase or gift any structure on such land for a residential, manufacturing or business purpose and includes the successors in interest of such person, but does not include a person (a) who holds such land under that another person in perpetuity; or 407 (b) who holds such land under that another person under a registered lease, in which the duration of the lease is expressly stated to be for a period of not less than twelve years; or (c) who holds such land under that another person and uses or occupies such land as a khattal." This new clause (5) was substituted by West Bengal Act 6 of 1953.
The crucial words to be noted in clause (b) are that "the dura tion of the lease is expressly stated to be for a period of not less than twelve years.
" In other words, if the stated period is of less than 12 years the lessee will be a thika tenant and not otherwise.
The important fea ture of the provision contained in section 5(1) of the Act is that the application for ejectment of the thika tenant has to be made to the Controller.
We have, therefore, to ascertain the duration of the lease.
Admittedly clauses 9, 11, 12 and 13 of the lease read as follows: "(9).
If the second party lessee keeps the rent for two months in after at a time or if contravenes or commits any breach in respect of any provision of this deed or does not comply with his duties within 7 days in spite of service of warning notice or does not refrain from doing improper act, or if he is declared insolvent then in spite of the tenure of this lease having not expired, this lease, that is the tenancy of the second party Lessee will be cancelled or extinguished and the first party Lessor will be entitled to take khas possession of the said property.
No plea or objection of the second party Lessee will be entertained.
The tenure of this lease will be for a period of ten years firstly from the 1st April, 1946 A.D.
But if the second party Lessee, performs acts regularly according to provisions within this stipulated period and pays fixed rent to the first party Lessor regularly and pays rates and taxes to the Municipality and does not default in doing his duties, then the period will be extended under all the aforesaid terms for a further period of five years, i.e. upto the 31st March, 196 1, by fixing the monthly rent of Rs. 250 two hundred fifty rupees in place of Rs.200 two hundred rupees and the second party Lessee shall be bound absolutely by the aforesaid provisions in paragraphs 1 to 10 during the said enhanced period and all the said terms will remain in force, 408 only the rent of Rs.250 two hundred fifty in place of Rs.200 two hundred will be fixed.
If the second party Lessee performs his acts regularly according to the aforesaid terms within last five years and is abide by the rules and pays the fixed monthly rent of Rs.250 two hundred fifty rupees to the first party Lessor month by month and pays the rates and tax to the Municipality then on the expiry of the said tenure of five years, the tenure of this lease will be enhanced for a further period of five years, i.e. upto 31st March, 1966 having fixed the monthly rent of Rs.300 three hundred rupees in place of Rs.250 two hundred fifty rupees under all the aforesaid terms in paragraphs 1 to 10 and the second party Lessee shall fully remain bound abso lutely by all the aforesaid terms and all the said rules shall fully remain in force, only the monthly rent of Rs.300 three hundred in place of Rs.250 two hundred fifty will be fixed.
If the lease is not determined for acting contrary to any provisions within the tenure of the aforesaid term, then on the expiry of the said term as mentioned in this deed, i.e. on the 1st April, 1966 A.D. the second party Lessee on paying the entire receivable amount in respect of the Demised premises to the first party Lessor, will give khas possession of the said land by treating the houses etc.
constructed on the Demised land, i.e. the houses etc.
constructed on the land by him, i.e. the second party Lessee by treating the same to be a portion of the Demised land shall vacate the said houses and said land.
But if the second party Lessee, within the aforesaid 20 years, performs acts according to all the aforesaid provisions duly and regularly and abide by all the same duly and regularly pays the fixed rent and rates and taxes at the proper place then the second party Lessee if so desire, will be entitled to get the same for a further extended period of maximum one year from 1st April, 1966 A.D. by serving written Notice at least one month prior to the expiry of the aforesaid tenure of 20 years by fixing monthly rent of Rs.500 five hundred rupees in place of.
Rs.300 three hundred under all the provisions of the aforesaid paragraph No. 1 to 10 and the first party Lessor shall be bound to grant the said extended period and if the second party Lessee, accepts such extended period, 409 shall pay the entire dues of the first party Lessor within the last mentioned extended period upto the expiry of the said last ex tended period and upon that, by demolishing the houses etc.
constructed on the Demised land will remove and replace the same.
The first party Lessor shall not have any objec tion to the same nor the same shall be tena ble and shall give khas possession on the Demised Land to the first party Lessor, and in that event the first party Lessor shall be bound to give up his claim and contention on the houses etc.
of the said second party Lessee and shall only take possession of the demised land that is, in such circumstances the houses etc.
constructed by the second party Lessee to be a portion of the demised land.
But if for any reason the second party Lessee, within the extended stipulated period does not give khas possession to the first party Lessor on the Demised land according to the aforesaid manner, or if he neglects to do so or is unable then the first party Lessor shall not be bound to give up his claim in respect of the houses etc.
constructed by the said second party Lessee.
Moreover, by treat ing the houses etc.
constructed on the demised land to be a portion of the said land, shall be entitled to take khas possession of the said Demised land and besides the same, the first party Lessor shall also be entitled to get any other remedy or damage or compensation according to law." 'Ex praecedentibus et consequentibus optima fit inter pretatio. ' The best interpretation is made from the context.
Every contract is to be construed with reference to its object and the whole of its terms.
The whole context must be considered to ascertain the intention of the parties.
It is an accepted principle of construction that the sense and meaning of the parties in any particular part of instrument may be collected 'ex antecedentibus et consequentibus; ' every part of it may be brought into action in order to collect from the whole one uniform and consistent sense, if that is possible.
As Lord Davey said in N.E. Railway vs Hastings, (267), "The deed must be read as a whole in order to ascertain the true meaning of its several clauses, and the words of each clause should be so inter preted as to bring them into harmony with the other provi sions of the deed if that interpretation does no violence to the meaning of which they are naturally susceptible." In construing a contract the Court must look at the words used in the contract unless they are such that one may suspect that they do not convey the intention correctly.
If the words are clear, there is 410 very little the Court can do about it.
In the construction of a written instrument ' it is legitimate in order to ascer tain the true meaning of the words used and if that be doubtful it is legitimate to have regard to the circum stances surrounding their creation and the subject matter to which it was designed and intended they should apply. "The habendum in the lease states:. "Upon the prayer of the second party Lessee to take the said land in arrangement and settlement for a stipulated period for starting factories, Lathe works, manufacturing and repairing of Motor Car parts, manufacturing and repairing Electric Fans and various manufacturing busi ness, constructing pucca buildings on the said land or in portion thereof or subletting houses etc.
and for constructing shop rooms etc.
under the following terms and provisions, to which he agreed and upon giving possession of the said land to the second party Lessee, the second party Lessee hereby admit and promise that," Particulars and four boundaries of the property in Schedule Ka are given as: "In the District of 24 Parganas, within the Police Station Bhowanipore, in Mouza Bhowani pore Village, within the jurisdiction of the Sub Registry Alipore, in Government Khas Mahal, in Division 6, Sub Division "E" (E) relating to Dihi 55 gram, in holding No. 224 within the surplus land of scheme No. 4 of the Calcutta Improvement Trust, a portion of the plot No. 62 of the said scheme, the rent free land measuring more or less 0 6 5 30 six kathas, five chittaks, thirty square feet together with foundation of the wall together with all fittings and fixtures and easement and other rights etc.
with all rights and entire right is the property whose current Municipal premises No. 5/2A, Russa Road and the second party Lessee have taken the said property on lease for a stipulated period of twenty years".
(underlined by us) In clause 9 of the lease it would be seen how and when the rent is to be paid and when the lease would be liable to be cancelled have been stated.
Clause 11 stipulates that at the first instance the period of lease was made 10 years and in case the Lessee acted in accordance with what was expect ed of him under clause 9, the period of the lease 411 would be extended for a further period of 5 years upto 31st March, 1961 at enhanced rent of Rs.250 per month, and if the Lessee continued to act in accordance with what was expected of him under clause 9 during this period of 5 years the period of the lease would be extended for a further period of 5 years, that is, upto 31st March, 1966 at a monthly rent of Rs.300 and in case the Lessee continued to act during this period as expected of him under clause 9 till the end of the period of 20 years he would be entitled by serving a notice to obtain an extension for a further maximum period of one year at enhanced rent of Rs.500 per month.
It is pertinent to note that the word used is 'exten sion ' and not 'renewal '.
To extend means to enlarge, expand, lengthen, prolong to carry out further than its original limit.
Extension, according to Black 's La Dictionary, means enlargement of the main body; addition of something smaller than that to which it is attached; to lengthen or prolong.
Thus extension ordinarily implies the continued existence of something to be extended.
The distinction between 'exten sion ' and 'renewal ' is chiefly that in the case of renewal, a new lease is required, while in the case of extension the same lease continues in force during additional period by the performance of the stipulated act.
In other words, the word 'extension ' when used in its proper and usual sense in connection with a lease means a prolongation of the lease.
Construction of this stipulation in the lease in the above manner will also be consistent when the lease is taken as a whole.
The purposes of the lease were not expected to last for only 10 years and as Mr. A.K. Sen rightly pointed out the Schedule specifically mentioned the lease as "for a stipulated period of twenty years.
" As these words are very clear, there is very little for the Court to do about it.
The learned counsel for the appellants in support of his contention that the appellants were thika tenants refers us to ; = ; ; = ; ; ; 69C.W.N. 842; ; = ; In Kanai Lal vs Paramnidhi, ; , the status of the appellants as thika tenant was not in question.
The question therein was whether under Section 5(1) of the Act as amended by the Amending Act of 1953 execution proceedings taken out by the decree holder against the appellant could be entertained only by the Controller and not by the civil Courts.
This Court held that Section 5(1) did not apply to a case where the landlord had already obtained a decree for ejectment against his thika tenant and consequently the civil Court had 412 jurisdiction to entertain the application.
It was noted that until 1948 the rights and liabilities of the landlords and their thika tenants were governed by the provisions of the Transfer of Property Act.
On October 26, 1948, the Calcutta Thika Tenancy Ordinance XI of 1948 was promulgated because it was thought expedient, pending the enactment of appropri ate legislation to provide for the temporary stay of the execution of certain decrees and orders of ejectment of thika tenants in Calcutta.
The object of the Ordinance was to give protection to the thika tenants in Calcutta and to afford them interim relief by staying execution of certain decrees and orders as mentioned in Section 3 until an appro priate Act was passed by the Legislature in that behalf.
The facts of the instant case are entirely different inasmuch as the lease was dated 26th September, 1946 and no question of eviction by executing any decree arose until the Act was passed.
The only point to be noted is that the tenancy under the lease on the relevant date of creation was governed by the Transfer of Property Act.
In Mahadeolal Kanodia vs Administrator General of West Bengal, ; = ; , the question for decision was whether the appellant against whom proceedings for execution of a decree for ejectment was pending, who had applied for relief under Section 28 and when that section was in force, was entitled to have his application disposed of in accordance with the provisions of Section 28, which had ceased to exist retrospectively though it remained undisposed on the date the Amendment Act, 1953 which omitted Section 28 of the Act, came into force.
This case is there fore of no assistance to the appellants.
In Annapuma vs Tincowrie Dutt, ; , it was held on the facts of the case that what was let out was land with structures and it could never come under the operation of the Act inasmuch as the property in suit had a history of 24 years under the registered lease before that claim to become a thika tenant would arise under the Act.
It was also held that where there was a covenant for renewal in a lease and the option did not state the terms of the renewal, the new lease, if created would be for the same period and on the same terms as the original lease in respect of all the essential conditions thereof except as to the covenant for renewal itself.
This case therefore is hardly relevant.
In Shaffiuddin & Ors.
vs G.C. Banerjee, , it was 413 held that the status already acquired by the tenants in Tollygunje under the West Bengal Non Agricultural Tenancy Act, 1949, could not be prejudiced and affected by the Act and the landlords were therefore not entitled to any order of ejectment under the Act.
This case has, therefore, no bearing.
In Sheikh Gufan vs
S.K. Ganguli; , , the question was whether Section 30(c) of the Act was applicable to land in respect of which betterment fee was levied.
It is therefore not relevant for us.
We do not find any reason in the above decisions to enable us to hold that the lease in the instant case was for a period of less than 12 years and not for a period of not less than 12 years.
The High Court correctly held the lease to be for the less than 12 years.
The next question is that of waiver, estoppel and res judicata.
The appellants urged that there were two previous proceedings namely Misc.
Execution case No. 126 of 1953 (Thika) and Misc.
Judicial case No. 74 of 1958 (Thika) under the Act before the Controller.
Except the implication that the proceedings having been before the Controller the re spondents treated the appellants a thika tenants, no partic ular order finally conferring that status has been shown to us.
By the order of this Court dated 10th March, 1980 in Special Leave Petition (Civil) 1363 of 1980 which was from the judgment and order dated 16.9.1979 of the High Court of Calcutta in F .A. No. 458 of 1978 the petition was dismissed "without going into the question whether the Thika Tenancy Act was applicable or not.
" Misc.
(J) case No. 74 of 1958 wherein the first respondent prayed for being added as petitioner No. 2 ended in a compromise.
No status could, however, be said to have been determined.
The essential element of waiver is that there must be a voluntary and intentional relinquishment of a known right or such conduct as warrants the inference of the relinquishment of such right.
It means the forsaking the assertion of a right at the proper opportunity.
The first respondent filed suit at the proper opportunity after the land was trans ferred to him, and no covenant to treat the appellants as Thika tenants could be shown to have run with the land.
Waiver is distinct from estoppel in that in waiver the essential element is actual intent to abandon or surrender right, while in estoppel such intent is immaterial.
The necessary condition is the detriment of the other party by the conduct of the one estopped.
An estoppel may result though the party estopped did not intend to lose any exist ing right.
Thus voluntary 414 choice is the essence of waiver for which there must have existed an opportunity for a choice between the relinquish ment and the conferment of the right in question.
Nothing of the kind could be proved in this case to estopp the first respondent.
In Shanti Devi vs A.K. Banerjee, , it was held that parties could not by their pleadings alter the intrinsic character of the lease or bring about a change of the rights and obligations flowing therefrom.
The Court would only look into the terms of the lease irrespective of the averments in the pleadings.
In the instant case as we have already held the lease to have been for twenty years, its character could not have been changed by the pleadings, if any, in the above cases.
Nor could the respondents be held to have waived their rights under the lease.
We do not find any infirmity in the impugned High Court order on this count also.
In the result, this appeal fails and is dismissed, but without any order as to costs.
Stay order, if any, stands vacated.
R.S.S. Appeal dis missed.
| IN-Abs | The second respondent, who is the predecessor in inter est of the first respondent, had on.
26th September, 1946 leased out the land in dispute to the appellant at the first instance for a period Of 10 years.
The lease however provid ed to the lessee/appellants option of extension at enhanced rent, twice for successive periods of 5 years, and a third option of extension for a further maximum period of one year.
The appellants are stated to have exercised their option of extension for two successive periods of five years, hot failed to exercise the option of extension for one year thereafter.
On that ground the first respondent instituted a suit for ejectment khas, possession and mesne profits.
The appellants, as defendants, contested the malt stating, inter alia, that they did not exercise the option for renewal after the expiry of the original tern of 10 years as they became thika tenants from 28th February, 1949 i.e. the date of commencement of the Calcutta Thika Tenancy Act, 1949 as admitted by the second respondent in two judi cial proceedings before the Controller under the Calcutta Thika Tenancy Act, 1949.
It was further stated that they never paid any enhanced rent; and that the first respond ent 's claim for the differential rent was rejected in the first respondent 's suit, and ultimately the special leave petition filed in the Supreme Court in that matter was also dismissed.
402 The suit for ejectment in the present suit was decreed by the Trial Court.
The Appellate Court, while dismissing the appellants appeal, held that (1) the lease was for a period of 20 years and not for a period of less than 12 years, and hence sub section 5(b) of Section 2 of the Act had no application; and (2) the respondent were not barred by waiver, estoppel, res judicata or principles analogous thereto because of the earlier judicial proceedings filed by the second respondent as there could be no question of giving a status under the Act when in the facts of the case such a status was not available.
The High Court dismissed the appellants ' second appeal.
Before this Court it was urged on behalf of the appel lants that (1) there could be no controversy about the appellants ' status of thika tenants in view of the fact that the lease was at the first instance for 10 years only and its first and subsequent extensions were contingent on the appellants regular payment of rents, rates and taxes and enhancement of rent, which contingency did not happen as they did not pay any enhanced rent, but simply were holding over; (2) the second respondent admitted the Thika Tenants status of the appellants in the earlier proceedings before the Controller and were therefore estopped from questioning that status.
On the other hand, it was urged on behalf of the re spondent that the lease having clearly been for a period of 20 years, the appellants have rightly been held not to be thika tenants under the Act; and that there could be no estoppel against a statute.
Dismissing the appeal, it was, HELD: (1) Every contract is to be construed with refer ence to its object and the whole of its terms.
The best interpretation is made from the context.
The whole context must be considered to ascertain the intention of the par ties.
It is an accepted principle of construction that the sense and meaning of the parties in any particular part of instrument may be collected 'ex antecedentibus et consequen tibus '; every part of it my be brought into action in order to collect from the whole one uniform and consistent sense, if that is possible.
[409E G] N.E. Railway vs Hastings, (267), referred to.
(2) In the construction of a written instrument, it is legitimate and in order to ascertain the true meaning of the words used and, if that be doubtful, it is legitimate to have regard to the circumstances sur 403 rounding their creation and the subject matter to which it was designed and intended they should apply, [410A B] (3) It is pertinent to note that the word used is 'exte nsion ' and not 'renewal '.
To extend means to enlarge, ex pand, lengthen, prolong, to carry out further than its original limit.
Extension ordinarily implies the continued existence of something to be extended.
The distinction between 'extension ' and 'renewal ' is chiefly that in the case of renewal, a new lease is required, while in the case of extension the same lease continues in force during addi tional period by the performance of the stipulated act.
In other words, the word 'extension ' when used in its proper and usual sense in connection with a lease means a prolonga tion of the lease.
[411C E] (4) Construction of this stipulation in the lease in the above manner will also be consistent when the lease is taken as a whole.
The purposes of the lease were not expected to last for only 10 years as the Schedule specifically men tioned the lease as "for a stipulated period of twenty years." [411E] Kanai Lal vs Paramnidhi, ; ; Mahadeolal Kanodia vs Administrator General of West Bengal, ; ; Annapuma vs Tincowrie Dutt, ; ; Shaf fiuddin & Ors.
vs G.C. Banarjee, and Sheikh Gufan vs S.K. Ganguli, ; distinguished.
(5) No particular order from the previous judicial proceedings conferring the status of thika tenants on the appellants has been shown.
The special leave petition was dismissed by the Supreme Court "without going into the question whether the Thika Tenancy Act was applicable or not.
" Hence, no status could be said to have been deter mined.
[413D F] (6) The essential element of waiver is that there must be a voluntary and intentional relinquishment of a known right or such conduct as warrants the inference of the relinquishment of such right.
It means forsaking the asser tion of a right at the proper opportunity.
[413F G] (7) Waiver is distinct from estoppel in that in waiver the essential element is actual intent to abandon or surren der the right, while in estoppel such intent is immaterial.
The necessary condition is the detriment of the other party by the conduct of the one estopped.
An estoppel may result though the party estopped did not intend to lose any exist 404 ing right.
Thus voluntary choice is the essence of waiver for which there must have existed an opportunity for a choice between the relinquishment and the conferment of a right in question.
Nothing of the kind could be proved in this case to estopp the first respondent, who had filed the suit at the proper opportunity after the land was trans ferred to him.
[413G H; 414A B] Shanti Devi vs
A.K. Banerjee, , referred to.
|
vil Appeal No. 6 of 1988.
From the Judgment and Order dated 17.3.1987 of the Calcutta High Court in T.A. No. S 16 of 1986.
D.N. Diwedi, A.K. Srivastava, P. Parmeswaran and C.V. Subba Rao for the Appellants.
PG NO 756 P.P.Rao and Amlan Ghosh for the Respondents.
The Judgment of the Court was delivered by DUTT,J.
This appeal by special leave preferred by the Union of India and Others is directed against the judgment of the Central Administrative Tribunal, Calcutta Bench, Calcutta, whereby the Tribunal set aside the Award of the Board of Arbitrators and directed the appellants to accord the benefit of the scale of pay of Rs. 550 900 to the Scientific Assistants working in the Botanical Survey of Indian with effect from January 1,1973 with all consequential reliefs.
Before January l, 1973, the scale of pay of the Scientific Assistants in the Botanical Survey of India was Rs.2 10 425.
The Third Central Pay Commission, hereinafter referred to as the 'Pay Commission ', made certain recommendations with respect to the Scientific Assistants.
Clause (i) of paragraph 41 of the Report of the Pay Commission reads as follows: "41(i).
In our view, below the gazetted staff there are at least two distinguishable levels of scientific work which require graduates or post graduates.
The higher grade would require a post graduate education and call for some degree of originality and capacity for independent work.
Such scientific assistants should,in course of time, be able carry out independent investigations of the type conducted by scientific officers.
The lower grade could be adequately manned by the good science graduates.
The work at this level would be mostly standardised and conducted under the guidance of gazetted officers.
Scientific Assistants in this grade should have reasonable expectations of moving to the higher grade.
Thus a structure of two grades ,instead of a single integrated grade, would serve the purpose of paying for the jobs at rates appropriate to the responsibilities, and at the same time provide an incentive to good performance.
" The Pay Commission recommended four levels of pay for the Scientific Assistants under Table XI.
Level I and Level II under Table XI, with which we are concerned, are extracted below: PG NO 757 TABLE XI Existing Proposed Qualification for scale (Rs.) scale (Rs.) Level I 550 900 M.Sc./First Class.
(Honours) or Diploma in Engineering/Second Class B. Sc.
with 3 years experience.
Level II 425 700 Second Class B. Sc.
(Honours) or B. Sc.
with not less than 55% of marks in aggregate or Diploma in Engineers.
The respondents Nos. 1 to 8, who are working in the Office of the Botanical Survey of India as Scientific Assistants, claim that they should be given the pay scale of Level l, that is, Rs.550 900, as recommended by the Pay Commission.
The demand of the respondents was considered by a Committee constituted by the Office Council of the Joint Consultative Machinery.
The Committee, which was headed by Dr. A.S. Rao, came to the conclusion that the posts of Scientific Assistants in the Botanical Survey of India should be allocated the pay scale of Rs.550 900 in terms of the recommendation of the Third Pay Commission.
As the Government did not agree to the conclusion of the A.S. Rao Committee, the matter was referred to a Board of Arbitrators on July 17.1980.
The terms of reference to the Board of Arbitrators was as follows: "Whether the post of Scientific Assistant of the Botanical Survey of India should be allocated the revised scale of Rs.550 900 in terms of 3rd Pay Commission 's recommendations effective from l. l.1973.
" The Board of Arbitrators made the following Award: "All the Scientific Assistants who are continuing as Scientific Assistants since 1.1.1973 and who possess the prescribed qualification for Level I, i.e. M.Sc./First Class B.Sc.(Hons.)/Second Class B.Sc.
with 3 years experience PG NO 758 shall be placed in the scale of Rs.550 900 with immediate effect i.e. the date of this Award and shall be deemed to he automatically absorbed in the grade of Senior Scientific Assistants, irrespective of the fact whether there are vacancies in the grade or not.
Government is further directed to frame proper Recruitment Rules for the posts of Senior Scientific Assistant Level I and Scientific Assistant Level II at the earliest in accordance with the recommendations of the Third Pay Commission after taking into consideration the qualifications prescribed for both levels so that in future the manning of the majority of the posts in these grades is by direct recruitment and rest by promotion form the next lower level." Feeling aggrieved by the Award of the Board of Arbitrators, the respondents filed a writ petition before the Calcutta High Court which was, however, transferred to the Tribunal under the provision of section 29 of the .
The Tribunal came to the finding that the Board of Arbitrators had exceeded its jurisdiction in travelling beyond the terms of reference.
Accordingly, the Tribunal set aside the Award, allowed the writ petition and directed the appellants to accord the benefit of the scale of pay of Rs.550 900 to the Scientific Assistants working in the Botanical Survey of India in terms of the recommendation of the Pay Commission with effect from January l,1973.
Hence this appeal by special leave.
The first question that falls for consideration is whether the Board of Arbitrators had exceeded its jurisdiction in going beyond the terms of reference.
We have already extracted above the terms of reference under which the Board of Arbitrators was required to give its finding as to whether the revised scale of pay of Rs.550 900 should be allocated to the post of Scientific Assistant of the Botanical Survey India.
In other words, the Board was to consider whether the Scientific Assistants of the Botanical Survey of India were entitled to the revised scale of pay of Rs.550 900.
The terms of reference are very clear and specific.
Under the terms of reference there was no scope for prescribing two levels of scale of pay and the minimum qualifications for each level as has been done by the Pay Commission.
There was also no scope for directing the Government to frame proper Recruitment Rules for the posts PG NO 759 of Senior Scientific Assistants Level I and Scientific Assistants Level II, It is, therefore apparent that in making the Award, the Board of Arbitrators has acted beyond the terms of reference.
There can be no doubt that when an Arbitrator acts beyond the terms of reference, the Award is illegal and not binding upon the parties.
The Tribunal has, in our opinion, rightly come to the finding that the Board of Arbitrators did not have any authority to go beyond the terms of reference, and that the Award made by the Board cannot lawfully bind the staff side including the respondents Nos.
1 to 8.
The Tribunal was, therefore, justified in setting aside the Award.
Now, the question is whether the Scientific Assistants of the Botanical Survey of India are entitled to the revised scale of pay of Rs.550 900 with effect from January 1, 1973.
It is not disputed that the post of Scientific Assistants in the Botanical Survey of India has been allocated the pay scale of Rs.425 700 which is the pay scale recommended by the Pay Commission for the post of Scientific Assistants Level II.
Clause (i) of paragraph 41 of the Report of the Pay Commission shows that the two levels have been suggested on the basis of nature of scientific work and the qualifications required therefore.
According to the Pay Commission the higher grade, that is, Level I, would require a post graduate education and call for some degree of originality and capacity for independent work.
Such Scientific Assistants should, in course of time, be able to carry out independent investigations of the type conducted by scientific officers.
So far as the nature of work under Level II is concerned, the Pay Commission took the view that the work at this level would be mostly standardised and conducted under the guidance of gazetted officers and, accordingly, this level could be adequately manned by good science graduates.
before dividing the grade of Scientific Assistants into two levels, it is necessary to consider the nature of work performed by the Scientific Assistants.
In other words, the two levels, as recommended by the Pay Commission, can he brought into existence, if the nature of work which is being performed by the Scientific Assistants of the Botanical Survey of India calls for some degree of originality and carrying out of independent work and investigations.
In this connection.
we may refer to paragraph 44 of the Report which reads as follows: "44.
Posts in all the organisations which are now in the scales mentioned in Table XI should be replaced by the substitutes which we have indicated against each.
In case PG NO 760 the qualifications prescribed, at present, for any of the posts do not conform to those which we have indicated in that paragraph, then the position should be reviewed; where a higher qualification has been prescribed, and if the work a content of the post justifies its being placed in the higher level, it should be upgraded to that level.
Otherwise, the qualification requirement should be commensurately lowered for the future recruits.
It is not disputed that the Pay Commission generally considered the cases of the Scientific Assistants.
Accordingly, the Pay Commission observed t4at before dividing the grade of Scientific Assistants into different levels, the Job content of the post should be taken into consideration.
It is not disputed that the case of the Scientific Assistants of Botanical Survey of India has not been specifically considered by the Pay Commission.
If, upon such consideration, the Pay Commission had recommended the division of the posts of Scientific Assistants into Level I and Level II, there would not have been any difficulty in giving effect to the same.
It appears to us that the guiding factor for such division, as recommended by the Pay Commission, is the job content of the post for Scientific Assistant.
Before directing the appellants to accord the benefit of the scale of pay of Rs.550 900 to the Scientific Assistants of the Botanical Survey of India, the Tribunal has taken into consideration the duties performed by them.
The duties of Scientific Assistants are "to assist in scientific research, prepare notes after consultation with literature, identification and cataloguing of flora and studying them in their various aspects In the field as well as in the Herbarium and the laboratory.
" It has been found by the Tribunal that the Scientific Assistants of the Botanical Survey of India are not expected to exhibit any originality or capacity for doing any independent work and that the job contents of the existing Scientific Assistants are similar to those of Level II Scientific Assistants recommended by the Pay Commission.
The Tribunal has also noticed one very significant fact that one Shri M.K. Deka, a non matric has been posted as an Orchidariam Keeper in the scale of pay of Rs. 550 900.
Be that as it may, as the job content does not require the qualifications as prescribed by the Commission for the Level I Scientific Assistants, it will not be prudent to divide the post of Scientific Assistant into Level II.
At the same time, the existing Scientific Assistants should not be deprived of the pay scale of Rs.550 900.
PG NO 761 In the circumstances, we are of the view that the Tribunal was perfectly justified in directing allocation of the revised pay scale of Rs.550 900 to the existing Scientific Assistants of the Botanical Survey of India.
We, however, make it clear that the appellants may give effect to the recommendations of the Pay Commission with regard to future recruitment 's after framing rules in that regard.
But, so far as the existing Scientific Assistants are concerned, we uphold the judgment of the Tribunal.
For the reasons aforesaid, this appeal is dismissed.
There will, however, be no order as to costs.
R.S.S. Appeal dismissed.
| IN-Abs | The respondents were working as Scientific Assistants in the office of the Botanical Survey of India in the scale of Rs. 210 425.
The Third Central Pay Commission had considered the cases of the Scientific Assistants generally and had recommended different levels of scale of pay for them depending upon their education and job content.
On the basis of the Pay Commission recommendation, the Scientific Assistants in the office of the Botanical Survey of India were allocated Scientific Assistants Level II pay scale with effect from 1.1.1973.
The respondents, on the other hands, claimed the scale of Rs.550 900 recommended by the Pay Commission for Level I posts, which scale was also recommended by the Committee of the Joint Consultative Machinery.
The Government referred the matter to a Board of Arbitrators to Consider whether the Scientific Assistants of the Botanical Survey of India were entitled to the revised scale of Rs.550 990.
The Board, however, recommended two levels of scale of pay, as had been done by the Pay Commission.
Feeling aggrieved by the Award of the Board, the respondents filed a writ petition which was transferred by the Calcutta High Court to the Central Administrative Tribunal, Calcutta.
The Tribunal came to the finding that in recommending two levels of scale of pay the Board of Arbitrators had travelled beyond the terms of reference.
Accordingly, the Tribunal set aside the Award, allowed the writ petition and accorded to the respondents the benefit of the scale of pay of Rs.550 900.
Dismissing the appeal, it was, HELD: (l) The terms of reference of the Board of Arbitrators was very clear and specific.
Under the terms of reference there was no scope for prescribing two levels of PG NO 754 PG NO 755 scale.
It was therefore apparent that the Board had acted beyond the terms of reference, and its award was illegal and not binding upon the parties.[758 H;759A] (2) The Pay Commission had suggested two levels on the basis of nature of scientific work and the qualifications required therefor, the higher grade requiring a post graduate education and calling for some degree of originality and capacity for independent work.
At the same time, the Pay Commission had observed that before dividing the grade of Scientific Assistants into two levels, the job content of the post should be taken into account.[759D;790 B C] (3) The two levels could be brought into existence if the nature of work which was being performed by the scientific Assistants of the Botanical Survey of India called for some degree of originality and carrying out of independent work and investigation, which was the guiding factor for such a division.[759F G] (4) It has been found by the Tribunal that the Scientific Assistants of the Botanical survey of India were not expected to exhibit any originality or capacity for doing any independent work and that the job contents of the existing Scientific Assistants were similar to those of Level II Scientific Assistants recommended by the Pay Commission.[760F] (5) As the job content did not require the qualifications as prescribed by the Commission for the Level l Scientific Assistants, it would not be prudent to divide the post of Scientific Assistant into Level I and Level ll.
At the same time, the existing Scientific Assistants should not be deprived of the pay scale of Rs.550 900.
The appellants may give effect to the recommendations of the Pay Commission with regard to the future recruitments after framing rules in that regard.
[760G H; 761B]
|
ivil Appeal No. 764 of 1978.
From the Judgment and Order dated 5.7.1974 of the Andhra Pradesh High Court in W .A.
No. 71 of 1974.
H.S. Guru Raja Rao, section Markendeya, Mrs. Chitra Marken deya, G. Seshagiri and Kumari Usha Saraswat for the Appel lants.
P.A. Choudhary and T.V.S.N. Chari for the Respondents.
The Judgment of the Court was delivered by SINGH, J.
This appeal is directed against the judgment and order of a Division Bench of the High Court of Andhra Pradesh setting aside the order of a learned single Judge, dismissing the appellant ' writ petition made under Article 226 of the Constitution.
The appellants are members of the Andhra Pradesh Engi neering Subordinate Service as supervisors in Category 1 of the Engineering Branch.
The Engineering Branch category 1 includes officers, namely, Supervisors, Overseers, Head Draftsmen, Civil Draftsmen, Artists Draftsmen, Tracers, Blue Print Operators and Building Mistries.
Supervisors are recruited by direct recruitment as well as by promotion from amongst the Overseers.
The cadre of supervisors include degree holders in engineering and diploma or licence hold ers.
Both perform the same duties and functions in the engineering branch.
Promotion to the post of Assistant Engineer, the next higher post is made from amongst the post of supervisors, in accordance with the Andhra Pradesh Engi neering Service Rules 1967.
Graduate Overseers are given preference in the ratio of promotion to the post of Assist ant Engineer inasmuch as the quota of promotion is four to one from amongst the graduate supervisors and non graduate supervisors.
In addition to the disparity in the matter of promotion, graduate supervisors and non graduate supervisors are granted different pay.
427 On recruitment to the service of supervisors a graduate supervisor is granted higher starting salary than non gradu ate supervisors.
Subsequently, a lower pay scale was pre scribed for the non graduate supervisors.
Aggrieved the non graduate supervisors filed two writ petitions in the High Court of Andhra Pradesh under Article 226 of the Con stitution challenging validity of discrimination in pre scribing two different scales of pay.
The appellants con tended that diploma holder supervisors were entitled to the same scale of pay as prescribed for the graduate supervisors on the principle of equal pay for equal work as they consti tuted the same service and performed the same duties and functions as those performed by graduate supervisors.
The State Government contested their case on the pleading that graduate supervisors and diploma supervisors always remained separate and they were never fused into one service.
The two class of employees discharged the same functions and carried out similar duties, but the State was justified in prescrib ing different pay scales for historical reasons, and also on the basis of difference in the educational qualifications.
Plea of discrimination against non graduate supervisors was denied.
A learned Single Judge of the High Court Justice O. Chinnappa Reddy (as he then was) by his judgment and order dated February 26, 1974 held that the State practised invid ious discrimination without there being valid justification between the two categories of supervisors graduates and non graduates.
The learned judge allowed both the writ petitions and issued mandamus to the State Government to accord the same scale of pay to the non graduate supervisors as prescribed for the graduate supervisors under the Govern ment Order dated June 13, 1969.
On appeals preferred by the State of Andhra Pradesh a Division Bench of the High Court set aside the judgment of the learned Single Judge and dismissed the writ petitions on the finding that the State practised no discrimination and the appellants were not entitled to relief on the principle of equal pay for equal work.
Hence this appeal by special leave.
This is the second round of litigation by the Diploma holder Supervisors.
Earlier they had challenged the grant of higher quota of promotion for graduate Supervisors on the ground that when graduate and non graduate Supervisors, belong to the same cadre, and are eligible for promotion, then giving preferential treatment to graduates amount to denial of equal opportunity to the non graduate Supervisors.
This Court in Mohd. Sujat Ali vs Union of India, ; , rejected the challenge holding that two categories of Supervisors were never fused into one class and have throughout remained distinct and apart.
The non graduate supervisors have again challenged the 428 disparity in the pay scale prescribed for the two class of supervisors.
Since controversy in the present appeals centers round the pay of the Supervisors it is necessary to refer to the history of pay scales prescribed for the Supervisors.
Prior to 1958 the scale of pay prescribed for Supervisors was Rs. 100 5 1 250 but directly recruited graduate Supervisors were granted initial starting salary at Rs. 150 on the date of their initial appointment while a diploma holder Supervisor was paid starting salary of Rs. 100 only, though the same pay scale was prescribed for both the degree holders and diploma holders.
On his appointment a graduate supervisor Was designated as Junior Engineer while a non graduate continued to be designated as supervisor.
In 1958 the scale of pay of Supervisors was revised to Rs. 100 5 150 7.1/2 20010 300 but graduate Supervisors were continued to be granted higher starting salary at Rs. 180 on the date of their initial appointment.
Later, the starting salary of graduate Supervisors was raised to Rs.200 and their pay was fixed in the pay scale of Rs.200 10 300.
In 1961 the scale of pay of Supervisors was again revised according to which non graduate supervisors were granted pay scale of Rs. 180 7.1/2 210 10280 15 400, while Junior Engineers (graduate Supervisors) were granted the scale of Rs.250 15 400.
Though different pay scales were provided for non graduate Supervi sors and graduate Supervisors but the maximum pay for both the categories was maintained at the same level, irrespec tive of the Supervisor being a graduate or a non graduate.
The State Government further revised the pay scale of both the categories of Supervisors by the Government Order No. 173 dated 13th June 1969 according to which the scale of pay of non graduate Supervisors was revised to Rs.200 12 320 16 400 while the scale for Junior Engineers (Graduate Supervisors) was revised to Rs.300 20600.
The revised pay scales made substantial difference in the matter of pay between the graduate supervisors and non graduate supervisors, which gave rise to the disputes before the High Court.
Mr. H.S. Gururaja Rao, learned counsel for the appel lants urged that non graduate supervisors and graduate supervisors constitute the same class as they belong to the same service and both the class of officers are fused into one, as the two posts are interchangeable.
The graduate supervisors are no doubt designated as Junior Engineers but the work and duties of both are the same, and both set of officers are treated at part for every other purpose.
Since the two categories of officers were fused into one, the State denied equality by prescribing different scales of pay for the non graduate supervisors.
Learned counsel further urged that even if the graduate 429 supervisors (Junior Engineers) and non graduate supervisors constitute two different categories, but since they have been carrying out the same work and performing the same duties carrying the same responsibility, without any dis tinction the doctrine of equal pay for equal work is fully applicable and on that basis the non graduate supervisors are also entitled to the same pay scales as prescribed for the graduate supervisors (Junior Engineers).
Learned counsel emphasised that for application of the principle of equal pay for equal work it is not necessary that the two class of officers must belong to one integrated service instead if the nature of duties and functions of the two posts are identical or similar, the principle would apply.
He referred to a number of decisions, reference to which will be made at the appropriate stage.
Shri P.A. Chaudhry, learned counsel appearing for the respondent State seriously contested the correctness of the submissions made on behalf of the appel lants and urged that in view of the Constitution Bench decision of this Court in Mohammad Shujat Ali 's case (supra) the appellants are not entitled to any relief.
Since the Division Bench of the High Court rejected the appellants ' claim for equal pay in view of the findings of a Constitution Bench of this Court in Mohammad Shujat Ali 's case it is necessary to refer to that case in some detail.
In Shujat Ali 's case non graduate supervisors of Andhra Pradesh had challenged validity of the rule which gave preferential treatment to graduate supervisors (Junior Engineers) for promotion to the post of Assistant Engineer on the ground that it violated the equality clause enshrined under Articles 14 and 16 of the Constitution.
In that con text, the question arose whether the preferential treatment given to graduate supervisors was justified on any reasona ble classification or it was arbitrary and irrational.
Bhagwati, J. speaking for the Constitution Bench after considering various decisions of this Court observed as under: "But where graduates and non graduates are both regarded as fit, and, therefore, eligible for promotion, it is difficult to see how, consistently with the claim for equal opportu nity, any differentiation can be made between them by laying down a quota of promotion for each and giving preferential treatment to graduates over non graduate in the matter of fixation of such quota.
The result of fixation of quota of promotion for each of the two categories of Supervisors would be that when a vacancy arises in the post of Assistant Engi neer, which, according to the quota is re served for graduate Supervisors, a non 430 graduate supervisors cannot be promoted to that vacancy, even ' if he is senior to all other graduate Supervisors and more suitable than they.
His opportunity for promotion would be limited only to vacancies available for non graduate Supervisors.
That would clearly amount to denial of equal opportunity to him.
" The above observation would show that the Constitution Bench held that fixation of quota giving preference to graduate supervisors amounted to denial of equal opportunity to the non graduate supervisors.
But after making the aforesaid observations the Constitution Bench considered the history of the graduate super visors and non graduate supervisors under the Andhra Pradesh Rules and thereupon, it record ed findings that the graduate supervisors have always been treated as a distinct and separate class from non graduate supervisors both under the Hyderabad Rules as well as under the Andhra Pradesh Rules and they were never treated as equals.
The Bench observed as under: "The pay scale of Junior Engineers was always different from that of non graduate supervi sors and for the purpose of promotion, the two categories of supervisors were kept distinct and apart under the Andhra Rules even after the appointed day.
The common gradation list of supervisors finally approved by the Govern ment of India also consisted of two parts, one part relating to Junior Engineers and the other part relating to non graduate supervi sors.
The two categories of supervisors were thus never fused into one class and no ques tion of unconstitutional discrimination could arise by reasons of differential treatment being given to them.
" In view of the aforesaid findings of the Constitution Bench which relate to this very cadre of supervisors, it is diffi cult to accept the appellants ' contention that the graduate supervisors and non graduate supervisors were integrated into one class of service and that no differential treatment is permissible to the non graduate supervisors.
The Consti tution Bench on elaborate discussion held that the equality clause under Articles 14 and 16 of the Constitution was not violated in the matter of promotion of graduate supervisors and non graduate supervisors, as the graduate supervisors and non graduate supervisors constituted two different classes.
The necessary consequence of the Constitution Bench findings are that the classification of Supervisors into two clas 431 ses on the basis of historical reasons is valid and it does not offend Article 14 or 16 of the Constitution.
Once the classification is upheld it is difficult to hold that non graduate supervisors are entitled to the same pay scale as prescribed for graduate supervisors as equality in pay is permissible with equals and not with unequals.
There is basic difference between the two class of supervisors as graduate supervisors hold degree in Engineering while non graduate supervisors are only Diploma and Licence holder and they have all along been treated differently on the basis of different in educational qualifications.
In State of Mysore vs
P. Narasingh Rao; , the question arose whether two different pay scales could be prescribed for the employees working in the same service on the basis of educational qualification.
In the State of Mysore tracers included matriculates and non matriculates.
The government prescribed higher pay scale to matriculate tracers although the non matriculates and matriculates tracers both were performing the same duties and functions.
The non matriculate tracers challenged the validity of different pay scales on the ground that it violated the guarantee of equality under Articles 14 and 16 of the Con stitution as there was no valid reason for making distinc tion.
The High Court accepted their contention and allowed their petition holding that there was no valid reason for making distinction as both matriculate and non matriculate tracers were doing the same kind of work and the denial of different scale of pay was in violation of Articles 14 and 16 of the Constitution.
On appeal by the State Government this Court set aside the order of the High Court on the finding that higher educational qualification is a relevant consideration for fixing different pay scales and the clas sification of two grades of tracers did not violate of Article 14 or 16 of the Constitution.
The Constitution Bench observed as under: "The provisions of Article 14 or Article 16 do not exclude the laying down of selective tests, nor do they preclude the Government from laying down qualifications for the post in question.
Such qualifications need not be only technical but they can also be general qualifications relating to the suitability of the candidate for public service as such.
It is therefore not fight to say that in the appointment to the post of tracers the Govern ment ought to have taken into account only the technical proficiency of the candidates in the particular craft.
It is open to the Government to consider also the general educational attainments of the candidates and to give preference to candidates who have a better 432 educational qualification besides technical proficiency of a tracer.
" Classification in service rounded on the basis of educa tional and academic qualifications is now well recognised.
It is open to the Administration to give preference to a class of employees on the basis of educational qualifica tions having regard to the nature of duties attached to the post for the purposes of achieving efficiency in public services.
It is permissible to give preference to degree holders as was held by this Court in Union of India vs Dr. (Mrs.) S.B. Kohli; , and State of Jammu & Kashmir vs Triloki Nath Khosa, ; Since clas sification on the basis of educational qualification is a valid consideration for discriminating in matters pertaining to promotion to the higher post, there is no reason as to why the same principle is not be applicable for prescribing scales of pay.
Having regard to the findings recorded by the Constitution Bench in Mohammad Shujat Ali 's case that gradu ate supervisors and non graduate supervisors constitute two distinct class, the non graduate supervisors cannot validly claim parity with the graduate supervisors regarding pay scales.
The appellants grievance that they have been denied equality in violation of Article 14 or 16 of the Constitu tion is not sustainable.
Learned counsel for the appellants urged that even if the appellants ' grievance regarding violation of Articles 14 and 16 of the Constitution is not sustainable, the appel lants are entitled to the same scale of pay as granted to the graduate supervisors on the principle of 'equal pay for equal work ' enshrined under Article 39(d) of the Constitu tion.
He placed reliance on the decision of this Court in Randhir Singh vs Union of India & Ors., ; ; P. Savita vs Union of India, [1985] Supp.
SCR 101; Dhirendra Chamoli & Anr.
vs State of U.P., ; Surinder Singh & Anr.
vs Engineer in Chief, CPWD & Ors.
, ; Bhagwan Dass vs State of Haryana, [1987] 4 SCC 634 and Jaipal vs State of Haryana, [1988] 3 SCC 354.
In view of these authorities the learned counsel contended, there is no justification to disregard the doctrine of 'equal pay for equal work ' as graduate supervisors and the non graduate supervisors both have been doing the same work with the same responsibilities without there being any difference in the duties and functions of the two categories of officers.
Article 39(d) contained in part IV of the Constitution, ordains the State to direct its policy towards securing equal pay for equal work for both men and women.
Provisions contained in the Chapter on 433 Directive Principles of State Policy cannot be enforced by courts although the principles contained therein are funda mental in nature for the governance of our country.
The court has no power to direct the Legislature to frame laws to give effect to the Directive Principles as contained in Part IV of the Constitution or to injunct the Legislature from making any such law.
But while considering the question of enforcement of fundamental rights of a citizen it is open to the court to be guided by the Directive Principles to ensure that in doing justice the principles contained there in are maintained.
The purpose of Article 39(d) is to fix certain social and economic goals for avoiding any discrimi nation amongst the citizens doing similar work in matters relating to pay.
If the court finds that discrimination is practised amongst two set of employees similarly situated in matters relating to pay, the court must strike down discrim ination, and direct the State to adhere to the doctrine of 'equal pay for equal work ' as enshrined under Article 39(d) of the Constitution.
Fundamental rights, and the Directive Principles constitute "conscience, of the Constitution".
The Constitution aims at bringing about a synthesis between 'Fundamental Rights ' and 'Directive Principles of State Policy ' by giving to the former a place of pride and to the latter a place of permanence, together they form core of the Constitution.
They constitute its true conscience and with out faithfully implementing the Directive Principles it is not possible to achieve the welfare State contemplated by the Constitution see Keshavanand Bharti vs State of Kerala, [1973] 4 SCC 225.
In Randhir Singh 's case (supra) and later in Dhirendra Chamoli 's case (supra), Surinder Singh 's case (supra), Bhagwan Dass 's case (supra).
Jaipal 's case (supra) and P. Sativa 's case (supra), this Court implemented the principle of 'equal pay for equal work '.
The Court granted relief on the principle of equal pay on the basis of same or similar work performed by two class of employees under the same employer even though the two class of employees did not constitute the same service.
But in all the aforesaid cases relief was granted only after it was found that discrimina tion was practised in giving different scales of pay in violation of the equality clause enshrined under Article 14 and 16 of the Constitution.
The principle of equal pay for equal work was enforced on the premise that discrimination was practised between the two set of employees performing the same duties and functions, without there being any rational classification.
The principle of 'equal pay for equal work ' is not abstract one, it is open to the State to prescribe different scale of pay for different cadres having regard to nature, duties, responsibilities and educational qualifications.
Different grades are laid down in service with varying 434 qualification for entry into, particular grade.
Higher qualification and experience based on length of service are valid considerations for prescribing different pay scales for different cadres.
The application of doctrine arises where employees are equal in every respect, in educational qualifications, duties, functions and measure of responsi bilities and yet they are denied equality in pay.
If the classification, for prescribing different scales of pay is rounded on reasonable nexus the principle will not apply.
But if the classification is rounded on unreal and unreason able basis it would violate Articles 14 and 16 of the Con stitution and the principle of equal pay for equal work, must have its way.
In the decisions reference to which have been made by the learned counsel for the appellants, this Court granted relief, after recording findings that the aggrieved employees were discriminated in violation of the equality clause under Articles 14 and 16 of the Constitu tion, without there being any rationale for the classifica tion.
In a number of decisions of this Court the claim for equal pay for equal work has been negatived on the ground that the different pay scales prescribed for persons doing similar or same work is permissible on the basis of classi fication rounded on the measure of responsibilities, educa tional qualifications, experience and other allied matters.
In Federation of All India Customs and Central Excise Ste nographers (Recognised) vs Union of India; , , Justice Sabyasachi Mukharji said (SCC p. 100 para 7).
"There may be qualitative differences as regards reliability and responsibility.
Func tions may be the same but the responsibilities make a difference.
One cannot deny that often the difference is a matter of degree and that there is an element of value judgment by those who are charged with the administration in fixing the scales of pay and other conditions of service.
So long as such value judgment is made bona fide, reasonably on an intelligible criteria which has a rational nexus with the object of differentiation, such differentia tion will not amount to discrimination.
It is important to emphasise that equal pay for equal work is a concomitant of article 14 of the Constitution.
But it follows naturally that equal pay for unequal work will be a negation of that right." The learned Judge further observed: (SCC pp. 104 105 para 11) "The same amount of physical work may entail different 435 quality less it varies from nature and cul ture of employment.
The problem about equal pay cannot always be translated into a mathe matical formula.
If it has a rational nexus with the object to be sought for, as reiterat ed before a certain amount of value judgment of the administrative authorities who are charged with fixing the pay scale has to be left with them and it cannot be interfered with by the court unless it is demonstrated that either it is irrational or based on no basis or arrived mala fide either in law or infact.
In State of U.P. and Others vs
J.P. Chaurasia & Ors., ; , this Court negatived the claim of Bench Secretaries for equal pay for equal work on the basis of reasonable classification based on merit, experience and seniority though both set of employees were performing the similar duties and having similar responsibilities.
In Mewa Ram Kanojia vs All India Institute of Medical Sciences & Ors., Judg.
Today 12, this Court refused to grant relief to the petitioner for parity in pay on the application of the principle of 'equal pay for equal work ' on the ground of reasonable classification on the basis of educational qualifications.
In view of the above discussion we are of the opinion that where two class of employees perform identical or similar duties and carrying out the same functions with the same measure of responsibility having same academic qualifi cations, they would be entitled to equal pay.
If the State denies them equality in pay, its action would be violative of Articles 14 and 16 of the Constitution, and the Court will strike down the discrimination and grant relief to the aggrieved employees.
But before such relief is granted the court must consider and analyse the rationale behind the State action in prescribing two different scales of pay.
If on an analysis of the relevant rules, orders, nature of duties, functions, measure of responsibility, and education al qualifications required for the relevant posts, the court finds that the classification made by the State in giving different treatment to the two class of employees is rounded on rational basis having nexus with the objects sought to be achieved, the classification must be upheld.
Principle of equal pay for equal work is applicable among equals, it cannot be applied to unequals.
Relief to an aggrieved person seeking to enforce the principles of equal pay for equal work can be granted only after it is demonstrated before the court that invidious discrimination is practised by the State in prescribing two different scales for the two class of employees without there being any reasonable classifica tion 436 for the same.
If the aggrieved employees fail to demonstrate discrimination, the principle of equal pay for equal work cannot be enforced by court in abstract.
The question what scale should be provided to a particular class of service must be left to the Executive and only when discrimination is practised amongst the equals, the court should intervene to undo the wrong, and to ensure equality among the similar ly placed employees.
The Court however cannot prescribe equal scales of pay for different class of employees.
In the instant case the graduate overseers have all along being treated separate entity from the non graduate supervisors and they have been drawing different pay since long.
The Constitution Bench has already recorded findings that two set of officers, namely, graduate supervisors and non graduate supervisors do not belong to the same class of service and unequal treatment relating to promotion is justified on the basis of educational qualification.
There fore the classification made between the graduate supervi sors and non graduate supervisors is reasonable and the State Government did not violate Article 14 or 16 of the Constitution in prescribing different scales of pay for them.
In result, the appeal fails and is accordingly dis missed.
There will be no order as to costs.
R.S.S. Appeal dis missed.
| IN-Abs | The appellants are members of the Andhra Pradesh Engi neering Subordinate Service as Supervisors.
The cadre of supervisors includes degree holders in Engineering and diploma or licence holders.
The appellants are diploma holder supervisors.
Their two fold grievance was: (1) dis crimination in the matter of promotion in as much as the quota of promotion is four to one from amongst the graduate supervisors and non graduate supervisors, respectively; and (2) disparity in the matter of grant of different pay scales to graduate supervisors and non graduate supervisors.
For the redressal of their first grievance, the non graduate supervisors had earlier, in Mohd. Sujat Ali vs Union of India; , , challenged the validity of the Andhra Pradesh Engineering Service Rules, 1967 which gave preferential treatment to graduate supervisors for promotion to the post of Assistant Engineer.
They had con tended that this amounted to denial of equal opportunity to non graduate supervisors thus violating the equality clause enshrined under Articles 14 and 16 of the Constitution.
This Court rejected the challenge, holding that the graduate supervisors had always been treated as a distinct and sepa rate class from non graduate supervisors and that they were never fused into one class.
423 The constant appeal relates to their second grievance and arises out of the writ petition filed by the non gradu ate supervisors in the High Court of Andhra Pradesh chal lenging discrimination in the matter of grant of different pay scales to graduate and non graduate supervisors.
Their contention was that they were entitled to the same scale of pay as prescribed for the graduate supervisors on the prin ciple of equal pay for equal work, as they constituted the same service and performed the same duties and functions as those performed by graduate supervisors.
The State Govern ment contested the case on the pleading that graduate super visors and diploma supervisors always remained separate and they were never fused into one service.
It was further contended that even though the two class of employees dis charged the same functions and carried out similar duties, the State was justified in prescribing different pay scales for historical reasons, and also on the basis of difference in the educational qualifications.
The learned Single Judge allowed the writ petition.
On appeal by the State, the Division Bench set aside the judg ment of the learned Single Judge and dismissed the writ petition on the finding that the State practised no discrim ination and the appellants were not entitled to relief on the principle of equal pay for equal work.
Before this Court it was contended on behalf of the appellants that (1) the graduate and non graduate supervi sors constituted the same class as they belonged to the same service and both the class of officers were fused into one, as the two posts were inter changeable; (2)even if the two class of officers constituted two different categories, since they had been carrying out of the same work and per forming the same duties carrying the same responsibility, without any distinction, the doctrine of equal pay for equal work was fully applicable, and it was not necessary that the two class of officers must belong to one integrated service; and (iii) even if the appellant 's grievance regarding viola tion of Articles 14 and 16 of the Constitution was not sustainable, the appellants were entitled to the same scale of pay as granted to the graduate supervisors on the princi ple of 'equal pay for equal work ' enshrined under Article 39(d) of the Constitution.
Dismissing the appeal, this Court, HELD: (1) There is a basic difference between the two class of supervisors as graduate supervisors hold degree in Engineering while non graduate supervisors are only Diploma and Licence holders, and they have all along been treated differently on the basis of difference in 424 educational qualifications.
Classification of Supervisor into two classes on the basis of historical reasons is valid and it does not offend Articles 14 or 16 of the Constitu tion.
[431B] Mohammad Sujat Ali vs Union of India, referred to.
(2) Since classification on the basis of educational qualification is a valid consideration for discriminating in matters pertaining to promotion to higher post, there is no reason as to why the same principle is not applicable for prescribing scales of pay.
[432C] (3) Classification in service rounded on the basis of educational and academic qualification is now well recog nised.
It is open to the administration to give preference to a class of employees on the basis of educational qualifi cations, having regard to the nature of duties attached to the post, for the purpose of achieving efficiency in public services.
[432B] Union of India vs Dr. (Mrs.) S.B. Kohli, ; and State of Jammu & Kashmir vs Triloki Nath Khosa, ; , referred to.
(4) The principle of 'equal pay for equal work ' is not an abstract one.
It is open to the State to prescribe dif ferent scales of pay for different cadres having regard to nature of duties, responsibilities and educational qualifi cations.
Different grades are laid down in service with varying qualification for entry into a particular grade.
Higher qualification and experience based on length of service are valid considerations for prescribing different pay scales for different cadres.
[433G H; 434A] State of Mysore vs P. Narasing Rao, ; , referred to.
(5) Where two class of employees perform identical or similar duties and carry out the same functions with the same measure of responsibility, having same academic quali fications, they would be entitled to equal pay.
If the State denies them equality in pay, its action would be violative of Articles 14 and 16 of the Constitution, and the Court will strike down the discrimination and grant relief to the aggrieved employees.
But before such relief is granted the court must consider and analyse the rationale behind the State action in prescribing different scales of pay.
If on an analysis of the relevant rules, 425 orders, nature of duties, functions, measure of responsibil ity, and educational qualifications required for the rele vant posts, the court finds that the classification made by the State in giving different treatment to the two class of employees is rounded on rational basis having nexus with the objects sought to be achieved, the classification must be upheld.
Principles of equal pay for equal work is applicable among equals; it cannot be applied to unequals.
[435E G] Federation of All India .Customs and Central Stenogra phers (Recognised) vs Union of India; , ; State of U.P. v .J.P. Chaurasia; , and Mewa Ram Kanojia vs All India Institute of Medical Sciences, Judg.
Today , referred to.
(6) This Court granted relief in a number of cases after recording findings that the aggrieved employees were dis criminated in violation of the equality clause under Arti cles 14 and 16 of the Constitution, without there being any rationale for the classification, even though in some cases the two class of employees did not constitute the same service.
[434C] Randhir Singh vs Union of India, ; ; P. Savita vs Union of India, ; Dhirendra Chamouli vs State of U.P., ; Surinder Singh vs Engineer in Chief CPWD, ; Bhagwan Dass vs State of Haryana, [1987] 4 SCC 634 and Jaipal vs State of Haryana, [1988] 3 SCC 354, referred to.
(7) Article 39(d) contained in Part IV of the Constitu tion, ordains the State to direct its policy towards secur ing equal pay for equal work for both men and women.
Provi sions contained in the Chapter on Directive Principles of State Policy cannot be enforced by courts although the principles contained therein are fundamental in nature for the governance of our country.
[432H; 433A] (8) Fundamental rights and the Directive Principles constitute "Conscience of the Constitution".
The Constitu tion aims at bringing about a synthesis between "Fundamental Rights ' and 'Directive Principles of State Policy ' by giving to the former a place of pride and to the latter a place of permanence; together they form core of the Constitution.
They constitute its true conscience and without faithfully implementing the Directive Principles it is not possible to achieve the welfare State contemplated by the Constitution.
[433D] Keshavanand Bharti vs State of Kerala, [1973] 4 SCC 225, referred to.
426 (9) The Court has no power to direct the Legislature to frame laws to give effect to the Directive Principles as contained in Part IV of the Constitution or to injunct the Legislature from making any such law.
But while considering the question of enforcement of fundamental rights of a citizen, it is open to the Court to be guided by the Direc tive Principles to ensure that in doing justice the Princi ples contained therein are maintained.
[433A B]
|
ivil Appeal No. 294 of 1982.
From the Judgment and Order dated 8.9.1981 of the Punjab and Haryana High Court in L.P.A. 857 of 1981.
439 P.P. Rao, R. Venkataramani, U.G. Pragasan and S.M. Garg for the Appellant.
Mahabir Singh, Subhash Sharma and C.M. Nayar for the Respondents.
The Judgment of the Court was delivered by RANGANATH MISRA, J.
This appeal is by special leave and is directed against the appellate judgment of a Division Bench of the Punjab and Haryana High Court upholding the decision of a learned Single Judge of that Court by dismiss ing the appeal in limine.
The Haryana Public Service Commis sion advertised the filling up of one Post of D.F.S.C. and 4 posts of District Food and Supplies Officers by direct recruitment.
The Commission prescribed, inter alia, that one of the essential qualifications shall be "five/three years ' experience as an executive officer in a commercial organisa tion of Government or Semi Government office before or after acquiring the academic degree" and the Special Secretary to Haryana Government in the Food and Supplies Department, on 20th of February, 1981, wrote to the Secretary of the Com mission affirming that position and added that: "Certain Inspectors/Sub Inspectors of this Department seem to have sent their appli cations (advance copies) to the Commission for these posts.
The work of Inspectors/ Sub Inspectors is of executive nature though they are not officers.
As such, in case the Commis sion feels that they fulfil the qualifications for the posts in question, this department have no objection to the names of the Inspec tors/Sub Inspectors who have applied directly to the Commission, to be considered for these posts.
" The Commission called the appellant and other similarly placed candidates for interview but required them to produce certificates from the State Government to the effect that they had the requisite experience of executive officer.
The State Government, however, did not issue such certificates and in their absence the Commission did not consider the Inspector and Sub Inspector candidates as having the requi site qualification for being candidates for the post.
The selection was undertaken excluding them.
Thereupon a writ petition was filed before the High Court claiming that the appellant had the requisite qualification having been an executive officer for the requisite period and his exclusion was unjustified and the selection made by the Com 440 mission was hit on account of infraction of the provisions of Article 16 of the Constitution.
The learned Single Judge negatived this stand and dismissed the writ petition and the Division Bench upheld the decision of the Single Judge by dismissing the appeal in limine.
In this appeal the sole question for consideration is whether Inspectors and Sub Inspectors of Food and Supplies Department are executive officers.
That they held executive posts and for the required period was conceded in Government letter of 21st of February, 1981.
It has, therefore, to be found out whether Inspectors and Sub Inspectors could be treated as officers.
The selected candidates were not made parties to the writ petition.
A civil miscellaneous petition has been filed to add them as party respondents to the appeal and that application had been placed for hearing along with the appeal.
Mr. P.P. Rao appearing in support of the appeal has contended that the post of Inspectors and Sub Inspectors belonged to the category of executive office and the High Court, therefore, came to a wrong conclusion.
In earlier years certain similarly situated Inspectors and Sub Inspec tors of the Department had been appointed on the basis that they satisfied the requirements of clause (c) of the adver tisement and there was no justification for a different basis when further recruitment was undertaken 1980.
None of the parties has placed any definition of the term 'Officer ' from any.
Haryana Statute.
It is not the contention of counsel appearing for any of the parties that the administrative orders gave a definition to the term.
In such a situation, the common parlance meaning of 'officer ' has to be accepted for the purpose of finding out whether Inspectors and Sub Inspectors held the post of Officer.
The ordinary dictionary meaning of the term 'Officer ' is: "a person appointed or elected to a position of responsibility or authority in a Govern ment, society etc." Stroud 's Judicial Dictionary (5th Edition) has given a variety of instance of "officer" with reference to different statutes.
Some of the instances given therein do support Mr. Rao 's stand that an Inspector or Sub Inspector would indeed be an 'officer ' inasmuch as under statutory orders made in exercise of powers conferred under the Essential Commodities Act on the State Government, authority has 441 been vested in these categories of officers to exercise jurisdiction.
Black 's Law Dictionary states: "In determining whether one is an 'officer ' or 'employee ', important tests are the tenure by which a position is held, wheth er its duration is defined by the statute or ordinance creating it, or whether it is tempo rary or transient or for a time fixed only by agreement; whether it is created by an ap pointment or election, or merely by a contract of employment by which the rights of the parties are regulated; whether the compensa tion is by a salary or fees fixed by law, or by a sum agreed upon by the contract of hir ing." A person invested with the authority of an office has been treated as an officer.
In Words and Phrases (Permanent Edition Volume 29A) an 'Officer ' has been stated to mean: "a person who is invested with some portion of the functions of government to be exercised for the public benefit." "If the powers and duties reposed in the incumbent of a position are such that he exercises the function of the sovereignty, the incumbent is an 'Officer ' regardless of the name by which he may be designated.
" If these tests are applied, the appellant who held an office and was clothed with functions of sovereignty was an offi cer.
In Articles 146 and 229 of the Constitution officers and servants of the Supreme Court and the High Court have re spectively been provided for.
In service jurisprudence even ministerial employees have been referred to as officers.
The terms 'officer ' and 'employee ' put together obviously signi fy the grade of the establishment or post held,, the officer being higher in grade to employee.
Keeping the nature and duty assigned to the Inspector or the Sub Inspector working in the Department to whom powers have been delegated, it cannot be doubted that the holders of posts of Inspector and Sub Inspector are officers.
We, therefore, accept the con tention of Mr. Rao that the appellant held the post of an officer and since the State had conceded 442 that it was an executive office and the appellant was hold ing the said post from April, 1973 till September, 1978, by 1980 when selection was be made he had the requisite quali fication.
Mr. Rao relied upon decisions of this Court in G.A. Monterio vs The State of Ajmer, ; and Bajrang Lal & Anr.
vs State of Rajasthan, ; in sup port of his plea that the appellant was an officer.
Both these cases were with reference to the definition of 'public servant ' in section 21 of the Indian Penal Code.
On principle, these decisions support the conclusion which we have reached.
Counsel appearing for the respondents did not attempt to contend that if the appellant had the requisite qualifica tion when selection was being made and he had been kept out on the wrong premises that he did not have the qualifica tion, he would be entitled to challenge the selection.
The selected candidates were, however, not impleaded as respond ents in the writ petition and attempt to implead them at this stage is bound to prejudice them.
They have now been in service for more than eight years and respondent No. 4 has even been holding a promotional post for some time.
We do not think in such a situation there would be any justifica tion to allow challenge to the recruitment of the respond ents.
At the same time the State had no justification to keep out the appellant from consideration.
The appellant was entitled to be considered for recruitment in 1980 and since his claim had been overlooked without justification, the State and the Haryana Public Service Commission are bound to consider his case now on the basis that he was entitled to recruitment in 1980.
Reliance was placed by Mr. Rao on some decisions of the this Court, as to the nature of relief that can be granted in a case of this type.
We do not think in the facts of this case, the ratio of the decisions can be applied as a guide line.
It has been brought to our notice that an enquiry was undertaken by Government against some of the selected candi dates on the allegation that forged/false certificates had been produced by them in support of qualification/eligibili ty and in the enquiry a prime facie case had been made out.
We express no opinion about it as it shall be for the State Government to deal with the question and the appellant 's appeal has nothing to do with it.
The appeal is allowed, the order of the learned Single Judge as also the appellate order are vacated and the State Government and the 443 Public Service Commission are directed to consider the appellant 's claim for recruitment on the basis of the noti fication for recruitment.
In case the appellant is found qualified, he shall be selected for the post and duly ap pointed.
The question of appellant 's seniority is left open to be dealt with by the State Government in consultation with the Public Service Commission.
The appellant shall have the cost of the appeal.
Hearing fee is assessed at Rs.3,000 to be recovered from the Respondent State only.
R.S.S. Appeal allowed.
| IN-Abs | The Haryana Public Service Commission advertised the filling up of 4 posts of District Food and Supplies Officers by direct recruitment, and prescribed "five/three years ' experience as an executive officer" as one of the essential qualifications.
The appellant who was working as Inspector/Sub Inspector in the Food and Supplies Department, applied for the post.
Some other Inspectors/Sub Inspectors also applied.
Subsequently, the Special Secretary to the Haryana Government in the Food and Supplies Department wrote to the Commission affirming, inter alia, that the work of Inspectors/Sub Inspectors of his Department was of executive nature though they were not officers.
The Commission, howev er, required the appellants to produce a certificate from the State Government to the effect that they had the requi site experience of executive officer.
The State Government did not issue such a certificate, and in its absence the Commission did not consider the Inspector and Sub Inspector candidates as having the requisite qualification.
Thereupon, the appellant filed a writ petition in the High Court claiming that he had the requisite qualifica tion.
The learned Single Judge dismissed the writ petition and the Division Bench dismissed the appeal therefrom.
Before this Court, it was contended on behalf of the appellant that the post of Inspectors and Sub inspectors belonged to the category of executive office, and that in earlier years certain similarly situated Inspectors and Sub Inspectors of the Department had been appointed on that basis.
438 Allowing the appeal, it was, HELD: (1) It was conceded in the Department 's letter to the Commission that 'the Inspectors/Sub Inspectors held executive posts.
[440B] (2) None of the parties has placed any definition of the term 'Officer ' from any Haryana Statute.
It is also not the contention of any of the parties that the administrative orders gave a definition to the term.
In such a situation, the common parlance meaning of 'officer ' has to be accepted for the purpose of finding out whether Inspectors and Sub inspectors held the pest of officer.
[440F] (3) In service jurisprudence even ministerial employees have been referred to as officers.
The terms 'Officer ' and 'employee ' put together obviously signify the grade of the establishment or post held, the officer being higher in grade to employee.
[441G] (4) A person invested with the authority of an office has been treated as an officer.
[441C D] (5) Keeping in view the nature and duty assigned to the Inspector or the Sub Inspector working in the Department to whom powers have been delegated, it cannot be doubted that the holders of pests of Inspector and Sub Inspector are officers.
[441G H] G.A. Monterio vs The State of Ajmer, ; and Bajrang Lal & Anr.
vs State of Rajasthan, ; , referred to.
(6) The appellant was entitled to be considered for recruit ment in 1980 and since his claim had been over looked with out justification, the State and the Haryana Public Service Commission are bound to consider his case now on the basis that he was entitled to recruitment in 1980.
In case the appellant is found qualified, be shall be selected for the post and duly appointed.
[442E]
|
Appeal No. 128 of 1955.
Appeal by special leave from the judgment and order dated March 5, 1953, of the Bombay High Court in I. T. R. No. 40 of 1952.
H. N. Sanyal, Additional Solicitor General of India, K. N. Rajagopala Sastri and R. H. Dhebar, for the appellant.
B. R. L. Aiyangar, for the respondent.
April 28.
The Judgment of the Court was delivered by GAJENDRAGADKAR J.
This is an appeal by the Commissioner of Income tax, Bombay, by special leave and it raises a short question of law under section 33B of the Income tax Act.
The respondent assessee had been registered as a firm under section 26A of the Act for the year 1946 47.
For the assessment years 1947 48, 1948 49 and 1949 50, the Income tax Officer made the assessment on the respondent on June 7, 1949, June 7, 1949, and September 23, 1949, respectively under section 23(3) of the Act.
The Income tax Officer made an estimate about the profits of the respondent under the proviso to section 13 and computed the total income of the respondent at Rs. 95,053, Rs. 93,430 and Rs. 83,752 for the said years respectively.
The respondent had applied for and obtained renewal of registration of the firm.
The Income tax Officer had also passed an order under section 23(6) of the Act and allocated the shares of the various parties.
Against the said assessment orders the respondent preferred an appeal to the Appellate Assistant Commissioner.
On November 4, 1950, the Appellate 91 716 Assistant Commissioner reduced the respondent 's estimated profit by Rs. 28,250 in the assessment year 1947 48 and by Rs. 19,000 in the assessment year 1948 49.
The respondent 's appeal in regard to the assessment year 1949 50 was pending before the Appellate Assistant Commissioner.
Meanwhile it had come to the notice of the Commissioner of Income tax that the respondent firm which had been granted renewal of registration by the Income tax Officer was not a firm which could be registered under the Act as one of the partners of the firm was a minor.
The Commissioner then took action under section 33B(1) of the Act and issued notice to the respondent to show cause why the assessments made under section 23(3) of the Act and the registration granted under section 26A should not be cancelled.
After hearing the parties, the Commissioner passed an order under section 33B(1) on June 5, 1951 by which he cancelled the registration of the firm under section 26A and directed the Income tax Officer to make fresh assessments against the respondent as an unregistered firm for all the three years.
As a result of this revisional order passed by the Commissioner of Income tax, the Income tax Officer passed fresh orders.
The respondent preferred five appeals to the tribunal; two of these were against the orders passed by the Appellate Assistant Commissioner under section 31 and related to the assessment years 1947 48 and 194849; while the remaining three challenged the orders passed by the Commissioner of Income tax under section 33B(1) of the Act and related to the assessment years 1947 48, 1948 49 and 1949 50.
In these three appeals, with which we are concerned, the respondent had urged that the Commissioner was not competent in law to pass an order setting aside an assessment which had been confirmed or modified by the Appellate Assistant Commissioner; that the orders passed by the Commissioner under section 33B(1) were bad in law as they directed the Income tax Officer to pass an order in a particular manner and that the orders passed by the Income tax Officer subsequent to the cancellation of the respondent 's registration were bad in law as they were passed with 717 out giving notice to, or hearing, the respondent.
On January 2, 1952, the tribunal upheld the contentions raised by the respondent and allowed the appeals.
The appellant then moved the tribunal under section 66(1) of the Act for referring the questions specified in its application for the opinion of the High Court.
The tribunal accordingly framed the following three questions and referred them to the High Court of, Bombay: " 1.
Whether on the facts and circumstances of the case the Commissioner of Income tax acting under section 33B(1) can set aside the orders passed by the Appellate Assistant Commissioner, for the assessment years 1947 48 and 1948 49 ? 2.Whether on the facts and circumstances of the case the order passed by the Commissioner of Income tax dated 5th June, 1951, is bad in law as it directs the Income tax Officer to pass an order in a particular manner ? 3.Whether on the facts and circumstances of the case orders passed by the Income tax Officer dated 21 6 52 are bad in law, as fresh notices as required by Sections 22 and 23 of the Income tax Act were not given by the Income tax Officer to the assessee ? " This matter was heard by the High Court on March 5, 1953.
In regard to the assessments made for the years 1947 48 and 1948 49 the High Court held that the question raised by the appellant was concluded by the judgment already delivered by it in the Commissioner of Income Tax, Bombay North vs Tejaji Farasram Kharawala (1).
In Tejaji 's case the High Court had held that when an appeal is provided from a decision of the tribunal and the appeal court, after hearing the appeal, passes an order, the order of the original court ceases to exist and is merged in the order of the appeal court; and although the appeal court may merely confirm the order of the trial court, the order that stands and is operative is not the order of the trial court but the order of the appeal court.
In that view of the matter, since the Income tax Officer 's order (1) 718 granting registration to the respondent was assumed to have merged in the appellate order, the revisional power of the Commissioner could not be exercised in respect of it.
The same view has been taken in the majority decision of the Patna High Court in Durgabati and Narmadabala Gupta vs Commissioner of Income tax (1).
In respect of the Income tax Officer 's order renewing registration to the respondent for the year 1949 50, the High Court took the view that the revisional power of the Commissioner could not be exercised even in respect of this order because the propriety or the correctness of this order was open to consideration by the Appellate Assistant Commissioner in the respondent 's appeal then pending before him, Commissioner of Income tax vs Amritlal Bhogilal (subnom) (2).
In respect of this order the High Court had framed an additional question.
It was in these terms: " Whether the order of the Commissioner acting under section 33B(1) setting aside the order of the Income tax Officer where an appeal against that order was pending before the Appellate Assistant Commissioner was valid? " The High Court answered this additional question also in favour of the assessee.
In the result the High Court held that the Commissioner 's order cancelling the respondent 's registration for all the three years in question was invalid.
That is why the High Court did not think it necesssary to answer the remaining two questions framed by the tribunal.
The application subsequently made by the appellant to the High Court for a certificate under section 66A (2) was rejected by the High Court.
Thereupon the appellant applied for and obtained special leave from this Court on March 22, 1954.
The appellant 's contention is that the view taken by the High Court that the Commissioner of Income tax could not have exercised his revisional power in respect of the Income tax Officer 's order granting registration to the respondent with regard to all the three years in question is based on a misconstruction of the relevant provisions of s.33B of the Act.
Section 33B (1) which confers revisional power on (1) (2) 719 the Commissioner provides that the Commissioner may call for and examine the record of any proceeding under the Act and if he considers that any order passed therein by the Income tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and, after making and causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify including an order enhancing or modifying the assessment or cancelling the assessment or directing a fresh assessment.
Sub section (2) provides that orders of re assessment made under section 34 cannot be revised under section 33B (1) and adds that the said revisional power cannot be exercised after the lapse of two years from the date of the order sought to be revised.
Sub section (3) gives the assessee the right to prefer an appeal to the appellate tribunal against the Com missioner 's revisional order within the prescribed period; and sub section
(4) provides for the procedure for filing such an appeal.
In the present appeal two short questions fall to be decided under section 33B (1).
Does the order passed by the Income tax Officer granting registration to the assessee firm continue to be an order passed by the Income tax Officer even after the assessee 's appeal against the assessment made by the Income tax Officer on the basis that the assessee was a registered firm has been disposed of by the Appellate Assistant Commissioner ? In other words, where the appeal preferred by an assessee against his assessment has been considered and decided by the Appellate Assistant Commissioner, does the order of registration along with the subsequent order of assessment merge in the appellate order ? If, in law, the order of registration can be said to merge in the final appellate order, then clearly the Commissioner 's revisional power cannot be exercised in respect of it.
This question arises in respect of the registration order in regard to the two assessment years 1947 48 and 1948 49.
The other question which also falls to be decided is whether the order of registration in respect of the assessment year 720 1949 50 can be made the subject matter of the exercise of the Commissioner 's revisional power even though the assessee 's appeal against the assessment for the said year is pending before the Appellate Assistant Commissioner at the material time.
There can be no doubt that, if an appeal is provided against an order passed by a tribunal, the decision of the appellate authority is the operative decision in law.
If the appellate authority modifies or reverses the decision of the tribunal, it is obvious that it is the appellate decision that is effective and can be enforced.
In law the position would be just the same even if the appellate decision merely confirms the decision of the tribunal.
As a result of the confirmation or affirmance of the decision of the tribunal by the appellate authority the original decision merges in the appellate decision and it is the appellate decision alone which subsists and is operative and capable of enforcement; but the question is whether this principle can apply to the Income tax Officer 's order granting registration to the respondent.
In dealing with this question it would be necessary first to refer to the relevant provisions of the Act in regard to the granting of registration.
Section 26A of the Act lays down the procedure for the registration of firms.
An application has to be made by the firm in that behalf specifying the particulars prescribed by the said section and by the material rules framed under the Act.
If registration is granted by the Income tax Officer it enables the Income tax Officer to adopt the procedure prescribed by section 23 (5) (a) for making assessment orders in respect of the registered firm.
If a firm is not registered the Income tax Officer is required to follow the procedure prescribed by section 23 (5) (b) in making assessment orders in respect of unregistered firms.
A firm is an assessee under section 2 (2) whether it is registered under section 26A or not.
The Act does not impose an obligation on firms to apply for and obtain registration.
The Act in terms does not purport to define the effect of registration nor does it enumerate the rights of parties on registration of firms.
Section 23 (5) (a) and (b) provide for, the machinery for 721 collecting or recovering the tax and in no sense can they be treated as charging sections.
Broadly stated, even if a firm is registered in pursuance of an application made under section 26A, no difference arises in the liability of the firm or its individual partners to be taxed for the total income as may be determined by the Income tax Officer under sections 3 and 4 of the Act.
The computation of taxable income is not at all affected by the machinery provided by section 23 (5).
The decision in Shapurji Pallonji vs Commissioner of Income Tax, Bombay (1) on which Mr. Ayyangar himself relied clearly brings out and emphasizes this position.
It is true that the Income tax Officer is empowered to follow the two methods specified in section 23 (5) (a) and (b) in determining the tax payable by registered and unregistered firms respectively and making the demand for the tax so found due; but this does not affect the computation of taxable income.
It is important to bear in mind that the order granting registration to an assessee firm is an independent and separate order and it merely affects or governs the procedure to be adopted in collecting or recovering the tax found due.
It is not disputed that the registration granted by the Income tax Officer to an assessee firm can be cancelled by him either under section 23 (4) or under r. 6B.
It is also clear that the Income tax Officer 's order granting registration can be cancelled by the Commissioner under section 33B (1).
The argument for the respondent, however, is that, as a result of the decision of the appeal preferred by him against the Income tax Officer 's order of assessment, the order of registration passed by the Income tax Officer in favour of the respondent has ceased to be the order passed by the Income tax Officer as such.
It is therefore necessary to inquire whether the order of registration passed by the Income tax Officer can be challenged by the department before the Appellate Assistant Commissioner where the assessee firm has preferred an appeal against the order of assessment.
The decision of this question would obviously depend upon the relevant provisions of the (1)[1945] 13 722 Act in respect of appeals to the Appellate Assistant Commissioner and the powers of the Appellate Assistant Commissioner.
Section 30 (1) gives the assessee the right to prefer appeals against the orders specified in the said section.
The assessee firm can, for instance, object to the amount of income assessed under section 23 or section 27.
The assessee firm can also object to the order passed by the Income tax Officer refusing to register it under section 23 (4) or section 26A.
It can likewise object to the cancellation by the Income tax Officer of its registration under section 23 (4).
It is significant that, whereas an appeal is provided against orders passed by the Income tax Officer under section 23 (4) or section 26A either refusing to register the firm or cancelling registration of the firm, no appeal can be filed by the department against the order granting registration.
Indeed it is patent that the scheme of the Act in respect of appeals to the Appellate Assistant Commissioner is that it is only the assessee who is given a right to make an appeal and not the department.
Thus there can be no doubt that the Income tax Officer 's order granting registration to a firm cannot become the subjectmatter of an appeal before the Appellate Assistant Commissioner.
The next question which must be considered is whether the Income tax Officer 's order granting registration to a firm can be challenged by the department during the hearing of the firm 's appeal against the final order of assessment made by the Income tax Officer ? The powers of the Appellate Assistant Commissioner are to be found in section 31 of the Act.
Section 31 (3) (a) authorises the Appellate Assistant Commissioner to confirm, reduce, enhance or annul the assessment under appeal.
Under section 31 (3) (b), wide powers are given to the appellate authority to set aside the assessment or direct the Income tax Officer to make fresh assessment after making such further enquiry as the Income tax Officer may think fit or as the Appellate Assistant Commissioner may direct.
The Appellate Assistant Commissioner is also given the authority, in the case of an order cancelling the registration of the firm under sub section
(4) of section 23 or 723 refusing to register a firm under sub section
(4) of section 23 or section 26A or to make a fresh assessment under section 27, to confirm such order or cancel it and direct the Incometax Officer to register the firm or to make a fresh assessment as the case may be.
This section further lays down that, at the hearing, of an appeal against the order of an Income tax Officer, the Income tax Officer shall have the right to be heard either in person or by his representative.
It is thus clear that wide powers have been conferred on the Appellate Assistant Commissioner under section 31.
It is also clear that, before the appellate authority exercises his powers, he is bound to hear the Income tax Officer or his represent.
ative.
It has been urged before us by Mr. Ayyangar that these provisions indicate that, in exercise of his wide powers the Appellate Assistant Commissioner can, in a proper case, after hearing the Income tax Officer or his representative, set aside the order of registration passed by the Income tax Officer.
We are not prepared to accept this argument.
The powers of the Appellate Assistant Commissioner, however wide, have, we think, to be exercised in respect of the matters which are specifically made appealable under section 30(1) of the Act.
If any order has been deliberately left out from the jurisdiction of the Appellate Assistant Commissioner it would not be open to the appellate authority to entertain a plea, about the correctness, propriety or validity of such an order.
Indeed, if the respondent 's contention is accepted, it would virtually give the department a right of appeal against the order in question and there can be no doubt that the scheme of the Act is not to give the department a right of appeal to the Appellate Assistant Commissioner against any orders passed by the Income tax Officer.
The order granting registration can be cancelled by the Income tax Officer himself either under r. 6B or under section 23(4).
It may be cancelled by the Commissioner in exercise of his revisional power under section 33 B; but it cannot be cancelled by the Appellate Assistant Commissioner in exercise of his appellate jurisdiction under section 31 of the Act.
It is true that, 92 724 in dealing with the assessee 's appeal against the order of assessment, the Appellate Assistant Commissioner may modify the assessment, reverse it or send it back for further enquiry ; but any order that the Appellate Assistant Commissioner may make in respect of any of the matters brought before him in appeal will not and cannot affect the order of registration made by the Income tax Officer.
If that be the true position, the order of registration passed by the Income tax Officer stands outside the jurisdiction of the Appellate Assistant Commissioner and does not strictly form part of the proceedings before the appellate authority.
Even after the appeal is decided and in consequence the appellate order is the only order which is valid and enforceable in law, what merges in the appellate order is the Income tax Officer 's order under appeal and not his order of registration which was not and could never become the subject matter of an appeal before the appellate authority.
The theory that the order of the tribunal merges in the order of the appellate authority cannot therefore apply to the order of registration passed by the Income tax Officer in the present case.
In this connection we may refer to the argument which Mr. Ayyangar seriously pressed before us.
He contended that, when the Appellate Assistant Commissioner hears the assessee 's appeal, he is himself computing the total taxable income of the assessee and, in discharging his obligation in that behalf, he may be entitled to consider all relevant and incidental questions.
In support of this argument Mr. Ayyangar referred us to the decision in Rex vs The Special Commissioner of Income Tax (ex parte Elmhirst) (1).
The point which arose before the King 's Bench Division in this case was whether, when a notice of appeal has been given, it was open to the assessee to withdraw his appeal and the Court held that once notice of appeal is given the appellate authority was entitled and indeed bound to see that a true assessment of the amount of the taxpayer 's liability was arrived at.
We are unable to see how this decision can really help the (1) 725 respondent in the present case.
When an appeal is taken before the Appellate Assistant Commissioner undoubtedly he is bound to examine the case afresh but that cannot bring within the purview of his appellate jurisdiction matters which are deliberately left out by the Act.
If section 30(1) does not provide for an appeal against a particular order, legislature obviously intends that the correctness of the said order cannot be impeached before the appellate authority.
The jurisdiction and powers of the appellate authority must inevitably be determined by the specific and relevant provisions of the Act.
In this connection it may be useful to compare the relevant and material features of the revisional powers conferred on the Commissioner by sections 33A and 33B respectively.
The Commissioner 's revisional power under section 33A cannot be exercised to the prejudice of the assessee in any case.
It can be exercised in respect of orders passed by any authority subordinate to the Commissioner; but in no case can the revisional order prejudicially affect the assessee.
It is significant that the explanation to section 33A expressly provides that the Appellate Assistant Commissioner shall be deemed to be an authority subordinate to the Commissioner.
In other words, in exercise of this revisional power the Commissioner may modify or reverse in favour of the assessee even the orders passed by the Appellate Assistant Commissioner.
The position Under section 33B, however, is different.
The Commissioner 's revisional power under section 33B can be exercised only in respect of orders passed by the Income tax Officer.
The appellate orders are outside the purview of section 33B.
That is one important distinction between the two revisional powers.
The other important distinction is that, whereas under section 33A the revisional jurisdiction cannot be exercised to the prejudice of the assessee, under section 33B the Commissioner can, in exercise of his revisional power, make orders to the prejudice of the assessee.
It is not disputed that under section 33B erroneous orders passed by the Income tax Officer which are prejudicial to the revenue can be revised by the Commissioner.
Now, 726 the Income tax Officer 's order registering the firm is not appealable and so it cannot become the subjectmatter of an appeal before the Appellate Assistant Commissioner.
Such an order can therefore be revised by the Commissioner under section 33B whenever he considers that it has been erroneously passed.
In the present case there is no doubt that the, respondent firm cannot be validly registered in view of the fact that one of its partners is a minor and so, on the merits, the Commissioner 's order is clearly right.
We must accordingly hold that the High Court was in error in taking the view that the Commissioner had no authority to set aside the registration order passed by the Income tax Officer granting registration to the respondent for the years 1947 48 and 1948 49.
The case in regard to the subsequent year 1949 50 presents no difficulty.
The appeal preferred by the respondent against the Income tax Officer 's assessment order in respect of this year was pending at the material time before the Appellate Assistant Commissioner; and so no question of merger arose in respect of the order granting renewal of registration for this period.
There can be no doubt that even on the theory of merger the pendency of an appeal may put the order under appeal in jeopardy but until the appeal is finally disposed of the said order subsists and is effective in law.
It cannot be urged that the mere pendency of an appeal has the effect of suspending the operation of the order under appeal.
The High Court, however, appears to have taken the view that the revisional power is an extraordinary power and can be exercised only for unusual and extraordinary reasons.
It was also assumed by the High Court that, in the pending appeal, the department would have an alternative remedy because, according to the High Court, the department could have challenged the validity or the propriety of the respondent 's registration and could have asked the Appellate Assistant Commissioner to cancel it.
As we have already pointed out, the department could not challenge the validity of the registration order in the assessee 's appeal before the appellate authority and so the argument that the. 727 department had an alternative remedy is not correct.
It is clear from the judgment of the High Court that it is the assumption that the department had an alternative remedy which weighed with the learned judges in reaching their final conclusion.
Then the argument that the extraordinary revisional power must be exercised only for extraordinary reasons is really not very material.
Whether or not the revisional power can be exercised in a given case must be determined solely by reference to the terms of section 33B itself.
Courts would not be justified in imposing additional limitations on the exercise of the said power on hypothetical considerations of policy or the extraordinary nature of the power.
We must, therefore, hold that the High Court was also in error in holding that the Commissioner was not authorised in cancelling the order of the respondent 's registration for the year 1949 50.
The result is that the view taken by the High Court must be reversed and the first question framed by the tribunal as well as the additional question framed by the High Court must be answered in favour of the appellant.
Then there remain two other questions which were framed by the tribunal but have not been considered by the High Court.
The learned counsel appearing for both the parties agree that we need not remit these two questions to the High Court with the direction that the High Court should deal with them in accordance with law; it has been conceded before us that, if the principal question about the Commissioner 's power under section 33B(1) to cancel the respondent 's registration is answered in favour of the appellant, then the two remaining questions would become academic and answers to them would also have to be in favour of the appellant.
It is true, by his order the Commissioner purported to set aside the assessment orders made under section 23(3) and section 55 and directed the Incometax Officer to make fresh assessments according to law for each of the years in question.
If this part of the order is literally construed it would clearly be open to the objection raised by the respondent.
The assessment orders passed by the Income tax Officer for the years 1947 48 and 1948 49 had been modified by the 728 Appellate Assistant Commissioner and in that sense they had ceased to be the orders of assessment passed by the Income tax Officer himself and so the Commissioner could not have exercised his revisional power under section 33B(1) in respect of the said appellate orders but we are inclined to think that the Commissioner did not intend to set aside the assessments in this sense.
It is clear from the order read as a whole that, having cancelled the respondents registration, the Commissioner wanted to direct the Income tax Officer to make suitable consequential amendment in regard to the machinery or procedure to be adopted to recover the tax payable by the respondent.
In fact it is conceded that, in his subsequent order, the Income tax Officer has accepted the figure of the taxable income of the respondent as determined by the appellate authority for the relevant years and has proceeded to act under section 23(5)(b) on the basis that the respondent is an unregistered firm.
Therefore we cannot hold that the order passed by the Commissioner is bad in law on the ground that " he directed the Income tax Officer to pass the order in a particular manner ".
The answer to question No. 2 would accordingly be in the.
negative.
Then as regards question No. 3, it is difficult to understand how this question can be said to arise from the proceedings before the tribunal.
This question challenges the validity of the procedure adopted by the Income tax Officer in passing fresh orders against the respondent.
This proceeding is clearly subsequent to the impugned order of the Commissioner under section 33B(1) and so we are unable to see how the tribunal allowed the respondent to raise this contention in appeals which had been filed by the respondent against the Commissioner 's order under section 33B(1).
Besides, it has been fairly conceded by Mr. Ayyangar before us that, when the Income tax Officer merely proceeded to adopt a different machinery to recover the tax due from the respondent in consequence of the cancellation of the respondent 's registration, there was no occasion or need to issue another notice against the respondent.
We must accordingly answer question No. 3 also in the negative.
729 In the result all the questions framed in this case are answered in favour of the appellant.
The order passed by the High Court is set aside and the appeal is allowed with costs throughout.
Appeal allowed.
| IN-Abs | The respondent firm was assessed to income tax for the assessment years 1947 48, 1948 49 and 1949 50 under section 23(3).
The Income tax Officer renewed the registration of the firm under section 26A of the Income tax Act and passed an order under section 23(6) allocating the shares of the various partners.
The respondent preferred appeals against the orders of assessment to the Appellate Assistant Commissioner.
Oil November 4, 1950, the Appellate Assistant Commissioner partly accepted the appeals in respect of the assessment years 1947 48 and 1948 49 but the appeal in respect of the assessment year 1949 50 was still pending.
Meanwhile after issuing notice to the parties and hearing them the Commissioner, acting under section 33B(1), passed an order on June 5, 1952, cancelling the registration granted under section 26A on the ground that one of the partners of the firm was a minor, and directed the Income tax Officer to make fresh assessments for the three years.
The respondent preferred appeals to the Appellate Tribunal which were allowed.
On the application of the appellant the Tribunal referred, under section 66(1) of the Act, three questions to the High Court of Bombay.
In regard to the assessment years 1947 48 and 1948 49 the High Court held that the orders of the Income tax Officer granting registration had merged in the appellate orders of the Assistant Appellate Commissioner and the revisional power of the Commissioner under section 33B(1) could not be exercised in respect of them.
With regard to the renewal of registration for the year 1949 50 the High Court held that the Commissioner could not exercise his revisional power as the propriety of this order was open to consideration by the Appellate Assistant Commissioner in the respondent 's appeal pending before him.
The appellant obtained special leave and appealed: Held, that the Commissioner had the authority under section 33B(1) to set aside the orders of registration made by the Income tax Officer.
An order of the Income tax Officer granting registration was not appealable before the Appellate Assistant Commissioner.
Such an order could be cancelled by the Commissioner in exercise of his revisional powers under section 33B(1) ; but it could not be cancelled by the Appellate Assistant Commissioner even in the exercise of his appellate jurisdiction when dealing with an appeal by an assessee.
The theory that the order of a tribunal merges in the order of the appellate authority did not apply to the order of registration passed by the Incometax Officer.
Commissioner of Income tax, Bombay North vs Tejaji Farasram Kharawala, , referred to.
Durgabati and Narmadabala Gupta vs Commissioner of Income tax, , disapproved.
But the Commissioner has no power while exercising his revisional jurisdiction under section 33B(1) of the Act to set aside the assessment orders.
The Commissioner, in the present case, did 715 not really intend to set aside the assessment orders but merely to direct the Income tax Officer to make suitable consequential amendments in regard to the machinery or procedure.
to be adopted to recover the tax payable by the respondent.
The registration or non registration of a firm does not at all affect the computation of taxable income; it merely governs the procedure to be adopted in recovering the tax found due.
Shapurji Pallonji vs Commissioner of Income tax, Bombay, , referred to.
|
Civil Appeal No. 43(NT) of 1975.
306 From the Judgment and Order dated 23.1.1974 of the Gujarat High Court in Income Tax Reference No. 78 of 1970.
T.A. Ramachandran, Mrs. J. Ramachandran and S.C. Patel for the Appellant.
C.M. Lodha, M.N. Tandon and Ms. A.S. Subhashini, for the Respondent.
The Judgment of the Court was delivered by VENKATACHALIAH, J.
This appeal by the assessee, The Alembic Chemicals Works Co. Ltd., arises out of and are directed against the judgment dated 23.1.1974, of the High Court of Gujarat in Income Tax Reference 78 of 1970, answer ing in favour of the Revenue a question of law referred to it under Section 256(1) of the Income Tax Act, 1961, (Act) by the Income Tax Appellate Tribunal.
On 8.6.1961, the assessee, a company engaged in the manufacture of antibiotics and pharmaceuticals was granted licence for the manufacture, on its plant, of the well known antibiotic, penicillin.
In the initial years of its venture the assessee was able to achieve only moderate yields from the pencillin producing strains used by it which yielded only about 5000 units of penicillin per millilitre of the culturemedium.
In the year 1963, with a view to increasing the yield of penicillin, the assessee negotiated with M/s. Meiji Seika Kaishna Limited ("Meiji" for short), a reputed enterprise engaged in the manufacture of antibiotics in Japan, which agreed to supply to the assessee the requisite technical know how so as to achieve substantially higher levels of performance of production of more than 10,000 units of penicillin per millilitre of 'cultured broth ' with the aid of better technology and process of fermentation and with better yielding penicillin strains developed by Meiji.
The negotiations culminated in an agreement dated 9.10.1963, whereunder Meiji, in consideration of the 'once for all ' payment of 50,000 U.S. dollars (then equivalent to Rs.2,39,625) agreed to supply to the assessee the "sub cultures of the Meiji 's most suitable penicillin producing strains", the technical information, know now and written description of Meiji 's process for fermentation of penicil lin alongwith a flow sheet of the process on a pilot plant; the design and specifications of the main equipments in such pilot plant; arrange for the visits to and training at assessee 's expense, 307 of technical representatives of the assessee to Meiji 's plant at Japan and to advise the assessee in the large scale manufacture of penicillin for a period limited to 2 years from the effective date of the agreement.
It was also stipu lated that the technical know how supplied by Meiji was to be kept confidential and secret by the assessee which was prohibited from parting with the technical know how in favour of others or to seek any patent for the process.
In the proceedings for assessment to Income tax for the assessment year 1964 65 the assessee claimed that Rs.2,39,625 paid under the agreement to 'Meiji ' was one laid out wholly and exclusively for the purpose of the business and claimed its deduction as a revenue expenditure.
The Income tax Officer, on the view that the expenditure was for the acquisition of an asset or advantage of an enduring benefit, held it to be a capital outlay and declined the deduction.
This view was affirmed by the Appellate Asst.
Commissioner in the assessee 's first appeal.
The Income tax Appellate Tribunal, Ahmedabad Bench, dismissed the further appeal of the assessee holding that the arrangements with Meiji envisaged the setting up of a large commercial plant for the production of the antibiotic modelled on the lines of the pilot plant and that, there fore, the out lay could not be treated as an expenditure laid out on and for purposes of the existing business, but must be regarded as one incurred for a new venture on a new process with a new technology on a new type of plant.
The Tribunal held that the payment was 'once for all payment ' and was made for the acquisition of a capital asset.
The Tribunal inter alia held: "The sub cultures and the information design and flow sheet etc., were to be fur nished once for all.
Meiji also agreed to advise the assessee in respect of any diffi culty the assessee may encounter in applying the subcultures and informations obtained by the assessee from Meiji to the large scale manufacture of penicillin.
It is apparent from the agreement and the correspondence which has been made available to us that Meiji agreed to give the designs etc., not only for a pilot plant but for the manufacture of penicillin according to Meiji 's process on commercial scale.
The assessee has to put in a larger plant modelled on the pilotplant." " . .
It is in consideration for Meiji 's agreeing to 308 supply the assessee with complete details of the technical know how, the design, subcul tures, flow sheet and written descriptions of the process once for all that the assessee paid to Meiji the stipulated sum of $ 50,000." " . .
It would thus appear that the payment was made for acquiring a capital asset in the shape of technical know how and other allied information.
It was not made in the course of carrying out of an existing business of the assessee but was for the purpose of setting up a new plant and a new process.
It would, therefore, appear that the revenue authorities have rightly treated the payment as of capital nature." " . .
The process which the assessee took over from Meiji was not the same as it was working heretofore.
In the present case the outlay was incurred for a complete replacement of the equipment of the business inasmuch us a new process with a new type of plant was to be put up in place of old process and old plant . . . ." (Underlining Supplied) 4.
At the instance of the assessee the Tribunal stated a case and referred the fol lowing question of law for the opinion of the High Court: "Whether the sum of Rs.2,39,625 was a revenue expenditure admissible to the asses see for the purpose of computation of its total income?" The High Court by the judgment under appeal answered the question in the negative and against the assessee.
This part of the judgment is assailed by the assessee in CA 43 of 1975.
The reasoning of the High Court in support of its conclusion was on the following lines: " .
It is true that the expenditure was manifestly laid out for the purpose of obtain ing benefits and advantages such as sub cul tures of penicillin producing strains, design of a pilot and exchange of technical personnel with a view to acquiring know how.
But the finding of the Tribunal, as we 309 read it, is that all the benefits which asses see received under the agreement were as a part of the transaction which was undertaken with the ultimate view of a setting up a new plant and a new process.
In view of the find ings recorded by the Tribunal, no conclusion other than that the expenditure was incurred once and for all with a view to bringing into existence an asset or advantage for the endur ing benefit of the manufacturing trade of the assessee is possible.
The expenditure was incurred for introducing a new process of manufacturing and with a view to installing a new plant, even if not immediately then at a later stage, and on that conclusion the only possible answer to the first question referred to us can be in the negative and against the assessee." (Emphasis Supplied) Before the High Court, the assessee also moved an application under Section 256(2) of the Act ITA No. 24 of 1971 for a direction to the Tribunal to refer another question of law, also stated to arise out of the order of the Tribunal.
The question of law respecting which the supplementary reference was sought was this: "Whether there was any evidence or material before the Tribunal to hold that (1) a completely new plant with a completely new process and new technical know how was ob tained by the assessee from Messrs Meiji under the said agreement, dated 9.10.1963; and (2) to work out that process separate plant or machinery had to be designed, constructed, installed and operated? The High Court dismissed this application observing that the Tribunal had no where recorded a finding to the effect that a completely new plant was obtained by the assessee from Meiji and that the finding of the Tribunal that under the agreement the assessee had obtained a new process and a new technical know now from Meiji was not without evidence.
Against the dismissal of ITA 24 of 1971 by the High Court, the assessee has preferred Civil Appeal No. 44 of 1975.
On 24.2.1987, this Court while directing the Tribunal to draw up a supplementary statement of the case and refer for the opinion of this Court the further question of law which, according to the assessee, arose out of the Tribu nal 's order and which was the subject matter of the asses see 's appeal in C.A. 44 of 1975, however, disposed of that 310 appeal formally, leaving the question of law arising out of the supplemental reference to be considered in the present appeal i.e. CA No. 43 of 1975.
The Tribunal has since sub mitted the supplementary statement of the case and has referred that question of law also.
This is how both the questions of law, are now before us.
While in regard to the first question the correctness of the opinion rendered by the High Court requires to be examined, the second question has to be answered for the first time as the reference is called by this court directly.
We have heard Shri T.A. Ramachandran, learned Senior Counsel for the assessee and Shri Lodha, learned senior counsel for the revenue.
In computing the income chargeable under the head "Profits and Gains of Business or Profession", section 37 of the 'Act ' enables the deduction of any expenditure laid out or expended wholly and exclusively for the purpose of the business or profession, as the case may be.
The fact that an item of expenditure is wholly and exclusively laid out for purposes of the business, by itself, is not sufficient to entitle its allowance in computing the income chargeable to tax.
In addition, the expenditure should not be in the nature of a capital expenditure.
In the infinite variety of situational diversities in which the concept of what is capital expenditure and what is revenue arises it is well nigh impossible to formulate any general rule, even in generality of cases sufficiently accurate and reasonably comprehensive, to draw any clear line of demarcation.
Howev er, some broad and general tests have been suggested from time to time to ascertain on which side of the line the out lay in any particular case might reasonably be held to fall.
These tests are generally efficacious and serve as useful servants; but as masters they tend to be over exact ing.
One of the early pronouncements which serves to indicate a broad area of distinction is City of London Contract Corporation vs Styles, where Bowen, L.J. indicated that the out lay on the "acquisition of the con cern" would be capital while an outlay in "carrying on the concern" is revenue.
In Vallambrosa Rubber Co. vs Farmer, Lord Dunedin suggested as 'not a bad crite rion ' the test that if the expenditure is 'once for all ' it is capital and if it is 'going to recur every year it is revenue.
In the oft quoted case on the subject, viz, British Insulated Helsby Cables Ltd. vs Atherton, Viscount Cave L.C. said: "But when an expenditure is made, not only once and for 311 all, but with a view to bringing into exist ence an asset or an advantage for the enduring benefit of trade, I think that there is very good reason (in the absence of special circum stances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital." .8.
In Assam Bengal Cement Co. Ltd. vs Commissioner of Income tax, [1955]27 ITR 34, this Court observed: "If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure.
If on the other hand it is made not for the purpose of bring ing into existence any such asset or advantage but for running the business or working it with a view to produce the profits, it is a revenue expenditure." "The aim and object of the expendi ture would determine the character of the expenditure whether it is a capital expendi ture or a revenue expenditure." In Sitalpur Sugar Works Ltd. vs Commissioner of Income tax, [1963] 49 ITR (SC) 160; Lakshmiji Sugar Mills Co. Ltd. vs Commissioner of Income tax, and in Travancore Cochin Chemicals Ltd. vs Commissioner of Income tax, the enunciation made in Assam Bengal Cement Company 's case , which in turn, referred with approval to Lord Cave 's dictum was affirmed.
In Sun News Papers Ltd. & Associated News Papers Ltd. vs Federal Commissioner of Taxation; , Dixon J while indicating that the distinction between revenue and capital corresponds with the distinction between the "busi ness entity, structure or organisation set up or established for the earning of profit" on the one hand and "the process by which such an organization operates to obtain regular returns" on the other, however, went on to say that: "The business structure or entity or organiza tion may assume any of an almost infinite variety of shapes and it may be difficult to comprehend under one description all the forms in which it may be manifested . " 312 The learned judge further observed: " . .
There are, I think, three matters to be considered, (a) the character of the advan tage sought, and in this its lasting qualities may play a part, (b) the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play its part and (c) the means adopted to obtain it; that is, by providing a periodical reward or outlay to cover its use or enjoyment for periods commensurate with the payment or by making a final provision or payment so as to secure future use or enjoyment . . " 9.
In Regent Oil Co. Ltd. vs Strick, Lord Reid emphasised the futility of a strict application of and exclusive dependence on any single principle in the search for the true position and pointed out the difficulty arising from taking too literally the general statements made in earlier cases and seeking to apply them to a different case which their authors certainly did not have in mind.
The Learned Lord also identified as another source of difficulty the tendency in some cases to treat some one criterion as paramount and to press it to its logical conclusion without proper regard to the other factors in the case.
Lord Reid further said: "So it is not surprising that no one test or principle or rule of thumb is paramount.
The question is ultimately a question of law for the court, but is a question which must be answered in the fight of all the circumstances which it is reasonable to take into account, and the weight which must be given to a par ticular circumstance in a particular case must depend rather on common sense than on strict application of any single legal principle.
" The question in each case would necessarily be whether the tests relevant and significant in one set of circum stances are relevant and significant in the case on hand also.
Judicial metaphors, it is truly said, are narrowly to be watched, for, starting as devices to liberate thought they end often by enslaving it.
The non determinative quali ty, by itself, of any particular test is highlighted in B.P. Australia vs Commr.
of Taxation of the Commonwealth of Australia, Lord Pearce said: "The solution to the problem is not to be found by 313 any rigid test or description.
It has to be derived from many aspects of the whole set of circumstances some of which may point in one direction, some in the other.
One considera tion may point so clearly that it dominates other and vaguer indications in the contrary direction.
It is a common sense appreciation of all the guiding features which must provide the ultimate answer . " (Emphasis Supplied) The idea of 'once for all ' payment and 'enduring bene fit ' are not to be treated as something akin to statutory conditions; nor are the notions of "capital" or "revenue" a judical fetish.
What is capital expenditure and what is revenue are not eternal varities but must needs be flexible so as to respond to the changing economic realities of business.
The expression "asset or advantage of an enduring nature" was evolved to emphasise the element of a sufficient degree of durability appropriate to the context.
The words of Rich J. in Herring vs Federal Commissioner of Taxation, 1946.72 CLR 543, dealing with an analogous provision in sec.
51 of Income tax Assessment Act of Australia may be re called. " . .
Lord Cave L.C., in using the phrase 'enduring benefit ' in British Insulated and Helsby Cables Ltd. vs Atherton, 1926 A.C. 205,213 (HL), was not thinking of advantages that are permanent.
There is a difference between the lasting and the everlasting.
The time over which the thing 'endures ' is a matter of degree and one element only to be considered.
Horses in the old days and motor trucks in these days are plant and their acquisition for the purpose of transport in business usually involves a capital expendi ture.
But the horses were not immortal any more than the trucks have proved to be . . " 10.
Shri Ramachandran submitted that the approach to the question by the Tribunal was influenced by an erroneous assumption that Meiji 's agreement envisaged the imperative of a totally new plant, for the exploitation of Meiji 's improved fermentation technology.
Learned counsel invited our attention to the following passage in the order of the Tribunal where this postulate is found: "On the other hand, a completely new plant with a completely new process and a completely new technical know how was obtained by the assessee from Meiji and it 314 was in consideration of obtaining this techni cal know how that the assessee made the pay ment of $ 50,000." Shri Ramachandran submitted that the Tribunal had failed to take into account that even before the agreement, the assessee had set up a plant for the production of penicillin at an out lay of more Rs.66 lakhs and that the purpose of the agreement with Meiji was only to increase the yield; of penicillin and that no new venture envisaging the setting up of a new plant was ever intended by the assessee.
The pro duction of penicillin which was the established line of business of the assessee, says learned counsel, was to be improved upon with the use of an improved process of fermen tation with new penicillin producing strains isolated and developed by Meiji so as to increase the unit yield of penicillin per milli litre of the culture medium.
The supply of the technical know how and the flow sheet of the process and the written description of the specifications of the pilot plant from Meiji were incidental to and for the effec tive exploitation of the high penicillin yielding strains of the culture to be supplied by Meiji.
Learned counsel submit ted that the whole range of the operations envisaged by the agreement, pertained to the area of the "profit earning process" and not the "profit earning machinery or apparatus".
The cost relationship between what was involved in the improvisation of the process and the investment on the plant did, says counsel, indicate that the extant "profit earning machinery" was not sought to be supplanted.
Learned counsel also urged that there was no material for the Tribunal to hold that the use of new process and tech nology from Meiji amounted to a new venture not already in the line of the assessee 's existing business or that it required the erection of a new plant discarding and sup planting the huge investment already existing.
Learned counsel submitted that it was no body 's case that with the introduction of the Meiji process of fermentation with improved penicillin strains the existing plant and machinery of over Rs.66 lakhs had become obsolete and irrelevant or that the assessee had had to set up an altogether new plant to work out the improvised Meiji process of fermentation.
Learned counsel for the Revenue, however, sought to maintain that all the criteria relevant to the question indicated that the assessee had acquired a new technical know how for a new process which required the setting up of a new plant.
There was, according to Shri Lodha, a new venture based on a new technology and know how of unlimited duration which required a new plant for its commercial exploitation.
There were, according to Shri Lodha, both the acquisition of 315 an enduring asset, and the commencement of a new venture.
On a consideration of the matter we are persuaded to hold that there was no material for the Tribunal to record the finding that the assessee had obtained under the agree ment a 'completely new plant ' with a completely new process and a completely new technical know how from Meiji.
Indeed, the High Court recognised the fallacy in this assumption of the Tribunal that a completely new plant was obtained by the assessee, though, however, the High Court attributed the inaccuracy to what it considered to be some inadvertence or misapprehension on the part of the Tribunal in that regard.
But the High Court was inclined to the view that a complete ly new process and technical know how was obtained from Meiji under the agreement.
Certain assumptions fundamental to, and underlying, the approach of the High Court are that the agreement dated 9.10.1963 envisaged a new process and a new technology so alien to the extant infrastructure, equip ment, plant and machinery in the assessee 's enterprise as to amount to an entirely a new venture unconnected with and different from the line of assessee 's extant business.
It is in that sense that the expense was held not incurred for the purposes of the day to day business of the assessee but for acquiring a new capital asset.
The business of the assessee from the commencement of its plant in 1961, it is undisputed, was the manufacture of penicillin.
Even after the agreement the product manufac tured continued to be penicillin.
The agreement with Meiji stipulated the supply of the "most suitable sub cultures" evolved by Meiji for purposes of augmentation of the unit yield of penicillin milli litres of the culture medium.
Scientific literature on the bio synthesis of penicillin indicates that penicillin is derived from a fermentation process.
Some penicillins are obtained from direct fermenta tion and some others by a combination of fermentation and subsequent chemical manipulation of the fermentation product.
The manufacturing process, it is stated, consists of four processes: Fermentation, isolation, chemical modifi cation and finishing.
Referring to the common basis of commercial production of penicillin in the New Encyclopaedia Britannica, (Micropaedia, Vol.
VII) it is mentioned: "penicillin, antibiotic, the discovery of which in 1928 by Sir Alexander Fleming marked the beginning of the antibioticera.
Fleming observed that colonies of Staphylococ cus aureus (the pus producing bacterium) failed to grow in those areas of a culture that had been accidentally contaminated 316 by the green mold Penicillium notatum.
After isolating the mold, he found that it produced a substance capable of killing many of the common bacteria that infect human beings.
This antibacterial substance, to which Fleming gave the name penicillin, was liberated into the fluid in which the mold was grown.
This proc ess is the basis of all commercial production of penicillin . . " (p. 850) (Emphasis Supplied) In Encyclopedia of Chemical technology (Kirk Othmer) III Edn.
2 it is found mentioned: " .
The specific characteristics of the industrial microbial strains, media, and fermentation conditions cannot be described in detail since these facts are considered trade secrets.
The origin of strains, and general principles of culture maintenance, fermenta tion equipment, innoculum preparation, media, and fermentation conditions for penicillin and cephalosporin production, are public knowledge and are reviewed here.
. . . . . Fleming 's original strain of P. notatum provided only low yields of penicillin . . .
Superior penicil lin producing strain of P. chrysogenum have since been obtained by random screening of variant strains following mutation induction.
All of the present day high yielding industri al strains are descendants of the NRRL 1951 strain. . " "Once a high yielding strain has been isolat ed, it is essential that the organism be maintained so that it remains viable and capable of producing the antibiotic at its original rate (54) . . .
Under suit able conditions highyielding strains can be preserved for many years without loss of viability or antibiotic producing ability . . " (p. 899 90) We are inclined to agree with Shri Ramachandran that there was no material for the Tribunal to hold that the area of improvisation was not a part of the existing business or that the entire gamut of the 317 existing manufacturing operations for the commercial produc tion of penicillin in the assessee 's existing plant had become obsolete or inappropriate in relation to the exploi tation of the new sub cultures of the high yielding strains of penicillin supplied by Meiji and that the mere introduc tion of the new bio synthetic source required the erection and commissioning of a totally new and different type of plant and machinery.
Shri Ramachandran is again fight in the submission that the mere improvement in or updating of the fermentation process would not necessarily be inconsistent with the relevance and continuing utility of the existing infra structure, machinery and plant of the assessee.
It would, in our opinion, be unrealistic to ignore the rapid advances in Researches in antibiotic medical microbiology and to attribute a degree of endurability and permanance to the technical know how at any particular stage in this fast changing area of medical science.
The state of the Art in some of these areas of high priority.
research is constantly updated so that the know how cannot be said to be the element of the requisite degree of durability and none phemerality to share the requirements.
and qualifications of an enduring capitalasset.
The rapid strides in science and technology in the field should make us a little slow and circumspect in too readily pigeon holing an outlay, such as this as capital.
The circumstance that the agreement in so far as it placed limitations on the right of the assessee in dealing with the know how and the conditions as to non partibility, confidentiality and secrecy of the know how incline towards the inference that the right pertained more to the use of the know how than to its exclusive acquisi tion.
In the present case, the principal reason that influ enced the option of the High Court was that the initiation and exploitation of the new process brought in their wake a new venture requiring an altogether new plant.
We are afraid, this view may not be justified.
Clauses 2, 4 and 6 of the agreement provide: "(2) For and in consideration of the subcultures, design, flow sheet and written description to be furnished by Meiji to ALEM BIC PURSUANT to paragraph (1) hereof, Alembic shall pay to MEIJI in advance and in lump sum, such as amount as MEIJI is able to collect Fifty thousand U.S. Dollars ($ 50,000) net in Tokyo after deducting any taxes and charges to be imposed in India upon MEIJI with respect to the said payment to MEIJI.
" 318 "4.
MEIJI will give advice, to the extent considered necessary be MEIJI, on any diffi culty ALEMBIC may encounter in applying the subcultures and informations obtained by ALEM BIC from MEIJI to the large scale manufacture.
The above provision shall be in force after MEIJI 's receipt of the amount set forth in paragraph (2) hereof until the end of two (2) years from the effective date of this agree ment . " "(6) Any of the subcultures and informations obtained by ALEMBIC from MEIJI shall be re garded as strictly confidential by ALEMBIC and its personnel and shall be used by ALEMBIC only in its Penicillin G plant in India, and shall not be disclosed to any other person, firm or agency, governmental or private.
Alembic shall take all reasonable steps to ensure that such subcultures and information will not be communicated.
ALEMBIC shall take all possible precautions against the escape from its premises of the strain obtained from MEIJI of propagated therefrom.
ALEMBIC shall not apply for any patent to any country in relation to any of the subcultures and information obtained by ALEMBIC from MEIJI." As notified earlier the Tribunal in the course of its order, held: " .
Meiji agreed to give the designs etc., not only for a pilot plant but for the manufacture of penicillin according to Meiji 's process on commercial scale.
The assessee has to put in a larger plant modelled on the pilotplant." (Emphasis Supplied) Having regard to the terms of Clause 4 of the agreement, this conclusion is non sequitur.
The improvisation in the process and technology in some areas of the enterprise was supplemental to the existing business and there was no material to hold that it amounted to a new or fresh venture.
The further circumstance that the agreement pertained to a product already in the line of assessee 's established business and not to a new product indicates that what was stipulated was an improvement in the operations of the existing business and its efficiency and profitability not removed from the area of the day to day business of the assessee 's established enterprise.
319 14.
It appears to us that the answer to the questions referred should be on the basis that the financial outlay under the agreement was for the better conduct and improve ment of the existing business and should, therefore, be held to be a revenue expenditure.
Reference may also be made to the observations of this Court in C.I.T.v.
CIBA of India Ltd.; , at 705.
There is also no single definitive criterion which, by itself, is determinative whether a particular outlay is capital or revenue.
The 'once for all ' payment test is also inconclusive.
What is relevant is the purpose of the outlay and its intended object and effect, considered in a common sense way having regard to the business realities.
In a given case, the test of 'enduring benefit ' might break down.
In Commissioner of Income tax, Bombay vs Associated Cement Co. Ltd., (JT 282 2 287 at 290) this Court said: " . .
As observed by the Supreme Court in the decision in Empire Jute Co. Ltd. vs Com missioner of Income Tax, [1980] 124 I.T.R.S.C.p. 1 that there may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down.
It is not every advantage of enduring nature acquired by an assessee that brings the case within the principles laid down in this test.
What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test . " 15.
In the result, for the foregoing reasons the appeal succeeds and is allowed and the question of law referred to the High Court for its opinion in Income Tax Reference No. 78 of 1970 is answered in the affirmative and against the revenue.
The judgment under appeal is set aside.
, Likewise, the supplementary question of law raised in ITA 24 of 1971 before the High Court and now constituting the subject matter of the supplementary reference made by the Tribunal to this Court is answered in the negative and against Revenue.
The appeal is accordingly allowed, but with no order as to costs.
G.N. Appeal al lowed.
| IN-Abs | The appellant assessee, a company engaged in the manu facture of penicillin, in order to increase its production, entered into an agreement with a Japanese firm (Meiji) for supply of sub cultures of penicillin producing strains, technical know how, training, written description of the process on a pilot plant, design and specifications of the main equipment in such pilot plant, and to advise the asses see in the largescale manufacture of penicillin for a limit ed period of two years.
As per the agreement, the assessee paid Rs.2,39,625 to Meiji and claimed the same as revenue expenditure in its Income tax assessment for the assessment year 1964 65.
Disallowing the claim the Income Tax Officer held that the expenditure was for the acquisition of an asset or advantage of an enduring benefit and thus a capital outlay.
The Appel late Assistant Commissioner confirmed the order of the Income Tax Officer.
The further appeal of the assessee was dismissed by the Income Tax Appellate Tribunal holding that the payment made to Meiji was 'once for all payment ' made for the acquisition of a capital asset.
At the instance of the assessee, the Tribunal referred to the High Court, the question as to whether the sum paid to Meiji was a revenue expenditure.
The High Court answered the question in the negative.
The present appeal is against that order of the High Court.
The assessee also moved an application before the High Court 303 seeking a direction to the Tribunal to refer another ques tion of law as to whether a new plant was obtained or in stalled by the assessee consequent upon the agreement.
Declining to interfere, the High Court observed that the Tribunal has not recorded a finding to the effect that a completely new plant was obtained by the assessee and the Tribunal 's decision that the assessee, had obtained a new process and a new technical know how from Meiji was not without evidence.
Against the above order of the High Court, the assessee preferred an appeal to this Court, which was formally dis posed of with a direction to the Tribunal to draw up a supplementary statement of the case and refer for the opin ion of this Court, the further question of law as sought for by the assessee; and such a question to be considered in the present appeal.
On behalf of the assessee, it was submitted that the Tribunal was influenced by an erroneous assumption that the agreement, envisaged the setting up of a new plant, whereas the objective of the agreement was only to increase the yield of penicillin in the existing plant itself.
The Revenue contended that there was a new venture based on a new technology and know how of unlimited duration which required a new plant for its commercial exploration.
Allowing the appeal, HELD: 1.
The financial outlay under the agreement was for the better conduct and improvement of the existing business 'and should, therefore, be held to be a revenue expenditure.
There is also no single definitive criterion which, by itself, is determinative whether a particular outlay is capital or revenue.
The 'once for all ' payment test is also inconclusive.
What is relevant is the purpose of the outlay and its intended object and effect, considered in a common sense way having regard to the business reali ties.
The rapid strides in science and technology in the field should make this Court a little slow and circumspect in too readily pigeon holing an outlay, such as this, as capital.
The circumstance that the agreement in so far as it placed limitations on the right of the assessee in dealing with the know how and the conditions as to non partibility, confidentiality and secrecy of the know how incline towards the inference that the right pertained more to the use of the know how than to its exclusive acquisition.
[319A, B C; 317D E] CIT vs CIBA of India Ltd., ; ; CIT, Bombay vs 304 Associated Cement Co. Ltd., JT 282 (2) 287, relied on.
The idea of 'once for all ' payment and 'enduring benefit ' are not to be treated as something akin to statuto ry conditions; nor are the notions of "capital" or "revenue" a judicial fetish.
What is capital expenditure and what is revenue are not eternal verities but must needs be flexible so as to respond to the changing economic realities of business.
The expression "asset or advantage of an enduring nature" was evolved to emphasise the element of a sufficient degree of durability .appropriate to the context.
[313C] Herring vs Federal Commissioner of Taxation, ; , referred to.
In computing the income chargeable under the head "Profits and Gains of Business or Profession", section 37 of the Income tax Act enables the deduction of any expenditure laid out or expended wholly and exclusively for the purpose of the business or profession, as the case may be.
The fact that an item of expenditure is wholly and exclusively laid out for purposes of the business, by itself, is not suffi cient to entitle its allowance in computing the income chargeable to tax.
In addition, the expenditure should not be in the nature of a capital expenditure.
In the infinite variety of situational diversities in which the concept of what is capital expenditure and what is revenue arises it is well nigh impossible to formulate any general rule, even in generality of cases sufficiently accurate and reasonably comprehensive, to draw any clear line of demarcation.
Howev er, some broad and general tests have been suggested from time to time to ascertain on which side of the line the out lay in any particular case might reasonably be held to fail.
These tests are generally efficacious and serve as useful servants; but as masters they tend to be over exact ing.
The question in each case would necessarily be whether the tests relevant and significant in one set of circum stances are relevant and significant in the case on hand also.
[310C F; 312G] City of London Contract Corporation vs Styles, ; Vallambrosa Rubber Co. vs Farmer, ; British Insulated Helsby Cables Ltd. vs Atherton, ; Assam Bengal Cement Co. Ltd. vs Commissioner of Income tax, ; Sitalpur Sugar Works Ltd. vs Commissioner of Income tax, [1963] 49 ITR (SC) 160; Laksh miji Sugar Mills Co. Ltd. vs Commissioner of Income tax, ; Travancore Cochin Chemicals Ltd. vs Commissioner of Income tax, ; Sun News Papers 305 Ltd. & Associated News Papers Ltd. vs Federal Commissioner of Taxation, ; ; Regent Oil Co. Ltd. vs Strick, and B.P. Australia vs Commr.
of Taxa tion of the Commonwealth of Australia, ; re ferred to. 4.
The improvisation in the process and technology in some areas of the enterprise was supplemental to the exist ing business and there was no material to hold that it amounted to a new or fresh venture.
The further circumstance that the agreement pertained to a product already in the line of assessee 's established business and not to a new product indicates that what was stipulated was an improve ment in the operation of the existing business and its efficiency and profitability not removed from the area of the day to day business of the assessee 's established enter prise.
[318G H] 5.
There was no material for the Tribunal to record the finding that the assessee had obtained under the agreement a 'completely new plant ' with a completely new process and a completely new technical know how from Meiji.
Indeed, the High Court recognised the fallacy in this assumption of the Tribunal that a completely new plant was obtained by the assessee, though, however, the High Court attributed the inaccuracy to what it considered to be some inadvertence or misapprehension on the part of the Tribunal in that regard.
But the High Court was inclined to the view that a complete ly new process and technical know how was obtained from Meiji under the agreement.
Certain assumptions fundamental to, and underlying, the approach of the High Court are that the agreement envisaged a new process and a new technology so alien to the extent infra structure, equipment, plant and machinery in the assessee 's enterprise as to amount to an entirely new venture unconnected with and different from the line of assessee 's extant business.
It is in that sense that the expense was held not incurred for the purposes of the day to day business of the assessee but for acquiring a new capital asset.
But mere improvement in or updating of the fermentation process would not necessarily be inconsistent with the relevance and continuing utility of the existing infra structure, machinery and plant of the assessee.
[315A D; 317B] The New Encyclopaedia Britannica, Micropaedia, Vol.
II; Encyclopedia of Chemical Technology, Kirk Othmen, 3rd Edn.
2, referred to.
|
tion (Civil) No. 1060 of 1987 etc.
(Under Article 32 of the Constitution of India) K. Parasaran, Attorney General, G. Ramaswamy, Additional Solicitor General, N.A. Palkhiwala, Kapil Sibal, A.K. Gan guli, A.K. Sen. Shanti Bhushan, Raja Ram Aggarwal, Dr. Shankar Ghosh, 324 Tapas Ray, Devi Pal, B. Sen. G.A. Shah, Ashwani Kumar, Yogeshwar Prasad, P.A. Choudhary, Dr. L.M. Singhvi, S.K. Dholakia, R.N. Sachthey, A.B. Misra, P.S. Poti, R.N. Nara simha Murty, N.N. Gooptu, Advocate Generals, R.P. Gupta, section Krishan, J.B. Dadachanji, D.N. Mishra, Mrs. A.K. Verma, Vijay Hansaria, Sunil K. Jain, A.T.M. Sampath, P.N. Ramalin gam, C. Natarajan, N. Inbrajan, M.S. Singh, K.K. Gupta, N.B. Sinha, Sanjeev B. Sinha, Yogendra B. Sinha, Ms. Madhu Kha tri, Ms. Bina Gupta, K.N. Rai, Ms. Panaki Misra, Harish Salve, Ajay K. Jain, Pramod Dayal, K.M. Vyayar, Badar Durraj Ahmed, Parijat Sinha, J.R. Das, P.R. Seetha.
raman, Ranjit Kumar, A. Sharan, J.D. Jain, C.S. Vaidyanathan, B.R. Setia, N.N. Keswani, R.N. Keswani, Pramod Dayal, Dilip Tandon, R.B. Mehrotra, M.C. Dhingra, M. Qamaruddin, Ashok Kumar Gupta, M.M. Kashyap, S.B. Upadhya, R.N. Karanjawala, Mrs. Manik Karanjawala, G.S. Vasisht, S.K. Gambhir, Amlan Ghosh, A.K. Singla, K.K. Khurana, L.K. Pandey, Mahabir Singh, E.C. Agarwala, Ms. Pumima Bhatt, Vineet Kumar, K.J. John, Ms. Naina Kapur, Ms. Hemantika Wahi, Sarva Mittar, P.K. Jain, Ms. A. Subhashini, B.V. Decra, M.N. Shroff, R. Mohan, R.A. Perumal, R.N. Patil, S.K. Agnihotri, Ashok K. Srivastava, Manoj Swarup, Pramod Swarup, T.V.S.N. Chaff, S.K. Dhingra, A.M. Khanwilkar, A.S. Bhasme, Anip Sachthey, P.N. Misra, Ajay K. Jha, K.R. Nambiar, P.R. Ramasesh, H.K. Puff, P.R. Mondal, M.P. Jha, Sushil Kumar Jain, S.R. Grover, M.P. Sharma, S.K. Nandy, D. Goburdhan, A. Subba Rao, K. Swami, U.S. Prasad, M. Veerappa, R.K. Mehta, and Naresh K. Sharma for the appearing parties.
The Judgment of the Court was delivered by VENKATARAMIAH, J.
In this batch of Writ Petitions and Civil Appeals two questions arise for consideration.
The first question relates to the constitutional validity of the Constitution (Forty sixth Amendment) Act, 1982 (hereinafter referred to as 'the 46th Amendment ') by which the Legisla tures of the States were empowered to levy sales tax on certain transactions described in sub clauses (a) to (f) of clause (29 A) of Article 366 of the Constitution and the second question is whether the power of the State Legisla ture to levy tax on the transfer of property in goods in volved in the execution of works contracts referred to in sub clause (b) of clause (29 A) of Article 366 of the Con stitution is subject to the restrictions and conditions contained in Article 286 of the Constitution.
An account of the history of the relevant constitutional and 325 statutory provisions and of judicial decisions having a beating on the said provisions has to be set out at this stage to appreciate the contentions of the parties.
Prior to the commencement of the Constitution of India the power to levy sales tax had been conferred on the Provincial Legisla tures by Entry 48 of the List II of the Seventh Schedule to the Government of India Act, 1935which read as "Taxes on the sale of goods and on advertisements".
In exercise of the said power some of the Provincial Legislatures had passed laws levying sales tax on the sale or purchase of certain commodities.
There was no specific restriction or condition on the exercise of the said power under the Government of India Act, 1935.
The Provincial Legislatures exercised the power to levy sales tax acting on the principles of the territorial nexus, that is to say, they picked out one or more of the ingredients constituting a sale and made them the basis of the levy of sales tax under the legislation.
Assam and Bengal made among other things the actual exist ence of the goods in the province at the time of the con tract of sale the test of taxability.
In Bihar the produc tion or manufacture of the goods in the Province was made an additional ground.
A net of the widest range perhaps was laid in Central Provinces and Berar where it was sufficient if the goods were actually found in the Province at any time after the contract of sale or purchase in respect thereof was made.
Whether the territorial nexus put forward as the basis of the taxing power in each case would be sustained as sufficient was a matter of doubt not having been tested in a court of law.
Such claims to taxing power led to multiple taxation of the same transaction by different Provinces and cumulation of the burden falling ultimately on the consuming public.
By the time the Constituent Assembly took up for consideration the provisions relating to the power of the State Legislatures to levy sales tax the difficulties creat ed by the sales tax laws passed by the various Provinces and their effect on inter State trade and commerce had come to be felt throughout the country.
In order to minimise the adverse effects of the sales tax laws passed by the Legisla tures of States the Constituent Assembly enacted Articles 236, 301 and 304 of the Constitution.
Introducing an amend ment to Article 264 A to the draft Constitution, which ultimately became Article 286 of the Constitution of India, Dr. Ambedkar observed on the floor of the Constituent Assem bly thus: "Sir, as everyone knows, the sales tax has created a great deal of difficulty throughout India in the matter of freedom of trade and commerce.
It has been found that the very many sales taxes which are levied by the various Provincial Governments either cut into goods which are the 326 subject matter of imports or exports, or cut into what is called inter State trade or commerce.
It is agreed that this kind of chaos ought not to be allowed and that while the provinces may be free to levy the sales tax there ought to be some regulations whereby the sales tax levied by the provinces would be confined within the legitimate limits which are intended to be covered by the sales tax.
It is, therefore, felt that there ought to be some specific provisions laying down certain limitations on the power of the provinces to levy sales tax.
The first thing that I would like to point out to the House is that there are certain provisions in this article ' 264A which are merely reproductions of the different parts of the Constitution.
For instance, in sub clause (1) of article 264A as proposed by me, sub clause (b) is merely a reproduction of the article contained in the Constitution, the entry in the Legislative List that taxation of imports and exports shall be the exclusive province of the Central Government.
Conse quently so far as sub clause (1)(b) is con cerned there cannot be any dispute that this is in any sense an invasion of the right of provinces to levy sales tax.
Similarly, sub clause (2) is merely a reproduction of Part XA which we recently passed dealing with provisions regarding inter State trade and commerce.
Therefore so far as sub clause (2) is concerned there is really nothing new in it.
It merely says that if any sales tax is imposed it shall not be in conflict with the provisions of Part XA.
With regard to sub clause (3) it has also been agreed that there are certain com modities which are so essential for the life of the community throughout India that they should not be subject to sales tax by the province in which they are to be found.
There fore it was felt that if there was any such article which was essential for the life of the community throughout India, then it is necessary that, before the province concerned levies any tax upon such a commodity, the law made by the province should have the assent of the President, so that it would be possible for the President and the Central Government to see that no hardship is created by the particular levy proposed by a particular province.
327 The proviso to sub clause (2) is also important and the attention of the House might be drawn to it.
It is quite true that some of the sales taxes which have been levied by the provinces do not quite conform to the provi sions contained in article 264 A.
They proba bly go beyond the provisions.
It is therefore felt that when the rule of law as embodied in the Constitution comes into force all laws which are inconsistent with the provisions of the Constitution shall stand abrogated.
On the date of the inauguration of the Constitution this might create a certain amount of finan cial difficulty or embarrassment to the dif ferent provinces which have got such taxes and on the proceeds of which their finances to a large extent are based.
It is therefore pro posed as an explanation to the general provi sions of the Constitution that notw ithstanding the inconsistency of any sales tax imposed by any province with the provisions of article 264A, such a law will continue in operation until the 31st day of March 1951, that is to say, we practically propose to give the provinces a few months more to make such adjustments as they can .and must in order to bring their law into conformity with the provisions of this article.
" Article 286 of the Constitution, as it was originally enacted, read as follows: "286.
Restrictions as to imposition of tax on the sale or purchase of goods (1) No law of a State shall impose, or authorise the imposi tion of, a tax on the sale or purchase of goods where such sale or purchase takes place (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India.
Explanation For the purposes of sub clause (a), a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the gener al law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State.
328 (2) Except in so far as Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposi tion of, a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter State trade or com merce.
Provided that the President may by order direct that any tax on the sale or purchase of goods which was being lawfully levied by the Government of any State immedi ately before the commencement of this Consti tution shall, notwithstanding that the imposi tion of such tax is contrary to the provisions of this clause, continue to be levied until the thirty first day of March, 1951.
(3) No law made by the Legislature of a State imposing, or authorising the impo sition of, a tax on the sale or purchase of any such goods as have been declared by Par liament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent.
" Articles 301 and 304 of the Constitution which were incorporated in Part XIII of the Constitution read thus: "301.
Freedom of trade, commerce and intercourse Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free" "304.
Restrictions on trade, commerce and intercourse among States Notwithstanding anything in article 30 1 or article 303, the Legislature of a State may by law (a) impose on goods imported from other States any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manu factured or produced; and (b) impose such reasonable restric tions on the freedom of trade, commerce or intercourse with or without that State as may be required in the public interest: 329 Provided that no Bill or amendment for the purpose of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the president.
" The Power to levy sales tax was conferred on the Legislatures of States by the Constitu tion by Entry 54 of List II of the Seventh Schedule to the Constitution of India which, as originally enacted, read thus: "54.
Taxes on the sale or purchase of goods other than newspaper.
" The power to levy tax on purchase of goods was expressely stated in Entry 54 even though it was implicit in the ex pression "taxes on the sale" which was found in Entry 40 of List II of the Seventh Schedule to the Government of India Act, 1935.
In exercise of the power conferred on it by Entry 54 of the State List the Legislature of Bombay passed an Act called the Bombay Sales Tax Act, 1952 which imposed a gener al tax on every dealer whose turnover in respect of sales within the State of Bombay during the prescribed period exceeded Rs.30,000 and a special tax on every dealer whose turnover in respect of sales of special goods made within the State of Bombay exceeded Rs.5,000 during the prescribed period.
The term 'sale ' was defined as meaning any transfer of property in goods for cash or deferred payment or other veluable consideration, and an Explanation to this defini tion provided that the sale of any goods which have actually been delivered in the State of Bombay as a direct result of such sale for the purpose of consumption in the said State shall be deemed, for the purposes of the Act, to have taken place in the said State irrespective of the fact that the property in the goods has, by reason of such sale, passed in another State.
Rules 5 and 6 of the Bombay Sales Tax Rules, 1952, which were brought into force on the same day on which sections 5 and 10 of the Bombay Sales Tax Act came into force provided for the deduction of the following sales in calculating the taxable turnover, viz., sales which took place (a) in the course of the import of the goods into, or the export of the goods out of, the territory of India, and (b) in the course of inter State trade or commerce (being the two kinds of sales referred to clauses (1)(b) and (2) respectively of Article 286 of the Constitution).
Rule 5(2)(i), however, required, as a condition of the aforesaid deductions, that the goods should be consigned by a railway, shipping or aircraft company or country boat registered for carrying cargo or public motor transport service or by registered post.
In an application made under Article 226 of the Constitution challenging the validity of the said Act 330 and praying inter alia for a writ against the State of Bombay and the Collector of Sales Tax, Bombay, restraining them from enforcing the provisions of that Act, the High Court of Bombay held that the definition of 'sale ' in that Act was so wide as to include the three categories of sale exempted by Article 286 of the constitution from the imposi tion of tax by the States and thus not valid.
On appeal to this Court the decision of the High Court of Bombay was reversed by the majority in the State of Bombay and Another vs The United Motors (India) Ltd. and Others; , Soon doubts came to be entertained about the correctness of the above decision and this Court got the opportunity to reconsider the correctness of the decision in the United Motors case (Supra) in the Bengal Immunity Company Limited vs The State of Bihar and Others, [1955]2 S.C.R. 503.
In the case of the Bengal Immunity Company Ltd. (supra) the majority held that the operative provisions of the several parts of Article 286 of the Constitution, namely, clause 1(a), clause 1(b) and clauses 2 and 3 were intended to deal with different topics and one could not have pro jected or read into another.
The bans imposed by Article 286 of the Constitution on the taxing powers of the States were independent and separate and each one of them had to be got over before a State Legislature could impose tax on transac tions of sale or purchase of goods.
The Explanation to Article 286(1)(a) determined by the legal fiction created therein the situs of the sale in the case of transactions coming within that category and once it was determined by the application of the Explanation that a transaction was outside the State, it followed as a matter of course that the State, with reference to which the transaction could thus be predicated to be outside it, could never tax the transaction.
After the judgment in the Bengal Immunity Company Ltd. 's (supra) case on the recommendations of the Taxation Enquiry Commission as regards the amendment of the constitutional provisions relating to sales tax, Parliament passed the Constitution (Sixth Amendment) Act, 1955 which received the assent of the President on 11th September, 1956.
By the said amendment the Constitution was amended in the following way.
In List I of the Seventh Schedule to the Constitution Entry 92A was added.
It reads as follows: "92A. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of Inter State trade or commerce." In List II existing Entry 54 was substi tuted by the following entry: 331 "54.
Taxes on the sale or purchase of goods other than newspapers subject to the provi sions of entry 92A of List Article 269 of the Constitution which enumerated the taxes that were to be levied and collected by the Government of India but were to be assigned to the States was amended by adding sub clause (g) ' to clause (1) and clause (3.) to it.
After such amendment Arti cle 269 read thus: "269.
(1) The following duties and taxes shall be levied and collected by the Government of India but shall be assigned to the States in the manner provided in clause (2), namely: (a) duties in respect of succession to property other than agricultural land; (b) estate duty in respect of proper ty other than agricultural land; (c) terminal taxes on goods or pas sengers carried by railway, sea or air; (d) taxes on railway fares and freights; (e) taxes other than stamp duties on transactions in stock exchanges and futures markets; (f) taxes on the sale or purchase of newspapers and on advertisements published therein; (g) taxes on the sale or purchase of goods other than newspapers, where such sale or purchases takes place in the course of inter State trade or commerce.
(2) The net proceeds in any finan cial year of any such duty or tax, except in so far as those proceeds represent proceeds attributable to States specified in Part C of the First Schedule, shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that duty or tax is leviable in that year, and shall be 332 distributed among those States in accordance with such principles of distribution as may be formulated by Parliament by law.
(3) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in the course of Inter State trade or commerce " By the above amendment Parliament was empow ered to levy tax .
on the sale or purchase of goods other than newspapers where such sale or purchase took place in the course of Inter State trade or commerce and was also empowered to formulate by law principles for determining when a sale or purchase of goods took place in the course of Inter State trade or commerce.
By the very same Sixth Amendment Article 286 of the Constitution was amended.
The Explanation to clause (1) was omitted by that Amendment.
Clauses (2) and (3) of Article 286 were substituted by two new clauses.
After such amendment Article 286 of the Constitution read thus: "286.
Restrictions as to imposition of tax on the sale or purchase of goods (1) No law of a State shall impose, or authorise the imposi tion of, a tax on the sale or purchase of goods where such sale or purchase takes place (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India.
(2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1).
(3) Any law of a State shall, in so far as it imposes, or authorises the imposi tion of, a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in Inter State trade or commerce, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Par liament may by law specify.
" 333 Pursuant to the power conferred on it Parliament enacted the which received the assent of the President on 21st December, 1956.
The said Act was passed to formulate principles for determining when a sale or purchase of goods took place in the course of Inter State trade or commerce of outside a State or in the course 'of import into or 'export from India, to provide for the levy, collection and distribution of taxes on sales of goods in the course of Inter State trade or commerce and to declare certain goods to be of special importance in Inter State trade or commerce and specify the restrictions and condi tions to which State laws imposing taxes on the sale.
or purchase of such goods of special importance shall be sub ject.
Section 6 of the explained when a sale or purchase of goods in the course of Inter State trade or commerce took place.
Section 4 of the said Act explained when a sale or purchase of goods took place out side a State and Section 6 explained when a sale or purchase of goods took place in the course of import or export for purposes of that Act.
Section 14 of the enumerated the goods which were considered to be of special importance in Inter State trade or commerce and section 15 of that Act set out restrictions and conditions in regard to tax on sale or purchase of declared goods within a State.
Section 15 of the as it is in force today reads thus: "15.
Restrictions and conditions in regard to tax on sale or purchase of declared goods within a State.
Every sales tax law of State shall, in so far as it imposes or authorises the imposition of a tax on the sale or pur chase of declared goods, be subject to the following restrictions and conditions, namely: (a) the tax payable under that law in respect of any sale or purchase of such goods inside the State shall not exceed four per cent of the sale or purchase price thereof, and such tax shall not be levied at more than one stage; (b) where a tax has been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of Inter State trade or commerce, and tax has been paid under this Act in respect of the sale of such goods in the course of Inter State trade or commerce, the tax levied under such law shall be 334 reimbursed to the person making such sale in the course of Inter State trade or commerce, in such manner and subject to such conditions as may be provided in any law in force in that State; (c) where a tax has been levied under that law in respect of the sale or purchase inside the State of any paddy referred to in sub clause (i) of clause (i) of section 14, the tax leviable on rice procured out of such paddy shall be reduced by the amount of tax levied on such paddy; (d) each of the pulses referred to in clause (vi a) of section 14, whether whole or separated, and whether with or without husk, shall be treated as a single commodity for the purposes of levy of tax under that law.
" By the time the Constitution (Sixth Amendment) Act and the came into force controversy had arisen before some of the High Courts about the liabili ty of contractors who had undertaken to carry out works contracts to pay sales tax on the transfer of property in the goods involved in works contracts.
In Gannon Dunkerley and Co. (Madras) Ltd. vs State of Madras, A.I.R. 1954 Mad.
1130 the assessees were carrying on business as engineers and contractors.
Their business con sisted mainly of execution of contracts for constructions of buildings, bridges, dams, roads and structural contracts of all kinds.
During the assessment year the return made by the assessees showed as many as 47 contracts, most of which were building contracts, which were executed by the assessees.
From the total of the amount which the assessees received in respect of sanitary contracts and other contracts 20% and 30% respectively were deducted for labour and the balance was taken as the turnover of the assessees for the assess ment year in question.
Sales tax was levied on the said balance treating it as taxable turnover under the Madras General Sales Tax Act, 1939.
The assessees questioned the levy of sales tax on the said amount treated as taxable turnover on the ground that there was no sale of goods as understood in India and, therefore, no sales tax could be levied on any portion of the amount which was received by the assessees from the persons for whose benefit they had constructed buildings.
It was urged on behalf of the asses sees that there was no element or ' sale of the materials in a building contract and 335 that such a contract was one entire and indivisible.
Unless the contract was completed, the builder was not entitled to the price fixed under the contract or ascertainable under the terms of the contract.
The property in the materials passed to the owner of the land not by virtue of the deliv ery of the materials as goods under and in pursuance of an.
agreement of sale which stipulated a price for the materi als.
The property in the materials passed to the owner of the land because they were fixed in pursuance of the con tract to build and along with the corpus, which ultimately resulted by the erection of the superstructure, the materi als also passed to the owner of the land.
It was urged that a contract to build was not a contract to sell goods used in the construction of a building.
The High Court of Madras on a consideration of the submissions made before it came to the conclusion that the transactions in question were not contracts for sale of goods as defined under the provisions of the which was in force on the date on which the Constitution came into force and therefore the assessees were not liable to pay sales tax on the amounts received by them from the persons for whom they had constructed buildings etc.
during the year of assessment.
But a petition filed by the very same assessees for similar relief in the Gannon Dunkerley & Co. Madras (Private) Ltd. vs Sales Tax Officer, Mattancheri, A.I.R. 1957 Kerala 146 was dismissed by the Kerala High Court affirming the imposi tion of sales tax on the turnover relating to construction works and upholding the rules providing for apportionment of the determination of the taxable turnover on a percentage basis.
In Mohamed Khasim vs State of Mysore, [1955] VI Sales Tax Cases 211, the Mysore High Court held that the provisions of the Mysore Sales Tax Act imposing sales tax on construction of buildings under works contract were valid and further upheld the determina tion of the taxable turnover on percentage basis.
The compe tence of the State Legislature to levy sales tax on the supply of building materials for execution of building contracts came up for consideration before the Nagput High Court in Pandit Banarsi Das vs State of.
Madhya Pradesh and Ors., [1955] VI Sales Tax Cases 93.
The assessees in the said case were Madhya Pradesh Contractors ' Association and the Jabalpur Contractors ' Association.
They instituted a petition before the Nagpur High Court through their Presi dent and Secretary questioning the power of the State Legis lature to levy sales tax on the turnover consisting of the amounts received by the building contractors from the per sons for whom they had constructed buildings by supplying the required materials.
They relied upon the decision of the High Court of Madras in Gannon Dunkerley 's case (supra).
The Nagput High Court while I declining to follow the decision of the High Court of Madras was 336 of opinion that the State Legislature could pick out a sale from the composite transaction of a building contract which included transfer of property in materials and could make the portion attributable to the cost of such materials subject to payment of sales tax in exercise of its undoubted and plenary powers.
Jubilee Engineering Co. Ltd. vs Sales Tax Officer, Hyderabad City and Ors., was a case decided by the High Court of Hyderabad.
In that case that High Court held that in a works contract where a person undertook to build a .particular building or to make a particular thing, the materials involved in the building or making of the finished product, could not be the subject matter of sale because there was no agreement to sell the materials nor was price of the goods fixed.
It was also found that in such cases there was no passing of the title in those goods as such except as part of the building or the thing in which they were embedded.
It accordingly held that the amount received by a building contractor from the person for whom he had constructed the building could not be taxed under the sales tax law of the State of Hyderabad.
A similar question arose before the High Court of Rajasthan in Bhurar nal and Ors.
vs State of Rajasthan, A.I.R. The High Court of Rajasthan held that the definition of "dealer" in the Rajasthan Sales Tax Act,, 1954 included not only those who sold goods, but also those who supplied goods, whether on commission, or for remuneration or other wise and the said definition was very wide and included persons like the building contractors who in the course of their business as building contractors supplied goods to those who gave them contracts.
Since the said supply was not gratis such building contractors should be held to be deal ers within the meaning of that expression in the Rajasthan Sales Tax Act.
Ultimately the question whether the cost of the goods supplied by a building contractor in the course of the construction of building could be subjected to payment of sales tax was finally resolved by this Court in State of Madras vs Gannon Dunkerley & Co. (Madras) Ltd., which was an appeal filed against the decision of the High Court of Madras in Gannon Dunkerley & Co. (Madras) Ltd. vs The State of Madras, (supra).
In this case this Court held that on a true interpretation the expression "sale of goods" meant an agreement between the parties for the sale of the very goods in which eventually property passed.
In a building contract where the agreement between the parties was that the contractor should construct the building according to the specifications contained in the agreement and in consideration therefor received payment as provided therein, there was neither a contract to sell the materials used in the construction nor the 337 property passed therein as movables.
This Court further held that the expression "sale of goods" was at the time when the Government of India Act, 1935 was enacted, a term of well recognised legal import in the general law relating to sale of goods and in the legislative practice relating to that topic and should be interpreted in Entry 48 in List II in Schedule VII of the Government of India Act, 1935 as having the same meaning as in the .
This Court further held that in a building contract which was one, entire and indivisible, there was no sale of goods and it was not within the competence of the Provincial Legisla ture under Entry 48 in List II in Schedule VII of the Gov ernment of India Act, 1935, to impose a tax on the supply of the materials used in such a contract treating it as a sale.
The above decision though it was rendered on the basis of the provisions in the Government of India Act, 1935 is equally applicable to the provisions found in Entry 54 of List II of Schedule VII of the Constitution.
In the above decision, the decision of the Nagpur High Court, the Rajas than High Court, the Mysore High Court and the Kerala High Court referred to above were overruled and the decision of the Hyderabad High Court and the decision of the Madras High Court against which the above appeal had been filed were affirmed.
By virtue of the above decision of this Court no sales tax could be levied on the amounts received under a works contract by a building contractor even though he had supplied goods for the construction of the buildings.
In addition to the building contracts referred to above, certain other kinds of transactions were also held to be not sales liable to payment of sales tax by this Court even though they involved transfer of property in goods.
In M/s. New India Sugar Mills Ltd. vs Commissioner of Sales Tax, Bihar, [1963] Supp.
2 S.C.R. 459 this Court took the view that in the transfer of controlled commodities in pursuance of a direction under a control order, the element of voli tion by the seller, or mutual assent, was absent and there fore there was no sale as defined in the .
However, in Oil and Natural Gas Commission vs State of Bihar and Ors.
, ; this Court had occasion to consider its earlier decisions with regard to the liabil ity of transfers of controlled commodities to be charged to sales tax.
This Court held that where there were any statu tory compulsions, the statute should be treated as supplying the consensus and furnishing the modality of the consensus.
In Vishnu Agencies (Pvt.) Ltd. etc.
vs Commercial Tax Offi cer & Ors.
; , the decision in M/s. New India Sugar Mills 's (supra) case was held to be not good law.
Even after the decision in Vishnu Agencies 's case (supra) there was a certain area of doubt about the liabili ty of transactions not 338 consensual in nature in which property in goods passed to exigibility to sales tax.
Devices by way of leases of films had also been result ing in avoidance of sales tax.
The main fight in regard to a film related to its exploitation and after exploitation for a certain period of time, in most cases, the film ceased to have any value.
There were also reports received by the State Govern ments to whom revenues from sales tax had been assigned, as to the large scale avoidance of central sales tax leviable on Inter State sales of goods through the device of consign ment of goods from one State to another.
In Northern India Caterers (India) Ltd. vs Lt. Governor of Delhi, ; this Court held that there was no sale when food and drink were supplied to guests residing in the hotel and that supply of meals was essentially in the nature of a service provided to the guests and could not be identified as a transaction of sale.
This Court declined to accept the position that the Revenue was entitled to split up the transaction into two parts, one of service and the other of sale of foodstuffs and accordingly the proprietor of a restaurant who provided many services in addition to the supply of food was not liable to pay sales tax on the value of the goods supplied by him.
The various problems which arose on account of the above decisions were referred to the Law Commission of India and its advice was sought as to the manner in which the types of transactions involved in the above decisions could be made exigible to sales tax.
The Law Commission considered these matters in its 61st Report and recommended inter alia cer tain amendments to the Constitution, if as a matter of administrative policy it was decided to levy sales tax on transactions of the nature mentioned above.
There were also complaints from the States that there was a large scale leakage of sales tax revenue by the adoption of devices such as hire purchase system.
In the year 1982 Parliament passed the 46th Amendment amending the Constitution in several respects in order to bring many of the transactions, in which property in goods passed but were not considered as sales for the purpose of levy of sales tax, within the scope of the power of the States to levy sales tax.
By the 46th Amendment a new clause, namely clause (29A) was introduced in article 349 of the Constitution.
Clause (30A) of Article 366 of the Constitution reads thus: 339 "366, Definitions.
In this Constitution, unless the context otherwise requires, the following expressions have the meaning hereby respectively assigned to them, that is.
to (29A) tax on the sale or purchase of goods includes (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire purchase or any system of payment by instal ments; (d) a tax on the transfer of the right to use any goods.
for any purpose (whether or not for a specified period)for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unin corporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part.
of any service or in any other manner whatso ever, of goods, being food or any other arti cle for human consumption or any drink (wheth er or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made ;" A new entry was inserted in List I of the Seventh Schedule to the Constitution as Entry 92 F to enable the levy of tax on the consign ment of goods where such consignment took place in the course of InterState trade of commerce; 340 "92 F. Taxes on the consignment of goods (whether the consignment is to the person making it or to any other person), where such consignment takes place in the course of Inter State trade or commerce.
" Clause (1) of article 269 of mended by adding sub clause (h) thereto.
Clause (a) of that article was amended to enable Parliament to formulate by law principles for determining when a consignment of goods took place in the course of Inter State trade or commerce.
After the amendment the relevant portion of article 269 of the Constitution reads thus: "269.
Taxes levied and collected by the Union but assigned to the States. (1) The following duties and taxes shall be levied and collected by the Government of India but shall be as signed to the States in the manner provided in clause (2), namely . . . . . . (h) taxes on the consignment of goods (whether the consignment is to the person making it or to any other person), where such consignment takes place in the course of InterState trade or commerce . . . . (3) Parliament may by law formulate principles for determining when a sale or purchase of, or consignment of, goods takes place in the course of Inter State trade or commerce.
" By the 46th amendment article 286 of the Constitution also was amended by substituting clause (3) thereof by a new clause.
After the amendment clause (3) of article 286 reads thus: "286.
Restrictions as to imposition of tax on the sale or purchase .of goods . . . . (3) Any law of a State shall, in so far as it imposes, or authorises the imposition of, (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter State trade or commerce; or 341 (b) a tax on the sale or purchase of goods, being a tax of the nature referred in sub clause (b), sub clause (c) or subclause (d) of clause (29 A) of article 366, be subjected to such restrictions and condi tions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify.
" The 46th amendment also validated laws levying tax and also collection by way of tax under such law subject to the conditions mentioned therein.
On the passing of the 46th Amendment the State Govern ments after making necessary amendments in their laws com menced to levy sales tax on the turnover of the works con tracts entered into by the building contractors for con structing houses, factories, bridges etc.
In some States taxable turnover was determined by deducting the money spent on labour engaged in connection with the execution of the works contracts from the amount received by the contractor for the execution of the works contracts.
In some other States a certain fixed percentage of the total turnover was deducted from the total turnover as labour charges before arriving at the taxable turnover.
Each State adopted its own method of determining taxable turnover either by flaming rules under its sales tax law or by issuing administrative directions.
It is not necessary for purposes of this judg ment to refer in detail to the various patterns of law in force in the States and the rules or administrative instruc tions made or issued thereunder.
It is sufficient to say that the methods adopted by the States for determining the taxable turnover relating to works contracts for purposes of levy of sales tax were such that sales tax had to be paid by the building contractors not merely on the value of materi als supplied by them in connection with the works contracts but also on the expenditure they had incurred in securing the services of architects and engineers who had supervised the execution of the works and also on the amount which they were entitled to receive for supervising the execution of the works.
While levying sales tax on the price of the materials supplied for the construction of houses, facto ries, bridges etc.
the sales tax authorities of the States did not take into account the conditions and restrictions imposed by Article 286 of the Constitution and the provi sions of the .
The assessing authorities did not make any attempt to ascertain whether the sales of the goods involved in a execution of works contract had taken place in favour of the person who had assigned the contract outside the State in which the works contract was being ex 342 ecuted or whether any part of the goods so used in a works contract had been imported from abroad on account of the person who had assigned the contract or whether any part of the goods, such as, iron and steel etc.
which were declared goods, had already suffered sales tax at an earlier point in the State and whether on such goods the tax which was being levied exceeded the limit prescribed by section 15 of the .
They did not also take into consideration whether the sale of the goods in question had been exempted under the sales tax laws of the State from payment of sales tax or whether it had already suffered payment of tax earlier where the sales tax law of the State had prescribed that the sale of such goods could be subject ed to the levy of sales tax at a single point.
Aggrieved by the levy sales tax on the turnover relating to works con tracts in the above manner, the petitioners and the appel lants have filed these petitions and appeals.
The petitioners and the appellants have pressed before us in these cases only two points, namely, (i) that the 46th Amendment is unconstitutional because it has not been rati fied by the Legislatures of not less than one half of the States by resolutions passed to that effect by those Legis latures before the Bill which led to the amendment in ques tion was presented to the President for assent; and (ii) that it was not open to the States to ignore the provisions contained in Article 286 of the Constitution and the provi sions of the while making as sessments under the sales tax laws passed by the Legisla tures of the States.
By an order made by this Court on 20th of September, 1988 notices 'were issued to the Attorney General for India and the Advocates General for the concerned States.
The Attorney General and some of the Advocates General appeared before us in response to the notices issued to them and made their submissions.
The first contention raised before us regarding the constitutionality of the 46th Amendment need not detain us long.
This contention was based on the assumption that the Legislatures of not less than one half of the States which were in existence during the relevant period had not rati fied the Bill which ultimately became the 46th Amendment before the President gave his assent.
It was argued that such ratification was necessary since the provisions con tained in the 46th Amendment had the effect of enlarging the scope of Entry 34 of List II of the Seventh Schedule to the Constitution by empowering the 343 Legislatures of States to levy Sales Tax on the turnover relating to the transactions referred to in sub clauses (a) to (f) of clause (29 A) of Article 366 of the Constitution which they could not have done before the 46th Amendment.
It was contended that irrespective of the fact whether the Amendment of an entry in any of the Lists of the Seventh Schedule to the Constitution had the effect of either cur tailing or enlarging the powers of Parliament or the Legis latures of States, a Bill making revision for such Amendment had to be ratified by Legislatures.
of not less than one half of the States by resolutions passed to that effect before such a Bill was presented to the President for assent in view of the express provisions contained in clause (c) of the proviso to Article 368(2) of the Constitution.
At the hearing of the above case the learned Attorney General for India produced before us the Memorandum dated the 31st January, 1982 signed by the Secretary General of the Rajya Sabha which reads thus: "RAJYA SABHA SECRETARIAT PARLIAMENT HOUSE, NEW DELHI.
No. RS.
1/21/81 B Dated the 31st January, 1982 MEMORANDUM In pursuance of article 368 of the Constitution of India, the assent copy of the Constitution (Forty sixth Amendment) Bill, is presented to the President.
This Bill has been passed by the Houses of Parliament and has been also ratified by the Legislatures of not less than one half of the States in accordance with the provision of the proviso to clause (2) of article 368 of the Constitution.
Legis latures of the following States have passed resolutions ratifying the amendments: 1.
Haryana 2.
Himachal Pradesh 3.
Karnataka 4.
Madhya Pradesh 5.
Maharashtra 344 6.
Manipur 7.
Meghalaya 8.
Orissa 9.
Punjab 10.
Rajasthan 11.
Sikkim 12.
Tamil Nadu A copy each of the letters received from these Legislatures is placed below.
Sd/(SUDAR SHAN AGARWAL) Secretary General To The Secretary to the President, (Through the Secretary, Ministry of Law)" The Attorney General has also produced before us the file containing the resolutions passed by the Legislatures of the 12 States referred to in the Memorandum, set out above.
We are satisfied that there has been due compliance of the provisions contained in the proviso to Article 368(2) of the Constitution.
We, therefore, reject the first conten tion.
Before proceeding further, we should observe that there would have been no occasion for an argument of this type being urged in Court if at the commencement of the Act it had been stated that the Bill in question had been pre sented to the President for his assent after it had been duly ratified by the required number of Legislatures of States.
We hope that this suggestion will be followed by the Central Secretariat hereafter since we found that even the AttorneyGeneral was not quite sure till the case was taken up for heating that the Bill which had become the 46th Amendment had been duly ratified by the required number of States.
We shall now proceed to consider the other contention of the petitioners and the appellants, namely, that the States were bound to comply with the provisions of Article 286 of the Constitution and the provisions of the , even while levying sales tax on the turnover relating to the transactions described in sub clause (b) of clause (29 A) of Article 366 of the Constitution.
The grounds urged on behalf of the petitioners and the appel lants may be sum 345 marised thus.
The object of the 46th Amendment is to convert what is not a sale into a sale.
A transfer of property in goods involved in the execution of a works contract which was held by this Court in the State of Madras vs Gannon Dunkerley & Co., (Madras) Ltd. (supra) to be not a sale is deemed by a fiction of law to be a sale and is made taxable as such.
In no other respect does the 46th Amendment enlarge the power of the States to levy sales tax.
Articles 269, 286, 366 (29 A), Entry 92A in List I of the Seventh Schedule and Entry 54 in List II of the Seventh Schedule to the Con stitution should be read together.
Reading the above provi sions together the position which emerges may be summed up as follows: The 46th Amendment has no beating on the loca tion of the sale.
It does not deem an outside sale to be an inside sale.
It does not confer on the States the power to tax sales outside the State.
Therefore, if in the process of executing a works contract, a transfer of property in the goods takes place outside the State, the State would have no power to levy sales tax on such a transfer.
The 46th Amend ment does not deem an Inter State sale to be an inter State sale.
It does not confer on the State the power to tax inter State sales.
Therefore, if in the process of executing a works contract a transfer of property in goods takes place in the course of inter State sale, the state would have no power to levy sales tax on such a transfer.
The 46th Amend ment does not confer on the State the power to levy sales tax on a sale in the course of import.
Therefore, if in the process of executing a works contract, a transfer of proper ty in goods takes place in the course of import, the State would have no power to levy sales tax on such transfer.
The price of goods supplied by a person who has assigned the contract for the purpose of executing a works contract cannot be treated as a part of the taxable turnover.
The restrictions and conditions contained in section 15 of the Central Sales tax Act, 1956, on the power of the States to levy tax on the sale of declared goods apply equally and fully to transfer of property in goods under works con tracts, even as they apply to ordinary sales.
Therefore, if there is a transfer of property in declared goods for example steel products in the process of execution of works contract,the State can levy tax only at 4 per cent and only at one stage.
It is clear that the entire works contract is not deemed by the 46th Amendment to be a sale.
Therefore only the price reasonably allocable to goods transferred under works contracts can be taxed, and not the totality of the consideration paid for the works contract.
If goods for example fuel and power are used in the process of executing a works contract but are consumed in the process, the property in such goods cannot conceivably be transferred, because the goods themselves cease to exist.
Such goods cannot be the subject matter for the levy of sales tax 346 at all.
These in brief are the contentions of the petition ers and the appellants.
The above mentioned contentions of the petitioners and the appellants are met by the States thus.
When a works contract is executed property does not pass as a movable property unless there is an express agreement stating that the properties in such movables will pass to the person who has assigned the contract as and when the goods are used in the constructions of the building.
In the absence of any such agreement transfer of property in goods passes not as movables as such but by accretion and in an unidentifiable and indivisible manner.
In all such cases it is not possible to disintegrate the contract into a contract for sale of goods and a contract for work and labour only.
When a house or a factory or a bridge constructed by a building contrac tor is handed over to the person who had assigned the con tract, what is handed over is a conglomerate of all the goods used in the construction of the building which was different from the specific goods used in the construction.
Sub clause (b) of clause (29 A) of Article 366 of the Con stitution has conferred on the Legislatures of States the power to levy tax on works contract which is independent of the power conferred on the Legislatures of States under Entry 54 of the State List.
It is thus argued that it was not possible to break up the house, factory or bridge etc.
which is constructed by a building contractor into individu al items of goods and to tax the transfer of property in each of them in accordance with the provisions contained in Article 286 of the Constitution and the General Sales Tax Act, 1956.
It was further urged that in the case of a works contract there could not be a sale of goods which had taken place outside the State in which the work was executed, there could not be any sale of the goods in the course of import into India, there could not be any sale or purchase of goods which had taken place in the course of Inter State trade or commerce and there could not be a sale of any declared goods attracting section 15 of the Central Sales Act, 1956 since a house, a factory or a bridge was not one of those items specified as declared goods under section 14 of the said Act.
It was next contended that since in no sales tax law in force in any part of India it was stated that the turnover relating to a works contract was subject to payment of sales tax at one point only.
the question of considering whether the levy of sales tax relating to a works contract could be held to be bad on account of the fact that certain goods which had been used in the construc tion had suffered tax earlier did not arise.
In other words it was urged that the goods involved in a works contract were different from the works contract.
It was, however, argued that if any goods had been supplied 347 by the person for whose benefit a building, factory or bridge was being constructed for the purpose of such con struction the value of those goods would not be included in the taxable turnover.
Before proceeding further it is necessary to understand what sub clause (b) of clause 29 A of Article 366 of the Constitution means.
Article 366.
is the definition clause of the Constitution.
It says that in the Constitution unless the context otherwise requires, the expressions defined in that article have the meanings respectively assigned to them in that article.
The expression 'goods ' is defined in clause (12) of Article 366 of the Constitution as including all materials, commodities and articles.
It is true that in the State of Madras vs Gannon Dunkerley & Co. (Madras) Ltd., (supra) this Court held that a works contract was an indi visible contract and the turnover of the goods used in the execution of the works contract could not, therefore, become exigible to sales tax.
It was in order to overcome the effect of the said decision Parliament amended Article 366 by introducing sub clause (b) of clause (29 A) '.
Sub clause (b) of clause (29 A) states that 'tax on the sale or pur chase of goods ' includes among other things a tax on the transfer of property in the goods (whether as goods or in some other form) involved in the execution of a works con tract.
It does not say that a tax on the sale or purchase of goods included a tax on the amount paid for the execution of a works contract.
It refers to a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract.
The emphasis is on the transfer of property in goods (whether as goods or in some other form).
The latter part of clause (29 A) of Article 366 of the Constitution makes the position very clear.
While referring to the transfer, delivery or supply of any goods that takes place as per subclauses (a) to (f) of clause (29 A), the latter part of clause (29 A) Says that. 'such ' transfer, .delivery or supply Of any goods ' shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made.
Hence, a transfer of property in goods ' under sub?clause.
(b) of clause (29 A) is deemed to be a sale of the goods involved in the execution of a works contract by the person making the transfer and a purchase of those goods by the person to whom such transfer is made.
The object of the new definition introduced in clause (29 A) of Article 366 :of the Constitution is, therefore, to enlarge the scope of 'tax on sale or purchase of goods ' wherever it occurs in the Constitution so that it may include within its scope the transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub clause (a) to (f) thereof wherever 348 such transfer, delivery or supply becomes subject to levy of sales tax.
So construed the expression 'tax on the sale or purchase of goods ' in Entry 54 of the State List, therefore, includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract also.
The tax leviable by virtue of sub clause (b) of clause (29 A) of Article 366 of the Constitu tion thus becomes subject tO the same discipline to which any levy under Entry 54 of the State List is made subject to under the.
COnstitution.
The position is the same when we look at Article 286 of the Constitution.
Clause (1) of Article 286 says that no law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place (a) out side the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India.
Here again we have to read the expression 'a Tax on the sale or purchase of goods found in Article 286 as in cluding the transfer of goods ' referred to in sub clause (b) of clause (29 A) of Article 366 which is deemed to be a sale of goods and the tax leviable thereon would be subject to the terms of clause (1) of Article 286.
Similarly the re strictions mentioned in clause (2) of Article 286 of the Constitution which says that Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1) of Article 286 would also be attracted to a transfer of goods contemplated under Article 366(29A)(b).
Similarly clause (3) of Article 286 is also applicable to a tax on a transfer of property referred to in sub clause (b) of clause (29 A) of Article 366.
Clause (3) of Article 286 consists of two parts.
Sub clause (a) of clause (3) of Article 286 deals with a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter State or commerce, which is generally applicable to all sales including the transfer, supply or delivery of goods which are deemed to be sales under clause (29 A) of Article 366 of the Constitution.
If any declared goods which are referred to in section 14 of the are involved in such transfer, supply or delivery, which is referred to in clause (29 A) of Article 366, the sales tax law of a State which provides for levy of sales tax thereon will have to comply with the restrictions mentioned in section 15 of the .
Clause (b) is an additional provision which empowers Parliament to impose any additional restrictions or conditions in regard to the levy of sales tax on transactions which will be deemed to be sales under sub clause (b) or sub clause (e) or sub clause (d) of clause (29 A) of Article 366 of the Constitution.
We do not find much substance in the contention urged on behalf of the States that since sub clause (b) of clause (3) of Article 286.of the Constitution refers 349 only to the transactions referred to in sub clauses (b), (c) and (d) of clause (29 A) of Article 386, the transactions referred to under those three sub clauses would not be subjected to any other restrictions set out in clause (1) or clause (2) or sub clause (a) of clause (3) of Article 286 of the Constitution.
It may be that by virtue of sub clause (b) of clause (3) of Article 286 it is open to Parliament to impose some other restrictions or conditions which are not generally applicable to all kinds of sales.
That however cannot take the other parts to Article 286 inapplicable to the transactions which are deemed to be sales under Article 366(29A) of the Constitution.
We are of the view that all transfers deliveries and supplies of goods referred to in clause (a) to (f) of clause (29 A) of Article 366 of the Constitution are subject to the restrictions and conditions mentioned in clause (1), clause (2) and sub clause (a) of clause (3) of Article 366 of the Constitution and the trans fers and deliveries that take place under sub clauses (b), (c) and (d) of clause (29 A) of Article 366 of the Constitu tion are subject to an additional restriction mentioned in sub clause (b) of Article 286(3) of the Constitution.
It is useful to refer at this stage to the corresponding law in Australia.
In Sydney Hydraulic and Central Engineer ing Co. vs Blackwood & Son, 8N SWR 10 the Supreme Court of South Sales held that the works contract entered into be tween the parties which came up for consideration: in that case was one to do certain work and to supply certain mate rials and not an agreement for the sale or delivery of the goods.
Accordingly, no sales tax was payable thereon.
In 1932 the Legislature intervened and amended the statute of 1930 by introducing a new provision, section 3(4) in the following.
terms: "For the purpose of this Act, a person shall be deemed to have sold goods, if, in the performance of any contract (not being a contract for the sale of goods) under which he has received, or is entitled to receive, valuable consideration, he supplies goods the property in which (whether as goods or in some other form) passes, under the terms of the contract, to some other person.
" After the above amendment there arose a case in Austra lia regarding the liability of a contractor to pay sales tax on the transfer of goods involved in a works contrat, name ly: M.R. Hornibrook (Pty.) Ltd. vs Federal Commissoner of Taxation., ; The relevant facts involved in that case were these.
M.R. Mornibrook 350 (Pty.) Ltd. was a builder and a contractor and in addition to manufacturing ironwork and goods for use in contracts undertaken, manufactured items of plants for its own use.
In the years 1934 and 1935, M.R. Hornibrook (Pty.) Ltd. con structed under contract for Hornibrook Highway Ltd. at a price set out in the contract, the Hornibrook Highway con necting Ganagate and Redcliffe, aueensland.
Part of the highway consisted of a bridge of 13/4 miles in length over an arm of Moreton Day.
The bridge was build on reinforced concrete piles, which were driven into the bed of the sea in series of three in line, each set of three being connected by a headstock of reinforced concrete.
The piles varied in length depending upon the depth to which they had to be driven into the bed of the sea.
They were made of a mixture of cement, crushed metal, sand and water, and reinforced with steel bars.
The piles were constructed on the bank or ' Moreton Day adjacent to the site of the bridge.
The head stock was built in the same manner as the piles.
So far as was known, concrete piles of the class used in the construc tion of the bridge were not manufactured for sale anywhere in Australia, nor were they an article of commerce in Aus tralia or anywhere else in the world.
Such piles had not been standardized because the construction of each pile depended upon the particular load which it was to carry and the nature of the ground into which it was to be driven, and therefore, each pile in a job might be different from every other pile in it in length.
When the sales tax authorities made an assessment in respect of the value of the piles, M.R. Hornibrook (Pty.) Ltd. contended that the said piles had no sale value within the meaning of the Sales Tax As sessment Acts, that the said piles were not a 'manufacture ' or 'goods manufactured ' within the meaning of the sales Tax Assessment Acts, and that the said piles formed part Of a bridge and were built on the job and were not article of commerce and were nor procurable from any third person and were not of a class of goods manufactured for sale by any person and there fore the price of piles was not liable to payment of sales tax.
Latham, C.J. with whom Justice Rich and Justice Starke agreed (Justice McTiernan dissenting) held as under: "Sec.
3(4) of the Act, referred to in part of above quoted, was at the relevant time in the following form: 'For the purposes of this Act, a person shall be deemed to have sold goods if, in the performance of any contract under which he has received, or is entitled to receive, valuable consideration, he supplies goods the property in which (whether as goods or in some other form) passes, under the terms of the contract, to some other person. ' 351 In my opinion the commissioner is right in his contention that this provision applies to the present case.
The appellant company, in the performance of a contract for building a bridge under which contract it was entitled to receive and doubtless has received valuable consideration, has supplied goods, namely, reinforced concrete piles.
Such piles are plainly manufactured articles.
They are chattels.
They were intended to be incorporat ed in a structure and were so incorporated.
They lost their identity as goods in that structure.
But this fact does not prevent the piles from being goods any more than it pre vents bricks or stones, or nuts and bolts from being goods.
The fact that the goods were specially manufactured and designed for a particular purpose cannot be held to deprive them of the character of goods.
" Sub clause (b) of clause (29 A) of Article 366 of the Constitution of India more or less has adopted the language used in section 3(4) of the Australian Act.
Even after the decision of this Court in the State of Madras vs Gannon Dunkerley & Co. (Madras) Ltd. (supra) it was quite possible that where a contract entered into in connection with the construction of a building consisted of two parts, namely, one part relating to the sale of materi als used in the construction of the building by the contrac tor to the person who had assigned the contract and another part dealing with the supply of labour and services, sales tax was leviable on the goods which were agreed to be sold under the first part.
But sales tax could not be levied when the contract in question was a single and indivisible works contract.
After the 46th Amendment the works contract which was an indivisible one is by a legal fiction altered into a contract which is divisible into one for sale of goods and the other for supply of labour and services.
After the 46th Amendment, it has become possible for the States to levy sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods and materials supplied in a building contract which had been entered into in two distinct and separate parts as stated above.
It could not have been the contention of the revenue prior to the 46th Amendment that when the goods and materials had been supplied under a distinct and separate contract by the contractor for the purpose of construction of a building the assessment of sales tax could be made ignoring the restrictions and condi tions incorporated in Article 286 of the Constitution.
If that was the position can the States 352 contended after the 46th Amendment under which by a legal fiction the transfer of property in goods involved in a works contract was made liable to payment of sales tax that they are not governed by Article 286 while levying sales tax on sale of goods involved in a works contract? They cannot do so.
When the law creates a legal fiction such fiction should be carried to its logical end.
There should not be any hesitation in giving full effect to it.
If the power to tax a sale in an ordinary sense is subject to certain condi tions and restrictions imposed by the Constitution, the power to tax a transaction which is deemed to be a sale under Article 366(29 A) of the Constitution should also be subject to the same restrictions and conditions.
Ordinarily unless there is a contract to the contrary in the case of a works contract the property in the goods used in the con struction of a building passes to the owner of the land on which the building is constructed, when the goods or materi als used are incorporated in the building.
The contractor becomes liable to pay the sales tax ordinarily when the goods or materials are so used in the construction of the building and it is not necessary to wait till the final bill is prepared for the entire work.
In Hudson 's Building Con tracts (8th edition) at page 362 it is stated thus: "The well known rule is that the property in all materials and fittings, once incorporated in or affixed to a building, will pass to the freeholder quicquid plantatur solo, solo cedit.
The employer under a building contract may not necessarily be the freeholder, but may be a lessee or licensee, or even have no interest in the land at all, as in the case of a sub contract.
But once the builder has affixed materials, the property in them passes from him, and at least as against him they become the absolute property of his employer, whatever the latter 's tenure of or title to the land.
The builder has no fight to detach them from the soil or building, even though the building owner may himself be entitled to sever them as against some other person e.g., as tenant 's fixtures.
Nor can the builder reclaim them if they have been subsequently severed from the soil by the building owner or anyone else.
The principle was shortly and clearly stated by Blackburn J. in Appleby vs Reyers [1867] L.R. 2 C.P. 651 at p. 659: Materials worked by one into the property of another become part of that property.
This is equally true whether it be fixed or movable property.
Bricks built into a wall become part of the house, thread stitched into a coat which is under repair, or planks and nails and pitch worked into a ship under repair, be 353 come part of the coat or the ship.
" In Bmden and Watson Building Contracts and Practice (6th edition) (Pages 229 230) it is stated thus: "VESTING OF PROPERTY IN MATERIALS 1.
BY AFFIXING MATERIALS, ETC.
TO THE FREEHOLD.
Vesting of Materials when built into the work.
As soon as materials of any de scription are built into a building or other erection they cease to be the property of the contractor and become that of the freeholder (a).
Illustration A burial company, having erected a memorial stone, removed and sold it because it was not paid for Held: The proper remedy of the company was to sue for payment and they had no right to remove the stone (b).
And where the employer has only an interest less than a free hold, he has the Same interest in the built in materials as he has in the land.
Even if the employer detach them from the soil, the property in them does not revert to the contractor, and he acquires no right to remove them on the analogy of the law of landlord and tenant as to fixtures (c).
Illustration Where the yearly tenant of a house had, at his own expense during his term, hung bells, but quitted the premises without remov ing them Held: By remaining fixed to the freehold after the expiration of the term they became the property of the landlord (C).
Until, however, the materials are actually built into the work in the absence of some stipulation intended to pass the property in them when delivered on the site, they remain the property of the contractor (d).
" 354 In Benjamin 's Sale of Goods (3rd Edition) in para 43 at page 36 it is stated thus: "Chattel to be affixed to land or another chattel.
Where work is to be done on the land of the employer or on a chattel belonging to him, which involves the use or affixing of materials belonging to the person employed, the contract will ordinarily be one for work and materials, the property in the latter passing to the employer by accession and not under any contract of sale.
Sometimes, howev er, there may instead be a sale of an article with an additional and subsidiary agreement to affix it.
The property then passes before the article is affixed, by virtue of the contract of sale itself or an appropriation made under it." In view of the foregoing statements with regard to the passing of the property in goods which are involved in works contract and the legal fiction created by clause (29 A) of Article 366 of the Constitution it is difficult to agree with the contention of the States that the properties that are transferred to the owner in the execution of a works contract are not the goods involved in the execution of the works contract, but a conglomerate, that is the entire building that is actually constructed.
After the 46th Amend ment it is not possible to accede to the plea of the States that what is transferred in a works contract is the right in the immovable property.
We are surprised at the attitude of the States which have put forward the plea that on the passing of the 46th Amendment the Constitution had conferred on the States a larger freedom than what they had before in regard to their power to levy sales tax under Entry 54 of the State List.
The 46th Amendment does no more than making it possible for the States to levy sales tax on the price of goods and materials used in works contracts as if there was a sale of such goods and materials.
We do not accept the argument that sub clause (b) of Article 366(29A) should be read as being equivalent to a separate entry in List II of the Seventh Schedule to the Constitution enabling the States to levy tax on sales and purchases independent of Entry 54 thereof.
As the Constitution exists today the power of the States to levy taxes on sales and purchases of goods including the "deemed" sales and purchases of goods under clause (29A) of Article 366 is to be found only in entry 54 and not outside it.
We may recapitulate here the observations of the Consti tution Bench in the case of Bengal Immunity Company Ltd. (supra) in which this Court has held that the operative 355 provisions of the several parts of Article 286 which imposes restrictions on the levy of sales tax by the States are intended to deal with different topics and one could not be projected or read into another and each one of them has to be obeyed while any sale or purchase is taxed under Entry 54 of the State List.
We, therefore, declare that sales tax laws passed by the Legislatures of States levying taxes on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract are subject to the restrictions and conditions mentioned in each clause or sub clause of Article 286 of the Constitution.
We, however, make it clear that the cases argued before and considered by us relate to one specie of the genetic concept of 'workscon tracts '.
The case book is full of the illustrations of the infinite variety of the manifestation of 'works contracts ' Whatever might be the situational differences of individual cases, the constitutional limitations on the taxing power of the state as are applicable to 'workscontracts ' represented by "Building Contracts" in the context of the expanded concept of "tax on the sale or purchase of goods" as consti tutionally defined under Article 366(29A), would equally apply to other species of 'works contracts ' with the requi site situational modifications.
The Constitutional Amendment in Article 366(29A) read with the relevant taxation entries has enabled the state to exert its taxingpower in an important area of social and economic life of the community.
In exerting this power particularly in relation to transfer of property in goods involved in the execution of 'works contracts ' in building activity, in so far as it affects the housing projects of the underprivileged and weaker sections of society, the state might perhaps, be pushing its taxation power to the peripheries of the social limits of that power and, perhaps, even of the constitutional limits of that power in dealing with unequals.
In such class of cases 'Building Activity ' really relates to a basic subsistential necessity.
It would be wise and appropriate for the state to consider whether the requisite and appropriate classifications should not be made of such building activity attendant with such social purposes for appropriate separate treatment.
These of course are matters for legislative concern and wisdom.
Having interpreted the relevant provisions of the Constitution, as stated above, we feel that it is unneces sary to take up each and every writ petition referred to above to express our opinion on the validity of 356 the statutory provisions and rules which are questioned before us.
The petitioners concerned are at liberty to approach the authorities under the Sales Tax Act or the High Court concerned for necessary relief.
It is open to them to question the validity of the statutory provisions and the rules made thereunder before the High Courts concerned.
When such petitions are filed the High Court will proceed to dispose of the cases in the light of this judgment.
With these observations all the Writ Petitions are disposed of.
The Civil Appeals filed against the orders of the High Courts, however, shall be placed before the appropriate bench heating tax matters to decide the other questions raised in them including the validity of any statutory provision or rule in the light of this judgment.
These cases are accordingly disposed of.
There is no order as to costs.
Y. Lal Petitions dis posed of.
| IN-Abs | The petitioners in the writ petition are building contractors engaged in the business of constructing build ings, factories, bridges etc.
They have challenged the levy of sales tax, by the concerned State Governments under the sales tax laws passed by them, on the turnover .
of the works contracts entered into by them.
The petitions raised two questions for the considera tion of the Court; the first question relates to the consti tutional validity of the 46th Amendment Act by which the State legislatures have been empowered to levy sales tax on certain transactions described in sub clauses (a) to (f) of clause (29 A) of Article 366 of the Constitution, and the second question is whether the power of the State legisla ture to levy tax on the transfer of property in goods in volved in the execution of works contracts referred to in sub clause (b) of clause (29A) of article 366 of the Constitu tion is subject to the restrictions and conditions in article 286 of the Constitution.
On the passing of the 46th Amendment, the State Govern ments after making necessary amendments in their laws com menced to levy sales tax on the turn over of the works entered into by the building contractors for constructing houses, factories, bridges etc.
In some States taxable turnover was determined by deducting the money spent on labour engaged in connection with the execution of the works con 321 tracts.
In some other States a certain fixed percentage of the total turnover was deducted from the total turnover as labour charges before arriving at the taxable turnover.
Each State adopted its own method of determining taxable turnover either by framing rules under its sales tax law or by issu ing administrative directions.
Affected and aggrieved by the levy of sales tax so imposed, the petitioners filed the writ petitions under article 32 of the Constitution challenging inter alia the Constitu tional validity of the 46th Amendment Act.
Civil appeals were also filed by some other building contractors against the orders of the High Court for similar relief.
The petitioners and the appellants have raised two contentions; viz (1) that the 46th Amendment Act is uncon stitutional because it had not been ratified by the legisla tures of not less than one half of the states by Resolutions passed to that effect by these legislatures before the Bill which led to the amendment in question was presented to the President for assent; and (2) that it was not open to the States to ignore the provisions contained in article 286 of the Constitution and the provisions of the Central Sales Tax Act, 1966 while making assessment under the Sales Tax laws passed by the legislatures of the States.
Notices were issued to the Attorney General for India and the Advocates General for the concerned States, some of which contested the Issues.
The main contention of the States on the second point was that sub clause (b) of Article 326(29 A) bestowed on them a power to levy tax on works contract independent of Entry 54 of List IL Disposing of the Writ Petitions and directing that the appeals be now placed before the Bench hearing Tax matters, this Court, HELD.
There has been in the instant case due compliance of the provisions contained in the proviso to article 368(2) of the Constitution.
[344E] Sales tax laws passed by the legislatures of States levying taxes on the transfer of property in goods whether as goods or in some other form involved in the execution of a works contract are subject to the restrictions and condi tions mentioned in each clause of sub clauses of article 286 of the Constitution.
[355B] 322 All transfers, deliveries and supplies of goods referred to in clauses (a) to (f) of clause (29 A) of article 366 of the Constitution are subject to the restrictions and conditions mentioned in clause (1), clause (2) and sub clause (a) of clause (3) of article 286 of the Constitution and the transfers and deliveries that take place under sub clauses (h), (c) and (d) of clause (29 A) of article 366 of the Constitution are subject to an additional restriction mentioned in sub clause (b) of article 286 (3) of the Constitution.
[349C] The power to levy sales tax was conferred on the legis latures of States by the Constitution by Entry 54 of List II of the Seventh Schedule to the Constitution of India.
[329B] State of Bombay and Another vs The United Motors (India) Ltd. and Others, ; and Bengal Immunity Company Limited vs The State of Bihar & Others, , referred to.
Ordinarily unless there is a contract to the contrary in the case of a works contract, the property in the goods used in the construction of a building passes to the owner as the materials used are incorporated in the buildings.
The con tractor becomes liable to pay the sales tax ordinarily when the goods or materials are so used in the construction of the building and it is not necessary to wait till final bill is prepared for the entire work.
[3S2C] Hudson 's Building Contracts (8th Edition) at page 362 and Benjamin 's Sale of Goods (3rd Edition) in para 43 at page 36.
The constitutional Amendment in article 366 (29 A) read with the relevant taxation entries has enabled the States to exert its taxing power in an important area of social and economic life of the community.
In exercising this power particularly in relation to transfer of property in goods involved in the execution of "works contracts" in building activity, in so far as it affects the housing projects of the under privileged and weaker sections of society, the State might perhaps, be pushing its taxation power to the peripheries of the social limits of that power and perhaps even of the constitutional limits of that power, in dealing with unequals.
In such class of cases 'building Activity ' really relates to a basic subsistential necessity.
It would he wise and appropriate for the State to consider whether the requisite and appropriate classifications should not he made of such building activity attendant with such social purposes for appropriate separate treatment.
[355E G] 323 Whatever might be the situational differences of indi vidual cases, the constitutional limitations on the taxing power of the State as are applicable to "works contracts" represented by "building contracts" in the context of the expanded concept of "tax on the sale or purchase of goods" as constitutionally defined under article 366 (29 A) would equally apply to other species of "works contracts" with the requisite situational modifications.
[355C D] At the commencement of the Act it should have been stated that the bill in question had been presented to the President for his assent after it had been fury ratified by the required number of legislatures of the States.
This suggestion should be followed by the Central Secretariat hereafter since it was found that even the Attorney General was not quite aware till the case was taken up for hearing that the bill which had become the 46th Amendment had been duly ratified by the required number of States.
[344F] Gannon Dunkerley and Co. (Madras) Ltd. vs State of Madras, A.I.R. 1954 Mad. 1130; Gannon Dunkereley & Co. Madras (Pvt.) Ltd. vs Sales Tax Officer, Matrancher, A.I.R. 1957 Kerala 146; Mohamed Khasim vs State of Mysore, [1955] VI Sales Tax Cases 211; Pandit Banarsi Das vs State of Madhya Pradesh and Ors., [1955] VI Sales Tax Cases 93; Jubilee Engineering Co. Ltd. vs Sales Tax Officer, Hyderabad City & Ors., ; Bhuramal and Ors.
vs State of Rajasthan, A.I.R. ; State of Madras vs Gannon Dunkerley & Co. (Madras) Ltd., ; M/s. New India Sugar Mills Ltd. vs Commissioner Of Sales Tax, Bihar, [1963] Supp. 2 SCR 459; Oil and Natural Gas Commission vs State of Bihar & Ors., ; ; Vishnu Agencies (Pvt.) Ltd. etc.
vs Commercial Tax Officer & Ors.
; , ; Northern India Caterers (India) Ltd. vs Lt. Governor of Delhi, ; ; Sydney Hydraulic and Central Engineering Co. vs Blackwood & Son, and M.R. Bornbrook (Pvt.) Ltd. vs Federal Commis sioner of Taxation; ,
|
ivil Appeal No. 2395 of 1989.
From the Judgment and Order dated 21.7.88 of the Jammu & Kashmir High Court in Second Appeal No. 2 of 1978.
Altar Ahmed and S.K. Bhattacharya for the Appellants.
D.D. Thakur, E.C. Agrawala, Atul Sharma and Miss Purnima Bhatt for the Respondents.
The Judgment of the Court was delivered by NATARAJAN, J.
Leave granted.
Though the High Court has accepted the ease of the State and dismissed the second appeal preferred by the respondents herein, the State has been prompted to file this appeal because of the observations made by the High Court that Sections 8 and 14 of the Evacuee (Administration of Proper ty) Act, 2006 (hereinafter referred as to the Act) have outlived their purpose and hence the concerned officers of the State need not entertain any applications made in future under Section 8 of the Act by persons laying claim to properties which have been notified as evacuee property under the Act.
To appreciate the grievance of the State over the pro nouncement of the High Court about the relevancy and opera tional force of Section 8 of the Act, a few facts require mention.
Respondent No. 1 claimed to be the owner of Evacuee Property House No. 437 situate in Talab Khatikan, Jammu and sold the same to respondents 2 and 3 for a total considera tion of Rs. 16,000 under a sale deed dated 12.12.1970.
By an order dated 5.2.1973, the custodian (third appellant) held that the sale was invalid since the property was evacuee property and belonged to one Shah Mahmood who had migrated to Pakistan during the disturbances of 1947 and continued to live there as an evacuee.
Against 472 the order of the custodian the respondents preferred an appeal to the Custodian General (second appellant).
The Custodian General dismissed the appeal but observed that if any application had been made by the first respondent under Section 8 regarding the house, the Custodian may dispose of the same in accordance with law.
He also observed that if the respondents felt that they were entitled under law to make a claim under Section 25 of the Act, they may move the appropriate forum in that behalf.
Thereafter, the respond ents made two applications one under Section 8 on 14.3.1974 and another under Section 25 on 24.4.1974 to the Custodian.
The Custodian noticed that the application under Section 8 had been presented beyond the prescribed limitation period of two months after the order dated 5.2.1973 had been passed but even so he considered the application on merits and rejected it.
Likewise, the application under Section 25 was also rejected.
Once again, an appeal was preferred to the Custodian General and he dismissed the appeal holding that there was no need for the custodian to have gone into the merits of the case when the direction given in the earlier appeal was only to see if any application under Section 8 had already been presented and was pending consideration.
Against the order of the Custodian General, the respond ents filed Second Appeal No. 2/78 before the High Court and sought reliefs in their favour.
The High Court saw no merit in their contentions as the Custodian and Custodian General had rendered concurrent findings on questions of fact and had held that the property claimed by the respondents was unquestionably evacuee property.
The High Court noticed that the findings had been rendered after proper appreciation of evidence and hence there was no warrant for interfering with those findings and dismissed the second appeal.
However, while declining to interfere with the findings of fact rendered by the Custodian and the Custodian General, the High Court frowned upon the attempts of unscrupulous ele ments to misuse and abuse the provisions of Section 8 of the Act in order to grab evacuee property for themselves.
Feel ing concerned over the abuse of Section 8 of the Act, the High Court thought it necessary that resort to Section 8 in future should be put an end by declaring that Sections 8 and 14 have served the purpose for which they had been provided in the Act and since they have outlived their utility, the authorities should not in future entertain any application made under Section 8 for a claim being made to any evacuee property.
The declaration made in Sections 8 and 14 and the direc tions given by the High Court which have given rise to this appeal by the 473 State are in the following terms.
"There is no justification for entertaining any application by any person in the State of Jammu and Kashmir under Section 8 of the Act after about 39 years of its passing.
Sec. 8 of the Act in my opinion has outlived its utility and is a redundant piece of legislation still existing on the statute book regarding which the legislature of the State may pass appro priate legislation directing its deletion from the provisions of the Act.
The Custodian in the instant case has rightly held the applica tion/objections of Mahmood Ahmed to be barred by time.
There being no justification for entertaining an application under Section 8 of the Act, the authorities under the Act are directed not to entertain any application under Section 8 of the Act hereafter which may actually result in the deprivation of the evacuees of their properties.
It cannot be conceived that a person whose property was declared or vested in the Custodian would keep silent for a period of about 39 years and not prefer a claim, if he had any.
Claims pre ferred hereafter should be deemed to be fic tituous, concocted and mala fide, intended to destroy and eliminate the evacuee properties to the detriment of the evacuees who may ultimately be restored such properties if they return to the State under a valid law in existence or to be enacted for the purpose." Mr. Altar Mohammed, learned Advocate General appearing for the appellants stated that the High Court went too far in making the above pronouncement and therefore the observa tions made and the directions given by the High Court as extracted above should be set aside.
The learned counsel stated that when the High Court saw no grounds to interfere with the concurrent findings on questions of fact rendered by the Custodian and the Custodian General, there was no need or necessity for the High Court to have gone into the question whether Section 8 has outlived its utility and whether it continues to have relevance after more than 40 years have passed by since the Act was enacted.
Another argument was that Section 8 is closely interlinked with Section 6 of the Act which deals with the powers of a Custo dian to notify a property as evacuee property under the Act and in as much as Section 6 has currency even now because notifications could still be made under the Section in appropriate cases to notify a property as evacuee property, Section 8 also will have to be on the Statute Book.
It was pointed out that still a portion of the State is in 474 the hands of an alien government and hence the possibility of a property becoming an evacuee property even now is very much there.
The learned Advocate General therefore stated that as long as Section 6 has relevancy and operative force and notifications could still be made under that Section, Section 8 also will have to be retained and made use of by genuinely affected parties and as such the High Court was wrong in taking the view that Section 8 has outlived its utility and the State should delete it by appropriate legis lation.
We find the contentions of the learned Advocate General to be well founded.
Mr. Thakur, learned counsel for the respondents did not controvert the contentions of the Advo cate General and in fact he placed reliance on Sec. 8 and sought to contend that the Custodian and Custodian General ought to have considered the first respondent 's application under Section 8 as one made within time and sustained his claim to the property.
Consequently, confining over scrutiny to the limited question we are called upon to decide, in the appeal, we hold that the observations of the High Court extracted above are not legally correct and sustainable and also according ly, set aside.
The appeal is allowed in the manner indicated above.
There will be no order as to costs.
R.S.S. Appeal al lowed.
| IN-Abs | Respondent No. 1, who claimed to be the owner of the evacuee property in dispute, sold it to respondents 2 and 3 in 1970.
In 1973, the Custodian, Evacuee Property, held that the sale was invalid since the property belonged to one Shah Mahmood, and after Shah Mahmood 's migration to Pakistan during 1947 became evacuee property under the Evacuee (Administration of Property) Act 2006 of J & K State.
The Custodian General, while dismissing the respondents ' appeal against the Custodian 's order, observed inter alia, that if any application had been made by the first respondent under section 8 of the Act regarding the house, the Custodian may dispose of the same in accordance with law.
Thereafter, the respondents made an application under section 8 of the Act, and the same was rejected by the Custodian.
The appeal against rejection was dismissed by the Custodian General.
The respondents filed second appeal before the High Court.
While declining to interfere with the concurrent findings of fact rendered by the Custodian and the Custodian General, the High Court expressed concern over the abuse of section 8.
The High Court observed that sections 8 and 14 of the Act had outlived their utility and directed that the authorities should not in future entertain any application made under section 8.
Allowing the appeal filed by the State on the question of continued utility of section 8, the Court, HELD: (1) There was no need or necessity for the High Court to have gone into the question whether section 8 had outlived its utility and whether it continued to have rele vance.
[474B] (2) Section 8 is closely inter linked with section 6 of the Act which deals with the powers of a Custodian to notify a property as evacuee property under the Act, and as long as section 6 has relevancy and operative force and in as much as notifications could still be made under 471 that section in appropriate cases, section 8 also will have to be retained and made use of by genuinely affected par ties.
[473G H] (3) A portion of the State is still in the hands of an alien Government and hence the possibility of a property becoming an evacuee property even now is very much there.
[473H; 474A]
|
ivil Appeal No. 1202 of 1974.
From the Judgment and Order dated 19.7.1972 of the Madras High Court in Writ Petition No. 1064 of 1967.
Anil Dev Singh and C.V.S. Rao for the Appellant.
Ambrish Kumar and A.T.M. Sampath for the Respondent.
The Judgment of the Court was delivered by K.N. SAIKIA, J.
This appeal by Special Leave is from the Judgment and Order of the High Court of Judicature at Ma dras, dated 19th July, 1972 in Writ Petition No. 1864 of 1967, allowing the petition and quashing the demand made by the appellant under Rule 10 A of the Central Excise Rules, hereinafter referred to as 'the Rules ', payable by the respondent under the Central Excise and Salt Act, 1944, hereinafter referred to as 'the Act '.
M/s. Ramakrishnan Kulwant Rai, the respondent firm, owned the Steel Rolling Mill, located at No. 4 B, 4 C, North Railway 447 Terminus Road, Royapuram, Madras 13.
The said Mill was leased out to a partnership firm known as M/s. Steel Indus tries.
After termination of the lease the respondent firm took back possession of the said Mill on 1 8 1962 and in formed the Central Excise Authorities about this by their letter dated 16 11 1962 and resumed manufacture of Steel from scraps and was advised to take out a licence for which it applied on 30 11 1962.
Though the respondent firm had ultimately sold away the Rolling Mill on 8 4 1963, the Superintendent of Central Excise, by his letter dated 13 10 1965 demanded a sum of Rs. 31,0 18.2013 as excise duty.
On information furnished by the firm about its manu facture of only 775.455 metric tonnes of Steel, the Deputy Superintendent of Central Excise reduced the demand to a sum of Rs. 6,4 19.38p only, and the demand was reiterated by notice dated 13 4 1967, pursuant whereto the respondent firm showed cause on 15th May, 1967 but the Assistant Collector of Customs, by his order dated 14th June, 1967, confirmed the demand.
The respondent firm challenged the demand by moving writ petition No. 1864 of 1967 in the High Court of Judicature at Madras contending, inter alia, that it was manufacturing steel products prior to 13 6 1962, only suspending manufac ture during the period of lease and resuming thereafter, and as such, was entitled to exemption from payment of duty; that the demand for payment of duty was time barred; that rules 10 & 10A invoked in support of the demand were ultra vires inasmuch as there was no provision in the Act to enable the Government to frame rules for the recovery of duty short levied.
The High Court by the impugned order following its earlier judgment in writ petition Nos. 265 & 266 of 1967, which relied upon its earlier decision in writ petition No. 1055 of 1968, upheld the contention of the respondent firm holding that Rule 10 A did not apply to cases where there had been no prior levy of excise duty in respect of the articles manufactured during the relevant period and that the duty was sought to be recovered only by the issue of demand under Rule 10 A of the Rules.
The High Court having rejected leave to appeal, the.
appellant obtained special leave on 23 7 1974.
Mr. Anil Dev Singh, learned counsel for the appellant submits that it is necessary to decide the substantial question of law of general importance, namely, whether Rule 10 A of the Rules, as it stood at the relevant time, was valid or not as conflicting decisions have been creating difficulties for the department in collecting short levies or escaped excise duties.
Counsel refers us to , AIR 1972 S.C. 448 2563, and The learned counsel states that Rule 10 A was in force upto 6 8 1977 whereafter it was amended with effect from that date and the amended rule continued till 16 11 1980 where after it was enacted as Section 11 A of the Act by the Amendment Act 25 of 1978 and that Section came into force with effect from 1.7 11 1980.
Mr. Ambrish Kumar, the learned counsel for the respond ent submits that the learned standing counsel for the Cen tral Government having conceded that the rationale of the decision in Haji J.A. Kareem Sait vs Dy.
Commercial Tax Officer, Mettupalayam, 18 STC .370, which held that sub Rule (7) of Rule 5 of the Central Sales Tax (Madras) Rules 1957, providing for limitation and determination of escaped turn over by best judgment was in excess of the rule making power and the sub Rule as a whole, was therefore, invalid, would apply with equal force to Rule 10 A as well and that in view of the same decision he would not be able to sustain the demands under Rule 10 A and yet he could sustain the demand under Rule 9(2) of the Rules, it is no longer open to the appellant to challenge the validity of Rule 10 A in this appeal, and that too after so many years.
Counsel for the appellant answers that the learned standing counsel thereby cannot be said to have conceded that Rule 10 A was invalid.
He had only said that in view of the decision in 18 STC 370, he would not be able to sustain the demands under Rule 10 A; and that even if it could be taken as a concession, the appellant could not be estopped from showing that the rule is valid so that Central Excise revenue is not allowed to escape.
We agree with the learned counsel for the appellant and proceed to examine the validi ty of Rule 10 A as it stood at the relevant time.
Rule 10 A of the Rules read as under: "10 A. Residuary powers for recovery of sums due to Government Where these Rules do not make any specific provision for the collection of any duty or any deficiency in duty if the duty has for any reason been short levied, or of any other sum of any kind payable to the Central Government under the Act or these Rules, such duty, deficiency in duty or sum shall, on a written demand made by the proper officer, be paid to such person and at such time and place as the officer may specify.
" Rule 10 A provided the machinery for collection of tax from the assessee after the goods had left the factory premises.
This rule con 449 templated that the duty or deficiency in duty was payable on a written demand made by the proper officer in cases where either the Rules did not make any specific provision for the collection of any duty or of any deficiency in duty if the duty had for any reason been short levied.
Therefore, before Rule 10 A could be resorted to, it had to be found that either the Central Excise Rules did not make any specific provision for the collection of duty in respect whereof a demand was being made by the proper officer, or that there was no specific provision therein for the collection of the deficiency in duty which had been short levied for any reason.
It was a residuary provision and it applied only when there was no other specific provision in the Rules.
Where there had been no assessment at all there was no reason why claim and demand of the respondent could not be said to be recoverable under Rule 10 A.
The learned counsel for the appellant submits that this Rule is perfectly valid being covered by the rule making powers under the Act while the learned counsel for the respondent, submits that it is ultra vires the Act being not covered by its rule making powers.
The question, therefore, is whether the Rule is valid.
Chapter II of the Act deals with levy and collection of duty.
Under Section 3 of the Act duties specified in First Schedule to the Act were to be levied.
Sub section (1) of Section 3, at the relevant time, read as follows: "(1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India, and a duty on salt manufactured in, or import ed by land into, any part of India as, and at the rates, set forth in the First Schedule.
" In Citadel Fine Pharmaceuticals vs Dis trict Revenue Officer, Chingleput, , where the enactment, namely, the Medicinal and Toilet Preparations (Excise Duties) Act (XVI of 1955) was silent on the question of levies of escaped assessment, it was held that the Rules made under that Act could not extend the charging power and Rule 12, in so far as it sought to extend the charging power under Section 3 of that Act, was held to be invalid and without jurisdic tion.
Rule 12 of those Rules read as follows: "12.
Residuary powers for recovery of sums due to 450 Government Where these rules do not make any specific provision for the collection of any duty or of any deficiency in duty if the duty has for any reason been short levied, or of any other sum of any kind payable to the collecting Government under the Act or these rules, such duty, deficiency in duty or sum shall on written demand made by the proper officer, be paid to such person and at such time and place, as the proper officer may specify.
" Rule 12 was somewhat similar to RUle 10 A of the Rules and had been held to be ultra vires on the ground that it did not have the required statutory backing.
In M/s. Agarwal Brothers vs The Union of India, , it was held that a licence issued under the Central Excise Rules was personal to the licensee and therefore, a transferee of factory licensed to manufacture iron and steel products from the former licensee could only be treated as a new licensee after the relevant date mentioned in the Notification No. 13 1 of 1962, dated 13th June, 1962, and as the petitioner applied for a licence much later, the exemption under the Notification was not available to the petitioner who could not be applying for renewal of the earlier licence held by the transferors and hence the exemption under the Notifica tion was not available to the petitioner.
Demand, therefore, could only be made under Rule 10 A which, it was held, could not be invoked in view of the decisions in W.P. No. 1053/68, namely the Citadel Fine (supra).
A Division Bench of Kerala High Court in Kerala Poly thene vs Superintendent, Central Excise, since reported in , held that Rule 10 A of the rules was not ultra vires the rule making power conferred by the Act on the Central Government.
Balakrishna Eradi, J., as he then was, observed that the scope of the rule making power con ferred by Section 3(1) of the Act was wide enough to embrace all matters relating to the manner in which both the levy and the collection of duties of excise on all excisable goods other than salt were to be made.
The provision con tained in Rule 10 A was thus fully within the scope of the said power and hence it was not correct to say that Rule 10 A was ultra vires the rule making power conferred by the Act on the Central Government.
The cases of Agarwal Brothers (supra) and Citadel Fine Pharmaceuticals (supra) were dis tinguished pointing out that there was much difference in scopes of Section 3 of the Medicinal and Toilet Preparations (Excise Duties) Act (XVI of 1955) and of Section 3 of the Act.
Comparing the provisions of the two Sections it was observed that there was funda 451 mental difference in their policy and scheme.
Under Section 3 of the Medicinal and Toilet Preparations Act only the manner of collection of the duties was left to be prescribed by the rules and levy of the duty was to be made at the rates specified in the Schedule to the Act.
In enacting Section 3 of the Act i.e. Central Excise and Salt Act, the Parliament had empowered the rule making authority to pre scribe by rules the manner of levy of duties and also the manner of collection of duties of excise on all excisable goods other than salt.
Manifestly the rule making power conferred by this Section is very much wider in its ambit than the power conferred on the rule making authority under Section 3 of the Medicinal and Toilet Preparations (Excise Duties) Act whereunder only the manner of collection of duties could be laid down by rules.
We respectfully agree with this view.
We also find that in Agarwal Brothers (supra) though one of the questions raised was the validity of Rule 10 A of the Rules, the Court did not consider the said question on merits in view of the submission made by the standing counsel for the State Government on the basis of Rule 10 A in the light of the earlier decisions of the same High Court, striking down Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules.
That decision can not obviously be regarded as authority supporting the con tention that Rule 10 A was ultra vires the rule making power.
We find that Rule 10 A, was incorporated because of the decision of the Nagpur High Court in Messrs Chhotabhai Jethabhai Patel vs Union of India, After that decision the Central Government by a notifica tion, dated December 8, 195 1, amended the Rules by addition of the new Rule 10 A.
The assessee challenged the validity of the Rule but a full bench of the Nagpur High Court re jected the assessee 's contention and held that Rule 10 A covered a case for increased levy on the basis of a change of law.
That decision was challenged before this Court unsuccessfully.
This Court in Chhotabhai Jethabhai Patel and Co. vs The Union of India, ; , reject ed the assessee 's claim regarding non applicability of Rule 10 A stating that it had been specifically designed for the enforcement of a demand like the one in that case.
We also find that in N.B. Sanjana vs Elphinstone Spin ning and Weaving Mills Company Ltd., [2971] 1 SCC 337, while holding that Rule 10 A did not apply to the facts of that case, this Court observed that Rule 10 A did not apply as the specific provision for collection of duty in a case like that was specially provided for by Rule 10 and, therefore, action should have been taken under that Rule.
452 In Assistant Collector vs National Tobacco Co. Ltd., ; , this Court held that the High Court erroneously refused to consider whether the impugned notice in that case fell under Rule 10 A.
It was observed that Rules 10 and 10 A seemed to be so widely worded as to cover any inadvertance, error etc.; whereas Rule 10 A would appear to cover any deficiency in duty if the duty had, for any reason, been short levied, except that it would be outside the purview of Rule 10 A if its collection was expressly provided by any Rule.
It was further observed that both the Rules as they stood at the relevant time dealt with collec tion and not with assessment and what was said in N.B. Sanjana 's case (supra) that Rule 10 A was of residual in character and would be inapplicable if a case fell within a specified category of cases mentioned in Rue 10, was reiter ated.
In D.R. Kohli vs Atul Products Ltd., [1985] 2 S.C.R. 832, this Court pointed out the differences between the two Rules namely Rule 10 and Rule 10 A as: "(i) whereas Rule 10 applies to cases of short levy through inadvertence, error, collusion or misconstruction on the part of an officer, or through mis statement as to the quantity, the description or value of the excisable goods on the part of the owner, Rule 10 A was a residuary clause applied to those cases which were not covered by Rule 10 and that; (ii) whereas under Rule 10, the deficit amount could not be collected after the expiry of three months from the date on which the duty or charge was paid or adjusted in owner 's account current or from the date of making the refund, Rule 10 A did not con tain any such period of limitation.
" It would thus be clear that this Court interpreted Rule 10 A, distinguished it from Rule 10 and applied it to the appropriate facts and circumstances of different cases.
It would be reasonable to infer that in none of the cases any doubt about the validity of the Rule 10 A was entertained.
We may now examine the contention that at the relevant time Rule 10 A was not covered by the rule making power conferred on the Central Government by Section 37.
Section 37 dealt with power of Central Government to make Rules.
Sub section (1) said: "The Central Government may make rules to carry into effect the purposes of this Act." Sub section (2) enumerated the matters the rules might provide for 'in particular ' and "without prejudice to the generality of the foregoing power." Thus, the section did not require that the enumerated rules would be exhaustive.
Any rule if it could be shown to have been made "to carry into effect the pur poses of the Act" would 453 be within the rule making power.
Chapter II of the Act dealt with the levy and collection of duty.
Section 3 as it stood at the relevant time provided that duties specified in the First Schedule were to be levied.
We have quoted Sub section (1).
The First Schedule contained Item Nos.
description of goods and rates of duty.
Section 3 has subsequently been amended by the Finance Acts of 1982 and 1984, and the Cen tral Excise Tariff Act of 1985.
This section, it would be seen, expressly empowered the levy and collection of duties of excise on all excisable goods as provided in the Act including its First Schedule.
It could not, therefore, be said that Rule 10 A was not covered by the above provision.
It is an accepted principle that delegated authority must be exercised strictly within the limits of the authori ty.
If rule making power is conferred and the rules made are in excess of that power the rules would be void even if the Act provided that they shall have effect as though enacted in the Act as was ruled in State of Kerala vs K.M. Charia Abdullah & Co., ; Therein the High Court having declared rule 14 A of the Madras General Sales Tax Rules, 1939 as ultra vires, on appeal, this Court by majori ty held that the validity of the rule, even though it was directed to have effect as if enacted in the Act, was always open to challenge on the ground that it was unauthorised.
The validity of the delegated legislation is generally a question of vires, that is, whether or not the enabling power has been exceeded or otherwise wrongfully exercised.
Scrutinising the provisions of Rule 10 A in the light of the above principles and pronouncements of this Court, we have no doubt that Rule 10 A of the Rules, as it existed at the relevant time, was valid and not ultra vires the rule making power.
Demand notices lawfully issued under the rule by the competent authority could not, therefore, be challenged on the ground of the rule 10 A itself being ultra vires.
Wheth er those could be challenged on any other ground must neces sarily depend on the facts and circumstances of the case.
The High Court having proceeded on the basis that Rule 10 A was not available to support the demand notice, we set aside the impugned order of the High Court, allow the ap peal, and remand the case to the High Court for disposal in accordance with law.
We leave the other questions open.
Under the peculiar facts and circumstance of the case, we leave the parties to bear their own costs.
Y. Lal Appeal al lowed.
| IN-Abs | Respondent firm owned a Steel Rolling Mill situate at Madras.
The said mill was leased out to a partnership firm viz., M/s. Steel Industries and after the expiry of the lease period, the Respondent took back the possession of the Mill on 1.8.1962 and informed the Central Excise Authori ties, who advised the Respondent to take out a licence for which it applied on 30.11.1962 Respondent sold away the Rolling Mill on 8.4.1963.
The Superintendent of Central Excise by his letter dated 13.10.1965 raised a demand of Rs.31,018.20 p. on the respondent on account of excise duty.
The Respondent having informed the Department that the firm had manufactured only 775.455 metric tonnes of steel, the demand of excise duty was reduced to Rs.6,419.38 p. only.
The Respondent, though pleaded that it was not liable to pay excise duty demanded, yet the Assistant Collector of Customs by his order dated 14.6.1967 confirmed the demand.
The Respondent firm challenged the validity of the demand by filing a Writ Petition in the High Court.
Respond ent contended before the High Court that (i) it was entitled to exemption of duty; (ii) that the demand for payment of excise duty was time barred and (iii) that Rules 10A under which the demand has been made are ultra rites as there was provision in the Act to enable the Government to frame rules for the recovery of duty short levied.
The High Court allowed the Writ Petition and upheld the contention advanced by the Respondent holding that Rule 10A did not apply to cases where there has been no prior levy of excise duty in respect of the articles manufactured during the relevant period.
Hence this appeal by the Department.
445 The question that arose for determination by this Court was whether Rule 10A of the Rules, as it stood at the rele vant time, was valid? Counsel for the appellant wile plead ing that the Rule was valid submitted that it was necessary to decide this question in view of the conflicting decisions creating difficulty for the Department in collecting short levies or escaped excise duty.
Counsel referred to decisions reported in 1972(2) MLJ 476; ; ; ; and 1977(2) Tax L.R. 1680.
Counsel for the Respondent urged that the Standing Counsel for the Central Government had conceded the ration ale of the decision in Haji J.A. Kateera sait vs Dy.
Commer cial Tax Officer, Mettupalayam;, 18 STC 370 which held that Sub Rule (7) of Rule S of the Central Sales Tax (Madras) Rules 1957 was in excess of the rule making power and as such the Sub rule as a whole was invalid.
In view of the said decision, the appellant would not be able to sustain the demand under Rule 10A; and it is no longer open to the appellant to challenge the validity of Rule 10A in the appeal.
Allowing the appeal and remanding the matter to the High Court, Court, HELD: Chapter II of the Act deals with levy and collec tion of duty.
Under Section 3 of the Act, duties specified in First Schedule to the Act were to be levied.
Rule 10A provided the machinery for collection of tax from assessee after the goods had left the factory premises.
This rule contemplated that the duty or deficiency in duty was payable on a written demand made by the proper officer in cases where either the rules did not make any specific provision for the collection of any duty or of any deficiency in duty, if the duty had for any reason been short levied.
It was a residuary provision and it applied only when there was no other specific provision in the Rules.
Where there had been no assessment at all there was no reason why claim and demand of the Respondent could not be said to be recoverable under Rule 10A. [449E; 448H; 449B C] The validity of the delegated legislation is generally a question of vires, that is, whether or not the enabling power has been exceeded or not.
Rule 10A as it existed at the relevant time, was valid and not ultra vires the rule making power.
Demand notice lawfully issued under the rule by the competent authority could not, therefore, be chal lenged on the ground of the Rule 10A itself being ultra vires.
Whether these could be challenged on any other ground must necessarily depend on the facts 446 and circumstances of each case.
[453E F] Kerala Polythene vs Superintendent Central & Excise, M/s. Chhotabhai Jethabhai Patel vs Union of India, Stateof Kerala vs K.M. Charie Abdullah & Co., [1965] 1 S.C.R.601.
Any rule if it could be shown to have been made 'to carry into, effect the purposes of the Act ' would be within the rule making power.
[452H; 453A] Citadel Fine Pharmaceuticals vs District Revenue Offi cer, Chingleput, ; M/s. Agarwal Brothers vs Union of India, ; N.B. Sanjane vs Elphin stone Spinning and Weaving Mills Company Ltd., ; Assistant Collector vs National Tobacco Co. Ltd., ; and D.R. Kohli vs Atul Products Ltd., ; , referred to.
|
ition (Civil) No. 1055 and 1088 of 1988.
(Under Article 32 of the Constitution of India. ) R.P. Kapur for the petitioners.
V.C. Mahajan, Mrs. Kitty K. Manglam and Ms. A. Subha shini for the Respondents.
The Judgment of the Court was delivered by OZA, J.
After hearing the learned counsel for parties it clearly emerges that the two petitioners and one Smt.
Rekha Mehta who had filed a petition earlier were all the employ ees of one institution known as Nari Kiketan.
This institu tion was fully funded by Delhi Administration and was con trolled by Board managing the affairs.
It is also not in dispute that all the three persons mentioned above, the two petitioners and Smt.
Rekha Mehta, are identically situated in respect of their conditions of service.
On 1.12.79 the Board was superseded and the institution was taken over by the Delhi Administration and the staff of this institution Nari Niketan was absorbed in the Delhi Administration vide Order No. 4 2(3) 79 DSW ESTT dated 27.2.80.
By this order about 20 officials were absorbed in time scale and pay as were being drawn by them prior to 1.12.79.
These facts are not disputed.
It is also not in dispute that Smt.
Rekha Mehta when after retirement was not given pensionary benefits she filed a petition in this Court No. (C) 539 of 1987.
This Court passed the order in the case of Smt.
Rekha Mehta as: "Rule issued and made absolute.
Arguments heard.
The respondents arc directed to calcu late the pension and other retiral benefits of the petitioner taking into account her an tecedent of service before absorption and pay the same as early as possible and in any event not later than three months from today.
The respondent will pay costs quantified at Rs. 2,000 to the petitioner.
" Thereafter these two petitioners have again filed writ petitions alleging that they have retired and therefore they are entitled to the same pensionary benefits which were given to Smt.
Rekha Mehta as they belong to the services of Nan Niketan institution, subsequently 602 absorbed in the services of Delhi Administration.
It is also not in dispute that these petitioners repeatedly approached the respondent Delhi Administration and made representations for getting the pensionary benefits as were granted to Smt.
Rekha Mehta after the orders were passed by this Hon 'ble Court.
Unfortunately in spite of all this nothing was done consequently these two writ petitions were filed before this Court.
Learned counsel appearing for the Delhi Administra tion attempted to contend that the decision in the case of Smt.
Rekha Mehta will not be applicable but realising the difficulty he only read through the affidavit filed in return wherein a long story as to how the papers tossed from department to department and ultimately no decision was taken.
There is also reference to the Govt.
of India, Minis try of Personnel & Training, Public Grievances & Pensions and it is stated that in the opinion of these departments the judgment of this Court in Smt.
Rekha Mehta was a judg ment in the particular case only and these petitioners are not entitled to pensionary benefits.
It is unfortunate that such a simple affair where the services in an institution under the control of the Delhi Administration and fully funded by the Delhi Administration when taken over and the staff absorbed in the Delhi Administration it could be said that they will not be entitled to ordinary facilities like the pensionary benefits when available to other staff of the Delhi Administration and apart from it when in one case of an employee of the institution whose services were absorbed in the Delhi Administration has been decided by this Court still the counter affidavit indicates the working of the departmental officials who chose to opine that it is not binding on the Go, vt.
That was a case only of a particular employee in spite of the fact that Union of India is alleged as a party.
It has chosen not to keep a counsel present at the time of hearing of these petitions.
All these circum stances go to indicate as to how the matters are handled by our Administration resulting in unnecessary litigation and heavy expenditure on the public exchequer.
Apart from, the expenditure of litigation the costs that have to be paid in such litigation.
The facts as are not in dispute the case of one of the employees having been decided by this Court it was expected that without resorting to any of the methods the other employees identically placed would have been given the same benefit, which would have avoided not only unnecessary litigation but also of the waste of time and the movement of files and papers which only waste public time.
Learned counsel only read out the counter and stated that it was thought that the case of Smt.
Rekha Mehta will not be ap plicable to the case of the present petitioners although learned counsel had no argument in law to sup 603 port such a contention.
The petitions are therefore allowed and it is directed that the petitioners shall be paid their pensionary benefits within 3 months from today.
It is fur ther directed that the petitioners shall be entitled to costs of Rs.2500 in each case.
It is also directed that the matter will be considered at the appropriate level to see that such things do not happen in future so that unnecessary litigation is avoided and costs to the public exchequer is saved.
P.S.S Petitions allowed.
| IN-Abs | An institution being fully funded by the respondent Administration was taken over and the affected stuff ab sorbed in its services in the time scale of pay.
The peti tioners who comprised the said staff were not given pension ary benefits upon retirement.
They, therefore, filed these writ petitions.
This court in a petition by one of the affected employ ees (Smt.
Rekha Mehta vs Delhi Administration, W.P. (C) No. 539 of 1987 decided on April 4, 1988) had directed payment of pensionary benefits.
However, the case of the respondent was that the said decision having been rendered in a partic ular case, it would not be applicable to the petitioners in the instant case.
Allowing the writ petitions, HELD: The services in an institution under the control of and fully funded by the respondent Administration having been taken over by it and the staff absorbed in the time scale of pay, it could not be said that they would not be entitled to ordinary facilities like the pensionary benefits available to other staff.
[602D] The case of one of the employees having been decided by this court, it was expected that without resorting to any of the methods, the other employees identically placed would have been given the same benefit.
[602G] [The petitioners to be paid pensionary benefits within three months.
The matter to be considered at the appropriate level to see that such things do not happen in future, so that unnecessary litigation is avoided and cost to the public exchequer is saved.]
|
No. 5 (N) of 1974.
(Under Article 32 of the Constitution of India).
Soli J. Sorabjee, Harish N Salve, A.K. Verma, K.J. John, Srinivasamurthy, Ms. Naina Kapur, J.B. Dadachanji and Joel Pares for the Petitioners.
Shanti Bhushan and A.V. Rangam for the Respondents.
The Judgment of the Court was delivered by VENKATACHALIAH, J.
In these writ petitions under Article 32 of the Constitution of India, three electric supply undertakings in the State of Tamil Nadu, namely, Vellore Electric Corporation Ltd., Nagapatam Electric Supply Co. Ltd., and Kumbakonam Electric Supply Corporation Ltd., challenge the constitutional validity of the Tamil Nadu Private Electricity Supply Undertakings (Acquisition) Act, 1973, ( 'Act ' for short) on the ground that the 'Act ', which envisages the acquisition of the Electric Supply Undertak ings of three petitioners, as violative of Articles 14, 19(1)(f), 19(1)(g) and 31 of the Constitution.
These writ petitions were heard along with Writ Petition (Civil) Nos. 457 and 458 of 1972, pertaining to the acquisi tion of Tinsukhia Electric Supply Co. Ltd., and Dibrugarh Electric Supply Co. Ltd., under the provisions of the Tin sukhia and Dibrugarh Electric Supply Undertakings (Acquisi tion)Act, 1973, (Assam Act 1973) and the main contentions touching the constitutionality of such State laws, providing for acquisition of private electricity undertakings inde pendently of and without recourse to the option to purchase envisaged by the terms of licences and under the provisions Sections 6, 7 and 7A of the Electricity Act 1910 are con sidered in the main judgment in the said WP 481 Nos. 457 & 458, separately rendered today.
The scheme and the broad features of The Tamil Nadu Private Electricity Supply Undertakings (Acquisition) Act, 1973, which received the assent of the President on 30th September, 1973, are that the "Act" enables and provides for the acquisition of the private undertakings engaged in the business of supplying electricity to the public other than those belonging to and are under the control of the State Electricity Board or the local authorities.
Section 2 of the Act declares that the "Act" is for giving effect to the policy of the State towards securing of the Directive Principles, specified in clauses (b) & (c) of Article 39 of the Constitution of India.
Section 3 is the interpretation clause.
Section 4 empowers the State Govern ment to declare, by order in writing, that any undertaking shall vest in Government on the date specified in such order.
The proviso to Section 4 enables the Government to modify, by advancing or postponing, the date originally fixed in such order, or the modified date; or to cancel such order.
The proviso is, however, subject to a limitation which is in terms following: "So, however, that no such order shall be modified or cancelled after the undertaking has vested in the Government but such cancel lation shall not be deemed to prevent the Government from taking any proceeding de novo in respect of such undertaking under this Act." The mode of promulgation and the incidence and consequence of an order under sub section (1) of Section 4, are envisaged in subsection (3) (4) & (5) of Sections 4 and 6 of the Act.
Sub sections (3), (4) and (5) of Section 4 provide: "(3) Every order under sub section (1) shall be (a) served on the licensee in the prescribed manner; and (b) published in such manner as the Government may deem fit.
(4) On the vesting date the under taking, to which the order under sub section (1) relates, shall, subject to the provisions of section 6, stand transferred to, and vest in, the Government.
482 (5) Every licensee who, after the vesting date, was in possession of, or deriv ing any benefit from the undertaking vested in the Government under sub section (1), shall be liable to pay to the Government, for the period, after such vesting, for which he was in such possession or deriving such benefit, an amount as compensation for the use, occupa tion or enjoyment of that undertaking as the prescribed authority may fix in the prescribed manner.
Such authority shall take into consid eration such factors as may be prescribed.
" We shall refer to Section 6 and its impact at an appropriate stage later.
Section 5 of the "Act" envisages the "amount" to be given to the licensee on whom an order has been served under Section 4 and provides for its determination on two alterna tive basis Basis (A) or Basis (B) as may be chosen by the licensee in the exercise of the option given under Section 8.
Section 7(1) contemplates and requires the appointment of an ,Accredited Agent" by the licensee within three months of service of the order under Section 4(1).
Such accredited agent is required within one month of his appointment or with such further time as may be granted by Government, signify the choice of the Basis for the determination of the "Amount".
Section 8(2) says that the choice of the Basis once intimated shall not be open to revision except with the concurrence of the Government. 'Basis (A) ' provides that the amount to be given shall be equivalent to 12 times of the average net annual profits of the undertaking during a period of any five Account years at the option of the licen see within a period of seven consecutive account years immediately preceding the vesting date. 'Basis (B) ' contem plates a different mode of determination of the amount.
It provides for payment of the aggregate value of the sums specified in clauses (i) to (ix) of sub section (2) of Section 5.
Section 10 speaks of the deduction that the Government is entitled to make for the amount.
They are specified at clauses (a) to (i) of Section 10.
Section 11 provides for the manner of payment of the "Amount".
Section 13(1) renders any dispute "in respect of any of the matters in clauses (a) to (e) of Section 13(1)" arbitrable.
The Arbitrator is required, by Section 11(2), to be a District Judge or a person who is a retired District Judge or a retired High Court Judge.
Chapter III of the Act, comprising Sections 14, 15, 16 and 17 contemplate and provide for the termination of agree ments between the licensee on the one hand and the managing agent or the managing 483 director, as the case may be, on the other; the continuation under the Government or the Electricity Board, of services of persons on the staff of the licensee taking an inventory of the assets and for information in regard to the documents maintained by the licensee and other incidental matters.
Sections 18 and 19 of Chapter IV deal with offences, penalties and procedure therefore Chapter V, comprising Sections 20, 21, 22, 23 and 24, deals with miscellaneous matters.
Two sections in Chapter V are of particular rele vance.
Section 22(i), inter alia, provides that no provi sions of Electricity Act, 1910, or the Electricity Supply Act, 1948, in so far as such provisions are inconsistent with any of the provisions of the Act, shall have any ef fect.
Section 23 refers to and deals with the action initi ated under the earlier State law viz., the Tamil Nadu Elec tric Supply Undertaking (Acquisition) Act, 1954, (Tamil Nadu Act 29 of 1954) which is repealed by the 'Act '.
Sub section (1) of Section 23 says that the said Act 29 of 1954 shall cease to apply to any undertaking as defined in Section 3(12) of the 'Act ' which has "not vested with and taken possession of by the Government under the provisions of the 1954 Act" before the commencement of the 1973 Act.
Sub section (2) and (3) of Section 23 envisage and provide for situations where some action had been initiated by the 1954 Act but such action had not culminated in the vesting of the undertaking and possession thereof being taken over by Government.
Sub section (2) and (3) of Section 23 provide: "(2) Notwithstanding anything con tained in the 1954 Act, if, in pursuance of any order under sub section (1) of section 4 of the 1954 Act in respect of any undertaking as defined in section 3 (12) of this Act, the Government have not taken possession of such undertaking before the commencement of this Act that order shall lapse and be of no effect and such undertaking shall not vest and shall be deemed never to have vested in the Govern ment under the 1954 Act and in respect of such undertaking it shall be lawful for the Govern ment to make an order under subsection (1) of section 4 of this Act and the provisions of this Act shall accordingly apply to such undertaking." "(3) Notwithstanding anything contained in the 1954 Act, where, in respect of any undertaking as defined in section 3(12) of this Act, the Government have postponed the date of vesting under the proviso to sub section (1) of 484 section 4 of the 1954 Act, that undertaking shall not vest, and shall be deemed never to have vested, in the Government under the 1954 Act, notwithstanding the expiration of a period of one year from the date originally fixed under sub section (1) of section 4 of the 1954 Act and in respect of such undertak ing it shall be lawful for the Government to make an order under sub section (1) of section 4 of this Act, and the provisions of this Act shall accordingly apply to such undertaking." The provisions of Section 23 acquire particular signifi cance in the case of the Kumbakonam Electric Supply Corpora tion Ltd. and Nagapatam Electric Supply Co. Ltd., petition ers in W.P. 14 & 15 of 1974, as, indeed, proceedings for the acquisition of the undertakings of these two companies had been initiated under the 1954 Act but full effectuation thereof had been interrupted by the interlocutory orders made by courts in proceedings in which these two companies had challenged the validity of the 1954 Act.
Section 23 of the present 'Act ' seeks legislatively to set at naught such legal consequences as might come to be considered as ensuing from the action taken under the earlier 1954 Act.
Some contentions urged in these cases centre round what the petitioners refer to as some irreversible, vested rights according to them under the earlier proceedings under the 1954 Act.
The Vellore Electric Corporation Ltd., petitioner in WP No. 5(N) of 1974, was granted on 14.5.1929 by the Govern ment of the then Presidency of Madras under the provisions of the , (1910 Act ' for short), for the supply of.
electrical energy within the municipal limits of Vellore town which was later extended to cover the adjacent area of Ranipet.
Clause 12 of the licence envisages the option to the Government to purchase the licensee 's undertaking on the expiry of 30 years from the commencement of the licence or if licence is renewed thereafter on expi ration of every subsequent period of 20 years, during the continuance of the licence.
At the relevant time when the order under Section 4(1) was made, the remaining period of the licence was upto 14.5.
The State Government in exercise of powers under Section 4(1) of the Act made an order dated 30.10.1973, served on the petitioner on 5.11.
1973 fixing 1.12.1973 (which was later postponed to 7.1.1974) as the date of vesting.
The facts in W.P. 14 of 1974 are the following: 485 The petitioner, the Kumbakonam Electric Supply Corpora tion Ltd., a public limited company, then engaged in the business of distribution and supply of electrical energy in the Taluks of Kumbakonam and Papanasam and a portion of Thanjavur Taluk, in the District of Thanjavur in the State of Tamil Nadu, was granted a licence dated 15.4.1930 under the , by the Government of the then Presidency of Madras.
The initial period of the licence was 20 years with a provision for renewal for further peri ods of 7 years each.
At the time the impugned order under Section 4(1) of the "Act" was made, in relation to the Electricity Supply Undertaking of this company, the unex pired period of the licence was up to 15.4.1978.
On 12.1.1968, the State Government in exercise of its power under Section 4(1) of the Madras Electricity Supply Undertakings (Acquisition) Act, 1954, made an order for the taking over of the undertaking.
The petitioner company filed a writ petition No. 704 of 1968 in the High Court of Madras, challenging the constitutional validity of the 1954 Act under which the order was made.
That writ petition was dis missed on 31.7.1968.
The Writ Appeal No. 338 of 1968, filed by the petitioner was also dismissed by the Division Bench.
The petitioner preferred, by special leave, an appeal to this Court in CA 119 of 197 1.
During the pendency of the proceedings before the High Court and before this Court, petitioner had had the benefit of interlocutory orders, "staying delivery of possession of the undertaking".
Howev er, the petitioner withdrew the appeal, according to it, on the suggestion of the Government With a view to facilitating negotiations for a settlement.
However, on 30.9.1973, the 'Act ' in the present proceed ings came into force.
As noticed earlier, sub section (2) and (3) of Section 23 of the 'Act ' statutorily abrogates the effect, incidents and consequences of all earlier proceed ings taken under the 1954 Act, except in cases where the vesting and the taking over of possession of the undertaking had already occurred before 30.9.1973.
The order under Sec tion 4(1) of the 1973 Act in the case of the petitioner in WP 14 of 1974 was made on 30.10.1973 declaring 1.12.1973 as the date of the vesting.
In WP No. 15 of 1974, the first petitioner, the Nagapatnam Electric Supply Co. Ltd., a public limited compa ny, was the grantee of a licence, dated 22.8.1933, under the , by the then Government, Presi dency of Madras, for the supply of electricity in the areas specified in the grant.
The initial period of the .
licence was 20 years with a provision for renewal for further peri ods of 486 7 years each.
At the time the order under Section 4(1) impugned in the writ petition was made, the unexpired period of the licence was upto 22.8.1974.
As in the case of Kumbak onam Electric Supply Corporation Ltd., so in the present case, Government in purported exercise of powers under Section 4(1) of the earlier Act, viz., the Tamil Nadu Elec tricity Supply Undertaking (Acquisition) Act, 1954, had made an order on 12.1.1968 declaring that the undertaking of the petitioner shall vest in the Government with effect from 15.7.1968.
The petitioner also challenged the constitutional validity of the 1954 Act in WP No. 703 of 1968 in the High Court of Madras.
The writ petition was dismissed in Madras High Court on 3.7.1968.
The Writ Appeal 337 of 1968 pre ferred by the company before a Division Bench of the High Court, also came .to be dismissed.
The Company preferred, by special leave, CA No. 120 of 1971 before this Court.
During the pendency of the proceedings in the High Court and in the appeal before this Court, there were interlocutory orders, staying delivery of possession of the undertaking.
The appeal before this Court was however, withdrawn by the company on 5.10. 1972.
Thereafter, 1973 Act came into force.
As stated earli er, SectiOn 23 of the 'Act ' sought to nullify the effect.
of the action taken under the 1954 Act and a fresh order dated 30.10.1973 under Section 4(1) of 1973 Act came to be promulgated declaring that the undertak ing of the .
petitioners would vest in Government with effect from 1.12.1973.
The three petitioner companies assail the constitu tional validity of the 'Act ' as also the orders made under Section 4(1) in the individual cases.
We have heard Sri Hansh Salve, learned counsel for the petitioners in the three petitions and Shri Shanti Bhushan, learned Senior Advocate for the State of Tamil Nadu and its authorities.
The challenge in the main, is to the constitu tionality of the "Act", on the basis of discrimination as between the procedures for take over contained in Section 6 and 7 of the Electricity Act, 1910, on the one hand and the less advantageous, so far as licencee is concerned, con tained in the present 'Act '.
However, some specific provi sions are also challenged as arbitrary and unreasonable.
The contentions in support of the petitions urged at the hearing of these petitions of which (b) & (c) are particular to WP Nos. 14 and 15 of 1974 may be noticed and formulated thus: 487 "(a) that the legislative declaration in Section 2 of the 'Act ' that the legislation is for giving effect to the Directive Principles of State Policy, specified in clauses (b) & (c) of Article 39 of the Constitution is invalid, it being merely a pretext to undo and take away the petitioners ' legitimate entitle ment to the payment of market value as provid ed in the terms of the licence read with Section 6 and 7 of Electricity Act, 19 10, and, accordingly, the legislation does not attract the constitutional validity from challenge under Article 31 C of the Constitu tion; (b) that, pursuant to the order made under Section 4(1) of the 1954 Act petitioners ' undertakings stood vested in Government in the year 1968 and the concomitant right to receive compensation as determinable under and in terms of the 1954 Act was came to be vested in the petitioners and got crystalized into a 'chose in action ' and that in the circum stances the impugned 'Act ' which in effect and substance acquires only these "choses in action", and not the undertakings as such which had already vested under the 1954 Act; (c) that Section 23(2) of the Impugned Act in so far it seeks to undo the legal incidents and consequences of the order made which provided a less disadvantageous standards for the determination of the amount and the im pugned orders which seeks to declare that the said undertakings vest again in Government this time pursuant to order pro mulgating under Section 4(1) of the impugned Act is violative of Article 14, 19(1)(g) and 31 (as the latter Articles then stood) being a fraud on the power to acquire; (d) that the 'Act ' is violative of Article 14 of the Constitution in as much as it seeks to confer upon the Government an alternative and discriminatory power of attaining the same end, namely, the acquisition of petitioners ' undertakings on terms more advantageous to the Government and more disadvantageous to the petitioners than those contained in the Elec tricity Act 1910; that the direct effect of the impugned Act is to extinguish the rights conferred upon the petitioners to carry on a lawful business in terms of the subsisting licences in their favour and is violative of Article 19(1)(f) (as it then stood) and 19(1)(g): 488 (e) that, at all events, Section 4(5) of the Act which renders a licencee, who after the vesting date was in possession of, or deriving any benefit from, the undertaking liable to pay to Government compensation for the use occupation enjoyment of the undertak ing is arbitrary and violative of Articles 14 and 31; (f) that clause 5(2)(i) of the Act which excludes from the compensation of the 'Amount ' works paid for by the consumers is violative of Article 19(1)(g) and Article 31; (g) that Section 10(d) providing for deduc tion from the 'Amount ' sums due to the Govern ment or the Electricity Board by the licencee account of electricity supplied by Government is arbitrary, as the provision empowers deduc tions of even sums bona fide disputed by the licencee of debts.
(h) that, while proviso to Section 6(e) enables debts, mortgages and obligations of the licencee to attach to the "amount" to be given under the Act.
Section 10 again envis ages the same 'amount ' to be deducted from the 'amount ', leading to a possible double recov ery of the same debt; (i) that Section 10(f) providing for deduc tion of loss sustained by Government by reason of any property belonging to the undertaking not having been handed over at the marketvalue of the property is unreasonable in as much as under Basis B. Such Market value is not but only the book value is the basis of determina tion of the amount; (j) that provisions of Section 8 which prescribes a period of one month during which the accredited representative has to exercise a right of auction is unreasonably short, rendering the procedure prescribed for the choice of the Basis of determination of the 'Amount unfair and arbitrary. ' 7.
Re: Contentions (a), (b), & (c): These contentions could be dealt with together.
The principal argument is that that there is no rational and direct nexus between the objects of the Act and the Direc tive Principles of (1) State Policy adumorated in clauses (b) & (c) of Article 39 in as much as the 489 impugned Act was brought forth only to avoid the conse quences of the terms of the licences and the beneficent provisions of Section 6, 7 and 7 A of the Electricity Act 1910.
If there is, thus, no protection to the law of Article 31 C, then its provisions would clearly violate Articles 14, 19 and 31.
These contentions have to be examined with reference to the provisions of the Constitution as they stood in 1973.
Article 31 C was introduced by Section 3 of the Constitution (25th Amendment) Act 1971 with effect from 20.4.1972.
Arti cle 31 C, before the expansion of its scope by the 42nd Amendment, protected a law giving effect to the Policy of the State towards implementing the principles specified in Clauses (b) & (c) of Article 39.
Article 31 itself had not then been deleted but its scope had been considerably cut down and a law providing for acquisition of property, even if it did not have the protection of Article 31 C, could not be tested with reference to the adequacy of the 'amount ' payable for the acquisition.
The 'just equivalent ' or ful lindemnification principle had been done away with and the question of the adequacy of the amount was rendered non justiciable.
It was strenuously urged on Sri Salve that the impugned Act had no rational and direct nexus with the objects of clauses (b) & (c) of Article 39 as the covert but easily discernible purpose of the Act was to deny to the petition ers ' their rights under terms of the licence and the benefit of Sections 6, 7 & 7(A) of the 1910 Act.
A somewhat similar ' contention was urged in WP Nos. 457 & 458 of 1972 where a similar legislation of the State of Assam was challenged.
The contention is noticed in our judgment in those appeals thus: " . the acquisition of the two undertak ings are challenged by the petitioner on several grounds, the principal attack, howev er, being that the legislations, brought forth, as they were, in the wake of the pri vate negotiations and the exercise of the option to purchase, are not bona fide, but constitute a mere colourable exercise of the legislative power and that, at all events the real objects of the two legislations have no direct and reasonable nexus to the objects envisage in clause (b) of Article 39 of the Constitution and that a careful and critical discernment of the context in which the legis lation was brought forth would lay bare before the judicial eye that what was sought to be acquired was not "undertakings" of the two companies but really the difference between the "market value" of the 490 undertakings which the State had agreed, under the private treaties, to pay and what, in any event, the State was obliged to pay under the provisions of Section 7A, as it then stood on the one hand and the "Book Value" of the undertaking, which the law seeks to substitute on the other.
If the protective umbrella of Article 31 C is, thus, out of the way, the 'amount ' payable under the impugned law, it is urged, would be illusory even on the judicial ly accepted tests applied to Article 31(2) as it then stood " " . .
Learned Counsel submitted that in order to decide whether a Statute is within Article 31 C or not, the Court has to examine the nature and character of the legis lation and if upon such scrutiny it appears that there is no nexus between the legislation and the principles in Article 39(b) the legis lation must be held to fall outside the pro tection of Article 31 C . " The contention was not accepted.
Repelling it, we observed in the course of the judgment in WP Nos. 457 & 458 of 1972: "The proposition of Sri Sorabjee, in princi ple, is, therefore, unexceptionable; but the question remains whether, upon the application of the appropriate tests, the impugned statute fails to measure up to the requirements of the Constitution to earn the protection under Article 31 C . . " "It is not disputed that the elec tricity generated and distributed by the undertakings of the petitioner companies constitute "material resources of the communi ty" for the purpose and within the meaning of Article 39(b)." " .
The idea of distribution of the material resources of the community in Article 39(b) is not necessarily limited to the idea of what is taken over for distribution amongst the intended beneficiaries.
That is one of the modes of "distribution".
Nationalisation is another mode . " "On an examination of the scheme of the impugned law the conclusion becomes inescapable that the legislative measure is one of na tionalisation of the undertakings and the law is eligible for and entitled to the protection of Article 31 C." 491 Referring to the contention in that case that not every provision of a law can and need to eligible for the protection of Article 31 C and that; accordingly, the provisions as to the quantification of the amount which were meant to achieve an oblique motive and inter dicting and extinguishing rights to receive market value under the 1910 Act would not attract the protection of Article 31 C, It was held: " .
We are afraid this contention pro ceeds on an impermissible dichotomy of the components integral to the idea of nationali sation.
The economic cost of social and eco nomic reform is, perhaps, amongst the most vexed problems of social and economic change and constitute the core element in Nationali sation.
The need for constitutional immunities for such legislative efforts at social and economic change recognise the otherwise unaf fordable economic burden of reforms . . " "It is, therefore, not possible to divorce the economic considerations or compo nents from the scheme of the nationalisation with which the former are inextricably inte grated.
The financial cost of a scheme of nationisation lies at its very heart and cannot be isolated.
Both the provisions relat ing to the vestitute of the undertakings in the State and those pertaining to the quanti fication of the "Amount" are integral and inseparable parts of the integral scheme of nationalisation and do not admit of being considered as distinct provisions independent of each other.
These observations fully answer the contention of Sri Salve in regard to the question whether impugned Act at tracts protection of Article 31 C or not.
If Article 31 C comes in, Articles 14, 19 and 31 go out.
The second limb of the Contention (a) is that the im pugned Act seeks to take over petitioners ' undertakings which had already vested in Government under the 1954 Act.
It is, no doubt, true that appropriate orders had been made under Section 4(1) of 1954 Act.
Sri Salve contends that by the operation of law, the undertakings of the two petition ers, namely, Kumbakonam Electric Supply Corporation Ltd. and Nagapatnam Electric Supply Co. Ltd. became vested in Govern ment and that Section 23 of the present Act virtually creates an artificial divestitive event and seeks to re invest it again in Govern 492 ment by the device under the impugned Act with the sole object of cutting down the quantum of the "amount".
Sri Salve pointed out that Section 5 of the 1954 Act envisaged three alternative Bases Basis A, Basis B, and Basis C and that under Basis A the amount equal to 20 times of the average net annual profit of the undertaking during a period of five consecutive accounting years immediately preceding the vesting date was payable.
The number of years ' purchase value is, Sri Salve says, now reduced to 12 by the impugned Act.
Shri Salve submits that the amount payable under the 1973 Act is wholly illusory.
Shri Shanti Bhushan, learned Senior counsel for the State, submitted that if it is held that the legislation has the protection of Article 31 C, barring the question of legislative competence all other attacks based on Articles 14 and 19 and 31 cannot be countenanced.
Sri Shanti Bhushan submitted that all the contentions that the petitioners advance in support of their challenge to the validity of the Act rest, in the ultimate analysis, on Articles 14, 19 and 31 which is precisely what Article 31 C forbids.
So far as legislative competence is concerned, Shri Shanti Bhushan submitted that it is referable to Entry 42 of List III and with Presidential assent, the legislation prevails over any other law and, therefore, no question of lack of legislative competence can be urged.
Learned counsel submitted that the contentions urged by the petitioners, in the last analysis, would amount to this: that a legislation which offends Articles 14.
19 and 31.
would not be a valid law at all and would, therefore, not be eligible to protec tion Article of 31 C.
If a law satisfies the demand of Article 14, 19 and 31 then such a law, says learned counsel, would not need the protection of Article 31 C at all and that such an approach would render Article 31 C itself meaningless.
In regard to the Contention (d), Sri Shanti Bhushan would say that it proceeds on a factual fallacy.
There cannot, it is urged a vesting of the undertaking in the Government under the 1954 Act unless the concept of vesting has and is accompanied by, the plenitude of the legal inci dents and consequences of such vesting for purposes of the implementation of the 1954 Act.
When the delivery of posses sion of the undertaking pursuant to the alleged vesting under the 1954 Act had been interdicted by the High Court and the Supreme Court by orders of stay, at the instance of the petitioners, the exercise under the 1954 Act became infructuous and the present stance of the petitioners is merely an attempt to exploit to their own advantage a situa tion emerg 493 ing from the consequences of their own actions.
That apart, the contention (d), says counsel, is really one based on Articles 14, 19 and 31 and the protection of Article 31 C to the Act would, in any event, disallow any such attack.
On a consideration of the matter, we think that all the Contentions (a), (b), (c) and (d) are covered in one form or the other our pronouncement in WP Nos. 457 and 458 of 1972.
We are also of the opinion that Sri Salve 's contention that what was sought to be acquired was mere "choses in action" is not sound.
In any event, the decision of this Court in State of Madhya Pradesh vs Ranojirao Shinde & Anr., ; relied upon by Shri Salve to contend that choses in action could not be acquired would require to be read with later pronouncement in Madan Mohan Pathak vs Union of India & Ors., ; It is not necessary, however, to pronounce on this point as in our view what was acquired were not merely choses inaction but the undertak ings themselves.
Contentions (a), (b) and (c) accordingly fail and are held and answered and against the petitioners.
Re: Contention (d): The submission of learned counsel on the point is that the impugned Act confers upon the State Government an alter native procedure, concurrently with the one envisaged in Sec.
6 of the Electricity Act, 19 10, for attaining the same end viz., the acquisition of an Electricity Undertaking.
It is urged that Sec.
6 of the 1910 Act has been held to amount to conferment of power upon the authorities to take away the property of the licensee.
The option under Sec. 6 is really statutory and in its essential nature the power is not distinguishable from the State 's power to acquire an indi vidual 's property which really is and forms the basis of the impugned Act.
It appears to us that there are certain fallacies basic to the argument.
The special nature of the subject matter of the grant in relation to distribution in the community of such material resources be it electricity, water, gas or other essential amenities of life was recognised by this Court.
The following observations of the United States Supreme Court in New Orleans Gaslight Co. vs Louisiane Light & Heat Producing & Mfg. Co., ; were referred to: "the manufacture and distribution of gas by means of 494 pipes, mains and conduits placed under legis lative authority in the public ways of a municipality, is not an ordinary business in which everyone may engage as of common right upon terms of equality; but is a franchise relating to matters of which the public may assume control . . " and said: " . .
It thus appears that American Lawyers describe the business of supplying energy as well as the business of supplying water and gas as a franchise, and it also appears that, in granting licence or sanction to a person to engage in such busi ness, a condition is usually imposed for the compulsory acquisition of the business when the licence or sanction comes to an end".
[See The Okara.
Electric Supply Co. Ltd. vs The State of Punjab, AIR If the impugned law is within the legislative competence of the State Legislature as indeed it must be held to be the State law, with the Presidential assent, prevails and is not over borne by the Central law.
The impugned State law, by its 22nd Section, expressly excludes the operation of any provision of the Electricity Act, 1910, in so far as such provision is inconsistent with the provisions of the State Law.
The constitutional immunity afforded to the State law prevents any challenge to it on grounds based on Article 14 or 19.
We have held that the State law has such protection.
The contention (d) has thus, no foundation.
It has to fail.
Re: Contention (e): 12.
This pertains to the liability of the licensee to account to Government in respect of possession of and any benefit derived from the undertaking after the date of the vesting.
This provision is assailed as arbitrary and uncon stitutional.
There is nothing unreasonable about this provi sion which merely recognises the obligation of a licensee to account for its acts in relation to a property which has already vested in Government.
There is no substance in this contention either.
Re: Contention (f): This contention arises in the context of Sec.
5(2)(i) of the Act.
In 495 computing the amount payable under "Basis B" the aggregate value of the sums specified in several clauses of 1 Sec.
5(2) has to be taken.
5(2)(i) while requiting the book value of all "completed works in beneficial use pertaining to the undertaking and handed over to the Government" to be taken, however, excludes therefrom works paid for by the consumers.
The contention of the petitioners is that the "works paid for by the consumer" is also the property of the licensee and cannot legitimately be excluded.
A substantial ly similar contention was urged and has been considered and negatived at para 29 of our judgment in WP Nos. 457 and 458 of 1972.
The reasons stated by us in negativing the conten tion in that case fully answer the present point.
Contention (f) is also insubstantial.
Re: Contention (g): Section 10(d) envisages,deduction from the amount pay able towards and on account of arrears of electricity charges payable by the licensee to the Government or the Electricity Board.
as the case may be, for the supply of Electricity made by them to the licensee.
This is a legiti mate item of deduction.
But, the point Shri Salve sought to put across is that ,even a disputed and untenable.
claim in that behalf becomes entitled to deduction.
There is no justification for this apprehension.
Section 13(1)(e) makes such a dispute as one of the arbitrable disputes and no deduction of a disputed claim can be justified by Government if the arbitrator who is or has been a District Judge or a retired High Court Judge holds that the deduction is unjus tified.
Contention (g) has no substance either.
Re: Contention (h): The grievance sought to be made out on the matter is that while Section 6(2) of the Act has the effect of vesting all the assets specified in Sec.
6(2)(i)(b) in Government free from encumbrances and the proviso to Sec.
6(2) renders the amount payable to the licensee as substituted security for the debts, mortgages and obligations in substitution of the assets vesting in Government, however, Sec.
10(e) ren ders one species of such debt viz,.
sums due to the Govern ment or the Electricity Board, liable to be deducted from the amount.
Shri Salve contends that this would make for a double recovery of the same debt.
This, we are afraid, is a wrong way of looking at the two provisions.
If a debt is deducted from the "amount", .the debt is satisfied and is extinguished and no further debt remains outstanding to get itself attached to and became an encumbrance upon the sub stituted 496 security viz., the 'amount '.
6(2) and Sec.
10(e) must be construed harmoniously and in a reasonable manner.
There is no scope for any apprehension of a possible double recov ery of the same debt.
There is no substance in contention (h).
Re: Contention (i): The point of the matter is that sec.
10(f) entitles the deduction of the market value of any "property" or "right" which vests in Government and which is not delivered by the licensees to Government.
The grievance of the petitioner is that while recovery of "market value" is sought to be made for non delivery of the item, however, in computing the "amount" only the "book value" of such "property" or "right" is taken into account.
This, it is contended, is an instance of application of double standards and is, therefore, arbi trary.
We see no substance in this contention.
The measure of the reimbursement for an asset withheld by the licensee is the corresponding expenditure to be incurred by Govern ment for replacement which, in eminently conceivable cases, could be the market value of the asset which is so withheld by the licensee and which has to be replaced to keep the undertaking functioning.
There is no substance in this contention either.
Re: Contention (j): Shri Salve submitted that the accredited representative is, under sec.
8(1), given only a month 's time from the date of his appointment to signify the choice under section 5 as to of the basis of determination of the amount.
The time granted, it is said, is unreasonably short.
The argument clearly overlooks the clause 'or such further time as may be granted by the Government ' occurring in Section 8(1).
If the exercise of this power is arbitrary or capricious the licen see has remedies in Administrative Law.
But the provision itself cannot be held to be bad.
There is no substance in this contention either.
Certain other subsidiary contentions were urged at the hearing.
All these matters have been elaborately consid ered in our judgment in Writ Petn.
Nos. 457 and 458 of 1972 arising out of the Assam legislation.
We have not found any merit in them.
However, there is one aspect which merits considera tion.
Shri Salve submitted that the petitioners in Writ Petn.
No. 5(N) of 1974, who initially, on 16.1.1974, had opted for basis A had sought a change to basis B by their application dated 4.10.1977.
On 2.2.1978, 497 Government refused to permit the change.
Shri Salve submits that a serious and indeed, irreparable hardship has been occasioned to the petitioners by this arbitrary refusal.
In these writ petitions we have dealt with questions of consti tutionality leaving the questions of construction of the provisions to the appropriate authorities.
However, having regard to the checkered history of the proceedings, it appears to us that Shri Salve 's submission deserves to be accepted.
Accordingly, the order of the Government dated 2.2.1978 refusing a change in the basis for determination of the amount is set aside and the Government is directed to consider and dispose of the application dated 4.10.1977 afresh within two months from today.
We make it clear that the Government shall not unreasonably withhold the permis sion for the change.
In the result, subject to the direction in para 19 supra relating to W.P. No. 5(N) of 1974, we find no sub stance in these writ petitions which are dismissed.
There will be no order as to costs.
T.N.A. Petitions dismissed.
| IN-Abs | The petitioner companies viz., Veilore Electric Corpora tion Ltd., Kumbakonam Electric Supply Corporation Ltd. and Nagapatam Electric Supply Corporation Ltd. were grantee of licences under the by the Government of the then Presidency of Madras for supply of electrical energy in their respective areas.
In exercise of its power under Section 4(1) of the Madras Electricity Supply Undertakings (Acquisition) Act, 1954, the State Government issued orders dated 12.1.1968 taking over the undertakings of the Petitioner Companies viz., Kumbakonam Electricity Supply Company and Nagapatam Electric Supply Company declaring that their undertakings shall vest in the Government with effect from the dates specified in their respective orders.
These two petitioner companies filed writ petitions in the High Court of Madras challenging the constitutional validity of the 1954 Act, which were dismissed.
The Writ Appeals filed by them were also dismissed by a Division Bench of the High Court.
Thereafter appeals were filed in this Court, which were however, later withdrawn.
Though proceedings for the acquisition of the undertak ings of these two companies had been initiated under the 1954 Act but full effectuation thereof had been interrupted by the interlocutory orders made by the courts staying delivery of possession of the undertaking.
Subsequently the Tamil Nadu Private Electricity Supply Undertakings (Acquisition) Act, 1973 came into force which, inter alia, nul 477 lifted the effect of the action taken under the the State Government issued fresh orders under Section 4(1) of 1973 Act declaring that the undertakings of these two petitioner companies shah vest in Government with effect from 1.12.1973.
A similar order was passed b.v the State Government under Section 4(1) of 1973 Act in respect of the third petitioner company viz. Vellore Electric Corporation Ltd., declaring that the undertaking of this company shall vest in the Government with effect from 7.1.1974.
By an order dated 2.2.1978 the State Government also rejected the application of the petitioner Vellore Electric Corporation seeking a change in the basis for determination of amount from basis A to basis B under the 1974 Act.
Writ Petitions were filed in this Court under Article 32 of the Constitution by the three affected companies chal lenging the constitutional validity of the Tamil Nadu Pri vate Electricity Supply Undertakings (Acquisition) Act, 1973, as well as the orders made under Section 4(1) on the ground that the 'Act ', which envisages the acquisition of the Electric Supply Undertakings of petitioners as violative of Articles 14, 19(1)(f), 19(1)(g) and 31 of the Constitu tion.
Dismissing the Writ Petitions, HELD: 1.
The electricity generated and distributed by the undertakings of the petitioner companies constitute "material resources of the community." for the purpose and within the meaning of Article 39(b).
1.1 The idea of distribution of the material resources of the community in Article 39(b) is not necessarily limited to the idea of what is taken over for distribution amongst the intended beneficiaries.
That is one of the modes of "distribution".
Nationalisation is other mode.
1.2 On an examination of the scheme of the impugned law the conclusion becomes inescapable that the legislative measure is one of nationalisation of the undertakings and the law is eligible for and entitled to the protection of Article 31 C. 1.3 The economic cost of social and economic reform is, perhaps, amongst the most vexed problems of social and economic change and constitute the core element in National isation.
The need for constitutional immunities for such legislative efforts at social and economic 478 change recognise the otherwise unaffordable economic burden of reforms.
It is, therefore, not possible to divorce the economic consideration or components from the scheme of the nationalisation with which the former are inextricably integrated.
The financial cost of a scheme of nationalisa tion lies at its very heart and cannot be isolated.
Both the provisions relating to the vestitute of the undertakings in the State and those pertaining to the quantification of the 'Amount ' are integral and inseparable parts of the integral scheme of nationalisation and do not admit of being consid ered as distinct provisions independent of each other.
Tinsukia Electric Supply Co. Ltd. vs
State of Assam, [1989](3) S.C.C. 709; applied. 1.4 In view Of the fact that what was acquired in the instant case were not merely "choses in action" but the undertakings themselves, it is not necessary to go into the question whether a "choses in action" can at all be ac quired.
State of Madhya Pradesh vs Ranojirao Shinde & Anr., ; and Madan Mohan Pathak vs Union of India & Ors., ; ; referred to.
The subject matter of the grant in relation to dis tribution in the community of such material resources be it electricity, water, gas or other essential amenities of life has a special nature.
New Orleans Gaslight Co. vs Louisiane Light & Heat Producing & Mfg. Co., ; ; The Okara Electricity Supply Co. Ltd. vs The State of Punjab, A.I.R. 1960 S.C. 284; referred to.
2.1 The impugned law is within the legislative compe tence of the State Legislature and such State law, with the Presidential assent, prevails and is not over borne by the Central law.
The impugned State law, by its 22nd section, expressly excludes the operation of any provisions of the Electricity Act, 1910, in so far as such provision is incon sistent with the provisions of the Stare Law.
The Constitu tional immunity afforded to the State law prevents any challenge to it on grounds based on Article 14 or 19. 3.
There is nothing unreasonable about the provision which merely recognises the obligation of a licensee to account for its acts in relation to a property which has already vested in Government.
There 479 fore Section 4 which pertains to the liability of the licen see to account to Government in respect of possession of and any benefit derived from the undertaking after the date of the vesting is not arbitrary and unconstitutional.
The deduction envisaged by Section 10(d) from the amount payable towards and on account of arrears of elec tricity charges payable by the licensee to the Government or the Electricity Board as the case may be for the supply of Electricity made by them to the licensee is a legitimate item of deduction.
It cannot be held to be arbitrary on the apprehension that even a disputed and untenable claim in that behalf becomes entitled to deduction.
Section 13(1)(e) makes such a dispute as one of the arbitrable disputes and no deduction of a disputed claim can be justified by the Government if the arbitrator who is or has been a District Judge or a retired High Court Judge holds that the deduction is unjustified.
If a debt is deducted from the "amount", the debt is satisfied and is extinguished and no further debt remains outstanding to get itself attached to and becomes an encum brance upon the substituted security viz., the 'amount '.
Section 6(2) and Section 10(e) must be construed harmonious ly and in a reasonable manner.
There is no scope for any apprehension of a possible double recovery of the same debt.
Therefore the Act cannot be challenged on the ground of possible double recovery of the same debt under Section 6(2) and Section 10(e).
The measure of the reimbursement for an asset with held by the licensee is the corresponding expenditure to be incurred by Government for replacement which, in eminently conceivable cases, could be the market value of the asset which is so withheld by the licensee and which has to be replaced to keep the undertaking functioning.
Therefore Section 10(f) cannot be held to be arbitrary on the ground that it is an instance of application of double standards because while recovery of "market value" is sought to be made for non delivery of the item whereas in computing the "amount" only the "book value" of such "property" or "right" is taken.
It cannot be said that the accredited representative is, under Section 8(1), given only a month 's time from the date of his appointment to signify the choice under Section 5 as to the basis of determination of the amount.
Section 8(1) also provides 'or such further time as may be granted by the Government '.
If the exercise of this power is arbi trary or capricious the licensee has remedies in Administra tive 480 Law.
But the provision itself cannot be held to be bad or invalid on the ground that time granted under the Section to signify choice under Section 5 is unreasonably short.
The order of the Government dated 2.2.1978 rejecting the application of the Petitioner, Vellore Electric Corpora tion and refusing a change in the basis for determination of amount from basis A to basis B is set aside and the Govern ment is directed to consider the matter afresh.
|
vil Appeal Nos. 2436 to 2438 of 1989.
From the Judgment and Orders dated 7.4.83 and 2.5.
1986 of the Orissa High Court in O.J.C. Nos. 108 and 109 of 1986 and 6 of 1984 respectively.
T.U. Mehta, Gobind Das and Vinoo Bhagat for the Appellants.
G.L. Sanghi, R.K. Mehta and A.K. Panda for the Respondents.
The Judgment of the Court was delivered by OJHA, J.
Special leave granted.
These three appeals raise a common question about the interpretation of the term "family" in Section 37(b) of the Orissa Land Reforms Act, 1960 (hereinafter referred to as the Act).
According to clause (a) of Section 37 of the Act the term "person" includes inter alia family.
Clause (b) of Section 37 being the clause under consideration may usefully be reproduced.
It reads: "(b) "family" in relation to an individual, means the individual, the husband or wife, as the case may be, of such individual and their children, whether major or minor, but does not include a major married son who as such had separated by partition or otherwise before the 26th day of September, 1970." According to the appellants in these three appeals partition in their respective families had been taken place in the year 1965.
The Act except Chapters III and IV came into force on Ist October, 1965.
Chapter IV of the Act which contains the provisions relating to ceiling and disposal of surplus land came into force on 7th January, 1972.
Suo motu proceedings under Section 42 of the Act for declaration of surplus land and consequential purposes were initiated in the year 1974.
Objections were filed asserting inter alia that in view of the partition in the families of the appel lants in the year 1965 the land in the ancestral properties which fell in the share of the appellants could not be club 607 bed with those of their father.
This contention, however, was not accepted on the definition of the term "family" contained in Section 37(b) of the Act.
Such of the major married sons who as such had separated by partition before the 26th day of September, 1970 as contemplated by the definition of the term "family" were allotted separate ceiling units but so far as the appellants are concerned their shares were clubbed with those of their father and only one ceiling unit was allotted as contemplated by the relevant provision of the Act.
The appellants having failed to get relief in the ap peals and revisions filed by them under the Act challenged the orders passed by the various authorities under the Act in writ petitions before the .High Court of Orissa.
These writ petitions were dismissed relying on the decision of a Full Bench of that Court in Nityananda Guru vs State of Orissa and others, A.1.R. 1983 Orissa Page 54 (F.B.).
It is these orders of the High Court which have been challenged in these appeals.
The validity of Section 37(b) of the Act does not appear to have been challenged before the High Court nor has it been seriously challenged even before us except by making a faint submission that even if by virtue of the said provision being incorporated in the 9th Schedule, it may be immune from challenge in view of Article 3lB of the Consti tution, the protection under Article 31C would not be avail able to it and it would be hit by Article 14 unless it was established that it had nexus with the policy of the State towards securing any of the principles laid down in Part IV of the Constitution.
This submission even if it is permitted to be raised for the first time in this Court has obviously no substance in view of the undisputed position that the Act aims at agrarian reform and the provisions with regard to declaration of surplus land and its distribution among the have nots namely landless persons is apparently to give effect to the policy of the State towards securing the principle laid down in Article 39(b) of the Constitution occurring in Part IV thereof and Section 37(b) has a clear nexus with that policy.
The aforesaid submission has, there fore, no substance.
At this place it may also be pointed out that validity of analogous provisions dealing with laws for declaration and distribution of surplus land framed by the States of Andhra Pradesh, Haryana and Maharashtra has already been upheld by this Court after rejecting challenges to them on various grounds in Tumati Venkaish etc.
vs State of Andhra Pradesh; , ; Seth Nand Lal & Anr.
vs State of Haryana & Ors.
, ; and Waman Rao & Ors. etc.
vs Union of India and Ors.
, ; 608 The main attack against the judgment of the Full Bench of the Orissa High Court in the case of Nityananda Guru (supra) relying on which the writ petition filed by the appellants were dismissed by the High COurt has been on the ground that partition in the respective families of the appellants in the year 1965 having been accepted, Section 37(b) of the Act had to be read in such a manner as to exclude the land which had fallen to the share of the appel lants even though they did not fall within the category of "a major married son who as such had separated by partition or otherwise before the 26th day of September, 1970" as contemplated by the definition of the term "family" in the said section.
It was urged that this purpose could be achieved by adding the word "or" between the words "major" and "married".
According to learned counsel if that is done the term "individual" would not include a major son who had separated by partition before the 26th day of September, 1970 even if he had not married prior to that date.
We find it difficult to take recourse to this mode of interpretation of Section 37(b) in view of its plain language.
1n British India General Insurance Co., Ltd. vs Captain Itbar Singh and Others, sub section (2) of Section 96 of the was sought to be interpreted by the learned Solicitor General in a manner which involved addition of certain words.
The submission was repelled and it was held: "The learned Solicitor General concedes this and says that the only word that has to be added is the word "also" after the word "grounds".
But even this the rules of inter pretation do not permit us to do unless the section as it stands is meaningless or of doubtful meaning, neither of which we think it is.
" On a plain reading of the definition of the term "fami ly" in Section 37(b) of the Act we are of the view that the said definition as it stands is neither meaningless nor of doubtful meaning.
In this connection, it may be pointed out that keeping in view the agrarian reform which was contem plated by the Act and particularly the provisions of Chapter IV relating to ceiling and disposal of surplus land which were calculated to distribute the surplus land of big tenure holders among the overwhelming have nots of the State the Legislature in its wisdom gave an artificial meaning to the term "family".
The main provision containing the definition of the term is to be found in the first part of Section 37(b) namely "family in relating to an individual means the individual, the husband or wife as the case may be of such individual and their children whether major or minor.
"The later part of Section 609 37(b) namely "but does not include a major married son who as such had separated by partition or otherwise before the 26th day of September, 1970" does not on the face of it contain a matter which may in substance be treated as a fresh enactment adding something to the main provision but is apparently and unequivocally a proviso containing an exception.
This admits of no doubt in view of the words "but does not include".
In the Commissioner of Income Tax, Mysore vs The Indo Mercantile Bank Limited, [1959] Supp. 2 SCR 256.
it was held: "Ordinarily the effect of an excepting or a qualifying proviso is to carve something out of the preceding enactment or to qualify something enacted therein which but for the proviso would be in it and such a proviso cannot be construed as enlarging the scope of an enactment when it can be fairly and proper ly construed without attributing to it that effect." (Emphasis supplied) That apart the submission made by learned counsel for the appellants would also lead to an anomalous situation if the word "or" is added between the words "major" and "mar ried".
Not only a major unmarried son who had separated by partition before the 26th day of September, 1970 would get excluded from the definition of the term "family" even a minor married son would get so excluded.
The result would be that even though marriage of a minor son is prohibited by law such son would be placed at an advantageous position to a minor son who was law abiding and had not married.
Further the submission made by learned counsel for the appellants completely ignores the words "as such" used in the later part of Section 37(b) which contains the exception referred to above.
Given its proper meaning the words "as such" can only be interpreted to mean that it is only such son who would get the benefit of the exception who had separated by partition or otherwise before the 26th day of September, 1970 as "major married son".
The submission by counsel for the appellants that the words "as such" qualify only "son" and not "major married son" and are meant to distinguish son from brother or uncle etc.
is misconceived on the plain language of Section 37(b) which contemplates clubbing of land of spouse and children only and not of brother and uncle etc.
So, the question of using the words "as such" to distinguish son from brother or uncle etc. does not arise.
Further, for accepting this submission the words "major married" will have to be omitted as superfluous which 610 cannot be done in the garb of interpretation.
Learned counsel for the appellants also urged that a son who had separated by partition or otherwise from his father was himself an "individual" and if his land was clubbed with that of his father, he will be subjected twice to the provi sions relating to declaration of surplus land.
This submis sion too is equally untenable.
Land of such son alone who does not fall within the exception is to be clubbed with that of his father and with regard to land which had been so clubbed the son obviously cannot be treated as another "individual" in his own right for purposes of declaration of surplus land.
Only such son who falls within the exception will be liable to be dealt with as an "individual" in his own right, as his land has not been clubbed with that of his father.
Even on the facts of these appeals nothing has been brought to our notice to indicate that the land of the appellants which was clubbed with that of their father was subjected twice to the provisions relating to declaration of surplus land treating the appellants also as individuals.
It was then urged by learned counsel for the appellants that according to the definition of the term "family" as contained in Section 37(b) of the Act, land of a married daughter is liable to be clubbed twice; firstly, with that of her father and secondly, with that of her husband.
Ac cording to him it is against the spirit of the law dealing with the question of declaration of surplus land.
Suffice it to say, so far as this submission is concerned that none of appellants in these appeals is a married daughter and as such we do not find it necessary to go into this question.
We may also point out that dealing with an almost similar submission with regard to interpretation of Section 123(7) of the Representation of the People Act, 1951 it was held by a Constitution Bench of this Court in Rananjaya Singh vs Baijnath Singh and others, [1955] S.C.R. Page 671 at 676: The learned advocate, however, contended that such a construction would be against the spirit of the election laws in that candidates who have rich friends or relations would have an unfair advantage over a poor rival.
The spirit of the law may well be an elusive and unsafe guide and the supposed spirit can certainly not be given effect to in opposition to the plain language of the sections of the Act and the rules made thereunder.
If all that can be said of these statutory provisions is that construed according to the ordinary.
grammatical and natural meaning of their language 611 they work injustice by placing the poorer candidates at a disadvantage the appeal must be to Parliament and not to this Court.
" In view of the foregoing discussion we are of the opin ion that the Full Bench of the Orissa High Court in the case of Nityananda Guru (supra) lays down the correct law.
One more submission has been made by learned counsel for the appellants in the Civil Appeal arising out of SLP (Civil) No. 9079 of 1986.
It has been urged that certain Home Stead urban land of the appellants not connected with agricultural lying inside Udala Notified Area Council has wrongly been included as agricultural land in the draft statement.
This submission does not appear to have been made either before the High Court or before the authorities under the Act.
In the counter affidavit filed by the Additional District Magistrate (Land Reforms), Mayurbhanj, Orissa it has been stated in reply to paragraphs 21 to 24 of the SLP that there is no Home Stead land and no non agricultural land belonging to the appellant land holders in the Notified Area Council of Udala.
It has also been stated in paragraph 3(c) of the said counter affidavit that no Notification as contemplated by Section 73(c) of the Orissa Land Reforms Act has been made by the State Government.
It has further been stated therein that the Urban Land (Ceiling and Regulation) Act, 1976 has not been made applicable so far to the Udala Notified Area Council.
In this view of the matter it is not possible for us to record any finding with regard to this submission, and consequently we express no opinion in this behalf.
In the result, we find no merit in any of these appeals and they are accordingly dismissed but in the circumstances of the case there shall be no order as to costs.
R.S.S. Appeals dismissed.
| IN-Abs | Proceedings were initiated in 1974 under the Orissa Land Reforms Act, 1960 for declaration of surplus land of the appellants.
The appellants filed objections asserting, inter alia, that in view of the partition in their families in the year 1965 the land in the ancestral properties which fell in their share could not be clubbed with those of their father.
This contention was not accepted on the definition of the term "family" contained in section 37(b) of the Act.
Such of the major married sons who as such had separated by parti tion before the 26th day of September, 1970, as contemplated by the definition of the term "family", were allotted sepa rate ceiling units but so far as the appellants were con cerned, their shares were clubbed with those of their fa ther.
The appellants, having failed to get relief in the appeals and revisions filed by them under the Act, chal lenged the orders passed by the various authorities in writ petitions before the High Court of Orissa which were dis missed, relying on its earlier Full Bench decision in Nitya nanda Guru vs State of Orissa, (A.I.R. 1983 Orissa 54).
Before this Court it was contended that (1) the protec tion under Article 31(C) would not be available to section 37(b) of the Act and it would be hit by Article 14 unless it was established that it had nexus with the policy of the State towards securing any of the principles laid down in Part IV of the Constitution; (2) section 37(b) of the Act had to be read in such a manner as to exclude the land which had fallen to the share of the appellants even though they did not fail within the category of a major married son" as contemplated by the definition of the term "family" in that section, by adding the word "or" between the words "major" and "married", (3) the words "as such" qualify only "son" and not "major married son" and are meant to distinguish son from brother or uncle, etc.
Dismissing the appeals, it was, 605 HELD: (1) The Act aims at agrarian reform and Section 37(b) has a clear nexus with the policy of the State towards securing the principle laid down in Article 39(b) of the Constitution occurring in Part IV thereof.
[607E F] Tumati Venkaish etc.
vs State of Andhra Pradesh; , ; Seth Nand Lal & Anr.
vs State of Haryana, ; and Waman Rao & Ors.
vs Union of India, ; referred to.
(2) It is difficult to take recourse to the suggested mode of interpretation of section 37(b), i.e., by adding the word "or" between the words "major" and "married" in view of its plain language.
[608C D] (3) On a plain reading of the definition of the term "family" in section 37(b) of the Act, the said definition as it stands is neither meaningless nor of doubtful meaning.
[608F] British India General Insurance Co. Ltd. vs Captain Itbar Singh Ors., referred to.
(4) Keeping in view the agrarian reform which was con templated by the Act and particularly the provisions of Chapter IV relating to ceiling and disposal of surplus land which were calculated to distribute the surplus land of big tenure holders among the overwhelming havenots of the State.
the Legislature in its wisdom gave an artificial meaning to the term "family".
[608F G] (5) The main provision containing the definition of the term 'family ' is to be found in the first part of section 37(b), namely "family in relation to an individual means the individual, the husband or wife as the case may be of such individual and their children whether major or minor".
The latter part of section 37(b), namely "but does not include a major married son who as such had separated by partition or otherwise before the 26th day of September 1970", does not on the face of its contain a matter which may in substance be treated as a fresh enactment adding something to the main provision but is apparently and unequivocally a proviso containing an exception.
This admits of no doubt in view of the words "but does not include".
[608G H; 609A B] Commissioner of Income Tax, Mysore vs The lndo Mercan tile Bank Limited, [1959] Supp.
2 SCR 256 referred to.
(6) Given its proper meaning, the words "as such" can only be 606 interpreted to mean that it is only such son who would get the benefit of the exception who had separated by partition or otherwise before the 26th day of September, 1970 as "major married son".
[609F]
|
Criminal Appeal No. 477 of 1978.
From the Judgment and Order dated 23.11.1977 of the Punjab and Haryana High Court in Criminal Revision No. 880 of 1976.
WITH Criminal Appeal No. 288 of 1989.
From the Judgment and Order dated 23.11.
1977 of the Punjab and Haryana High Court in Crl.
A. No. 670 of 1976.
S.K. Bisaria and J.K. Nayyar for the Appellant in Crl.
Appeal No. 477 of 1978.
R.C. Kohli and R.S. Suri for the Appellant in Criminal Appeal No. 288 of 1989.
S.K. Mehta, Dhuru Mehta and Atul Handa for the Respondent.
The Judgment of the Court was delivered by: NATARAJAN, J.
Appeal No. 477 of 1978 by Special Leave and Appeal No. 288 of 1989 by Special Leave arising out of Special Leave (Crl.) Petition No. 250 of 1980 are directed against a judgment of the High Court of Punjab and Haryana in Criminal Appeal No. 670 of 1976 616 whereunder a learned single Judge of the High Court had set aside the conviction of respondent Prem Chand and acquitted him of the charge under Section 306 I.P.C.
The former appeal has been filed by the father of the deceased Veena Rani while the latter appeal has been filed by the State of Punjab.
The facts of the case are in brief as under: Deceased Veena Rani who died of burn injuries on 15.9.
1975 was married to the respondent Prem Chand (hereinafter referred to as accused) in the year 1973.
Veena Rani, who had passed the M.A. and B .Ed.
degree examinations was employed in the State Bank of Patiala and was earning about Rs. 600 to 700 per month.
The accused, who had obtained a degree in law was a prosecuting Sub Inspector and soon after marriage he resigned his job and set up practice in his native place Sangrur.
When the accused resigned his job and set up practice in Sangrut, Veena Rani obtained a transfer to Sangrur from Patiala and the couple set up house in a building owned by PW 5 Krishan Dutt.
From the very beginning Veena Rani had an unhappy married life because of the ac cused constantly demanding her to get more money from her parent 's house.
Even though the accused had joined the office of a senior advocate by name Shri O.P. Singhal, his earnings were meager and consequently the house hold ex penses were borne by her from out of her salary.
Besides tormenting Veena Rani to get more money from her parents, the accused was also given to beating her frequently.
Veena Rani complained to her parents, brother and brother in law about the cruel treatment meted out to her by the accused.
PW 4 Shanti Devi and PW 14 Khem Chand, the mother and broth er respectively of Veena Rani and PW 17 Kuldip Rai, her brother in law have deposed about Veena Rani telling them about the accused iII treating her and physically assaulting her.
Apart from them, PW 5 Krishan Dutt, the landlord has also testified that the accused was in the habit of beating Veena Rani and that on hearing her cries he used to inter vene and advise the accused to stop beating her.
Since the accused did not mend his ways and continued his beatings of Veena Rani.
PW 5 Krishan Dutt asked the accused to vacate his house.
Veena Rani conceived and gave birth to a male child.
But even after the child birth, the accused did not stop iII treating her.
Unable to bear the iII treatment, Veena Rani took leave on loss of pay and went away to her parent 's house at Patiala.
The separation had no effect on the ac cused and hence Veena Rani filed an application under Sec tion 9 of the Hindu Marriage Act in the Court at Patiala for restitution of conjugal rights.
As a counter move, the accused also filed a 617 similar petition in the Court at Sangrur.
However, the enquiry of that petition was stayed by the Senior Sub Judge, Sangfur till the disposal of the earlier petition filed by Veena Rani at Patiala.
At that stage of matters, Shri O.P. Singhal, who was acting as the counsel for the accused and PW 9 Shri Hari Om, another advocate at Sangrut who was appearing for Veena Rani brought about a compromise between the parties and in terms thereof Veena Rani came back to Sangrur to live with the accused.
The re union, however, took place only after the accused 's counsel Shri O.P. Sing hal had personally assured that their would be no danger to Veena Rani 's life at the hands of the accused.
This time, the parties set up residence in a house belonging to PW 12 Nathu Ram.
Nothing changed, however because the accused started tormenting Veena Rani almost from the day of re union for money and continued beating her.
PW 12 Nathu Ram was a witness to the accused quarrel ling with Veena Rani and beating her.
The immediate provoca tion for the accused stepping up his iII treatment of Veena Rani was his purchase of a scooter for Rs.3,500 from one A.N. Jindal.
The accused was able to obtain only Rs.2,500 from his father for buying the scooter and for the balance amount of Rs. 1,000 he asked Veena Rani to get tile same from her parents.
Veena Rani had no funds of her own because she had been on leave on loss of pay for several months and had joined duty at the Bank only on 13.8.1975.
She was in a fix and therefore she wrote a letter on 10.9.75 to her brother PW 14 Khem Chand as under: "Dear brother, the day I came here he is asking for Rs. one thousand from the same day to repay the loan of the scooter.
He does not pay any expenses which are required by me.
Because I will receive my pay only on 26th September and all things are as they were before.
" Again just one day before her death i.e. 14.9.1975, she wrote to her mother PW 4 Shanti Devi a pathetic letter as follows: "Yesterday I was to come to see Saroj in the evening but there is a quarrel in the house.
I have no money, if I have any require ment I must fulfil myself, otherwise no alter native than to go on weeping and crying.
Because he is saying that I am to repay the loan of Rs. 1,000 and I am to pay Rs. 100 for the house rent.
Dear mother, you know it very well that I have not received my pay.
It is therefore I am unable to pay anything for the household expenses.
It is therefore, I am in a very bad condition at my house.
I do not understand what to do.
Whenever I talk to go to any 618 place, the same day there is an uproar in the house and he does not turn up till 12.00 in the night and unhealthy atmosphere develops in the house.
Dear mother, please send me Rs. 1,000 immediately through Bhupinder.
Dear mother, I am very sad on this account and unhappy.
The whole day I remain weaping.
Manish (the child) is alright.
You do not worry but please send me Rs. 1,000 immediate ly.
" In spite of Veena Rani, writing to her brother and mother for a sum of Rs. 1,000 being sent immediately, the accused did not relent in his insistence for immediate compliance of his demand.
This led to a quarrel between the husband and wife on the 15th morning and thereupon both of them went to the house of PW 9 Shri Hari Om at 6.30 a.m. itself.
After PW 9 Shri Hari Om woke up, he made enquiries and Veena Rani told him that the accused was "demanding money from her and annoying her on that account" in spite of her telling him that she had written letters to her brother and mother.
He advised the accused not to torment Veena Rani for money but in spite of it the accused said he wanted immediate payment of the sum of Rs. 1,000.
The accused went to the extent of saying that Veena Rani can go to hell but he should get his sum of Rs. 1,000 forthwith.
Veena Rani reacted by saying that because of the accused quarrelling with her every day over the payment of money, she preferred death to life in this world.
The accused, far from express ing regret for his conduct, drove her to despair by further saying that she can provide him relief quicker by dying on the very same day and that she need not postpone her death to the next day.
PW 9 Shri Hari Om then sent the parties home saying that the matter can be talked over in the evening.
After things had gone to such a pitch the accused and Veena Rani left the house of PW 9 Hari Om at about 9.00 a.m. and went back to their house.
After leaving Veena Rani in the house, the accused went to the Court.
At about 10.15 a.m. PW 12 Nathu Ram was informed by one Keemat Rai, advo cate that shrieks were heard coming from the house occupied by the accused and .Veena Rani.
Both of them rushed to the house and saw Veena Rani lying on the ground with extensive burn injuries on her body.
At once PW 12 Nathu Ram rushed on his bicycle to the Court and informed the accused and 11 D.K. Jindal, about Veena Rani having sustained burn injuries Thereupon all of them came to the house and the accused with the help of PW 11 D.K. Jindal removed Veena Rani to the Civil Hospital at Sangrut.
FW 9 Hari Om on coming to know of Veena Rani having 619 sustained burn injuries, had information sent to PW 17 Kuldip Rai and also made arrangements for a phone message being given to the parents of Veena Rani at Patiala.
There after he went to the hospital but by then Veena Rani had died.
Veena Rani was seen by Dr. B.R. Dular at the hospital at 10.45 a.m. and the doctor found her to have sustained severe burns and to be in a state of shock.
Veena Rani who was given treatment by PW 19 Dr. J.K. Sharma told him that she had been tortured at home and that she wanted to die as early as possible.
At 11.30 a.m. Veena Rani died.
At the autopsy, it was noticed that she had sustained 19 burn injuries.
Her death was certified to be due to shock result ing from the burn injuries.
On receipt of an intimation from the hospital entries were made in the general diary and subsequently a case was registered on the basis of representations made to PW 18, the Deputy Superintendent of Police by PW 16 Kuldip Rai and another relation.
Investigation of the case resulted in a chargesheet being laid against the accused under Section 306 I.P.C.
In his statement under Section 313 Cr.
P.C. the accused denied having iII treated Veena Rani but admitted that he had asked her to give him a sum of Rs. 1,000 for payment of the balance money for the scooter purchased by him.
He however stated that he had offered to repay the amount as soon as he received his G.P.F., amount.
He denied having told Veena Rani at the house of PW 9 Shri Hari Om that she may go to hell and that she can put at an end to her life the same day without waiting for the morrow.
He has also stated that Veena Rani was of an irritable nature and would get agitated for no reason whatever.
Lastly, he has stated that on coming to know of her having sustained burn in juries, he had rushed home and taken her to the hospital to save her life but unfortunately she could not be saved.
After a detailed consideration of the prosecution evi dence and the statement of the accused, the Additional Sessions Judge, Sangrur, found the accused guilty under Section 306 I.P.C. and sentenced him undergo R.I. for four years.
The learned Addl.
Sessions Judge held that the ac cused had been tormenting and also physically assaulting Veena Rani and that Veena Rani had committed suicide by reason of the accused 's instigation.
The accused preferred an appeal to the High Court and a learned 620 single judge of the High Court has acquitted the accused holding that even though Veena Rani had committed suicide on account of her unhappy married life "there is nothing on the record to show that the appellant in any manner instigated the deceased to commit suicide.
" Aggrieved by the judgment of the High Court the father of Veena ' Rani and the State have preferred the two appeals under consideration.
Shri R.S. Suri, learned counsel for the State and Mr. S.K. Bisaria, learned counsel for the father of Veena Rani took us through the evidence in the case and the judgments of the Addl.
Sessions Judge and the High Court and argued that the High Court has completely erred in its appreciation of the evidence and in its application of the law and there fore the appeals should be allowed and the conviction and sentence awarded to the accused should be restored.
Shri S.K. Mehta, learned counsel for the accused contended that even if the prosecution evidence is accepted in full, there is no material to show that the suicidal death of Veena Rani was abetted in any manner by the accused and hence the judgment of the High Court does not call for any interfer ence.
We have considered the evidence and the arguments of the counsel in great detail.
The evidence brings out with tell ing effect the distressed life that Veena Rani was leading almost from the day of her marriage with the accused.
Since the accused had resigned his job and set up practice as an advocate at Sangrur, she got herself transferred from Patia la to a branch of the Bank at Sangrur.
The parties lived as tenants in a portion of the house of PW 5 Krishan Dutt and Veena Rani was meeting the household expenses from out of her salary because the accused had no income as a lawyer.
In spite of Veena Rani spending her entire salary on the house hold, the accused was constantly demanding her for money and made her life miserable by frequently beating her.
These matters have been spoken to by PW 4 Shanti Devi, PW 14 Khem Chand and PW 17 Kuldip Rai.
Besides them, independent wit nesses viz.
PW 5 Krishan Dutt, PW 9 Shri Hari Om and PW 12 Nathu Ram have also spoken about the iII treatment of Veena Rani and their evidence has gone unchallenged.
There is thus overwhelming evidence in the case to establish that Veena Rani 's life was made intolerable by the accused by constant ly demanding her to get him money and also beating her frequently.
Before considering the question whether the accused had abetted Veena Rani in her committing suicide, we must point out that 621 Veena Rani 's death was undoubtedly due to suicide and not due to any accident or homicide.
When Veena Rani had set fire to herself no one else except her one and half year old son was in the house.
Hearing her shouts PW 12 Nathu Ram and Keemet Rai rushed to the house and found her lying on the ground with burn injuries.
The accused was at once informed in the court and he removed her to the hospital along with others.
Despite treatment, she succumbed to her injuries by about 11.30 a.m.
The autopsy revealed that her death was due to severe shock resulting from the burn injuries sustained by her.
In such circumstance, the suicidal death of Veena Rani is an incontrovertible factor.
The crucial question for consideration is whether Veena Rani put an end to her life of her own will and volition or whether her committing suicide had been abetted in any manner by the accused.
To determine this question, we must see the plight of Veena Rani during the few days preceding her death and the events which had taken place on the morning of 15.9.75 itself.
It is an admitted fact that the accused was wanting a sum of Rs. 1,000 for paying the balance of sale price for the scooter purchased by him and that he was demanding Veena Rani to get him the amount from her parents.
The accused has himself admitted in his statement under Section 313 Cr.
P.C. this fact but has stated that he wanted it only as a loan and not as a gift.
Besides the letter, (annexure 3) written by Veena Rani to her brother and mother respectively throw considerable light on the matter.
In the letter to the brother dated 10.9.75, Veena Rani has stated that even on the day she came to Sangrur the accused began demanding a sum of Rs. 1,000 for being paid for the scooter purchased by him.
The accused would not wait and hence she had again to write a letter to her mother on 14.9.75.
Therein she has stated that she was in a very bad condition and that her mother should send her Rs. 1,000 immediately.
These two letters written in quick succession reveal fully the amount of pressure the accused must have been applying on Veena Rani to get him a sum of Rs. 1,000.
So constant should have been his demand for money that on the morning of 15 9 75 even at about 6.30 or 7 a.m. the accused and Veena Rani had to go to the house of PW 9 Shri Hari Om to seek a solution.
Even in front of PW 9 Shri Hari Om, the accused had insisted that Veena Rani should get him a sum of Rs. 1,000 forthwith.
When Veena Rani pleaded inability to make immediate payment, the accused told her that he did not care even if she went to hell but he wanted immediate payment.
When Veena Rani stated in despair that she had enough of torment and that she preferred death to living, the 622 accused added fuel to fire by saying that she may put an end to her life the very same day and she need not wait till the next day to quit this world.
Such an utterance by the ac cused would have certainly been seen by Veena Rani as an.
instigation to her to commit suicide.
Otherwise, she would not have set fire to herself within a short time after she reached home.
One significant factor to be noticed is that but for being spurred to action, Veena Rani would not have ,easily reconciled herself to forsaking her one and a half year old son and commit suicide.
No mother, however dis tressed and frustrated.
would easily make up her mind to leave her young child in the lurch and commit suicide unless she had been goaded to do so by someone close to her.
Yet another factor to be borne in mind is that there is no evidence as to what transpired between the accused and Veena Rani after they had left the house of PW 9 Shri Hari Om.
The only two persons who could speak about it are the accused and Veena Rani and since she is dead it is only the accused who can throw some light on the matter.
Strangely enough, the accused has not said anything about it in his statement under Section 313 Cr.
P.C. He has not said a word that he had assuaged the wounded feelings of Veena Rani before he left for Court.
His silence on this aspect of the matter would therefore mean that he had not changed his stand subsequently.
We may now look to the relevant provisions of the law.
Section 306 I.P.C. under which the accused was charged reads as under: "306 I.P.C.
If any person commits suicide, whoever abets the commission of such suicide, shall be punished with imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine.
" Section 107 I.P.C. sets out as to what constitutes abetment.
The Section reads as follows: "107.
A person abets the doing of a thing, who First.
Instigates any person to do that thing; or Secondly.
Engages with one or more other person or persons in any conspiracy for the doing of that thing, if an act or illegal omission takes place in pursuance of that conspiracy, and in order to the doing of that thing; or Thirdly.
Intentionally aids, by any act or illegal omission, the doing of that thing.
623 Explanation I. A person who, by wilful mis representation, or by wilful concealment of a material fact which he is bound to disclose, voluntarily causes or procures, or attempts to cause or procure, a thing to be done, is said to instigate the doing of that thing.
Illustration (omitted) Explanation Il Whoever, either prior to or at the time of the commission of an act, does anything in order to facilitate the commission of that act, and thereby facilitates the commission thereof, is said to aid the doing of that act.
" The learned Additional Sessions Judge has in the course of his judgment observed that Explanation II to Section 107 I.P.C. would also be attracted to the facts of the case.
The relevant portion in the judgment reads as under: "Thus when the circumstances attending this case are read alongwith the aforesaid Explana tion No. II given under Section 107 I.P.C., it is clear that the accused prior to the commis sion of the suicide by Veena Rani, had con stantly committed certain acts and that has facilitated the commission of suicide and thus he had aided in the committing of that said act by Veena Rani.
" A few lines below the Sessions Judge has given his finding as under: "The question of abetment actually depends upon the nature of the act abetted and the manner in which the abetment was made.
The offence of abetment is complete when the alleged abettor has instigated another to commit the offence.
It is not necessary for the offence of abetment that the offence must be committed.
It is only, in the case of a person abetting an offence by intentionally aiding another to commit that offence and the uttering of hot words by the accused to his wife in the presence of Shri Hari Om PW 9 clearly indicates that the accused had abetted an act complained of." From the portion extracted above, it may be seen that though the Addl.
Sessions Judge has observed that Explana tion II would have 624 relevance to the case, he has in fact awarded conviction to the accused on the basis that the accused had instigated Veena Rani to commit suicide and had thereby abetted the commission of suicide by Veena Rani.
Having regard to the evidence in the case, there can be no doubt whatever that the Addl.
Sessions Judge was perfect ly right in holding that the accused had instigated Veena Rani to commit suicide and therefore he would be guilty under Section 306 I.P.C. A person can abet the commission of an offence in any one of the three ways set out in Section 107.
The case of the accused would squarely fall under the first category, viz. instigating a person to do a thing.
In such circumstances, the need to invoke Explanation I1 does not arise.
Mr. Mehta contended that since Explanation II to Section 107 I.P.C. has no application to the facts of the case and since the Addl.
Sessions Judge has convicted the accused on the premise that Explanation H is attracted, the High Court was right in setting aside the conviction of the accused.
We are unable to accept this argument because the Addl.
Sessions Judge: though he has referred to Explanation II, has actually found the accused guilty only on the ground he had abetted the commission of the offence by instigation.
When the evidence is of so compulsive and telling a nature against the accused, the High Court, we regret to say, has dealt with the matter in a somewhat superficial manner and acquitted the accused on the basis of imaginary premises.
The High Court has failed to comprehend the evi dence in its full conspectus and instead it has whittled down the evidence by specious reasoning.
To mention a few, the High Court has failed to give due weight to the letter Veena Rani wrote to her brother on 10.9.1975 merely because in the last line she has written "in any way there is noth ing to worry.
This time everything will be alright.
" This one sentence in the letter cannot efface the frantic nature of Veena Rani 's appeal for money to satisfy the demand of the accused.
As regards the last letter dated 14.9.75, the High Court has totally lost sight of it.
The High Court has failed to see that unless Veena Rani was very desperate, she would not have written to her mother for money within four days of the letter to her brother.
As regards the happenings on the morning of 15.9.75, the High Court has failed to grasp their gravity.
Unless a serious quarrel had taken place, the accused and Veena Rani would not have gone to the house of PW 9 Shri Hari Om in the early hours of the morning itself to seek a solution to the problem.
Despite PW 9 Shri Hari Om counselling patience, the accused refused to relent and insisted upon immediate payment of 625 Rs. 1,000 and made it clear that the money was more impor tant to him than Veena Rani 's life and that if Veena Rani wanted to die, she may put an end to her life the very same day and give him relief forthwith.
The High Court has viewed the accused 's conduct and utterances as of no consequence because PW. 9 Shri Hari Om has stated in crossexamination that he thought it was "an ordinary quarrel between the husband and wife as they had been doing so previously also.
" The High Court has failed to realise that the effect of the accused 's utterances on Veena Rani 's mind should be assessed in the context of the overall evidence in the case and not on the basis of the opinion of PW 9 Shri Hari Om about the nature of the quarrel.
PW 9 Shri Hari Om despite his having been the counsel for Veena Rani, could not have realised the effect of the utterances of the accused on the mind of Veena Rani.
Furthermore the High Court has failed to notice that the accused has not thrown any light as to what transpired between him and Veena Rani after they had left the house of PW 9 Shri Hari Om.
The fact that Veena Rani had forsaken her young son and had set fire to herself within a short time after reaching home will go to show that she would not have acted in that manner unless she had felt instigated to commit suicide by the utterances of the accused.
The High Court, besides unfortunately failing to give due weight to the evidence in the case, has drawn certain inferences which are not at all warranted.
For example, the High Court has stated that since Veena Rani was an earning member, the accused would not have stood to gain by instigating her to commit suicide.
This inference is totally wrong because the clear evidence in the case is that the accused had placed greater value on the payment of the money demanded by him than upon the life of his wife.
Then again, the High Court has remarked that Veena Rani was suffering from depression and a diseased mind and hence she would have committed suicide.
We are at a loss to know wherefrom the High Court derived material to draw this conclusion.
Far from there being any evidence, to show that Veena Rani was having a diseased mind, PW 5 Krishan Dutt and PW 12 Nathu Ram, have stated that Veena Rani was a woman of gentle and amiable disposition.
She was working in the Bank without any com plaint whatever about her mental condition.
Even the accused has not stated that she was of diseased mind.
We are, there fore, more than satisfied that the judgment of the High Court suffers from serious errors and infirmities and is therefore manifestly unsustainable.
Mr. Mehta relied upon the observations in Sri Ram vs
U.P. State, to contend that even if the accused had told Veena Rani that money was more important to him than her life and that she 626 can put an end to her life the very same day instead of waiting for the morrow, it cannot be construed that the accused had done anything to facilitate the commission of suicide by Veena Rani as would attract Explanation II to Section 107 I.P.C.
We do not find any merit in the conten tion.
The facts in Shri Ram 's case were entirely different.
The question in that case was whether by shouting that "the Vakil has come", Violet, one of the accused, had abetted the commission of the offence of murder of one Kunwar Singh by the other accused persons who were hiding behind a shisham tree and coming out of their place of concealment and one of them shooting Kunwar Singh with a gun carried by him.
Though the Sessions Judge and the High Court had held that Violet 's act would amount to abetment of the commission of the of fence of murder in terms of Explanation II to Section 107 I.P.C., this Court held that "apart from the words attribut ed to Violet, there is nothing at all to show that she was aware of the nefarious design of Sia Ram and his associates.
" It was in that context this Court observed as follows. "Thus in order to constitute abetment, the abettor must be shown to have "intentionally" aided the commission of the crime.
Mere proof that the crime charged could not have been committed without the interposition of the alleged abettor is not enough compliance with the requirements of Section 107.
" In the instant case, we have already seen that the committing of suicide by Veena Rani was due to the accused 's instigation.
It is not a case where Veena Rani had wanted to commit suicide for reasons of her own and the accused had facilitated her in the commission of suicide.
It was then urged by Mr. Mehta that since two views could be taken of the evidence we should not allow the appeals and set aside the acquittal of the accused solely on the ground that the view taken by the High Court does not commend itself for our acceptance.
We are fully alive to the position in law that where two views could reasonably be taken of the prosecution evidence in a case, the Appellate Court should not interfere with the acquittal of an accused merely because the view taken by the Trial Court and/or the High Court was less acceptable than the other view which could have been taken on the evidence.
This principle will however have no application where the evidence does not afford scope for two plausible views being taken but still the Trial Court or the High Court acquits an accused for reasons 627 which are patently wrong and the error leads to an element of perversity pervading the judgment.
As to what would constitute instigation for the commis sion of an offence would depend upon the facts of each case.
Therefore in order to decide whether a person has abetted by instigation the commission of an offence or not, the act of abetment has to be judged in the conspectus of the entire evidence in the case.
The act of abetment attributed to an accused is not to be viewed or tested in isolation.
Such being the case, the instigative effect of the words used by the accused must be judged on the basis of the distraught condition to which the accused had driven Veena Rani.
Full well knowing her helpless state and frustration, if the accused had told her that he set greater store on the sum of Rs. 1,000 required by him than her life and that she can die the very same day and afford him early relief, it is not surprising that Veena Rani committed suicide a little later on account of the accused 's instigation.
It would not be out of place for us to refer here to the addition of Sections 113A and 113B to the Indian Evidence Act and Sections 498A and 304B to the Indian Penal Code by subsequent amendments.
Section 113A Evidence Act and 498A Indian Penal Code have been introduced in the respective enactments by the Criminal Law (Second amendment) Act, 1983 (Act 46 of 1983) and Section 113B of the Evidence Act and 304B Indian Penal Code have been introduced by Act No. 43 of 1986.
The degradation of society due to the pernicious system of dowry and the unconscionable demands made by greedy and unscrupulous husbands and their parents and relatives resulting in an alarming number of suicidal and dowry deaths by women has shocked the Legislative conscience to such an extent that the Legislature has deemed it neces sary to provide additional provisions of law, procedural as well as substantive, to combat the evil and has consequently introduced Sections 113A and 113B in the Indian Evidence Act and Sections 498A and 304B in the Indian Penal Code.
By reason of Section 113A, the Courts can presume that the commission of suicide by a woman has been abetted by her husband or relation if two factors are present viz. (1) that the woman had committed suicide within a period of seven years from her marriage, and (2) that the husband or rela tion had subjected her to cruelty.
We are referring to these provisions only to show that the Legislature has realised the need to provide for additional provisions in the Indian Penal Code and the Indian Evidence Act to check the growing menace of dowry deaths.
In the present case, however, the abetment of the commission of suicide by Veena Rani is 628 clearly due to instigation and would therefore fail under the first clause of Section 107 I.P.C.
In the light of our conclusions, the appeals have to be allowed and the conviction of the appellant under Section 306 I.P.C. has to be restored.
The question however arises as to whether the sentence of 4 years R.I. awarded by the Sessions Judge should also be restored.
Mr. Mehta, learned counsel made a fervent plea for leniency on the ground that more than 11 years have elapsed since the High Court acquit ted the accused and the accused is now leading a settled life and that he and his family members would be ruined if he is to be sent back to prison to serve any further term of sentence.
Learned counsel also stated that the accused has undergone imprisonment in connection with the case for a period of about 10 months and, therefore, even if we are to restore the conviction, we may reduce the sentence to the period of imprisonment already undergone.
Shri Suri.
learned counsel appearing for the State submitted that the State was only anxious that the error committed by the High Court in acquitting the accused should be set right.
He also added that in the event of the substantive sentence being reduced, the accused should be called upon to pay a heavy fine.
Taking all factors into consideration, we think that the ends of justice would be met if we substitute the sentence awarded to the accused with the sentence of imprisonment for the period already undergone by him and enhance the sentence of fine from Rs.500 to Rs.20,000 with a direction that out of the fine amount, if paid, a sum of Rs. 18,000 should be paid to the father of Veena Rani for bringing up Veena Rani 's minor son Manish.
The High Court judgment is accordingly set aside and the appeals are allowed and the conviction of the accused under Section 306 I.P.C. is restored but the sentence is modified to the period of imprisonment already undergone and fine of Rs.20,000 in default thereof to suffer R.I. for two years.
Out of the fine amount if paid, Rs. 18,000 will be given to the appellant in Crl.
Appeal No. 477 of 1978 for being utilised for the maintenance of Veena Rani 's son, Manish.
One month 's time from today is given to the accused to pay the fine.
R.S.S. Appeals allowed.
| IN-Abs | Prem Chand, accused respondent, had married Veena Rani, deceased, in the year 1973.
Veena Rani was then employed in the State Bank of Patiala.
Soon after their marriage the accused resigned his job as Prosecuting Sub inspector and started his practice at Sangrut.
Veena Rani got herself transferred to Sangrur and the couple set up house there.
From the very beginning Veena Rani had an unhappy married life because the accused constantly tormented her to get more money from her parents.
The accused was also given to heating her frequently.
Veena Rani gave birth to a male child.
Even after child birth the accused did not stop iII treating her.
Unable to bear the iII treatment, Veena Rani took leave on loss of pay and went away to her parents.
She later filed an application under section 9 of the Hindu Marriage Act in the Court at Patiala for restitution of conjugal rights.
At this stage, a compromise was brought about between the parties and Veena Rani came back to live with the accused at San grur.
But nothing changed, and the accused continued to torment her for money.
The immediate provocation for the accused stepping up his illtreatment of Veena Rani was his demand of Rs. 1,000 to pay the balance amount of the scooter price which he had purchased.
Veena Rani had no funds of her own.
She, there fore, wrote to her brother and mother narrating her woes and requesting them to send Rs. 1,000.
In spite of Veena Rani writing to her brother and mother, the accused did not relent in the immediate compliance of his demand.
On 15.9.1975, the day of the tragedy, the accused and Veena Rani had a quarrel and thereupon both of them went to the house of Shri Hari Om, Advocate, who advised the accused not to torment Veena Rani.
613 There, in the presence of Hari Om, the accused went to the extent of saying that Veena Rani may go to hell but he should get the money forthwith.
Veena Rani reacted by saying that she preferred death to such life.
The accused, far from expressing regret for his conduct, drove her to despair by further saying that she can provide him relief quicker by dying on the very day.
Thereafter, the accused left Veena Rani at their house and went to court at about 9.00 a.m.
At 10.15 a.m. shrieks were heard from their house, and when people rushed in, they found Veena Rani lying on the ground with extensive burn injuries.
Before her death in the hospi tal, Veena Rani told the doctor that she had been tortured at home and that she wanted to die as early as possible.
The Additional Sessions Judge found the accused guilty under section 306, I.P.C., and sentenced him to undergo R.I. for four years.
The Judge held that the accused had been tormenting and also physically assaulting Veena Rani, and that Veena Rani had committed suicide by reason of the accused 's instigation.
The High Court, on appeal, acquitted the accused holding that even though Veena Rani had committed suicide on account of her unhappy married life, there was nothing on the record to show that the appellant in any manner instigated the deceased to commit suicide.
In this Court, two special leave petitions have been filed, one by the father of Veena Rani and the other by the State of Punjab.
On behalf of the appellants it was contend ed that the High Court had completely erred in its apprecia tion of the evidence and in its application of the law.
On behalf of the accused it was contended that even if the prosecution evidence was accepted in full, there was no material to show that the suicidal death of Veena Rani was abetted in any manner by the accused.
Allowing the appeals and restoring the conviction of the accused under section 306, this Court, HELD: (1) Veena Rani 's death was undoubtedly due to suicide and not due to any accident or homicide.
[621A] (2) There is overwhelming evidence in the case to estab lish that Veena Rani 's life was made intolerable by the accused by constantly demanding her to get him money and also beating her frequently.
[620G] 614 (3) Viewed in the background of Veena Rani 's plight during the few days preceding her death and the events that took place on the morning of the tragedy, the utterances by the accused to the effect that she can provide him relief quicker by dying on the very same day would have certainly been seen by Veena Rani as an instigation to her to commit suicide.
[621D; 622B] (4) No mother, however distressed and frustrated, would easily make up her mind to leave her young child in the lurch and commit suicide unless she had been goaded to do so by someone close to her [622B C] (5) When the evidence is of so compulsive and telling in nature against the accused, the High Court, it is regretted to say, has dealt with the matter in a somewhat superficial manner and acquitted the accused on the basis of imaginary premises.
The High Court has failed to comprehend the evi dence in its full conspectus and instead has whittled down the evidence by specious reasoning.
[624E F] (6) As to what constitutes instigation would depend upon the facts of each case.
Therefore, in order to decide wheth er a person has abetted by instigation the commission of an offence or not, the act of abetment has to be judged in the conspectus of the entire evidence in the case.
The act of abetment attributed to an accused is not to be viewed or tested in isolation.
[627A B] (7) Such being the case, the instigative effect of the words used by the accused must be judged on the basis of the distraught condition to which the accused had driven Veena Rani.
[627B C] (8) In the instant case, the abetment of the commission of suicide by Veena Rani is clearly due to instigation and would therefore fail under the first clause of section 107, IPC.
[626E F] (9) The degradation of society due to the pernicious system of dowry and the unconscionable demands made by greedy and unscrupulous husbands and their parents and relatives resulting in an alarming number of suicidal and dowry deaths of women has shocked the Legislative conscience to such an extent that the Legislature has deemed it neces sary to provide additional provisions of law, procedural as well as substantive, to combat the evil and has consequently introduced Sections 113A and 113B in the Indian Evidence Act, and section 498A and 304B in the Indian Penal Code.
[627E G] 615 (10) It is not a case where Veena Rani had wanted to commit suicide for reasons of her own and the accused had facilitated her in the commission of suicide, as would attract Explanation II to Section 107 IPC.
[626A] Sri Ram vs State of U.P., ; distin guished.
(11) Taking all factors into consideration including the fact that more than 11 years have elapsed since the High Court acquitted the accused and the accused is now leading a settled life, the Court considered the plea of leniency, and while restoring the conviction of the accused under section 306 modified the sentence to the period already undergone and enhanced the fine to Rs.20,000, out of which Rs. 18,000 were to be given to the father of the deceased for being utilised for the maintenance of Veena Rani 's son.
[628E]
|
vil Appeal Nos.
2704 06 of 1979.
From the Judgment and Order dated 1.5.1979 of the Guja rat High Court in Special Civil Appln.
Nos. 133 of 1976, 325 and 384 of 1976.
A.B. Rohatagi, Harish N. Salve, Ms. Palavi Shroff, S.S. Shroff, P.S. Shroff and R. Sasiprabhu for the Appellants.
Kapil Sibbal, Suresh Shelat, P.H. Parekh and Ms. Gitan jali for the Respondents.
The Judgment of the Court was delivered by K. JAGANNATHA SHETTY, J.
These appeals, by certificate, are from a common judgment of the Gujarat High Court giving some monetary benefits to the respondents.
The facts of the case cane be quite shortly stated: The appellant No. 1 is a public trust and other appel lants are its trustees.
The trust was running a science college at Ahmedabad.
The college initially had temporary affiliation to the Gujarat University under the Gujarat University Act, 1949.
From June 15, 1973 onwards, the col lege had permanent affiliation under the said Act as amended by Gujarat Act No. VI of 1973.
The University teachers and those employed in the affiliated colleges were paid in the pay scale recommended by the University Grants Commission.
At one stage, there was some dispute between the University Area Teachers Association and the University about the implementation of certain pay scales.
That dispute, by agreement of parties, was referred to the Chancellor of the University for decision.
On June 12, 1970, the Chancellor gave his award in the following terms: "(1) That the revised pay scales as applicable to teachers who joined before April 1, 1966, should similarly be applicable to those who joined after April 1, 1966.
and they be continued even after April 1, 1971.
(2) That these pay scales be exclu sive of dearness allowance.
Therefore, fixing the pay of the teachers who joined after April 1, 1966, no petition of existing dearness 701 allowance would be merged.
However, with effect from April 1, 1971 in respect of both the categories of teachers i.e. Pre 1966 and Post 1966 teachers, dearness allowance was to be merged with the salary.
(3) That arrears for the period from April 1, 1966 to March 31, 1970 accruing due under the award were to be paid (without interest) in ten equal instalments beginning from April 1, 1971.
(4) The award was to be given effect to from April 1, 1970.
There are other provi sions also.
But we are not concerned with those provisions for our purpose.
" This award of the Chancellor was accepted by the State Government as well as by the University.
The latter issued direction to all affiliated colleges to pay their teachers in terms thereof.
The appellants instead of implementing the award served notice of termination upon 11 teachers on the ground that they were surplus and approached the University for permission to remove them.
But the Vice Chancellor did not accede to their request.
He refused the permission sought for.
There then the management we mean the trust took a suicidal decision.
The decision was to close down the college to the detriment of teachers and students.
The affiliation of the college was surrendered and the University was informed that the management did not propose to admit any student from the academic year 1975 76.
It was again a unilateral decision without approval of the Univer sity.
The college was closed with effect from June 15, 1975 with the termination of services of all the academic staff.
The academic staff under law were entitled to terminal benefits.
In fairness, that ought to have been paid simulta neously while being removed.
But the management did not do that.
The teachers waited with repeated representations only to get a negative reply and ultimately, they moved the High Court with writ petitions for the following reliefs: "To issue a writ of mandamus or writ in the nature of mandamus or any other appro priate writ or direction or order directing the respondent Trust and its trustees respond ents to pay to the petitioners their due salary and allowances, the provident fund and gratuity dues in accordance with the Rules framed by the University and pay them 702 compensation that would be payable to them under Ordinance 120 E and they may be further directed to pay the difference of pay payable to them on the implementation of the U.G.C. pay scales in accordance with Government Resolution as clarified by the Award passed by the Chancellor.
" As is obvious from these reliefs, the retrenched persons were not agitating for their continuance in the service.
They seem to have made a tryst with the destiny and accepted the closure of the college.
They demanded only the arrears of salary, provident fund, gratuity and the closure compen sation which were legitimately due to them.
The trust, however, resisted the writ petitions on every conceivable ground.
The objections raised by the trust may be summarised as follows: (i) The trust is not a statutory body and is not subject to the writ jurisdiction of the High Court; (ii) the Resolution of the University directing payment to teachers in the revised pay scales is not binding on the trust; (iii) The University has no power to burden the trust with additional financial liability by retrospec tively revising the pay scales; (iv) the claim for gratuity by retrenched teachers is untenable.
It is payable only to teachers retiring, resigning, or dying and not to those removed on account of closure of the college; and (v) Ordi nance 120E prescribing closure compensation is ultra vires of the powers of the syndicate.
It is at any rate not bind ing on the trust, since it was enacted prior to affiliation of the college.
The High Court rejected all these submissions, and accepted the writ petitions by delivering a lengthy judg ment.
The High Court thus directed the trust to make pay ments in the following terms: "(1) Amount of the remaining six instalments as per Chancellor 's Award in respect of arrears from 1.4.
1966 to 31.3.
1970 as detailed category No. 1 above, (2) Salary for the period from 1.4.1975 to 14.6.1975 as per revised payscales, (3) Com pensation as per sub clause (a) and (b) of clause (vii) of Ordinance 120 E, (4) Provident Fund dues as per the approved scheme.
" The trust by obtaining certificate has ap pealed to this Court.
Counsel for the appellants mercifully concedes the just right of the teachers to get salary for the period of two and a half months from 703 April 1, 1974 to June 14, 1974.
He has also no objection to pay provident fund dues.
He, however, says that the trust is entitled to get reimbursement from the Government and that question must be determined in these appeals.
As regards the arrears of salary payable under the Chancellor 's Award, the counsel contends that it is the liability of the Government and not of the management of the college.
As regards the closure compensation payable under the Ordinance, he repeats the contention taken before the High Court.
He also main tains that the trust is a private body and is not subject to the writ jurisdiction under Article 226.
Having heard the counsel for both parties, we are left with an impression that the appellants are really trying to side track the issue and needlessly delaying the legitimate payments due to the respondents.
The question whether the State is liable to recompense the appellants in respect of the amount payable to the respondents was not considered by the High Court and indeed could not have been examined since the State was not a party to the proceedings.
However, by the persuasive powers of the counsel in this Court, the State has been impleaded as a party in these appeals.
Per haps, this Court wanted to find out the reaction of the State on the appellants ' assertion for reimbursement.
We heard counsel for the State.
He disputes the appellants ' claim.
In fact, he challenged the claim on a number of grounds.
He says that the State is under no obligation to pay the appellants as against the sum due to the respond ents.
We do not think that we need rule to day on this controversy.
It is indeed wholly outside the scope of these appeals.
We are only concerned with the liability of the management of the college towards the employees.
Under the relationship of master and servant, the management is pri marily responsible to pay salary and other benefits to the employees.
The management cannot say that unless and until the State compensates, it will not make full payment to the staff.
We cannot accept such a contention.
Two questions,however, remain for consideration: (i) The liability of the appellants to pay compensation under Ordi nance 120E and (ii) The maintainability of the writ petition for mandamus as against the management of the college.
The first question presents no problem since we do not find any sustainable argument.
The power of the Syndicate to enact the Ordinance is not in doubt or dispute.
What is, however, argued is that the Ordinance is not binding on the manage ment since it was enacted before the college was affiliated to the University.
This appears to be a desperate contention overlooking the 704 antecedent event.
The 'counsel overlooks the fact that the college had temporary affiliation even earlier to the Ordi nance.
That apart, the benefits under the Ordinance shall be given when the college is closed.
The college in the instant case was closed admittedly after the Ordinance was enacted.
The appellants cannot, therefore, be heard to contend that they are not liable to pay compensation under the Ordinance.
The essence of the attack on the maintainability of the writ petition under Article 226 may now be examined.
It is argued that the management of the college being a trust registered under the Public Trust Act is not amenable to the writ jurisdiction of the High Court.
The contention in other words, is that the: trust is a private institution against which no writ of mandamus can be issued.
In support of the contention, the counsel relied upon two decisions of this Court: (a) Executive Committee of Vaish Degree College, Shamli and Others vs Lakshmi Narain & Ors., ; and (b) Deepak Kumar Biswas vs Director of Public Instructions, the first of the two cases, the respondent institution was a Degree College managed by a registered co operative society.
A suit was filed against the college by the dismissed principal for reinstatement.
It was contended that the Executive Committee of the college which was registered under the Co operative Societies Act and affiliated to the Agra University (and subsequently to Meerut University) was a statutory body.
The importance of this contention lies in the fact that in such a case, reinstatement could be ordered if the dismissal is in violation of statutory obligation.
But this Court refused to accept the contention.
It was observed that the manage ment of the college was not a statutory body since not created by or under a statute.
It was emphasised that an institution which adopts ,certain statutory provisions will not become a statutory body and the dismissed employee cannot enforce a contract of personal service against a non statutory body.
The decision in Vaish Degree College was followed in Deepak Kumar Biswas case.
There again a dismissed lecturer of a private college was seeking reinstatement in service.
The Court refused to grant the relief although it was found that the dismissal was wrongful.
This Court instead granted substantial monetary benefits to the lecturer.
This appears to be the preponderant judicial opinion because of the common law principle that a service contract cannot be specifically enforced.
But here the facts are quite different and, therefore, we need not 705 go thus far.
There is no plea for specific performance of contractual service.
The respondents are not seeking a declaration that they be continued in service.
They are not asking for mandamus to put them back into the college.
They are claiming only the terminal benefits and arrears of salary 'payable to them.
The question is whether the trust can be compelled to pay by a writ of mandamus? If the rights are purely of a private character no mandamus can issue.
If the management of the college is purely a private body with no public duty mandamus will not lie.
These are two exceptions to Mandamus.
But once these are absent and when the party has no other equally conven ient remedy, mandamus cannot be denied.
It has to be appre ciated that the appellants trust was managing the affiliat ed college to which public money is paid as Government aid.
Public money paid as Government aid plays a major role in the control, maintenance and working of educational institu tions.
The aided institutions like Government institutions discharge public function by way of imparting education to students.
They are subject to the rules and regulations of the affiliating University.
Their activities are closely supervised by the University authorities.
Employment in such institutions, therefore, is not devoid of any public charac ter.
(See The Evolving Indian Administration Law by M.P. Jain [1983] p. 266).
So are the service conditions of the academic staff.
When the University takes a decision regard ing their pay scales, it will be binding on the management.
The service conditions of the academic staff are, therefore, not purely of a private character.
It has super added pro tection by University decisions creating a legal right duty relationship between the staff and the management.
When there is existence of this relationship, mandamus can not be refused to the aggrieved party.
The Law relating to mandamus has made the most spectacu lar advance.
It may be recalled that the remedy by preroga tive writs in England started with very limited scope and suffered from many procedural disadvantages.
To overcome the difficulties, Lord Gardiner (the Lord Chancellor) in pursu ance of Section 3(1)(e) of the Law Commission Act, 1965, requested the Law Commission "to review the existing reme dies for the judicial control of administrative acts and omission with a view to evolving a simpler and more effec tive procedure.
" The Law Commission made their report in March 1976 (Law Com No. 73).
It was implemented by Rules of Court (Order 53) in 1977 and given statutory force in 1981 by Section 31 of to Supreme Court Act 1981.
It combined all the former remedies into one proceeding called Judicial Review.
Lord Denning explains the scope of this "judicial review": 706 "At one stroke the courts could grant whatever relief was appropriate.
Not only certiorari and mandamus, but also declaration and injunc tion.
Even damages.
The procedure was much more simple and expeditious.
Just a summons instead of a writ.
No formal pleadings.
The evidence was given by affidavit.
As a rule no cross examination, no discovery, and so forth.
But there were important safeguards.
In par ticular, in order to qualify, the applicant had to get the leave of a judge.
The Statute is phrased in flexible terms.
It gives scope for development.
It uses the words "having regard to".
Those words are very indefinite.
The result is that the courts are not bound hand and foot by the previous law.
They are to 'have regard to ' it.
So the previ ous law as to who are and who are not public authorities, is not absolutely binding.
Nor is the previous law as to the matters in respect of which relief may be granted.
This means that the judges can develop the public law as they think best.
That they have done and are doing." (See The Closing Chapter by Rt.
Hon Lord Denning p. 122).
There, however, the prerogative writ of mandamus is confined only to public authorities to compel performance of public duty.
The 'public authority ' for them mean every body which is created by statute and whose powers and duties are defined by statue.
So Government departments, local authori ties, police authorities, and statutory undertakings and corporations, are all 'public authorities '.
But there is no such limitation for our High Courts to issue the writ 'in the nature of mandamus '.
Article 226 confers wide powers on the High Courts to issue writs in the nature of prerogative writs.
This is a striking departure from the English law.
Under Article 226, writs can be issued to "any person or authority".
It can be issued "for the enforcement of any of the fundamental rights and for any other purpose".
Article 226 reads: "226.
Power of High Courts to issue certain writs (1) Notwithstanding anything in article 32, every High Court shall have power, throughout the territories in relation to which it exer cises jurisdiction to issue to any person or authority including in appropriate cases, any Government, within those territories direc tions, orders or writs, includ 707 ing (Writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certi orari, or any of them for the enforcement of any of the rights conferred by Part II and for any other purpose.
XXX XXX XXX XXX " The scope of this article has been ex plained by Subba Rao., in Dwarkanath vs Income Tax Officer, ; at (540 41): "This article is couched in compre hensive phraseology and it ex facie confers a wide power on the High Courts to reach injus tice wherever it is found.
The Constitution designedly used a wide language in describing the nature of the power, the purpose for which and the person or authority against whom it can be exercised.
It can issue writs in the nature of prerogative writs as understood in England; but the use of the expression "na ture", for the said expression does not equate the writs that can be issued in India with those in England, but only draws an analogy from them.
That apart, High Courts can also issue directions, orders or writs other than the prerogative writs.
It enables the High Courts to mould the reliefs to meet the pecul iar and complicated requirements of this country.
Any attempt to equate the scope of the power of the High Court under Article 226 of the Constitution with that of the English Courts to issue prerogative writs is to intro duce the unnecessary procedural restrictions grown over the years in a comparatively small country like England with a unitary form of Government into a vast country like India functioning under a federal structure.
Such a construction defeats the purpose of the arti cle itself.
" The term "authority" used in Article 226, in the con text, must receive a liberal meaning unlike the term in Article 12.
Article 12 is relevant only for the purpose of enforcement of fundamental rights under article 32.
Article 226 confers power on the High Courts to issue writs for enforce ment of the fundamental rights as well as nonfundamental rights.
The words "Any person or authority" used in Article 226 are, therefore, not to be confined only to statutory authorities and instrumentalities of the State.
They may cover any other person or body performing public duty.
The form of the body concerned is not very much relevant.
What is relevant is the nature of 708 the duty imposed on the body.
The duty must be judged in the light of positive obligation .owed by the person or authori ty to the affected party.
No matter by what means the duty is imposed.
If a positive obligation exists mandamus cannot be denied.
In Praga Tools Corporation vs Shri C.A. Imanual & Ors., ; , this Court said that a mandamus can issue against a person or body to carry out the duties placed on them by the Statutes even though they are not public offi cials or statutory body.
It was observed (at 778): "It is, however, not necessary that the person or the authority on whom the statu tory duty is imposed need be a public official or an official body.
A mandamus can issue, for instance, to an official or a society to compel him to carry out the terms of the statute under or by which the society is constituted or governed and also to companies or corporations to carry out duties placed on them by the statutes authorising their under takings.
A mandamus would also lie against a company constituted by a statute for the purpose of fulfilling public responsibilities.
(See Halsbury 's Laws of England (3rd Ed.
II p. 52 and onwards).
" Here again we may point out that mandamus cannot be denied on the ground that the duty to be enforced is not imposed by the statute.
Commenting on the development of this law, Professor De Smith states: "To be enforceable by mandamus a public duty does not necessarily have to be one imposed by statute.
It may be sufficient for the duty to have been imposed by charter, common law, custom or even contract." (Judicial Review of Administrative 'Act 4th Ed.
p. 540).
We share this view.
The judicial control over the fast expanding maze of bodies effecting the rights of the people should not be put into water tight compartment.
It should remain flexible to meet the requirements of variable circumstances.
Mandamus is a very wide remedy which must be easily available 'to reach injustice wherever it is found '.
Technicalities should not come in the way of granting that relief under Article 226.
We, therefore, reject the conten tion urged for the appellants on the maintainability of the writ petition.
In the result, the appeals fail and are dismissed but with a direction to the appellants to pay all the amounts due to the respondents as 709 per the judgment of the High Court.
The amount shall be paid with 12 per cent interest.
The balance remaining shall be paid within two months from today.
The appellants shall also pay the costs of the respondents teachers which we quantify at Rs. 26,000.
R.S.S. Appeals dismissed.
| IN-Abs | Appellant No. 1 is a public trust and the other appel lants are its trustees.
The Trust was running a science college at Ahmedabad.
The college initially had temporary affiliation to the Gujarat University.
From June 15, 1973 onwards the college had permanent affiliation.
A dispute between the University Area Teachers Associa tion and the University was referred to the Chancellor of the University who gave his award on June 12, 1970.
The award was accepted by the State Government as well as by the University.
The latter issued direction to all affiliated colleges to pay their teachers in terms of the award.
The appellants instead of implementing the award served notice of termination upon 11 teachers on the ground that they were surplus, and approached the University for permis sion to remove them.
The Vice Chancellor did not accept their request.
Thereupon the Trust decided to close down the college.
The retrenched persons demanded arrears of salary and allowances, provident fund and gratuity dues, and closure compensation.
But the management did not pay these dues.
The employees then moved the High Court to issue a writ of mandamus directing the Trust to pay the retrenched employees their legitimate dues.
The High Court accepted the writ petitions.
Before this Court, the appellants while conceding the just right of the employees to get salary for 2 1/2 months and the provident fund dues, contended that the Trust was entitled to get reimbursement from the Government in lieu of these payments.
As regards the arrears of salary.
698 payable under the Chancellor 's aWard, the appellants con tended that it was the liability of the Government and not of the management of the college.
As regards the closure compensation it was contended that Ordinance 120E prescrib ing compensation was ultra vires, and, at any rate, it was not binding on the Trust since it was enacted prior to the affiliation of the college.
It was further contended that the Trust was a private body and was not subject to the writ jurisdiction under Article 226.
Dismissing the appeals, it was, Held: (1)The Court is only concerned with the liability of the management of the college towards the employees.
Under the relationship of master and servant, the management is primarily responsible to pay salary and other benefits to the employees.
The management cannot say that unless and until the State compensates, it will not make full payment to the staff.
[703E F] (2) The college had temporary affiliation even earlier to the Ordinance 120E.
That apart, the benefits under the Ordinance are to be given when the college is closed which in this case was admittedly after the Ordinance was enacted.
[704A B] (3) If the rights are purely of a private character no mandamus can issue.
If the management of the college is purely a private body with no public duty mandamus will not lie.
These are two exceptions to mandamus.
But once these are absent and when the party has no other equally conven ient remedy, mandamus cannot be denied.
[705B C] (4) Public money paid as Government aid plays a major role in the control, maintenance and working of educational institutions.
The aided institutions, like Government insti tutions, discharge public function by way of imparting education to students.
They are subject to the rules and regulations of the affiliating University.
Their activities are closely supervised by the University authorities Em ployment in such institutions, therefore, is not devoid of any public character.
[705C D] (5) When the University takes a decision regarding the pay scales of the employees of the aided institution, it will be binding on the management.
The service conditions of the academic staff are, therefore, not purely of a private character.
It has super added protection by University decisions creating a legal right duty relationship.
When there 699 is existence of this relationship, mandamus cannot be re fused to the aggrieved party.
[705E] (6) Article 226 confers wide powers on the High Court to issue writs in he nature of prerogative writs.
Under Article 226, writs can be issued to "any person or authority".
It can be issued "for the enforcement of any of the fundamental rights and for any other purpose." [706F G] Executive Committee of Vaish Degree College vs Lakshmi Narain.
, ; ; Deepak Kumar Biswas vs Director of Public Instructions., ; distinguished Dwarkanath vs Income Tax Officer, ; , referred to.
(7) This is a striking departure from the English Law.
Under the English Law, the prerogative writ of mandamus is confined only to public authorities to compel performance of public duty, and 'public authority ' there means every body which is created by statute and whose powers and duties are defined by statute.
[706E F] (8) The words "any person or authority" used in Article 226 are not to be confined only to statutory authorities and instrumentalities of the State.
They may cover any other person or body performing public duty.
The form of the body concerned is not very much relevant.
What is relevant is the nature of the duty imposed on the body.
The duty must be judged in the light of positive obligation owed by the person or authority to the affected party, no matter by what means the duty is imposed.
If a positive obligation exists mandamus cannot be denied.
[707G H; 708A B] (9) Mandamns cannot be denied on the ground that the duty to be enforced is not imposed by the statute.
[708B] Praga Tools Corporation vs Shri C.A. Imanual, ; , referred to.
(10) The judicial control over the fast expanding maze of bodies affecting the rights of the people should not be put into water tight compartment.
It should remain flexible to meet the requirements of variable circumstances.
Mandamus is a very wide remedy which must be easily available 'to reach injustice wherever it is found '.
Technicalities should not come in the way of granting that relief under Article 226.
[708F G] 700
|
ivil Appeal No. 3927 of 1986.
From the Judgment and Order dated 18.6.
1986 of the Bombay High Court in Writ Petition No. 10 of 1980.
S.K. Dholakia, A.M. Khanwilkar and Mrs. V.D. Khanna for the Appellant.
V.M. Tarkunde, Karanjawala, Mrs. Karanjawala and H.S. Anand for the Respondent.
The Judgment of the Court was delivered by: K. JAGANNATHA SHETTY, J.
This appeal by leave is from a decision of the Bombay High Court which allowed the respond ent 's petition for a writ of certiorari.
In so doing the court quashed departmental proceedings initiated against the respondent and the resultant order terminating his services.
The facts are substantially undisputed and may briefly be stated as follows: Respondent Seshrao Balwant Rao Chavan was at the rele vant time the Deputy Registrar of the Marathwada University.
One Mr. Yelikar was working then as Controller of Examina tions.
In or about April 1976, Mr. Yelikar proceeded on leave and the present respondent was directed to discharge the duties of the Controller of Examinations.
Accordingly, he joined his new assignment and continued to hold 458 that post when the controversy which culminated in his dismissal took place.
It is said that one Mr. Swaminathan from Madras was entrusted with the printing works needed to conduct annual examinations of the University for the years 1974 and 1975.
Mr. Swaminathan submitted his bills amounting about Rs.6,00,000 for the work performed by him.
The bills were not cleared immediately, and Mr. Swaminathan complained to the University authorities.
He also submitted a petition to the Prime Minister of India which was forwarded to the University for immediate action.
This led to an enquiry to find out whether the bills were deliberately kept pending with any ulterior motive.
The Executive Council of the University appointed a four member committee including the Vice Chancellor to enquire into the matter.
The committee after investigation submitted a report in November 1977 making some prima facie observations against the respondent.
Thereupon, the Executive Council desired to have the matter thoroughly examined by another committee.
It appointed Mr. N.B. Chavan for the purpose.
Mr. Chavan made a detailed enquiry but found nothing against the respondent.
On Decem ber 23, 1978, he submitted a report stating inter alia that there was no delay in clearing the said bills and if there was any delay, it was justified in the circumstances.
He has stated that the University utilised the time for internal audit in which it was found that the claim of Mr. Swamina than was excessive to the extent of Rs.48,000 and odd.
The report of Mr. Chavan thus gave a clean chit to the respond ent as to his conduct in discharging the duties as Control ler of Examinations.
If the Executive Council had accepted the report and closed the matter that would have been better.
But unfortu nately, it was not done and another chapter was opened.
On March 22, 1979, the report of Mr. Chavan was placed before the Executive Council which without taking any decision entrusted the question to the Vice Chancellor.
The Vice Chancellor was present in that meeting and agreed to take a decision in about a month.
But what he did was entirely different.
Purporting to act under the powers given to him by the Executive Council, he directed departmental enquiry against the respondent.
He appointed Mr. Motale, Advocate as an Inquiry Officer who flamed three charges: First charge impeached the respondent of intentionally delaying the clearance of the bills of Mr. Swaminathan and thus tarnish ing the image of the University.
Second charge alleged that the respondent did not place before the Executive Council, the letters , addressed by the Chancellor of the University on July 23, 1976 and 459 August 19, 1976.
Third charge accused the respondent for not producing all the available papers for scrutiny by the one man committee headed by Mr. Chavan.
On October 25, 1979, Mr. Motale submitted his ' enquiry report to the Vice Chancellor holding the respondent guilty of the charges.
After a usual procedure of giving show cause notice and considering the reply thereto, the Vice Chancel lor decided to dismiss the respondent.
On January2, 1980, he accordingly made an order.
The matter did not rest there.
The respondent moved the High Court under article 226 of the Constitution challenging his dismissal.
When the writ petition first came up for hearing in November 1985, the High Court took a very curious stand.
It observed that the entire matter be placed before the Executive Council for taking an appropriate decision.
As per this observation, the matter came up before the Executive Council in the meeting held on December 26/27, 1985.
The Executive Council passed a resolution inter alia, ratifying the action taken by the Vice Chancellor and confirming the dismissal of the respondent.
This has added a new dimension to the case.
At the final disposal of the writ petition, the High Court, however, examined the merits of the matter.
The High Court held that the action taken by the Vice Chancellor was without authority of law.
As to the ratification made by the Executive Council, the High Court held: "That the acts done by the Vice Chancellor remain the acts without any authority or powers and that defects cannot be cured by the subsequent resolution." With these conclusions, the High Court quashed the departmental proceedings taken against the respondent and also the order of termination of his services.
Being aggrieved by the judgment, the Marathwada Univer sity by obtaining special leave has appealed to this Court.
Learned counsel for the appellant put his contention in two ways: First, he said that on the true construction of the relevant provisions of the Marathwada University Act, 1974, the termination of services of the respondent cannot be assailed for want of power or jurisdiction on the part of the Vice Chancellor.
Counsel next said that if the order was defective or without authority, the ratification by the Executive Council has rendered it immune from any challenge.
In order to appreciate these submissions, we must outline the 460 statutory provisions of the Marathwada University Act, 1974 (called shortly "the Act").
Section 8 specifies the officers of the University.
The Vice Chancellor is one of the offi cers.
Section 10 provides for appointment of the Vice Chan cellor.
He shall be appointed by the Chancellor and shall ordinarily hold office for a term.
of three years.
Section 11 reads, so far as material, as follows: "11(1): The Vice Chancellor shall be the principal executive and academic officer of the University, and shah in the absence of the Chancellor, preside at the meetings of the Senate and at any Convocation of the Universi ty . " "11(3): It shah be the duty of the Vice Chancellor to ensure that the provisions of this Act, the Statutes, Ordinances and Regulations are faithfully observed.
The Chancellor shall, for this purpose, have the power to issue directions to the Vice Chancel lor who shall give effect to any such direc tions.
" 11(4): If there are reasonable grounds for the Vice Chancellor to believe that there is an emergency which requires immediate action to be taken, he shall take such action as he thinks necessary and shall, at the earliest opportunity, report in writing the grounds for his belief that there was an emergency, and the action taken by him, to such authority or body as would in the ordi nary course, have dealt with the matter . ." 11(6)(a): It shall be lawful for the Vice Chancellor, as the principal executive and academic officer, to regulate the work and conduct of the officers, and of the teaching, academic and other employees of the Universi ty, in accordance with the provisions of this Act, the Statutes, Ordinances and Regulations." "11(7): The Vice Chancellor shah exercise such other powers and perform such other duties as are prescribed by the Stat utes, Ordinances and Regulations.
" Section 19 enumerates the authorities of the University.
The Executive Council is one of the authorities specified thereunder.
Section 23 to the extent necessary is in the following terms: 461 "23(1): The Executive Council shall be the principal executive authority of the University, and shall consist of the following members, namely,: (i) the Vice Chancellorex officio Chairman.
" Section 24 deals with the powers and duties of the Executive Council.
These powers and duties are wide and varied and it is sufficient if we read sub sections (1), (xxix) and (xii) of sec.
They are as follows: "24(1): Subject to such conditions as are prescribed by or under this Act, the Executive Council shall exercise the following powers and perform the following duties, namely . . " "24(1)(xxix): appoint officers and other employees of the University, prescribe their qualifications, fix their emoluments, define the terms and conditions of their service and discipline and where necessary, their duties." "24(1)(x1i): delegate, subject to the approval of the Chancellor, any of its powers (except the power to make Ordinances), to the Vice Chancellor, the Registrar or the Finance Officer, or such other officers or authority of the University or a committee appointed by it, thinks fit." Two other provisions are material, namely, secs.
37 and 84.
Section 37, omitting the unnecessary, is in these terms: Sec.
37 Subject to the conditions prescribed by or under this Act, the Senate may make the Statutes to provide for all or any of the following matters namely: (xvi): The term of office, duties and condi tions of service of officers, teachers and other employees of the University, the provi sions of pension, insurance and provident fund and the manner of termination of their service and other disciplinary action and their quali fications, except those of teachers.
" Section 34 is as follows: "Delegation of powers: Subject to the provi sions of 462 this Act and Statutes any officer or authority of the University may, by order, delegate his or its powers, except.the power to make Stat utes, Ordinances and Regulations, to any other officer or authority under his or its control, and subject to the conditions that the ulti mate responsibility for the exercise of the powers so delegated shall continue to vest in the officer or authority delegating them.
" With these provisions, we turn to consider the first question urged for the appellant.
The question is whether the Vice Chancellor was competent to direct disciplinary action against the respondent.
In this context, we may make a few general observations about the position and powers of the Vice Chancellor.
The University Education Commission in its report (Vol.
I December 1948 to August 1949) has summarised the powers and duties as fol lows (at 421): "Duties of Vice Chancellor A Vice Chancellor is the chief academic and executive officer of his university.
He presides over the Court (Senate) in the absence of the Chancellor, Syndicate (Executive Council), Academic Council, and numerous committees including the selection committees for ap pointment of staff.
It is his duty to know the senior members of the staff intimately and to be known to all members of the staff and students.
He must command their confidence both by adequate academic reputation and by strength of personality.
He must know his university well enough to be able to foster its points of strength and to foresee possible points of weakness before they become acute. ' He must be the 'keeper of the university 's conscience ', both setting the highest standard by example and dealing promptly and firmly with indiscipline and malpractice of any kind.
All this he must do and it can be done as constitutional ruler; he has not, and should not have autocratic power.
Besides, this he must be the chief liaison between his univer sity and the public, he must keep the univer sity alive to the duties it owes to the public which it serves, and he must win support for the university and understanding of its needs not merely from potential benefactors but from the general public and its elected representa tives.
Last, he must have the strength of character to resist unflinchingly the many forms of pressure to relax standards of all sorts, which are being applied to universities today.
" 463 This has been approved by the Education Commission, 1964 66.
In the report of the Education Commission, 1971 (pages 610 11 para 13.32) it was stated: "The person who is expected, above all, to embody the spirit of academic freedom and the principles of good management in a university is the Vice Chancellor.
He stands for the commitment of the university to schol arship and pursuit of truth and can ensure that the executive wing of the university is used to assist the academic community in all its activities.
His selection should, there fore, be governed by this overall considera tion.
" Dr. A.H. Homadi in his wise, little study about the role of the Vice Chancellor in the university administration in developing coun tries has this to state (at 49): The President or the Vice Chancellor: "The President must be willing to accept a definition of educational leadership that brings about change to the academic life of the institution.
He must be fired by a deep concern for education.
He should instil a spirit and keeness about growth and develop ment in such a way that the professiriate feels that their goals are interlinked with those of the University, that their success depends upon the success of the University.
The professors should be given detailed infor mation about the jobs that they have to per form and their good performance should be given due recognition by administration lead ership.
Even such small encouragement will boost theft morale to greater heights.
The President should have faith in his own abili ties as well as on the abilities of other professors and administrators and should provide guidelines about the kind of efforts he would like his professors and administra tors to make, setting an example by his own actions and exercises.
The negative force of fear, when used and no one denies that an element of hard headedness is some times required as a persuasive inducement to profes sors and administrators of university should be employed judiciously.
Under no circum stances should the apathy and belligerence of the professors and administrators be aroused.
These call for strong but sympathetic leader ship in the President.
" 464 The Vice Chancellor in every university is thus the conscious keeper of the University and constitutional ruler.
He is the principal executive and academic officer of the University.
He is entrusted with the responsibility of overall administration of academic as well as nonacademic affairs.
For these purposes, the Act confers both express and implied powers on the Vice Chancellor.
The express powers include among others, the duty to ensure that the provisions of the Act, Statutes, Ordinances and Regulations are observed by all concerned.
(Section 11(3)).
The Vice Chancellor has a right to regulate the work and conduct of officers and teaching and other employees of the University (Section 11(6)(a)).
He has also emergency powers to deal with any untoward situation (Section 11(4)).
The power conferred under sec.
11(4) is indeed significant.
If the Vice Chancellor believes that a situation calls for immedi ate action, he can take such action as he thinks necessary though in the normal course he is not competent to take that action.
He must, however, report to the concerned authority or body who would, in the ordinary course, have dealt with the matter.
That is not all.
His pivotal position as the principal executive officer also carries with him the im plied power.
It is the magisterial power which is, in our view, plainly to be inferred.
This power is essential for him to maintain domestic discipline in the academic and non academic affairs.
In a wide variety of situations in the relationship of tutor and pupil, he has to act firmly and promptly to put down indiscipline and malpractice.
It may not be illegitimate if he could call to aid his implied powers and also emergency powers to deal with all such situations.
Counsel for the appellant argued that the express power of the Vice Chancellor to regulate the work and conduct of officers of the University implies as well, the power to take disciplinary action against officers.
We are unable to agree with this contention.
Firstly, the power to regulate the work and conduct of officers cannot include the power to take disciplinary action for their removal.
Secondly, the Act confers power to appoint officers on the Executive Council and it generally includes the power to remove.
This power is located under sec.
24(1)(xxix) of the Act.
It is, therefore, futile to contend that the Vice Chancellor can exercise that power which is conferred on the Executive Council.
It is a settled principle that when the Act pre scribes a particular body to exercise a power, it must be exercised only by that body.
It cannot be exercised by others unless it is delegated.
The law must also provide for such delegation.
Halsbury 's Laws of England (Vol.14th Ed. para 32) summarises these principles as follows: 465 "32.
Sub delegation of powers.
In accordance with the maxim delegatius non potest delegare, a statutory power must be exercised only by the body or officer in whom it has been confided, unless sub delegation of the power is authorised by express words or necessary implication.
There is a strong presumption against construing a grant of legislative, judicial or disciplinary power as impliedly authorising sub delegation; and the same may be said of any power to the exercise of which the designated body should address its own mind.
" The counsel for the appellant next submit ted that the Executive Council in the instant case had delegated its disciplinary power to the Vice Chancellor and the Act provides for such delegation.
In support of the contention he relied upon the following resolution of the Executive Council: "Full power be given to the Vice Chancellor to take a decision on this question and the Vice Chancellor informed the Executive Council that he will take decision in about a month On this decision, Shri Gangadhar Pa thrikar gave his opinion that the Executive Council should take a decision on the note dated 16.1.
1979 submitted by him and other two members and since it was not accepted, he does not agree with the above decision." This resolution, in our opinion, is basically faulty at least for two reasons.
It may be recalled that the Executive Council without considering the report of Mr. Chavan, wanted the Vice Chancellor to take a decision thereon.
It may also be noted that the Vice Chancellor was present at the meeting of the Executive Council when the resolution was passed.
He was given "full power to take a decision" which in the context, was obviously on the report of Mr. Chavan, and not on any other matter or question.
He said that he would take a decision in about a month.
In our opinion, by the power delegated under the resolution, the Vice Chancellor could either accept or reject the report with intimation to the Executive Council.
He could not have taken any other action and indeed, he was not authorised to take any other action.
The other infirmity in the said resolution goes deeper than what it appears.
The resolution was not in harmony with the statutory requirement.
Section 84 of the Act provides for delegation of powers and 466 it states that any officer or authority of the University may by order, delegate his or its power (except power to make Ordinance and Regulations) to any other officer or authority subject to provisions of the Act and Statutes.
Section 24(1)(xii) provides for delegation of power by the Executive Council.
It states that the Executive Council may delegate any of its power (except power to make Ordinances) to the Vice Chancellor or to any other officer subject to the approval of the Chancellor.
(underlying is ours).
The approval of the Chancellor is mandatory.
Without such ap proval the power cannot be delegated to the Vice Chancellor.
The record does not reveal that the approval of the Chancel lor was ever obtained.
Therefore, the resolution which was not in conformity with the statutory requirement could not confer power on the Vice Chancellor to take action against the respondent.
This takes us to the second contention urged for the appellants.
The contention relates to the legal effect of ratification done by the Executive Council in its meeting held on December 26/27, 1985.
The decision taken by the Executive Council is in the form of a resolution and it reads as follows: "Considering the issues, the Execu tive Council resolved as follows: 1.
The Executive Council at its meeting held on March 22, 1979, had by a resolution given full authority to the Vice Chancellor for taking further proceedings and decision in both the cases of the defaulting officers.
In exercise of above authority, the Vice Chancellor appointed an Inquiry Officer and as suggested by the Inquiry Offi cer issued Show Cause notices, obtained re plies from the Officers and lastly issued orders for terminating their services; XXX XXX XXX XXX XXX It was further resolved that (i) There has been no inadequacy in the pro ceedings against both the officers; (ii) The punishment ordered against both the officers is commensurate with the defaults and allegations proved 467 against both the officers; and (iii) The Executive Council, therefore, whol ly, endorses the actions taken by the then Vice Chancellor against both the officers.
" By this resolution, we are told that the Executive Council has ratified the action taken by the Vice Chancellor.
Ratification is generally an act of principal with regard to a contract or an act done by his agent.
In Friedman 's Law of Agency (Fifth Edition) chapter 5 at p. 73, the/principle of ratifica tion has been explained: "What the 'agent ' does on behalf of the 'principal ' is done at a time when the relation of principal and agent does not exist: (hence the use in this sentence, but not in subsequent ones, of inverted commas).
The agent, in fact, has no authority to do what he does at the time he does it.
Subse quently, however, the principal, on whose behalf, though without whose authority, the agent has acted, accepts the agent 's act, and adopts it, just as if there had been a prior authorisation by the principal to do exactly what the agent has done.
The interesting point, which has given rise to considerable difficulty and dispute, is that ratification by the principal does not merely give validity to the agent 's unauthorised act as from the date of the ratification: it is antedated so as to take effect from the time of the agent 's act.
Hence the agent is treated as having been authorised from the outset to act as he did.
Ratification is 'equivalent to an antecedent authority ' .
" In Bowstead on Agency (14th Ed.) at p. 39) it is stated: "Every act whether lawful or unlaw ful, which is capable of being done by means of an agent (except an act which is in its inception void) is capable of ratification by the person in whose name or on whose behalf it is done . .
The words "lawful or unlawful", however, are included primarily to indicate that the doctrine can apply to torts.
From them it would follow that a principal by ratification may retrospectively turn what was previously an act wrongful against the princi ple, e.g. an unauthorised sale, or against a third party, e.g. a wrongful distress, into a legitimate one; or become liable for the tort of another by ratifying.
" 468 These principles of ratification, apparently do not have any application with regard to exercise of powers conferred under statutory provisions.
The statutory authority cannot travel beyond the power conferred and any action without power has no legal validity.
It is ab initio void and cannot be ratified.
The counsel for the appellant, however, invited our attention to the case of Parmeshwari Prasad Gupta vs The Union of India, ; It was a case of termina tion of services of the Secretary of a Company.
The Board of Directors decided to terminate the services of the Secre tary.
The Chairman of the Board of Directors in fact termi nated his services.
Subsequently, in the meeting of the Board of Directors the action taken by the Chairman was confirmed.
In the suit instituted by the Secretary challeng ing the termination of his services, the Court upheld on the principle that the action of the Chairman even though it was invalid initially, could be validated by ratification in a regularly convened meeting of the Board of Directors.
Ma thew, J. while considering this aspect of the matter, ob served [at pp.
307 and 308] "Even if it be assumed that the telegram and the letter terminating the services of the appellant by the Chairman was in pursuance to the invalid resolution of the Board of Direc tors passed on December 16, 1953 to terminate his services, it would not follow that the action of the Chairman could not be ratified in a regularly convened meeting of the BOard of Directors.
The point is that even assuming that the Chairman was not legally authorised to terminate the services of the appellant, he was acting on behalf of the Company in doing so, because, he purported to act in pursuance of the invalid resolution.
Therefore, it was open to a regularly constituted meeting of the Board of Direction to ratify that action which, though unauthorised, was done on behalf of the Company.
Ratification would always relate back to the date of the act ratified and so it must be held that the services of the appellant were validly terminated on December 17, 1953.
The appellant was not entitled to the declaration prayed for by him and the trial court as well as the High Court was right in dismissing the claim.
" These principles of ratification governing transactions of a company where the general body is the repository of all powers not be 469 extended to the present case.
We were also referred to the decision of the Court of Appeal in Barnard vs National Dock Labour Board, [1953] 1 All Eng.
Law Reports 1113 and in particular the observation of Denning L.J., (at 1118 and 1119): "While an administrative function can often be delegated, a judicial function rarely can be.
No judicial tribunal can dele gate its functions unless it is enabled to do so expressly or by necessary implication.
In Local Government Board vs Arlidge (2) the power to delegate was given by necessary implication, but there is nothing in this scheme authorising the board to delegate this function and it cannot be implied.
It was suggested that it would be impracticable for the board to sit as a board to decide all these cases, but I see nothing impracticable in that.
They have only to fix their quorum at two members and arrange for two members, one from each side, employers and workers, to be responsible for one week at a time.
"Next, it was suggested that, even if the board could not delegate their functions, at any rate they could ratify the actions of the port manager, but, if the board have no power to delegate their functions to the port manager, they can have no power to ratify what he has already done.
The effect of ratifica tion is to make it equal to a prior command, but as a prior command, in the shape of dele gation, would be useless, so also is a ratifi cation.
" These observations again are of little assistance to us since we have already held that there was no prior delega tion of power to the Vice Chancellor to take disciplinary action against the respondent.
There was no subsequent delegation either.
Therefore, neither the action taken by the Vice Chancellor, nor the ratification by the Executive Council could be sustained.
In the result, the appeal fails and is dismissed with costs.
N.V.K. Appeal dis missed.
| IN-Abs | The respondent was a Deputy Registrar of the appellant University.
As the Controller of Examinations had proceeded on leave the respondent was discharging the duties of Con troller of Examinations.
A complaint alleging that the respondent had delayed the payment of the bills of an out station party who had printed the question papers for the annual examination was received by the University.
The Executive Council of the University appointed an Enquiry Officer to hold an enquiry to find out whether the bills were deliberately kept pending with any ulterior motive.
The Enquiry Officer gave a clean chit to the respondent as to his conduct in discharging the duties as Controller of Examinations.
The Executive Council of the University did not take any decision on the report of the Enquiry Officer, but entrusted the question to the Vice Chancellor who was present at the meeting.
The Vice Chancellor directed a departmental enquiry against the respondent and appointed an advocate as the Enquiry Officer.
The Enquiry Officer by his report held the respondent guilty of all the charges levelled against him.
The Vice Chancellor after giving a show cause notice and considering the reply of the respondent, dismissed him from service.
The respondent moved the High Court under Article 226 chal 455 lenging his dismissal.
When the writ petition was taken up for hearing the High Court directed the entire matter to be placed before the Executive Council for an appropriate decision.
The Executive Council considered the matter at its meeting and passed a resolution ratifying the action taken by the Vice Chancellor, and confirming the dismissal of the respondent.
At the final disposal of the writ petition, the High Court examined the matter on merits and held that the action taken by the Vice Chancellor being without any au thority or power, these defects could not be cured by rati fication by the Executive Council in its subsequent resolu tion.
The High Court accordingly quashed the departmental proceedings taken against the respondent, and also the order of termination of his services.
In the appeal to this Court, it was contended on behalf of the University: (i)That on a true construction of the several provisions of the Marathwada University Act, 1974, the termination of services of the respondent cannot be assailed for want of power or jurisdiction on the part of the Vice Chancellor, and (2) that if the order was defective or without authority, the ratification by the Executive Council had rendered it immune from any challenge.
Dismissing the Appeal, the Court, HELD: 1.
The Vice Chancellor in every university is the conscious keeper of the University and the constitutional ruler.
He is the principal executive and academic officer of the University.
He is entrusted with the responsibility of overall administration of academic as well as non academic affairs.
[464A B] 2.
As the principal executive officer the Vice Chancel lor also carries with him an implied power, the magisterial power.
This power is essential for him to maintain domestic discipline in the academic and non academic affairs.
In a wide variety of situations in the relationship of tutor and pupil, he has to act firmly and promptly to put down indis cipline and malpractice.
It may not be illegitimate if he could call to aid his implied powers and also emergency powers to deal with all such situations.
[464D E] 3.
The Marathwada University Act, 1974 confers both express and implied powers on the Vice Chancellor.
The express powers include among others, the duty to ensure that the provisions of the Act, Statutes, Ordinances and Regula tions are observed by all concerned.
[Section 11(3)] He has a right to regulate the work and conduct of 456 Officers and teaching and other employees of the University [Sec. 11(b)(a)].
He has also emergency powers to deal with any untoward situation [Section 11(4)] a very significant power.
If he believes that a situation calls for immediate action, he can take such action as he thinks necessary, though in the normal course he is not competent to do so.
However he must report to the concerned authority or body, who would, in the ordinary course, have dealt with the matter.
[464B C] 4.
The power 'to regulate the work and conduct of the officers ' cannot include the power to take disciplinary action for their removal.
[464F] 5.
When a statute prescribes a particular body to exercise a power, it must be exercised only by that body.
[464G] Halsbury 's Laws of England Vol. 1, 4th Edn.
page 32, re ferred to.
The Marathwada University Act confers power to appoint officers on the Executive Council and it generally includes the power to remove.
This power is located under Section 24(1) (XXIX) of the Act.
[464F G] 7.
The resolution of the Executive Council at a meet ing, at which the Vice Chancellor was also present, gave full power to the Vice Chancellor 'to take a decision on this question '.
By the power delegated under the resolution, the Vice Chancellor could either accept or reject the report with intimation to the Executive Council.
He could not have taken any other action and indeed, he was not authorised to take any other action.
[465F G] : 8.
The resolution was also not in harmony with the statutory requirement.
Approval of the Chancellor to the delegation of power by the Executive Council to the Vice Chancellor was mandatory under section 24(1)(xii) read with section/84 of the Marathwada University Act.
The resolution not being in conformity with the statutory requirement could not confer power on the Vice Chancellor to take action j against the respondent.
[465H; 466A C] 9.
Ratification is generally an act of principal with regard to a contract or an act done by his agent.
The prin ciples of ratification in the context of the law of agency apparently do not have any application with regard to exer cise of power conferred under statutory provisions.
The statutory authority cannot travel beyond the power conferred and 457 any action without power has no legal validity.
It is ab initio void and cannot be ratified.
[468A B] Friedman 's Law of Agency (5th Edn.) Chapter 5at page 73, Bowstead on Agency (14th Ed.) at page 39, Parmeshwari Prasad Gupta vs Union of India, ; and Bernard vs National Dock Labour Board, [1953] 1 All Eng.
Law Reports 1113.
In the instant case, there was no prior delegation of power to the Vice Chancellor to take disciplinary action against the respondent.
There was no subsequent delegation either.
Therefore, neither the action taken by the Vice Chancellor, nor the ratification by the Executive Council could be sustained.
[469F]
|
Appeal No.122 of 1956.
Appeal from the judgment and order dated March 5, 1954, of the Bombay High Court in Appeal from its Original Jurisdiction Misc.
Application No. 1 of 1954.
H. N. Sanyal, Addl.
Solicitor General, G. N. Joshi and R. H. Dhebar, for the appellants.
N. A. Palkhivala, section N. Andley, J. B. Dadachanji, P. L. Vohra and Rameshwar Nath, for the respondent.
April 28.
The Judgment of the Court was delivered by GAJENDRAGADKAR J.
This is an appeal by the Income tax Officer, Companies Circle I (1), Bombay and the Union of India and it raises a short question about the construction of section 35 of the Income tax Act read with section 1, sub section
(2) and section 13 of the Indian Income tax (Amendment) Act, 1953 (XXV of 1953).
It arises in this way.
The Income tax Officer, by his assessment order made on October 9, 1952, for the assessment year 1952 53, assessed the respondent, the Bombay Dyeing and Manufacturing Co. Ltd., under the Act.
In the said assessment order the respondent, was given credit for Rs. 50,603 15 0 as representing interest at 2% on tax paid in advance under section 18A of the Act.
This credit was given to the respondent in pursuance of the provisions contained in section 18A, sub section
(5) of the Act as it then stood.
On May 24, 1953, the Amendment Act came into force.
Section 1, sub section
(2) of the Amendment Act provides that " subject to any special provision made in this behalf in the Amendment Act, it shall be deemed to have come into 705 force on the first day of April, 1952 ".
By section 13 of the Amendment Act, a proviso was added to section 18A (5) of the Act.
The effect of the amendment made by the insertion of the said proviso to section 18A (5) was that the.
assessee was entitled to get interest at 2% not on the whole of the advance amount of tax paid by him as before but only on the difference between the payment made and the amount at which the assessee was assessed to tax under the regular assessment under section 23 of the Act.
After the Amendment Act was passed, the first appellant exercised his power under section 35 of the Act and purported to rectify the mistake apparent from the record in regard to the credit for Rs. 50,603 15 0 allowed by him to the assessee.
The first appellant held that the assessee was really entitled to a credit of only Rs. 21,157 6 0 by way of interest on tax paid in advance as a result of the retrospective operation of the amendment made in section 18A (5) by the Amendment Act.
In accordance with this order a notice of demand under section 29 of the Act was issued against the assessee for the sum of Rs. 29,446 9 0 on the ground that the assessee had been given credit for this excess amount through mistake.
Aggrieved by this notice of demand, the respondent filed a petition in the High Court of Bombay on January 4, 1954, under article 226 of the Constitution praying for a writ against the appellants inter alia prohibiting them from, enforcing the said rectified order and the said notice of demand.
It appears that this petition was admitted by Tendolkar J. on January 6, 1954, and a rule issued on it.
Thereafter the said petition was referred to a Division Bench by the Hon 'ble the Chief Justice for final disposal.
Accordingly on March 5, 1954, the petition was heard by Chagla C. J. and Tendolkar J. and a writ was issued against the appellants.
The High Court held that section 35 of the Act had no application to the facts of the case because the mistake apparent from the record contemplated by the said section is not a mistake which is the result of the amendment of the law even though the amending law may be retrospective in operation.
In other words, in the opinion of the High Court, the 706 mistake mentioned by section 35 had to be apparent on the face of the order and it can only be judged in the light of the law as it stood on the day ,When the order was passed.
The appellants then applied for and obtained a certificate from the High Court on October 8, 1954; on their behalf it is urged ' that the High Court of Bombay has erred in law in taking the view that the appellant No. I was not entitled to rectify the mistake in question under section 35 of the Act.
Thus the short question which arises before us in the present appeal is whether an order which was proper and valid when it was made can be said to disclose a mistake apparent from the record if the said order would be erroneous in view of a subsequent amendment made by the Amendment Act when the Amendment Act is intended to operate retrospectively ? It is unnecessary to refer to the provisions of section 18A (5) as well as the provision of the proviso which was subsequently added by section 13 of the Amendment Act.
It is common ground that, in the absence of the subsequently inserted proviso, the assessee would be entitled to obtain a credit for Rs. 50,603 15 0.
It is also common ground that, if the subsequently inserted proviso covered the assessee 's case, he would be entitled to a credit only of Rs. 21,156 9 0.
It is thus obvious that the order giving the relevant credit to the assessee was valid when it was made and that it would be erroneous under the subsequent amendment.
Under these circumstances, was the first appellant justified in exercising his power of rectification under section 35 of the Act ? In deciding this question it would be necessary to determine the true legal effect of the retrospective operation of the Amendment Act.
Section 1, sub section
(2) of the Amendment Act expressly provides that subject to the special provisions made in the said Act it shall be deemed to have come into force on the first day of April 1952.
The result of this provision is that the amendment made in the Act by s, 13 of the Amendment Act must, by legal fiction, be deemed to have been included in the principal Act as from the first of 707 April, 1952, and this inevitably means that, at the time when the Income tax Officer passed his original order on October 9, 1952, allowing to the respondent credit for Rs. 50,603 15 0, the proviso added by section 13 of the Amendment Act must be deemed to have been inserted in the Act.
As observed by Lord Asquith of Bishopstone in East End Dwellings Co. Ltd. vs Finsbury Borough Council (1), " if you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it.
One of those in this case is emancipation from the 1939 level of rents.
The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs ".
Thus, there can be no doubt that the effect of the retrospective operation of the Amendment Act is that the proviso inserted by the said section in section 18A (5) of the Act would, for all legal purposes, have to be deemed to have been included in the Act as from April 1, 1952.
But it is urged for the respondent that the retrospective operation of the relevant provision is not intended to affect completed assessments.
It is conceded that, if any assessment proceedings in respect of the assessee 's income for a period subsequent to the first of April 1952 were pending at the time when the Amendment Act was passed, the proviso inserted by section 13 would govern the decision in such assessment proceedings; but where an assessment proceeding has been completed and an assessment order has been passed by the Income tax Officer against the assessee, such a completed assessment would not be affected and cannot be reopened under section 35 by virtue of the retrospective operation of the Amendment Act.
In support of this contention, reliance is placed on the observations of the Privy Council in Delhi Cloth and (1) , 132.
90 708 General Mills Co. Ltd. vs Income tax Commissioner, Delhi and Anr.
Lord Blanesburg who delivered the judgment of the Board referred to the Board 's earlier decision in the Colonial Sugar Refining Company vs Irving (2) where it was in effect laid down that, while provisions of a statute dealing merely with matters of procedure may properly, unless that construction be textually inadmissible, have retrospective effect attributed to them, provisions which touch a right in existence at the passing of the statute are not to be applied retrospectively in the absence of express enactment or necessary intendment.
The learned Judge then added that " Their Lordships have no doubt that the provisions which, if applied retrospectively, would deprive of their existing finality orders which, when that statute came into force, were final, are provisions which touch existing rights.
" The argument for the respondent is that the assessee has obtained a right under the order passed by the Income tax Officer to claim credit for the specified amount under section 18A(5) and the said right cannot be taken away by the retrospective operation of section 13 of the Amendment Act.
The same argument is put in another form by contending that the finality of the order passed by the Incometax Officer cannot be impaired by the retrospective operation of the relevant provision.
In our opinion, this argument does not really help the respondent 's case because the order passed by the Income tax Officer under section 18A(5) cannot be said to be final in the literal sense of the word.
This order was and continued to be liable to be modified under section 35 of the Act.
What the Income tax Officer has purported to do in the present case is not to revise his order in the light of the retrospective amendment made by section 13 of the Amendment Act alone, but to exercise his power under section 35 of the Act; and so the question which falls to be considered in the present appeal.
centres round the construction of the expression "mistake apparent from the record " used in section 35.
That is why we think the principle of the finality of the orders or the sanctity of (1)[1927] L.R. 54 I.A. 421.
(2)[1905] A.C. 369.
709 the existing rights cannot be effectively invoked by the respondent in the present case.
The respondent then urged that the Amendment Act should not be given greater retrospective operation than its language and its general scheme render necessary.
This convention is based on the provisions of section 3, sub section
(2), section 7, sub section
(2) and section 30, sub section
(2) of the Amendment Act.
Where the Amendment Act intended that its provisions should affect even concluded orders of assessment it is expressly so provided.
Since section 13 does not specifically authorise the reopening of concluded assessments it should be held that its retrospective operation is not intended to cover such concluded assessments.
That in brief is the argument.
We are, however, not satisfied that this argument is wellfounded.
Let us examine the three provisions of, the Amendment Act on which the argument rests.
Section 3, sub section (1) of the Amendment Act makes several additions and modifications in section 4 of the principal Act.
Section 3, sub section (2) then provides that, the amendments made by sub cl.
(3) of cl.
(b) of sub section
(1) shall be deemed to be operative in relation to all assessments for any year whether such assessments have or have not been concluded before the com mencement of the Amendment Act of 1953.
It would be noticed that the main object of this sub section is to extend the retrospective operation of the relevant provisions of the Amendment Act beyond the first of April 1952 mentioned by section 1, sub section
(2) of the Amendment Act.
Since it was intended to provide for such further retrospective operation of the relevant provision the legislature thought it advisable to clarify the position by saying that the said extended retrospective operation would cover all assessments whether they had been completed or not before the commencement of the Amendment Act.
Section 7, sub section
(1) adds two provisos to section 9 of the principal Act by cls.
(a) and (b).
Sub section (2) of section 7 then lays down that the amendments made in cl.
(a) of sub section
(1) shall be deemed to be operative for any assessment for the year ending the 31st day of March, 1952, whether made before or after the commencement of this Act and, where any such 710 assessment has been made before such commencement, he Income tax Officer concerned shall revise it whenever necessary to give effect to this amendment.
The position under section 30, sub section
(2) of the Amendment Act is substantially similar.
By sub section
(1) of this section certain additions and amendments are made in the schedule to the principal Act by cls.
(a), (b), (c) and (d).
sub section
(2) then provides for the retrospective operation of the amendment made by sub section
(1) in terms similar to those used in section 7, sub section
It is clear that the Provisions in sections 7 and 30 are intended for the benefit of the assessees and so the legislature may have thought it necessary to confer on the Income tax Officer specific and express power to revise his orders in respect of the relevant assessments wherever necessary to give effect to the amendments in question.
The effect of this provision is to make it obligatory on he Income tax Officer to revise his original orders in he light of the amendments and also to confer on the assessee right to claim such revision.
It may be con ceded that in respect of the other retrospective provisions of the Amendment Act such a power to revise the earlier orders cannot be claimed or exercised by the Income tax Officer.
In other words, a distinction can be drawn between there two provisions of the Amendment Act and the rest in respect of the power which the Income tax Officer can purport to exercise to give effect to the amendments made by the Amendment Act.
Whereas, in respect of the amendments made by section 7 and section 30 of the Amendment Act, the Income tax Officer can and must revise his earlier orders covered by section 7, sub section
(2) and section 30, sub section
(2), such a power of revision has not been conferred on him in the matter of giving effect to the other amendments made in the Amendment Act.
Even so, we do not think it would be legitimate or reasonable to hold that the provisions of section 7(2) and section 30(2) lead to the infference that the retrospective operation of the other provisions of the Amendment Act is not intended to affect concluded assessments in any manner whatever.
In this connection, it would be pertinent to remember that the power to revise which has been conferred on 711 the Income tax Officer by section 7(2) and section 30(2) of the Amendment Act is distinct and independent of the power to rectify mistakes which the Income tax Officer can exercise under section 35 of the Act.
It is in the light of this position that the extent of the Income tax Officer 's power under section 35 to rectify: mistakes apparent from the record must be determined; and in doing so, the scope and effect of the expression " mistake apparent from the record " has to be ascertained.
At the time when the Income tax Officer applied his mind to the question of rectifying the alleged mistake, there can be no doubt that he had to read the principal Act as containing the inserted proviso as from April 1, 1952.
If that be the true position then the order which he made giving credit to the respondent for Rs. 50,603 15 0 is plainly and obviously inconsistent with a specific and clear provision of the statute and that must inevitably be treated as a mistake of law apparent from the record.
If a mistake of fact apparent from the record of the assessment order can be rectified under section 35, we see no reason why a mistake of law which is glaring and obvious cannot be similarly rectified.
Prima facie it may appear somewhat strange that an order which was good and valid when it was made should be treated as patently invalid and 'wrong by virtue of the retrospective operation of the Amendment Act.
But such a result is necessarily involved in the legal fiction about the retrospective operation of the Amendment Act.
If, as a result of the said fiction we must read the subsequently inserted proviso as forming part of section 18A(5) of the principal Act as from April 1, 1952, the conclusion is inescapable that the order in question is inconsistent with the provisions of the said proviso and must be deemed to suffer from a mistake apparent from the record.
That is why we think that the Income tax Officer was justified in the present case in exercising his power under section 35 and rectifying the said mistakes.
Incidentally we may mention that in Moka Venkatappaiah vs Additional Income Tax Officer, Bapatla (1), the High Court of Andhra has taken the same view.
(1)(1957) 712 In this connection it would be useful to refer to the decision of the Privy Council in the Commissioner of [Income Tax, Bombay Presidency and Aden vs Khemchand Ramdas (1).
In Khemchand 's case, the assessees were registered as a firm and they were assessed under section 23(4) on an income of Rs. 1,25,000 at the maximum rate.
Being a registered firm no super tax was levied.
A notice of demand was also made before March 1927.
On February 13, 1928, the Commissioner, in exercise of his powers under section 33, cancelled the order registering the assessee as a firm and directed the Income tax Officer to take necessary action.
The Income tax Officer accordingly assessed the firm to super tax on May 4, 1929.
The Privy Council held that the assessment made on January 17, 1927, was final both in respect of the income tax and super tax.
The fresh action taken by the Income tax Officer on May 4, 1929, was out of time though it had been taken in pursuance of the directions of the Commissioner and that the order of May 4, 1929, was one which the Income tax Officer had no power to make.
One of the points raised before the Privy Council was whether, under the relevant circumstances the Income tax Officer had power to make the impugned order in view of the provisions of sections 34 and 35 of the Act.
The Privy Council dealt with this question on the footing that the Commissioner 's order cancelling the registration had been properly made.
On this basis their Lordships thought that it was unnecessary to consider whether the. case would attract the provisions of section 34 " inasmuch as in Their Lordships ' opinion the case clearly would have fallen within the provisions of section 35 had the Income tax Officer exercised his powers under the section within one year from the date on which the earlier demand was served upon the respondents ".
The judgment shows that Their Lordships took the view that looking at the record of the assessments made upon the respondents as it stood after the cancellation of the respondents ' registration and the order effecting the cancellation would have formed part of the record it would be apparent that a mistake (1)(1938) L.R. 65 I.A. 236. 713 had been made in stating that no super tax was leviable.
This decision clearly shows that the subsequent cancellation of the assessees ' registration was held by Their Lordships of the Privy Council to form part of the record retrospectively in the light of the said subsequent event, and the order was deemed to suffer from a mistake apparent from the record so as to justify the exercise of the rectification powers under section 35 of the Act.
It is because Their Lordships thought that section 35 would have been clearly applicable that they did not decide the question as to whether section 34 could also have been invoked.
This decision lends considerable support to the view which we are disposed to take about the true meaning and scope of the expression " the mistake apparent from the record " occurring in section 35.
We must accordingly hold that the High Court of Bombay was in error in coming to the conclusion that the notice issued by the Income tax Officer calling upon the respondent to pay 9the sum of Rs. 29,446 9 0 was not warranted by law.
The result is the order passed by the High Court issuing a writ against the appellant is set aside and the appeal is allowed with costs throughout.
Appeal allowed.
| IN-Abs | The Income tax Officer, by his order dated October 9, 1952, assessed the respondent for the assessment year 1952 53 and gave him credit for Rs. 50,603 15 0 as representing interest on tax paid in advance under section 18 A(5) of the Income tax Act.
On May 24, 1953, the Indian Income tax (Amendment) Act, 1953, came into force adding a proviso to s.18 A(5) of the Act to the effect that the assessee was entitled to interest not on the whole of the advance tax paid by him but only on the difference between the payment made and the amount assessed.
The Amendment Act provided that it shall be deemed to have come into force on April 1, 1952.
The Income tax Officer, acting under section 35 of the Act, rectified the assessment order holding that the assessee was entitled to a credit of only Rs. 21,157 6 0 by way of interest on tax paid in advance as a result of the retrospective operation of the amendment in section 18 A(5), and issued a notice of demand against the assessee for the balance of Rs. 29,446 9 0.
The assessee filed a petition in the High Court of Bombay.
under article 226 of the Constitution praying for a writ prohibiting the appellants from enforcing the rectified order and notice of demand.
The High Court issued the writ holding that section 35 was not applicable to the case as the mistake mentioned in section 35 had to be apparent on the face of the order and the question could only be judged in the light of the law as it stood on the day when the order was, passed: Held, that the Income tax Officer was justified in exercising his powers under section 35 and rectifying the mistake.
As a result of, the legal fiction about the retrospective operation of the Amendment Act, the subsequently inserted proviso must be read as.
forming part of section 18 A(5) of the principal Act as from April 1, 1952, and consequently the order of the income tax Officer dated October 9, 1952, was inconsistent with the provisions of the proviso, and suffered from a mistake apparent from the record.
Commissioner of Income tax, Bombay Presidency and Aden vs 704 Khemchand Ramdas, (1938) L.R. 65 I.A. 236 and Moka Venkatap paiah vs Additional Income tax Officer, Bapatla, (1957)32 I.T.R. 274, referred to.
The order passed by the Income tax Officer under section 18 A was not final in the literal sense of the word; it was and con tinued to be liable to be modified under section 35.
It is also not correct to say that the retrospective operation of the amended s.18 A(5) was not intended to affect concluded transactions.
|
ivil Appeal No. 4113 of 1985 etc.
From the Judgment and Order dated 20.7.1984 of the Bombay High Court in Misc.
Petition No. 1115 of 1977.
T.R. Andhyarujina, S.B. Bhasme, R.A. Dada, V.S. Desai, A.K. Sen, M.L. Dhamuka, M.A. Firoz, A.S. Bhasme, A.M. Khan wilkar, Harish Salve, R.F. Nariman, J.
B. Dadachanji, Mrs. A.K. Verma, Joel Pares, B.H. Vani, D.N. Misra, Arun Madan and Miss A. Subhashini for the appearing parties The Judgment of the Court was delivered by VENKATACHALIAH, J.
These appeals, the first two by the State Electricity Board of Maharashtra, by certificate, and the State of Maharashtra, by special leave, arise out of and are directed against the same judgment dated 20.7.
1984, of the High Court of Judicature at Bombay made in proceedings under Article 226 of the Constitution in Misc.
No. 1115 of 1975.
The writ petition before the High Court was filed by the respondent The Thana Electricity Supply Compa ny Limited ( 'company ' for short) challenging the constitu tional validity of Sections 4, 5 and 6 of the Indian Elec tricity (Maharashtra Amendment) Act, 1976, (Maharashtra Act No. XLIV of 1976) ("Amending Act of 1976", for short) and Sec. 2 of the Indian Electricity (Maharashtra Amendment and Validation) Act, 1974.
Respondent Company by its CMP No. 40944 of 1984 (CA No. 243 of 1985) sought certain reliefs which had been disallowed by the High Court.
That CMP was treated as a petition for grant of Special Leave and Special Leave was granted on 11.1.
That is how CA 243 of 1985 has come to be registered.
The compass of the controversy before the High Court could broadly be indicated.
The "company" became entitled, by transfer, to the benefit and privileges of the "Thana Electricity Licence 1927" granted on 14.9.1927 by the then Government of Bombay under the , for supply and distribution of electricity in the 524 areas covered by the license.
The grant was originally in favour of a firm of partners under the name and style 'Messrs P. Patel & Co. ' On 16.2.1928, respondent Company was formed as a Private Limited Company with the object of taking over the license from the said firm Messrs P. Patel & Co. Government, by its order dated 11.6.1928, consented to the transfer of the license to the said Private Limited Company.
On 15.1.1965, the Private Limited Company became a Public Limited Company.
The license was to expire, by efflux of time on the 21st day of September, 1977.
Clause 11 of the license envisaged the option to the Government, usual to such grants, to purchase the undertaking on the expiration of the period of the license.
The Bill for the Amending Act, 1976, was intro duced in the Legislature on 13.7.1976.
The State Electricity Board, by notice dated 26th of August 1976 served on the company, exercised its option to purchase the undertaking on the expiry of the period of the license and accordingly, required the company to sell and deliver the undertaking to the Appellant Board on the mid night between 21st and 22nd day of September, 1977.
The provisions of the Electricity Act 19 10, as they stood on the day the option was exer cised, would entitle the Company to be paid the "MarketVal ue" of the undertaking.
However on 20.9.
1976, the Amending Act 1976.
pursuant to the Bill introduced on 13.7.
1976 became law.
The Act received the assent of the President on 2nd September, 1976, and came into force with effect from 20th September, 1976, within a month of the option to purchase contained in the notice dated 26.8.1976.
By this Amending Act of 1976 the principle of "Market Value" in the relevant provisions of the 19 10 Act was substituted by the concept of an "Amount" legislatively fixed as a sum equal to the depreciated Book Value of the assets of the "undertaking" to be taken over.
The Amended provisions were to govern cases where, as here, notices had been issued prior to the amendment.
The Company and its shareholders challenged the Amending Act of 1976 as violative of Articles 14, 19(1)(f) & (g) and 31 of the Con stitution.
The Appellants State of Maharashtra and the State Electricity Board claimed the protection of Article 31 C to the Amending Act of 1976 and the consequent immunity from attack on the ground of violation of Articles 14, 19 and 31.
While the High Court rejected the appellants ' claim that the impugned Law had the protection of Article 31 C, it did not also accept the contention of the company as to the constitutional infirmity 525 attributed to Section 2 of the 1974 Act and Sections 5 and 6 of the Amending Act of 1976; but the High Court declared that Section of the Amending Act of 1976 was violative of Article 19(1)(f) and Article 14.
The High Court rejected the contention of the 'Company ' that upon the service of the Notice exercising the option to purchase, the company 's fight to be paid the ' market value ', under the law as it then stood, was crystallised into an "actionable claim" or a 'chose inaction ' and that what was sought to be acquired was not the 'undertaking ' itself but a "chose in action".
While the State and Electricity Board assail the correctness of the view of the High Court that Section 4 of the Amending Act of 1976 was bad, the Company, in its appeal No. CA 243 of 1985 has questioned the correct ness of the Judgment on the points held against it.
The company filed the writ petition in the High Court on 1.9.1977.
On 21.9.1977 the High Court by its interlocuto ry order permitted the take over of the undertaking subject to the Board paying to the company Rupees four crores and five lakhs.
The Board paid and took possession on 21/22 September, 1977.
On 11.1.
1985, in the appeals of the State and Board, this Court ordered a further payment of Rupees one crore and sixteen lakhs to the company.
We must, here, advert to three legislative events touching the provisions of the 1910 Act in relation to its application to the State of Maharashtra.
On 27.10.1974, the Governor of Maharashtra promulgated Ordinance No. 18 of 1974, which was later replaced by the Indian Electricity (Maharashtra Amendment and Validation) Act No. LXIII of 1974.
By that Act, inter alia, Section (i AA) was inserted in Sec.
3 of 19 10 Act, which was deemed always to have been inserted, to the effect to that licence granted shall be published in the Government Gazette and that, as stipulated in Section 3(2)(cc), the licence shall commence on the date on which such licence was published in the Gazette.
The 1974 amending Act also substituted Sub section (6) and amended sub section (7) of Sec. 6 of the 1910 Act.
The substituted Sub Sec.
(6) provided that where notice exercising the option to purchase had been served, the licensee shall deliver the undertaking pending determi nation and payment of the purchase price and interest.
This was, apparently, intended to over come certain judicial observations touching the legalities of a take over without the tender 526 of the price.
The amended Sub section (7) restricted the interest to "the Reserve Bank of India rate ruling at the time of the delivery of the undertaking plus one per centum from the date of delivery of the undertaking .to the date of payment of the purchase price.
" The Amending Act of 1976 was, indeed, more far reaching and brought about certain fundamental changes in the basis of the payment for the take over.
The idea of "market value" was done away with and was substituted by the concept of an 'Amount ' which was to be limited to the 'depreciated book value '.
The statement of objects and reasons accompanying the Amending Bill sets out its main objects: "Section 7A of the , provides for determination of purchase price where any undertaking of a licensec is sold under sub section (1) of section 5 or purchased under section 6 of the Act.
The basis for determining such price is the market value of the undertaking at the time of purchase or at the time of delivery of the undertaking.
Having regard to the present trend of rising prices, the market value of an undertaking would be much higher than the original purchase price.
In such an event, the purchaser will be required to incur very heavy expenditure for payment of the purchase price or payment of compensation in accordance with the existing provisions of the Act and will involve the purchaser in heavy financial commitments.
In the interest of the consumer and social justice, therefore, it is necessary to amend the Act suitably to provide for payment of an amount equal to the depreciated book value of the undertaking either in cash or in annual instalments.
The Bill is intended to achieve these objects.
" By the Amending Act of 1976 sub sec.
(2) of sec.
5 of 19 10 Act was substituted.
The Sub sec.
(2), as substituted, reads: "(2) Where an undertaking is sold under sub section (1), the purchaser shall pay to the licensee for the undertaking an amount deter mined in accordance with the provisions of sub sections (1) and (2) of section 7A"; In Sub sec.
(3) and Proviso to Section: 5 and Section 6 of 19 10 Act, the words "payment of market value" were substituted by the words 527 "payment of the amount for the undertaking".
Sub sec.
(7) of Sec. 6 was substituted.
The substituted sub section provided: "(7) Where an undertaking is pur chased under this Section, the purchaser shall pay tO the licensee the amount determined in accordance with the provisions of Section 7A and interest at the Reserve Bank of India rate ruling at the time of delivery of the under taking plus one per centum on the amount payable for the undertaking for the period from the date of delivery of the undertaking to the date of payment of such amount." Sub sections (1) and (2) of the new Section 7A of Act said: "7A(1) where an undertaking of a licensee is sold under sub section (1) of section 5 or purchased under section 6, the amount payable for the undertaking shall be the book value of the undertaking at the time of delivery of the undertaking.
(2) The book value of an undertaking for the purposes of sub section (1) shah be deemed to be the depreciated book value as shown in the accounts rendered by the licensec in accordance with the provisions of section 11 of all lands, buildings, works, materials and plant of the licensee, suitable to, and used for him, for the purpose of the undertak ing other than (i) a generating station declared by the licensee not to form part of the undertak ing for the purpose of purchase; and (ii) the service lines or other capital works or any part thereof, which have been constructed at the expense of the consum ers, but without any addition in respect of compulsory purchase or of goodwill or of any profits which may be or might have been made from the undertaking or of any similar consid eration." Sub sec.
(3) the new Sec.
7A envisaged payment of a solatium of ten per cent of the "book value" as determined under sub sec.
(1) and (2) of new Sec.
7A overriding "any stipula tion contained in any licence, instrument, order, or agree ment or any law for the time being in force 528 for payment of any additional sum, by whatever name it was called." Similarly sub sec.
(4) of the new Sec.
7A sought to give an overtiding effect to the provisions of the new Sec.
7A and provided that no provisions of any Act for the time being in force including "the other provisions of this Act or any rule made thereunder or any licence" shall have effect in so far as they are inconsistent with sec.
7A. New Section 7A(5) enabled the payment of the amount either in lump sum or in instalments, together with the rate of inter est stipulated in Section 6(7) as amended.
Section 5 of the Amending Act, 1976, provided: "The provisions of section 5, 6 and 7A of the Principal Act as amended by this Act, shall have effect in relation to all the licensees in respect of their undertakings, including any licensee on whom a notice re quiting him to sell the undertaking has been issued under sub section (1) of section 5, or on whom a notice exercising the option of purchasing the undertaking has been served under subsection (1) of section 6 of the Principal Act before the commencement of the Indian Electricity (Maharashtra Amendment) Act, 1976, and the purchase price in respect of whose undertaking was not determined before such commencement." (Emphasis Supplied) Another legislative development was the amending Act, 1981, which occured during the pendency of the writ petition before the High Court.
The amendment provided that where the amount was payable in instalments the interest would be payable from the date of the delivery of the undertaking to the date of payment of the last instalment.
The effect of the Amending Act of 1976, in substance, was that the concept of "Market Value" was substituted by the concept of an "amount", which was the book value of the undertaking at the time of its delivery.
The "book value" was deemed to be the "depreciated book value" as shown in the accounts rendered by the licensee in accordance with section 11 of the 1910 Act, of all lands, buildings, works, materials, plants, etc.
The licensee was given a solatium of ten per cent of such book value.
The provisions of the Amending Act of 1976 were made applicable to all licensees including a licensee upon 529 whom a notice requiting him to sell the undertaking had been served prior to coming into force of the Amending Act of 1976, but the purchase price had not been determined before the Amendment of the Act.
The up shot of the Amending Act of 1976 was that the entitlement of the company for payment for its "undertaking", respecting which the notice exercising the Board 's option to purchase had been served on 26.8.1976, i.e. prior to the date of coming into force of the Amending Act, 1976, also came to be governed by the provisions of the Amending Act, 1976.
While on the basis of the provisions as they then stood the respondent company was entitled to the payment of the "market value" as determinable under these provisions, now, by virtue of the Amending Act, of 1976, the respondent company became entitled to the payment of an "amount" which was equal to and represented the "depreciated book value" of all the lands, buildings.
works etc., instead of the "Market Value".
As stated earlier, the principal controversy before the High Court was whether the provisions of the Amendment Act, 1976, which scaled down, quite drastically, the measure of the recompense for the taking over of the company 's undertaking, were violative of Articles 14, 19(1)(f) and (g).
and 31 of the Constitution of India, as contended by the company, or whether the Amending Act of 1976 had the protection of and attracted the provisions of Article 31 C of the Constitution, rendering the law immune from assailment on the ground of violation of fundamental fights.
The contentions of the parties would require to be examined as the provisions of Articles 19(1)(f) and 31 stood at the relevant time.
Articles 19(1)(f) and 31 were deleted later; but that does not affect the constitutional position with reference to which the present cases would require to be decided.
Some aspects of the contentions beating on the inter relation between a law of the kind we are concerned with and Article 31 C have been considered in our judgment in the companion matters arising out of the Assam Legislation in W.P. Nos. 457 and 458 of 1972 rendered separately today.
The High Court was persuaded to the view that the ab sence of a legislative declaration in the Amending Act of 1976 itself was decisive against the acceptability of the State 's contention that the law was one for giving effect to the objects of Article 39(b) and (c).
The High Court ob served: "A Division Bench of this court (to which one of us, Rege 530 J., was a party) has held (in writ petition No. 2401 of 1983, The Elphinstone Spinning and Weaving Mills Company Ltd. vs The Union of India) that to bring an enactment within the protection of Article 31 C so as to bar a chal lenge to it on the ground of infringement of Articles 14 or 19, it was necessary that the enactment should contain a declaration mani festing the intention of Parliament or a State Legislature to give effect by that enactment to the directive principles in Article 39(b) or (c).
This could be done either by specific reference to Article 39(b) or (c) in the enactment or by incorporating in it the word ing of Article 39(b) or (c).
The Amending Act of 1976 does not contain a declaration, mani festing the State Legislature 's intention to give effect thereby to the directive princi ples contained in Article 39 (b) or (c).
Having regard to this, counsel for the re spondents have not pressed before us the argument based on Article 31 C but have re served it, should it be necessary, for the Supreme Court." (Emphasis Supplied) On this premise, the High Court did not enter into the question whether the Amending Act of 1976 was really one for giving effect to the policy in Article 39(b) and (c).
With the protection of Article 31C to the legislation so held unavailable, the High Court proceeded to consider whether the provisions of the impugned law including those that gave power to Government to postpone payment by instalments and those that limited the rate of interest etc.
violated the fundamental rights under Articles 14 and 19.
Rejecting the contention of the appellants that with the payment of Rs.4,05,00,000, under the order of the Court, the grievance of the company about the arbitrariness of the provisions giving power to the Government to decide either or pay the amount in lump sum or in instalments, becoming purely aca demic, the High Court said: "It is crystal clear from the orders of the learned Judge that the payment of Rs.4,05,00,000 was made by the Board to the company pursuant to these orders and as a condition of being allowed to take possession of the company 's undertaking.
The company is, therefore, entitled to urge that the provi sions delaying payment of the purchase price and enabling it to be paid by instalments are unreasonable and unconstitutional." 531 8.
In the view of the High Court the State Electricity Board, as a matter of its declared policy, was purchasing the private electricity undertakings as and when their licenses ex pired and that the reduction in the measure of payment, sought to be achieved by the Amending Act of 1976 was violative of Article 19(1)(f).
The High Court held: " . .
Electricity undertakings were compulsorily purchased upon payment of their market value until 1976, when the Amend ing Act of 1976 was mooted.
There is no expla nation in the affidavit made on behalf of the respondents as to what it was that made it imperative in the public interest at that point of time to reduce the purchase price from market value to depreciated book value.
There is no statement in the affidavits that upon the basis of market value the Board could no longer have effected compulsory purchase . " (emphasis supplied) " . .
The obligation to pay market value did not deter the State from adopting this policy.
The affidavits on behalf of the respondents do not aver that after compulsory purchases in the past the electric ity tariff had to be raised; all that they state is that the expenditure incurred on compulsory purchases had to be taken into ac count . " " . .
Considering all these factors, the objects and reasons for the Amending Act of 1976 could only be thus to reduce the Board 's liability on compulsory purchase.
Legislation enacted to reduce the State 's liability or augment the State 's funds as its only purpose infringes the fundamental right given by Article 19(1)(f).
We have already cited the cases that so hold.
" It is to be recalled that the Statement of Objects and Reasons and the Financial Statement appended to the Bill set out these considerations compelling the State to cut down the compensation.
But according to the High Court, the absence of their reiteration in the affidavits would assume materiality.
The High Court, in substance, also held that the State could not unilaterally reduce, even by legislation, its liability to pay the purchase price under a consensual transaction and that such an attempt would be violative of Article 19(1)(f).
We may set out the 532 reasoning of the High Court where the inference drawn on the premise appears a non sequitur: " . .
Though the purchase is compulsory, though the terms of the contract are amendable by legislation, though the electricity franchise and its returns are controlled by legislation and though the purchase deals with a material resource, control over which is a directive principle, the State as the purchaser under a contract cannot be countenanced to act unilaterally to drastically reduce its liability in regard to the purchase price.
Such a reduction is not reasonable, not in the public interest and infringes the fundamental right under Article 19(1)(f).
(Emphasis Supplied) Upholding the company 's contention that the reduction in the quantum of the payment brought about by the Amending Act of 1976 violated Article 19(1)(g), the High Court said: "The reduction in the purchase price cannot but have a direct and proximate effect on the licensee 's fight to carry on the busi ness of electricity supply while the licence was current.
Upon compulsory purchase of his undertaking the licensed would do or want to do other business.
The depletion in his capi tal of so considerable a nature as that caused by the reduction of the purchase price of his ' undertaking from market value to depreciated book value cannot but hinder him in doing so.
There would, therefore, also be a transgres sion of the guarantee of Article 19(1)(g).
" Further, the conferment on Government of the power to fix instalments was held to be "grossly unreasonable and.
arbitrary and violative of Article 19(1)(f) and (g) and Article .14".
The provision for payment of interest at the Reserve Bank rate plus one percent, according to the High Court, made "more unreasonable the provisions of the Amend ing Act, 1976" and that "A rate approximating, if not equal, to the higher commercial rate of interest would have been more appropriate.
The High Court, however, rejected the company 's contention that its right to payment of 'market value ' became crystallised upon the service on it of the notice exercising the Board 's option to purchase the undertaking and that what was sought to be acquired was 533 a mere 'chose in action ' and not the undertaking itself.
High Court also rejected the contention that the law was bad for excluding the 'service lines ' from the computation of the 'amount '.
The correctness of these rejections is chal lenged in the company 's cross appeal i.e. C.A. No. 243 of 1985.
We have heard Shri Andhyarujina, learned Senior Advocate for the State of Maharashtra and the State Elec tricity Board and Shri A.K. Sen, learned Senior Advocate for the respondent company.
The principal contention urged on behalf of the State and the Electricity Board was that the High Court was in error in denying to the impugned law the protection of Article 31 C.
It was urged that the High Court fell into a serious error in postulating that the absence of an express legislative declaration in the law that the law was enacted for giving effect to the principles of State Policy in Article 39(b) and (c) was itself conclusive against the attraction of Article 31 C.
It was urged that the presence of an express legislative declaration in that behalf merely furnished evidence of a reasonable and direct nexus between the legislation and the objects of Article 39(b) and (c) but such a declaration was, however, not by itself conclusive either way and the court was entitled to go behind the facade of the declaration where there is one and scrutinise whether really there was such a direct and reasonable nexus and that, as a corollary, it followed that the absence of such an express declaration did not preclude the State from showing the existence of the requisite nexus.
The impugned law, it was contended, was one intended to give effect to the directive principles contained in Article 39(b) and was entitled to the protection of Article 31 C. Sri A.K. Sen for the licensee company contended that any appeal to and reliance upon Article 31 C is wholly misplaced inasmuch as the option to purchase the undertaking was in effectuation of a purely consensual transaction and that the scheme of the Electricity Act, 1910, and the covenants in the license enabling the Government or the Board, as the case may be, to exercise the option to purchase did not amount to a "compulsory" acquisition of the undertaking.
It was urged that the impugned provisions of the Amending Act of 1976, which had the effect of bringing down the purchase price payable under a mutual agreement, could not be justified on any nexus with or for the effectuation of the objects of Article 39(b).
The point that arises for consideration in these ap peals, therefore, is whether: 534 "the Maharashtra Act No. XLIV of 1976, which statutorily modifies the princi ples for the determination of the purchase price for the undertaking from the principle of Market value contained in the unamended Section 7A of 1910 Act to the concept of an 'amount ' equal to the depreciated book value of the assets under Section 7A as amended by Maharashtra Act No. XLIV of 1976 could be said to be a law enacted for the acquisition of the undertaking with a reasonable and direct nexus with the object of Article 39(b) of the Constitution and has, therefore, the protection of Article 31 C?" If the contention of the State and the Electricity Board prevails and is accepted, all other contentions which, in turn, rest on an alleged infraction of Articles 14, 19(1)(f) and (g) and 31 do not survive.
It is, however, the conten tion of Shri Andhyarujina that the question whether the power given to the Government to postpone payment of the price by fixing instalments and statutory limitations on the rate of interest are violative of Article 19(1)(f) and (g) became purely academic in the present case, as indeed, under the orders of the High Court Rupees Four Crores and Five Lakhs had been paid even before possession was taken and that a further sum of Rupees One Crore and Sixteen Lakhs was paid pursuant to the orders of this Court.
Learned counsel also submitted further that apart altogether from the pro tection of Article 31 C, the Amending Act, of 1976 is justi fiable as a reasonable restriction on the freedom under Article 19(1)(f) and (g).
At the outset the misconception that an express legisla tive declaration in the legislation is condition precedent to the attraction of Article 31 C would, perhaps, require to be removed.
The High Court, we say so with respect, was under a clear misconception on the point that an express incantation was necessary in the law itself.
The nexus between the law and the objects of Article 39(b) could be shown independently of any such declaration by the legisla ture.
The absence of evidence of nexus, in the form of an express declaration, was not by itself evidence of absence of such nexus.
Indeed in State of Maharashtra vs Basantibai, ; at 1475 this court, while examining the correctness of the view of High Court that Article 31 C was inapplicable in the absence of such a declaration in the very law itself, observed: " .
First, Act.
31C does not say that in an Act there should be a declaration by the appropriate legislature to 535 the effect that it is being enacted to achieve the object contained in Act.
39(b).
In order to ascertain whether it is protected by Act.
31C, the Court has to satisfy itself about the character of the legislation by studying all parts of it.
The question whether an Act is intended to secure the objects contained in article 39(b) or not does not depend upon the declaration by the legislature but depends on its contents . " 12.
We may now turn to the principal contention.
Sri Sen, quite understandably, places considerable reliance on the pronouncement of this Court in Fazilka Electric Supply Co. Ltd vs The Commissioner of Income Tax, Delhi, [1962] Supp.
(3) SCR 496 which was a decision in an income tax case in the context of the question whether the sale of the electricity undertaking of the company as enabled by the relevant Section of the 19 10 Act could be regarded as a sale within the meaning of Section 10(2)(vii) of the Income Tax, 1922, and the excess realisation over the written down value of the Building, Machinery, Plant etc.
as did not exceed the difference between the original cost and the written down value a sum of 77,700 in that case was to be brought to tax.
The question arose whether the sale pursuant to the option under the 1910 Act.
was a consensual sale in which case Section 10(2)(vii) stood attracted or whether it was a "compulsory acquisition" or "compulsory sale".
The contention urged by counsel was noticed by this Court thus: " .
He has argued that on a proper con struction of the provisions of the Electricity Act and the rules made thereunder, the so called sale in the present case was really a compulsory acquisition of property and not a sale as legally understood;" (Emphasis Supplied) (p. 501) This proposition was not accepted.
This Court said: " . .
If the whole scheme of the Electric ity Act and the rules made thereunder, is kept in mind, it becomes obvious that notwithstand ing the use of the expression "compulsory purchase" in the second proviso to sub s.(1) of section 7, there is no compulsory purchase or compulsory acquisition in the sense in which that expression is ordinarily understood (p. 505) 536 Placing strong reliance on these observations Sri Sen contended that any proposition of a "compulsory acquisition" with the cognate implication of the acquisition seeking to subserve the objects of Article 39(b) is alien to the present case which was one of a con tractual sale.
Sri Sen also referred to Arti cle 31(2A), as it then stood, which provided: "(2A) Where a law does not provide for the transfer of the ownership or right to posses sion of any property to the State or to any corporation owned or controlled by the State, it shah not be deemed to provide for the compulsory acquisition or requisitioning of property, notwithstanding that it deprives any person of his property," (Emphasis Supplied) to contend that where the transfer of ownership is not brought about by the operation of law itself but, as here, only by a consensual transaction there is no idea of a "compulsory acquisition" in the situation which might, in turn, serve the objects of Article 39(b).
Sri Sen, also referred to Bihar State Electricity Board and Ors vs Patna Electricity Supply Co. Ltd. & Anr., In that case, on 5.1.1973 the State Elec tricity Board exercised its option to purchase the licen see 's undertaking on the expiry of 5th February 1974.
On 2nd February 1974, Ordinance 50 of 1974 was promulgated substi tuting Section 7A of the 19 10 Act so as to reduce the concept of "market value" to one of Book Value.
The Ordi nance was renewed b3, Ordinance 83 of 1974 and the latter by Ordinance 123 of 1974.
Possession of the undertaking was taken 5th/6th February 1974.
On 15th January 1975 Bihar Act 15 of 1975 was enacted to replace the last of the Ordi nances.
On 10th January, 1976, Bihar Act 7 of 1976 was passed making its operation retrospective from 2nd February, 1974, when the first Ordinance No. 50 of 1974 had been issued.
The Division Bench of the High Court held that as the option to purchase had been exercised prior to the issue of Ordinance 50 of 1974, the Licensee was entitled to the market value under the unamended Section 7A.
The High Court in effect took the view that once the option was exercised and communicated, the option with all the incidents that go with it including the stipulation as to the particular price implicit in the option binds both the parties and that the right to receive the purchase price was crystallised into a 'chose in action '.
The reasoning of the High Court is on these lines: 537 " . .
At the time the option was exercised by the appellant under section 7 A of the Act, the respondent company was entitled to the market value of the undertaking to be determined in accordance with the provisions of sub sec.
(2) of section 7 A.
There was, therefore, an implied contract between the respondent company and the appellant that the appellant would pay to the respondent company the market price of the undertaking in the event it purchased the undertaking.
The option of purchase was exer cised by the appellant before the amendment of section 6 and section 7A of the Act the Bihar Ordinance 50 of 1974.
The appellant is, therefore, liable to pay to the respondent company the market value of the undertaking in terms of the unamended provision section 7A . " .
In other words, when the option is exercised the licensee is bound to sell and the concerned authority is bound to purchase the undertaking.
It is difficult to accept the contention that this binding effect on either party will be without the fixation of the purchase price or the consideration for the transaction.
As soon as this stage is reached after the exercise of option to purchase by the service of a notice as mentioned in section 6 of the Act, the concerned authority has to purchase the undertaking on payment of the market value of the undertaking to be deter mined in accordance with the provision of section 7A of the Act . " "The right to receive the market value of the undertaking is a debt or a chose in action and is property within the meaning of article 19(1)(f) and article 31(2) of the Consti tution " It was held in that case the amending processes were violative of the Licensees ' fundamental rights under Article 31(2) of the Constitution.
What, in the ultimate analysis, underlies, and is indeed, the emphasis in, Sri Sen 's submission is the postu late that in the take over by Government of an "undertaking", there is no element of "nationalisation" of the undertaking and consequently, no question of effectua tion of the objects of Article 39(b) arises.
The arguments addressed in the case are not without their interesting aspects as to 538 what, in the last analysis, is and should be, the form and content of a law which seeks to serve the objects of Article 39(b).
In the decision of the Calcutta High Court relied upon by Sri Sen, no appeal was made by the Electricity Board to the protection of Article 31 C.
That apart, the concept of the licensee 's rights crystallising themselves into a chose in action upon the exercise of the option that com mended itself to the Calcutta High Court did not appeal to the Bombay High Court in the judgment under appeal.
Sri Andhyarujina emphasised the essentially statuto ry character of the business of the Electricity Supply Undertaking carried on pursuant to the License granted under the 1910 Act, and that the provisions of the said Act and the Electricity Supply Act, 1948, leave no doubt that the license and the operations thereunder are totally controlled by statutory provisions.
Section 57 of the latter Act re quires that the charges for consumption of Electricity levied on the consumers shall be in accordance with the financial principles guiding the matter prescribed in Sched ule VI of that Act.
That schedule limits the profits of the licensee and tells as to how they should be arrived at for purposes of ensuring compliance with the provisions limiting the profits.
Sri Andhyarujina also referred to the decision of this court in Gujarat Electricity Board vs Girdharilal Motilal and Anr., ; at 592 93.: " . .
It is a mode of exercising the power conferred on the State Electricity Board by the exercise of which the property rights of the licensees can be affected.
Section 6(1) confers power on the State Electricity Board to take away the property of the licensee.
Such a power must be exercised strictly in accordance with law . . " (Emphasis Supplied) 16.
Sri Andhyarujina submitted that there was no dispute that electricity supplied by even a private enterprise was 'material resources of the community ' for purposes of Arti cle 39(b) and that the legislative expedient by which the State seeks to achieve the objective of Article 39(b) that the ownership and control of that material resource is so distributed as best to subserve the common good, is merely a matter of form than substance.
If the State, instead of resorting to this particular legislative expedient, had enacted a separate law for the take over with the same principles for the determination of the 'amount ', that law, says learned counsel, would have been quite unexceptionable from the point of view of its eligibility for protection 539 under Article 31 C. Learned counsel submitted that it should, in substance, make no difference if the same result is sought to be achieved by a more simple legislative expe dient of enacting a law, with Presidential assent, which, while unaffecting the take over under the 19 10 Act, howev er, made the economic cost of implementing the object of Article 39(b) less unaffordable by the State.
Learned coun sel says that the arguments in the case, accepted by the High Court, laid stress more on form than on substance of the legislation.
The business of an electricity supply undertaking, a public utility service, in pursuance of a license granted under the Electricity Act, 19 10, is comprehensively con trolled by the terms of that Statute.
The terms on which a franchise is created and conferred are amenable to unilater al modification by Statute.
The terms which are so amenable to unilateral alteration to the disadvantage of the licensee include the term pertaining to the quantification of the price payable for the take over.
It is difficult to accept the proposition that the right to the payment of the price gets crystallised into a 'chose in action ' independently of or even before the actual transfer of ownership of the undertaking.
In Fazilka Electric Supply Company 's case 119621 3 SCR 496 it was, no doubt, held that the transfer of the ownership of the undertaking was the result of consensu al, bilateral activity.
However, in Gujarat Electricity Board vs Girdharilal Motilal, ; referring to the relevant provisions of the 1910 Act it was held that they conferred power on the State Electricity Board "to take away the property of the licensee.
It appears to us that even if the provisions of the Electricity Act, 1910, are held and understood to provide for take over by the State of a privately owned undertaking only by the adoption of the expedient of a consensual sale, that circumstance, by itself, would not be decisive of whether the amending Act of 1976 has no direct and reasona ble nexus with the objects of Article 39(b).
The High Court, itself referring to the object of the relevant provisions of the 1910 Act enabling a take over observed: "The Electricity Act, 1910, as enacted contemplated State Control over the material resources of electricity by providing for compulsory purchase of electricity under takings.
" But so far as the Amending Act was concerned the High Court said: 540 "This was already the objective of the parent Act.
It cannot, therefore, be held to be the object of the Amending Act of 1976.
" The reasoning of the High Court that the Amending Act, 1976.
which was incorporated into and became part of the principal Act, would have no such purpose, does not square with its own view of the purpose of the principal Act.
After having said that the relevant provisions of the Amending Act did not share with the principal Act the objective of take over of an 'undertaking ' the High Court on a logical corol lary of that premise, held that the Amending Act had no nexus with the object of Article 39(b).
The effect of the relevant provisions of the 1910 Act, as amended by the amending Act of 1976, is the transfer of the ownership and control of material resources of the community for purposes of ensuring that they are so distrib uted as best to subserve the common good.
In effect, the provisions bring about nationalisation in the larger sense of that term.
The Amending Act of 1976 sought to limit the economic burden of this reform.
The expression "nationalisation" means 'the acquisition and control of privately owned business by Government ' (See Black 's Law Dictionary, 5th Edn., p. 924).
In 'A New English Dictionary on Historical Principles ' by Murray, Vol.
VI Page 32 the word 'nationalisation ' is stated to connote: "the acquisition and operation by a national government of business enterprises formerly owned and operated by private indi viduals or corporations.
Most States have nationalised their postal and telegraphic systems, and many have nationalised railways and other means of transportation.
It .is the policy of socialism to nationalize all produc tive industry.
" The idea of nationalisation of a material resource of the community cannot be divorced from the idea of distribu tion of that resource in the community in a manner which advanced common good.
The cognate and sequential question would be whether the provisions of the amending Act, 1976, had a reasonable and direct nexus with the objects of Arti cle 39(b).
It is true, the protection of Article 31 C is accorded only to those provisions which are basically and essentially necessary forgiving effect to the objects of Article 39(b).
The High 541 Court, from the trend of its reasoning in the Judgment, appears to take to the view that while the provision for the take over in the Principal Act might amount to a power to acquire, however, the objects the Amending Act of 1976, which merely sought to beat down the price could not be said to be part of that power and was, therefore, incapable of establishing any nexus with Article 39(b).
There is, we say so with respect, a fallacy in this reasoning.
The amending Act of 1976, renders the cost of this economic reforms brought about with the objects of Article 39(b) in view an affordable one in terms of money.
Can this be held to have no direct or reasonable nexus with the objects of Article 39(b)? When a legislative enactment is challenged as not conforming to the constitutional mandate "the judicial branch of the Government" it is said "has only one duty to lay the article of the Constitution which is invoked beside the Statute which is challenged and to decide whether the latter squares with the former".
(See: United States vs Butler, ; In the financial memorandum appended to the Amending Act of 1976,it is, inter alia, stated: " . .
So far as Maharashtra State is concerned, it is a matter of policy that Maharashtra State Electricity Board is pur chasing private Electricity Undertakings as and when their licences expire.
This policy will be continued and the Board will take over private undertakings hereafter also as and when their licence periods expire.
Under Section 7A of the Indian Elec tricity Act, on revocation of the licence as well as on the purchase of the undertaking, the Board or the State Government as the case may be has to pay compensation or purchase price at the market value of the undertaking.
In the normal course this market value will be very high.
Under the amended Act, the Board or the State Government will be required to pay as compensation or purchase price the depreci ated book value of the undertaking.
This will be less than the compensation or purchase price to be paid under the present Act.
Since purchase of an electrical undertaking by the State Government would be a rare possibility the extent of expenditure to Government involved can not be foretold with any amount of accuracy.
" 542 19.
The community 's economic burden for social and economic reform is an integral part of the exercise involved in social and economic change in the ushering in of an egalitarian and eclectic social and economic order in tune with the ethos of the Constitution.
The cost in terms of monetary expenditure of economic change is a factor inte grated with the objects of Article 39(b).
The Court must, on matters of economic policy, defer to legislative judgment as conditioned by time and circumstances.
The wisdom of social change is, dependant, in some degree, upon trial and error, on the felt needs of the time.
A similar contention was urged in Writ Petition Nos. 457 and 458 of 1972.
We have discussed at para 16 of that judg ment the inevitability of integrating the costs of social and economic reform in terms of monetary burden on the State with the effectuation of the directive principles.
We accordingly hold that the provisions of Amending Act of 1976 have a direct and substantial relationship with the objects of Article 39(b) and, therefore, are entitled to the protection of Article 39 C.
If the impugned law has such protection, as we indeed hold that it has, all challenges to it on the ground of violation of Articles 14, 19 and 31 must necessarily fail.
That apart, even on the merits, many of the contentions are insubstantial.
For instance, the griev ance that "service lines" had been omitted from computation of the amount is without merit.
That again has been dealt with in para 29 of the Judgment in Writ Petition Nos. 457 and 458 of 1972.
Insubstantial, likewise, is the contention that the value of the "goodwill" has been omitted from computation of the amount.
So far as the company 's cross appeal in CA 243 of 1985 in which the company assails the correctness of the judgment of the High Court to the extent it has gone against the company is concerned, we approve the reasons of the High Court in coming to such conclusions as it did on those aspects.
Some of those aspects have, again, been dealt with in our judgments in WP Nos. 457 and 458 of 1972 and Writ Petition Nos. 5, 14 and 15 of 1974.
In the result, for the foregoing reasons, Civil Appeal Nos. 4113 of 1985 and 344 of 1985 are allowed, the Judgment dated 20.7.1984 of the High Court under appeal in so far as it has declared certain provisions of the Amending Act, 1976, unconstitutional is set 543 aside, and the civil petition No. 1115 of 1977 before the High Court dismissed.
C.A. No. 243 of 1985 preferred by the company fails and is dismissed.
In the circumstances of the cases, we leave the parties to bear and pay their own costs, both here and below.
Ordered accordingly.
S.K.A. Appeals allowed.
| IN-Abs | The respondent Company took over, with the consent of the State Government, the licence granted to a private firm under the for supply and dis tribution of electricity in the areas covered by the li cence, and became entitled to the benefits and privileges of the licence.
Under cl.
(11) of the licence, Government had the option to purchase the undertaking on the expiry of the period of licence.
The licence was to expire on 21st September, 1977.
The State Electricity Board, in .exercise of its option, issued a notice to the Company on 26th August, 1976 and required it to sell and deliver the undertaking to the Board on the midnight between 21st and 22nd September, 1977.
Under the provisions of the , as they stood at the time of option, the Company was entitled to be paid the 519 market value of the undertaking.
But, by the Amending Act, 1976 the Bill for which had been introduced in the State legislature on 13.7.1976 the principle of market value in the relevant provisions of the 1910 Act was substituted by the concept of "Amount" legislatively fixed as a sum equal to the depreciated Book Value of the assets of the undertak ing to be taken over.
The amended provisions were to govern cases where notices had been issued prior to the amendment.
The respondent Company filed writ petitions before the High Court challenging the validity of sections 4, 5 and 6 of the Indian Electricity (Maharashtra Amendment) Act, 1976 and section 2 of the Indian Electricity (Maharashtra Amendment and Validity) Act, 1974 as violative of articles 14, 19(1)(f) and (g) and 31 of the Constitution.
The appellants, the State and the Electricity Board, claimed protection of article 31 C to the Amending Act, 1976 and the consequent immunity from attack on the ground of violation of articles 14, 19 and 31.
The High Court held that in the absence of a declaration in the Amending Act of 1976 that ,the law was one intended to give effect to the objects of article 39(b) and (c) of the Constitution, the Amending Act cannot have the protection of article 31 C. Declaring section 4 of the Amending Act as violative of article 19(1)(f) and article 14, it held that the State could not unilaterally reduce, even by legislation, its liability to pay the purchase price under a consensual transaction and that conferment on Government of power to fix instalments was grossly unreasonable and arbitrary and that provision for payment of interest at the Reserve Bank rate pins one per cent made more unreasonable the provisions of the Amend ing Act.
The High Court also rejected the respondent Company 's claim as to the Constitutional infirmity attributed to section 2 of the 1974 Act and sections 5 and 6 of the Amending Act, 1976.
It further rejected the Company 's contention that, upon the service of the notice exercising the option to purchase, the Company 's right to be paid the market value under the law as it then stood, was crystallised into an "actionable claim" or "A chose in action" and that What was sought to be ac quired was not the undertaking itself but a chose in action, and that the law was bad for excluding the service lines from computation of the amount.
The appellants filed appeal in this Court assailing the correctness of the High Court 's view that section 4 of the Amend ing Act.
was bad.
The respondent Company, also filed a cross appeal, questioning the correct 520 ness of the judgment on the points held against it.
It was contended on behalf of the appellants that the law was entitled to the protection of article 31C and that the High Court was in error in postulating that the absence of the express legislative declaration in the law that it was enacted for giving effect to the directive principles of State Policy in article 39(b) and (c), was itself conclusive against the attraction of article 31 C.
It was urged that the presence of such a declaration merely furnished evidence of a reasonable and direct nexus between the legislation and the objects of article 39(b) and (c) but the declaration was by itself not conclusive either way, and the court was entitled to go behind the facade of the declaration and scrutinise whether there was really such a direct and reasonable nexus, and that the absence of such an express declaration did not preclude the State from showing the existence of the requi site nexus, and that apart altogether from the protection of article 31 C, the Amending Act of 1976 was justifiable as a reasonable restriction on the freedom under article 19(1)(f) and (g).
On behalf of the Company, it was contended that any appeal to and reliance upon article 31 C was wholly misplaced, as the option to purchase the undertaking was in effectua tion of a purely consensual transaction and that the scheme of the Electricity Act, 1910, and the covenants in the license enabling the Government or the Board, as the case may be, to exercise the option to purchase did not amount to a compulsory acquisition of the undertaking, and that the provisions of the Amending Act, 1976, which had the effect Of bringing down the purchase price payable under a mutual agreement, could not be justified on any nexus with or for the effectuation of the objects of article 39(b).
The point for consideration was whether Indian Electric ity (Maharashtra Amendment) Act, 1976, which statutorily modified the principles for the determination of the pur chase price for the undertaking from the principle of market value contained in the unamended section 7A of 1910 Act to the concept of "Amount" equal to the depreciated book value of the assets under section 7A as amended the Amending Act of 1976, could be said to be a law enacted for the acquisition of the undertaking with a reasonable and direct nexus with the object of article 39(b) of the Constitution and, therefore, had the protection of article 31 C. Allowing the appeals preferred by the appellants Maha rashtra State Electricity Board and dismissing the cross appeal of the 521 respondent Company, this Cpurt, HELD: The provisions of the Amending Act of 1976 have a direct and substantial relationship with the objects of article 39(b) and, therefore, are entitled to the protection of article 31 C.
Therefore, all challenge to the law on the ground of violation of Articles 14, 19 and 31 must necessarily fail.
That apart, there is no merit in the grievance that service lines had been omitted from computation of the amount.
Similarly, there is no merit in the contention that the value of the "goodwill" has been omitted from computa tion of the amount.
[542D F] The nexus between the law and the objects of article 39(b) could be shown independently of an express declaration by the legislature in the law that it was enacted for giving effect to the directive principles of State Policy contained in article 39(b).
The absence of evidence of nexus, in the form of such an express declaration, was not by itself evidence of absence of such nexus.
[534F G] State of Maharashtra vs Basantibai, ; at 1475 and Fazilka Electric Supply Co. Ltd. vs The Commis sioner of Income Tax, Delhi 1962 Supp. 3 S.C.R. 496, re ferred to.
The business of an electricity supply undertaking, a public utility service, in pursuance of a license granted under the Electricity Act, 1910 is comprehensively con trolled by the terms of that Statute.
The terms on which a franchise is created and conferred are amenable to unilater al modification by Statute, and include the term pertaining to the quantification of the price payable for the take over.
The proposition that the right to the payment of the price gets crystallised into a 'chose in action ' independ ently of or even before the actual transfer of ownership of the undertaking, cannot be accepted.
[539C D] Fazilka Electric Supply Company 's case, [1962] Supp. 3 S.C.R. 496 and Gujarat Electricity Board vs Girdharilal Motilal, ; , referred to.
Even if the provisions of the Electricity Act, 1910 are held and understood to provide for take over by the State of a privately owned undertaking only by the adoption of the expedient of a consensual sale, that circumstance, by it self, would not be decisive of whether the amending Act of 1976 had no direct and reasonable nexus with the objects of Art 39(b).
[539F] 522 The effect of the relevant provisions of the 1910 Act, as amended by the amending Act of 1976, is the transfer of the ownership and control of material resources of the community for purposes of ensuring that they are so distrib uted as best to subserve the common good.
In effect, the provisions bring about nationalisation in the larger sense of that term.
The Amending Act of 1976 sought to limit the economic burden of this reform.
[540C D] The expression "nationalisation" means 'the acquisition and control of privately owned business by Government. ' [540D E] The idea of nationalisation of a material resource of the community cannot he divorced from the idea of distribu tion of that resource in the community in a manner which advanced common good.
[540G] No doubt, the protection of article 31 C is accorded only to those provisions which are basically and essentially necessary for giving effect to the objects of article 39(b).
[540H] But, the High Court, was in error in taking the view that, while the provision for the take over in the Principal Act might amount to a power to acquire, the objects the.
Amending Act of 1976, which merely sought to beat down the price, could not be said to be part of that power and was.
therefore, incapable of establishing any nexus with article 39(b).
1541A B] The amending Act of 1976, renders the cost of this economic reform brought about with the objects of article 39(b) in view an affordable one in terms of money.
This can not he held to have no direct or reasonable nexus with the objects of Act.
39(b)? When a legislative enactment is challenged as not conforming to the constitutional mandate the judicial branch of the Government has only one duty to lay the Arti cle of the Constitution which is invoked beside the Statute which is challenged and to decide whether the latter squares with the former. [541B C] The community 's economic burden for social and economic reforms is an integral part of the exercise involved in social and economic change in the ushering in of an egali tarian and eclectic social and economic order in tune with the ethos of the Constitution.
The cost in terms of monetary expenditure of economic change is a factor integrated with the objects of article 39(b).
The Court must, on matters of economic policy, defer to legislative judgment as con 523 ditioned by time and circumstances.
The wisdom of social change, is, dependant, in some degree, upon trial and error, on the left needs of the time.
[542A C]
|
No. 457 of 1972 (Under Article 32 of the Constitution of India) Soli J. Sorabji, section Rangarajan, Harish N. Salve, D .N. Mukharji, Ranjan Kukherjee, Udey K. Lalit, S.K. Nandi and section Parekh for the Petitioner.
Dr. Shankar Ghosh, G.L. Sanghi, P. Chowdhary, C.S. Vaidyanathan, C.V. Subba Rao, for the Respondents.
Mrs. A.K. Verma for the Intervener.
The following Judgments of the Court were delivered: SABYASACHI MUKHARJI, J.
I agree with Brother Venkata chaliah, that the contentions urged on behalf of the peti tioner in support of the challenge to the impugned legisla tions must fail and the writ petitions must be dismissed.
I would, however, like to express my 553 views only on one aspect of the matter, which is common to this case as well as the writ petition No. 458/72, civil appeal No 4113/85 and writ petition No. 5(N)/74, i.e. the scope of judicial review of legislation where there is declaration in the legislation under article 31C of the Consti tution.
In these writ petitions we are concerned with two legis lations, namely, the Indian Electricity (Assam Amendment Act, 1973, (Assam Act IX of 1973), and the Tinsukhia & Dibrugarh Electric Supply Undertakings (Acquisition) Act, 1973 (Act X of 1973).
The main point which is significant in these writ petitions, is the extent and scope of judicial review of legislation where there is 'declaration under article 31 C of the Constitution, which enjoins that no law giving effect to the policy of the State towards securing all or any of the principles laid down, inter alia, namely, Arti cles 38, 39, 39A, 40, 41, 42, 43A, 44 to 48, 48A and 49 to 51 shall be deemed to be void on the ground that those are inconsistent or take away or abridge any of the rights conferred by Article 14 or 19, and further provides that no law containing a declaration that it is for giving effect to such a policy, shall be called in question in any court on the plea that it does not give effect to such a policy.
The two legislations in question are covered by the declaration under Article 31C of the Constitution.
The principal question which falls for consideration is, whether that declaration is justiciable and open to judicial review and the extent of that judicial review.
Article 39(b) of the Constitution enjoins that the State in particular should direct its policy towards securing that the ownership and control of the material resources of the community are so distributed as to best subserve the common good and that the operation of the economic system does not result in concentration of wealth and means of production to the common detriment.
See, in this connection, the observations of Ray J. as the learned Chief Justice then was, in Kesava nanda Bharati vs State of Kerala, at 45 1 452.
Hence, in order to decide whether a Statute is within Article 31C, the Court, if necessary, may examine the nature and the character of legislation and the matter dealt with as to whether there is any nexus between the law and the principles mentioned in Article 39(b) and (c).
On such an examination if it appears that there is no such nexus be tween the legislation and the objectives and the principles mentioned in Article 39(b) & (c), the legislation will not enjoy the protection of Article 31C.
In order to see the real nature of the Statute, if need be, the court may also tear the veil.
554 Justice Jaganmohan Reddy in the same decision at page 530 of the report reiterated that a law not attracting Article 31C cannot be protected by a declaration by just mixing it with other laws really failing within Article 31 C with those that do not fall under that Article.
Hence, in such a case the Court will always be competent to examine the true nature and character of the legislation in the particular instance and its design and the primary matter dealt with its object and scope.
In this connection, reli ance was placed on the observations of the Privy Council in Charles Russel vs The Queen, [1882] VII AC 829 at 838 840.
Justice Palekar in the same decision at page 63 1 also reiterated that if the court comes to the conclusion that the object of the legislation was merely a pretence and the real object was discrimination or something other than the object specified in Article 39(b) and (c), Article 31C would not be attracted and the validity of the Statute would have to be tested independently of Article 31C.
Whenever a question is raised that the Parliament or the State legislature have abused their powers and inserted a declaration in a law for not giving effect to securing the Directive Principles specified in Article 39(b) & (c), the court can and must necessarily go into that question and decide.
See the observations of Justice Mathew in Kesavanan da Bharati 's case (supra) at page 855 of the report.
If the court comes to the conclusion that the declaration was merely a pretence and that the real purpose of the law is the accomplishment of some object other than to give effect to the policy of the State towards securing the Directive Principles as enjoined by Article 39(b) & (c), the declara tion would not debar the court from striking down any provi sion therein which violates Articles 14, 19 or 31.
In other words, if a law passed ostensibly to give effect to the policy of the State is, in truth and substance, one for accomplishing an unauthorised object, the Court would be entitled to tear the veil created by the declaration and decide according to the nature of the law.
Also see pages 851 & 856 of the report.
Justice Beg, as the learned Chief Justice then was, at pages 884 885 of the report reiterated that a colourable piece of legislation with a different object altogether but merely dressed up as a law intended for giving effect to the specified principles would fail to pass the test laid down by the first part, and the declara tion by itself would not preclude a judicial examination of the nexus, so that the courts can still determine whether the law passed is really the one covered by the niche carved out by Article 31C or merely pretends to be so protected by parading under cover of the declaration.
Justice Dwived at page 934 of the report said that the Court still retains power to determine whether the law has relevancy to the distribution of the ownership and 555 control of the material resources of the community and to the operation of the economic system.
If the Court finds that the law has no such relevancy, it can declare the law void.
The declaration cannot be utilised as a clog to pro tect law bearing no relationship with the objectives men tioned in the two clauses of Article 39.
With respect, I am inclined to agree with the observa tions of Justice Chandrachud, as the learned Chief Justice then was, at page 996 of the said report that the declara tion under Article 31 C does not exclude the jurisdiction of the Court to determine whether the law is for giving effect to the policy of the State towards securing the principles specified in Article 39(b) & (c).
Chief Justice Chandrachud in Minerva Mills Ltd. vs Union of India, ; at 261 observed that the clear intendment of Article 31C is that the power to enquire 'into the question whether there is a direct and reasonable nexus between the provisions of a law and a Directive Principle can not confer upon the courts the power to sit on judgment over the policy itself of the State.
At the highest, courts can, under Article 31C, satisfy themselves as to identity of the law in the sense whether it bears a direct and reasona ble nexus with the directive principles.
If the court is satisfied as to the existence of such nexus, the inevitable consequence provided for by Article 31C must follow.
He recorded that all the 13 Judges in Kesavananda Bharati 's case (supra) agreed.
The only question open to judicial review under Article 31 C is whether there is a direct and reasonable nexus between the impugned law and the provisions of Article 39(b) & (c).
Reasonableness is evidently regard ing the nexus and not regarding the law.
Justice Bhagwati, as the learned Chief Justice then was, reiterated at pages 337 338 of the report that if the Court finds that the law though passed seemingly for giving effect to a Directive Principle is, in pith and substance, one for accomplishing an unauthorised purpose unauthorised in the sense of not being covered by any Directive Principle, such law would not have the protection of the amended Article 31C, which does not give protection to a law which has merely some remote or tenuous connection with a Directive Principle.
What is necessary is that there must be a real and substantial connection and the dominant object of the law must be to give effect to the Directive Principles.
Also see the observations of this Court in Sanjeev Coke Mfg. Co. vs Bharat Coking Coal Ltd. & Anr., ; at 1020.
556 Looked at from this point of view, it cannot be said that the principles of colourable legislation would not be applicable.
If it was demonstrated that there was no direct and reasonable nexus between these two impugned laws and the principles as enshrined under Article 3 l(b) & (c) of the Constitution, then that would have been colourable legisla tions and would have been bad on that score.
It was contended on behalf of the petitioner by Mr. Sorabji as well as Mr Rangarajan that in order to bye pass 'the payment of compensation for acquisition of property of the petitioner in negotiations the device of the impugned Acts was envisaged.
In that context, the substitution of the book value in place of market value was, therefore, depriva tion of property and is illusory and would amount to taking away of ' property without compensation.
I do not and cannot agree.
It is indisputed that the electric energy generated by the supplier petitioner compa nies constitutes material resources of the community within the scope and meaning of Article 39(b), and having regard to the true nature and the purpose of the legislations, reading the legislations entirely the object of the legislations have a direct and reasonable nexus with the objective of distributing the material resources so as to subserve the common good.
The determination of value thereof and the substitution of the bookvalue in place of market value, are only methods for such acquisition and do not disclose the true nature and character of the legislation, but are inci dental provisions thereof.
If that is the position then it is incorrect to say that what was acquired, was not the material resources but choses in action.
The true nature and character of the legislations in.
question was to acquire the material resources, namely, the electric energy for better supply and distribution.
In that view of the matter the principles of the decision of the Division Bench of the Calcutta High Court in Bihar State Electricity Board & Ors.
vs Patna Electricitv Supply Co. Ltd., would have no scope of application to this case.
A Constitution Bench of this Court in State of Tamil Nadu & Ors.
vs L. Abu Kavur Bai & Ors., has expressed the view that the Act giving effect to Article 39(b) & (c) is pro tected if a reasonable nexus is established.
In that view of the matter, I agree having regard to the true nature and character of the legislations that the impugned legislations are not colourable legislations in the sense that there was no direct and reasonable nexus with Article 31(b) & (c) of the Constitution.
557 On the other aspects of the matter, I agree with re spect, with the conclusion indicated in the judgment of Justice Venkatachaliah.
VENKATACHALIAH, J. 1.
In these two writ petitions invok ing Article 32 of the Constitution of India, the Tinsukia Electric Supply Company Limited and the Dibrugarh Electric Supply Company Limited, which are licensees under the 19 10 for the supply of electricity within the areas of the municipal boards of Tinsukhia and Dibrugarh towns respectively, in the.
State of Assam and the share holder Managing Directors of the two companies assail the constitutional validity of the Indian Electricity (Assam Amendment) Act, 1973, and of the Tinsukia and Dibrugarh Electric Supply Undertaking (Acquisition) Act, 1973.
By the latter enactments, the undertakings of the two companies were sought to be acquired so as to vest them in the Govern ment with effect from 27.9.
The petitioners also urge, in the petitions, a challenge to the validity of the Twentyfourth and Twenty fifth Amend ments to the Constitution.
This part of the petition, in view of the subsequent pronouncements of this court on these amendments, does not survive.
The petitioner companies are Public Limited Companies registered under the Indian Companies Act, 1913, and are existing companies under the with their registered offices at Tinsukhia and Dibrugarh respectively in the State of Assam.
The two companies, Tinsukhia Electric Supply Company Ltd., and the Dibrugarh Electric Supply Company Ltd. hereinafter referred to respectively as the 'Tinsukhia Co. ' and 'Dibrugarh Co. ' were granted 'licences under the provisions of the ( 1910 Act for short) for supply of electricity within the respective licenced areas viz. of the Tinsukhia and Dibru garh Municipal Boards.
The 'Dibrugarh Company ' was granted the 'Dibrugarh Electricity Licence, 1928 ' on terms and conditions particularised in the grant, incorporating, inter alia, an option to the State to purchase the undertaking on the expiration of 50 years from 13.2.1928 the date of com mencement of the licence and thereafter on the expiration of every subsequent period of twenty years.
The Tinsukhia Company was similarly granted the 'Tinsuk hia Electricity Licence, 1954 ', incorporating, inter alia, a condition as to the option exercisable by the State of Assam to purchase the electricity undertaking of the licencee on the expiration of 20 years from 21.7.
1954, the date of commencement of the licence, and thereafter on 558 the expiration of every subsequent decennial period.
However, by two Ordinances, namely, The Indian Elec tricity (Assam Amendment) Ordinance, 1972: (Assam Ordinance VII, 1972) and the Tinsukhia & Dibrugarh Electricity Supply Undertakings (Acquisition) ordinance, 1972, (Assam Ordinance VIII of 1972) promulgated by the Governor in exercise of his legislative powers under Article 2 13 of the Constitution, the Electricity Supply Undertakings of the two companies were acquired by, and stood vested in, the Government with effect from 23.30 hrs.
on 27.9.1972.
Possession and control of the two undertakings were, accordingly, taken over by the Government of Assam that day.
The two ordinances were subse quently replaced by the two corresponding legislative enact ments viz., the Indian Electricity (Assam Amendment) Act, 1973, (Assam Act IX, 1973) and the Tinsukhia & Dibrugarh Electric Supply Undertakings (Acquisition) Act, 1973, (Assam Act, X of 1973).
At the time of filing of the writ petitions the two Ordinances had not been replaced by the legislative meas ures.
However, after the coming into force of the two legis lative enactments, with retrospective effect from:the date of promulgation of the earlier ordinances, petitioners sought, and were granted by an order of this Court dated 18.12.1973, leave to amend the petitions so as to direct the challenge against the enactments.
An advertence, though brief, to the factual anteced ents leading upto to the promulgation of the Ordinances and to certain earlier steps taken by the State Government to acquire the said undertakings, first by negotiations, and later by exercise of the option to purchase, is necessary in order to put the grounds of challenge in their proper per spective.
Respondent No. 4 i.e. the Assam State Electricity Board, it would appear, had been expressing its intention to take over the undertaking of the Tinsukia Co. by private negotia tions even from the year 1964.
Pursuant to and in implemen tation of this proposal the Board had constituted a commit tee of 3 members for assessing the value of the assets of the Tinsukhia 's undertaking.
On the valuation so made and the inventories so prepared, the Board, on 27.3.1970, in formed the Tinsukia Co. that the Board had approved the valuation of the assets of the undertaking at Rs.30,54,246, excluding, the value of the land, whose value was later estimated at Rs.2,40,000.
By letter dated 4.3.1971, the Chairman of the Assam State Electricity Board 559 informed Tinsukia Co., that the company should immediately signify and communicate its acceptance of the proposal to transfer the undertaking to the Board at the valuation of Rs.33,00,000.
The company, appears to have tarried and did not signify and communicate its immediate and unqualified acceptance of the offer; but appears to have had some coun ter proposal in mind and, in the expectation of pursuading the Board to its view, requested the Chairman of the Board to visit Tinsukia for holding further discussions in the matter of valuation of the Undertaking.
Thereafter the Chairman along with the officers of the Board visited Tinsu kia sometime in June, 1971, and held discussion with the company.
The company avers that pursuant to these discus sions, the Executive Engineer of the Board was asked by the Chairman to prepare a fresh inventory as on 31.10.1971 in collaboration with the company.
However, the Secretary of the Board sent a communication dated 10.12.1971 to the company to the effect that as the company had not conveyed its concurrence to the offer con tained in the Board 's letter dated 25.3.1970 the said offer be treated as withdrawn.
Thereafter, the Board issued the notice dated 15/23 May 1972 to the company conveying the Board 's intention to exercise its option of purchasing the undertaking under Section 6(1) of the 1910 Act read with clause 12(iv) of the licence on the expiration "the term of the licence" and, accordingly, required the company to sell the undertaking to the Board on the expiration of 21.9.1974 when the 20 year period of the licence would come to an end.
In response to this notice, the company sent its communica tion dated 17.8.1972 seeking confirmation of its expectation that the purchase price for the statutory sale would be determined in accordance with the provisions of section 7A of the 1910 Act and that such price would also be tendered to the company on or before the date of taking over.
Nothing further appears to have happened pursuant to this notice to purchase.
But, as stated earlier, the two Ordinances were promulgated on 27.9.1972 for the compulsory acquisition of the undertaking of the company.
So far as the Dibrugarh company is concerned, similar negotiations for purchase by private negotiations had been initiated and the Chief Engineer of the Board accompanied by the Finance and Accounts Member of the Board visited Dibru garh on 27.1.1965 for discussions as to the valuation of the undertaking.
Nothing moved in the matter for some years.
However, in the communication dated 3.8.1970 addressed by the Secretary to Government of Assam, Power (Electricity), Mines and Minerals Department, to the Secretary of the 560 Board, it was reiterated that Government had decided that the undertaking of the Dibrugarh Co. should be taken over by negotiation.
While matters remained thus, the company 's undertaking was taken over on 27.9.1972 pursuant to the two ordinances promulgated by the Governor.
We may briefly turn to the provisions of the two enactments which have since replaced the two Ordinances: The amendments made to Sections 5, 6 and 7A of the , by the Indian Electricity (Assam Amendment) Act, 1973, are substantial and far reach ing.
Section 2 of the Amending Act amended Section 5 of the Principal Act by substituting the expression "the purchase price of the undertaking" in sub sec.
(2) of Section 5 by the expression 'an amount '.
Section 3 of the Amending Act which amended sub Sec.
(7) of Section 6 of the Principal Act substituted the words 'the purchase price ' occurring in sub Sec.
(7) of Section 6 by the words "an amount".
The amendments brought about by Section 4 of the Amending Act to Section 7 A of the Principal Act were equally substantial.
Section 7A of the Principal Act, ' it may be recalled, pro vided that where an undertaking of a licensee, not being a local authority, was sold under sub Sec.
(1) of Section 5 the purchase price of the undertaking shah be the market value of the undertaking at the time of purchase, or where the undertaking had been delivered before the purchase under sub Sec.
(3) of Sec. 5, at the time of delivery of the undertaking, and that if there was any difference of dispute regarding such purchase price, the same shall be determined by arbitration.
But Section 4 of the Amending Act substitut ed an entirely different provision in the place of the old section 7 A.
It substituted "book value" in place of "mar ket price".
Sections 5(2), 6(7) and 7 A, of the Principal Act after their amendment read thus: "Section 5(2): Where an undertaking is sold under sub section (1) the purchaser shall pay to the licencee an amount in accord ance with the provisions of sub sections (1) and (2) of Section 7 A." Sub sec.
(7) of Section 6, after the amend ment, reads: Section 6(7): Where an undertaking is purchased under this section, the purchaser shall pay to the license an amount determined in accordance with the provisions of sub sections (1), (2) and (3) of Section 7A. 561 Section 7A reads: "7 A. Determination of amount pay able.
(1) where an undertaking of a licensee is sold under sub section (1) of Sec. 5 or purchased under Sec. 6, the amount payable for the undertaking shall be the book value of the undertaking at the time of purchase or where the undertaking has been delivered before the purchase under sub Section (3) of Sec. 5, at the time of delivery of the undertaking.
(2) The book value of an undertaking for the purpose of sub section (1) shall be deemed to be the depreciated book value as shown in the audited balance sheet of the licensee under the law for the time being in force, of all lands, buildings, works, materi als and plant of the licensee, suitable to and used by him for the purpose of the undertak ing, other than (i) a generating station declared by the licensee not to form part of the undertaking for the purpose of purchase, and (ii) service lines or other capital works or any part thereof which have been construct ed at the expense of the consumers, but with out any addition in respect of compulsory purchase or of goodwill or any profit which may be or might have been made from the under taking or of any similar consideration.
(3) Notwithstanding anything contained in any licence or any instrument, order agreement or law for the time being in force in respect of any additional sum by whatever name may it be called, payable to a licensee for compulsory purchase, the licensee shall be entitled only to a solatium of ten per centum of the book value as determined under sub sections (1) and (2) for compulsory purchase of his undertaking under Sec.
(4) No provision of any Act for the time being in force including the other provi sions of this Act and of any rules made there under or of any instrument including licence have effect by virtue of any of such Acts or any rule made thereunder, shall, in so far as it is inconsistent with any of the provisions of this section, have any effect.
" It is material to point out that sub section (3) of Section 1 of the Amending Act provides that the Amending Act shall be deemed to 562 have come into force on 27.9.1972, which was the date of promulgation of the earlier Ordinance.
We may now notice some of the material provisions of the Acquisition Act i.e. Assam Act X of 1973.
Section 1(3) provides that the Act shall be deemed to have come into force on 27.9.1972.
Clauses (f), (h), (j) & (l) of the interpretation clause (Sec. 2) may be noticed: 2(f) 'Fixed Assets ' includes works, spare parts, stores, tools, motor and other vehicles, office equipment and furniture; 2(h): 'Licensee ' means the Tinsukia Electric Supply Company Ltd. and/or the Dibrugarh Electric Supply Company Private Ltd., as the case may be; 2(j): 'Undertaking ' means the Tinsukia Elec tric Supply Undertaking owned and managed by the Tinsukia Electric Supply Company Ltd., and/or the Dibrugarh Electric Supply Undertak ing owned and managed by the Dibrugarh Elec tric Supply Company Private Ltd., as the case may be; 2(1): 'Works ' includes electric supply lines and any lands, buildings, machinery or appara tus required to supply energy and to carry into effect the object of a licence granted under the Electricity Act; Section 3(2) provides: 3(2): Any notice given under any of the provisions of the Electricity Act or the Electricity Supply Act to the licensee for the purchase of the undertaking and in pursuance of which notice the undertaking has not been purchased before the commencement of this Act, shall lapse and be of no effect.
Explanation: There shall be no obliga tion on the part of the Government or the Board to purchase any undertaking in pursuance of any notice given as aforesaid, nor shall the service of such notice ' be deemed to prevent the Government from taking any pro ceeding de novo in respect of the undertaking under this Act.
Section 4 provides: 4.
Vesting date.
The Tinsukia and Dibrngarh Electric Sup 563 ply Undertakings shall be deemed to be trans ferred to and shall vest in the Government, on the 27th day of September, 1972, at 11.30 P.M. Section 5 provides for the transfer of the undertaking so acquired by Government to the Board.
Section 6 provides for the gross amount pay able to the licensee.
Gross amount payable to Licensee.
(1) The gross amount payable to a licensee shall be the aggregate value of the amounts specified below: (i) the book value of all completed works in beneficial use pertaining to the undertaking and taken over by the Government (excluding works paid for by consumers) less depreciation calculated in accordance with Schedule I; (ii) the book value of all works in progress taken over by the Government, exclud ing works paid for by consumers or prospective consumers; (iii) the book value of all stores including spare parts taken over by the Gov ernment and in the case of used stores and spare parts, if taken over, such sums as may be decided upon by the Government; (iv) the book value of all other fixed assets in use on the vesting date and taken over by the Government less depreciation calculated in accordance with Schedule I; (v) the book value of all plants and equipments existing on the vesting date, if taken over by the Government, but no longer in use owing to wear and tear or to obsolescence, to the extent such value has not been written off in the books of the licensee less depreci ation calculated in accordance with Schedule I; (vi) the amount due from consumers in respect of every hire purchase agreement referred to in Sec.
7(i)(ii) less a sum which bears to the difference between the total amount of the instalments and the original cost of the material or equipment, the same proportion as the amount due bears to the total amount of the instalments; 564 (vii) any amount paid actually by the licensee in respect of every contract referred to in Section 7(i)(iii).
Explanation The book value of any fixed asset means its original cost and shall com prise (i) the purchase price paid by the licensee for the asset, including the cost of delivery and all charges properly incurred in erecting and bringing the asset into benefi cial use as shown in the books of the under taking; (ii) the cost of supervision actually incurred but not exceeding fifteen per cent of the amount referred to in paragraph (i); Provided that before deciding the amounts under this subsection, the licensee shall be given an opportunity by the Govern ment of being heard, after giving him a notice of at least 15 days therefor.
(2) In addition a sum equal to 10 per cent of the amounts assessed under Clauses (i) to (iv) of sub section (1) shall be paid to the licensee by the Government.
(3) When any asset is acquired by the licensee after the expiry of the period to which the latest annual accounts relate, the book value of the asset shall be such as may be decided upon by the Government; Provided that before deciding the book value of any such asset, the licensee shall be given an opportunity by the Government of being heard after giving him a notice of at least 15 days therefor.
Section 7 provides: 7.
Vesting of undertakings.
(1) The property, rights, liabilities and obligations specified below in respect of the undertaking shall vest in the Government of the vesting date; (i) all the fixed assets of the licensee and all the documents relating to the under taking; 565 (ii) all the rights, liabilities, and obligations of the licensee under hire pur chase agreements, if any, for the supply of materials or equipment made bona fide before the vesting date; (iii) all the rights, liabilities and obligations of the licensee under any other contract entered into bona fide before the vesting date, not being a contract relating to the borrowing or leading of money, or to the employment of staff.
(2) All the assets specified in sub Section (1)(i) shall vest in the Government free from any debts, mortgages or similar obligations of the licensee or attaching to the undertaking; Provided that such debts, mortgages or obligations shall attach to the amount payable under this Act for the assets.
(3) In the case of an undertaking which vests in the Government under this Act, the license granted to it under part II of the Electricity Act shall be deemed to have been terminated on the vesting date and all the rights, liabilities and obligations of the licensee under any agreement to supply elec tricity entered into before that date shall devolve or shall be deemed to have devolved on the Government; Provided that where any such agreement is not in conformity with the rates and condi tions of supply approved by the Government and in force on the vesting date, the agreement shall be voidable at the option of the Govern ment.
(4) In respect of any undertaking to which Sec.
4 applies, it shall be lawful for the Government or their authorised representa tive on and.
after the vesting date, after removing any obstruction that may be or might have been offered, to take possession of the entire undertaking, or as the case may be the fixed assets and of all documents relating to the undertaking which the Government may require for carrying it on.
(5) All the liabilities and obliga tions, other than those vesting in the Govern ment under sub Sections (1) and (3), shall continue to be the liabilities and obligations of the licensee, after the vesting date.
Explanation.
All liabilities and obligations in respect of 566 staff, taxes, provident fund, employees ' state Insurance, Industrial disputes and all other matters, upto and including the vesting date, shall continue to be the liabilities and obligations of the licensee, after the vesting date.
Section 9 provides: 9.
Deductions from the gross amount.
The Government shall be entitled to deduct the following sums from the gross amount payable under this Act to a licensee (a) the amount, if any, already paid in ad vance; (b) the amount if any, specified in Sec. 8; (c) the amount due, if any, 'including interest thereon, from the licensee to the Board, for energy supplied by the Board before the vesting date; (d) all amounts and arrears of interest, if any thereon, due from the licensee to the Government, (e) the amount, if any, equivalent to the loss sustained by the Government by reason of any property or rights belonging to the undertaking not having been handed over to the Government, the amount of such loss being deemed to be the amount by which the market value of such property or rights exceeds the amount payable therefor under this Act, to gether with any income which might have been realized by the Government, if the property or rights had been handed over on the vesting date; (f) the amount of all loans due from the licensee to any financial institutions consti tuted by or under the authority of the Govern ment and arrears, or interest, if any, there on; (g) all sums paid by consumers by way of security deposit and arrears of interest due thereon on the vesting date, in so far as they have not been paid over by the licensee to the Government, less the amounts which according to the books of the licensee are due from the consumers to the licensee for energy supplied by him before that date; (h) all advances from consumers and prospec tive consum 567 ers, and all sums which have been or ought to be set aside to the credit of the consumers ' fund, in so far as such advances or sums have not been paid over by the licensee to the Government; (i) the amounts remaining in Tariffs and Dividends Control Reserve, Contingencies Reserve and Development Reserve, in so far as such amounts have not been paid over by licen see to the Government; (j) the amount, if any, as specified in Ss.
11(2) and 11(3): (k) the amount, if any, relating to debts, mortgages or obligations as mentioned in proviso to sec.
7(2); Provided that before making any deduc tion under this section, the licensee shall be given a notice to show cause against such deduction, within a period of fifteen days from the date of receipt of such notice.
Section 10 enables the Government to appoint, by order in writing, a person having adequate knowledge and experience in matters relating to accounts as Special Officer to assess the net amount payable under this Act, after making the deductions enumerated in section 9.
Section 20 provides: 20.
Arbitration.
(1) Where any dispute arises in respect of any of the matters speci fied below, it shall be determined by an arbitrator appointed by the Government, who shall be a sitting or retired District or High Court Judge (a) whether any property belonging, or any right, liability or obligation attaching to the undertaking, vests in the Government; (b) whether any fixed asset forms part of the undertaking; (c) whether any contract or hire pur chase agreement or other contract referred to in SEC.
7(1)(ii) or (iii) has been entered into bona fide or not; (d) whether any agreement to supply electricity entered into by the licensee prior to the vesting date is of the nature referred to in proviso to section 7(3).
568 (2) Subject to the provisions of this section, the provisions of the (Central Act 10 of 1940) shall supply to all arbitrations under this Act.
Section 23 of the Act incorporates a declaration to the effect that the legislation is for giving effect to the policy of the State to secure the principle of State Policy contained in Article 39(b) of the Constitution of India.
The two legislations, one amending the provisions of Sections 5(2) 6(7) and 7 A of the , and the other providing for the acquisition of the two undertakings are challenged by the petitioner on several grounds, the principal attack, however, being that the legislations, brought forth, as they were, in the wake of the private negotiations and the exercise of the option to purchase, are not bona .fide, but constitute a mere colour able exercise of the legislative power and that, at all events the real objects of the two legislations have no direct and reasonable nexus to the objects envisaged in clause (b) of Article 39 of the Constitution and that a careful and critical discernment of the context in which the legislation was brought forth would lay bare before the judicial eye that what was sought to be acquired was not the "undertakings" of the two companies but really the differ ence between the "market value" of the undertakings which the State has agreed, under the private treaties, to pay and what, in any event, the State was obliged to pay under the provisions of Section 7A, as it then stood on the one hand and the "Book Value" of the undertaking, which the law seeks to substitute on the other.
If the protective umbrella of Article 31 C is, thus, out of the way, the 'amount ' payable under the impugned law, it is urged, would be illusory even on the judicially accepted tests applied to Article 31(2) as it then stood.
The validity of some of the specific provi sions of the acquisition law which excluded certain items from valuation and envisaged and authorised certain deduc tions in the amount are also assailed.
These writ petitions were heard along with a batch of writ petitions, viz, WP Nos.
5, 14, and 15 of 1974, where the constitutionality of an analogous statute of the State of Tamil Nadu was assailed by the companies whose undertak ings were similarly sought to be acquired and civil appeal No. 243 of of 1985 and C.A. 4113 of 1985 arising out of the Judgment, dated 20.7.1984, of the High Court of Bombay striking down certain amendments to the , made by the Maharashtra State Legislature in the matter of statutory purchase of some of the private 569 electricity supply undertakings in the State of Maharashtra.
The three batches of cases arising from Assam, Tamil Nadu and Maharashtra were heard together as there were certain aspects common to them.
However, in view of the distinctiveness and particularities of the facts of the cases and the situational variations even in respect of the legal context in which questions arise for decision, the three batches of cases are disposed of by separate Judg ments.
The present Judgment disposes of the challenge made to the Assam Legislation.
We have heard Shri Soli J. Sorabji, learned Senior Advocate, and Shri Harish Salve, learned Advocate, for the petitioner in W.P. 457 of 1972 and Sri Rangarajan, learned Senior AdVocate for the petitioner in W.P. 458 of 1972 and Dr. Shankar Ghosh, learned Senior Advocate, for the State of Assam and Sri G.L. Sanghi, learned Senior Advocate for the Assam State Electricity Board and its authorities.
On the contentions urged at the hearing, the points that fall for consideration in the writ petitions admit of being formulat ed thus: (a) That the declaration in Sec.
23 of Assam Act X 1973 is invalid as the impugned Act has no reasonable and direct nexus to the principles in Article 39(b) of the Constitu tion and is merely a cloak which the law is made to wear to undo the legitimate obliga tions arising out of the intended statutory sale of the undertakings and, accordingly, Article 31 C is not attracted.
That, at all events, not every provision of a statute is entitled to the protection of Article 31 C but only those provisions which are basically and essentially necessary for giving effect to the principle in Article 39(b) and that, accordingly, the provisions in the impugned law relating to the determination of the amount do not attract Article 31 C. (b) That in effect and substance the law is not one for the acquisition electricity undertakings but is merely one to acquire a 'chose in action ' and to extinguish the legal rights of the Tinsukhia Co. for the difference between the "market price" of the undertakings which the State was obliged to pay under the intended statutory purchase and the "Book Value" to which the liability is sought to be limited under the impugned legislations.
(c) That, if the immunity under Article 31 C for the legis 570 lations is not available, the 'amount ' payable in accordance with the provision of the ac quiring law is wholly "illusory" and is an attempt to take away a 'fortune for a far thing '.
And accordingly, the law is ultra vires and violative of Article 31(2) of the Consti tution (as it then stood).
Payment of "Book Value" of the assets acquired irrespective of their 'market value ' renders the 'amount ' unreal and illusory.
(d) That the exclusion of "service lines", which are part of the assets of the licensee as from valuation, renders the law unconstitutional and ultra vires.
(e) That the provision of Section 9(i) for the deduction of the 'Reserves ' from the "Amount", in addition to the takingover of the same in the form of 'fixed assets ' and the omission to value the unexpired period of licence are unreasonable and arbitrary.
(f) That the continued liability of the petitioner licensee under Section 11(3) for payment to employees retrenched by Government after the vesting date and the provision for deduction of such sums from the "Amount" payable for the acquisition are arbitrary and unreasonable.
(g) That while Section 7(5) makes all the liabilities of the licensee, other than those specifically referred to and expressly taken over by Government under the Act, as the continuing liabilities of the licensee, yet some of those liabilities referred to in clauses (c) (d) and (f) of Section 9, are yet made deductible from the "Amount", without the corresponding express obligation on the part of the Government to hold the sums so deducted in trust for, and for benefit of the concerned creditors and without statutory discharged to the petitioner in that behalf.
This is unjust enrichment.
(h) That there is no machinery envisaged by and set up under the 'Act ' to adjudicate upon and determine either the amounts deducti ble under clauses (c) (d) and (e) of Section 9 or the "loss" deductible under Section 8.
This renders the provisions of the 'Act ' intracta ble and liable to be declared unworkable.
571 (i) That Section 20 limits arbitrabili ty only to matters enumerated in clauses (a) to (d) of that section, leaving many other disputes arising under the 'Act ' between the Government and the licensee without any ma chinery for their resolution, also rendering the 'Act ' unworkable.
The contentions noticed at (a), (b) and (c) cover amongst them certain overlapping areas.
The central attack, however, remains that Assam Act X of 1973 has no reasonable and direct nexus with the effectuation of the principles envisaged in clause (b) of Article 39 of the Constitution and that the relationship of the impugned legislation to the objects of Article 39(b), being merely remote and tenuous, the legislation is a colourable legislation.
The contentions are, however, noticed distinctively to make due acknowledge ment for the shifts of emphasis in the course of the argu ments.
In this case the legal and constitutional position has to be examined with reference to the provisions of the Constitution as they stood as in 1972.
Article 31C was inserted by the 25th Amendment with effect from 20.4.1972 prior to its more comprehensive expansion to extend its protection to the laws giving effect to "All or any of the provisions laid down in Part IV ' brought about by the Con stitution (Fortysecond Amendment) 1976.
Article 31C gave protection in respect of a law giving effect to the policy of the State towards securing the principles specified in clause (b) or clause (c) of Article 39.
Then again, though Article 31 had not, by then, been deleted, its content had been cut down so much, so that even under a law providing for acquisition of property which did not have the protec tion of 31C the adequacy of the "Amount" determined was not justiciable and all that was necessary was that it should not be unreal or illusory.
By then the Constitution had done away with the idea of a Just equivalent or full idemnifica tion principle and substituted therefore the idea of an "Amount" and rendered the question of the adequacy or the inadequacy of the amount non justiciable.
The Indian Constitutional experiments with the 'right to property ' offer an interesting illustration of how differ ences in the interpretation of the fundamental law sometimes conceal or, perhaps, expose conflicts of economic idealog ics and philosophies.
With the right to property conceived of as a fundamental fight at the inception of the Constitu tion, it found so strong an entrenchment that in its pris tine vigour it tended to be overly demanding and sought the sacrifice of too many social and economic goals at its alter and made 572 the economic cost of social and economic change unaffordably prohibitive and the fulfilment of the constitutional ethos of the promise of an egalitarian social order difficult.
Inevitably the constitutional process of de escalation of this right in the constitutional scale of values commenced culminating, ultimately, in the deletion of this right from the fundamental rights part.
Articles 31 A and 31 C were significant Constitutional milestones in the harnessing and socialisation of the concept of the right to property which, in its laissez faire trappings, became an unruly horse.
Article 31 C in effect and substance is to urban property what Article 31 A is to agricultural property.
The arguments in this case in regard to what, if at all, survives for judicial scrutiny in the matter of the Constitutional tests of the validity, under Article 31(2) of the 'amount ' if the law has the protection of Article 31C, were marked by a forensic resourcefulness aimed at a resus citation and re kindling of the relics and embers of old and hard fought but lost legal battles.
Sri Rangarajan, learned Senior Advocate, relying upon the construction suggested by him of certain observations of Chandrachud, J. in the Keshavananda case and certain observations of Fazl Ali J. in State of Tamil Nadu vs Abu Kavur Bai, ; strenuously, and quite seriously, attempted the exercise that even if a law had the protection of Article 31C, yet the court would be required when the provision is challenged to go into the question of the "Amount" being illusory or the principles for its determina tion being arbitrary.
Learned Counsel further propounded that despite Article 31 C, the burden of proving that the amount is not illusory and principles for its determination not arbitrary is on the State.
We may excerpt the substance of the contention from the written submissions filed by Sri Rangarajan: " . .
Therefore, where the law provides for compensation, fin spite of the same being protected by Article 31 C the Court can go into the question of the amount being illusory or the principles being arbitrary.
Not merely that, the burden of providing that the amount is not illusory and the principles are not arbitrary, is on the State.
" We shah later examine how far this contention is at all available in the light of the authoritative pronouncements of this Court on the effect of Article 31C and whether if a law has such protection, the plenitude of its constitutional immunity would not extend to all attacks based on Articles 14, 19 and 31 (as it then stood).
573 We may now examine the contentions seriatim.
Contentions (a) and (b) admit of being dealt with together.
Re: Contentions (a) and (b): Shri Soli J Sorabjee submitted that in the present case, notwithstanding the legislative declaration in Sec.
23 of Assam Act X of 1973, the question whether there is any real nexus between the legislation and the principles envisaged in Article 39(b) is justiciable and indeed the existence of such nexus or connection is a condition precedent for the attraction and applicability of Article 31 C. Learned Coun sel submitted that in order to decide whether a Statute is within Article 31 C or not, the Court has to examine the nature and character of the legislation and if upon such scrutiny it appears that there is no nexus between the legislation and the principles in Article 39(b) the legisla tion must be held to fall outside the protection of Article 31 C. Shri Sorabjee said, stripped of its veils and vest ments, the law, would show its real nature as one whose avowed nexus to Article 39(b) is merely a pretence and that its purpose is other than the objects envisaged in Article 39(b).
The validity of the legislation, learned counsel says, would have to be examined independently of the immuni ty under Article 31C.
The proposition that the legislative declaration of the nexus between the law and the principles in Article 39 is in conclusive and justiciable is well settled.
Indeed that part of Article 31 C which sought to impart a Constitutional sanctity, conclusiveness and nonjusticiability to such legislative declarations was struck down in the Keshavanada case.
The sequintor is that whenever any immunity is claimed for a law under Article 31 C, the Court has the power .to examine whether the provisions of the law are basically and essentially necessary for the effectuation of the principles envisaged in Article 39(b) and (c).
The observations of Mathew, J. in Keshvananda case ( may be recalled: " . .
Whenever a question is raised that the Parliament or State Legisla tures have abused their power and inserted a declaration in a law not for giving effect to the State Policy towards securing the direc tive principles specified in Article 39 B or 39 C, the Court must necessarily go into that question and decide it . . " (P. 855) 574 " . .
If the Court comes to the conclusion that the declaration was merely a pretence and that the real purpose of the law is the accomplishment of some object other than to give effect to the policy of the State towards securing the directive principles in Article 39(b) and (c) the declaration would not be a bar to the court from striking down any provision therein which violates Article 14, 19 or 31.
In other words, if a law passed ostensibly to give effect to the policy of the State is, in truth and substance, one for accomplishing an unauthorised object, the court would be entitled to tear the veil created by the declaration and decide accord ing to the real nature of the law . " (P. 855 56) Chandrachud, J. observed in the Keshavananda case: " 'Laws passed under Article 31 C can, in my opinion, be upheld only, and only if, there is a direct and reasonable nexus between the law and the directive policy of the State expressed in Article 39 B or C." (P. 996) To the same effect are the observations of the learned Chief Justice in Minerva Mills Ltd. vs UOL. ; " . . the Courts can, under Article 31 C, satisfy themselves as to the identity of the law in the sense whether it bears direct and reasonable nexus with a directive principle." "The only question open to judicial review under the unamended Article 31 C was whether there is a direct and reasonable nexus between the impugned law and the provisions of Article 39(b) and (c)" (P. 261) (Emphasis Supplied) In the same case, Bhagwati, J. observed: " . .
The point that I wish to emphasis is that the amended Article 31 C does not give protection to a law which has merely some remote or tenuous connection with a directive principle." 575 " . .
Even where the dominant object of a law is to give effect to a direc tive principle it is not every provision of the law which is entitled to claim protec tion . " (P. 338) " . . it is not every provision of a statute which has been enacted with the dominant object of giving effect to a direc tive principle, that it entitled to protec tion, but only those provisions of the statute which are basically and essentially necessary for giving effect to the directive principles are protected under the amended Article 31 C " . (P. 339) (Emphasis Supplied) 13.
The proposition of Sri Sorabjee, in principle, is, therefore, unexceptionable; but the question remains wheth er, upon the application of the appropriate tests, the impugned statute fails to measure up to the requirements of the Constitution to earn the protection under Article 31 C. Learned counsel sought to contend that the Assam State Electricity Board having exercised the option of purchasing the undertaking of the Tinsukia Co., under Section 6(1) of 1910 Act by the statutory notice dated 23.5.1972 requiring the company to sell the undertaking to the Board on the expiration of the period of the licence, the question of any further need to acquire the undertaking for the purpose of effectuating the objects envisaged in article 39(b) of the Constitution by the expedience of a separate and independent legislation was, indeed, unreal or non existent.
The real object, therefore, of the enactment of Assam Act X of 1973 it was urged, was not to enact a law for purposes of effec tuating the objects envisaged by Article 39(b) of the Con stitution which had already been accomplished by the exer cise of the option to purchase; but was only to deprive the petitioner of its legitimate entitlements under the statuto ry sale.
What was sought to be acquired by the impugned law, it is contended, was not the undertaking but the difference between the 'Market price ' and the 'Book value ' which the impugned legislation envisaged.
It is urged that the purpose of the impugned law is, therefore, something other than the effectuation of principles in Article 39(b).
It is also urged that with the exercise of the option to purchase what remained to.
be acquired and what really was sought to be acquired was a mere actionable claim or a chose in action.
It is further urged that, at all events, since not all the provisions of a legislative enactment need necessarily qualify for protection of Article 31 C but only those provi sions that have a direct nexus with the principles of Arti cle 39(b), the 576 provisions in the impugned legislation touching the determi nation of the quantum of the "Amount" are not so protected as they are intended merely to inter dict and extinguish the vested rights of the Tinsukhia Co. under the intended statu tory sale.
The object of the legislation, it was urged, was not the legitimate one of securing the objects envisaged in Article 39(b) but a less honourable and less sanctimonious one of depriving the petitioner of the benefit of the statu tory contract for the sale of the undertaking pursuant to and in terms of the statutory notice dated 23.5.1972.
The court, so goes the argument, is entitled to pierce the apparent veil under which the acquiring legislation masquer ades as one for securing the object of Article 39(b).
Dr. Shankar Ghosh and Sri G.L. Sanghi for the State of Assam and the Assam State Electricity Board,.
the contest ing Respondents, however, say that the Assam Act X, 1973, is entitled to the protection of Article 31 C as, indisputably, Electrical energy is a material resource of the community and any legislative measure to nationalise the undertaking falls squarely within the ambit of Article 39(b).
Any appeal by the petitioner to the doctrine of colourable legislation, they say, is wholly inapposite as, indeed, where, as here, legislative competence is undisputed, any speculation as to the motives of the legislative is impermissible.
No mala fides could be attributed to the Legislature.
Respondents further submit that on the question of even the possible 'illusory ' nature, let alone the adequacy, of the "Amount" could not be agitated if the law has the protection of Article 31 C. They, however, assert that 'Book value ' is a well accepted accountancy concept of value and could never be characterised as illusory, even if the law did not come under Article 31 C.
The questions that arise for consideration are, sequen tially, whether the electrical energy generated and supplied by the petitioner companies is a "material resource of the community" within the meaning of Article 39(b); whether the impugned legislation has a reasonable and direct nexus to the objective of distributing this materials resource so as to subserve the common good and what are the appropriate tests to ascertain this nexus.
The incidental questions that arise on certain specific contentions centre around the effect of the option to purchase the undertaking exercised by the Assam State Electricity Board in the case of Tinsukia Co. and whether immediately upon the exercise of the option the proprietory rights respecting the undertaking of the company get transformed into a mere "actionableclaim" or "chose in action", as contended for by the petitioners.
577 Apropos of the contention that, at all events, the provi sions pertaining to the "amount" could have no reasonable or direct nexus to the principles envisaged in Article 39(b), but are merely intended to extinguish the legitimate rights of the petitioner company to receive the price of the under taking under the 1910 Act, as the law then stood, pursuant to the option exercised by the 'Board ', it would, perhaps, be necessary to ascertain the composite elements that make for a law of nationalisation and whether provisions touching the quantification of the "amount" payable for the acquisi tion are not an essential and integral part of such law.
On the contention urged by Shri Rangarajan as to what could be said to survive for consideration under Article 31(2), (as it then stood), if the law has the protection of Article 31 C the question that arises is whether anything at all survives for consideration under Article 31.
The conten tion indeed, runs in the teeth of several pronouncements of this Court which lay down that when Article 31 C comes in, Articles 14, 19 and 31 (the last mentioned article as it then stood) go out.
This we will consider under point (c).
It is not disputed that the electricity generated and distributed by the undertakings of the petitioner compa nies constitute "material resources of the community" for the purpose and within the meaning of Article 39(b).
In Sanjeev Coke Manufacturing Company vs Bharat Coking Coal Ltd., ; this Court, referring to what constitute "material resources of the community" and whether resources produced by, or at the command of, private, as distinguished from the State agencies, constitute such resources as the resources of the community, noticed the contention urged in that case thus: " . .
The submission of Shri A.K. Sen was that neither a coal mine nor a coke oven plant owned by private parties was a 'material resources of the community '.
Accord ing to the learned counsel they would become material resources of the community only after they were acquired by the State and not until then.
In order to qualify as material re sources of the community the ownership of the resources must vest in the community i.e. the State . .
A law providing for acquisition was not a law for distribution . " (P. 1022) 578 Repelling this argument which suggested a limited concept of "Material resources of the Community" the Court observed: " . .
We are unable to appreciate the submission of Shri Sen: The expression 'material resources of the community ' means all things which are capable of producing wealth for the community.
There is no warrant for interpreting the expression in so narrow a fashion as suggested by Shri Sen and confine it to public owned material resources, and exclude private owned material resources.
The expression involves no dichotomy . " ( P. 1022 & 23) It can, therefore, hardly be gain said that the electri cal energy generated and distributed by the undertakings of the petitioner constitutes "material resources of the commu nity".
This takes us to the question whether the provisions of the impugned Assam Act X 1973 have any reasonable and direct nexus to the principles in Article 39(b) of the Constitution.
It is true that if such a relationship is merely remote and tenuous the protection under Article 31 C may not be available.
The idea of distribution of the mate rial resources of the community in Article 39(b) is not necessarily limited to the idea of what is taken over for distribution amongst the intended beneficiaries.
That is one of the modes of "distribution".
Nationalisation is another mode.
In State of Tamil Nadu vs L. Abu Kavur Bai, ; this Court had occasion to refer to this aspect.
It was held: "In other words, the word 'distribu tion ' does not merely mean that property of one should be taken over and distributed to others like land reforms where the lands from the big landlords are taken away and given to landless laboureft, . .
That is only one of the modes of distribution but not the only mode . " "By nationalising the transport as also the units the vehicles would be able to go the farthest comer of the State and pene trate as deep as possible . "This would undoubtedly be a distri bution for the common good of the people and would be clearly covered by clause (b) of Article 39.
" 579 On an examination of the scheme of the impugned law the conclusion becomes inescapable that the legislative measure is one of nationalisation of the undertakings and the law is eligible for and entitled to the protection of Article 31 C. 16.
It was then contended that not all the provisions of a law can and need be eligible for the protection of Article 31 C and that accordingly, in the present case the provi sions as to the quantification of the "amount", which were meant to achieve an oblique motive of interdicting and extinguishing the vested rights of the petitioner company to receive payment in accordance with the provisions of the 1910 Act, as they then stood, should not have the protection of Article 31 C.
We are afraid this contention proceeds on an impermissible dichotomy of the components integral to the idea of nationalisation.
The economic cost of social and economic reform is, perhaps, amongst the most vexed problems of social and economic change and constitute the core ele ment in Nationalisation.
The need for constitutional immuni ties for such legislative efforts at social and economic change recognise the otherwise unaffordable economic burden of reforms.
The observations of Mathew J. in Keshavananda case on the point are worth recalling: "If full compensation has to be paid, concentration of wealth in the form of immova ble or movable property will be transformed into concentration of wealth in the form of money and how is the objective underlined in Article 39(b) and (c) achieved by the trans formation? And will there be enough money in the coffers of the State to pay full compensa tion?" " . .
I am unable to understand the purpose of substituting the word 'amount ' for the word 'compensation ' in the sub Article unless it be to deprive the Court of any yard stick or norm for determining the adequa cy of the amount and the relevancy of the principles fixed by law.
I should have thought that this coupled with the express provision precluding the Court from going into the adequacy of the amount fixed or determined should put it beyond any doubt that fixation of the amount or determination of the princi ple for fixing it is a matter for the Parlia ment alone and that the Court has no say in the matter." (1973 Supp.
SCR 1 at page 846) It is, therefore, not possible to divorce the economic considera 580 tions or components from the scheme of nationalisation with which the former are inextricably integrated.
The financial cost of a scheme of nationalisation lies at its very heart and can not be isolated.
Both the provisions relating to the vestiture of the undertakings in the State and those per taining to the quantification of the "Amount" are integral and inseparable parts of the integral scheme of nationalisa tion and do not admit of being considered as distinct provi sions independent of each other.
The memorandum of the writ petition contains aver ments as to the efficiency and public utility of the serv ices rendered by the undertakings and that on the date of the take over the market value of the Tinsukhia and Dibru garh undertakings were Rs.55 lakhs and Rs.35 lakhs respec tively and that.
the undertakings were discharging their obligations to the consumers efficiently and satisfactorily.
The case of the petitioners is that there was no justifica tion at all for the nationalisation as the undertakings were efficient and fully catered to the needs of the consumers.
It was also averted that it was the Government and the Board the had come in the way of the expansion envisaged by the undertakings by withholding the requisite permission for the installation of additional capacity for generation of elec tricity.
The Respondents have sought elaborately to traverse these grounds and to justify the measure for nationalisa tion.
We are afraid, the debate whether nationalisation is by itself to be considered as fulfilling a public purpose or whether the nationalisation should be shown to be justified by the actual effectuation of the avowed objectives of such nationalisation the choice between the pragmatic and the doctrinaire approaches is concluded and no longer avail able.
In Akadasi Padhan vs State of Orissa and Ors.
, ; this debate on the philosophy of nationalisa tion is concluded.
was held: " . .
Broadly speaking, this discussion discloses a difference in approach.
To the socialist, nationalisation or State ownership is a matter of principle and its justification is the general notion of social welfare.
To the rationalist, nationalisation or.
State ownership is a matter of expediency dominated by considerations of economic effi ciency and increased output of production . . ". " .
The amendment made by the Legislature in article 19(6) shows that according to the Legislature, a law 581 relating to the creation of State monopoly should be presumed to be in the interests of the general public . " " . .
In other words, the theory underlying the amendment in so far as it relates to the concept of State monopoly, does not appear to be based on the pragmatic ap proach, but on the doctrinaire approach which socialism accepts . .".
Indeed, in the United States of America after the hey days of the substantive due process, the Supreme Court in 1963 in Ferguson vs Skrupa, ; said: "We refuse to sit as a 'superlegis lature to weigh the wisdom of legislation ', and we emphatically refuse to go back to the time when courts used the Due Process Clause 'to strike down state laws, regulatory of business and industrial conditions, because they may be unwise, improvident, or out of harmony with a particular school of thought ' . .
Whether the legislature takes for its textbook Adam Smith, Herbert Spencer, Lord Keynes, or some other is no concern of ours." (Emphasis Supplied) 18.
Equally untenable is the contention based on the assumption that immediately upon the exercise of the option to purchase, the proprietory rights of the Tinsukhia Company in relation to the undertaking stood transformed into, and was crystalised in the form of, a mere actionable claim or a "chose in action" and that, therefore, what was sought to be acquired by the present legislative measure was merely a "chose in action".
It was contended that no public purpose is achieved by the acquisition of a "chose in action".
This needs examination of the legal character and incidents of the consequences that flow from the exercise of the option to purchase under the 19 10 Act.
The contention presupposes that contemporaneous with the service of the notice on the licensee, the proprietory rights of the licensee in relation to the undertaking, proprio vigore, get transformed into a mere "chose in action".
This consequence does not flow from the pro: visions of 1910 Act.
In Fazilka Electric Supply Company Limited vs The Commissioner of Income Tax, Delhi, [1962] Supp.
3 SCR 496 this court, referring to the nature of the transaction emerging from the exercise of the option, said: 582 "It merely provides for an option of purchase to be exercised on the expiration of certain periods agreed to between the parties, and section 10 further provides that in an appropriate case Government may even forego the option.
This section does not provide for a compulsory purchase or compulsory acquisi tion without reference to and independently of any agreement by the licencee.
" (See Page 505).
(Emphasis Supplied) In Gujarat Electricity Board vs Shantilal, ; referring to the legal conse quences that ensue by a mere exercise of the option, it was held: " . that the right to purchase the undertaking accrues only at the expiration of the period of licence but for exercising that right, the authority must make its elec tion within the period prescribed in sec.
7(4) and issue a notice as required by that sub section . . " (Emphasis Supplied) That the right, title and interest of the licensee in the undertaking does not get transferred to the Board or the State, as the case may be, immediately upon the mere exer cise of the option to purchase is further clear from what is implicit in the observa tions of this Court in Godra Electricity Company Limited and another vs The State of Gujarat and another; , at page 54.
The proposition contended for by the Learned Additional Solicitor General in that case was noticed thus: "In support of the contention that when once the notice exercising the option to purchase the undertaking has been served, the licensee has no further right to carry on the business, the learned Additional Solicitor General placed reliance on the decision of this Court in Kalyan Singh vs State of U. P . . " This Court held that the exercise of the option would have no such effect on the licen see 's right to carry on his business until the undertaking was actually taken over and paid for.
It was held: "A licensee cannot be told that he has no right to carry on the business unless a valid purchase is made at the expiry of the period . . " 583 " .
Admittedly, the undertak ing belonged to the licencee and if delivery of the undertaking is to be taken by the State Electricity Board, the purchase price must be paid before the delivery or, there must be a provision for payment of interest on the purchase price for the period during which payment is withheld.
Otherwise, the licence will not cease to have operation and the licensee wilt be entitled to carry on the business." (See Page 54).
The contentions that immediately upon the exercise of the option, ipso facto, the relationship between the parties get transformed into one as between a Debtor and a Creditor and that the interest of the licensee in the undertaking becomes an "actionableright", or a "chose in action" and that no public purpose could be said to be served by the acquisition of a "chose in action" are all out of place in this case.
It is not necessary, therefore, to go into the question whether a "chose in action" can at all be acquired.
Certain observations of this Court in Madan Mohan Pathak vs Union of India and Ors., ; do suggest that "chose in action" could also be acquired.
It will also not be necessary to go into the legal concept of a "chose in action" in Indian law and its distinctiveness from the principles in English law.
Williams on "Personal property" refers to "chose in action" thus: " . . another important distinction exists among personal things.
Such things are said to be in possession or in action; or they are called, in law French, choses in posses sion or choses in action.
Choses in possession are movable goods, of which their owner has actual possession and enjoyment, and which he can deliver over to another upon a gift or sale; tangible things, as cattle, clothes, furniture, or the like . " "The term choses in action appears to have been applied to things, to recover or realise which, if wrongfully withheld, an action must have been brought; things, in respect of which a man had no actual posses sion or enjoyment, but a mere right enforce able by action.
The most important personal things recoverable by action only were 584 money due from another, the benefit of a contract and compensation for a wrong; and .these have always been the most prominent choses in action, though not the only things to which the term has been applied . . "(see page 29 and 30) Indeed, in English law the difficulties in the precise definition of chose in action arise out of the fact that the meaning attributed to the expression has been expanded from time to time by judicial decisions and the principles pertaining to the concept did not develop on any logical or scientific basis.
W.S. Holdsworth also refers to this diffi culty in apprehending the precise incidents of the concept of a "chose in action": "It is sometimes difficult to ascer tain the sense in which the legislature has used the term 'chose in action 'we have seen that Bankruptcy Act affords one illustration, and, as we can see from the case of Edwards vs Dicard the modifications introduced by the Courts have some times occasioned a similar difficulty.
Some of these difficulties might be perhaps mitigated by a codifying Act, for which there is plenty of material.
But, it is probable that a branch of the law which comes at the meeting place of the law of property and the law of obligation can never be any thing but difficult to formulate and apply." (Emphasis Supplied) (See: "The History of the treatment of chose inaction by the common law": Vol.
33 Harvard Law Review 997 at 1030).
Petitioners, however, placed strong reliance upon a decision of the Calcutta High Court in Bihar State Electricity Board vs Patna Electricity Supply Co. Ltd., and in particular on the following observations of the Division Bench of the High Court in para 22: " .
The purported acquisition of part of the debt or chose in action by Sections 2(ii) and 3 of the Bihar Act 7 of 1976 with retrospective effect is, therefore, without any public purpose.
Sections 2(ii) and 3 also do not provide for payment of compensa tion.
In the circumstances, it must be 585 held that Sections 2(ii) and 3 of the Bihar Act 7 of 1976 are ultra vires article 31(2) of the Constitution.
" It is not necessary to consider the correctness of this pronouncement in view of the circumstance that even to the extent the decision goes it is distinguishable.
On 5.1.1973, the Electricity Board exercised its option to purchase the undertaking.
On 2.2.1974, the Board paid a sum of Rs.36,00,000 "on account" to the licensee.
On 6.2.1974, possession was taken.
On 2.2.1974, Ordinance 50 of 1974 was promulgated amending Section 7A of the 19 10 Act reducing the price payable under Section 7A to the book value of the assets.
This Ordinance was renewed by two successive ordi nances No. 83 of 1974 and 123 of 1974.
The last ordinance was replace by Bihar Act 15 of 1975.
On 10.2.1976, the Indian 'Electricity (Bihar Amendment) Act 7 of 1976 was brought into force validating the substitution of Section 6 and 7A, made by Bihar Act 15 of 1975 with retrospective effect from 2.2.1974.
The Validating Act sought to affect the rights and obligations of the parties retrospectively.
The High Court was persuaded to the view that the purported acquisition, virtually, pertained to the debt or "chose inaction" and not the undertaking itself.
It is, therefore, not necessary to consider the submissions of the learned counsel for the respondent that it does not lay down the law correctly in as much as the arguments based on Article 31 C were neither advanced nor considered in that case.
It requires, therefore, to be held that the impugned legislation viz., Assam Act X, 1973, was broughtforth for securing the principles contained in Article 39(b) of the Constitution and is protected under Article 31 C.
The amend ment made to the provisions of the , by Assam Act IX of 1973, amending the basis for quan tification of the amount payable in the case of a statutory purchase pursuant to the exercise of the option in terms of the licence would apply to and govern cases of statutory sales and would not assume any immateriality in this case as the Assam Act X of 1973 is itself as we have held a valid piece of legislation.
We find, therefore, no substance in the contentions (a) and (b) urged by the petitioner.
Re. contention (C): This pertains to the question whether the principles laid down in the Act for determination of the "amount" payable for the acquisition 586 are so arbitrary as to render the "amount" unreal and merely illusory.
This contention would not, in law, be available to the petitioners inasmuch as the law providing for the acqui sition has the protection of Article 31 C of the Constitu tion.
The arguments of Shri Soli J. Sorabjee in regard to the alleged "illusory" nature of the "amount" presupposes and proceeds on the premise that the impugned law does not have the protection of Article 31 C. Now that we have held that Article 31 C is attracted, the argument in regard to the alleged illusory nature of the amount does not survive at all.
Shri Rangarajan, however, contended that notwith standing that a law has the protection of Article 31 C, the question would yet be justiciable under Article 31(2), as it then stood, if the "amount" is illusory or the principles for its determination arbitrary.
To support this, somewhat difficult, proposition Shri Rangarajan relied upon certain observations of Chandrachud, J. in the Keshavananda case; whose import and importance, according to the learned coun sel, has not been fully and properly comprehended in subse quent cases.
The passages relied upon are: " .
But to say that an amount does not bear reasonable relationship with the market value is a different thing from saying that it bears no such relationship at all, none whatsoever.
In the later case the payment becomes illusory and may come within the ambit of permissible challenge." (See para 2 137 at page 2051 of AIR 1973). " . .
Courts would have the powers to question such a law if an amount fixed thereunder is illusory; if the princi ples, if any are stated, for determining the amount are wholly irrelevant for fixation of the amount; if the power of compulsory acqui sition or requisition is exercised for a collateral purpose; if the law offends Consti tutional safeguards other than the one con tained in Article 19(1)(f); or if the law is in the nature of a fraud on the Constitution ".
(See: para 2138 at page 2051 of AIR 1973).
These observations.
Sri Rangarajan says, were intended to govern even a law which had the protection of Article 31 C. Shri Rangara jan also relied upon certain observations of Fazal Ali, J. in State of Tamil Nadu vs L. Abu Kaur Bai ; which say: "87.
Thus, so far as this aspect of the matter is con 587 cerned, two conclusions broadly emerge: (1) that in view of the express provisions of Article 31 C which excludes article 31(2) also where a property is acquired in public interest for the avowed purpose of giving effect to the principles enshrined in article 39(b) and (c), no compensation is neces sary and article 31(2) is out of the harm 's way, and (2) that even if the law provides for compensation, the courts cannot go into the details or adequacy of the compensation and it is sufficient for the State to prove that the compensation was reasonable and not monstrous or illusory so as to shock the conscience of the court." (Emphasis of counsel) Sri Rangarajan would say that the observations empha sised would show that even if Article 31 C was attracted yet the State should show that compensation was reasonable and not illusory.
We are afraid, these passages are quoted out of context and, if properly understood, were not intended to support the proposition now propounded by Shri Rangarajan.
Indeed in the Keshavananda case itself Chandrachud J. referring to the effect of Article 31 C observed: ".
In fact article 31 C is a logi cal extension of the principles underlying article 31(4) and (6) and article 31A. . .
The true nature and char acter of article 31 C is that it identifies a class of legislation and exempts it from the operation of articles 14, 19 and 31 . . " (1973 supp.
SCR 1 at 995) Khanna J. observed in that case: Both articles 31A and 31C deal with right to property.
Article 31 A deals with certain kinds of property and its effect is, broadly speaking, to take those kinds of property from the persons who have rights in the said property.
The objective of article 31C is to prevent concentration of wealth and means of production and to ensure the distri bution of ownership and control of the materi al resources of the community for the common good.
Article 588 31C is thus essentially an extension of the principle which was accepted in article 31A . "(page 743) Beg, J said: "Article 31 C has two parts.
The first part is directed at removing laws passed for giving effect to the policy of the State towards securing the principles specified in clause (b) or clause (c) of Article 39 of the Constitution from the vice of invalidity on the ground that any such law "is inconsistent with or takes away or abridges any of the rights conferred by Articles 14, 19 and 31 of the Constitution." . the effect of invalidity for alleged violations of Articles 14 or 19 or 31 would vanish so long as the law was really meant to give effect to the princi ples of Article 39(b) and (c) . " In State of Karnataka vs Ranganath Reddy, ; this Court had occasion to observe: " . .
For the purpose of deciding the point which fails for consideration in these appeals, it will suffice to say that still the over whelming view of the majority of judges in Kesavandanda Bharati 's case is that the amount payable for the acquired property either fixed by the legislature or determined on the basis of the principles engrafted in the law of acquisition cannot be wholly arbitrary and illusory.
When we say so we are not taking into account the effect of Article 31 C inserted in the Constitution by the 25th Amendment (leaving out the invalid part as declared by the majority)." (p. 653) (Emphasis Supplied) In Sanjeev Coke Manufacturing Co. vs Bharat Coking Coal Company Lt.; , this Court said: " . .
To accept the submission of Shri Sen that a law rounded on discrimination is not entitled to the protection of Article 31 C, as such a law can never be said to be to further the Directive Principle affirmed in article 39(b), would indeed, be, to use a hack neyed phrase, to put the cart before the horse.
If the law made to further the Direc tive Principle iS necessarily non discrimina tory or is based 589 on a reasonable classification, then such law does not need any protection such as that afforded by article 31 C.
Such law would be valid on its own strength, with no aid from article 31 C.
To make it a condition precedent that a law seeking the haven of article 31 C must be non discriminatory or based on reasonable classification is to make article 31 C meaning less . " (p.1019) "We are firmly of the opinion that where article 31 C comes in article 14 goes out . " (p. 1021) What applies to Article 14 would equally apply to Article 31 (as it then stood before its deletion by the Constitution Fortysecond (Amendment) Act, 1978).
In State of Tamil Nadu vs L. Abu Kavur Bai, ; on which Shri Rangarajan relied, Fazal Ali J. categorily said: "It is manifest from a bare reading of the newly added article 31 C that any law effectuating the policy of the State in order to secure or comply with the directive princi ples specified in clauses (b) and (c) of article 39 would not be deemed to be void even if it is inconsistent with or violates Articles 14, 19 or 31 . . " (P. 332) In the same case Fazal Ali J. further said: " .
If, once the conditions mentioned in Article 31C are fulfilled by the law, no question of compensation arises because the said Article expressly excludes not only Arti cles 14, and 19 but also 31 which, by virtue of the 25th amendment, had replaced the word 'amount ' for the word 'compensation ' in Arti cle 31(,2) . . " (p. 334) (Emphasis supplied) Sri Rangarajan cannot, therefore, draw any sustenance from Fazal Ali J. for his argument.
Sri Rangarajan then placed reliance on the following observa 590 tions of Krishna Iyer J. in Gwalior Rayon vs UOL, " . the legislature is expected except in exceptional socio historical set ting, to provide just payment for the deprived persons.
To exclude judicial review is not to block out the beneficient provisions of Arti cles 14, 19 and 31." (p. 695) But we see nothing in these observations which can lend support to justiciability of an alleged violation of Article 31 by a law protected under Article 31 C. Ideally, perhaps, it may not be just to deprive a recompence that is just and fair, in all cases.
But that is not to say that even under a law which has the protection of 31 A or 31 C, the adequacy, or justness or fairness of the compensation would, yet, be justiciable.
The contention of Shri Rangarajan in our opinion, is wholly unsupportable.
Indeed, the purpose of Article 31 C is, amongst others, to exclude Article 31, as it then stood.
The effect of accepting Sri Rangarajan 's contention would be to let in Article 31 by the backdoor, frustrating the very object of Article 31 C and to unsettle the law laid down in a series of authoritative pronouncements of this Court.
The contention really, is not available to the petitioners at all.
Even if the impugned law did not have the protection of Article 31 C, a hypothesis on which contention (c) is based, the adequacy or inadequacy of the amount is not justiciable.
The limitations of the courts ' scrutiny explic it in Article 31(2), are referred to by Mathew J. in the Keshavananda case: " . the word 'amount ' conveys no idea of any norm.
It supplies no yard stick.
It furnishes no measuring rod.
The neutral word 'amount ' was deliberately chosen for the purpose.
I am unable to understand the purpose in substituting the word 'amount ' for the word 'compensation ' in the sub article unless it be to deprive the Court of any yard stick or norm for determining the adequacy of the amount and the relevancy of the principles fixed by law (para 1765) Referring to what might, yet, be open to judicial scrutiny, under 591 Article 31(b), Shelat and Grower, JJ observed in the Keshavananda case: "But still on the learned Solicitor General 's argument, the right to receive the amount continues to be a fundamen tal right.
That cannot be denuded of its iden tity.
The obligation to act on some principle while fixing the amount arises both from Article 31(2) and from the nature of the legislative power for, there can be no power which permits in a democratic system an arbi trary use of power." "But the norm or the principle of fixing or determining the 'amount ' will have to be disclosed to the Court.
It will have to be satisfied that the 'amount ' has reasonable relationship with the value of the property acquired or requestioned and one or more of the relevant principles have been applied and further that the 'amount ' is neither illusory nor it has been fixed arbitrarily, nor at such a figure that it means virtual deprivation of the right under Article 31(2).
The question of adequacy or inadequacy, however, cannot be gone into." Justice Chandrachud observed: "The specific obligation to pay an 'amount ' and in the alternative the use of the word 'principles ' for determination of that amount must mean that the amount fixed or determined to be paid cannot be illusory.
If the right to property still finds a place in the Constitution, you cannot mock at the man and ridicule his right.
You cannot tell him: 'I will take your fortune for a farthing '.
All the same, the concept of "Book Value" is an accepted accountancy concept of value.
It cannot be held to be illusory.
In Eswari Khetan Sugar Mills vs State of U.P., ; at page 359 it has been held that even the concept of "written down value" which is more disadvantageous to the owner than the "Bookvalue" is not irrelevant: " . .
This Court has in terms accepted that payment of compensation on the basis of written down value calculated accord ing to the income tax law for used 592 machinery is not irrelevant as a principle for determining compensation.
That principle appears to have been adopted for valuing used machinery though the legislation fixes compen sation payable to each undertaking in round Sum . ." 28.
Accordingly, even if the impugned law had no protec tion of Article 31 C and tests appropriate to and available are applied, in the circumstances of this case, it cannot be said that the principles envisaged in the impugned law lead to an "amount" which can be called unreal or illusory.
Contention (c) is accordingly held and answered against the petitioners.
Re: Contention (d): This point is again, available only if the impugned law is outside Article 31 C.
The contention that "Service Lines" which are expressly excluded from the valuation do consti tute the property of the licensee and their exclusion from valuation would make the principles for determination of the 'amount ' arbitrary does not have much to commend it.
Learned counsel for the petitioner placed reliance on the definition of 'works ' in Section 2(n) of the 1910 Act and on the pronouncement of this Court in Calcutta Electric Supply Corporation vs Commissioner of Wealth tax, ; The question in that case was whether in the computation of net wealth of the licensee, the "Service lines" should be included.
That was a converse case where the licensee rely ing upon the statutory provisions of the Electricity Act contended that "Service lines" were not a part of his wealth.
This Court negatived that contention for purposes of assessment to wealth tax.
Learned counsel placed some store by this pronouncement to contend that the exclusion of this 'wealth ' from valuation is arbitrary.
But, in our opinion, the pronouncement relied upon does not advance petitioners ' case on the point.
While it is true that the expression 'works ' in Section 2(n) of the 1910 Act includes 'Service lines ', the reason why 'Service lines ' could justifiably be excluded from valuation for purposes of determination of the 'amount ' is indicated in page 166 the report: "It is true that in view of Sec. 7(A)(2) of the Electricity Act, in computing the market value of the undertaking sold under sub section (1) of section 5 of that Act the value of service lines which had been con structed at the expense 593 of the consumers will not be taken into con sideration.
The reason for this provision is obvious.
It will be the duty of the new licen see to not only maintain and repair those lines but also to replace them when they become unserviceable.
" Under the law when a requisition is made by an intend ingconsumer for electrical energy, the licensee has an obligation tO lay down Service lines.
But, according to the provisions the entire cost of service line is not required to be borne by the licensee.
The licensee is entitled to call upon the consumer to pay part of the cost of service line which may in a given case amount to a substantial part in accordance with the provisions in the Schedule to the Electricity Supply Act.
Dealing with a similar provision the Gujarat High Court in Dakor Umreth Electricity Company Ltd. vs State of Gujarat, ( 13 Gujarat Law Reporter 88 at page 106) held: " .
The question is whether the exclusion of such service lines from the valuation can be said to have rendered the principle of compensation irrelevant or inap propriate.
We do not think so . .
The petitioner is not constituted .the owner of these service lines for all purposes.
More over, even after the purchase, these service lines would continue to be utilised for sup plying electrical energy to the consumers who paid for them.
It would be most inequitable in these circumstances to provide for payment of compensation to the petitioner for these service lines.
There is no reason in logic or principle why the petitioner should be allowed to make unjust and undeserved profit from transfer of these service lines for which it has paid nothing and which are not the product of its own labour . . " This reasoning, if we may say so with respect, is sound and should be accepted.
Contention (d) is, therefore, insub stantial and is answered against the petitioners.
Re: Contention (e): The apprehensions of the petitioners on this point is that while under Section 9(1)(i) of the impugned Act X of 1973, Government 594 would be entitled to deduct from the 'amount ' such sums as remain in the "Tariffs and Devidend Control Reserve"; "Contingency Reserve" and the "Development Reserve", in so far as such amounts have not been paid over by the licensees to the Government, the provision, however, does not take into account and provide for cases where such reserves are invested in 'fixed assets ' and as such "fixed assets" vest in the Government under the Acquisition.
There would, there fore, it is urged be, a duplication of the liability of the licensee on this score, in the sense that while the "Re serves" in the form of fixed assets vest in the Government, the licensee is still exposed to the liability for the deduction of the amount shown in the accounts.
Section 9(1)(i) provides: "Deductions from the Gross amount: The Government shall be entitled to deduct the following sums from the gross amount payable under this Act to the licensee.
(a) (to) (h) Omitted as unnecessary (i) The amounts remaining in tariffs and dividends control reserve, contingencies reserve and development reserve, in so far as such amounts have not been paid over by licen see to the Government; (j) (k) Omitted as unnecessary On a reasonable construction, the expressions 'amounts remaining ' and 'in so far as such amounts have not been paid overl ' necessarily exclude any such duplication of the ac countability of the licensee for these 'Reserves '.
If any part of the reserves is invested in "fixed assets" and the reserves in the form of such "fixed assets" are takenover by the Government pursuant to the acquisition, what remains to be accounted for by the licensee is only the 'amounts re maining ' in the pertinent accounts.
The liability of the licensee for deduction of the 'Reserves ' from the 'amount ' would arise only if the balance remaining in those accounts are not paid.
Indeed, Dr. Shankar Ghosh, learned counsel for the State of Assam, submitted that this is the correct interpretation to be placed on Section 9(1)(i) of the Act.
With this construction of the provision, the contention of the petitionercompany on this point, does not survive.
595 31.
The other contention raised under this point is that the property of the licensees represented by the unexpired portion of the licence has not been taken into account in computing the amount payable for the acquisition.
As already indicated, the law having the protection of Article 31C the contention is not available at all.
Section 7(3) of the impugned Act provides: "In the case of an undertaking which vests in the Government under this Act, the licence granted to it under Part II of the Electricity Act shall be deemed to have been terminated on the vesting date and all the rights, liabilities and obligations of the licensee under any agreement to supply elec tricity entered into before that date shall devolve or shall be deemed to have devolved on the Government: Provided that where any such agree ment is not in conformity with the rates and conditions of supply approved by the Govern ment and in force on the vesting date, the agreement shall be voidable at the option of the Government." This provision is a part of a scheme of nationalisation and is protected by Article 31C. 32.
Contention (e) is accordingly held and answered against the petitioners.
Re: Contention (f): This contention pertains to the liability of the licen see under Section 11(3) of the Act in respect of the amounts payable to employees retrenched by the Government or the "Board ' as the case may be, within one year from the vest ing date after the take over.
Section 11(3) provides that if the Board or the Government, as the case may be, retrenches any employee within a period of one year from the vesting date, the liability for the amounts payable to the re trenched employee shall be deducted from the 'amount '.
This provision, it is contended, imposes a liability which is arbitrary.
Dr. Shankar Ghosh submitted that this point is purely academic inasmuch as there has been no such case of retrenchment.
Dr. Ghosh further submitted that the provision is not unreasonable because in the case of employees so 596 retrenched, the amounts payable would substantially relate to the period during which the employment subsisted under the licensee and that it is not unreasonable to take this circumstances into account in continuing the licensee 's liability which would, even otherwise, be substantially be that of the licensee. 'On a consideration of the matter, we are inclined to the view even if this question is justicia ble that the provision is not unreasonable or arbitrary as it envisages the continuance of a liability which was, otherwise, substantially that of the licensee.
There is no merit in this contention (f) either.
Re: Contention (g): The grievance of the petitioners on this aspect, we are afraid, proceeds on a total misconception of the effect of the statutory provisions.
The contention, in substance, is that while certain liabilities of the licensee arising out of its Quondam business operations are not expressly taken over by the Government and are declared to be the subsisting and continuing liabilities of the licensee, however, Section 9(7) authorises the deduction of some of those very liabilities from the 'amount ' without a corre sponding statutory obligation on the part of the GOvernment, in turn, to pay the same to the creditors on whose account and for whose benefit the deductions are made and without providing an express statutory discharge to the petitioners in that behalf.
There is no substance in this contention.
The legisla tive intention is plain and manifest.
Though some of the liabilities arising out of the conduct of the licensees ' business prior to vesting are not taken over by Government, some of those liabilities are, yet, authorised to be deduct ed from the amount.
The purpose of this provision is too obvious to require any statutory declaration of the obliga tions that arise in law and are attendant upon these sums coming to the hands of and retained by the Government.
Quite obviously, the provision is not intended for an unjust enrichment in the hands of Government.
The purpose is obvi ously to facilitate recovery of certain types of debts owing to public institutions etc., and the deduction is for the benefit of those creditor institutionS. Government would, plainly, be under a legal obligation to pay the sums so deducted to the concerned creditors.
The provisions of the Statute must be read along, and in consonance, with the general principles of law which import such obligations on the part of the Government and an implied corresponding discharge to the petitioners to the extent of such deduc tions in their liabilities.
There is a resulting, statuto ry trust in the hands of the Gov 597 ernment to pay the sums so deducted to the respective credi tors, even in the absence of express provisions in this behalf in the Statute the general principles of law operate.
As a matter of construction it requires to be held that these obligations and consequences follow.
There is really no justifiable grievance on this score.
Contention (g) is, accordingly, held and answered against the petitioners.
Re: Contentions (h) and (i): These two contentions pertain to the machinery envisaged by and set up under the impugned law for resolution of disputes on questions essential for the determination of the amount in accordance with the provisions of the Act.
The contention of the petitioners, in substance, is that there is no machinery set up under the Act to determine the amounts under Section 9(c), (d) and (e) and to assess the loss referred to in Section 8.
The Other contention on the point is that the arbitra tion clause is a limited one and is confined only to dis putes in four areas specifically enumerated in clauses (a) to (d) of sub section (1) of Section 20 of the Act.
These lacunae in the Statute, it is contended, render the scheme of the Act for the determination of the 'Amount ' unreasonable and the scheme of the 'Act ' in relation to the determination of the 'Gross Amount ', the deductions to be made therefrom and the assessment of the 'amount ' payable for the acquisition, unworkable.
The Courts strongly lean against any construction which tends to reduce a Statute to a futility.
The provision of a Statute must be so construed as to make it effective and operative, on the principle "ut res majis valeat quam periat".
It is, no doubt, true that if a Statute is abso lutely vague and its language wholly intractable and abso lutely meaningless, the Statute could be declared void for vagueness.
This is not in judicial review by testing the law for arbitrariness or unreasonableness under Article 14; but what a Court of construction, dealing with the language of a Statute, does in order to ascertain from, and accord to, the Statute the meaning and purpose which the legislature in tended for it.
In Manchester Ship Canal Co. vs Manchester Racecourse Co., Farwell J. said: "Unless the words were so absolutely senseless that I could do nothing at all with them, I should be bound to find 598 some meaning and not to declare them void for uncertainty." (See page 360 and 361) In Fawcett Properties vs Buckingham Coun try Council, Lord Denning approving the dictum of Farwell, J. said: "But when a Statute has some mean ing, even though it is obscure, or several meanings, even though it is little to choose between them, the Courts have to say what meaning the Statute to bear rather than reject it as a nullity." (Vide page 516) It is, therefore, the Court 's duty to make what it can of the Statute, knowing that the Statutes are meant to be operative and not inept and that nothing short of impossibility should allow a Court to declare a Statute unworkable.
In Whitney vs Inland Revenue Commissioner, Lord Dunedin said: "A Statute is designed to be worka ble, and the interpretation thereof by a Court should be to secure that object, unless cru cial omission or clear direction makes that end unattainable." (vide page 52) 37.
On consideration of the Statute on hand, it is not possible to subscribe to the view that the impugned law has not envisaged any machinery for the due ascertainment of the sums referred to in clauses (c), (d) and (e) of Section 9 which require, on such ascertainment and quantification, to be deducted from the gross amount.
Section 10 enjoins upon the Government to appoint a person having adequate knowledge and experience in matters reling to accounts "to assess the net amount payable under this Act by the Government to the licensee after making the deductions mentioned in Section 9".
Sub Section (2) of Section 10 provides that the Special Officer may call for the assistance of such Officer and staff of the Government or the Board or the undertaking as he may deem fit "in assessing the net amountpayable".
These provisions, contemplate the determination by the Special Officer, who is constituted as a statutory authority under the Act, of the net amount payable.
The functions of the Special Officer include an examination of the correctness of all the determinations made by the Government in the matter of the deductions, except where Government is statutorily specially constituted as an appellate authority in respect of certain matters under the Act.
The Proviso to Sections 8 and 9 envisages prior notice to be 599 issued to the licensee by the Government to show cause against any deduction proposed to be made under Section 8 or 9, as the case may be, within the period specified in the Provisos.
Even after the Government so makes such determina tion of the amounts which, according to it, are deductible from the gross amount, such determination would not be final.
The assessment of the net amount payable to the licensee will have to be made by the "Special Officer".
It is reasonable to construe that the decision of the Govern ment both under Sections 8 and 9 arrived at, even after giving an opportunity to the licensee of being heard, would not be final, but the final determination will have to be made by the "Special Officer" appointed under Section 10 of the Act.
Section 10(1) and (2) of the Act must be so con strued as to enable the "Special Officer" to take into account the determinations respecting the deduction under Section 9 and 10 of the Act made by the Government and take a decision of his own in the matter.
The power to "assess" the net amount by necessary implication takes within its sweep the power to examine the validity of the determination made by the Government in the matter of deductions from the gross amount.
This power to determine and assess the 'net amount ' payable by necessary implication cover matters envisaged in Sections 8 and 9.
Though only Section 9 is specifically referred to in sub section (1) of section 10, the language of sub section (1) and (2) which enable the Special Officer to "assess" the net amount paybale would, by necessary implication, attract the power to decide as to the validity and correctness of the deduction to be made under Section 8 as well.
So construed, the provisions of Section 10 would furnish a reasonably adequate machinery for the assessment of the "net amount" payable to licensee.
So far as Arbitration is concerned, even after the decision of the "Special Officer", there is the further Arbitral forum to decide disputes in respect of the specific areas in which disputes are rendered arbitrable under Sec tion 20.
In view of these circumstances, we think the grievance of the petitioners on these points questions are not sub stantial.
The points (h) and (i) are also, accordingly, held and answered against the petitioners.
In the result, for the foregoing reasons all the contentions urged by the petitioners in support of their challenge to the impugned legislations fail.
The Writ peti tions are, accordingly, dismissed; but in the circumstances, there will be no order as to costs.
G.N. Petitions dis missed.
| IN-Abs | The petitioners Public Limited Companies were grant ed licences under the provisions of the for supply of electricity within the respective licensed areas of Tinsukhia and Dibrugarh Municipal Boards.
The Dihrugarh Company was granted licence in 1928 on certain terms and conditions with an option to the State to purchase the under.
taking on the expiry of 50 years and thereafter on the expiry of every subsequent period of twenty years.
So also, the Tinsukhia company was granted licence in 1954 on certain terms and conditions with an option to the State Government to purchase the undertaking on the expiry of 20 years and thereafter on the expiry of every 20 years.
The State Government negotiated with the companies for pur 545 chasing them.
The negotiations were going on for several years.
On 27.9.1972 the Governor promulgated two ordinances for the compulsory acquisition of the undertakings of the two companies.
Subsequentiy, the ordinances were replaced by the Indian Electricity (Assam Amendment) Act, 1973 and the Tinsukhia & Dibrugarh Electric Supply Undertakings (Acquisi tion) Act, 1973.
The two legislations, one amending the provisions of Section 5(2), 6(7) and 7 A of the and the other providing for the acquisition of the two undertakings viz. the Tlnsukhia and Dibrugarh Electric Supply Undertaking (Acquisition) Act, '1973 were Challenged in this Court by the writ petitioners on several grounds.
It was contended that in view of the private negotiations and the exercise of the option to purchase, the legislations were not bona fide, but constituted a mere colourable exer cise of legislative power and that the real objects of the two legislations have no direct and reasonable nexus to the objects envisaged in Article 39(b) of the Constitution.
It was also contended that what was sought to be acquired was not the undertakings of the two companies, but the differ ence between the market value of the undertakings agreed to by the State Government and the Book value of the undertak ings which the law has substituted by virtue of the amend ments made in the .
The Article 31 C protection given to the legislations, and some of the specific provisions of the acquisition law which excluded certain items from the computation of compensation and authorised certain deductions in the amount of compensation have also been challenged.
On behalf of the Respondents, it was contended that electrical energy has been a material source of the communi ty and any legislative measure to nationalise the undertak ing fell squarely within the ambit of Article 39(b) and was entitled to Article 31 C protection.
It was also asserted that book value has been a well accepted concept of valua tion in accountancy and it cannot be characterised as illu sory even if the legislations did not enjoy the protection of Article 31 C. Dismissing the writ petitions, HELD: [R.S. Pathak.
CJ, M.N. Venkatachaliah, section Natara jan and section Ranganathan, J J per Venkatachaliah, J.] 1.1.
The proposition that the legislative declaration of the nexus between the law and the principles in Article 39 is inconclusive and justiciable is well settled.
The sequen tor is that whenever any immunity 546 is claimed for a law under Article 31 C, the Court has the power to examine whether the provisions of the law are basically and essentially necessary for the effectuation of the principles envisaged in Article 39(b) and (c).
It can, hardly be gain said that the electrical energy generated and distributed by the undertakings of the petitioners constitutes "material resources of the communi ty".
The idea of distribution of the material resources of the community in Article 39(b) is not necessarily limited to the idea of what is taken over for distribution amongst the intended beneficiaries.
That is one of the modes of "distri bution".
Nationalisation is another mode.
The economic cost of social and economic reform is, perhaps, amongst the most vexed problems of social and economic change and constitute the core element in Nationalisation.
The need for constitu tional immunities for such legislative efforts at social and economic change recognise the otherwise unaffordable econom ic burden of reforms.
It is not possible to divorce the economic considerations or components from the scheme of nationalisation with which the former are inextricably integrated.
The financial cost of a scheme of nationalisa tion lies at its very heart and cannot be isolated.
Both the provisions relating to the vestiture of the undertakings in the State and those pertaining to the quantification of the "Amount" are integral and inseparable parts of the integral scheme of nationalisation and do not ambit of being consid ered as distinct provisions independent of each other.
The debate whether nationalisation is by itself to be considered as fulfilling a public purpose or whether the nationalisa tion should be shown to be justified effectuation of the avowed objectives of such nationalisation the choice be tween the pragmatic and the doctrinaire approaches is concluded and no longer available.
[578C. D, E, 579C, D, H, 580A, B, E] 1.3.
The right, title and interest of the licensee in the undertaking does not get transferred to the Board or the State, as the case may be, immediately upon the mere exer cise of the option to purchase.
The exercise of the option would have no such effect on the licensee 's right to carry on his business until the undertaking was actually taken over and paid for.
The contentions that immediately upon the exercise of the option, ipso facto, the relationship between the parties get transformed into one as between a Debtor and a Creditor and that the interest of the licensee in the undertaking becomes an "actionable right", or a 'chosein action" and that no public purpose could be said to be served by the acquisition of a "chose in action" are all out of place in the instant case.
[582E, 583C] 547 1.4.
The acquisition legislation was brought forth for securing the principles contained in Article 39(b) of the Constitution and is protected under Article 31 C.
The Assam amendment made to the provisions of the , amending the basis for quantification of the amount payable in the case of a statutory purchase pursuant to the exercise of the option in terms of the licence would apply to and govern cases of statutory sales and would not assume any immateriality in the instant case.
[585E, F] Kesavananda Bharati vs State of Kerala; [1973] Suppl.
SCR 1; Minerva Mills Ltd. vs Union of India, ; ; Sanjeev Coke Mfg. Co. vs Bharat Coking COal Ltd., ; ; State of Tamil Nadu vs
L. Abu Kavar Bai; , ; Akadasi Padhart vs State of Orissa and Ors., ; ; Godra Electricity Co. Ltd. and Anr.
vs The State of Gujarat and Anr., ; and Madan Mohan Pathak vs Union of India and Ors., , relied on.
Fergusan vs Skrupa, ; ; Fazilka Electric Supply Co. Ltd. vs The Commissioner of Income Tax, Delhi, [1962] Suppl.
3 SCR 496 and Gujarat Electricity Board vs Shantilal; , , referred to.
Bihar State Electricity Board vs Patna Electricity Supply Co. Ltd., ; distinguished. "History of the treatment of choses in action by the common law" by W.S. Holdsworth Vol. 33 Harvard law Review referred to. 2.
It may not be just to deprive a recompence that is just and fair, in all cases.
But that.
is not to say that even ,under a law which has the protection of article 31 A or 31 C, the adequacy, or justness or fairness of the compensa tion would, yet, be justiciable.
Article 31 C is in effect and substance is to 'urban property ' of what Article 31 A is to 'agricultural property '.
All the same, the concept of "Book Value" is an accepted accountancy concept of value.
It cannot be held to be illusory.
Even if the impugned law had no protection of Article 31 C and tests appropriate to and available are applied, in the circumstances of the present case, it cannot be said that the principles envisaged in the acquisition law lead to an "amount" which can be called unreal or illusory.
[590C, 592B] 548 Eswari Khetan Sugar Mills vs State of U.P., ; ; relied on.
Gwalior Rayon vs Union of India, ; 671; referred to.
Under the law when a requisition is made by an in tending consumer for electrical energy, the licensee has an obligation to lay down service lines.
But, according to the provisions the entire cost of service line is not required to be borne by the licensee.
The licensee is entitled to call upon the consumer to pay part of the cost of service line which may in a given case amount to a substantial part in accordance with the provisions in the Schedule to the Electricity Supply Act.
While it is true that the ex pression 'works ' in Section 2(h) of the Indian Railways Act, 1910 includes 'Service lines ', the reason why 'Service lines ' could justifiably be excluded from valuation for purposes of determination of the 'amount ', is that the new licensee is to repair and maintain them.
[593B, C; 592F, G] Dakor Umreth Electricity Co. Ltd. vs State of Gujarat, ; ; approved.
On a reasonable construction, the expressions 'amounts remaining ' and 'in so far as such amounts have not been paid over ' necessarily exclude any such duplication of the accountability of the licensee for these 'Reserves '.
If any part of the reserves is invested in "fixed assets" and the reserves in the form of such "fixed assets" are taken over by the Government pursuant to the acquisition, what remains to he accounted for by the licensee is only the 'amounts remaining ' in the pertinent accounts.
The liability of the licensee for deduction of the 'Reserves ' from the 'amount ' would arise only if the balance remaining in those accounts are not paid.
[594F, G] 5.
As regards the liability of the licensee under Sec tion 11(3) of the Acquisition Act in respect of the amounts payable to employees retrenched by the Government or the 'Board ' as the case may be, within one year from the vesting date after the take over even if this question is justicia ble it is not unreasonable or arbitrary as it envisages the continuance of a liability which was, otherwise, sub stantially that of the licensee.
[595F, G, H, 596A, B] 6.
Though some of the liabilities arising out of the conduct of the licensees ' business prior to vesting are not taken over by Government, some of those liabilities are, yet, authorised to be deducted from the 549 amount.
The purpose of this provision is too obvious to require any statutory declaration or the obligations that arise in law and are attandant upon these sums coming to the hands of and retained by the Government.
Quite obviously, the provision is not intended for an unjust enrichment in the hands of Government.
The purpose is obviously to facili tate recovery of certain types of debts owed to public institutions etc., and the deduction is for the benefit of those creditor institutions.
The Government would, plainly, be under a legal obligation to pay the sums so deducted, to the concerned creditors.
The provisions of the Statute must be read along, and in consonance, with the general princi ples of law which import such obligations on the part of the Government and an implied corresponding discharge to the petitioners to the extent of such deductions in their li abilities.
There is a resulting statutory trust in the hands of the Government to pay the sums so deducted to the respec tive creditors, even in the absence of express provisions in this behalf in the Statute, the general principles of law operate.
As a matter of construction it requires to be held that these obligations and consequences follow.
[596E, F, G, H, 597A] 7.
The Courts strongly lean against any construction which tends to reduce a Statute to a futility.
The provision of a Statute must be so construed as to make it effective and operative, on the principle "but res majis valeat quam periat".
It is, no doubt, true that if a Statute is abso lutely vague and its language wholly intractable and abso lutely meaningless, the Statute could be declared void for vagueness.
This is not in judicial review by testing the law for arbitrariness or unreasonableness under Article 14; but what a Court of construction, dealing with the language of a Statute, does in order to ascertain from, and accord to, the Statute the meaning and purpose which the legislature in tended for it.
It is, therefore, the Court 's duty to make what it can of the Statute, knowing that the statutes are meant to be operative and not inept and that nothing short of impossibility should allow a Court to declare a Statute unworkable.
[597F, G, 598C] Manchester Ship Canal Co. vs Manchester Race Course Co., and Fawcet Properties vs Buckingham County Council, [1960] 3 AII.E.R. 503, referred to.
Section 10 of the Acquisition Act enjoins upon the Government to appoint a person having adequate knowledge anti experience in matters relating to accounts "to assess the net amount payable under the Act by the Government to the licensee after making the deductions mentioned in sec tion 9".
Proviso to Sections 8 and 9 envisages prior 550 notice to be issued to the licensee by the Government to show cause against any deduction proposed to be made under Section 8 or 9, as the case may be, within the period speci fied in the provisos.
Even after the Government so makes such determination of the amounts which, according to it, are deductible from the gross amount, such determination would not be final.
The assessment of the net amount payable to the licensee will have to be made by the "Special Offi cer".
It is reasonable to construe that the decision of the Government both under Sections 8 and 9 arrived at, even after giving an opportunity to the lincensee of being heard, would not be final, but the final determination will have to be made by the "Special Officer" appointed under section 10 of the Act.
Section 10(1) and (2) of the Act must be so construed as to enable the "Special Officer" to take into account the determination respecting the deduction under Sections 9 and 10 of the ACt made by the Government and take the decision of his own in the matter.
The power to "assess" the net amount by necessary implication takes within its sweep the power to examine the validity of the determination made by the Government .in the matter of deduction from the gross amount.
This power to determine and assess the 'net amount ' payable by necessary implication cover matters envisaged in Sections 8 and 9.
Though only Section 9 is specifically referred to in sub sections (1) and (2) of section 10, the language of sub sections (1) and (2) which enable the Special Officer to "assess" the net amount pay able would by necessary implication, attract the power to decide as to the validity and correctness of the deduction to be made under Section 8 as well.
So construed.
the provi sions of Section 10 would furnish a reasonably adequate machinery for the assessment of the "net amount" payable to the licensee.
[598E H; 599A E] 9.
So far as Arbitration is concerned, even after the decision of the "Special Officer", there is the further arbitral forum to decide disputes in respect of the specific areas in which disputes are rendered arbitrable under Sec tion 20.
There is a provision for appointment of a sitting or retired District or High Court Judge as arbitrator under the said section.
Hence it cannot be said that there is no proper machinery for resolving the disputes between the Government and the licensee rendering the Acquisition Act unworkable.
[599F, G] Per Mukharji, J. (Concurring) 1.
Article 39(b) of the Constitution enjoins that the State in particular should direct its policy towards secur ing that the ownership and control of the material resources of the community are so distri 551 buted as to best subserve the common good and that the operation of the economic system does not result in concen tration of wealth and means of production to the common detriment.
In order to decide whether a Statute is within Article 31 C, the Court, if necessary, may examine the nature and the character of the legislation and the matter dealt with as to whether there is any nexus between the law and the principles mentioned in Article 39(b) and (c).
On such an examination if it appears that there is no such nexus between the legislation and the objectives and the principles mentioned in Article 39(b) and (c), the legisla tion will not enjoy the protection of Article 31 C.
In order to see the real nature of the Statute, if need be, the Court may also tear the veil.
[553E H] Kesavananda Bharati vs State of Kerala, [1973] Suppl.
SCR 1; relied on.
Charles Russel vs The Queen, [1882] VII AC 829; referred to.
Whenever a question is raised that the Parliament or the State Legislature have abused their powers and inserted a declaration in a law for not giving effect to securing the Directive Principles specified in Article 39(b) and (c), the Court can and must necessarily go into that question and decide.
If the Court comes to the conclusion that the decla ration was merely a pretence and that real purpose of the law is the accomplishment of some object other than to give effect to the policy of the State towards securing the Directive Principles as enjoined by Article 39(b) and (c), the declaration would not debar the Court from striking down any provision therein which violates Articles 14, 19 or 31.
In other words, if a law passed ostensibly to give effect to the policy of the State is, in truth and substance, one for accomplishing an unauthorised object, the Court would be entitled to tear the veil created by the declaration and decide according to the nature of the law.
The only question open to judicial review under_Article 31 C is whether there is a direct and reasonable nexus between the impugned law and the provisions of Article 39(b) and (c).
Reasonableness is evidently regarding the nexus and not regarding the law.
[554D, E, F, 555B, C] Kesavananda Bharati vs State of Kerala, [1973] Suppl.
SCR 1; Minerva Mills Ltd. vs Union of India, ; and Sanjeer Coke Mfg. Co. vs Bharat Coking Coal Ltd. & Anr.
, ; , relied on.
It is indisputed that the electric energy generated by the petitioner companies constitutes material resources of the community 552 within the scope and meaning of Article 39(b), and having regard to the true nature and the purpose of the legisla tions, reading the legislations entirely, the legislations have a direct and reasonable nexus with time objective of distributing the material resources so as to subserve the common good.
The determination of value thereof and the substitution of the book value in place of market value, are only methods for such acquisition and do not disclose the true nature and character of the legislation, but are inci dental provisions thereof.
if that is the position then it is incorrect to say that what was acquired, was not the material resources but chose in action.
The true nature and character of the legislations in question was to acquire the material resources, namely, the electric energy for better supply and distribution.
[556D, E, F] State of Tamil Nadu & Ors.
vs L. Abu Kavur Bai & Ors., , relied on.
Bihar State Electricity Board & Ors.
vs Patna Electrici ty Supply Co. Ltd., distinguished.
Having regard to the true nature and character of the legislations in question the legislations are not colourable legislations in the sense that there was no direct and reasonable nexus with Article 31(b) and (c) of the Constitu tion.
[556H]
|
ivil Appeal No. 500 of 1985.
From the Judgment and Order dated 25.7.1984 of the Customs Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal No. 923/81 A in Order No. 559/84 A. Soli J. Sorabjee, A.N. Haksar, Sanjay Grover and K.J. John for the Appellant.
G. Ramaswamy, Additional Solicitor General, Mrs. Indira Sawhney, Miss A. Subhashini and Mrs. Sushma Suri for the Respondent.
The Judgment of the Court was delivered by OZA, J.
This appeal involves the determination of the only question as to whether the appellant is entitled to refund of Rs.22,42,002.09 paid as excise duty on the price of packing material used for packing of superfine cement which according to the appellant was paid under protest whereas according to the respondent, it was not 717 paid under protest and therefore, the claim of refund is barred by time.
The brief facts necessary for determination are.
The appellant company is a manufacturer of superfine cement.
The company preferred the claim for refund of Rs.22,43,002.09 alleged to be duty on price of packing material of the aforesaid product paid during July 4, 1974 to March 1, 1975.
This claim of refund was rejected by Assistant Collector of Central Excise Tirunelveli on the ground that Rule 11 of the Central Excise Rules 1944 was applicable as duty was not paid under protest and the claim was barred by time.
On appeal, the Appellate Collector of Custom and Central Excise by the judgment dated February 7, 1981 maintained the order passed by the Assistant Collector on the same ground of limitation, as the merits of the claim was not disputed by the department.
This is clear from the following observa tions in the Appellate Collector 's order: "They based their claim on the Trade Notice No. 232/79 dated 29.10.79 of Madras Collector ate declaring that the said cement is not the variety of cement requiting packing to prevent deterioration, and the cost of packing of such cement is not liable to be included in the assessable value.
The ground on which the claim was made are not disputed in this ap peal.
" Thereafter, the appellant unsuccessful ly approached the Customs, Excise and Gold (Control) Appellate Tribunal.
Before the Tribunal also, only the question of limitation was put against the appellant.
The Tribunal by its order dated July 25, 1984 has stated: "Before us, the only question argued was the question of limitation.
It was urged that the letter dated 11.6.74 amounted to a protest so that the period of limitation prescribed in Rule 11 of the Rules ceased to be applicable.
" The Tribunal also took the view that the letter dated June 11, 1974 was not a protest to save the period of limi tation.
Hence this appeal.
718 We heard learned counsel for parties.
It is not in dispute that the duty was paid for the period from July 4, 1974 to March 1, 1975.
If it was paid under protest, the orders of the authorities cannot be sustained.
It is, there fore, necessary to refer to the contents of the letter dated June 11, 1974.
The letter raised many objections against the levy of packing charges.
It was stated that the duty on packing charges on superfine cement was not leviable.
The appellant finally said: "If the department feels that the duty is leviable on packing charges, we have no op tion, but to suggest the rates fixed by the Government of India from quarter to quarter, as packing charges.
" The counsel also referred to us the decision of the Central Government in the case of Birla Cement Works where a similar claim was allowed by order dated December 31, 1980.
Counsel further referred to us the Trade Notice dated Octo ber 29, 1979 issued by the Collectorate, Madras wherein it was clearly indicated that the costs of packing was not liable to be included in the assessable value.
Learned Additional Solicitor General frankly conceded that at the material time, there was no particular form prescribed for protesting against the levy or paying under protest.
He also contended that if the letter is treated as a protest and the payments are held to be payments under protest then the limitation prescribed under Rule 11 admit tedly would not be applicable, but the Trade Notice issued by the Madras Collectorate on October 29, 1979 could not be given retrospective effect and, therefore, the matter should go back to the Tribunal for disposal on other questions.
We gave our anxious considerations to the rival submis sions.
A perusal of the letter dated June 11, 1974 clearly shows that all possible contentions which could be raised against the levy of duty on the value of packing material were raised.
If this could not be said to be a protest one fails to understand what else it could be.
It does not require much time to analyse the contents of the letter.
An ordinary reading with common sense will reveal to anybody that the appellant was not accepting the liability without protest.
We have no hesitation to hold that the letter was in the nature of protest.
That being the position, the question of limitation does not arise for refund of the duty.
719 It is rather strange that learned Additional Solicitor General wants the matter to go back to the Tribunal for considering the effect of Trade Notice.
The Central Govern ment in their revisional order dated December 31, 1980 in the case of Birla Cement Works gave the benefit without any Trade Notice.
There it was observed: "In the circumstances Government accepted the petitioner 's pleas and observe that superfine cement is nothing other than ordinary portland which is grounded to a very high fineness of not less than 3500 CM 2/gm and that this higher fineness does not lead ' to its deterio ration without packing.
The Government, there fore, accept the contention of the petitioners and hold that the impugned good being capable of being sold without packing like ordinary gray portland cement the cost of packing for superfine cement should not be added to the assessable value.
" The authorities ought to have extended the view taken by the Central Government in the case of Birla Cement Works to all similar cases.
Moreover, the Appellate Collector and the Tribunal clearly stated that the only question agitated before them was the question of limitation.
The order does not indicate that the counsel for the Department or the departmental representative raised any other question on merits.
Indeed no objection could have been raised on the merits of the matter in view of the order of the Central Government in the Birla Cement Works.
In these circumstances, the appeal is allowed, the orders passed by the Tribunal and Other authorities are set aside.
It is declared that the appellant is entitled to refund of the amount.
The appellant shall be paid interest at the rate of six per cent from the date of refusal of refund with costs of this appeal quantified at Rs. 10,000.
N.P.V. Appeal al lowed.
| IN-Abs | The appellant Company, a manufacturer of superfine cement, preferred a claim for refund of duty on price of packing material of the product, paid by it during July 4, 1974 to March 1, 1974, on the ground that duty on packing charges on superfine cement was not leviable.
But the claim was rejected by the Assistant Collector of Central Excise, the Appellate Collector and also the Appellate Tribunal on the ground of limitation under Rule 11 of the Central Excise Rules, 1944, since the duty was not paid under protest.
The Tribunal also held that the letter dated July 11, 1974, in which the appellant had stated that the duty was not levi able on packing charges and if the department felt it was leviable they had no option but to suggest the rates fixed by Government from quarter to quarter as packing charges, was not a protest to save the period of limitation pre scribed in Rule 11.
In the appeal before this Court, on behalf of the Compa ny, it was submitted that a similar claim was allowed by the Central Government in the case of Birla Cement Works and that the Trade Notice dated 29.10.1979 by the Collectorate clearly stated that the cost of packing was not liable to be included in the assessable value.
While conceding that there was no particular form of protest, it was contended on behalf of the department that if the payments were held as made under protest, by treating the letter as a protest, then the period of limitation under Rule 11 of the Central Excise Rules, 1944 would not be applicable but the Trade Notice of 20.1.1979 could not be 716 given retrospective effect and, therefore, the matter had to be remitted to the Tribunal for disposal on other questions.
Allowing the appeal, HELD: The letter of the appellant clearly shows that all possible contentions which could be raised against the levy of duty on the value of packing material were raised, and that the appellant was not accepting the liability, without protest.
Therefore, the letter was in the nature of protest.
That being the position, the question of limitation does not arise for the refund of the duty.
i718 H] Giving the benefit without any Trade Notice in a similar case, the Central Government held, in their revisional order, that as superfine cement was capable of being sold without packing like grey portland cement, the cost of packing for superfine cement should not be added to the assessable value.
The authorities ought to have, therefore, extended this view to all similar cases.
[719A, D] In these circumstances, the appellant is entitled to refund of the duty paid by it.
[719F]
|
ivil Appeal No. 1357 of 1973.
From the Judgment and Order dated 10.10.1972 of the Gujarat High Court in Second Appeal No. 93 of 1968.
689 G.A. Shah and M.N. Shroff for the Appellants.
Krishan Kumar and Vimal Dave (N.P.) for the Respondents.
, The Judgment of the Court was delivered by VENKATARAMIAH, J.
The question for consideration in this case is whether the hereditary right of the respondents to recover a sum of Rs.3,500 per annum under an agreement dated 10.8.1914 entered into between the predecessor in interest of the respondents and the former princely State of Junagadh came to an end by virtue of provisions contained in the Gujarat Surviving Alienations Abolition Act, 1963 (hereinaf ter referred to as 'the Act ').
There was one Darbar Harsurvala of Mandavad in the former princely State of Junagadh.
He had a hereditary right to collect certain quantities of grass, fire wood and timber from the Gir Forest in the State of Junagadh and that right was recognised by a declaratory decree made by the Rajastha nik Court of Kathiawar in the year 1884.
On the death of Harsurvala the said right was being enjoyed by his son Jiva Vala till the year 1914.
On 10th August, 1914 an agreement was entered into between Jiva Vala and the State of Junagadh under which the State of Junagadh agreed to pay every year (commencing with 1st September of the preceding year and ending with the 31st August of the succeeding year) in the month of January a sum of Rs.3,500 to Jiva Vala and after him to the heirs claiming under him in lieu of the right to collect grass, fire wood and timber which was being exer cised by Jiva Vala.
Accordingly, Jiva Vala was receiving the sum of Rs.3,500 every year and on his death his son Kalubhai was receiving the said sum every year from the State of Junagadh and on the State of Junagadh becoming part of the Union of India from the Saurashtra State, then from the State of Bombay in which Saurashtra State was merged and thereafter from the State of Gujarat which came to be estab lished under the Bombay Reorganisation Act, 1960 till his death.
After his death Respondent No.1 Kamlaben, the wife of Kalubhai and the other respondents, who were children of Kalubhai were receiving the amount due to them till the year 1964.
However, in January, 1965 the Mamlatdar of Visavadar issued notice under the orders of the Collector, Junagadh to the respondents stating that the right to receive the said amount had come to an end on the coming into force of the Act, i.e., the Gujarat Surviving Alienations Abolition Act, 1963, which had come into force on 1st October, 1963 and threatening the respondents that measures such as attachment etc.
would be taken if the amount 690 paid for the year 1.9.1963 to 31.8.1964 was not refunded by them to the State Government.
Thereupon the respondents instituted the suit before the Court of the Civil Judge, Junagadh out of which this appeal arises for a declaration that they continued to enjoy the right to receive the sum of Rs.3,500 per annum hereditarily and for an injunction re straining the appellants, the State of Gujarat and the Collector of Junagadh from taking any action to recover the amount which had already been paid to them.
The Trial Court dismissed the suit.
Aggrieved by the judgment and decree of the Trial Court, the respondents filed an appeal before the District Judge, Junagadh in Civil Regular Appeal No. 135 of 1966.
The District Judge allowed the appeal holding that the right to receive the amount had not come to an end on the coming into force of the Act.
The decree passed by the learned District Judge was confirmed by the High Court of Gujarat in Second Appeal No. 93 of 1968 vide its Judgment dated 10.10.1972.
The appellants have filed this appeal by special leave against the judgment of the High Court.
There is no dispute about the facts involved in this case.
The right of Harsurvala to take grass, fire wood and timber from the Gir Forest belonging to the State of Juna gadh had been declared in a decree (Exhibit 21) passed by the Rajasthanik Court on April 14, 1884.
By a further agree ment dated 10th August, 1914 (Exhibit 24) which had been arrived at between Jiva Vala, descendant of Harsurvala and the State of Junagadh, the State of Junagadh had agreed to pay every year a sum of Rs.3,500 to Jiva Vala and his heirs in lieu of the right to collect grass, fire wood, timber from the Gir Forest, as stated above.
That the State of Junagadh and then the State of Saurashtra, the State of Bombay and the State of Gujarat were paying the said amount annually to Jiva Vala and his successors till the year 1964.
The only question which arises for consideration is whether the said right to receive Rs.3,500 per annum came to an end on the coming into force of the Act.
The Act was passed with the object of abolishing certain alienations which were not affected by the earlier enact ments which had been enacted for the abolition of various kinds of alienations in the State of Gujarat and to provide for matters consequential and incidental thereto.
The ex pression 'alienation ', as defined in clause (3) of section 2 of the Act reads thus: "3, 'alienation ' means 691 (a) any right in respect of an aghat land enjoyed by an aghat holder immediately before the appointed day, (b) any right in respect of a Taluqdari watan enjoyed by the holder thereof immediate ly before the appointed day, (c) any right, with or without any condition of service, in respect of any other land, village or portion of a village and consisting of (i) any proprietary interest in the soil coupled or not coupled with exemption from the payment of the whole or part of the land revenue, or (ii) a right only to the land revenue or a share of land revenue of the land, vil lage or portion of a village, enjoyed by the holder thereof for the time being and subsisting immediately before the appointed day in limitation of the right of the State Government to assess the land or village or portion of a village to land reve nue in accordance with the Code, whether by virtue of an express grant or recognition as a grant by the ruling authority for the time being or otherwise, or (d) any right to any cash allowance or allowance in kind, by whatever name called, payable by the State Government and enjoyed by any person immediately before the appointed day;" Section 6 of the Act reads thus: "6.
Abolition of alienations together with their incidents and alienated lands liable to payment of land revenue.
Notwithstanding any usage or custom, settlement, grant, agree ments, sanad or order or anything contained in any decree or order of a court or any law for the time being applicable to any alienation, with effect on and from the appointed day (a) all alienations shall be and are hereby abolished; (b) save as expressly provided by or under this Act, 692 all rights legally subsisting on the said day under such alienations and all other incidents of such alienations (including any right to hold office, or any liability to render serv ice appertaining to an alienation) shall be and are hereby extinguished; (c) subject to the other provisions of this Act, all alienated lands shall be, and are hereby made liable to the payment of land revenue in accordance with the provisions of the Code and the rules made thereunder; and accordingly the provisions therein relating to unalienated land shall apply to all alienated lands.
" On such abolition the alienee is entitled to compensation as provided in section 13 of the Act, if the alienation is one covered by section 2(3)(d) of the Act.
The right to receive a sum of Rs.3,500 per annum which the respondents were enjoying admittedly did not fall under sub clauses (a), (b) and (c) of clause (3) of section 2 of the Act.
The question is whether the said right falls under sub clause (d) of clause (3) of section 2 of the Act and if it falls under that clause whether the payment of the said sum can be abolished constitutionally under the Act.
Sub clause (d) of clause (3) of section 2 of the Act is very widely worded and refers to any right to any cash allowance or allowance in kind, by whatever name called, payable by the State Government and enjoyed by any person immediately before the appointed day.
The Act is included in the Ninth Schedule to the Constitution of India as Item No. 33 which reads thus: "33.
The Gujarat Surviving Alienations Aboli tion Act, 1963 (Gujarat Act XXXIII of 1963), except in so far as this Act relates to an alienation referred to in sub clause (d) of clause (3) of section 2 thereof." Sub clause (d) of clause (3) of section 2 of the Act having been specifically excluded, the said clause does not receive the protection of Article 31B of the Constitution of India.
The question which remains to be considered is wheth er the said sub clause can be deemed to be protected by Article 31A of the Constitution of India.
Article 3 IA of the Constitution of Indian refers to matters described in sub clauses (a) to (e) of Article 31A(1) of the Constitution of India.
It is not claimed 693 on behalf of the State Government that the present case falls under sub clauses (b) to (e) of Article 31A(1) of the Constitution of India.
It is, however, urged that the present case falls under sub clause (a) of clause (1) of Article 31A of the Constitution of India, which reads thus: "(a).
the acquisition by the State of any estate or of any rights therein or the extin guishment or modification of any such rights, or" In other words it is urged that the provision in question should be treated as a part of a legislation intended for bringing about agrarian reform to which Article 31A(1)(a) of the Constitution of India is attracted.
In the instant case the right which the family of the respondents possessed was the right to collect grass, fire wood and timber etc.
from the Git Forest and that right had already been surrendered under the agreement dated 10.8.1914 by the said family in lieu of the annual payment of Rs.3,500.
In an earlier deci sion in Civil Application No. 1399 of 1968 decided on 18/19.3.1971 a Division Bench (J.M. Mehta and A.D. Desai, JJ.) of the Gujarat High Court had held that sub clause (d) of clause (3) of section 2 of the Act was not ultra vires so far as the alienation in question was by way of an agrarian reform.
The judgment in that case had been delivered by J.M. Mehta, J. The Judgment out of which the present Second Appeal arises was also rendered by J.M. Mehta, J. himself.
Distinguishing his earlier decision from the present case J.M. Mehta, J. has observed thus: "In the present case the right of plaintiff has originated in the right to take forest produce of the Gir Forest belonging to the former Junagadh State and which had been enjoyed by the ancestor Shri Harsurvala.
The right was recognised by the Rajasthanic Court of the then Kathiawad Agency.
It was under the agreement, exhibit 24 dated August 10, 1914 that this right was commuted into a lump sum amount of Rs.3,500 and this was enjoyed hereditarily by the plaintiffs ' ancestor.
Therefore, this alienation has nothing to do with any agrarian reform and this alienation would not fall within the section 2(3)(d) so that it can have any immunity from the challenge.
The State could only succeed if the term 'alienation ' in section 2(3)(d) is interpreted in such wide context which would make it ultra vires as per the settled legal position in the aforesaid Divi 694 sion Bench decision.
That is why narrow inter pretation was given by me confining to only those alienations which were incidental to the agrarian reform.
The present alienation which consisted of cash allowance as per exhibit 24 is not incidental to any agrarian reform, and therefore, ,the Act would not abolish this alienation.
The plaintiffs ' rights are to take forest produce and on commutation of their rights by exhibit 24 they are property rights.
When such allowance is being paid the right to this cash allowance could never be acquired by the State as per the aforesaid settled legal position . ." In view of the foregoing the High Court held that sec tion 2(3)(d) of the Act should be read down and construed as not including payment of cash allowance of the type in question.
It held that otherwise the said clause would be violative of Articles 14, 19 and 31 of the Constitution of India.
It is not disputed by the learned counsel for the State Government that unless the present case receives the protec tion of Article 3 IA of the Constitution of India the action taken by the State Government to treat the right of the respondents as having come to an end would be unconstitu tional since it would be violative of Articles 14, 19 and 31 of the Constitution of India.
It is, therefore, necessary to examine the nature of the transaction under which the amount of Rs.3,500 was payable every year to the respondents on the hereditary basis in order to find out whether the abolition of the said right can be considered as a part of agrarian reform which re ceives the protection of Article 31A of the Constitution of India.
An extract of the Records of Rights giving particu lars of the agreement dated 10th August, 19 14 entered into between Vala Jiva Harsur and the State of Junagadh is pro duced before the Court.
It shows that Vala Jiva Harsur, the predecessor in interest of the respondents had the right to remove from the Gir Forest every year (i) 75 cart loads of teak wood, (ii) 100 cart loads of atcot wood, (iii) 600 cart loads of sarpan, and (iv) 250 cart loads of grass, in addi tion to the right of grazing of cattle and removing two lakhs bundles of grass during the time of famine.
It is clear from the above statement that certain rights which the family of respondents possessed in the land comprised in the Gir Forest were agreed to be surrendered against payment of Rs.3,500 annually.
It is no doubt true that long before the date on which the Act came into force the agreement had come into existence but it was a 695 right which was originally annexed to land.
It may be that the said land formed part of the said forest, but still it falls within the definition of the expression 'estate ' in clause (a) of Article 31A(2) of the Constitution of India.
Article 31A(2)(a)(iii) states that any land held or let for purposes.
of agriculture or for purposes ancillary thereto, including waste land, forest land for pasture or sites of buildings and other structures occupied by cultivators of land, agricultural labourers and village artisans is includ ed in the expression 'estate ' for purposes of Article 3 IA of the Constitution of India.
Article 3 IA, as it stood on the date of the passing of the Act, provided that notwith standing anything contained in Article 13, no law providing for the acquisition by the State of any estate or of any rights therein or the extinguishment or modification of any such rights shall be deemed to be void on the ground that it was inconsistent with or took away or abridged any of the rights conferred by Article 14 or Article 19 or Article 31 of the Constitution of India.
The expression 'rights ' is again defined in Article 31A(2) of the Constitution of India as in relation to an estate, including any rights vesting in a proprietor, sub proprietor, underproprietor, tenure hold er, raiyat, under raiyat or other intermediary and any rights or privileges in respect of land revenue.
It is an inclusive definition.
The Fight which was being enjoyed by the predecessor ininterest of the respondents was a right in a waste land or a forest land or a land for pasture.
In order to .treat a particular law as a part of an agrarian reform, it is not necessary that on the land which is the subject matter of the said law actual cultivation should be carried on.
In the State of Kerala and Anr.
vs The Gwalior Rayon silk Manufacturing (Wvg.) Co. Ltd. etc.
; , the.
constitutionality of the Kerala Private Forests (Vesting and Assignment) Act, 1971 came up for consideration before this Court.
In that case one of the questions which arose for consideration was whether the said Act which related to private forests envisaged a scheme of agrarian reform.
In that case this Court held that even though the said legislation had the effect of extinguishing or modifying rights annexed to or arising out of the forest land it could be considered as part of agrarian reform because such forest lands also if prudently and profitably exploited could bring about relief to people engaged in agriculture.
This Court further observed in that case that agrarian reform was more humanist than mere land reform and scientifically viewed covered not merely abolition of inter mediary tenures, zamindaris and the like but restructuring of village life itself taking in its broad embrace the socia economic regeneration of the rural population.
In the present case the extinguishment of the right to receive a certain amount in lieu of the right to remove timber, grass, etc.
from a forest area, therefore, formed part 696 of the process of agrarian reform as there was clear nexus between the agreement to pay the amount and the rights arising out of the forest area.
It is significant that under the agreement of the year 1914 the State of Junagadh under took to pay Rs.3,500 every year hereditarily in lieu of the rights which the predecessor in interest of the respondents had in the forest area, thereby meaning that if the amount was not paid, the original right to carry timber, grass etc.
from the forest area would revive.
It cannot, therefore, be said that the extinguishment of the right to receive money alone unconnected with land was contemplated in the instant case.
When once the above conclusion is reached then the legislation in question should be construed as having the effect of bringing about the extinguishment of the right in an estate for the purpose of better management of the forest area keeping in view the interests of the people of the State in general and of the people living in or around the Gir Forest in particular.
Sub clause (d) of clause (3) of section 2 of the Act should be deemed to include the cash allowance of the type involved in this case and the Act must be held to be valid even though it affects the rights of the respondents which undoubtedly originated from the land covered by the forest area.
We, therefore, hold that the view taken by the High Court that it the transaction in question is construed as covered by sub clause (d) of clause (3) of section 2 of the Act, the Act would become void to that extent is not correct.
We are of the view that the legislation has the effect of validly extinguishing the right of the respondents to receive annually a sum of Rs.3,500 on a hereditary basis.
The respondents are entitled to the payment of whatever compensation is payable under the Act notwithstanding the provisions of Articles 14 and 19 and Article 31 of the Constitution of India (as it existed prior to its deletion).
We, therefore, set aside the judgment of the High Court and dismiss the suit instituted by the respondents.
We, however, make it clear that the dismissal of the suit does not come in the way of the respondents being paid whatever compensation they are entitled to under the Act.
If such compensation has not been paid yet, the authority concerned shall proceed to compute the amount of compensation payable to the respondents and to disburse it within three months from today.
The appeal is accordingly allowed.
No costs.
R.N.J. Appeal allowed.
| IN-Abs | One Darbar Harsurvala by virtue of a declaratory decree made in 1884 had the hereditary right of collecting grass, firewood, timber etc.
from Gir Forest in the erstwhile state of Junagarh.
This right devolved on his son Jiva Vala.
The State by an agreement dated 10th August 1914 agreed to pay Rs.3,500 every year to Jiva Vala and on his demise to his heirs, in lieu of the right to collect grass, firewood etc.
In January 1965 the revenue authorities issued a notice to the Respondents successors in interest of Harsurvala that the right to receive the aforesaid amount had come to an end on the coming into force of the Gujarat Surviving Alienations Abolition Act, 1963 and asked them to refund the amount paid to them for the year 1963 64.
The respondents filed a de claratory suit for a declaration that they continued to enjoy the right to receive Rs.3,500 hereditarily and for an injunction restraining the State from recovering the amount already paid to them.
The Trial Court dismissed the suit.
On appeal the District Judge allowed the appeal holding that the right to receive the amount annually had not come to end.
The High Court confirmed the decree passed by the District Judge.
The State came up in appeal by special leave against that judgment of the High Court.
Allowing the ap peal, this Court.
HELD: The Gujarat Surviving Alienations Abolition Act, 1963 was passed with the object of abolishing certain alien ations which were not affected by the earlier enactments which had been enacted for the abolition of various kinds of alienations in the State of Gujarat.
[690G] 688 The Act is included in the Ninth Schedule to the Consti tution as Item No. 33.
[692F] Sub clause (d) of clause (3) of section.
2 of the Act having been specifically excluded, the said clause does not receive the protection of Article 31 B of the Constitution of India.
[692G] The 1963 Act should be construed as having the effect of bringing about the extinguishment of the right in an estate for the purpose of better management of the forest area keeping in view the interests of the people of the State in general, and of the people living in or around the Gir Forest, in particular.
[696C] In order to treat a particular law as a part of an agrarian reform contemplated under article 31 A(1) it is not necessary that on the land which is the subject matter of the said law actual cultivation should be carried on.
[695E] In the instant case, the right which the family of the respondents possessed was the right to collect grass, fire wood and timber etc.
from the Gir Forest and that right had already been surrendered under the agreement dated 10 8 1914 by the said family in lieu of the annual payment of Rs.3,500.
The right which was being enjoyed by the predeces sor in interest of the respondents was a pasture.
[693C D] The extinguishment of the right to receive a certain amount in lieu of the right to remove timber, grass, etc.
from a forest area, therefore, formed part of the process of agrarian reform contemplated under article 31 A(1) as there was clear nexus between the agreement to pay the amount and the rights arising out of the forest area.
[695H; 696A] The respondents are entitled to the payment of whatever compensation is payable under the Act notwithstanding the provisions of Article 14 and 19 and Articles 31 of the Constitution of India.
[696E F] State of Kerala & Anr.
vs The Gwalior Rayon Silk Manu facturing (Wvg.) Co. Ltd. etc.
; , referred to.
|
ivil Appeal No. 575 (NT) of 1975.
From the Judgment and Order dated the 24.4.1973 of the Calcutta High Court in Income Tax Reference No. 202 of 1969.
B. Ahuja and Ms. A. Subhashini for the Appellant.
K.P. Bhatnagar, S.P. Mittal and B.P. Maheshwari for the Respondent.
The Judgment of the Court was delivered by PATHAK, CJ.
This appeal by special leave is directed against the judgment of the High Court at Calcutta answering the following question in favour of the assessee and against the Revenue: "Whether, on the facts and in the circum stances of the case, the share of profit of the assessee 's wife was includable in the total income of the assessee under section 64(1)(iii) of the Income Tax Act, 1961?" 739 The assessee was assessed in the status of an individual for the assessement year 1962 63 corresponding to the previ ous year 26 March, 1961 to 13 April, 1962.
At the material time the assessee was a partner in a firm, Messrs Ramesh and Co., with a share of eight annas therein.
The balance was shared by three other partners, the assessee 's father, Kunjilal Agarwala, the assessee 's brother, Hariram Agarwala and a stranger, Jagdish Prasad.
On 10 November, 1960 and on 28 November, 1960 the assessee made two gifts of Rs.21,000 and Rs.30,000 respectively to his wife, Kaushalya Devi, from his account in the firm.
On 28 November, 1960 he made anoth er gift of Rs. 11,000 to his mother Chili Bai from that account.
It may be observed that Chili Bai received another gift of Rs.20,000 from her husband, Kunjilal, effected by similarly drawing from his account with the firm.
The assessee 's wife, Kaushalya Devi, as well as his mother Chili Bai became partners with three other persons in a newly constituted firm, Messrs Kunjilal Hariram & Co. The three other partners were the assessee 's grand father, Moharilal Agarwala, the assessee 's brother, Hariram Agarwala and the stranger, Jagdish Prasad Gup.
The Partnership Deed dated 10 November, 1960 provided that the business was to commence from 12 November, 1960.
The preamble to the deed stated: "Whereas the partner of the Fifth Part who has extensive experience and outstanding talent of organisation in Jagree and Grains Trade but little finance requested the partners of the First four Parts to enter into co partnership with him on contributing the necessary finance to carry on business in Jagree and Grains and also act as Commission Agents in Jagree Grains and allied commodities to which request they acceded." Clause 4 of the Partnership Deed stipulated: "That the partners of the First Four Parts shall initially contribute Rs.25,000 each to be put in within six months from the commence ment of the partnership.
The said contribu tions augmented by further deposits and prof its or depleted by withdrawals and tosses shall carry interest at the rate of 6% per annum.
The amount if any, standing to the credit of the partner of the Fifth Part shall carry interest at the same rate." 740 On 12 November, 1960 Kaushalya Devi contributed Rs.21,000 as capital, which came out of the gift made by the assessee on 10 November, 1960.
She also contributed Rs.30,000 as capital, which amount came out of the gift made on 28 November, 1960.
In the course of assessment proceedings for the assess ment year 1962 63 in respect of the assessee the Income Tax Officer included the profits of the assessee 's wife from the firm, Messrs. Kunjilal Hariram & Co., under section 64(1)(iii) of the Income Tax Act, 1961.
An appeal by the assessee was dismissed by the Appellate Assistant Commissioner of Income Tax, who observed that the wife would not have become a partner of the firm unless she had contributed capital, and as the capital was provided by the husband the inclusion of the wife 's share of income in the assessment of the assessee was justified.
In second appeal, it was conceded by the assessee before the Income Tax Appellate Tribunal that the interest received by the assessee 's wife on her capital contribution to the firm was includible in the total income of the assessee, but it was contended that the balance of the share of profit was not so includable as the assessee 's wife had become a part ner in the firm in her own right, and it was immaterial that the capital invested by her had been provided as a gift by the assessee.
The Appellate Tribunal found that the admis sion of the assessee 's wife as partner in the firm was solely on account of her contribution of capital to the firm, that the assets in the form of cash were transferred directly by the assessee to his wife otherwise than for adequate consideration, and that the income must be said to have arisen indirectly from the assets transferred.
The second appeal was dismissed.
At the instance of the assessee the question of law set forth earlier was referred to the High Court at Calcutta for its opinion.
The High Court has taken the view that the share of profits arose to the assessee 's wife primarily because the partnership made a profit and although it had connection with the gift it did not arise as a result of the gift, that the income arose from the share of profits only because the other partners agreed to take the assessee 's wife as partner and was allowed to contribute to the partnership firm, that the admission of the assessee 's wife to the partnership was not in consequence of the gift, and that, therefore, upon all those circumstances, the connection between the income of the share of profits and the gifts by the assessee to his wife was too remote to be included within the provisions of section 64(1)(iii) of the Income Tax Act.
741 S.64(1)(iii) of the Income Tax Act, 1961, as it stood at the relevant time, provides: "64(1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly (i) xx xx xx (ii) xx xx xx (iii) subject to the provisions of cl.
(i) of section 27, to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connec tion with an agreement to live apart.
" The income may arise directly or indirectly, but there must be a proximate connection between the accrual of the income and the assets transferred by the assessee.
In Commissioner of Income tax, West Bengal 111 vs Prem Bhai Parekh and Others, this Court held that the income of minor sons, who had invested capital in the firm out of moneys gifted to them by their father (the assessee) could not be included in the assessment of the assessee.
The Court observed: "Before any income of a minor child can be brought within the scope of section 16(3)(a) (iv), it must be established that the said income arose directly or indirectly from assets transferred directly or indirectly by his father.
There is no dispute that the assessee had transferred to each of his minor sons, a sum of Rs.75,000.
It may also be that the amount contributed by those minors as their share in the firm came from those amounts.
But the question still remains wheth er it can be said that the income with which we are concerned in this case arises directly or indirectly from the assets transferred by the assessee to those minors.
The connection between the gifts mentioned earlier and the income in question is a remote one.
The income of the minors arose as a result of their admission to the benefits of the partnership.
It is true that they were admitted to the 742 benefits of the partnership because of the contribution made by them.
But there is no nexus between the transfer of the assets and the income in question.
It cannot be said that income arose directly or indirectly from the transferor the assets referred to earlier.
Section 16(3) of the Act created an artificial income.
That section must receive strict construction as observed by this court in Commissioner of Income tax vs Keshavlal Lal lubhai Patel, In our judgment before an income can be held to come within the ambit of section 16(3), it must be proved to have arisen directly or indirectly from a transfer of assets made by the assessee in favour of his wife or minor children.
The connection between the transfer of assets and the income must be proximate.
The income in question must arise as a result of the transfer and not in some manner con nected with it.
" It seems to us that the observations of this Court in that case fully cover the case before us.
There is no doubt that the wife became a partner because of the capital contributed by her in the firm, but, as observed by the High Court, in the judgment under appeal, it was upon agreement by the remaining partners that she became a member of the partner ship.
The mere contribution of the capital by the wife into the firm would not automatically have entitled her to part nership in the firm.
The partnership was based on agreement, and it is the event of agreement between the partners that brought the assessee 's wife into the firm as partner.
Learned counsel for the Revenue relies on Commissioner of Income tax, Bangalore vs J.H. Gotla, ; Commissioner of Income tax, Assam Tripurn and Manipur vs Jwalaprasad Agarwala, ; V.D. Dhanwatey vs Commissioner of Income tax, Madhya Pradesh, Nagpur and Bhandara, and Smt.
Mohini Thapar vs Com missioner of ' Income tax (Central), Calcutta, and Others, but we are not satisfied that those cases are of assistance to the Revenue.
Reliance was placed on Potti Veerayya Sresty vs Commissioner of Income Tax, A.P., where the Andhra Pradesh High Court upheld the inclusion of the wife 's income from cloth business carried on by her, into which cloth business she had invest ed a portion of the assets transferred by the assessee.
It is sufficient to observe that the cloth business was her own business and, as the High Court pointed out, there was no necessity to depend upon the agreement of others.
It is on that basis that the High Court distinguished Prem Bhai Parekh 's case (supra).
743 We are of the view that the High Court is right in answering.
the . question referred to it in the negative, in favour of the assessee and against the Revenue.
In the result the appeal fails and is dismissed with costs.
R.S.S. Appeal dismissed.
| IN-Abs | The respondent assessee was one of the partners In a firm in which the five other partners were his wife, mother, grand father, brother, and a stranger.
His wife had contrib uted Rs.51,000 as capital in the firm, which amount came out of two gifts made to her by the assessee.
in the course of assessment proceedings for the assessment year 1962 63 in respect of the assessee, the Income Tax Officer included the profits of the assessee 's wife from the firm, under section 64(1)(iii) of the Income Tax Act, 1961.
The.assessee 's appeal was dismissed by the Appellate Assistant Commissioner who observed that the wife would not have become a partner of the firm unless he had contributed capital which was provided by the husband.
The Appellate Tribunal, while dismissing the second appeal of the assessee, found that the admission of the assessee 's wife as a partner in the firm was solely on account of her contribution of capital to the firm.
It was conceded by the assessee before the Tribunal that the interest received by the assessee 's wife on her capital contribution to the firm was includible in the total income of the assessee.
The High Court, while answering the question referred to it in favour of the assessee, took the view that the income arose from the share of profits only because the other partners agreed to take the assessee 's wife as partner and she was allowed to contribute to the partnership firm, and that the admission of the assessee 's wife to the partnership was not in consequence of the gift.
Dismissing the Revenue 's appeal, it was HELD: (1) The income may arise directly or indirectly, but for application of the provisions of section 64(1)(iii) of the Income Tax Act, 738 1961 there must be a proximate connection between the accru al of the income and the assets transferred by the assessee.
[741D] Commissioner of Income tax, West Bengal 111 vs Prem Bhai Parekh, followed.
(2) The mere contribution of the capital by the wife into the firm would not automatically have entitled her to partnership in the firm.
The partnership was based on agree ment, and it is the event of agreement between the partners that brought the assessee 's wife into the firm as partner.
[742E] Commissioner of Income tax, Bangalore vs J.H. Gotla, ; Commissioner of Income tax, Assam, Tripura and Manipur vs Jwalaprasad Agarwala, ; V.D. Dhanwatey vs Commissioner of Income tax, Madhya Pradesh, Nagpur and Bhandara, ; Smt.
Mohini Thapar vs Commissioner of Income tax (Central), Calcutta, ; Potti Veerayya Sresty vs Commissioner of Income tax, A.P., distinguished.
|
vil Appeal Nos. 208 and 209 (NT) of 1975.
From the Judgment and Order dated 4th August, 1971 of the Andhra Pradesh High Court in Reference Case No. 12 of 1968.
K.B. Rohtagi for the Appellant.
V. Gauri Shankar and Ms. A. Subhashini for the Respondent.
The Judgment of the Court was delivered by PATHAK, CJ.
These appeals by special leave are directed against the judgment of the High Court of Andhra Pradesh answering the following two questions of law in favour of the Revenue and against the assessee: 1.
Whether the Tribunal was right in hold ing that the re assessments being only conse quent on a change as to the method of computa tion of the profits the initiation of proceed ings under section 148 for each of the assessment years 1959 1960 and 1960 61 was justified? 2.
Whether the Tribunal was right in law in holding that the original assessment for each of the years having been made on the agents, the re assessment proceedings could not be initiated against the assessee direct? The appellant assessee is a non resident sterling compa ny whose business consists in the purchase of tobacco from India and its sale outside.
The tobacco is sold directly on the assessee 's own account and for commission on behalf of others.
The purchases of tobacco were 734 effected through the British India Corporation Ltd., Guntur, who were appointed agents of the assessee under section 43 of the Indian Income tax Act, 1922.
For the assessment years 1959 60 and 1960 61, the agents filed returns of income on behalf of the assessee.
The Income tax Officer, Guntur, after examining the balance sheet and profit and loss account of the assessee for the relevant previous years, the calendar years 1958 and 1959, completed the assessments under section 23(3) of the Indian Income tax Act, 1922.
For the year 1.958 the gross profit on the sale of Indian tobacco, including commission, was shown in the balance sheet and profit and loss account of the assessee at 11,108.
As the assessee carried on business not only in India but in other places, the Income Tax Officer worked out the proportionate overhead expenses of the assesse for its business in India at L16,760 taking the total sales of tobacco at L534031 and the sales of Indian tobacco at L448590.
The Income Tax Officer comput ed the loss at L5652, and one half of this amount namely L2826 (Rs.37680) was taken as the adjusted loss, being the percentage attributable to the purchasing operation in India.
On the same basis for the assessment year 1960 61, after setting off the income against the previous loss, the total loss was found to be Rs.96,482.
Subsequently, in the course of assessment proceedings for the assessment year 1962 63, the Income Tax Officer appears to have noticed that a mistake had been committed in the computation of the over head expenditure.
The return filed on behalf of the assessee for that year had disclosed that the over head expenses were attributable to the entire business of the assessee, including the business as commis sion agents, and not merely for the business of purchase and sale of tobacco.
The Income Tax Officer believed that he ought to have first computed the proportionate overhead expenses in relation to the total profits by taking the proportion which the profits bore to the total of profits and commission, and then worked out the proportionate over head expenses for the profits arising out of the Indian sales.
On that basis he determined that the adjusted profits would be L160 (Rs.2253), and this would have to be substi tuted in place of the loss of Rs.37,680 arrived in the original assessment, Similarly for the assessment year 1960 61 the Income Tax Officer realised that the original assessment would have to be varied accordingly.
In the opinion that income had escaped assessment for the two assessment years 1959 60 and 1960 61, he issued notices on 18 January, 1964 under section 148 of the Income Tax Act, 1961 to the statutory agents.
The agents contested the validity of the notices and contended that in view of section 149(3) of the Act no notice of re assessment could be served on the agent of a non resident assessee after the expiry of two years from the end of the relevant assess 735 ment year.
The Income Tax Officer upheld the objection and dropped the proceedings.
Thereupon the Income Tax Officer issued notice under section 148 for the two assessment years directly to the assessee to their London address on 29 February, 1964.
The assessee filed returns on 19 August, 1964 for both the years under protest, contending that it could not be served with those notices inasmuch as the Income Tax Officer had already, proceeded against its agents.
The Income Tax Officer reject ed the objections and made re assessments on the assessee for the two assessment years.
The appeals filed by the assessee before the Appellate Assistant Commissioner were dismissed, but in second appeal the Income Tax Appellate Tribunal took the view that the re assessments proceeded on a mere change of opinion on the part of the Income Tax Officer and, therefore, were without jurisdiction, and further as the assessments had been made originally on the agents it was not open to the Income Tax Officer to proceed directly against the assessee.
According ly, the Appellate Tribunal allowed the appeals and set aside the re assessments made on the assessee.
At the instance of the Revenue, the Appellate Tribunal referred the two questions of law set forth earlier to the High Court of Andhra Pradesh for its opinion.
On the first question the High Court held that it was not a mere change of opinion on the part of the Income Tax Officer pursuant to which he made the re assessments, but that the Income Tax Officer had received information subsequent to the original assessments from the records of the subsequent assessment year that the overhead expenses related to the entire busi ness, including the business as commission agents, and not merely to the business of the purchases and sales of tobac co.
On the second question the High Court held that there was nothing to prevent the Income tax Officer, when he found that re assessment proceedings could not be taken against the agents, from proceeding directly against the assessee and re assessing it for the two assessment years.
Two points have been urged before us by learned counsel for the assessee.
It is contended that the Income Tax Offi cer has no jurisdiction to take proceedings under sections 147 and 148 of the Income tax Act because the conditions pre requisite for making the reassessments were not satisfied.
The re assessments were made with reference to cl.
(b) of section 147 of the Act, and apparently the Income Tax Officer pro ceeded on the basis that in consequence of information in his possession he had reason to believe that income charge able to tax had 736 escaped assessment for the two assessments years.
From the material before us it appears that the Income Tax Officer came to realise that income had escaped assessment for the two assessment years when he was in the process of making assessment for a subsequent assessment year.
While making that assessment he came to know from the documents pertain ing to that assessment that the overhead expenses related to the entire business including the business as commission agents and were not confined to the business of purchase and sale.
It is true, as the High Court has observed, that this information could have been acquired by the Income Tax Officer if he had exercised due diligence at the time of the original assessment itself.
It does not appear however, that the attention of the Income Tax Officer was directed by anything before him to the fact that the overhead expenses related to the entire business.
The information derived by the Income Tax Officer evidently came into his possession when taking assessment proceedings for the subsequent year.
In the circumstances, it cannot be doubted that the case falls within the terms of cl.
(b) of section 147 of the Act, and that, therefore, the High Court is right in holding against the assessee.
The second point urged before us is that when the Income tax Officer had taken the assessment proceedings against the Indian agent of the assessee it was not open to him to take assessment proceedings against the assessee.
It is open to an Income Tax Officer to assess either a non resident asses see or to assess the agent of such nonresident assessee.
It cannot be disputed also that if an.
assessment is made on one there can be no assessment on the other, and therefore, in this case if the assessment had been made on the Indian agent the assessment could not have been made on the asses see.
However, the facts show that the re assessment proceed ings commenced on the agent were found to be barred by time by reason of section 149(3) of the Act.
The issue of notice under section 148 of the Act to the agent after the expiry of two years from the end of the relevant assessment year is prohibited by the statute.
The Income Tax Officer dropped the proceed ings when he was made aware of that prohibition.
The assess ment proceedings taken by him against the agent have to be ignored and cannot operate as a bar to assessment proceeding directly against the assessee.
On this point also the High Court has taken the correct view when it answered the ques tion in favour of the Revenue.
In the result the appeals fail and are dismissed with costs.
N.P.V. Appeals dismissed.
| IN-Abs | The appellant assessee, a non resident sterling company, carrying on business of purchase and sale of tobacco, on its own and for commission, effected purchases through its Indian agents.
The agents filed returns of income on behalf of the assessee for the assessment years 1959 60 and 1960 61.
The Income tax Officer completed the assessment to tax under section 23(3) of the Indian Income tax Act, 1922.
However, in the course of assessment proceedings for the assessment year 1962 63, the Income tax Officer noticed that there was a mistake in computing the overhead expenditure.
Therefore, in the opinion that income had escaped assessment for the two assessment years he issued notices to the statu tory agents, under section 148 of the Income tax Act, 1961, but dropped the proceedings, upon the agents ' objection to the issue of the notice of reassessment on the agent of a non resident assessee after the expiry of two years from the end of the relevant assessment year.
Thereupon the Income Tax Officer issued notice directly to the assessee.
The assessee filed returns for both the years under protest.
Rejecting the assessee 's contention that it could not he served with the notices since its agents had already been proceeded against, the Income Tax Officer made reassessments on the assessee for the two assessment years.
The appeals filed by the assessee were dismissed by the Appellate Assistant Commissioner.
In second appeal, the Income Tax Appellate Tribunal held that the reassessments were without jurisdiction, as they were proceeded on a mere change of opinion of the Income Tax Officer and that the assessee could not he proceeded against directly as the 732 assessments were made originally on the agents.
On a reference made at the instance of the Revenue, the High Court held that reassessments were not made due to a mere change of opinion of the Income Tax Officer, but pursu ant to information received subsequent to the original assessments from the records of the .
subsequent assessment year that the overhead expenses related to the entire busi ness, including the business as commission agents, and not merely to the business of purchase and sale of tobacco, and that there was nothing to prevent the Income Tax Officer from proceeding directly against the assessee and re assess ing it for the two assessment years, when he found that reassessment proceedings could not be taken against the agents.
In the appeal before this Court, on behalf of the asses see, it was contended that the Income Tax Officer had no jurisdiction to take proceedings under sections 147 and 148 of the income tax Act because the conditions pre requisite for making the reassessments were not satisfied, and it was not open to the Income Tax Officer to take assessment proceed ings against the assessee when he had taken assessment proceedings against the Indian agent.
Dismissing the. appeals, HELD: 1.
The Income Tax Officer came to realise that income had escaped assessment for the two assessment years when he was in the process of making assessment for a subse quent assessment year.
While making that assessment, he came to know from the documents pertaining to that assessment that the overhead expenses related to the entire business, including as commission agents, and not confined to the business of purchase and sale.
The attention of the Income Tax Officer was not directed by anything before him at the time of original assessment to the fact that the overhead expenses related to the entire business.
In the circum stances, there is no doubt that the case fails within the terms of cl.
(b) of section 147 of that Act and there was justi fication for initiating the proceedings for reassessment for the two assessment years in question.
[736A D] 2.
It is open to an Income Tax Officer to assess either a non resident assessee or the agent of such non resident assessee.
But if an assessment is made on one there can be no assessment on the other.
[736E] 733 Therefore, in the instant case, if the assessment had been made on the Indian agent, the assessment could not have been made on the assessee.
However, the reassessment pro ceedings commenced on the agent were barred by time by reason of section 149(3) of the Act.
The issue of notice under section 148 of the Act to the agent after the expiry of two years from the end of the relevant assessment year is prohibited by the statute.
Hence, the assessment proceedings against the agent have to be ignored, and cannot operate as a bar to assessment proceeding directly against the assessee.
[736F G]
|
ivil Appeal No. 2488 of 1989 etc.
From the Judgment and Order dated 24.1.
1989 of the Bombay High Court in Appeal No. 67 of 1989.
G. Ramaswamy, Additional Solicitor General, A.M. Khan wilkar and A.S. Bhasme for the Appellant.
T.R. Andhrujina, R.F. Nariman, Mrs. K.K. Pradhan, R. Karanjawala, Mrs. Manik Karanjawala, H.S. Anand, P.B. Agar wal, P.G. Gokhale, R.B. Hathikhanawala, K.R. Nagaraja, R.S. Hegde, section Menon, M.C. Shah, Madan Lokur, Adur Sanjay Vasant, and Mrs. Urmila Sirur for the Respondents.
Mrs. Kitty Kumaramangalam, Kailash Vasdev, Ms. Vijaylax mi and S.P. Pandey for the Intervener.
The Judgment of the Court was delivered by DUTT, J.
Special leave is granted in all these matters.
Heard learned Counsel for the parties.
These appeals preferred by the State of Maharashtra involve the question as to the admission in the MBBS Course in the Medical Colleges in the State of Maharashtra.
In the city of Bombay, there are three Medical Colleges run by the Municipal Corporation of Greater Bombay.
Besides the said three Municipal Colleges, there is another College in Bom bay, namely, Grant Medical College, which is a Government College run by the Government of Maharashtra.
712 Shorn of all details, it may be stated that after pro viding for 15 per cent of seats under the All India Quota and the seats which are to be reserved under Article 15 of the Constitution of India, the Government of Maharashtra laid down a policy of reservation of 70 per cent of the remaining seats for the local students in the city of Bombay and 30 per cent of seats for the students outside Bombay within the State of Maharashtra.
Certain students feeling aggrieved by the said method of filling up of the seats in the MBBS Course in the said Medical Colleges in the city of Bombay moved writ petitions before the Bombay High Court.
A learned Single Judge of the High Court took the view that it was not proper on the part of the State Government to first of all fill up the 70 per cent of the seats out of the local Bombay students and thereafter the remaining 30 per cent of seats from amongst the students residing outside Bombay.
The learned Single Judge, however, gave no specific direction as to the admis sion of the writ petitioners, but left it to the State Government for the purpose.
The State of Maharashtra pre ferred a Letters Patent Appeal to the Division Bench of the High Court.
The said appeal was summarily dismissed by the Bench holding that the two points urged by the Assistant Government Pleader appear to be quite frivolous.
The writ petitioners also preferred Letters Patent Appeals before the Division Bench.
From time to time, the Bench passed some orders.
The only order which is relevant for the purpose of these appeals is dated February 8, 1989.
By that order, the Division Bench of the High Court directed creation of 5 additional seats in each of the three Municipal Colleges and 4 additional seats in the Government Medical College, that is, in all, 19 additional seats.
Certain directions were also given by the said order for admission of students in those additional seats and also the seats under the All India Quota.
It has been strenuously urged by Mr. G. Ramaswamy, learned Additional Solicitor General appearing on behalf of the State of Maharashtra, that the High Court was not justi fied in directing that the 30 per cent of seats meant for the candidates outside Bombay to be filled in before the 70 per cent of seats are filled in by local candidates.
It may be stated at this stage that by virtue of the judgment in the case of Nidamarti Maheshkumar vs State of Maharashtra and others; , relating to admission in Medi cal Colleges in Maharashtra, the State of Maharashtra laid down the policy of regional reservation of 70 per cent of seats for the region of Bombay and the remaining 30 per cent of seats for the candidates outside Bombay but within the State of Maharashtra.
It has already been noticed that the High Court 713 iS Of the view that the 30 per cent of seats should have been filled up first and, thereafter, 70 per cent of region al seats should have been filled up.
We have not been able to understand the reason for this view of the High Court.
If 30 per cent of seats are filled up first, the candidates who are residing outside Bombay will have to compete with the local Bombay students who are also eligible for admission in the said seats.
It may so happen that most of the seats meant for candidates outside Bombay may be filled up by the local Bombay candidates.
If, however, 70 per cent of seats are filled up first, the more meritorious Bombay students would be admitted and those, who would not be admitted, would obviously be candidates obtaining lesser marks and it will not be difficult for the outside candidates to compete with them for the said 30 per cent of seats.
The question whether 70 per cent of seats or 30 per cent of seats should be filled up first is a question which should be left to the discretion of the Government.
In our opinion, this aspect is not within the purview or the jurisdiction of the Court.
We do not find any unreasonableness or impropriety in the State Government 's decision to fill up 70 per cent of seats first.
The High Court was not, therefore, justified in directing admission on the basis of filling up 30 per cent of the seats first and, thereafter 70 per cent of seats and such direction has created some complications in the matter.
There is considerable force in the contention of Mr. Ramaswamy that the High Court was also not justified in directing creation of additional seats.
The additional seats can be created only if the Indian Medical Council approves of such creation.
In the instant case, the Indian Medical Council has vehemently opposed before us the creation of the additional seats.
There is also the question of bearing the cost of creation of additional seats.
The High Court, in our opinion, should not have directed the creation of additional seats.
In exceptional circumstances and for ends of justice, the Court may direct the creation of one or two seats after giving the Indian Medical Council an opportunity of being heard, but surely the Court should not direct the creation of so many additional seats when neither the Government nor the Indian Medical Council consents to such creation.
In the circumstances, it is difficult to sustain the impugned judgment of the High Court.
We are told by the learned Additional Solicitor General that 4 seats in the Grant Medical College in Bombay and 34 seats in the other Medical Colleges outside Bombay under the All India Quota are available for admission.
We are also told that there are about 30 candidates who are to be admit ted in these seats.
Of these 30 candidates, we find 714 that one Sandeep Chaudhary and Miss Chaudhary Seena, the applicants in Civil Miscellaneous Petitions Nos.
9049 of 1989 and 9050 of 1989 respectively, were already admitted in the 2 out of the 4 seats in the Grant Medical College, Bombay.
They were initially admitted in the Gwalior Medical College, but on their representation they were transferred to the Grant Medical College, Bombay, by the Director Gener al of Health Services in compliance with the guidelines laid down by this Court in its judgment in the case of Amanjit Singh Gill vs Directorate General of Health Services, ; , but in view of the impugned judgment of the High Court they have been thrown out for no fault of theirs.
The admission of these two candidates in the Grant Medical College, Bombay, is restored and will not be disturbed.
So far as the remaining 36 seats are concerned (2 seats in the Grant Medical College.
Bombay, and 34 seats in the Medical Colleges Outside Bombay), the admission to these seats shall be made strictly in order of merit.
The appellants shall complete the admissions in the said 36 seats within a week from today.
The impugned judgments of the High Court are set aside and the appeals are allowed to the extent indicated above.
There will be no order as to costs.
The writ petitions and all other applications for inter vention are also disposed of as above without any order as to costs.
P.S.S. Appeals allowed.
| IN-Abs | The appellant State by virtue of the judgment in Nida marti Maheshkumar vs State of Maharashtra & Ors.
, ; , after providing 15 per cent of seats under the All India Quota and under Article 15 of the Constitution for admission to MBBS course, laid down the policy of reserva tion of the remaining seats for local students in the city of Bombay and for students from outside Bombay but within the State of Maharashtra, in the ratio of 70:30.
In the writ petitions preferred by the respondents a Single Judge of the High Court took the view that 30 per cent of seats meant for students from outside Bombay should have been filled in before 70 per cent of seats were filled in by local students.
The Division Bench dismissed the Letters Patent Appeal by the State.
In the Letters Patent Appeals by the respondents it directed creation of five additional seats in each of the three Municipal Medical Colleges and four additional seats in the Government Medical College.
Allowing the appeals, HELD: 1.
There was no unreasonableness or impropriety in the State Government 's decision to fill up 70 per cent of seats first.
The question whether the seats reserved for local students or for those residing outside Bombay should be filled up first was not within the purview or the juris diction of the Court.
The High Court was, therefore, not justified in directing admission on the basis of filling up 30 per cent of seats first.
[713C D] 2.
The Additional seats can be created only if the Indian Medical 711 Council approves of it.
There is also the question of bear ing the cost of creation of such seats.
In the instant case, neither the Government nor the Indian Medical Council had consented to such creation.
In exceptional circumstances and for ends of justice, the court may direct the creation of one or two seats after giving the Indian Medical Council an opportunity of being heard.
The High Court, therefore, should not have directed the creation of so many additional seats.
[713E G] [Appropriate directions issued for admission to four seats in the Grant Medical College in Bombay and thirty four seats in the other Bombay available under the All India Quota.]
|
ivil Appeal No. 3119 of 1984.
From the Judgment and Order dated 20.9.1982 of the Delhi High Court in S.A.O. No. 181 of 1979.
Dr. Y.S. Chitale and Mukul Mudgal for the Appellant.
R.K. Garg, Gopal Singh, L.R. Singh and Mrs. Vimal Sinha for the Respondent.
The Judgment of the Court was delivered by: PATHAK, CJ.
This is a landlady 's appeal by special leave arising out of proceedings for the ejectment of the respondent tenant.
The appellant let out the premises in suit to the respondent on 1 September, 1962, the rent being stipulated as payable in advance.
With effect from 1 January, 1972 the rent payable was Rs. 515 per month.
On 29 November, 1972, the contractual tenancy was determined by notice.
The re spondent received a notice on 7 May, 1976 calling upon him to pay the arrears of rent.
The rent in fact had been re ceived upto 31 March, 1976 and, therefore, when the notice of demand was served on the appellant, rent for the months of April and May 1976 had fallen due.
The rent was payable in advance.
On 13 May, 1976, the respondent offered a bank draft of Rs.515 to the appellant.
The appellant refused to accept it.
Two days later, the respondent sent the same bank draft by registered post.
The appellant 746 received the bank draft and retained it.
On 7 June, 1976, the appellant wrote to the respondent informing him that his tender was not valid.
On 11 June, 1976, the appellant sent another bank draft for Rs.515 to the landlady, and this draft again was neither encashed nor returned.
On 2 August, 1976, the appellant filed an application for ejectment out of which the present appeal arises.
After filing the application for ejectment, the appellant informed the respondent that both the bank drafts sent by him were lying uncashed.
The Additional Controller, Delhi, dismissed the eviction petition holding that the tenant was not in default.
The Rent Control Tribunal, Delhi, noted that the rent was pay able in advance in accordance with the agreement between the parties, that the respondent had earlier enjoyed the benefit of section 14(2) of the Act, that when the notice of demand was served on 7 May, 1976 the arrears of rent for the months of April and May 1976 had arisen, that the bank draft sent on 13 May, 1976 related to the rent of April 1,976 only, that as the rent for the month of May 1976 had also become due but had not been tendered, the landlady was justified in not accepting the tender, and that when the respondent again sent a draft on 11 June, 1976 to cover the rent for the month of May 1976 the rent for the month of June 1976 had also fallen due but was not tendered.
Holding that the respondent had not tendered the arrears of rent due up to date within two months of the notice of demand, the Tribunal held that the ground of non payment of rent stood estab lished.
The Tribunal noted that the rent had not been paid for the months of April, May and June 1976 in advance for each month and, therefore, the respondent had committed three consecutive defaults.
That being so, the Tribunal observed, the respondent was not entitled to the benefit of section 14(2) again.
In second appeal, the High Court reversed the decision of the Rent Control Tribunal and dismissed the application for ejectment upon the finding that the notice demanding the arrears of rent related to the months of April and May 1976, and as one draft had been sent on 13 May, 1976 and another on 11 June, 1976 representing a total of two months ' rent, and as this rent had been paid within two months of the service of notice of demand, it must be taken that the rent due at the time of the service of notice of demand had been tendered by the respondent to the appellant.
The High Court proceeded on the view that section 14(1)(a) of the Act made out a ground for eviction only where the tenant had neither paid nor tendered the whole of the arrears of rent legally recov erable from him within two months of the date on 747 which a notice of demand for the arrears of rent was served on him by the landlord, the arrears being the rent due on the date of the notice.
In this case, the High Court said, as the notice called for payment of the arrears due for the months of April and May 1976 and the bank drafts were ten dered within the period indicated in the notice, the notice was satisfied and no default could be said to have been committed in terms of section 14(1)(a) of the Act.
Accordingly, the High Court allowed the appeal and dismissed the applica tion for ejectment.
It is urged before us by learned counsel for the appel lant that section 14(1)(a) of the Act contemplates the payment or tender of the whole of the arrears of rent legally recovera ble from the tenant on the date when the demand notice is sent including the rent which has accrued after service of the demand notice.
When the notice was sent on 7 May, 1976, rent for the months of April and May 1976 had become due, and as two months was given for payment of the arrears, it would include also the rent which had accrued during the said period of two months.
We are not satisfied that there is substance in the contention.
The arrears of rent envis aged by section 14(1)(a) of the Act are the arrears demanded by the notice for payment of arrears of rent.
The arrears due cannot be extended to rent which has fallen due after serv ice of the notice of demand.
In this case, the two bank drafts representing the arrears of rent covered by the notice of demand had been tendered within two months of the date of service of the notice of demand.
The High Court is fight in the view taken by it.
We are not satisfied that the construction placed by B.C. Misra, J. in Jag Ram Nathu Ram vs Shri Surinder Kumar, S.A.O. No. 52 of 1975 decided on 28 April, 1976 and in S.L. Kapur vs Dr. Mrs. P.D. Lal, All India Rent Control Journal 1975 p. 322 lays down the control law on the point.
In the result, the appeal fails and is dismissed but there is no order as to costs.
P.S.S. Appeal dismissed.
| IN-Abs | The respondent tenant fell into arrears of rent for two months consecutively.
The rent was payable in advance.
He was served with a notice of demand, within seven days of which he sent a bank draft purporting to be the rent for the first month, and within a month another bank draft for the like amount.
The landlady neither encashed nor returned them.
After the notice period she filed an application for his ejectment.
The Rent Controller held that the tenant was not in default.
The Tribunal, however, found that when the notice of demand was served the arrears of rent for the two months had arisen, that the bank draft sent thereafter related to the rent for the first month only, that as the rent for the second month had also become due but had not been tendered, the landlady was justified in not accepting the tender, and that when the respondent again sent a draft for the second month the rent for the third month had also fallen due but was not tendered.
It thus took the view that the respondent had not tendered the arrears of rent due up to date within two months of the notice of demand, and held that the ground of non payment of rent stood established.
Allowing the appeal, the High Court took the view that section 14(1)(a) of the Delhi Rent Control Act, 1958 made out a ground for eviction only where the tenant had neither paid nor tendered the whole of the arrears of rent legally recov erable from him within two months of the date on which a notice of demand was served on him by the landlord, the arrears being the rent due on the date of the notice.
As in the instant case, the notice called for payment of the arrears due for the two months and the bank drafts were tendered within the period indicated in the notice, the notice was satisfied.
Dismissing the appeal by special leave, the Court, 745 HELD: The arrears of rent envisaged by section 14(1)(a) of the Delhi Rent Control Act are the arrears demanded by the notice for payment.
The arrears of rent due cannot be ex tended to rent which has fallen due after service of the notice.
[747DE] In the instant case, the two bank drafts representing the arrears of rent covered by the notice of demand had been tendered within two months of the date of service of the notice.
The High Court was, therefore, right in the view taken by it.
[747DE] Jag Ram Nathu Ram vs Shri Surinder Kumar, S.A.O. No. 52 of 1975 and S.L. Kapur vs Dr. Mrs. P.D. Lal, All India Rent Control Journal, [1975] 322, overruled.
|
ivil Appeal No. 1842 of 1981.
From the Judgment and Order dated30.4.1981 of the Delhi High Court in S.A.O. No. 418 of 1978.
Mrs. Shyamala Pappu, H.K. Puri and S.D. Lal for the Appellant.
Dr. Y.S. Chitale, S.N. Kacker, Mukul Mudgal and N.S. Das Bahl for the Respondent.
The Judgment of the Court was delivered by PATHAK, CJ.
This is a tenant 's appeal arising out of proceedings for her ejectment.
The respondent, as landlord of the premises let to the appellant, filed a petition for her eviction on the ground set forth in section 14(1)(h) of the Delhi Rent Control Act, 1958, that is to say, that the appellant had "acquired vacant possession of . . a residence" after the com mencement of the Act, viz, her own house D 196, Defence Colony, New Delhi and was therefore liable to hand over possession of the rented premises occupied by her to the respondent.
It was alleged that the appellant had acquired vacant possession of her house on 20 November, 1973 after the premises in suit had been let out to her on April, 1971.
The appellant denied that she was liable to ejectment.
The Assistant Rent Controller, Delhi, and the Rent Control Tribunal concurrently held that the appellant was owner of house D 196, Defence Colony, New Delhi, that on 20 November, 1973 the previous tenant had vacated the premises and handed over vacant possession and that thereafter she had sold it to one Smt.
Leela Wati 750 on 24 November, 1973.
It was observed that during the period 20 November, 1973 to 24 November, 1973 it must be taken that she was in possession of alternative accommodation.
It was also held concurrently that even though on the date the petition for eviction was filed, the house, D 196, Defence Colony, New Delhi, was no longer in the occupation of the appellant it was sufficient for the purpose of section 14(1)(h) that some time prior to the filing of the eviction petition the appellant had obtained possession of the house.
The High Court endorsed the view taken by it earlier in Hem Chand Baid vs Smt.
Prem Wati Parekh., AIR 1980 Delhi 1 and in the view that the ground for ejectment had been made out when the eviction petition was filed it dismissed the appeal.
In this appeal it is urged on behalf of the appellant that before the earlier tenant of tile appellant had vacated the house the appellant had already entered into an agree ment to sell the house to another person, and that therefore in the presence of that obligation it was not possible to say that when the house was vacated the appellant was enti tled to enter into and to continue in possession of the house.
It is contended before us that before the original tenant vacated the house there was an oral agreement between the appellant and Smt.
Leela Wati to sell the house to Smt.
Leela Wati and that the agreement was only formalized in a written document on 24 November, 1973.
It is urged that when the original tenant vacated the house on 20 November, 1973 the appellant was under a legal obligation to sell the house to Smt.
Leela Wati, and that in the circumstances, the house cannot be said to constitute alternative accommodation for the purpose of section 14(1)(h) of the Act.
The Rent Control Tribunal has found against the existence of any such oral agreement.
Upon that it would seem that it was only after obtaining possession on 20 November, 1973 from the original tenant, that is, four days later, that the appellant execut ed an agreement for sale with Smt.
Leela Wati.
It is appar ent that on 20 November, 1973 the appellant came into the house belonging to her and it was available to her for her occupation.
The circumstances that she lost possession on the date when the eviction petition was filed does not protect the appellant against section 14(1)(h) of the Act.
In the result, the appeal fails .and is dismissed but there is no order as to costs.
N.P.V. Appeal dismissed.
| IN-Abs | The respondent landlord filed a petition for eviction of the appellant tenant from the suit premises under section 14(1)(h) of the Delhi Rent Control Act, 1958 on the ground that the appellant had acquired vacant possession of her house on November 20, 1973, after the suit premises had been let out to her on April 1, 1971.
The appellant contended that she was not liable to be ejected.
The Assistant Rent Controller and the Rent Control Tribunal concurrently held that even though the house owned by the appellant was not in her occupation on the date the petition was filed, it was sufficient for the purpose ors.
14(1)(h) that sometime before the filing of the petition she had obtained vacant possession of the house, and thus had alternative accommodation during November 20 24, 1973, i.e., from the date she obtained vacant possession from her tenant till she sold it.
The High Court also held that the ground for ejectment had been made out when the eviction petition was filed.
In the appeal before this Court, on behalf of the appel lant tenant it was contended that before the earlier tenant had vacated the house, the appellant had already entered into an oral agreement to sell the house to another person, which was formalized on a written document on November 24, 1973 and as the appellant was under legal obligation to sell the house she was not entitled to enter into and to continue in possession of the house when it was vacated, and there fore, the house could not be said to constitute alternative accommodation, for the purpose ors.
14(1)(h) of the Act.
Dismissing the appeal, 749 HELD: The Rent Control Tribunal has found against the existence of any oral agreement for the sale of the suit house.
It was only after four days of obtaining possession on November 20, 1973 from the original tenant that the appellant executed an agreement for sale.
Thus, it is clear that the appellant came into the house belonging to her on November 20, 1973 and it was available to her for her occu pation.
The circumstance that she lost possession on the date when the eviction petition was filed does not protect the appellant against section 14(1)(h) of the Act.
[750F G]
|
: Criminal Appeal Nos. 343 and 446 of 1988.
503 From the Judgment and Order dated 8.4.1988 of the Patna High Court in Crl.
A. No. 140 of 1987 and Death Ref.
No. 3 of 1987 and Crl.
A. No. 136 of 1987.
R.K. Garg, Salman Khurshid, Rakesh Luthra, Irshad Ahmad, Vinayak D. Phadke, Mrs. Bimla Sinha and Gopal Singh for the Appellants.
A. Sharan, D. Goburdhan, D.N. Goburdhan and B .B. Singh for the Respondent.
The Judgment of the Court was delivered by AHMADI, J.
The appellants in these two appeals by spe cial leave are the six accused persons who were arraigned before the learned Third Additional Sessions Judge, Siwan, for trial.
Criminal Appeal No. 343 of 1988 is by original accused Nos. 1, 2, 3 and 5 (Allauddin Mian, Keyamuddin Mian, Saheb Hussain and Afzal Mian) and Criminal Appeal No. 466 of 1988_is by original accused Nos. 4 and 6 (Sarif Mian and Mainuddin Mian).
For the sake of convenience we will refer to them by their original positions in the Trial Court.
AccuSed Nos. 1 and 2 were charged with the commission of offences punishable under Sections 302, 452 and 148, I.P.C. The prosecution case was that accused Nos. 1 and 2 along with accused Nos. 3 to 6 constituted an unlawful assembly, the common object of which was to kill PW 6 Baharan Mian and in pursuance of the said object accused No. 1 caused the death of Sahana Khatoon aged about seven years and accused No. 2 caused the death of Chand Tara aged about seven months.
Accused Nos. 1 and 2 were substantively charged under Section 302, I.P.C., whereas accused Nos.
3 to 6 were sought to be held vicariously liable under Section 302/149, I.P.C. Accused Nos. 3 and 4 were further charged under Sections 447 and 148, I.P.C., and accused Nos. 5 and 6 were charged under Sections 447 and 147, I.P.C. The Trial Court convicted accused Nos. 1 and 2 on all the three counts and awarded the sentence of death to both of them for the com mission of the offence punishable under Section 302, I.P.C. Each of them was also sentenced to suffer rigorous imprison ment for one year on each count under Sections 148 and 452, I.P.C. The substantive sentences were directed to run con currently.
Accused Nos. 3 and 4 were convicted under Sec tions 302/149, 447 and 148, IPC and for the offence under Section 302/149 each of them was directed to suffer impris onment for life.
For the offences under Sections 148 and 447,/.P.C., they 504 were directed to suffer rigorous imprisonments for one year and three months, respectively.
The substantive sentences were ordered to run concurrently.
Accused Nos. 5 and 6 were convicted under Sections 302/149, 447 and 147, I.P.C.
For the offence under Section 302/149, I.P.C., they were sen tenced to undergo imprisonment for life whereas for the offences punishable under Sections 447 and 147, I.P.C., they were directed to suffer rigorous imprisonments for three months and six months, respectively.
The substantive sen tences were ordered to run concurrently.
Since accused Nos. 1 and 2 were awarded the death penalty a reference was made to the High Court which came to be numbered as Reference No. 3 of 1987.
Accused Nos. 1, 2, 3 and 5 preferred an appeal, Criminal Appeal No. 140 of 1987, challenging their convic tions and sentences awarded to them by the Trial Court.
Accused Nos. 4 and 6 preferred a separate appeal, Criminal Appeal No. 136 of 1987, against their convictions and sen tences by the Trial Court.
The said reference and both the appeals were disposed of by the High.
Court by a common judgment.
The High Court dismissed the appeal insofar as accused Nos. 1 and 2 are concerned and, while accepting the reference, confirmed the sentence of death awarded to them for the murder of two the infant girls.
The conviction of the remaining four accused under Section 302/149 was, howev er, altered to Section 326/149 and the sentence of imprison ment for life given to each of them was substituted by a sentence of rigorous imprisonment for seven years.
Their convictions and sentences on the other counts were, however, maintained.
Feeling aggrieved by the convictions and sen tences awarded to them on different counts all the six accused persons have preferred the present two appeals by special leave.
Briefly stated the prosecution case is that on the afternoon of 25th July, 1985 around 4.30 p.m. when PW 6 Baharan Mian was sitting at the entrance of his house, the aforesaid six accused persons came from the west armed with deadly weapons; accused Nos. 1 and 2 were carrying 'farsas ', accused Nos. 3 and 4 were armed with spears (bhalas) and accused Nos. 5 and 6 were armed with sticks (Lathis).
On seeing them PW 6 got up and went to the 'osra ' (verandah) of his house.
Accused No. 3 began to untie the buffalo tethered in front of the house while the other accused persons show ered abuses on PW 6, to which the latter objected.
There upon, accused Nos. 4 and 6 shouted 'Sale ko jan se mar do '.
Immediately thereafter, accused Nos. 1 and 2 moved menacing ly towards PW 6.
The two infants Sahana Khatoon and Chand Tara were then playing in the 'dalan ' outside the western room.
On seeing accused Nos. 1 and 2 approaching him duly armed with farsas PW 6 apprehended trouble and ran into the adjoining room to 505 arm himself with a spear.
His wife, PW 5 Laila Khatun, who was in the room, however, prevented him from going out for fear that he may be done to death by the accused persons.
Realising that PW 6 has entered the inner room and was prevented by his wife from coming out, accused No. 1 gave farsa blows on the head, abdomen and left thumb of Sahana Khatoon causing serious injuries.
Accused No. 2 gave one farsa blow on the head of infant Chand Tara.
The neighbors PW 2 Ful Mohammad Mian, PW 3 Ali Asgar, PW 4 Vidya Giri and others, namely, Jalaluddin Ahmad, Sadik Mian, Ram Chandra Prasad, Bhikhari Mian, etc.
intervened, pacified the assail ants and sent them away.
After the assailants had left the scene of occurrence the two injured girls were removed to the city dispensary where the First Information Report of PW 6 was recorded at about 6.45 p.m.
Unfortunately, Sahana Khatoon died shortly after she was admitted to the dispen sary.
Her younger sister Chand Tara succumbed to her in juries on 23rd August, 1985.
Immediately after the two injured were removed to the dispensary for treatment, PW 7 Dr. Haliwant Singh who examined Sahana Khatoon noted that she had a sharp cutting injury on the anterior half of the head causing a fracture of cranial bone with the brain substance protruding out, a sharp cutting injury on the left illiao fossa and a sharp cutting injury on the left thumb and left index finger.
PW 1 Dr. Anil Kumar Verma, the Senior Assistant Surgeon in Siwan Sadar Hospital, performed the autopsy on the dead body of Sahana Khatoon on the afternoon of 26th July, 1985.
Since the fact that Sahana Khatoon died a homicidal death is not in dispute, we need not set out the findings recorded by PW 1 in his postmortem report.
Suffice it to say that in the opinion of PW 1 death was due to shock and haemorrhage resulting from the injuries caused to the victim with the farsa.
The injured Chand Tara was examined on the same day by PW 7.
He had noticed a sharp cutting injury on the anterior half of the head slightly to the right of the mid line with the brain matter coming out from the posterior half.
She was admitted as an indoor patient but was discharged on 13th August, 1985.
A few days later she died on 23rd August, 1985.
PW 10 Dr. Ahmad performed the autopsy on the dead body of Chand Tara and he found that she had an infected ulcer 3" x 1 1/4" by cranial cavity deep communicated with brain on the anteriofrontal portion of the head, On dissection the meningities and the brain matter were found to be congested.
In his view, the meningitis and encephalitis which had resulted due to infection resulting from the injury caused by a sharp cutting weapon like a farsa were the cause of death.
It is evident from the above evidence that Chand Tara also died a homicidal death.
506 The finding that both the girls died a homicidal death is unassailable in view of the clear evidence of the aforesaid three medical men, namely, PW 1, PW 7, and PW 10.
The ques tion then is whether the appellants are re sponsible for their deaths and if so, to what extent? To bring home the guilt against the six accused persons, the prosecution examined five eye witnesses to the occurrence, namely, PWs 2 to 6.
These five eye witnesses have unfolded the prosecution case that the six accused persons had formed an unlawful assem bly the common object whereof was to kill PW 6 Baharan Mian.
In pursuance of that common object they, duly armed with weapons such as farsas, bhalas and lathis, entered the resi dential premises of PW 6 on the evening of 25th July, 1985 and committed the acts set out earlier.
The courts below found that the presence of PWs 5 and 6 in the house at that point of time could not be doubted.
In fact these accused persons had come to the house to kill PW 6.
PWs 2, 3 and 4 who can be said to be dependable witnesses have also supported the prosecution case as narrated by PWs 5 and 6.
The evidence of these prosecution witnesses stands further corroborated by the evidence of PW 7 who had seen the wounds on the two in jured soon after the incident.
PWs 1 and 10 who performed the post mortem examination on the dead bodies also lend corroboration to the testimony of the eye witnesses.
The courts below, therefore, recorded the convictions relying on the evidence of the aforesaid witnesses as set out earlier.
In the backdrop of these facts, the learned counsel for the accused made the following submissions: 1.
The evidence adduced by the prosecution to bring home the guilt against the accused, particularly the evidence of PWs 2 to 6, is not reliable and should not be acted upon.
Even on the facts found proved by the courts below, the four accused persons, name ly, accused Nos. 3 to 6 cannot be held guilty of murder with the aid of Section 149, I.P.C. as the killings of the two girls was outside the common object of the unlawful assembly 3.
Even if the conviction of accused Nos. 1 and 2 for the murder of the two girls is confirmed, the facts of the case do not war rant a death penalty, more so because the procedural requirement of Section 235(2) of the Cr.
P.C. was not followed in letter and spirit, and 4.
Section 302, I.P.C., and Section 354(3), Cr.
P.C., insofar as they permit the imposi tion of the death penalty are violative of 507 Articles 14, 19 and 21 of the Constitution of India.
We will immediately proceed to deal with these contentions.
The learned counsel Shri Garg took us through the evi dence of the five eye witnesses with a view to satisfying us that their version regarding the incident was not free from blemish and it would be highly unsafe to place implicit reliance on their evidence.
We have carefully scrutinised the evidence of the aforesaid five eye witnesses and we are inclined to think that their evidence was correctly appreci ated by both the Courts below.
The presence of PWs 5 and 6, the parents of the two victim girls, in the house at that point of time cannot be disputed.
In fact, the accused persons had constituted an unlawful assembly with a view to killing PW 6, the father of the two girls.
With that avowed object they went, duly armed with lethal weapons, to launch an attack on PW 6.
After accused No. 3 had untied the buf fallo notwithstanding the protest from PW 6, accused Nos. 4 and 6 gave the call to kill PW 6.
Encouraged by this call accused Nos. 1 and 2 moved menacingly towards PW 6 who was then standing in 'osra '.
Realising that accused nos.
1 and 2 were out to kill him, PW 6 went inside the room to fetch a bhala to defend himself.
His wife PW 5 who was in the room sensing danger to his life stood in his way and did not permit him to go out and face accused Nos. 1 and 2.
PWs 2, 3 and 4 who were neighbours saw the incident from close quar ters when accused Nos. 1 and 2 dealt fatal blows with their farsas to the two girls who were playing in the 'dalan '.
PW 2 who is the brother of PW 6 was in the field to the east of the house and was, therefore, in a position to see the incident.
PW 3 was returning from the bazar when he saw the accused persons at the door of PW 6.
He heard the accused persons uttering abuses and the call given by accused Nos. 4 and 6 to kill PW 6.
He also saw the accused persons entering the house and going towards the room which PW 6 had entered to fetch a bhala.
In the end he saw accused Nos. 1 and 2 inflicting farsa blows on the two girls.
He was cross exam ined at length but except for minor contradictions here and there which are only to be/expected when a witness gives evidence after a lapse of time, nothing substantial shaking the substratum of the prosecution case has surfaced to discredit him.
PW 4 was at the saw mill of Ram Chandra Prasad when he saw the accused persons coming from the west and proceeding towards the east.
He saw these persons going to the house of PW 6 and heard them showering abuses.
In his cross examination an attempt was made to show that he could not be present at Ram Chandra Prasad 's saw mill at that hours since he was a Government Servant and admittedly his normal duty hours were from 508 10 a.m. to 5 p.m.
Further effort was to show that he was connected with a case between Bhikhari Dass and Sita Ram Prasad pending under Section 145, Cr.
P.C. in respect of possession of some land.
He has also disowned knowledge of any dispute between Bhikhari Dass and Mainuddin Mian in respect of another parcel of land.
He was cross examined at length to prove that he was an interested and a biased witness.
Even if the evidence of this witness is ignored, there is sufficient evidence on record to support the find ings recorded by both the courts below.
We are, therefore, of the opinion that there is no substance in the contention of the learned counsel for the accused that the prosecution evidence is not reliable and should not be acted upon for confirming the conviction of the accused persons.
It was next submitted by learned counsel for the accused that some of the prosecution witnesses, namely, Jallaluddin, Bhikhari Mian and Ram Chandra Prasad who were admittedly present at the scene of occurrence according to the prosecu tion and had witnessed the entire incident were deliberately dropped with a view to suppressing the truth.
We cannot accept this contention for the simple reason that apart from both PW 5 and PW 6 having deposed that they were pressurised by the defence the High Court has found in paragraph 36 of its judgment that efforts were made by the defence to scare away the witnessess from giving evidence.
There is ample material on record to conclude that considerable pressure was exerted on the prosecution witnesses to stay away from the witness box.
Some succumbed to the threats and pressure while some others did not and displayed courage to give evidence and state the truth.
In this backdrop, if the prosecution did not examine Jallaluddin, Ram Chandra Prasad and Bhikhari Mian on learning that they were won over it cannot be said that the prosecution was unfair to the ac cused persons.
Mr. Garg submitted that there was nothing to show that the accused persons were in any way guilty of pressurising or threatening the witnesses.
That is besides the point.
What is relevant is the fact it so happened.
Therefore, the non examination of the aforesaid witnesses cannot affect the probative value of the evidence of other prosecution witnesses.
We now proceed to consider whether accused Nos. 3 to 6 have been rightly convicted with the aid of Section 149 for the acts of accused Nos. 1 and 2.
Section 141, I.P.C., defines an unlawful assembly as an assembly of five or more persons whose common object is to commit any one of the five acts enumerated therein.
The explanation to that section makes it clear that an assembly which was not unlawful when it assembled, may subsequently become an unlawful assembly.
509 Section 142 states: whoever, being aware of facts which render any assembly an unlawful assembly, intentionally joins that assembly, or continues in it, is said to be a member of an unlawful assembly.
Section 143 sets out the punishment for being a member of an unlawful assembly.
Section 144 prescribes the punishment for joining an unlaw ful assembly armed with deadly weapons.
Section 145 pre scribes the punishment for joining or continuing in an unlawful assembly which has been commanded to disperse.
Section 146 defines rioting.
It says that whenever force or violence is used by an unlawful assembly, or by any member thereof, in prosecution of the common object of such assem bly, every member of such assembly is guilty of the offence of rioting.
Section 147 then prescribes the punishment for rioting.
Section 148 prescribes the punishment for rioting by members of an unlawfully assembly armed with deadly weapons.
Then comes Section 149 which reads as under: "If an offence is committed by any member of an unlawful assembly in prosecution of the common object of that assembly, or such as the members of that assembly knew to be likely to be committed in prosecution of that object, every person who, at the time of the commit ting of that offence, is a member of the same assembly, is guilty of that offence.
" Therefore, in order to fasten vicarious responsibility on any member of an unlawful assembly the prosecution must prove that the act constituting an offence was done in prosecution of the common object of that assembly or the act done is such as the members of that assembly knew to be likely to be committed in prosecution of the common object of that assembly.
Under this section, therefore, every member of an unlawful assembly renders himself liable for the criminal act or acts of any other member or members of that assembly provided the same is/are done in prosecution of the common object or is/are such as every member of that assembly knew to be likely to be committed.
This section creates a specific offence and makes every member of the unlawful assembly liable for the offence or offences commit ted in the course of the occurrence provided the same was/were committed in prosecution of the common object or was/were such as the members of that assembly knew to be likely to be committed.
Since this section imposes a con structive penal liability, it must be strictly construed as it seeks to punish members of an unlawful assembly for the offence or offences committed by their associate or associ ates in carrying out the common object of the assembly.
What is important in each case is to 510 find out if the offence was committed to accomplish the common object of the assembly or was one which the members knew to be likely to be committed.
There must be a nexus between the common object and the offence committed and if it is found that the same was committed to accomplish the common object every member of the assembly will become liable for the same.
Therefore, any offence committed by a member of an unlawful assembly in prosecution of anyone or more of the five objects mentioned in Section 141 will render his companies constituting the unlawful assembly liable for that offence with the aid of Section 149, I.P.C.
In the present case, the common object of the unlawful assembly as alleged in the charge was to kill PW 6 Baharan Mian.
To accomplish that objective accused Nos. 1 and 2 went after PW 6.
Sensing danger PW 6 ran into the adjoining room to fetch a spear to defend himself.
His wife PW 5, however, blocked his way and did not permit him to go out.
When accused Nos. 1 and 2 realised that PW 6 was beyond their reach, they, frustrated at their failure to accomplish their mission, wielded their weapons on the innocent girls who were playing in the Dalan.
The common object having thus been frustrated, accused Nos. 1 and 2 took out their wrath on the innocent girls which was no part of the common object of the unlawful assembly.
It was not necessary to kill these girls to accomplish their object of killing PW 6 as these two girls had not prevented them from reaching PW 6.
The learned counsel for the accused, therefore, rightly submit ted that while accused Nos. 1 and 2 can be punished for their individual acts committed after the common object stood frustrated and abandoned on PW 6 placing himself beyond their reach, the other members of the unlawful assem bly could not be punished for the acts of accused Nos. 1 and 2 as the killing of the girls was no part of the common object of the assembly.
Once PW 6was beyond the reach of his two tormenters, the common object to kill him stood frus trated and whatever the individual members did thereafter could not be said to have been done in prosecution of the common object of the assembly.
It is not the intention of the legislature in enacting Section 149 to render every member of an unlawful assembly liable to punishment for every offence committed by one or more of its members.
In order to invoke Section 149 it must be shown that the in criminating act was done to accomplish the common object of the unlawful assembly.
Even if an act incidental to the common Object is committed to accomplish the common object of the unlawful assembly it must be within the knowledge of other members as one likely to be committed in prosecution of .the common object.
If the members of the assembly knew or were aware of the likelihood of a particular offence being committed in prosecution of the common object they would be liable for the same 511 under Section 149, I.P.C.
In the instant case, however, the members constituting the unlawful assembly had gone to the house of PW 6 to kill him.
That was the common object of the unlawful assembly.
For accomplishing that common object it was not necessary to kill the two girls who were not an hinderance to accused Nos. 1 and 2 accomplishing their common object.
We are, therefore, of the opinion that ac cused Nos.
3 to 6 cannot be convicted for the injuries caused to the two minor girls by accused Nos. 1 and 2 with the aid of Section 149, I.P.C. We, therefore, set aside the conviction under Section 326/149, I.P.C., and also the sentence imposed on accused Nos.
3 to 6 on that count.
We, however, hold accused Nos. 3 and 4 guilty under Sections 447 and 148, I.P.C., and confirm the sentences awarded to them on those counts.
So also we hold accused Nos. 5 and 6 guilty under Sections 447 and 147, IPC and confirm their sentences for the said offences.
Having come to the conclusion that Allauddin Mian and Keyambuddin Mian are guilty of murder, the next question is what punishment should be awarded to them, namely, whether extinction of life or incarceration for life.
Section 302, IPC casts a heavy duty on the Court to choose between death and imprisonment for life.
When the Court is called upon to choose between the convicts cry 'I want to live ' and the prosecutor 's demand 'he deserves to die ' it goes without saying that the Court must show a high degree of concern and sensitiveness in the choice of sentence.
In our justice delivery system several difficult decisions are left to the presiding officers, sometimes without providing the scales or the weights for the same.
In cases of murder, however, since the choice is between capital punishment and life imprisonment the legislature has provided a guideline in the form of Subsection (3) of Section 354 of the Code of Crimi nal Procedure, 1973 ("the Code") which reads as under: "When the conviction for an offence is punish able with death or, in the alternative, with imprisonment for life or imprisonment for a term of years, the judgment shall state the reasons for the sentence awarded, and, in the case of sentence of death, the special reasons for such sentence.
" This provision makes it obligatory in cases of conviction for an offence punishable with death or with imprisonment for life or for a term of years to assign reasons .in sup port of the sentence awarded to the convict and further ordains that in case the Judge awards the death penalty, "special reasons" for such sentence shall be stated in the 512 judgment.
When the law casts a duty on the Judge to state reasons it follows that he is under a legal obligation to explain his choice of the sentence.
It may seem trite to say so, but the existence of the 'special reasons clause ' in the above provision implies that the Court can in fit cases impose the extreme penalty of death which negatives the contention that there never can be a valid reason to visit an offender with the death penalty, no matter how cruel, gruesome or shocking the crime may be.
Basing his submission on what is described as the humanitarian ideology or the rehabilitarian philosophy, Mr. Garg submitted that any law which permits the supreme right to life being sacrificed for the failure of the State to establish a social order in which such crimes are not committed must be struck down as offending Articles 14, 19 and 21 of the Constitution.
While rejecting the demand of the protagonist of the reformatory theory for the abolition of the death penalty the legisla ture in its wisdom thought that the 'special reasons clause ' should be a sufficient safeguard against arbitrary imposi tion of the extreme penalty.
Where a sentence of severity is imposed, it is imperative that the Judge should indicate the basis upon which he considers a sentence of that magnitude justified.
Unless there are special reasons, special to the facts of the particular case, which can be catalogued as justifying a severe punishment the Judge would not award the death sentence.
It may be stated that if a Judge finds that he is unable to explain with reasonable accuracy the basis for selecting the higher of the two sentences his choice should fall on the lower sentence.
In all such cases the law casts an obligation on the Judge to make his choice after carefully examining the pros and cons of each case.
It must at once be conceded that offenders of some particularly grossly brutal crimes which send tremors in the community have to be firmly dealt with to protect the community from the perpetrators of such crimes.
Where the incidence of a certain crime is rapidly growing and is assuming menacing proportions, for example, acid pouring or bridge burning, it may be necessary for the Courts to award exemplary punish ments to protect the community and to deter others from committing such crimes.
Since the legislature in its wisdom thought that in some rare cases it may still be necessary to impose the extreme punishment of death to deter others and to protect the society and in a given case the country, it left the choice of sentence to the judiciary with the rider that the Judge may visit the convict with the extreme pun ishment provided there exist special reasons for so doing.
In the face of this statutory provision which is consistent with Article 21 of the Constitution which enjoins that the personal liberty or life of an individual shall not be taken except according to the procedure established by law, we are unable to countenance counsel 's extreme submission of death in no 513 case.
The submission that the death penalty violates Arti cles 14, 19 and 21 of the Constitution was negatived by this Court in Bachan Singh vs State of Punjab, Mr. Garg, however, submitted that the said decision needs re consideration as the learned Judges constituting the majority did not have the benefit of the views of Bhagwati, J. who ruled to the contrary.
We are not impressed by this submission for the simple reason that the reasons which prevailed with Bhagwati, J., could not have been unknown to the learned Judges constituting the majority.
Even a casual glance at the provisions of the Penal Code will show that the punishments have been carefully graded corresponding with the gravity of offences; in grave wrongs the punishments prescribed are strict whereas for minor offences leniency is shown.
Here again there is considerable room for manoeuvre because the choice of the punishment is left to the discretion of the Judge with only the outer limits stated.
There are only a few cases where a minimum punishment is prescribed.
The question then is what proce dure does the Judge follow for determining the punishment to be imposed in each case to fit the crime? The choice has to be made after following the procedure set out in sub section (2) of Section 235 of the Code.
That sub section reads as under: "If the accused is convicted, the Judge shall, unless he proceeds in accordance with the provisions of Section 360, hear the accused on the question of sentence, and then pass sen tence on him according to law.
" The requirement of hearing the accused is intended to satis fy the rule of natural ' justice.
It is a fundamental re quirement of fairplay that the accused who was hitherto concentrating on the prosecution evidence on the question of guilt should, on being found guilty, be asked if he has anything to say or any evidence to tender on the question of sentence.
This is all the more necessary since the Courts are generally required to make the choice from a wide range of discretion in the matter of sentencing.
To assist the Court in determining the correct sentence to be imposed the legislature introduced sub section (2) to Section 235.
The said provision therefore satisfies a dual purpose; it satis fies the rule of natural justice by according to the accused an opportunity of being heard on the question of sentence and at the same time helps the Court to choose the sentence to be awarded.
Since the provision is intended to give the accused an opportunity to place before the Court all the relevant material having a bearing on the 514 question of sentence there can be no doubt that the provi sion is salutary and must be strictly followed.
It is clear ly mandatory and should not be treated as a mere formality.
Mr. Garg was, therefore, justified in making a grievance that the Trial Court actually treated it as a mere formality as is evident from the fact that it recorded the finding of guilt on 31st March, 1987, on the same day before the ac cused could absorb and overcome the shock of conviction they were asked if they had anything to say on the question of sentence and immediately thereafter the decision imposing the death penalty on the two accused was pronounced.
In a case of life or death as stated earlier, the presiding officer must show a high degree of concern for the statutory tight of the accused and should not treat it as a mere formality to be crossed before making the choice of sen tence.
If the choice is made, as in this case, without giving the accused an effective and real opportunity to place his antecedents, social and economic background, mitigating and extenuating circumstances, etc., before the Court, the Court 's decision on the sentence would be vulner able.
We need hardly mention that in many cases a sentenc ing.decision has far more serious consequences on the of fender and his family members than in the case of a purely administrative decision; a fortiori, therefore, the princi ple of fairplay must apply with greater vigour in the case of the former than the latter.
An administrative decision having civil consequences, if taken without giving a hearing is generally struck down as violative of the rule of natural justice.
Likewise a sentencing decision taken without fol lowing the requirements of sub section (2) of Section 235 of the Code in letter and spirit would also meet a similar fate and may have to be replaced by an appropriate order.
The sentencing court must approach the question seriously and must endeavour to see that all the relevant facts and cir cumstances bearing on the question of sentence are brought on record.
Only after giving due weight to the mitigating as well as the aggravating circumstances placed before it, it must pronounce the sentence.
We think as a general rule the Trial Courts should after recording the conviction adjourn the matter to a future date and call upon both the prosecu tion as well as the defence to place the relevant material bearing on the question of sentence before it and thereafter pronounce the sentence to be imposed on the offender.
In the present case, as pointed out earlier, we are afraid that tile learned Trial Judge did not attach sufficient impor tance to the mandatory requirement of sub section (2) of Section 235 of the Code.
The High Court also had before it only the scanty material placed before the learned Sessions Judge when it confirmed the death penalty.
Apart from what we have said earlier, we may now proceed to 515 consider whether the imposition of death penalty on the two accused persons found guilty of murder is justified.
The Trial Court has dealt with the question of sentence in paragraphs 42 to 44 of its judgment.
The reason which weighed with the Trial Court is: it is one of the gravest cases of extreme culpability in which two innocent and helpless babies were butchered in a barbarous manner.
After taking note of the mitigating circumstances that both the offenders were married young men with children, the Trial Court found that since the murders were committed without provocation and in cold blood there, was no room for lenien cy as the crime was so abhorrent that it shocked the con science of the court.
The High Court while maintaining the conviction of the said two accused persons proceeded to deal with the question of sentence thus: "The conviction of Allauddin Mian and Keyamud din Mian having been upheld the question is whether the reference should be accepted and the sentence of death against them be upheld.
In my view Allauddin Mian and Keyamuddin Mian have shown extreme mental depravity in causing serious fatal injuries to helpless girls of the age of 7/8 years and 7 months.
In my view, therefore, this murder can be characterised as rarest of the rare cases.
the extreme mental depravity exhibited by Allauddin Mian and Keyamuddin Mian impels me to uphold the sen tence imposed on Allauddin Mian and Keyamuddin Mian by the learned Additional Sessions Judge.
" It will be seen from the above, that the courts below were considerably moved by the fact that the victims were innocent and helpless infants who had not provided any provocation for the ruthless manner in which they were killed.
No one can deny the fact that the murders were ghastly.
However, in order that the sentences may be proper ly graded to fit the degree of gravity of each case, it is necessary that the maximum sentence prescribed by law should, as observed in Bachan Singh 's case (supra), be reserved for 'the rarest of rare ' cases which are of an exceptional nature.
Sentences of severity are imposed to reflect the seriousness of the crime, to promote respect for the law, to provide just punishment for the offence, to afford adequate deterrent to criminal conduct and to protect the community from further similar conduct.
It serves a three fold purpose (i) punitive (ii) deterrent and (iii) protective.
That is why this Court in Bachan Singh 's case observed that when the question of choice of sentence is under consideration the Court must not only look to the crime and the victim but also the 516 circumstances of the criminal and the impact of the crime.
on the community.
Unless the nature of the crime and the circumstances of the offender reveal that the criminal is a menace to the society and the sentence of life imprisonment would be altogether inadequate, the Court should ordinarily impose the lessor punishment and not the extreme punishment of death which should be reserved for exceptional cases only.
In the subsequent decision of Machhi Singh vs State of Punjab, this Court, after culling out the guidelines laid down in Bachan Singh 's case, observed that only in those exceptional cases in which the crime is so brutal, diabolical and revolting as to shock the collective conscience of the community, would it be permissible to award the death sentence.
In the present case, unfortunately the material for choice of sentence is scanty.
The motive for the crime is obscure, the one stated, namely, the quar rel between two infants of both sides, does not seem to be correct.
The killings were not for gain.
The charge shows that the target was PW 6, the father, and not the two in fants.
The killing of the two infants was not in the contem plation of any of the accused.
Both the girls were the victims of the offenders ' ire resulting from frustration at the escape of their target.
There is nothing so uncommon about the crime as to make the case an exceptional one.
The mere fact that infants are killed, without more, is not sufficient to bring the case within the category of 'the rarest of rare ' cases.
In Bachan Singh 's case the question of laying down standards for categorising cases in which the death penalty could be imposed was considered and it was felt that it would be desirable to indicate the broad guidelines consist ent with section 354(3) of the Code without attempting to formulate rigid standards.
That was because it was felt that standardisation of the sentencing process would leave little room for judicial discretion to take account of variations in culpability even within the same category of cases.
After referring to the aggravating circumstances (Para 202) and the mitigating circumstances (Para 206) pointed out by counsel, the Court observed that while 'these ,were relevant factors it would not be desirable to fetter judicial discre tion.
It pointed out that these factors were not exhaustive and cautioned: 'courts, aided by broad illustrative guide lines indicated by us, will discharge the onerous function with evermore scrupulous care and human concern ' consistent with Section 354(3) of the Code.
In the subsequent decision in Machhi Singh 's case, the Court tried to indicate the type of cases which may fall within the exceptional class without attempting to introduce rigidity.
It would not be fair to read the decision as an attempt to fetter judicial discre tion.
Even in cases of the 517 type indicated in that case, circumstances may vary, which would necessitate a different approach.
For example, the circumstances of this case show that the offenders had killed the two girls not because of any hatred for them or to accomplish their objective but out of frustration and anger at having lost their target.
Unfortunately as the trial Judge did not give time to the convicts to reflect on the question of sentence, the chance, however remote, of the true motive for the crime surfacing was lost.
The anteced ents of the accused, their socioeconomic conditions, the impact of their crime on the community etc., have not come on record.
The absence of these particulars makes the choice of punishment difficult.
In view of what we have observed earlier and having regard to the circumstances in which the murders took place, we think the extreme punishment of death is not warranted.
In the result both the appeals are partly allowed.
The conviction of accused Nos. 1 and 2 under all the heads is confirmed but their sentence of death for killing Shahna Khatoon and Chand Tara, respectively, is converted to im prisonment for life.
So far as accused Nos. 3 to 6 are concerned, their conviction and sentence under Section 326/ 149, 1.P.C. is set aside; however, their conviction and sentence under the other heads is maintained.
Their bail bonds will stand cancelled if they have already served out their sentences; otherwise they will surrender to their bail and serve out the remaining sentence.
The appeals will stand disposed of accordingly.
R.S.S. Appeals allowed partly.
| IN-Abs | Accused Nos. 1 to 6, constituting an unlawful assembly the common intention of which Was to kill Baharan Mian, came to his house armed with deadly weapons.
Baharan Mian, appre hending trouble, ran inside Co arm himself but his wife prevented him from coming out again.
At that time, Baharan Mian 's two infant daughters, Sahana Khatoon aged about seven years and Chand Tara aged about seven months, were playing in the 'dalan ' of his house.
Failing in their object to kill Baharan Mlan, accused No. 1 gave farsa blows on the head, abdomen and left thumb of Sahana Khatoon causing serious injuries, and accused No. 2 gave one farsa blow on the head of infant Chand Tara.
As a result of these injuries, Sahana Khatoon died the same day while Chand Tara died after 28 days.
Accused Nos.1 and 2 were charged under sections 302, 452 and 148 I.P.C., whereas accused Nos.
3 to 6 were sought to be held vicariously liable under section 302/149 I.P.C. Accused Nos. 3 and 4 were further charged under sections 447 and 148, I.P.C. and accused Nos. 5 & 6 were charged under sections 447 and 147, I.P.C. The Trial Court convicted accused Nos. 1 and 2 on all the three counts and awarded the sentence of death to both of them for the commission of the offence punishable under section 302, I.P.C. Accused Nos. 3 and 4 were convicted under sections 302/149, 447 and 148, I.P.C. and for the offence under section 302/149, each of them was directed to suffer imprison 499 ment for life.
Accused Nos. 5 and 6 were convicted under sections 302/149, 447 and 147, I.P.C.
For the offence under sections 302/149, I.P.C., they were sentenced to undergo imprisonment for life.
The High Court dismissed the appeal of accused Nos. 1 and 2 and, while accepting the reference, confirmed the sentence of death awarded to them for the murder of the two infant girls.
The conviction of the remaining four accused under section 302/149 was, however, altered to sections 326/149 and the sentence of imprisonment for life given to each of them was substituted by a sentence of rigorous imprisonment for seven years.
Their convictions and sen tences on the other counts were, however, maintained: Before this Court it was contended on behalf of the appellants that (1) the evidence adduced by the prosecution was not reliable; (2) Even on the facts found proved by the courts below, accused Nos.
1 to 6 could not be held guilty of murder with the aid of section 149, I.P.C. as the kill ings of the two girls was outside the common object of the unlawful assembly; (3) the facts of the case did not warrant a death penalty in the case of accused Nos. 1 and 2, more so because the procedural requirement of section 235(2) of the Cr.
P.C. was not followed in letter and spirit; and (4) section 302, I.P.C., and section 354(3), Cr.
P.C., insofar as they permit the imposition of the death penalty were viola tive of Articles 14, 19 and 21 of the Constitution of India.
While partly allowing the appeals by converting the sentence of death in the case of accused nos.
1 and 2 to imprisonment for life under section 302, I.P.C., and setting aside the conviction of accused nos.
3 to 6 under section 326/149 I.P.C., the Court, HELD: (1) There is no substance in the contention that the prosecution evidence is unreliable and should not be acted upon for confirming the conviction of the accused persons.
[508B C] (2) If the prosecution did not examine some persons who were admittedly present at the scene of occurrence, on learning that they were won over, it cannot be said that the prosecution was unfair to the accused persons.
The non examination of these persons cannot affect the probative value of the evidence of other prosecution witnesses.
[508F] (3) Section 149.
I.P.C., creates a. specific offence.
Since this section imposes a constructive penal liability, it must be strictly construed.
[509G] 500 (4) It is not the intention of the legislature in enact ing section 149 to render every member of an unlawful assem bly liable to punishment for every offence committed by one or more of its members.
In order to invoke section 149 it must be shown that the incriminating act was done to accom plish the common object of the unlawful assembly.
Even if an act incidental to the common object is committed to accom plish the common object of the unlawful assembly, it must be within the knowledge of other members as one likely to be committed in prosecution of the common object.
If the mem bers of the assembly knew or were aware of the likelihood of a particular offence being committed in.
prosecution of the common object they would be liable for the same under sec tion 149.
I.P.C. [510F H] (5) What is important in each case is to find out if the offence was committed to accomplish the common object of the assembly or was one which the members knew to be likely to be committed.
There must be a nexus between the common object and the offence committed, and if it is found that the same was committed to accomplish the common object, every member of the assembly will become liable for the same.
[509H; 510A B] (6) In the instant case, the common object of the unlaw ful assembly, as alleged in the charge, was to kill Baharan Mian.
When accused Nos. 1 and 2 realised that Baharan Mian was beyond their reach.
frustrated at their failure to accomplish their mission, wielded their weapons on the innocent girls, which was no part of the common object of the unlawful assembly.
For accomplishing their common object it was not necessary to kill the two girls who were not a hinderance to accused Nos. 1 and 2 accomplishing their common object.
Accused Nos.
3 to 6 cannot, therefore, be convicted for the injuries caused to the two minor girls by accused Nos. 1 and 2, with the aid of section 149.
[511A B] (7) Section 302, I.P.C, casts a heavy duty on the Court to choose between death and imprisonment for life.
When the Court is called upon to choose between the convict 's cry 'I want to live ' and the prosecutor 's demand 'he deserves to die ', it goes without saying that the Court must show a high degree of concern and sensitiveness in the choice of sen tence.
[511D E] (8) In our justice delivery system several difficult decisions are left to the presiding officer, sometimes without providing the scales or the weights for the same.
In cases of murder, however, since the choice 501 is between capital punishment and life imprisonment, the legislature has provided a guideline in the form of sub section (3) of section 354 of the Code of Criminal Proce dure, 1973.
[511E F] (9) When the law casts a duty on the Judge to state reasons it follows that he is under a legal obligation to explain his choice of the sentence.
It may seem trite to say so but the existence of the 'special reason clause ' in the above provision implies that the Court can in fit cases impose the extreme penalty of death which negatives the contention that there never can be a valid reason to visit an offender with the death penalty, no matter how cruel, gruesome or shocking the crime may be.
[512A C] (10) Where a sentence of severity is imposed, it is imperative that the Judge should indicate the basis upon which he considers a sentence of that magnitude justified.
Unless there are special reasons, special to the facts of the particular case, which can be cataloged as justifying a severe punishment, the Judge would not award the death sentence.
If a Judge finds that he is unable to explain with reasonable accuracy the basis for selecting the higher of the two sentences, his choice should fail on the lower sentence.
[512D E] (11) The choice of the sentence has to be made after following the procedure set out in sub section (2) of sec tion 235 of the Code.
Since the provision is intended to give the accused an opportunity to place before the Court all the relevant material having a bearing on the question of sentence, there can be no doubt that the provision is salutary and must be strictly followed.
[513D, H; 514A] (12) The requirement of hearing the accused is intended to satisfy the rule of natural justice.
In the case of life or death, the presiding officer must show a high degree of concern for the statutory right of the accused and should not treat it as a mere formality to be crossed before making the choice of the sentence.
If the choice is made without giving the accused an effective and real opportunity to place his antecedents, social and economic background, mitigating and extenuating circumstances, etc.
before the Court, the Court 's decision on the sentence would be vulner able.
[514C] (13) A sentencing decision taken without following the requirements of sub section (2) of section 235 of the Code in letter and spirit may have to be replaced by an appropri ate order.
In the instant case, the Trial Court actually treated it as a mere formality as is evident from 502 the fact that it recorded the finding of guilt on 31st March, 1987, and on the same day before the accused could absorb and overcome the shock of conviction they were asked if they had anything to say on the question of sentence.
Immediately thereafter the decision imposing the death penalty on the two accused was pronounced.
[514B, E] (14) As a general rule, the Trial Courts should after recording the conviction adjourn the matter to a future date and call upon both the prosecution as well as the defence to place the relevant material bearing on the question of sentence before it and thereafter pronounce the sentence to be imposed on the offender.
[514F G] (15) In the instant case, the Trial Court did not attach sufficient importance to the mandatory requirement of sub section (2) of section 235 of the Code.
The High Court also had before it only the scanty material placed before the Sessions Judge when it confirmed the death penalty.
Absence of particulars of ancedents of accused, their socio economic conditions, the impact of their crime on the community, etc. makes the choice of punishment difficult.
[514G H] (16) It is necessary that the maximum sentence pre scribed by law should be reserved for 'the rarest of rare ' cases which are of an exceptional nature.
Sentences of severity are imposed t9 reflect the seriousness of the crime, to promote respect for the law, to provide just punishment for the offence, to afford adequate deterrent to criminal conduct and to protect the community from further similar conduct.
[515G] (17) In the instant case, unfortunately the material for choice of sentence is scanty.
The motive for the crime is obscure, the one stated.
namely, the quarrel between two infants of both sides, does not seem to be correct.
The killings were not for gain.
The change shows that the target was Baharan Mian, the father, and not the two infants.
The killing of the two infants was not in the contemplation of any of the accused.
Both the girls were the victims of the offenders ' ire resulting from frustration at the escape of their target.
There is nothing so uncommon about the crime as to make the case an exceptional one.
The mere fact that infants are killed, without more, is not sufficient to bring the case within the category of 'the rarest of rare ' cases.
[516C E] Bachan Singh vs State of Punjab, ; and Machhi Singh vs State of Punjab, , referred to.
|
Appeal No. 230 of 1956.
Appeal by special leave from the judgment and order dated April 12, 1955, of the Orissa High Court in 0.
J. C. No. 60 of 1952.
C. K. Daphtary, Solicitor General of India, R. Ganapathi Iyer and R. H. Dhebar, for the appellants.
section N. Andley, J. B. Dadachanji and Rameshuar Nath, for the respondent.
April 15.
The Judgment of Das C. J. and 523 Venkatarama Aiyar J. was delivered by Das C. J.
The Judgment of section K. Das and Vivian Bose JJ.
was delivered by section K. Das J. Sarkar J. delivered a separate judgment.
DAS C. J.
We agree that this appeal must be allowed in part but we prefer to rest our judgment on one of the material points on a ground which is different from that adopted by our learned Brother section K. Das J. in the judgment which has just been delivered by him and which we have had the advantage of perusing.
The Orissa Sales Tax Act, 1947 (Orissa XIV of 1947), hereinafter referred to as the said Act received the assent of the Governor General on April 26, 1947, when section I of 'the Act came into force.
On August 1, 1947, a Notification was issued by the Government of Orissa bringing the rest of the said Act into force in the Province of Orissa, as it was then constituted.
Section 4, as it stood at all times material to this appeal, ran as follows: " 4(1) Subject to the provisions of sections 5, 6, 7 and 8 and with effect from such date as the Provincial Government may, by notification in the Gazette, appoint, being not earlier than thirty days after the date of the said notification, every dealer whose gross turnover during the year immediately preceding the commencement of this Act exceeded Rs. 5,000 shall be liable to pay tax under the Act on sales effected after the date so notified: Provided that the tax shall not be payable on sale involved in the execution of a contract which is shown to the satisfaction of the Collector to have been entered into by the dealer concerned on or before the date so notified.
(2)Every dealer to whom subsection (1) does not apply shall be liable to pay tax under this Act with effect from the commencement of the year immediately following that during which his gross turnover first exceeded Rs. 5,000.
(3)Every dealer who has become liable to pay tax under this Act shall continue to be so liable until the expiry of three consecutive years, during each of 524 which his gross turnover has failed to exceed Rs. 5,000 and such further period after the date of such expiry as may be prescribed and on the expiry of this latter period his liability to pay tax shall cease.
(4)Every dealer whose liability to pay tax has ceased under the provisions of sub section (3) shall again be liable to pay tax under this Act with effect from the commencement of the year immediately following that during Which his gross turnover again exceeds Rs. 5,000.
" On August 14, 1947, a notification was issued by the Government of Orissa appointing September 30, 1947, as the date with effect from which that sub section was to come into force in the then province of Orissa.
On January 1, 1948, by a covenant of merger executed by its ruler, the feudatory State of Pallahara merged into the province of Orissa.
In exercise of the powers delegated to it by the Government of India under what was then known as the Extra Provincial Jurisdiction Act, 1947, the Government of Orissa on December 14, 1948, issued a notification under section 4 of that Extra Provincial Jurisdiction Act, extending the Orissa Sales Tax Act to the territories of the erstwhile feudatory States, including Pallahara which had merged into the province of Orissa.
On March 1, 1949, a notification under section 1(3) was issued by the Government of Orissa bringing sections 2 to 29 of the said Act into force in the added territories.
On the same day another notification was issued under section 4(1) of the Act, which was in the following terms: In exercise of the powers conferred by Sub section (1) of Section 4 of the Orissa Sales Tax Act, 1947 (Orissa Act XIV of 1947) as applied to Orissa State, the Government of Orissa are pleased to appoint the 31st March, 1949, as the date with effect from which every dealer whose gross turnover during the year ending the 31st March, 1949, exceeded Rs. 5,000 shall be liable to pay tax under the said Act on sales effected after the said date.
" It was after this notification had been.
issued that the respondents were sought to be made liable to tax.
The respondents were assessed under the said Act 525 for five quarters ending respectively on September 30, 1949, December 31, 1949, June 30, 1950, September 30, 1950, and December 31, 1950.
It will be noticed that the first two quarters related to a period prior to the commencement of the Constitution and the remaining three quarters fell after the Constitution came into force.
The Sales Tax Officer, Cuttack having assessed the respondents to Sales Tax under the said Act for each and all of the said five quarters and the respondent 's several appeals against the said several assessment orders under the said Act having been dismissed on April 12, 1952, the respondents filed a petition under article 226 of the Constitution in the Orissa High Court praying, inter alia, for a writ in the nature of a writ of certiorari for quashing the said assessment orders and for prohibiting the appellants from realising the tax so assessed or from making assessments on them in future.
The contention of the respondents before the High Court was that the notification issued by the Government of Orissa on March 1, 1949, under section 4(1) being invalid in that it ran counter to the provisions of that sub section, no part of the charging section came into force and consequently they were not liable to tax at all for any of the five quarters.
As regards the three quarters following the commencement of the Constitution, they urged an additional plea, namely, that the assessment orders for those three quarters were invalid by reason of the provisions of article 286 of the Constitution.
The High Court accepted both these contentions and by its judgment and order pronounced on April 12, 1955, cancelled the assessments.
The Sales Tax Officer, Cuttack, and the Collector of Commercial Taxes.
Cuttack, have appealed against the judgment and order of the High Court.
As regards the assessment orders for the three post ' Constitution quarters, the decision of the High Court purports to have proceeded on the decision of this Court in the State of Bombay vs United Motors (India) Ltd. (1).
We find ourselves in complete agreement with (1) ; 67 526 our learned Brother section K. Das J. for reasons stated by him that the assessment orders for the three post Constitution quarters were hit by cl.
(1) of article 286 and also section 30 (1) (a) (1) of the Act and were rightly held by the High Court to be without jurisdiction.
It is with regard to the assessment orders for the two pre Constitution quarters that we have come to a conclusion different from that to which our learned Brother has arrived.
We proceed to state our reasons.
The impugned notification, as hereinbefore stated, was issued on March 1, 1949, under section 4 (1) of the said Act.
Under that sub section every dealer whose gross turnover during the year immediately preceding the commencement of the Act exceeded Rs. 5,000 would be liable to pay the tax under the Act on sales effected after the date " so notified ", that is to say, the date which the provincial Government might by notification in the Gazette appoint.
It is clear, therefore, that section 4 (1) by its own terms determined the persons on whom the tax liability would fall but left it to the provincial Government only to appoint the date with effect from which the tax liability would commence.
It follows, therefore, that the only 'power conferred by section 4 (1) on the Government was to appoint, by a notification in the Official Gazette, a date with effect from which the tax liability would attach to the dealers described and specified in the sub section itself as the persons on whom that liability would fall.
The Government of Orissa issued the notification, hereinbefore quoted, " in exercise of the powers conferred by sub section (1) of section 4 " and appointed March 31, 1949, as the date with effect from which the tax liability would commence.
It was none of the business of the Government of Orissa to say on what class of dealers the tax liability would fall, for that had been already determined by the sub section itself Therefore, by the notification the Government of Orissa properly exercised its powers under sub section
(1) in so far as it appointed March 31, 1949, as the date, but it exceeded its powers by proceeding to say that all dealers whose gross turnover during the year ending 527 March 31, 1949, exceeded Rs. 5,000 should be liable to pay tax under the Act.
This part of the notification clearly ran counter to the sub section itself, for under that sub section it is only those dealers whose gross turnover exceeded Rs. 5,000 " during the year immediately preceding the commencement of this Act " that became liable to pay the tax.
For the purposes of the five assessment orders it made no difference whether the Act is taken to have commenced on December 14, 1948, when it was extended to the feudatory States by notification under section 4 of the Extra Provincial Jurisdiction Act, 1947, or on March 1, 1949, when the notification under section 1 (3) was issued, for in either case the year immediately preceding the commencement of this Act was April 1, 1947, to March 31, 1948.
The position, therefore, is that by the earlier part of the impugned notification the Government of Orissa properly and rightly exercised its power in appointing March 31, 1949, as the date with effect from which the liability to pay tax under the Act would commence, but by its latter part did something more which it had no business to do, i. e., to indicate, contrary to the sub section itself, that those dealers whose gross turnover during the year ending on March 31, 1949, would be liable to pay tax under the Act.
The notification in so far as it purports to determine the class of dealers on whom the tax liability would fall, was certainly invalid.
The question that immediately arises is as to whether the whole notification should be adjudged invalid as has been done by the High Court and as is proposed to be done by my learned Brother section K. Das J. or the two portions of the notification should be severed and effect should be given to the earlier part which is in conformity with section 4(1) and the latter part which goes beyond the powers conferred by the subsection to the Government of Orissa should be rejected.
Immediately the question of severability arises.
Are the two portions severable ? We find no difficulty in holding that the portion of the notification which went beyond the powers conferred on the Government of Orissa is quite clearly and easily severable from that 528 which was within its powers.
It cannot possibly be said that had the Government of Orissa known that it had no power to determine the persons on whom the tax liability would fall it would not have appointed a date at all.
In our view there is no question of the two parts being inextricably wound up.
We, therefore, hold that the notification, in so far as it appointed March 31, 1949, as the date with effect from which liability to pay tax would commence was valid and the rest of the notification was invalid and must be treated as surplus without any legal efficacy.
The result, therefore, is that the charging section was effectively brought into force and the entire charging section became operative and dealers could be properly brought to charge under the appropriate part of the charging section.
It is true that the notification having also stated that the dealers, whose gross turnover exceeded 5,000 (luring the year ending March 31, 1949, would be liable to pay the tax, the sales tax authorities naturally applied their mind to the question whether during the year ending March 31, 1949, the gross turnover of the respondents exceeded the requisite amount, but did not inquire into the question whether the respondent 's gross turnover exceeded Rs. 5,000 during the year immediately preceding the commencement of the Act which in this case was the financial year from April 1, 1947 to March 31, 1948.
If the matter stood there, it would have been necessary to send the case back to the Sales Tax Officer to enquire into and ascertain whether the quantum of the gross turnover of the respondents during the last mentioned financial year ending on March 31, 1948, exceeded Rs. 5,000 or it did not.
But a remand is not called for because it appears from the judgment under appeal that it was conceded that for the period April 1, 1949, till the commencement of the Constitution on January 26, 1950, the respondents would have been liable to pay sales tax provided a valid notification had been issued, under sub section
(1) of section 4.
This concession clearly amounts to an admission that the gross turnover of the respondents during the financial 529 year ending on March 31, 1948, which was the year immediately preceding March 31, 1949, exceeded Rs. 5,000.
We have already held that the notification ' issued under section 4(1) in so far as it appointed March 31, 1949, as the date with effect from which the liability to pay sales tax would commence was good and valid in law.
That finding coupled with the concession mentioned above relieves us from the necessity of remanding the case to the sales tax authorities.
Even if we assume, contrary to the aforesaid concession, that the gross turnover of the respondents during the financial year ending on March 31, 1948, did not exceed Rs. 5,000 and, therefore, section 4 (1) did not apply to them the respondents will still be liable to pay the sales tax for the two pre Constitution quarters under section 4 (2).
For reasons stated above we hold that the assessment orders for the three post Constitution quarters were invalid and we accordingly agree that this appeal, in so far as it is against that part of the order of the High Court which cancelled the assessment orders for those three post Constitution quarters, should be dismissed.
We further hold that the assessments for the two pre Constitution quarters were valid for reasons stated above and accordingly we agree in allowing this appeal in so far as it is against that part of the order of the High Court which cancelled the assessment orders for the two pre Constitution quarters Oil the ground that the notification issued under section 4 (1) of the Act was wholly invalid.
Under the circumstances of this case we also agree that the parties should bear their own costs in the High Court as well as in this Court.
section K. DAS J.
This appeal on behalf of the assessing authorities, Cuttack, has been brought pursuant to an order made on January 17, 1956, granting them special leave to appeal to this Court from the judgment and order of the High Court of Orissa dated April 12,1955, by which the High Court quashed certain orders of assessment of sales tax made against the respondent.
The short facts are these.
The respondent, Messrs.B. C. Patel and Co., is a partnership firm carrying on 530 the business of collection and sale of Kendu leaves.
The firm has its headquarters at Pallahara, which was formerly one of the Feudatory States of Orissa and merged in the.
then province of Orissa by a merger agreement dated January 1, 1948.
The Sales Tax authorities, Cuttack, in the State of Orissa, assessed the respondent to sales tax in respect of sales of Kendu leaves which took place for five quarters ending on September 30, 1949, December 31, 1949, June 30, 1950, September 30, 1950 and December 31, 1950.
It should be noted that two of the aforesaid quarters related to a period prior to the commencement of the Constitution, and the remaining three quarters were post Constitution.
The facts which the Sales Tax authorities found were (I.) that the respondent collected Kendu leaves in Orissa and sold them to various merchants of Calcutta, Madras and other places on receipt of orders from them, (2) that the goods were sent either f. o. r. Talcher or f. o. r. Calcutta, and (3) the sale price was realised by sending the bills to the purchasers for payment.
The admitted position was that the goods were delivered for consumption at various places out side the State of Orissa.
The Sales Tax authorities proceeded on the footing that all the sales took place in Orissa even though the goods were delivered for con sumption at places outside Orissa.
By five separate assessment orders dated May 31, 1951, the Sales Tax Officer, Cuttack, held that the sales having taken place in Orissa, the respondent was clearly liable to sales tax for the pre Constitution period and, for the post Constitution period, though the sales came within cl.
(2) of article 286 of the Constitution, the respondent was liable to sales tax under the Sales Tax Continuance Order, 1950, made by the President.
These findings were affirmed by the Assistant Collector of Sales Tax, Orissa, on appeal, by his order dated April 12, 1952.
The respondent assessee then filed a petition under article 226 of the Constitution in the High Court of Orissa and prayed for the issue of a writ of certiorari or other appropriate writ quashing the aforesaid orders of assessment.
The case of the respondent before the High Court was that the assessment orders.
, both with 531 regard to the pre Constitution and post Constitution periods, were invalid and without jurisdiction.
The High Court accepted the case of the respondent and held that the assessment orders for the entire period were invalid and without jurisdiction.
The present appeal has been brought from the aforesaid judgment and order of the High Court of Orissa dated April 12, 1955.
Though before the Sales Tax authorities and in the High Court, an attempt was made on behalf of the respondent assessee to show that there were no completed sales in Orissa and what took place in Orissa was a mere agreement to sell, that question is no longer at large before us.
The Sales Tax authorities found against the respondent on that question and the High Court did not consider it necessary to decide it on the petition filed by the respondent.
The High Court proceeded on certain other grounds pressed before it by the respondent, and we proceed now to consider the validity of those grounds.
The grounds are different , in respect of the two periods, pre Constitution, and post Constitution, and it will be convenient to take these two periods separately.
But before we do so, it is necessary to state some facts with regard to the enactment and enforcement of the Orissa Sales Tax Act, 1947 (Orissa XlV of 1947), hereinafter referred to as the Act, in the old province of Orissa and the ex Feudatory State of Pallahara.
The Act received the assent of the Governor General on April 26, 1947, and was first published in the Orissa Gazette on May 14,1947.
Section I came into force at once in the old province of Orissa and sub section
(3) of that section said that " the rest of the Act shall come into force on such date as the Provincial Government may, by notification in the Gazette, appoint ".
The Provincial Government of Orissa notified August 1, 1947, as the date on which the rest of the Act was to come into force in the province of Orissa.
It is neces sary at this stage to refer to the charging section, namely section 4 of the Act, which is set out below as it stood at the relevant time: " 4.
(1) Subject to the provisions of sections 5, 6, 7 532 and 8 and with effect from such date as the Provincial Government may, by notification in the Gazette, appoint, being not earlier than thirty days after the date of the said notification, every dealer whose gross turnover during the year immediately preceding the commencement of this Act exceeded Rs. 5,000 shall be liable to pay tax under the Act on sales effected after the date so notified.
(2) Every dealer to whom subsection (1) does not apply shall be liable to pay tax under this Act with effect from the commencement of the year immediately following that during which his gross turnover first exceeded Rs. 5,000.
(3)Every dealer who has become liable to pay tax under this Act shall continue to be so liable until the expire of three consecutive years, during each of which his gross turnover has failed to exceed Rs. 5,000 and such further period after the date of such expiry as may be prescribed and on the expiry of this latter period his liability to pay tax shall cease.
(4)Every dealer whose liability to pay tax has ceased under the provision of sub section (3) shall again be liable to pay tax under this Act with effect from the commencement of the year immediately following that during which his gross turnover again exceeds Rs. 5,000.
" It is to be noticed that for a liability to arise under sub section (1) of section 4, a notification by the Provincial Government is necessary, and the notification must fix the date from which every dealer whose gross turnover during the year immediately preceding the commencement of the Act exceeded Rs. 5,000 shall be liable to pay tax under the Act on sales effected after the date so notified.
Such a notification was issued for the old province of Orissa on August 30, 1947, and September 30,1947, was fixed as the date with effect from which every dealer whose gross turnover during the year ending March 31, 1947, exceeded Rs. 5,000 was made liable to pay tax under the Act on sales effected after the said date.
This was the position in the old province of Orissa.
We have already stated that the 533 ex Feudatory State of Pallahara was merged into the old province of Orissa by a merger agreement dated January 1, 1948.
After the merger of Pallahara in the old province of Orissa, the Government of Orissa under the delegated authority of the Central Government and exercising the powers under section 4 of the Extra Provincial Jurisdiction Act, 1947 (XLVII of 1947) (as it was then called) applied the Act to the former Orissa States including Pallahara by a notification dated December 14, 1948.
The only modification made in applying the Act to the Orissa States was to substitute the words " Orissa States "for the words " Province of Orissa ", wherever they occurred in the Act.
, By merely applying the Act to the Orissa States on December 14, 1948, all sections of the Act did not come into force in that area at once, since a notification under sub section
(3) of section 1 was necessary to bring into force sections 2 to 29.
Such a notification was issued on March 1, 1949.
The notification was in these terms: " In exercise of the powers conferred by sub section (3) of section 1 of the Orissa Sales Tax Act, 1947 (Orissa Act XIV of 1947), as applied to Orissa States, the Government of Orissa are pleased to appoint the 1st day of March, 1949, as the date on which sections 2 to 29 of the said Act shall come into force The position therefore was this.
Section 1 of the Act came into force in Pallahara on December 14, 1948, and the remaining sections came into force on March 1, 1949, namely, those sections which dealt with the liability of a dealer to pay sales tax, set tip a machinery for collection of the tax and dealt with other ancillary matters.
A notification under sub section
(1) of section 4 was also necessary for a liability to arise under that sub section in the said area, and such a notification was issued on March 1, 1949.
That notification must be quoted in full, as one of the points for our decision is the validity of the notification.
The notification read: " In exercise of the powers conferred by sub section (1) of section 4 of the Orissa Sales Tax.
Act, 1947 (Orissa Act XIV of 1947), as applied to Orissa States, the Government of Orissa are pleased to 68 534 appoint the 31st March, 1949, as the date with effect from which every dealer whose gross turnover during the year ending the 31st March, 1949, exceeded Rs. 5,000 shall be liable to pay tax under the said Act on sales effected after the said date ".
Two other provisions of the Act must be referred to here.
The word "dealer" is defined in section 2(c) in these terms : " 'dealer ' means any person who carries on the business of selling or supplying goods in Orissa, whether for commission, remuneration or otherwise and includes any firm or a Hindu joint family, and any society, club or association which sells or supplies goods to its members; ".
The word " year " is defined ins.
2(j) and means the financial year.
Now, with regard to the pre Constitution period the High Court has found that the notification under subs.
(1) of section 4 dated March 1, 1949, was an invalid notification and therefore the respondent was not liable to tax under that subsection in respect of the transactions which took place in the pre Constitution period.
The reason why the High Court has held that the notification in question was invalid must now be stated.
The scheme of sub section
(1) of section 4 is, firstly, to fix a date, not earlier than thirty days after the date of the notification, from which the liability is to commence; and, secondly, to impose a liability on, every dealer whose gross turnover during the year immediately preceding the commencement of the Act exceeded Rs. 5,000.
The tax liability is on transactions of sale which take place after the notified date (which must necessarily be after the commencement of the Act); but in determining on which class of dealers, the incidence of taxation will fall, the crucial period as mentioned in the sub section itself is the year immediately preceding the commencement of the Act.
Therefore, the subsection contemplates two.
matters, one of which may be called the 'relevant date ', and the other 'relevant period '.
So far as the old province of Orissa was concerned, there was no difficulty.
The notification fixed September 30, 1947, as the relevant date, and the year immediately preceding 535 the commencement of the Act in the old province of Orissa was the relevant period, viz., the financial year 1946 47, i. e., April 1, 1946 to March 31, 1947.
Therefore dealers whose gross turnover exceeded Rs. 5,000 in 1946 47, became liable under sub section
(1) of section 4 to tax on transactions of sale after September 30, 1947, in the old province of Orissa.
The notification for the Orissa States, however, fixed March 31, 1949, as the relevant date ; but in determining the class of dealers who would be subject to the liability, it took the year ending March 31, 1949, as the relevant period.
This was clearly a mistake, because under sub section
(1) of section 4 the crucial year is the year immediately preceding the commencement of the Act.
The Act commenced in the Orissa States either on December 14, 1948, or on March 1, 1949, and the financial year immediately preceding was the year 1947 48, i. e., April 1, 1947 to March 31, 1948.
The notification would have been in consonance with the subsection, if it had mentioned the year ending March 31, 1948, (instead of March 31, 1949) as the crucial year for determining the class of dealers who would be subject to the liability under sub section
(1) of section 4.
This mistake in the notification is the ground on which the High Court held that the assessments for the two quarters of the pre Constitution period were invalid and without jurisdiction.
The learned Solicitor General who has appeared for the appellants has conceded that a mistake was made in the notification.
However, lie has argued firstly, that the mistake was immaterial and secondly, that the assessment orders for the pre Constitution period were justified under sub section
(2) of s: 4.
As to the first argument that the mistake was immaterial, he has submitted that the liability to tax arose tinder the sub section and not under the notification, and any mistake in the notification did not affect such liability; lie has also submitted that the words and figures which gave rise to the mistake were mere surplusage and could be severed from the rest of the notification.
We are unable to accept this argument.
For a liability to arise under sub section (1) of section 47 the issue of a; 536 notification is an essential prerequisite, and unless the notification complies with the requirements of the subsection, no liability to tax can arise under it.
The notification not only fixed the relevant date, but fixed the relevant period for determining the class of dealers who would be subject to the liability.
In doing so, it made a mistake, the result of which was that the notification was not in conformity with the law.
We do not think that it can be severed in the way suggested by the learned Solicitor General.
Now, we come to the second argument whether the pre Constitution assessment orders are justified under sub section
(2) of section 4.
The High Court held that they were not, and gave two reasons for its view: one was that, subsections (1) and (2) were mutually exclusive and the other was based on the opening words of sub section
(2), which says that " every dealer to whom sub section (1) does not apply etc.
" The High Court expressed the view that if the notification under sub section (1) were correctly drawn up, the subsection would have applied to the respondent ; therefore, the opening words of sub section
(2) barred the application of the sub section to the respondent.
At first sight, there appears to be some force in this view.
But on a closer examination we do not think that the view expressed by the High Court is correct.
Sub sections (1) and (2) are mutually, exclusive only in the sense that they do not operate in the same field ; that is, the relevant periods for their application are different.
The relevant period for the application of sub section
(1) is " the year immediately preceding the commencement of the Act.
" Sub section (2) however does not require any notification, and under it every dealer is liable to pay tax under the Act with effect from the commencement of the year immediately following that during which his gross turnover first exceeded Rs. 5,000.
Obviously, the relevant period for the application of sub section
(2) is the year immediately following that during which the gross turnover of a dealer first exceeded Rs. 5,000.
The contrast between the two subsections is this: for sub section
(1) the crucial year is the year immediately preceding the commencement of 537 the, Act; but for sub section
(2) the crucial, year is the year in which the dealer 's gross turnover first exceeded Rs. 5,000.
We agree that for the same relevant year both sub sections (1) and (2) cannot apply, because sub section
(2) says " Every dealer to whom subs.
(1) does not apply etc." Let us, for example, take the year 1946 47 in the old province of Orissa.
That was the year immediately preceding the commencement of the Act in that area, and sub section
(1) applied to all dealers whose gross turnover exceeded Rs. 5,000, first or otherwise, in that year; sub section
(2) did not apply to such dealers even if their gross turnover exceeded Rs. 5,000 for the first time, in that year; because where sub section
(1) applies, sub section
(2) does not apply.
But what is the case before us? The year immediately preceding the commencement of the Act in the Pallahara area was 1947 48, and sub section
(1) would have applied to the respondent if the notification had mentioned that year.
But it did not, and the result was that it was not necessary to find if the respondent 's gross turnover exceeded Rs. 5,000 in 1947 48.
What was found was that the respondent 's gross turnover exceeded Rs. 5,000 in 1948 49, that is, the year ending March 31,, 1949, which was not the year immediately preceding the commencement of the Act in the Pallahara area.
Obviously, therefore, sub section
(1) did not apply to the respondent; but he clearly came under sub section
The Act came into force in the Orissa States on March 1, 1949.
By March 31, 1949, the respondent 's gross turnover exceeded Rs. 5,000.
He was, therefore, liable to pay tax under sub section (2 ) with effect from the commencement of the year immediately following March 31, 1949, that is, from April 1, 1949.
It has been argued for the respondent that the word `first ' in sub section
(2) means ` first ' after the commencement of the Act.
Assuming this to be correct, the respondent still comes under sub section
(2) because even if the Act came into force on March 1, 1949, the respondent 's gross turnover first exceeded Rs. 5,000 in the year ending March 31, 1949 which was after the commencement of the Act.
538 We are, therefore, of the view that all the requirements of sub section
(2) are fulfilled in this case, and the two assessment orders made against the respondent for the pre Constitution period were validly made under sub section
(2) of section 4 of the Act.
The effect of the invalid notification under sub section
(1) was that there was no liability thereunder, and no dealers were liable to pay tax under that sub section.
But that did not mean that any dealer who properly came under sub section
(2) was free to escape his liability to pay tax.
Surely, the position cannot be worse than what it would have been if the Provincial Government had failed to issue a, notification under sub section
We now turn to the post Constitution period.
The short ground on which the High Court held the assessment orders for this period to be invalid was based on the decision of this Court in The State of Bombay vs The United Motors (India) Ltd. (1) Said the High Court: " Clause (1) of Article 286 prohibited a State from taxing a sale unless such sale took place within the State as explained in the Explanation to the clause of the Article.
Similarly, clause (2) of that Article restricted the power of a State to tax a sale which took place in the course of inter State trade or commerce '.
Doubtless, by virtue of the proviso to that clause an Order by the President may save taxation on such inter State sales till the 31st March, 1951.
The recent S.C. p. 252 hap, settled the law regarding the true scope of these two clauses of the Article.
Where a transaction of sale involves inter State elements if the goods are delivered for consumption in a particular State that State alone can tax the sale by virtue of clause (1) of that Article and by a legal fiction that sale becomes `intra State sale '.
Clause (2) of Article 286 applies to those transactions of sale involving inter State elements which do not come within the scope of clause (1) of that Article.
On the admitted facts of the present case, clause (1) of Article 286 would apply.
The sales involve inter State elements inasmuch as the buyers are outside Orissa, price is paid outside Orissa and (1) ; 539 goods are delivered for consumption outside Orissa.
Hence, by virtue of clause (1) of Article 286 as explained by their Lordships of the Supreme Court, the State of Orissa is not competent to tax such transactions of sale.
" The learned Solicitor General has rightly pointed out that in a later decision of this Court in The Bengal Immunity Company Limited vs The State of Bihar and Others (1), which was, not available to the High Court when it delivered its judgment, the view expressed in the United Motors, case (2) was departed from in so far as the earlier decision held that cl.
(2) of article 286 of the Constitution did not affect the power of the State in which delivery of goods was made to tax inter State sales or purchases of the kind mentioned in the Explanation to cl.
(1) and the effect of the Expla nation was that such transactions were saved from the ban imposed by article 286 (2).
The learned Solicitor General, therefore, contends that on the basis of the later decision, the assessments made should be held to be valid under the Sales Tax Continuance Order 1950, made by the President, even though the sales took place in course of inter State trade or commerce.
It is necessary to state here that by the Adaptation of Laws (Third Amendment) Order, 1951, made by the President in exercise of the power given by cl.
(2) of article 372 of the Constitution, section 30 was inserted in the Act to bring it into accord with the Constitution, from January 26, 1950.
Section 30 which in substance reproduced article 286 of the Constitution, as it then stood, was in these terms " 30.
(1) Notwithstanding anything contained in this Act (a) a tax on sale or purchase of goods shall not be imposed under this Act, (i) where such sale or purchase takes place outside the State of Orissa; or (ii) where such sale or purchase takes place, in the course of import of the goods into, or export of the goods out of, the territory of India; (b) a tax on the sale or purchase of any goods (1) (2) ; 540 shall not, after the 31st day of March, 1951, be imposed where such sale or purchase takes place in the course of inter State trade or commerce except in so far as Parliament may by law otherwise provide.
(2) The explanation to clause (1) of Article 286 of the Constitution shall apply for the interpretation of sub clause (i) of clause (a) of sub section (1).
We are of the view that the Bengal Immunity decision (1) does not really help the learned Solicitor General to establish his contention that the assessments for the post Constitution period were valid.
The admitted position was that the goods sold were delivered for consumption at various places outside the State of Orissa.
Therefore, under cl.
(1) (a) of article 286 read with the Explanation as also under section 30 of the Act, the sales were outside Orissa.
It is true that the Bengal Immunity decision (1) took a view different from that of the earlier decision in so far as it held that inter State sales were converted into intra State sales by the Ex planation; but it was pointed out that the States ' power with respect to a sale or purchase might be hit by one or more of the bans imposed by article 286.
With reference to the different clauses of article 286, it was observed in the majority judgment of the Bengal Immunity decision(1): " These several bans may overlap in some cases but in their respective scope and operation they are separate and independent.
They deal with different phases of a sale or purchase but, nevertheless, they are distinct and one has nothing to do with and is not dependent on the other or others.
The States ' legislative power with respect to a sale or purchase may be, hit by one or more of these bans.
Thus, take the case of a sale of goods declared by Parliament as essential by a smaller in West Bengal to a purchaser in Bihar in which goods are actually delivered as a direct result of such sale for consumption in the State of Bihar.
A law made by West Bengal without the assent of the President taxing this sale will be unconstitutional because (1) it will offend Article 286 (1) (a) as the gale has taken place outside the territory by virtue of the (1) 541 Explanation to clause (1) (a), (2) it will also offend Article 286 (2) as the sale has taken place in the course of inter State trade or commerce and (3)such law will also be contrary to Article 286 (3) as the goods are essential commodities and the President 's assent to the law was not obtained as required by clause (3) of Article 286.
This appears to us to be the general scheme of that article.
" (see pp.
638 639 of the report).
At p. 647 of the report, it was further observed " The operative provisions of the several parts of Article 286, namely, clause (1) (a), clause (1) (b), clause (2) and clause (3) are manifestly intended to deal with different topics and, therefore, one cannot be projected or read into another.
On a careful and anxious consideration of the matter in the light of the fresh arguments advanced and discussions held oil the present occasion we are definitely of the opinion that the Explanation in clause (1) (a) cannot be legitimately extended to clause (2) either as an exception or as a proviso thereto or read as curtailing or limiting the ambit of clause (2).
" As to the President 's order, it was stated at p. 656: " It will be noticed that under that proviso the President 's order was to take effect " notwithstanding that the imposition of such tax is contrary to the provisions of this clause ".
This non obstante clause does not, in terms, supersede clause (1) at all and, therefore, prima facie, the President 's order was subject to the prohibition of clause (1) (a) read with the Explanation.
" Obviously, therefore, even on the Bengal Immunity decision.
(1) the assessments for the post Constitution period in this case were hit by cl.
(1) (a) of article 286 as also section 30 (1) (a) (i) of the Act and were rightly held to be without jurisdiction.
The result, therefore, is that in our view this appeal should succeed in part, as we hold that the assessments for the two quarters of the pre Constitution period were valid under sub section
(2) of section 4 of the Act and the (1) 69 542 assessments for the post Constitution period were invalid.
In view of the divided success of the parties we further think that they should bear their own costs in the High Court and in this Court.
SARKAR J.
The respondents are a firm of merchants carrying on business in a part of the State of Orissa which was formerly the feudatory State of Pallahara.
This State of Pallahara had merged in the Province of Orissa under an agreement with the Government of India, dated January 1, 1948.
On December 14, 1948, the Government of Orissa under the powers conferred by section 4 of the Extra Provincial Jurisdiction Act, 1947, and with the permission of the Government of India, issued a Notification applying the Orissa Sales Tax Act, 1947 (Orissa XIV of 1947), passed by the Legislature of Orissa, to the areas which previously constituted the feudatory States including Pallahara, then merged in Orissa.
The respondents were assessed to sales tax under this Act in respect of their sales which took place during five quarters between July 1, 1949 and December 31, 1950.
They had appealed under the provisions of the Act to higher authorities from the original orders of assessment, but were unsuccessful.
They then applied to the High Court of Orissa on November 11.
1952, for an appro priate writ directing the Sales Tax Officer the assessing authority and one of the appellants herein, to refrain from realizing the tax or from giving effect to the assessment orders in any manner whatsoever and quashing such orders and also prohibiting future assessment.
By its judgment delivered on April 12, 1955, the High Court allowed the petition and cancelled the assessment orders.
From that judgment the present appeal has come to this Court.
The question that I propose to discuss in this judgment is whether the respondents are liable to pay tax under the provisions of the Act in the circumstances which existed in this case and to which, I shall refer a little later.
The sections of the Act under which the tax is sought to be levied are set out below: S.1.
(1) This Act may be called the Orissa Sales Tax Act, 1947.
543 (2) It extends to the whole of the Province of Orissa.
(3)This section shall come into force at once and the rest of this Act shall come into force on such date as the Provincial Government may, by notification in the Gazette, appoint.
In this Act, unless there is anything repugnant in the subject or context, (j) " year " means the financial year.
section 4.
(1) Subject to the provisions of sections 5, 6, 7 and 8 and with effect from such date as the Provincial Government may, by notification in the Gazette, appoint, being not earlier than thirty days after the date of the said notification, every dealer whose gross turnover during the year immediately preceding the commencement of this Act exceeded Rs. 5,000 shall be liable to pay tax under the Act on sales effected after the date so notified: Provided that the tax shall not be payable on sale involved in the execution of a contract which is shown to the satisfaction of the Collector to have been entered into by the dealer concerned on or before the date so notified.
(2)Every dealer to whom sub section (1) does not apply shall be liable to pay tax under this Act with effect from the commencement of the year immediately following that during which his gross turnover first exceeded Rs. 5,000.
(3)Every dealer who has become liable to pay tax under this Act shall continue to be so liable until the expiry of three consecutive years, during each of which his gross turnover has failed to exceed Rs. 5,000 and such further period after the date of such expiry as may be prescribed and on the expiry of this latter period his liability to pay tax shall cease.
(4)Every dealer whose liability to pay tax has ceased under the provisions of sub section (3) shall again be liable to pay tax under this Act with effect from the commencement of the year immediately following that during which his gross turnover again exceeds Rs. 5,000.
544 It is conceded that the respondents are dealers within the meaning of the Act.
The term " turnover " is defined in the Act but for the purpose of this judgment it can be taken in its popular sense.
It is also unnecessary to consider sections 5, 6, 7 and 8 of the Act, for nothing turns on them in this appeal.
Section I of the Act came into force in the Pallahara area on December 14, 1948, by virtue of the notification of that date mentioned earlier.
Oil March 1, 1949, the Government of Orissa issued under section 1 (3) of the Act a notification, being Notification No. 2267/F appointing that date as the date on which the, rest of the Act would come into force in the Pallahara area.
It is not in dispute that March 1, 1949, has to be considered as the date of the commencement of the Act in the Pallahara area.
That is the result of the definition of the commencement of an Act given in section 2 (8) of the Orissa General Clauses Act, 1937.
As will have been noticed section 4 (1) of the Act required a date to be appointed before liability under it could arise.
Such a date had been appointed by the Government of Orissa before the Act was applied to the areas previously belonging to the feudatory States and the Government felt that this appointment of a date would not be an appointment for these areas.
The case before us has proceeded oil the basis that appointment was not a proper appointment under this section for these areas.
In fact, the Government of Orissa had oil March 1, 1949, issued a Notification No. 2269/F, purporting to appoint a date under section 4 (1) for the areas previously covered by the feudatory States including the Pallahara State, then merged in Orissa.
That Notification is in these terms: In exercise of the powers conferred by sub section (1) of Section 4 of the Orissa ,Sales Tax Act, 1947 (Orissa Act XIV of 1947), as applied to Orissa States, the Government of Orissa are pleased to appoint the.
31st March, 1949, as the date with effect from which every dealer whose gross turnover during the year ending the 31st March, 1949, exceeded Rs. 5,000 shall be liable to pay tax under the said Act on sales effected after the said date.
601 might have retired from the contest on a re appraisement of his prospects at the election as compared with those of the deceased contesting candidate.
When death removed that contesting candidate from the field, a person who had given notice of retirement from the contest as aforesaid may as well re consider his position and feel that as compared with the other surviving candidates he would have fair prospects of success at the election and if an election is held after the countermanding of the poll by the returning officer, he might just as well put forward his candidature and it is provided that in that event he shall not be ineligible for being nominated as a candidate for election after such countermanding ; and there is perfectly good reason for the same, because otherwise, withdrawal or retirement might possibly be considered a disqualification or refusal to seek election.
This brings us to the provisions as to retirement front contest under section 55A.
A candidate might not have withdrawn his candidature within the period prescribed and his name might have been included in the list of contesting candidates published by the returning officer under section 38.
Being thus a contesting candidate duly declared as such he would be entitled to go to the poll.
He may, however, as a result of the election campaign find himself in the predicament that his prospects at the election are meagre and he might even have to face the situation of having to forfeit his security deposit if he went to the poll.
There may be a number of motives operating in his mind which it is not necessary to discuss and be may just as well withdraw his candidature and retire from the field.
A locus poenitentiae is therefore given to him under section 55A to retire from the contest by giving notice in the prescribed form which has to be delivered to the returning officer on any day not later than 10 days prior to the date fixed for the poll.
If a candidate thus retires from the contest, he decides not to go to the poll and the provision is made in the rules for the correction of the list of contesting candidates so that no elector shall in the absence of necessary information waste his vote upon him.
A 602 copy of such notice is to be affixed by the returning officer to his notice board and in the polling station "and each of the remaining, contesting candidates or his agent is to be supplied with such copy and the notice has also got to be published in the official gazette.
Such retirement from contest might result in the number of remaining contesting candidates becoming equal to the number of seats to be filled and section 55A (6) and (7) work out the situation as it would then obtain with reference to sections 53 and 54 and provide that in that event the returning officer is to forth with declare such candidates to be duly elected to fill those seats and countermand the poll a fresh election being necessary only in the event of filling the remaining seat or seats, if ' any.
If, however, a poll has to be taken under section 53(1) in spite of the retirement of a contesting candidate or candidates from contest is aforesaid the process of election continues in spite of such retirement and the question any arise as to what would happen if any of the contesting candidates who has thus retired dies before the commencement of the poll.
If there was nothing more, section 52 would apply and the returning officer upon being satisfied of the fact of the death of the candidate Would have to countermand the poll and report the fact to the Election.
Commission and also to the appropriate authority.
Provision is therefore made in section 55A (5) that any person who has given a notice of retirement under section 55A (2) is deemed not to be a contesting candidate for the purposes of section 52.
This is a deeming provision and creates a legal fiction.
The effect of such a legal fiction however is that a position which otherwise would not obtain is deemed to obtain under those circumstances.
Unless a contesting, candidate who had thus retired from the contest continued to be a contesting candidate for the purposes of election and the effect of the death of such contesting (Candidate was " contemplated in section 52, it would not have been found necessary to enact section 55A (5).
It is because such a contesting, candidate who retires from the 603 contest under section 55A (2) continues to be a. contesting candidate for the purposes of election that it has been considered necessary to provide for the consequence of his death and to exclude such a candidate from the category of contesting candidates within the meaning of the term as used in section 38 of ' the Act, that is to say, candidates who were included in the list of validly nominated candidates and who had not with drawn their candidature within the period prescribed and who had been included in the list of ' candidates prepared and published by the returning, officer in the manner prescribed.
This provision, therefore warrants the conclusion that a contesting candidate whose name was included in the list under section 38 but who retires from the contest under section 55A (2) continues to be a contesting candidate for the purpose of the Act though by reason of such retirement it would be unnecessary for the constituency to cast its votes in his favour at the poll.
Such candidate continues to be contesting candidate for the purposes of the Act, notwithstanding his retirement from the contest under section 55A (2).
When we come to the provisions of Part VI of the Act relating to disputes regarding election, we find that there is no definition given in section 79 of the expression " contesting candidate ", though there are definitions of " candidate " and " returned candidate " to be found therein.
An election petition calling in question any election can be presented by any candidate at such election or any elector on one, or more of the grounds specified in sections 100 (1) and 101 to the Election Commission and a petitioner in addition to calling in question the election of the returned candidate, or candidates may further claim a declaration that he himself or any other candidate has been duly elected.
Where the petitioner claims such further declaration, he must join as respondents to his petition all the contesting candidates other than the petitioner and also any other candidate against whom allegations of any corrupt practices are made in the petition.
The words " other than the petitioner " are meant to exclude the petitioner when he happens to be one of 604 the contesting candidates who has been defeated at the polls and would not apply where the petition is filed for instance by an elector.
An elector filing such a petition would have to join all the contesting candidates whose names were included in the list of contesting candidates prepared and published by the returning officer in the manner prescribed under section 38, that is to say, candidates who were included in the list of validly nominated candidates and who had not withdrawn their candidature within the period prescribed.
Such contesting candidates will have to be joined as respondents to such petition irrespective of the fact that one or more of them had retired from the contest tinder section 55A (2).
If the provisions of section 82 which prescribes who shall be joined as respondents to the petition are not complied with, the Election Commission is enjoined under section 85 of the Act to dismiss the petition and similar are the consequences of noncompliance with the provisions of section 117 relating to deposit of security of costs.
If the Election Commission however does not do so and accepts the petition, it has to cause a copy of the petition to be published in the official gazette and a copy thereof to be served by post on each of the respondents and then refer the petition to an election tribunal for trial.
Section 90 (3) similarly enjoins the Election Tribunal to dismiss an election petition which does not comply with the provisions of section 82 or section 117 notwithstanding that it has not been dismissed by the Election Commission under section 85.
Section 90 (3) is mandatory and the Election Tribunal is bound to dismiss such a petition if an application is made before it for the purpose.
Turning now to section 117, we find that it is a provision relating to the deposit of security for the costs of the petition.
When a petitioner presents an election petition to the Election Commission under section 81 he is to enclose with the petition a Government Treasury receipt showing that a deposit of one thousand rupees has been made by him either in a Government Treasury or in the Reserve Bank of India in favour of the Secretary to the Election Commission as security 605 for the costs of the petition.
The Government Treasury receipt must show that such deposit has been actually made by him either in a Government Treasury or in the Reserve Bank of India; it must also show that it has been so made in favour of the Secretary to the Election Commission and it must further show that it has been made as security for the costs of the petition.
These are the three requirements of the section which have to be fulfilled.
The question, however, arises whether the words " in favour of the Secretary to the Election Commission " are mandatory in character so that if the deposit has not been made in favour of the Secretary to the Election Commission as therein specified the deposit even though made in a Government Treasury or in the Reserve Bank of India and as security for the costs of the petition would be invalid and of no avail.
If, for instance, the petitioner made the deposit either in a Government Treasury or in the Reserve Bank of India in favour of the Election Commission itself and obtained a Government Treasury receipt in regard to the same, could it be contended that in spite of such a deposit having been made, the said Government Treasury receipt was not in conformity with the requirements of section 117 and the petitioner could be said not to have complied with the requirements of that section so as to involve a dismissal of his petition under section 85 or section 90 (3) ? The extreme case illustrated above has been taken by us only in order to demonstrate to what lengths a literal compliance with the provisions of section 117 can be pushed.
The petition is to be presented to the Election Commission, the security for the costs of the petition has to be given to the Election Commission and section 121 provides for an application to be made in writing to the Election Commission for payment of costs by the person in whose favour the costs have been awarded and yet, even though the deposit may have been made by a petitioner in favour of the Election Commission and a Government Treasury receipt evidencing the same be enclosed along with his 77 606 petition the provisions of section 117 of the Act can be said not to have been complied with merely because the deposit was made in favour of the Election Commission and not in favour of the Secretary to the Election Commission.
The relationship between the Election Commission on the one hand and the Secretary to the Election Commission on the other need not be scrutinized for the purposes of negativing this contention.
It is enough to say that such a contention has only got to be stated in order to be negatived.
It would be absurd to imagine that a deposit made either in a Government Treasury or in the Reserve Bank of India in favour of the Election Commission itself would not be sufficient compliance with the provisions of section 117 and would involve a dismissal of the petition under section 85 or section 90 (3).
The above illustration is sufficient to demonstrate that the words " in favour of the Secretary to the Election Commission " used in section 117 are directory and not mandatory in their character.
What is of the essence of the provision contained in section 11.7 is that the petitioner should furnish security for the costs of the petition, and should enclose along with the petition a (Government Treasury receipt showing that a deposit of one thousand rupees has been made by him either in a Government Treasury or in the Reserve Bank of India, is at the disposal of the Election Commission to be utilised by it in the manner authorised by law and is under its control and payable on a proper application being made in that behalf to the Election Commission or to any person duly authorised by it to receive the same, be he the Secretary to the Election commission or any one else.
If, therefore it can be shown by evidence led before the Election Tribunal that the government Treasury receipt or the chalan which was obtained by the petitioner and enclosed by him along with his petition presented to the Election Commission was such that the Election Commission could on a necessary application in that behalf be in a position to realise the said sum of rupees one thousand for payment of the costs to the successful party it would be sufficient compliance 607 with the requirements of section 117.
No such literal compliance with the terms of section 117 is at, all necessary as is contended for on behalf of the appellant before us.
As regards the amendment of a petition by deleting the averments and the prayer regarding the declaration that either the petitioner or an other candidate has been.
duly elected, so as to cure lie defect of nonjoinder of the necessary parties as respondents, we may only refer to our judgment * about Io be delivered in Civil Appeal No. 76 of 1958, where the question is discussed at considerable length.
Suffice it to say here that the Election Tribunal has no power to grant such an amendment, be it by way of withdrawal or abandonment of a part of the claim or otherwise, once, an Election Petition has been presented to the Election (commission claiming such further declaration.
Considering Civil Appeal No. 763 of 1957 in the light of the observations made above, we find that sundararaja Pillai whose name was included in the list of contesting candidates prepared and published by the returning officer under section 38 but who retired from the contest under section 55A (2) before the commencement of the poll was included in the expression " contesting candidate " used in section 82 and was by reason of the first respondent claiming a further declaration that the second respondent had been duly elected, a necessary party to the petition.
Inasmuch as he was not joined as a respondent, the petition was liable to be dismissed under section 90(3) of the Act.
This defect could not be cured by any amendment of the petition seeking to delete the claim for such further declaration and the Election Tribunal was clearly in error in allowing such amendment on the grounds disclosed in 1.
A. No. 3 of 1957 or otherwise.
In regard to the deposit of security, however, the position was quite different.
According to the evidence given by K. Nataraja Mudaliar, head accountant in.
charge of the Madurai Taluk sub Treasury, the amount was kept in the Election Revenue deposit and the monies were at the disposal of the Election Commission ; also that the Election Commission or anyone * Basappa vs Ayyappa, see p. 6ii, post. 608 authorised by the Election Commission in that behalf could draw the said monies and no one else could withdraw the same without such authority.
If that was so, there was sufficient compliance with the requirements of section 117 and there could be no question of dismissing the petition for noncompliance with the provisions of that section.
Having regard therefore to the conclusion reached above in regard to the non compliance with the provisions of section 82, Civil Appeal No. 763 of 1957 will be allowed, the orders of dismissal made by the High Court on the writ petitions Nos. 531 of 1957 and 532 of 1957 will be set aside, the orders passed by the Election Tribunal dated July 5, 1957, will be vacated and the Election Petition No. 147 of 1957 will be dismissed with costs.
As the appellant has failed in his contention in regard to the provisions of section 117, we feel that the proper order for costs should be that each party do bear and pay his own costs here as well as in the High Court.
Civil Appeal No. 764 of 1957 also shares a similar fate.
The first respondent therein did not join as party respondents to his petition the two candidates whose names had been included by the returning officer in the list of contesting candidates but who had subsequently retired from the contest before the commencement of the poll.
They were necessary parties to the petition in so far as the first respondent had claimed a further declaration that he himself be declared duly elected under section 101.
The Election Petition No. 74 of 1957 filed by him, was thus liable to be dismissed for non joinder of necessary parties under section 90(3) of the Act.
This appeal will also be accordingly allowed, the orders passed by the High Court in Writ Petitions Nos. 573 and 574 of 1957 will be set aside, the orders passed by the Election Tribunal on July 13,1957, will be vacated and Election Petition No. 74 of 1957 will be, dismissed.
The first respondent will pay the appellants costs throughout.
So far as Civil Appeal No. 48 of 1958 is concerned, the difficulty which faces the appellant is that we 609 have nothing on the record of the appeal to show what were the exact terms of the deposit made by the second respondent under section If 7.
The copy of the chalan which is cyclostyled at p. 45 of the record is deficient in material particulars and does not throw any light on the question.
The appellant no doubt made an application to the Election.
Tribunal to try his objection as regards the non compliance with the provision, , of that section as a preliminary objection and determine whether the second respondent had complied with the provisions of section 117 and if not to dismiss his petition.
The Election Tribunal, however, did not decide this preliminary objection but ordered that the trial of the petition (lo proceed.
The High Court before whom the Writ Petition M. J. No. 480 of 1957 was filed also came to the same conclusion as it thought that the matter could be decided at the time of hearing itself and dismissed the application.
We are of opinion that both the Election Tribunal and the High Court were wrong in the view they took.
If the preliminary objection was not entertained and a decision reached thereupon, further proceedings taken in the Election Petition would mean a full fledged trial involving examination of a large number of witnesses on behalf of the and respondent in support of the numerous allegations of corrupt practices attributed by him to the appellant.
his agents or others working on his behalf; examination of a large member of witnesses by or on behalf of the appellant controverting the allegations made against him; examination of witnesses in support of ' the recrimination submitted by the appellant against the 2nd respondent; and a large number of visits by the appellant from distant places like Delhi and Bombay to Ranchi resulting in not only heavy expenses and loss of time and diversion of the appellant from his public duty in the various fields of ' activity including those in the House of the People.
It would mean unnecessary harassment and expenses for the appellant which could certainly be avoided if the preliminary objection urged by him was decided at the initial stage by the Election Tribunal, 610 We are therefore of the opinion that the orders passed by the High Court in M. J. C. No. 480 of 1957 and by the Election Tribunal in Election Petition No. 341 of 1957 were wrong and ought to be set aside.
The Election Tribunal will decide the preliminary objection in regard to the non compliance with the provisions of section 117 by the 2nd respondent in the light of the observations made above and deal with the same according to law.
The parties will be at liberty to lead such further evidence before the Election Tribunal as they may be advised.
The costs of both the parties, here, as well as in the courts below will be costs in the Election Petition to be dealt with by the Election Tribunal hereafter and will abide the result of its decision on the preliminary objection.
Appeal,s allowed.
Appeal No. 48 of 1958 remanded.
| IN-Abs | This appeal by the Sales Tax authorities was directed against the judgment and order of the Orissa High Court, passed under article 226 of the Constitution, quashing five orders of assessment covering five quarters made against the respondents who carried on the business of collection and sale of Kendu leaves in the erstwhile Feudatory State of Pallaliara to which, on its merger into the province of Orissa on January 1, 1948, the provisions of the Orissa Sales Tax Act, 1947, were extended on March 1, 1949.
On the same date the Government of Orissa issued a notification under section 4(1) of the Act which was in the following terms: " In exercise of the powers conferred by sub section (1) of Section 4 Of the Orissa Sales Tax Act, 1947 (Orissa Act XIV of 1947), as applied to Orissa State, the Government of Orissa are pleased to appoint the 31st March, 1949, as the date with effect from which every dealer whose gross turnover during the year ending the 31st March, 1949, exceeded Rs. 5,000 shall be liable to pay 521 under the said Act on sales effected after the said date Section 4 Of the Act, inter alia, provided : " (1) . with effect from such date as the Provincial Government may by notification in the Gazette, appoint, being not earlier than 'thirty days after the date of the said notification, every dealer whose gross turnover during the year immediately preceding the commencement of this Act exceeded Rs. 5,000 shall be liable to pay tax under the Act on sales effected after the date so notified. (2) Every dealer to whom sub section (1) does not apply shall be liable to pay under this Act with effect from the commencement of the year immedi ately following that during which his gross turnover first exceeded Rs. 5,000 ".
The goods were admittedly delivered for consumption at various places outside the State and the Sales Tax Officer as well as the Assistant Collector in appeal, proceeding on the basis that the sales took place in the State, held that the respondents were liable to Sales Tax for all the five quarters, two of which fell before the commencement of the Constitution and three thereafter.
The contention of the respondents before the High Court was that the notification under section 4(1) Of the Act was invalid as it ran counter to the provisions of that sub section and no part of that charging section could, therefore, come into force.
It was further contended that the assessment for the three quarters following the commencement of the Constitution was invalid by reason or article 286 of the Constitution.
The High Court found entirely in favour of the assessee : Held (per Das C. J., Venkatarama Aiyar, section K. Das and Vivian Bose, jj.), that the decision of the High Court in so far as it related to the three post Constitution quarters was correct and must be upheld.
The orders of assessment for those quarters contravened both article 286 of the Constitution and section 30(r)(a)(1) of the Orissa Sales Tax Act and were without jurisdiction and must be set aside.
So far as the two pre Constitution quarters were concerned, the assessees were clearly liable under section 4(2) of the Act.
Per Das C. J. and Venkatarama Aiyar J.
The first part of the impugned notification, appointing the date from which the liability was to commence, was in consonance with section 4(1) Of the Act and, therefore, clearly intra vires, whereas the second part, indicating the class of dealers on whom the liability was to fall, went beyond that section and must, therefore, be held to be ultra vires and invalid.
But since the two parts were severable, the invalidity of the second part could in no way affect the validity of the first part which brought the charging section into operation and the assessees were liable for the two pre Constitution quarters under section 4(1) as well.
Per section K. Das and Vivian Bose JJ.
It would not be correct to say that the second part of the notification was a mere surplusage severable from the rest of the notification.
Liability to pay the 522 tax under section 4(1) of the Act could arise only on the issue of a valid notification in conformity with the provisions of that sub section and as there was no such notification the assessees were not liable under section 4(1) Of the Act which did not come into operation.
Subsections (1) and (2) Of section 4 are mutually exclusive, and their periods of application being different both could not apply at the same time and no notification was necessary to bring into operation sub section
(2) Of the Act.
The goods having been admittedly sold and delivered for consumption outside the State of Orissa, under article 286 (1)(a) read with the Explanation as also under section 30(1)(a)(1) of the Act, the sales were outside the State of Orissa and, consequently, the assessment for the three post Constitution quarters were without jurisdiction.
The State of Bombay vs The United Motors (India) Ltd., ; and The Bengal Immunity Company Limited vs The State of Bihar, , relied on.
Per Sarkar J.
There could be no liability under section 4(1) Of the Act till a date was appointed thereunder, and where the notification, as in the instant case, fixing such a date, was not in terms of that sub clause, there was no fixing of a date at all and the sub clause could not come into play and no liability could arise under it.
It was impossible to ignore the second part of the notification in question as a mere surplusage since the notification read as a whole had one meaning and another without it.
The Government could not be heard to say that what it had said in the notification was not what it actually meant.
Both the sub clauses Of section 4 having been brought into force at the same time by the same notification, they applied to all dealers together and contemplated a situation in which the liability of a dealer under sub cl.
(1) might arise.
It was apparent from the scheme of the Act that sub cl.
(2) was not intended to have any operation till a date was appointed under sub cl.
(1) and a liability under it might have arisen.
|
ivil Appeal No. 2036 of 1987.
From the Judgment and Order dated 19.11.1986 of the Bombay High Court in W.P. No. 710of 1984.
Aspi Chinai, R.F. Nariman, Miss Darshna Bhogilal, K.K. Lahiri, R. Karanjawala, Ejaz Maqbool and Mrs. Manik Karanja wala for the Appellant.
K.K. Singhvi, Brij Bhushan and Anil Kumar Gupta for the Respondent in C.M.P. No. 19447 of 1988.
G. Ramaswamy, Additional Solicitor General, U.J. Mukhi ja, B.S. Basania, Mrs. A.K. Verma, Arun Banga and D.N. Misra for the Respondent.
The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.
This is an appeal by special leave from the judgment and order dated 19th November, 1986 of the learned Single Judge of the Bombay High Court.
In this appeal this Court has been asked to examine the fron tiers of judicial review of the action of a statutory au thority, i.e. the Board of Trustees of the Port of Bombay, in evicting its tenant and granting the land in question to another tenant.
However, in order to appreciate the contro versy it is necessary to have a conspectus of the facts involved.
756 The respondent Board of Trustees of the Port of Bombay is a statutory authority.
Vast areas of South Bombay which are completely tenanted, are owned by the respondent.
Being a statutory authority, the respondent has been exempted from the operation of the relevant Rent Act.
The respondent is a statutory corporation constituted under the Major Port Trust Act, 1963 as amended by the Major Port Trust (Amendment) Act, 1974.
Between about 1906 and 1932, one Jhunjhunwala was the lessee of plot No. 6 (which adjoins plot 5B which is the suit plot) and a building was existing on plot No. 6 which was tenanted to M/s Bombay Bharat & Swadeshi Rice Mills, and the said Mills were desirous of operating a rice mill on plot No. 6 but could not get the licence from the Municipal ity for the operation of the said rice mill unless satisfac tory arrangement was made for the removal and storage of rice husk in a separate chamber/structure.
Since about 1932, the appellant had been the lessee of the respondent in respect of part of the original plot No. 4 (now plot 5B) which adjoins plot No. 6 of the suit plot measuring 113.4 sq. rots.
In or about 1933 34, with a view to acquire the suit plot and using the same for the rice mill/dust room, M/s Bombay Bharat & Swadeshi Rice Mills took over the appellant.
The dust room structure was constructed on the suit plot.
The rice mill on plot No. 6 and the dust room on the suit plot had a common wall and were inter connected by ducts.
It was stated that the respondent 's inspectors had regularly visited the premises in question but had never objected to the user of the rice mill/dust room.
In Decem ber '57, the Town Planning Scheme No. 1 in Bombay City came into force.
The original plot No. 4 was reconstituted into final plot No. 5 but continued to belong to the respondent.
The Scheme also stipulated that all rights of lessee/tenants in the original plots stood transferred to the final plots.
It may be noted that in December '57 original plot No. 4 comprised of 113.4 sq.
let to the appellant, 390 sq.
let to M/s Dhanji Mavji, 453 sq.
let to two asso ciate firms (M/s Gordhandas Ranchoddas and M/s Chunilal Gupta) and 195 sq. mts.
let to M/s Vassanji Hirji.
Hence, of the final plot No. 5, the appellant and their associates, it was asserted, held 569 sq. mts.
, Dhanji Mavji held 390, Vassanji Hirji held 195 sq. rots.
and the balance 155 sq.
was with the respondent/others.
Total area of final plot 5 was 1309 sq. mts.
From 1957 72, the respondent, it is asserted, continued the tenancies of the appellant and its associate firms.
In or about 1963, however, the respondent applied for and got final plot No. 5 sub divided into final plot 5A (659 sq. mts.) 757 and final plot 5B (650 sq. mts.).
The suit plot and M/s Dhanji Mavji 's plot fell entirely in final plot 5B and as a result of the sub division, Dhanji Mavji became the tenant/occupant of a major portion of plot 5B.
It is assert ed that appellant 's associate firm and Chunilal Gupta fell in plot No. 5A and became the tenants/occupants of a major portion of plot No. 5A.
In 197 1 the Municipality renewed the mill licence covering both the structures.
It is the case of the appellant that in 1970 71, the respondent arbitrarily agreed to let the entire plot 5B including the portion which had been let to and in the possession of the appellant since 1933 to M/s. Dhanji Mavji, and thereby agreed to give him 650.6 sq.
mrs. against his existing 390 sq. mts.
Also the appellant offered to develop final plot 5B jointly with Dhanji Mavji in 1972 76.
The appellant, however, asserted that it had offered to pay the revised rent that might be fixed by the respondent.
The appellant objected to the offer made to Dhanji Mavji exclu sively and pointed out that the established practice of the respondent was to continue the existing tenants/ occupants on the final plots.
The respondent, however, asserted that as Dhanji Mavji had been in possession of the major portion of plot No. 5B (390 sq.
vis a vis 113.4 sq. mts.), they agreed to let the entire plot to Dhanji Mavji and, there fore, could not entertain the appellant 's request.
In the premises, by notices issued in 197 1 73, the respondent purported to terminate the tenancy of the appellant.
In 1973 74, the Municipal Corporation auctioned the right, title and interest of Jhunjhunwala and the respondent in plot No. 6 for nonpayment of property taxes.
An associate firm of the appellant M/s. Natwar Parekh & Sons purchased plot No. 6 and became the owner thereof.
The case of the appellant was that the respondent got the Corporation to wrongfully exclude the respondent 's interest from the con veyance.
The said Natwar Parekh challenged such exclusion by filing writ petition No. 52/74 in the High Court.
On 26.7.1976, the writ petition was allowed, and Natwar Parekh are now the owners of plot No. 6.
This, according to the appellant, caused resentment to the respondent, and it offered Plot No. 5A to the existing tenants, i.e. the peti tioner 's associates who held 453 sq.
and Vassanji Hirji, who held 195 sq.
The petitioner 's associates who held 70% of the plot 5A, pointed out that the said Vassanji Hirji was not interested and that the entire plot should accordingly be given to them.
The respondents declined and instead commenced eviction proceedings against all the three holders.
In or about October 1977, the respondent issued one month 's notice to the appellant to terminate the tenancy.
In December, 1977 the respondent filed suits Nos. 447 & 603/77 against the appellant in the Court of Small Causes, Bombay.
The 758 appellant filed its written statement and pleaded that the proceedings had been instituted mala fide and just to bene fit Dhanji Mavji and to harass the appellant 's associates, who had acquired the respondent 's title to plot No. 6.
Secondly, it was asserted that the premises had been ac quired and used for rice mill for 40 years and accordingly it could not be terminated by one month notice.
The lease was for manufacturing purposes.
Thirdly, it was asserted, that the notice of termination, in any event, had been waived by demanding and recovering rent/ enhanced rent.
It is asserted that at the hearing the witnesses of the respondent had admitted that the plot would be given to Dhanji Mavji if the appellant was evicted therefrom.
It also agreed that the respondent was under no statutory obligation to give the entire plot to Dhanji Mavji.
On or about 31st March, 1981 the Trial Court dismissed the suit, holding that the appellant was admittedly using the plot for a rice mill for over 50 years to the knowledge of the respondent; and it would be legitimate to infer that the letting was for a manufacturing purpose.
Hence, the notice of termination was bad.
The Trial Court did not deal with the question of mala fide.
On or about 13th January, 1984 the appellate court reversed that decision and also held that the issue of mala fide or arbitrariness was not relevant on the legality of the eviction proceedings.
Ag grieved thereby, the appellant filed a writ petition No. 710/84 under Article 227 of the Constitution.
The High Court dismissed the said writ petition by the judgment under appeal and upheld the order of eviction.
The High Court accepted the finding of the appellate court that the notice of ejectment was valid notice and there was no waiver of notice.
In our opinion, the High Court was right on this aspect and in any event under Article 227 of the Constitu tion the High Court could not have gone into this question.
We, in an appeal under Article 136 of the Constitution cannot re appraise that question.
The question that survived after the finding of the appellate court and which was urged mainly before the High Court and also in this appeal, was whether the action of the respondent in evicting the appellant and granting the prem ises in question to M/s Dhanji Mavji was proper and right.
It was contended on behalf of the appellant that the action of the respondent in terminating the appellant 's contractual tenancy had a public law character attached to it and was accordingly subject to judicial review.
It was asserted that every action of the respondent which was 'State ' within Article 12 of the Constitution, whether it be in the field of contract, or any other field, was subject to Article 14 of the Constitution and must be reasonable and taken only 759 upon lawful and relevant grounds of public interest.
In that light, it was urged that if the eviction of the appellant was not necessary in the public interest and if it had been taken pursuant to any norm or policy which does not permit eviction of the appellant, then the action is arbitrary and discriminatory and not in accordance with any policy which the respondent was enjoined to follow.
In the aforesaid background it was contended that the eviction of the appellant was not necessary in public inter est.
It appears that the eviction of the appellant was only in pursuance of a policy of the Port Trust to let out a reconstituted plot to the person who occupied the major portion and who could use it for development.
It was urged that the decision of the Port Trust to allot the entire plot to M/s Dhanji Mavji to the exclusion of the appellant (although the appellant was thereof for the past 40 years) was an arbitrary and discriminatory departure from the established policy of the Port Trust, which was to offer the plot to the existing tenants (where two or more tenants were in occupation of one plot) as joint tenants.
It was contend ed that the impugned termination was ultra vires and arbi trary.
It was contended that the exclusive allotment of the entire plot 5B to M/s Dhanji Mavji and the consequent termi nation of the appellant 's tenancy was not necessary to enable proper development of the plot as required by the Town Planning Scheme.
There was no policy requiring the entire final/reconstituted plot to be allotted exclusively to the person occupying the major portion thereof or requir ing the other existing occupants to be evicted.
Nor, it was submitted, was the allotment of the entire plot, pursuant to any such alleged policy.
On the other hand, the appellant contended that the respondent 's established policy was to offer/allot a final/ reconstituted plot for development to the existing occupants thereof as joint tenants.
It was contended that this rational policy which, according to the appellant, would have fulfilled the public interest of development in accordance with the regulations of the Town Planning Scheme and at the same time would not have required or necessitated the eviction of the existing occupants.
Contrary to the established rational policy of accommo dating tenants by offering/allotting a new plot jointly to the existing occupants/tenants, the respondent arbitrarily, it was contended, and discriminatingly did not offer the new plot 5B to M/s Dhanji Mavji and the appellant (both of whom were existing tenants/occupants of the plot) as joint ten ants, but instead wrongfully decided to give the entire plot to M/s Dhanji Mavji to the exclusion of the appellant.
"Our attention was drawn to Section 4 of the Bombay Rents, Hotel & Lodging House Rates (Control) Act, 1947, which enjoins that 760 the Act would not apply to the premises belonging to the Govt.
or to the local authorities.
By the provisions of the said Section 4, the Port Authorities were exempted from the operation of the Rent Act.
This privilege was given to the Port Trust Authorities, it was submitted, on the assumption that it would act in public interest, and would not behave like ordinary landlords.
The special privileges, powers and benefits were statutorily conferred on the Bombay Port Trust by Section (4) of the aforesaid Act.
It had those rights due to its statutory or public character, as a local authority.
Our attention was also drawn to the decision in Rampra tap Jaidayal vs Dominion of India, at 934 where the Chief Justice Chagla observed as follows: "It is not too much to assume, as the Legisla ture did in this case assume, that the very Government whose object was to protect the tenants and prevent rent being increased and prevent people being ejected, would not itself when it was the landlord do those very things which it sought to prohibit its people from doing, and therefore the underlying assumption of this exemption is that Government would not increase rents and would not eject tenants unless it was absolutely necessary in public interest and unless a particular building was required for a public purpose." This Court in Baburao Shantaram More vs The Bombay Housing Board & Anr., [1954] V SCR 572 had to consider Section 4 of the Bombay Rents, Hotel & Lodging House Rates Control Act, 1947, and so far as material for our present purposes explained the basis of exemption under Section 4 as that the Govt.
or local authority or the Board would not be actuated by any profit making motive so as to unduly enhance the rents or eject the tenants from their respective proper ties as private landlords are or are likely to be.
In other words, this Court recognised that the basis of differentia tion in favour of the public authorities like the respond ent, was on the ground that they would not act for their own purpose as private landlords do, but must act for public purpose. 'Our attention was also drawn by Mr Chinai, learned counsel for the appellant, to the observations on 'Adminis trative Law by Wade, 5th Edn.
at page 355.
It was stated therein as follows: "Statutory power conferred for public pur poses is conferred as it were upon trust, not absolutely that is to say, it can validly be used only in the right and proper way which Parliament when conferring it is presumed to have intended.
" 761 It, therefore, follows that the public authorities which enjoy this benefit without being hidebound by the require ments of the Rent Act must act for public benefit.
Hence, to that extent, this is liable to be gone into and can be the subject matter of adjudication.
Learned Addl.
Solicitor General Mr Ramaswami contended that the onus was entirely on the appellant and the burden lay on the defendant to establish that the Bombay Port Trust had terminated the tenancy or taken the proceedings in eviction not in public interest but for a collateral purpose or mala fide or that it had acted in a manner contrary to the provisions of article 14 of the Constitution.
He is right so contending.
It was further urged by Mr Ramaswamy that public law duties are owed to society at large and the nature of the body performing the functions is not determinative of public law or private law character of the action taken.
He con tended that since the provisions of the Bombay Rent Act did not apply to the premises of the Bombay Port Trust in the notice of termination no reason was required to be given either in the notice itself terminating the tenancy or in the plaint for evicting the appellant.
He further contended that originally the Bombay Port Trust was constituted as a body corporate under the provisions of the Bombay Port Trust Act, 1889 and is now constituted under the provisions of the Major Port Trusts Acts, 1988.
In both these Statutes the object for constituting the Bombay Port Trust was not to provide accommodation to persons and, therefore, the object was totally different from the object for which the Bombay Rent Act and similar enactments have been enacted.
It was, therefore, urged that since there was no obligation or duty cast upon the Bombay Port Trust to provide accommodation, there could be no question of acting in Government charac ter.
It was urged that the respondent did not enjoy any special privileges/powers of benefits vis a vis such activi ties by virtue of its being a local Body or Government character.
In the premises, it was contended that such a body stands on the same footing as any other citizen and will, in respect of such activity, not be subjected to public law duty.
We are unable to accept the submissions.
Being a public body even in respect of its dealing with its tenant, it must act in public interest, and an infraction of that duty is amenable to examination either in civil suit or in writ jurisdiction.
Our attention was drawn to the observations of this Court in Radhakrishna Agarwal & Ors.
vs State of Bihar & Ors.
, ; Reliance was also placed on the observations of this Court in Life 762 Insurance Corpn.
of India vs Escorts Ltd. & Ors., ; , in support of the contention that the public corporations ' dealing with tenants is a contractual dealing and it is not a matter for public law domain and is not subject to judicial review.
However, it is not the correct position.
The Escorts ' decision reiterated that every action of the State 'or an instrumentality of the State, must be informed by reason.
Indubitably, the respondent is an organ of the State under article 12 of the Constitution.
In appropri ate cases, as was observed in the last mentioned decision, actions uninformed by reason may be questioned as arbitrary in proceedings under article 226 or article 32 of the Constitu tion.
But it has to be remembered that article 14 cannot be construed as a charter for judicial review of State action, to call upon the State to account for its actions in its manifold activities by stating reasons for such actions.
The contractual privileges are made immune from the protection of the Rent Act for the respondent because of the public position occupied by the respondent authority.
Hence, its actions are amenable to judicial review only to the extent that the State must act validly for a discernible reason not whimsically for any ulterior purpose.
Where any special right or privilege is granted to any public or statutory body on the presumption that it must act in cer tain manner, such bodies must make good such presumption while acting by virtue of such privileges.
Judicial review to oversee if such bodies are so acting is permissible.
The field of letting and eviction of tenants is normally governed by the Rent Act.
The Port Trust is statutorily exempted from the operation of Rent Act on the basis of its public/Government character.
The legislative assumption or expectation as noted in the observations of Chagla C.J. in Rampratap Jaidayal 's case (supra) cannot make such conduct a matter of contract pure and simple.
These corporations must act in accordance with certain constitutional conscience and whether they have so acted, must be discernible from the conduct of such corporations.
In this connection, reference may be made on the observations of this Court in S.P. Rekhi vs Union of India, ; , reiterated in M.C. Mehta & Anr.
vs Union of India & Ors.
, [1987] 1 SCC 395, wherein at p. 148, this Court observed: "It is dangerous to exonerate corporations from the need to have constitutional con science; and so, that interpretation, language permitting, which makes governmental agencies, whatever their mien amenable to constitutional limitations must be adopted by the court as against the alternative of permitting them to flourish as an imperium in imperio.
" 763 Therefore, Mr Chinai was right in contending that every action activity of the Bombay Port Trust which constituted "State" within article 12 of the Constitution in respect of any right conferred or privilege granted by any Statute is subject to article 14 and must be reasonable and taken only upon lawful and relevant grounds of public interest.
Reli ance may be placed on the observations of this Court in E.P. Royappa vs State of Tamil Nadu, ; ; Maneka Gandhi vs Union .of
India, [1978] 2 SCR 621; R.D. Shetty vs The International Airport Authority of India & Ors., ; ; Kasturi Lal Lakshmi Reddy vs State of J & K & Anr., ; and Ajay Hasia vs Khalid Mujib Sehravardi & Ors. etc.
; , Where there is arbitrariness in State action, article 14 springs in and judi cial review strikes such an action down.
Every action of the Executive Authority must be subject to rule of law and must be informed by reason.
So,, whatever be the activity of the public authority, it should meet the test of article 14.
The observations in paras 101 & 102 of the Escorts ' case (supra) read properly do not detract from the aforesaid principles.
The High Court had relied on the observations of this Court in Kasturi Lal Lakshrni Reddy vs State of Jammu & Kashmir & Anr., (supra) that the State was not totally freed of the duty to act fairly and rationally, merely because it could do so under a contract.
The High Court stated that though it might be accepted that a public body like the respondent should not act unreasonably or unfairly but it did not follow that every time they decided to take action against the contractual tenants, they had to decide the said action in terms of fairness, equity and good faith.
In support of this proposition, reliance was placed on the observations of this Court in L.I.C vs Escorts, (supra).
In this connection, Mr Chinai appearing for the appellant reiterated before us as he did before the High Court, that the basis of the legitimate assumption or expectation of which the statutory exemption had been granted by the Legis lature to the Bombay Port Trust provided a guideline or touch stone by which the conduct of the public authority which had been granted exemption, should be judged.
And, according to him, the necessity of eviction in the instant case, must have been only in public interest.
Reliance was placed on several decisions referred to hereinbefore.
We are inclined to accept the submission that every activity of a public authority especially in the background of the assumption on which such authority enjoys immunity from the rigours of the Rent Act, must be informed by reason and guided by the public interest.
All exercise of discre tion or power by public authorities as the respondent, in respect of dealing with tenants in respect of which they have been treated separately and distinctly from other landlords on the assump 764 tion that they would not act as private landlords must be judged by that standard.
If a governmental policy or action even in contractual matters fails to satisfy the test of reasonableness, it would be unconstitutional.
See the obser vations of this Court in Kasturi Lal Lakshrni Reddy, (supra) and R.D. Shettv vs The International Airport Authoritv of India & Ors., ; at 1034.
Learned Additional Solicitor General reiterated on behalf of the respondent that no question of mala fide had been alleged or proved in these proceedings.
Factually, he is right.
But it has to be borne in mind that governmental policy would be invalid as lacking in public interest, unreasonable or contrary to the professed standards and this is different from the fact that it was not done bona fide.
It is true as learned Addl.
Solicitor General contended that there is always a presumption that a governmental action is reasonable and in public interest.
It is for the party challenging its validity to show that the action is unrea sonable, arbitrary or contrary to the professed norms or not informed by public interest, and the burden is a heavy one.
In this background the contention of the appellant has been that its eviction was not necessary in public interest, and further that the eviction was only in pursuance of an alleged policy on the part of the Port Trust to let out the reconstituted plot to the person who occupied the major portion, which, according to the appellant, was not in consonance with the obligation of the Trust to take action only in public interest.
It was contended that eviction for development with least dislocation, should have been the aim and that would have served the public purpose better.
On behalf of the appellant it was contended that before the Trial Court it was established that both the appellant and M/s Dhanji Mavji had been tenants of the Port Trust on the original plot No. 4 since 1932, and in fact the appellant was older tenant.
Our attention was drawn to para 16 of the appellant 's written statement, Vol.
2 Paper Book, page 35.
In this context, it was submitted that the decision of the Port Trust was not based on public purpose/interest, and as such was ultra vires of the powers of the Port Trust.
It was contended that such a plea was justiciable in all civil suits.
On behalf of the Port Trust authorities, however, the submission was that there was no obligation under the Bombay Port Trust Act to provide accommodation.
So, there cannot be any governmental character.
This we have already dealt with.
Learned Add|.
Solicitor General submitted that in evi dence it has been mentioned by Katara (P.W. 1 at page 43, Vol.
II) that the plot had been allotted to Dhanji Mavji since it was the policy of the Bombay Port Trust to allot a re constituted plot to a person occupying 765 a major portion of such plot.
There was no challenge to this evidence .in cross examination.
On the other hand, he con tended that there was no evidence on the alleged policy of the Port Trust of giving plots on joint tenancy to all occupants.
According to him, in the letters addressed by the Port Trust at pp. 82, 123, 128 of Vol. 1 and in the letters by and on behalf of the appellant and/or their alleged associate concerns at pp.
14 1 to 147 they have specifically admitted that there was a policy of the Port Trust to allot plots to the occupants of the major portions thereof and in fact a grievance has been made by them that in accordance with the said policy of the Bombay Port Trust, Plot No. 5A was not being allotted to the associates of the appellant.
In that view of the matter even under the scope of judicial review, it was contended, whether it should have been given on joint tenancies or not, is not a matter which could be gone into by the Court.
Reliance was placed on the observa tions of Lord Justice Diplock in Council of Civil Service Unions vs Minister for the Civil Service, at 950, where the learned Lord Justice classified 8 grounds subject to control of judicial review, namely, illegali ty, irrationality and procedural impropriety.
Learned Addl.
Solicitor General is right, in our opinion, in that we cannot really substitute a decision reached by a fair proce dure keeping the policy of the respondent in mind by a different decision only on the ground that the decision which appeals to the court, is a better one.
Reliance was placed on the observations of Lord Chancellor Lord Hailsham in Chief Constable of the North Wales Police vs Evans, ; In our opinion, it is necessary to remem ber that judicial review, in the words of Lord Brightman in that case, is not concerned with the decision, but with the decision making process.
As observed by Prof. Dias in 'Juri sprudence ' (5th Edn.
at p. 91) unless the restriction on the power of the court is observed, the court would under the guise of preventing the abuse of power, be itself guilty of usurping power which does not belong to it.
It is therefore necessary to bear in mind the ways and means by which the court can control or supervise the judicial action of any authority which is subject to judicial control.
In this connection, it is necessary to refer to the observations of Lord Justice Templeman in re Preston vs I.R.C., and the observations of Lord Justice May in Regina vs Chief Constable of the Merseyside Police, It is not within the purview of a court to substitute a decision taken by a constituted authority simply because the decision sought to be substituted is a better one.
Learned Addl.
Solicitor General, in our opinion, is therefore right in contending that the appellant should not be allowed to contend that the decision of the Bombay Port Trust to allot the plot to the major holder is not one of the feasible means of achieving the objectives of development.
It was not open to the appellant to contend 766 that the Bombay Port Trust could have framed a better policy in a way in which both the goals, development and non evic tion of existing tenants, could have been achieved.
Furthermore, we have to bear in mind that joint allot ment for the purpose of development pre supposes coopera tion.
In this connection, it is necessary to remember that Mr Singhvi, appearing for the intervener, in C.M.P. No. 19447/88 indicated that the joint development was not possi ble because they were not willing to take it jointly.
He also pointed out that the appellant was aware that the decision to allot this plot in his client 's favour had been taken as early as 1973 and that it was within the knowledge of the present appellant that they had also put up construc tions thereon at substantial cost.
He urged that, though it is true that the lease in favour of the petitioner was terminated and the suit filed only in 1977, the fact is that the appellant took no step earlier to have the allotment in favour of his clients cancelled.
This, he has urged, is also a ground for non interference at this stage.
We are inclined to agree.
Our attention was drawn to the fact that Dhanji Mavji had held 80% of the re constituted plot.
The plot 5B had been developed inasmuch as a building of ground plus 5 upper storeys had been erected as was the maximum possible not withstanding the fact that the appellant had not yet surren dered their portion.
As against this, on plot 5A where the Bombay Port Trust offered a joint tenancy to the three occupants, since there was no occupant holding a major portion thereof, there had been no development whatsoever and in fact there has been litigation going on to remove all the 3 occupants.
In that view of the matter the Bombay Port Trust, perhaps, was justified in coming to the conclusion that the only possible way to develop the properties of the Bombay Port Trust in compliance with the Town Planning Scheme by allotting plots to holders of major portions thereon.
Such a decision cannot be faulted.
The Town Planning Scheme came into force in 1957.
Plot 5 was divided into Plot 5A and 5B in 1963.
The Town Planning Act had been enacted to meet the requirements for planning, development and use of land.
Having regard to Sections 2(7), 2(13), 2(17), 2(18), 2(21), 2(22), 2(27), 13, 14, 22, 59, 65, 88, 89, & 159, it appears that one of the purposes was the extinguishment of the tenancies of the Port Trust, and as such tenants of plot 5A and 5B were liable to eviction.
The Port Trust continued them as monthly tenants for many years before formulating a policy to develop the plots by offering them to major holders.
In pursuance to that Scheme, regulations have been flamed under Section 169 of the Town Planning Act.
Our attention was placed on some of these regulations.
It is contended that it was viewed that 767 plot of land of less than 500 sq.
yards out of the Town Planning Scheme cannot be allotted.
In that view of the matter it is a possible view and we need not go beyond this.
In that context even though we reiterate that the Port Trust must act reasonably and in adherence to a policy which serves the public purpose on the assumption of which exemp tion was granted to it from the Rent Act, while dealing with the tenants or occupants, it cannot be said that the Port Trust has acted improperly.
In that light the decision of the High Court must be affirmed though on a different empha sis.
In the view that we have taken, it is not necessary for us to go into the question whether under article 227 of the Constitution, it was open to the High Court to go into the question of constitutional validity for which reliance was placed on the observations of this Court in Venkatlal G. Pittie & Anr.
vs Bright Bros (P) Ltd. ; at 569 and Khalil Ahmed Bashir Ahmed vs Tufelhussein Samasbhai Sarangpurwala, ; Reliance was also placed by Mr Chinai on the observations of the House of Lords in England in Wandsworth London Borough Council vs Winder, ; at 505 507.
In that case the local authority was under the agreement itself, required to fix rent under the statutory provision.
It committed a breach thereof.
Hence, it was held there that that was a breach of a con tractual obligation enforceable under the Private Law and, therefore, justiciable.
As we look upon the facts of this case, there was an implied obligation in respect of dealings with the tenants/occupants of the Port Trust authority to act in public interest/purpose That requirement is fulfilled if it is demonstrated that the Port Trust Authorities have acted in pursuance of a policy which is referable to public pur pose.
Once that norm is established whether that policy is the best policy or whether another policy was possible, is not relevant for consideration.
It is, therefore, not neces sary for our present purposes to dwell on the question whether the obligation of the Port Trust Authorities to act in pursuance of a public purpose was of public law purpose or a private law purpose.
Under the Constitutional scheme of this country the Port Trust Authorities were required by relevant law to act in pursuance of public purpose.
We are satisfied that they have proceeded to so act.
We must record that learned Addl.
Solicitor General made a statement that irrespective of the result of this appeal, the Port Trust Authorities of Bombay, will consider reasonably granting of an alternative site to the appellant, if such an application is made to them.
In the view that we have taken this appeal must, there fore, fail and is accordingly dismissed.
The C.M.P. No. 19447/88 is disposed of 768 by directing that the applicants are permitted to intervene and their submissions have been considered.
In the facts and the circumstances of the case, the parties will pay and bear their own costs.
All interim orders are vacated.
RANGANATHAN, J. I respectfully agree with the conclusion of my learned brother Sabyasachi Mukharji, J.
However, I would like to add a word of reservation.
The principal argument which Shri Chinai addressed to us at great length on behalf of appellant was that the relationship between the appellant and the Port Trust was not purely contractual and in the realm of private law.
He urged that the Port Trust, having been granted an exemption from the provisions of the rent control acts on certain public grounds, is not at liberty to take action to evict the petitioner without being accountable therefore and that its action is in the realm of public law and hence liable to judicial review.
He submitted that the decision of this Court in the Escorts case, , is not inconsistent with this contention.
The learned Additional Solicitor General contested the above proposition on principle and refuted the sugges tion that the Port Trust was under any obligation to show that its action was bona fide, and not arbitrary or unrea sonable but could be justified on grounds of public inter est.
He submitted that on the facts of the present case, the state of the pleadings at the various stages and its own findings on the facts, the High Court was not called upon to go into the larger issue at all and that its observations in this regard were purely casual.
He submitted, however, that, without prejudice to these contentions, he would be willing to satisfy us on the facts of the present case that the action of the Port Trust was bona fide and based on policy and reason.
He addressed us on this aspect and I agree, with respect, with the conclusion of my learned brother Sabyasachi Mukharji, J. that, on the facts of the present case, the action of the Port Trust was not improper and that there are no grounds to interfere with the same.
In view of the above conclusion on the merits and in view of my opinion that we have not heard full arguments on both sides on the general propositions contended for by Shri Chinai as to the parameters and scope of judicial review in such matters which are issues of far reaching importance, I would like to refrain from expressing any final and conclud ed opinion on these aspects though, prima facie, I am also inclined to think, as held by my learned brother that there is considerable force in them.
R.S.S. Appeal dismissed.
| IN-Abs | The respondent Board of Trustees of the Port of Bombay is a statutory authority, and as such has been exempted from the operation of the Bombay Rents, Hotel & Lodging House Rates (Control) Act, 1947.
The appellant has been the lessee of the respondent since about 1932 in respect of part of the original plot No. 4 (now plot 5B) which adjoins plot No. 6 tenanted by M/s Bombay Bharat & Swadeshi Rice Mills.
In or about 1933 34, M/s Bombay Bharat & Swadeshi Rice Mills took over the appellant, and a rice mill was started on appel lant 's part of plot No. 4 and plot No. 6.
In December 1957, the Town Planning Scheme No. 1 in Bombay City came into force, and the original plot No. 4 was reconstituted into final plot No. 5.
In or about 1963 the respondent sub divided plot No. 5 into final plot 5A and final plot 5B, and as a result of the sub division M/s Dhanji Mavji became the tenant/occupant of a major portion of plot 5B, In 1970 71 the respondent agreed to let the entire plot 5B, including the portion which had been let to and was in possession of the appellant since 1933, to Dhanji Mavji.
The appellant objected to the offer made to Dhanji Mavji but the respondent asserted that as Dhanji Mavji had been in possession of the major portion of plot No. 5B, it agreed to let the entire plot to them.
In the premise, the respondent purported to terminate the tenancy of the appel lant in respect of its .
portion of plot 5B, and later filed suit for eviction.
The Trial Court dismissed the suit hold ing that it would be legitimate to infer that the letting was for a manufacturing purpose and hence the notice of termination was bad.
The appellate court reversed that decision.
Aggrieved thereby, the appellant filed a writ petition under Article 227 of the Constitution.
The High Court accepted the finding of the appellate court that the notice of ejectment was valid notice and there was no waiver of notice.
752 Before this Court, it was contended on behalf of the appellant that (1) the exemption from the operation of the Rent Act was given to the Port Trust Authority on the as sumption that it would act in public interest and would not behave like ordinary landlords; (2) the action of the re spondent in terminating the appellant 's contractual tenancy had a public law character attached to it and was according ly subject to judicial review; (3) every action of the respondent which was 'State ' within Article 12 of the Con stitution, whether it be in the field of contract or any other field, was subject to Article 14 of the Constitution and must be reasonable and taken only upon lawful and rele vant grounds of public interest; (4) the respondent 's estab lished rational/policy was to offer/allot a final/reconsti tuted plot for development to the existing occupants thereof as joint tenants; and (5) the eviction of the appellant was not necessary in the public interest for the proper develop ment of the plot as required by the Town Planning Scheme.
On behalf of the respondent it was contended that (1) the onus was entirely on the appellant to establish that the Bombay Port Trust had terminated the tenancy or taken the proceedings in eviction not in public interest but for a collateral purpose or mala fide or that it had acted in a manner contrary to the provisions of Article 14; (2) since there was no obligation or duty cast upon the Bombay Port Trust to provide accommodation, there could be no question of acting in governmental character, and such a body stood on the same footing as any other citizen and would, in respect of such activity, not be subjected to public law duty; (3) the respondent 's dealing with tenants was a con tractual dealing and it was not a matter for public law domain and was not subject to judicial review; and (4) it was the policy of the respondent to allot the entire re constituted plot to one person who was occupying the major portion of such plot, for its proper development.
Dismissing the appeal, it was, HELD: Per Sabyasachi Mukharji, J., (Kania, J. agreeing) (1) Bombay Port Trust being a public body, even in respect of its dealing with its tenants, it must act in public interest, and an infraction of that duty is amenable to examination either in civil suit or in writ jurisdiction.
[761G] Rampratap Jaidayal vs Dominion of India, [1952] 54 Bom.
L.R. 927; and Baburao Shantaram More vs The Bombay Housing Board, [1954] V SCR 572, referred to.
753 (2) Where any special right or privilege is granted to any public or statutory body on the presumption that it must act in a certain manner.
such bodies must make good such presumption while acting by virtue of such privilege.
Judi cial review to oversee if such bodies are so acting is permissible. ]762D E] Radhakrishna Agarwal & Ors.
vs State of Bihar & Ors.
, ; and Life Insurance Corporation of India vs Escorts Ltd. & Ors., [1985] 3 Supp SCR 909, referred to.
(3) The field of letting and eviction of tenants is normally governed by the Rent Act.
The Port Trust is statu torily exempted from the operation of the Rent Act on the basis of its public/Governmental character.
Every action/activity of the Bombay Port Trust which constituted "State" within Article 12 of the Constitution in respect of any right conferred or privilege granted by any statute is subject to Article 14 and must be reasonable and taken only upon lawful and relevant grounds of public interest.
[762E F; 763A B] S.P. Rekhi vs Union of India, ; and M.C. Mehta & Anr.
vs Union of India & Ors.
, [1987] 1 SCC 395, referred to.
(4) Where there is arbitrariness in State action, Arti cle 14 springs and judicial review strikes such an action down.
Every action of the Executive authority must be sub ject to rule of law and must be informed by reason.
So, whatever be the activity of the public authority, it should meet the test of Article 14.
[763C] All exercise of discretion or power by public authori ties as the respondent, in respect of dealing with tenants in respect of which they have been treated separately and distinctly from other landlords on the assumption that they would not act as private landlords must be judged by that standard.
[763H; 764A] If a governmental policy or action even in contractu al matters fails to satisfy the test of reasonableness, it would be unconstitutional.
[764A B] E.P. Royappa vs State of Tamil Nadu, ; ; Maneka Gandhi vs Union of India, [1978] 2 SCR 621; R.D. Shetty vs The International Airport Authority of India & Ors., ; ; Kasturi Lal Lakshmi Reddy vs State of J & K, ; and 754 Ajay Hasia vs Khalid Mujib Sehravardi, ; , referred to.
(7) Governmental Policy would be invalid as lacking in public interest, unreasonable or contrary to the professed standards and this is different from the fact that it was not done bona fide.
[764B C] (8) There is always a presumption that a governmental action is reasonable and in public interest.
It is for the party challenging its validity to show that the action is unreasonable, arbitrary or contrary to the professed norms or not informed by public interest, and the burden is a heavy one.
[764C D] (9) Judicial review is not concerned with the decision, but with the decision making process.
Unless this restric tion on 'the power of the court is observed, the court under the guise of preventing the abuse of power, would be itself guilty of usurping power which does not belong to it.
[765E F] (10) The Court cannot really substitute a decision reached by a fair procedure keeping the policy of the re spondent in mind by a different decision only on the ground that the decision which appeals to the court is a better one.
[765G] Council of Civil Service Unions vs Minister for the Civil Service, ; Chief Constable of the North Wales Police vs Evans, ; In re Pres ton vs I.R.C., and Regina vs Chief Consta ble of the Merseyside Police, , referred to.
(11) The Bombay Port Trust, perhaps, was justified in coming to the conclusion that the only possible way to develop the properties of the Bombay Port Trust in compli ance with the Town Planning Scheme was by allotting plots to holders of major portions thereon.
Such a decision cannot be faulted.
[766E F] (12) Upon the facts of the instant case, there was an implied obligation in respect of dealings with the tenants/occupants of the Port Trust Authority to act in public interest/purpose.
That requirement is fulfilled if it is demonstrated that the Port Trust authorities have acted in pursuance of a policy which is referable to public pur pose.
Once that norm is established whether that policy is the best policy or whether another policy was possible, is not relevant for consideration.
[767E F] 755 (13) Under the constitutional scheme of this country, the Port Trust Authorities were required by relevant law to act in pursuance of public purpose.
This Court is satisfied that they have proceeded to so act.
[767G] Per section Ranganathan, J. (Concurring) On the facts of the instant case, the action of the Port Trust was not improper and there are no grounds for inter ference.
[768F]
|
vil Appeal Nos.
5 135 15 (NT) of 1975.
From the Judgment and Order dated 24.9.1973 of the Gujarat High Court in Income Tax Reference No. 31 of 1971.
T.A. Ramachandran, Mrs. A.K. Verma and D.N. Mishra for the Appellant.
C.M. Lodha, K.C. Dua and Ms. A. Subhashini for the Respondent.
The Judgment of the Court was delivered by PATHAK, CJ.
These appeals by certificate granted by the High Court of Gujarat are directed against the judgment of the High Court 722 answering the following question in favour of the Revenue and against the assessee: "Whether, on the facts and in the circum stances of the case, the income of the Society from ginning and pressing was exempt under section 81(i)(c) of the Income Tax Act, 1961, as it stood prior to its amendment on 1st April, 1968?" The assessee is a. co operative society constituted under the Cooperative Societies ACt.
The objects of the society intend that it should press cotton and pack the bundles for its individual members as well as other custom ers, to Use its machinery for any useful work of its mem bers, and to sell raw cotton seeds and other agricultural products.
The assessee possesses a ginning and pressing factory to cater to the needs of its members.
It gets raw cotton from the members, and ginns and presses the cotton for marketing on behalf of its members.
For rendering the services of ginning and pressing before selling the goods, the assessee charges the members a certain amount by way of ginning and pressing charges.
It also charges commission for the sale of the finished product.
In the course of assessment for the assessment years 1961 62 to 1963 64, the assessee claimed that the receipts from the ginning and pressing activities were exempt under section 81(i)(c) of the Income Tax (as it stood then).
The In come Tax Officer, however, declined to accept the claim on the ground that the assessee had been carrying out the process of ginning and pressing with the aid of power.
The Appellate Assistant Commissioner confirmed orders of the Income Tax Officer.
In second appeal the Income Tax Appel late Tribunal held that having regard to the circumstance that the receipts were from members only, that there was a general market for ginning and pressing cotton only and no evidence appeared of any dealing in raw cotton, the ginning and pressing activities were to be regarded as an integral part of the marketing activity, and therefore the receipts from those activities were not liable to tax by virtue of section 81(i)(c).
At the instance of the Revenue the Appellate Tribunal referred the question of law set out earlier to the High Court of Gujarat for its opinion.
For the purpose of contention raised before the High Court, and again before us the following provisions of section 81 seem relevant: "81.
Income of Co operative societies Income tax shall 723 not be payable by a co operative society (i) in respect of the profits and gains of business carried on by it, if it is (c) a society engaged in the marketing of the agricultural produce of its members; or (e) a society engaged in the process ing without the aid of power of the agricul tural produce of its members; or Provided that, in the case of a co operative society which is also engaged in activities other than those mentioned in this clause, nothing contained herein shall apply to that part of its profits and gains as is attributa ble to such activities and as exceeds fifteen thousands rupees.
" The High Court proceeded on the view that if a Society carries on certain activities which are exempted activities according to cls.
(a) to (f) of section 81(i) and certain other activities which are not exempted, the profits and gains attributable to such non exempted activities must necessari ly be taxed.
The High Court observed that the assessee carried on ginning and pressing of cotton with the aid of power, and even if those activities are regarded as ancil lary or incidental to its marketing activity they would not come within the category of exempted activities in view of the proviso, and therefore they would have to be taxed.
We find ourselves unable to accept the view taken by the High Court.
It is apparent that the ginning, and pressing was part of the integral process of marketing.
It was an activi ty incidental or ancillary to the marketing of the produce of its members.
The ginning and pressing of the raw cotton was never regarded as a distinct process.
When they deliv ered the raw cotton to the assessee for marketing, ginning and pressing was regarded as part of that process.
The members did not take back the cotton after it was ginned and pressed.
They paid only the costs of ginning and pressing.
All the raw cotton s6 724 treated by the assessee was received from its members, and it was only such ' cotton of its members which was marketed by the assessee.
The sale of the cotton was effected by the assessee to the outside world and not to its members.
The object of section 81(i) was to encourage and promote the growth of cooperative societies, and consequently a liberal con struction must be given to the operation of that provision.
The proviso to section 81(i) operates to exclude from the exemp tion those activities which can be regarded as separate and distinct from the activities enumerated in clauses (a) to (f) of section 81(i).
If the activity in question is incidental or ancillary to one of the activities mentioned in those clauses, the proviso, in our opinion, will not apply.
We may refer in this connection to the observations of the Karnata ka High Court in Addl.
Commissioner of Income Tax, Karnataka vs Ryots Agricultural Produce Co operative Marketing Society Ltd., where reference has been made to the broad meaning of the expression 'marketing ' appearing in cl.
(c) of section 81(i), and it has been explained that in order to make agricultural produce fit for marketing the activi ties involved in enabling that to be done must be regarded as involved in the activity of marketing itself.
Reference may also be made to Commissioner of Income tax, Gujarat IV vs Karjan Co op.
Cotton Sale, Ginning & Pressing Society Ltd., where the concept of 'marketing ' was given a meaning which included the ginning and pressing of raw cotton and was not confined to the selling activity alone.
An attempt was made by learned counsel for the Revenue to raise the point that ginning and pressing into cotton bales changed the character of the cotton and therefore, what was marketed was not the agricultural produce of the members of the assessee.
This point was not raised at any earlier stage by the Revenue and cannot be permitted to be taken now.
We are of opinion that the assessee is entitled to the exemption of the profits and gains derived from the activity of the entire business of ginning and pressing of cotton and marketing it by virtue of cl.
(c) of section 81(i) of the Income tax Act, and that the High Court erred in holding to the contrary.
In the result the appeals are allowed and the question referred by the Income tax Appellate Tribunal to the High Court must be answered in the affirmative, in favour of the assessee and against the Revenue.
The assessee is entitled to its costs.
L S.S. Appeals allowed.
| IN-Abs | The assessee, a co operative society, was rendering the service of ginning and pressing raw cotton received from its members and marketing the finished product on their behalf.
The assessee charged the members a certain amount by way of ginning and pressing charges and further charged commission for the sale of the finished product.
For the assessment years 1961 62 to 1963 64, the assessee claimed that the receipts from the ginning and pressing activities were exempt under section 81(i)(c) of the Income Tax Act, 1961 (as it stood then) which provided that income tax shall not be payable by a co operative society in respect of the profits and gains of business carried on by it, if it was a society engaged in the marketing of the agricultural produce of its members.
The Income Tax Officer declined to accept the claim on the ground that the assessee had been carrying out the process of ginning and pressing with the aid of power.
The Appellate Assistant Commissioner confirmed the orders of the Income Tax Officer.
The Appellate Tribunal allowed the second appeal of the assessee holding that the ginning and pressing activities were to be regarded as an integral part of the marketing activity.
The High Court, while deciding the reference in favour of the Revenue, observed that the assessee carried on ginning and pressing of cotton with the aid of power, and even if those activities were regarded as ancillary or incidental to its marketing .activity, they would not come within the category of exempted activities in view of the proviso to the section.
Allowing the appeals, this Court, HELD: (1) Ginning and pressing was part of the integral process of marketing.
It was an activity incidental or ancillary to marketing, 721 which included the ginning and pressing of raw cotton and was not confined to selling activity alone.
The members did not take back the cotton after it was ginned and pressed.
All the raw cotton so treated was marketed by the assessee on behalf of its members to the outside world and not to its members.
[723G H; 724A] Addl.
Commissioner of Income Tax, Karnataka vs Ryots Agricultural Produce Co operative Society Ltd., ; Commissioner of Income Tax, Gujarat IV vs Karjan Co op.
Cotton Sale, Ginning & Pressing Society Ltd., , referred to.
(2) The object of section 81(i) of the Income Tax Act, 1961 was to encourage and promote the growth of co operative societies, and consequently a liberal construction must be given to the operation of that provision.
[724A B] (3) The proviso to section 81(i) operates to exclude from the exemption those activities which can be regarded as separate and distinct from the activities enumerated in clauses (a) to (f) of section 81(i).
If the activity in question is inciden tal or ancillary to one of the activities mentioned in those clauses, the proviso will not apply.
[724B] (4) The assessee is entitled to the exemption of the profits and gains derived from the activity of the entire business of ginning and pressing of cotton and marketing it by virtue of cl.
(c) of section 81(i) of the Incometax Act, and the High Court erred in holding to the contrary.
[724F G]
|
vil Appeal No. 1154 1155 (N) of 1974.
From the Judgment and Order dated 30.6.1972 of the Court of Judicial Commissioner of Goa, Daman and Diu in Civil Revision Application Nos. 13 and 14 of 1972.
Anil Dev Singh and Miss A. Subhashini for the Appellant.
S.K. Mehta and Dhruv Mehta for the Respondent.
The Judgment of the Court was delivered by SINGH, J.
This appeal is directed against the judgment and order of the Judicial Commissioner, Goa dated 30.6.1972 setting aside the order of the Civil Judge, Senior Division, Panaji and declaring that the suit instituted by the appel lant had abated.
The appellant Bank instituted a suit before the Civil Judge for recovery of an amount of Rs. 63,315 against Vi naique Naique, advanced to him as loan by it.
Vinaique Naique, the defendant contested the suit, issues were framed and evidence was being recorded.
On 26.2.
1970 statement of PW I was recorded and the case was adjourned to another date but on that date also the case was adjourned to 23.7.1970.
The suit was again adjourned on 23.7.
1970 on the ground that the defendant Vinaique Naique was indisposed and 813 was hospitalised.
Thereafter, the suit was taken up for hearing on 4.11.
On that date the defendant 's pleader informed the Court orally that the defendant had died at Margaon but did not give any further details.
The Custodian of the appellant Bank Panaji deputed his clerk to Margaon to collect necessary information and to obtain death certifi cate from the Civil Registration Office if the defendant was found to be dead.
The clerk visited Margaon on 5th and 6th November, 1970 and on enquiry he came to know that the defendant had died on 4.8.1970, he obtained death certifi cate from the Civil Registration Office on 6.11.1970 and handed over the same to the Custodian of the Bank on 7th November, 1970.
Since 8th November, 1970 was Sunday, the Custodian could not file the same in the court.
The appel lant made application under Order XXII Rule 4 of CPC on 9th November, 1970 for bringing on record Smt.
Nalini Bai Naique as the legal representative of the deceased original defend ant.
He made another application for condoning delay in making the application duly supported by affidavit.
The appellant made another application requesting the court to treat his earlier application made for condonation of delay as an application under Order 22 Rule 9 for setting aside the abatement of the suit.
Nalini Bai Naique late defendant 's widow contested the applications on the ground that the news regarding the death of Vinaique Naique had been published in the local newspapers and the plaintiff had knowledge of his death and further the suit had abated on the expiry period of 30/60 days of the death of original defendant as no application for setting aside abatement had been filed within time.
Meanwhile the appellant made another application for adding the names of six heirs four sons, one major son and three minor sons and two minor daughters of the deceased defendant Vinaique Naique on the ground that earlier the appellant had no knowledge about the sons and daughters of the deceased defendant.
On behalf of Mrs. Nalini Bai it was vehemently asserted before the trial court that the application for substitution was not maintainable as it was filed beyond time, and in the alternative she was not the legal heir of the deceased defendant but she was only his 'Meeira ' and as other legal heirs of the deceased defendant were not brought on record within time the appli cation for bringing the sons and daughters on record was liable to be rejected.
The trial Judge on an elaborate consideration of the rival contentions held that even though the news relating to the death of original defendant Vi naique Naique had been reported in local newspapers but in view of the affidavit of Custodian and other material on record the appellant Bank came to know of the death of the defendant only on 4. ] 1. 1970 from the deceased defendant 's lawyer in the court and within four days thereof application for 814 bringing the legal representative of the deceased defendant was made, therefore, the application made under Order XXII Rule 4 was not barred by time.
The learned Judge further held that since Smt.
Nalini Bai Naique one of the legal representative of the deceased defendant was brought on record within time, the sons and daughters could also be impleaded as defendants along with her.
On these findings the learned Judge by his order dated 16.11.
1971 set aside the abatement of the suit and directed for substituting the name of the widow Smt.
Nalini Bai Naique along with the name of four sons and two daughters as defendants to the suit in place of deceased defendant Vinaique Naique.
Mrs. Nalini Bai filed a revision application under Section 115 of Code of Civil Procedure before the Judicial Commissioner of Goa at Panaji against the aforesaid order of the trial Judge.
The Judicial Commissioner by his order dated 30.6.1972 set aside the order of the trial Judge and declared the suit to have abated.
Aggrieved the plaintiff Bank has preferred this appeal after obtaining special leave.
The learned Judicial Commissioner interfered with the order of the trial Judge on the sole ground that Mrs. Nalini Bai whose name was proposed to be brought on record was not legal representative of the deceased Vinaique Naique as under the Portugees Law she being the widow had acquired Meeira rights and her status was not that of "Cabeca De Casal" (Head of the family and administrator) of the other heirs of deceased Vinaique Naique.
Since all the heirs of the deceased defendant had not been brought on record along with Mrs. Nalini Bai within time the suit abated as Mrs. Nalini Bai alone could not represent the estate of the deceased defendant.
The learned Judicial Commissioner did not interfere with other findings recorded by the trial Judge, instead he set aside the order of the trial Judge on the sole ground as aforesaid, and declared the suit to have abated.
After hearing learned counsel for the parties, we are of opinion that the learned Judicial Commissioner committed serious error of law in setting aside the order of the trial Judge.
"Legal representative" as defined in Civil Procedure Code which was admittedly applicable to the proceedings in the suit, means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased and where a party sues or is sued in a representative character the person on whom the estate devolves on the death of the party so suing or sued.
The definition is inclusive in character and its scope is wide, it is not confined to legal heirs only instead it stipulates a person who may or may not be heir, competent to inherit the property of the deceased but he should represent the 815 estate of the deceased person.
It includes heirs as well as persons who represent the estate even without title either as executors or administrators in possession of the estate of the deceased.
All such persons would be covered by the expression "legal representative".
If there are many heirs, those in possession bona fide, without there being any fraud or collusion, are also entitled to represent the estate of the deceased.
In the instant case it is not disputed that under the Portugees Law of Inheritance which was applicable to Goa at the relevant time Mrs. Nalini Bai had acquired "Meeira rights" according to which she had acquired half share in the estate left by the deceased Vinaique Naique and the remaining half share was inherited by sons and daughters of the deceased who were subsequently brought on record.
On the admitted facts Mrs. Nalini Bai therefore represented the estate of the deceased Vinaique Naique.
Once the name of Mrs. Nalini Bai was brought on record within time and the application for setting aside abatement was allowed by the trial Judge, the suit could proceed on merits and the mere fact that the remaining legal representatives were brought on record at a subsequent stage could not render the suit defective.
The Custodian of the appellant Bank had no knowl edge that there were other legal representatives of deceased defendant along with Mrs. Nalini Bai.
He had filed affidavit that on making diligent and bona fide inquiry, he had come to know that Nalini Bai was the sole legal representative but later on he acquired knowledge that the deceased had left four sons and two daughters as legal representatives, along with Mrs. Nalini Bai, therefore, he made another application for bringing them on record.
The trial Judge accepted the testimony of the Custodian, and placing reli ance on the decision of Andhra Pradesh High Court in Mannem Venkataramaih vs M. Munnemma & Ors., AIR 1963 A.P. 406 he allowed the substitution application.
The trial court com mitted no error in law, instead he applied correct princi ples of law.
In Daya Ram & Ors.
vs Shyam Sundari, ; this Court recognised the principle of representation of the estate by some heirs, where the defendant died during the pendency of the suit to enforce claim against him and all the heirs are not brought on record within time.
This Court held that if after bona fide inquiry, some, but not all the heirs, of a deceased defendant, are brought on record the heirs so brought on record represent the entire estate of the deceased and the decision of the Court in the absence of fraud or collusion binds even those who are not brought on record as well as those who are impleaded as legal represen tatives of the deceased defendant.
In N.K. Mohd. Sulaiman vs N.C. Mohd. Ismail; , this Court 816 rejected the contention that in a suit to enforce a mortgage instituted after the death of a Muslim, if all the heirs of the deceased were not impleaded in the suit and a decree was obtained, and in execution the property was sold, the auc tion purchaser could have title only to the extent of the interest of the heirs who were impleaded, and he could have no title to the interest of those heirs who had not been impleaded to the suit.
The Court held, that those who were impleaded as party to the suit in place of the deceased defendant represented the entire estate as they had share in the property and since they had been brought on record the decree was binding on the entire estate In the instant case Mrs. Nalini Bai had admittedly hall share in the property left by the deceased defendant and as she was brought on record within time, she represented the estate of the deceased defendant and the suit could proceed on merit.
In this view the impleadment of other legal repre sentatives at a subsequent stage could not affect validity of the proceedings.
In the result we allow the appeal and set aside the judgment and order of the Judicial Commission er dated 30.6.1972, and restore the order of the trial Judge.
Since trial of the suit has been delayed, we direct the trial court to make every effort to decide the suit expeditiously.
The appellant is entitled to its costs throughout.
P.S.S. Appeal allowed.
| IN-Abs | The appellant bank instituted a suit against respond ent 's husband for recovery of a large amount advanced as loan.
The defendant contested the suit.
issues were flamed and evidence was being recorded.
He, however, died before the next hearing on 4th November, 1970 when the court was informed by his pleader orally about his demise.
The appel lant on inquiry learnt on 7th November that the defendant had died on 4th August.
The 8th November being Sunday, an application under Order XXII Rule 4 of CPC was filed on 9th November for bringing on record the widow as his legal representative.
Another application for condoning delay in making the application was also made.
The appellant later made another application requesting to treat the latter application as an application under Order XXII Rule 9 for setting aside the abatement of the suit.
These applications were contested by the respondent on the ground that the news regarding the death of her husband had been published in the local newspapers and the plaintiffs had knowledge of his death, and that the suit had abated as no application for setting aside abatement had been filed within time.
In the meanwhile, the appellant made another application for adding the names of four sons and two daughters of the deceased defendant on the ground that earlier it had no knowledge about that.
On behalf of the respondent, it was asserted that the application for 811 substitution was not maintainable as it was filed beyond time, and in the alternative she was not the legal heir of the deceased defendant but only his "Meeira" and as other legal heirs of the deceased defendant were not brought on record within time the application was not maintainable.
The trial court found that the application under Order XXII Rule 4 was not barred by time since it had been filed within four days of coming to know of defendant 's death.
It further held that since the widow, one of the legal repre sentatives of the deceased defendant, was brought on record within time the sons and daughters could also be impleaded as defendants along with her.
It, therefore, set aside the abatement of the suit.
The Judicial Commissioner, however, took the view that the widow was not a legal representative of the deceased as under the Portugees Law she had acquired Meeira rights and her status was not that of 'Cabeca De Casal ' (Head of the family and administrator) of the other heirs of the de ceased.
Since all the heirs of the deceased defendant had not been brought on record alongwith the widow within time, the suit had abated as she alone could not represent the estate of the deceased defendant.
Allowing the appeals, HELD: 1.1 The trial court committed no error in law in allowing the substitution application.
[815EF] 1.2 A 'legal representative ' as defined in Civil Proce dure Code means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased and where a party sues or is sued in representative character the person on whom the estate devolves on the death of the party so suing or sued.
The definition is inclusive in character and its scope is wide, it is not confined to legal heirs only instead it stipulates a person who may or may not be heir, competent to inherit the property of the deceased but he should represent the estate of the deceased person.
It includes heirs as well as persons who represent the estate even without rifle either as executors or administrators in possession of the estate of the deceased.
All such persons would be covered by the expression 'legal representative '.
If there are any heirs, those in possession bona fide, without there being any fraud or collusion, are also entitled to represent the estate of the deceased.
The Civil Procedure Code was ap plicable to the proceedings in the instant case.
[814G 815A] 812 1.3 The respondent had acquired 'Meeira ' rights under the Portugees Law of Inheritance, which was applicable to Goa at the relevant time, according to which she had ac quired half share in the estate left by her husband and the remaining half share was inherited by sons and daughters of the deceased.
As she was brought on record within time, she represented the estate of the deceased defendant and the suit could proceed on merits.
The impleadment of other legal representatives at a subsequent stage could not affect validity of the proceedings.
[815B, 816C] Daya Ram & Ors.
vs Shyam Sundari, ; and N.K. Mohd. Sulaiman vs N.C. Mohd. Ismail, [1966] 1 S.C.R. 937, referred to.
Mannem Venkataramaih vs M. Munnemma & Ors., AIR 1963 A.P. 406, approved.
|
vil Appeal No. 2448 of 1989 etc.
From the Judgment and Order dated 25.5.1988 of the Punjab and Haryana High Court in C.W.P. No. 736 of 1987.
G. Ramaswamy, Additional Solicitor General, Harbhawan Walia, Kapil Sibal, M.S. Gujral, Anil Dev Singh, M.R. Shar ma, D.V. Sehgal, Naresh Bakshi, R. Bana, Jitendra Sharma, S.M. Satin, S.K. Mehta, D. Mehta, Atul Nanda, P.N. Pun, B.B. Sawhney, M.C. Dhingra, A.K. Gupta, T.C. Sharma, Mrs. Sushma Suri, Ms. Indu Goswami, R.S. Yadav, Manoj Prasad, Manoj Swarup M.L. Verma, section Bagga, D.S. Gupta, B.R. Kapur, Anis Ahmad Khan, section Sehgal and 637 N.K. Aggarwal for the appearing parties.
The Judgment of the Court was delivered by RANGANATHAN, J.
This is a batch of appeals and writ petitions challenging the validity of a notification issued on.15.12.1986 by the Central Government under section 87 of the (Act of Parliament No. 31 of 1966), hereinafter referred to as 'the Reorganisation Act '.
By this notification, the Central Government purported to extend to the Union Territory of Chandigarh hereinafter referred to also as 'Chandigarh ' the provisions of the East ' Punjab Urban Rent Restriction (Amendment) Act, 1985 (Punjab Act 2 of 1985) (hereinafter referred to as 'the 1985 Act '), as it was in force in the State of Punjab at the date of the notification and subject to the modifications men tioned in the said notification.
The Punjab and Haryana High Court by its judgment in Ramesh Birch vs Union, AIR 1988 P & H 281 upheld the validity of the above notification and hence the special leave petitions.
The writ petitions have been directly filed in this Court challenging the validity of the notification.
In view of the importance of the ques tion involved, we have heard the parties on the merits of the cases.
We, therefore, grant special leave in the special leave petitions and rule nisi in the writ petitions and proceed to dispose of the appeals and the writ petitions by this common judgment.
Section 87 of the Reorganisation Act is in the following terms: "87.
Power to extend enactment to Chandigarh The Central Government may, by notification in the Official Gazette, extend with such restrictions or modifications as it thinks fit, to the Union Territory of Chandi garh any enactment which is in force in a State at the date of the notification.
" There are other provisions of this Act which will be referred to later.
But it is necessary to refer to section 87 here for a specific purpose and that is to point out that the provisions of section 87 are pari materia with the provisions of Section 7 of the Delhi Laws Act, 19 12 and Section 2 of the Ajmer Marwara (Extension of Laws) Act, 1947, which, for convenience, we shall refer to as Act I and Act II respectively.
These provisions read as follows: "Section 7 of Act 1: The Provincial Government may, by 638 notification in the Official Gazette, extend with such restrictions and modifications as it thinks fit, to the Province of Delhi or any part thereof, any enactment which is in force in any part of British India at the date of such notification." "Section 2 of Act H: The Central Government may, by notification in the official Gazette, extend to the province of Ajmer Marwara with such restrictions and modifications as it thinks fit any enactment which is in force in any other province at the date of such notifi cation.
" It is also necessary here to contrast the above two provisions with section 2 of the Part C States (Laws) Act, 1950 (hereinafter referred to, for purposes of convenience, as Act III).
That provision reads as follows: "Section 2 of Act 111: The Central Government may, by notification in the official Gazette, extend to any Part C State (other than Coorg and the Amendment and Nicobat Islands) or any part of such State, with such restrictions and modifications as it thinks fit, any enactment which is in force in a Part A State at the date of the notification and provision may be made in any enactment so extended for the repeal or amendment of any corresponding law (other than a Central Act) which is for the time being applicable to that Part C State.
" The reference to these provisions is being made at this stage because the validity of section 7 of the and section 2 of Ajmer Marwara (Extension of Laws) Act 1947 were upheld by this court in the decision reported as In re ; , The decision also upheld the validity of the first part of section 2 of Act III but struck down the second part of that provision (underlined above) as vitiated by the vice of excessive delegation.
A good deal of the arguments addressed before us naturally turned on the ratio and effect of the decision of this Court in the case (supra), but, before turning to the arguments, it is necessary to give a brief history of section 87, the interpretation of which is presently in question.
When the Constitution of India came into force on 26th January, 1950, the component units of the Indian Union were grouped into four 639 types of territories.
There Were nine States in Part A (one of which was Punjab, earlier known as East Punjab), nine States in Part B (which included Pepsu), ten States in Part C (which included Himachal Pradesh) and only one State, namely, Andaman and Nicobar Islands, in Part D.
At this stage, although several of the former Indian States had acceded to the Indian Union, the process of their integra tion as component units of the Indian Union was not com plete.
Some units were accepted as units of the Union in the form in which they existed at the time of independence while some were formed by grouping together one or more of the former princely States.
After the recommendations of the States Reorganisation Commission in 1955, the Constitution was amended to classify the units of the Indian Union into States and Union Territories.
At the time of the 1956 reorganisation one State of Punjab was created by merging the erstwhile States of Pepsu and Punjab.
In 1966 a new State of Haryana was created by carrying out certain territories from the State of Punjab.
Certain hill areas of the Punjab were merged with the ad joining Union Territory of Himachal Pradesh.
A new Union Territory of Chandigarh was carved out which became the joint capital of Punjab and Haryana.
The Punjab Reorganisa tion Act, 1966 gave effect to these proposals.
Sections 3 and 4 dealt with the delimitation of the territories of the States of Punjab and Haryana and the Union Territories of Himachal Pradesh and Chandigarh.
One of the important as pects of the reorganisation, in respect of which specific statutory provision was needed, was regarding the applica bility of laws to the various territories which underwent reoganisation.
This was effected by Part X of the Reorgani sation Act comprising of sections 86 to 97.
It is however sufficient for our present purposes to refer to the provi sions contained in sections 87 to 90.
These provisions were in the following terms: Section 87: Power to extend enactments to Chandigarh set out earlier.
Section 88: Territorial extent of laws The Provisions of Part II shall not be deemed to have effected any change in the territories to which any law in force immedi ately before the appointed day extends or applies, and territorial references in any such law to the State of Punjab shall, until otherwise provided by a competent Legislature or other competent authority, be construed as meaning the territories within the State immediately before 1 the appointed day.
640 Section 89: Power to adapt laws For the purpose of facilitating the application in relation to the State of Punjab or Haryana or to the Union territory of Himachal Pradesh or Chandigarh of any law made before the appoint ed day, the appropriate Government may, before the expiration of two years from that day, by order, make such adaptations and modifications of the law, whether by way of repeal or amend ment, as may be necessary or expedient, and thereupon every such law shall have effect subject to the adaptations and modifications so made until altered, repealed or amended by a competent Legislature or other competent authority.
Section 90: Power to construe laws (1) Not withstanding that no provision or insufficient provision has been made under section 89 for the adaptation of a law made before the ap pointed day, any court, tribunal or authority, required or empowered to enforce such law may, for the purpose of facilitating its applica tion in relation to the State of Punjab or Haryana, or to the Union of territory of Himachal Pradesh or Chandigarh construe the law in such manner, without affecting the substance, as may be necessary or proper in regard to the matter before the court, tribu nal or authority.
(2) Any reference to the High Court of Punjab in any law shall, unless the context otherwise requires, be construed, on and from the ap pointed day, as a reference to the High Court of Punjab and Haryana.
The dispute in this batch of cases is regarding the applicability of certain rent laws to the Union Territory of Chandigarh.
The territories originally comprised in the former Province of East Punjab later designated as the State of Punjab were governed by the East Punjab Urban Rent Restriction Act, 1949 (hereinafter referred to as the 'pri ncipal Act ' or the '1949 Act ').
This Act applied to all urban areas in the State of Punjab.
Section 2(j) of that Act defined 'urban area ' as any area administered by a municipal committee, a cantonment board, a town committee or a noti fied area committee or any area declared by the State Gov ernment by notification to be an urban area for the purposes of the Act.
The Central Government had earlier issued, under section 89, the Punjab Reorganisation (Chandigarh) (Adapta tion of Laws on State and Concurrent Subjects) Order, 1968 w.e.f. 641 1.11.66.
Paragraph 4 of the Order directed that in all the existing laws, in its application to the Union Territory of Chandigarh, any reference to the State of Punjab should be read as a reference to the Union Territory of Chandigarh and para 2(1)(b) of the Order defined the expression 'existing law '.
The Central Government, in exercise of the power conferred by section 2(j) of the principal Act, issued on 13.10.72 a notification declaring the area comprising Chand igarh to be an 'urban area ' for the purposes of the princi pal Act.
The notification was published in the Gazette of India on 4.11.72.
This notification was however quashed by the Punjab & Haryana High Court by its decision in the case of Harkishan Singh vs Union, AIR 1975 P & H 160.
That was on the short ground that, as no notification had been issued prior to 1.11.66 under section 2(j) declaring Chandigarh to be an urban area, the Act could not be said to have been in force within the said area prior to 1.11.66.
Neither section 88 not the notification of 13.10.72 could, it was held, be effective to make the principal Act operative in Chandigarh unless it had first been applied to the Union Territory of Chandigarh or any part thereof by a notification under section 87 with the necessary adaptation.
This decision, of a Full Bench of the High Court, was rendered on 9.10.1974.
Two courses were open to the Government to set right the lacunae pointed out by the High Court.
The first, as pointed out by the Full Bench, was to extend the principal Act to Chandigarh by a notification under section 87.
The second was to invoke the legislative powers of Parliament available in respect of Chandigarh under article 246(4) of the Constitu tion to enact a legislation for this purpose.
But it was important that any corrective measure had to be made retro spective in its operation if the large number of suits for eviction that had been filed in the meanwhile on the strength of the notification and were pending disposal in various courts were to be saved from being rendered non maintainable consequent on the decision of the High Court.
Presumably for this reason, the second of the above courses was adopted and Parliament enacted the East Punjab Urban Rent Restriction (Extension to Chandigarh) Act (Central Act 54 of 1974) hereinafter referred to as 'the 1974 Act '.
Section 3 of this Act provided for the enforcement of the principal Act in Chandigarh.
It reads: "Section 3: Extension of East Punjab Act 111 of 1949 to Chandigarh Notwithstanding anything contained in any judgment, decree or order of any court, the Act shall, subject to the 642 modifications specified in the Schedule, be in force in, and be deemed to have been in force with effect from 4th day of November, 1972 in the UniOn Territory of Chandigarh, as if the provisions of the Act so modified had been included in and formed part of this section and as if this section had been in force at all material times." Three features of the above legislation may be empha sised at this stage.
The first was that, though this pur ported to extend the principal Act to Chandigarh, it was in truth and substance a Parliamentary enactment applicable to Chandigarh incorporating within itself by reference, for purposes of convenience and to avoid repetition, all the provisions of the principal Act.
The second was that the Act was given retrospective effect from 4.11.72, the date on which the previous notification under section 89 had been gazetted with a view to regularise all proceedings for eviction which might have been initiated during the inter regnum.
Thirdly, the principal Act was re enacted subject to the modifications specified in the Schedule.
These included a modification of the definition of 'urban area ' as includ ing the area comprising Chandigarh as defined in section 2 of the Capital of Punjab (Development Regulation) Act, 1952 and such other areas comprised in the Union Territory of Chandigarh as the Central Government may by notification declare to be urban for the purposes of the Act.
Before turning to the issues before us, it is necessary to refer to three subsequent developments: (i) In 1976, when Parliament was not in session, the President of India promulgated Ordinance 14 of 1976 on 17.12.76.
By this Ordinance, the 1949 Act, as in force in Chand igarh, was amended in the following respects: (a) In section 13, an exlanation and sub section (4A) were introduced; (b) New sections 13A. 18A and 18B were insert ed; (c) A new sub section (2A) in section 19 was inserted; (d) A Schedule II prescribing the form of summons to be issued in proceedings under the newly inserted section 13A was added.
This ordi nance was allowed to lapse and was not enacted into law thereafter.
643 (ii) In 1982, Parliament passed the East Punjab Rent Restriction (Chandigarh Amendment) Act (No. 42) of 1983 (hereinafter referred to as 'the 1982 Act ').
By this Act, two amend ments were effected to the principal Act in its application to Chandigarh.
One was a formal one replacing reference to "East Pun jab" by a reference to "Punjab".
The second was the substitution of a new definition of "non residential building" in section 2(d) of the Act.
This amendment Act did not, however, incorporate the amendments earlier effected in the principal Act (as in force in Chandigarh) by the Ordinance of 1976 which had lapsed, though this opportunity could have been availed of by Parliament had it been so mind ed, to introduce those amendments as well.
(iii) In 1985, the provisions of the principal Act were amended in their applica tion to the State of Punjab.
The legislature of the State of punjab enacted Punjab Act 2 of 1985 (hereinafter referred to as 'the 1985 Act ') by which the principal Act was amended to insert therein new sections 13A, 18A and 18B and a new Second Schedule and to make certain amendments in sections 13 and 19 of the Act.
These amendments were substantially the same as those that had been effected by the Ordinance of 1976 except that a new defi nition of "specified landlord" was added in section 2 and the other provisions verbally altered in consequence.
This amendment came into force w.e.f. 16.11.
When the last of the above developments took place, the Central Government considered it necessary to extend the 1985 Act to the territory of Chandigarh.
In order to effec tuate this object, it issued a notification dated 15.12.86 purportedly in exercise of its powers under section 87 of the Reorganisation Act.
By this notification the Central Government extended to the Union Territory of Chandigarh the provisions of the 1985 Act as in force in the State of Punjab at the date of the notification (i.e. to say as on 15.12.1986) and subject to the modifications mentioned therein.
The resultant position is that while the provisions of the principal Act had been brought into force in the Union Territory of Chandigarh w.e.f. 4.11.72 by an Act of Parliament, the provisions of the 1985 Act have been extend ed to the territory of Chandigarh by means of a notification of the Central Government issued under section 87.
The short question posed before us is whether the latter "extension" is permissible and valid in law.
644 Ex facie, the impugned notification appears to be intra vires section 87.
The 1985 Act is an enactment in force in a State on the date of the notification and section 87 clearly permits the Central Government to extend it to Chandigarh.
If the petitioners/appellants seek to challenge its validi ty, they have either to contend that section 87 itself is ultra vires the Constitution or that, though section 87 is a valid provision, on a proper construction thereof, the notifica tion travels beyond the area of extension permitted Under it and is hence invalid.
Both these contentions have been urged before us.
Sri Gujral had so much confidence in the latter argument that he had made it his principal argument, taking up the former as a plea in the alternative.
But young Sri Swarup boldly concentrated on attacking the validity of section 87 while also lending support to Sri Gujral 's principal argument as an argument in the alternative.
We shall proceed to examine these two contentions.
The argument contesting the validity of section 87 proceeds on the following lines.
The main premise of the argument is that, under Article 246(4) of the Constitution, Parliament has exclusive power to make laws on matters enumerated in the State List and Concurrent List (i.e. List II and List III of the Seventh Schedule to the Constitution) in respect of a Union Territory except where (as in the case, say, of Pondicherry) the territory has a legislative assembly, in which event the power will vest in such assembly under section 18 of the Government of Union Territories Act (18 of 1963).
There being no legislative assembly set up for Chandigarh, Parliament and Parliament alone has any legislative power with regard to that territory.
This power, however, plenary and extensive, cannot be self effacing.
In purported exer cise of such power, Parliament cannot delegate its legisla tive function in favour of an executive authority to such an extent as to amount to an "abdication" of such legislative function.
The argument is that this is exactly what has been done under section 87.
By enacting section 87, Parliament, instead of legislating for the Union Territory, has left it to the Central Government to decide for all time to come what should be the laws in force in that territory.
This, it is said, is clear from the extraordinary ambit of the powers conferred by section 87 on the Central Government in three impor tant directions: (i) section 87 is not transitional in nature but confers an all time power on the executive.
This will be clear if one contrasts it with section 89.
Section 89 gives a limited power to the Central Government to adapt existing laws within a period of two years.
Though, as will be noticed later, section 89 is wider in certain respects, it is clearly a transitory provision intended to enable the Central Government to tide over the 645 difficulties caused by the sudden creation of a new territo ry and the immediate need for having laws applicable therto.
The transitoriness is indeed emphasised by the concluding words of section 89, (which are really superfluous) that the adaptation will hold the field only until they are altered, repealed or amended by a competent legislature or authority.
But section 87 empowers the Central Government to extend any legislation to Chandigarh at any time: even today, twenty three years after the passing of Reorganisation Act.
(ii) The second feature of section 87 is this.
Under it, the Central Government could extend to the Union Territory any law in force in any part of India.
For instance, it could be the Rent Control Act in force in Punjab or the Rent Control Act in operation in a distant State like the State of Tamil Nadu.
It could perhaps extend to the Union Territory some provisions of the rent control legislation in one State side by side with certain other provisions of legislations in force in any other State or States and thus enforce a law which would be an "amalgam" of various statutory provisions in force in various parts of the country.
Though a conces sion against this possibility was made in case ; at p. 1005), it would seem to be possible if such provisions are contained in independent enactments.
Here, for e.g. the 1949 Act and the 1985 Act, both of Pun jab, have been made applicable to Chandigarh.
But suppose, after the provisions of the 1949 Act had been made applica ble to Chandigarh by the 1974 Act, an amendment Act of the nature presently in question had been introduced not in the Punjab but, say, in Kerala, there is nothing in the language of section 87 to prohibit the Central Government from extending the Kerala Amendment Act to Chandigarh to stand side by side with the 1974 Act.
In other words, the section confers on the executive government a wide power of choice, for appli cation to Chandigarh, of not only one legislative enactment on any subject from among various enactments on that subject in operation in various parts of the country but also of groups of provisions from one or more of them.
There is no legislative guidance as to the manner in which these choices should be exercised by the executive government.
(iii) The laws that can be extended to the Union Terri tory under section 87 would include not only the laws in force in any State in India on the date of the Reorganisation Act (i.e. 1.11.66) but any Act that may come into force in those States upto the date of the notification.
If it had been restricted to laws in force as on the day the Reorganisation Act came into force, one could at least say that Parliament could be attributed with a knowledge of the various provi sions in existence in 646 the various states, and to have decided, as a matter of policy that anyone of them could be good enough for Chandi garh and hence left it to the executive government to choose and extend any one of them for application to the territory.
But section 87 goes further and enables extension, by Gov ernment notification, even of any legislation which might come into force in any part of India at any time between 1966 and the date of the notification.
Parliament, while enacting the Reorganisation Act, could certainly have had no knowledge or even inkling of possible laws that might be enacted in future in any part of the country on any subject.
The effect, therefore, of section 87 would be that the entire legislation for the Union Territory, in respect of any particular subject, would entirely depend upon the fancy of the Central Government without any sort of legislative or parliamentary application of mind, except the fact that some legislature in some part of the country has considered the law good enough for the conditions prevailing in that terri tory.
Learned counsel contends that these facets of section 87 clearly render it an instance of excessive delegation by Parliament to executive amounting, in effect, to the total abdication by Parliament of its legislative powers in regard to Chandigarh.
The problem posed before us is, what Chinnappa Reddy, J. in Registrar of Cooperative Societies vs Kunhambu, ; described as, the "perennial, nagging problem of delegated legislation and the so called Henry VIII clause".
This is an issue on which there is an abundance of authori ty, of even larger Benches of this Court.
The judgments in R.v.
Burah, [1878] 51.A. 178; Jatindra Nath Gupta, ; the case; , ; Hari Shankar Bagla, ; Rajnarain Singh; , ; Sardar Inder Singh; , ; Banarsi Das; , ; Edward Mills, ; Western India Theatres, [1959] Supp 2 SCR 71; Hamdard Dawakhana; , ; Vasantlal Maghanbhai; , ; Jyoti Prashad; , ; Shama Rao, ; Mohammad Hussain Gulam Mohammad; , ; Liberty Cinema; , ; Devi Dass; , ; Birla Cotton; , ; Sitaram Bishambar Dayal; , ; Hiralal Ratanlal; , ; Gwalior Rayon; , ; Papiah; , and Kunhambu; , and Brij Sunder Kapoor; , can be referred to for a detailed discus sion and application of the relevant principles in the context of various kinds of legislative provisions.
It is unnecessary, for our present purposes, to undertake a de tailed examination of the several opinions expressed in these cases.
Suffice it to say that these decisions have been interpreted as holding that the power of 647 Parliament to entrust legislative powers to some other body or authority is not unbridled and absolute.
It must lay down essential legislative policy and indicate the guidelines to be kept in view by that authority in exercising the delegat ed powers.
In delegating such powers, Parliament cannot "abdicate" its legislative functions in favour of such authority.
Doubts have been expressed in some quarters as to the correctness of the principle indicated above.
It has been suggested that, had the question been res integra or even if one carefully analysed the observations made in these var ious cases, there is much to be said for a different view advocated by the Privy Council in R. vs Burah, [1878] 51.A. 178 and adhered to by it ever since.
This view is that, given the present system of Parliamentary democracy, the extensive range of governmental functions today and the kind and quantity of legislation which modern public opinion requires, the legislatures under the Constitution should be held to be supreme and unrestricted in the matter of legis lation and should not be prohibited from delegating some of their powers of legislation to such other agencies, bodies or authorities as they may choose, so long as they do not altogether divest themselves of their legislative power and confer them on another and so long as they retain the power, whenever it pleases them, to remove the agency they have created and set up another or take the matter directly into their own hands.
The reasons put forward in support of this line of thought are these: (1) The whole doctrine of excessive delegation is based either on the doctrine of separation of powers or on the doctrine of the law of agency: "delegata potestas non potest delegari", neither of which can validly apply to the constitutional context we are concerned with.
(2) The Privy Council, ever since its leading decision in R. vs Burah, [1878] 51.A. 178, has taken this view consistently.
This is also the view to which American and Australian courts have veered round in recent years.
(3) The doctrine enunciated in the above cases is so difficult of practical application and has resulted in such a large number of separate judgments that litigants are encour aged to raise the plea in respect of every conceivable piece of delegation banking on an off chance of being ultimately successful.
648 (4) The magnitude of the controversies raised on this issue is so great that legisla tions, if invalidated on this ground, have to be invariably validated with retrospective effect.
The result is that, on the one hand, the implementation of important legislations is held up due to interim orders for the long period of pendency of the litigation and even the final determination, on the other, achieves no practical result.
In short, the consideration of such issues is practically a waste of judicial time.
The doctrine is based on the theory that it is the legislature and not the execu tive that has to apply its mind to the basis of all legislation.
Judicial dicta are not wanting which emphasise that this is a theory wholly unrelated to the practical realities of the modern functioning of a cabinet system of Government.
An examination of the cases decided on this principle show that it is very diffi cult to define the scope of "essential legis lative function" which cannot be delegated.
In the ultimate analysis, only lip service is paid to the doctrine of legislative policy and guidance and courts are inclined to grab at the weakest of straws as a policy or guideline with which to bale out an impugned piece of legislation rather than invalidate it.
(7) There have been cases where the delegation of the taxing powers has been upheld by drawing on non existent distinctions such as, for example, one between the delega tion of a power to fix the rates of the taxes to be charged on different classes of goods and the power to fix rates of taxes simplicit er.
(8) There is clear inconsistency be tween Shama Rao, and the decision in the , case upholding the delegation to the executive of the power to extend not only present but also future laws to a particular territory.
Shama Rao does not answer the question posed before it that the validity of such legislation follows on the answer given by Delhi Laws to categories (3) and (4) of Bose J. 's summary of its deci sion in Rajnarain.
(9) The Indian Statute book contains any number of legislations, on tax matters as well as others, conferring a wide range of delegation of powers and a search for guide lines or policy underlying them may well prove an unending quest.
649 (10) Judicial dicta abound where it has been pointed out that, so long as the legisla ture has preserved its capacity in tact and retained control over its delegate, so as to be able, at any time, to repeal the legisla tion and withdraw the authority and discretion it had vested in the delegate, it cannot be said to have abdicated its legislative func tions.
Chinnappa Reddy, J. in Kunhambu; , , did not wish to be drawn into the pros and cons of the above line of reasoning.
His Lordship observed that the clear trend of a large number of the decisions of this Court was in favour of the "policy" and "guidelines" theory and he was content to adopt the same for the purposes of the case before the Court.
This theory, which is capable of being formulated in broad terms, though difficult of practical application to individual cases as and when they arise, can be set out best in the words of Reddy, J. in the above case: "It is trite to say that the function of the State has long since ceased to be confined to the preservation of the public peace, the exaction of taxes and the defence of its frontiers.
It is now the function of the State to secure to its citizens 'social, economic and political justice ', to preserve 'liberty of thought, expression, belief, faith and worship ', and to ensure 'equality of status and of opportunity ' and 'the dignity of the individual ' and the 'unity of the nation '.
That is what the Preamble to our Constitution says and that is what is elaborated in the two vital chapters of the Constitution on Funda mental Rights and Directive Principles of State Policy.
The desire to attain these objectives has necessarily resulted in intense legislative activity touching every aspect of the life of the citizen and the nation.
Execu tive activity in the field of delegated or subordinate legislation has increased in direct, geometric progression.
It has to be and it is as it should be.
The Parliament and the State Legislatures are not bodies of experts or specialists.
They are skilled in the art of discovering the aspirations, the expectations and the needs, the limits to the patience and the acquiescence and the articu lation of the views of the people whom they represent.
They function best when they con cern themselves with general principles, broad objectives and fundamental issues instead of technical and situational intricacies which are better left to better equipped full time expert executive bodies and specialist public 650 servants.
Parliament and the State Legisla tures have neither the time nor the expertise to be involved in detail and circumstance.
Nor can Parliament and the State Legislatures visualise and provide for new strange, unfore seen and unpredictable situations arising from the complexity of modern life and the ingenui ty of modern man.
That is the raison d 'etre for delegated legislation.
That is what makes delegated legislation inevitable and indis pensable.
The Indian Parliament and the State Legislatures are endowed with plenary power to legislate upon any of the subjects entrusted to them by the Constitution, subject to the limitations imposed by the Constitution it self.
The power to legislate carries with it the power to delegate.
But excessive delega tion may amount to abdication.
Delegation unlimited may invite despotism uninhibited.
So the theory has been evolved that the legisla ture cannot delegate its essential legislative function.
Legislate it must by laying down policy and principle and delegate it may to fill in detail and carry out policy.
The legislature may guide the delegate by speaking through the express provision empow ering delegation or the other provisions of the statute, the preamble, the scheme or even the very subject matter of the statute.
If guidance there is, wherever it may be found, the delegation is valid.
A good deal of lati tude has been held to be permissible in the case of taxing statutes and on the same prin ciple a generous degree of latitude must be permissible in the case of welfare legisla tion, particularly those statutes which are designed to further the Directive Principles of State Policy.
" The same view was taken by Khanna J. in Gwalior Rayon, [1974] 2 'SCR 879 when,, after reviewing the entire literature on the subject, he observed: "It would appear from the above that the view taken by this Court in a long chain of author ities is that the legislature in conferring power upon another authority to make subordi nate or ancillary legislation must lay down policy, principle, or standard for the guid ance of the authority concerned.
The said view has been affirmed by Benches of this Court consisting of seven Judges.
Nothing cogent, in our opinion, has been brought to our notice as may justify departure from the said view.
The binding effect of that 651 view cannot be watered down by the opinion of a writer, however eminent he maybe, nor by observations in foreign judgments made in the context of the statutes with which they were dealing.
" If this be the consistent view of this court on this thorny issue, Sri Manoj Swarup says, section 87 clearly offends the principle so enunciated, particularly, when one considers the extremely broad sweep of its language.
In empowering the executive to extend laws to Chandigarh to the contents of which Parliament has not applied its mind and further in allowing the executive to exercise a choice among several such existing and future laws, Parliament has in fact abdicated its essential legislative functions in rela tion to the Union Territory in favour of the Central Govern ment and given the go by to the elaborate procedures and safeguards enacted in the Constitution in regard to the process of legislation by Parliament or a State Legislature.
There would have been considerable force in this contention had it not been for the decision in the case 195 1 SCR 747.
As has been pointed out earlier, that deci sion clearly upheld the validity of section 7 of Act I, section 2 of Act II and the first part of section 2 of Act III which did, in relation to Delhi, Ajmer Marwara and Part C States, exactly that which has been done by section 87 in relation to Chandigarh despite the fact that some of the judges struck a different line from R.v.
Burah, [1878] 51.A 178, refused to accept the theory of absolute freedom for Parliament to delegate its powers and enunciated the "policy guideline" theory which has been taken up in subsequent decisions of this Court.
It is said that there are some difficulties in straightaway treating ; , as conclusive of the issue before us.
In the first place, that was a decision which reflected the advisory opinion of this Court in a reference made by the President under article 143(1) of the Constitution which, technically speaking, is not a binding precedent.
Secondly, although five of the seven learned Judges upheld the validity of the provisions re ferred to above, it is difficult to clearly formulate the principle which emerges therefrom, for, as Patanjali Sastri C.J. observed in Kewal Raning Rawat vs State, ; "While undoubtedly certain definite conclu sions were reached by the majority of the judges who took part in the decision in regard to the constitutionality of certain specified enactments, the reasoning in each case was different and it is difficult to say that any particular principle has been laid down by the majority which can be of assistance in the determination of other cases".
652 Thirdly, Shama Rao, is said to be a binding decision of a Constitution Bench of this Court to the con trary and that has to be followed by us.
Since the case; , was con cerned with provisions identical in language to the one before us, it is only proper and appropriate for us to refer to the reasoning of the judges in the case in regard to the provisions the validity of which was upheld: A. Kania CJ.
held that all the provisions under consid eration were ultra vires to the extent they permitted the extension of Acts other than those of the Central Legisla ture to the areas in question.
His view was that the essen tials of a legislative function are the determination of the legislative policy and its formulation as a rule of conduct and these essentials are the characteristics of a legisla ture itself.
These essentials are preserved when the legis lature specifies the basic conclusions of fact upon the ascertainment of which from relevant data by a designated administrative agency it ordains that its statutory command is to be effective.
The legislature having thus made its laws, every detail for working it out and for carrying the enactment into operation and effect may be done by the legislature or may be left to another subordinate agency or to some executive officer.
His Lordship was further of the opinion that, if full powers to do everything that the legislature can do are conferred on a subordinate authority, although the legislature retains the power to control the action of the subordinate authority by recalling such power or repealing the Acts passed by the subordinate authority, there is an abdication or effacement of the legislature conferring such power.
Even such partial "abdication or effacement" is not permissible.
The provisions impugned were, therefore, invalid.
The salient point in the opinion of Fazal Ali J. are these: 1.
Even American Courts, which are fiercely opposed to uncanalised delegation of legislative power to the execu tive, have been compelled, by practical considerations, to engraft numerous exceptions to the rule and, in laying down such exceptions, have offered various explanations, one of which is this: "The true distinction . . is this.
The legislature cannot delegate the power to make a law; but it can make a law to delegate a power to determine some fact or state of things 653 upon which the law makes, or intends to make, its own action depend.
To deny this would be to stop the wheels of Government." (P. 814) 2.
The true import of the rule against delega tion is this: "This rule in a broad sense involves the principle underlying the maxim, delegatus non potest delegate, but it is apt to be misunder stood and has been misunderstood.
In my judg ment, all that it means is that the legisla ture cannot abdicate its legislative functions and it cannot efface itself and set up a parallel legislature to discharge the primary duty with which it has been entrusted.
This rule has been recognised both in America and in England . " XXX XXX XXX XXX "What constitutes abdication and what class of cases will be covered by that expression will always be a question of fact, and it is by no means easy to lay down any comprehensive formula to define it, but it should be recog nised that the rule against abdication does not prohibit the Legislature from employing any subordinate agency of its own choice for doing such subsidiary acts as may be necessary to make its legislation effective, useful and complete".
(P . 819) 3.
The conclusions are set but thus: "(1) The legislature must normally discharge its primary legislative function itself and not through others.
(2) Once it is established that it has sover eign powers within a certain sphere, it must follow as a corollary that it is free to legislate within that sphere in any way which appears to it to be the best way to give effect to its intention and policy in making a particular law, and that it may utilize any outside agency to any extent it finds neces sary for doing things which it is unable to do itself or finds it inconvenient to do.
In other words, it can do everything which is ancillary to and necessary for the full and effective exercise of its power of legisla tion.
654 (3) It cannot abdicate its legislative func tions, and therefore while entrusting power to an outside agency, it must see that such agency acts as a subordinate authority and does not become a parallel legislature.
(4) The doctrine of separation of powers and the judicial interpretation it has received in America ever since the American Constitution was framed, enables the American courts to check undue and excessive delegation but the courts of this country are not committed to that doctrine and cannot apply it in the same way as it has been applied in America.
There fore, there are only two main checks in this country on the power of the legislature to delegate, these being its good sense and the principle that it should not cross the line beyond which delegation amounts to "abdication and self effacement".
(P. 830 1) 4.
The learned Judge recognised that the impugned provisions, at first sight, did appear to be very wide they were of the same sweeping nature as section 87 here and observed.
"Let us overlook for the time being the power to introduce modifications with which I shall deal later, and carefully consider the main provision in the three Acts.
The situation with which the respective legislatures were faced when these Acts were passed, was that there were certain State or States, with no local legislature and a whole bundle of laws had to be enacted for them.
It is clear that the legislatures concerned before passing the Acts, applied their mind and decided firstly, that the situation would be met by the adop tion of laws applicable to the other provinces inasmuch as they covered a wide range of subjects approached from a variety of points of view and hence the requirements of the State or States for which the laws had to be framed could not go beyond those for which laws had already been framed by the various legislatures, and secondly, that the matter should be entrusted to an authority which was expected to be familiar and could easily make itself familiar with the needs and conditions of the State or States for which the laws were to be made.
Thus, everyone of the Acts so enacted was a complete law, because it em bodied a policy, defined a standard, and 655 directed the authority chosen to act within certain prescribed limits and not to go beyond them.
Each Act was a complete expres sion of the will of the legislature to act in a particular way and of its command as to how its will should be carried out.
The legisla ture decided that in the circumstances of the case that was the best way to legislate on the subject and it so legislated.
It will be a misnomer to describe such legislation as amounting to abdication of powers because from the very nature of the legislation it is manifest that the legislature had the power at any moment of withdrawing or altering any power with which the authority chosen was entrusted, and could change or repeal the laws which the authority was required to make applicable to the State or States con cerned.
What is even more important is that in each case the agency selected was not empowered to enact laws, ' but it could only adapt and extend laws enacted by re sponsible and competent legislature.
Thus, the power given to the Governments in those Acts was more in the nature of ministerial than in the nature of legislative power.
The power given was ministerial, be cause all that the Government had to do was to study the laws and make selections out of them." (pp. 838 9) He proceeded to point out that.
such legislation was neither unwarranted nor unprecedented.
5, Following the line of reasoning in Sprigg vs Sigoau, the learned Judge held that what the Central Government had been empowered to do under the impugned legislations was not to enact "new laws" but only "to trans plant" to the territory concerned laws operating in other parts in the country.
As to the absence of a clause such as the one in the enactment considered in Sprigg and the latter part of section 89 that any extensions made shall be subject to repeal, alteration or variation by Parliament, the learned Judge observed, "This provision however does not affect the principle.
It was made only as a matter of caution and to ensure the superintendence of Parliament, for the laws were good laws until they were repealed, altered or varied by Parliament.
If the Privy Council have correct ly stated the principle that the legislature in enacting subordinate or conditional legis lation does not part with its perfect control and 656 has the power at any moment of withdrawing or altering the power entrusted to another au thority, its power of superintendence must be taken to be implicit in all such legislation.
Reference may also be made here to somewhat unusual case of Dorr vs United States, ; , where delegation by Congress of the power to legislate for the Phillipine Islands was held valid." (p. 843) 6.
Indian legislation, past and present, contains numerous instances of enactments whereunder power was conferred on a local Government to extend to the local territory laws in force in other parts of the country as on the date of such extension.
The learned Judge observed: "It is hard to say that any firm legislative practice had been established before the and other Acts we are concerned with were enacted, but one may presume that the legislature had made several experiments before the passing of these Acts and found that they had worked well and achieved the object for which they were intended.7" (p. 846) 7.
The learned Judge concluded with a few general observations on the subject of "dele gated legislation" in its popular sense.
He observed: "The legislature has now to make so many laws that it has no time to devote to all the legislative details, and sometimes the subject on which it has to legislate is of such a technical nature and all it can do is to state the broad principles and leave the details to be worked out by those who are more familiar with the subject.
Again, when complex schemes of reform are to be the subject of legisla tion, it is difficult to bring out a self contained and complete Act straightaway, since it is not possible to foresee all the contin gencies and envisage all the local require ments for which provision is to be made.
Thus, some degree of flexibility becomes necessary, so as to permit constant adaptation to unknown future conditions without the necessity of having to amend the law again and again.
The .advantage of such a course is that it enables the delegate authority to consult interests likely to be affected by a particu lar law, make 657 actual experiments when necessary, and utilize the results of its investigations and experi ments in the best way possible.
There may also arise emergencies and urgent situations re quiring prompt action and the entrustment of large powers to authorities who have to deal with the various situations as they arise.
xxx xxx xxx xxx It is obvious that to achieve the objects which were intended to be achieved by these Acts, they could not have been flamed in any other way than that in which they were flamed".
(p. 851 2) C. Patanjali Sastri, J. upheld the validity of all the impugned provisions.
His Lordship held that it is as compe tent for the Indian Legislature to make a law delegating legislative power, both quantitatively and qualitatively, as it is for Parliament to do so provided, of course, it acts within the circumscribed limits.
The learned judge, however drew a distinction between delegation of legislative author ity and the creation of a new legislative power.
He ob served: In the former the delegating body does not efface itself but retains its legislative power intact and merely elects to exercise such power through an agency.
or instrumental ity of its choice.
In the latter there is no delegation of power to subordinate units but a grant of power to an independent and co ordi nate body to make laws operating of their own force.
In the first case, according to English constitutional law, no express provision authorising delegation is required.
In the absence of a constitutional inhibition, dele gation of legislative power, however exten sive, could be made so long as the delegating body retains its own legislative power intact.
In the second case, a positive enabling provi sion in the constitutional document Is re quired.
D. Mahajan J. shared the view of Kania CJ that all the impugned provisions were ultra vires.
His Lordship consid ered it a settled maxim of constitutional law that a legis lative body cannot delegate its power.
The legislature cannot substitute the judgment, wisdom and patriotism of any other body for those to which alone the people have seen fit to confide this sovereign trust.
Unless the power to dele gate is expressly given by the Constitution and it has not been a legislature cannot 658 abdicate its functions and delegate essential legislative functions to any other body.
There is such abdication when in respect of a subject in the legislative list that body says in effect that it will not legislate but would leave it to another to legislate on it.
To turn next to the views of Mukharjea J. the learned Judge considered the following aspects: 1.
The learned Judge did not accept the principle that an unlimited right of delega tion is inherent in the legislative power itself.
He observed: "This is not warranted by the provisions of the Constitution and the legitimacy of delega tion depends entirely upon its being used as an ancillary measure which the legislature considers to be necessary for the purpose of exercising its legislative powers effectively and completely.
The legislature must retain in its own hands the essential legislative func tions which consist in declaring the legisla tive policy and laying down the standard which is to be enacted into a rule of law, and what can be delegated is the task of subordinate legislation which by its very nature is ancil lary to the statute which delegates the power to make it.
Provided the legislative policy is enunciated with sufficient Clearness or a standard laid down the courts cannot and should not interfere with the discretion that undoubtedly rests with the legislature itself in determining the extent of delegation neces sary in a particular case.
These, in my opin ion, are the limits within which delegated legislation is constitutional provided of course, the legislature is competent to deal with and legislate on the particular subject matter".
(P. 997) 2.
Dealing with the question whether the statutory provisions under consideration envisaged an unwarrantable delegation of legislative powers to the executive govern ment, the learned Judges said: "If the competent legislature has framed a statute and left it to an outside authority to extend the operation of the whole or any part of it, by notification, to any particular area, it would certainly be an instance of conditional legislation as discussed above and no question of delegation would really arise.
The position would not be materially 659 different, if instead of framing a statute, the legislature had specified one or more existing statutes or annexed them by way of a schedule to the Act and had given authority to a subordinate or administrative agency to enforce the operation of any one of them at any time it liked to a particular area.
It could still be said, in my opinion, that in such circumstances the proper legislature had exercised its judgment already and the subor dinate agency was merely to determine the condition upon which the provisions already made could become operative in any particular locality".
(P. 999 1000) 3.
Adverting to the wide power in the impugned provision to extend future laws as well and that too with the modifications and restrictions, he observed: "The question is whether these facts indicate a surrender of the essential powers of legis lation by the legislature.
The point does not seem to be altogether free from difficulty, but on careful consideration I am inclined to answer this question in the negative.
As I have already said, the essential legislative power consists in formulating the legislative policy and enacting it into a binding rule of law.
With the merits of the legislative poli cy, the court of law has no concern.
It is enough if it is defined with sufficient preci sion and definiteness so as to furnish suffi cient guidance to the executive officer who has got to work it out.
If there is no vague ness or indefiniteness in the formulation of the policy, I do not think that a court of law has got any say in the matter.
The policy behind the seems to be that in a small area like Delhi which was constituted a separate province only recently and which had neither any local legislature of its own nor was considered to be of sufficient size or importance to have one in the near future, it seemed to the legislature to be quite fit and proper that the laws validly passed and in force in other parts of India should be ap plied to such area, subject to such restric tions and modification as might be necessary to make the law suitable to the local condi tions.
The legislative body thought fit that the power of making selection from the exist ing statutes as to the suitability of any one of them for being applied to the province of Delhi, should rest with the Governor General in Council which was considered to be 660 the most competent authority to judge the necessities and requirements of the Province.
That this was the policy is apparent from several other legislative enactments which were passed prior to 19 12 and which would show that with regard to areas which were backward or newly acquired or extremely small in size and in which it was not considered proper to introduce the regular legislative machinery all at once, this was the practice adopted by the legislature at that time." (P. 1000 1) 4.
one more passage from the opinion of the learned Judge may be set out in regard to two aspects of the impugned provision that were touched upon before us.
The learned Judge said: "Of course the delegate cannot be allowed to change the policy declared by the legislature and it cannot be given the power to repeal or abrogate any statute.
This leads us to the question as to what is implied in the language of section 7 of the which empowers the Central Government to extend any statute in force in any other part of British India to the Province of Delhi with such 'modifications and restrictions ' as it thinks fit.
The word "restriction" does not present much difficulty.
It connotes limitation im posed upon a particular provision so as to restrain its application or limit its scope.
It does not by any means involve any change in the principle.
It seems to me that in the context, and used along with the word "re striction", the word "modification" has been employed also in a cognate sense and it does not involve any material or substantial alter ation.
The dictionary meaning of the expres sion "to modify" is to "tone down" or "to soften the rigidity of the thing" or "to make partial changes without any radical alteration.
" It would be quite reasonable to hold that the word "modification" in section 7 of the means and signifies changes of such character as are necessary to make the statute which is sought to be extend ed suitable to the local conditions of the province.
I do not think that the executive government is entitled to change the whole nature or policy underlying any particular Act or take different portions from different statutes and prepare what has been described before us as "amalgam" of several laws.
The Attorney General has very fairly 661 admitted before us that these things would be beyond the scope of the section itself and if such changes are made, they would be invalid as contravening the provision of section 7 of the , though that is no reason for holding section 7 itself to be invalid on that ground." (P. 1004 5) 5.
Mukharjee J. however joined with Kania CJ., Mahajan J. and Bose J. in upsetting the validity of the second part of section 2 of Act III.
Since this part of the judgment has been relied on by the learned counsel for the petitioners, it may also be referred to here.
On this aspect, the learned Judge observed: "It will be noticed that the powers conferred by this section upon the Central Government are far in excess of those conferred by the other two legislative provisions, at least in accordance with the interpretation which I have attempted to put upon them.
As has been stated already, it is quite an intelligible policy that so long as a proper legislative machinery is not set up in a particular area.
the Parliament might empower an executive authority to introduce laws validly passed by a competent legislature and actually in force in other parts of the country to such area, with such modifications and restrictions as the authority thinks proper, the modifications being limited to local adjustments or changes of a minor character.
But this presupposes that there is no existing law on that particu lar subject actually in force in that territo ry.
If any such law exists and power is given to repeal or abrogate such laws either in whole in part and substitute in place of the same other laws which are in force in other areas, it would certainly amount to an unwar rantable delegation of legislative powers.
To repeal or abrogate an existing law is the exercise of an essential legislative power, and the policy behind such acts must be the policy of the legislature itself.
If the legislature invests the executive with the power to determine as to which of the laws in force in a particular territory are useful or proper and if it is given to that authority to replace any of them by laws brought from other provinces with such modification as it thinks proper, that would be to invest the executive with the determination of the entire legisla tive policy and not merely of carrying out a policy which the legislature has already laid down.
Thus the 662 power of extension, which is contemplated by section 2 of Part C States (Laws) Act, in cludes the power of introducing laws which may be in actual conflict with the laws validly established and already in operation in that territory.
This shows how the practice, which was adopted during the early British period as an expedient and possibly harmless measure with the object of providing laws for a newly acquired territory or backward area till it grew up into a full fledged administrative and political unit, is being resorted to in later times for no other purpose than that of vest ing almost unrestricted legislative powers with regard to certain areas in the executive government.
The executive government is given the authority to alter, repeal or amend any laws in existence at that area under the guise of bringing in laws there which are valid in other parts of India.
This, in my opinion, is an unwarrantable delegation of legislative duties and cannot be permitted.
The last portion of section 2 of Part C States (Laws) Act is, therefore, ultra vires the power of the Parliament as being a delegation of essen tial legislative powers in favour of a body not competent to exercise it and to that extent the legislation must be held to be void.
This portion is however severable; and so the entire section need not be declared invalid." (P. 1008 1010) F. Das J., who upheld the validity of section 7 of Act 1, section 2 of Act II and both parts of section 2 of Act III, rested his conclusions on the following reasoning: (i) After expressing the opinion that the principle of non delegability of legislative powers rounded either on the doctrine of separation of powers or on the theory of agency had no application to the British Parliament or the legisla tures constituted by an Act of the British Parliament and that, in the ever present complexity of conditions with which Governments have to deal, a power of delegation is necessary and ancillary to the exercise of legislative power and is a component part of it, the learned Judge observed: "The only rational limitation upon the exer cise of this absolute power of delegation by the Indian Legislature as by any Dominion Legislature is what has been laid down in the several Privy Council and other cases from which relevant passages have been quoted above.
It is that the legisla 663 ture must not efface itself or abdicate all its powers and give up its control over the subordinate authority to whom it delegates its law making powers.
It must not, without pre serving its own capacity intact, create and arm with its own capacity a new legislative power not created or authorised by the instru ment by which the legislature itself was constituted.
In short, it must not destroy its own legislative power.
There is an antithesis between the abdication of legislative power and the exercise of the power of legislation.
The former excludes or destroys the latter.
There is no such antithesis between the dele gation of legislative power and the exercise of the legislative power, for however wide the delegation may be, there is nothing to prevent the legislature, if it is so minded, from, at any time, withdrawing the matter into its own hands and exercising its law making powers.
The delegation of legislative power involves an exercise of the legislative power.
It does not exclude or destroy the legislative power itself, for the legislative power is not diminished by the exercise of it.
A power to make law with respect to a subject must, as we have seen, include within its content, the power to make a law delegating that power.
Having regard to entry No. 97 in the Union List and article 248 of our Constitution, the residuary power of our Parliament is wide enough to include delegation of legislative power of a subject matter with respect to which Parliament may make a law.
Apart from that considertion, if a statute laying down a policy and delegating power to a subordinate authority to make rules and regulations to carry out that policy is permissible then 1 do not see why an Act merely delegating legisla tive power to another person or body should be unconstitutional if the legislature does not efface itself or abandon its control over the subordinate authority.
If the legislature can make a law laying down a bare principle or policy and commanding people to obey the rules and regulations, made by a subordinate author ity, why cannot the legislature, without effacing itself but keeping its own capacity intact, leave the entire matter to a subordi nate authority and command people to obey the commands of that subordinate authority? The substance of the thing is the command which is binding and the efficacy of the rules of conduct made by the subordinate authority is due to no other authority than the command of the legislature itself.
Therefore, short of self 664 effacement, the legislative power may be as freely and widely delegated as the Dominion Legislature, like the British Parliament, may think fit and choose.
XXX XXX XXX In my opinion, the true tests of the validity of a law enacted by the Indian Legislature conferring legislative power on a subordinate authority are: (i) Is the law within the legislative competency fixed by the instrument creating the legislature? and (ii) Has the legislature effaced itself or abdicated or destroyed its own legislative power? If the answer.to the first is in the affirmative and that to the second in the negative, it is not for any Court of justice to enquire further or to question the wisdom or the policy of the law.
Dealing with the necessity for limiting or restricting the powers of delegation the learned Judge observed: "It is said that it will be dangerous if the legislature is permitted to delegate all its legislative functions without formally abdi cating its control or effacing itself, for then the legislature will shirk its responsi bility and go to sleep and peoples ' life, liberty or property may be made to depend on the whims of the meanest policy officer in whom, by successive delegation, the legisla tive power may come to be vested.
I do not feel perturbed.
I do not share the feeling of oppression which some people may possibly entertain as to the danger that may ensue if the legislature goes to sleep after delegating its legislative functions, for I feel sure that the legislators so falling into slumber will have a rude awakening when they will find themselves thrown out of the legislative chamber at the next general election.
I have no doubt in my mind that the legislature after delegating its powers will always keep a watchful eye on the activities of the persons to whom it delegates its powers of legislation and that as soon as it finds that the powers are being misused to the detriment of the public, the legislature will either nullify the acts done under such delegation or appoint some more competent authority or withdraw the matter into its own hands.
There is and will always remain some risk of abuse whenever wide legislative 665 powers are committed in general terms to a subordinate body, but the remedy lies in the corrective power of the legislature itself and, on ultimate analysis, in the vigilance of public opinion and not in arbitrary judicial fiat against the free exercise of law making power by the legislature within the ambit fixed by the instrument of its constitution.
It is not for the court to substitute its own notions of expediency of the will of the legislature.
This, 1 apprehend, is the correct position in law.
In my judgment, if our law is not to be completely divorced from logic and is not to give way and surrender itself to sterile dogma, the widest power of delegation of legislative power must perforce be conceded to our Parliament.
A denial of this necessary power will "stop the wheels of government" and we shall be acting "as a clog upon the legis lative and executive departments.
The learned Judge also referred to the Indian legislative practice and relied on several instances of enactments such as the ones in question before the Court and ob served: "During the time of the expansion of the British possessions in India, small bits of territories in outlying parts of Indian were being constantly annexed by the British but on account of the smallness of such territories or the undesirability of their immediate merger with the established Provinces it was not found to be practically possible to pro vide legislative Councils for these enclaves.
Nor was it possible for the Governor General in Council to enact laws for the day to day administration of these bits of territories or for all their needs.
The practice, therefore, grew up for the Governor General in Council, by a simple legislation, to confer power on the Lieutenant Governor to extend to such territories such of the laws as were or might be in force in other parts of the territories under the Lieutenant Governor which were considered suitable for these territories.
Such practice was certainly convenient, and ever since Burah 's case does not appear to have been seriously questioned.
I do not say that the argument has no merit, but in the view I have taken and expressed above, I do not find it necessary, on the present occasion to base my opinion on this argument.
666 G. Bose J. observed that he was not enamoured of this kind of legislation and did not like "this shirking of responsibility, for after all, the main function of the legislature is to legislate and.not to leave that to others.
" He, however, leaned in favour of upholding the statutes in question before the court for the following reasons.
Two of the Acts under consideration before the court were Acts of British Parliament and had to be looked at through British eyes.
In the face of Queen vs Burah, [1878] 5 I.A. 173, there was no doubt that this legislation would have been upheld and it was not necessary to enquire further because no single decision of the Judicial Committee had thrown any doubt on the soundness of Burah 's case.
Act III however, stood on a different footing as it was an Act of the Indian Parliament of 1950.
One had to try to discover from the Constitution itself what concept of legislative power Parliament had in mind while framing the Constitution.
The learned Judge observed: "Now in endeavoring to discover from the Constitution what the Constituent Assembly thought of this grave problem.
I consider it proper to take the following matters into con sideration.
First, it has been acknowledged in all free countries that it is impossible to carry on the government of a modern State with its infinite complexities and ramifications without a large devolution of power and dele gation of authority.
It is needless to cite authority.
The proposition is self evident.
Next, the practical application of that prin ciple has been evident through the years both in India and in other parts of the British Empire and in England itself.
In the third place, even in America, Judges have had to veer away from the rigidity of their earlier doctrine and devise ways and means for soften ing its rigour and have not always been able, under a barrage of words, to disguise the fact that they are in truth and in fact effecting a departure because compelled to do by the force of circumstances.
After pointing out the similarities between the Constitution and the Government of India Act of 1935, the learned Judge conclud ed: "I prefer therefore to hold that that which The Queen vs Burah, authorised, whatever you may choose to call it, was not abrogated except in special cases.
667 I SO hold for another reason as well namely, that to decide otherwise would make the Gov ernment of India an exceedingly difficult matter and would put back the hands of the clock.
I prefer therefore to hold and that has the logic of history behind it that the concept of legislative power which had hither to been accepted in India continued to hold good but that this limitation was placed upon it by the Constitution, namely that wherever the Constitution empowers Parliament to do a particular thing as opposed to legislating generally on a particular topic, there can be no delegation.
Parliament must itself act.
Referring to the authorities and text books cited before the Court, the learned Judge observed: "An anxious scrutiny of all the many authori ties and books which were referred to in the arguments, and of the decisions which I have analysed here, leads me to the conclusion that it is difficult to deduce any logical princi ple from them.
In almost every case the deci sion has been ad hoc and in order to meet the exigencies of the case then before them, judges have placed their own meaning on words and phrases which might otherwise have em bodied a principle of general application.
I have therefore endeavoured, as far as I possi bly could, to avoid the use of these disputa ble terms and have preferred to accept the legacy of the past and deal with this question in a practical way.
My conclusion is that the Indian Parliament can legislate along the lines of The Queen vs Burah, that is to say, it can leave to another person or body the introduction or application of laws which are or may be in existence at that time in any part of India which is subject to the legisla tive control of Parliament, whether those laws were enacted by Parliament or by a State Legislature set up by the Constitution.
That has been the practice in the past.
It has weighty reasons of a practical nature to support it and it does not seem to have been abrogated by the Constitution.
The learned Judge, however, held that second part of section 2 of Act 3 could not be held to be valid for the following reasons: "But I also consider that delegation of this kind cannot proceed beyond that and that it cannot extend to the repe 668 aling or altering in essential particulars of laws which are already in force in the area in question.
That is a matter which Parliament alone can handle.
I See no reason for extending the scope of legislative delegation beyond the confines which have been hallowed for so long.
Had it not been for the fact that this sort of prac tice was blessed by the Privy Council as far back as 1878 and has been endorsed in a series of decisions ever since, and had it not been for the practical necessities of the case, I would have held all three Acts ultra vires.
But, so far as the latter portion of the third Act is concerned, no case was cited in which the right to appeal the existing laws of the land and substitute others for them has been upheld.
That was tried in a South African case, Sir John Gorden Sprigg vs Sigcau, , but the Privy Council held it could not be done, not indeed on any ground which is material here but that is the only case I know where the attempt was made and the right litigated.
It is one thing to fill a void or partial vacuum.
Quite another to throw out existing laws enacted by a competent authori ty.
It is bad enough to my mind to hold that the first is not a delegation of legislative power.
But as that has been held by an author ity which it is impossible now to question so far as the past is concerned, I bow to its wisdom.
But as to the future, I feel that a body which has been entrusted with the powers of legislation should legislate and not leave the decision of important matters of principle to other minds.
I am therefore of opinion that the power upheld by the Queen vs Burah, does not extend as far as the latter portion of section 2 of the Part C States (Laws) Act of 1950 endeavours to carry it.
" A perusal of the above judgments shows that the validity of the provisions in question were upheld on different lines of reasoning.
Nevertheless all the learned Judges seem to have agreed and, indeed, as pointed out in later decisions, it is inevitable in modern conditions that, while Parlia ment should have ample and extensive powers of legislation, these should include a power to entrust some of those func tions and powers to another body or authority.
They also seem to have agreed that there should be a limitation placed on the extent of such entrustment.
It is only on the ques tion as to what this limitation should be that there was lack of consensus among the 669 judges.
All of them agreed that it could not be so extensive as to amount to "abdication" or "effacement".
Some thought that there is no abdication or effacement unless it is total i.e. unless Parliament surrenders its powers in favour of a "parallel" legislature or loses control over the local authority to such an extent as to be unable to revoke the powers given to, or to exercise effective supervision over, the body entrusted therewith.
But others were of opinion that such "abdication" or "effacement" could not even be partial and it would be bad if full powers to do everything that the legislature can do are conferred on a subordinate authority, although the legislature may retain the power to control the action of such authority by recalling such power or repealing the Acts passed by the subordinate authority.
A different way in which the second of the above views has been enunciated and it is this view which has dominated since is by saying that the legislatures cannot wash their hands off their essential legislative function.
Essential legislative function consists in laying down the legislative policy with sufficient clearness and in enunciating the standards which are to be enacted into a rule of law.
This cannot be delegated.
What can be delegated is only the task of subordinate legislation which is by its very nature ancillary to the statute which delegates the power to make it and which must be within the policy and framework of the guidance provided by the legislature.
It is suggested for the petitioners that, since the reasonings of the learned Judges are so different, we cannot derive any assistance from the case and should therefore ignore it.
We are unable to accept this suggestion.
We think, with respect, that Bose J. was right when he pointed out in Rajnarain Singh 's case and his summary in the case, of the conclusions arrived at in the case has consistently been referred to with approval in later decisions of this Court as an authoritative exposition that: "Because of the elaborate care with which every aspect of the problem was examined in that case, the decision has tended to become diffuse, but if one concentrates on the mat ters actually decided and forgets for a moment the reasons given, a plain pattern emerges leaving only a narrow margin of doubt for future dispute.
" If we apply this formula, whatever reasoning one adopts, the answer to the question posed before us has to be in favour of upholding the constitutional validity of section 87.
One may doubt the wisdom of attempting to trace a common ratio decidendi from such divergent views but it 670 seems equally illogical to altogether ignore a clear conclu sion arrived at by the majority of judges only because they arrived at that conclusion by different processes of reason ing.
One would rather have thought that a conclusion stands more fortified when it can be supported not on one but on several lines of reasoning.
At least for an identical prob lem, the final answer, we think, should be the same.
This should particularly be so when we remind ourselves that the case arose because, soon after India became a Republic, the Government, envisaging the necessity of having recourse to legislation of this type in the context of the changing topography of India, took the precaution of seeking the advice of the Supreme Court for its future guidance and that they have acted upon the answers propounded by the Supreme Court in enacting a provision of this type.
In this situation we find ourselves unable to accept the contention that, after a lapse of thirty eight years, we should declare that the case decided nothing or, as counsel euphimistically put it, that it should be confined to its own facts.
It is contended that the above line of approach is one of expediency rather than logic and that, unless one can extract a principle of general application from the case, it will not be helpful as a precedent.
Even if this is taken to be the proper approach, an answer to the contention is furnished by Shama Rao , on which considerable reliance was also placed on behalf of the petitioners.
The facts in that case were that the legisla tive assembly for the Union Territory of Pondicherry passed a Sales Tax Act (10 of 1965) in June, 1965.
Under s 1(2) of the Act, it was to come into force on such date as the Pondicherry Government may by notification, appoint.
section 2(1) of the Act provided that the Madras General Sales Tax Act, 1959 as in force in the State of Madras immediately before the commencement of the Pondicherry Act, shall be extended to Pondicherry subject to certain modifications.
The Pondi cherry Government issued a notification on March 1, 1966 appointed April 1, 1966 as the date of the commencement of the Pondicherry Act.
Prior to the issue of the notification, however, the Madras Legislature had amended the Madras Act and consequently it was the Madras Act as amended upto April 1, 1966, which was brought into force in Pondicherry.
When the Act thus came into force, the petitioner was served with a notice to register himself as a dealer and thereupon he filed a writ petition challenging the validity of the Act.
It was contended for the petitioner that the Act was void and was a still born legislation by reason of the Pondicher ry Legislature having abdicated its legislative functions in favour of the Madras State Legislature.
It was argued that such abdica 671 tion resulted from the wholesale adoption of the Madras Act as in force in the State of Madras immediately before the commencement of the Pondicherry Act, as section 2(1) read with section 1(2) meant that the legislature adopted not only the Madras Act as it was when it enacted the Pondicherry Act but also such amendment or amendments in the Madras Act which might be passed by the Madras State Legislature upto the time of commencement of the Act i.e. upto April 1, 1966.
On the other hand, counsel for the respondent relied on the deci sion of a majority of judges (5:2) in the case "that authorisation to select and apply future Provin cial Laws was not invalid" as had been clearly brought out in the summary of the Case attempted by Bose J. in Rajnarain Singh 's case; , After a brief reference to the history of the doctrine of abdication contended for by the petitioner and a discussion of the Case, Shelat J., with whom Subba Rao, CJ.
and Mitter J. agreed, accepted the contention of the petitioner.
He observed: "The question then is whether in extending the Madras Act in the manner and to the extent it did under sec.
2(1) of the Principal Act the Pondicherry legislature abdicated its legisla tive power in favour of the Madras legisla ture.
It is manifest that the Assembly refused to perform its legislative function entrusted under the Act constituting it.
It may be that a mere refusal may not amount to abdication if the legislature instead of going through the full formality of legislation applies its mind to an existing statute enacted by another legislature for another jurisdiction, adopts such an Act and enacts to extend it to the territory under its jurisdiction.
In doing so, it may perhaps be said that it has laid down a policy to extend such an Act and di rects the executive to apply and implement such an Act.
But when it not only adopts such an Act but also provides that the Act applica ble to its territory shall be the Act amended in future by the other legislature, there is nothing for it to predicate what the amended Act would be.
Such a case would be clearly one of non application of mind and one of refusal to discharge the function entrusted to it by the instrument constituting it.
It is diffi cult to see how such a case is not one of abdication or effacement in favour of another legislature at least in regard to that partic ular matter.
But Mr. Setalvad contended that the validity of such legislation has been accepted in Delhi Laws Act 's case and 672 particularly in the matter of heading No. 4 as summarised by Bose J. in Raj Narain Singh 's case.
In respect of that heading, the majority conclusion no doubt was that authorisation in favour of the executive to adopt laws passed by another legislature or legislatures includ ing future laws would not be invalid.
So far as that conclusion goes Mr. Setalvad is right.
But as already stated, in arriving at that conclusion each learned Judge adopted a dif ferent reasoning.
Whereas Patanjali Sastri and Das JJ. accepted the contention that the plenary legislative power includes power of delegation and held that since such a power means that the legislature can make laws in the manner it liked if it delegates that power short of an abdication there can be no objec tion.
On the other hand, Fazal Ali J. upheld the laws on the ground that they contained a complete and precise policy and the legisla tion being thus conditional the question of excessive delegation did not arise.
Mukherjea J. held that abdication need not be total but can be partial and even in respect of a par ticular matter and if so the impugned legisla tion would be bad.
Bose J. expressed in frank language his displeasure at such legislation but accepted its validity on the ground of practice recognised over since Burah 's case and thought that that practice was accepted by the Constitution makers and incorporated in the concept of legislative function.
There was thus no unanimity as regards the principles upon which those laws were upheld.
All of them however appear to agree on one principle, viz., that where there is abdica tion of effacement the legislature concerned in truth and in fact acts contrary to the Instrument which constituted it and the stat ute in question would be void and still born." (Underlining ours) Bhargava, J. (with whom Shah J. agreed) did not consider it necessary to enter into this controversy as, according to them and on this they dissented from the majority even if it be held that the Pondicherry Act was bad for excessive delegation of powers when it was enacted and published, a subsequent amending Act of the Pondicherry Legislature had remedied the situation.
Sri Sibal contended that the Pondicherry Assembly, on a true 673 construction of section 18 of the was not a full fledged legislature but only a delegate of Parliament and, therefore, a delegation by it to the State Government amounted, in effect, to a sub delega tion which cannot be justified at all and that, therefore, Shama Rao is distinguishable.
We do not think this conten tion is tenable in view of the observations made in Burha 's case, [1878] 51.A 178 and in the case (supra) while repelling a similar contention about the status of a Dominion Legislature vis a vis the Parliament of the United Kingdom, and in the case.
Also that was not the basis on which Shama Rao was either argued before, or decided by, this Court.
We may, therefore, turn to Sharma Rao 's interpretation of the case and apply it here.
We think we may accept the passage in Shelat J 's judgment which we have underlined earlier as a correct enunciation by this Court of the Principle emerging from the case; if we do so the only question that will remain to be considered will be whether section 87 is a case of "abdication or effacement" and the answer to that question has been furnished, in the negative, by the case itself in respect of identically worded provisions.
Thus, Shama Rao, in effect, helps the respondents to sustain the validity of section 87, though it is true that, on a differ ent, if somewhat analogous, provision in the Pondicherry Act, their Lordships reached the contrary conclusion and held there was an "abdication or effacement.
" But, these niceties apart, we think that section 87 is quite valid even on the "policy and guideline" theory if one has proper regard to the context of the Act and the object and purpose sought to be achieved by section 87 of the Act.
The judicial decisions referred to above make it clear that it is not necessary that the legislature should "dot all the t 's" and cross all the t 's" of its policy.
It is sufficient if it gives the broadest indication of a general policy of the legislature.
If we bear this in mind and have regard to the history of this type of legislation, there will be no difficulty at all.
Section 87, like the provisions of Acts I, II and III, is a provision necessitated by changes re sulting in territories coming under the legislative juris diction of the Centre.
These are territories situated in the midst of contiguous territories which have a proper legisla ture.
They are small territories falling under the legisla ture jurisdiction of Parliament which has hardly sufficient time to look after the details of all their legislative needs and requirements.
To require or expect Parliament to legislate for them will entail a disproportionate pressure on its legislative schedule.
It will also mean the unneces sary utilisation of the time of a large number of members of Parliament for, except the few (less than ten) members returned to Parliament from 674 the Union Territory, none else is likely to be interested in such legislation.
In such a situation, the most convenient course of legislating for them is the adaptation, by exten sion, of laws in force in other areas of the country.
As Fazal Ali J. pointed out in the case, it is not a power to make laws that is delegated but only a power to "transplant" laws already in force after having undergone scrutiny by Parliament or one of the State Legislatures, and that too, without any material change.
There is no dispute before us and it has been unanimously held in all the decisions that the power to make modifications and restric tions in a clause of this type is a very limited power, which permits only changes that the different context re quires and that changes in substance.
There is certainly no power of modification by way of repeal or amendment as is available under section 89.
Sri Swarup contends that the vice in the provision lies (a) in the choice it has left to the Central Government of one among several laws that may be in force in various areas and (b) in the power it has given to extend future laws as well.
A power to exercise such wide power, he says, cannot be described as a ministerial power ; it is essential legis lative power, according to him.
It is true that if one were to read the section in the abstract and in its broadest connotation, it conjures up the possibilities of the execu tive picking up at its fancy at any time any law that may exist in any part of India for extension to Chandigarh without any particular rhyme or reason.
The force of Sri Swarup 's objection on this aspect has been picturesquely brought out by Mahajan J. in a passage in the case: "The choice to select any enactment in force in any province at the date of such notifica tion clearly shows that the legislature de clared no principles or policies as regards the law to be made on any subject.
It may be pointed out that under the Act of 1935 differ ent provinces had the exclusive power of laying down their policies in respect of subjects within their own legislative field.
What policy was to be adopted for Delhi, whether that adopted in the province of Punjab or of Bombay, was left to the Central Govern ment.
Illustratively, the mischief of such law making may be pointed out with reference to what happened in pursuance of this section in Ajmer Marwara.
The Bombay Agricultural Debtors ' Relief Act, 1947, has been extended under cover of this section to Ajmer Marwara and under the power of modification, by amend ing the definition of the word 'debtor ' the whole policy of the Bombay Act has been 675 altered.
Under the Bombay Act a person is a debtor who is indebted and whose annual income from sources other than agricultural and manly labour does not exceed 33 per cent of his total annual income or does not exceed Rs.500, whichever is greater.
In the modified statute "debtor" means an agriculturist who owes a debt, and "agriculturist" means a person who earns his livelihood by agriculture and whose income from such source exceeds 66 per cent of his total income.
The outside limit of Rs.500 is removed.
The exercise of this power amounts to making a new law by a body which was not in the contemplation of the Constitution and was not authorized to enact any laws.
Shortly stated, the question is, could the Indian legislature under the Act of 1935 enact that the executive could extend to Delhi laws that may be made hereinafter by a legislature in Timbuctoo or Soviet Russia with modifications.
The answer would be in the negative because the policy of those laws could never be deter mined by the law making body entrusted with making laws for Delhi.
The Provincial legisla tures in India under the Constitution Act of 1935 qua Delhi constitutionally stood on no better footing than the legislatures of Tim buctoo and Soviet Russia though geographically and politically they were in a different situation.
" But, with respect, we think, we should not look at the provision in the present context from that angle.
We should here have regard to the object of the provision and the purpose it was intended to achieve and, in the historical perspective we have set out, there is no vice in the power conferred.
So far as the first aspect referred by Sri Swarup is concerned, the provision only confers a power on the execu tive to determine, having regard to the local conditions prevalent in the Union Territory, which one of several laws, all approved by one or the other of the legislatures in the country, will be the most suited to Chandigarh.
Thus viewed, it would fail under one of the permissible categories of delegation referred to at p. 814 in the case and extracted by us earlier and, if so, it is not really an unguided or arbitrary power.
There could have been no objec tion to the legislation if it had provided that the laws of one of the contiguous States (say Punjab) should be extended to Chandigarh.
But such a provision would have been totally inadequate to meet the situation for two reasons.
There may be more than 676 one law in force on a subject in the contiguous States say one in Punjab, one in Pepsu and one in Himachal Pradesh etc. and Parliament was anxious that Chandigarh should have the benefit of that one of them which would most adequately meet the needs of the situation in that territory.
Or, again, there may be no existing law on a particular subject in any of the contiguous areas which is why the power had to include the power of extending the laws of any State in India.
While, in a very strict sense, this may involve a choice, it is in fact and in the general run of cases, only a decision on suitability for adaptation rather than choice of a policy.
It is a delegation, not of policy, but of matters of detail for a meticulous appraisal of which Par liament has no time.
Even if we assume that this involves a choice of policy, the restriction of such policy to one that is approved by Parliament or a State Legislature constitutes a sufficient declaration of guideline within the meaning, of the "policy guideline" theory.
The second aspect referred to by Sri Swarup, again, is, in the context, not a sign ' of "abdication" but is only a necessary enabling power.
Once it is held that the delega tion of a power to extend a present existing law is justi fied, a power to extend future laws is a necessary corol lary.
Here again, its validity may be tested by considering what the position would have been if the section had provid ed only for the extension of the laws in a contiguous terri tory, say Punjab.
As mentioned earlier, a power to extend existing statutes in Punjab could clearly have been delegat ed.
If Parliament formulated such a policy as it had no time to apply its mind to the existing law initially to be adapt ed, it could hardly find time to consider the amendments from time to time engrafted on it in the state of its ori gin.
Hence once a policy of extension of Punjab laws is clear and permissible it would seem only natural as a neces sary corollary that the executive should be permitted to extend future amendments to those laws as well.
The power to extend any future law has to be considered in the above context and not only could be, but also has to be, conferred for the same reasons as justify the conferment of a power to extend a present contiguous law.
Mukherjea J. in the case has touched upon this issue.
As pointed out by him, the question of validity of the delegation of a power to extend any future law, is not free from difficulty.
If the provision is considered in the abstract and contrued on the basis of its fullest possible ambit, it may be difficult to sustain it.
But if it is construed and judged in the historical context of the legislation, the needs of the situation and a reasonably practical appraisal of the extent of its intended application, there can be no doubt that it contains a sufficient indication of broad policy to sustain the validity of the 677 extent of delegation involved in section 87.
We may, in this context, repeat again that courts, in the decided cases, do not envisage a meticulous enunciation of a policy in all its details.
They are satisfied even if they can discern even faint glimmerings of one from the object and scheme of the legislation.
For the reasons discussed above, we reject the conten tions of the petitioners challenging the constitutional validity of section 87.
We now turn to the second contention of the petitioners based on the assumption of section 87 being valid.
The point made is that section 87, on its proper construction, permits the extension of the laws of another State to Chandigarh only so long as there is a 'vacuum" of laws, on any particular subject, within the Union Territory but that, once Parlia ment itself steps in and makes laws for the territory, it has assumed legislative responsibilities in respect of that subject and a "transplantation" of laws from elsewhere by extension is neither necessary nor valid, Sri Gujral submits that the raison d 'etre of section 87 is that, as Parliament may not have enough time to attend to the legislative needs of the new territory brought into its fold, it is necessary to provide a machinery by which some laws could enforced in the territory.
But here, as early as 1974, Parliament applied its mind and legislated, in respect of landlord tenant matters, for the Union Territory and having done this, it is for Parliament and Parliament alone to legislate on the subject thereafter.
Indeed President issued an ordinance in 1976 and Parliament also amended the law in 1982 in some other respects indicating that Parliament was in full ses sion of the matter.
This is one facet of the objection.
The other facet is that, by purporting to extend, by an execu tive notification, the provisions of the 1985 Act to Chandi garh, what the Central Government has really done is to modify or amend an existing Parliamentary law (the 1974 Act) operating in the State already.
Conceding, for purposes of argument, that, had the 1949 Act been extended to Chandigarh in 1974 by a notification under section 87, it might have been open to the Government, by another notification under section 87, to extend the 1985 Act also to the Union Territory, counsel contends that it was impermissible to allow the Central Government to issue a notification under section 87 which will have the effect of amending or modifying a law of Parliament already in force in the territory.
A notification could amend a notification but not a statute, he says.
In support of this part of the argument, counsel strongly relies on the decision, of a majority of Judges in the case, that the second part of section 2 of Act 111 considered by them was ultra vires.
He submits that, if even a specific provision in a law could 678 not validly permit a notification of extension to amend or repeal existing laws of the territory in question, a notifi cation under section 87 which advisedly omits any reference to such an enabling power (enacted in Act III and declared ultra vires by this court) could hardly be on a stronger footing.
On this construction of section 87, counsel contends, the notification dated 15.12.86 has exceeded the purview of section 87 and is, therefore ultra vires.
Turning, therefore, to the judgments in the case on which counsel strongly relies in support of his contentions, we may observe at the outset that the judgments of Kania CJ.
and Patanjali Sastri J. are not helpful, as according to Kania C J, the power of delegation was alto gether bad except in so far as it permitted an extension of laws made by the Central Legislature and, according to Sastri J. extensive delegation of powers was valid.
Fazal Ali J., in upholding its validity, observed thus in regard to the second part of section 2 of Act III: "I will now deal with section 2 of Part C States (Laws) Act, 1950, in so far as it gives power to the Central Government to make a provision in the enactment extended under the Act for the repeal or amendment of any corre sponding law which is for the time being applicable to the Part C State concerned.
No doubt this power is a far reaching and unusual one, but, on a careful analysis, it will be found to be only a concomitant of the power of transplantation and modification.
If a new law is to be made applicable, it may have to replace some existing law which may have become out of date or ceased to serve any useful purpose, and the agency which is apply the new law must be in a position to say that the old law would cease to apply.
The nearest parallel that I can find to this provision, is to be found in the Church of England Assembly (Powers) Act, 19 19.
By that Act, the Church Assembly is empowered to propose legislation touching matters concerning the Church of England, and the legislation proposed may extend to the repeal or amendment of Acts of Parliament including the Church Assembly Act itself.
It should however be noticed that it is not until Parliament itself gives it legis lative force on an affirmative address of each House that the measure is converted into legislation.
There is thus no real analogy between that Act and the Act before us.
Howev er, the provision has to be upheld, because, though it goes to the farthest limits, it is difficult to hold that it was beyond the 679 powers of a legislature which is supreme in its own field, and all we can say is what Lord Hewart said in Kind vs Minister of Health, , namely, that the particular Act may be regarded as "indicating the high water mark of legislative provisions of this character," and that, unless the legislature acts with restraint, a stage may be reached when legislation may amount to abdication of legislative powers.
" Mahajan J. had this to say: "For reasons given for answering questions 1 and 2 that the enactments mentioned therein are ultra vires the Constitution in the par ticulars stated, this question is also an swered similarly.
It might, however, be ob served that in this case express power to repeal or amend laws already applicable in Part C States has been conferred on the Cen tral Government.
Power to repeal or amend laws is a power which can only be exercised by an authority that has the power to enact laws.
It is a power co ordinate and co extensive with the power of the legislature itself.
In be stowing on the Central Government and clothing it with the same capacity as is possessed by the legislature itself the Parliament has acted unconstitutionally.
" The observations of Mukherjea J. are very relevant from the point of counsel for the petitioners.
His Lordship said: "It will be noticed that the powers conferred by this section upon the Central Government are far in excess of those conferred by the other two legislative provisions, at least in accordance with the interpretation which I have attempted to put upon them.
As has been stated already, it is quite an intelligible policy that so long as a proper legislative machinery is not set up in a particular area, the Parliament might empower an executive authority to introduce laws validly passed by a competent legislature and actually in force in other parts of the country to such area, with such modifications and restrictions as the authority thinks proper, the modifications being limited to local adjustments or changes of a minor character.
But this presupposes that there is no existing law on that particu lar subject actually in force in that territo ry.
If any such law 680 exists and power is given to repeal or abro gate such laws either in whole or in part and substitute in place of the same other laws which are in force in other areas, it would certainly amount to an unwarrantable delega tion of legislative powers.
To repeal or abrogate an existing laws is the exercise of an essential legislative power, and the policy behind such acts must be the policy of the legislature itself.
If the legislature invests the executive with the power to determine as to which of the laws in force in a particular territory are useful or proper and if it is given to that authority to replace any of them by laws brought from other provinces with such modification as it thinks proper that would be to invest the executive with the determination of the entire legislative policy and not merely of carrying out a policy which the legislature has already laid down.
Thus the power of extension which is contemplated by section 2 of Part C States (Laws) Act, in cludes the power of introducing laws which may be in actual conflict with the laws validly established and already in operation in that territory.
This shows how the practice, which was adopted during the early British period as an expedient and possibly harmless measure with the object of providing laws for a newly acquired territory or backward area till it grew up into a full fledged administrative and political unit, is being resorted to in later times for no other purpose that that of vest ing almost unrestricted legislative powers with regard to certain areas in the executive government.
The executive government is given the authority to alter, repeal or amend any laws in existence in that areas under the guise of bringing in laws there which are valid in other parts of India.
This, in my opinion, is an unwarrantable delegation of legislative duties and cannot be permitted.
The last portion of section 2 of Part C States (Laws) Act, is therefore, ultra vires the powers of the Parliament as being a delegation of essential legislative powers in favour of a body not competent to exercise it and to that extent the legislation must be held to be void.
This portion is however severable; and so the entire section need not be declared invalid." (Emphasis added) Bose J., again, made certain observations which are strongly relied upon by counsel.
His Lordship observed: "I see no reason for extending the scope of legislative delegation 681 beyond the confines which have been hallowed for so long.
Had it not been for the fact that this sort of practice was blessed by the Privy Council as far back as 1878 and has been endorsed in a series of decisions ever since, and had it not been for the practical necessi ties of the case, I would have held all three Acts ultra vires.
But, so far as the latter portion of the third Act is concerned, no case was cited in which the right to repeal the existing laws of the land and substitute others for them has been upheld.
That was tried in a South African case, Sir John Gorden Sprigg.
vs Sigcau, , but the Privy, Council held it could not be done, not indeed on any ground which is material here but that is the only case I know where the attempt was made and the right litigated.
It is one think to fill a void or partial vacuum.
Quite another to throw out existing laws enacted by a competent authority.
It is bad enough to my mind to hold that the first is not a delegation of legislative power.
But as that has been held by an authority which it is impossible now to question so far as the past is concerned, I bow to its wisdom.
But as to the future, I feel that a body which has been entrusted with the powers of legislation should legislate and not leave the decision of important matters of principle to other minds.
I am therefore of opinion that the power upheld by the The Queen vs Burah does not extend as far as the latter portion of section 2 of the Part C States (Laws) Act of 1950 endeavours to carry it.
" (Emphasis added) In support of his "vacuum" theory, counsel also refers to an instance of legislative practice referred to in Ka poor 's case ; Counsel points out there was a central rent law applicable t9 all cantonments in India, being Act 10 of 1952.
In 1957, Parliament decided that the rent law in force in the rest of a State should be allowed to be extended to the cantonment areas in State as well by issue of Government notification, and enacted Act 46 of 1957 for the purpose.
However, no such extension under section 3 of the Act 46 of 1957 was notified for the State of U.P. until Parliament, by passing Act 68 of 1971, statutorily clarified that: "On and from the date on which the United Provinces (Temporary) Control of Rent & Evic tion Act, 1947, is extended by notification under section 3 of the Cantonments (Extention of Rent Control Laws) Act, 1957 to the Canton ments in Uttar Pradesh, the Uttar Pradesh Cantonments (Control of Rent & Eviction) Act 1952 (Act 10 of 1952) shall stand repealed.
" In other words, though extension of local laws to canton ments by notification was allowed, Parliament provided for the simultaneous creation of a "vacuum" in the cantonment area by repeal of the 1952 Act which could be occupied by the extended law.
Counsel emphasises this aspect to show that an extension by notification can be allowed to fill a void but cannot be allowed to knock against a superior Parliamentary enactment already in existence.
682 There is certainly a good deal of force in these argu ments but we think that they proceed on an incorrect view of the effect of the notification impugned in the present case.
We might have been inclined to accept the submissions of the learned counsel had the effect of the notification been to extend a law which is in "actual conflict" with any parlia mentary enactment or which has the effect of "throwing out" any existing law in the Union Territory.
To borrow an ex pression used in an analogous context, we would have consid ered the validity of the extension doubtful had the extended provisions been repugnant to an Act of Parliament in force in the Union Territory.
So long as that is not the effect or result, we think, there is no reason to construe the scope of section 87 in the restricted manner suggested by counsel.
It is no doubt true that section 87 permits an extension because there is no law in the Union Territory in relation to a particular subject and Parliament has not the requisite time to attend to the matter because of its preoccupations.
But this purpose does not require for its validity that there should be no existing law of Parliament at all on a subject.
Again the concept of "subject" for the purposes of this argument is also an elastic one the precise scope of which cannot be defined.
The concept of vacuum is as much relevant to a case where there is absence of a particular provision in an existing law as to a case where there is no existing law at all in the Union Territory on a subject.
For in stance, if Parliament had not enacted the 1974 Act but had only enacted an extension of the Transfer of Property Act to Chandigarh, could it have been said that a subsequent noti fication cannot extend the provisions of the 1949 Act to Chandigarh because the subject of leases is governed by the Transfer of Property Act which has been already extended and there is, therefore, no "vacuum" left which could be filled in by 'such extension? Again, suppose, initially, a Rent Act is extended by Parliament which does not contain a provision regarding one of the grounds on which a landlord can seek eviction say, one enabling the owner to get back his house for reoccupation and then the Government thinks that anoth er enactment containing such a provision may also be extend ed, can it not be plausibly said that the latter is a matter on which there is no legislation enacted in the territory and that the extension of the latter enactment only fills up a void or vacancy? Again, suppose the provisions of a gener al code like, say, the Code of Civil Procedure are extended to the Union Territory, should be construe section 87 so as to preclude the extension of a later amendment to one of the rules to one of the Orders of the C.P.C. merely on the ground that it will have the effect of varying or amending an existing law? We think it would not be correct to thus unduly restrict the scope of a provision like section 87.
The better way to put the principle, we think, is to 683 say that the extension of an enactment which makes additions to the existing law would also be permissible under section 87 so long as it does not, expressly or impliedly, repeal or conflict with, or is not repugnant to, an already existing law.
In this context, reference can usefully be made to the observations in.
Hari Shanker Bagla at 39 1, which seem to countenance the "by passing" of an existing law by a piece of delegated legislation and to draw the line only at its attempt to repeal the existing law, expressly or by necessary implication.
In a sense, no doubt, any addi tion, however small, does amend or vary the existing law but so long as it does not really detract from or conflict with it, there is no reason why it should not stand alongside the existing law.
In our view section 87 should be interpreted con structively so as to permit its object being achieved rather than in a manner that will detract from its efficacy or purpose.
We may also note, incidentally, that in legislative practice also, such successive changes have been allowed to stand together.
Lachmi Narain vs Union of India, ; narrates how the Bengal Finance (Sales Tax) Act, 1941 extended to Delhi under Act III was subsequently amend ed by Parliament Acts of 1956 and 1959 but was also sought to be modified by various notifications from time to time.
These notifications were challenged on the ground that the power to extend by notification could be exercised only once and that the impugned notification did not merely extend but also effected modifications of a substantial nature in the Act sought to be extended.
No contention was, however, raised that after the intervention of Parliament in 1956 and 1959 there could have been no extension of the Bengal Act as it would have the effect of adding to or varying the Parlia mentary legislation apparently because they could stand side by side with each other.
We, therefore, think that since the extension of the 1985 Act only adds provisions in respect of aspects not covered by the 1974 Act and in a manner not inconsistent therewith, the impugned, notification is quite valid and not liable to be struck down.
We may now briefly dispose of certain minor aspects of the above contentions which were debated before us: 1.
It was urged that the provisions of the 1985 Act extended to Chandigarh cannot stand independently and make sense only if read along with and as supplementing the provisions of the 1949 Act already reenacted by the 1974 Act and, therefore, amend or modify the 1974 Act.
This is true but it does not affect our line of reasoning indicated above.
684 2 There was considerable argument before us as to wheth er the modifications introduced by the 1985 Act in the 1949 Act, as reenacted by the 1974 Act, are minor "modifications or restrictions" or incorporate substantial changes in the scheme of the pre existing law.
Counsel for the petitioners contended that the changes introduced by the 1985 Act were substantial and far reaching.
On the other hand counsel for the respondent contended to the contrary.
Sri Sehgal, ap pearing for one of the landlords submitted that the Act already contained provisions enabling any owner to get back his premises when he needed it for his occupation section 13(3)(a)(i) and (iv) and a special provision enabling an Army Officer to expeditiously recover possession of his premises when he needed it for his family section 13(3)(a)(i a) and (c) and that the provision sought to be introduced by the 1985 Act was only a natural and logical extension.
thereof.
Counsel for the landlord in SLP 92 17 of 1988 sub mitted that it was only a procedural change that the 1985 Act introduced, relying on certain observations made by this Court in Kewal Singh vs Lajwanti, ; All this discussion is wholly irrelevant on our line of reasoning.
As we have pointed out, in construing the scope of a law ex tended under section 87 qua an existing law, the question is not whether there are changes or not, the question is only, are they inconsistent with, in conflict with or repugnant to, the scheme of the existing law and we have answered this question in the negative.
The question of "modifications or restrictions" will loom large only in construing the scope of the notification qua the law extended by it.
In Lachmi Narain ; (at p. 801 2) and other cases it has been held that such a notification, while extending a law, can make only such "modifications and restrictions" in the law extended as are of an incidental, ancillary or subservi ent nature and as do not involve substantial deviations therefrom.
Here, it is common ground that the 1985 Act has been extended as it is, with only very minor modifications and, hence, it is unnecessary to consider the question debated.
The reference to the legislative precedent referred to in Kapoor 's case does not help us to determine the issue in the present case.
Sri Gujral pointed out that, in that case, Parliament considered it necessary to repeal an Act of Parliament (10 of 1952) and thus create a vacuum before providing for extension of a State law to the cantonment.
Central Act 10 of 1952 in that case, was a detailed enact ment and the State law extended under section 3 of the Act 46 of 1957 could not have stood alone with it.
It was, therefore, decided by Parliament that the Central Act should stand repealed.
Here, on the other hand, we have attempted to show that both sets of provisions can stand together 685 and effectively supplement 'each other.
Sri Swarup pointed out that, in Kapoor 's case, the words "on the date of the notification" were omitted with retro spective effect.
This also does not help the petitioners.
For one thing, the omission of those words enlarges the power of notification and made possible the issue of a notification to extend the State law along with its future amendments.
But that apart, the words "on the date of the notification" are present in section 87 and authorise the exten sion of the law in force in Punjab, as on 15.12.1986, to Chandigarh.
There was some discussion before us on the basis of the observations in Lachmi Narain & Ors.
vs Union of India & Ors.
, ; , as to whether there could be succes sive notifications under section 87.
But this question, which was answered in the affirmative in Kapoor 's case (supra), does not arise here, as there is only one notification under section 87. 5.
Learned counsel submitted that the observations of the High Court in para 17 and 26 of the judgment under appeal are not helpful as they refer to extension of laws made under the provisions of Acts I, II and III which had been held valid in the case.
This is correct but, as we have pointed out earlier.
section 87 only continued the pattern of Acts I, II and III after being assured by the Supreme Court that there was nothing wrong with it.
This is a relevant aspect which has to be kept in mind in consider ing the issues before us.
Learned counsel criticised the observations made by the High Court in para 27 of the judgment.
The passage referred to seems to echo the observations made in certain decisions of this Court (vide, for e.g. Mukherjea CJ) in Rai Sahab Ram Jawaya Kapur vs State, at p. 237 and Hedge J. in Sitaram Bishamber Dayal; , at p. 143 cited, with apparent approval, in Roy vs Union, ; at p. 3 17.
They should not be understood as equating the exercise of legislative power by Parliament and the Executive.
Both sides sought to take advantage of the history of the legislation in this case.
As stated earlier, the main contention of counsel for the petitioners was that, by enacting the 1974 Act and the 1982 Act, Parliament had filled in the "vacuum" which could no longer be penetrated by extension of laws from other parts of the country on the subject.
In addition they point out that the 1976 Ordinance making the amendments which are now being sought to be 686 extended was allowed to lapse and that an incorporation of these amendments was not considered necessary when the 1982 Act was passed.
These two circumstances show, according to them, that an extension of the provisions of the 1985 Act was contrary to the clear intention of Parliament.
On the contrary, counsel for the State submitted that the passing of the 1974 Act and the promulgation of the ordinance show that it was the policy of the Parliament to extend the provisions of the 1949 Act and, in particular, the provi sions now extended, to Chandigarh as well.
He further sub mitted that the ordinance could not be made into an Act because of the intervention of the emergency and that the omission to convert the ordinance into an Act and to insert the provisions of the ordinance into the 1982 Act really demonstrate how Parliament is unable to keep track of legis lation necessary for a Union Territory.
We do not wish to enter into this controversy for our present purposes as we do not think that any clear inference can be drawn one way or the other from these circumstances.
It is also not neces sary to consider these developments in the view we have taken that there can be no objection to extension of provi sions which do not conflict with the existing law in the Union Territory.
Sri Swarup raised a point that if section 87 is read as empowering the extension of any law at any time, section 89 which prescribes a maximum time limit of two years within which to adapt existing laws for their application to Chandigarh would become redundant.
This argument overlooks a very crucial difference between sections 87 and 89.
This is that, within the period of two years mentioned in section 89, the Central Government can, while adapting pre existing laws make any changes therein, including changes by way of repeal or amendment.
But section 87 though capable of enforcement indef initely, confers a more limited power.
It can be invoked only to extend laws already in existence to the Union Terri tory and cannot make any substantial changes therein.
The power under section 89 is limited in time but extensive in scope while under section 87 the power is indefinite in point of dura tion but very much more restricted in its scope.
The above discussions dispose of all the contentions urged before us.
For the reasons set out, we are of opinion that the conclusion arrived at by the Punjab and Haryana High Court was the correct one.
All these petitions and appeals fail and are dismissed and the rules nisi discharged but, in the circumstances, we direct each party to bear his/its own costs.
P.S.S. Appeals & petitions dismissed.
| IN-Abs | Section 87 of the empow ered the Central Government to extend, with such restric tions and modifications as it thought fit, to the Union Territory of Chandigarh any enactment which was in force in a State at the date of the notification.
Section 89 provided for adaptation and modification by the appropriate Govern ment of any law made before the appointed day, whether by way of repeal or amendment, for application in relation to the State of Punjab or Haryana or to the Union Territory of Himachal Pradesh or Chandigarh before the expiration of two years.
The State of Punjab, of which the Union Territory of Chandigarh originally formed part, was then governed by the East Punjab Urban Rent Restriction Act, 1949.
Section 2(j) of that Act defined 'urban area ' as any area administered by a municipal committee, a cantonment board, a town committee, or a notified area committee or any area declared by the State Government by notification to be an urban area for the purposes of the Act.
630 The Central Government had issued under section 89 of the Reorganisation Act, the Punjab Reorganisation (Chandigarh) (Adaptation of Laws on State and Concurrent Subjects) Order, 1968 with effect from 1st November, 1966 Paragraph 4 of which directed that in all the existing laws, in its appli cation to the Union Territory of Chandigarh, any reference to the State of Punjab should be read as a reference to the Union Territory of Chandigarh.
In exercise of the power conferred by section 2(j) of the Rent Act, the Central Government had also issued on 13th October, 1972 a notification declar ing the area comprising Chandigarh to be an "urban area" for the purpose of that Act.
This notification was, however, quashed by the High Court in Harkishan Singh vs Union, AIR 1975 P & H 160, on the ground that no notification had been issued prior to 1st November, 1966 under section 2(j) declaring Chandigarh to be an urban area, and there was no notification under section 87 making the 1949 Act operative in Chandigarh with the necessary adaptation.
Thereupon, Parliament enacted the East Punjab Urban Rent Restriction (Extension to Chandigarh) Act, 1974.
Section 3 of that Act extended to Chandigarh the 1949 Act subject to modifications specified in the schedule with retrospective effect from 4th November, 1972 with a view to regularies all proceedings for eviction which might have been initiated during the interregnum.
These included a modification of the definition of 'urban areas ' as including the area comprising Chandigarh, as defined in section 2 of the Capital of Punjab (Development Regulation) Act, 1952, and such other areas comprised in the Union Territory of Chandi garh as the Central Government may by notification declare to be urban for the purposes of the Act.
In 1982 Parliament passed the East Punjab Urban Rent Restriction (Chandigarh Amendment) Act, 1982 effecting certain amendments in the 1949 Act in its application to Chandigarh.
In 1985 the Legislature of the State of Punjab enacted East Punjab Urban Rent Restriction (Amendment) Act, 1985 to make the 1949 Act more effective.
This amendment came into force with effect from 16th November, 1985.
By a notification dated 15th December, 1986 purportedly in exercise of its power under section 87 of the Reorganisation Act the Central Government extended to the Union Territory of Chandigarh the provisions of the 1985 Act as in force in the State of Punjab at the date of the notification and subject to the modifications mentioned therein, with 631 the result that while the provisions of the 1949 Act had been brought into force with effect from 4th November, 1972 by the Act of Parliament, the provisions of the 1985 Act had been extended to the said territory by means of a Notifica tion of the Central Government issued under section 87.
The High Court upheld the validity of the said notification.
In these appeals by special leave and the writ petitions it was contended for the appellants/petitioners that in the purported exercise of its power under Article 246(4) of the Constitution, the Parliament could not delegate its legisla tive function in favour of an executive authority to such an extent as to amount to an abdication of its legislative function; that by enacting section 87, Parliament instead of legislating for the Union Territory had left it to the Central Government to decide for all time to come what should be the law in force in that Territory; whereas section 89 gives a limited transitory power to the Central Government to adapt existing laws within a period of two years; that such adaptation could hold the field only until they were altered, repealed or amended by a competent legislature or authority; that section 87 confers on the executive government a wide power of choice, for application to Chandigarh, of not only one legislative enactment on any subject in operation in various parts of the country but also groups of provi sions from one or more of them and thus enforce a law which would be an amalgam of various statutory provisions; that there was no legislative guidance as to the manner in which these choices should be exercised by the executive; that section 87 enables extension by Government notification even of any legislation which might have come into force in any part of India at any time between 1966 and the date of the notifica tion; that the effect, therefore, of section 87 could be that the entire legislation for the Union Territory in respect of any particular subject would entirely depend upon the fancy of the Central Government without any sort of legislative or parliamentary application of mind; that a power to exercise such wide power could not be described as a ministerial power, it is essential legislative power; that these facets of section 87 clearly render it an instance of excessive delega tion by Parliament to executive amounting in effect, to the total abdication of its legislative powers in regard to Chandigarh.
It was further contended that section 87, on its proper construction, permits the extension of the laws of another State to Chandigarh only so long as there is a vacuum of.
laws on any particular subject; that once Parliament itself steps in and assumes legislative responsibilities in respect of that subject, a transplantation of laws from elsewhere by extension is neither necessary nor valid; that as early as 1974 Parliament having applied its mind and legislated in respect of landlord 632 tenant matters for the Union Territory, it was for Parlia ment and Parliament alone to legislate on the subject there after; that by purporting to extend by an executive notifi cation under section 87 the provisions of the 1985 Act to Chandi garh what the Central Government had really done was to modify or amend an existing parliamentary law operating already in the State, which was impermissible, and that the notification dated 15th December, 1986 having thus exceeded the purview of section 87 it was, therefore, ultra vires.
Dismissing the appeals and the writ petitions, HELD: 1.1 Section 87 of the should be interpreted constructively so as to permit its object being achieved rather than in a manner that will detract from its efficacy or purpose.
So construed, its validity has to be upheld.
[683C] 1.2 It is impossible to carry on the government of a modern State with its infinite complexities and ramifica tions without a large devolution of power and delegation of authority.
While Parliament should, therefore, have ample and extensive powers of legislation, these should include a power to entrust some of those functions and powers to another body or authority.
Such entrustment, however, could not be so extensive as to amount to abdication or efface ment.
The legislatures cannot wash their hands off their essential legislative function of laying down the legisla tive policy with sufficient clearness and enunciating the standards which are to be enacted into a rule of law.
This function cannot be delegated.
What can be delegated is only the task of subordinate legislation which is by its very nature ancillary to the statute which delegates the power to make it and which must be within the policy and framework of the guidance provided by the legislature.
[668G H; 669C D] 1.3 Section 87 of the Reorganisation Act did not cross the line beyond which delegation amounts to abdication and self effacement.
It was not the power to make laws that was delegated.
The provision only conferred a power on the executive to determine, having regard to the local condi tions prevalent in the Union Territory, which one of several laws, all approved by one or the other of the legislatures in the country, would be the most suited to Chandigarh.
The power given as such was more in the nature of ministerial than in the nature of legislative power because all that the Government had to do was to study the laws and make selec tion out of them.
Thus viewed, it was not really an unguided and arbitrary power.
[675F G] 633 In re Delhi Laws Act; , applied.
Registrar of Cooperative Societies vs Kunhambu ; ; R. vs Burah, [1878] 51.A. 178; Jatindra Nath Gupta vs The Province of Bihar & Ors., ; Harishankar Bagla & Anr.
vs The State of Madhya Pradesh, ; Rajnarain Singh vs The Chairman, Patna Administration Committee, Patna & Anr., ; ; Sardar Inder Singh vs The State of Rajasthan, ; ; Pandit Banarsi Das vs The State of Madhya Pradesh & Ors., ; ; The Edward Mills Co. Ltd. Beawar vs The State of Ajmer; , ; The Western India Theatres Ltd. vs Municipal Corporation of the City of Poona, [1959] 2 Supp.
SCR 71; Hamdard Dawakhana (Wakf) Lal Kuan vs Union of India; , ; Vasantlal Maganbhai San janwala vs The State of Bombay & Ors., ; ; Jyoti Pershad vs Administrator for the Union Territory of Delhi, ; ; Shama Rao vs The Union Territory of Pondichery, ; ; Mohammad Hussain Gulam Moham mad & Anr.
vs The State Of Bombay & Anr.
; ; Corporation of Calcutta & Anr.
vs Liberty Cinema, ; , Devi Das Gopal Krishan & Ors.
vs State of Punjab & Ors.
, ; ; Municipal Corporation of Delhi vs Birla Cotton, Spinning & Weaving Mills, Delhi & Anr., ; ; Sita Ram Bishambhar Dayal vs State of U.P. & Ors., ; ; Hira Lal Rattan Lal etc.
vs State of U.P. & Anr.
; , ; Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. vs The Ass,.
Commissioner of Sales Far & Ors., ; ; M.K. Papiah & Sons.
vs The Excise Commissioner & Anr., ; ; Brii Sundar Kapoor vs First Additional District Judges, [1980] I SCC 651 and Sprigg.
vs Sigcau, , referred to.
2.1 Section 87 was quite valid even on the policy and guidelines theory.
It is not necessary that the legislature should "dot all the t 's" and cross all the t 's" of its poli cy.
It is sufficient if it gives the broadest indication of a general policy of the legislature.
[673E F] 2.2 The policy behind section 87 seems to be that it was necessitated by changes resulting In territories coming under the legislative jurisdiction of the Centre.
These were territories situated In the midst of contiguous territories which had a proper legislature.
They were small territories falling under the legislative jurisdiction of Parliament, which had hardly sufficient time to look after the details of all their legislative needs and requirements.
To require or expect Parliament to legislate 634 for them would have entailed a disproportionate pressure on its legislative schedule.
It would also have meant the unnecessary utilisation of the time of a large number of members of Parliament for, except the few members returned to Parliament from the Union Territory none else was likely to be interested in such legislation.
In such a situation the most convenient course of legislating for them was the adaptation by extension of laws in force in other areas of the country.
[673F; 674A B] 2.3 There could have been no objection to the legisla tion if it had provided that the laws of one of the contigu ous States should be extended to Chandigarh.
But such a provision would have been totally inadequate to meet the situation for two reasons.
There might have been more than one law in force on a subject in the contiguous States say one in Punjab, one in PEPSU and one in Himachal Pradesh etc. and Parliament was anxious that Chandigarh should have the benefit of that one of them which would most adequately have met the needs of the situation in that territory.
Or, again, there might have been no existing law on a particular subject in any of the continuous 3teas which was why the power had to include the power of extending the laws of any State of India.
While in a very strict sense this might have involved a choice, it was in fact, and in general run of cases.
only a decision on suitability for adaptation rather than choice of a policy.
It was a delegation not of policy, but of matters of detail for a meticulous appraisal of which Parliament had no time.
Even if it be assumed that this involved a choice of policy, the restriction of such policy to one that was approved by Parliament or a State Legisla ture constituted a sufficient declaration of guideline within the meaning of the "policy guideline theory." [675G H; 676A C] In re Delhi Laws Act; , referred to.
Once it is held that the delegation of a power to extend a present existing law is justified, a power to extend future laws is a necessary corollary.
If Parliament had no time to apply its mind to the existing law initially to be adapted, it could have hardly found time to consider the amendments from time to time engrafted on it in the State of its origin.
It would then seem only natural as a necessary corollary that the executive should be permitted to extend future amendments to those laws as well.
[676D E] In re Delhi Laws Act; , referred to.
4.1 The concept of vacuum is as much relevant to a case where there is absence of a particular provision in an existing law as to a case 635 where there is no existing law at all in the Union Territory on a subject.
For instance, if Parliament had not enacted the 1974 Act but had only enacted an extension of the Trans fer of Property Act to Chandigarh, it could not have been said that a subsequent notification cannot extend the provi sions of the 1949 Act to Chandigarh simply because the subject of leases was governed by the Transfer of Property Act, which had been already extended and there, was, there fore, no "vacuum" left which could be filled in by such extension.
Again, suppose, initially, a Rent Act was extend ed by Parliament which did not contain a provision regarding one of the grounds on which a landlord could seek eviction say, one enabling the owner to get back his house for reoc cupation and then the Government thought that another enact ment containing such a provision also be extended, it could not perhaps be said that the latter was a matter on which there was no legislation enacted in the Territory and that the extension of the latter enactment only filled up a void or vacancy.
Again, suppose the provisions of a general code like.
say, the Code of Civil Procedure were extended to the Union Territory.
In that case s.87 could not be construed so as to preclude the extension of a later amendment to one of the rules to one of the orders of the C.P.C. merely on the ground that it will have the effect of varying or amending an existing law.
There is no warrant to thus unduly restrict the scope of a provision like section 87.
[682D H] 4.2 The extension of an enactment which makes additions to the existing law would thus also be permissible under section 87 of the Reorganisation Act, so long as it does not, ex pressly or impliedly repeal or conflict with, or is not repugnant to, an already existing law.
[683A B] In the instant case, the extension of the East Punjab Urban Rent Restriction (Amendment) Act, 1985 to the Union Territory of Chandigarh only added provisions in respect of aspects not covered by the East Punjab Urban Rent Restric tion (Extension to Chandigarh) Act, 1974 and in a manner not inconsistant therewith.
[683F] Lachmi Narain vs Union of India, and Hari Shankar Bagla vs State of Madhya Pradesh, referred to.
A notification while extending a law can make only such modifications and restrictions in the law extended as are of an incidental, ancillary or subservient nature and as do not involve substantial deviations therefrom.
In the instant case, the 1985 Act has been extended as 636 it is, with only very minor modifications.
The notification dated 15th December.
1986 was, therefore, quite valid and not liable to be struck down.
[684E F] Lachmi Narain vs Union of India, ; ; referred to and Kewal Singh vs Lajwanti, ; ; distinguished. 6.
Any addition, however, small does amend or vary the existing law but so long as it does not really detract from or conflict with it, there is no reason why it should not stand alongside the existing law.
In the instant case the modifications introduced by the 1985 Act in the 1949 Act, as were reenacted by the 1974 Act were minor modifications and restrictions.
They do not incorporate substantial changes in the scheme of the pre existing law.
Both sets of provisions can stand together and effectively supplement each other.
[684F, H] Hari Shankar Bagla vs State of Madhya Pradesh, and Lachmi Narain vs Union of India, referred to. 7.
There is a very crucial difference between section 87 and 89 in as much as within the period of two years mentioned in section 89, the Central Government could while adapting pre existing laws make any changes by way of repeal or amend ment.
But section 87, though capable of enforcement indefinitely, confers a more limited power.
It can be invoked only to extend laws, already in existence, to the Union Territory and cannot make any substantial changes therein.
The power under section 89 is limited in time but extensive in scope, while under section 87 the power is indefinite in point of duration but very much more restricted in its scope.
Therefore, resort to section 87 did not render section 89 redundant.
[686E F]
|
ivil Appeal No. 1069 of 1975.
From the Order dated 18.5.1973 of the Calcutta High Court in Matter No. 586 of 1968.
D.N. Mukharjee and G.S. Chatterjee for the Appellant.
D.N. Dwivedi and C.V. Subba Rao for the Respondents.
The Judgment of the Court was delivered by PATHAK, CJ.
The question raised in these two appeals is 779 whether the assessee Railway in each appeal is a "dealer" within the meaning of the Bengal Finance (Sales Tax) Act, 194 1 and therefore liable to assessment under that Act.
In C.A. No. 845 of 1974 the facts are these.
The assessee South Eastern Railway disposes of unclaimed and unconnected goods for money consideration.
On 1 April, 1952 the assessee applied for registration as a dealer under the Bengal Finance (Sales Tax) Act in respect of unconnected or unclaimed goods, and was accordingly registered.
It submitted returns of sales effected by it of unclaimed and unconnected goods year after year and paid sales tax pursu ant to the assessments made by the Sales Tax department.
However, in assessment proceedings for the four quarters ending March, 1959 the assessee applied to the Commercial Tax Officer for cancellation of the registration of the assessee as a "dealer" under the Act.
The Commercial Tax Officer examined the case and did not accept the contention that the assessee was not a "dealer".
On 6 June, 1959 he made an order rejecting the application on the basis that the disposal of unclaimed goods for valuable consideration was a regular feature of the assessee 's activities, and that therefore the assessee fell within the scope of the Act.
The assessee applied in revision before the Assistant Commis sioner of Commercial Taxes.
The only point raised in the revision application was whether the assessee could be treated as a "dealer" within the meaning of the Act.
It was stated on behalf of the assessee that unclaimed or uncon nected goods came into possession of the assessee but not as a result of any activity of purchase or of manufacture for sale.
It was pointed out that when such good came into possession of the assessee it acquired rights over the said goods under Section 56 of the Railways Act enabling it tO sell the goods.
The revision petition was rejected on 27 January, 1960 on the finding that the sales effected by the assessee were sales under the Act and that the assessee was a "dealer".
The assessee proceeded in further revision to the Commissioner of Commercial Taxes, West Bengal and simi lar contentions were raised before him but the revision application was dismissed by the Additional Commissioner of Commercial Taxes, who dealt with the case, by order dated 17 June, 1960.
The assessee then proceeded in revision before the Board of Revenue, West Bengal.
The Board held that a transfer of property was involved in the auction held by the assessee and that therefore a sale of goods took place.
The Board further held that the systematic and organised charac ter of business carried on by the assessee clothed him with the status of a "dealer" under the Act.
At the instance of the assessee the Board of Revenue 780 referred the following question to the High Court at Calcut ta for its opinion: "Whether the petitioner Railway in so far as it effects sales of unclaimed and unconnected goods under the provisions of Section 56 of the Indian Railways Act, is a dealer within the meaning of Section 2(c) of the Bengal Finance (Sales Tax) Act, 1941?" The facts and circumstances in the case out of which Civil Appeal No. 1069 of 1975 arises are substantially similar to those narrated in the earlier case, except that the assessee here is the Eastern Railway and it is engaged in selling scrap and unserviceable material.
The question referred at the instance of the assessee to the High Court at Calcutta is as follows: "Whether on the facts and in the circumstances of the case the Controller of Stores, Eastern Railways is a dealer engaged in the business of selling scrap and unserviceable materials within the meaning of cl.
(c) read with C1.
(g) of Section 2 of the Bengal Finance (Sales Tax) Act, 1941.
" The High Court delivered judgment setting forth detailed reasons therefore in the case relating to the assessee South Eastern Railway.
It held that the disposal of the goods did not indicate that the Railway concerned was carrying on business as a dealer liable to assessment under the Act.
The High Court disposed of the other case on the same basis as found favour with it in the earlier case, and answered the question in favour of the assessee.
In these appeals the question is whether the assessee Railway in each case is a "dealer" for the purpose of as sessment under the Bengal Finance (Sales Tax) Act, 1941.
In the case of the assessee South Eastern Railway, what were sold were unclaimed goods.
The Railway was a carrier of the goods and if at the stage of delivery goods remained un claimed for a period the Railway was entitled to dispose them of.
There can be no doubt that the activity of so disposing of the goods was adjunctive to the principal activity of the carriage of goods by the Railway.
It is an activity which may be regarded as necessarily incidental or ancillary to its business as carrier of the goods.
It seems to South Eastern Railway was a "dealer" for the 781 purposes of the Bengal Finance (Sales Tax) Act, 1941.
In the other case, the assessee Eastern Railway disposed of scrap and unserviceable material lying with it.
The case is covered directly by the decision of this Court in the District Controller of Stores, Northern Railway, Jodhpur vs The Assistant Commercial Taxation Officer and Another, [1976] 37 S.T.C. 423.
In the circumstances the appeals are allowed, the im pugned judgment of the High Court in each case is set aside and the questions referred to the High Court are answered in each case in the affirmative, in favour of the revenue and against the assessee.
The appellant is entitled to his costs in each case.
T.N.A. Appeals allowed.
| IN-Abs | The assessee South Eastern Railway, a registered dealer under the Bengal Finance (Sales Tax) Act, 1941, disposing of unclaimed and unconnected goods for money consideration under Section 56 of the Indian Railways Act, 1890, applied to the Commercial Tax Officer for cancellation of registra tion as a "dealer".
The Commercial Tax Officer rejected the application on the ground that the disposal of unclaimed goods for valuable consideration was a regular feature of the assessee 's activ ities, and, therefore, the assessee fell within the scope of the Bengal Finance (Sales Tax) Act, 1941.
Assessee 's revision application was rejected by the Assistant Commissioner of Commercial Taxes on the ground that the sales effected by the assessee were sales under the Act and that the assessee was a "dealer".
A second revision of the assessee was also dismissed by the Additional Commis sioner of Sales Tax.
On a further revision the Board of Revenue also con firmed the status of the assessee as a "dealer", holding that in the systematic and organised character of business of auctioning by the assessee, a transfer of property was involved and therefore a sale of goods took place.
At the instance of the assessee a reference was made to the High Court.
The High Court answered the question in favour of the assessee by holding that the disposal of the goods did not indicate that the 778 Railway was carrying on business as a dealer liable to assessment under the Act.
The assessee in the connected appeal, Eastern Railway, was engaged in selling scrap and unserviceable material, and a similar order was passed by the High Court in its favour.
Hence these appeals by the Revenue.
Allowing the appeals and setting aside the judgments of the High Court, this Court, HELD: 1.
The assessee South Eastern Railway was a carri er of the goods and if at the stage of delivery, goods remained unclaimed for a period, the Railway was entitled to dispose them of.
The activity of so disposing of the goods was adjunctive to the principal activity of the carriage of goods by the Railway.
It is an activity which may be regard ed as necessarily incidental or ancillary to its business as carrier of the goods.
Therefore, the assessee South Eastern Railway was a "dealer" for the purposes of the Bengal Fi nance (Sales Tax) Act, 1941.
[780G H] 2.
The assessee in the connected appeal, Eastern Rail way, who was disposing scrap and unserviceable material was also a "dealer" for the purposes of the Bengal Finance (Sales Tax) Act, 1941.
[780H; 781A] District Controller of Stores, Northern Rly, Jodhpur vs The Assistant Commercial Taxation Officer & Anr., [1976] 37 S.T.C. 423 applied.
|
vil Appeal No. 1442 (NT) of 1975.
From the Judgment and Order dated 14.3.1974 of the Allahabad High Court in I.T.R. No. 437 of 1971.
E.C. Agarwala for the Appellant.
S.C. Manchanda, Ms. A Subhashini and M.B. Rao for the Respondent.
The Judgment of the Court was delivered by PATHAK, CJ.
This appeal by certificate granted by the Allahabad High Court is directed against a judgment of the High Court answering the following questions in favour of the Revenue and against the assessee in an income tax refer ence: "(1) Whether on the facts and in the circumstances of the case, and on a correct interpretation of the leasedeed 799 dated 22.8.1960, the Tribunal was fight in holding the profits of the Glass factory during the relevant accounting year accrued to the assessee company? (2) If the answer to the question No. 1 is in the affirmative, whether the Tribunal was right in holding that the entire profits and not one half of the profits of the glass factory during the relevant accounting year accrued to the assessee company?" The assessee, Messrs. Vibhuti Glass Works is a public limited company.
It has a glass factory and also carries on other business.
The accounts of the glass factory are closed on 31 March each year, while the assessee closes its ac counts on 30 September each year.
We are concerned with the assessment year 1962 63.
For several years the glass factory business had been suffering losses resulting in increasing debt.
It took heavy loans from the Banaras State Bank, Varanasi, for which purpose its stocks and stores were hypothecated to the Bank.
It also took loans from the Uttar Pradesh Government and the land, buildings and machinery were mortgaged accordingly.
The assessee found it difficult to emerge out of its finan cial embarrassment.
It discovered also that it needed cer tain equipment in order to produce better quality goods and also required funds for its working capital and for repaying loans to other creditors.
It approached the industrial Finance Corporation, New Delhi, and the State Finance Corpo ration for financial assistance and the Industrial Finance Corporation agreed to grant a loan of Rs.20 lakhs on condi tion (a) that the State Government guaranteed repayment and (b) that the State Government postponed their charge under the mortgage deeds and the Industrial Financial Corporation was allowed to have the first charge.
The State Government agreed to those conditions provided the assessee allowed the State Government to take over the running of the glass factory for a period of 20 years.
The State Government also stipulated that if and when the profits of the business exceeded a prescribed limit, a share of those profits would go to the State Government.
The assessee agreed to this arrangement and executed a document dated 22 August, 1960 incorporating the requisite conditions.
For the relevant accounting period the glass factory business disclosed a profit of Rs.92,960 while the assessee suffered a loss of Rs.3,47,656 according to its separate profit and loss account.
During 800 assessment proceedings for the assessment year 1962 63 it was contended by the assessee before the Income Tax Officer that the profit of Rs.92,960 earned by the glass factory business was not assessable in the hands of the assessee but in the hands of the Uttar Pradesh Government which had taken over the factory and was running the business.
It was con tended that in any event only half of the profits could be included in the assessment of the assessee, the remaining profit being assessable in the hands of the State Government which was entitled to 50 per cent of the profits under the Deed dated 22 August, 1960.
Both contentions were rejected by the Income Tax Officer, who held that the assessee was liable to be assessed in respect of the entire profits earned by the glass factory.
He set off the profit against the loss declared by the assessee and computed a net loss of Rs.2,54,785.
The assessee appealed to the Appellate Assistant Commis sioner of Income Tax, but without success.
A second appeal by the assessee filed before the Income Tax Appellate Tribu nal was also dismissed.
At the instance of the assessee the Appellate Tribunal referred the two questions of law set forth earlier to the High Court of Allahabad.
The High Court considered the various provisions of the Deed dated 22 August, 1960 and answered both the questions in favour of the Revenue and against the assessee.
It is apparent that this appeal must be disposed of on a consideration of the terms of the Deed dated 22 August, 1960.
A perusal of the conditions set forth in that document discloses that the State Government was given the power to manage the glass factory business for a period of 20 years from the date it assumed possession.
Although the Deed is described as a lease deed and it provides that the glass factory is demised to the State Government, in substance possession of the glass factory was transferred to the State Government only for the purpose of enabling it to manage and run the business.
The High Court has given good reason for reaching that conclusion.
Clause (c) of paragraph 7 of the Deed provides "that if upon the expiration or sooner determination of this demise it is found that the working of the factory has shown prof its after meeting the entire liabilities of the company the balance profits, after accounting for all charges and ex penses incurred by the State Government, shall be divided between the company and the Governor in equal proportion.
" It was contended by the assessee before the High Court that the 801 income was diverted through an overriding title before it reached the assessee.
The High Court.
in our opinion, has rightly rejected the contention, holding that there was no overriding title and in fact it was a case of mere applica tion of the income.
The proper test to be applied in such a case has been laid down by this Court in Commissioner of Income tax, Bombay City H vs Sitaldas Tirathdas, and we are satisfied that the present case is one where the income accrued to the assessee directly and was merely applied upon such accrual to discharge an obligation of the assessee.
The entire income earned during the year under consideration was the income of the assessee and was merely applied by the managing State Government for the payment of the assessee 's debts.
We are also in agreement with the High Court that the profits earned during the year under consideration were not sufficient for the State Government to enjoy a share in the profits in accordance with the terms of the Deed, and no question, therefore, arises of any part of the profits being regarded as assessable in the hands of the State Government.
In point of fact, it appears that no part of the profits was actually taken by the State Government.
In the result, the appeal fails and is dismissed but in the circumstances there is no order as to costs.
N.P.V. Appeal dismissed.
| IN-Abs | The assessee Company had a glass factory besides other business.
Since the glass factory business had been suffer ing losses for several years, resulting in increasing debt, the assessee took loans from the State Government and mort gaged the land, buildings and machinery.
Later, under a deed executed by it the assessee allowed the State Government to take over running of the glass factory for a period of 20 years and permitted it to have a share of the business, if and when they exceeded a prescribed limit, as conditions for guaranteeing repayment of a loan of Rs.20 lakhs granted by the Industrial Finance Corporation.
During assessment proceedings for the assessment year 1962 63, the assessee contended that the profits earned by the glass factory business during that period were not assessable in its hands, but in the hands of the State Government, which had taken over the factory and was running the business, and that, in any event, only half of the profit could be included in its assessment as the State Government was entitled to 50 per cent of profits under the deed.
Rejecting the contentions, the Income tax officer held that the assessee was liable to be assessed in respect of the entire profits earned by the glass factory.
The assessee 's appeals were dismissed by both the Appel late Assistant Commissioner and the Appellate Tribunal.
On a reference made at assessee 's instance, the High Court af firmed the Tribunal 's finding that the entire profits of the factory, and not half of them accrued to the assessee.
It also rejected assessee 's contention that the income was diverted through an overriding title before it reached the assessee.
Dismissing the appeal of the assessee, this Court, 798 HELD: The present case is one where the income accrued to the assessee directly and was merely, upon such accrual, applied to discharge an obligation of the assessee.
[.801B] Although the Deed executed by the assessee is described as a lease deed and provides that the glass factory is demised to the State Government, in substance possession of the factory was transferred to the State Government only for the purpose of enabling it to manage and run the business.
[800F] The entire income earned during the year under consider ation was the income of the assesee and was merely applied by the managing State Government for the payment of the assessee 's debt, and there was no over riding title.
The profits earned during the year under consideration were not sufficient for the State Government to enjoy a share in the profits in accordance with the terms of the Deed, and there fore, no part of the profits could be regarded as assessable in the hands of the State Government.
In point of fact, no part of the profits was actually taken by the State Govern ment.
[801C D] Commissioner of Income tax, Bombay City H vs Sitaldas Tirathdas, , relied on.
|
ivil Appeal No. 3342 of 1979.
From the Judgment and Order dated 28.4.1978 of the Allahabad High Court in Second Civil Appeal No. 300 of 1975.
O.P. Rana and Raju Ramachandran for the Appellant.
Vivek Ghambir and Praveen Kumar for the Respondent.
The Judgment of the Court was delivered by PATHAK, CJ.
This is a landlord 's appeal by special leave arising out of a suit for ejectment.
The respondent 's father B.M. Paul, was the tenant of the premises in question.
On his death he left behind the re spondent, his mother, brothers and sisters who in herited the tenancy.
A notice under section 106 of the terminating the tenancy was addressed to the respondent and was served on him.
It was not addressed and served on the other tenants.
A suit for ejectment was filed by the appellant against the respondent.
The validity of the notice to quit was challenged by the respondent.
It was contended that notice should have been addressed to all the members of the family and served on them, and in the absence of notice to all the suit was incompetent.
The trial court upheld the validity of the notice relying upon the decision of the Allahabad High Court in Shrimati Vishnawati vs Bhag wat Vithu Chowdhry, on the footing that the defendants were joint tenants and constituted a single unit and therefore notice to one of the defendants was sufficient to determine the tenancy.
The view proceeded on the basis that the heirs of the original tenant held the tenancy as joint tenants.
When the matter ultimately came to the High Court in second appeal, the High Court took the view that as heirs of the deceased tenant they held the tenancy as tenants in common and not as joint tenants.
Accordingly, the High Court said, notice to quit should have been served on each one of the successor tenants.
In that view, the High Court allowed the appeal and 771 dismissed the suit.
The High Court relied on Ramesh Chand Bose vs Gopeshwar Prasad Sharrna, AIR 1977 'Allahabad 38 where it was held that a tenancy was a heritable property right and the heirs of the deceased tenant became tenants themselves.
In this appeal the entire question is whether the notice addressed to the respondent alone is a valid notice.
It is now well settled that on the death of the original tenant, subject to any provision to the contrary either negativing or limiting the succession, the tenancy rights devolve on the heirs of the deceased tenant.
The incidence of the tenancy are the same as those enjoyed by the original tenant.
It is a single tenancy which devolves on the heirs.
There is no division of the premises or of the rent payable therefor.
That is the position as between the landlord and the heirs of the deceased tenant.
In other words, the heirs succeed to the tenancy as joint tenants.
In the present case it appears that the respondent acted on behalf of the ten ants, that he paid rent on behalf of all and he accepted notice also on behalf of all.
In the circumstances, the notice served on the respondent was sufficient.
It seems to us that the view taken in Ramesh Chand Bose (supra) is erroneous where the High Court lays down that the heirs of the deceased tenant succeed as tenants in common.
In our opinion, the notice under section 106 of the served by the appellant on the respondent is a valid notice and therefore the suit must succeed.
In the result, the appeal is allowed, the judgment and decree of the High Court are set aside and the judgment and decree of the First Appellate Court are restored.
There is no order as to costs.
P.S.S. Appeal allowed.
| IN-Abs | The respondent inherited tenancy of the demised premises alongwith his mother, brothers and sisters from their fa ther.
A notice under section 106 of the terminating the tenancy was served on him.
It was followed by a suit for ejectment against him.
Upholding the validity of the said notice, the trial court took the view that the heirs of the original tenant held the tenancy as joint tenants and, therefore, notice to one of the defendants was sufficient to determine the tenan cy.
Allowing the appeal therefrom, the 'High Court took the view that as heirs of the deceased tenant they held the tenancy as tenants incommon and not as joint tenants.
There fore, the notice to quit should have been served on each one of the successor tenants.
Allowing the appeal by special leave, the Court, HELD: The notice under section 106 of the Transfer of Proper ty Act served by the appellant on the respondent was a valid notice.
[771E] On the death of the original tenant, subject to any provi sion to the contrary either negativing or limiting the succession, the tenancy rights devolve on the heirs of the deceased tenant.
The incidence of the tenancy are the same as those enjoyed by the original tenant.
It is a single tenancy which devolves on the heirs.
There is no division of the premises or of the rent payable therefor.
The heirs thus succeed to the tenancy as joint tenants.
[771C] In the instant case, the respondent acted on behalf of the tenants, he paid rent on behalf of all and accepted notice also on behalf of all.
In the circumstances, the notice served on the respondent was sufficient.
The suit must, therefore, succeed.
[771D] 770 Shrimati Vishnawati vs Bhagwat.
Vithu Chowdhry, , affirmed.
Ramesh Chand Bose vs Gopeshwar Prasad Sharma, AIR 1977 Allahabad 38, overruled.
|
(Civil) No. 1050 of 1986.
(Under Article 32 of the Constitution of India).
A.C. Gulati, S.K. Goel, S.K. Bansal and L.C. Goyal for the Petitioner.
T.S.K. Iyer, Mariarputham, Ms. A. Mathut, M. Veerappa, Pramod Swarup, K. Ramkumar, R. Bana, A. Subba Rao, S.K. Bhattacharya, Ms Urmila Kapoor and Ms. Janki for the Re spondents.
The Judgment of the Court was delivered by PATHAK, CJ.
On 31 July, 1987, we allowed this writ petition and directed the respondents to admit the petition er, Meenakshi Malik, in one of the three Delhi Medical Colleges in the first year course prescribed for the M.B.B.S. Degree.
We said that the reasons would be pro nounced later.
We proceed to do so now.
The petitioner was born in Delhi on 8 September, 1967.
Her father, Shri O.P. Malik, was employed in the National Council of Educational Research and Training, Sri Aurobindo Marg, New Delhi 860 and her mother, Smt.
Kanta Devi Malik was employed in the Government Girls Senior Secondary School, Mehrauli, New Delhi.
The petitioner attended the Junior Public School, Shakti Nagar, upto Class II and the Cambridge School, Siri niwaspuri, New Delhi, upto Class IX until 19 January, 1982.
The petitioner 's father was placed on deputation in January 1982 with the Government of Nigeria to serve in its Ministry of Education through the Ministry of Home Affairs, Depart ment of Personnel and Administrative Reforms, Government of India, New Delhi.
The petitioner, who was a minor at the time, had to accompany her parents along with her minor brother.
In Nigeria, the petitioner continued her education as an overseas candidate and appeared for the examination conducted by the University of London in Kanduna, Nigeria, and she passed the General Certificate of Education Ordinary level (GCE 'O ' level) which is recognised by the Central Board of Secondary Education, New Delhi, as equivalent to Class XI in India.
On completing the period of his deputation on 8 April, 1984 the petitioner 's father returned to India with his family.
The petitioner was admitted to Class XII in the Delhi Public School, Mathura Road, New Delhi.
The Central Board of Secondary Education permitted her admission to that Class.
The petitioner appeared in the All India Senior School Certificate Examination conducted by the Central Board of Secondary Education, New Delhi, in March, 1985 and passed the examination.
The petitioner then sat for the Entrance Examination for admission to one of the three Medical Colleges in Delhi, and she obtained 750 marks.
The candidates who obtained an equal number of the marks or even less were granted admission, but the petitioner was denied admission.
She fell for consideration in the quota of seven ty per cent of the seats reserved for candidates who had passed the qualifying examination from the University of Delhi or the Central Board of Secondary Education or the Council for the Indian School Certificate Examination from recognised schools conducting regular classes in the Union Territory of Delhi.
But she was denied admission because she had not satisfied the further condition that the last two years of education should be had in a school in Delhi.
Aggrieved by the denial of admission, the petitioner filed the present writ petition.
It seems to us that the qualifying condition that a candidate appearing for the Entrance Examination for admis sion to a Medical College in Delhi should have received the last two years of education in a school in Delhi is unrea sonable when applied in the case of those candidates who were compelled to leave India for a foreign country by 861 reason of the posting of the parent by the Government to such foreign country.
There is no real choice in the matter for such a student, and in many cases the circumstances of the student do not permit her to continue schooling in India.
It is, of course, theoretically possible for a stu dent to be put into a hostel to continue her schooling in Delhi.
But in many cases this may not be feasible and the student must accompany a parent to the foreign country.
It appears to us that the rigour of the condition prescribing that the last two years of education should be received in a school in Delhi should be relaxed, and there should be no insistence on the fulfilment of that condition, in the case of students of parents who are transferred to a foreign country by the Government and who are therefore required to leave India along with them.
Rules are intended to be rea sonable, and should take into account the variety of circum stances in which those whom the rules seek to govern find themselves.
We are of opinion that the condition in the prescription of qualifications for admission to a medical college in Delhi providing that the last two years of educa tion should be in a school in Delhi should be construed as not applicable to students who have to leave India with their parents on the parent being posted to a foreign coun try by the Government.
Accordingly, the denial of admission to the petitioner to a seat in one of the Medical Colleges in Delhi must be held to be unreasonable.
It is not disputed that if the condition of schooling for the last two years in a school in Delhi is removed from the way, the petitioner would be entitled to admission in a Medical College in Delhi.
In the circumstances, the petitioner is entitled to an order di recting the respondents to admit her to one of the Medical Colleges in Delhi.
T.N.A. Petition Allowed.
| IN-Abs | The petitioner was born and studied upto class IX in Delhi.
In 1982 she left for Nigeria, along with her parents, where her father went on deputation.
There she passed the General Certificate of Education Ordinary Level, conducted by University of London, which was recognised by the Central Board of Secondary Education, New Delhi as equivalent to Class XI in India.
She returned to India along with her family in 1984.
After passing the All India Senior School Certificate Examination in 1985, she appeared for entrance examination for admission to one of the three Medical Colleges in Delhi and passed the test.
But she was denied admission because she had not satisfied the further condition that the last two years of education should be had in a school in Delhi.
Aggrieved by the denial of admission, the petitioner filed a writ petition in this Court.
By an order dated 31st July, 1987 this Court allowed the Writ Petition and directed the respondents to admit her in one of the three Delhi Medical Colleges in the first year course prescribed for the M.B.B.S. Degree.
Giving reasons for the said order, this Court, HELD: 1.
Rules are intended to be reasonable, and should take into account the variety of circumstances in which those whom the rules seek to govern find themselves.
[861C] 2.
The qualifying condition that a candidate appearing for the 859 entrance examination for admission to a Medical College in Delhi should have received the last two years of education in a school in Delhi is unreasonable when applied in the case of those candidates who were compelled to leave India for a foreign country by reason of the posting of the parent by the Government to such foreign country.
There is no real choice in the matter for such a student, and in many cases the circumstances of the student do not permit her to con tinue schooling in India.
Theoretically it is possible for a student to be put into a hostel to continue her schooling in Delhi but in many cases this may not be feasible and the student must accompany the parent to the foreign country.
[860H, 861A] 3.
The rigour of the condition prescribing that the last two years of education should be, received in a school in Delhi should be relaxed, and there should be no insistence on the fulfilment of that condition, in the case of students of parents who are transferred to a foreign country by the Government and who are therefore required to leave India along with them.
Therefore, the denial of admission to the petitioner to a seat in one of the Medical Colleges in Delhi was unreasonable.
[861B, 861E]
|
ivil Appeal No. 2534 of 1989.
From the Judgment and Order dated 15.1.1988 of the High Court in C.W.J.C. No. 1852 of 1987.
G.B. Pai, S.K. Sinha for the Appellants.
Shanti Bhushan, section Sukumaran, D.N. Misra, S.B. Upadhyay and B.B. Singh for the Respondents.
The Judgment of the Court was delivered by DUTT, J.
Special leave is granted.
Heard learned Counsel for the parties.
The appellants, Telco Convoy Drivers Mazdoor Sangh, Jamshedpur, and another, have preferred this appeal against the judgment of the Patna High Court whereby the High Court dismissed the writ petition of the appellants challenging the order of the State of Bihar refusing to make a reference of the disputes raised by the appellants to the Industrial Tribunal under section 10 of the , hereinafter referred to as "the Act".
The appellant Sangh represents about 900 convoy drivers.
By a 805 letter of demand dated October 16, 1986 addressed to the General Manager of the Tata Engineering & Locomotive Co. Ltd., Jamshedpur (for short "TELCO"), the Sangh demanded that permanent status should be given by the management to all the convoy drivers, and that they should also be given all the facilities as are available to the permanent employ ees of TELCO on the dates of their appointment.
The said demand proceeds on the basis that the convoy drivers are all workmen of TELCO.
The dispute that has been raised in the said letter of demand is principally whether the convoy drivers are workmen and/or employees of TELCO or not.
In other words, whether there is relationship of employer and employees between TELCO and the convoy drivers.
The Deputy Labour Commissioner by his letter dated February 26, 1979 informed the appellant Sangh that in view of the opinion of the Law Department of the year 1973 to the effect that there was no relationship of master and servant between TELCO and the convoy drivers, the demands of the convoy drivers did not come within the purview of the Act and, accordingly, it was not possible to take any action in regard to the dispute of convoy drivers under the Act.
The appellant Sangh being aggrieved by the said refusal to make a reference under section 10(1) of the Act, moved before the Ranchi Bench of the Patna High Court a writ petition praying for a writ of mandamus commanding the State of Bihar to refer the dispute under section 10(1) of the Act.
A learned Single Judge of the High Court, who heard the writ petition, took the view that the letter of the Deputy Labour Commis sioner only referred to the Law Department 's opinion of the year 1973 without indicating in what context and under what circumstances, he rejected the demand for a reference.
In that view of the matter, the learned Judge granted liberty to the Sangh to reagitate the mater before the appropriate Government and expressed the hope that the appropriate Government would consider the matter in a proper perspective in the light of the documents and the materials that would be placed by the Sangh, in accordance with law.
The writ petition was dismissed subject, however, to the observation and direction mentioned above.
Pursuant to the liberty granted by the High Court, the Sangh made a representation to the Government for a refer ence of the dispute under section 10(1) of the Act.
The Deputy Labour Commissioner, Jamshedpur, by his letter dated November 6, 1986 gave the same reply and refused to make a reference.
806 Again, the appellant Sangh moved a writ petition before the High Court and, as stated already, the High Court sum marily dismissed the same holding that the appellants had failed to prima facie satisfy that they were employed either by TELCO or by the Telco Contractors ' Association.
Hence this appeal.
It has been urged by Mr. Pai, learned Counsel appearing on behalf of the appellants, that the Government exceeded its jurisdiction in purporting to decide the dispute raised by the appellant Sangh in the said letter of demand.
Counsel submits that in the facts and circumstances of the case, the Government should have made a reference to the Industrial Tribunal under section 10(1) of the Act for the adjudication of the dispute of the convoy drivers and should not have embarked upon the task of deciding the dispute on its merits through the Deputy Labour Commissioner.
On the other hand, it has been vehemently urged by Mr. Shanti Bhusan, learned Counsel appearing on behalf of TELCO, that the Government has the jurisdiction to consider whether any industrial dispute exists or not and, in considering the same, as the Government found that the convoy drivers were not even workmen of TELCO or, in other words, there had been no relationship of master and servants between TELCO and the convoy drivers, the Government refused to make a reference of the dispute under section 10(1) of the Act.
It is submit ted that the refusal by the Government to make a reference was perfectly within its jurisdiction inasmuch as, in the opinion of the Government, there was no existence of any industrial dispute.
After conclusion of the hearing, we took the view that the Government should be given one more chance to consider the question of making a reference and, accordingly, we by our order dated March 30, 1989 directed the Government to reconsider the question of referring the dispute raised by the convoy drivers to the Industrial Tribunal under section 10 of the Act, keeping the appeal pending before us.
The learned Counsel, appearing on behalf of the Govern ment, has produced before us an order dated April 13, 1989 of the Government whereby the Government has, upon a recon sideration of the matter, refused to make a reference under section 10(1) of the Act.
In refusing to make a reference, the Government has adjudicated the dispute on its merits.
807 It is true that in considering the question of making a reference under section 10(1), the Government is entitled to form an opinion as to whether an industrial dispute "exists or is apprehended", as urged by Mr. Shanti Bhusan.
The formation of opinion as to whether an industrial dispute "exists or is apprehended" is not the same thing as to adjudicate the dispute itself on its merits.
In the instant case, as already stated, the dispute is as to whether the convoy drivers are employees or workmen of TELCO, that is to say, whether there is relationship of employer and employees between TELCO and the convoy drivers.
In considering the question whether a refer, should be made or not, the Deputy Labour Commissioner and/or the Government have held that the convoy drivers are not workmen and, accordingly, no refer ence can be made.
Thus, the dispute has been decided by the Government which is undoubtedly, not permissible.
It is, however, submitted on behalf of TELCO that unless there is relationship of employer and employees or, in other words, unless those who are raising the disputes are work men, there cannot be any existence of industrial dispute within the meaning of the term as defined in section 2(k) of the Act.
It is urged that in order to form an opinion as to whether an industrial dispute exists or is apprehended, one of the factors that has to be considered by the Government is whether the persons who are raising the disputes are workmen or not within the meaning of the definition as contained in section 2(k) of the Act.
Attractive though the contention is, we regret, we are unable to accept the same.
It is now well settled that, while exercising power under section 10(1) of the Act, the function of the appropriate Government is an administrative function and not a judicial or quasijudicial function, and that in performing this administrative function the Govern ment cannot delve into the merits of the dispute and take upon itself the determination of the lis, which would cer tainly be in excess of the power conferred on it by section 10 of the Act.
See Ram Avtar Sharma vs State of Haryana, ; ; M.P. Irrigation Kararnchari Sangh vs The State of M.P., ; and Shambhu Nath Goyal vs Bank of Baroda, Jullundur; , Applying the principle laid down by this Court in the above decisions, there can be no doubt that the Government was not justified in deciding the dispute.
Where, as in the instant case, the dispute is 808 whether the person raising the dispute are workmen or not, the same cannot be decided by the Government in exercise of its administrative function under section 10(1) of the Act.
As has been held in M.P. Irrigation Karamchari Sangh 's case (supra), there may be exceptional cases in which the State Government may, on a proper examination of the demand, come to a conclusion that the demands are either perverse or frivolous and do not merit a reference.
Further, the Govern ment should be very slow to attempt an examination of the demand with a view to declining reference and Courts will always be vigilant whenever the Government attempts to usurp the powers of the Tribunal for adjudication of valid dis putes, and that to allow the Government to do so would be to render section 10 and section 12(5) of the Act nugatory.
We are, therefore, of the view that the State Govern ment, which is the appropriate Government, was not justified in adjudicating the dispute, namely, whether the convoy drivers are workmen or employees of TELCO or not and, ac cordingly, the impugned orders of the Deputy Labour Commis sioner acting on behalf of the Government and that of the Government itself cannot be sustained.
It has been already stated that we had given one more chance to the Government to reconsider the matter ,red the Government after reconsideration has come to the same con clusion that the convoy drivers are not workmen of TELCO thereby adjudicating the dispute itself.
After having con sidered the facts and circumstances of the case and having given our best consideration in the matter, we are of the view that the dispute should be adjudicated by the Industri al Tribunal and, as the Government has persistently declined to make a reference under section 10(1) of the Act, we think we should direct the Government to make such a reference.
In several instances this Court had to direct the Government to make a reference under section 10(1) when the Government had declined to make such a reference and this Court was of the view that such a reference should have been made.
See Sankari Cement Alai Thozhilalar Munnetra Sangam vs Govern ment of Tamil Nnadu, ; Ram Avtar Sharma vs State of Haryana; , ; M.P. Irrigation Karam chari Sangh vs The State of M.P. ; and Nirmal Singh vs State of Punjab, [1984] 2 LLJ396.
In the circumstances, we direct the State of Bihar to make a reference under section 10(1) of the Act of the dispute raised by the 809 Telco Convoy Drivers Mazdoor Sangh by its letter dated October 16, 1986 addressed to the General Manager TELCO (Annexure R 4/1 to the Special Leave Petition), to an appro priate Industrial Tribunal within one month from today.
The appeal is allowed and the judgment of the High Court and the impugned orders are set aside.
There will, however, be no order as to costs.
T.N.A. Appeal allowed.
| IN-Abs | The appellant Telco Convoy Drivers Mazdoor Sangh, repre sented to the Tara Engineering & Locomotive Co. Ltd. (TELCO) demanding that all convoy drivers should be given permanent status and facilities that are available to the permanent employees of TELCO.
The Deputy Labour Commissioner refused to make a reference under section 10(1) of the because of the opinion of the Law Depart ment that there was no relationship of master and servant between TELCO and the convoy drivers.
The appellant Sangh flied a writ petition in the High Court praying for a writ of mandamus commanding the State of Bihar to refer the dispute under section 10(1) of the Act.
The High Court dismissed the petition but granted liberty to the appellant Sangh to reagitate the matter before the appropriate Government.
On a further representation also the Deputy Labour Commissioner refused to make a reference under section 10(1) of the Act.
Again, the appellant Sangh moved a writ petition in the High Court which summarily dismissed the petition holding that the appellants had failed to satisfy that they were employed by the TELCO.
Hence this appeal by Special leave.
After the conclusion of the hearing, the Court being of the view that the Government should be given one more chance to consider the question of making a reference, kept the appeal pending and directed the Government to reconsider the question of referring the dispute.
Upon reconsideration also the Government refused to make a reference under sec tion 10(1) of the Act.
On the question: whether an appropri ate Government exercising power to make a reference under section 10(1) of the can delve into the 803 merits of the dispute and adjudicate upon the dispute it self.
Allowing the appeal and setting aside the judgment of the High Court, HELD: 1.
In considering the question of making a refer ence under section 10(1), the Government is entitled to form an opinion as to whether an industrial dispute "exists or is apprehended".
The formation of opinion as to whether an industrial dispute "exists or is apprehended" is not the same thing as to adjudicate the dispute itself on its mer its.
[807A] 2.
While exercising power under section 10(1) of the Act, the function of the appropriate Government is an admin istrative function and not a judicial or quasi judicial function, and in performing this administrative function the Government cannot delve into the merits of the dispute and take upon itself the determination of the lis, which would certainly be in excess of the power conferred on it by section 10 of the Act.
[807F] Ram Avtar Sharma vs State of Haryana, [1985] 3 S.C.R. 686; M.P. Irrigation Karamchari Sangh vs The State of M.P., ; and Shambhu Nath Goyal vs Bank of Baroda, Jullundhur, ; applied.
2.1 In the instant case, the dispute is as to whether the convoy drivers are employees or workmen, of TELCO, that is to say, whether there is relationship of employer and employees between TELCO and the convoy drivers, the same cannot be decided by the Government in exercise of its administrative function under section 10(1) of the Act.
Therefore, the State Government was not justified in adjudi cating the said dispute.
[807B, 807H, 808A] 3.
There may be exceptional cases in which the State Government may come to a conclusion that the demands are either perverse or frivolous and do not merit a reference.
But the Government should be very slow to attempt an exami nation of the demand with a view to declining reference and Courts will always be vigilant whenever the Government attempts to usurp the powers of the Tribunal for adjudica tion of valid disputes, and that to allow the Government to do so would be to render section 10 and section 12(5) of the Act nugatory.
[808A C] 804 M.P. Irrigation Karamchari Sangh vs The State of M.P., ; applied.
In the instant case, in view of the fact that the Government has persistently declined to make a reference and even after reconsideration has adjudicated the dispute itself, the dispute should be adjudicated by the Industrial Tribunal.
[808E] The State of Bihar is directed to make a reference of the dispute raised by the Telco Convoy Drivers Mazdoor Sangh to an appropriate Industrial Tribunal under section 10(1) of the Act.
[808H, 809A] Sankari Cement Alai Thozhilalar Munnetra Sangam vs Government of Tamilnadu, ; Ram Avtar Sharma vs State of Haryana, ; ; M.P. Irri gation Karamchari Sangh vs The State of M.P., ; and Nirmal Singh vs State of Punjab, ; applied.
|
SDICTION: Writ Petition (Criminal) No.248 of 1988.
(Under Article 32 of the Constitution of India).
WITH Special Leave Petition (Crl.) No. 1492 of 1988.
From the Judgment and Order dated 29.4.88 of the Gujarat High Court in Special Criminal Application No. 886 of 1986.
U.R. Lalit, M.G. Karmali, J.B. Patel and K.M.M. Khan for the petitioner in W.P. Crl.
No. 248/88 and S.L.P. (Crl.) No. 1492/88.
T.U. Mehta, Mrs. Hemantika Wahi and M.N. Shroff for the State of Gujarat in W.P. Crl.
No. 248/88 and S.L.P. (Crl.) No. 1492/ 88.
869 Kuldip Singh, Additional Solicitor General C.V.S. Rao and A. Subba Rao for the Respondents in W.P. Crl.
No. 248/88 and S.L.P. (Crl.) No. 1492/88.
The following Orders of the Court were delivered: PATHAK, CJ.
This writ petition under Article 32 of the Constitution and the Special Leave Petition under Article 136 of the Constitution arises out of proceedings for pre ventive detention taken under the .
One of the substantial points which arises in these cases is whether the period of detention is a fixed period running from the date specified in the detention order and ending with the expiry of that period or the period is automatical ly extended by any period of parole granted to the detenu.
In case where the High Court allows a habeas corpus petition and directs the detenu to be released and in consequence the detenu is set free, and thereafter an appeal filed in this Court results in the setting aside of the order of the High Court, is it open to this Court to direct the arrest and detention of the detenu if meanwhile the original period of detention intended in the detention order has expired? Four decisions of this Court have been placed before us in sup port of the contention that the period of detention intended by the detention order is not,a fixed period but can be correspondingly extended if the detenu absconds before he can be apprehended and detained or the period of detention is interrupted by an erroneous judgment of a High Court and the detenu is set free.
Those cases are State of Gujarat vs Adam Kasam Bhaya; , ; State of Gujarat vs Ismail Juma & Ors., ; ; Smt.
Poonam Lata vs M.L. Wadhawan and others, A.I.R. 1987 SC 1383 and Pushpa devi M. Jatia vs M.L. Wadhavan, ; We find some difficulty in accepting the view taken by the learned Judges of this Court who decided those cases.
It seems to us prima facie that what is important is that we are concerned with cases of preventive detention, cases where the detain ing authority is required to apply its mind and decide whether, and if so for how long.
, a person should be de tained.
It is preventive detention and not putative deten tion.
Preventive detention invariably runs from the date specified in the detention order.
In the case of punitive detention, no date is ordinarily specified from which the detention will commence, and all that is mentioned is the period of detention.
In case of preventive detention the detaining authority applies it subjective judgment to the material before it and determines what should be the period for which the detenu should be detained, that is to say, the period during which he should be denied his liberty in order to prevent him from 870 engaging in mischief.
It seems to us prima facie that one possible view can be that if parole is granted the period of parole should be counted within the total period of deten tion and not outside it.
As regards the problem raised by the release of a detenu pursuant to an erroneous decision of the High Court, and the subsequent reversal of that decision by this Court, the remedy probably lies in the enactment of legislation analogous to section 5(1) and section 15(4) of the Admin istration of Justice Act, 1960 in the United Kingdom.
The question is an important one affecting as it does on the one hand the need for effective measures of preventive detention and on the other the liberty of the subject and his fight to freedom from detention beyond the period intended by the statute.
As the matter is of great public importance, and most cases of preventive detention are bound to be affected, we refer these cases to a Bench of five Hon 'ble Judges for reconsideration of the law on the point.
ORDER Although I agree with the view expressed in the State of Gujarat vs Adam Kasam Bhaya, ; and the other cases mentioned in the order of the learned Chief Justice, I agree that in view of the great public importance of the point involved, these cases may be heard by a Bench of five Hon 'ble Judges.
| IN-Abs | The petitioner filed a writ petition and a special leave petition challenging the detention order passed under the .
It was contended on behalf of the respondents that the period of detention intended by the detention order was not a fixed one but could be correspond ingly extended if the detenu absconded before he could be apprehended and detained or the period of detention was interrupted by an erroneous judgment of a High Court and the detenu was set free.
Referring the cases to a larger Bench, this Court, HELD: By the Court. ' As the matter is of great public importance, these cases are referred to a Bench of five Judges of this Court.
[870C] Per Pathak, C J: Preventive detention invariably, runs from the date specified in the detention order, and the period of deten tion is determined by the detaining authority, applying its subjective judgment to material before it.
[869G H] In the case of grant of parole, one possible view can be that the period of parole should be counted within the total period of detention and not outside it.
As regards the problem raised by release of a detenu pursuant to an errone ous decision of the High Court, and the subsequent reversal of the decision by the Supreme Court the remedy probably lies in the enactment of legislation analogous to section 5(1) and section 15(4) of the 868 Administration of Justice Act, 1960 in the United Kingdom.
[870A B] As the question is of great public importance affecting, on the one hand, the need for affective measures of preven tive detention and, on the other, the liberty of the subject and his right to freedom from detention beyond the period intended by the statute, and since most cases of preventive detention are bound to be affected, these cases are referred to a five Judge Bench for reconsideration of the law on the point.
[870B C] State of Gujarat vs Adam Kasam Bhaya, ; ; State of Gujarat vs Ismail Juma & Ors., ; ; Smt.
Poonam Lata vs M.L. Wadhawan and Others, AIR 1987 SC 1383 and Pushpadevi M. Jatia vs M.L. Wadhavan, ; ; dissented from.
Per Sharma, J (Concurring): In view of the great public importance involved, these cases may be heard by a five Judge Bench.
[870E] State of Gujarat vs Adam Kasam Bhaya, ; ; State of Gujarat vs Ismail Juma & Ors., ; ; Smt.
Poonam Lata vs M.L. Wadhawan and Others, AIR 1987 SC 1383 and Pushpadevi M. Jatia vs M.L. Wadhavan, ; ; affirmed.
|
Appeal No.130 of 1958.
Appeal by certificate granted by the Madras High Court against its judgment and order dated November 1, 1957, in W. P. Nos. 623 and 624 of 1957.
April 30.
May 1.
A. V. Viswanatha Sastri, T. R. Venkatarama Iyer, K. R. Sharma and K. R. Choudhri, for the appellant.
The petition is liable to be dismissed for non joinder of Muthu and Meganathan who were candidates as defined in section 79(b) of the Representation of the People Act, 1951.
The allegation is that Meganathan accepted a gift of Rs. 10,000 and in pursuance thereof withdrew his candidature, and also that Muthu accepted a gratification of Rs. 5,000 and in pursuance thereof, he retired from 869 the contest.
On the language of section 123(1) of the Act, such acceptance constitutes a corrupt practice '.
The words I by a candidate or his agent or by any other person ' in the section are to be read with the words offer or promise ' and not with gift '.
In view of the provisions of the Transfer of Property Act, a I gift ' is a bilateral Act and it includes both the giving of the gift and the acceptance of that gift.
Section 99 of the Act shows that a receipt of a bribe is a corrupt practice.
See sections 82 (b), 98 and 99 of the Representation of the People Act, 1951.
Under section 99 the Tribunal has to record a finding whether a corrupt practice has been committed with the consent of any candidate.
When a candidate accepts a gift with the object of inducing him to withdraw his candidature, he consents to the corrupt practice of bribery being committed and such a candidate is liable to be named under the section.
Alternatively, the term gratification in section 123 is very wide and includes the withdrawal of candidature by a candidate to induce another candidate to stand at an election.
Affording of such gratification amounts to a corrupt practice within section 123.
Section 82(b) talks of I allegations of any corrupt practice ' and it, therefore, contemplates any allegation relating to or concerning, a corrupt practice.
C. K. Daphtary, Solicitor General of India, A. N. Sinha and N. H. Hingorani for respondent No. 1.
A candidate who accepts a gift from a returned candidate does not commit corrupt practice ' within the meaning of section 123(1) and therefore is not necessary party to the election petition under section 82(b) of the Act.
The section defines the corrupt practice of bribery and the words I gift, offer or promise by a candidate or his agent or by any other person ' clearly contemplates the making of a gift.
Further, section 123(1) does not include the acceptance of a gift as a corrupt practice.
This is also apparent from consideration of section 124(3) of the Act which was deleted by the amending Act XXVII of 1956.
Section 124(3) made receipt of gratification by candidate or intending candidate a minor corrupt practice and section 123 (1) made bribery by a candidate or his agent, a major 870 corrupt practice.
The amending Act has done away with the classification of major and minor corrupt practices.
Some of the minor corrupt practices have been retained as corrupt practices and the rest dropped altogether.
The amending Act has dropped the provision making acceptance and agreement to accept a bribe, a corrupt practice with no material change in section 123(1) to bring within it these cases.
By omitting section 124(3) from the Act Parliament, therefore, intended that acceptance of a bribe was no longer to be treated as a corrupt practice.
Section 99 does not purport to define a corrupt practice mentioned in section 82(b) ; section 99 read in the light of definition section does not support the appellant.
May 20.
The Judgment of the Court was delivered by SARKAR J.
In the 1957 general elections, nine persons filed nomination papers for election to the Madras Legislative Assembly from the Sathankulam constituency all of which were found on scrutiny to be valid.
Among these persons were the appellant, the respondent Kandaswami and two others called M. R. Meganathan and G. E. Muthu.
Meganathan, Muthu and three others whom it is not necessary to name as they are not concerned with this appeal, did not go to the poll and dropped out of the election earlier.
At the end the election was actually contested by the appellant, the respondent Kandaswami and two other candidates with whom also this appeal is not concerned.
The appellant was successful at the poll and was on March 6,1957, declared elected.
On April 15, 1957, the respondent Kandaswami whom we will hereafter refer to as the respondent, preferred an election petition under the provisions of the Representation of the People Act, 1951, for a declaration that the election of the appellant was void.
The appellant was made the first respondent to the petition but Meganathan and Muthu were not made parties to it at all.
Some of the other candidates at the election were also made parties to the petition but 871 it is unnecessary for the purpose of this appeal to refer to them.
The petition was referred to an Election Tribunal for trial.
The appellant then made an application to the Election Tribunal which was marked I. A. No. 1 of 1957 for the dismissal of the petition under section 90(3) of the Act.
That section provides that, " The Tribunal shall dismiss an election petition which does not comply with the provisions of section 81, section 82 or section 117 ".
The appellant 's case was that the petition had not complied with the provisions of section 82.
Section 82 states: " A petitioner shall join as respondents to his petition (b) any other candidate against whom allegations of any corrupt practice are made in the petition.
" The appellant contended that allegations of corrupt practice were made in the petition against Meganathan and Muthu and they should, therefore, have been made parties to the petition under section 82 and as that had not been done, that section had not been complied with and so the petition had to be dismissed under section 90(3).
It is not in dispute that non compliance with the provisions of section 82 entails the dismissal of an election petition.
The respondent 's answer to the application was that no allegation of corrupt practice had been made in the petition against Meganathan or Muthu.
The Tribunal accepted the contention of the respondent and dismissed the application of the appellant.
The appellant then moved the High Court at Madras by two applications, one for the issue of a writ of certiorari quashing the, order of ' the Tribunal dismissing his application and the other for the issue of a writ of prohibition directing the Tribunal not to proceed with the hearing of the election petition.
The High Court by its judgment dated November 1, 1957, dismissed both the applications, taking the same view as the Tribunal.
Hence this appeal.
872 It is not in dispute that Meganath an and Muthu were candidates.
A candidate has been defined in section 79 of the Act as meaning among others, a person who has been duly nominated as a candidate at any election and both Meganthan and Muthu had been so nominated.
The only question that arises in this appeal is whether allegations of corrupt practice are made against them in the election petition.
The statements in the petition which are said to constitute such allegations are in these terms: " IV A.
The returned candidate has committed the following act,% of bribery corrupt practices according to section 123(1) of Act 43 of 1951 : (2) Sri M. R. Meganathan was candidate for Sattankulam and Tiruchandur Assembly Constituencies at the election.
The first respondent and his election Agent paid him a gift of Rs. 10,000 to induce him to withdraw from being a candidate at the election from Sattankulam Constituency and in pursuance thereof Sri M. R. Meganathan withdrew his candidature at the election from Sattankulam Constituency,. . . . . . . . (4) One Sri G. E. Muthu, candidate at the election in this Constituency was paid a gratification of Rs. 5,000 by the first respondent and his Election Agent for the purpose of making him retire from contest and in pursuance thereof he retired on the contest Putting it shortly, the allegations in the petition are that the appellant and his election agent paid Meganathan Rs. 10,000 and Muthu Rs. 5,000 to induce them to drop out of the election and they accordingly abandoned the election contest.
So all that is said here against Meganathan and Muthu and we are concerned only with allegations against them is that they accepted money paid to them to induce them 873 to abandon the contest and actually abandoned the contest.
Is an allegation then, that a candidate accepted money paid to him to induce him to drop out of the election test and actually so dropped out, an allegation of corrupt practice against such a candidate ? The High Court field that it was not and that only the giving of a bribe was a corrupt practice and not an acceptance of it.
We are in agreement with this view.
T he Act contemplates various kinds of corrupt practices and defines them in section 123.
We are concerned with the corrupt practice of bribery which is the corrupt practice alleged in the petition.
Bribery again is of several varieties.
We are concerned with a gift to a candidate for inducing him to abandon his candidature.
This form of the corrupt practice of bribery is thus defined in the Act: "Section 123 The following shall be deemed to be corrupt practices for the purposes of this Act: (1) Bribery, that is to say, any gift, offer or promise by a candidate or his agent or by any other person, of any gratification to any person whomsoever, with the object directly or indirectly of inducing (a) a person to stand or not to stand as, or to withdraw from being, a candidate, or to retire from contest, at an election; Explanation.
For the purposes of this clause the term " gratification " is not restricted to pecuniary gratifications or gratifications estimable in money and it includes all forms of entertainment and all forms of employment for reward; but it does not include the payment of any expenses bona fide incurred at, or for he purpose of, any election and duly entered in the account of election expenses referred to in section 78.
" is an acceptance of a bribe, by which word we mean a gift made with the intention specified, a corrupt practice within this definition ? We do not think it is.
What this definition makes the corrupt practice of bribery is a " gift, offer or promise by a candidate or his agent or by any other person, of any gratification" made with the object mentioned.
The words " gift, 874 offer or promise by a candidate or his agent or by any other person " clearly show that what is contemplated is the making of a gift.
These words are wholly inappropriate to describe the acceptance of a gift.
The words " with the object, directly or indirectly, of inducing" also indicate that only the making of a gift is contemplated, for the object is of the person making the gift, and clearly not of the person accepting it.
Mr. Sastri who appeared for the appellant contended that the words " by a candidate or his agent or by any other person " are not to be read with the word " gift " but only with the words " offer or promise ".
It seems to us that this is an impossible reading of the section as it is framed.
Even on this reading, the section would still contemplate a gift " to any person " and therefore only the giving and not an acceptance, of it.
That section 123(1) does not contemplate the acceptance of a gift to be a corrupt practice is also apparent from a consideration of section 124 of the Act which was deleted by an amendment made by Act XXVII of 1956.
Under el.
(3) of that section the receipt of or an agreement to receive a gift with substantially the same object as mentioned in section 123 was a corrupt practice.
As legislative provisions are not duplicated, such a receipt of or an agreement to receive a gratification was clearly not a corrupt practice within section 123(1) as it stood before the amendment.
The amending Act has dropped the provision making acceptance and an agreement to accept a bribe, a corrupt practice but has made no change in section 123(1) to bring within it these cases.
Section 123(1) cannot therefore be read as including within the definition of a bribe contained in it an acceptance of it.
By omitting section 124(3) from the Act therefore the legislature intended that acceptance of a bribe was no longer to be treated as a corrupt practice.
In view of this clear indication of intention, it would be idle to enquire why the legislature thought fit to exclude the acceptance of a bribe from the definition of corrupt practice.
If the omission is accidental, then it is for the legislature to take the necessary action in that behalf.
We cannot allow any 875 consideration of the reason for the omission to affect the plain meaning of the language used in section 123(1).
Mr. Sastri then contended that in view of the provisions of the Transfer of Property Act, there can be no gift without an acceptance of it by the donee, and therefore whenever a gift is mentioned both the giving and the acceptance of the thing given are necessarily simultaneously contemplated.
He said that, it followed from this that the corrupt practice of bribery by a gift mentioned in section 123(1) included the acceptance of the gift.
It is true that a gift contemplates both a giving and an acceptance; but these are none the less different acts and it is open to the legislature to attach certain consequences to one of them only.
It was therefore open to the legislature in enacting section 123(1) to provide that the making, that is to say, the giving of a gift alone should be a corrupt practice.
This is what it has done: it has not made the receipt of a gift a corrupt practice.
It has deliberately omitted the acceptance of a gift from corrupt practices described in the Act.
Though a gift cannot be mad(,, without an acceptance of it, such acceptance has not been made a corrupt practice.
Mr. Sastri also contended that section 99 of the Act showed that the receipt of a bribe was a corrupt practice.
Section 98 states that at the conclusion of the trial of an election petition the Tribunal shall make one or other of the orders therein mentioned.
Then comes section 99 which states that in certain circumstances besides these orders, certain other orders have also to be made by the Tribunal.
The material portion of this section is in these terms: " section 99 (1) At the time of making an order under section 98 the Tribunal shall also make an order (a) Where any charge is made in the petition of any corrupt practice having been committed at the election, recording (i) a finding whether any corrupt practice has or has not been proved to have been committed by, or with the consent of, any candidate or his agent at the election, and the nature of that corrupt practice; and 876 (ii) the names of all persons, if any, who have been proved at the trial to have been guilty of any corrupt practice and the ture of that practice;and.
Mr. Sastri contended that under this section the Tribunal has to record a finding whether a corrupt practice has been committed with the consent of any candidate.
He said that when a candidate accepts a gift made to him with the object of inducing him to withdraw his candidature, he consents to the corrupt practice of bribery being committed and such a candidate is liable to be named under the section.
He added that in order that such a candidate can be Bo named a charge of the corrupt practice has to be made against him in the election petition.
The result, therefore, according to Mr. Sastri, is that a candidate who consents to a bribe being paid to him to withdraw his candidature is guilty of a corrupt practice and therefore an allegation of such a corrupt practice can be made in the petition if it is intended to have him named under section 99 and once such an allegation is made in the petition, section 82(b) would be attracted and the candidate has to be made a party to the petition.
He says such allegations were made against Meganathan and Muthu.
This contention seems to us to be clearly fallacious.
Section 99 does not purport to define a corrupt practice.
The definition of corrupt practice occurs in section 123 and the corrupt practice mentioned in section 99 has to be a corrupt practice as so defined.
A corrupt practice committed with the consent of a candidate is not in itself a new kind of corrupt practice.
When section 99 talks of a corrupt practice having been committed with the consent of a candidate it means a corrupt practice as defined in section 123 having been committed and a candidate having consented to its commission.
The consent by a candidate to the commission of a corrupt practice by some one else whatever its con sequences under the Act may be, is not itself a corrupt practice.
Therefore, to say that a candidate consented to a corrupt practice being committed by accepting a gift made to him to induce him to withdraw his 877 candidature, is not to say that he himself committed a corrupt practice.
Such a statement in an election petition is not an allegation of corrupt practice against the consenting candidate.
Hence section 82(b) does not require that he should be made a party to the petition.
We wish to make it clear that we are not to be understood as holding that a candidate accepting a gift made to him to induce him to withdraw his candidature is one who consents to a corrupt practice being committed.
We do not think it necessary to say anything on that question in this case.
Mr. Sastri then said that the term gratification in section 123 was very wide and would include the withdrawal of his candidature by a candidate to induce another candidate to stand at an election.
He contended that the affording of such a gratification would amount to a corrupt practice within section 123.
He submitted that such corrupt practices had been alleged in the petition against Meganathan and Muthu and they should therefore have been made parties to the petition under section 82(b).
We are wholly unable to agree that the withdrawal of his candidature by a candidate to induce another candidate to stand at an election would be gratification within section 123.
But assume it is so.
That does not help the appellant at all.
Here, there is no allegation in the petition that Meganathan and Muthu with drew their candidature in order to induce the appellant to stand at the election, so there is no allegation in the petition of corrupt practices having been committed by them by so withdrawing their candidature.
It was therefore not necessary to make Meganathan and Muthu parties to the petition under section 82(b).
Lastly, Mr. Sastri contended that section 82(b) talked of allegations of any corrupt practice " and it therefore contemplated any allegation relating to or concerning, a corrupt practice.
He said that the election petition contained allegations against Meganathan and Muthu, relating to a corrupt practice inasmuch as it stated that they accepted the gratifications paid to them to withdraw their candidature and actually withdrew 878 such candidature.
Hence, he said, section 82(b) required that they should have been made parties to the petition.
We are of opinion that when section 82(b) talks of allegations of corrupt practice against a candidate it means allegations that a candidate has committed a corrupt practice.
Allegations can hardly be said to be " against " one unless they impute some default to him.
So allegations of corrupt practice against a candidate must mean that the candidate was guilty of corrupt practice.
We are also unable to appreciate how an allegation that a candidate accepted a gratification paid to him to withdraw his candidature is all allegation relating to a corrupt practice.
The acceptance of the gratification does not relate to any corrupt practice, for we have earlier shown that the corrupt practice consists in the giving of the gift and riot in the acceptance of it.
In the result this appeal fails and it is dismissed with costs.
Appeal dismissed.
| IN-Abs | After the poll the appellant was declared elected to the Madras Legislative Assembly.
Respondent No. 1 filed an election petition praying that it be declared that the election of the appellant was void.
In the petition it was alleged that two of the candidates at the election accepted money paid to them by the appellant and his election agent to induce them to abandon the contest and they actually abandoned the contest.
These two candidates were not made parties to the petition.
The appellant applied to the Election Tribunal to dismiss the petition under section 90(3) Of the Representation of the People Act, 1951, for non compliance with the provisions of section 82 of the Act on the ground that allegations of a corrupt practice were made against the two candidates and Respondent No. 1 had failed to make them parties to the petition as required by section 82: Held, that the acceptance of gratification is not a corrupt practice within the meaning of section 123(1) Of the Act and consequently it could not be said that allegations of corrupt practice had been made against the two candidates.
There was thus no non compliance with the provisions of section 82 and the election petition was not liable to be dismissed under section 90(3).
|
ivil Appeal No. 2591 of 1989.
From the Judgment and Order dated 12.3.1986 of the Punjab and Haryana High Court in F.A.O. No. 986 of 1985.
Rajinder Sachar, E.S. Agarwala, H.D. Bhardwaj, J.S. Manhas and R.K. Kapoor for the Appellant.
Dr. Y.S. Chitale, K.B. Rohatgi and Baldev Atreya for the Respondents.
The Judgment of the Court was delivered by 851 PATHAK, CJ.
Special leave granted.
This appeal by special leave is directed against the order of the High Court of Punjab and Haryana setting aside an arbitration award.
The Haryana State Agricultural Marketing Board (referred to shortly as the "Marketing Board") entered into a contract with the appellant for the construction of their office building at Panchkula near Chandigarh.
It was stipulated that the work would be completed within six months.
It was also stipulated that in case of a dispute between the par ties, the Superintending Engineer of the Marketing Board would be appointed as sole Arbitrator.
A dispute arose between the parties in regard to comple tion of the construction, and it was decided to refer the matter to arbitration.
On 11 March, 1983 the respondent appointed Shri D.P. Gupta, Superintending Engineer of the Marketing Board as Arbitrator.
While the Arbitrator was seized of the dispute between the parties, the Chairman of the Marketing Board purported to revert him to his parent Department.
On 6 April, 1984 the Arbitrator made his Award.
Under the Award the appellant was held entitled to Rs.55,242.66 with interest.
On 2 May, 1984 the appellant applied before the learned Subordinate Judge, Ist Class, Chandigarh, for making the Award a rule of the Court.
Meanwhile, on 24 May, 1984 the State Government passed an order confirming that Shri D.P. Gupta continued in his post as Superintending Engineer of the Marketing Board.
On 28 February, 1985 the Marketing Board passed a resolution, giving effect to the direction of the Government extending the deputation tenure of Shri D .P.
Gupta to 3 September, 1985.
On 30 July 1985 the Trial Court made the Award a rule of the Court.
In appeal to the High Court, it was urged that on 6 April, 1984, the date on which the Arbitrator made his award, the Arbitrator had lost jurisdiction since he had been transferred out on 4 April, 1984 from the post of Superintending Engineer of the Marketing Board to his parent Department in the Haryana Government.
The High Court accept ed the plea and reversed the order of the Trial Court and set aside the Award.
The sole question before us is whether the Arbitrator, Shri D.P. Gupta, had jurisdiction to make the Award on 6 April, 1984 or had lost jurisdiction because of the order dated 4 April, 1984 reverting him to his parent Department.
The material before us shows that Shri D.P. 852 Gupta was on deputation with the Marketing Board up to September 4, 1984 and that he was prematurely required by the Chairman of the Marketing Board by order dated 4 April, 1984 to revert to his parent Department.
The State Govern ment, however, ordered on 24 May, 1984 that Shri D.P. Gupta would continue on deputation with the Board, and it is not disputed that Shri Gupta rejoined the Board.
He did not in fact ever resume a post in his parent Department.
The neces sary consequence of the order of the State Government con tinuing him on deputation with the Marketing Board was to nullify the order dated 4 April, 1984 passed by the Chairman purporting to revert Shri Gupta to his parent Department.
It appears from the record that Shri Gupta was paid his salary by the Marketing Board for the entire month of April 1984, a circumstances which establishes that the Board itself con sidered him as continuing on deputation when he made the Award.
That being so, he must be deemed to have enjoyed jurisdiction as Arbitrator on 6 April, 1984 when he made the Award.
The deputation of Shri Gupta with the Marketing Board did never terminate.
In the result the appeal is allowed, the judgment and order of the High Court are set aside and the judgment and decree of the Trial Court are restored.
No Order as to costs.
N.V.K. Appeal allowed.
| IN-Abs | The respondent Marketing Board, entered into a contract with the appellant for the construction of their office building.
The agreement stipulated that the Superintending Engineer of the Marketing Board would be appointed as the sole Arbitrator in case of a dispute.
A dispute arose in regard to the completion of the construction, and it was decided to refer the matter to arbitration.
On 11th March, 1983 the respondent appointed Shri Gupta, Superintending Engineer of the Marketing Board as Arbitrator.
While the Arbitrator was seized of the dis pute, the Chairman of the Marketing Board purported to revert him to his parent department.
On 6th April, 1984, the Arbitrator made his award which was in favour of the appellant.
On 2nd May, 1984 the appel lant applied to the Sub Judge for making the award a rule of the Court.
In the meanwhile, on 24th May, 1984, the State Government passed an order confirming that Shri Gupta con tinued in the post as Superintending Engineer.
On 28th February, 1985, the Marketing Board passed a resolution giving effect to the said direction of the Government and extending the deputation tenure of Shri Gupta to 3rd Septem ber, 1985.
On 30th July 1985, the Trial Court made the award a rule of the Court.
In the appeal to the High Court it was urged that on 6th April, 1984 the date on which the Arbitrator made his Award, the Arbitrator had lost jurisdiction since he had been transfered on 4th April, 1984 from the post of Superintend ing Engineer of the Marketing Board to his 850 parent department in the State Government.
The High Court accepted this plea and reversed the order of the Trial Court and set aside the Award.
In the appeal by the contractor to this Court, the question was; whether the Arbitrator, Shri Gupta had juris diction to make the award on 6th April, 1984 or had lost jurisdiction because of the order dated 4th April, 1984 reverting him to his parent department.
Allowing the appeal, HELD: 1.
Shri Gupta was on deputation with the Marketing Board up to September 4, 1984.
He was prematurely required by the Chairman of the Marketing Board by order dated 4th April, 1984 to revert to his parent department.
The State Government, however, ordered on 24th May, 1984 that Shri Gupta would continue on deputation with the Board.
In fact, Shri Gupta did not even resume a post in his parent depart ment.
[852A B] 2.
The necessary consequences of the order of the State Government continuing Shri Gupta on deputation with the Marketing Board was to nullify the order dated 4th April, 1984 passed by the Chairman purporting to revert him to his parent department.
It is clear from the records that Shri Gupta was paid his salary by the Marketing Board for the entire month of April 1984, a circumstance which establishes that he was continuing with the Board when he made the Award.
Shri Gupta must, therefore, he deemed to have enjoyed jurisdiction as Arbitrator on 6th April, 1984 when he made the Award.
The deputation of Shri.
Gupta with the Marketing Board did never terminate.
[852B D]
|
(Civil) No. 8227 of 1982.
Under Article 32 of the Constitution of India.
Dr. Abishek Singhvi, A. Subba Rao and A.S. Gauraya for the Petitioners.
Girish Chandra and section Suri for the Respondents.
855 The Judgment of the Court was delivered by PATHAK, CJ.
This petition under Article 32 of the Con stitution has been filed by two petitioners, the Assam Rifles Multi purpose Co operative Society Limited and Major General A.S. Guraya, AVSM (Retd.), Vice Chairman of the said Co operative Society.
It is stated in this petition that on the north eastern extremity of India, between latitudes 27deg.
N. and 28deg.
N. and on both sides of longitude 97xE., within the former Tirup District in the NEFA area (now in Arunachal Pradesh) lies substantial territory which is a part of India.
It is claimed that Major General Guraya as Inspector General Assam Rifles prepared a programme for settling retired defence personnel, specially of the Assam Rifles, in that region and took preparator steps for effect ing such settlement.
It is asserted that about two hundred retired personnel with their families journeyed to the region and settled there on the basis of a scheme approved by the Government of India.
It is alleged that the scheme assured allotment of land, grant of title deeds in respect of the allotted land, facilities for movement by air to and from Mohanbari, freedom to develop the allotted areas, grant of advance by way of loans, provision of marketing facili ties for disposal of surplus produce, guaranteed supply of essential commodities and provision of the basic require ments of life for the purpose of encouraging the all round economic development of the area.
The Co operative Society was formed with the object of ameliorating the conditions of the settlers and for improving their economic lot.
The petitioners relied on correspondence exchanged between them and the authorities of the State Government and of the Central Government and prayed for directions from this Court to the respondents for grant of the reliefs indicated in the writ petition.
Counter Affidavits have been filed by the Government of India.
Most of the allegations made by the petitioners have been denied.
It is asserted that funds have been set apart and basic facilities have been provided.
It is alleged that land was not allotted to Major Gen. Guraya as he did not belong to the Assam Rifles and the scheme for rehabilitation of retired personnel from that unit did not cover him.
It is alleged that he has engineered this writ petition.
We may mention at the very outset that Major General Guraya, who appears in person before us, has categorically stated that he is not interested any more in any personal allotment.
The case was taken up by us on 20 February, 1987 and after 856 hearing the parties we were satisfied that settlement and habitation in that region should be encouraged.
The region constitutes part of Indian territory and is located on the Indian border with China and Burma.
It is in the public interest and for the benefit of the public that settlement of Indian citizens should be encouraged in this area and the area should be suitably developed.
In that view, on 20 February, 1987 we made an order directing the Central Gov ernment to nominate a competent authority of suitable status to examine the problem and to look into the scheme and, after hearing the petitioners, to report to the Central Government to enable it to make an appropriate order for redress of the grievances of the petitioners.
Pursuant to the order of this Court, a report was submitted by the present Director General, Assam Rifles in which he noted the features of the original scheme set forth in NEFA Adm. letter No. PC 42/63 of 16/17 August, 1963 and the approval with modifications of the Government of India in the Minis try of External Affairs thereto, as well as the points raised by the Assam Rifles Ex servicemen before this Court and before the Director General, Assam Rifles when he visit ed Vijayanagar for the purpose, and in that report, he has made a number of recommendations in support of the scheme to settle Assam Rifles Ex servicemen and to ensure that the various facilities and concessions originally promised to them are provided.
We had directed in our order of 20 Febru ary, 1987 that the final order should be made by the Govern ment of India after consideration of the report.
It seems that the Government considered the recommendations at an inter Ministerial meeting held in the Home Ministry on 6 July, 1987 and thereafter took the decision contained in Annexure III to the affidavit of Shri R.K. Tandon, Deputy Secretary (NE), Ministry of Home Affairs, New Delhi.
It appears that the Government has decided that the Assam Rifles Ex servicemen who have been allotted 10 11 acres of prime land per family in a valley should be provided with agricultural input facilities including animal husbandry, fertilizers, insecticides as well as horticultural support under the normal schemes run by the State Government, that the State Government should be requested to issue specific letters in respect of each family to enable it to obtain loans from banks and other financial institutions, that while free air lifts were not possible, the State Government should be asked to find out whether the subsidised rate of Rs.89 per flight per head could be further reduced and that in any event no charges be levied for abortive flights, that while a full time doctor is already posted in Vijaynagar, the State Government should be requested to post a mid wife to the Vijayanagar hospital and to arrange for periodical visits of a Gynaecologist, that the State PWD be requested to undertake the repair of the suspension bridges forthwith, 857 that the Multi purpose Co operative Society should apply to the State Government for recognition, and that a meeting be called to sort out the difficulties in the disbursal of pension by the Department of Posts and that on issues such as grant of citizenship, loans etc.
the position indicated in the minutes of the inter Ministerial meeting held on 6 July, 1987 should be maintained.
The report of the present Director General Assam Rifles and the decisions taken by the Central Government thereupon have been considered by us in the light of the submissions made by the parties.
The decisions of the Central Government placed before us refer to requests to be made to the State Government to provide some of the facilities required by the settlers.
Reference has already been made to those matters earlier.
More than sufficient time has passed, and it is desirable to ascertain what action has been taken by the State Government pursuant to those requests of the Central Government.
Certain supplementary directions are necessary from this Court, and we make them now: 1.
The Central Government and the State Government should decide between them as to which of them will give loans to the settlers and to what extent.
The Central Government should direct that the exist ing Post Office establishment be enlarged to handle dis bursement of pensions.
The State Government should upgrade the existing middle school to the status of a high school and make ade quate provision for additional seats in the student hostel to absorb the corresponding increase in the number of stu dents resulting from such upgradation.
The grant of domicile certificates should be consid ered in relation to the settlers, at least in respect of the members of the petitioner society.
The case will now be listed on 1 August, 1989 before which date the respondent No. 1, the Union of India, and the respondent No. 2, the State of Arunachal Pradesh, will file affidavits indicating the action adopted by them pursuant to the decisions taken at the inter Ministerial meeting men tioned earlier and pursuant to the directions made by this Court in this Order.
| IN-Abs | The petitioners, the Assam Rifles Multi purpose Co operative Society, and its Vice Chairman a retired Military Officer, filed a writ petition in this Court praying for directions to the respondents for implementing the scheme, approved by the Government of India, for settling retired Defence Personnel, specially of the Assam Rifles, in the North Eastern Region.
The petitioner asserted that in pursu ance of this scheme, which assured the allotment of land, grant of title deeds in respect of the allotted land, facil ities for movement by air, freedom to develop the allotted area, grant of advance by way of loans etc.
and also provi sion of basic requirements of life for encouraging all round economic development of the area, about 200 retired person nel with their families journeyed to the region and settled there.
The respondents, in their counter affidavits contended that funds had been set apart and basic facilities provided.
This Court, by its Order dated February 20, 1987, di rected the Central Government to nominate a competent au thority for examining the problem, and looking into the scheme and submitting a report to the Central Government to enable it to consider the same and take necessary steps for redressal of the petitioners ' grievances.
Accordingly, the Director General of Assam Rifles submitted to the Government his report, making a number of recommendations in support of the scheme to settle Assam Rifles Ex servicemen and to ensure that the various facilities and concessions original ly promised to them were provided.
The Central Government considered the recommendations at an inter Ministerial meet ing and took certain decisions and placed them before the Court.
After considering the report and decisions of the Government 854 thereon and submissions made by the parties, this Court, HELD: The region constitutes part of Indian territory and is located on the Indian border with China and Burma.
It is in the public interest and for the benefit of the public that settlement of Indian citizens should be encouraged in this area and the area should be suitably developed.
[856A B] More than sufficient time has passed and it is desira ble to ascertain what action has been taken by the State Government pursuant to the requests made to it by the Cen tral Government to provide some of the facilities required by the settlers, and it is considered necessary to make the following supplementary directions: [857C D] The Central Government and State Government should decide between them as to which of them will give loans to the settlers and to what extent.
[857D] The Central Government should direct that the existing post office establishment should be enlarged to handle disbursement of pensions.
[857E] The State Government should upgrade the existing middle school to the status of High School and make adequate provi sion for additional seats in the students ' hostel to absorb the increasing number of seats resulting from such upgrada tion and the grant of domicile certificates in relation to settlers, atleast in respect of members of petitioner socie ty should be considered.
[857E F] Respondents No. 1 and 2 will file before the next date of hearing, affidavits indicating the action taken by them pursuant to the decisions taken at the inter Ministeri al meeting and pursuant to the directions made by this Court.
[857G]
|
ivil Appeal No. 1643 of 1984.
From the Judgment and Order dated 6.7.
1982 of the Allahabad High Court in Writ Petition No. 1499 of 1974 G.L. Sanghi, Mrs. section Dixit and Pradeep Misra for the Appel lants.
Kuldip Singh, Additional Solicitor General, Ashok K. Srivastava, C.V. Subba Rao, Mrs. Sushma Suri and A. Subba Rao for the Respondents.
The Judgment of the Court was delivered by DUTT, J.
This appeal by special leave is directed against the judgment of the Allahabad High Court dismissing the writ petition of the appellants whereby they challenged inter alia the validity of rule 328(2) of the Railway Estab lishment Code as amended by the Railway 82 Board by Advance Correction Slip No. 70.
The appellants were appointed Trade Apprentices in Locomotive Component Works (for short 'LCW ') in or about January, 1959.
There was a merger of LCW with Diesel Locomo tive Works, Varanasi, (for short 'DLW ') on August 1, 196 1, as a result of which, all the members of the staff of LCW were taken over by DLW.
On July 19, 1962, the appellants were appointed Skilled Artisans after successfully complet ing a training for three years and a half.
The regular channel of promotion to higher posts from the post of Skilled Artisan is in the following order: 1.
Skilled Artisan.
Highly Skilled Grade II.
Highly Skilled Grade I. 4.
Chargeman C. 5.
Chargeman B. 6.
Chargeman A. 7.
Assistant Foreman.
Foreman.
It is apparent from the above channel of promotion that the next higher post to which the appellants could be pro moted was the post of Highly Skilled Grade II.
In September, 1963, the appellants were, however, promoted to the post of Instructor C which is equivalent to the post of Chargeman C.
There is a controversy between the parties as to whether the post of Instructor C was an ex cadre post or not.
According to the appellants, it was an interchangeable post with Chargeman C.
We shall have occasion to consider the question later in this judgment.
It may be stated, however, that there is no dispute that the post of Instructor C is a selection post and the appellants were selected and promoted to existing vacancies in that post.
The next post to which the appellants were promoted on September 22, 1964 is the post of Chargeman B upon their selection by a constituted Selection Board on a regular basis.
Some of the respondents, who are direct recruits, also competed with the appellants for the post of Chargeman 83 B, but they could not qualify themselves in the written test.
To complete the narrative, it may be stated that the appellants have now been promoted to the post of Chargeman A.
On August 11, 1966, the General Manager of DLW prepared certain seniority lists including a seniority list of Chargeman B on the basis of the rules or guidelines framed by him.
The said seniority list was challenged by certain direct recruits by filing writ petitions before a learned Single Judge of the Allahabad High Court.
The learned Single Judge quashed the seniority list and also the guidelines or rules framed by the General Manager, DLW, on the basis of which the seniority list was prepared.
The principal ground on which the seniority list and the rules or guidelines framed by the General Meeting, DLW, were quashed by the learned Single Judge was that the General Manager, DLW, was not the General Manager of the Railway and, as such, he had no authority to frame rules or guidelines for the purpose of preparation of the seniority list.
Further, the learned Judge held that the said rules or guidelines dated August 11, 1966 were violative of Articles 14 and 16 of the Consti tution of India.
Several appeals were preferred against the judgment of the learned Single Judge including one preferred by the Railway Administration before the Division Bench of the High Court.
While upholding the finding of the learned Single Judge that the General Manager, DLW, was not competent to frame rules or guidelines, the Division Bench could not agree with the finding of the learned Single Judge that the said rules or guidelines were violative of Articles 14 and 16 of the Constitution.
It was observed that there would have been no objection if the General Manager, DLW, had utilised the relevant statutory rules in drawing up the seniority list but, admittedly, the rules in question were ignored.
Further, the Division Bench pointed out that all the concerned employees in the writ petition agreed before the learned Single Judge that the seniority list might be prepared on the basis of the relevant rules contained in the Railway Establishment Code and the Railway Establishment Manual.
The Division Bench also found that the DLW project was not a temporary project, but appeared to be a permanent project.
Upon the above findings, the Division Bench upheld the quashing of the seniority list and directed the General Manager, DLW, to prepare a fresh seniority list in the tight of the statutory provisions contained in the Railway Estab lishment Code and the Railway Establishment Manual.
After the aforesaid judgment of the Division Bench of the High 84 Court, what the Railway Board did before preparation of any seniority list by the General Manager, DLW, was to issue Advance Correction Slip No. 70 inserting rules 324 to 328 in the Railway Establishment Manual after rule 323 in Chapter III.
Of the rules, so inserted, that which vitally affected the appellants is rule 328(2) which provides as follows: "328(2).
Selection and promotions made in the Diesel Locomotive works from 1.8.1961 up to the date of notification of these rules shall not be valid.
" The Rules were amended by the Board by virtue of its power under rule 157 which provides that the Railway Board have full powers to make rules of general application to non gazetted railway servants under their control.
The date of notification of the amended Rules is March 11, 1973.
In view of rule 328(2), the promotions which were granted to the appellants from August 1, 1961 up to March 11, 1973 shall not be valid.
Needless to say, rule 328(2) has vitally affected the appellants by making invalid all the promotions given to them between the said period.
As a result, the appellants were reverted back to the position of Skilled Artisans.
The General Manager, DLW, by his circular dated December 7/8, 1973 directed the appellants to appear at the trade test.
it was further directed that if the staff concerned would fail to appear in the trade test, they would be passed over for fixation of seniority in the Highly Skilled Grade Il, although the appellants had in 1962 crossed the position of Highly Skilled Grade Il.
The appellants made a represen tation against the said circular to the General Manager, DLW, on December 12, 1973.
That representation was turned down by the General Manager on the ground that in view of the said rule 328(2), the claim for either higher positions or exemption from passing any trade test was not tenable.
It was also stated that if the appellants would fail to appear in the trade test, they would be passed over for fixation of seniority in the Highly Skilled Grade Il.
Being aggrieved by the introduction of the said rule 328(2) directly affecting the appellants and also the said circular of the General Manager, DLW, requiting the appel lants to appear at the trade test for the purpose of prepa ration of the seniority list in Highly Skilled Grade II, the appellants filed a writ petition before the High Court.
The High Court overruled the contention of the appellants that the new rules, which have been inserted in the Railway Establish 85 ment Manual including rule 328(2) by the Advance Correction Slip No. 70 by the Railway Board by virtue of its power under rule 157 of the Railway Establishment Code, were invalid.
The High Court held that the said rules were quite valid and were not arbitrary or discriminatory as contended on behalf of the appellants.
In regard to the promotions of the appellants.
The High Court took the view that they were only interim and provisional and not regular promotions under the normal rules, and that such provisional selection and promotions conferred no rights on the appellants to hold the posts to which they were promoted.
Upon the above find ings, the High Court dismissed the writ petition.
Hence this appeal by special leave.
Mr. Sanghi, learned Counsel appearing on behalf of the appellants, has challenged before us the validity of rule 328(2) as inserted in the Railway Establishment Manual by the Advance Correction Slip No. 70.
It has been already noticed that in view of the said rules, the promotions of the appellants up to the position of Chargeman A stand set aside and the appellants are reverted back to their original position of Skilled Artisan.
In other words, the length of service of the appellants for a period of about nine years has been completely wiped out by rule 328(2).
The High Court took the view that the promotions which were granted to the appellants were by way of interim meas ure and did not confer on them any title to the posts to which they were promoted.
In support of that view, the High Court has referred to the order of the General Manager, DLW, dated May 14/16, 1962 which reads as follows: "As an interim measure, all supervisory tech nical posts in the Mechanical Department will be treated as ex cadre posts and promotions will be regulated by selection.
" Before considering the question of the validity of rule 328(2), we may first of all examine whether the promotions of the appellants up to the post of Chargeman B were by way of interim measures, as found by the High Court, and/or whether such promotions are permissible by the Rules or not.
In this connection, we may refer to the circular of the Railway Board dated May 27, 1963 regarding the procedure to be followed for filling up selection posts (non gazetted).
The Board directed that if the requisite number of staff was not available in the grade next to the grade for which the selection was being held, the administration could go to the .lower grade in order to make up four 86 times the number required to be called up for selection but, in no case, can the eligibility be extended to staff in the grade lower than three times.
This circular of the Board is quite consistent with rule 2 16 of the Railway Establishment Manual.
Rule 216 also provides for a similar procedure.
The direction of the Board read with the provision of rule 2 16 clearly empowers the administration to select persons from two grades lower than the post to which promotion was to be made.
The next circular dated November 2, 1963 of the General Manager, DLW, regarding the formation of panel for promotion of mechanical supervisors and instructors is significant.
The said circular clearly provided that all staff in Mechan ical Department including instructoral staff under the Principal Technical Training School in two grades below the grade for which selection was going to be held, were eligi ble.
The Skilled Artisans having not less than one year 's service were permitted to apply for the post of Instructor in the grade of Rs.205 280 (AS) which is equivalent to that of Chargeman C.
In the channel of promotion, which has already been noticed above, the feeder post for promotion to the post of Chargeman C is Highly Skilled Grade I but, in view of the said circular dated May 27, 1963 of the Board read with rule 2 16 of the Railway Establishment Manual, persons holding posts two grades below the post to which the promotion was to be made, that is, the post of Instructor which is equivalent to the post of Chargeman C, were allowed to apply for the same.
The reason for the said circular or the said rule is that at all times suitable candidates might not be available and just to avoid administrative inconven ience, the promotions are given from posts below the feeder post.
The said circular of the General Manager, DLW, dated November 2, 1963 does not show that the promotion to the posts of selection and/or promotion to the posts of Instruc tors would be by way of interim measure or ad hoc arrange ment.
In the absence of any such indication, it will not be unreasonable to presume that such promotions were anything other than by way of interim measure or ad hoc arrangement, as contended on behalf of the respondents.
In view of the said circular dated November 2, 1963, the appellants applied for the posts of Instructors and they were selected after the requisite tests.
In the office order No. 3421 dated December 30, 1963, appointing the appellants to the post of Instructor (Machinist Gr.
C), it is clearly stated that they are appointed to the post of Instructor (Machinist Gr.
C) against existing vacancies.
Again, a similar circular dated July 18, 1964 was issued from the office of the General Manager, DLW, with regard to the filling up of 87 the posts of Chargeman B in the scale of Rs.250 380 (AS).
It was clearly stated in the circular that the staff in the Mechanical Department in two grades below the grades for which the selections would be held, were eligible to apply.
The appellants applied for the post and had to appear at the written and viva voce examinations.
Some of the private respondents also appeared in the said examinations along with the appellants but they failed, while the appellants succeeded and were empanelled for appointment to the post of Chargeman (Machinist) B.
In view of such an empanelment, the appellants were appointed Chargemen B in the grade of Rs. 250 380 against existing vacancies sometime in February, 1965.
We may now refer to a very significant document which is office order No. 25 dated January 22, 1966.
In that order, it is stated that the staff mentioned therein will have their paper lien maintained in the Shops/Division as men tioned against each and will seek their promotions in their respective Division/Shops.
In the list annexed to the said order, the present designation of the first appellant has been mentioned as "Instructor B ' ' and his revised position or designation as "Chargeman B".
In the last column under the heading "placed where lien is kept", it is stated that his lien is kept under the production Engineer (PE).
The present and revised designation of the appellant Nos. 2 and 3 have been shown as Chargeman B. The place of lien of the appellant No. 2 has been stated to be under the Production Engineer, while that of the third appellant has been stated to be under the Works Manager (B).
It is urged on behalf of the respondents that the said officer order No. 25 does not show that the appellants have any lien on the posts of Chargeman B. It only mentions that they have a lien on certain places.
We are unable to accept this contention.
A person may have lien on a post and not a lien on a place.
And all that the said order means that they have lien on the post of Chargman B, but in certain places under either the Production Engineer or the Works Manager.
There can be no doubt that a person appointed to a post on an ad hoc basis cannot have any lien on the post.
It is only when a person appointed on a permanent basis, he can claim lien on the post to which he is so appointed.
It is, therefore, not correct to say that the appellants were appointed or promot ed to the post of Instructor C or Chargeman C on an ad hoc basis or by way of an interim measure, as held by the High Court in the impugned judgment.
If they were appointed on ad hoc or purely temporary basis, they could not have been promoted to the post of Chargeman B and the said order No. 25 dated January 22, 1966 would have been quite inconsistent with such ad hoc or temporary appointments.
88 At this stage, it will be pertinent to refer to the counter affidavit of the Railway Administration in the previous writ proceedings.
In paragraph 15 of the counter affidavit, it has been stated inter alia that the post of Junior Instructor carries the same scale of pay as Charge man 'C ' and that the two posts being of the same rank and scale, staff of the one post could be transferred to the other post and vice versa.
This statement in the counter affidavit of the Railway Administration clearly indicates that the post of Instructor C and Chargeman C are inter changeable posts.
Further, it is stated as follows: "Respondent Nos. 8 to 11 (which include the three appellants herein) in the first instance offered for the post of Instructors in grade Rs.205 280 (equivalent to Chargeman 'C ' grade) and they were selected by duly constituted Selection Board.
Subsequently they offered for the post of Chargeman B grade Rs.250 280 (AS) and were promoted as such after having been selected by a Selection Committee.
Respondents Nos.
8 to 11 were appointed to grade Rs.205 280 and subsequently to grade Rs.250 280 after having been selected by a duly constituted Selection Board ' . . . ." In the circumstances, we are of the view that the appel lants were not appointed on an ad hoc or a purely temporary basis by way of interim measure as held by the High Court, but they were appointed on a permanent basis in the post of Instructor or Chargeman Grade C, which are interchangeable posts and, thereafter, promoted to the post of Chargeman Grade B.
The appointment or promotion of the appellants to the post of Chargeman C from the post of Skilled Artisan or to Chargeman B were made in accordance with the circular of the Railway Board and/or in accordance with rules 216 of the Railway Establishment Manual.
It cannot, therefore, be said that the appellants were promoted to the post of Chargeman C illegally or in violation of any rule.
There is a controver sy between the parties as to whether the post of Instructor C is an ex cadre post or not.
It is submitted on behalf of the respondents that the post of Instructor C being an ex cadre post, the appellants could not be appoint ed or promoted to the post of Chargeman C.
This contention is unsound and is fit to be rejected.
It is the clear case of the Railway Administration, as pointed out above, that the posts of Instructor C and Chargeman C are interchange able posts.
Even assuming that the post of Instructor C is an ex cadre post, nothing turns out on that inasmuch as according to 89 the Railway Administration itself, the two posts being of the same rank and scale, the staff of one post could be transferred to the other post and vice versa.
The appellants might have been appointed to the post of Instructor C, but they were transferred to the post of Chargeman C and, there fore, there was no difficulty in promoting them to the post of Chargeman B.
Now, we may consider the question as to the propriety otherwise of rule 328(2) as inserted in the Railway Estab lishment Manual by the Railway Board in exercise of its power under rule 157 of the Railway Establishment Code.
It has already been noticed that in the previous writ proceed ings the Division Bench of the High Court quashed the sen iority list and directed the General Manager, DLW, to pre pare a fresh seniority list in the light of statutory provi sions contained in the Railway Establishment Code and the Railway Establishment Manual.
The Principal ground for quashing the seniority list was that the General Manager, DLW, had no authority to frame guidelines or rules for the purpose of preparing the seniority list.
It has also been noticed that while the learned Single Judge took the view that the guidelines or rules framed by the General Manager were violative of Articles 14 and 16 of the Constitution, the Division Bench took a contrary view and after consider ing the rules or guidelines in detail came to the finding that none of the guidelines or rules framed by the General Manager was contrary to the provisions of Articles 14 and 16 of the Constitution.
Indeed, the Division Bench was of the view that no objection could be taken to the said rules or guidelines, but it had to quash the seniority list framed on the basis of such guidelines or rules inasmuch as the Gener al Manager had no authority to frame such rules or guide lines.
Accordingly, the Division Bench directed the General Manager to prepare the seniority list in accordance with the existing statutory rules.
It is curious that instead of preparing the seniority list in accordance with the existing statutory rules, as directed by the High Court, the Railway Board amended the rules and inserted by the Advance Correction Slip No. 70, among others, rule 328(2) which has been extracted above.
That rule wipes out not only the promotion granted to the appellants up to the post of Chargeman Grade B, but also the length of service of the appellants for about nine years.
The appellants have been directed by the order dated decem ber 7/8, 1973 of the General Manager to appear in a trade test in respect of the post of Highly Skilled Artisan Grade Il, otherwise their seniority in the said post will be passed over.
In other words, the appellants are in a way 90 reverted to the post of Skilled Artisan which they were holding before their promotion to the post of Instructor/Chargeman C.
No reason appears to have been given for the introduction of rule 328(2) by the Advance Correc tion Slip No. 70.
It was not the case of the Railway Admin istration in the previous writ proceedings that the promo tions that were given to the appellants were purely on an ad hoc basis.
The High Court in the previous writ proceedings did not also find that the appellants ' promotion to the post of Instructor/Chargeman C or to the post of Chargeman B were on ad hoc basic.
We have, after considering the relevant facts, come to the finding that the appellants were regular ly promoted to the post of Chargeman C and, thereafter, to Chargeman B.
In the circumstances, we do not find any justi fication for the Railway Board to incorporate a new rule, that is, rule 328(2) to the serious prejudice of the appel lants.
The Railway Administration was to comply with the order of the High Court and in compliance with the order, it should have prepared the seniority lists in accordance with the existing rules.
It is not the case of the Railway Admin istration that under the existing rules the seniority list could not be prepared.
There is, therefore, no reasonable justification for the Railway Board to insert in the Railway Establishment Manual rule 328(2).
There can be no doubt that by virtue of rule 157 of the Railway Establishment Code, the Railway Board has the power to frame rules, but such rules must be framed with certain objects in view and must not be arbitrary.
The Court is always entitled to examine whether a particular rule which takes away the vested fight of a railway employee or seriously affects him with retrospective effect, has been made to meet the exigencies of circum stances or has been made arbitrarily without any real objec tive behind it.
In the instant case, we do not find any objective or purpose behind the framing of rule 328(2) to the serious prejudice of the appellants.
In other words, rule 328(2) is arbitrary and, therefore, cannot be allowed to be operative to the detriment of the appellants.
The only justification for rule 328(2) as advanced by the learned Counsel for the respondents is that as the appellants we.re promoted on ad hoc basis to the posts of Chargeman C and Chargeman B, they had no fight to hold these posts and, accordingly, they were to be reverted to the post of Skilled Artisan.
This contention of the respondents does not find support from the counter affidavit filed by the Railway Administration in the previous writ petition nor does it appear from any order or circular of the Railway Board or the Railway Administration in support of the same.
Moreover, we have on a conspectus of the facts and circumstances and the circulars of the Railway Administration come to the finding that the appellants were not promoted on an ad hoc basis.
For the reasons aforesaid, the appeal is allowed and the judgment of the High Court is set aside.
It is directed that the respondents Nos. 1 and 2 shall not give effect to rule 328(2) as inserted in the Railway Establishment Manual by the Advance Correction Slip No. 70 in the cases of the appellants and the respondents Nos.
3 to 6.
The impugned orders dated December 7/8, 1973 and January 7, 1974 are quashed.
The respondents Nos. 1 and 2 are further directed to fix the seniority of the appellants and the said respond ents Nos.
3 to 6 on the basis of their promotions to the posts of Instructor/Chargeman C and Chargeman B.
There will be no order as to costs.
N.V.K. Appeal allowed.
| IN-Abs | The appellants in the appeal were appointed in or about January, 1959 as Trade Apprentices in Locomotive Component Works.
In August, 1961 there was a merger of Locomotive Component Works with Diesel Locomotive Works, as a result of which all the members of the staff of LCW were taken over by DLW.
The appellants were appointed skilled artisans on July 19, 1962 after successfully completing the training period of 3 1/2 years.
The channel for promotion to higher posts was: (1) Skilled Artisan, (2) Highly Skilled Grade II, (3) Highly Skilled Grade I, (4) Chargeman C, (5) Chargeman B, (6) Chargeman A, (7) Assistant Foreman and (8) Foreman.
In September, 1963, the appellants were promoted to the post of Instructor C which was equivalent to the post of Charegman C.
The posts were inter changeable.
The appellants were further promoted on September 22, 1964 to the post of Chargeman B. Some of the respondents in the appeal who were direct Recruits also competed with the appellants for the post of Chargeman B, but could not qualify in the written test.
On August 11, 1966, the Genera1 Manager, DLW pre pared and issued a seniority list of Chargeman B.
This list was challenged by I certain direct recruits in a writ petition to the High Court.
A Single 79 Judge quashed the seniority list and also the guidelines/rules framed by the General Manager, DLW on the basis of which the seniority list was prepared, on the ground that the General Manager, DLW was not the General manager of the Railway, and as such he had no authority to frame the rules or the guidelines for the purpose of prepa ration of the seniority list.
It was further held that the guidelines/rules were violative of Articles 14 and 16 of the Constitution.
Several appeals were preferred, one of them being by the Railway Administration.
The Division Bench while upholding the finding of the Single Judge that the General Manager DLW was not competent to frame the rules/guidelines, disagreed with the finding that the rules/ guidelines were violative of Articles 14 and 16 of the Constitution.
Pursuant to the aforesaid judgment, the Railway Board issued an Advance Correction Slip No. 70 inserting Rules 324 to 328 in the Railway Establishment Manual after rule 323 in Chapter III.
Rule 328(2) provided that: 'selections and promotions made in the Diesel Locomotive Works from August 1, 1961 upto the date of the notification of the rules shall not be invalid '.
The amended rules came into effect from March 11, 1973.
The resultant situation was that Rule 328(2) vitally affected the appellants by making invalid all the promotions given to them during the period August 1, 1961 to March 11, 1973 and the appellants were reverted back as Skilled Arti sans.
The General Manager, DLW a Circular dated 7/8th Decem ber, 1973 directed appellants to appear at the Trade test and further informed that failure to do so would result in being passed over for fixation of seniority in the Highly Skilled Grade II.
The representation against this Circular was turned down.
Aggrieved by the introduction of Rule 328(2) and also the issuance of Circular by the General Manager DLW the appellants filed a writ petition in the High Court The High Court overruled the contention that the new rules inserted in the Railway Establishment Manual by the Advance Correc tion Slip No. 70, were invalid, and held that the rules were quite valied and were not arbitriary or discriminatory.
As regards promotion of the appellants,the High court took the view that they were only interim and professional and not regular and as such no right was confirmed on appellants to hold the posts to which they were promoted.
The high court accordingly dismissed the writ petition.
80 On behalf of the appellants in the appeal by special leave it was contended that Rule 328(2) as inserted in the Railway Establishment Manual by the Advance Correction Slip No. 70 was invalid, that the promotions of appellants up to the position of Chargeman A could not be set aside and appellants reverted back to their original position of Skilled Artisans, and that the length of service of the appellants for a period of about 9 years has been completely wiped out by the said Rule 328(2).
Allowing the appeal and setting aside the judgment of the High Court, HELD:1.
By virtue of Rule 157 of the Railway Establish ment Code, the Railway Board has the power to frame rules, but such rules must be framed with certain objects in view and must not be arbitrary.
[90E] 2.
The Court is always entitled to examine whether a particular rule which takes away the vested right of a railway employee or seriously affects him with retrospective effect, has been made to meet the exigencies of circum stances or has been made arbitrarily without any real objec tive behind it.
[90E F] 3.
The Railway Administration was to comply with the order of the High Court and in compliance with the order, it should have prepared the seniority lists in accordance with the existing rules.
[90C D] 4.
It is curious, that instead of preparing the seniori ty list in accordance with the existing statutory rules, as directed by the High Court, the Railway Board amended the rules and inserted by the Advance Correction Slip No. 70, among others, Rule 328(2).
That rule wipes out not only the promotions granted to the appellants up to the post of Chargeman Grade B, but also the length of service of the appellants for about nine years.
[89F G] 5.
This Court does not find any objective or purpose behind the framing of Rule 328(2) to the serious prejudice of the appellants.
The said Rule is arbitrary and therefore, cannot be allowed to be operative to the detriment of the appellants.
[90F] 6.
The appellants were regularly promoted to the post of Chargeman C and thereafter to Chargeman B.
In these circum stances, no justification is found for the Railway Board to incor 81 porate a new rule viz., Rule 328(2) to the serious prejudice of the appellants.
[90C] 7.
A person can have lien on a post and not a lien on a place.
There can be no doubt that a person appointed to a post on ad hoc basis cannot have any lien on the post.
It is only when a person is appointed on a permanent basis, he can claim lien on the post to which he is so appointed.
[87F G] 8.
It is not correct to say that the appellants were appointed or promoted to the post of Instructor C or Charge man C on an ad hoc basis or by way of an interim measure, as held by the High Court.
If they were appointed on ad hoc or purely temporary basis they could not have been promoted to the post of Chargeman B and Office Order No. 25 dated Janu ary 22, 1966 would have been quite inconsistent with such ad hoc or temporary appointments.
[87G H] 9.
Directed that Respondent Nos. 1 and 2 shall not give effect to Rule 328(2) as inserted in the Railway Establish ment Manual by the Advance Correction Slip No. 70 in the case of appellants and Respondent Nos.
3 to 6.
Orders dated December 7/8th, 1973 and January 7, 1974 are quashed.
Fur ther directed that Respondent Nos. 1 and 2 fix the seniority of appellants and respondents 3 to 6 on the basis of their promotions to posts of Instructor/Chargeman C and Chargeman B. [91B C]
|
ivil Appeal No. 4159 of 1984.
From the Judgment and Order dated 20.1.
1984 of the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal No. ED(SB)(T) 644/81 A (Order No. A29/84).
P.P. Rao, Rameshwar Nath, D.N. Mehta and Ravinder Nath for the Appellants.
V.C. Mahajan, Arun Madan and P. Parmeshwaran for the Respondent.
The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.
This is an appeal under section 35 L(b) of the Central Excises & Salt Act, 1944 (hereinafter referred to as 'the Act ') from the judgment and order of the Customs, Excise & Gold (Control) Appellate Tribunal (herein after referred to as 'the Tribunal ') dated the 20th January, 1984.
The appellants are the manufacturers of 'Supercem Water proof Cement Paint ', hereinafter called as the 'Product ', and other allied products in their factory at Madras.
They manufacture and market this product throughout India.
It is stated that the appellants are a small manufacturing firm with no branches and/or sales offices in any other State, city or town.
In these circumstances, an agreement for sale described as an 'agreement of sale ' dated 1st May, 1962 was entered into with Gillanders Arbuthnot & Co. Ltd., of Cal cutta, hereinafter called 'Gillanders '.
The said company has a very big sales organisation having its offices located at all important places in the territory of Union of India and they market goods of all types, not only of the appellants herein, but also of several other reputed manufacturers through their well staffed offices in all the States of India.
The appellants vide their letters dated 23rd April, 1979 and 15th May, 1980 to the Excise authorities, had claimed a refund of Rs.2,39,153.63 on account of excess excise duty paid on the assessable value on the basis of price at which the Gillanders had sold the products to its customers, during the period July, 1977 to March, 1979.
Both the Assistant Collector by his order dated 29th May, 1980 and the Collector by his order dated 24th March, 1981 re jected the contention of the appellants and held that the assessable value is the price at which Gillanders sold the goods.
786 The Tribunal in its order dated 20th January, 1984 referred to relevant clauses in the said agreement dated 1st May, 1962 and came to the conclusion that it was abundantly clear from the conditions that the title to and the owner ship in the goods consigned to Gillanders was not to pass to them.
According to the Tribunal a sine qua non of a sale is that the title should pass from the seller to the purchaser.
When once that were not so, according to the Tribunal, then it was futile to contend that it was an agreement for sale.
The Tribunal on an analysis of conditions of agreement, came to the conclusion that the true character of the agreement was that it was an agreement for sole selling agency and not an agreement for sale.
The Tribunal also referred to the expression 'a related person ' in the definition given by Sec.
4(4)(c) of the Act and held that Gillanders was a related person and, therefore, the assessable value of the goods for levy of excise duty must be on the basis of the price at which Gillanders ordinarily sold these in the course of wholesale trade less the transportation cost and other permissible deductions such as duty of excise and sales tax, if any, subject to proof.
Aggrieved thereby, the appellants have come up in this appeal to this Court.
The first question that was canvassed and which requires to be determined is whether the agreement dated 1st May, 1962 is an agreement for sale or is one for sole selling agency.
In the said agreement, the appellants have been de scribed as a partnership firm carrying on business at Madras and referred to as 'The Manufacturer ' and Gillanders of Calcutta described as 'The Selling Agents '.
The agreement, inter alia, stated that the selling agents had agreed to stock adequate quantities of the product for the purpose of sale thereafter.
The manufacturer however agreed to accept return of all stocks held by the selling agents for a period of more than two years and replace such stocks free of all charges, provided the lids of the containers were intact and sealed.
The agreement further stated that all consignments would be despatched by the manufacturer at Railway risk.
In case there was any damage or shortage in transit the selling agents would lodge a claim on the Railways, provided, howev er, that the manufacturer should take all suitable actions for recovery of the damages from the Railway authorities and should reimburse the selling agents all losses and damages that they might suffer in the premises.
It was further agreed that in consideration of the premises, the manufac turer should pay the selling agents a discount, namely, 17 1/2 % on the transfer prices of all materials supplied against the orders received from the selling agents 787 from its offices at Calcutta, Kanpur, Delhi and Bombay; 18% on the transfer prices of all materials supplied against the orders received from the selling agents from its Madras Office.
It also provided for an additional cash discount of 1 1/2 % on the net transfer price, that is to say, transfer price less the discount specified above provided the selling agents paid the price of the goods supplied by the manufac turer within 30 days from the date of the bills by the manufacturer in respect of orders placed by the selling agents from its offices at Calcutta, Bombay, Madras and Delhi and within 45 days from the date of the bill by the manufacturer in respect of orders placed by the selling agents from its Kanpur Office.
It also provided for an additional turnover discount of 1% on the transfer prices over and above the discount specified above provided the total sales calculated at the selling prices exceeded Rs. 4 lakhs per annum and 1 1/2% on the transfer prices on such amount exceeding Rs. 4 lakhs per annum.
In calculation of the turnover figure of Rs. 4 lakhs, the orders received by the manufacturer directly from the Government would not be taken into consideration.
The manufacturer would normally, the agreement provided, expect the selling agents to pay all bills within 60 days from the date of such bills to the selling agents.
The selling agents agreed to send to manu facturer the necessary 'C ' Declaration Forms under the Central Sales Tax Act as quickly as possible in respect of sales made directly to the selling agents.
The manufacturer further agreed to supply the selling agents with all neces sary publicity materials and to advertise at their own cost at regular intervals through the media of the daily press, trade journals, Government publications and cinema slides and in all such advertisements should mention that the selling agents were the sole selling agents of the products.
The manufacturer also agreed to supply the selling agents reasonable quantities of sample free of charge.
All expenses such as godown rent, transport charges, postal and telegram charges, bank commission, etc., connected with the sales of the products, it was stipulated, would be borne by the selling agents.
It was, inter alia, provided that the sell ing prices and transfer prices of the product would be mutually agreed to from time to time between the manufactur er and the selling agents.
Current selling prices and trans fer prices were set out in the schedule to the agreement.
It was stipulated also that the selling agents might allow any discount to any dealer at their discretion.
The manufacturer agreed to execute and despatch orders to all dealers outside the State of Madras, provided firm instructions were re ceived to that effect from the selling agents, to eliminate unnecessary handling charges.
The agreement provided that in such cases, the manufacturer would credit the selling agents with their usual commission after deducting therefrom any discounts which 788 might be allowed to the dealer on the specific instructions of the selling agents.
The manufacturer further agreed to execute such orders against the guarantee of the selling agents.
In the case of direct orders to dealers outside the State of Madras, the selling agents might quote either F.C).R. station of despatch or destination terms.
If the goods supplied by the manufacturer were found to be sub standard goods or inferior in quality the manufacturer should at his own cost take back the goods and replace the goods of satisfactory marketable quality at its own cost.
The manufacturer should not be responsible for failure to deliver or for any delay in delivery if such failure or delay was due to act of God or enemies of the State, wars, revolution, embargo, riots, civil or political disturbances, strikes, lockouts declared due to circumstances beyond the control of the manufacturer, shortage of labour, cut or failure of power supply or service, force majeure or any other cause beyond their control.
The agreement, it was stipulated by clause 19 thereof, would remain in force for one year from the date of the agreement.
But the parties had the fight to terminate the agreement by giving three months notice in writing to either side.
It was further stipulated that if the agreement was terminated whether by the manufac turer or by the selling agents, the manufacturer should accept return of all unsold stocks lying with the selling agents at their various branches and to reimburse the sell ing agents with the net value of such stocks at the transfer prices in force on the date of the termination of the agree ment.
There was arbitration clause and other clauses which are not material for the present purpose.
The Tribunal analysed the agreement and emphasised that Gillanders were described as sole selling agent of the product of the appellants throughout India.
It also noticed that the appellants were to supply to the Gillanders with advertisement material.
The Tribunal also noted the clause which provided that the stocks left over unsold beyond two years from their receipt with Gillanders could be returned to the appellants who were bound to replace these.
The Tribunal noticed that it was not the appellant who was to prefer claims for recovery of damages from the carriers.
The Tribunal referred to the clause which stipulated that Gil landers were to promote sales of the product throughout India and were not to handle sales of any other material likely to conflict with the sales of the appellants ' product.
It noted that any reduction in price during the currency of the agreement was to be duly reflected in the price of stock lying unsold with Gillanders.
Although, the appellants retained the right of sale directly to large Government consumers, Gillanders were to follow up such .
transactions and were to be paid an over riding commission of 2 1/2%.
789 Where, however, Gillanders tendered for Government supplies and followed it up, they were to be paid a commission of 5%.
In all other cases, they were to earn a commission, de scribed, however, as a discount and additional cash discount apart from total sales discount in case where total sales exceeded Rs. 4 lakhs, on the orders received from Gilland ers.
The Tribunal also referred to the clause which provided that on termination of the agreement by either party, unsold stocks lying with the Gillanders were to be returned to the appellants.
On an analysis of the aforesaid aspects of the clauses, the Tribunal came to the conclusion that the title to and ownership of goods, continued with the appellants and did not pass to the Gillanders.
In order to be sale, the title should pass from the seller to the purchaser for a price.
If it is not so, the Tribunal noted, then it was not sale.
The Tribunal came to the conclusion that it was an agreement for sole selling agency and not an agreement for sale.
The question is whether the Tribunal was right on this aspect.
On behalf of the appellants, Shri P.P. Rao contended that it has to be emphasised that there was no flow back of the profit to the manufacturer and that was absent in the instant case.
He also referred to the fact that there were two prices transfer price and selling price and there was good deal of difference between these prices.
He submitted that read in the proper perspective, there was no agency.
He emphasised that there was stipulation for payment of sales tax and these were separately specified one was described as selling agent and the second one the real purchaser.
It is well settled that in a situation like this, wheth er there was an agreement for sale or an agreement of agen cy, must depend upon the facts and the circumstances and the terms of each case.
Such facts and terms must be judged in the background of the totality of the circumstances.
All the terms and conditions should be properly appreciated.
It is also correct that though the appellants described the Gil landers as selling agent, but that is not conclusive.
And it is also correct to state that the difference of the prices between the transfer and the selling prices is suggestive of an outright sale.
In W.T. Lamb and Sons vs Goring Brick Company Ltd., , by an agreement in writing certain manufacturers of bricks and other building materials appointed a firm of builders ' merchants "sole selling agents of all bricks and other materials manufactured at their works".
The agreement was expressed to be for three years and afterwards continuous subject to twelve months ' notice by either party.
While the agreement was in force, the manufacturers informed the merchants that they 790 intended in the future to sell their goods themselves with out the intervention of any agent, and thereafter they effected sales to customers directly.
In an action by the merchants against the manufacturers for breach of the agree ment, it was held both by Justice Wright in the Trial Court and on appeal by the Court of Appeal, that the effect of the agreement was to confer on the plaintiffs the sole right of selling the goods manufactured by the defendants at their works, so that neither the defendants themselves nor any agent appointed by them, other than the plaintiffs, should have the right of selling such goods.
In those circum stances, it was held that the agreement was one of vendor and purchaser and not of principal and agent.
Lord Justice Scrutton was of the view that in certain trades the word "agent" is often used without any reference to the law of principal and agent.
Lord Justice Scrutton was of the view that the words "sole selling agent" in the contract had a distinct meaning implying that the manufacturers were to sell to no one but the merchants who paid them the fixed price, and the merchants sold, and they were the only per sons to sell, to various builders and contractors.
Lord Justice Slesser was of the view that the agreement in the present case was somewhat difficult to understand, because in one and the same document the same parties were described as "merchants" and as "sole selling agents," the first being a correct, but the second one an incorrect description, according to the Lord Justice.
It was held that the agree ment was one of vendor and purchaser.
Referring to some of the contract terms in the instant case, Shri Rao submitted that in this case also, the terms referred to by the Tribu nal and emphasised before us by Shri Mahajan, learned coun sel for the respondent, were merely indicative of the fact that the parties described a 'purchase upon terms ' as "sole selling agent".
It was an agreement whereby the purchaser upon terms was described as "sole selling agent," submitted Shri Rao.
This Court had occasion to consider this aspect in Gordon Woodroffe & Co. vs Sheikh M.A. Majid & Co., In that case, the respondent was a trader in hides and skins and the appellant was an exporter.
During the period January to August, 1949, there were several contracts between them.
The contracts mentioned that the appellant was buying the goods for resale in U.K.
The price quoted was C.I.F. less 2 1/2%.
The contracts also provided that time should be the essence of the contract, that the sales tax was on respondent 's account, that the respondent was answerable for weight as well as quality, that there should be a lien on the goods for moneys advanced by the appellant, and that any dispute regarding quality should be settled by arbitration according to the customs of the trade 791 in the U.K.
The course of dealing between them showed that before the goods were shipped these were subjected to a process of trimming and reassortment in the godowns of the appellant with a view to make these conforming to London standards, that the goods were marked with the respondent 's mark and that premiums were paid to the respondent in case the goods supplied were of special quality.
The respondent filed a suit on the original side of the High Court praying that an account should be taken of the dealings between himself and the appellant on the ground that the appellant was his agent.
The appellant 's case was that there was an outright purchase of the respondent 's goods and that the appellant was not an agent of the respondent.
The trial Judge dismissed the suit.
On appeal, the High Court held that the appellant acted as a del credere agent of the respondent and directed the taking of accounts.
In appeal to this Court, it was contended by the appellant that the terms of the contracts and the course of dealing between the parties showed that the appellant was not the agent of the respondent but was an outright purchaser of the goods and that there was a settled account between the parties which the respondent could not reopen.
This Court held that the appellant was the purchaser of the respondent 's goods under the several contracts and not his agent for sale, and there fore, the view taken by the High Court was not correct.
It was reiterated that the essence of sale is the transfer of the title to the goods for price paid, or to be paid, where as the essence of the agency to sell is the delivery of the goods to a person who is to sell them, not as his own property but as the property of the principal who continues to be the owner of the goods, and the agent would be liable to account for the proceeds.
On the terms of the contract and the course of dealing between the parties, the contract was not one of agency for sale but was an agreement of sale.
The appellant purchased the goods from the respondent at 2 1/2 % less and sold them to the London purchasers at the full price so that the 2 iii % was its margin of profit and not its agency commission.
This point was emphasised by Shri Rao as a point similar to the instant case.
This Court held therein that the fact that the goods were sent with the respondent 's mark, that the premium was paid outside the terms of the contract, that the appellant considered it fair and just to pay the whole of the premium to the respondent or to share it with him, and that additional burden with respect to weight and quality was thrown on the respondent, had no significance in deciding the nature of the contract.
This Court was also of the opinion that the clause with regard to lien was consistent with the transaction being an outright sale, because the appellant was acting as creditor of the respondent and charged interest on advances only till the date of shipment of the goods when it became 792 the purchaser of the goods from the respondent.
It was held that an agent could become a purchaser when the agent paid the price to the principal on his own responsibility.
This was another aspect which was emphasised in the facts of the present case by Shri Rao.
In that case, however, before the goods were shipped to London, these were subjected to a process of trimming and reassortment in the godown of the appellant with a view to make them conform to London stand ards.
In that process, the defendants often called upon the plaintiff to replace the pieces found defective.
If the defendants were merely acting as agents, this Court ob served, the process of trimming and reassorting in the godowns to make the goods conform to London standards and specifications would be unnecessary, for in that case the defendants were merely bound to ship the goods as these were delivered to them.
Another important feature of the transac tion was that in several contracts, time was fixed for delivery of the goods.
This Court found that the defendants were acting only as the agents for the sale, there was no reason why there should be a stipulation that time should be the essence of the contract.
On behalf of the plaintiff, reference was also made to the fact that the contract pro vided for a lien on all the goods covered by the contracts for all moneys advanced by the defendants, including ex penses incurred and interest thereon.
But it was emphasised that in making such advances, the defendants were only acting as creditors of the plaintiff and were therefore entitled to charge interest on such advances till they actually purchased the goods from the plaintiffs.
The Court found that the primary object of the contract was that there was a purchase by the defendants from the plaintiff of the goods for resale in the U.K. and in keeping with that ob ject, the buyer stipulated with the seller for delivery of the goods abroad and for that purpose adopted a c.i.f. form of sale.
This Court referred to the principle that an agent could become a purchaser when an agent paid the price to the principal on his own responsibility.
Reference was made to the passage from Blackwood Wright, 'Principal and Agent ', Second Edn., page 5, at page 10 of the Report, where it was stated that in commercial matters, where the real relation ship was that of vendor and purchaser, persons were some times called agents when, as a matter of fact, their rela tions were not those of principal and agent at all, but those of vendor and purchaser.
If the person called an 'agent ' was entitled to alter the goods, manipulate them, to sell them at any price that he thought fit after these had been so manipulated, and was still only liable to pay them at a price fixed beforehand, without any reference to the price at which he sold them, it was impossible to say that the produce of the goods so sold was the money of the con signors, or that the relation of principal and agent 793 existed, according to this Court in that case.
Reliance was also placed on Tirumala Venkateswara Timber and Bamboo Firm vs Commercial Tax Officer, Rajahmundry, ; , where the concept of 'sale ' in the back ground of the Andhra Pradesh General Sales Tax Act, 1957 was considered.
At page 480 of the report, this Court observed that as a matter of law, there is a distinction between a contract of sale and a contract of agency by which the agent is authorised to sell or buy on behalf of the principal and make over either the sale proceeds or the goods to the principal.
The essence of a contract of sale is the transfer of title to the goods for a price paid or promised to be paid.
The transferee in such a case is liable to the trans feror as a debtor for the price to be paid and not as agent for the proceeds of the sale.
The essence of agency to sell is the delivery of the goods to a person who is to sell these, not as his own property but as the property of the principal who continues to be the owner of the goods and will therefore be liable to account for the sale proceeds.
The true relationship of the parties in each case has to be gathered from the nature of the contract, its terms and conditions, and the terminology used by the parties is not decisive of the legal relationship.
Shri Mahajan, learned counsel appearing for the respondent, drew our attention to Section 182 of the , and submitted and in the circumstances of this case, the clauses emphasised by the Tribunal clearly established that this was an agreement of agency and not a sale.
As mentioned hereinbefore, it depends on the facts and circumstances of each case to determine the true nature of the dealings between the parties.
In the instant case the most important fact suggesting agency was the clause which enjoined that the stocks left over unsold beyond two years from their receipt could be returned to the appellants who were bound to replace these.
Shri Rao, however, suggested that the appellants were manufacturing paint which was liable to loose its efficacy and quality after lapse of time and as the appellants were keen for its reputation, such a clause was inserted to ensure that the bad quality goods or stale goods did not, through Gillanders, go to the market and damage the reputation of the appellants.
This should be considered with the fact that the appellants were to prefer all claims for recovery of damages from the carriers and any reduction in price during the currency of the agreement was to be duly reflected in the price of stock lying unsold with Gillanders and the obligation that on the termination of the contract by either the appellant or Gillanders, unsold stocks lying with the latter were to be returned to the former.
In 794 the aforesaid light we are of the opinion that the Tribunal was right in considering this agreement as the agreement for sole selling agency and not as an outright sale.
If that is the position then the first ground, in our opinion, taken by the Tribunal cannot be assailed.
Shri Rao had contended that the Tribunal was wrong in holding that Gillanders were related persons in terms of Section 4(4)(c) of the Act.
He submitted that the concept of 'having interest directly or indirectly in the business of each other ' has to be judged independently of the transac tion in question.
He drew our attention to the various authorities for the proposition that the purpose of intro duction of definition of 'a related person by the Central Excises and Salt (Amendment) Act, 1973 to contend that the distributors have to be related and that such relationship ought to be found out independently of the transaction in question.
Our attention was drawn to the observations of this Court in A.K. Roy vs Voltas Ltd., ; , where at page 1093 of the report, this Court noted that the appellants had contended that the agreements with the whole sale dealers conferred certain extra commercial advantages upon them, and so, the sales to them were not sales to independent purchasers.
Our attention was also drawn to the observations of this Court that decisions cited before this Court in the above case were correct in so far as these held that the price of sales to wholesale dealers would not represent the 'wholesale cash price ' for the purpose of section 4(a) of the Act merely because the manufacturer had entered into agreement with them stipulating for commercial advan tages.
It was laid down that if a manufacturer were to enter into agreements with dealers for wholesale sales of the articles manufactured on certain terms and conditions, it would not follow from that alone that the price for those sales would not be the 'wholesale cash price ' for the pur pose of section 4(a) of the Act if.
the agreements were made at arms length and in the usual course of business.
This, however, Mr. Rao related only in explaining the state of law before the Amendment Act 22 of 1973.
Our attention was also drawn to the observations of this Court in Union of India & Ors.
vs Bombay Tyre International Ltd., ; where this Court explained the pur pose of the introduction of 'related person ' in the new 'section 4(4)(c) and the transactions of related person covered under section 4(4)(c) of the Act after amendment.
In that context, it was contended that where there was such rela tionship independent of the transaction in question which conferred certain additional or extra commercial advantages only on the persons involved in such relationship could be considered to be related persons.
It 795 was submitted that in the instant case that was not so.
Our attention was drawn to the observations of this Court in Union of India and others vs Atic Industries Limited, ; , at page 937 of the report, where this Court held that on a proper interpretation of the definition of 'relat ed person ' in section 4(4)(c), the words "relative and a distributor of the assessee" did not refer to any distribu tor but they were limited only to a distributor who was a relative of the assessee within the meaning of the .
So read, the definition of "related person" was not unduly wide and did not suffer from any constitutional infirmity.
This Court explained the nature of relationship required by the persons to have 'interest directly or indi rectly in the business of each other ' under section 4(4)(c) of the Act.
Our attention was also drawn to the observations of this Court in Collector of Central Excise, Madras vs T.I. Millers Ltd. Madras & T.I Diamond Chain, Madras, ; Having regard however to the fact that we have come to the conclusion that the Tribunal was right in holding that the transaction with the Gillanders was not a transaction of sale but an agreement for agency, there was, therefore, no sale in favour of Gillanders as contended for the appel lants.
If that is the position, then the first sale was by the Gillanders to the customers of the market.
Then the price of that sale would be the assessable value under section 4 in this case.
The decision of the Tribunal is, therefore, right in any view of the matter, and this other aspect of the matter referred to by the Tribunal is not necessary for us to determine to dispose of this appeal.
In that view of the matter, the decision of the Tribunal must be upheld.
Shri Rao, however, further submitted that there were certain other claims like cost of transportation and other permissible deductions such as duty of excise and sales tax, which should have been deducted from the value subject to proof by the appellants.
Shri Rao submitted that apart from this, there were other permissible deductions as envisaged by this Court in Asstt.
Collector of Central Excise & Oth ers, etc.
vs Madras Rubber Factory Ltd.; , It may be observed that apart from cost of transportation, excise duty and sales tax, other charges were not sought to be deducted by the appellants in the appeal and were not canvassed before the Tribunal too nor in the grounds of appeal, there was any such claim.
Shri Rao, however, submit ted that in view of the decision of this Court in Madras Rubber Factory 's case (supra), the appellants should not be denied the benefit of these deductions, if they are other wise entitled to.
Though, strictly speaking that is beyond the scope of the appeal in view of the conten 796 tions raised in the appeal before the Tribunal and in view of the grounds of appeal taken by the appellants before us, but in the interest of justice, we permit the appellants to have these benefits as finally settled by this Court in Madras Rubber Factory 's case (supra).
We are informed that the said decision of Madras Rubber Factory is under review in this Court.
Therefore, we are of the opinion that subject to the order passed in that review matter, such deductions, as may ultimately be held to be deductible be permitted to the appellants upon proof.
With these observations, the appeal fails and is accordingly dismissed with no order as to costs.
P.S.S. Appeal dismissed.
| IN-Abs | The assessee appellants, a partnership firm carrying on manufacturing business in Madras entered into an agreement with a company based in Calcutta for sale of their product through the latter 's sales organisation in all the States of India.
In the said agreement the assessee was referred to as the 'manufacturer ' and the company as the 'sole selling agents ' of the product.
The agreement itself was described as an 'agreement of sale '.
It provided inter alia that the stocks left over unsold beyond two years from their receipt with the selling agents could be returned to the appellants who were bound to replace them, that the appellants should take all suitable action for recovery of damages from the carriers, that they would supply the selling agents with all the necessary publicity material and also advertise at their cost through the media, that the selling prices and transfer prices of the product would be mutually agreed from time to time between them and the selling agents, that any reduction in price during the currency of the agreement was to be duly reflected in the price of stock lying unsold with the sell ing agents, and that on termination of the contract either by the assessee or by the selling agents, the unused stock lying with the latter was to be returned to the former.
The appellants were assessed to excise duty under the for the period July, 1977 to March, 1979 on the basis of the price at which the sell ing agents had sold the goods to their customers in the course of the wholesale trade.
They however, claimed that the assessable value should be the price at which the ex cisable goods were sold by them to the selling agents and sought refund of 783 the excess excise duty thus paid.
The Assistant Collector of Excise and the Collector rejected the said claim.
The TribUnal took the view that a sine qua non of a sale was that the title to the goods should pass from the seller to the purchaser.
When once that were not so, then it could not be said that it was an agreement for sale.
On an analy sis of the conditions of the agreement in the instant case it found that the title to and the ownership in the goods consigned to the selling agents continued with the appel lants.
It, therefore, concluded that the true character of the agreement was that it was an agreement for sole selling agency and not an agreement for sale.
It further held that the selling agents were 'a related person ' as understood under section 4(4)(c) of the Act and, therefore, the assessable value of the goods for levy of excise duty must be on the basis of price at which the selling agents ordinarily sold these in the course of wholesale trade less the transporta tion cost and other permissible deductions such as duty of excise and sales tax, if any, subject to proof.
In this appeal under section 35 L(b) of the Act it was con tended for the appellants, that there were two prices 'transfer price ' and 'selling price ' and there was good deal of difference between these prices which was suggestive of an outright sale, that the terms referred to by the Tribunal were merely indicative of the fact that it was an agreement whereby the purchaser upon terms was de scribed as 'sole selling agents ', that the appellants were manufacturing a product which was liable to lose its effica cy and quality after lapse of time and as such a replacement clause was inserted to ensure that the bad quality goods did not go to the market and damage their reputation, that the selling agents were not 'related persons ' in terms of section 4(4)(c) of the Act, as there was nothing in common between them and the appellants, and that claims like cost of trans portation and other permissible deductions such as duty of excise and sales tax to which they were otherwise entitled to should have been deducted from the 'value ' subject to proof by the appellants.
Dismissing the appeal, HELD: 1.1 Whether there was an agreement for sale or an agreement of agency to sell must depend upon the facts and the circumstances and the terms of each case.
Such facts and terms must be judged in the background of the totality of the circumstances.
All the terms and conditions should be properly appreciated.
The terminology used by the parties is not decisive of the legal relationship.
[789F, 793D] 784 1.2 The essence of a contract of sale is the transfer of the title to the goods for a price paid or promised to be paid.
The transferee in such a case is liable to the trans feror as a debtor for the price to be paid.
The essence of the agency to sell is the delivery of the goods to a person who is to sell these not as his own property but as the property of the principal, who continues to be the owner of the goods, and make over the sale proceeds to the principal.
An agent.
however, could become a purchaser when he paid the price to the principal on his own responsibility.
[793C, 792A] 1.3 In the instant case, the most important fact sug gesting agency was the clause which enjoined that the stocks left over unsold beyond two years from their receipt could be returned to the appellants who were bound to replace these.
Added to it was the fact that the appellants were to prefer all claims for recovery of damages from the carriers and any reduction in price during the currency of the agree ment was to be duly reflected in the price of stock lying unsold with the selling agents, and the obligation that on the termination of the contract by either the appellants or the selling agents, unsold stocks lying with the latter were to be returned to the former.
[793F, GH] 1.4 The Tribunal was, therefore, right in holding that the transaction with the selling agents was not a transac tion of sale but an agreement for agency.
If that be so, then the first sale was by the selling agents to the custom ers of the market.
The price of that sale would thus be the assessable value under section 4 of the Act.
In that view of the matter it was not necessary to determine the question wheth er the selling agents were 'related persons ' in terms of section 4(4)(c) of the Act.
[795DE] W.T. Lamb & Sons vs Goring Brick Company Ltd., ; Gordon Woodroffe & Co. vs Sheikh M.A. Majid & Co., and Tirumala Venkateswara Timber & Bamboo Firm vs Commercial Tax Officer, Rajahmundry., ; referred to.
Though apart from cost of transportation, excise duty and sales tax.
other charges were not sought to be deducted by the appellants in the appeal and were not canvassed before the Tribunal too, nor in the grounds of appeal there was any such claim, in the interest of justice they are permitted to have the benefit of other deductions envisaged in Assistant Collector of Central Excise & Ors.
vs Madras Rubber Factory Ltd.; , subject to the order passed in the review matter.
[795G, 796AB] 785
|
vil Appeals Nos.
1358 61 of 1979.
From the Judgment and Order dated 6.9.78 of the Allaha bad High Court in I.T.R. No. 114/78.
Ahuja, K.C. Dua and Miss. A. Subhashini for the appel lants.
842 S.C. Manchanda, Mrs. A.K. Verma and Joel Pares for the respondent.
The Judgment of the Court was delivered by PATHAK, CJ.
These appeals by special leave are directed against the judgment of the High Court at Allahabad dispos ing of an Income tax Reference in favour of the assessee and against the Revenue.
The assessee is a co operative society running a sugar mill.
For the assessment year 1968 69 it claimed payment of interest amounting to Rs. 1,81,7 16.
This was interest paid to the accounts of its members, who had deposited certain amounts with the assessee in accordance with Bye law No. 50 and it was debited by the assessee to its profit and loss account.
In the initial years of the working of the Society, certain partly paid shares were allotted to its farmer members.
With a view to inducing these members to make further contribution to the capital of the Society, bye law No. 50 was incorporated in the Bye laws of the Society.
The bye law as amended provides: "50.
There shall be established a 'Loss Equalisation & Capital Redemption Reserve Fund ' in the society.
Every producer shareholder shall deposit every year a sum not less than 0.32 paise and not more than 0.48 paise per quintal of the sugarcane supplied by him to the society, as may be determined by the Board until the shares to be subscribed by the members are fully paid up.
The amount standing to the credit of this fund presently or to be credited in future, shall be used for making the partly paid shares fully paid up.
The balance of the said amount shall be refunded to the members soon after the present loan from the Industrial Corporation of India is repaid, whereafter the fund shall cease to exist.
" The money available in the 'Loss Equalisation and Capi tal Redemption Reserve Fund ' was utilised by the assessee for the purpose of its business.
A part of the amount was also utilised for converting the partly paid up shares into fully paid up shares.
On 8 September, 1967 the Board of Directors of the Society decided in their meeting to pay interest at 6% on the balance available in the aforesaid Fund to its various members to whom the balance money be longed.
It was on this account that the Society claimed an amount of Rs. 1,18,716 for the assessment year 1968 69.
843 The claim was rejected by the Income Tax Officer.
He took the view that the amounts deposited by the members of the Society in the 'Loss Equalisation and Capital Redemption Reserve Fund ' did not represent loans taken by the assessee but constituted a contribution by the members to convert partly paid up shares into fully paid up shares and they could not be considered as capital borrowed for the purpose of its business.
He held that section 36(1)(iii) of the Income tax Act did not apply to such interest and that it was not admissible as a deduction in computing the total income of the assessee.
For the assessment years 1969 70 to 1972 73 the claim to deduction on this account was as follows: 1969 70 .
Rs. 1,34,609 1970 71 .
Rs. 1,34,609 1971 72 .
Rs. 1,34,609 1972 73 .
Rs. 1,34,609 The Income Tax Officer took the same view for these assess ment years as he did for the assessment year 1968 69.
In appeals preferred by the assessee the Appellate Assistant Commissioner of Income tax confirmed the disallow ance for the assessment year 1968 69 on the ground that Bye law No. 50 did not provide for the refund of the amount standing to the credit of the members at any time before the payment of the loan to the Industrial Finance Corporation of India, that the loan was still outstanding on 30 June 1967, the last day of the previous year relevant to the assessment year 1968 69, and moreover the Bye law did not provide for payment of interest at all.
He observed that the Directors could not pay any interest unless the Bye law was amended by the members of the assessee.
He observed that the interest paid must be regarded as an exgratia payment to the producer members of the society who had contributed to the Fund, and that it was not made for the purpose of the business of the assessee or on the ground of commercial expediency.
The same order was passed by the Appellate ASsistant Commissioner on the appeals for the remaining years.
In second appeals filed by the assessee for all the assessment years the Income Tax Appellate Tribunal held that the amount standing to the credit of the 'Loss Equalisation and Capital Redemption Reserve Fund ' which was utilised by the assessee for the purpose of its business represented moneys borrowed for the purpose of its business and that interest paid on such moneys was eligible for deduction under 844 section 36(1)(iii) of the Income tax Act, 1961.
The Appellate Tribunal negatived the contention of the Revenue that only such deposits could constitute 'capital borrowed ' within the meaning of section 36(1)(iii) of the Act which were initially borrowed with the stipulation to pay interest thereon.
The Appellate Tribunal observed that the expression 'capital borrowed ' had not been defined in the Income tax Act and that its ordinary meaning would have to be gathered in construing the meaning of section 36(1)(iii).
It said that it was not necessary that borrowing must contain an element of payment of interest and that even if a deposit was made by the members of the society which was utilised for the pur poses of the business of the assessee, the funds represented by such deposit would be 'capital borrowed ' for the purposes of section 36(1)(iii) of the Act.
The Appellate Tribunal also recorded that it was not disputed that the deposits were taken for the purposes of the business.
In the circum stances, the Appellate Tribunal held that when the Board of Directors of the assessee considered it proper to pay inter est on those deposits, such interest was admissible under section 36(1)(iii) of the Act.
During the heating of the appeals for the assessment years 197071 and 197 1 72, it was pointed out by the Revenue that the auditors of the assessee had observed in their audit report that the payment of interest on the 'Loss Equalisation and Capital Redemption Reserve Fund ' should not have been made by the assessee in view of section 57 of the Uttar Pradesh Co operative Societies ' Act, which reads: "Fund not to be divided: Except as otherwise specifically provided in this Act, no part of the Funds other than the net profits of a co operative society shall be paid by way of bonus or dividend or otherwise distributed among its members: Provided that a member may be paid remuneration on such scale as may be laid down in the bye laws for any services rendered by him to the co operative society." The Appellate Tribunal held that section 57 was not relevant as the payment of interest to the shareholders, on the amounts deposited by them, did not represent any payment by the Society by way of bonus or dividend or otherwise, of any part of its funds other than its net profits.
The Appellate Tribunal also observed that the interest paid by the asses see to the 'Loss Equalisation and Capital Redemption Reserve Fund ' was met from out of the net profits of the assessee.
It was found that the assessee had sufficient income out of which the interest 845 could be paid by it.
For these reasons, it held that the payment of interest was not affected by section 57 of the Uttar Pradesh Co operative Societies Act.
At the instance of the Revenue the following two ques tions in respect of the five assessment years were referred by the Appellate Tribunal to the High Court at Allahabad for its opinion.
Whether the credit balances in the Loss Equalisation and Capital Redemption Reserve Fund which were actually used by the assessee for the purposes of its business represented capital borrowed by the assessee for the purpose of its business within the meaning of section 36(1)(iii) of the Act? 2.
Whether the Tribunal was right in law in allowing inter est on such balances standing to the credit of the Loss Equalisation and Capital Redemption Reserve Fund as a deduc tion in computing the total income of the assessee?" A further question common to the assessment years 1969 70 to 1972 73 was also flamed.
It reads: "Whether the Tribunal was right in law in holding that the impugned payments of interest did not contravene the provi sions of section 57 of the Uttar Pradesh Co operative Societies Act, 1965?" The High Court agreed with the view taken by the Appel late Tribunal and answered the questions in favour of the assessee and against the Revenue.
Before us, the parties have confined themselves to the first two questions and it is requested that we need not consider the third question.
In these appeals the question is whether the claim to deduction under section 36(1)(iii) of the Income tax Act can be allowed.
Section 36(1)(iii) of the Act provides that in computing the income chargeable under the head 'profits and gains of business or profession ' a deduction shall be al lowed of the amount of interest paid in respect of capital borrowed for the purposes of the business or profession.
Can it be said that the credit balance in the 'Loss Equalisation and Capital Redemp 846 tion Reserve Fund ' represents capital borrowed by the asses see for the purposes of its business? What is 'borrowed money ' has been construed by the Courts in England in a number of cases.
In Port of London Authority vs Commissioner of Inland Revenue, Lord Stemdale, M.R. observed that in order that there be borrowed money there must be a borrower and a lender, and later, when the Revenue took the case in appeal to the House of Lords, the House of Lords laid down in Commissioners of Inland Revenue vs Port of London Authority, that to constitute bor rowed money there must be "a real borrowing and a real lending".
Again in Inland Revenue Commissioners vs Rowntree & Co. Ltd., , the Court of Appeal considered the meaning of the words 'borrowed money ' and observed that the words should not be given a strained meaning and that it should be considered whether in ordinary commercial usage the relationship was that of a borrower and a lender and the transactions were loan transactions.
These cases were relied upon by the Gujarat High Court in Commis sioner of Incometax, Gujarat Iv.
Rajkot Seeds, Oil & Bullion Merchants Association Ltd., in support of the conclusion that on the facts of the case before the High Court there was no relationship of borrower and lender between the Rajkot Seeds and Oil and Bullion Merchants Association and its members in so far as deposits by the members were concerned.
It was held that the amounts were deposited by way of security taken for the due performance of the, obligation of a member under the Rules of the Asso ciation for the discharge of his obligations to the Associa tion and to the other members of the Association.
There was no loan or borrowing at all.
This question had in fact been considered by the Calcutta High Court as long ago as Commis sioner of Excess Profits Tax, Central, Calcutta vs Bhartia Electric Steel Co. Ltd., in the context of the third proviso to Rule 5A of Schedule I to the Excess Profits Tax Act, 1940.
The money in question in that case had been obtained by the issue of shares, and it was held that it could not possibly be said that the persons who had taken up the deferred shares had ever intended to grant a loan or that the Company which had obtained money on the shares had ever intended to borrow.
This Court in Bombay Steam Navigation Co. (1953) Private Ltd. vs Commissioner of Income tax Bombay, , was dealing with a claim to deduction under section 10(2)(iii) of the Indian Income tax Act 1922 in a case where under an agreement certain assets were to be taken over by the assessee from the Scindia Steam Navigation Company Ltd., and part of the consideration was paid by the assessee while the balance remained unpaid.
For agreeing to deferred payment of the balance of the consideration, the Scindias 847 were to be paid interest.
This Court observed: "An agreement to pay the balance of consideration due by the purchaser does not in truth give rise to a loan.
A loan of money undoubtedly results in a debt, but every debt does not involve a loan.
Liability to pay a debt may arise from diverse sources, and a loan is only one of such sources.
Every creditor who is entitled to receive a debt cannot be regarded as a lender.
If the requisite amount of considera tion had been borrowed from a stranger, interest paid there on for the purpose of carrying on the business would have been regarded as a permissible allowance, but that is wholly irrelevant in considering the applicability of clause (iii) of sub section (2) to the problem arising in this case.
The legislature has under clause (iii) permitted as an allowance interest paid on capital borrowed for the purposes of the business: if interest be paid, but not on capital borrowed, clause (iii) will have no application .
" The point was also discussed by this Court in Madhav Prasad Jatia vs Commissioner of Income tax, U.P., ; where the question was whether the interest claimed under section 10(2)(iii) of the Indian Income tax Act, 1922 related to borrowing for the purpose of the business.
In the present case, Bye law No. 50 indicates that deposits were to be made by the producer members in the 'Loss Equalisation and Capital Redemption Reserve Fund ' for the purpose of making the partly paid shares fully paid up, and it was understood that the balance of the amount would be applied to the loan taken from the Industrial Finance Corporation of India and thereafter whatever remained would be refunded to the depositing members resulting in the extinction of the Fund.
It is apparent that the deposits made by the members cannot be regarded as loans advanced by the members to the assessee.
The moneys deposited represent ed contribution by the members for converting the partly paid up shares into fully paid up shares and thereafter for delaying the loan taken from the Industrial Finance Corpora tion of India.
Any balance remaining was to be refunded to the members.
The circumstances that there was no certainty that any balance would remain for refund to the members would in itself indicate that the deposits could not be regarded as loans.
A loan necessarily supposes a return of the money loaned.
Even under the original Bye law No. 50, which provided for deposits by the members to the 848 'Loss Equalisation and Capital Redemption Reserve Fund ', it was contemplated that the deposits would be accumulated and be utilised for repayment of the initial loan taken from the Industrial Finance Corporation of India and thereafter for redeeming the 'Government share ', and the balance of the deposit after meeting losses would be converted into share capital and each producer member would be issued shares of the assessee.
There was never any intention between the assessee and its members to treat the deposits made by the members as loans and that the relationship between the assessee and the members should be that of borrower and lender.
The High Court erred in holding that the claim to deduction on account of interest paid by the assessee to its members was admissible under section 36(1)(iii) of the Act.
It is urged by learned counsel for the assessee that if the claim to deduction cannot be rested on section 36(1)(iii) of the Act, it should be regarded as admissible under section 37 of the Act.
We are not satisfied that all the facts necessary for considering a claim for deduction under section 37 are before us.
It will be noticed in Madhay Prasad Jatia (supra) that the question of law expressly took in the claim to deduction not only with reference to section 10(1)(iii) but alternatively with reference to section 10(2)(xv) of the Indian Income tax Act, 1922.
Whether or not it is still open to the assessee to raise that question before the Appellate Tribunal when the case goes back to it for disposing it of in conformity with the opinion expressed by this Court in these appeals is a question on which we propose to express no view at this stage.
In the result the appeals are allowed, the impugned judgment of the High Court in all these cases is set aside and the first and the second questions framed by the Appel late Tribunal are answered in the negative, in favour of the Revenue and against the assessee.
There is no order as to costs.
R.S.S. Appeals allowed.
| IN-Abs | The respondent assessee is a co operative society run ning a sugar mill.
With a view to inducing its members to make further contribution to its capital it incorporated a bye law which provided for the establishment of a 'Loss Equalisation & Capital Redemption Reserve Fund '.
Every producer shareholder was required to deposit every year an amount to this fund which was to be utilised for the purpose of making the partly paid shares fully paid, and after defraying the loan taken from the Industrial Finance Corpo ration the balance was to be refunded to the members.
The money available in the Fund was utilised by the society for the purpose of its business.
A part of the amount was even tually utilised for converting the partly paid shares into fully paid shares.
It was then decided by the society to pay interest on the balance available in the Fund.
The interest thus paid to its members was sought to be claimed as deduc tion in computing the income of the assessee.
The Income Tax Officer rejected the claim holding that the amount did not represent loans taken by the assessee .or capital borrowed for the purpose of its business.
The Appel late Assistant Commissioner confirmed the disallowance.
The Income Tax Appellate Tribunal accepted the second appeal of the assessee and held that it was not necessary that borrow ing must contain an element of payment of interest and that even if a deposit was made by the members of the society which waS utilised for the purpose of the business of the assessee, the funds represented by such deposit would be 'capital borrowed ' for the purpose of section 36(1)(iii) of the Income Tax Act, 1961.
The High Court agreed with the view taken by the Appellate Tribunal and answered the questions referred to it in favour of the assessee and against the Revenue.
While allowing the appeals and answering the questions in the negative in favour of the Revenue, this Court.
841 HELD: (1) Section 36(1)(iii) of the Income Tax Act, 1961 provides that in computing the income chargeable under the head 'profits and gains of business or profession ' a deduc tion shall be allowed of the amount of interest paid in respect of capital borrowed for the purposes of the business or profession.
[845G,H] (2) The words 'borrowed money ' should not be given a strained meaning and it should be considered whether in ordinary commercial usage the relationship was that of a borrower and lender and the transactions 'were loan transac tions.
To constitute borrowed money there must be a real borrowing and a real lending.
[846B,D] (3) It is apparent that the deposits made by the members cannot be regarded as loans advanced by the members to the assessee.
There was never any intention between the assessee and its members to treat the deposits made by the members as loans and that the relationship between the assessee and the members should be that of borrower and lender.
, [847F,G] Port of London Authority vs Commissioner of Inland Revenue, ; Commissioner of Inland Reve nue vs Port of London Authority, ; Inland Revenue Commissioner vs Rowntree & Co. Ltd., ; Commissioner of Income tax, Gujarat vs Rajkot Seeds, Oil & Bullion Merchants Association Ltd., ; Commissioner of Excess Profits Tax, Central Calcut ta vs Bhartia Electric Steel Co. Ltd., ; Bombay Steam Navigation Co. [1953]; Private Ltd. vs Commis sioner of Income tax Bombay, and Madhav Prasad Jatia vs Commissioner of Income tax Uttar Pradesh, ; , referred to.
(4) A loan necessarily supposes a return of the money loaned.
The circumstance that there was no certainty that any balance would remain for refund to the members would in itself indicate that the deposits could not be regarded as loans.
[847G,H]
|
ivil Appeals Nos.
3008 3009 of 1984.
From the Judgment and Order dated 28.11.83 of the Bombay High Court in Appeal No. 880 of 1983.
Kapil Sibal, Harish Gajtiani, Rajiv Datta and Nitin Rout for the appellants.
Shanti Bhushan, J. Makhija, Mrs. A.K. Verma and D.N. Misra for Respondent Nos. 3 and 4.
G.B. Sathe and A.S. Bhasme for Respondent Nos. 1, 2 and 5.
K.K. Sanghi, Brij Bhushan and Anil Kumar Gupta for Respondent No. 7.
The Judgment of the Court was delivered by PATHAK, CJ.
These appeals are directed against an order of the Bombay High Court dismissing in limine the appeals filed by the appellants herein against the judgment of a Single Judge dismissing their writ petitions challenging the right of the police authorities to prepare and enforce a roster system for operating launch services between Gateway of India at Bombay and Elephanta Island.
828 The appellants are operating launch services for joy rides, film shootings, etc.
from Apollo Pier or Gateway of India to Elephanta Island, and respondent No. 7 is a cooper ative association of launch owners also engaged in the same activity.
It appears that originally the appellants were desirous of acquiring membership of this association but were denied entry, and thereafter it was the association which wanted the appellants to join its membership but the appellants declined the offer.
The members belonging to the association were operating launch services turn by turn on a voluntary roster system to avoid unhealthy competition.
It appears that when the efforts made by the police and the Port Trust Authorities to resolve the differences in the operation of launch services between the association and the appellants failed, a roster system was chalked out on the direction of the Deputy Conservator of Bombay Port Trust (Respondent No. 3) which was sought to be enforced by the police.
When some employees working in their launches were arrested for failure to act according to the roster system, the appellants filed writ petitions claiming that the police and the Port Trust authorities had no authority to compel them to follow the roster system.
The High Court dismissed the writ petitions holding that the Bombay Port Rules con ferred powers upon the Deputy Conservator to give directions for berthing and for mooring and unmooring the vessels in the Port and, that apart, the police and the Port Trust authorities had adequate powers under the Port of Bombay Passenger Boat Rules, 1962 and Section 67 of the Bombay Police Act to regulate the manner in which the launches carried passengers.
The only point for consideration in these appeals is whether the Deputy Conservator of Bombay Port Trust and/or the police had the power to prepare and enforce the roster system.
The Port of Bombay Passenger Boat Rules, 1962 have been framed by the Central Government in exercise of powers conferred by Section 6(1)(k) of the : 6(1) "The Government may, in addition to any rules which it may make under any other enact ment for the time being in force, make such rules, consistent with this Act, as it thinks necessary for any of the following purposes, namely: 829 (k) for licensing and regulating catamarans plying for hire, and flats and cargo, passenger and other boats plying, whether for hire or not, and whether regularly or only occasionally, in or partly within and partly without any such port and for licensing and regulating the crews of any such vessels, and for determining the quantity of cargo or number of passengers or of the crew to be carried by any such vessels; and may by such rules provide for the feeds payable in respect of any such license, and in the case of vessels plying for hire, for the rates of hire to be charged and the conditions under which such vessels shall be com pelled to ply for hire, and further for the conditions under which any licence may be revoked;" Rule 4 of the Port of Bombay Passenger Boat Rules, 1962 prescribes that boats plying for hire shall not lay beside the landing place longer than necessary and shall obey orders of the police for regulating the traffic.
Rule 6 forbids the tindals and the boatmen to tout for hire near the landing place.
Rule 4 of the Bombay Port Rules flamed by the Bombay Port Trust in exercise of powers conferred under the prescribes that all vessels within the port shall be bound to take up such berths as may be appointed for them by the Deputy Conservator and shall change their berths when required by the authorities.
Rule 19 thereof provides that all vessels within the port shall moor and unmoor or anchor in accordance with the orders of the Deputy Conservator.
Clauses (b) and (c) of Section 67 of the Bombay Police Act, 1951 provide: 67.
"It shall be the duty of a Police Officer . . (b) to keep order in the streets and at and within public bathing, washing and landing places, fairs, temples and all other places of public resort and in the neighbourhood of places of public worship, during the time of public worship; (c) to regulate resort to public bathing, washing and land ing places, to prevent overcrowding thereat and in public 830 ferry boats and, to the best of his ability, to prevent the infraction of any rule or order lawfully made for observance by the public at any such place or on any such boat.
" It is contended by learned counsel for the appellants that the Deputy Conservator of Bombay Port Trust, respondent No. 3 is not empowered in law to devise on order of the imposition of a roster.
It is urged that this action is beyond the powers conferred by the , the Bombay Ports Rules and the Port of Bombay Passenger Boat Rules.
We see no force in this contention.
The roster system provides for the regulation of traffic, so that each launch obtains an opportunity of access to the landing place.
This is not a distribution of business but a distribution of the time for which the landing place can be used, and therefore, a regulation of the use of the landing place.
Rule 4 of the Port of Bombay Passenger Boats Rules, 1962 provides that boats plying for hire should not lay along side landing places longer than necessary and must obey the orders of the police for regulating traffic.
The boat shall not be laid longer than actually necessary to embark or land passengers and their luggage, but must be kept off at a distance of at least 30 metres from the landing place or gangway ladders so as not to obstruct the approach thereto.
The licencees or other attendants of the boat are required to obey all orders given to them by the police for the regulation of the traf fic at the landing places or gangways of vessels.
Consistent with the provisions of Rule 4, which are plainly intended for the maintenance of order, is rule 6 which prohibits tindais and boatmen tout for hire near the landing places to the annoyance of people passing by, and rule 7 prohibits them from carrying on the business of a hawker.
The roster is intended to give effect to Rule 4, and we see no reason why recourse to a roster system should be considered as unreasonable.
The second contention of learned counsel for the appel lants is that the respondent No. 3 has purported to act under Rules 4 and 19 of the Bombay Port Rules, Rule 4 of the Passenger Boat Rules and section 67 of the Bombay Police Act in having the roster system enforced by the Inspector of Po lice.
We have considered those provisions, but we are not convinced that the context in which those provisions operate is in any manner inconsistent with the framing of a roster and its imposition for regulating the use of the landing place by the launches.
On the contrary, they contemplate a situation, and provide for just the exercise of power, which underlies the adoption of a roster system.
The dominant purpose of the regulation of the use of the landing place by the launches is to prevent congestion and a possible breach of peace.
831 The submission that the roster has been devised for the purpose of bringing about a distribution of passengers ignores the real purpose that the roster is intended to serve, namely to ensure the even flow of traffic at landing places.
An attempt has been made to show that the roster was prompted by malice, and we are referred to Smt.
S.R. Venka taraman vs Union of India & Anr., ; , but we see nothing to support the plea.
We cannot accept that an ulterior motive the regulation of business is behind the roster.
Brownells Limited vs The Ironmongers ' Wages Board, Brownelis Limited vs The Drapers ' Wages Board, ; and Hanson vs Radcliffe Urban District Council, [ do not help the appellants.
It is then urged that the roster has the tendency to prohibit trade and the power to regulate is being misused as a power to prohibit.
There is a fallacy in the argument.
There is no prohibition of the business at all.
All the launch owners have equitable access to the landing place and if the other conditions for plying the launches, such as holding of a proper; licence, are satisfied, there is no reason why the launches, turn by turn, cannot avail of the facility of an equitable opportunity to use the landing place.
It is said then that the imposition of the roster is too severe a measure to deal with the simple problem of over crowding and chaos and touting for passengers.
This is a matter for the judgment of the authority concerned and ex facie we do not see any ground for holding that the roster system is not reasonable in the circumstances.
There is no excessive invasion of the appellants ' Fundamental Right to carry on their business.
What should be the duration for which the appellants may be allowed to use the landing place, and what should be the turn in which such user may be permitted is essentially a matter for the judgment of the authorities concerned.
It is not possible for the Court to adjudicate on this point.
Learned counsel for the appellants complains that the provocation for devising and imposing a roster was the complaint made by the appellants ' trade rivals.
The disputes between the parties in relation to the application of the roster is not a matter on which this Court will readily enter.
Finally, it is contended for the appellants that the roster has been prepared and is being imposed without re course to any statutory provision enabling the third re spondent to devise it and impose it.
It seems to us that the imposition of a roster is reasonable and the power to 832 impose a roster can be spelt out from the powers conferred on the authorities under the statutory provisions already referred to.
The roster is only one method of regulation.
It may be feasible and fruitful in a certain set of circum stances.
In another set of circumstances it may be more appropriate to adopt some other principle for resolving the problem of a large number of launches using a limited land ing place.
It is apparent that passengers can be invited into the launches only when a boat is standing against the jetty, and it would be a matter for the launch owner to ensure that he has a sufficient number of passengers by the time indicated in the roster for berthing his launch at the landing place.
It must be remembered that Rule 4 envisages an opportunity to the owner of the boat to embark passen gers.
The opportunity is not intended for the purpose of keeping the boat at the landing place for so long a period of time that it can fill up with passengers.
The time period is to be determined by the need to keep the traffic moving.
The circumstances that the boat may come in and stay no longer than is necessary to pick up the passengers indicates that the emphasis is on the maintenance of orderly traffic and the prevention of congestion at the landing place.
We see no substance in these appeals and we are of opinion that they must be dismissed.
A number of suggestion were made by learned counsel for the appellants by way of settling the controversy between the parties in regard to the use of the landing place and devising arrangements for securing optimum access for each boat.
These suggestions, it seems to us, can be made before respondent No. 3, and it is open to him to consider what would be the most equitable arrangement.
In the result the appeals are dismissed but there is no order as to costs.
N.V.K. Appeals dismissed.
| IN-Abs | The appellants were operating launch services for joy rides, film shooting, etc.
from Appollo Pier or Gateway of India to Elephanta Island in Bombay.
Respondent 7 was a cooperative association of launch owners also engaged in the same activities.
The members belonging to the associations were operating launch services turn by turn on voluntary roster system to avoid unhealthy competition.
When efforts were made by the police and the Port Trust Authorities to resolve the difference in the operation of launch services between the association and the appellants failed, a roster system was chalked out on the direction of the Deputy Conservator of Bombay Port Trust which was sought to be enforced by the police.
When some employees working in the launches were arrested for failure to act according to the roster system, the appellants filed writ petitions claiming that the police and the Port Trust Authorities had no authority to compel them to follow the roster system.
The High Court dismissed the writ petitions holding that the Bombay Port Trust Rules conferred powers upon the Deputy Conservator to give directions for berthing and for mooring and unmooring the vessels in the Port, and that apart the police and the Port Trust Authority had adequate powers under the Port of Bombay Passenger Boat Rules, 1962 and section 67 of the Bombay Police Act to regulate the manner in which the launches carried Passengers.
In the appeals to this Court, it was contended On behalf of the appellants that: (1) the Deputy Conservator of Bombay Port Trust, respondent No. 3 was not empowered in law to devise an order of the 826 imposition of a roster, and that this action was beyond the powers conferred by the , the Bombay Port Rules and the Port of Bombay Passengers Rules 1962.
(2) Respondent No. 3 had purported to act under Rules 4 and 19 of the Bombay Port Rules, Rule 4 of the Port of Bombay Passenger Boat Rules, and section 7 of the Bombay Police Act in having the roster system enforced by the Inspector of Police.
(3) The roster has tendency to prohibit trade and the power to regulate Is being misused as a power to prohib it.
(4) The imposition of the roster is too severe a measure to deal with the simple problem of overcrowding and chaos and touting for passengers, (5) The provocation for devising and imposing a roster was the complaint made by the appel lant 's trade rivals.
and (6) The roster has been prepared and is being enforced without recourse to any statutory provision enabling respondent No. 3 to devise it and impose it.
Dismissing the appeals, the Court, HELD: 1.
The roster system provides for the regulation of traffic, so that each launch obtains an opportunity of access to the landing place.
This is not a distribution of business, but a distribution of the time for which the landing place can be used, and therefore, a regulation of the use of the landing place.
The roster is intended to give effect to Rule 4 of the Port of Bombay Passenger Boats Rules, 1962.
There is no reason why recourse to a roster system should be considered as unreasonable.
[830C.F] 2.
The dominant purpose of the regulation of the use of the landing place by the launches is to prevent congestion and a possible breach of peace.
The real purpose that the roster is intended to serve, is to ensure the even flow of traffic at landing places.
[830H; 831A] Smt.
S.R. Venkataraman vs Union of India & Anr.
, ; ; Brownelis Limited vs The Ironmongers ' Wages Board Brownells Limited vs The Drapers ' Wages Board, ; and Hanson vs Radcliffe Urban District Coun cil, inapplicable.
All the launches owners have equitable access to the landing place and if the other conditions for plying the launches, such as holding of a proper licence, are satis fied, there is no reason why the launches, turn by turn, cannot avail of the facility of an equitable opportunity to use the landing place.
[831C D] 827 4(a) There is no excessive invasion of the appellants Fundamental Right to carry on business.
[831E] 4(b) What should be the duration for which the appel lants may be allowed to use the landing place, and what should be the turn in which such user may be permitted is essentially a matter for the judgment of the authorities concerned.
It is not possible for the Court to adjudicate on this point.
[831E F] 5.
The disputes between the parties in relation to the application of the roster is not a matter on which this Court will readily enter.
[831G] 6.
The imposition of a roster is reasonable and the power to impose a roster can be spelt out from the powers conferred on the authorities under the relevant statutory provisions.
The roster is only one method of regulation.
[831H; 832A]
|
eview Petition Nos.
597 to 60 1 of 1987.
IN C.A. Nos, 3195/79, 4731 32/84, SLP No. 10108/80 and C.A.No. 793/84.
818 WITH C.A. Nos. 1313 & 388/81, SLPNo.
36/80, W.P. No. 192/77, SLP No. 404 1/81 and C.A. No. 2269/80.
A.K. Ganguli, K. Swamy and P. Parmeshwaran for the Petitioners.
F.S. Nariman, Anil B. Diwan, R.K. Lukose, K.R. Nambir, A.N. Haksar, D.N. Mishra and P.K. Ram for the Respondent.
The Order of the Court was delivered by PATHAK, CJ.
After hearing learned counsel for the parties briefly, we are satisfied that the judgment and order dated 20 December, 1986 of which review is sought, should be recalled and the cases be heard again on the merits.
It appears to us prima facie that in respect of certain items an inconsistency is present in the impugned judgment when regard is had to the law laid down by this Court in Union of India vs Bombay Tyres International Ltd., ; Inasmuch as the cases are being re opened, we refrain from expressing any opinion at this stage on the merits of the points raised in the cases.
Objection was taken by the respondent manufacturers to the Review Petitions on the ground that the finality of the judgment should be maintained and should not be disturbed lightly.
In our opinion, the points raised by the petitioners are of substantial public importance, and therefore call for recon sideration.
Accordingly, we allow the Review Petitions, and recall the judgment and order dated 20 December, 1986 and restore the cases to their original number and direct that they be listed again for fresh consideration.
There is no order as to costs.
N.P. V Petitions allowed.
| IN-Abs | The petitioners revenue filed petitions for review of the judgment and order dated December 20, 1986 passed by this Court.
The respondent manufacturers objected to the same on the ground that finality of the judgment should be maintained and not disturbed lightly.
Allowing the Review petitions, this Court, HELD: Prima facie an inconsistency is present in the judgment in respect of certain items when regard is had to the law laid down by this Court in Union of India vs Bombay Tyres International Limited, ; Besides, the points raised by the petitioners are of substantial public importance and call for reconsideration [818D] Accordingly, the judgment and order dated December 20, 1986 are recalled and the cases directed to be listed again for fresh consideration.
[818D] Union of India vs Bombay Tyres International Limited, ; relied on.
|
Civil Appeal No. 111(N) of 1981.
From the Judgment and Order dated 21.10.1980 of the Madras High Court in Application No. 2875 of 1980.
Abdul Kareem, A.T.M. Sampath and P.N. Ramalingam for the Appellant.
section Govind Swaminathan, Rajendra Chowdhary, N.S. Sivam and K. Madhavan for the Respondents.
T.S. Krishnamoorthi Iyer, section Balakrishnan and M.K.D. Namboodiri for the Intervener.
A question which arose for decision was whether the appellant should discharge the mortgage of the suit property created by the respondent in favour of the South Indian Bank.
The High Court held that the appellant was liable to discharge the mortgage and directed her to deposit in Court a sum of Rs.3,50,000 with interest for the purpose.
The appellant paid the amount direct to the mortgagee.
The High Court refused to accept the payment made directly to the mortgagee as due compliance with its decree and against that order of the High Court the appellant preferred civil Ap peals Nos.
1993 1994 of 1977.
This Court disposed of the said appeals by the following order dated 29 November, 1979: "We direct that a decree be passed that the plaintiff Appellant do deposit within six months from today the entire sum of Rs.3,45,000 together with interest due upto date at the rate of 11 per cent, together with an undertaking that she would give up all her rights under the mortgage decree passed in her favour in C.S. No. 154 of 1968 except to the extent of the amount actually paid to the South Indian Bank for taking the assignment.
If these two 822 conditions are fulfilled, the appeals will stand allowed and a final decree for specific performance passed.
In the event of non com pliance with either of these conditions the appeals will stand dismissed with costs.
" Purporting to comply with the above order of this Court, the appellant deposited a sum of Rs.2,42.822.19 on 11 April, 1980 in the High Court with the undertaking to give up all her rights decreed in C.S. No, 15 of 1968 and filed C.M.P Nos.
2424 and 2425 of 1980 in the High Court for a declara tion that the payment as mentioned above was in compliance with the order of this Court and she claimed a set off of the amount of Rs.5,96,687.19 paid by her earlier to the South Indian Bank which she was entitled to recover from the respondent in accordance with the second condition of the order of this Court dated 29 November, 1979.
The time limit fixed for fulfilling the two conditions set out in this Court 's order dated 20 November, 1979 having fallen on 29 May, 1980 and the High Court not having passed orders on her C.M.Ps.
2424 2425 of 1980 till then, she paid into the High Court a sum of Rs.6,02,000 on 29 May, 1980 by cheque purporting to comply with the first condition set out in this Court 's order aforesaid.
C.M.Ps.
2424 and 2425 of 1980 filed by the appel lant in the High Court were dismissed by a Single Judge by an order dated 6 June, 1980 against which the appellant preferred Petitions for Special Leave to Appeal Nos.
947 48 of 1981.
The appellant also filed another C.M.P. No. 2875 of 1980 in the High Court for a declaration that she had com plied with the aforesaid order of this Court dated 29 Novem ber.
1979 which was dismissed by the High Court.
Civil Appeal No. 111 of 1981 has been preferred against the judg ment and order of the High Court in C.M.P. No. 2875 of 1980.
The only question decided against the appellant by the High Court in C.M.P. No. 2875 of 1980 was with regard to the deposit of the amount stipulated in the first condition of the order of this Court dated 29 November, 1979.
The crucial issue was whether the payment made by the appellant on 29 May, 1980 by cheque of the amount of Rs.6,02,009 together with the amount deposited earlier on 11 April, 1980 was in due compliance of the first condition of this Court 's Order dated 29 November, 1979.
The High Court found that the simple delivery of the cheque on 29 May, 1980 could not be deemed to be deposit of the specified sum of 29 May, 1980 in satisfaction of the order of this Court when the amount of the cheque had been realised only on 16 June, 1980.
The High Court held that the appellant was bound to 823 comply with the Original Side rules of the High Court which prescribed the procedure to be followed in depositing the money in Court, and in particular, Order 31, rules 1 to 6 thereof which were aimed at securing the deposit of the money in the Reserve Bank of India to the credit of a par ticular proceeding on or before the specified date.
Accord ingly, the High Court refused to grant the declaration that the appellant had complied with the order of this Court dated 29 November, 1979.
It is contended before us on behalf of the appellant that the cheque for Rs.6,02,000 was tendered in Court on 29 May, 1980 and that it was duly honoured by the Bank and money was realised under the cheque, and therefore it must be taken that payment had been effected by the appellant on 29 May, 1980 within the time stipulated by this Court in its order dated 29 November, 1979.
In Commissioner of Income Tax, Bombay South, Bombay vs Messrs Ogale Glass Works Ltd. Ogale Wadi; , it was laid down by this Court that payment by cheque realised subsequently on the cheque being honoured and encashed relates back to the date of the receipt of the cheque, and in law the date of payment is the date of delivery of the cheque.
Payment by cheque is an ordinary incident of present day life, whether commercial or private, and unless it is specifically mentioned that payment must be in cash there is no reason why payment by cheque should not be taken to be due payment if the cheque is subsequently encashed in the ordinary course.
There is nothing in the order of this Court providing that the depos it by the appellant was to be in cash.
The terms of the order dated 29 November, 1979 are conclusive in this respect and it is the intent of that order which will determine whether payment by cheque within the period stipulated in that order was excluded as a mode in satisfaction of the terms of that order.
The time for payment is governed by the order of this Court.
It is alleged on behalf of the respondent that there was no money on the date of delivery of the cheque to support payment of it and that it was subsequently when arrangements were made that the cheque was realised.
Now, the High Court has not found that if the cheque was presented for encash ment on the date it was delivered the cheque would not have been encashed.
There is nothing to suggest also that the cheque was not honoured in due course and that the Bank had at any time declined to honour it for want of funds in the ordinary course.
In any event, there is nothing to suggest that, under the arrangements made for payment of the cheque, even if it had been encashed on the date it was delivered the cheque would not have been encashed.
There 824 is no finding by the High Court that on 29 May, 1980 the cheque would not have been realised.
That being so, the question whether the appellant had wrongly stated that her counsel had offered to pay cash to the High Court office on 29 May, 1980 ceases to be relevant.
We also see no substance in the objection taken before the High Court that in the letter dated 29 May, 1980 addressed by counsel for the appellant forwarding the cheque for Rs.6,02,000 there was a request for the return of the cheque in case it was found that the appellant was entitled to the set off claimed by her.
The application of the appellant claiming adjustment was pending in Court, and no conclusion can be drawn against her on the ground that she had requested a return of the cheque in the event of the adjustment being allowed by the Court.
We are of the view that the conditions set forth in the order of this Court dated 29 November, 1979 in the facts and the circumstances of the case have been complied with by the appellant substantially and she is entitled to the benefit of that order.
The appeal is allowed, the order dated 21 October, 1980 of the High Court is set aside and the application by the appellant for a direction to the respondent to execute the sale deed in her favour is allowed.
In the circumstances of the case, there is no order as to costs.
N.V.K. Appeal allowed.
| IN-Abs | The appellant filed a civil suit in the High Court for specific performance of a contract to sell the suit property by the respondents to her.
The High Court held the appellant liable to discharge the mortgage and directed her to deposit in Court a sum of Rs.3.5 lakhs with interest for the pur pose.
The appellant paid the amount direct to the mortgagee, which the High Court refused to accept as due compliance with its decree.
The appellant preferred appeals to this Court, which were disposed of on 29th November, 1979 with the direction that the appellant was to deposit within six months from the date of the order, the entire sum of Rs.3.15 lakhs together with interest.
Purporting to comply with the aforesaid order of this Court, appellant deposited a sum of Rs.2,42,822.19 on 11 April, 7980 and filed two Civil Misc.
Petitions in the High Court for a declaration that the payment was in compliance with the order of this Court and claimed as set off of the amount of Rs.5,96,687.19 paid by her earlier to the South Indian Bank, which she was entitled to recover from the respondent.
The time limit fixed for fulfilling the two conditions set out in this Court 's order dated 29th November, 1979 having fallen on 29th May, 1980 and the High Court not having passed orders on the appellant 's two CMP 's the appel lant paid into the High Court a sum of Rs.6.02 lakhs on 29th May, 1980 by cheque purporting to comply with the first condition of this Court 's order.
820 The High Court dismissed the appellant 's CMP and refused to grant the declaration that the appellant had complied with the order of this Court dated 29th November.
1979, on the ground that the appellant was bound to comply with the Original Side Rules of the High Court which prescribed the procedure to be followed in depositing money into Court particularly Order XXXI Rules 1 to 6 which aimed at securing the deposit of the money in the Reserve Bank of India to the credit of a particular proceeding, on or before the speci fied date.
In the appeal to this Court, on the question; whether payment made by the appellant on 29th May, 1980 by cheque of the amount of Rs.6.02 lakhs together with the amount depos ited earlier on 11th May, 1980 was in due compliance with this Court 's order dated 29th November, 1979.
Allowing the Appeal and setting aside the order of the High Court, this Court HELD: 1.
Payment by cheque is an ordinary incident of present day life, whether commercial or private, and unless it is specifically mentioned that payment must be in cash there is no reason why payment by cheque should not be taken to be due payment if the cheque is subsequently encashed in the ordinary course.
[823D E] In the instant case, there is nothing in the order of this Court providing that the deposit by the appellant was to be in cash.
The terms of the order dated November 29, 1979 are conclusive in this respect and it is the intent of that order which will determine whether payment by cheque within the period stipulated in that order was excluded as a mode in satisfaction of the terms of that order.
The time for payment of governed by the order of this Court.
[823E F] 2.
Payment on the cheque being honoured and encashed relates back to the date of the receipt of the cheque, and in law the date of payment is the date of delivery of the cheque.
[823F] Commissioner of Income Tax, Bombay South, Bombay vs Messrs Ogale Glass Works Ltd. Ogale Wadi, A.I.R. 1954 S.C. 429 referred to.
In the instant case, there is nothing to suggest that the cheque was not honoured in due course and that the Bank had at any time declined to honour it for want of funds in the ordinary cause.
[823G] 821 3.
The conditions set forth in the order of this Court dated 29th November, 1979 have been complied with by the appellant substantially and she is entitled to the benefit of that order.
[824C D]
|
vil Appeal Nos.
63031 of 1975.
1002 From the Judgment and Order dated 10.9.1974 of the Kerala High Court in Income Tax Reference Nos. 85 and 86 of 1972.
Soli J. Sorabjee, Udayu Lalit, D. Vidyanandan and M. Raghuraman for the Appellant.
D.V. Gauri Shankar and Ms. A. Subhashini for the Respondent.
The Judgment of the Court was delivered by PATHAK, CJ.
These appeals, by certificate granted by the High Court of Kerala, are directed against the judgment of that High Court answering the following question of law referred to it in an Income tax Reference in favour of the Revenue and against the assessee: "Whether, on the facts and in the circum stances of the case, the Tribunal is justified in law in cancelling the penalties levied under section 271(1)(a) of the Income tax Act, 1961, for the assessment years 1965 66, and 1966 67?" The assessee is a registered firm trading in hill pro duce.
The assessee did not file its income tax return under the Income tax Act, 1961 for the assessment year 1965 66 within the statutory period, that is to say by 30 June, 1965, and instead applied for time to file the return.
Time was granted up to 31.August, 1966.
Yet no return was filed.
It was only after notice under section 139(2) of the Act was served on the assessee on 22 September, 1967 that it filed a return on the next day.
Similarly for the assessment year 1966 67 no return was filed upto 30 June, 1966.
No applica tion for extension of time was made either.
When notice under section 139(2) was served on the assessee on 21 June, 1966 it filed a return on 23 September, 1967.
In the circum stances, the Income tax Officer initiated penalty proceed ings against the assessee under section 271(1)(a) of the Act for the two assessment years.
A sum of Rs. 14,784 was levied as penalty for the assessment year 1965 66 and a sum of Rs. 11,447 was imposed as penalty for the assessment year 1966 67.
The explanation of the assessee that he was under the bona fide belief that he had no assessable income and had, therefore, not filed the returns earlier was not accepted by the Income tax Officer.
In appeal before the Appellate Assistant Commissioner of Income Tax, the assessee did not press the ground that there was no deliberate omission on his part to file the returns and that therefore section 271(1)(a) of the Act was not attracted.
In second appeal before the Income tax Appellate Tribunal permission was granted to the assessee to raise the 1003 ground.
The Appellate Tribunal allowed the appeals holding that the Income tax Officer had failed to bring on record any material to show that the explanation of the assessee tendered before him in regard to the delay should not be accepted, and that as the element of mens rea was required to be proved and had not been proved, the penalties were liable to be cancelled.
At the instance of the Revenue the Appellate Tribunal referred the question set forth earlier to the High Court of Kerala.
It may be mentioned that another question was also referred, which related to the Appellate Tribunal entertain ing the additional ground of appeal, but the appeals before us are not concerned with that question.
The question with which we are concerned was referred to a Full Bench of the High Court, and the High Court has taken the view that mens rea need not be established before penalty is imposed under section 271(1)(a) of the Act, and that, therefore, the Appellate Tribunal was not justified in cancelling the penalties levied for the two assessment years.
Learned counsel for the assessee has addressed an ex haustive argument before us on the question whether a penal ty imposed under section 271(1)(a) of the Act:involves the ele ment of mens rea and in support of his submission that it does he has placed before us several cases decided by this Court and the High Courts in Order to demonstrate that the proceedings by way of penalty under section 271(1)(a) of the Act are quasi criminal in nature and that therefore the element of mens rea is a mandatory requirement before a penalty can be imposed under section 271(1)(a).
We are relieved of the neces sity of referring to all those decisions.
Indeed, many of them were considered by the High Court and are referred to in the judgment under appeal.
It is sufficient for us to refer to section 271(1)(a), which provides that a penalty may be imposed if the Income Tax Officer is satisfied that any person has without reasonable cause failed to furnish the return of total income, and to section 276C which provides that if a person wilfully fails to furnish in due time the return of income required under section 139(1), he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine.
It is clear that in the former case what is intended is a civil obligation while in the latter what is imposed is a criminal sentence.
There can be no dispute that having regard to the provisions of section 276C, which speaks of wilful failure on the part of the defaulter and taking into consideration the nature of the penalty, which is punitive, no sentence can be imposed under that provision unless the element of ' mens rea is established.
In most cases of criminal liability, the intention of the Legislature is that the penalty should serve as a deterrent.
The 1004 creation of an offence by Statute proceeds on the assumption that society suffers injury by and the act or omission of the defaulter and that a deterrent must be imposed to dis courage the repetition of the offence.
In the case of a proceeding under section 271(1)(a), however, it seems that the intention of the legislature is to emphasise the fact of loss of Revenue and to provide a remedy for such loss, although no doubt an element of coercion is present in the penalty.
In this connection the terms in which the penalty falls to be measured is significant.
Unless there is some thing in the language of the statute indicating the need of establish the element of mens tea it is generally sufficient to prove that a default in complying with the statute has occurred.
In our opinion, there is nothing in section 271(1)(a) which requires that mens tea must be proved before penalty can be levied under that provision.
We are supported by the statement in Corpus Juris Secundum, volume 85, page 580, paragraph 1023: "A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws.
" Accordingly, we hold that the element of mens rea was not required to be proved in the proceedings taken by the Income tax Officer under section 271(1)(a) of the Income tax Act against the assessee for the assessment years 1965 66 and 1966 67.
In the result the appeals fail and are dismissed with costs.
N.V.K. Appeals failed.
| IN-Abs | The assessee appellant did not file its income tax returns under the Income Tax Act, 1961 for the assessment years 1965 66, 1966 67 within the statutory period.
It was only after notices under section 139(2) of the Act were served on the assessee the returns were filed.
In the said circum stances the Income Tax Officer initiated penalty proceedings against the assessee under section 271(1)(a) of the Act for the two assessment years and imposed penalties.
The explanation of the assessee that he was under the bona fide belief that he had no assessable income and had, therefore, not filed the returns earlier was not accepted by the Income tax Officer.
The Appellate Assistant Commissioner dismissed the appeal, but in second appeal the Appellate Tribunal allowed the appeal holding that the Income Tax Officer had failed to bring on record any material to show that the explanation of the assessee tendered before him in regard t9 the delay should not be accepted, and that as the element of mens rea was required to be proved and had not been proved, the penalties were liable to be cancelled.
The Appellate Tribunal at the instance of the Revenue referred the question to the High Court, and a Full Bench of the High Court took the view that mens rea need not be established before penalty is imposed under section 271(1)(a) of the Act, and the Appellate Tribunal was therefore not justi fied in cancelling the penalties levied for the two assess ment years.
On the question whether the element of mens tea is a mandatory requirement before a penalty can be imposed under section 271(1 )(a) of 1001 the Income Tax Act, 1961.
Dismissing the appeal, the Court.
HELD: 1.
A penalty may be imposed under section 271(1)(a) if the Income Tax Officer is satisfied that any person has without reasonable cause failed to furnish the return of total income.
while section 276C provides that if a person wilfully fails to furnish in due time the return of income required under section 139(1) he shall be punishable with rigorous imprisonment which may extend to one year or with fine.
It is, therefore, clear that in the former case what was intended was a civil obligation, while in the latter what is imposed is a criminal sentence.
[1003E F] 2.
There can be no dispute that having regard to the provisions of section 276C, which speaks of wilful failure on the part of defaulter and taking into consideration the nature of the penalty, which is punitive, no sentence can be im posed under that provision unless the element of mens rea is established.
[1003G H] 3.
The creation of an offence by Statute proceeds on the assumption that society suffers injury by the act or omis sion of the defaulter and that a deterrent must be imposed to discourage the repetition of the offence.
[1004A B] 4.
Unless there is something in the language of the statute indicating the need to establish the element of mens rea it is generally sufficient to prove that a default in complying with the statute has occurred.
[1004B C] 5.
In a proceeding under section 271(1)(a), it seems that the intention of the legislature is to emphasise the fact of loss of.
Revenue and to provide a remedy for such loss, although no doubt an element of coercion is present.
in the penalty.
In this connection the terms in which the penalty falls to be measured is significant.
[1004B] Corpus Juris Secundum, volume 85, page 580, para. 1023, referred to.
There is nothing in section 271(1)(a) which requires that mens rea must be proved before penalty can be levied under that provision.
[1004C]
|
ivil Appeal No. 859(NM) of 1988.
From the Judgment and Order dated 12.1.1987 in the High Court of Delhi at New Delhi in C.W. No. 355 of 1985.
A. Subba Rao, P. Parmeshwaran and Mrs. Sushma Suri for the Petitioners.
M. Chandrasekharan, N.M. Popli and V.J. Francis for the Respondent.
The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.
This is an appeal by special leave from the judgment and order of ,the High Court.
of Delhi dated 12th January, 1988.
The respondent company manufactured wireless receiving sets, tape recorders, tape players which were assessable under Tariff Items ' 1026 33A and 37AA of the Central Excise Tariff and it had filed classification list and price lists in respect of the said goods.
On verification of the said lists, it was found that goods were unbranded and on investigation it was alleged to have come to the notice of the Department that the respond ent company was engaged in the manufacture Of wireless receiving sets and tape recorders in the brand name of "Bush".
From the documents filed by the respondent, accord ing to the appellants, it was revealed that the respondent manufactured their entire products in the brand name of "Bush" from the very beginning and were selling the same exclusively to M/s Bush India Limited or its authorised wholesale dealers only.
This fact was nowhere mentioned by the respondent in its price list or its classification lists and this, according to the appellants, amounted to wilful suppression of facts with the intention to evade payment of central excise duty.
Certain enquiries were made and to safeguard the interest of revenue the respondent was re quested time and again to observe the provisions of rule 9B of the Central Excise Rules, 1944 and execute B 13 surety bond.
However, it is stated that respondent evaded the execution of the said bond which was, according to the appellants, done deliberately.
Thereafter, on 4th January, 1985, a Show Cause Notice was issued for the period 1st April, 1983 to 30th November, 1984 requiring the respondent to show cause as to why M/s Bush India Limited should not be treated as a related person and a favoured buyer of the respondent company for the purpose of determination of wholesale cash price and as to why the concessional rate of duty under notification No. 358/77 CE should not be denied to the respondent and as to why the differential duty in respect of the goods cleared during the period should not be recovered.
While the adjudication on the basis of the Show Cause Notice was pending, the respondent company was again requested to execute the surety bond in July, 1984.
Respond ent company thereafter filed a writ petition in the High Court of Delhi under Article 226 of the Constitution praying for quashing of the Show Cause Notice and the communication dated 11th July, 1984 and for mandamus to allow it to clear the goods on the basis of the price at which the goods were sold by it allowing the benefit of the relevant notifica tion.
The High Court by the order dated 12th January, 1987 held that the value of the goods manufactured by the re spondent company was the price charged by it from M/s Bush India Ltd. and not the market value at which M/s Bush India Ltd. sold the goods to its wholesalers.
In the premises, it was held that there was no misdeclaration of the value and the Show Cause Notices were quashed.
In passing the impugned order, the High Court followed its decision in C.W. 197/85.
It is, therefore, necessary to refer to the said decision of the High Court.
The said decision challenged 1027 the notice dated 31st December, 1984 and a demand notice of the same date.
It was contended on behalf of the petitioner in that case, who is the respondent in the instant appeal that the said respondent merely manufacture the aforesaid items for Bush India and after manufacturing those, it sells those to M/s Bush India Ltd. It was contended that for the purpose of finding out the price for payment of excise duty, only the price which was charged by the respondent from Bush India Limited could be taken into account and the price at which M/s Bush India Ltd. further sold those goods in the market was not the price which was to be taken for the excise duty.
It was contended that Bush India Ltd. was not a related person of the respondent within the meaning of Section 4(4)(c) of the Central Excises & Salt Act, 1944 (hereinafter referred to as 'the Act ') and reliance was placed on the decision of this Court in Union of India vs Bombay Tyre International, ; On the merits of the case, reliance was also placed on certain decisions of this Court as well as the decision of the Delhi High Court.
The High Court found that the case of the respondent was directly covered by all these decisions.
In the prem ises, the High Court quashed the said Show Cause Notices and the demand notice.
The question, therefore, is whether the High Court was right in the view it took.
Unfortunately, in the instant case, apart from the facts recorded hereinbefore, there is no other fact.
Learned Counsel appearing for the revenue, Shri A. Subba Rao con tended before us that the High Court was in error in not realising that in the facts and the circumstances of this case, it was an arranged affair and really M/s Bush India Ltd. was a related person and as such the price charged from it could not represent the correct assessable value for the purpose of excise duty.
As noted hereinbefore, the events in this case happened from 1985 onwards.
In the premises, the amended provisions of Section 4 of the Act, as amended by the Amendment Act of 1973, would be applicable.
Section 3 of the said Act enjoins that there shall be levied and collected in such manner as might be prescribed duties of excise on all excisable goods other than salt which are produced and manufactured in India.
Section 4(1)(a) of the Act provides: "4.
(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this sec tion, be deemed to be (a) the normal price thereof, that is to 1028 say, the price at which such goods are ordi narily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale: Provided that (i) where, in accordance with the normal practice of the wholesale 'trade in such goods, such goods are sold by the asses see at different prices to different classes of buyers (not being related persons) each such price shall, subject to the existence of the other circumstances specified in clause (a), be deemed to be the normal price of such goods in relation to each class of buyers ;" Proviso (iii) to section 4(1)(a) of the Act enjoins that: "where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related per sons) or where such goods are not sold to such dealers, to dealers (being related persons) who sell such goods in retail.
" According to clause (c) of sub section (4) of section 4 of the Act, "related person" means a person who is so asso ciated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub distributor of such distributor.
The Explanation to Section 4(4)(c) further provides that in this clause "holding company", "subsidiary company" and "relative" have the same meanings as in the ( 1 of 1956).
It is in this context that the validity or otherwise of the High Court 's view has to be judged.
In Union of India vs Bombay Tyre International, (supra), this Court had to examine this question.
This Court examined the scheme of Section 4(1)(a) before the Amendment Act, 1973 and also the position after the amendment.
It was contended in that case before this Court that the definition of the expression "related person" was 1029 arbitrary and it included within its ambit a distributor of the assessee.
This Court however held that in the definition of "related person" being a relative and a distributor could be legitimately read down and its validity upheld.
The definition of related person should be so read, this court emphasised, that the words "a relative and a distributor of the assessee" should be understood to mean a distributor who was a relative of the assessee.
The Explanation to section 4(4)(c) provides that the expression "relative" has the same meaning as in the .
The definition of "related person", as being "a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company . . ", shows a sufficiently restricted basis for employing the legal fic tion.
This Court reiterated that it is well settled that in a suitable case the court could lift the corporate veil where the companies share the relationship of a holding company and a subsidiary company and also to pay regard to the economic realities behind the legal facade.
The true position, it was explained by the aforesaid decision, under the said Act is the price at which the excisable goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of remov al as defined in sub section (4)(b) of section 4 of the Act is the basis for determination of excisable value provided, of course, the buyer is not a related person within the meaning of sub section (4)(c) of section 4 and the price is the sole consideration for the sale.
This aspect was further examined by this Court in Union of India & Ors.
vs Atic Industries Ltd., ; This Court referred to the decision of Bombay Tyre International (supra) and also referred to the first part of the definition of "related person" in clause (c) of section 4(4) which defines "related person" to mean "a person who is so associated with the assessee that they have interest directly or indirectly in the business of each other".
It was not enough, it was held, that the person alleged to be a related person had an inter est, direct or indirect in the business of the assessee.
To attract the applicability of the first part of the defini tion, the assessee and, the person alleged to be a related person must have interest direct or indirect in the business of each other.
Each of them must have a direct or indirect interest in the business of the other.
The quality and degree of interest which each has in the business of the other may be different; the interest of one in the business of the other may be direct while the interest of the latter in the business of the former may be indirect.
That would not make any difference so long as each has got some inter est, direct or indirect in the business of the other.
In that case, this Court found that Atul Products Ltd. has interest in the business of M/s Atic Industries Ltd. since it held 50% of 1030 the share capital of that assessee and had interest as shareholder in the business carried on by the assessee.
But this Court was of the view that it could not be said that the assessee, a limited company, had any interest, direct or indirect in the business carried on by one of its sharehold ers, namely, Atul Products Ltd., even though the sharehold ing of such shareholder might be 50%.
Secondly, it was noted that Atul Products Ltd. was a wholesale buyer of the dyes manufactured by the assessee but even then, since the trans actions between them were as principal to principal, it was difficult to appreciate how the assessee could be said by virtue of that circumstances to have any interest, direct or indirect, in the business of Atul Products Ltd. The asses see, it was observed, was not concerned whether Atul Products sold or did not sell the dyes purchased by it from the assessee nor was it concerned whether Atul Products Ltd. sold such dyes at a profit or at a loss.
In those circum stances, the first part of the definition of related persons in clause (c) of sub section (4) of section 4 of the amended Act was, therefore, clearly not satisfied both in relation to Atul Products Ltd. as also in relation to Crescent Dves and Chemicals Ltd., a subsidiary company of Atic Industries Ltd., and neither of them could be said to be a "related person" vis a vis the assessee within the meaning of the definition of that term in clause (c) of sub section (4) of section 4 of the amended Act.
In those circumstances, the assessable value, it was held, of the dyes manufactured by the assessee could not be determined with reference to the selling price charged by Atul Products Ltd. and Crescent Dyes and Chemicals Ltd. to their purchasers but must be determined on the basis of the wholesale case price charged by the assessee to Atul Products Ltd. and Crescent Dyes and Chemicals Ltd. In that case, the assessee at all material times sold the large bulk of dyes manufactured by it in wholesale to Atul Products and Imperial Chemical Industries (India) Pvt. Ltd. which subsequently came to be known as Crescent Dyes & Chemicals Ltd. at a uniform price applicable alike to both these wholesale buyers and these wholesale buyers sold these dyes to dealers and consumers at a higher price which inter alia included the expenses incurred by them as also their profit.
It was noted that the transac tions between the assessee .on the one hand and Atul Products Ltd. and Crescent Dyes and Chemicals Ltd. on the other were as principal to principal and the wholesale price charged by the assessee to Atul Products Ltd. and Crescent Dyes and Chemicals was the sole consideration for the sale and no extra commercial consideration entered in the deter mination of such price.
For appreciating how the wholesale price could be the basis of the determination of the assess able value, a reference may be made to the decision of this Court in Union of India & Ors.
vs Cibatul Limited, [1985] Supp.
3 SCR 95.
In 1031 that case, the respondent Cibatul Ltd. entered into two agreements with Ciba Geigy of India Ltd. for manufacturing resins by the seller.
The joint manufacturing programme indicated that the resins were to be manufactured in accord ance with the restrictions and specifications constituting the buyer 's standard and supplied at prices to be agreed upon from time to time.
The buyer was entitled to test a sample of each batch of the goods and after its approval the goods were to be released for sale to the buyer.
The products were to bear certain trademarks being the property of the foreign company Ciba Geigy of Basle.
Tripartite agreements were also executed between the buyer, the seller and the foreign company, recognising the buyer as the regis tered or licensed user of the trade marks, authorising the seller to affix the trade marks on the products manufactured "as an agent for and on behalf of the buyer and not of his own account" and the right of the buyer being reserved to revoke the authority given to the seller to affix the trade marks.
The respondent in that case filed declaration for the purposes of levy of excise under the said Act show ing the wholesale prices of different classes .of goods sold by it during the period May, 1972 to May, 1975.
The declara tion included the wholesale prices of the different resins manufactured under the two aforesaid agreements.
The Assist ant Collector of Custom revised those prices upwards on the basis that the wholesale price should be the price for which the buyer sold the product in the market.
According to the Assistant Collector the buyer was the manufacturer of goods and not the seller.
The Collector of Central Excise allowed the appeals of the respondent and accepted the plea that the wholesale price disclosed by the seller was the proper basis for determining the excise duty.
The Appellate orders were, however, revised by the Central Govt.
under sub section (2) of section 36 of the Act and the orders made by the Assistant Collector were restored.
According to the Central Govt.
the buyer was the person engaged in the production of the goods and the seller merely manufactured them on behalf of.the buyer and that under the agreements the seller was required to affix the trade marks of the buyer on the manufactured goods and that indicated that the goods belonged to the buyer.
There is a ring of similarity between the facts of that case and the facts of the instant appeal before us.
The orders of the Central Govt.
were challenged under Article 226 of the Constitution.
The High Court held that the goods were manufactured by the seller as its own goods, and there fore, the wholesale price charged by the seller must form the true basis for the levy of excise duty.
On appeal.
this Court held that the High Court was right in concluding that the wholesale price of the goods manufactured by the seller was the wholesale price at which it sold those goods to the buyer, and it was 1032 not the wholesale price at which the buyer sold those goods to others.
The relevant provisions of the agreements and the other material on the record showed that the manufacturing programme was drawn up jointly by the buyer and the seller and not merely by the buyer, and that the buyer was obliged to purchase the manufactured product from the seller only if it conformed to the buyer 's standard.
For this purpose, the buyer was entitled to test a sample of each batch of the manufactured product and it was only on approval by him that the product was released for sale by the seller to the buyer.
It was apparent that the seller could not be said to manufacture the goods in those facts, it was held, on behalf of the buyer.
It was further found that it was clear from the record that the trade marks of the buyer were to be affixed on those goods only which were found to conform to the specifications or standard stipulated by the buyer.
All goods not approved by the buyer could not bear those trade marks and were disposed of by the sellers without the advan tage of those trade marks.
This question was again examined by this Court in Joint Secretary to.the Govt.
of India & Ors.
vs Food Specialities Ltd., [1985] Supp.
3 SCR 165.
There the respondent used to manufacture certain goods for sale in India by M/s Nestle 's Products India Ltd. (for short Nestle 's) under certain trade marks in respect of which the latter was registered as the sole registered user in India.
The goods were supplied to Nestle 's at wholesale price on rail at Moga or free on lorry at factory.
The respondent disputed the value of the goods determined by the excise authorities for the purpose of the levy under the said Act and ultimately the respondent filed writ petitions in the High Court.
The High Court allowed the writ petitions holding that the value of the trade marks could not form a component of the value of the goods for the purpose of assessment of excise duty.
In appeal to this Court, the appellant contended that the value of the goods sold by the respondent to Nestle 's should, for the purpose of levy of excise duty, include the value of the trade marks under which the goods were sold in the market and that the value of such trade marks should be added to the wholesale price for which the goods were sold by the respondent to Nestle 'section Dismissing the appeal, it was held that the value of Nestle 's trade marks could not be added to the wholesale price charged by the respondent to Nestle 's for the purpose of computing the value of the goods manufactured by the respondent in the assessment to excise duty.
In that case, it was held that what were sold and supplied by the respond ent were goods manufactured by it with the trade marks affixed to them and it was the wholesale cash price of goods that must determine the value for the purpose of assessment of excise duty.
It 1033 was immaterial that the trade marks belonged to Nestle 'section What was material was that Nestle 's had authorised the respondent to affix the trade marks on the goods manufac tured by it and it was the goods with the trade marks af fixed to them that were sold by the respondent to Nestle 'section There could, therefore, be no doubt, it was held, that the wholesale price at which the goods with the trade marks affixed to them were sold by the respondent to Nestle 's as stipulated under the agreements would be the value of the goods for the purpose of excise duty.
That was the price at which the respondent sold the goods to Nestle 's in the course of wholesale trade.
Similarly in the instant case, it appears that the brand name "Bush" was affixed to the goods produced by the re spondent.
In M/s Sidhosons and Others vs Union of India and others, [1987] 1 SCC 25, it was held that the excise duty was payable on the market value fetched by the goods, in the wholesale market at the factory gate manufactured by the manufacturers, i.e., the price charged by the manufacturers to the buyer under the agreement.
It could not be assessed on the basis of the market value obtained by the buyers who also add to the value of the manufactured goods the value of their own property in the goodwill of the 'brand name '.
In view of the facts that have emerged in this case, the High Court came to the conclusion that the market value of the goods of the respondent herein was the price charged from M/s Bush India Ltd. and not the market value at which price M/s Bush India Ltd. sold to its whole sellers for the purpose of payment of excise duty.
The High Court, there fore, quashed the Show Cause Notice and the Demand Notice.
Shri A. Subba Rao on behalf of the Revenue tried to contend before us that the facts of this case revealed that it was a device to under charge.
The respondent herein was brought in to divide the sale price of M/s Bush India Ltd. to be the basis of the assessable value.
It is true that the facts of this case do warrant a great deal of suspicion.
But it is not possible to hold otherwise than what has been held by the High Court in this case.
It is true, as Shri Rao drew our attention, that even though the Corporation might be a legal personality distinct from its members, the Court is entitled to lift the mask of corporate entity if the concep tion is used for tax evasion, or to circumvent tax obliga tion or to perpetrate a fraud.
In this connection, reference may be made to the observations of this Court in Juggi Lal Kamlapat vs Commissioner of Income tax, U.P., In the background of the facts 1034 found we, however, need not get ourselves bogged with the controversy as to judicial approach to tax avoidance devices as tax pointed out in McDowell and Co. Ltd. vs Commercial Tax Officer, , where this Court tried to discourage colourable devices.
It is true that tax planning may be legitimate provided it is within the framework of the law.
Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by dubious methods.
It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges.
It is also true that in order to create,the atmosphere of tax compliance, taxes must be reasonably collected and when collected, should be utilised in proper expenditure and not wasted.
(See the observations in Commissioner of Wealth Tax vs Arvind Narottam; , , It is not necessary, in the facts of this case to notice the change in the trend of judicial approach in England: (Sherdeley vs Sherdeley, While it is true, as observed by Chinnappa Reddy, J. in McDowell and Co. Ltd. vs Commercial Tax Offi cer, (supra) too much to expect the legislature to intervene and take care of every device and scheme to avoid taxation and it is up to the court sometimes to take stock to deter mine the nature of the new and sophisticated legal devices to avoid tax and to expose the devices for what they really are and to refuse to give judicial ' benediction, it is necessary to remember as observed by Lord Reid in Greenberg vs IRC, that one must find out the true nature of the transaction.
It is unsafe to make bad laws out of hard facts and one should avoid subverting the rule of law.
Unfortunately, in the instant case, facts have not been found with such an approach by the lower authori ties and the High Court had no alternative on the facts as found but to quash the Show Cause and the Demand Notices.
In that view of the matter, the appeal fails and is accordingly dismissed.
But there will be no order as to costs.
We dismiss this appeal with reluctance.
Our reluc tance is not to be ascribed to any hesitation to accept the inference flowing from the facts found but reluctance is due to the fact that the facts were not properly found.
T.N.A. Appeal dismissed.
| IN-Abs | The respondent company was engaged in the manufacture of wireless receiving sets, tape recorders, tape players.
These products were assessable under Tariff Items 33A and 37AA of the Central Excise Tariff.
In the classification list and price lists filed by the respondentassessee company these goods were shown as unbranded goods.
Subsequentiy it was found that the respondent assessee company was manufacturing their products in the brand name of "Bush" and were selling the same exclusively to M/s Bush India Ltd. or its autho rised wholesale dealers only.
The appellants Revenue alleged that there was wilful suppression of facts by the respondent company with intention to evade excise duty because this fact was not mentioned by the company in the price list or classification list, filed.
A show Cause Notice was issued requiring the respondent company to show cause as to why, (i) M/s Bush India Limited should not be treated as .a 'related person ' and a favoured buyer of the respondent company for the purpose of determi nation of wholesale cash price, (ii) the concessional rate of duty under notification No. 358/77 CE should 1024 not be denied to the respondent and, (iii) the differential duty in respect of the goods cleared should not be recov ered.
Instead of executing the surety bond the respondent assessee company filed a writ petition in the High Court praying for quashing of the Show Cause Notice and for a mandamus to allow it to clear the goods on the basis of the price at which the goods were sold by it to Bush India Limited allowing the benefit of the relevant notification.
The High Court following its earlier decision held that for the purpose of payment of excise duty the market value of the goods of the respondent assessee company was the price charged by it from M/s Bush India Ltd., and not the market value at which price M/s Bush India Ltd. sold the goods.
It further held that there was no misdeclaration of the value by the assessee company, and it accordingly quashed the Show Cause Notice and the Demand Notice for recovery.
In this appeal by the Revenue it was contended that in the facts and circumstances of the case the High Court committed an error in not realising that M/s Bush India Ltd. was a related person and as such the price charged by the respondent company from M/s Bush India could not represent the correct assessable value for the purpose of excise duty.
Dismissing the appeal, HELD: 1.
Tax planning may be legitimate provided it is within the ' framework of the law.
But colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by dubious methods.
It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges.
In order to create the atmosphere of tax com pliance, taxes must be reasonably collected and when col lected, should be utilised in proper expenditure and not wasted.
It is too much to expect the legislature to inter vene and take care of every device and scheme to avoid taxation and it is up to the court sometimes to take stock to determine the nature of the new sophisticated legal devices to avoid tax and to expose the devices for what they really are and to refuse to give judicial benediction.
[1034A B, D] 2.
One must find out the true nature of the transaction.
Even though the corporation might be a legal personality distinct from its members, the court is entitled to lift the mask of corporate entity if the conception is used for tax evasion, or to circumvent tax obligation perpetrate a fraud.
[1034E, 1033G] 1025 3.
It is unsafe to make bad laws out of hard facts and one should avoid subverting the rule of law.
In the instant case, facts have not been found with such an approach by the lower authorities, and the High Court had no alternative on the facts as found but to quash the Show Cause and Demand Notices.
It appears that the brand name "Bush" was affixed to the goods produced by the respondent.
For the purpose of excise duty, the market value of such goods was the price charged from M/s Bush India Ltd. and not the market value at which price M/s Bush India sold the same.
[1034E, 1033C, E] Juggi Lal Kamlapat vs Commissioner of Income tax, U.P., ; Mc Dowell and Co. Ltd. vs Commercial Tax Officer, ; Commissioner of Wealth Tax vs Arvind Narottam, ; Sherdeley vs Sherdeley, and Greenberg vs IRC.
referred to.
Union of India vs Bombay Tyre International, ; ; Union of India & Ors., vs Atic Industries Ltd., ; ; Union of India & Ors.
vs Cibatul Limited, [1985] Supp.
3 SCR 95; Joint Secretary to the Government of India & Ors.
vs Food Specialities Ltd., [1985] Supp.
3 SCR 165 and M/s Sidhosons & Ors.
vs Union of India & Ors, [1987] 1 SCC 25 relied on.
|
ivil Appeal No. 251 of 1954.
Appeal from the judgment and decree dated April 22, 1952, of the Punjab High Court in Civil Regular First Appeal No. 1/E of 1947 arising out of the judgment and decree dated July 1, 1947, of the Court of SubJudge, Ambala in Suit No. 239 of 1946.
Tarachand Brijmohan Lal, for the appellant.
Hardayal Hardy, for respondent No. 1. 1958.
May 1.
This is a plaintiff 's appeal against the judgment and decree passed on April 22, 1952, by a Division Bench of the Punjab High Court reversing the decree passed on July 1, 1947, by the First Class Subordinate Judge, Ambala in favour of the plaintiff and dismissing the plaintiff 's Suit No. 239 of 1946.
The appeal has been preferred on the strength of a certificate granted by the ]Division Bench on December 19, 1952.
The facts material for the purpose of this appeal may now be shortly stated: One Lala Beni Pershad died in the year 1910 leaving him surviving his widow Mst.
Daropadi (defendant respondent No. 2) and ' two sons by her, namely, Gokul Chand (defendant respondent No. 1) and Raghunath Das (plaintiff appellant) who was then a minor.
Lala Beni Pershad left considerable moveable properties including many G. P. Notes and also various immoveable properties including agricul tural land, gardens and houses.
After his death the family continued to be joint until disputes and.
differences arose between the two brothers in 1934.
Eventually oil November 12, 1934, the two brothers executed an agreement referring their disputes relating to the partition of the family properties to the arbitration of Lala Ramji Das who was a common relation.
813 It is alleged that the respondent Gokul Chand had disposed of part of the () 'F. P. Notes and that at the date of the reference to arbitration G. P. Notes of the value of Rs. 26,500 only were held by Gokul Chand, as the Karta of the family.
On June 21, 1936, the arbitrator made an award which was signed by both the, brothers statedly ill token of their acceptance thereof.
The award was registered on July 28, 1936.
By that award the arbitrator divided the imoveable, properties and shops as therein mentioned.
As regards the G. P. Notes the arbitrator directed and awarded that out of the G. P. Notes of the value of Rs. 26,500, which then stood in the name of Gokul Chand, G. P. Notes of the value of Rs. 13,300 should be entered into the names of Gokul Chand and Mst.
Daropadi and the remaining Notes of the value of Rs. 13,200 should be endorsed in the names of Raghunatb Das and Mst.
Daropadi and that till her death Mst.
Daropadi should alone be entitled to the interest on the entire G. P. Notes of the value of Its. 26,500 and that after her death Gokul Chand would be the owner of the ("X. P. Notes of the value of Rs. 13,300 and Raghunath Das of G. P. Notes of the value of Rs. 13,200.
The arbitrator further directed Gokul Chand to pay to Raghunath Das a sum of Rs. 20,000 in four several instalments together with interest thereon as mentioned therein.
On August 31, 1936, Gokul Chand applied to the District Judge, Ambala under paragraph 20, of Schedule 11 to the Code of Civil Procedure for filing the award.
During the pendency of those Proceedings the two brothers entered into a compromise modifying certain terms of the award which are not material for the purpose of the present appeal.
By an order made on November 18, 1936, the District Judge directed the award as modified by the compromise to be filed and passed a decree in accordance with the terms of the award thus modified.
On November 15, 1939, Raghunath Das made an application to the court of the District judge for execution of the decree.
The District Judge transferred the application to the court of the Subordinate Judge 814 who directed notice of that application to be issued to Gokul Chand.
Gokul Chand filed objection to the execution mainly on the ground that the decree had been passed without jurisdiction in that the District Judge had no power to pass a decree for partition of agricultural lands.
The Subordinate Judge on December 23, 1942, accepted Gokul Chand 's plea and dismissed the execution application.
On appeal by Raghunath Das to the High Court a learned Single Judge on April 5, 1944, accepted the appeal, but on Letters Patent Appeal filed by Gokul Chand the Division Bench on March 15, 1945, reversed the order of the Single Judge and restored the order of dismissal passed by the Subordinate Judge.
Having failed to obtain the relief granted to him by the decree passed upon the award on the ground of defect of jurisdiction in the court which passed the decree and consequently for want of jurisdiction in the executing court, Raghunath Das, on August 21, 1945, instituted Suit No. 80 of 1945 against Gokul Chand for the recovery of Rs. 7,310 11 3 being the balance with interest remaining due to him out of the said sum of Rs. 20,000, awarded in his favour.
Gokul Chand raised a number of pleas but eventually all his pleas were negatived and the senior Subordinate Judge, Ambala, by his judgment pronounced on December 22, 1945, decreed the suit in favour of Raghunath Das.
Gokul Chand did not file any appeal therefrom and consequently that decree became final and binding as between the parties thereto.
On June 5, 1946, Raghunath Das filed in the court of the Senior Subordinate Judge, Ambala a suit being Suit No. 239 of 1946 out of which the present appeal has arisen.
In this suit Raghunath Das claimed that Gokul Chand be ordered to transfer G. P. Notes of the value of Rs. 13,200 out of the G. P. Notes of the value of Rs. 26,500 to Raghunath Das and Mst.
Daropadi by means of endorsement or some other legal way, to get them entered into the Government registers and to make them over to Raghunath Das, the plaintiff.
Particulars of the numbers, the year of issue, the face value and the interest payable on all the said G. P. 815 Notes were set out in the prayer.
There was an alternative prayer that Gokul Chand be ordered to pay Rs. 13,200 to the plaintiff.
Gokul Chand filed his written statement taking a number of pleas in bar to the suit.
Not less than 12 issues were raised, out of which only issues Nos. 2 and 3 appear from the judgment of the Subordinate Judge to have been seriously pressed.
Those two issues were as follows: " (2) Is the suit within time ? and (3) Is the suit barred by Order 2, Rule 2 of the Civil Procedure Code?" The Subordinate Judge decided both the issues in favour of the plaintiff.
He held that article 49 of the Indian Limitation Act had no application to the facts of this case and that there being no other specific Article applicable, the suit was governed by the residuary article 120.
The learned Subordinate Judge also took the view that the period from November 15, 1939 to March 15, 1945, spent in the execution proceedings should be excluded under section 14 of the Indian Limitation Act in computing the period of limitation under article 120.
The learned Subordinate Judge also held that the cause of action in the earlier suit for the recovery of the sum of Rs. 7,310 11 3 was not the same as the cause of action in the present suit and, therefore, the present suit was not barred under 0. 2, r. 2, of the Code of Civil Procedure.
The learned Subordinate Judge accordingly decreed the suit in favour of Raghunath Das.
Gokul Chand appealed to the High Court.
The appeal came up for hearing before a Division Bench of the Punjab High Court.
Only two points, were pressed in support of the appeal, namely, (1) whether the suit was barred by time and (2) whether the suit was barred under 0. 2, r. 2, of the Code of Civil Procedure.
Learned counsel appearing for Gokul Chand urged that the suit was one for the recovery of " other specific moveable property " that is to say specific moveable property other than those falling within Arta.
48, 48A and 48B of the Indian Limitation Act and was accordingly governed by article 49.
Article 49.
provides three years ' period of limitation I04 816 for a suit for " other specific moveable property or for compensation for wrongful taking or injuring or wrongfully detaining the same " and this period of three years begins to run from " when the property is wrongfully taken or injured or when the detainer 's possession becomes unlawful ".
In the opinion of the High Court the suit was for the recovery of specific Government promissory notes and this, according to the High Court, was plain from the perusal of para.
18 of the plaint which set out the reliefs claimed by the plaintiff in the suit.
The reference to the numbers, value and the year of issue of G. P. Notes and the rates of interest carried by them appeared to the High Court to be decisive on this point.
The High Court held that the suit was governed by article 49 and that, as the plaintiff would be out of time even if the period between November 15, 1939, and March 15, 1945, was excluded, the High Court did not think it necessary to consider the question of the applicability of section 14 of the Indian Limitation Act.
As its finding on the issue of limitation was sufficient to dispose of the suit, the High Court did not discuss the other issue founded on 0. 2, r. 2, of the Code of Civil Procedure but allowed the appeal and dismissed the suit as barred by limitation.
We are unable to accept the decision of the High Court as correct.
The High Court overlooked the fact that so far as the G. P. Notes were concerned the decree upon the award only declared the rights of the parties.
Under the decree Raghunath Das was entitled to have G. P. Notes of the value of Rs. 13,200 endorsed in the names of himself and Mst.
Daropadi out of the G. P. Notes of the value of Rs. 26,500.
The award or the decree thereon did not actually divide the G. P. Notes by specifying which particular G. P. Notes were to be endorsed in the names of Gokul Chand and Mst.
Daropadi or which of them were to be endorsed in the names of Raghunath Das and his mother.
Until the G. P. Notes were actually divided, either by consent of parties or by the decree of the court, neither of the brothers could claim any particular piece of G. P. Notes as his separate property or 817 ask for delivery of any particular C. P. Notes in specie.
Gokul Chand not being agreeable to come to an amicable division of the G. P. Notes, Raghunath Das had perforce to seek the assistance of the court and pray that the entire lot of C. P. Notes of the value of Rs. 26,500 be divided by or under the directions of the court into two lots and one lot making up the value of Rs. 13,200 be endorsed in favour of him (Raghunath Das) and his mother by or on behalf of Gokul Chand and then delivered to him, the plaintiff.
He could not in his plaint claim that particular pieces of G. P. Notes making up the value of Rs. 13,200 be delivered to him in specie.
This being the true position, as we conceive it, Raghunath Das 's suit cannot possibly be regarded as a suit for a " specific moveable property ".
That expression is apt only to cover a suit wherein the plaintiff can allege that he is entitled to certain specific moveable property and/or of which he is presently entitled to possession in specie and which the defendant has wrongfully taken from him and/or is illegally withholding from him.
That is not the position here.
It should be remembered that the two brothers were entitled to the G. P. Notes of the value of Rs. 26,500 originally as joint coparceners and thereafter, when the decree upon the award had been passed, as tenants in common.
Until actual partition by consent of the parties or by court Gokul Chand, who held the custody of the G. P. Notes, could not be said to have taken them wrongfully from Raghunath Das and his possession of them could not be said to be or to have become unlawful.
These considerations clearly distinguish this case from the case of Gopal Chandra Bose vs Surendra Nath Dutt (1) on which the High Court relied because in that case the defendant had no right to or interest in the G. P. Notes in question and had no right to retain possession thereof.
Therefore, to the present situation the terminus a quo specified in the third column of article 49 can have no application.
It is now well established that a suit by an heir against other heirs to recover his share of the moveable estate of a deceased person is not one for (1) (1908) XII C. W. N. 1010 818 specific moveable property wrongfully taken such as is contemplated by Art 49, but is governed by article 120.
See Mohomed Riasat Ali vs Mussumat Hasin Banu (1).
The only difference between the facts of that case and those of the present case is that here the rights of the parties had been declared by the decree upon the award but that circumstance does not appear to us to make any material difference in the application of the principle laid down by the Judicial Committee.
The substance of the plaintiff 's claims in both cases is for separating his share out of the estate and for allotment and delivery to him of his share so separated.
In short such a suit is nothing but a suit for partition or division of the moveable properties held jointly or as tenants in common by the parties and there being no specific Article applicable to such a suit it must be governed by article 120.
The period of limitation fixed by article 120 is six years from the date when the right to sue accrues.
In order, therefore, to be within the period of limitation the plaintiff claims to exclude the period November 15, 1939, to March 15, 1945, spent in the execution proceedings.
Section 14 (1) of the Indian Limitation Act runs as follows: " 14 (1) In computing the period of limitation prescribed for any suit, the time during which the plaintiff has been prosecuting with, due diligence another civil proceeding, whether in a Court of first instance or in a Court of appeal, against the defendant, shall be excluded where the proceeding is founded upon the same cause of action and is prosecuted in good faith in a Court which, for defect of jurisdiction, or other cause of a like nature is unable to entertain it.
" The respondent contends that the above section has no application to the facts of his case.
We do not think that such contention is well founded.
The execution proceedings initiated by Raghunath Das were certainly civil proceedings and there can be no doubt that he prosecuted such civil proceedings with due diligence and good faith, for lie was obviously (i) (1893) L. R. 20 I. A. 155.
819 anxious to have his share of the G. P. Notes separately allocated to him.
He lost in the execution court but went on appeal to the High Court where he succeeded before a Single Judge, but eventually he failed before the Division Bench which reversed the order the Single Judge had passed in his favour.
Therefore, there can be no question of want of due diligence and good faith on the part of Raghunath Das.
In the next place the section excludes the time spent both in a court of first instance and in a court of appeal.
Therefore, other conditions being satisfied, the entire period mentioned above would be liable to be excluded.
The only questions that remain are (1) whether the proceedings were founded upon the same cause of action and (2) whether he prosecuted the proceedings in good faith in a court which for defect of jurisdiction ",as unable to entertain it.
The execution proceedings were founded upon his claim to enforce his rights declared under the decree upon the award.
The cause of action in the present suit is also for enforcement of the same right, the only difference being that in the former proceedings Raghunath Das was seeking to enforce his rights in execution and in the present instance he is seeking to enforce the same rights in a regular suit.
There is nothing new that he is asking for in the present suit.
That he prosecuted the execution proceedings in the Subordinate Court as well as in the High Court in good faith cannot be denied, for the Single Judge of the High Court actually upheld his contention that the court had jurisdiction to entertain his application.
The execution proceedings failed before the Division Bench on no other ground than that the executing court had no jurisdiction to entertain the application, because the decree sought to be executed was a nullity having been passed by a court which had no jurisdiction to pass it.
Therefore, the defect of jurisdiction in the court that passed the decree became, as it were, attached to the decree itself and the executing court could not entertain the execution proceeding on account of the same defect.
The defect of jurisdiction in the executing court was finally determined when 820 the Division Bench reversed the decision of the Single Judge who had entertained the execution proceeding.
In our opinion Raghunath Das is entitled to the benefit of section 14 (1) of the Indian Limitation Act and the period here in before mentioned being excluded, there can be no doubt that the suit was filed well within the prescribed period of limitation and the judgment of the Division Bench cannot be sustained.
In the view it took on the question of limitation the Division Bench did not consider it necessary to go into or give any decision on the other issue, namely, as to whether the suit was barred by 0. 2, r. 2.
The suit should, therefore, go back to the High Court for determination of that issue.
The result, therefore, is that we accept the appeal, set aside the judgment and decree of the High Court and remand the case back to the High Court for a decision on issue No. 3 only.
The appellant will get the costs of this appeal as well as the costs of the hearing in the High Court resulting in the decree under appeal and the general costs of the appeal and the costs of further hearing on remand will be dealt with by the High Court.
Appeal allowed.
Case remanded.
| IN-Abs | The words " specific moveable property " occurring in article 49 Of the Indian Limitation Act can mean only such specific items of moveable property in respect of which the plaintiff is entitled to claim immediate possession in specie from the defendant who has either wrongfully taken or is wrongfully withholding them from him.
A suit by one heir against the others for recovery of his share of the moveable property of a deceased person is not one for a specific moveable property wrongfully taken such as is contemplated by article 49 and must, in the absence of any other specific provision in the Act, be governed by article 12o and not article 49 of the Indian Limitation Act.
Mohomed Raisat Ali vs Musummat Hasin Banu, (1893) L,R. 2o I,A. 155, relied on.
Consequently, in a case where the decree passed upon an award, without specifying any particular G. P. Notes or dividing them, directed the elder brother to transfer G. P. Notes of the value of Rs. 13,200 to the younger brother from out of the G. P. Notes of the total value of Rs. 26,500 left by the father in the custody of the former, and the younger brother, failing to obtain relief by way of execution of the decree, brought the suit, out of which the present appeal arises, against the elder brother for a division of the G. P. Notes and a direction on him that G. P. Notes of the value of Rs. 13,200 might be transferred to him and claimed that the entire period covered by the execution proceeding from its inception till the final disposal by the High Court should be excluded in computing the period of limitation : Held, that the suit in substance was one for the division of moveable property held in joint ownership and not for possession of any specific.
item of moveable property and as such was governed, not by article 49, but by article 120 of the Indian Limitation Act.
Gopal Chandra Bose vs Surendra Nath Dutt, (1908) 12 C.W.N. 1010, distinguished and held inapplicable.
812 As the facts and circumstances of the case satisfied the requirements of section 14(1) Of the Indian Limitation Act in computing the prescribed period of limitation the time covered by the execution proceeding from its inception till its final disposal by the High Court must be excluded.
|
ivil Appeal No. 2697 & 2698 of 1989.
From the Judgment and Order dated 24.3.87 & 1.7.87 of the Andhra Pradesh High Court in Writ Petition No. 105 & 8737 of 1987.
N.A. Palkhivala, P.A.S. Rao, D.N. Mishara, Ranganatha Chari and Ms. Rubi Anand for the Petitioners.
S.C. Manchanda, Ms. A. Subhashini and B.B. Ahuja for the Respondents.
These appeals by Special Leave are directed against the dismissal by the Andhra Pradesh High Court of Writ Petitions filed by the appellant.
The appellant, Messrs Electronics Corporation of India Limited, entered into a memorandum of understanding with a Norwegian company at Paris.
This was followed by an agree ment dated 2 May, 1986 executed at Hyderabad.
Under that agreement the Norwegian company was to provide technical know how and technical services, including facilities for the training of personnel, to the appellant in connection with the manufacture of computers.
The consideration for the technical know how and technical services was represented by Norwegian currency NOK 32 Millions equivalent to about Rs.575 lakhs.
Eighty five per cent of the consideration was to be paid from credit provided by Norwegian authorities and the balance fifteen per cent was to be paid out of free foreign exchange made available by the State Bank of India, London Branch.
It is not in dispute that the agreement had received the careful consideration of the Reserve Bank of India and of the Central Government.
The appellant approached the Income Tax Officer for the grant of a 'No Objection Certificate ' as contemplated under section 195(2) of the 997 Income Tax Act, 1961, to enable it to remit the instalments due without any obligation to deduct any income tax at source, but the request was denied.
On 23 December, 1986 the appellant made an application to the Commissioner of Income Tax for a direction to the Income tax Officer, but the Commissioner rejected the application.
The Commissioner took the view that having regard to Section 9(1)(vii) and Section 195 of the Income Tax Act, 1961, the payment constituted income which was deemed to accrue or arise in India and was liable to deduction of tax at source.
The appellant filed a Writ Petition against the order of the Commissioner, and assailed the constitutional validity of Section 9(1)(vii) of the Act.
It was urged before the High Court that Parliament was not competent to enact Sec tion 9(1)(vii) of the Act inasmuch as the provision possess es as extra territorial operation without any nexus between the person sought to be taxed and the country seeking to tax.
It was further contended that even after the introduc tion of Section 9(1)(vii) by the Finance Act of 1976 with effect from 1 June, 1976, the requirement of a business connection of a foreign Company was required, and the case was governed by CORBORANDUM CO.
vs C.I.T., [1977] 108 I.T.R. 335.
It was also urged that after the introduction of the Explanation by the Finance Act of 1977 with effect from 1 April, 1977 Section 9(1)(vii) creates an invidious discrimi nation among companies which had entered into a foreign collaboration agreement prior to 1 April, 1976 and those who have done so after that date, and that therefore Article 14 was violated.
The High Court repelled all the contentions of the appellant and dismissed the Writ Petition.
A similar Writ Petition was filed by the appellant against an order of the Commissioner of Income tax declining to direct the grant of a 'No Objection Certificate, in relation to disbursement made under a licence agreement with Messrs Control Data Indo Asia Company, U.S.A., and the Writ Petition was dis missed by the High Court for the reasons which had found favour with it in the earlier case.
It is contended by learned counsel for the appellant that section 9(1)(vii) of the Income Tax Act is ultra vires inasmuch as it enables the levy of income tax on the Norwegian company in the one case and the American company in the other in circumstances which appear to show that the statute operates extra territorially without the need for any nexus between anything done in India and the person sought to be taxed.
section 9(1)(vii) declares: "9(1) The following incomes shall be deemed to accrue or 998 arise in India (i). . . . . . . . . . . . . . . . (vii) income by way of fees for technical services payable by (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non resident, where the fees are payable in respect of services uti lised in a business or profession carried on by such person in India or for the purposes of making or earning any 'income from any source in India; Explanation.
For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of tech nical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".
It seems that the Revenue is proceeding on the basis that the foreign company is liable to tax and that therefore the petitioner is obliged to deduct at source the tax pay able by the foreign company.
We are informed that the serv ices are rendered by the foreign company in the nature of training abroad to personnel belonging to the appellant, and that payment to the foreign company is also effected abroad.
The Revenue rests its case on section 9(1)(vii)(b) of the Act, and the question is whether on the terms in which the provi sion is couched it is ultra vires.
Now it is perfectly clear that it is envisaged under our constitutional scheme that Parliament in India may make laws which operate 999 extra territorially.
article 245(1) of the Constitution pre scribes the extent of laws made by Parliament.
They may be made for the whole or any part of the territory of India.
article 245(2) declares that no law made by Parliament shall be deemed to be invalid on the ground that it would have extra territorial operation.
Therefore, a Parliamentary statute having extra territorial operation cannot be ruled out from contemplation.
The operation of the law can extend to persons, things and acts outside the territory of India.
The general principle, flowing from the sovereignty of States, is that laws made by one State can have no operation in another State.
The apparent opposition between the two positions is reconciled by the statement found in British Columbia Electric Railway Company Limited vs The King, "A legislature which passes a law having extra territorial operation may find that what it has enacted cannot be directly enforced, but the Act is not invalid on that account, and the courts of its country must enforce the law with the machinery available to them.
" In other words, while the enforcement of the law cannot be contemplated in a foreign State, it can, nonetheless, be enforced by the courts of the enacting State to the degree that is permissible with the machinery available to them.
They will not be regarded by such courts as invalid on the ground of such extra territoriality.
But the question is whether a nexus with something in India is necessary.
It seems to us that unless such nexus exists Parliament will have no competence to make the law.
It will be noted that Article 245(1) empowers Parliament to enact law for the whole or any part of the territory of India.
The provocation for the law must be found within India itself.
Such a law may have extra territorial opera tion in order to subserve the object, and that object must be related to something in India.
It is inconceivable that a law should be made by Parliament in India which has no relationship with anything in India.
The only question is then whether the ingredients in terms of the impugned provi sion indicate a nexus.
The question is one of substantial importance, specially as it concerns collaboration agree ments with foreign companies and other such arrangements for the better development of industry and commerce in India.
In view of the great public importance of the question, we think it desirable to refer these cases to a Constitution Bench, and we do so order.
| IN-Abs | The appellant company entered into an agreement with a Norwegian Company under which the latter was to provide technical knowhow and technical services including facili ties for the training of personnel of the appellant company in connection with the manufacture of computers for a con sideration of NOK 32 Millions, Norwegian Currency, equiva lent to Rs.575 lakhs.
The appellant company applied to the Income Tax Officer for 'No Objection Certificate ' under Section 195(2) of the Income Tax, 1961 in order to remit the instalments due under the agreement without deducting the tax at source but the same was refused.
The application of the appellant company to the Commis sioner of Income Tax seeking a direction to the Income Tax Officer was also rejected on the ground that having regard to Sections 9(1)(vii) and 195 of the Income Tax Act, 1961 the payment to the foreign company constituted deemed accru al of Income in India and therefore the appellant was obliged to deduct at source the tax payable by the foreign company.
A writ petition filed by the appellant against the order of the Commissioner and assailing the constitutional validity of Section 9(1)(vii) of the 995 Income tax Act, 1961 was dismissed by the High Court of Andhra Pradesh.
A similar writ petition filed against the order of refusal of 'No Objection Certificate ' by the Com missioner of Income Tax in relation to disbursement made under an agreement with a U.S. Company was also dismissed by the High Court.
Against the decision of the High Court appeals were filed in this Court challenging the vires of Section 9(1)(vii) of the Income Tax Act, 1961 contending that (i) it was extra territorial in operation, and (ii) there was no nexus between anything done in India and the persons sought to be taxed.
Referring the matter to a Constitution Bench, HELD: 1.
It is envisaged under our constitutional scheme that Parliament in India may make laws which operate extra territorially.
Article 245(2) declares that no law made by Parliament shall be deemed to be invalid on the ground that it would have extra territorial operation.
Therefore, a Parliamentary statute having extra territorial operation cannot be ruled out from contemplation.
The operation of the law can extend to persons, things and acts outside the territory of India.
The general principle, flowing from the sovereignty of States, is that laws made by one State can have no operation in another State.
But while the enforce ment of the law cannot be contemplated in a foreign State, it can, nonetheless, be enforced by the courts of the enact ing State to the degree that is permissible with the machin ery available to them.
They will not be regarded by such courts as invalid on the ground of such extra territoriali ty.
[998H, 999A B, D] British Columbia Electric Railway Company Limited vs The King, , applied.
But unless nexus exists Parliament will have no competence to make the law.
Article 245(1) empowers Parlia ment to enact law for the whole or any part of the territory of India.
The provocation for the law must be found within India itself.
Such a law may have extra territorial opera tion in order to subserve the object, and that object must be related to something in India.
It is inconceivable that a law should be made by Parliament in India which has no relationship with anything in India.
[999E F] 2.1 In view of the great public importance of the ques tion, whether the ingredients of the impugned provision indicate a nexus 996 these cases are referred to a Constitution Bench.
[999H] Corborandum Co. vs C.I.T., ; referred to.
|
vil Appeal No. 764 (NM) of 1988.
From the Judgment and Order dated 13.11.1987 of the Monopolies and Restrictive Trade Practices Commission in unfair Trade Practices Enquiry No. 76 of 1985.
G.L. Sanghi, Parveen Anand, S.K. Mehta, Dhruv Mehta, S.M. Satin and Atul Nanda for the Appellant.
Anil Dev Singh and Hemant Sharma for the Respondents.
The Judgment of the Court was delivered by SHARMA, J.
This appeal under section 55 of the (hereinafter referred to as the Act) is directed against the decision of the MonopOlies and Restrictive Trade Practices Commission dated November 13, 1987 in the Unfair Trade Practices Enquiry No. 76 of 1985 passed under section 36 D(1) of the Act forbidding the appellant Company from issuing certain type of advertisement as indicated in the order.
The Commission issued a show cause notice under section 36 B of 982 the Act to the appellant Company informing it that a pro ceeding had been instituted for making an inquiry whether the Company was indulging in certain unfair trade practices prejudicial to public interest within the meaning of section 36 A. A copy of the notice has been attached to the petition of appeal as Annexure 'C ', wherein it was alleged that, (i) although the Company was manufacturing 'Novino ' batteries in collaboration with M/s Mitsushita Electric Industrial Co. Ltd, and not with National Panasonic of Japan, it was issuing advertisements announcing that 'Novi no ' batteries are manufactured in collabora tion with National Panasonic of Japan using National Panasonic techniques, and (ii) the representation that 'Novino ' batter ies are manufactured by joint venture or collaboration with National Panasonic was false and misleading and thereby causing loss or injury to the consumers.
In its reply the Company (appellant before us) denied to have made any wrong representation in the advertisements.
It was asserted that the Company has actually entered into a collaboration agreement with M/s Mitsushita Electric Indus trial Ltd. of Japan for the manufacture of dry cell batter ies, and was adopting the process for manufacturing 'Novino ' batteries as is employed by Mitsushita Ltd. The agreement has been duly approved by the Ministry of Industry, Govern ment of India.
It is further stated that the Mitsushita Ltd. of Japan is better known by its products described by the names "National" and "Panasonic" and there is no question of misleading anybody by the description of the Japanese Compa ny by its products.
Rejecting the appellant 's explanation, the Commission passed the impugned order.
As is clear from the show cause notice, it has been assumed that the appellant Company is manufacturing 'Novino ' batteries in collaboration with Mitsushita Ltd., but the question is whether, in the circumstances, it can claim that it is making "batteries in collaboration with National Panasonic of Japan", and further whether the act, complained of, will be covered by the provisions of section 36 B and 36~D of the Act authorising the respondent Commission to make an enquiry and issue appropriate directions.
The expression "unfair trade practice" has been defined in section 36 A as a trade practice which adopts any or more of the practices enumerated in the section.
It has been contended before us by the learned counsel for the respondent, and the judgment 983 under appeal also holds, that the case is covered by clauses (i) and (v) of section 36 A(1) of the Act.
The relevant portion of section 36 A is reproduced below: "36A Definition of unfair trade practice.
In this part, unless the context otherwise requires, 'Unfair trade Practice ' means a trade practice which, for the purpose of promotion the sale, use or supply of any goods or for the provision of any services, adopts one or more of the following practices and thereby causes loss or injury to the consumers of such goods or services, whether by eliminating or restricting competition or otherwise, namely: (1) The practice of making any statement, whether orally or in writing or by visible representation which, (i) falsely represents that the goods are ' of a particular standard, quality, grade, compo sition, style or model; ' . . . . . . . . (v) represents that the seller or the supplier has a sponsorship or approval or affiliation which such seller or supplier.
does not have;" 4.
It is the admitted position that "National" and "Panasonic" are the names given by the Mitsushita Ltd. to some of its products, and are not the names of the manufac turing company itself.
The advertisements XXX therefore, do not state correctly when they claim that the appellant Company is working in collaboration with "National" and "Panasonic".
Instead, they should have mentioned the Company by its correct name in the advertisements.
The question is as to whether these advertisement come within the scope of clauses (i) and (v).
The Commission in the impugned judgment has said: "It is true that the Director (Research) has not carried out any practical research to discover how far the National & Panasonic Batteries of Japan and the Novino Batteries manufactured by the respondent company vary in or conform to quality, benefits and durability and to what extent the use of the names Pana sonic and National to signify 984 collaboration has been confusing for the customer m his choice of Novino Battery.
Yet I do feel that bearing in mind the Indian condi tions the use of National and Panasonic to signify collaboration will have a misleading effect on the minds of the common class of customers, particularly when Novino Battery is projected in the setting of advertisement exhibit A 1/a side by side the National.
Panasonic and Technics Batteries.
The show cause notice served on the appellant does not take any exception to the use of the word "collabora tion" in the advertisement in question.
The grievance is against the use of the names of the product "National" and "Panasonic" in place of the Company which is manufacturing them.
The issue thus is confined by the charge in the show cause notice which is very limited in its scope.
The Commis sion has taken note of the case of the appellant that since "National" and "Panasonic" are well known names in India while their manufacturing company, the Mitsushita Ltd., is not, the advertisements have mentioned the brand names instead of the manufacturing company; but has refused to accept this plea as a good defence.
We do not agree.
The Act as it originally stood did not contain any provision for protection of consumers against false or misleading advertisements or other similar and unfair trade practices.
By providing for measures against restrictive and monopolistic trade practices, it was perhaps assumed that the consumers also, as a result, will get a fair deal.
However, experience indicated otherwise, and following the recommendations of a Committee, it was considered necessary to amend the Act.
In the fast changing modern world of today advertising goods is a well recognised marketing strategy.
The consumers also need it, as the articles which they require for their daily life are of a great variety and the knowledge of an ordinary man is imperfect.
If the manufac turers make available, by proper publicity, necessary de tails about their products, they come as great help to the man in the street.
Unfortunately, some of the advertisements issued for this purpose make exaggerated and sometime base less representations about the quality, standard and per formance, with an object of attracting purchasers.
It was, therefore, considered necessary to have statutory regula tions insisting that, while advertising, the seller must speak the truth.
Accordingly sections 36 A to 36 E in part B were inserted in Chapter V of the Act by an amendment in 1984.
However, the question in controversy has to be answered by 985 construing the relevant provisions of the Act.
The defini tion of "unfair trade practice" in section 36 A mentioned above is not inclusive or flexible, but specific and limited in.its contents.
The object is to bring honesty and truth in the relationship between the manufacturer and the consumer.
When a problem arises as to whether a particular act can be condemned as an unfair trade practice or not, the key to the solution would be to examine whether it contains a false statement and is misleading and further what is the effect of such a representation made by the manufacturer on the common man? Does it lead a reasonable person in the position of a buyer to a wrong conclusion? The issue can not be resolved by merely examining whether the representation is correct or incorrect in the literal sense.
A representation containing a statement apparently correct in the technical sense may have the effect of misleading the buyer by using tricky language.
Similarly a statement, which may be inaccu rate in the technical literal sense can convey the truth and sometimes more effectively than a literally correct state ment.
It is, therefore, necessary to examine whether the representation, complained of, contains the element of misleading the buyer.
Does a reasonable man on reading the advertisement form a belief different from what the truth is? The position will have to be viewed with objectivity, in an impersonal manner.
It is stated in Halsbury 's Laws of England (Fourth Edition, paragraphs 1044 and 1045) that a representation will be deemed to be false if it is false in substance and in fact; and the test by which the representa tion is to be judged is to see whether the discrepancy between the fact as represented and the actual fact is such as would be considered material by a reasonable representee.
"Another way of stating the rule is to say that substantial falsity is, on the one hand, necessary, and, on the other, adequate, to establish a misrepresentation" and "that 'where the entire representation is a faithful picture or tran script of the essential facts, no falsity is established, even though there may have been any number of inaccuracies in unimportant details.
Conversely, if the general impres sion conveyed is false, the most punctilious and scrupulous accuracy in immaterial minutiae will not render the repre sentation true.
" Let us examine the relevant facts of this case in this background.
The Mitsushita Ltd. is not a popular name in this country while its products "National" and "Panasonic" are.
An advertisement mentioning merely Mitsushita Ltd. may, therefore, fail to convey anything to an ordinary buyer unless he is also told that it is the same Company which manufactures products known to him by the names "National" and "Panasonic".
If such were the position, there would not have been any scope for objection.
However, in our view the same 986 effect is produced by the impugned advertisements.
It has to be remembered that there is no other company with the name of "National" and "Panasonic" and there is no scope for any confusion on that score.
Where the reference is being made to the standard of the quality, it is not material whether the manufacturing Company is indicated by its accurately correct name or by its description with reference to its products.
We, therefore, hold that the erroneous description of the manufacturing Company in the advertisements in ques tion does not attract section 36 A of the Act, although we would hasten to add that it would be more proper for the appellant Company to give the full facts by referring to Mitsushita Ltd. by its correct name and further stating that its products are known by the names "National" and "Panasonic".
The learned counsel for the respondent Commission suggested that the appellant was not entitled to claim "collaboration" with the Japanese Company on the basis of the agreement mentioned earlier.
As the appellant Company is only getting technical knowledge and assistance under the agreement, it is not permissible to claim 'Novino ' batteries as the product of joint venture.
The argument was rightly repelled on behalf of the appellant on the ground that this aspect cannot be examined in the present case in view of the limited scope of the charges as mentioned in the show cause notice quoted above.
If so advised, the Commission will have to hold a fresh inquiry after issuing another show cause notice if it desires to pursue this aspect.
The learned counsel for the appellant also raised several other points in support of the appeal, one of them being that from the facts and circumstances of the case it can not be held that the impugned advertisements are capable of causing any loss or injury to the consumers.
In view of our decision, as mentioned earlier, it is not necessary to deal with the other arguments.
For the reasons mentioned above the impugned judg ment is set aside and the appeal is allowed, but in the circumstances, without costs.
N.V.K. Appeal allowed.
| IN-Abs | The MRTP Commission respondent in the appeal issued a show cause notice under Section 36 B of the to the appellant company informing that a proceeding had been instituted for making an inquiry whether the said Company was indulging in certain unfair trade practices prejudicial to the public interest within the meaning of section 36 A of the Act.
It was alleged in the notice that although the appellant company was manufacturing 'Novino ' Batteries in collaboration with M/s Mitsushita Electric Industrial Co. Ltd. and not with National Panasonic of Japan, it was issuing advertisements announcing that 'Novino ' Batteries were manufactured in collaboration with National Panasonic of Japan using Nation al Panasonic techniques, and that the said representation was false and misleading and thereby causing loss or injury to the consumers.
The Company in its reply to the said notice denied having made any wrong representation in its advertisement, and asserted that the company had actually entered into a collaboration agreement with M/s Mitsushita Electric Indus trial Ltd. for the manufacture of dry ceil batteries, and was adopting the process employed by Mitsushita Ltd. for manufacturing 'Novino ' Batteries.
The Company further stated that Mitsushita Ltd. of Japan was better known by its products described by the names 'National ' and 'Panasonic ' and that there was therefore no question of misleading anybody by the description of the Japanese Company by its products.
Rejecting the Company 's explanation the Commission held that bearing in mind the Indian conditions the use of 'N ational ' and 'Panasonic ' to signify collaboration will have a misleading effect on the minds 980 of common class of customers particularly when Novino Bat teries is projected and advertised side by side with Nation al, Panasonic and Technics Batteries in advertisements.
The Commission also refused to accept the plea of the Company that the advertisements have mentioned the brand names instead of the manufacturing company since 'National ' and 'Panasonic ' were well known names in India while the manu facturing company Mitsushita Ltd. was not as a plea of good defence.
On the question whether the appellant company indulged in unfair trade practice under clauses (i) and (v) of section 36 A(1) of the M.R.T.P. Act, 1962.
Allowing the appeal, the Court, HELD: l.(a) The M.R.T.P. Act as it originally stood did not contain any provision for protection of consumers against false or misleading advertisements or other similar and unfair trade practices.
By providing for measures against restrictive and monopolistic trade practices, it was perhaps assumed that the consumers also, as a result, will get a fair deal.
However, experience indicated otherwise, and following the recommendations of a Committee, it was considered necessary to amend the Act.
Accordingly, sections 36 A to 36 E in part B were inserted in Chapter V of the Act by an amendment in 1984.
[984E F; G] 2.
It would be more proper for the appellant Company to give the full facts by referring to Mitsushita Ltd. by its correct name and further stating that its products are known by the name "National" and "Panasonic".
[986C] 3.
An advertisement mentioning merely Mitsushita Ltd. may, therefore, fail to convey anything to an ordinary buyer unless he is also told that it is the same Company which manufactures products known to him by the names "National" and "Panasonic".
If such were the position there would not have been any scope for objection.
However, the same effect is produced by the impugned advertisements.
There is no other company with the name of 'National ' and 'Panasonic ', and there is no scope for any confusion on that score.
[985G H; 986A] 4.
Where the reference is being made to the standard of the quality, it is not material whether the manufacturing company is indicated by its actually correct name or by its description with reference to its products.
[986B] 981 5.
The definition of 'unfair trade practice ' in section 36 A is not inclusive or flexible, but specific and limited in its contents.
The object is to bring honesty and truth in relationship between the manufacturer and consumer.
When a problem arises as to whether a particular act can be condem ned as an unfair trade practice or not, the key to the solution would be to examine whether it contains a false statement and is misleading and further what is the effect of such a representation made by the manufacturer on the common man? Does it lead a reasonable person in the position of a buyer to a wrong conclusion? The issue cannot be re solved by merely examining whether the representation is correct or incorrect in the literal sense.
The position will have to be viewed with objectivity in an impersonal manner.
[985A D] Halsbury 's Laws of England, 4th Edn. paras 1044 and 1045; relied on.
The erroneous description of the manufacturing Compa ny in the advertisements in question does not attract section 36 A of the M.R.T.P. Act.
[986B]
|
vil Appeals Nos.
2 4 of 1975.
From the Judgment and Order dated 8th 9th November 1973 of the Gujarat High Court in Estate Duty Reference Nos. 2, 3 and 4 of 1971.
Dr. V. Gauri Shankar and Miss A. Subhashini for the Appel lant.
V.S. Desai, Mrs. A.K. Verma and Joel Peres for the Respondents.
The Judgment of the Court was delivered by PATHAK, CJ.
The facts in these appeals lie within a narrow compass.
One Abdulhussein Gulamhussein Merchant died on 8 February, 1959.
The accountable persons filed returns under the provisions of the and an assessment was made by the Deputy Controller of Estate Duty on 26 February, 1960.
The Estate Duty (Amendment) Act, 1958, repealed the original sections 56 to 65.
Section 59, which substituted for the original section 62, made provision for reassessment.
It came into force with effect from 1 July 1960.
On 21 February, 1962 a notice under the new section 59 of the Act was issued to the accountable person concerned for reopening the assessment on the ground that some property had escaped the levy of estate 990 duty.
The accountable persons raised objections to the reopening of the assessment under section 59.
The Assistant Controller rejected the contentions of the accountable persons and reopened the assessment.
Against the order of reassessment the accountable persons filed three different appeals before the Appellate Controller.
The Appellate Controller allowed the appeals and set aside the reassess ment orders holding that section 59 under which action had been taken by the Assistant Controller was not retrospective in operation.
On appeal by the Revenue, the Tribunal upheld the view of the Appellate Controller relying on the decision of the Bombay High CoUrt in A.N. Mafatlal vs Deputy Controller of Estate Duty, Thereafter three references were made to the High Court at the instance of the Revenue raising the identical question: "Whether Section 59 of the is retrospective in operation and if so, in the facts and circumstances of the case, the reopening of the assessment under section 59 of the said Act was bad in law?" Section 62 as originally enacted read as follows: "Rectification of mistakes relating to valua tion for estate duty:, (1) If, after the determination of the estate duty payable in respect of any estate, it appears to the Controller that by reason of any mistake apparent from the record or of any mistake in the valuation of any property in any case other than a case in which the valuation has been the subject matter of an appeal under the Act or of the omission of any property, the estate duty paid thereon is either in excess of or less than the actual duty payable, he may, either on his own motion or on the appli cation of the person accountable and after obtaining the previous approval of the Board, at any time within three years from the date on which the estate duty was first determined (a) refund the excess duty paid, or, as the ease may be, (b) determined the additional duty payable on the property; Provided that where the person accountable had fraudulently under estimated the value of any property or omitted any property, the period will be six years: 991 Provided further that no order shall be made under this sub section unless the person accountable has been given an opportu nity of being heard.
(2) Nothing contained in sub section (1) shall render any.
person accountable to whom a certificate that the estate duty has been paid is granted liable for any additional duty in excess of the assets of the deceased which are still in his possession, unless the person accountable had fraudulently attempted to evade any part of the estate duty in the first instance.
" The provisions of section 59 introduced by the Amendment Act of 1958 are as follows: "59.
Properly escaping assessment. ' If the Controller, . . (a) has reason to believe that by reason of the omission or failure on the part of the person accountable to submit an account of the estate of the deceased under Section 53 or Section 56 or to disclose fully and truly all material facts necessary for assessment, any property chargeable to estate duty has escaped assessment by reason of undervaluation of the property included in the account or of omission to include therein any property which ought to have been included or of assessment at too low a rate or otherwise, or (b) has, in consequence of any infor mation in his possession, reason to believe notwithstanding that there has not been such omission or failure as is referred to in clause (a) that any property chargeable to estate duty has escaped assessment, whether by reason of under valuation of the property included in the account or of omission to include therein any property which ought to have been included, or of assessment at too low a rate or otherwise, he may at any time, subject to the provisions of section 73A, require the person accountable to submit an account as required under section 53 and may proceed to 992 assess or reassess such property as if the provisions of Section 58 applied thereto." The High Court considered the question of law referred to it at great length and after a detailed judgment answered the question in each case in favour of the assessee.
The Revenue now appeals.
The question is whether the newly enacted section 59 of the is retrospective in operation so as to affect the assessment already completed on the accountable persons.
It is urged that the new section 59 is substantially similar in content as the old section 62 and therefore the new provision must be regarded as retrospective.
The contention may be examined.
The Estate Duty (Amendment) Act, 1958 effected a sub stantial change in the parent Act.
56 to 65 were substi tuted in place of the existing sections 56 to 65, and the origi nally enacted section 62 was repealed.
The original section 62 provid ed essentially for the rectification of mistakes apparent from the record or in the valuation of any property or by reason of the omission of any property.
The newly enacted section 59 deals with property escaping assessment.
The provision is analogous to section 34 of the Indian Income Tax Act, 1922 and section 147 of the Income Tax Act, 1961.
It seems to us that the new section 59 endeavours to cover a substantially different area from that treated by the old section 62.
The only area which seems common to the two provisions relates to the "omission of any property", but it seems to us that the incidents of the power under section 62 relate to a situation materially different from the incidents of the power contemplated under section 59.
The High Court has closely analysed the provisions of the two sections and has come to the conclusion that the power of reassessment conferred by the new section 59 is quite different from the power conferred by the old section 62.
We are in agreement with the High Court.
The contention on behalf of the Revenue based on the identity alleged between the new section 59 and the old section 62, and that, therefore, the new sec tion should be regarded as retrospective cannot be accepted.
As .it stands, there are no specific words either which confer retrospective effect to section 59.
To spell out retro spectivity in section 59, then, there must be something in the intent to section 59 from which retrospective operation can be necessarily inferred.
We are unable to see such intent.
The new section 59 is altogether different from the old section 62 and 993 there is nothing in the new section 59 from which an intent to give retrospective effect to it can be concluded.
The new section 59 came into force from 1 July, 1960.
Much earlier, on 26 February, 1960 the assessment on the account able person had already been completed.
There is a well settled principle against interference with vested rights by subsequent legislation unless the legislation has been made retrospective expressly or by necessary implication.
If an assessment has already been made and completed, the assessee cannot be subjected to re assessment unless the statute permits that to be done.
Reference may be made to Controller of Estate Duty, West Bengal vs Smt.
IIa Das and others, where an attempt to reopen the Estate Duty assessment consequent upon the insertion of the new section 59 of the was held infructuous.
We hold that section 59 of the is not retro spective in operation and that the reopening of the assess ment under section 59.
of the Act is bad in law.
In the result the appeals fail and are dismissed with costs.
N.V.K. Appeals dismissed.
| IN-Abs | The respondents who were the accountable persons filed returns under the , and an assessment was made by the Deputy Controller of Estate Duty Appellant on 26th February.
The Estate Duty (Amendment) Act, 1958 repealed the original sections 56 to 65.
Section 59 which substituted for the original section 62 made provision for re assessment.
It came into force with effect from 1st July, 1960.
On 21st February, 1962, a notice under the new section 59 of the Act was issued to the respondents for re opening the assessment on the ground that some property had escaped the levy of estate duty.
The respondents raised objections but the same were rejected by the Assistant Controller who reopened the assessment.
Against the aforesaid order three different appeals were filed by the respondents before the Appellate Controller, who allowed the appeals.
set aside the reassessment order holding that section 59 under which action had been taken by the Assistant Controller was not retrospective in operation.
On appeal by the Revenue, the Tribunal upheld the view of the Appellate Controller relying on the decision of the Bombay High Court in A.N. Mafatlal vs Deputy Controller of Estate Duty, Thereafter.
at the instance of the Revenue 3 references were made 988 to the High Court raising the indentical question whether section 59 was retrospective in operation and reopening of the assessment under section 59 was bad.
The High Court analysed the provisions of the new section 59 and the old section 62.
came to the conclusion that the power of reas sessment conferred by the new section 59 Is quite different from the power conferred by the old section 62.
and answered the question in each case in favour of the assessee.
The Revenue appealed to this Court.
On the question: whether the newly enacted section 59 of the is retrospective in operation so as to affect the assessment already completed on the accountable persons.
Dismissing the appeals, the Court HELD: 1.
Section 59 of the is not retro spective in operation and reopening of the assessment under section 59 of the Act in the instant case is bad in law.
[993D] 2.
The Estate Duty (Amendment) Act.
1958 effected a substantial change in the parent Act.
Sections 56 to 65 were substituted in place of the existing sections 56 to 65.
and the originally enacted section 62 was repealed.
The original section 62 provided essentially for the rectification of mistakes apparent from the record or in the valuation of any property or by reason of the omission of any property.
[992D E] 3.
The newly enacted section 59 deals with properly escaping assessment.
The provision is analogous to section 34 of the Indian Income Tax Act.
1922 and section 147 of the Income Tax Act.
The new Section 59 endeavours to cover a substantially different area from that treated by the old section 62.
The only area which seems common to the two provisions relates to the "omission of any property", but the incidents of the power under section 62 relate to a situation materially different from the incidents of the power contemplated under section 59.
[992E F] 4.
There are no specific words which confer retrospec tive effect to section 59 as it stands.
To spell out retro spectivity in section 59 there must be something in the intent to section 59 from which retrospective operation can be necessarily inferred.
There is no such intent.
[992G H] 5.
The new section 59 is altogether different from the old section 989 62 and there is nothing new in the new section 59 from which an intent to give retrospective effect to it can be conclud ed.
[992H; 993A] 6.
There is a well settled principle against interfer ence with vested right by subsequent legislation unless the legislation has been made retrospective expressly or by necessary implication.
If an assessment has already been made and completed, the assessee cannot be subjected to re assessment unless the statute permits that to be done.
[993B C] 7.
The new section 59 came into force from 1st July, 1960.
Much earlier, on 26th February, 1960.
the assessment on the accountable persons in the instant case had already been completed.
there can be no question of reopening the assessment.
[993B] Controller of Estate Duty, West Bengal vs Smt.
IIa Das and Others, [198l] relied on.
|
ivil Appeal No. 950 (N) of 1973.
From the Judgment and Order dated 2.8.1972 of the Bombay High Court in Special Civil Application No. 2826 of 1969.
Pinaki Misra, P.H. Parekh and Ms. Sunita Sharma for the Appellants.
V .N. Ganpule and V.D. Khanna for the Respondents.
The Judgment of the Court was delivered by SHARMA, J.
The subject matter of this appeal is 13.30 acres of land in Sholapur District, within the State of Maharashtra.
The appellants are the heirs of one Mugaji Laxman Padule, who was the tenant of the land for about 3 decades before the Bombay Tenancy and Agricultural Land Act, 1948 (hereinafter referred to as the Act) was 240 enacted.
Under the provisions of the Act, Mugaji was enti tled to purchase the land on satisfaction of certain condi tions.
Admittedly he did not satisfy these conditions and said so before the authorities concerned.
The landlords who are now represented by the respondents, were claiming pos session of the area under the Act.
Mugaji, subsequently, made a claim to the Land on another basis.
On his death in 1962, his heirs the appellants were substituted.
The matter was considered by several authorities under the Act, who ultimately rejected the appellants ' case.
The appellants, thereafter moved the Bombay High Court by an application under Article 227 of the Constitution of India, which was rejected by the impugned judgment.
The procedure for the tenant to purchase the land is laid down in Sec.
32G of the Act.
It enjoins the Agricultur al Land Tribunal constituted under Sec. 67 to publish a public notice calling upon the tenants, the landlords and any other interested person to appear before it on a speci fied date.
The Tribunal is also required to issue individual notices to the landlords and the tenants, and thereafter to decide the competing cases.
32A limits the right of a tenant holding other Lands to such area only which will raise his holding to the extent of the ceiling area.
Admit tedly Mugaji was already possessed of lands beyond the ceiling area and he, therefore, did not claim to have pur chased the land in accordance with the provisions of the Act.
In a situation where a tenant is not able to success fully claim the land, it has to be disposed of in the manner provided in Sec.
32P, which states that the former tenant would be summarily evicted and the land would be surrendered to the landlord.
In the present case the land in question, thus, went to the landlords.
According to the case of the appellants, on a partition in the family of the landlords the disputed land was allotted to the share of the respond ents 2 to 4 and Mugaji purchased the same for a sum of Rs. 3,000 from them on 3.6.1960.
The appellants alleged that by this date, i.e., 3.6.1960 the land held by Mugaji was within the ceiling area following a partition between him and his sons on 13.10.1959. 3.
The respondents moved the authorities under the Act in 1963 for recognising their claim.
They did not implead the appellants and suppressed the fact of the sale on 3.6.1960 in favour of Mugaji.
The Agricultural Lands Tribu nal and Additional Mamlatdar relying on the enquiry under Sec.
32G, wherein the right of Mugaji as a tenant was nega tived, upheld the claim of the present respondents by his order dated 28.4.1963.
When the appellants learnt about it, they filed an appeal before the Collector.
They also chal lenged the earlier order 241 passed against Mugaji under Sec.
32G. The Collector remanded the matter on 25.9.1963.
The Additional Mamlatdar by his order dated 8.2.
1964 observed that since the tenant had purchased the suit land from the landlords, the proceeding was fit to be dropped and it was appropriate to deal with the case under Sec.
84C of the Act.
84C states that in respect of a transfer of any land made after 1955 if the Mamlatdar has reason to believe that the transfer was in valid on account of any of the provisions of the Act, he would issue notice and hold an enquiry and decide whether the transfer is invalid or not.
In 1965 a further order was passed in the case wherein the Agricultural Lands Tribunal held the purchase by Mugaji on 3.6.1960 as lawful and upheld the claim of the appellants.
The order was upheld in appeal, and the respondent No. 3 filed a revision application before the Revenue Tribunal.
It was contended on behalf of the present appellants that after the partition between Mugaji and his sons in 1959 the area held by him came below the ceiling level and he was, thus.
entitled to purchase the land on 3.6.
The Maharashtra Revenue Tribunal held that the land owned by Mugaji did not belong to the joint family and his sons had no share therein, and the alleged partition, therefore, could not be accepted or recognised.
The result is that even in 1960, Mugaji was possessed of land beyond the ceiling area and he was not entitled to purchase further land from the respondents 2 to 4.
Thus, having lost the case, the appellants moved the Bombay High Court, and their application was rejected by a short judg ment passed on 2.8.
1972 which is under challenge in this appeal by Special Leave.
The learned counsel for appellants contended that the High Court was in error in assuming that the claim of the appellants was based on the right of Mugaji under Sec.
32G of the Act in the capacity of a tenant; and also in relying on Sec.
10 of the Maharashtra Agricultural Lands (Ceiling on Holdings) Act, 1961.
The learned counsel appears to be right but for this reason the appellants can not succeed.
The ban on transfers which may affect the ceiling law is more severe under the Bombay Tenancy and Agricultural Lands Act, 1948.
63 directs that no sale of land shall be valid in favour of a person who will after such sale hold land ex ceeding two thirds of the ceiling area determined under the Maharashtra Agricultural lands (Ceiling on Holdings) Act, 1961.
The fact that on the death of Mugaji in 1962 his earlier holdings were inherited by his heirs and the respec tive holdings, therefore, came below the ceiling area is immaterial, because the disputed land was purchased by Mugaji himself in 1960.
It has to be remembered that, as has been held by the Revenue Tribunal, the other 242 lands exclusively belonged to Mugaji and exceeded the ceil ing area.
The sale on 3.6.1960 must, therefore, be held to be illegal and inoperative.
Consequently, the appellants must lose although for slightly different reasons than those given by the High Court.
The appeal is accordingly dismissed but in the circumstances without costs.
G.N. Appeal dis missed.
| IN-Abs | The appellants are the heirs of one A who was the tenant of the land in question for about three decades before the Bombay Tenancy and Agricultural Land Act, 1948 was enacted.
Though he was entitled to purchase the land on satisfaction of certain conditions, it was admitted before the authori ties that he did not satisfy the conditions.
The landlords claimed possession of the land.
A was already possessed of land beyond the ceiling area prescribed by Sec.
32A of the Act and he, therefore, did not claim to have purchased the land in accordance with the provisions of the Act.
Since in such cases.
32P provides that the former tenant would be summarily evicted and the land would be surrendered to the landlord, the land in question went to the landlords.
The appellants claimed that on a partition in the family of the landlords the land in question was allotted to some of the respondents and A purchased the same for Rs. 3000 on 3.6.1960.
It was contended that the land holding of A was within the ceiling area following the partition in 1959 between him and his sons.
Suppressing the sale of the land and without impleading the appellants, the respondents moved the authorities in 1963 for recognising their claim.
The Agricultural Land Tribunal and the Additional Mamlatdar upheld the claim of the respondents, relying on an enquiry under Section 32G, wherein the right of A as a tenant was negatived.
the appel lants filed an appeal before the collector, who remanded the matter to the Mamlatdar.
The Additional Mamlatdar observed that since the tenant had purchased the land from the land lords, the proceeding was fit to be dropped and it would be appropriate to deal with the case under Section 84C which provided holding of an enquiry to decide the validity of the transfer.
After such enquiry the Agricultural Lands Tribunal held that the purchase made on 3.6.1960 by A was lawful and upheld the claim of the appellants.
This was confirmed on appeal and one of the respondents filed a revision applica tion before the 239 Revenue Tribunal.
The Tribunal held that the land owned by A did not belong to the joint family and his sons had no share therein and so the alleged partition could not be accepted or recognised.
And in 1960, A was possessed of land beyond the ceiling area and was not entitled to purchase further land from respondents.
The appellant moved the High Court under Article 227 of the Constitution.
The High Court re jected the petition.
This appeal, by Special Leave, is against the High Court 's Judgment.
Dismissing the appeal, HELD: The ban on transfers which may affect the ceiling law is more severe under the Bombay Tenancy and Agricultural Lands Act, directs that no sale of land shall be valid in favour of a person who will, after such sale, hold land exceeding two thirds of the ceiling area deter mined under the Maharashtra Agricultural Lands (Ceiling on Holdings) Act, 1961.
The fact that on the death of A in 1962 his earlier holdings were inherited by his heirs and the respective holdings, therefore, came below the ceiling area, is immaterial because the disputed land was purchased by A himself in 1960.
It has to be remembered that, as has been held by the Revenue Tribunal, the other lands exclusively belonged to A and exceeded the ceiling area.
The sale on 3.6.1960 must, therefore, be held to be illegal and inopera tive.
[241G H; 242A]
|
vil Appeal No. 1491 (NN) of 1988.
From the Judgment and Order dated 30.5.
1986 of the Delhi High Court in W. No. 578 of 1981.
A. Subba Rao, P. Parmeshwaran and Mrs. Sushma Suri for the Appellants.
H.N. Salve, P.K. Ram and D.N. Misra for the Respondent.
872 The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.
This is an appeal by special leave and is connected with Civil Appeal No. 859.
This is an appeal from the judgment and order of the High Court of Delhi dated 30th May, 1986.
It appears that in October, 1975, Trade Notices were issued on the basis of the directive of the Ministry of Finance to the effect that the owners of the brand name are to be treated as the manufacturers of the goods.
In April, 1977, price list submitted by the respondent declaring the assessable value on the basis of the price at which the assessee respondent sold the goods.
Thereafter on 16th April, 1977, there was a letter written by respondent giving the list of the customers of the respondent and clarifying the terms and conditions on which the assessee sold the goods.
On August 22, 1977, the appellants wrote a letter to the assessee respondent seeking certain information, intera lia, to the effect whether the assessee and its buyers were related persons.
A reply was given on 10th September, 1977 by the assessee to the aforesaid letter.
First notice was issued asking the assessee to show cause as to why the assessable value be not determined at the price the buyers of the assessee sold the goods (instead of the price at which the assessee sold the goods to its buyers).
There was a reply and the second show cause notice was issued on 28th January, 1981.
These show cause notices were challenged and the High Court quashed the said notices.
Aggrieved thereby, this appeal has been filed.
The respondent is a registered company carrying on the business of manufacturing and selling filters.
Some of the goods are sold by the respondent to its customers under the respective brand names.
The respondent filed a price list at which price the goods were sold to the customers.
In view of the principles indicated in the judgment in Civil Appeal No. 859 and the facts adduced before the High Court, the High Court 's judgment cannot be interfered.
The appeal, therefore, fails and is accordingly dismissed.
T.N.A. Appeal dismissed.
| IN-Abs | The respondent company, manufacturer of filters, was selling the goods to its customers under brand names.
It declared its assessable value on the basis of the price at which it sold the goods.
Show Cause Notices, requiring assessable value to he determined at the price the buyers of the respondent company sold the goods, issued to the re spondent were challenged by it and quashed by the High Court.
Hence this appeal by the Revenue.
Dismissing the appeal, this Court HELD: 1.
For the purposes of the excise duty, the market value of the goods of the respondent company was the price charged by it, and not the market value at which the buyers of the respondent company sold the goods.
The High Court, therefore, rightly quashed the Show Cause Notices.
[872C] The Union of India & Ors.
vs M/s Playworld Electronics Pvt. Ltd. & Anr., Civil Appeal No. 859 of 1988 (S.C.) decid ed on 2nd May, 1989, applied.
|
ivil Appeal No. 9979 of 1983.
From the Judgment and Order dated 8.12.1982 of the Patna High Court in C.R. No. 377 of 1980 (R).
M.P. Jha for the Appellants.
D.P. Mukharjee for the Respondents.
The Judgment of the Court was delivered by 973 SHARMA, J.
The dispute in the present appeal by special leave is in regard to certain premises in the town of Ranchi in Bihar which belongs to the appellants and in which a cinema is running.
The contesting respondents have been occupying the property under a registered lease for a period of 20 years which expired on 31.7.1971.
They served a notice on the appellants on 16.7.1971 claiming the right to contin ue in possession after 31.7.1971 as tenants from month to month.
The appellants did not accept the claim and filed before Munsif, Ranchi a case purporting to be an application under section 12 of the Bihar Buildings (Lease, Rent and Evic tion) Control Act, 1947 (hereinafter referred to as the Act).
The respondents contested the application and raised several points in defence which were rejected by the learned Munsif.
The appellants ' application was allowed and an appeal therefrom filed by the respondents was dismissed by the Judicial Commissioner, Ranchi.
The respondents, then, moved the Patna High Court in its revisional jurisdiction, inter alia, contending that the appellants ' application under section 12 of the Act before the Munsif was not maintain able.
The plea was accepted by the High Court and the deci sion of the court below was set aside.
According to the appellants ' case the property earli er belonged to M/s Ganapathi Properties (Pvt.) Limited, the predecessor in title of the appellants.
The company had granted the lease in favour of one S.M. Ganguli who on his death was succeeded by his legal representatives.
There was due attornment of the tenancy and the lessees were liable to vacate the premises on 31.7.
197 1.
Their further case of induction of some of the respondents as sub tenants has been disbelieved and in view of the findings of fact in the case, it is not necessary to deal with this aspect now.
Apart from pleading that the application under section 12 was not maintainable and the allegations contained therein were incorrect, the respondents also stated that the heirs of late S.N. Ganguli had formed a partnership, as a result of which a new month to month tenancy was created, and the respondents, therefore, were not liable to eviction.
The parties differed on several questions of fact which, in view of the findings of the trial court and the appellate court, are not necessary to be detailed.
The parties led full evidence, both oral and documentary.
on the disputed issues and after an elaborate trial the learned Munsif accepted the appellants ' case that they are the successors in interest of the lessor company, and the legal representatives of late S.N. Ganguli the original lessee continued as tenants under the lease after due attornment and were liable to eviction after the expiry of the lease 974 period on 31.7.
The court accordingly directed the respondents to vacate the premises.
On appeal by the respondents, the learned Judicial Commissioner, Ranchi agreed with the findings of the learned Munsif on merits and concluded in paragraph 48 of the.judg ment thus: "Therefore, from the facts stated above it appears that the present landlords and tenants are the heirs and successors of the original lessor and the lessee respectively.
That being so, according to the terms of the deed of lease (Ext. 4) 1 have no hesitation in saying that the deed of lease (Ext. 4) is subsisting and the parties are having the relationship of lessors and lessees and also landlords and tenants respectively.
No month to month tenan cy had been created.
" He, however, modified the decision of the trial court in so far the learned Munsif had directed that his order would be executed and the respondents would be evicted from the premises on their failure to vacate within the time allowed.
The learned Judicial Commissioner confined his decision to deciding the issues between the parties and granting one month 's time to the respondents (appellants before him) for vacating the premises and further held that the appellants would have to make another application under section 12(3) of the Act for evicting the respondents if they did not vacate within the time allowed by court.
The respondents challenged the decision in C.R. No. 377 of 1980 (R) before the Patna High Court.
The learned Judge who heard the case held that in absence of a month 's notice under section 12(1) from the tenant, the application of the appellants was not maintainable before the Munsif, and the entire proceeding was mis conceived.
It was pointed out that in the circumstances the appropriate remedy of the appellants was to file a suit under section 11 of the Act.
Before proceeding further it will be helpful to examine the provisions of the section 12 which is quoted below: "12.
Extension of period limited by lease.
(1) If a tenant in possession of any building, held on a lease for a specified period, in tends to extend the period limited by such lease, he may give the landlord at least one month before the expiry of the period limited by the lease, a written notice of 975 his intention to do so; and upon the delivery of such notice the said time shall, subject to the provision of section 11, be deemed to have been extended by double the period covered by the original lease subject to a maximum of one year.
(2) Where the landlord to whom notice has been given under sub section (1) wishes to object to the extension demanded by the tenant on one or more of the grounds mentioned in sub section (1) of section 11 or on the ground that the landlord has any other good and sufficient cause for terminating the lease on the expiry of period limited thereby, he may, within fifty days of the delivery of such notice, appeal to the court in that behalf and the Court after hearing the parties may termi nate the lease or extend the same for such period as it deems proper in the circum stances.
Provided that the tenant shall not in any case be allowed to remain in possession of the building beyond the period permissible under sub section (1).
(3) If the tenant fails to vacate the building on the termination of the lease or as the case may be, on the expiry of the period fixed by the Court under sub section (2), the Court shall, on an application by the land lord, pass an order for ejectment, which shall be executed as a decree and may further order that the tenant shall pay to the landlord such amount as may be determined by it as daily compensation.
It has been contended on behalf of the appellants that an application under section 12 of the Act before the civil court was maintainable and the High Court was in error in holding otherwise.
The argument is that both the remedies, i.e., by an application under section 12 of the Act as also by way of a suit are open to a landlord after the expiry of the period of a fixed term tenancy, and it is for him to choose which course to follow.
Mr. Kameshwar Prasad, the learned counsel appearing on behalf of the respondents urged that on the expiry of such a tenancy the only remedy is to file a suit and in any event section 12 is wholly inapplicable in the facts of the case as the respondents, by their notice, did not seek an extension of the term of tenancy.
He asserted that according to their case in the notice a fresh tenancy had come into 976 existence.
The notice, therefore, was not one under section 12 of the Act at all.
We do not consider it necessary to decide the question as to whether a landlord after the expiry of the period of a fixed term lease is entitled to move the Court by an application under section 12 of the Act because even on assuming the argument of the respondents to be correct the appellants should succeed.
In view of the circumstances of the present case as discussed below, the proceeding arising out of the appellant 's application before the learned Munsiff should be treated as a suit and his decision as a decree.
It has to be kept in mind that it is the same court before which both a suit under section 11 and an application under section 12 are to be filed.
The Bihar Buildings (Lease, Rent and Eviction) Control Act refers to several authorities for decision of different issues, one of them being Control ler as defined in section 2(b) of the Act, and another 'Court as the court of general jurisdiction under the Code of Civil Procedure, 1908 as defined in section 2(bb).
So far the determi nation and redetermination of fair rent, or issuing appro priate directions relating to amenities in the premises and several other matters are concerned, the power is vested in the Controller.
But as regards the question of dealing with the eviction of tenants under section 11 and extension of period of lease under section 12, the civil court is the proper forum.
In the present case it is the Civil Court, Ranchi which is the appropriate court either for filing a suit for eviction under section 11 or making an application under section 12.
There is, thus, no difficulty so far the jurisdiction of the court is concerned.
The question is whether the petition which was filed by the appellants as an application under section 12 should be treated as a plaint and the impugned proceeding as the one in a suit followed by an appeal and a second appeal.
With the assistance of learned counsel for the par ties we have gone through the relevant papers in the case and are satisfied that both the parties dealt with every aspect of the case from their respective angles elaborately, and led their full evidence both oral and documentary and the case was tried by the learned Munsif in the same manner as the trial of an eviction suit.
The decision of the learned Munsif is also a detailed one considering every relevant question in the case.
The respondents filed a regular appeal from the decision before the District Judge, Ranchi, designated as Judicial Commissioner, and he also went into the entire controversy thoroughly.
The respondents lost the case once more and moved the High Court but in civil revision application instead of second appeal, presum ably because the Judicial Commissioner after deciding the disputed issues in favour of the present appellants instead of confirming the decree of 977 the Munsif directed them to file a fresh application under section 12(3) for a formal decree of eviction.
The judgment of the High Court indicates that the scope in which the argu ments by the parties were addressed was the same as in a second appeal, and the decision also was accordingly given.
The findings on the disputed issues of fact between the parties were concurrently recorded against the tenants by the first two courts and it was not open to the High Court to reverse them under section 100, C.P.C. We have also gone through the judgments of the first two courts on this aspect and considered the criticism of Mr. Kameshwar Prasad, learned counsel for the respondents appearing before us, and we do not find any error therein.
In these circumstances, it is wholly immaterial as to whether the application original ly filed by the appellants before the Munsif was not in the form of a plaint specially when the necessary verification was also there at the foot of the petition.
The only differ ence may be as to the amounts of court fees payable by the appellants in the first court and by the respondents before the Judicial Commissioner and the High Court, but that should not come in the way in construing the correct nature of the proceeding.
A similar approach was adopted in several cases decided by some High Courts and we would like to refer to three decisions in this regard.
In Madho Bibi vs Hazari Mal Marwari, AIR 1929 Patna 141, a suit was dismissed as against one of the defendants who in the proceeding of execution of the decree filed an objection to an attachment order under Order XXI, Rule 58, C.P.C. which was recorded under that Rule only.
The court proceeded under that Rule and after making inquiries reject ed the claim.
When a revision application was filed before the High Court, it was held that the objection petition, though wrongly preferred under Order XXI, Rule 58, must be treated as one under section 47, and the order passed by the court would have the effect of a final order under section 47 which would be appealable as a decree and against which no revision would lie.
In another decision by the same Court in Hazari Lal vs Ramjiwan Ramchandra and others, AIR 1929 Patna 472, the Division Bench held that a defendant against whom a suit is dismissed is nevertheless party to the suit, and an objection petition though described by him as one Under Order XXI, Rule 58, C.P.C, is such as would fall under section 47 and so the decision on it is appealable and a regular suit is barred.
In Lachhoo vs Munnilal Babu Lal, AIR 1935 Allaha bad 183, it was observed that in considering whether an application is under section 47 or not, the court must examine the substance of the application to find out its true nature and should not be guided solely by the heading given to it by a party.
The principle is well established that the exercise of a power will be referable to a 978 jurisdiction which confers validity upon it and not to a jurisdiction under which it will be nugatory, and there is no reason to exclude the application of this rule to judi cial proceedings.
In a case dealing with compulsory retire ment this Court in M.R. Singh vs The Chief ' Commissioner (Admn.) Manipur and others; , , observed that "if power can be traced to a valid power, the fact that the power is purported to have been exercised under a non exist ing power does not invalidate the exercise of the power".
If it is assumed that an application under section 12 of the Act is not maintainable in the facts and circumstances of the present case, in our opinion, the proceeding has to be treated as a suit and the judgment of the learned Munsif as a decree therein.
A further question may arise as to the effect of the Judicial Commissioner, Ranchi declining to pass a formal decree of eviction and directing the appel lants to make an application under section 12(3) of the Act for that purpose.
Can this Court restore the decree of the trial court in absence of an appeal by the appellants before the High Court? We think that we can and we should.
The question does not affect the substantive right of the parties as the controversy was concluded by the first appellate court in favour of the appellants.
What was left was only procedural in nature and inconsistent with our decision to treat the proceedings as a suit.
The occasion for filing an applica tion under section 12(3) can arise only where the matter is covered by section 12, and as we have made an assumption in favour of the respondents that section 12 has no application to the present case, there is no point in asking the appellants to file such an application.
As mentioned in article 142 of the Constitution of India, this Court may pass such decree or make such order as is necessary for doing complete justice in any cause or matter pending before it, and the present case is a most appropriate one for exercise of such power.
Accordingly, we set aside the judgment of the High Court and restore the decree passed by the Munsif, Ranchi.
The re spondents are directed to restore peaceful possession of the premises in question to the appellants within one month from today, failing which the appellants shall be entitled to execute the decree in accordance with law.
The appeal is allowed, but the parties are directed to bear their own costs throughout.
R.S.S. Appeal allowed.
| IN-Abs | The contesting respondents have been in occupation of the demised property under a registered lease for 20 years, which was to expire on 31.7.1971.
They served a notice on the appellants on 16.7.1971 claiming the right to continue in possession after 31.7.1971 as tenants from month to month.
The appellants did not accept the respondents ' claim and filed before the Munsif a case purporting to be an application under section 12 of the Bihar Buildings (Lease, Rent and Eviction) Control Act, 1947.
The respondents con tested the application on the ground that as heirs of the original lessee, they had formed a partnership as a result of which a new month to month tenancy had been created.
They further contended that the appellants ' application before the Munsif under section 12 was not maintainable.
The Munsif accepted the appellants ' case that the legal representatives of the original lessee continued as tenants under the lease after the attornment and were liable to eviction after the expiry of the lease period.
The Judicial Commissioner dis missed the respondents ' appeal holding that the deed of lease was subsisting, the parties were having the relation ship of lessors and lessees, and no month to month tenancy had been created.
The Judicial Commissioner further held that the appellants would have to make another application under section 12(3) of the Act for evicting the respondents if they did not vacate within the time allowed by court.
The High Court, in its revisional jurisdiction, set aside the decisions of the courts below and held that in the absence of a month 's notice under section 12(1) from the tenants, the application of the appellants under section 12 was not maintain able before the Munsif and the entire proceedings was mis conceived.
The High Court pointed out that in the circum stances the appropriate remedy of the appellants was to file a suit under section 11 of the Act.
971 Before this Court it was contended on behalf of the appellants that an application under section 12 of the Act before the Civil Court was maintainable, and that both the reme dies.
i.e., by an application under section 12 of the Act as also by way of a suit were open to a landlord after the expiry of the period of a fixed term tenancy, and it was for him to choose which course to follow.
On behalf of the respondents it was contended that on the expiry of such a tenancy the only remedy was to file a suit, and in any event section 12 was wholly inapplicable as, according to their case in the notice, a fresh tenancy had come into existence, and as such their notice was not one under section 12 of the Act at all.
Allowing the appeal, this Court HELD: (1) The Act refers to several authorities for decision of different issues.
As regards the question of dealing.
with the eviction of tenants under section 11 and exten sion of period of lease under section 12, the civil court is the proper forum.
It is the same court before which both a suit under section 11 and an application under section 12 are to be filed.
[976C, D] (2) The instant case was tried by the learned Munsif in the same manner as the trial of an eviction suit.
The re spondents filed a regular appeal before the District Judge, designated as Judicial Commissioner, and he also went through the entire controversy thoroughly.
The judgment of the High Court indicates that the scope in which the argu ments by the parties were addressed was the same as in a second appeal, and the decision also was accordingly given.
In these circumstances, it is wholly immaterial as to wheth er the application originally filed by the appellants before the Munsif was not in the form of a plaint, specially when the necessary verification was also there at the foot of the petition.
The only difference may be as to the amount of court fee payable by the parties, but that should not come in the way of construing the correct nature of the proceed ings.
[976G H; 977C D] Madho Bibi vs Hazari Mal Marwari, AIR 1929 Patna 141 and Hazari Lal vs Ramjiwan Ramchandra, AIR 1929 Patna 472, referred tO. (3) The court must examine the substance of the applica tion to find out its true nature and should not be guided solely by the heading given to it by a party.
[977G H] 972 Lachhoo vs Munnilal Babu Lal, AIR 1935 All.
183, referred to.
(4) The principle is well established that the exercise of a power will be referable to a jurisdiction which confers validity upon it and not to a jurisdiction under which it will be nugatory, and there is no reason to exclude the application of this rule to judical proceedings.
[977H; 978A] R.P. Singh vs The Chief Commissioner (Admn.) Manipur, ; referred to.
(5) If it is assumed that an application under section 12 of the Act is not maintainable in the facts and circumstances of the present case, the proceeding has to be treated as a suit and the judgment of the learned Munsifas a decree therein.
[978C] (6) The occasion for filing an application under section 12(3) can arise only where the matter is covered by section 12, and as an assumption has to be made in favour of the re spondents that section 12 has no application, there is no point in asking the appellants to file such an application.
[978E] (7) This Court can and should restore the decree of the trial court even in the absence of an appeal by the appel lants before the High Court against the order of the Judi cial Commissoner declining to pass a formal decree of evic tion and directing the appellants to make an application under section 12(3) of the Act for that purpose.
As mentioned in Article 142 of the Constitution, this Court may pass such decree or make such order as is necessary for doing complete justice in any case or matter pending before it, and the instant case is a most appropriate one for exercise of such power.
[978D F]
|
ivil Appeal No. 2858 of 1977.
From the Judgment and Order dated 16.12.
1976 of the Allahabad High Court in Civil Miscellaneous Writ No. 179 of 1976.
A. Subba Rao, P. Parmeshwaran and Mrs. Sushma Suri for the Appellants.
H.N. Salve, Ravinder Narain, K.C. Dua, P.K. Ram and D.N. Misra for the Respondents.
The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.
This is an appeal by special leave from the judgment and order of the High Court of Allahabad dated 16th December, 1976.
875 The question in this case was the valuation of goods for the purpose of levy of excise duty under the Central Excises & Salt Act, 1944 (hereinafter referred to as 'the Act ').
The respondent company had submitted its price list in Form IV to the Superintendent, Central Excise containing,the price at which five companies to which it sold its entire output (hereinafter referred to as the Customer Companies) sold those products.
The customer companies thereafter sold their products.
The respondent challenged the direction of the Superintendent and had contended that for the purpose of levy of excise duty the value of its products should be the prices at which it sold those products to the customer companies and not the prices at which these in turn sold those products to wholesale dealers or others.
The respond ent company was registered under the Indian Companies Act, 19 13.
At the relevant time, there were five shareholders of the company, namely, Bajaj Electricals Ltd., Bombay, Cromp ton Parkinson Ltd., London, N.V. Philips, Eindhoven (Hol land), General Electricals Co. Ltd., London and Mazda Lamp Co. Ltd., Licencester, England.
Except M/s Bajaj Electricals Ltd., the aforesaid four companies are referred to as the foreign companies.
The said Bajaj Electricals held 1,80,000 shares in the respondent company.
It is called 'A ' share holder.
The four foreign companies together held 1,80,000 shares.
These are called 'B ' share holders.
The respondent company was engaged in manufacture of electric lamps, fluo rescent lamps and miniature lamps.
It sold its entire output of the products exclusively to the following customer compa nies: (a) Bajaj Electricals Ltd. (b) Philips India Ltd. (c) Crompton Greaves Ltd. (d) General Electric Co. of India Ltd. (e) Mazda Lamps Co. Ltd. On the lamps manufactured by the respondent company, it put the brand names of trade marks like Philips, Osram, Mazda, Crompton and Bajaj of the respective Customer Compa nies according to their directions.
The Customer companies in turn sold these lamps under their names at prices higher than the prices charged by the respondent company.
Excise duty on electric lamps and fluorescent lamps was levied for the first time in the year 1965.
At first, excise duty on lamps was a specific duty.
Later, excise duty on them was changed from specific to ad valorem duty.
After such change, there was a controversy between the respondent company and the central excise authorities as to whether the prices charged by the respondent com 876 pany to its customer companies for its products or the prices charged by the customer companies when they sold them to wholesale dealers and others, should be the basis for determination of the value for levy of excise duty.
Being aggrieved by the insistance of the Central Excise authori ties that the latter prices should be the value for levy of excise duty, the respondent company approached the High Court of Allahabad by Civil Misc.
Writ No. 2 189 of 1973.
The High Court by its order dated 14th May, 1974, allowed the writ petition and held that the prices at which the respondent company sold its products to the customer compa nies, should be the value for levy of excise duty and not the price at which the customer companies sold these to wholesale dealers and others.
The Central Excise authori ties, however, had taken the view that the aforesaid deci sion of the High Court which was rendered on the basis of the old section 4 as it stood before it was amended by the Amendment Act of 1973 did not apply to the levy of excise duty subsequent to the Amendment Act coming into force on 1st October, 1973.
On the other hand, the contention on behalf of the respondent company was that the aforesaid amendment of the Act had not altered the legal position so far as the respondent company was concerned and that the decision of the High Court would be binding.
It appears that the Central Excise Authorities were wrong in view of the observations of this Court in Union of India vs Bombay Tyre International Ltd., ; , where this Court observed that it was not the intention of the Parliament while enacting the new section to create a scheme materially different from that embodied in the superseded section 4.
The object and purpose remained the same, and so did the central principle of the scheme.
The new scheme was merely more comprehensive and the language employed more precise and definite.
As in the old section 4, the terms in which the value was defined remained the price charged by the assessee in the course of wholesale trade for delivery at the time and place of removal.
See the observations at pages 377 and 378 of the said Report.
The High Court referred to the decision of this Court in A.K. Roy vs Voltas Ltd., ; and also in Union of India vs Atic Industries Ltd., ; The real question that arose in this case is whether the five customer companies can be regarded as 'related persons ' as defined in section 4(4)(c).
The definition of that con sists of two parts.
The first part refers to a person who is so associated with the assessee that each has interest, directly or indirectly in the business of the other and the second part of that definition refers to a holding company, a subsidiary company, a relative and a distributor of the assessee and any sub 877 distributor of such distributor.
The High Court held that in order for the respondent company to come within the first part of the definition, the respondent company and the customer companies must have interest, directly or indirect ly, in the business of each other.
Such of the customer companies which held shares in the respondent company, could be said, according to the High Court, to have interest in the business of the respondent company.
But only one of the customers companies, namely, Bajaj Electricals Ltd., Bombay, held shares in the respondent company.
The remaining four customer companies did not hold any shares in the respondent company.
It was further contended before the High Court that those four customer companies were respectively associated companies of the four foreign companies and that hence those four customer companies must also be held to have interest indirectly, if not directly, in the business of the respond ent company.
The High Court found that in the absence of material, it was not possible to accede to the contention of the company.
What is 'interest, directly or indirectly ', has been explained in Union of India & Ors.
vs Atic Industries Ltd., (supra).
In that case, the respondent assessee, a limited company, was engaged in the business of manufactur ing dyes.
Its 50 per cent share capital was held by Atul Products Ltd. and the remaining 50 per cent by Imperial Chemical Industries Ltd., London which also had a subsidiary company fully owned by it, called Imperial Chemical Indus tries (India) Pvt.
Ltd. The Imperial Chemical Industries (India) Pvt. Ltd. ceased to be a subsidiary company wholly owned by the Imperial Chemical Industries Ltd., London on 13th March, 1978, since 60 per cent of the share capital of Imperial Chemical Industries (India) Pvt. Ltd., was offered to the public in pursuance of the policy of the Government of India requiring that not more than 40 per cent of the share capital of an Indian company should be held by a foreign shareholder.
Consequent upon this dilution of for eign shareholding, the name of Imperial Chemical Industries (India) Pvt. Ltd. was changed to Crescent Dyes and Chemicals Ltd. The assessee in that case at all material times sold the large bulk of dyes manufactured by it in wholesale to Atul Products Ltd. and Imperial Chemical Industries (India) Pvt. Ltd. which subsequently came to be known as Crescent Dyes and Chemicals at a uniform price applicable alike to both these wholesale buyers and those wholesale buyers sold these dyes to dealers and consumers at a higher price which inter alia included the expenses incurred by them as also their profit.
The transactions between the assessee on the one hand and Atul Products Ltd. and Crescent Dyes and Chemi cals Ltd. on the other were as principal to principal and the wholesale price 878 charged by the assessee to Atul Products Ltd. and Crescent Dyes and Chemicals Ltd. was the sole consideration for the sale and no extracommercial considerations entered in the determination of such price.
In that case, this Court held that on a proper interpretation of the definition of "relat ed person" in sub section (4)(c) of sec.
4, the words "relative and a distributor of the assessee" do not refer to any distributor but these were limited only to a distributor who is a relative of the assessee within the meaning of the .
It was held that the definition of "related person" is not unduly wide and does not suffer from any constitutional infirmity.
Reliance was also placed on the observations of this Court in Union of India & Ors.
vs Bombay Tyre International Ltd., (supra).
The first part of the definition defined "related person" to mean a person who is so associated with the assessee that each has interest, directly or indirectly, in the business of each other.
It is not enough that the assessee has an interest, direct or indirect in the business of the person alleged to be a related person nor is it enough that the person alleged to be a related person has an interest, direct or indirect in the business of the asses see.
To attract the applicability of the first part of the definition, the assessee and the person alleged to be a related person must have interest direct or indirect in the business of each other.
Each of them must have a direct or indirect interest in the business of the other.
The quality and degree of interest which each must have in the business of the other may be different; the interest of one in the business of the other may be direct while the interest of the latter in the business of the former may be indirect.
After analysing the facts, this Court came to the conclusion that there was no relationship.
Shri Sibal placed before us a Chart indicating the similarity of the facts of Atic Industries ' case (supra) and the facts of the present case.
In Atic Industries ' case, 50 per cent of share capital belonged to Atul Products Ltd. and 50 per cent to the Imperial Chemicals (London) Ltd., a foreign company.
In the case of the respondent herein, 50 per cent share capital belonged to the Bajaj Electricals Ltd. (Indian Company) and 50 per cent belonged to Philips (17.67%), Mazda (14.86%), G.E.C. (10.59%) and Crompton (6.88%), all foreign companies.
In case of Atic Industries, the sale of goods was on principal to principal basis and to a share holding company and to another company, which was initially a subsidiary of the foreign shareholding company and to which subsequently became "associate" company of the foreign shareholding company.
In the instant case also, it was on principal to principal basis and to a shareholding company (Bajaj Electricals Ltd.) 879 and so called to associate companies of the foreign share holding companies.
Goods were supplied to customers in their brand name in the case of Atic Industries as in the instant case.
In Atic Industries ' case, there was no allegation of extra commercial consideration and in the instant case also there was no allegation of extra commercial consideration.
In Atic Industries ' case, same prices were charged from all the customers, similar is the position in the instant case.
In the aforesaid view of the matter and in view of the ratio of the said decision, Shri Sibal sought to urge that the High Court was right in the view it took.
In our opin ion, Shri Sibal is right.
There is a lurking doubt that the five customer companies were the favoured customers, but no investigation seems to have been carried out.
The High Court while allowing the writ petition held that it was open to the Central Excise Authorities to examine whether or not the five customer companies were the favoured customers and whether the price at which the respondent company sold its products to these were the normal prices at which such goods were ordinarily sold by a manufacturer in the course of wholesale trade for delivery at the time and place of remov al.
Apparently, no such scrutiny was done.
In that view of the matter, the judgment and order of the High Court of Allahabad must be upheld and in view of the ratio of the decision in Civil Appeal No. 859, this appeal must fail without order as to costs.
R.N.J. Appeal dismissed.
| IN-Abs | The respondent company, a manufacturer of electric lamps, fluorescent lamps and miniature lamps sold its entire products to five customer companies namely (a) Bajaj Elec tricals Ltd. (b) Philips India Ltd. (c) Crompton Greaves Ltd. (d) General Electric Co. of India Ltd. and (e) Mazda Lamps Co. Ltd. after putting the brand names of the said Customer companies as per their directions.
The customer companies in turn sold these lamps under their respective names to wholesale dealers and others at prices higher than the prices charged to them by the Respondent Company.
Excise duty on electric lamps at first was a specific duty but later it was changed to ad valorem duty.
After such change there was a controversy between the Respondent Compa ny and the Central Excise authorities as to whether the prices charged by the Respondent Company to its customer companies or the prices charged by the customer companies when they in turn sold to wholesale dealers and others, should be the basis for determination of the value for levy of excise duty.
As the Department insisted that latter shall be the value for levy of excise duty, the Respondent Company moved a Writ Petition in the High Court of Allahabad.
The High Court by its order dated 14.5.74 allowed the Writ Petition holding that the prices at which the Respondent Company sold its products to the Customer companies should be the value for levy of excise duty and not the prices at which the customer companies sold these to wholesale dealers and others.
Hence this appeal by the Excise authorities.
874 Dismissing the appeal, this Court, HELD: The first part of Section 4(4)(c) refers to a person who is so associated with the assessee that each had interest, directly or indirectly in the business of the other and the second part of that definition refers to a holding company, a subsidiary company, a relative and a distributor of the assessee and any sub distributor of such distributor.
The sale by the assessee company was on princi pal to principal basis and the share holding company (Bajaj Electrical Ltd.) and so called to associate companies .of the foreign share holding companies.
Goods were supplied to the Customer companies in their brand names as in the case of Atic Industries case.
In Atic Industries case there was no allegation of extra commercial consideration and in the instant case also there was no such allegation.
In Atic Industries case, same prices were charged from all the customers, similar is the position in the instant case.
[876G H; 877H; 878A B] In view of the ratio of the decision of this Court in Atic Industries case the Judgment and order of the High Court is upheld and the appeal preferred by the Revenue dismissed.
[879E] Union of India vs Bombay Tyre International Ltd., ; ; A.K. Roy vs Voltas Ltd., ; and Union of India vs Atic Industries Ltd., ; , referred to.
|
vil Appeal Nos. 338 and 339 of 1981.
From the Judgment and Order dated 23.7.1980 of the Gujarat High Court in S.C.A. Nos.
405 of 1979 and 1263 of 1978.
Soli J. Sorabjee, N.A. Palkhiwala, Lalit Bhasin, Bina Gupta, S.S. Shroff, Mrs. P.S. Shroff, Ms. Malvika Rajkatia, R.F. Nariman, P.H. Parekh, Sanjay Bhartari, M.K.S. Menon, R.K. Dhillon, Ms. Rohini Chhabra, Ms. Sunita Sharma, Ms. Ayesha Misra, Harish N. Salve and Mukul Mudgal for the Appellants.
K. Parasaran, Attorney General B. Datta, Additional Solicitor General P.S. Poti, G.A. Shah, Dr. V. Gauri Shan kar, S.K. Dholakia, V. Jagannatha Rao, K. Sudhakaran, Ms. A. Subhashini, B.B. Ahuja, H.K. Puri, A. Subba Rao, A.S. Bhasme, K.R. Nambiar, M.N. Shroff, M. Veerappa, R. Mohan, R. Ayyamperumal and J.P. Misra for the Respondents.
The Judgment of the court was delivered by VENKATACHALIAH, J.
In these civil appeals and writ petitions the constitutional validity of legislations of different States viz., State of Gujarat, State of Tamil Nadu, State of Karnataka and State of West Bengal, imposing a tax on 'luxuries ' under Entry 62 of List II of VII Sched ule to the Constitution of India is challenged.
899 Civil Appeal Nos. 338 and 339 of 1981, writ petition Nos. 7990, 9119, 8338, 8339 of 1981 relate to the challenge to the legislation of the State of Gujarat viz., the Gujarat Tax on Luxuries (Hotels & Lodging Houses) Act, 1977.
Writ Petition No. 162 of 1982 pertains to the corresponding legislation of the State of Tamil Nadu viz., Tamil Nadu Tax on Luxuries in Hotels & Lodging Houses Act, 1981.
Writ petition Nos. 1271 and 1272 of 1982 pertain to the challenge to corresponding Karnataka Legislation viz., the Karnataka Tax on Luxuries (Hotels and Lodging Houses) Act, 1979.
W.P. No. 5321 of 1985 pertains to the challenge to West Bengal Entertainments and Luxuries (Hotels and Restaurants) Tax Act, 1972.
All these taxingstatutes, except for certain aspects individual to them, are analogous and the scheme of the legislation is substantially similar.
The variations are in the differences in the criteria of classification of the hotels to which the Act is applied and the rates of taxes.
The grounds of challenge are substantially the same.
An examination of the contentions urged in support of the challenge to one statute would cover the cases of the other statutes as well.
We might take up for consideration, the provisions of the Gujarat Act which may be considered as representative of the legislations on the topic.
The constitutional validity of the Gujarat Act had been assailed before the High Court of Gujarat, which by its judgment dated 23.7.1980 upheld its constitutional validity.
The judgment of the High Court is under appeal in C.A. Nos. 338 and 339 of 1981.
The statement of objects and reasons in the Gujarat Legislative Bill states: "With a view to augmenting the financial resources of the State it is pro posed to levy a tax on luxury provided in hotels and lodging houses at the rate of certain percentages of lodging charges recov ered by the proprietors of such hotels and lodging houses from persons lodging therein.
Every accommodation provided in a hotel or .lodging house the charges for which are not less than rupees thirty five per day per person is, for the purposes of the tax, to be treated as a luxury.
This bill seeks to achieve that object.
" Section 2 is the interpretation clause and defines, inter alia, the expressions "charges for lodging", "hotel", "luxury provided in hotel", "proprietor" occurring in clauses (a) (d) (e) and (g) respectively.
The definitions are as follows: 900 "(a) "charges for lodging" include charges for airconditioning, telephone, tele vision, radio, music and extra beds and the like but do not include any charges for food, drink or other amenities.
(d) "hotel" means a building or part of a building where lodging accommodation, with or without board is, by way of business pro vided for a monetary consideration, and in cludes a lodging house; (e) "luxury provided in a hotel" means accommodation for lodging provided in a hotel, the rate of charges for which (including charges for airconditioning, telephone, tele vision, radio, music, or extra beds and the like but excluding charges for food, drink and other amenities) is not less than thirty five rupees per person per day.
" Section 3 is the charging section which pro vides: "3.
(1) Subject to the provisions of this Act, with effect on and from the date on which this Act comes into force, there shall be levied and collected from every person a tax (to be known as "luxury tax") in respect of any luxury provided to him in a hotel, at the following rates, namely: (a) Where the charges for 10 per cent of such charges.
lodging are thirty five rupees or more but not more than fifty rupees per day per person.
(b) Where the charges for Rs.5 plus 20 per cent of lodging are more than such charges in excess of fifty rupees but not more Rs.50 per person per day.
than one hundred rupees per day per person.
(c) Where the charges for Rs. 15 plus 30 per cent lodging are more than one of such charges in excess of hundred rupees per day Rs. 100 per person per day per person.
901 Provided that where charges for lodging are levied otherwise than on daily basis or person, then, for the purpose of determining the tax liability of any person under this section, the charges shall be computed as for a day and per person, based on the period of lodging for which charges are payable and the number of persons actually lodging or permitted to lodge according to the rule or custom of the hotel: Provided further that where any charges for lodging are paid by any person other than a citizen of India in any foreign exchange, then such person or where such charges are paid by any person or class of persons as the State Government may, by order, direct such as foreigners staying as guests in India of any Government or of any Corporation or Company owned or controlled by Government, or such other person as in the opinion of the State Government it is expedient in the public interest to exempt, then such person or per sons shall be exempt from the payment of the tax.
(2) Where luxury is provided in a hotel to representatives or employees of any company and charges for such luxury are to be borne by the company, there shall be levied and col lected the tax from such company.
Explanation: In this sub section "Company" means any body corporate and includes a firm or other association of persons.
(3) The tax payable under this section shall be collected by the proprietor and be paid into a Government treasury within the time and in the manner provided in the Act.
(4) In computing the amount of tax payable under this section, the amount shall, if it is not a multiple of five paise, be increased to the next higher multiple of five paise.
" Section 4 provides for the mode of collecting of tax.
It provides: "4.
(1) Where the rate of charges for luxury provided in a hotel is inclusive of the charges for food or drink or other amenities, if any (being amenities referred to in clause (e) 902 of section (2), then the Collector may, from time to time, after giving the proprietor an opportunity of being heard, fix separate rates of charges for such luxury and for food or drink or other amenities, if any, being ameni ties referred to in clause (e) of section 2 for the purpose of calculating the tax under this Act.
(2) Where, in addition to the charges for luxury provided in a hotel, service charges are levied and appropriated to the proprietor and not paid to the staff, then, such charges shall be deemed to be part of the charges for luxury provided in the hotel.
(3) Where luxury provided in a hotel to any person (not being an employee of the hotel) is not charged at all, or is charged at a conces sional rate, then also there shall be levied and collected the tax on such luxury, as if full charges for such luxury were paid to the proprietor of the hotel.
(4) Where luxury provided in a hotel for a specified number of persons is shared by more than the number specified, then, in addition to the tax paid for luxury provided to the specified number of persons, there shall be levied and collected separately, the tax in respect of the charge made for the extra persons accommodated.
(5) Where any proprietor fails or neglects to collect the tax payable under this Act, the tax shall be paid by the proprietor as if the tax was recovered by the proprietor from the person to whom the luxury was provided and who was accordingly liable to pay the same.
" Section 5, 6, 7, 8, 9, and 10, respectively refer to the returns to be filed by every proprietor liable to pay tax under the Act;the assessment and collection of tax; the imposition of penalty; the payment of tax and penalty; appeals and revision.
Sections 13 and 14 speak of offences and offences by companies.
15 pertains to the compounding of offences.
17 confers power of inspection of accounts and docu ments and of search and seizure.
21 confers the power to make Rules.
903 4.
The Gujarat Act seeks to levy a tax at certain per centages of the lodging charges recovered by the proprietors of the hotels and lodging houses from persons lodging there in treating the lodgingaccommodation for which charges of Rs.35 or more per day per person as a taxable luxury.
The scheme of the West Bengal Act is slightly different in regard to the scope of the charge to be given effect to under that 'Act '.
The levy there is not confined to the lodging charges recovered from persons lodging in the ho tels, but on the basis of the provision for luxury and not, as in the case of the other legislation, as the lodging charges actually paid by the lodgers.
Section 4 of the West Bengal Act provides: "4.
Liability for luxury tax.
There shall be charged, levied and paid to the State Govern ment a luxury tax by the proprietor of every hotel and restaurant in which there is provi sion for luxury and such tax shall be calcu lated (a) in the case of a restaurant at the rate of an annual sum of rupees three hundred for every ten square metres or part thereof in respect of so much of the floor area of restaurant which is provided with X X luxury, and (b) in the case of a hotel at such rate not exceeding fifteen per centum on the daily charges of a room provided with luxury as may be notified by the State Government in the Official Gazette.
" One of the contentions, which is peculiar to the West Bengal Act is that the impost on the mere possibility of enjoyment of a 'luxury ' cannot be taxed.
We have heard Shri Soli J. Sorabjee, Senior Advocate, Shri F. Nariman, Shri Harish Salve, Advocates for petition ers and Shri P.S. Poti, and Shri Shah, learned Senior Advo cates, for the respondents.
On the contentions urged at the hearing in support of the challenge, the following points arise for consideration: (a) The Taxation Entry 62 of List 1I providing for taxes on "luxuries" contemplates, and takes within its sweep, a tax on goods and articles in their aspect and character as luxuries and 904 dose not include "services" or "activities".
The levy on the services for lodging provided at the hotels, is, therefore, beyond the scope of Entry 62 List II.
(b) Section 4 of the West Bengal Act which envisages a tax on the mere existence of the means of providing the luxury independently of its utilisation is outside Entry 62 List II.
(c) The real criterion distinguishing 'luxury ' is the special attribute or quality of the commodity or the serv ices, as the case may be, and not the price factor simplic iter.
The essential distinguishing attribute is a qualita tive one.
Distinction based purely on the quantitative difference in the price is not a rational criterion to identify 'luxuries '.
The impost based on the mere criterion of price which has no relation to the concept of luxuries, is ultra vires the State power under Entry 62 List II.
(d) The scheme of the Act in so far as it makes the price and not quality, the sole basis for identification of the subject of the tax, makes no distinction between the components of the services which include both necessities and comforts, as distinguishable, from 'luxuries '.
Levy on such composite subject matter is bad.
(e) The expression 'and the like ' in the definition of "charges for lodging" in sec. 2(a) is vague and irration al and read with the explanation, which renders the decision of the State Government on what constitutes "lodging charges" final, is an unreasonable restriction, violative of Article 19(1)(g).
(f) Sec.
4(3) which provides that tax in respect of accommodation provided free or at concessional rates be taxed as if the full charges were deemed to have been re ceived, is unreasonable and offends Article 19(1)(g).
(g) The "luxury" tax imposed on the charges for lodg ings has the direct and immediate effect of restricting the freedom under Article 301 of the Constitution as it directly impedes the right of "intercourse" through out the territo ries of India.
Re: Contention (a) The arguments of learned counsel on the first three conten tions 905 require to be considered together as these contentions themselves have certain over lapping areas amongst them.
Basically, the question is as to what constitutes 'luxuries ' as the subject of a tax under Entry 62, List II, and second ly, whether providing of accommodation for lodging in hotels or lodging houses, even if the accommodation could be said to be 'luxuries ' in a colloquial sense, could be the subject of a tax under Entry 62 of List II.
Shri Sorabjee contended that the concept of a tax on 'luxuries ' contemplates a tax on articles and goods, like jewellery, perfumes, liquors, tobacco etc., in their character and attribute as articles of luxury.
The idea, it is urged, does not include services or activities as falling within the concept of luxuries as a subject of taxation.
The Gujarat High Court dealing with this contention held that the contention, if accepted, would diminish the content of the Entry and reduce its scope from "taxes on luxuries" to "taxes on articles of luxuries".
Shri Sorabjee, however, submitted that the High Court was in error in its understanding of the import of the concept of 'luxuries ' in Entry 62 as a subject of tax.
The learned counsel also referred to the following observations of the High Court of Bombay in State of Bombay vs R.M.D. Chamar baugwalia & Ors., AIR 1956 Bom. 1 at page 11: "With regard to luxuries it is significant to note that the plural and not the singular is used, and the luxuries in respect of which a tax can be imposed under entry 62 is a tax on goods or articles which constitute luxuries, and it is again significant to note that the topic of luxuries, only is to be found in entry 62 in the taxation power and not in either entry 33 or 34.
That clearly shows that, what was contemplated was a tax on certain articles or goods constituting luxuries and not legislation controlling an activity which may not be a necessary activity but may be necessary and in that sense a luxury." (Emphasis supplied) It is to be noticed that the decision of the Bombay High Court in which the above observation occurs was over ruled by this Court in State of Bombay vs R.M.D. Chamarbaugwalia, ; The impugned State Legislation which the High Court had struck down was held to be a valid piece of legislation under Entry 62, List II.
In the light of the decision of this Court in the case, the observations of the learned Chief Justice of the Bombay High Court excerpted are rendered inapposite.
Indeed, a view similar to the one taken by the Bombay High Court as to the concept of 'luxuries ' in Entry 62 of List 906 II was taken by the Kerala High Court in A.S. Bava vs State of Kerala, However, the views of the Bombay and Kerala High Courts were referred to and dissented from by the Calcutta High Court.
In Spences Hotel Private Ltd. and another vs State of West Bengal, at 1892 it is held: "In these premises, we are of opinion that 'lux uries ' in Entry 62 of List II should not be confined to articles or objects of luxury alone.
In view of the social and economic structure of our country there can be no doubt that an air conditioned space whether in a hotel or in a restaurant is a luxury by itself.
People enter into these spaces for enjoyment of a luxury.
In fact, the ambit of Entry 62 which includes taxes on entertainments, amusements, betting and gambling, shows that a tax levied under Entry 62 cannot be restricted to certain articles only but may also be extended to things incorporeal.
The comfort that a person derives in a hot summer day in an airconditioned space is a luxury 'particularly in the context of the conditions in which the masses live in India today.
In our opinion, the State legislature is competent to impose a tax on this luxury.
" For reasons we shall state presently, we approve the view taken by the Calcutta High Court.
We are dealing with an Entry in a Legislative List.
The entries should not be read in a narrow or pedantic sense but must be given their fullest meaning and the widest amplitude and be held to extend to all ancillary and subsid iary matters which can fairly and reasonably be said to be comprehended in them.
In the Western India Theatres Ltd. vs The Cantonment Board, Poona Cantonment, [1959] 2 Supp.
SCR 63, this court was dealing with the scope of the power of the Provincial Legislature under Sec.
100 of the Govt.
of India Act, 1935, with respect to Entry 50 in Schedule VII of the said Act, to make laws with respect to "taxes on luxuries including taxes on entertainments, amusements, betting and gambling".
The contention of the appellant in that case was that the entry authorised a law imposing taxes on persons who received or enjoyed the luxuries etc.
and that no law made with respect to that Entry could impose a tax on persons who provide the luxuries, entertainment or amusements.
It 907 was contended that those who provide the luxury etc., did not themselves receive or enjoy the luxury or entertainment or amusement, but were simply carrying on their profession or trade and were not amenable to be taxed under that Entry.
Rejecting the argument it was said: " . .
In view of this well established rule of interpre tation, there can be no reason to construe the words 'taxes on luxuries or entertainments or amusements ' in entry 50 as having a restricted meaning so as to confine the operation of the law to be made thereunder only to taxes on persons receiving the luxuries, entertainments, or amusements.
The entry contemplates luxuries, entertainments, and amusements as objects on which the tax is to be imposed.
If the words are to be so regarded, as we think they must, there can be no reason to differentiate between the giver and the receiv er of the luxuries, entertainments, or amusements and both may, with equal propriety, be made amenable to the tax . . " (Emphasis supplied) The concept of 'luxuries ' as a subject of tax was not con fined to those who received or enjoyed the luxury.
It could be on those who provided it.
In Encyclopaedia Britannica the meaning of the word 'luxurytax ' is set out thus: "Luxury tax: A tax on commodities or services that are considered to be luxuries rather than necessities.
Modern examples are taxes levied on the purchase of jewelry, per fume and tobacco.
" In Webster 's Comprehensive Dictionary, International Edition, the word 'luxury ' is defined: "Luxury: 1.
A free indulgence in the pleasures that gratify the senses.
Anything that ministers to comfort or pleas ure that is expensive or rare, but is not necessary to life, health subsistence, etc; a delicacy.
" Luxury connotes extravagance or indulgence, as distin guished from the needs and necessities of life.
908 'The New Dictionary of Thoughts ' has these thoughtful things to say of "luxury": "On the soft bed of luxury most kingdoms have expired. Young.
Unless we are accustomed to them from early youth, splendid chambers and elegant furniture had best be left to people who neither have nor can have any thoughts. Goethe." "War destroys men, but luxury destroys mankind at once, corrupts the body and the mind.
" Crown.
The concept of a tax on 'luxuries ' in Entry 62, List II cannot be limited merely to tax things tangible and corpo real in their aspect as 'luxuries '.
It is true that while frugal or simple food and medicine may be classified as necessities; articles such as jewellery, perfume, intoxicat ing liquor, tobacco, etc., could be called articles of luxury.
But the legislative entry cannot be exhausted by these cases, illustrative of the 'concept.
The entry encom passes all the manifestations or emanations, the notion of 'luxuries ' can fairly and reasonably be said to comprehend.
The element of extravagance or indulgence that differenti ates 'luxury ' from 'necessity ' can not be confined to goods and articles.
There can be elements of extravagance or indulgence in the quality of services and activities.
In A.B. Abdul Kadir & Ors.
vs State of Kerala, ; at 699 700 Khanna J. said: " .
The word "luxury" in the above context has not been used in the sense of something pertaining to the exclusive preserve of the rich.
The fact that the use of an article is popular among the poor sections of the population would not detract from its description or nature of being an article of luxury.
The connotation of the word "luxury" is something which conduces enjoyment over and above the necessaries of life.
It denotes something which is superfluous and not indispensable and to which we take with a view to enjoy, amuse 'or entertain ourselves.
An expenditure on something which is in excess of what is required for economic and personal well being would be expenditure on luxury although the expenditure may be of a nature which 909 is incurred by a large number of people, including those not economically well off . " The submission of Shri Sorabjee, if accepted, will unduly restrict the scope of the legislative Entry which should otherwise have the widest and the most liberal meaning and connotation given to it.
Contention (a), in our opinion, is unacceptable.
Re: Contention (b): This contention pertains to a provision particular to the West Bengal legislation.
It is urged that in so far as Section 4 of the West Bengal Act envisages a tax on the mere existence of the provision for the luxury and is levied even if the luxury is not utilised by any person, it was beyond the scope of the legislative entry.
It was submitted that there must be both a giving and receiving of the luxury and that a tax on the mere existence of the means of providing the luxury would be insufficient to support a law imposing a tax thereon.
It would, in any event, it is urged, constitute an unreasonable restriction on the freedom under Article 19(1)(g).
Reliance was also placed on certain observations in Western India Theatres Ltd. 's case (supra).
The passage in the judgment relied upon by Shri Sorabjee merely says that both the giver and the receiver of the luxuries are amenable to be taxed.
The decision cannot be understood as laying down the proposition that if there is no actual utilisation of the luxury, no tax can be levied on the mere existence of the provisions made for the prospective or potential utili sation of the luxury.
In support of the proposition that a tax on luxuries must relate to and be based on an actual utilization of the luxury and not on the mere existence of the means of provid ing 'luxury ' Sri Sorabjee placed strong reliance on the observations of the High Court of Bombay in Ramesh Waman Toke and others vs The State of Maharashtra, AIR 1984 Bombay 345, which while dealing with the legislation under Entry 62 List II imposing a tax on entertainment held: " . .
In our opinion, this is not a tax on entertainment at all which the State Legislature is entitled to .levy under item 62 of the State List.
In order that the enter tainment duty should amount to a tax on entertainment it should be levied on entertainment which is actually held and not on enter 910 tainment which is theoretically capable of being held.
Looking to the provisions which have been examined in detail it is clear to us that the said provisions do not take into account entertainment that is actually held by the owner of the touring cinema or the owner of the video exhibition.
The basis on which tax can be validly levied is the fact of entertainment.
The taxing event is the entertainment.
If there is no entertainment at all, the question of levying entertainment tax in exercise of the legislative powers conferred upon the State Legislature does not arise at all.
If the Act purports to levy tax on notional entertainment then the exercise of that taxing power must be held to be ultra vires the Constitution.
This is exactly what has happened in the instant case.
" There might possibly be some distinction between the ideas of 'entertainment ' and 'luxuries '.
With due respect to the High Court, the interpretation that commended itself to the High Court would unduly restrict the scope of the legisla tive Entry.
On such an interpretation, it might be possible for a person to go further and also contend that no 'enter tainment ' was actually derived.
The concept of 'luxuries ' in the legislative Entry takes within it everything that can fairly and reasonably be said to be comprehended in it.
The actual measure of the levy is a matter of legislative policy and convenience.
So long as the legislation has reasonable nexus with the concept of 'luxuries ' in the broad and gener al sense in which the expressions in legislative tests are comprehended.
the legislative competence extends to all matters 'with respect to ' that field of topic of legisla tion.
The taxable event need not necessarily be the actual utilisation or the actual consumption, as the case may be, of the luxury.
The contention, in substance, is that the means of providing luxury, by itself, does not provide the nexus between the taxing power and the subject of tax and there must be an actual and not merely a notional or poten tial, consumption or utilisation of the luxury.
As an in stance of what can be said to be fairly and reasonably comprehended in a legislative Entry, reference may be made to the "notional" income, for purposes of a tax on income, of a person, from a house property in his own personal occupation or a property not actually let.
In that context this COurt said "that which can be converted into an income can be reasonably regarded as giving rise to income" (See: Bhagwan Dass Jain vs Union of India, ; A luxury which can reasonably be said to be amenable to a potential conception does provide the nexus.
911 If the provider of the luxury is also independently amenable to the tax, the further restriction on the power suggested by the argument tends to cut into the plenitude of the field of legislation.
If the idea of "luxuries" is required to be so wide as to comprehend in it, every aspect which can fairly and reasonably be said to be embraced by it, then, the taxing power cannot be limited to or condi tioned in the manner suggested.
Once the legislative compe tence and the nexus between the taxing power and the subject of taxation is established, the other incidents are matters of fiscal policy behind the taxing law.
The measure of the tax is not the ' same thing as, and must be kept distin guished from, the subject of the tax.
So far as the argument that fundamental rights under Article 19(1)(g) are violated by a levy on a mere provision for luxury, without its actual utilisation, is concerned it is settled law that the mere excessiveness of a tax or the fact that it affects the earnings cannot, per se, be held to violate Article 19(1)(g).
Contention (b) is not substantial either.
Re: Contentions (c) and (d): These contentions were somewhat attractively presented and bear close scrutiny.
Shri Sorabjee urged that the con cept of "luxuries" is a relative or comparative idea, dis tinguishable from "necessities" by the special attribute or quality of distinction inherent in them.
The articles or activities of luxury could be identified as such only by reason of that inherent distinguishing special quality or attribute.
The price factor, says learned counsel, might be, prima facie, an index of that special quality or attribute; but the price is not itself a substitute for the special quality or attribute.
Therefore, if what is legislatively classed as luxury is on the sole basis of the price alone, then the legislative definition or the means of identifica tion of the luxury becomes irrational as it has the effect of substituting price in place of the special quality.
The two are not the something.
There is nothing in the law, it is urged, which identifies or distinguishes 'luxury ' on the basis of any special attribute apart from the price factor.
This argument itself recognises that price might be, and very often is, evidence of quality.
The statute proceeds on the premise that any accommodation in a hotel which is priced above a certain level could reasonably be held to be of a particular quality distinguishing it from others.
These ideas of luxury or necessity are necessarily relative ideas and require to be understood in the context of the contempo rary 912 standards of living.
What might have been a 'luxury ' some decades ago might cease to partake of the character now.
What is luxury today might be considered a necessity a decade or so later.
In Abdul Kadir 's case (supra) it was observed: "It may be added that there is nothing static about what constitutes an article of luxury.
The luxuries of yesterday can well become the necessities of today.
Like wise, what constitutes necessity for citizens of one country or for those living in a particular climate may well be looked upon as an item of luxury for the nationals of anoth er country or for those living in a different climate.
A number of factors may 'have to be taken into account in adjudging a commodity as an article to luxury . " We are presently concerned with the question whether the quality or standards of lodging accommodation in hotels can be called luxurious by contemporary standards by reason of the higher standards of charges payable for the accommoda tion.
Legislature has chosen to identify the luxury by the statutory standards prescribed by it.
According to the legislative assumption, price does become evidence of the special quality on the basis of which 'luxuries ' could be distinguished and that some special quality is attributable to goods and services through the means of the price.
Quali ty and price, in the legislative assessment, can be assumed to have a logical inter relationship.
This cannot be held to suffer from the vice of irrationality.
The further contention is that when the price factor is made the sole criterion for imparting the quality of luxury to the lodging accommodation, the means of identification so adopted cease to distinguish areas in the services which are not luxuries but are really necessities and comforts and the subject of the tax would come to include, not merely lux uries but necessities and comforts also.
The answer is that in the context of lodging accommodation and the services that go with it, the concept of luxury would necessarily be a comprehensive idea taking into account the various compo nents of the services.
Differences of degree can at particu lar stage become differences of kind.
The composite elements of lodging accommodation and services associated with it cannot be broken into components so as to distinguish some components as necessities, some others as comforts and yet others as luxuries.
Even necessities and comforts which have to them the additional element of undue elegance to a 913 point of extravagance and indulgence might become luxuries.
Though the arguments on these contentions were not without their interesting facets, we must, however, express our inability to accept them as valid arguments against the constitutionality of the provisions.
Contentions (c) and (d) are accordingly held and an swered against the petitioners and the appellants.
Re: Contention (e): The point sought to be put across arises out of the definition of the expression 'charges for lodging ' in sec.
2(a) read with the Explanation to the provision.
Sec. 2(a) defines "charges for lodging" to include 'charges for air conditioning, telephone, television, radio, music, extra beds" and the like".
It is contended that the expression 'and the like ' is vague and confers an arbitrary power to bring to tax an undefined entity.
It is further contended that the Explanation appended to Section 2(a) to the effect that the decision of the State Government on any dispute in that behalf is final and shall not be called in question in any court aggravates the arbitrariness and constitutes an unreasonable restriction and is violative of Article 19(1)(g).
Reliance was placed on the decision of this Court in Corporation of Calcutta vs Calcutta Tramways Co., ; We are afraid, the argument overlooks certain relevant factors bearing on the point.
It is, no doubt, true that it has been held in several cases that the absence of a provi sion for a correctivemachinery, by way of appeal or revi sion, to rectify an adverse order made by an authority on whom power is conferred, might indicate that the power so conferred is unreasonable or arbitrary.
But the corrective machinery may itself take several forms and be inherent or found in the provisions for conferment of the power them selves.
The mere absence of a corrective machinery or the existence of a provision imparting finality, by themselves, would not be conclusive so as to render the conferment of power per se unreasonable and arbitrary rendering the provi sion unconstitutional.
In Babu Bhai vs State of Gujarat, at 736 this Court said: " . . in other words mere absence of a corrective ma chinery by way of appeal or revision by itself would not .make the power unreasonable or arbitrary, much less would render the provision invalid.
Regard will have to be had to several factors, such as, on whom the power is 914 conferred whether on a high official or a petty officer, what is the nature of the power whether the exercise there of depends upon the subjective satisfaction of the authority or body on whom it is conferred or is it to be exercised objectively by reference to some existing facts or tests . " There are in built checks on the power under Explanation to sec. 2(a).
The expression 'and the like ' would require to be construed ejusdem generis.
The genus or the class of items envisaged by the preceding words not having been exhaustive of the genus or the class, the legislature, therefore, has supplied the words 'and the like ' so as to bring in any other item of the same class or genus.
This, by itself, is a clear guide for the exercise of the power.
Another relevant consideration is the identity and status of the repository of the power.
The power is given to a high authority like the State Government.
In these circumstances, it cannot be said that the power is an uncanalised power and is an arbitrary or unreasonable one.
There are statutory guides governing its exercise and the guide lines are gov erned by well settled principles of interpretation.
There is no substance in contention (e).
Re: Contention (f): What is assailed here is the deeming provision in sec.
4(3) which brings to charge at the normal rates cases where no charge is collected at all for lodging or where conces sional rates are charged.
The deeming provision does not apply to cases where accommodation is provided free or at commercial rates to the employees of the hotel.
No fault can be found with this provision which merely states that where the usual lodging charges are not collected for providing the lodging accommodation, tax shall be payable as if the usual charges had been collected.
This is a provision against evasion.
There is no merit in the challenge to the validity of this provision.
Contention (f) requires to be rejected.
12 Re. ' Contention (g): Shri R.F. Nariman, learned counsel, who addressed argu ments with particular emphasis on this contention submitted that tax laws are not outside the purview of Part XIII of the Constitution and that the present tax on lodgings and accommodations in hotels is violative of the freedom of "trade, commerce and inter course" and offends article 915 301.
Learned counsel submitted "that business undoubtedly is commerce but is something more, it is intercourse".
The word "intercourse" specifically occurs in article 301 intending to give the largest connotation to the concept of commerce.
The question is whether the impugned tax imposes a restriction on the freedom under Article 301.
If it does, the further questions whether the restriction is reasonable and is required in public interest and whether Presidential sanc tion had been obtained for the introduction of the legisla tive measure arose for consideration.
It has been held that only such taxes as are directly and immediately restrictive of trade, commerce and intercourse that fall within the purview of article 301.
On the several facets of the similar some say deceptively similar provisions of sec.
92 of the Commonwealth of Australia Constitution Act 1901 comments of a learned author may be recalled: "The lengthy series of judicial decisions on the meaning and scope of the immunity afforded by section 92 is ample testimony to the difficulty involved in giving some precise meaning to a provision which in reality expresses a politi cal slogan rather than a legal precept.
Rich J once pithily described the lot of the High Court in relation to section 92 as being "to explain the elliptical and expound the unex pressed", and he emphasized that the practical necessity of determining precisely what impediments were no longer to obstruct inter State trade "obliged the court to attempt the impossible task of supplying an exclusive and inclusive definition of a conception to be discovered only in the silences of the Constitution." On the significance of the word 'intercourse ' in sec.
92 of the Australian Constitution, it was held by the Australi an High Court in Gratwick vs Johnson, ; that an order which provided that no person should travel by rail or commercial passenger vehicle from any State in the com monwealth to any other State without a permit from a common wealth official would violate the freedom of 'intercourse ' under sec.
It was held that the prohibition showed "an indifference to, if not a disdain of, the terms of sec.
In Atiabari Tea Co. vs State of Assam, ; at 860 61 this Court said: " . . in determining the limits of the width and ampli tude of the freedom guaranteed by article 301 a rational and work 916 able test to apply would be: Does the impugned restriction operate directly or immediately on trade or its movement? .
It is the free movement of the transport of goods from one part of the country to the other that is intended to be saved, and if any Act imposes any direct restrictions on the very movement of such goods it attracts the provisions of article 301 . " In Mehtab Majid & Co. vs State of Madras, [1963] Supp. 2 SCR 435 this Court said: "It is now well settled that taxing laws can be restrictions on trade, commerce and intercourse, if they hamper the flow of trade and if they are not what can be termed to be compensatory taxes or regulating measures.
Sales tax, of the kind under consideration, cannot be said to be a measure regulating any trade or a compensatory tax levied for the use of trading facilities, sales tax, which has the effect of discriminating between goods of one State and goods of another, may affect the free flow of trade and it will then offend against article 301 . " Taxes can and do sometimes, having regard to their effect and impact on the free flow of trade, constitute restrictions on the freedom under article 301.
But the restric tion must stem from the provisions of the law imposing the tax which could be said to have a direct and immediate effect of restricting the free flow of "trade, commerce and intercourse".
It is not all taxes that have this effect.
Freedom under Article 301 is, by all reckoning, a great freedom, one of the utmost significance to economic unity of the nation.
Underlying the need for and the recognition of the freedom of inter State trade, commerce and intercourse, one is tempted to refer to the lofty sentiments of Justice Cardozo in Baldwin vs GAF Inc., that "it was flamed upon the theory that peoples of several States must sink or swim together and that in the long run the prosperi ty and salvation are in union and not in division" and that "the ultimate principle is that one State in dealing with another may not place itself in position of economic isola tion".
But in the present case it has not been pointed out how a tax on "luxuries" enjoyed by a person in a hotel is either discriminatory or has the direct and immediate effect of impeding the freedom of inter 917 course.
In Grannall vs Marrickville Margarine Pty. Ltd., ; a New South Wales statute which prohibited the manufacture of margarine without a licence which, if granted, would contain a condition limiting the quantity to be manufactured was assailed on the ground of its violation of sec.
92 of the Australian Constitution.
Repelling the challenge, it was held: "It is of course obvious that without goods there can be no inter State or any other trade in goods.
In that sense manufacture or production within, or importation into, the Commonwealth is an essential preliminary condition to trade and commerce between the States in merchandise.
But that does not make manufacture production or importation trade and commerce among the States.
It is no reason for extending the freedom which section 92 confers upon trade and commerce among the State, to something which precedes it and is outside the freedom conferred.
" We find no substance in contention (g).
In the result, for the foregoing reasons, the writ petitions and the appeals are dismissed.
But, in the circum stances, there will be no order as to costs.
P.S.S. Appeals dismissed.
| IN-Abs | Clause (a) of section 2 of the Gujarat Tax on Luxuries (Hotels and Lodging Houses) Act, 1977, defines "charges for lodging" to include charges for airconditioning, telephone, television, radio, music and extra beds, and the like.
The Explanation appended thereto makes the decision of the State Government on any dispute in that behalf final.
Clause (e) defines 'luxury provided in a hotel ' to mean accommodation the charges for which, including charges for airconditioning etc.
but excluding charges for food and other amenities, is not less than thirty five rupees per person per day.
Section 3 prescribes the rates of tax at certain percentage of the lodging charges per person per day recovered by proprietors of hotels and lodging houses from persons lodging therein.
Sub section (3) of section 4 provides that where luxury provided in a hotel to any person, not being an employee of the hotel, is not charged at all, or is charged at concessional rate, then also there shall be levied and collected the tax on such luxury, as if full charges for such luxury were paid to the proprietor of the hotel.
894 It was contended for the appellants that Entry 62 of List II of Schedule VII to the Constitution providing for taxes on luxuries contemplates and takes within its sweep a tax on goods and articles in their aspect and character as 'luxuries ', which does not include services and activities, the levy on the services for lodging provided at the hotels was, therefore, ultra vires the State power under the said entry; that the 'leaf criterion distinguishing luxury being a special attribute or quality of the commodity Or the services, as the case may be, and not the quantitative difference in the price, the impost has no relation to the concept of luxuries in the legislative entry; that the scheme of the Act in so far as it makes no distinction between the components of the services, which include both necessities and comforts, as distinguishable from luxuries, the levy on such composite subject matter was bad; that the expression "and the like" in the definition of "charges for lodging" in section 2(a) was vague and irrational and read with the explanation thereto, which renders the decision of the State Government on what constitutes "lodging charges" final, was an unreasonable restriction.
violative of Article 19(1)(g), that section 4(3), which provides that the luxury provided free or at concessional rates be taxed as if the full charges were deemed to have been received was unreason able and offends Article 19(1)(g), and that the luxury tax imposed on the charges for lodging has the direct and imme diate effect of restricting the freedom under Article 301 of the Constitution as it directly impedes the right of inter course throughout the territories of India.
Similar contentions were raised in the writ peti tions 'challenging the analogous provisions of the Tamil Nadu Tax on Luxuries in Hotels and Lodging Houses Act, 1981 and the Karnataka Tax on luxuries (Hotels and Lodging Houses) Act, 1979.
In the writ petition challenging section 4 of the West Bengal Entertainments and Luxuries (Hotels and Restaurants) Tax Act, 1972 which fixes the liability to pay tax on the pro prietor of the hotel anti restaurant on the basis of the floor area as well, it was contended that the means of providing luxury by itself does not provide the nexus be tween the taxing power and the subject of tax, and that the power to levy a tax on the mere existence of the provision for luxury without its actual and not merely a notional or potential consumption or utilisation was beyond the scope of the legislative entry and also violative of the fundamental right under Article 19(1)(g).
Dismissing the appeals and writ petitions, 895 HELD: 1.1 The entries in the Legislative List should not be read in a narrow or pedantic sense but must be given their fullest meaning and the widest amplitude and be held to extend to all ancillary and subsidiary matters which can fairly and reasonably be said to be comprehended in them.
[906F] 1.2 So read, the concept of a tax on 'luxuries ' in Entry 62, List II cannot be limited merely to tax things tangible and corporeal in their aspect as 'luxuries '.
The entry encompasses all the manifestations or emanations, the notion of 'luxuries ' can fairly and reasonably be said to compre hend.
The element of extravagance or indulgence that differ entiates 'luxury ' from 'necessity ' cannot be confined to goods and articles.
It can also be found in the quality of services and activities.
An airconditioned space, whether in a hotel or in a restaurant, is a luxury by itself.
People enter into these spaces with a view to enjoy, amuse or entertain themselves.
[908CE, 906C] A.B. Abdul Kadir & Ors.
vs State of Kerala, ; ; Western India Theatres Ltd. vs The Cantonment Board, Poona Cantonment, [1959] 2 Supp.
SCR 63 and State of Bombay vs R.M.D. Chamarbaugwalia ; , referred to.
Spences Hotel Private Ltd. & Anr.
vs State of West Bengal, , approved.
A.S. Bava vs State of Kerala, , overruled.
2.1 The ideas of luxury or necessity are necessarily relative ideas and require to be understood in the context of contemporary standards of living.
What might have been a luxury some decades ago might cease to partake of that character now.
What is luxury today might be considered a necessity a decade or so later.
A number of factors have to be taken into account in adjudging a luxury.
[911H, 912C] A.B. Abdul Kadir & Ors.
vs State of Kerala, ; , referred to.
2.2 In the instant case, legislature has chosen to identify the luxury by the statutory standards prescribed by it.
According to the legislative assumption, price does become evidence of the special quality on the basis of which luxuries could be distinguished and that some special quali ty is attributable to goods and services through the means of the price.
Quality and price, in the legislative assess ment can thus be 896 assumed to have a logical interrelationship.
This cannot be held to suffer from the vice of irrationality.
[912DE] 2.3 In the context of lodging accommodation and the services that go with it, the concept of luxury would neces sarily be a comprehensive idea taking into account the various components of the services.
Differences of degree can at particular stage become differences of kind.
The composite elements of lodging accommodation and services associated with it cannot be broken into components so as to distinguish some components as necessities, some others as comforts and yet others as luxuries.
Even necessities and comforts which have to them the additional element of undue elegance to a point of extravagance and indulgence might become luxuries.
[912G 913A] It cannot, therefore, be said that there is nothing in the law which identifies or distinguishes luxury on the basis of any special attribute apart from the price factor.
[913B] 3.1 The mere absence of a corrective machinery by way of appeal or revision, to rectify an adverse order made by an authority on whom power is conferred or the existence of a provision imparting finality in a statute by themselves would not be conclusive so as to render the conferment of power per se unreasonable and arbitrary rendering the provi sion unconstitutional.
[913F] Babu Bhai vs State of Gujarat, , referred to.
Corporation of Calcutta vs Calcutta Tramways Co., ; , distinguished.
3.2 In the instant case, there are in built checks on the power under Explanation to section 2(a).
The expression "and the like" occurring in the section when construed ejusdem generis indicates that the class of items envisaged by the preceding words was not exhaustive of the genus.
The Legis lature, therefore, has supplied these words so as to bring in any other item of the same class of genus.
This, by itself, is a clear guide for the exercise of the power.
[914B] 3.3 Another relevant consideration is the identity and status of the repository of the power.
The power in the instant case is given to a high authority like the State Government.
It cannot, therefore, be said that the power is an uncanalised power and is an arbitrary or unreasonable one so as to fall under Article 19(1)(g).
There are statutory guides 897 governing its exercise and the guidelines are covered by well settled principles of interpretation.
[914C] 4.
The deeming provision in section 4(3) of the Act does not apply to cases where accommodation is provided free or at concessional rates to the employees of the hotel.
This provision, which merely states that where the usual lodging charges are not collected for providing the lodging accommo dation, tax shah be payable as if the usual charges had been collected is a provision against evasion.
It cannot, there fore, be said to he unreasonable.
[914EF] 5.1 Freedom under Article 301 is a great freedom, one of the utmost significance to economic unity of the nation.
However, taxes can and do sometimes constitute restrictions on the said freedom.
But such restrictions must stem from the provisions of the law imposing the tax which could be said to have a direct and immediate effect of restricting the free flow of trade, commerce and intercourse.
[916F, E] 5.2 In the instant case, it has not been shown how a tax on luxuries enjoyed by a person in a hotel was either dis criminatory or has the direct and immediate effect of imped ing the freedom of intercourse.
It cannot thus be said to offend Article 301 of the Constitution.
[916G] Atiabari Tea Co. vs State of Assam, ; ; Firm A.T.B. Mehtab Majid & Co. vs State of Madras, [1963] Supp.
2 SCR 435; Gratwick vs Johnson, ; ; Baldwin vs GAF Inc., and Grannall vs Marrick ville Margarine Pty. Ltd.; , , referred to.
6.1 Section 4 of the West Bengal Act cannot be said to be beyond the legislative entry.
The taxable event need not necessarily be the actual utilisation or the actual consump tion, as the case may be, of the luxury.
So long as the legislation has reasonable nexus with the concept of "lux uries" in the broad and general sense in which the expres sions in legislative tests are comprehended, the legislative competence extends to all matters with respect to that field of topic of legislation.
In the instant case, provision for 'luxury ' in a hotel or restaurant amenable to a potential consumption does provide the nexus.
[909C, 910F, E, H] Bhagwan Dass Jain vs Union of India, ; , re ferred to.
Ramesh Waman Toke & Ors.
vs The State of Maharashtra, AIR 1984 Bombay 345, overruled.
898 6.2 If the provider of the luxury is also independently amenable to the tax, the further restriction on the power would tend to cut into the plenitude of the field of legis lation.
If the idea of 'luxuries ' is required to be .so wide as to comprehend in it every aspect which can fairly and reasonably be said to be embraced by it, then the said taxing power under the Entry cannot be limited or condi tioned in any manner whatsoever.
[911A] 6.3 Once the legislative competence and the nexus be tween the taxing power and the subject of taxation is estab lished the other incidents are matters of fiscal policy behind the taxing law.
The actual measure of the tax, which is a matter of legislative policy and convenience, is not the same thing as, and must be kept distinguished from, the subject of the tax.
[911B] 6.4 The mere excessiveness of a tax or the fact that it affects the earnings cannot pre se be held to violate Arti cle 19(1)(g).
[911 C]
|
254 to 261 of 1981.
Under Article 32 of the Constitution of India.
N.A. Palkhiwala, Soli J. Sorabjee, T.R. Andhyarujina, H.P. Ranina, section Ganesh, J.B. Dadachanji, Ravinder Narain, Mrs. A.K. Verma, D.N. Misra, section Sukumaran, Lira Goswami, Joel Pares, Ms. Rubia Anand, R.F. Nariman, P.H. Parekh, Sanjay Bhartari, M.K.S, Menon, R.K. Dhillon, Ms. Rohini Chhabra, Sunita Sharma, Ms. Ayesha Misra, A. Subba Rao, section Balakrishnan, Harish N. Salve, S.S. Shroff, Mrs. P.S. Shroff, Ms. Malvika Rajkotia, B. Parthasarthi, Vijay Kumar Verma, Mukul Mudgal, Suresh Verma, Praveen Kumar and Vishnu Mathur for the Petitioners.
K. Parasaran, B. Datta, V. Jaganatha Rao, K. Sudhakaran, Dr. 883 V. Gauri Shankar, S.K. Dholakia, P.S. Poti, G.A. Shah, Ms. A. Subhashini, B.B. Ahuja, H.K. Puri, A. Subba Rao, K.R. Nambiar, A.S. Bhasme and M.N. Shroff for the Respondents.
The Judgment of the Court was delivered by VENKATACHALIAH, J.
In this batch of writ petitions under Article 32 of the Constitution of India petitioners who are hoteliers challenge on grounds of lack of legislative compe tence and of violation of Articles 14 and 19(1)(g) the constitutional validity of the Hotel Receipts Tax Act, 1980 ( 'Act ' for short) which imposes a special tax on the gross receipts of certain cetegory of hotels.
Section 3 of the Act limits the application of the 'Act ' to those hotels where the "roomcharges" for residential accommodation provided to any person during the previous year are Rs.75 or more per day per individual.
If a hotel is within this class, then, Section 5 brings to charge the Hotel 's 'chargeable receipts ' as defined under Sec.
6 of the Act.
The Act was passed on 4.12.1980 and came into force on 9.12.1980 when it received the assent of the President of India.
The levy under the 'Act ' commences from the assess ment year 1981 82 and brings to tax the chargeable receipts of the corresponding previous year.
The rate of tax is a flat rate of 15 per cent of the "chargeablereceipts" defined in sec.
6 as the total amount of all charges, by whatever name called, received by or accruing or arising to the assessee in the previous year in connection with the provi sion of residential accommodation, food, drink and other services in the course of carrying on the business of a hotel.
But such charges received from persons within purview of Vienna Convention on Diplomatic Relations, 1961, or Vienna Convention on Consular Relations are exempt from the tax.
The machinery under the Income tax Act, 1961, is en grafted for purposes of assessment, levy and collection of tax under the Act.
It is, however, relevant to note that though the 'Act ' is put into force from the Asst.
Year 1981 82 the levy was discontinued from 27.2.1982.
This batch of writ petitions were heard along with Writ Petition 1395 of 1987 and the connected writ petitions in which the constitutional validity of the Expenditure Tax Act, 1987, was challenged on substantially similar grounds.
In the present 'Act ' the levy is on 'Chargeable Receipts ' while in the Expenditure Tax Act, 1987, it is on "Charge able Expenditure" which represents substantially the same items as to constitute 'Chargeable Receipts ' under the present 'Act '.
We have disposed WP 1395 of 1987 and the connected matters by a separate Judgment.
884 3.
Sections 3, 5, 6 of the Act have a bearing on the application of the contentions urged in support of the challenge to the constitutionality of the Act.
Section 3 reads: "3.(1) Subject to the provisions of sub sec tion (2) and subsection (3), this Act shall apply in relation to every hotel wherein the room charges for residential accommodation provided to any person at any time during the previous year are seventy five rupees or more per day per individual.
Explanation.
Where the room charges are payable otherwise than on daily basis or per individual, then the room charges shall be computed as for a day and per individual based on the period of occupation of the residential accommodation for which the charges are pay able and the number of individuals ordinarily permitted to occupy such accommodation accord ing to the rules and custom of the hotel.
(2) Where a composite charge is payable in respect of residential accommoda tion and food, the room charges included therein shall be determined in the prescribed manner.
(3) Where (i) a composite charge is payable in respect of residential accommodation, food, drink and other services, or any of them, and the case is not covered by the provisions of sub section (2); or (ii) it appears to the Income tax Officer that the charges for residential accommodation, food, drink or other services are so arranged that the room charges are understated and the other charges are over stated, the Income tax Officer shall, for the purposes of subsection (1), determine the room charges on such reasonable basis as he may deem fit." Section 5(1) provides: "5.(1) Subject to the provisions of this Act, there shall be 885 charged on every person carrying on the business of a hotel in relation to which this Act applies, for every assessment year com mencing on or after the 1st day of April, 198 1, a tax in respect of his chargeable receipts of the previous year at the rate of fifteen per cent of such receipts: Provided that Where such chargeable receipts include any charges received in foreign ex change, then, the tax payable by the assessee shall be reduced by an amount equal to five per cent of the charges (exclusive of the amounts payable by way of sales tax, enter tainment tax, tax on luxuries or tax under this Act) so received in foreign exchange.
" Explanation omitted as unnecessary Section 5(2) omitted as unnecessary except explanation (ii) Explanation (ii) to Section 5(2) provides: "any food, drink or other services shall be deemed to have been provided on the premises of a hotel if the same is or are provided in the hotel or any place appurtenant thereto and where the hotel is situate in a part of build ing, in any other part of the building." Section 6 provides: "6(1) Subject to the provisions of this Act, the chargeable receipts of any previous year of an assessee shall be the total amount of all charges, by whatever name called, received by, or accruing or arising to, the assessee in connection with the provision of residential accommodation, food, drink and other services or any of them (including such charges from persons not provided with such accommodation) in the course of carrying on the business of a hotel to which this Act applies and shall also include every amount collected by the assessee by way of tax under this Act, sales tax, entertainment tax and tax on luxuries." (2) For the removal of doubts, it is hereby declared that where any such charges have been included in the chargeable receipts of any previous year as charges accuring or arising to the assessee during that previous year, 886 such charges shall not be included in the chargeable receipts of any subsequent previous year in which they are received by the asses see." Other provisions are machinery provisions, providing for the mode of assessment: levy and collection of the tax; for appeals; for of fences: penalties; punishments, etc.
The challenge to the 'Act ' is, in the main, lack of legislative competence on the part of the Union Parliament to enact the law.
Respondent union seeks to support the legisla tion under and as referable to Entry 82 of List 1 i.e., Taxes on Income.
The contentions raised in support of the petitions are these: (a) That in pith and substance, the law is one imposing a tax on luxuries provided in Hotels and therefore, the law is one under Entry 62, List I of the 7th Schedule to the Constitution and outside the Union power; (b) That, at all events, the Act is patently violative of Article 14 in that the basis of classification of hotels on the dividing line of room charges, though in itself an intelligible one, has, however, no nexus, let alone any rational nexus with the object of the law viz., to impose a tax on income; While hotels which collect room charges of Rs.75 per day from any individual in the previous year fail within the tax net, other hotels which have much higher gross receipts are left out.
The classification does not include all persons who, from the point of view of the objects of the Act, are similarly situated.
(c) That the law imposes unreasona ble burden on the petitioners ' freedom of business and constitutes a violation of Arti cle 19(1)(g) of the Constitution.
Re: Contention (a): Shri Palkhivala contended that the impugned law which seeks to impose a tax on what is styled 'Chargeable re ceipts ' which includes payments for residential accommoda tion, food, drink and other services at petitioners ' hotels really brings to tax "luxuries" an impost under Entry 62, List I, reserved to the States.
Learned counsel submitted that the reliance by the Respondents on Entry 82, List I, to support the impost as a tax on income is wholly misconceived 887 inasmuch as, the concepts of "income" and "tax on income" have definite legal connotations crystallised by settled legislative practice and do not admit of "gross receipts" being treated as "income" for purposes of levy of tax under Entry 82, List I. Learned counsel submitted that neither the nomenclature given to the tax nor the standard by which it is measured can determine its true nature and the legisla ture cannot enlarge its power by choosing an appropriate name to the tax.
To show the essential characteristics of what is the concept of 'income ' learned counsel referred to certain observations of the Supreme Court of the United Stated of America: ". it becomes essential to distinguish between what is and what is not "income" as the term is there used; and to apply the distinction, as cases arise, according to truth and substance, without regard to form.
Congress cannot by any definition it may adopt conclude the matter, since it cannot by legis lation alter the Constitution, from which alone it derives its power to legislate, and within whose limitations alone that power can be lawfully exercised.
The fundamental relation of "capital" to "income" has been much discussed by econo mists, the former being likened to the tree or the land, the latter to the fruit or the crop; the former depicted as a reservoir supplied from springs, the latter as the outlet stream, to be measured by its flow during a period of time.
" [See: Eisner vs Macomber, ; at 528] Learned counsel also relied upon the following observations of Gajendragadkar, J. in Navnitlal vs K.K.Sen, ; at 915 "This doctrine does not, however, mean that . . " " Parliament can choose to tax as income an item which in no rational sense can be regard ed as a citizen 's income.
The item taxed should rationally be capable of being consid ered as the income of a citizen . . " Learned counsel submitted that the grosS receipts of a hotel received from a customer towards room charges, food, drink and other services provided at the hotel cannot con stitute 'income ' known as 888 such to law.
The submission, in substance are two fold: first that while the "Chargeable Receipts" as conceived in the "Act" do not constitute 'income ' for purposes, and within the meaning of Entry 82 list I, as the receipts cannot rationally be related to the concept of 'income '; and, secondly, that in pith and substance the levy is one under Entry 62 list I within the States ' power.
Learned counsel inviting attention to the following observations of Lord Salmond 's in Governor General in Council vs Province of Madras, 191 " . .
Their Lordships do not doubt that the effect of these words is that, if the legislative powers of the Federal and Provin cial legislatures, which are enumerated in List I and List II of the seventh schedule, cannot fairly be reconciled, the latter must give way to the former.
But it appears to them that it is right first to consider whether a fair reconciliation cannot be effected by giving to the language of the Federal Legisla tive List a meaning which, if less wide than it might in another context bear, is yet one that can properly be given to it, and equally giving to the language of the Provincial Legislative List a meaning which it can prop erly bear." submitted that Entry 62 list II and Entry 82 list I would require to be reconciled accordingly.
Learned Attorney General, appearing for the Union of India sought to support the impost as a tax on income under Entry 82 of list I. It was urged that the word 'income ' in that entry broadly indicates the topic or field of legisla tion and that it should not be read in a narrow and pedantic sense, but must be given its widest amplitude and should not be limited by any particular definition which a legislature might have chosen for the limited purposes of that legisla tion.
The Statutory definitions of and meanings given to 'income ' are matters of legislative policy and do not ex haust the content of the legislative entry by the particular manner in which, and the extent to which, the statute has chosen to define that expression.
On a consideration of the matter, we arc of the opinion that the submission of the learned Attorney General as to the source of the legislative power to enact a law of the kind in question require to be accepted.
The Word 'i ncome ' is of elastic import.
In interpreting expressions in the legislative lists a very wide meaning should be given to the entries.
In understanding the scope and amplitude of the expres 889 sion 'income ' in Entry 82, list I, any meaning which fails to accord with the plenitude of the concept of 'income ' in all its width and comprehensiveness should be avoided.
The cardinal rule of interpretation is that the entries in the legislative lists are not to be read in a narrow or re stricted sense and that each general 'word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it.
The widest possible construction, according to the ordinary meaning of the words in the entry, must be put upon them.
Reference to legislative practice may be admissible in reconciling two conflicting provisions in rival legislative lists.
In construing the words in a constitutional document conferring legislative power the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude.
In Navinchandra Mafatlal vs CIT, Bombay City, [1955] 1 SCR 829 the question was whether the provisions of section 12(b) of the Indian Income tax Act, 1922, imposing a tax on capital gains was ultra vires the powers of the federal legislature under Government of India Act, 1935.
It was contended that taxes on income under Entry 54, list I, of the Government of India Act, 1935, did not embrace within its scope a tax on capital gains.
This contention was re jected.
This Court after referring to the following observa tions of the judicial committee in Kamakshya Narain Singh vs CIT, 13 (PC) "income it is true, is a word difficult and perhaps impossible to define in any precise general formula.
It is a word of the broadest connotation." proceeded to observe: "What, then, is the ordinary, natural and grammatical meaning of the word "income"? According to the dictionary it means "a thing that comes in".
(See Oxford Dictionary, Vol.
V, page 162; Stroud, Vol.
II, pages 14 16).
In the United States of America and in Australia both of which also are English speaking coun tries the word "income" is understood in a wide sense so as to include a capital gain: Reference may be made to Eisner vs Macomber, Merchants ' Loan & Trust Co. vs Smietunka, and United States vs Stewart, and Resch vs Federal Commissioner of Taxation.
In each of these cases very wide meaning was ascribed to the word "income" as its natural meaning.
The relevant observations of learned 890 Judges deciding those cases which have been quoted in the judgment of Tendolkar J. quite clearly indicate that such wide meaning was put upon the word "income" not because of any particular legislative practice either in the United States or in the Commonwealth of Aus tralia but because such was the normal concept and connotation of the ordinary English word "income".
Its natural meaning embraces any profit or gain which is actually received.
This is in consonance with the observations of Lord Wright to which reference has already been made." (Emphasis Supplied) Indeed, Navneet Lal 's case, relied upon by Shri Palkhiwala, would itself conclude the point: "In dealing with this point, it is necessary to consider what exactly is the denotation of the word "income" used in the relevant Entry.
It is hardly necessary to emphasise that the entries in the Lists cannot be read in a narrow or restricted sense." "But in considering the question as to whether a particular item in the hands of a citizen can be regarded as his income or not, it would be inappropriate to apply the tests tradition ally prescribed by the Income tax Act as such." In Bhagwandas Jain vs Union of India, ; the question of includibility, for purposes of income tax, of the assessee 's notional income from a house property in the personal residential occupation of the asses see was assailed on the ground that it did not constitute 'income ' for the purposes and within the meaning of Entry 82 of List I. The amplitude of the expression 'income ' in Entry 82 of List I came in for consideration.
In that context, this Court said: "Even in its ordinary economic sense, the expression 'income ' includes not merely what is received or what comes in by exploiting the use of a property but also what one saves by using it oneself.
That which can be converted into income can be reasonably regarded as giving rise to income.
The tax levied under the Act is on the income (though computed in an artificial way) from house property in the above sense and not on house property." 891 The expression 'income ' in Entry 82, List I cannot, therefore, be subjected, by implication, to any restriction by the way in which that term might have been deplayed in a fiscal statute.
A particular statute enacted under the Entry, might, as a matter of fiscal policy, seek to tax some species of income alone.
The definitions would, therefore, be limited by the consideration of fiscal policy of a par ticular statute.
But expression 'income ' in the legislative entry has always been understood in a wide and comprehensive connotation to embrace within it every kind of receipt or gain either of a capital nature or of a revenue nature.
The 'taxable receipts ' as defined in the statute cannot be held to fall outside such a 'wider connotation ' of 'income ' in the wider constitutional meaning and sense of the term as understood in Entry 82, List I. Contention (a), therefore,, fails.
Re: Contention (b) and (c): We had an occasion to deal with a similar argument in the other batch of cases dealing with the constitutionality of the Expenditure Tax Act, 1987, where the 'chargeable expenditure ' incurred in a particular class of hotels alone was brought to tax, leaving the other hotels out.
We have rejected the challenge to the constitutionality of the provisions of that Act based on Article 14 and 19(1)(g).
There, hotels in which room charges were Rs.400 or more per day per person were alone brought under the Act.
The differ entia was held to be both intelligible and endowed with a rational nexus to the objects of the legislation viz., bringing to tax certain class of expenditure incurred at hotels which were legislatively presumed to, attract an economically superior class of clientale.
Having regard to the wide latitude available to the Legislature in fiscal adjustments, the classification was found not violative of Article 14. 8.
Similar contentions as to the unreasonableness of the restrictions which the imposition of the impugned tax was said to bring about on the petitioners ' freedom of trade and business and the adverse affect of this tax on a significant area of national economy generally and the Tourism Industry in particular have been considered in the petitions assail ing the vires of the Expenditure Tax Act, 1987.
It is now well settled that a very wide latitude is available to the legislature in the matter of classification of objects, persons and things for purposes of taxation.
It must needs to be so, having regard to the complexities involved in the formulation of a taxation policy.
Taxation is not now a 892 mere source of raising money to defray expenses of Govern ment.
It is a recognised fiscal tool to chief fiscal and social objectives.
The defferentia of classification presup poses and proceeds on the premise that it distinguishes and keeps apart as a distinct class hotels, with higher economic status reflected in one of the indicia of such economic superiority.
The presumption of constitutionality has not been dislodged by the petitioners by demonstrating how even hotels, not brought into the class, have also equal or higher chargeable receipts and how the assumption of econom ic superiority of hotels to which the Act is applied is erroneous or irrelevant.
For the reasons stated in and following our Judgment in the said W.P. 1395/87 and connected cases contentions (b) and (c) are also held and answered against the petitioners.
In the result, for the foregoing reasons these petitions are dismissed.
There will, however, be no order as to costs in these petitions.
G.N. Petitions dismissed.
| IN-Abs | The Hotel Receipts Tax Act, 1980 came into force on 9.12.1980.
The Act imposed a special tax of 15% on the gross receipts of certain hotels, where the room charges for residential accommodation provided to any person during the previous year were Rs.75 or more per day per individual.
The levy commenced from the assessment year 1981 82 but was discontinued from 27.2.1982.
Charges received from persons within the purview of certain Vienna Conventions were exempt from the tax.
The constitutional validity of the said Act was chal lenged in these writ petitions, on grounds of lack of legis lative competence and of violation of Articles 14 and 19(1)(g).
It was contended on behalf of the petitioners that the reliance on Entry 82, List I in support of the tax was wholly misconceived and the tax in pith and substance was an impost under Entry 62, List II reserved to the States.
It was also contended that the Act is patently violative of Article 14 since the basis of classification has no nexus with the object of the tax, in that other hotels which have much higher gross receipts are left out.
It was contended by the petitioners that the law imposed unreasonable burden on their freedom of business and constituted a violation of Article 19(1)(g) of the Constitution.
881 On behalf of the Respondent it was contended that the said tax fails under Entry 82, List I and the word 'income ' should not be read in a narrow and pedantic sense, but must be given its widest amplitude.
The challenge to the Act on the ground that it was violative of Articles 14 and 19(1)(g), was also resisted by the Respondent.
Dismissing the writ petitions, HELD: 1.1.
The word 'income ' is of elastic import.
In interpreting expressions in the legislative lists a very 'wide meaning should be given to the entries.
In understand ing the scope and amplitude of the expression 'income ' in Entry 82, List 1, any meaning which fails to accord with the plenitude of the concept of 'income ' in all its width and comprehensiveness should be avoided.
The cardinal rule of interpretation is that the entries in the legislative lists are not to be read in a narrow or restricted sense and that each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it.
The widest possible construc tion, according to the ordinary meaning of the words in the entry, must be put upon them.
Reference to legislative practice maybe admissible in reconciling two conflicting provisions in rival legislative lists.
In construing the words in a constitutional document confering legislative power the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude.
The expression 'income ' in Entry 82, List I, cannot be subjected, by implication, to any restriction by the way in which that term might have been deployed in a fiscal statute.
A particular statute enacted under the Entry might, as a matter of fiscal policy, seek to tax some species of income alone.
The definitions would, therefore, be limited by the consideration of fiscal policy of a particular stat ute.
But the expression 'income ' in the legislative entry has always been understood in a wide and comprehensive connotation to embrace within it every kind of receipt or gain either of a capital nature or of a revenue nature.
The 'taxable receipts ' as defined in the statute cannot be held to fail outside such a 'wider connotation ' of 'income ' in the wider constitutional meaning and sense of the term as understood in Entry 82, List I. Navinchandra Mafatlal vs CIT, Bombay City, [1955] 1 SCR 829 and Bhagwandas Jain vs Union of India, AIR 1981 S.C. 907, relied on.
Navnitlal vs K.K. Sen, ; ; Governor Gener al in Council vs Province of Madras, and Kamakshya 882 Narain Singh vs CIT, , referred to.
It is now well settled that a very wide latitude is available to the legislature in the matter of classification of objects, for purposes of taxation.
It must needs to be so, having regard to the complexities involved in the formu lation of a taxation policy.
Taxation is not now a mere source of raising money to defray expenses of Government.
It is a recognised fiscal tool to achieve fiscal and social objectives.
The differentia of classification presupposes and proceeds on the premise that it distinguishes and keeps apart as a distinct class hotels, with higher economic status reflected in one of the indicia of such economic superiority.
The presumption of constitutionality has not been dislodged by the petitioners by demonstrating how even hotels, not brought into the class, have also equal or higher chargeable receipts and how the assumption of econom ic superiority of hotels to which the Act is applied is erroneous or irrelevant.
As regards reasonableness of classification and restriction on the petitioners ' freedom of trade and busi ness, similar contentions were raised in a connected case.
As has been held in that case and for the reasons given therein, the challenge to constitutionality of the provi sions of the Act, based on Articles 14 and 19(1)(g) is rejected.
Federation of Hotel & Restaurant Association of India etc.
vs Union of India, , followed.
|
vil Appeal No. 612 (NT) of 1975.
From the Judgment and Order dated 24/25.9.
1974 of the Gujarat High Court in Special Civil Application No. 1797 of 1972.
Harish N. Salve, Mrs. A.K. Verma and Joel Pares for the Appellant.
V.S. Desai, M.B. Rao and Ms. A. Subhashini for the Respondents.
The Judgment of the Court was delivered by KANIA, J.
This is an appeal from the judgment of a Division of 5 the High Court of Gujarat in Special Civil Application No. 1797 of 1972 on a certificate granted under Article 133(1) of the Constitution of India.
The relevant facts are as follows: The assessee is a Private Limited Company and carries on the business of manufacturing and selling textile at Porbun dar in Saurashtra in the Gujarat State.
Before 1948 Porbun dar was a part of the Princely State of that name.
No In come Tax was levied by the erstwhile Porbundar State prior to 1948.
In 1948 there was a merger of several Princely States and as a result of the merger, the State of Saurash tra was formed.
No income tax was levied by the State of Saurashtra till 1949 when it promulgated the Saurashtra Income tax Ordinance.
Under that Ordinance provision was made for the grant of depreciation allowance based on the written down value.
The said Ordinance defined "written down value" as follows: "Written down value" means: (a) in case of assets acquired in the previous year, the actual cost to the assessee; and (b) in the case of assets acquired before the previous year the actual cost to the assessee less all depreciation actually allowed to him under this Ordinance or allowed under an act repealed thereby or which would have been allowed to him if the Income tax Act, 1922 was in force in past." On 26th January, 1950 State of Saurashtra became a part of Union of India as a Part B State.
The Indian Income tax Act, 1922 became applicable to the State of Saurashtra from 1st April, 1950 under the provisions of the Fi nance Act, 1950.
By Section 13 of the Finance Act of 1950, which provides for repeals and savings, the Saurashtra Income tax Ordinance was repealed.
Section 12 of that Act provided for the removal of difficulties as follows: "If any difficulty arises in giving effect to the provisions of any of the Acts, rules or orders extended by Section 3 or Section 11 to any State or merged territory, the Central Government may, by order, make such provision, or give such direction, as appears to it to be necessary for removing the difficulty.
" In exercise of the powers conferred upon it by Section 12 of the 6 Finance Act, 1950, the Central Government issued an order known as "Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950".
Clause (2) of the Order of 1950 reads as follows: "Computation of aggregate depreciation allow ance and the written down value: In making any assessment under the Indian Incometax Act, 1922, all depreciation actually allowed under any laws or rules of a Part B State relating to Income tax and Super tax or any law relating to tax on prof its of business shall be taken into account in computing the aggregate depreciation allowance referred to in sub clause (c) of the Proviso to Clause (vi) of sub section (2) and the written down value under clause (b) of sub section (5) of Section 10 of the said Act.
Provided that, where in respect of any asset, depreciation has been allowed for any year both in the assessment made in the Part B State and in the taxable territories, the greater of the two sums allowed shall only be taken into account.
" This order was made by the Central Govern ment on December 2, 1950.
Subsequently, on March 9, 1953, in exercise of the powers conferred upon it by Section 60A of the Indian Income tax Act, 1922, an Explanation was added by the Central Government to the above Clause (2) of the Order of 1950 with effect from that date and that Explanation was in the following terms: "For the purpose of this paragraph, the ex pression 'all depreciation actually allowed under any laws or rules of a Part B State ' means and shall be deemed always to have meant the aggregate allowance for depreciation taken into account in computing the written down value under any laws or rules of a Part B State or carried forward under the said laws or rules." In Commissioner of Income tax, Hyderabad vs D.B.R. Mills Ltd., the Hyderabad High Court held that this Explanation was ultra vires the powers of the Central Government under Section 60A of the Indian Income tax Act, 1922.
After the said decision of the High Court the Central Government issued a notifica 7 tion on 8th May, 1956 in exercise of the powers conferred upon it by Section 12 of the Finance Act, 1950 and under this notification an Explanation in identical terms as the earlier Explanation inserted by an order made under Section 60A of the Indian Income tax Act, 1922 was added to Clause (2) of the Removal of Difficulties Order, 1950.
As far as the appellant assessee is concerned, it was assessed under the Indian Income tax Act from 1940 41 in respect of the income arising or deemed to arise in British India from 1940 41 onwards.
For these years income of the assessee was computed on receipt basis, but in calculating the world income, depreciation was taken into consideration for arriv ing at the income outside British India.
The assessee was also assessed for assessment year 1949 50 under the Saurash tra Income tax Ordinance, 1949.
From the assessment year 1950 51 onwards the assessee was assessed under the Indian Income tax Act, 1922 (referred to hereinafter as "the Indian Income tax Act").
The assessment years with which we are concerned are the assessment years 1957 58, 1958 59 and 1959 60, the corresponding previous years being the calendar years 1956, 1957 and 1958 respectively.
It is the case of the assessee that during the course of the assessment of the assessee 's income under the Act of 1922, depreciation was allowed for the assessment year 1950 51 and thereafter on the original cost of the assets as reduced by the deprecia tion allowance given under the Saurashtra Income tax Ordi nance, 1949.
The respective written down values for assess ment years 1951 52 and 1952 53 were fixed on the basis of the written down value for assessment year 1950 51.
However, subsequently, the Income tax Officer concerned having juris diction over the case of the petitioner, rectified the calculations of depreciation allowance by further reducing the written down value of the assets of the assessee by adopting the procedure which has been set out in paragraph 7 of the petition filed by the assessee.
What was done by the Income tax Officer was that the written down value taken for the assessment year 1940 41 by the Income tax Officer, Bombay was taken as the starting point.
From this written down value, the depreciation that was actually allowed to the assessee in respect of the assessment years 1940 41 to 1944 45 was deducted.
For the assessment years 194546 to 1948 49 the written down value was calculated after calcu lating the depreciation allowance which would be allowable under the rules.
For the assessment year 1949 50, the depre ciation allowance as calculated under the Saurashtra Income tax Ordinance, 1954 was deducted.
For the assessment years 1950 51 to 1952 53, the depreciation allowance actual ly deducted under the assessment orders passed under the Indian Income tax Act was calculated and for the assessment year 1953 54 the depreciation allowance was calculated under Rule 8 of the 8 Indian Income tax Rules made under the Indian Income tax Act.
For the assessment years 1954 55 to 1956 57 the depre ciation was calculated on the basis of the above rectifica tion order.
The contention of the assessee is that the depreciation for the previous years should have been calcu lated only on the basis of Clause (2) of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, which provided for computation of the aggregate depreciation allowance on the basis of the deduction which was actually allowed under the provisions of Saurashtra Income tax Ordi nance, 1949.
Regarding the Explanation which was added as set out earlier, the contention of the assessee was that it was ultra vires the powers of the Central Government as it was not necessary for the removal of any difficulty.
This contention of the assessee was rejected by the Income tax authorities as well as the Income tax Appellate Tribunal.
For the assessment years 1957 58 and 1959 60 the assessee again contended before the Income tax authorities and the Tribunal that Explanation to Clause (2) as notified in 1956 was ultra vires the powers of the Central Government.
It was contended by the assessee before the Tribunal that the decision of this Court in The Commissioner of Income tax, Hyderabad vs Dewan Bahadur Raingopal Mills Ltd., ; ; which upheld the validity of the Explanation was no longer good law in view of the decision of this Court in Straw Products Ltd. vs Income tax Officer.
"A" Ward, Bhopal, and Ors., The contention of the assessee was rejected by the Tribunal by its order dated April 16, 1969.
From this decision of the Tribunal at the instance of the assessee a reference was made to the Gujarat High Court in which the following ques tion was raised: "Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the depreciation allowable and not 'actually allowed ' under the Saurashtra Income tax Ordinance, 1949 should be taken into account in computing the aggregate depre ciation allowance and written down value under Section 10(2)(vi) of the Income tax Act, 1922?" This reference was numbered as Reference No. 45 of 1970.
On August 17, 1972 the High Court held that in its advisory jurisdiction under the Income tax Act it could not go into the question of the vires of the said Explanation and an swered the question against the assesee.
Thereafter the assessee filed Special Civil Application No. 1797 of 1972 from the decision wherein this appeal arises.
In this Spe cial Civil Application the vires of the Explanation added by the Central Government by its 9 notification dated May 8, 1956 in exercise of the powers under Section 12 of the Finance Act of 1950 as well as the assessments made on the assessee for the assessment years 1957 58 to 1959 60 were challenged.
The Division Bench of the Gujarat High Court in its impugned judgment pointed out that the decision of this Court in The Commissioner of Income tax, Hyderabad vs Dewan Bahadur Ramgopal Mills Ltd., had upheld the validity of the said Explanation.
The Gujarat High Court noted that the decision of this Court in Straw Products Ltd. vs Income tax Officer, arose from the merged State of Bhopal.
Some of the arguments which did not find favour with this Court in the case of The Commissioner of Income tax, Hyderabad vs Dewan Bahadur Ramgopal Mills Ltd., were accepted by a Bench of seven learned Judges of this Court in the case of Straw Products.
The Gujarat High Court pointed out that in its decision in the case of Straw Products, this Court had considered the decision in the case of Dewan Bahadur Ramgopal Mills Ltd., and explained that decision by stating that the Supreme Court was satisfied that on the facts of that case a difficulty had arisen and it was for removing that difficulty that the Order of 1956 was issued.
The Division Bench of the Gujarat High Court considered the decision of this Court in Dewan Bahadur Raingopal Mills Ltd., as binding and following the same dismissed the Special Civil Application filed by the asses see.
Mr. Salve made two submissions before us.
The first submission made by him was the same as made on behalf of the assessee before the High Court, namely, that there was no difficulty which had arisen in giving effect to the provi sions of the Indian Income tax Act in the State of Saurash tra and hence the pre condition on which the Central Govern ment was authorised to make an order under the Removal of Difficulties Order and add the Explanation had never come into existence and hence adding of the Explanation was without any authority of law and invalid and no legal ef fect.
The next submission urged by Mr. Salve was that it is the fundamental scheme of the Indian Incometax Act that, generally speaking, almost the entire cost of a capital asset used for purposes of business or profession should be allowed to be written off by way of depreciation.
This could be done in more than one ways.
It could be done by allowing a fixed percentage of the actual cost to be deducted as depreciation allowance every year till the entire cost is written off.
This is known as the Straight Line Method.
The other is the method of calculating the depreciation on the basis of written down value.
Written down value would be determined by deducting a fixed percentage of the original cost of the asset in assessment year relevant to the previ ous year in which the asset was 10 acquired and thereafter giving the same percentage of the written down value determined on the footing of the original cost less the depreciation already allowed.
Taking into account the definition of the term "written down value" contained in Section 10 of sub section (5) of Indian Income tax Act, 1922, the basic scheme under the said Act appears to be that in determining the written down value for depreciation allowance, the taxing authority can deduct only such amounts as have been allowed earlier by way :of deduc tion.
It was submitted by him that this position was accept ed in the decision of this Court in Straw Products Ltd. vs Income tax Officer.
In the present case, if the impugned Explanation was applied, the result would be that the writ ten down value of the capital asset of the assessee acquired prior to 1949 would be determined by making deductions for depreciation allowance which was not actually allowed to the assessee between the assessment years 1945 46 to 1948 49.
This result would follow from the manner in which the writ ten down value was calculated under the Saurashtra Income tax Ordinance of 1949.
It was urged by him that in exercise of its delegated powers it was not open to the Central Government to enact such an Explanation.
In order to examine this contention it would be useful to bear in mind some of the provisions of the Indian Income tax Act.
In that Act the charge of Income tax is in respect of "total income" of the previous year.
The expression "total income", very briefly stated, is defined in sub section (15) of Section 2 as meaning the total amount of income, profits and gains com puted in the manner laid down in the Act.
Chapter 3 of the Act deals with the various Heads of Income chargeable to Income tax and Section 10 deals with the Head of Income in respect of profits or gains of business, profession or vocation carried on by the assessee.
Sub section (2) of Section 10 deals with the allowances which have to be made in the computation of the profits and gains from business, profession or vocation and Clause (vi) of the said sub section provides for depreciation.
The relevant portion of Clause (vi) ran as follows: "In respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent where the assets are ships other than ships ordinarily plying on inland waters to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed and in any other case, to such percentage on the written down value thereof as may in any case or class or cases be pre scribed.
" The expression "written down value" as used in sub section (2) 11 of Section 10 of the Act has been defined in sub section (5) of Section 10.
The relevant part of Clause (b) of the said sub section runs as follows: "In the case of assets acquired before the previous year the actual cost to the assessee less all depreciation actually allowed to him under this Act, or any Act repealed thereby, or under executive orders issued when the Indian Income tax Act, 1886 (II of 1886), was in force.
X X X X Provided that in the case of a building previously the property of the asses see and brought into use for the purposes of the business, profession or vocation after the 28th day of February, 1946, 'written down value ' means the actual cost to the assessee reduced by an amount equal to the depreciation calculated at the rate in force on that date that would have been allowable had the build ing been used for the aforesaid purposes since the date of its acquisition by the assessee and had the provisions of this Act relating to the allowance for depreciation been in force on and from the date of acquisition.
" In The Commissioner of Income tax, Hyderabad vs Dewan Bahadur Ramgopal Mill Ltd., the very Explanation added by the notification dated 8.5.1956, which is challenged before us, came up for consideration before a Constitution Bench of this Court.
The facts in that case were that prior to January 26, 1950, when the erstwhile State of Hyderabad merged in the Union of India and became a Part B State, the respondent company was assessed to Income tax under the Hyderabad Income tax Act, under which depreciation allowance was given to it on the basis of the written down value of its assets, such as buildings, machinery plants, etc., in accordance with clause (c) of section 12(5) of that Act, which provided that in the case of assets acquired before the previous year and before the commencement of the Act, the written down value would be the actual cost to the assessee less (i) depreciation at the rates applicable to the assets calculat ed on the actual costs for the first year since acquisition and for the next year on the actual cost diminished by the depreciation allowance for one year and so on, for each year upto the commencement of that Act and (ii) depreciation actually allowed to the assessee 12 on such assets for each financial year after the commence ment of the Act.
After the merger of Hyderabad with the Union of India, by sections 3 and 13 of the Finance Act, 1950, the taxation laws in force in that State were repealed and the Indian Income tax Act, 1922, was extended to that area; and, in exercise of the powers conferred by section 12 of the Finance Act, 1950, the Central Government issued a notification dated December 2, 1950, called the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950.
Paragraph 2 of the Order provided that "in making any as sessment under the Indian Income tax Act, 1922, all depreci ation actually allowed under any laws or rules of a Part B State . . shall be taken into account in computing the aggregate depreciation allowance referred to in proviso (c) to section 10(2)(vi) and the written down value under section 10(5)(b) of the said Act".
For the assessment year 195 1 52 the respondent was assessed for the first time under the Indian Income tax Act, and basing its claim on paragraph 2 of the aforesaid Order it asked for depreciation allowance in respect of its assets by working out the value thereof at their inception and deducting therefrom such depreciation as was allowed for the three assessment years in which it was assessed under the Hyderabad Income tax Act.
By an order dated November 30, 195 1, the Incometax Officer disallowed the respondent 's claim on the ground that it was against the principle inherent in granting depreciation allowance which must decrease from year to year.
The matter was taken up to this Court and while it was pending there, on May 8, 1956, the Central Government issued a notification in exercise of its powers conferred on it by section 12 of the Finance Act, 1950, whereby an Explanation was added to the aforesaid paragraph 2 as follows: "For the purpose of this paragraph, the ex pression 'all depreciation actually allowed under any law or rules of a Part B State ' means and shall be deemed to have always meant the aggregate allowance for depreciation taken into account in computing the written down value under any laws or rules of a Part B State or carried forward under the said laws or rules.
" The respondent challenged the validity of the notification of 1956 and also its applicability to the present case on grounds (1) that it was ultra vires the powers conferred on the Central Government by section 12 of the Finance Act, 1950, (2) that it contravened Article 14 of the Constitu tion, and (3) that, in any case, it could have no retrospec tive effect.
13 It was held by this Court that the true scope and effect of Section 12 of the Finance Act, 1950 was that it was for the Central Government to determine if any difficulty of the nature indicated in the section arises and then to make such order or give such direction, as appeared to it to be neces sary to remove the difficulty, the legislature having left the matter to the executive.
In the present case, a difficulty had arisen because if depreciation actually allowed under the Hyderabad Income tax Act was taken into account in computing the aggregate depre ciation allowance and the written down value, an anomalous result would follow, namely, depreciation allowance to be allowed to the assessee in the accounting year under the Indian Income tax Act would be more than what was allowed in previous years under the Hyderabad Income tax Act.
Conse quently, the Central Government was within its power under section 12 in making the notification dated May 8, 1956.
It was also held that the notification of 1956 applied to all those to whom paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, was ap plicable and created no unequal treatment of persons in the like situation.
Accordingly, the notification did not con travene Article 14 of the Constitution.
In the course of the leading judgment, S.K. Das, J., set out the chain of events which led to the notification dated May 8, 1956 under sec tion 12 of the Finance Act, 1950 being issued which we have already set out earlier and went on to state as follows: "The basic and normal scheme of depreciation under the Indian Income tax Act is that it decreases every year, being a percentage of the written down value which in the first year is the actual cost and in succeeding years actual cost less all depreciation actually allowed under the Income tax Act or any Act repealed thereby etc.
The Hyderabad Income tax Act not having been repealed by the Incometax Act but by the Finance Act, 1950, there was a difficulty in allowing depreciation to an assessee in a Part B State in the first year of assessment under the Indian Income tax Act.
This difficulty was sought to be removed by paragraph 2 of the Removal of Difficulties Order, 1950.
If however, depreciation actually allowed under the Hyderabad Income tax Act was taken into account in computing the aggregate depreciation allowance and the written down value, an anomalous result would follow as in the present 14 case, namely, depreciation allowance to be allowed to the assessee in the accounting year under the Indian Incometax Act would be more than what was allowed in previous years under the Hyderabad Income tax Act.
This would create a disparity and be against the scheme of the Indian Income tax Act.
It was therefore necessary to explain paragraph 2 of the Remov al of Difficulties Order, 1950, to assimilate or harmonise the position regarding deprecia tion allowance, and the Explanation added in 1953 or 1956 was obviously intended to remove the difficulty arising out of that disparity or disharmony.
" It is not disputed that, if this decision is to fol lowed, both the contentions urged by the learned Counsel, Mr. Salve before us must be negatived.
The decision clearly lays down that a difficulty had come into existence and the Central Government had, in exercise of the power delegated to it, issued the said notification in 1956 adding the said Explanation to resolve the difficulty.
The Court took the view that, under the scheme of the Indian Income tax Act, in respect of assets acquired before the relevant previous year, depreciation is to be allowed on the basis of the original cost less depreciation in respect of earlier years.
viz., the years intervening between the relevant previous year and the year of acquisition.
Where any tax on income was levied during any of these intervening years, the actual cost would have to be reduced by the depreciation actually allowed but in respect of such intervening years when there was no tax levied on income, depreciation on a notional basis would have to be deducted from the actual cost of the asset.
In deducting an amount on account of such notional depreciation there seems to be nothing against the basic scheme of the Income tax Act.
These are the conclusions which flow from the said decision of Court in the case of Dewan Bahadur Ramgopal Mills Ltd. The said decision has been rendered by a Bench comprising five learned Judges of this Court and must normally be regarded as binding.
upon us.
The question, however, is whether the said decision needs to be reconsidered in view of two later decisions of this Court which we shall presently discuss.
The first of the said two decisions cited by Mr. Salve is that in the case of Madeva Upendra Sinai vs Union of India & Ors., The said decision has been rendered by majority comprising four learned Judges out of five compris ing the Bench which decided the case.
In that case, the challenge was to the validity of the second Proviso to Clause (2) of the Taxation Laws (Extension to Union Territo ries) (Removal of Difficulties) Order No. 2 of 1970 which was deemed to have come into force on 1st April, 15 1963.
In brief, this clause provided that in making any assessment under the Indian Income tax Act, 1961 all depre ciation actually allowed under the local laws shall be taken into account in computing the written down value.
The second Proviso to that Clause was as follows: "Provided further that where in respect of any period, no depreciation was actually allowed under the local law or the depreciation actu ally allowed cannot be ascertained, deprecia tion in respect of that period shall be calcu lated at the rate for the time being in force under the Income tax Act, 1961 or under the Indian Income tax Act, 1922 . . and the depreciation so calculated shall be deemed to be the depreciation actually allowed under the local law".
The majority judgment took the view that the existence or arising of a difficulty was the sine qua non for the exercise of the power under Clause (7) of the Taxation Laws (Extension to Union Territories) Regulation, 1963.
The "difficulty" contemplated by that clause had to be a diffi culty arising "in giving effect to" the provisions of the Act, etc., and not a difficulty arising aliunde or an extra neous difficulty.
Further, the Central Government could exercise the power under the clause only to the extent it was necessary for applying or giving effect to the Act, etc., and no further.
The second Proviso to Clause (2) of the said Order of 1970 sought to raise the taxable income of the assessee inconsistently with the scheme of the Income tax Act, and was ultra vires the Central Government under Clause 7 of the 1963 Regulation and the Revenue was not entitled to lay tax on the basis of the depreciation allow ance computed in accordance with that proviso.
It was fur ther held that the said second proviso to Clause (2) of the 1970 order would, in the implementation of the Act, create difficulties rather than remove them.
It was further held that the key word in Clause (b) of Section 43(6) of the Income tax Act, 1961 is "actually".
11 is the antithesis of that which is merely speculative, theoretical or imaginary.
"Actually" contra indicates a deeming construction of the word "allowed" which it qualifies.
It cannot be stretched to mean "notionally allowed" or merely allowable on a notional basis.
In Straw Products Ltd. a challenge was made to the validity of sub clause (b) of paragraph 2 of the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949 inserted therein by the Taxation Laws (Merged States) (Removal of Difficulties) Amendment Order, 1962.1t was held that the said sub clause of the said Explanation was ultra vires 16 the Central Government under Section 6 of the Taxation Laws (Extension to Merged States and Amendment) Act, 1949 under which it was purported to be made, since no "difficulty" was proved to have arisen justifying the invocation of the power under Section 6; and the revenue authorities were not enti tled to levy tax on the basis of depreciation allowance computed in accordance with sub clause (b) of the said Explanation to paragraph 2 of the Order.
It was held that the expression "depreciation actually allowed" connotes under Section 10(2)(vi) of the Indian Income tax Act, 1922 under Clause (2) of the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949 and the notification under Section 60A of the Income tax Act, depreciation taken into account in assessing the income of an assessee arising from carrying on business, and does not mean depreciation merely allowable or applicable under the taxing provision at p. 236).
The Court took the view that the exercise of the power under Section 6 of the Taxation Laws (Extension to Merged States and Amendment) Act, 1949 to make provisions or to issue directions as may appear necessary to the Central Government is conditioned by the existence of a difficulty arising in giving effect to the provisions of any Act, rule or order extended by Section 3 to the Merged States.
The Section does not make the arising of a difficul ty a matter of subjective satisfaction of the Government: it is a condition precedent to the exercise of power, and existence of the condition, if challenged, must be estab lished as an objective fact.
It may be mentioned that the decision in the case of The Commissioner of Income tax, Hyderabad vs Dewan Bahadur Ramgopal Mills Ltd., was noticed and discussed in this judgment but it was pointed out that in that case the difficulty had arisen because, as pointed out by the Court in that case but for the Explanation a difficulty would have arisen insofar as the depreciation allowance allowed to assessee under the Indian Income tax Act would have been more than the depreciation allowance under the Hyderabad Income tax Act.
After giving our anxious consideration to the matter, we find ourselves unable to accept the submissions of Mr. Salve, learned Counsel for the assessee.
As pointed out by us earlier, it was frankly conceded by the learned Counsel that unless we took the view that the decision of this Court in The Commissioner of Income Tax, Hyderabad vs Dewan Baha dur Ramgopal Mills Lid, was not good law or, at least, that it needed reconsideration by a larger Bench, we must follow that decision and the appeal of the assessee must be dis missed.
It is the undisputed position that the very provi sion which is challenged before us was earlier challenged before a Constitution Bench of this Court in 17 the aforementioned case and that challenge was negatived.
The mainplank of learned Counsel 's argument is that in the case of Straw Products Ltd. vs Income tax Officer, a view has been taken which is inconsistent with the view taken in The Commissioner of Income tax, Hyderabad vs Dewan Bahadur Ramgopal Mills Ltd. Now, in fact, we find that a Bench comprising seven learned Judges of this Court in this case of Straw Products Ltd. has considered the decision of this Court in Dewan Bahadur Ramgopal Mills Ltd. and has observed that the case could be distinguished because in that case there was a difficulty which had, in fact, arisen and hence, it was necessary to issue the Removal of Difficulties Order, 1956.
The observations of this Court in that case (at page 237 to 238 of the aforesaid Report) only show that this Court disapproved the interpretation given to the decision in the case of Dewan Bahadur Ramgopal Mills Ltd. by the Madhya Pradesh High Court, namely, that it was a matter for subjective satisfaction of the Government to decide whether a difficulty has arisen and it was not open to the Court to investigate that question.
It was pointed out that in Dewan Bahadur Ramgopal Mills Ltd. this Court was satisfied that, in fact a difficulty had arisen and that difficulty had to be removed and for removing the difficulty, the Order of 1956 was issued.
On a fair reading of the decision in the case of Straw Products along with the decision in the case of Dewan Bahadur Ramgopal Mills Ltd., it appears to us that the view taken in Straw Products Ltd., is that although it is for the Government to subjectively satisfy itself that a difficulty has arisen of the kind set out in those decisions before an order can be issued under the power to issue orders for removal of difficulties but that satisfaction is not conclusive as suggested by the High Court of Madhya Pradesh and it is the duty of the Court concerned to examine for itself whether there was a reasonable basis for the Government to have come to such a conclusion.
Anyway, al though it is not for the Court to determine for itself in the first instance whether such a difficulty, as contemplat ed, had arisen, it is open to the Court to see whether the Government had a sound basis to come to the conclusion that such a difficulty had arisen.
The decision in the case of Straw Products, therefore, in no way casts doubt the deci sion of this Court in Dewan Bahadur Ramgopal Mills Ltd. The other case relied upon by Mr. Salve.
namely, Madeva Sinai v, Union Of India has cast no doubt whatever on the decision of this Court in Dewan Bahadur Ramgopal Mills Ltd. but the Court there took the view that the existence of a difficulty was sine qua non for the exercise of the power in Clause 7 of the Taxation Laws (Extension to Union Territories) (Removal of Difficulties) Regulation, 1963.
18 It is not disputed that the decision of the Constitution Bench of this Court in the case of Dewan Bahadur Ramgopal Mills Ltd. is binding on us.
In the light of what we have discussed earlier, we do not feel that it is necessary to direct this matter to be placed before a larger Bench so that the decision in Dewan Bahadur Ramgopal Mills Ltd., could be reconsidered.
In fact, in the case of Straw Products a larger Bench of this Court did consider that decision and came to the conclusion that on the facts of that case the decision was correct.
In view of this, we fail to see how any useful purpose would be served by referring this appeal to a larger Bench.
Moreover, problems of the type which have arisen in these cases are not likely to recur hereafter except very rarely.
In view of this, we would prefer to follow the decision in The Commissioner of Income tax Hyderabad vs Dewan Bahadur Ramgopal Mills Ltd. and the appeal of the assessee must stand dismissed.
Even apart from what we have stated in the foregoing paragraph, we may point out that in the present case, the Saurashtra Income tax Ordinance was repealed by Section 13 of the Finance Act, 1950 and not by any provision of the Indian Income tax Act.
As observed in the case of The Com missioner of Income Tax, Hyderabad vs Dewan Bahadur Ramgopal Mills Ltd. (at page 326) the basic and normal scheme of depreciation under the Indian Income tax Act is that it decreases every year, being a percentage of the written down value which in the first year is the actual cost and in succeeding years actual cost less all depreciation actually allowed under the Indian Income tax Act or any Act repealed thereby, etc.
In that case, an anomalous situation arose because the Hyderabad Income tax Act was not repealed by the Indian Income tax Act but by the Finance Act, 1950 and hence, a difficulty arose in allowing depreciation to an assessee in Part B State.
In the present case also, the Saurashtra Income tax Ordinance having been repealed not by the Indian Income tax Act but by Section 13 of the Finance Act, 1950, a similar difficulty had come into existence, and hence we fail to see how it can be said that the Government had no good basis to come to the conclusion that a difficul ty had.
in fact, arisen as contemplated in the case of Dewan Bahadur Ramgopal Mills Ltd. In the result, the appeal fails and is dismissed.
Howev er, considering the facts and circumstances of the case, there will be no order as to costs.
Y.L. Appeal dis missed.
| IN-Abs | The appellant assessee is a company carrying on the business of manufacturing and selling Textile at Porbunder (formerly a princely State) in Saurashtra in the State of Gujarat.
No income tax was levied by the former Porbunder State prior to 1948.
In 1949 the princely State of, Porbund er integrated into newly formed Saurashtra State.
In 1949 the State of Saurashtra promulgated the Saurashtra Income Tax Ordinance wherein provision for grant of depreciation based on written down value was made.
On 26.1.1950, State of Saurashtra became a part of the Union of India as a Part 'B ' State and thus the Income Tax Act, 1922 became applicable to the State of Saurashtra from 1st April 1950 under the Fi nance Act, 1950.
The said Saurashtra Income Tax Ordinance was repealed under Sec. 13 of the Finance Act, 1950.
Section 12 of that Act provided for removal of difficulties, if any, arising in giving effect to the Income Tax Act.
The Central Govt.
on 2.12.50 issued an order known as "Taxation Laws (Part B States) Removal of Difficulties) Order 1950".
Clause 2 of the said order provided the manner in which the aggre gate depreciation allowance and written down value were to be computed.
On March 9, 1953, the Central Government in the exercise of its powers under Sec.
60A of the Indian Income Tax Act, 1922, added an Explanation to the said clause (2).
The vires of the said Explanation was challenged before the Andhra Pradesh High Court which held that the Explanation referred to above was ultra vires the powers of the Central Government under Sec.
60A of the Income Tax Act.
Commissioner of Income Tax, Hyderabad vs D.B.R. Mills Ltd., Thereupon, the Central Government issued another notifi cation dated the 8th May, 1956 in exercise of its powers under Section 12 of the Finance Act 1950, whereby an Expla nation in identical terms as the earlier Explanation was added to Clause (2) of the Removal of Difficulties Order, 1950.
The validity of the said Explanation added by the notification dated 8th May, 1956 was upheld by this Court in The Commissioner of Income tax, Hyderabad vs Dewan Bahadur Ramgopal Mills Ltd., ; On the appeal from the said decision of the High Court 2 of the Andhra Pradesh in Commissioner of Income tax, Hydera bad vs D.B.R. Mills, The assessee was assessed under the Indian Income Tax Act from 1940 41 in respect of the income arising or deemed to arise in British India from 1940 41 onwards.
For these years its income was assessed on receipt basis but in calcu lating the world income depreciation was taken into consid eration for arriving at the income outside British India.
The assessee was also assessed for the assessment year 1949 50 under the Saurashtra Income Tax Ordinance, 1949.
From 1950 51 it was assessed under the Income Tax Act.
The assessment years concerned in this case are 1957 58, 1958 59 and 1959 60, the corresponding previous years being the Calender years 1956, 1957 and 1958 respectively.
The case of the assessee is that during the course of the assessment of its income, depreciation was allowed for the assessment year 1950 51 and thereafter on the original cost of the assets as reduced by the depreciation allowance given under the Sau rashtra Income Tax Ordinance 1949.
The respective written down values for the assessment years 1951 52 and 1952 53 were fixed on the basis of the written down value for the assessment year 1950 51.
But later the concerned Income Tax Officer rectified the calculations of depreciation allowance by further reducing the written down value of the assets of the assessee.
The Income Tax Officer took the written down value for the assessment years 1940 41 as the starting point.
The assessee was not satisfied with this rectification.
Its contention was that the depreciation for the previous years should have been calculated only on the basis of Clause (2) of the Taxation Laws (Part B States) (Removal of Difficulties) Order 1950, which provided for computation of the aggregate depreciation allowance on the basis of the deduction which was actually allowed under the Saurashtra Income Tax Ordinance, 1949.
Regarding the explanation, the assessee contended that it was ultra rites the powers of the Central Government as it was not necessary for the removal of any difficulty.
The contentions of the assessee were rejected by the Income Tax authorities as well as by Income Tax Appellate Tribunal.
It was contended by the assessee before the Tribu nal that the decision of this Court in Commissioner of Income Tax Hyderabad vs Dewan Bahadur Ramgopal Mills Ltd., ; was no longer good law in view of the later decision of this Court in Straw Products Ltd. vs Income Tax Officer "A" Ward, Bhopal and Ors., The Tribunal having rejected the said contentions, at the in stance of the assessee a reference was made to the Gujarat High Court in which the following question was raised: 3 "Whether on the facts and in the circumstances of the case.
the Tribunal was justified in holding that the depreciation allowable and not 'actually allowed ' under the Saurashtra Income tax Ordinance, 1949, should be taken into account in computing the aggregate depre ciation allowance and written down value under Sec.
10(2)(vi) of the Income Tax Act 1922.
" The High Court held that in its advisory jurisdiction under the Income Tax Act, it could not go into the question of the vires of the said Explanation and therefore answered the question against the assessee.
Therefore, the appellant filed Special Civil Application 1797 of 1972 in the High Court.
The Division Bench of the High Court in its judgment disposing of the said special Civil Application pointed out that the decision of this Court in the Commissioner of Income Tax, Hyderabad vs Dewan Bahadur Ramgopal Mills, case, referred to above had upheld the validity of the Explanation in question.
The High Court further opined that some of the arguments which did not find favour with this court in the said case were accepted by a Bench of 7 Learned Judges in the Straw Products Ltd. vs Income Tax Officer, "A" Ward, Bhopal and Ors., The High Court fur ther pointed out that in its decision in the said case of Straw Products this court had considered the decision in Dewan Bahadur Ramgopal Mills Ltd. and explained that on the facts of that case a difficulty had arisen and it was for removing that difficulty that the Order of 1956 was issued.
For the said reason the High Court considered that decision was good law and following the same, it dismissed the Spe cial Civil Application.
Hence this appeal by the assessee.
In this appeal the Explanation added by the Central Government by its notification dated May 8, 1956 as well as the assessments made on the assessee for the assessment year 1957 58 to 1959 60 have been assailed.
It was inter alia contended on behalf of the assessee that there was no diffi culty which had arisen in giving effect to the provisions of the Indian Income Tax Act in the State of Saurashtra and hence the pre condition on which the Central Government was authorised to make an Order under the Removal of Difficul ties Order and add the Explanation in question had never come into existence and as such the Explanation was without the authority of Law, invalid and of no legal effect.
It was further contended by the assessee that under the scheme of the Income Tax Act, generally speaking, almost the entire cost of a capital asset used for purposes of business or profession should 4 be allowed to be written off by way of depreciation, whether worked on the basis of straight line method or written down value.
The assessee disputed the mode of assessment and the applicability of the Explanation.
Following this Court 's decision in Dewan Bahadur Ramgo pal Mills ' Ltd. ; this Court dismissing the appeal, HELD: The Saurashtra Income Tax Ordinance was repealed by Section 13 of the Finance Act 1950 and not by any provi sion in the Indian Income Tax Act.
The basic and normal scheme of depreciation under the Indian Income Tax Act is that it decreases every year, being a percentage of the written down value which in the first year is the actual cost and in succeeding years actual cost less all deprecia tion actually allowed under the Income Tax Act or any Act repealed thereby etc.
[18D E] Commissioner of Income Tax Hyderabad vs Dewan Bahadur Ramgopal Mills Ltd., ; The Saurashtra Income Tax Ordinance having been repealed not by the Indian Income Tax Act but by Sec. 13 of the Finance Act 1950, a difficulty had come into existence, and hence it could not be said that the Government had no good basis to come to the conclusion that a difficulty had, in fact, arisen.
[18F G] Madeva Upendra Sinai vs Union of India & Ors., [1975] 98 I.T.R. 209.
|
ivil Appeal No. 381 of 1956.
Appeal by special leave from the judgment and order dated February 24, 1955, of the Bombay High Court in Income Tax Reference No. 52/X of 1954.
N. A. Palkhivala (with him, Jamshedji B. Kanga), section N. Andley, J. B. Dadachanji, P. L. Vohra and Rameshwar Nath, for the appellant.
H. N. Sanyal, Additional Solicitor General of India, G. N. Joshi and R. H. Dhebar, for the respondent.
May 12.
The Judgment of the Court was delivered by VENKATARAMA AIYAR J.
This is an appeal against the judgment of the High Court of Bombay in a reference under section 66(1) of the Indian Income tax Act, 1922, hereinafter referred to as the Act.
The appellant is a private limited company incorporated under the Indian Companies Act, and is carrying on business as marine engineers and ship repairers.
Its registered office is in Bombay and it is resident and ordinarily resident in India.
Its entire share capital is beneficially owned by two British companies, the P. & 0.
Steam Navigation Co. Ltd., and the British Indian Steam Navigation Co. Ltd., whose business 850 consists in plying ships for hire.
Under an agreement entered into with the two companies aforesaid, which will be referred to hereinafter as the non resident companies; the appellant repairs their ships at cost, and charges no profits.
Now, the point for determination is whether, on these facts, the appellant is chargeable to tax under section 42(2) of the Act.
That sub section runs as follows: " Where a person not resident or not ordinarily resident in the taxable territories carries on business with a person resident in the taxable territories, and it appears to the Income tax Officer that owing to the close connection between such persons the course of business is so arranged that the business done by the resident person with the person not resident or not ordinarily resident produces to the resident either DO profits or less than the ordinary profits which might be expected to arise in that business, the profits derived therefrom, or which may reasonably be deemed to have been derived therefrom, shall be chargeable to income tax in the name of the resident person who shall be deemed to be, for all the purposes of this Act, the assessee in respect of such income tax.
" The Income tax Officer, Bombay who dealt with the matter took the view that the appellant company had so arranged its business with the non resident companies that it did not produce any profits to it, and that was because it was those companies that really owned its share capital, and that therefore the profits which it could ordinarily have made but for their close financial connection were liable to be taxed under section 42(2), and he computed the same at Rs. 6,80,000 for the account year 1943 1944, at Rs. 4,67,559 for the account year 1944 1945 and at Rs. 4,68,963 for the account year 1945 46.
On the basis of the above findings, orders of assessment of income tax were made for the account years 1944 1945 and 1945 1946 and of excess profits tax for the account years 1943 1944, 1944 1945 and 1945 1946.
Against these five orders, the appellant preferred appeals to the Appellate Assistant Commissioner, who by his 851 order dated July 3, 1952, confirmed the same.
Then there was a further appeal by the appellant to the Appellate Tribunal, and the Bench which heard the same having been divided in its opinion, the matters came up for hearing before the President, who by his order dated March 19, 1954, held that section 42(2) was inapplicable and he accordingly set aside the orders of assessment of income tax and excess profits tax made on the appellant.
On the application of the Department, the Tribunal referred the following question for the opinion of the High Court of Bombay: " Whether on the facts and in the circumstances of the case any income falls to be included in the appellant 's assessment under section 42(2).
" The reference was heard by Chagla C. J. and Tendolkar J. who by their judgment dated February 24, 1955, held that, on the facts found, section 42(2) was applicable and that the appellant was liable to be assessed to income tax and excess profits tax under that section.
The appellant applied under section 66(A) for leave to appeal against this judgment to this court, and that application was dismissed.
The appellant thereafter applied for and obtained leave to appeal to this Court under article 136, and hence this appeal.
It must be mentioned that on December 31, 1948, an order of assessment bad been made in respect of the income tax payable by the appellant for the account year 1943 1944, and therein, the profits chargeable under section 42(2) had not been included.
But subsequently, the Income tax Officer took action under section 34 of the Act, and on May 29, 1953, made an order assessing the appellant to tax for that year on the profits deemed to have been made by it under section 42(2), and against that order, an appeal is pending before the Appellate Assistant Commissioner.
That order is not the subject matter of the present proceedings, which are concerned only with the assessment of income tax for the account years 1944 1945 and 1945 1946 and of excess profits tax for the account years 1943 1944, 1944 1945 and 1945 1946.
Now, the sole point for determination in this appeal is whether on the facts found the appellant is chargeable to tax under section 42 (2) of the Act.
Mr. Palkhivala, 852 learned counsel for the appellant, contends that it is not, and urges two grounds in support of his contention: (1) that section 42(2) imposes a charge only on a business carried on by a nonresident, and that therefore no tax could be imposed under that provision on the business of the appellant who is a resident; and (2) that it is a condition for the levy of a charge under s.42 (2) that the non resident must carry on business with the resident, and that in the instant case it is not satisfied.
The first ground does not appear to have been put forward in the Court below, but before us it has been presented with great elaboration and pressed with considerable insistence.
The argument in support of it may thus be stated: section 42 (2) imposes a charge on profits of a business, actual or notional, when the conditions specified therein are satisfied; but the section does not, in terms, say who the person is whose business is liable to be taxed, but that that can only be the non resident is clear from other parts of the section.
Thus, the tax is imposed under section 42 (2) on profits " derived " from business, which must mean profits actually made therein.
Ex hypothesi, the resident has so arranged his business that it produces little or no profits to him.
If it has produced some profits, then they are taxable in his hands even apart from this provision, and if he has made no profits, then the word " derived " would be inapplicable to his business.
Therefore, the profits " derived " and taxable under the section can have reference only to the business of a non resident.
Then again, the profits are chargeable under this section in the name of the resident.
If the profits chargeable under section 42(2) accrue from a business of the resident, he would be the person who would, even apart from the section, be liable for the tax, and in that situation, the expression " in the name of the resident " would be inappropriate.
It would make sense if, in fact, the profits accrued in a business carried on by a person other than the resident, and the legislature sought to tax them in his hands.
The true intention behind the legislation, it is said, is that the profits of the non resident should be taxed, but that the tax should fall on the resident by reason of his 853 close connection with the nonresident.
Support for this contention is sought in the provision in section 42 (2) that the resident shall be deemed to be the assessee for all purposes of the Act.
The word " deemed " imports, it is argued, a legal fiction, and if it was the, business of the resident that was intended to be taxed, then he is, in fact, the assessee, and it would be ' inconsistent with that position that he should be treated as an assessee by a legal fiction.
It is also urged that sub sections
(1) and (3) of section 42 deal with the profits of a nonresident and prescribe the conditions under which and the manner in which the tax could be imposed and collected, and section 42 (2) must in this setting, be construed as referring to the business of the nonresident.
There would have been considerable force in this argument, had there been any ambiguity or undertainty in the wording of section 42 (2) as to whether it is the business of the resident that is sought to be taxed or that of the nonresident.
But that is not so.
The language of the enactment imposing the charge is too plain to admit of any doubt.
Now, section 42 (2) is, it may be noted, in two parts.
The first part commencing with the opening words " Where a person not resident " and ending with the words " which may reasonably be deemed to have been derived therefrom " prescribes the conditions on which the charge arises.
It does not of itself impose the charge.
That is done by the second part, which provides that "the profits derived therefrom or which may reasonably be deemed to have been derived therefrom shall be chargeable to income tax.
" The word " therefrom " is very important for the purpose of the present discussion.
In the context, it can refer only to the business of the resident, and it is this business therefore that is the subject of the charge under section 42 (2) It was suggested for the appellant that the word therefrom " has reference to the arrangement between the nonresident and the resident, but apart from the fact that such a construction would, on the grammar of it, be untenable, :it is impossible to conceive how an arrangement relating to the conduct of business can, as such, be the 854 subject matter of income tax, apart from the business in which profits or gains are made.
The language of the section is clear beyond all reasonable doubt as to what it is that is sought to be taxed under this section.
That is only the business of the resident and not that of the nonresident.
In this view, it is only necessary to consider whether there is anything in the wording of the other parts of section 42 (2) relied on for the appellant, which precludes us from giving effect to the plain import of the word " therefrom ".
It is on the expression "profits derived" in the charging part of the enactment that the appellant leans heavily in support of his position that it is the business of the non resident that is really intended to be taxed.
But then, those words do not stand alone.
They are associated with the words " or which may reasonably be deemed to have been derived ", and this association has its origin in the preceding clause produces to the resident either no profits or less than the ordinary profits which might be expected to arise in that business ".
This clause contemplates two classes of cases, one where the business of the resident produces no profits and the other where it produces less than the normal profits.
The charge is imposed on both these classes of cases, and the word " derived " has reference to the latter, while the words " profits which may reasonably be deemed to have been derived " relate to the former.
That both these clauses relate to the business of the resident is clear from the words " to the resident " occurring therein.
The word " derived " in section 42 (2) must therefore be interpreted as referring to the business of the resident.
The respondent sought further support for this conclusion in the words " which may reasonably be deemed to have been derived" in section 42(2), and contended that those words could apply only to a business which does not yield profits, and that will fit in, in the context, only with the business of the resident and not of the non resident.
The answer of the appellant to this contention is that the words in question should be construed as meaning not notional profits but such proportion of the actual profits of the nonresident as 855 could reasonably be apportioned to the business in India.
Reliance was placed in support of this contention on Rr. 33 and 34 of the Indian Income tax Rules, 1922.
Rule 33 provides for the determination of the profits of a non resident in cases falling within section 42(1), and one of the modes prescribed for such determination is to fix an amount which bears the ' same proportion to the total profits of the non resident as the Indian receipts bear to the total receipts in the business.
Rule 34 then provides that "the profits derived from any business carried on in the manner referred to in section 42 (2) may be determined for the purposes of assessment to income tax according to the preceding rule ".
Now, the argument of Mr. Palkhivala is that the interpretation put on section 42 (2) by the rule making authorities as manifest in R. 34 is that the business chargeable under section 42 (2) is that of the non resident, and that the words " which may reasonably be deemed to have been derived therefrom " had reference to the apportionment of the Indian, out of the total profits.
We see no force in this contention.
There is nothing in R. 34 to justify the assumption that the rule making authorities considered either that section 42 (2) applied to the business of a non resident or that the words " which may reasonably be deemed to have been derived therefrom " meant apportionment of the Indian out of the world profits of the non resi.
And even if those.
be the assumptions on which the Rule is based, that can have no effect on the true interpretation of section 42 (2).
And whatever doubts one migt have had as to the meaning to be given to the words " derived therefrom or which may reasonably be deemed to have been.
derived therefrom " if they had to be construed in isolation, in the context.of the section and read in conjunction with the. words " to the resident " and " therefrom ", there cannot be any doubt that they have reference to the business of the resident and not that of the non resident.
The word " or " in the clause would appear to be rather inappropriate, as it is susceptible of the interpretation that when some profits are made but they log 856 are less than the normal profits, tax could only be imposed either on the one or on the other, and that accordingly a tax on the actual profits earned would bar the imposition of tax on profits which might have been received.
Obviously,that could not have been intended, and the word " or " would have to be read in the context as meaning " and ".
Vide Maxwell 's Interpretation of Statutes, Tenth Edn.
238 239.
But that, however, does not affect the present question which is whether the word " derived " indubitably points to the business of the nonresident as the one taxable under section 42 (2), and for the reasons already given, the answer must be in the negative.
The appellant also relied on the clauses in section 42 (2) that the profits shall be chargeable to tax in the name of the resident ' and that he shall be deemed to be the assessee for all purposes of the Act ' as indicating that it is not the business of the resident that is really sought to be taxed.
But these clauses are explainable with reference to the fact that the profits taxed are not actual profits but what are deemed to be profits.
It was argued that if it was the intention of the legislature that what was not profits should be deemed to be profits, that should have been independently provided for before the tax is imposed, and that in the absence of such a provision, the word " deemed " must be construed as referring not to notional profits being treated as actual profits, but to a person who is not, in fact, an assessee, being treated as an assessee.
We see no substance in this argument.
There is no reason why an enactment should not both declare notional profits as taxable profits and at the same time impose a charge on the resident in respect of those profits, and that, quite clearly, is what section 42 (2) has done.
It may be that its language is not felicitous.
But there can, however, be no mistaking its sense that it is the resident that is to be dealt with as assessee in respect of profits which he had not, in fact, made.
Nor do we see much force in the argument that section 42, sub sections
(1) and (3) relate to income of the nonresident and that section 42(2) which is wedged in between them should therefore be interpreted as having 857 reference to the profits of the non resident.
If the language of section 42(2) is clear that it is the resident who is chargeable to tax, it is of no consequence that under section 42, sub sections
(1) and (3) it is the non resident that is taxed.
It should be remembered that section 42 occurs in Ch.
V headed " Liability in Special Cases ", and section 42(2) is a liability which is out of the ordinary run, and it is not inappropriate to deal with it in section 42, because while section 42(1) seeks to bring within the ambit of taxation the profits of a non resident which accrue in India, section 42(2) seeks to tax the resident in respect of profits which he would have normally made but for his business association with a non resident.
On the other hand, on the construction contended for by the appellant section 42(2) would become practically useless because a non resident whose profits could be taxed under section 42(2) could also be taxed under section 42(1), as also the resident if he were the agent.
None of the considerations put forward by the appellant is of sufficient weight to displace the conclusion to be drawn from the words " to the resident " and " therefrom " in section 42(2), and we must hold that the business which is the subject matter of taxation under that provision is that of the resident and not of a non resident.
This contention must accordingly be found against the appellant.
We shall next consider the second ground urged in support of the appeal that it is a condition for the levy of a charge under section 42(2) that a non resident should carry on business with the resident, and that, on the facts found, that condition is not satisfied, and that therefore the tax is unauthorised.
It is argued that the business of the non resident companies is to ply ships for hire, and that the appellant has no concern with that; that the business of the appellant is to repair ships and that the non resident companies have no connection with that business; and that all that the non resident companies do is to get their ships repaired by the appellant, and that does not amount to carrying on any business with the appellant.
A person who regularly purchases his goods from a particular dealer does not, it is said, carry on business with 858 that dealer, and on the same analogy, in getting their ships repaired by the appellant the non resident companies cannot be said to carry on business with them in the real sense of that word.
We are unable to agree with this contention.
The word "business" is, as has often been said, one of wide import and in fiscal statutes, it must be construed in a broad rather than a restricted sense.
Discussing the connotation of the word trade", Scott L. J. observed in Smith Barry V. Cordy (1): " The history of judicial decisions has been similar, showing a strong tendency not to restrict the scope of Schedule D; a tendency which was, we think, in sympathy with the general social and economic outlook of the country.
There is hardly any activity for gaining a livelihood and not covered by the other Schedules, which does not seem to us to be swept into the fiscal net by the Schedule D." 'The word business ' connotes", it was observed by this Court in Narain Swadeshi Weaving Mills vs The Commissioner of Excess Profits Tax (2), "some real, substantial and systematic or organised course of activity or conduct with a set purpose.
" Now, it may be conceded that when a person purchases his requirements from a particular dealer, he cannot without more be said to carry on business with him.
But here there is much more.
The non resident companies send their ships for repair to the appellant, not as they might to any other repairer but under a special agreement that repairs should be done at cost.
And further unlike customers who purchase goods for their own consumption or use, the non resident companies get their ships repaired for use in what is admittedly their business.
These are clearly trading activities, organised and continuous in their character and it will be difficult to escape the conclusion that they constitute business.
We are not even concerned in this appeal with the larger question whether the activities of the nonresident companies in connection with the repair of the ships amount to carrying on of business.
What we have to decide is whether having regard to the (1) , 259.
(2) , 961. 859 course of dealings between the non resident companies and the appellant it can be said of the former that they carry on business with the latter within the meaning of section 42(2).
Now, it should be observed that section 42 speaks not of the nonresidents carrying on business in the abstract but of their carrying on business with the resident, and in the context, it must include all activities between them having relationship to their business.
That is the view taken by the learned Judges in the Court below, and we are in agreement with it.
In this connection, reference may be made to section 42(1) under which a charge is imposed on income, profits or gains accruing to a non resident through any business connection in the taxable territories.
In Commissioner of Income tax vs Curimbhoy Ebrahim & Sons (1), it was observed by the Privy Council that business connection in section 42(1) is different from business as defined in section 4(2) of the Act.
" The phrase business connection ', observed Sir George Rankin, " is different from, though not unrelated to, the word business ' of which there is a definition in the Act ".
And in Anglo French Textile Co., Ltd. vs Commissioner of Income tax, Madras (2), this Court has observed that " when there is a continuity of business relationship between the person in British India who helps to make the profits and the person outside British India who receives or realises his profits, such relationship does constitute a business connection".
Vide also the observations in Bangalore Woollen, Cotton and Silk Mills Co. Ltd. vs Commissioner of Income tax, Madras (3 ).
The words "where a person not resident in the taxable territories carries on business with a person resident" in section 42(2) must be similarly interpreted, and a non resident should be held to carry on business with a resident, if the dealings between them form concerted and organised activities of a business character.
We are accordingly of opinion that, on the facts found, the non resident Companies must be held to have carried on business with the appellant as provided in section 42(2).
(1) (2) ; (3) [1950] 18 ; 433. 434.
860 It was argued that the result of this arrangement was only to reduce the repairing charges and enable the non resident Companies to thereby make a saving; that that was not profit or gains of a business liable to be taxed under the Act, and the decisions in Tennant vs Smith (1) and In re Major John(") were cited in sup.
port of this position.
But, as already held by us, the subject matter of the tax under section 42(2) is the business of the resident and not that of the non resident, and what we have to decide is not whether the nonresident Companies made profits in their dealings with the appellant but whether what they did was business, and for that purpose it is immaterial that the business was carried on by them in such manner that no profits could accrue to them therefrom.
Vide the observations of Coleridge C. J. at p. 113 in Commissioners of Inland Revenue vs Incorporated Council of Law Reporting (3 ).
The fact therefore that the nonresident Companies could derive no profits from the dealings with the appellant would not detract from their character as business with the appellant.
This contention must, therefore, be rejected.
It was finally contended that the profits chargeable under section 42(2) must be separately assessed and not added on to the other profits or income of the appellant.
This contention is based on the assumption that section 42(2) imposes on the appellant, a vicarious liability, the charge being in reality on the profits of the nonresident.
On our finding that the charge is on the business of the appellant and not of the non resident Companies, this contention does not survive.
In the result, the appeal fails and is dismissed with costs.
Appeal dismissed.
| IN-Abs | Under section 42(2) Of the Indian Income tax Act, 1922, " Where a person not resident or not ordinarily resident in the taxable territories carried on business with a person resident in the taxable territories, and it appears to the Income tax Officer that owing to the close connection between such persons the course of business is so arranged that the business done by the resident person with the person not resident or not ordinarily resident produces to the resident either no profits or less than the ordinary profits which might be expected to arise in that business, the profits derived therefrom, or which may reasonably be deemed to have been derived therefrom, shall be chargeable to income tax in the name of the resident person who shall be deemed to be, for all the purposes of this Act, the assessee in respect of such income tax The appellant, a private limited company carrying on business as marine engineers and ship repairers had its registered office in Bombay and was resident and ordinarily resident in India, but its entire share capital was beneficially owned by two non resident companies whose business consisted in plying ships for hire.
Under an agreement between them the ships plied for hire by the non resident companies were to be repaired by the appellant company at cost, charging no profits.
The Income tax Officer made an assessment on the appellant company under section 42(2) of the Indian Income tax Act, 1922.
It was contended for the appellant (1) that section 42(2) imposed a charge only on a business carried on by a non resident and that therefore no tax could be imposed on the business of the appellant, and (2) that it was a condition for the levy of a charge under that subsection that the non resident must carry on business with the resident and that in the instant case it was not satisfied, as all that the non resident companies did was only to get their ships repaired by the appellant company: Held, (1) that the business which is the subject matter of taxation under section 42(2) Of the Indian Income tax Act, 1922, is that of the resident and not of a non resident.
The expression 849 " derived therefrom " in that sub section refers to the business of the resident.
(2)that a person can be said to carry on a business with another if the dealings between them form concerted and organised activities of a business character.
Where, as in the instant case, the nonresident companies got their ships repaired by the appellant, not as they might by any other repairer but under a special agreement that repairs should be done by the appellant at cost, the non resident companies must be held to have carried on business with the appellant within the meaning of section 42(2) Of the Act, even though the non resident companies might have derived no profits from the dealings with the appellant.
Narain Swadeshi Weaviing Mills vs The Commissioner of Excess Profits Tax, and Commissioners of lnland Revenue vs I corporated Council of Law Reporting, , relied on.
|
vil Appeal Nos.
2025 26, 2873 75, 1537 of 1986.
From the Judgment and Order dated 24.3.86 and 20.3.86 of the Kerala High Court in O.P. No. 7621/85 1, 4411/85 Y, 2785/83 G, 9366/84 1 and 4740/82 J respectively.
Soli J. Sorabjee, Dr. Y.S. Chitale, T.S. Krishnamoorthy Iyer, Harish N. Salve, K.J. John, M.N. Jha, Mrs. A.K. Verma and D.N. Misra for the Appellants.
212 V.J. Francis, N.M. PopIi and W.K. Jose for the Respondents.
The Judgment of the Court was delivered by PATHAK, CJ.
These appeals by certificate granted by the High Court of Kerala raise the question whether galvanised iron pipes and tubes are a commercially different commodity from steel tubes mentioned in section 14(iv)(xi) of the .
The appellant is a company registered under the Compa nies Act, 1956.
It has its registered office at Ahmedabad in Gujarat.
It is engaged in the manufacture and sale of steel tubes and pipes, both black and galvanised.
In the assessment proceedings for the assessment years 1982 83 and 1983 84 under the Kerala General Sales Tax Act, 1963, the appellant contended that the galvanised iron pipes manufactured by it are "declared goods" and are not liable to additional sales tax as well as surcharge.
The appel lant 's contention was not accepted by the assessing authori ty, who taxed the turnover of galvanised iron pipes at four per cent and also assessed and additional tax and surcharge treating the galvanised iron pipes as goods falling under Entry 46 of the First Schedule to the Kerala Sales Tax Act.
Demands were raised accordingly.
It appears that the matter was brought to the High Court by writ petition, and the High Court held on the basis of its decision in Apollo Tubes Limited vs State of Kerala, [1986] 61 STC 275 that the category of goods called galva nised iron pipes had acquired a different commercial identi ty as a result of the process of galvanisation and could not be identified with steel tubes mentioned in section 14(iv)(xi) of the .
Cases on the other side of the line are Associated Mechanical Industries vs Commissioner of Commercial Taxes, Bangalore, [1986] 61 STC 225 and Commis sioner of Sales Tax vs Om Engineering Works, [1986] U.P.T.C. 55.
The High Court preferred to follow its own decision and on 24 March, 1986 held against the appellant.
A certificate having been granted by the High Court these appeals are now before us.
The purpose of galvanising a pipe is merely to make it weatherproof.
It remains a steel tube.
By being put through the process of galvanising it is made rust proof.
Neither its structure nor function is altered.
As a commercial item it is not different from a steel tube.
That 213 galvanisation is done on steel tubes or pipes as a protec tive measure only was the basis of the decision of the Karnataka High Court in Associated Mechanical Industries, (supra).
Merely because the steel tube has been galvanised does not mean that it ceases to be a steel tube.
The Gujarat High Court in State of Gujarat vs Shah Veljibhai Motichand, Lunawada, [1969] 23 S.T.C. 288 held that merely because iron is given the shape of a sheet and is subjected to corruga tion does not take it out of the description of "iron and steel".
So also in Sales Tax Commissioner and Others vs Jammu Iron and Steel Syndicate, [1980] 45 S.T.C. 99 the High Court of Jammu and Kashmir held that galvanisation and corrugation do not change the essential character of iron sheets, and they remain iron sheets.
We are unable to agree with the view taken by the Madras High Court in Deputy Commissioner of Commercial Taxes, Tiruchirapalli vs P.C. Mohammed Ibrahim Marakayar Sons, [1980] 46 S.T.C. 22.
The limited purpose of galvanisation does not, it seems to us, bring a new commodity into exist ence.
The respondents rely on Deputy Commissioner of Sales Tax (Law) Board of Revenue vs
G.S. Pai & Co., [1980] 1 S.C.R. 938 but in that case this Court held that Bullion as under stood popularly does not include ornaments or other articles of gold.
It was pointed out that Bullion was commonly.
treated as a commodity distinct and separate from ornaments and articles of gold.
Gold ornaments and articles were manufactured or finished products of gold.
A number of other cases were cited on behalf of the respondents, but we do not find any of them to be of assistance to the respondents.
We are of the view that galvanised pipes are steel tubes within the meaning of section 14(iv)(xi) of the .
The view taken by the High Court is erroneous.
We may not that shortly after judgment was reserved in the present appeals, an identical point arose before a Bench of this Court on 28 April, 1988 in S.L.P. (Civil) No. 3549 of 1988 Commissioner of Sales Tax vs Mitra Industries, [1988] 69 S.T.C. Note No. 55 at p. 16 and the learned Judges took the same view which finds favour with us here.
In the result, the appeals are allowed, the impugned judgment and order of the High Court and the orders of the tax authorities in each case are set aside.
The Sales Tax Officer will now proceed to re assess the appellant in accordance with law and the observations contained in this judgment.
T.N.A. Appeals Allowed.
| IN-Abs | The appellant company was manufacturing and selling black and galvanised steel tubes and pipes.
In the assess ment proceedings for the years 1982 83 and 1983 84 under the Kerala General Sales Tax Act, 1963 the appellant contended that since the galvanised pipes manufactured by it were "declared goods" they were not liable to additional sales tax as well as surcharge.
Rejecting the contention, the assessing authority taxed the turnover of galvanized iron pipes at four per cent and also assessed an additional tax and surcharge treating the galvanized iron pipes as 'goods ' falling under Entry 46 of the First Schedule to the Kerala Sales Tax Act.
Demands were raised from the Appellant compa ny accordingly.
The Company filed a writ petition in the High Court.
The High Court, held that as a result of the process of galvani sation the galvanised iron pipes had acquired different commercial identity and therefore, could not be identified with steel tubes mentioned in Section 14(iv)(xi) of the .
In these appeals on the question: whether galvanised iron pipes and tubes are a commercially different commodity from steel tubes mentioned in Section 14(iv)(xi) of the .
Allowing the appeals and setting aside the judgment and order of the High Court, this Court, 211 HELD: 1.
Galvanised pipes are steel tubes within the meaning of Section 14(iv)(xi) of the .
The view taken by the High Court to the contrary was errone ous.
[213E] 2.
Galvanisation is done on steel tubes or pipes as a protective measure only, i.e., to make it weather proof.
Merely because the steel tube has been galvanised does not mean that it ceases to be a steel tube.
It still remains a steel tube and neither its structure nor function is al tered.
Galvanisation does not bring a new commodity into existence and as a commercial item it is not different from a steel tube.
[212H, 213A C] Commissioner of Sales Tax vs Mitra Industries, [1988] 69 S.T.C. (Note No. 55 at p. 16) applied.
Associated Mechanical Industries vs Commissioner of Commercial Taxes, Bangalore, [1986] 61 S.T.C. 225; Commis sioner of Sales Tax vs Om Engineering Works, [1986] U.P.T.C. 55; State of Gujarat vs Shah Veljibhai Motichand Lunawada, [1969] 23 S.T.C. 288 and Sales Tax Commissioner and Ors.
vs Jammu Iron and Steel Syndicate, [1980] 45 S.T.C. 99, ap proved.
Apollo Tubes Limited vs State of Kerala, [1986] 61 S.T.C. 275.
overruled.
Deputy Commissioner of Commercial Taxes, Tiruchirapalli vs P.C. Mohammed Ibrahim Marakayar Sons, [1980] 46 S.T.C. 22.
Not approved.
Deputy Commissioner of Sales Tax (Law) Board of Revenue vs G.S. Pai & Co., ; , Distinguished.
|
SDICTION: Civil Appeal Nos.
3 137 39 of 1985 etc.
From the Judgment and Order dated 10.4.1985 of the Madhya Pradesh High Court in Misc.
Appeal Nos.
176 to 178 of 1983.
F.S. Nariman, G.L. Sanghi, Aspi Chimoi, A.L. Pandiya, Rajan Karanjawala, S.C. Sharma, Ms. Meenakshi Arora, Manik Karanjawala, N. Nettar, G.S. Narayana, R.K. Mehta, Shri Narain, Sandeep Narain, D.P. Mohanty, Ashok Kumar Panda, R.K. Patri and Jatinder Sethi for the Appellants.
Soli J. Sorabjee, A.K. Sen, M.H. Baig, Raja Ram Agar walla, P.A. Choudhary, A.K. Ganguli, M.C. Bhandare, section Ganesh, P.S. Shroff, Randeep Singh, Shrjawala, R. Sasiprab hu, S.S. Shroff, S.A. Shroff, Arun Madan, R.K. Sahoo, J.D.B. Raju, M.M. Kshatriya, T.V.S.N. Chari, T. Sridharan, Ms. Mridula Ray, S.K. Sahoo, N.D.B. Raju, Aruneshwar Gupta, P.P. Juneja, S.K. Bagga, P.N. Mishra, H.J. Zaveri and B.S. Chau han for the Respondents.
Milan Banerjee, P.P. Rao, A. Mariarputham, C.M. Nayar, A.K. Chakravorty, Mrs. J. Wad.
Mrs. Aruna.
Mathur for the Intervener.
The Judgment of the Court was delivered by VENKATARAMIAH, J.
The common question which arises for consideration in these cases which are very neatly argued by learned counsel on both the sides is whether an award passed Under the provisions of the (hereinaf ter referred to as 'the Act ') is liable either to be remit ted under section 16(1)(c) of the Act or liable to be set aside under section 30(c) thereof merely on the ground that no reasons have been given by the arbitrator or umpire, as the case may be, in support of the award.
Ordinarily all disputes arising under a contract have to be settled by courts established by the State.
Section 28 of the provides that every agreement by which any party thereto is restricted absolutely from enforcing his rights under or in respect of 149 any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent.
Exception 1 to the said section 28, however, provides that the .said sec tion shall not render illegal a contract by which two or more persons agree that any dispute which may arise between them in respect or any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.
A brief history of the English Law of Arbitration, is given in the learned treatise The Law and Practice of Commercial Arbitration in 'England by Sir Michael J. Mustill and Stew art C. Boyd.
For centuries commercial men preferred to use arbitration rather than the courts to resolve their business disputes on account of the inherent advantages in the set tlement of disputes by arbitration.
They preferred this alternative method of settlement of disputes to the ordinary method of settlement through courts because arbitration proceedings were found to be cheap and quick.
It was no doubt true that the courts repeatedly expressed doubts as to the wisdom of this preference as reflected by the current opinion that arbitration was an ineffective procedure, not that it was undesirable in itself.
The commercial community, has been however, insisting on the right to arbitration and has always exhibited an interest in seeing that the system is made to work as well as possible.
This led to repeated statutory intervention.
Accordingly laws were passed from time to time to make the arbitration proceedings effective.
The English of 1950 and the English Arbitra tion Act, 1979 are the two major pieces of legislation which now control the arbitration proceedings in England.
The legal requirements of an award under English Law are suc cinctly given in 'the Hand Book of Arbitration Practice ' by Ronald Bernstein (1987).
English Law. does not impose any legal requirement as to the form of valid award but if the arbitration agreement contains any requirement to the form of the award the award should meet those requirements.
The award must be certain.
It could be either interim or final.
An award without reasons is valid.
"The absence of reasons does not invalidate an award.
In many arbitrations the parties want a speedy decision from a tribunal whose stand ing and integrity they respect, and they are content to have an answer Yes or No; or a figure of X.
Such an award is wholly effective; indeed, in that it cannot be appealed as being wrong in law it may be said to be more effective than a reasoned award.
" Section 1 of the English Arbitration Act, 1979, however, pro 150 vides that if it appears to the High Court that an award does not or does not sufficiently set out the reasons for the award in sufficient detail to enable the court to con sider any question of law arising out of it, the court has power to order the arbitrator or umpire to give reasons or further reasons.
In the United States of America as a general rule an arbitration award must contain the actual decision which results from an arbitrator 's consideration of the matter submitted to them but the arbitrator need not write opinion with any specificity as a court of law does unless otherwise provided by a statute or by the submission itself.
Arbitra tors are not required to state in the award each matter considered or to set out the evidence or to record findings of facts or conclusions of law.
They need not give reasons for their award and conclusions or the grounds which form the basis for the arbitration determination, describe the process by which they arrived at their decision or the rationale of the award.
Although such matters are not re quired, the award is not necessarily invalidated because it sets out the reasons or the specific findings, matters, or conclusions on which it is based and faulty reasoning if disclosed does not by itself vitiate the award.
(See Corpus Juris Secundum, Vol.
VI pp. 324 325).
In Australia too an arbitrator, unless required under section 19 of the Australian Arbitration Act, 1902 to state in a special case a question of law is under no obligation in law to give his reasons for his decision (vide University of New South Wales vs Max Cooper & Sons Pvt. Ltd., 35 Aus tralian Law Reports p. 219).
An instructive survey of the Indian Law of Arbitration is to be found in the learned lecture delivered by Nripendra Nath Sircar in the Tagore Law Lectures series of the Calcut ta University entitled "Law of Arbitration in British India".
After referring to the provisions of the Bengal Regulation Act and the Madras Regulation Act, the learned lecturer traces the history of the Law of Arbitration in India in detail commencing with Act VIII of 1859 which codified the procedure of civil courts.
Sections 3 12 to 325 of Act VIII of 1859 dealt with arbitration between parties to a suit while sections 326 and 327 dealt with arbitration without the intervention of a court.
These provisions were in operation when the , which permitted settlement of disputes by arbitration under sec tion 28 thereof as stated at the commencement of this judg ment came into force.
Act VIII of 1859 was followed by later codes relating to Civil Procedure, namely, Act X of 1877 and Act XIV of 1882 but not much change was brought 151 about in the law relating to arbitration proceedings.
It was in the year 1899 that an Indian Act entitled the Arbitration Act of 1899 came to be passed.
It was based on the model of the English Act of 1889.
The 1899 Act applied to cases where if the subject matters submitted to arbitration were the subject of a suit, the suit could whether with leave or otherwise, be instituted in a Presidency town.
Then came the Code of Civil Procedure of 1908.
Schedule II to the said Code contained the provisions relating to the law of arbi tration which extended to the other parts of British India.
The Civil Justice Committee in 1925 recommended several changes in the arbitration law and on the basis of the recommendations by the Civil Justice Committee, the Indian Legislature passed the Act, i.e., the Arbitration Act of 1940, which is currently in force.
The salient provisions of the Act which are relevant for purposes of this case are these.
The Act as its preamble indicates is a consolidating and amending Act and is an exhaustive code in so far as the law relating to arbitration is concerned.
An arbitration may be without intervention of a court or with the intervention of a court where there is no suit pending or it may be an arbitration in a suit.
Unless there is an arbitration agree ment to submit any present and future differences to arbi tration to which a person is a party, he cannot be compelled to have a dispute in which he is concerned settled by arbi tration.
The foundation of any arbitration proceeding is therefore the existence of an arbitration agreement between the persons who are parties to the dispute.
Every arbitra tion agreement unless a different intention is expressed therein, shall be deemed to include the provisions set out in the First Schedule to the Act in so far as they are applicable to the reference.
The parties to an arbitration agreement may agree that any reference thereunder shall be to an arbitrator or arbitrators to be appointed by a person designated in the agreement either by name or as the holder for the time being of any office or appointment.
The author ity of an appointed arbitrator or umpire cannot be revoked except with the leave of the court, unless a contrary inten tion is expressed in the arbitration agreement.
An arbitra tion agreement does not come to an end by death of parties thereto but shall in such event be enforceable by or against the legal representative of the deceased.
The authority of an arbitrator does not stand revoked by the death of any party by whom he was appointed.
In any of the following cases (a) where an arbitration agreement provides that the reference shall be to one or more arbitrators to be appoint ed by consent of the parties, and all the parties do not after differences have arisen, concur in the appointment or appointments; or (b) if any appointed arbitrator or umpire neglects 152 or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied and the parties or the arbitrators, as the case may be ', do not supply the vacancy; or (c) where the parties or the arbitrators are required to appoint an umpire and do not appoint him any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appoint ment or appointments or in supplying the vacancy.
If the appointment is not made within fifteen clear days after the service of the said notice, the court may on the application of the party who gave the notice and after giving the other parties an opportunity of being heard, appoint an arbitrator or arbitrators or umpire, as the case may be, who shall have like power to act on the reference, and to make an award as if he or they had been appointed by consent of all parties.
The Court may on an application of any party to a reference remove an arbitrator or umpire who fails to use all reasona ble dispatch in entering on and proceeding with the refer ence and making an award.
The court may remove an arbitrator or umpire who has misconducted himself or the proceedings.
Where the court removes an umpire who has not entered on the reference or one or more arbitrators (not being all the arbitrators), the court may on the application of any party to the arbitration agreement, appoint persons to fill the vacancies.
The arbitrators or umpire shall, unless a differ ent intention is expressed in the agreement have power to administer oath to the parties and witnesses appearing; state a special case for the opinion of the court on any question of law involved, or state the award, wholly or in part, in the form of a special case of such question for the opinion of the court; make the award conditional or in the alternative; correct in an award any clerical mistake or error arising from any accidental slip or omission; and administer to any party to the arbitration such interrogato ries as may, in the opinion of the arbitrators or umpire, be necessary.
Section 14 of the Act provides that when the arbitrators or umpire have made their award, they shall sign it and shall give notice in writing to the parties of the making and signing thereof and of the amount of fees and charges payable in respect of the arbitration and award.
While an award should contain the decision of the arbitra tors or umpire of the case, as the case may be, the Act does not say in express terms that an award should contain the reasons in support of the decision.
The arbitrators or umpire shall at the request of any party to the arbitration agreement or any person claiming under such party or if so directed by the court and upon payment of the fees and charges due in respect of the arbitration and award and of the costs and charges of filing the award, cause the award or a signed copy of it, together with any depositions and documents 153 which may have been taken and proved before them, to be filed in court, and the court shall thereupon give notice to the parties of the filing of the award.
Sections 15, 16, 17 and 30 of the Act which are relevant for purposes of this case read as follows: 15.
Power of the Court to modify award.
The Court may by order modify or correct an award (a) where it appears that a part of the award is upon a matter not referred to arbitration and such can be separated from the other part and does not affect the decision on the matter referred, or (b) where the award is imperfect in form, or contains any obvious error which can be amended without affecting such decision; or (c) where the award contains a cleri cal mistake or an error arising from an acci dental slip or omission.
Power to remit award.
(1) The Court may from time to time remit the award or any matter referred to arbitration to the arbitra tors or umpire for reconsideration upon such terms as it thinks fit (a) where the award has left undeter mined any of the matters referred to arbitra tion, or where it determines any matter not referred to arbitration and such matter cannot be separated without affecting the determina tion of the matters; or (b) where the award is so indefinite as to be incapable of execution; or (c) where an objection to the legality of the award is apparent upon the face of it.
(2) Where an award is remitted under sub section (1) the Court shall fix the time within which the arbitrator or umpire shall submit his decision to the Court.
(3) An award remitted under sub section (1) shall become void on the failure of the arbi trator or umpire to reconsider 154 it and submit his decision within the time fixed.
Judgment in terms of award.
Where the Court sees no cause to remit the award or any of the matters referred to arbitration for reconsideration or to set aside the award, the Court shall, after the time for making an application to set aside the award has ex pired, or such application having been made, after refusing it, proceed to pronounce judg ment according to the award, and upon the judgment so pronounced a decree shall follow and no appeal shall lie from such decree except on the ground that it is in excess of, or not otherwise in accordance with, the award.
Grounds for setting aside award.
An award shall not be set aside except on one or more of the following grounds, namely: (a) that an arbitrator or umpire has misconducted himself or the proceedings; (b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceed ings have become invalid under section 35; (c) that an award has been improperly procured or is otherwise invalid.
Section 15 of the Act deals with the power of the Court to modify award.
Section 16 of the Act deals with its power to remit an award and section 30 of the Act deals with the power of the Court to set aside an award.
Section 17 of the Act provides that where the court sees no cause to remit the award or any of the matters referred to arbitration for reconsideration or to set aside the award, the court shall, after the time for making an application to set aside the award has expired, or such application having been made, after refusing it, proceed to pronounce judgment according to the award, and upon the judgment so pronounced a decree shall follow and no appeal shall lie from such decree except on the ground that it is in excess of, or not otherwise in accordance with, the award.
The period for getting an award remitted for reconsideration or for setting it aside is prescribed under Article 119 of the .
Section 39 of the Act provides that an appeal shall lie from the following orders passed under the Act; (1) 155 superseding an arbitration; (2) on an award stated in the form of a special case; (3) modifying or correcting an award; (4) filing or refusing to file an arbitration agree ment; (5) staying or refusing to stay legal proceedings where there is an arbitration agreement; and (6) setting aside or refusing to set aside an award and from no others to the court authorised by law to hear appeals from original decree of the court passing the orders.
Section 46 of the Act makes the Act applicable to statutory arbitrations, save in so far as is otherwise provided by any law for the time being in force, the provisions of the Act apply to all statutory arbitrations.
These are broadly the provisions of the Act which govern an arbitration proceeding.
In many of the cases in which awards are passed by arbitrators under auspices of institutions like Chambers of Commerce it may not be necessary for the parties to the disputes to go to the Court to get rules issued in terms of the awards since persons against whom awards are made would be willingly complying with the awards for it would be in their interest to do so in order to maintain their prestige in the business world.
But in other cases where there is no guarantee of ready compliance with the awards by those against whom they are made it becomes necessary to take appropriate steps under the Act to get the awards filed in the Court under section 14 of the Act and to seek the as sistance of the Court in getting decrees passed in terms of the awards so that the decrees can be executed through court for the realisation of the fruits of the award.
At the same time the Act provides the necessary machinery for getting the award remitted to the arbitrators or the umpire, as the case may be, for reconsideration or for getting the award set aside in cases falling under section 30 thereof.
Under the Indian Arbitration Act, 1899 which applied to areas lying within the Presidency towns section 14 provided as follows: "14.
Where an arbitrator or umpire has miscon ducted himself, or an arbitration or award has been improperly procured, the Court may set aside the award.
" This section was couched in the same language in which section 11(2) of the English Arbitration Act, 1889 was couched.
Para 15 of the Second Schedule to the Code of Civil Procedure, 1908 which was applicable to the rest of British India read as follows: "15 . .
But no award shall be set aside except on one of the following grounds, name ly: 156 (a) corruption or misconduct of the arbitrator or umpire: (b) either party having been guilty of fraudulent concealment of any matter which he ought to have disclosed, or of wilfully misleading or deceiving the arbitrator or umpire; (c) the award having been made after the issue of an order by the Court superseding the arbitration and proceeding with the suit or after the expiration of the period allowed by the Court, or being otherwise invalid.
" Then followed the Act, i.e., the Indian which extended to the whole of the British India w.e.f. July 1, 1940 superseding the Indian Arbitration Act, 1899 and the Second Schedule to the Code of Civil Procedure, 1908.
Section 30 of the Act provides that an award shall not be set aside except on one or more of the following grounds, namely: (a) that an arbitrator or umpire has misconducted himself or the proceedings; (b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitra tion proceedings have become invalid under section 35; (c) that an award has been improperly procured or is other wise invalid.
It may be noticed that the general ground, namely, the award being 'otherwise invalid ' for setting aside an award which appeared for the first time in the Second Schedule to the Civil Procedure Code, 1908 was not to be found either in the Indian Arbitration Act, 1899 or in the English Arbitra tion Act, 1889 which contained inter alia two grounds for setting aside an award, namely: (i) that an arbitrator or an umpire had misconducted him self; and (ii) the award had been improperly procured.
In connection with the English Arbitration Act, 1889 and the Indian 157 Arbitration Act, 1899 certain principles had become well settled although neither of these statutes made reference to illegality or error apparent on the face of the award.
In one of the cases frequently referred to in later decisions, namely, Hodgkinson vs Fernie and another, [1857] 3 C.B. (N.S.) 189= 140 English Reports.
p. 712 it was recognised that the principle had been firmly established that where an error of law appeared on the face of the award or upon some paper accompanying or forming part of the award that consti tuted a ground for setting aside the award.
Williams, J. who agreed with Cockburn, C.J. in the said decision observed thus: "I am entirely of the same opinion.
The law has for many years been settled, and remains so at this day, that, where a cause or matters in difference are referred to an arbitrator, whether a lawyer or a layman, he is constitut ed the sole and final judge of all questions both of law and of fact.
Many cases have fully established that position, where awards have been attempted to be set aside on the ground of the admission of an incompetent witness or the rejection of a competent one.
The court has invariably met those applications by saying, 'You have constituted your own tribu nal; you are bound by its decision. ' The only exceptions to that rule, are cases where the award is the result of corruption or fraud, and one other, which, though it is to be regretted, is now, I think, firmly estab lished, viz. where the question of law neces sarily arises on the face of the award, or upon some paper accompanying and forming part of the award.
Though the propriety of this latter may very well be doubted, I think it may be considered as established.
" In Champsey Bhara & Company vs Jivraj Balloo Spinning and Weaving Company Ltd., A.I.R. 1923 Privy Council, 66 which was a case arising from the High Court of Bombay, the Privy Council following the decision in Hodg kinson vs Fernie, (supra) observed thus: "Now the regret expressed by Williams, J., in Hodgkinson vs Fernie, (2) has been repeated by more than one learned Judge, and it is cer tainly not to be desired that the exception should be in any way extended.
An error in law on the face of the award means, in their Lordships ' view, that you can find in the award or a document actually incorporated thereto, as for instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposi 158 tion which is the basis of the award and which you can then say is erroneous.
" The ground arising out of an error of law apparent on the face of the award prima facie appears to fall either under section 16(1)(c) of the Act, which empowers the Court to remit the award to the arbitrator where an objection to the legality of the award which is apparent upon the face of it is successfully taken, or under section 30(c) of the Act which empowers the Court to set aside an award if it is 'otherwise invalid '.
The following two decisions relied on the said two provisions of law respectively.
This Court in Seth Thawardas Pherumal vs The Union of India, approved the view expressed in the case of Champsey Bhara & Company (supra) in the following words at pages 53 54 thus: "In India this question is governed by section 16(1)(c) of the Arbitration Act of 1940 which empowers a Court to remit an award for recon sideration 'where an objection to the legality of the award is apparent upon the face of it '.
This covers cases in which an error of law appears on the face of the award.
But in determining what such an error is, a distinc tion must be drawn between cases in which a question of law is specifically referred and those in which a decision on a question of law is incidentally material (however necessary) in order to decide the question actually re ferred.
If a question of law is specifically referred and it is evident that the parties desire to have a decision from the arbitrator about that rather than one from the Courts, then the Courts will not interfere, though even there, there is authority for the view that the Courts will interfere if it is appar ent that the arbitrator has acted illegally in reaching his decision, that is to say, if he has decided on inadmissible evidence or on principles of construction that the law does not countenance or something of that nature.
See the speech of Viscount Cave in Kelantan Government vs Duff Development Co., at page 409.
But that is not a matter which arises in this case.
The law about this is, in our opin ion, the same in England as here and the principles that govern this class of case have been reviewed at length and set out with clarity by the House of Lords in F.R. Absalom Ltd. vs Great 159 Western (London) Garden Village Society, and in Kelantan Government vs Duff Development Co., In Durga Prasad vs Sewkishendas, , 79) the Privy Council applied the law expound ed in Absalom 's case to India: see also Champsey Bhara & Co. vs Jivraj Balloo Spinning and Weaving Co., 50 I.A. 324, 330 & 331 and Saleh Mahomed Umer Dossal vs Nathoomal Kessamal, 54 I.A. 427, 430.
The wider language used by Lord Macnaghten in Ghulam Jilani vs Muhammad Hassan, 29 I.A. 51, 60 had reference to the revisional powers of the High Court under the Civil Procedure Code and must be confined to the facts of that case where the question of law involved there, namely limita tion, was specifically referred.
An arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks is just and reasonable.
He is a tribunal selected by the parties to decide their dis putes according to law and so is bound to follow and apply the law, and if he does not, he can be set right by the Courts provided his error appears on the face of the award.
The single exception to this is when the parties choose specifically to refer a question of law as a separate and distinct matter." In Jivarajbhai Ujamshi Sheth and Others vs Chintamanrao Balaji and Others, ; this Court held that an award can be set aside on the ground of error of law appar ent on the face of the record under section 30 of the Act but it qualified the above legal position by saying that the Court while dealing with the application for setting aside an award has no power to consider whether the view of the arbitrator on the evidence was justified according to this Court.
The arbitrator 's justification was generally consid ered binding between the parties for it was a tribunal selected by the parties and the power of the Court to set aside the award was restricted to cases set out in section 30.
The Court further observed that it was not open to it to speculate, where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion.
The Court declined to recognise the power of the Court to attempt to probe the mental process by which the arbitrator had reached his conclusion where it was not disclosed by the terms of his award.
The relevant part of the above decision reads thus: "An award made by an arbitrator is conclusive as a judgment between the parties and the Court is entitled to 160 set aside an award if the arbitrator has misconducted himself in the proceedings or when the award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under section 35 of the Arbitration Act or where an award has been improperly procured or is otherwise invalid: section 30 of the Arbitration Act.
An award may be set aside by the Court on the ground of error on the face of the award, but an award is not invalid merely because by a process of infer ence and argument it may be demonstrated that the arbitrator has committed some mistake in arriving at his conclusion.
As observed in Champsey Bhara and Company vs Jivraj Ballo Spinning and Weaving Company Ltd., L.R. 50 I.A. 324 at p. 331: 'An error in law on the face of the award means, in their Lordships ' view, that you can find in the award or a document actu ally incorporated thereto, as for instance a note appended by the arbitrator stating the reasons for his judgment, some legal proposi tion which is the basis of the award and which you can then say is erroneous.
It does not mean that if in a narrative a reference is made to a contention of one party, that opens the door to seeing first what that contention is, and then going to the contract on which the parties ' rights depend to see if that contention is sound. ' The Court in dealing with an application to set aside an award has not to consider whether the view of ' the arbitrator on the evidence is justified.
The arbitrator 's adjudication is generally considered binding between the parties, for he is a tribunal selected by the parties and the power of the Court to set aside the award is restricted to cases set out in s.30.
It is not open to the Court to specu late, where no reasons are given by the arbi trator, as to what impelled the arbitrator to arrive at his conclusion.
On the assumption that the arbitrator must have arrived at his conclusion by a certain process of reasoning, the Court cannot proceed to determine whether the conclusion is right or wrong.
It is not open to the Court to attempt to probe the mental process by which the arbitrator has reached his conclusion where it is not dis closed by the terms of his, award.
" 161 The same view was expressed by this Court in Bungo Steel Furniture Pvt. Ltd. vs Union of India, ; There have been a number of decisions of this Court on the above question and it is not necessary to refer to all of them except to refer to a recent decision in State of Rajas than vs M/s. R.S. Sharma and Co., ; decid ed by Sabyasachi Mukharji and section Ranganathan, JJ.
It is now well settled that an award can neither be remitted nor set aside merely on the ground that it does not contain reasons in support of the conclusion or decisions reached in it except where the arbitration agreement or the deed of submission requires him to give reasons.
The arbi trator or umpire is under no obligation to give reasons in support of the decision reached by him unless under the arbitration agreement or in the deed of submission he is required to give such reasons and if the arbitrator or umpire chooses to give reasons in support of his decision it is open to the Court to set aside the award if it finds that an error of law has been committed by the arbitrator or umpire on the face of the record on going through such reasons.
The arbitrator or umpire shall have to give reasons also where the court has directed in any order such as the one made under section 20 or section 21 or section 34 of the Act that reasons should be given or where the statute which governs an arbitration requires him to do so.
The Law Commission of India, however, had occasion to consider the question whether it should be made obligatory on the part of the arbitrator or umpire to give reasons in support of the award in the course of its Seventy sixth Report on which was submitted in 1978.
The relevant part of the report of the Law Commission on the above question reads thus: "4.42A.
Before leaving section 14, it is necessary to deal with one suggestion that has been made to the effect that an arbitrator must be required to give reasons for the award.
This suggestion was made by the Public Accounts Committee (1977 78), Sixth Lok Sabha, Ninth Report, dealing with the Forest Depart ment, Andaman.
The suggestion has been brought to our notice by the Ministry of Law.
The Committee, after expressing its unhappiness over the manner in which certain arbitration cases which formed the subject matter of the Report had been pursued, and after noting the delay that took place in the disposal of cases, made the following observations: 162 'In this distressing story, Government has repeatedly suffered loss.
In the first arbi tration case, Government 's claim for royalty on shortfall of extraction was not upheld.
As the arbitrator 's award gave no reasons, Gov ernment could not even find out why their claim was rejected.
It will be strange if Government really finds itself so helpless in such case.
The Committee would like Government to make up its mind and amend the law in such a manner that it would be obligatory on the arbitrator to give reasons for his award.
Meanwhile, it should be ascertained whether in an award which sets out no reasons the ag grieved party would have no remedy whatever. ' 4.43.
We have also been informed that the Public Accounts Committee (1975 76), in its 210 Report, has observed as follows (Public Accounts Committee '19776, 210th Report, page 136, para 5.17): 'Incidentally, the Committee also find that under the , the Arbitrator is not bound to give any reason for the award.
The result is that often it becomes difficult to challenge such non speaking awards on any particular ground.
The Committee are of the view that it should be made obligatory on arbitrators to give detailed reasons for their awards so that they may, if necessary, stand the test of objective judicial scrutiny.
The Committee desire that this aspect should be examined and the necessary provision brought soon on the statute book. ' 4.44.
We ' have given careful consideration to the suggestion that the arbitrator should be required to give reasons.
And we appreciate the embarrassment that must be caused to the Government by such awards in the cases re ferred to by the Public Accounts Committee in its Report referred to above.
We are also not unmindful of the fact that the public interest might sometimes suffer by awards which are not supported by reasons.
But we regret that we are unable to persuade ourselves to accept the suggestion for amending the law.
Our reasons for this conclusion will be set out presently.
These reasons are, in our view, weighy enough to override other considerations.
163 4.45.
There are, it seems to us, several consideration that are relevant in determining the question whether an arbitrator should be required by law to give reasons for the award.
The scheme of the is to provide a domestic forum, for speedy and substantial justice, untrammelled by legal technicalities, by getting the dispute re solved by a person in whom the parties have full faith and confidence.
The award given by such a person under the scheme of the Act can be assailed only on very limited ground like those mentioned in section 30 of the Act.
The result is that most of the awards at present are made rules of the court despite objections to their validity by the party against whom those awards operate.
To have a provision making it obligatory for the arbitrator to give reasons for the award would be asking for the introduction of an infirmity in the award which in most cases is likely to prove fatal.
Many honest awards would thus be set aside.
Once the arbitrators are compelled to give reasons in support of the award, the inevitable effect of that would be that the validity of most of the awards would be chal lenged on the ground that the reasons, or at least some of them, are bad and not germane to the controversy.
Sometimes, if four reasons are given in support of the award and one of the reasons is shown to be not correct or not germane, the award would be challenged on the ground that it is difficult to predicate as to how far the bad reason which is not germane has influenced the decision of the arbitrator.
Many awards would not survive court scrutiny in such circumstances.
It is also noteworthy that in a large number of cases the arbitrators would be laymen.
Although their final award may be an honest and conscientious adjudication of the controversy and dispute, they may not be able to insert reasons in the award as may satisfy the legal requirements and the scrutiny of the court.
The arbitrators having been chosen by the parties, it would, in our opinion, be not correct to put extra burden on them of also giving reasons which are strictly ration al and germane in the eye of law in support of their award.
Once the parties have voluntarily 164 chosen the arbitrators, presumably because they have faith in their impartiality, the law should not insist upon the recording of rea sons by them in their award.
The previous experience, in fact, points out that it is awards incorporating reasons which have generally been quashed in court.
The awards not giving reasons have survived the attack on their validity, unless the arbitrator is otherwise shown to have misconducted himself or his award suffers from some other technical defect.
Once we have the compulsion for the incorporation of reasons in the award given by the arbitrators, validity of most of the awards, in our opinion, would not be able to survive in court.
As such, the object of the Arbitrations Act would be substantially defeated.
Once Parliament provides that reasons shall be given, that must clearly be read as meaning that proper, adequate, reasons must be given; the reasons that are set out, whether they are right or wrong, must be reasons which not only will be intelligible, but also can reasonably be said to deal with the substantial points that have been raised.
If the award in any way fails to comply with the statutory provi sions, then it would be a ground for saying that the award was bad on the face of it, as Parliament has required that reasons shall be incorporated (Of.
Re Poyser & Mills Arbi tration, ; (1963) 1 All E.R. 6 12, 6 16 (Megaw J. ).
It is well established that where the arbitrator gives reasons for a conclusion of law, courts can go into those reasons.
(Champsey Bhara & Co. vs J.B. Spinning & Weaving Co. Ltd., A.I.R. 1923 P.C. 66; section Dutt vs University of Delhi, ; 4.49.
It is sometimes stated that since an arbitrator is bound to apply the law, there should be some means of ensur ing that he applied the law correctly.
However, it is also to be remembered that parties resort to an arbitration voluntarily and select or agree to a particular arbitrator, because, inter alia, 165 (i) they have faith in him, and (ii) the proceedings will be more speedy and free from technicalities than in the courts.
The object Of achieving speed and informality is likely to be largely frustrated if a statutory provision makes it compulsory to give reasons for the award.
The general rule is that the parties cannot object to the deci sion given by their own judge, except in case of misconduct and the like.
(Government of Kelantan vs Duff Development Co. Ltd., ; Russell (1970), pages 359,360).
This general principle should not be departed from unless weighty reasons exist for such departure.
No doubt, it is desirable that the award should be correct in law.
But the fundamental question is, how far should the finality of the award yield to the desirability of legal correctness, and what procedural requirements should be insisted upon to ensure that the award is sound in law? In this connection, reference may be made to the obser vations of Barwick C.J. (of the High Court of Australia).
Tata Products Pvt. Ltd. vs Hutcheson Bros. Pvt. Ltd., ; , 258; (1972) Australia Law Journal Reports 119 (Australia).
He observed that 'finality in arbitration in the award of the lay arbitrator is more significant than legal propriety in all his processes in reaching that award. ' The importance which the law attaches to the finality of arbitration goes against the suggestion now put forth for giving reasons for an award.
A requirement that the reasons for an award should be given would open too wide a door for challenging the award, even if the grounds for setting aside are, by statute, restricted in other respects.
For these reasons, we are not inclined to recommend a provision requiring the arbitrator to give reasons for the award.
Thus it is seen that the Law Commission did not recom mend the inclusion of a provision in the Act requiting the arbitrator or umpire to give reasons for the award.
166 It is not disputed that in India it had been firmly established till the year 1976 that it was not obligatory on the part of the arbitrator or the umpire to give reasons in support of the award when neither in the arbitration agree ment nor in the deed of submission it was required that reasons had to be given for the award (vide Firm Madanlal Roshanlal Mahajan vs Hukumchand Mills Ltd., Indore, ; ; Bungo Steel Furniture Pvt. Ltd. vs Union of India, (supra) and N. Chellappan vs Secretary, Kerala State Electricity Board & Another, ; It is, however, urged by Shri Fali section Nariman, who argued in sup port of the contention that in the absence of the reasons for the award, the award is either liable to be remitted or set aside, that subsequent to 1976 there has been a qualita tive change in the law of arbitration and that it has now become necessary to insist upon the arbitrator or the umpire to give reasons in support of the award passed by them unless the parties to the dispute have agreed that no rea sons need be given by the arbitrator or the umpire for his decision.
Two main submissions are made in support of the above contention.
The first submission is that an arbitrator or an umpire discharges a judicial function while function ing as an arbitrator or an umpire under the Act, and, there fore, is under an obligation to observe rules of natural justice while discharging his duties, as observed by this Court in Payyavula Vengamma vs Payyavula Kesanna and others; , This Court relied in that decision upon the observations made by Lord Langdale M.R. in Harvey vs Shelton; , at p. 462 which read thus: "It is so ordinary a principle in the administra tion of justice, that no party to a cause can be allowed to use any means whatsoever to influence the mind of the Judge, which means are not known to and capable of being met and resisted by the other party, that it is impossible, for a moment, not to see, that this was an extremely indiscreet mode of proceeding, to say the very least of it.
It is contrary to every principle to allow of such a thing, and I wholly deny the difference which is alleged to exist between mercantile arbitrations and legal arbitrations.
The first principle of justice must be equally applied in every case.
Except in the few cases where exceptions are unavoidable, both sides must be heard, and each in the presence of the other.
In every case in which matters are litigated, you must attend to the representations made on both sides, and you must not, in the administration of justice, in whatever form, whether in the regularly constituted Courts or in ar 167 bitrations, whether before lawyers or merchants, permit one side to use means of influencing the conduct and the deci sions of the Judge, which means are not known to the other side.
" This Court also relied on the decision in Haigh vs Haigh; , which required an arbitrator to act fairly in the course of its duties.
The two well recognised principles of natural justice are (i) that a Judge or an arbitrator who is entrusted with the duty to decide a dispute should be disinterested and unbiased (nemo judex in cause sua); and (ii) that the parties to dispute should be given adequate notice and opportunity to be heard by the authority (audi alteram partem) (See Administrative Law by H.W.R. Wade, Part V and Judicial Review of Adminis trative Action by S.A. de Smith, Third Edition, Chapter 4).
Giving reasons in support of a decision was not considered to be a rule of natural justice either under the law of arbitration or under administrative law.
In Som Datt Datta vs Union of India and Ors., a Constitution Bench of this Court held that there was no obligation on the part of an administrative or statutory tribunal to give reasons for the order passed by it.
The relevant part of the said decision in which this Court considered the prevailing legal decision in England at the time reads thus: "In the present case it is manifest that there is no express obligation imposed by section 164 or by section 165 of the Army Act on the confirming authority or upon the Central Government to give reasons in support of its decision to confirm the proceedings of the Court Martial.
Mr. Dutta has been unable to point out any other section of the Act or any of the rule made therein from which necessary implication can be drawn that such a duty is cast upon the Central Government or upon the confirming authority.
Apart from any requirement imposed by the statute or statutory rule either expressly or by necessary implication, we are unable to accept the contention of Mr. Dutta that there is any general principle or any rule of natural justice that a statutory tribunal should always and in every case give reasons in support of its decision.
In English law there is no general rule apart from the statutory requirement that the statutory tribunal should 168 give reasons for its decision in every case.
In Rex.
Northumberland Compensation Appeal Tribunal, [1952] 1 K.B. 338, it was decided for the first time by the Court of Appeal that if there was a 'speaking order ' a writ of certi orari could be granted to quash the decision of an inferior court or a statutory tribunal on the ground ,of error on the face of record.
In that case, Denning, L.J. pointed out that the record must at least contain the document which initi ates the proceedings; the pleadings, if any, and the adjudi cation, but not the evidence, nor the reasons, unless the tribunal chooses to incorporate them in its decision.
It was observed that if the tribunal did state its reasons and those reasons were wrong in law, a writ of certiorari might be granted by the High Court for quashing the decision.
In that case the statutory tribunal under the National Health Service Act, 1946 had fortunately given a reasoned decision; in other words, made a 'speaking order ' and the High Court could hold that there was an error of law on the face of the record and a writ of certiorari may be granted for quashing it.
But the decision in this case led to an anomalous re sult, for it meant that the opportunity for certiorari depended on whether or not the statutory tribunal chose to give reasons for its decision, in other words, to make a 'speaking order '.
Not all tribunals, by any means, were prepared to do so and a superior court had no power to compel them to give reasons except when the statute required it.
This incongruity was remedied by the Tribunals and Inquiries Act, 1958 (section 12), (6 & 7 Elizabeth 2 c. 66), which provides that on request a subordinate authority must supply to a party genuinely interested the reasons for its decision.
Section 12 of the Act states that when a tribunal mentioned in the First Schedule of the Act gives a decision it must give a written or oral statement of the reasons for the decision, if requested to do so on or before the giving or notification of the decision.
The statement may be re fused or the specification of reasons restricted on grounds of national security, and the tribunal may refuse to give the statement to a person not principally concerned with the decision if it thinks that to give it would be against the interest of any person primarily concerned.
Tribunals may also be exempted by the Lord Chancellor from the duty to give reasons but the Council on Tribunals must be consulted on any proposal to do so.
As already stated, 169 there is no express obligation imposed in the present case either by section 164 or by section 165 of the Indian Army Act on the confirming authority or on the Central Government to give reasons for its decision.
We have also not been shown any other section of the Army Act or any other statutory rule from which the necessary implication can be drawn that such a duty is cast upon the Central Government or upon the confirming authority.
We, therefore, reject the argument of the petitioner that the order of the Chief of the Army Staff, dated May 26, 1967 confirming the finding of the Court Martial under section 164 of the Army Act or the order of the Central Government dismissing the appeal under section 165 of the Army Act are in any way defective in law.
" It is, however, urged that this Court omitted to notice an earlier decision of a Constitution Bench of this Court in Bhagat Raja vs The Union of India & Ors., [1967] 3 S.C.R. 302 and therefore, the decision in Som Datt Datta, (supra) should be considered as a decision per in curjam.
The point involved in Bhagat Raja ' case (supra) was whether in dis missing a revision petition filed under the Mines & Minerals (Regulation and Development) Act, 1957 and the rules made thereunder, the Union of India was bound to make a speaking order.
This Court held that under the Mines & Minerals (Regulation and Development) Act, 1957 the Central Govern ment while deciding a revision petition was required to act judicially as a tribunal and an appeal could be filed against the said decision before this Court under Article 136 of the Constitution of India.
In order to make the right of appeal effective it was necessary that the Central Gov ernment should pass a reasoned order so that this Court might decide whether the case had been properly decided by the Central Government or not and in the absence of the reasons the order of the Central Government was liable to be reversed.
The relevant part of the judgment of this Court in Bhagat Raja 's, case (supra) reads thus: "Let us now examine the question as to whether it was incum bent on the Central Government to give any reasons for its decision in review.
It was argued that the very exercise of judicial or quasi judicial powers in the case of a tribunal entailed upon it an obligation to give reasons for arriving at a decision for or against a party.
The decisions of tribunals in India are subject to the supervisory powers of the High Courts under article 227 of the Constitution and 170 of appellate powers of this Court under article 136.
It goes without saying that both the High Court and this Court are placed under a great disadvantage if no reasons are given and the revision is dismissed curtly by the use of the single word 'rejected ', or, 'dismissed '.
In such case, this Court can probably only exercise its appellate jurisdiction satisfactorily by examining the entire records of the case and after giving a hearing come to its conclusion on the merits of the appeal.
This will certainly be a very unsatis factory method of dealing with the appeal.
Ordinarily, in a case like this, if the State Government gives sufficient reasons for accepting the application of one party and rejecting that of the others, as it must, and the Central Government adopts the reasoning of the State Government, this Court may proceed to examine whether the reasons given are sufficient for the purpose of upholding the decision.
But, when the reasons given in the order of the State Gov ernment are scrappy or nebulous and the Central Government makes no attempt to clarify the same, this Court, in appeal may have to examine the case de novo without anybody being the wiser for the review by the Central Government.
If the State Government gives a number of reasons some of which are good and some are not, and the Central Government merely endorses the order of the State Government without specify ing those reasons which according to it are sufficient to uphold the order of the State Government, this Court, in appeal, may find it difficult to ascertain which are the grounds which weighed with the Central Government in uphold ing the order of the State Government.
In such circum stances, what is known as a 'speaking order ' is called for.
" A careful reading of this decision shows that it is not based on the ground that the order of the Central Government was not in conformity with the principles of natural justice but on the ground that the order of the Central Government was subject to the supervisory powers of the High Courts under Article 227 of the Constitution of India and the appellate powers of this Court under Article 136 of the Constitution of India.
It is no doubt true that in Siemens Engineering & Manufacturing Co. of India Limited vs Union of India & Anr., [1976] Supp.
SCR 489 a Bench of three Judges of this Court held that every quasi judicial order of a tribunal must be supported by reasons and the rule requiring the reasons to be given in support of the order 171 was like the principles of audi alteram partem, a basic principle of natural justice which must involve every quasi judicial process and that the said rule should be observed in this proper spirit.
In that case again the order whose validity had been questioned in this Court in an appeal filed under Article 136 of the Constitution of India was an order passed by the Central Government under the Customs Act.
A reading of the decision in this case shows that this Court felt that the rule requiring reasons in support of an order was a rule not covered by the principle audi alteram partem but an independent principle of natural justice.
We have already observed that the two recognised principles of natural justice were (i) that a Judge or an umpire who is entrusted with the duty to decide a dispute should be disin terested and unbiased (nemo judex in causa sua); and (ii) that the parties to dispute should be given adequate notice and opportunity by the authority (audi alteram partem).
For the first time this Court laid down that the rule requiring reasons in support of an order is a third principle of natural justice.
It may be as observed in Bhagat Raja 's case (supra) that the Court may require a tribunal to give rea sons in support of its order in 'order to make the exercise of power of the High Courts under Articles 226 and 227 of the Constitution of India and the powers of this Court under Article 136 of the Constitution of India effective.
It is further urged relying upon the decisions of this Court in Associated Cement Companies Ltd. vs P.N. Sharma and Another, ; and A.K. Kraipak & Ors.
vs Union of India & Ors., that the concept of natu ral justice had undergone a great deal of Change in recent years.
It is argued that while originally there were two rules of natural justice in course of time many more subsid iary rules had come to be added to the rules or natural justice and, therefore, in the same way the requirement of giving reasons for a decision should be treated as a new rule of natural justice.
The second main submission made in support of the neces sity of giving reasons for the award is that since the arbitrator or umpire is required to make an award in accord ance with law as held by this Court in Seth Thawardas Pheru mal 's case (supra) and several other cases decided by this Court and since under section 16(1)(c) of the Act the legal ity of an award can be questioned in Court on the basis of an error apparent on the face of an award the only way of ensuring that an award is in accordance with law is by insisting upon the arbitrator or umpire to give reasons for the award.
It is urged that if no reasons are disclosed it would not be possible for the Court to find out whether an award has been passed in accordance with law or not.
172 Our attention is drawn to the existence of the safeguard in the English Law of Arbitration (before the English Arbi tration Act, 1979) for ensuring that an arbitrator deciding a dispute judicially and in accordance with the requirement of the parties to the agreement that the dispute be decided according to law in the form of the power of the Court to compel the arbitrator to state his award in the form of a special case under section 21 of the Arbitration Act, 1950.
It is submitted that the provision with regard to the state ment of the case by an arbitrator to the Court contained in clause (b) of section 13 of the Act, i.e., the Indian Arbi tration Act, 1950, being one which could be exercised at the option of the arbitrator and there being no power for the Court to compel the arbitrator to state a case for its decision, the only way of ensuring that the arbitrator kept within the bounds of law is to compel him to give reasons for his award.
Our attention is also drawn to the Report on Arbitration made by the Commercial Court Committee presided over by Justice Donaldson (now Master of Rolls) in which certain recommendations were made in order to improve the procedure which was prevailing in England with regard to the power of judicial review of the decisions of the arbitra tors.
In the course of the said report, the Commercial Court Committee has observed thus: "Supervisory powers 3.
All systems of law provide for some degree of judicial supervision of arbitral proceedings and awards.
These powers enable the Courts to intervene in cases of fraud or bias by the arbitrators, contravention of the rules of natural justice or action in excess of jurisdiction.
In the case of the English Courts these powers are conferred by sections 22, 23 and 24 of the Arbitration Act, 1950.
Powers of review 4.
Most systems of law adopt the philosophy that the parties, having chosen their own tribunal, must accept its decisions "with all faults".
Accordingly, they make no, or very little, provision for a review by the Courts of arbitral decisions which may be based upon erroneous conclu sions of fact or law.
Until recently the law of Scotland was based upon this philosophy.
However, this has never been the approach of the law of England or of some systems derived from the law.
English law provides for two different forms of review, namely by motion to set aside the award for 173 error on its face and by a reference to the High Court of an award in the form of a special case.
(a) Setting aside an award for error on its face 5.
Under English law the Courts have jurisdiction to set aside any arbitral award if it appears from the award itself or from documents incorporated in the award that the arbitrator has reached some erroneous conclusion of fact or law.
The Court cannot correct the error.
It can only quash the award leaving the parties free to begin the arbitration again.
As a result of the existence of this power, English arbitrators customarily avoid giving any reasons for their awards, confining themselves that A should pay B a specified sum.
Where the parties wish to know the reasons for the award or the arbitrator wishes to give them, this is achieved by giving the reasons in a separate document which expressly states that it is not part of the award and by obtaining an undertaking from the parties that they will not seek to refer to or use the reasons for the purposes of any legal proceedings.
The general pattern is, however, that English awards are given without reasons.
In this important respect English arbitral awards differ from those of most other countries.
In the case of arbitrations held under the laws of Belgium, the Federal Republic of Germany, France, Italy and the Nether lands, the giving of reasons is normally obligatory.
When it comes to enforcing an English arbitral award in a foreign country, there is always some doubt whether objection may not be taken to it on the ground that it is "unmotivated", to use the continental term, although the Committee knows of no case in which this objection has yet been upheld. . . . . . . . . . . .
The alternative of judicial review based on reasoned awards 25.
The existing obstacle to a judicial review based upon reasoned awards is the power and the duty of the Court to set aside awards for error on their face.
This 174 obstacle could easily be removed and this system would then have considerable attractions.
In every case an arbitrator would be free to give reasons for his award.
This would in itself be an improvement, if arbitrators took advantage of the facility.
The making of an award is, or should be, a rational process.
Formulating and recording the reasons tends to accentuate its rationality.
Furthermore, unsuccessful par ties will often, and not unreasonably, wish to know why they have been unsuccessful.
This change in the law would make this possible.
Given a reasoned award, an unsuccessful party could know whether he had a just cause for complaint.
Where no reasons were given initially and he thought that an error had been made, he could ask for reasons to be supplied.
If the arbitrator refused to supply them, the Court could, in appropriate cases, order him to do so.
This would be no great burden on the arbitrator provided that the application was made promptly.
He would have had some reasons for making the award and all that he would need to do would be to summarize them in ordinary language.
Nothing formal would be required.
Armed with the reasons for an award, the unsuccessful party could apply to the Court for leave to appeal.
The right of appeal could be restricted to questions of law arising out of the decision, leaving all questions of fact to be decided finally by the arbitrator.
Furthermore, unlike the position when the Court is being asked to order an arbitrator to state an award in the form of a special case, the Court would know whether any particular question of law really arose for.
decision since both it and the parties would have access to the facts as found by the arbitrator.
Additional restrictions could be imposed on the circumstances in which leave to appeal would be given and in which a further appeal to the Court of Appeal would be permitted.
An additional advantage of a change to rea soned awards lies in the fact that this would tend to assim ilate English awards to those made in other countries, thus mak 175 ing English awards more acceptable and readily enforceable abroad.
Finally, there would be the great advantage that every award would be a final award and immediately enforceable as such, subject only to the right of the Court in appropriate cases to impose a stay of execution pending an appeal.
Such a stay could, of course, be granted subject to conditions, such as that the amount awarded be brought into Court.
In a word, a system of judicial review based upon reasoned awards would place very grave obstacles in the way of those seeking unmeritoriously to avoid meeting their just obligations, would improve the standard of awards and would render them more easily and speedily enforceable.
The same system is used for the review of decisions of the industrial tribunals and of the restrictive Practices Court and has worked well.
Recommendations on judicial review 32.
In the light of these considerations the Committee makes the recommendations set out below.
The system of judicial review based upon the special case procedure should be replaced by one based upon reasoned awards.
This would involve comparatively minor amendments to the 1950 Act.
Section 21 would be repealed and the Court would be deprived of the power and duty to set an award aside because of errors of fact or law on the face of the award.
Arbitrators would be encouraged to give reasons for their awards, but would only be obliged to do so if it was necessary for the purposes of the new review procedure.
A new section 21 would define the right of appeal to the High Court.
The new fight of appeal would be confined to questions of law, all decisions on questions of fact being for the arbitrator alone." After the submission of the report the British Parlia ment enacted the Arbitration Act, 1979.
Sub sections (1), (2), (5) and (6) of section 176 1 of the English Arbitration Act, 1979 which are material in this case read thus: "1.
Judicial review of arbitration awards (1) In the arbi tration Act 1950 (in this Act referred to as 'the principal Act ') section 21 (statement of case for a decision of the High Court) shall cease to have effect and, without preju dice to the right of appeal conferred by sub section (2) below, the High Court shall not have jurisdiction to set aside or remit an award on an arbitration agreement on the ground of errors of fact or law on the face of the award.
(2) Subject to sub section (3) below, an appeal shall lie to the High Court on any question of law arising out of an award made on an arbitration agreement; and on the determination of such an appeal the High Court may by order (a) confirm, vary or set aside the award; or (b) remit the award to the reconsideration of the arbitrator or umpire together with the court 's opinion on the question of law which was the subject of the appeal; and where the award is remitted under paragraph (b) above the arbitrator or umpire shall, unless the order otherwise directs, make his award within three months after the date of the order.
. . . . . . . . . . . (5) Subject to sub section (6) below, if an award is made and, on an application made by any of the parties to the reference (a) with the consent of all the other parties to the reference, or (b) subject to section 3 below, with the leave of the court, it appears to the High Court that the award does not or does not sufficiently set out the reasons for the award, the 177 court may order the arbitrator or umpire concerned to state the reasons for his award in sufficient details to enable the court, should an appeal be brought under this section, to consider any question of law arising out of the award.
(6) In any case where an award is made without any reason being given, the High Court shall not make an order under sub section (5) above unless it is satisfied (a) that before the award was made one of the par ties to the reference gave notice to the arbitrator or umpire concerned that a reasoned award would be required; or (b) that there is some special reason why such a notice was not given." Section 2 of the said Act of 1979 empowered the High Court to determine any preliminary point of law arising in the course of an arbitration reference under certain circum stances.
It is urged that in view of the fact that similar safeguards which are available in the English Law do not exist in the Indian Law, it is necessary that this Court should hold that there is an implied obligation on the part of the arbitrator or umpire to give reasons for the award unless the parties to the dispute agree that no such reasons need be given.
A reference was made in the course of the arguments to the decision of this Court in Rohtas Industries Ltd. & Anr.
vs Rohtas Industries Staff Union and Ors., [1976] 3 S.C.R. 12 in which an award passed by the arbitrators under section 10 A of the had been struck down by the High Court in part and appeals filed against the decision of the High Court were under consideration by this Court.
In that case the appellants contended that an award under section 10 A of the was equivalent to an award made in a private arbitration and was not amenable to correction under Article 226 of the Consti tution of India.
But this Court rejected this said conten tion by observing at page 26 thus: " .
Suffice it to say that a reference to arbitration under section 10A is restricted to existing or apprehended indus trial disputes.
Be it noted that we are not concerned with a private arbitration, but a statutory one governed by the , deriving its validity, enforceabil ity 178 and protective mantle during the pendency of the proceed ings, from section 10A.
A distinction was thus made between statutory arbitra tions under section 10 A of the and private arbitrations.
It is not necessary to refer to the other cases cited before us which have a bearing on section 10 A of the Industrial disputes Act, 1947.
The question which arises for consideration in these cases is whether it is appropriate for this Court to take the view that any award passed under the Act, that is, the Indian is liable to be remitted or set aside solely on the ground that the arbitrator has not given reasons thus virtually introducing by a judicial verdict an amendment to the Act when it has not been the law for nearly 7/8 decades.
The people in India as in other parts of the world such as England, U.S.A. and Australia have become accustomed to the system of settlement of disputes by private arbitration and have accepted awards made against them as binding even though no reasons have been given in support of the awards for a long time.
They have attached more importance to the element of finality of the awards than their legality.
Of course when reasons are given in support of the awards and those reasons disclose any error apparent on the face of the record people have not refrained from questioning such awards before the courts.
It is not as if that people are without any remedy at all in cases where they find that it is in their interest to require the arbi trator to give reasons for the award.
In cases where reasons are required, it is open to the parties to the dispute to introduce a term either in the arbitration agreement or in the deed of submission requiring the arbitrators to give reasons in support of the awards.
When the parties to the dispute insist upon reasons being given, the arbitrator is, as already observed earlier, under an obligation to give reasons.
But there may be many arbitrations in which parties to the dispute may not relish the disclosure of the reasons for the awards.
In the circumstances and particularly having regard to the various reasons given by the Indian Law Com mission for not recommending to the Government to introduce an amendment in the Act requiring the arbitrators to give reasons for their awards we feel that it may not be appro priate to take the view that all awards which do not contain reasons should either be remitted or set aside.
A decision on the question argued before us involves a question of legislative policy which should be left to the decision of Parliament.
It is a well known rule of construction that if a certain interpretation has been uniformly put upon the meaning of a 179 statute and transactions such as dealings in property and making of contracts have taken place on the basis of that interpretation, the Court will not put a different interpre tation upon it which will materially affect those transac tions.
We may refer here to the decision of the Court of Appeal rendered by Lord Evershed M.R. in Brownsea Havel Properties vs Poole Corpn., in which it is observed thus: "There is well established authority for the view that a decision of long standing, on the basis of which many per sons will in the course of time have arranged their affairs, should not lightly be disturbed by a superior court not strictly bound itself by the decision.
" Courts should be slow in taking decision which will have the effect of shaking rights and titles which have been rounded through a long time upon the conviction that a particular interpretation of law is the legal and proper one and is one which will not be departed from.
It is no doubt true that in the decisions pertaining to Administrative Law, this Court in some cases has observed that the giving of reasons in an administrative decision is a rule of natural justice by an extension of the prevailing rule.
It would be in the interest of the world of commerce that the said rule is confined to the area of Administrative Law.
We do appreciate the contention, urged on behalf of ' the parties who contend that it should be made obligatory on the part of the arbitrator to give reasons for the award, that there is no justification to leave the small area covered by the law of arbitration out of the general rule that the decision of every judicial and quasi judicial body should be supported by reasons.
But at the same time it has to be borne in mind that what applies generally to settle ment of disputes by authorities governed by public law need not be extended to all cases arising under private law such as those arising under the law of arbitration which is intended for settlement of private disputes.
As stated elsewhere in the course of this judgment if the parties to the dispute feel that reasons should be given by the arbi trators for the awards it is within their power to insist upon such reasons being given at the time when they enter into arbitration agreement or sign the deed of submission.
It is significant that although nearly a decade ago the Indian Law Commission submitted its report on the law of arbitration specifically mentioning therein that there was no necessity to amend the law of arbitration requiring the arbitrators to give reasons, Parliament has not chosen to take any step in the direction of the amendment of the 180 law of arbitration.
Even after the passing of the English Arbitration Act, 1979 unless a court requires the arbitra tors to give reasons for the award (vide sub sections (5) and (6) of section 1 of the English Arbitration Act, 1979, an award is not liable to be set aside merely on the ground that no reasons have been given in support of it.
It is true that in two cases one decided by the High Court of Delhi and another decided by the High Court of Orissa there are some observations to the effect that it would be in the interests of justice if the arbitrators are required to give reasons for their awards because in recent years the moral standards of arbitrators are going down.
But generally this Court and all the High Courts have taken the view that merely because the reasons are not given an award is not liable to be remitted or set aside except where the arbitration agreement or the deed of submission, or an order made by the court such as the one under section 20 or sec tion 21 or section 34 of the Act or the statute governing the arbitration requires that the arbitrator or umpire should give reasons for the award.
The arbitrators or umpire have passed the awards which are involved in the cases before us relying on the law declared by this Court that the awards could not be questioned merely on the ground that they have not given reasons.
At the same time it cannot also be said that all the awards are contrary to law and justice.
In this situation it would be wholly unjust to pass an order either remitting or setting aside the awards, merely on the ground that no reasons are given in them, except where the arbitration agreement or the deed of submission or an order made by the court such as the one under section 20 or sec tion 21 or section 34 of the Act or the statute governing the arbitration required that the arbitrator or the umpire should give reasons for the award.
There is, however, one aspect of non speaking awards in nonstatutory arbitrations to which Government and Governmen tal authorities are parties that compel attention.
The trappings of a body which discharges judicial functions and required to act in accordance with law with their concomi tant obligations for reasoned decisions, are not attracted to a private adjudication of the nature of arbitration as the latter, as we have noticed earlier, is not supposed to exert the State 's sovereign judicial power.
But arbitral awards in disputes to which the State and its instrumentali ties are parties affect public interest and the matter of the manner in which Government and its instrumentalities allow their interest to be affected by such arbitral adjudi cations involve larger questions of policy and public inter est.
Government and its instrumentalities cannot simply allow large financial interests of the 181 State to be prejudicially affected by non reviewable except in the limited way allowed by the Statute non speaking arbitral awards.
Indeed, this branch of the system of dis pute resolution has, of late, acquired a certain degree of notoriety by the manner in which in many cases the financial interests of Government have come to suffer by awards which have raised eye brows by doubts as to their rectitude and propriety.
It will not be justifiable for Governments or their instrumentalities to enter into Arbitration agreements which do not expressly stipulate the rendering of reasoned and speaking awards.
Governments and their instrumentalities should, as a matter of policy and public interest if not as a compulsion of law ensure that wherever they enter into agreements for resolution of disputes by resort to private arbitrations, the requirement of speaking awards is express ly stipulated and ensured.
It is for Governments and their instrumentalities to ensure in future this requirement as a matter of policy in the larger public interest.
Any lapse in that behalf might lend itself to and perhaps justify, the legitimate criticism that Government failed to provide against possible prejudice to public interest.
Having given our careful and anxious consideration to the contentions urged by the parties we feel that law should be allowed to remain as it is until the competent legisla ture amends the law.
In the result we hold that an award passed under the Arbitration Act is not liable to be remit ted or set aside merely on the ground that no reasons have been given in its support except where the arbitration agreement or the deed of submission or an order made by the Court such as the one under section 20 or section 21 or section 34 of the Act or the statute governing the arbitra tion requires that the arbitration or the umpire should give reasons for the award.
These cases will now go back to the Division Bench for disposal in accordance with law and the view expressed by us in this decision.
| IN-Abs | The common question arising in the instant cases which was referred to this larger Bench is whether an award passed under the provisions of the is liable either to be remitted under section 16(1)(c) of the Act or liable to be set aside under section 30(c) thereof merely on the ground that no reasons have been given by the arbitrator or umpire, as the case may be, in support of the award.
It was urged that (i) subsequent to 1976 there has been a qualitative change in the law of arbitration and that it has become necessary to insist upon the arbitrator or the umpire to give reasons in support of the award passed by him unless the parties to the dispute have agreed that no rea sons need be given by the arbitrator or umpire for his decision; (ii) since under section 16(1)(c) of the Act the legality of an award can be questioned in Court on the basis of an error apparent on the face of an award, the only way of ensuring that an award is in accordance with law is by insisting upon the arbitrator or umpire to give reasons for the award and (iii) an arbitrator or an umpire discharges a judicial function while functioning as an arbitrator or an umpire under the Act, and, therefore, is under an obligation to observe rules of natural justice while discharging his duties, (iv) that the concept of natural justice had under gone a great deal of change in recent years, and the re quirement of giving 145 reasons for a decision should be treated as a new rule of natural justice.
While answering the question in the negative and remit ting the cases to the Division Bench for disposal in accord ance with law, this Court, HELD: (1) The arbitrator or umpire is under no obliga tion to give reasons in support of the decision reached by him unless under the arbitration agreement or in the deed of submission he is required to give such reasons, and if the arbitrator or umpire chooses to give reasons in support of his decision it is open to the Court to set aside the award if it finds that an error of law has been committed by the arbitrator or umpire on the face of the record on going through such reasons.
[161C D] (2) The arbitrator or umpire shall have to give reasons also where the court has directed in any order such as the one made under section 20 or section 21 or section 34 of the Act that reasons should be given or where the statute which governs an arbitration requires him to do so.
[161D E] (1) University of New South Wales vs Max Cooper & Sons Pty. Ltd. 35 Australian Law Reports p. 219; (2) Hodgkinson vs Fernie & Anr.
, ; English Reports p. 712; (3) Champsey Bhara & Company vs Jivraj Balloo Spinning and Weaving Company Ltd., A.I.R. 1923 Privy Council 66, (4); Seth Thawardas Pherumal vs The Union of India, (5) Jivarajbhai Ujamshi Sheth & Ors.
vs Chintamanrao Balaji & Ors., ; (6) Bungo Steel Furniture Pvt. Ltd. vs Union of India, ; , (7) State of Rajasthan vs M/s. R.S. Sharma & Co., ; , referred to.
(3) The people in India as in other parts of the world such as England, U.S.A. and Australia have become accustomed to the system of settlement of disputes by private arbitra tion and have accepted awards made against them as binding even though no reasons have been given in support of the awards for a long time.
They have attached more importance to the element of finality of the awards than their legali ty.
[178D] (4) Courts should be slow in taking decisions which will have the effect of shaking rights and titles which have been rounded through a long time upon the conviction that a particular interpretation of law is the legal and proper one and is one which will not be departed from.
[179C D] Brownsea Havel Properties vs Pooje Corporation, , referred to.
146 (5) Even after the passing of the English Arbitration Act, 1979 unless a court requires the arbitrator to give reasons for the award, an award is not liable to be set aside merely on the ground that no reasons have been given in support of it.
[180A B] (6) The foundation of any arbitration proceeding is the existence of an arbitration agreement between the persons who are parties to the dispute.
It is not as if people are without any remedy at all in cases where they find that it is in their interest to require the arbitrator to give reasons for the award.
In cases where reasons are required, it is open to the parties to the dispute to introduce a term either in the arbitration agreement or in the deed of sub mission requiring the arbitrators to give reasons in support of the award.
But there may be many transactions in which parties to the dispute may not relish the disclosure of the reasons for the award.
[151 E] Firm Madanlal Roshanlal Mahajan vs Hukumchand Mills Ltd. lndore; , ; N. Chelapan vs Secretary, Kerala State Electricity Board & Anr., ; , referred to.
(7) The two well recognised principles of natural jus tice are (i) that a Judge or an arbitrator who is entrusted with the duty to decide a dispute should be disinterested and unbiased (nemo judex in cause sua); and (ii) that the parties to dispute should be given adequate notice and opportunity to be heard by the authority (audi alteram partem).
Giving reasons in support of a decision was not considered to be a rule of natural justice either under the law of arbitration or under administrative law.
[171C] (10) Payyavula Vengamma vs Payyavule Kasanna & Ors., ; ; (11) Harvey vs Shelton, [1844] 7 Bear.
455 at p. 462; (12) Haigh vs Haigh.
; ; (13) Som Datt Datta vs Union of India & Ors., ; ; (14) Bhagat Payyavula vs The Union of India & Ors., ; ; (15) Siemens Engineering & Manu facturing Co. of India Ltd. vs Union of India & Anr., [1976] Supp.
S.C.R. 489; (16) Associated Cement Companies Ltd. vs
P.N. Sharma & Anr., ; ; (16) A.K. Kraipak ferred to.
(8) A distinction has to be made between statutory arbitrations and private arbitrations.
What applies general ly to settlement of disputes by authorities governed by public law need not be extended to a11 cases arising under private law such as those arising under the law of 147 arbitration which is intended for settlement of private disputes.
[178A B] Rohtas Industries Ltd. & Anr.
vs Rohtas Industries Staff Union & Ors., ; , referred to.
(9) It is no doubt true that in the decisions pertaining to Administrative Law, this Court in cases has observed that the giving of reasons in an administrative decisions is a rule of natural justice by an extension of the prevailing rule.
It would be in the interest of the world of commerce that the said rule is confined to the area of Administrative Law.
[179D E] (10) The trappings of a body which discharges judicial functions and required to act In accordance with law with their concomitant obligations for reasoned decisions, are not attracted to a private adjudication of the nature of arbitration as the latter is not supposed to exert the State 's sovereign judicial power.
[180F G] (11) It will not be justifiable for Governments or their instrumentalities to enter into arbitration agreements which do not expressly stipulate the rendering of reasoned and speaking awards.
Governments and their instrumentalities should, as a matter of policy and public and private inter est if not as a compulsion of law ensure that wherever they enter into agreements for resolution of disputes by resort to private arbitration, the requirement of speaking awards is expressly stipulated and ensured.
It is for Governments and their instrumentalities to ensure in future this re quirement as a matter of policy in the larger public inter est.
Any lapse in that behalf might lend itself to or per haps justify the legitimate criticism that Government failed to provide against possible prejudice to public interest.
[181B D] (12) A decision on the question involves a question of legislative policy which should be left to the decision of Parliament.
It is significant that although nearly a decade ago the Indian Law Commission submitted its report on the law of arbitration specifically mentioning therein that there was no necessity to amend the law of arbitration requiring the arbitrator to give reasons, Parliament has not chosen to take any step in the direction of the amendment of the law of arbitration.
[178H; 179G H] (13) In the circumstances and particularly having regard to the various reasons given by the Indian Law Commission for not recommending to the Government to introduce an amendment in the Act requiring the arbitrators to give reasons for their awards, it may not be 148 appropriate to take the view that all awards which do not contain reasons should either be remitted or set aside.
|
161 165 of 1988.
section Ganesh, Arun Jaitely, Miss Bina Gupta, Miss Madhu Khatri, A.N. Haksar, Praveen Anand, Anip Sachthey, B.L. Pagaria, P.K. Jain, Udai Holla and T. Sridharan for the petitioners.
G. Ramaswamy, Soli, J. Sorabjee, M.H. Baig, F.S. Nari man, H.N. Salve, R. Sasiprabhu, S.S. Shroff, Mrs. P.S. Shroff and S.A. Shroff for the Respondents.
The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.
In these transferred writ peti tions and one suit, we are concerned with the powers, func tions and the role of the Controller of Capital Issues.
By an order dated 9th September, 1988 this Court had directed that the four writ petitions and one civil suit i.e., W.P. No. 1791/88 pending before the Delhi High court, W.P. No. 2708/88 pending before the Jaipur Bench of the Rajasthan High Court, W.P. No. 12176/88 pending before the Karnataka High court, W.P. No. 4388/88 pending before the High Court of Bombay and Civil Suit No. 1172/88 pending before the Civil Judge, Junior Division Bench, Baroda, Gujarat, be transferred to this Court for disposal.
It would be appro priate to deal with the facts of one of these, i.e., W.P. No. 1791/88, which was filed in Delhi High Court in T.C. No. 161/88.
The other writ petitions and the suit raise more or less identical problems and issues on more or less same facts.
The petitioner in that writ petition is one Narendra Kumar Maheshwari and the respondents are the Union of India, the Controller of Capital Issues, and Reliance Petro chemi cals Ltd. (RPL).
The case of the petitioner is that he is an individual who is a public spirited 58 person and is an existing shareholder of the Company known as Reliance Industries Ltd. (RIL), which was the promoter of Reliance Petrochemicals Limited, being the respondent No. 3.
The petitioner held at all relevant times 144 shares of RIL and 100 debentures of different categories.
The respondent No. 3, being RPL, was a newly set up public limited company for the purpose of carrying on the business of manufacture of petrochemicals.
These petitions were filed in different courts challenging the consent of the Controller of Capital Issues granted for the issue of shares (Rs. 50 crores) and debentures (Rs.516 crores) by the RPL.
It was contended in the petition that the respondents Nos. 1 & 2, being the Union of India and the Controller of Capital Issues, ought not to have granted consent to respondent No. 3, namely, RPL to issue share and debenture capital at an aggregate value of approx.
Rs.600 crores.
It may be mentioned that after these writ petitions and suit were filed, attempts were made to obtain injunction restraining the issue of share capital and debentures as advertised.
By an order dated 19th August, 1988 passed by this Court, this Court had restrained the issue of such injunctions and directed that the shares and debent ures would be issued irrespective of any order of injunction passed by any court or authority in India.
Different cases, as mentioned hereinbefore, were thereafter transferred to this Court.
On the basis of the said consent, it was stated that the respondent No. 3 had issued prospectus and at the relevant time had intended to open the issue from 22nd August, 1988, of about 3 crores debentures of the face value of Rs.200 each which was the largest convertible debentures issue in India.
It was alleged that the respondents had adopted very sharp methods to collect money from the public and ultimate ly to defraud them.
It was stated that under the terms of the prospectus, each debenture of the face value of Rs.200 would be fully convertible: Respondent No. 3 would issue one share of Rs. 10 at par on the date of allotment.
There would, thus, be an equity capital of about Rs.30 crores in all on allotment.
Further, it was stated that the Company would convert Rs.40 of each convertible debentures into share after 3 years and the balance of Rs. 150 into share at any time between five and seven years.
It was mentioned by the Company that it would convert at the second stage of conversion at such premium to be allowed by the Controller of Capital Issues.
The petitioner alleged that it was not clear as to whether the investors would get 2 shares or 3 shares or 4 shares for each debenture, at the second conver sion of Rs.40.
Similarly, it was alleged that the last portion of Rs. 150 would be converted into shares any time between five and seven years at which time again the Con troller, would fix the premium for conversion.
The 59 petitioner further stated that it was thus not clear what the equity capital of the Company would be, whether it would be Rs. 150 crores or Rs.600 crores or whether the residual amount would go into reserve account or whether a separate account would be opened in respect of the premium.
It was alleged that the respondent No. 3 being RPL had been promot ed by RIL and the past history of RIL showed that the share prices of RIL had fluctuated widely leaving lot of scope for manipulations.
It was alleged in the petition that there was no explanation from the company or anybody from the share market as to why the share prices fluctuated so widely and it was obvious that there were market operators who prop up or bring down the prices depending on how it suited their convenience.
The share value of RIL, the promoter company, was subjected to wide fluctuations on account of the pur chase and sale operations of certain interested quarters close to the management of the respondent No. 3 Company, it was alleged.
On more than one occasion during the past six months, the sale of the share in the stock market was banned in some Stock Exchanges due to fall in price.
It was alleged that it indicated the cooperation and support from the authorities for maintaining the fictitious value of the share in the market; and thus on an equity capital of Rs. 152 crores an amount of Rs.800 crores in the premium account has been obtained, but there would be no amount in General Reserve account because the Company had not earned anything worthwhile to put in General Reserve.
It was further alleged that the lack of bona fide of the Reliance group was well known; and that RIL had issued debentures of 'G ' Series and had assured to pay interest up to 5th February, 1988.
It was alleged that the Company did not keep up this assurance, but converted the debentures into equity shares in the month of August, 1987 thereby avoiding payment of interest.
In this manner, it was alleged, the Company saved interest of Rs.30 crores whereas in fact it incurred a loss.
The case of the petitioner was that the Company was obviously trying to repeat the same game through the new Company by maintaining the share price only on an equity capital converted on each debenture.
The paramount duty of respondents Nos. 1 & 2 before according permission was, it was asserted, to ensure that the requirement of the Company in raising such capital was bona .fide.
It was observed that no public interest was intended to be served by respondent No. 1, as it had chosen to allow respondent No. 3 to collect such huge amounts in excess of the requirement.
It is further the case of the petitioner that the opera tions ' of RIL (Promoter) subsequent to the raising of past issues made by it were subjected to severe criticisms both in the press and in the public.
It was 60 pointed out that though the issue proposed was of shares of Rs.50 crores and debentures of Rs.516 crores, the company was allowed to retain over subscription to the tune of 15% amounting to Rs.77.40 crores.
It was alleged that the re spondent No. 3 was a new Company and it should not be al lowed 15% retention; and if it wanted to raise Rs.600 crores, it should have come out with an issue of that amount.
It was further alleged that the respondent No. 2, without considering the propriety of the situation, allowed the respondent No. 3 to make issue of the capital for the interest of a few people.
Hence, the sanction of the issue of convertible debentures of respondent No. 3 calls for judicial review.
It was also alleged that the sanction was approved at exorbitant terms: 5% of the face value (equal to nothing) according to the petitioner, would be converted at par on allotment, another 20% {Rs.40) at a premium to be decided by the Controller of Capital Issues after 3 years but before 4 years of allotment and the balance of Rs. 150 at such premium as might be permitted by the Controller of Capital Issues after 5 years but before the end of 7 years from the date of allotment.
It was stated that the investors would be completely left thrown at the mercy of respondents Nos. 3 & 4; and that till date no convertible debenture had been issued on such vague terms.
In those circumstances, it was submitted, the consent of the Controller of Capital Issues was bad, illegal on the ground hereinafter alleged: The consent order was hit by arbitrary and capricious exercise of jurisdiction by respondent No. 1.
It was further alleged that the respondent No. 3 's promoters i.e. RIL had been obtaining from respondent No. 1/2 such Consent Orders on the ground that it was in a position to raise such huge moneys from the public for the purpose of implementation of its projects without recourse to the Financial Institutions.
According to the petitioner, for the first time, in the corporate history of India, RIL (Promoter) was allowed to raise Rs. 100 crores by way of issuance of 'F ' Series deben tures.
On account of the campaigning through Brokers for attractive returns, the public was misled and RIL wooed the public and collected Rs. 406 crores.
RIL had not made any allotment on a proper basis but made allotments on some basis of 'Private Placement '.
It was further alleged that the management of RIL through its associate companies ob tained huge borrowals from nationalised banks; and several bank employees got into trouble due to advancing of loans for the purpose of subscription in the 'F ' Series debentures through the associated companies of respondent No. 3/RIL which had popularly come to be known as 'Reliance Loan Mela '.
It was alleged that the Controller of Capital Issues and Union of India acted mala fide in issuing the consent order 61 which was designed to benefit respondent No. 3 and prejudice the interests of the investing public.
It was further al leged that in giving the consent order the respondent No. 1 blatantly overlooked the magnitude of the sum of Rs.600 crores, proposed to be raised from the public through the new issue of debentures.
It was alleged that the act of respondent No. 1/2 was vitiated as in issuing the consent order respondent No. 2 was influenced by extraneous considerations not germane to the public interest.
The Capital Market in India has under gone turbulent changes in the recent years.
Small investors such as employees, workers and small business community were coming forward, according to the petitioner, for the purpose of investment in corporate sector.
It was further stated that the small investors had no means of verifying the correctness or otherwise of the statements and the sound ness/financial viability of any company.
It was further alleged that the respondents Nos. 1/2 had acted wrongly and illegally in allowing the respondent No. 3 to raise share capital on premium for financing new projects.
It was con tended in the petition of the petitioner that the consent order was a fraud.
In those circumstances it was prayed that the court should exercise its jurisdiction under article 226 and set aside the consent order which was for the public issue on 22nd August, 1988.
The facts and the circumstances leading to this consent order have been stated in the affidavit on behalf of re spondent No. 3 to the writ application.
After disputing the locus of the petitioner, who challenged the consent order for making the public issue of 12.5 Secured Convertible Debentures by 3rd respondent, the respondent No. 3 stated that the petition suffers from laches and delays.
On behalf of respondent No. 3 it was asserted that the public issues made by the 3rd respondent had been promoted by RIL.
The RIL and RPL are inter connected and represented companies in the large industrial house known as 'Reliance Group '.
According to respondent No. 3, they represented India 's fastest grow ing private sector companies and comprised the world 's second largest investor family of over 30 lakhs investors.
It was further asserted that the 3rd respondent would have India 's largest private sector Petrochemical Complex for the manufacture of critically scarce raw materials.
It was stated that the 3rd respondent would manufacture versatile raw material which was behind the plastic revolution, par ticulars whereof have been mentioned in the Annexure.
It was further stated that the petrochemical complex of the 3rd respondent would come up at Hazira, District Surat in the 62 State of Gujarat and the production was planned to start in a phased manner between the next 18 24 months.
The 3rd respondent would be setting up a state of art world class plant in collaboration with the world leaders in the respec tive fields, i.e. (a) Du Pont, Canada for HDPE (b) B.F. Goodrich & Co. for PVC, and (c) Scientific Design Co. for MEG.
The terms of the issue of debentures of the face value of Rs.200 being fully converted into equity shares were the following: "(i) A sum of Rs. I0 being 5% of the face value of each debentures by way of first conversion immediately into one equity share at par on allotment; (ii) A sum of Rs.40 being the 20% of the face value of each debenture by way of second conversion after three years but before four years from the date of allotment at a premium to be fixed by the Controller of Capital issues; (iii) The balance of Rs. 150 representing 75% of the face value of each debenture as third conversion after five years but not later than seven years from the date of allotment at a premium to be fixed by the Controller ofapital Issues.
" The premium, it was stated on behalf of respondent No. 3, that would be charged at the time of conversion into equity shares would be as fixed and decided by the pre scribed statutory authority, namely, the Controller of Capital issues, and the 3rd respondent and its Board of Directors would not have any say in the matter or be enti tled to fix the same on their own.
It was further stated that, subject to the necessary approvals being obtained in that behalf, the shareholders and the convertible debenture holders of the respondent No. 3, promoter company, would be entitled to participate in all the future issues of the 3rd respondent.
The fully convertible debentures of the 3rd respondent would thus be a growth instrument with different rights, viz., earning a fixed rate of interest from the first day till it was converted into equity and thereafter entitled to dividend that might be declared after conversion into Equity.
It is to that extent different from a purely equity share on which investor would earn dividend only when profits are declared.
Thus, the instrument proposed by the 3rd respondent, according to it, has the best features of share as well as debenture.
Apart from the above, in accord ance with the application for listing made by the 3rd re spondent to the Bombay Stock Exchange and 63 Ahmedabad Stock Exchange, the 3rd respondent has proposed that all the three components or parts of the instrument, namely, Part 'A ' representing an equity share on first conversion, Part 'B ' being 20% of the face value of the debenture and Part 'C ' being the balance 75% of the face value of the debentures, would all be listed separately and independently so that after allotment, an investor can sell if he so desires the convertible portion of the debentures being Part 'B ' and 'C ', and just retain the equity share being Part 'A '.
It was intended to ensure both liquidity and appreciation in the hands of the investor.
The products which were intended to be manufactured by the 3rd respondent were many, namely, (a) High Density Polyethylene (HDPE) and Poly Vinyl Chloride (PVC) which are raw materials behind plastic revolution; (b) Mono Ethylne Glycol (MEG) is a critical polyester raw material; HDPE and PVC being vital thermo plastic play an important role in the core sector and are used for manufacture of everything from films to pipes, auto parts to cable coatings, and containers to furnishings.
It is not necessary for the issues involved in these applications to set out in detail the very many particulars given by the respondent No. 3 in support of the contention that a petrochemical complex proposed to be set up by the new Company respondent No. 3 would be beneficial socially and economically for the country as well as for the investors.
The advantages of convertible debentures proposed to be issued at that time by the respondent No. 3 were also high lighted.
It is stated that debentures are treated as equity.
The 3rd respondent 's borrowing capacity remains unutilised and this would help it in implementing the future projects expeditiously.
The first phase of the project is financed by the proposed issue of debentures and not by large capital borrowings from the public financial institutions (except to the extent of foreign currency loans of Rs.85 crores from them).
The interest which would, therefore, have been pay able to the financial institutions will be paid to the debenture holders ensuring them a return and simultaneously the convertible clause which would have been applicable to term loans obtained from the financial institutions would be available to the investors thereby ensuring them growth in equity value.
It was further stated that since the preferen tial allotment of 50% of the total issue was made to RIL shareholders, the shareholding pattern of the 3rd respondent will be the most widely held people 's shareholding in the country and it was pleaded that there will be at least 20 lacs shareholders of the 3rd respondent which would be a world market record.
64 It was further stated that RIL, who are the promoters of the project, have one of the best track records for setting up of the Projects such as Polyester Staple Fibre (PSF), Polyester Filament Yarn (PFY), Linear Alkyl Benzene (LAB) and Purified Terphthalic Acid (PTA) plants at Patalganga in record time.
Business records of Reliance 's 'Vimal ' and 'Recorn ' were also emphasised.
It is, however, not necessary for the purpose of the issues involved in these applications either to dilate upon these or to consider the correctness or otherwise of these assertions.
Reliance 's plant at Patal ganga complex in the State of Maharashtra and its beneficial effects to the community and the State, as asserted on behalf of respondent No. 3, are also not relevant.
It was stated that Reliance is privy to the technology of the world leaders, such as Du Pont of U.S.A. and Imperial Chemical Industries of UK.
Mr. Pageria, learned counsel appearing for one of the petitioners, Radhey Shyam Goyal tried to impress upon us that among the world leaders of technology, Du Pont of USA and Imperial Chemical Industries of UK cannot claim such high position.
Neither is it necessary nor is it possi ble for us to consider these assertions and denials.
The industrial licences have been applied for and it was stated that pending the formation and incorporation of RPL on 4.1. 1988 under the , RIL had under taken and performed various acts and deeds, particulars whereof have been mentioned in the Statement of Facts.
In the Statement of facts filed on behalf of respondent No. 3, a list of consents and approvals obtained by the 3rd re spondent, has also been indicated.
It was further stated that pursuant to the order of this Court, dated 19th August, 1988 the public issue was made under the prospectus dated 27th July, 1988 which opened on 22nd August, 1988 and closed on 31st August, 1988.
There had been an overwhelming response to the issue from all catego ries of investors including nonresidents, RIL shareholders/employees and the issue was heavily oversub scribed.
On behalf of the RPL, it was stated that the time frame of 10 weeks commencing from 1st September, 1988 and ending on th November, 1988 had to be strictly adhered to.
The provisions of Section 73 and other applicable provisions of the , the provisions of the Securities (Contract and Regulation) Act, 1956 and the listing require ments of the Stock Exchanges were also complied with.
It was stated on behalf of the 3rd respondent that for the purpose 65 of finalising the means of finance of HDPE, PVC and MEG Projects, RIL as the promoters of the 3rd respondent had engaged the services of the Merchant Banking Division of ICICI which is a public financial institution and one of the foremost consultants in the field.
During the discussions which were initiated in the second half of 1987 with ICICI, the idea of implementing these projects through a new inde pendent Company instead of RIL had taken shape duly taking into account the financial aspects, management aspects, issues related to management and operation control of set ting up the projects within the existing company vis a vis the setting up of the projects in the new company, namely the 3rd respondent company, was taken up.
The 3rd respondent company and ICICI also considered various alternative means of financing project keeping in view the following criteria: (a) That the project should be financially beneficial to the company.
(b) That it should be financially attractive to the investor.
(c) That it should be operationally easy for the company and the investor.
(d) That it should meet the institutional/stock exchange/Ministry of Finance norms and guidelines as regards financing of projects.
(e) That it should be sustainable and attractive enough in terms of the profitability/servicing capability of the project.
(f) That it should reduce the dependence of the company on institutional finance.
(g) That it should encourage the capital market activity in India.
The various alternative means of issue of security such as equity share and/or convertible cumulative preference shares (CCP) and/or partially convertible debentures and/or non convertible debentures and/or equity linked debenture issue and/or fully convertible debentures were all examined by the management and ICICI at length from various aspects including the aforesaid aspect, it was asserted on behalf of respondent No. 3.
It was reiterated that the Controller of Capital Issues had applied his mind and considered all relevant, pertinent and proximate matters and the Controller bona fide bestowed painstaking consideration by examining the entire gamut of means of finance, the volume of finance needed and types of securities, marketability of securities, conditions of the capital market and other relevant considerations as are normally and properly to be evaluated by him as an expert authority.
A specialised expert statutory authority or agency under a valid and legal enactment has been set up for the purpose of examining on what basis securities such as share and/or convertible debenture should be issued 66 and the merits of his conclusions are not open to judicial review.
It has to be borne in mind that the writ petitioners were only potential investors in the shares and debentures proposed to be issued at the time when a large part of the averments had been made.
It was open to them, if they felt that the scheme was not attractive not to subscribe to the issues.
It was, however, not possible for them, contend the respondents, to prohibit the issue.
or prevent the taking of other steps in pursuance thereof.
Respondents 3 and 4 have set out various reasons why an interim injunction should not be granted.
These are unnecessary to be dealt with now when the matter is being finally disposed of.
Two other affidavits are necessary to be referred to.
One is the rejoinder affidavit on behalf of the petitioner in writ petition No. 1791 of 1988 before the Delhi High Court, and the other is on behalf of the Government.
So far as the petition of Narendra Kumar Maheshwari is concerned, it is necessary to note that he has stated that the capital market had undergone changes in raising issues and the investors had no means of verifying the correctness and soundness of the financial viability of the scheme.
It was stated that the Central Govt. did not take the responsibili ty for financial soundness of the scheme.
It was asserted that a new share of a new company could not be raised at a premium but the Govt.
had improperly permitted the issue of shares of a new company at a premium in the instant case.
It was stated that the consent order of the Controller of Capital Issues stated that premium would be payable on the shares to be allotted on conversion which, according to the deponent, amounted to fraud on the investing public and the subterfuge to boost up the market value of shares of RIL.
It was reiterated that the RPL had been promoted by RIL whose shares had fluctuated in the share market so widely for which no explanation came forth from the company.
These fluctuations in the share market were, according to the petitioner, on account of purchases/ sales made by certain interested quarters close to the management.
On many occa sions the sale of the share of RIL in the stock market was banned in some stock exchanges due to fall in prices which, according to the deponent, was a clear indication of cooper ation and support from the authorities.
It was further alleged that there was discrimination in respect of time period of conversion of loan/investment into equity between the shareholders of RIL and the investing public.
Immediately on allot 67 ment the conversion of percentage of investment of the rights holders is 53.49% whereas that of the investing public is only 5%.
At the end of 3 years from the debenture allotment date, percentage debenture conversion of invest ment of the rights holders is 46.51% and that of the invest ing public is nil.
Hence, after the end of 3 years time the percentage of conversion in investment of rights holders is 100% whereas that of the investment of right holders at the end of 3 years in figures is approx Rs. 107.50 crores and the investing public is only 29.67 crores.
Between 3 and 4 years of debenture allotment the percentage of conversion of allotment of rights holders is nil and that of the investing public is 20%.
Between 5 and 7 years of the debenture allot ment date the percentage of conversion of investment of the rights holders was nil and that of the investing public is 75%.
Thus the conversion of the debenture allotment between 3 and 7 years of rights holders is nil and that of the investing public is 95%, which in figures comes to about Rs.563.73 crores.
In a democratic set up in the country, it was asserted on behalf of the petitioners, the sanction of the issue amounted to concentration of wealth in one hand which brought danger to the national economy and was against the Directive Principles of State policy enshrined in the Con stitution.
It was submitted that the validity of the consent order had to be decided on the merits of the case in the background of the aforesaid.
The petitioner had every right to question the validity of the consent order, it was stat ed.
One consolidated reply to all these writ petitions on behalf of the Union of India through the Secretariat, Minis try of Finance, Deptt.
of Economic Affairs and Controller of Capital Issues was filed by means of an affidavit affirmed by Mr. Prabhat Chandra Rastogi who.
at the relevant time, was the Under Secretary in the Ministry of Finance, and Deputy Controller of Capital Issues in the office of Con troller of Capital Issues.
He has mentioned that the consent of Capital Issues was granted on 4th July, 1988 and the same was amended to a certain extent on 19th & 26th July, 1988.
He has explained in his affidavit the background of the circumstances leading to the consent order.
In relation to the 3 projects, namely, (i) for manufac ture of 1,00,000 tonnes per annum Polyvinyl Chloride (PVC), (ii) 60,000 tonnes per annum of MEG (Mono Ethylene Glycol); and (iii) 50,000 tonnes per annum.
of HDPE (High Density Polyethylene), RPL submitted an application for issue of capital on or about 4th May, 1988 in 68 the prescribed form.
RPL proposed raising of capital by various instruments, like, equity shares, cumulative con vertible preference shares (CCP '), partly convertible deben tures, intended to be issued to the public, to the share holders of RIL, debenture holders and deposit holders of RIL.
The original proposal for approval related to the following instruments: Instrument Amount in Rs. (Crores) Equity Reliance Industries Ltd. 47.00 Shareholders, debentureholders 4.00 and deposit holders of Reliance Industries Ltd. Public 6.00 Cumulative convertible Preference Shares (CCPS) Non resident Indians/Foreign Collaborators/Indian Resident Public 81.00 Convertible Debentures Sharesholders, debentureholders and 214 deposit holders of Reliance Industries Ltd. Public 241 The instrument of convertible cumulative preference shares was proposed to be converted at a price to be fixed by the 2nd respondent at premium not exceeding Rs.40 per share between the third and fifth year from the date of allotment.
The debentures proposed were to be of the face value of Rs.500 each and the conversion was to be of Rs.200 into 10 shares as follows: "6% of the face value (Rs.30) would be compulsorily converted into equity at par at 1 year from allotment.
16% of the face value (Rs.80) would be compulsorily converted at 2 years from allot ment into equity at a premium to be decided at the time of conversion but not greater than Rs.20 per share.
69 18% of the face value (Rs.90) would be compulsorily converted into equity at 3 years from allotment at a premium decided at the time of conversion but not greater than Rs.30 per share.
60% of the face value (Rs.300) would be redeemed between 8th and th years from allot ment by draw of lots.
" It appears that the Industrial Credit and Investment Corpn.
of India Ltd. (for short ICICI), was the lead finan cial institution and lead manager for the issue of capital of RPL, and its merchant banking department, having the necessary expertise, was interacting between the 2nd re spondent, namely, the Controller of Capital Issues and RPL.
Discussions were held with ICICI to evaluate whether the company could proceed with the proposal by respondent No. 3 (RPL) by removing the instrument of cumulative preference shares as also the nonconvertible portion of the debentures.
This would have been necessitated by the sluggishness in the capital market, the market reactions to non convertible debentures and the discount at which such instruments were traded after they came into existence, the complexity of cumulative convertible preference shares and the general reaction anticipated from the public for investment.
It was stated that it was necessary to encourage investments and draw out savings from the home saving sector so that invest ments into productive and industrial sectors are promoted.
The need to encourage growth of the Capital Market and to provide impetus for investment in a depressed market condi tion through several liberalisation steps, were factors in the consideration of the Controller of Capital Issues so that on balance investment in the industrial sector in high priority industries could be encouraged.
RPL revised its proposal under which it proposed to raise equity shares of Rs.50 crores from RIL its promoter.
The fully convertible debenture issue of Rs.5 16 crores from public was sought to be subscribed to in a manner that 50% on preferential share basis to be allotted to shareholders, debenture holders and fixed deposit holders of RIL.
RPL made a suggestion for issue of debentures ' of the face value of Rs.200 each with the following terms and conditions: (i) 5% of the face value of the debentures at par on allotment; (ii) 20% of the face value (inclusive of premium) at a premium as may be decided in consultation with the Controller of Capital Issues at the end of the fourth year from the date of allotment.
70 (iii) the residual portion (inclusive of premium) at a premium as may be decided in consultation with the Controller of Capital Issues at the end of the seventh year from the date of allotment.
In view of the revised project cost it was felt that the promoter 's contribution of Rs.50 crores was less and RIL as promoters were told, as asserted in the affidavit, to in crease the promoter 's contribution to 15% of the total project cost of Rs.700 crores.
RIL in view of this require ment, agreed to bring in Rs. 107.50 crores as its contribu tion to RPL, out of which a sum of Rs.50 crores was directed to be kept as interest free unsecured loan at the time of allotment which would be converted into equity at par at the expiry of 36 months from the date of allotment of converti ble debentures.
As a practice, it is asserted, respondent No. 2 being the CCI, observed that debenture holders/fixed deposit holders of RIL were not eligible for preferential reserva tion in the capital issue of RPL, and thus RPL was not permitted to issue capital to these categories on preferen tial basis and only the shareholders of RIL were permitted preferential entitlement in accordance with the practice.
By a Press Release dated 15th September, 1984 the 2nd respondent had issued certain non statutory guidelines for approval of issue of secured convertible and non convertible debentures.
These guidelines had been subsequently amended by Press Release dated 8.3.
Guidelines were also issued by Press Release on 19.8.1985 for issue of converti ble cumulative preference shares.
There are guidelines issued by Press Release dated 1.8.1985 for employees stock option scheme.
In accordance with the guidelines of 15.9.1984, as amended on 8.3.
1985, the consent for capital issue for secured fully convertible debentures was issued as the projects originally to be established in RIL were per mitted by the Deptt.
of Company Affairs to be transferred to RPL.
The application for industrial licences and endorse ments thereof from RIL to RPL had already been filed includ ing, inter alia, the endorsement of the letters of intent for the MEG Project.
The scheme of finance for setting up of 3 projects, namely, PVC, HDPE and MEG had already been approved by the Deptt.
of Economic Affairs in favour of RIL, promoter of respondent No. 3 and the Deptt.
of Company Affairs also approved the transfer of project to RPL, and a revised scheme of finance was to be submitted by RPL.
It was asserted that it was on the basis of appraisal by the ICICI, a public financial institution which had evaluated the project cost for the 3 71 projects for the purpose of implementation of RPL.
ICICI had evaluated the estimated project cost at Rs.700 crores for setting up 3 undertakings of RPL post transfer from RIL, to RPL for implementation.
Applications for the endorsement of industrial licences and the Letter of Intent had been filed with the Deptt.
of Industrial Development, Secretariat for industrial Approvals and these were pending consideration.
The object of the issue was setting up of a new project and was within the scope of the guide lines.
The proposal contemplated was within the debt equity norms and ratio in accordance with para 4 of the non statu tory guidelines as the debt in the proposal aggregated to Rs.47 1 crores.
This is because debentures are considered as debt only when they are unredeemed beyond the period of 5 years as per Explanation to Section 5(ii) of the Capital Issues (Exemption) Order, 1969.
In the present case, 25% of the face value of the debenture would stand redeemed by the 3rd and 4th year and before the 5th year, and it would therefore not be considered as debt for evaluating debt equity ratio as per the guidelines.
Similarly, the promot er 's contribution of Rs. 100 crores plus 25% converted debentures at the end of 5 years would be categorised as equity representing share capital and free reserves convert ed from the total investment of Rs.516 crores proposed by RPL.
It was assumed to aggregate to Rs.229 crores and debt equity ratio thus came to 2.05:1 which approximates the ratio of 2: 1.
It was further asserted that these guidelines being non statutory and not rigid, a relaxation in the norm of debt equity ratio of 2:1 is considered favourably for capi tal intensive projects like petrochemicals which require large investments as would appear from the Note annexed to the guidelines.
The guidelines postulate that these deben tures should be secured.
The proposal itself contemplated that the security would be in such form and manner as re quired by the trustees for the debenture holders for con vertible debentures.
It was asserted that it was not a requirement of the guidelines that the debenture issue be compulsorily under written.
The guidelines themselves con templated that the 2nd respondent could satisfy himself that the issue need not be underwritten.
An application to this effect had been made by RPL and was granted by the 2nd respondent after carefully examining this issue.
The guide lines contemplated simultaneous listing of shares and deben tures.
In the present case, upon allotment, there was simul taneous compulsory conversion of 5% of the face value of the convertible debentures.
It was stated that it was not an equity linked debenture as was asserted on behalf of the petitioner.
72 However, it was further stated that, in view of the size of the issues, there was a modification dated 19th July, 1988 of the consent order which restricted and put a non transferability condition on the preferential entitlement of the shareholders of RPL.
It was limited to the corporate shareholders of RIL and relaxed for individual shareholders of RIL.
The restrictive condition on their right to sell.
transfer and hypothecate their shareholding was thought necessary in order to ensure that they do not disinvest soon after the issue and thus dilute their stake in the Company.
On behalf of the Controller it was asserted that the guidelines should not be construed in a manner which would fetter, constrict or inhibit statutory discretion vested in the 2nd respondent for taking decisions in the interest of the Capital market and for national purpose of furthering the growth of industrialisation and investment in priority sectors so as to encourage employment and demand in the national economy.
The objectives of the control, according to the deponent, contemplated under the was to prevent wasteful investments and to promote sound methods of corporate finance.
It was asserted that the administrative guidelines were only enabling in nature and could not and ought not to be construed as pre venting the statutory authority from adopting or modifying varying norms in operational area of implementing the pur poses of the Act especially when there were no fetters under the Statute.
The Controller of Capital Issues had issued, it was stated, guidelines as a result of the war time needs and controls, since the year 1947 and flow from the experience gained under the Defence of India Rules 1939.
Hence, accord ing to the deponent, these controls have been progressively reduced and the Capital Issue (Exemption) Order, 1969 was brought into force so as to reduce the rigours of the Act.
In the absence of any control for capital issues for securi ties, according to the deponent, there would be no fetter or restriction on the part of the Company to borrow or raise capital from the market.
It is to check raising of wasteful capital and to avoid investment being made in nonproductive, non priority sectors and non commensurate with the needs that the Act in question was brought into force.
This is being implemented with the aid of competent bodies.
It is further stated that the stipulation for fixation of premium at the time of conversion is not a new practice and had been applied in the year 1986 in the case of Standard Medical Leasing as also in ATV Projects Ltd. and the Industrial Credit & Investment Corpn.
of India Ltd. As regards Convert ible Debenture Issue, it was asserted that there is no violation of the provi 73 sions of Section 81(5) of the as the section contemplates only an optional conversion of Govern ment loan into equities.
In the instant case,there is a compulsory conversion of publicly held debentures of the convertible type.
In the premises, Sec.
81(5) of the said Act has absolutely, according to the deponent, no applica tion to the facts and circumstances of the case.
All these petitions challenge only the grant of sanction by the Controller of Capital Issues, though different as pects have been highlighted in the different petitions and we have heard different learned counsel.
We have, therefore, to examine what is the scope of the powers and functions of the Controller of Capital Issues while discharging his statutory functions in according sanctions to capital issues.
It is further necessary to examine if that role has in anyway, changed or altered due to the present economic and social conditions prevailing in the country.
It has also to be considered whether the guidelines or the provisions of law under which the Controller has functioned or has pur ported to function in this case, were proper or there had been deviations from these guidelines.
If so, were such deviations possible or permissible? It is further necessary to examine whether the Controller has acted bona.fide in law.
These are the broad questions which have to be viewed in respect of the challenge to the consent order.
It is, therefore, necessary to examine the broad features as have emerged.
Counsel for the petitioners contended that the RPL 's application had been entertained even without the company fulfilling the requirements of a proper application and furnishing the necessary consents and approvals, processed with undue expedition within a very short time and sanc tioned without any application of mind to the crucial terms of the issue which were detrimental to public interest.
This contention, when analysed, turns on a number of aspects which can be dealt with separately.
(a) It is submitted that the application was made on 4.5.88 and sanctioned on 4.7.88 within hardly a period of two months; this reflects undue haste and favouritism, particularly if one has regard to the magnitude of the public issue proposed to be made and the various financial and other intricacies involved.
We are unable to accept this contention.
In the first place, an application of this type is intended to be disposed of with great expedition.
In particular, in a project of the type proposed to be launched by the petitioner, passage of time may prejudicially affect the applicant and it is not only desirable but also 74 necessary that the application should be disposed of within as short a time as possible.
It is, therefore, difficult to say that the period of two months taken in granting consent in the present case is so short that an inference of haste must follow.
Secondly, on behalf of the Union of India a list of various applications received and disposed of by the office of the CCI between September 1987 and September 1988 has been placed before us to show that, generally speaking.
these applications are disposed of within a month or two.
It is true that none of these issues is of the same colossal magnitude as the.
present issue.
Nevertheless, the Control ler of Capital Issues could hardly keep the application pending merely because the amount involved is heavy.
It is not possible therefore to say merely from the short span of time that there was a hasty grant of consent in the present case.
(b) Secondly, it has been submitted that the RPL was a company which was incorporated only on 11.1.88.
RIL had issued a 'G ' series of debentures as recently as 1986 for the same projects.
In granting consent to the present issue the Controller of Capital Issues has completely over looked the fact that in respect of the same projects the RIL had been permitted to raise debentures on earlier occasions.
We do not think that the petitioners are correct in saying that the Controller of Capital Issues has over looked or was not aware of the debenture issues by the RIL or the purposes for which these debenture issues had been sanctioned.
The appli cation for consent makes it clear that the petitioner compa ny is a new company promoted by RIL and that RIL was promot ing this company to manufacture HDPE, PVC and MEG at Hazira.
The application refers to the fact that the total cost of the project was expected to be Rs.650 crores and that this cost had been approved earlier in 1985.
Considering that RPL had come into existence only on 11.1.1988, this was clear indication that the projects for which the debenture issue was being proposed were projects which had been mooted even by the RIL as early as 1985.
Again in the detailed applica tion form submitted by the RPL it has been mentioned that the RIL had already obtained approval of the Central Govern ment for implementation of the aforesaid projects under the MRTP Act.
In part C of the application form it has been mentioned that the promoter company had made necessary applications for endorsement in favour of the company of the Letter of Intent/Industrial Licences already issued by the Central Government under the Industries (Development & Regulation) Act, 195 1, in the name of the holding company, the RIL.
In the context of these statements it is extremely difficult to agree that the fact of issue of the earlier series of debentures by the RIL or the purposes thereof could have escaped the 75 notice of the CCI, particularly, when it is remembered that the issue of G series of debentures by the RIL was quite recent and had also attracted a lot of publicity.
We have elsewhere discussed the contention raised on behalf of the petitioners that the consent given has contravened the guidelines because finances were being raised for no new project but for the same old projects for which RIL had collected funds.
We have there pointed out that, MEG project, for all practical purposes, was a new project that was to be implemented by the RPL and the funds raised by the RIL had been insufficient for even the PAT and LAB projects launched by it.
The learned Addl.
Solicitor General states that there was earlier correspondence between the RIL and the CCI regarding the cost over run of the PTA and LAB projects.
We have not gone into the details of this corre spondence as it is not our purpose to enquire into the details of the matter.
We are referring to it only for indicating that the CCI was fully aware of the earlier series of debentures, of the stage of the various projects proposed therein, of the actual implementation of the projects, of the cost over run, of the proposal to transfer to some of those from RIL to RPL and the exact requirements of the present issue.
It is not possible to accept the contention that the consent of the CCI was accorded in ignorance of the facts pertaining to the G series of deben tures.
(c) Thirdly, it is submitted that having regard to the requirements of the pro forma prescribed under the rules, the application for consent could not have at all been considered by the CCI until the RPL produced the industrial licence in its favour, the collaboration agreements, the approvals of the financial institutions and the approvals under the MRTP Act.
It is submitted that the application of the petitioner was cleared hurriedly without insisting upon these clearances and this was done specially to oblige the company.
We must first of all point out that the pro forma relied on indicates a general procedure and should not be understood as a rigid requirement.
It is, of course, the duty of the CCI to be satisfied that before the debentures are actually issued the applicant company has all the neces sary licences, consents, orders, approvals, etc.
in its favour.
We are satisfied that in the present case there is no reason to doubt that he had been so satisfied if one remembers that those projects had been initiated by the RIL which had gone through the necessary exercises and all that remained to be done was a formal approval of their transfer for implementation to the RPL.
We shall first refer to the steps taken by the RIL in this regard.
76 On 10th October, 1983 as RIL proposed to engage in manufacture of MEG, it filed an application for grant of an Industrial Licence under the Industries (Development & Regulation) Act, 195 1.
On 16th August, 1984 RIL received a Letter of Intent No. 653(84) Regn.
No. 1323(83) IL/SCS issued by the Govt.
of India for the manufacture of 40,000 TPA of MEG.
Thereafter, from time to time on the applica tions made by the RIL, the Govt.
of India by various letters extended the validity of the period ending up to 30th June, 1989.
The last of such extensions was made by a letter dated 2nd September, 1988.
On 11th May, 1988 pursuant to an appli cation made, the Govt.
of India permitted expansion of capacity for manufacture of MEG from 40,000 TPA to 60,000 TPA.
From 12th January, 1988 to 22nd July, 1988 applications were made by RIL for change of Company from RIL to RPL for the MEG Project.
It appears that on 11th August, 1988 ap proval/sanction was granted by the Govt.
of India for change in the implementing agency from RIL to RPL.
On or about 19th January, 1985 a letter from the Govt.
of Maharashtra was issued, stating that there was no objection to the Company 's proposal for change of location for the MEG Project from Maharashtra to Gujarat.
It also appears from the various documents which are mentioned in Vol.
IV of the present Paper Books at different pages (from 22 to 44) that by var ious orders under the MRTP Act, sanctions and modifications were approved, the latest sanction being dated 11th October, 1988 whereby the Govt.
approved the proposal of RPL for modified scheme of Finance.
It is also significant to men tion that on 25th January, 1988 an application was made under Sec.
22(3)(d) of the MRTP Act with the proposal to implement the MEG Project along with other projects of RPL.
It may be mentioned that by a letter dated 6th June, 1988 RIL had informed that they had originally planned to utilise a sum of Rs.85 crores from 'G ' Series debentures for this project.
But, however, they were not able t9 utilise this money as the entire 'G ' Series amount had been utilised for PTA and Lab projects including the working capital on ac count of overrun in the cost of LAB and PTA projects.
Hence, it applied for permitting a new scheme of finance.
By an order dated 2 Ist July, 1988 the Govt.
accorded approval to the proposal of RIL for modified scheme of finance to be implemented by RIL.
Thereafter, RPL made an application for modification of the scheme of finance and the same was approved by the Govt 's order dated 11th October, 1988.
It appears that on 9th October, 1984 pursuant to an application made by RIL for foreign collaboration with M/s Union Carbide Corporation, USA, the Govt.
of India by its order of that date accorded approval to the terms of the foreign collaboration for a 77 period of six months for this project.
It further appears that on 14th March, 1986 pursuant to an application made by RIL, the Govt.
accorded approval for foreign collaboration with M/s Scientific Design Company.
It may, however, be mentioned that there was a letter dated 30.4.
1986 whereby approval was granted by the Reserve Bank of India in respect of foreign collaboration agreement with M/s Scientific Design Co. USA.
The next aspect of the matter which has to be borne in mind in view of the contentions urged was regarding the licences.
It appears that there was an application on 25th March, 1987, for licence.
On 9th August, 1988 the Industrial Licence dated 25.3.
1984 granted to RIL for manufacture of PVC was endorsed to RIL.
This is important because one of the contentions that Shri Pagaria during the course of his long submissions made was that there was no valid licence.
It also appears that so far as the MRTP Act is con cerned, an application was made by RIL on or about 12th October, 1984 under Sec.
22(3)(a) for manufacture of PVC.
Several other steps were taken and on 29th June, 1988 there was an order of the Govt.
of India under Sec.
22(3)(d) of the Act, according approval to the proposal for modified scheme of finance.
There was a further proposal for modification and fur ther orders.
Last of such order was dated 11th October, 1988.
Similarly, regarding the foreign collaboration, there were approval letters and the last one was dated 12th Au gust, 1988 for endorsement of foreign collaboration approval in favour of RPL.
So far as HDPE is concerned, it appears that there was a valid licence; and it may be mentioned that on 24th August, 1985 pursuant to an application made by RIL under section 22(3)(a) of the MRTP Act, the Govt.
granted approval for the establishment of a new undertaking for manufacture of HDPE.
Regarding foreign collaboration, an application was made by RIL in 1984 for approval of foreign collaboration with M/s Du Pont Inc. Canada, for manufacture of HDPE.
Such approval was given and the validity was extended and the foreign collaboration approval was endorsed in favour of RPL on 12th October, 1988.
Similar other consents were there.
Mention may be made of letters dated 28th April, 11th March, 6th December, 1986, 2nd January, 1987, 15th July, 25th, 26th July, 19th August, 1988 which appear at various pages of Vol.
IV of the papers.
Finally, capital goods clearance was endorsed in favour 78 of RPL for the PVC project on 12th August, 1988.
Capital goods clearance was also endorsed in favour of RPL for HDPE project on 23rd August, 1988.
Thus, it will be seen that all the basic groundwork had already been done by the RIL.
It is in above perspective that one has to examine the events that have happened.
The question that has to be considered is whether the CCI could take it for granted that these approvals, consents, etc.
would stand automatically transferred to the RPL.
On 16th June, 1987 by a Press Note issued by the Deptt.
of Industrial Development in the Minis try of Industry, the Govt.
of India declared that where a transferee Company is a fully owned subsidiary of the Compa ny holding the Letter of Intent or licence, the change of the Company implementing the project would be approved.
It is in the light of this that the Board of RIL on 30th Decem ber, 1987 passed a resolution to incorporate a 100% subsidi ary Company whose main objects were, inter alia, to imple ment the licences/Letters of Intent received by RIL and the objects of undertaking, processing, converting, manufactur ing, formulating, using, buying, dealing, acquiring, stor ing, packing, selling, transporting, distributing and im porting etc.
and approved the name of the Company as RPL.
On 11th January, 1988 the RPL was incorporated and the Certifi cate of Incorporation was issued.
Thereafter, on 12th Janu ary, 1988 letters were written by RIL for endorsement of licences/Letters of Intent in favour of RPL.
The certificate of commencement of business was thereafter issued.
The Press note earlier referred to makes it clear that the transfers from one company to an allied company were considered unexceptionable except where trafficking in licences is intended.
In this situation the change of name from RIL to RPL, of the licences, letters of intent and other approvals was only a matter of course and much impor tance cannot be attached to the fact that CCI did not insist upon these endorsements being obtained even before the letter of consent is granted.
In any event the letter of consent is very clear.
Clause (h) of the conditions attached to the consent letter makes it clear that the consent should not be construed as exempting the company from the operation of the provisions of the Monopolies & Restrictive Trade Practices Act, 1969, as amended.
Clause (e) makes it clear that it is a condition of this consent that the company will be subject to any measures of control, licensing, or acqui sition that may be brought into operation either by the Central or any State Government or any authority therein.
Under clause (t) the approval granted is without prejudice to any other approval/permission that may be required to be 79 obtained under any other Acts/laws in force.
Having regard to the above history as well as having regard to the terms and conditions of the consent letter, the grant of consent itself being conditioned on the RPL obtaining the necessary approvals, consents and permissions before embarking on the project, we do not think that there was any impropriety in the CCI granting the consent without waiting for the formal endorsement of the various licences, letters and approvals in favour of the RPL.
(d) It is next submitted that under para 3 of the guidelines issued the Government, the amount of issue of debentures for project financing and other objects will be considered on the basis of the approvals of the scheme of finance by the financial institutions/banks/ Government under the provi sions of the MRTP Act, etc.
The criticism in this respect is that since no approvals of the scheme of finance by the financial institutions/banks/Government under the provisions of the MRTP Act etc. had been produced before the Controller of Capital Issues he could not have been satisfied that the amount of issue of debentures was necessary and adequate on the basis of such approvals.
This argument proceeds on a misconception of the Government set up for dealing with these matters.
The learned Additional Solicitor General points out that the Controller of Capital Issues does not function in isolation, sitting at his desk and awaiting the various types of clearances and consents that are necessary to be obtained from various quarters before granting consent to an issue.
He points out that the CCI functions in close coordination with all the concerned departments of the Government.
He is in close touch with the progress of var ious projects.
On references from the Department of Company Affairs, the CCI (MRTP) Section furnishes comments on the scheme of finance relating to the proposals of industrial undertakings covered under the MRTP Act for effecting sub stantial expansion for setting up of new undertakings, merger/amalgamations; and acquisition/takeover of other undertakings.
The comments are furnished to the Department of Company Affairs with reference to the norms relating to equity debt ratio promoter 's contribution, dilution of foreign equity, listing requirements for shares on Stock Exchanges and on analysis of balance sheets for cash genera tion etc.
An officer attends regular meetings of the Adviso ry Committee meetings held in the Department of Company Affairs in terms of the MRTP Act, hearing held in Department of Company Affairs under section 29 of the MRTP Act, inter departmental meetings held in the Department of Company Affairs to consider specific issues relating to applications received under the MRTP Act, Licensing cum MRTP Committee meetings 80 held in the Department of Industrial Development, screening committee meetings held in the Administrative Ministries to consider applications from MRTP companies and statutory public hearings held in the MRTP Commission.
The submission of the learned Solicitor General in short is that, in deal ing with application for consent to an issue of capital, the CCI does not act in isolation but the entire Central Govern ment functions with various Departments closely monitoring and coordinating the scrutiny of applications.
He, there fore, submits that the Controller of Capital Issues is aware of the progress of the various applications made by the company.
The Controller is also aware that the ICICI had looked into the financial soundness and feasibility of the project and there is material to show that the comments of the ICICI were made available to him.
When a project is being appraised by the institution like the ICICI and when the CCI is also aware, by reason of the participation of his representatives at the meetings of the Department of Indus try and the Department of Company Affairs about the stage or outcome of the proposals made under the IDR and MRTP Acts, it is clear that the CCI did not overlook any crucial aspect and that his grant of consent in anticipation of the neces sary transfers to the RPL was based on a practical appraisal of the situation and fully in order.
The assumptions behind the petitioners ' arguments that the terms of the issue as proposed by the RPL were approved in toto by the CCI without examination is also unfounded.
The record before us indicates that there were frequent discussions leading to alterations in the original proposals from time to time as well as changes in the conditions of consent both before and even after the letter of consent dated 4.7.1988.
Some aspects of these have been referred to elsewhere and some are referred to below and these will show that consent was not granted as a matter of course.
The allegation that consent was accorded without any application of mind is, on the materials before us, clearly untenable.
It is stated in the affidavit that in March/April, 1988 discussions centered around the concept of cumulative con vertible preference shares (CCP) which was mooted as an instrument for the means of finance.
The instrument offered would have been equity shares to the extent of Rs.57 crores, cumulative convertible preference shares to the extent of Rs.81 crores and convertible debentures to the extent of Rs.478 crores with four conversions.
In this connection, reference may be made to Annexure 1 at page 39 of the reply affidavit filed in these proceedings by RPL.
Thereafter, on 4th May, 1988 RPL made an 81 application to the Controller of Capital Issues seeking permission to make an Issue of Capital on certain condi tions.
Specific details thereof are not necessary to be set out here.
It also made a proposal for issue of 81 lakhs 10% cumulative convertible preference shares of Rs. 100 each for cash at par through prospectus to non resident Indians/resident Indian public 81 crores.
It is stated that in accordance with the present guidelines issued by the Govt.
of India, the Company intended to retain excess sub scription amount to the extent of 15% of Rs.566 crores, i.e., a right to retain an additional amount.
It was further stated that in accordance with the Guide lines issued by the Government of India, the Company had intended to retain excess subscription amount to the extent of 15% of Rs.566 crores, i.e., a right to retain an addi tional amount of Rs.85 crores.
The idea was that the company would in the event of over subscription request the CCI for allotment of such additional amount of Rs.85 crores.
It was further proposed to issue a part of the cumulative converti ble preference shares to NRIS and a part to the foreign collaborators.
Terms of the proposed convertible debentures were: (a) Convertible debentures upto 12.5% (interest) taxable: Each convertible deben tures of Rs.500 would be converted into 10 equity shares of Rs. 10 each as per scheme envisaged.
The residual portion of each Con vertible Debenture would be redeemable at the end of th year from the date of allotment with an option to the company to repay these amounts in one or more instalments by drawing lots at any time after the end of 5th year from the date of allotment.
(b) Cumulative Convertible Preference Shares 10% (dividend) taxable.
Each CCP would be fully converted into equity share of Rs. 10 each at such a premium not exceeding Rs.40 per share as might be approved by the CCI at any time between the 3rd and/or 5th year from the date of allotment to be decided by the compa ny, by draw of lots, if necessary.
Then there are other conditions regarding securities, under writing, allotment of equity shares to RIL shareholders.
In May, 1988, several NRIS also evinced interest in equity participation in RPL.
It was stated that though the CCP shares appeared to be most appropriate instrument, the computation of reserved/preferential entitle 82 ment resulted in very low entitlement to the existing share holders of RIL.
It was then contemplated to increase the preferential entitlement of RIL investors on partially convertible debentures and the ratio of convertible deben tures was altered so as give equal share between RIL inves tors and the members of public.
A three stage conversion was contemplated.
Thereafter, in June 1988, a revised proposal to the CCI was made by RPL.
It is not necessary to set out in detail the said revised proposal.
After several discus sion, on or about 1st June, 1988, between the company, RPL, the Merchant Bankers, ICICI and the Office of CCI, it was asserted on behalf of the respondent No. 3 that serious reservations were expressed that the marketability of CCP shares and the investors resistance was likely to be there.
It was in this context and also after considering the reser vations that might be there on the part of the foreign collaborators and NRIs, that the CCI required the issue of fully convertible debentures.
The institutional proposal of the project cost emerged at Rs.700 crores instead of Rs.650 crores and it was then felt that RIL should increase its own contribution to the project by way of a promotors ' contribu tion at Rs. 100 crores, thereby increasing its stake to 14% at the suggestion of CCI.
It was stated that this was also a requirement of the CCI guidelines and MRTP conditions.
At the end of June, 1988, there was an amendment of the Order by the Department of Company Affairs in favour of RPL for PVC.
Similarly, on 21st July, 1988, the order for MEG passed for RIL was amended permitting RPL to undertake the new projects for implementation of the MEG Project.
It is not necessary to set out in detail these proposals.
On 4th July, 1988, CCI granted the consent under the to the public issue.
There were varia tions between the proposal and the Order of consent of the CCI.
It may be necessary at this stage to refer to the Order dated 4th July, 1988, which is as follows: "With reference to your letter No. BOK/DKG/505(c) dated 8.6.1988, I am directed to say that the Central Govt.
in exercise of the powers conferred by the , do hereby give their consent to an issue by M/s Reliance Petrochem icals Ltd., a company incorporated in the State of Maharashtra, of capital of the value of Rs.650.90 crores (inclusive of retainable excess subscription to the extent of Rs.84.90 crores).
(A) 5,75,00,000 Equity shares of Rs. 10 each for cash at par ' to M/s Reliance Industries Ltd. (inclusive of retainable excess 83 subscription to the extent of Rs.7.50 crores).
(B) 2,96,70,000 12.5% secured, redeemable, convertible debentures of Rs.200 each for cash at par to public by a prospectus (inclusive of retainable excess subscription of 77.40 crores).
Out of (B) above, reservations for prefer ential allotment will be made as follows: (i) Shareholders of M/s Reliance Industries Ltd. 50%.
(ii) Employees (including Indian working Directors)/ workers of the company and of M/s RIL.
5% Unsubscribed portion, if any, of the reservations will be added to the public offer.
The Convertible debentures will carry interest 12.5% p.a.
(taxable).
The Debentures will be fully and compulsorily convertible in the following manner: (a) 5% of the face value at par on allot ment of the debentures.
(b) 20% of the face value at a premium if any, as may be decided by this office after three years but before four years from the date of allotment of debentures.
(c) The balance at such a premium if any, as may be decided by this office after 5 years but before the end of 7 years from the date of allotment.
The consent given as aforesaid is qualified by the conditions mentioned in the Annexure and the company shall comply with the terms of the conditions so imposed.
I am to make it quite clear that the grant of consent to the issue of capital represents no commitment of any kind on the part of the Central Govt.
to render assistance in the matters.
of priorities or licences for sup plies of raw materials, machinery, steel, etc., of transport facilities or any other governmental assistance, including the provi sion for foreign exchange.
This order also conveys the approval of the Central Govt.
under proviso to Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957 subject to the condition that the allotment to the employees shall not exceed 200 shares per individual.
This letter is issued in the name and under the authority of the President of India.
" There was Annexure to the said Order.
In that Annexure, certain conditions were laid down and condition (a) stipulated that in any prospectus or other document referred to in section 4 of the , relating to this issue, the statement required by that section must be worded as follows: "Consent of the Central Government has been obtained to this issue by an order of which a complete copy is open to public inspection at the Head Office of the Company.
It must be distinctly understood that in giving this consent the Central Govt.
do not take any responsibility for the financial soundness of any scheme or for the correctness of any of the statements made or opinions expressed with regard to them.
" It further imposed the condition (b) that the consent to lapse on the expiry of twelve months from the date of con sent.
Order also stipulated that the consent should not be construed as exempting the company from the operation of the provisions of the Monopolies & Restrictive Trade Practices Act, 1969, as amended.
The consent also indicated that the company would be subject to any measures of control, licens ing, or acquisition that might be brought into operation either by the Central or any State Govts.
or any authority therein.
It also enjoined the company to ensure that the prospectus for the issue of securities consented to should be printed subject to certain conditions.
It also enjoined, inter alia, that the convertible debentures should be allot ted to the employees of the company and of M/s RIL and the shareholders of M/s RIL.
On conversion the equity shares so converted should not be transferred/sold/hypothecated for a minimum period of three years from the date of allotment of convertible debentures.
The other special conditions con tained the following: "(v) The equity shares to be allotted to the promoters of the company shall not be sold/hypothecated/transferred for 85 at least three years from the date of allot ment.
(w) It is a condition of this consent order that the proceeds from the issue of debentures should be invested in fixed duration depos its/instruments with the cooperative/ nationalised banks, UTI, Financial Institu tions, Public Sector Undertakings (other than public sector bonds) and be used strictly for the requirements of the projects mentioned in the application and not for any other purpose.
(x) M/s Reliance Industries Limited will bring in additional amount of Rs.50 crores as inter est free unsecured loans, at the time of allotment of the above convertible debentures as additional promoters contribution which will be converted into equity at par on the expiry of 36 months from the date of allotment of convertible debentures.
(y) (i) The company shall scrupulously adhere to the time limit of 10 weeks from the date of closure of the subscription list for allotment of all securities and despatch of allotment letters/certificates and refund orders.
(ii) The company shall, at the time of filing its application for listing to the regional Stock Exchange, furnish an undertak ing for compliance of the above condition, along with a scheme incorporating the neces sary details of the arrangements for such compliance.
This undertaking shall be signed by the Chief Executive or a person authorised by the Board of the company.
(iii) The company shall file, with the Executive Director or Secretary of the region al Stock Exchange, within five working days of the expiry of the stipulated period as above, a statement signed by the Chief Executive or a person authorised by the Board, certifying that the allotment letters/securities and the refund orders have been despatched within the prescribed time limit as per the condition above.
A copy of the statement shall be en dorsed to the office of the CCI quoting this consent order and date.
(iv) Non compliance of conditions above shall be; 86 punishable by the Stock Exchange, in addition to the action that may be taken by other competent authorities.
" The other conditions mentioned therein are not very relevant.
These only enjoin certain procedural safeguards.
The said consent order was amended on the 19th July, 1988, which clarified that the intention for imposing condition (w) as set out above, was not to block all the funds raised out should be invested in terms of the conditions laid down aforesaid.
The amendment enjoined that the approval of the Central Government should be subject to the condition that allotment to the employees should not exceed 50 debentures per individual.
It was further added that the company should obtain prior approval of the Reserve Bank of India, Exchange Control Department, for the allotment of debentures to the non residents as required under the Foreign Exchange Regula tion Act, 1973.
There was a further amendment of the Consent Order on the 26th July, 1988 which added condition (s) to the following effect: "(s) The convertible debentures to be allotted to the employees of M/s RPL and M/s RIL and the corporate shareholders of M/s RIL (other than individual shareholders of M/s RIL) shall not be sold/transferred/hypothecated till the end of 3 years from the date of allotment of debentures.
On conversion the equity shares so converted shall not be transferred/sold/hy pothecated for a minimum period of 3 years from the date of allotment of convertible debentures.
" It was stated that between 4th January, 1988 to 24th July, 1988, news about the formation of RPL and to set up the projects at Hazira, Gujarat and the consent granted by CCI for convertible debentures for RPL all these were widely reported in various newspapers and magazines including national dailies such as Times of India, Indian Express, Financial Express, Gujarat Samachar, Hindustan Times, Bombay Samachar, Business Standards and other magazines and news items.
Thereafter, till mid August, 1988, there were de tailed advertisements about the company and nearly 1600 insertions in nearly 200 newspapers and dailies were made advising the opening of the issue.
There were from mid July, 1988 onwards till August, 1988, advertisement campaigns in television and radio to attract investments in Petrochemi cals advising the public about the issue of Rs.593.40 crores of convertible debentures of RPL.
It is asserted on behalf of the respondents that the public issue of these shares was made known 87 since mid July, 1988.
As mentioned hereinbefore since the words "till conversion" were capable of wide interpretation and might have rendered the shares/convertible debentures non transferable for upto 7 years, the CCI modified the consent and limited this restriction to a period of 3 years.
On July 27, 1988, the prospectus of RPL was filed with the Registrar of Companies, Gujarat and the Stock Exchanges at Bombay and Ahmedabad.
On August 22, 1988, the issue of RPL opened for subscription.
A letter was addressed to the CCI on August 23, 1988, requesting for the lifting of embargo for non transferability for three years for the corporate shareholders of RIL also.
It is asserted that by August 31, 1988, the issue of RPL was fully/over subscribed and closed.
By October 25, 1988, the basis of allotment was approved by Ahmedabad Stock Exchange.
A resolution of the Board of Directors of RPL was passed on October 27, 1988 to allot the debentures/shares.
On November 4, 1988, lease deed for land at Hazira between RPL and GIDC was executed.
There was no objection certificate obtained from GIDC.
It is asserted that the Debenture Trust Deed between RPL and ICICI was executed at Surat and was lodged for registration on Novem ber, 7, 1988.
Certificate of Mortgage under Section 132 of the was issued by the Registrar of Companies, Gujarat regarding the creation of charge for the Debentures on November 11, 1988 itself.
In this context, on behalf of the respondents, Mr. Baig drew our attention to certain dates indicating that the writ petitioners were aware of this and it was stated that on July 20, 1988, Mr. Radheyshyam Goyal, the Writ Petitioner in Rajasthan High Court, wrote a letter to the Editor of the Financial Express that the premia for the issue of shares upon the second and third conversion had not been fixed and the terms and conditions were vague.
Shri Goyal also made certain other allegations.
Though, of course, no complaint was ever made to RIL or RPL on this aspect, on August 16, 1988, one Mr. J.P. Sharma filed a complaint of Unfair Trade Practices under the MRTP Act before the MRTP Commission seeking injunction against the issue opening on 22nd August, 1988 and alleging the same breaches as claimed by the peti tioners in the Transfer cases.
On being moved, this Court, on August 19, 1988, passed an order in Transfer Petition,; No. 192 193 of 1988 staying the three pending Writ Petitions in the three High Courts, namely, Bangalore, Delhi and Jaipur and further stayed the proceedings in the suit being Civil Suit No. 1172 of 1988 filed in Baroda.
It was directed that the issue of deben tures would proceed without hindrance notwithstanding any 88 proceedings instituted or orders passed and that any order or direction or injunction already passed or which might be passed would remain suspended till further orders of this Court.
It was mentioned that on August 29, 1988, the com plaint filed by Shri Sharma before the MRTP Commission was dismissed.
On August 31, 1988, one Shri Arvind Kumar Sanga neria issued notice through his Advocate advising that a Writ Petition was being preferred in the Bombay High Court.
On September 1, 1988, this Court granted an ex parte stay of the proceedings in Writ Petition No. 4388 of 1988 pending before the Bombay High Court.
As mentioned hereinbefore, on September 9, 1988, this Court had transferred the four Writ Petitions in the four High Courts and civil suit to this Court.
It appears that there was a further writ petition filed by Shri Suni1 Ambani in the High Court of Allabahad on the basis of two articles published in the Indian Express.
Shri Ganesh made submissions in Transfer Case No. 164 of 1988.
Shri Haksar made his submissions in T.C. No. 161 of 1988.
Shri Pagaria argued T.C. 162 of 1988.
Shri Udai Holla who was the counsel for the petitioner in Karnataka matters, appeared in T.C. 163 of 1988 and made his submissions.
We heard Mr. G. Ramaswamy, Additional Solicitor General.
Shri Soli J. Sorabjee, Shri Baig and Shri Salve argued on behalf of respondents 1 and 2 and Shri F.S. Nariman for respondent No. 3 in T.C. No. 162 of 1988.
Inasmuch as the charge is the non evaluation by the CCI in enforcing and applying the principles of guidelines properly, it would be appropriate at this stage to refer to the said guidelines.
It appears that from time to time, in exercise of the powers conferred by section 12 of the Capi tal Issues (Control) Act, 1947, the Central Government had issued rules and guidelines.
On or about April 17, 1982, guidelines were issued by the Government of India under the said Act for the "Issue of Debentures by public Limited Companies".
It is not necessary to set out in detail these guidelines, but it may be necessary to refer to clauses (4) and (6) of the said guidelines.
Clause (4) reads as follows: "4.
Debt equity. ' The debt equity ratio shall not normally exceed 2: 1.
For this purpose: "Debt" will mean all term loans, debentures and bonds with an initial maturity period of five years or more, including inter est accrued thereon.
It also includes all deferred payment liabilities but it does not include short 89 term bank borrowings and advances, unsecured deposits or loans from the public, sharehold ers and employees, and unsecured loans or deposits from others.
It should also include the proposed debenture issue.
"Equity" will mean paid up share capital including preference capital and free reserves.
Notes: (1) The computations under guidelines 3 and 4 mentioned above will be based on the latest available audited balance sheet of the company.
(2) A relaxation in the norm of debt equity ratio of 2:1 will be considered favourably for capital intensive projects such as fertiliz ers, petro chemicals, cement, paper, shipping etc.
" Clause (6) of the said guidelines deals with the period of redemption and is as follows: "6.
Period of Redemption. ' Debentures shall not normally be redeemable before the expiry of the period of seven years except in the following cases: (i) A company will have the option of redeeming the debentures from the 5th to the 9th year from the date of issue in such a way that the average period of redemption contin ues to be seven years.
While exercising such option the small investors having debentures of the face value not exceeding Rs.5,000 will have to be paid in one instalment only.
(ii) In case of non convertible debentures or nonconvertible portion of con vertible debentures a company may have the option of getting the debentures converted into equity fully with the approval of and at such.
price as may be determined by the Con troller of Capital Issues.
The debenture holders will, however, be free not to exercise this right.
" Clause (8) provides for the denomination of debentures.
Clause (9) enjoins the listing of debentures on the Stock Exchange.
Clause (10) stipulates that only secured deben tures would be permitted for issue to 90 the public.
Clause,(11) enjoins the underwriting of the debentures and clause (12) also provides for listing of the shares of the company proposing debenture issue.
Clause (13) permits linked issue of shares and debentures.
There were certain amendments to these guidelines which would be noted at the relevant time.
While considering the question of the application or non application of mind or infringement of guidelines, it is necessary to bear in mind the role of the CCI in this re spect.
The CCI functions under the .
This is an Act to provide for control over the issue of capital.
Section 2(e) of the said Act defines "securities" and states that the "securities" means any of the following instruments issued or to be issued, or created or to be created, by or for the benefit of a company, name ly: (i) shares, stocks and bonds; (ii) debentures; (iii) mortgage deeds, etc.; and (iv) instruments acknowledging loan or indebt edness.
Section 3(1) of the said Act enjoins that no company incorporated in the States shall, except with the consent of the Central Government, make an issue of capital outside the States.
The other sub sections of Section 3 deal with the modalities of such consent.
It may be mentioned that the Statement of Objects and Rea sons of the Act states that the object of this measure is to keep in existence . the control over capital issue which was imposed by Rule 94 A of the Defence of India Rules in May, 1943 and continued in force after the expiry of the Defence of India Act by Ordinance No. XX of 1946.
The State ment further states that although there has been an appre ciable change in the general conditions which constituted the principal reason for the introduction of the control during war time, it was thought in the light of experience gained that the control was still necessary to secure a balanced investment of the country 's resources in industry, agriculture and the social services.
(See Gazette of India, 1947, Part V, p. 264).
In this connection, Shri G. Ramaswamy, learned Addi tional I Solicitor General for the Union of India drew our attention to the 91 Debates of the Lok Sabha and the Rajya Sabha in February March, 1956 when the question of continuance of the control of the capital issues came up for consideration.
The Minis ter of Finance, Shri C.D. Deshmukh stated that the control of capital issues was first introduced in May, 1943 under the Defence of India Rules.
It was continued after the termination of the war by an Ordinance, thereafter in 1947 by an Act for a term of three years and it was again succes sively extended in 1950 and 1952.
The Act as it stood ex pired on the 31st March, 1956.
The main purpose which the Minister explained was to prevent the diversion of investi ble resources to none essential projects (emphasis supplied), the control had also been used for many other purposes and the most important of these purposes which might be called ancillary purposes were the regulation of the issue of bonus shares, regulation of capital reorganisa tion plans of companies including mergers, and amalgamations which involved the use or re issue of capital and the regu lation of the capital structure.
Shri Ashok Mehta, then a Member of Parliament, suggested that the purpose of the Act might be used for evolving a national investment policy.
The Minister of Finance further observed that many things might have been done to give a proper form and shape to the na tional investment policy (emphasis supplied), but the Minis ter expressed his surprise how these could have been secured through a negative piece of control (emphasis supplied) like the Capital Issue Control Act.
He observed that there were other provisions like the Industries (Development & Regula tion) Act, under which licences were given to new indus tries.
But this, according to the Minister, was not the purpose of the negative control of the capital issue.
Var ious suggestions were made by the members of the Parliament about the role of the Act, for instance, to encourage public companies, not too much concentration of particular indus tries at particular areas, etc.
The Minister referred to the various other Acts which control the industry and the Minis ter also referred that there should not be undue delay.
Similar statements were made by Mr. M.C. Shah in Rajya Sabha, who was then the Minister for Revenue and Civil Expenditure.
One Member in Rajya Sabha made it particularly clear that the consent of the Government had been misleading to some investors and thought that by a regulation, it was essential that in the prospectus it should be clearly stated that the sanction by the Government did not mean any guaran tee about the suitability or the successful running of the industry.
Therefore, this sanction of the Government should be stated more clearly and the public should be clearly warned that a sanction of the Government did not imply any sort of guarantee by the Government.
92 We have referred to the debates only to highlight that the purpose of the Bill was to secure a balanced investment of the country 's resources in the industry and not to ensure so much the soundness of the investment or give any guaran tee to the investors.
The section of the Act in question in express terms does not enjoin the CCI to discharge such obligations nor does the background of the Act so encompass.
There was considerable discussion before us as to the scope of the powers and responsibilities of the CCI while granting his consent to an issue of shares and debentures proposed by a company.
As stated above, the learned Addi tional Solicitor General submitted that the restrictions on issue of capital were introduced as part of the control measures found necessary during the period of the first world war and that, after the war ended, the control was continued as it was thought "in the light of experience gained that control is still necessary to secure a balanced investment of the country 's resources in industry, agricul ture and the social services" (vide, the statement of Ob jects and Reasons of the Act in 1947).
He urged, relying also upon the speech of the concerned Minister at the time of moving the amendment bill of 1956 in Parliament, (which placed the measure on a permanent footing) that all that the CCI is concerned with is to ensure that the investible resources of the country are properly utilised for priority purposes and are not invested in non essential projects or in a manner which runs counter to the accepted investment policies of the Government.
The CCI, he submitted, has neither the duty, nor the staff, the facilities or the expertise to enquire about.
or investigate into, the finan cial soundness or acceptability of the issue proposed to be made.
He pointed out that one of the conditions on which all consent is granted is that the Central Government does not take any responsibility for the financial soundness of any scheme or the correctness of any statement made or opinions expressed in the prospectus and the condition is also ex plicitly set out in the prospectus.
We are unable to agree fully with this somewhat narrow aspect of the CCI 's role.
In the very speech in Parliament to which the learned Additional Solicitor General referred, the Minister also stated: "Apart from this main object of the Bill which is thus to prevent the diversion of investible resources of non essential projects, the control has also been used for man), other purposes.
The more important of these purposes which may be called ancillary purposes are the regulation of the 93 issue of bonus shares, regulation of capital reorganisation plans of companies including mergers and amalgamations which involved the issue or re issue of capital, the regulation of the capital structure of companies with a view to discouraging undesirable practices, namely, issue of shares with disproportionate voting rights and encouraging the adoption of sound methods and techniques in company flota tion, regulation of the terms and conditions of additional issues of capital etc." (emphasis added) That apart, whatever may have been the position at the time the Act was passed, the present duties of the CCI have to be construed in the context of the current situation in the country, particularly, when there is no clear cut delin eation of their scope in the enactment.
This line of thought is also reinforced by the expanding scope of the guidelines issued under the Act from time to time and the increasing range of financial instruments that enter the market.
Look ing to all this, we think that the CCI has also a role to play in ensuring that public interest does not suffer as a consequence of the consent granted by him.
But, as we have explained later, the responsibilities of the CCI in this direction should not be widened beyond the range of expedi tious implementation of the scheme of the Act and should, at least for the present, be restricted and limited to ensuring that the issue to which he is granting consent is not, patently and to his knowledge, so manifestly impracticable or financially risky as to amount to a fraud on the public.
To go beyond this and require that the CCI should probe in depth into the technical feasibilities and financial sound ness of the proposed projects or the sufficiency or other wise of the security offered and such other details may be to burden him with duties for the discharge of which he is as yet iII equipped.
Shri Ganesh submitted that the CCI is duty bound to act in accordance with the guidelines which lay down the princi ples regulating the sanction of capital issues.
This is especially so because the guidelines had been published.
It was submitted that the investing public is, therefore, entitled to proceed on the basis that the CCI would act in conformity with the guidelines and would enforce them while sanctioning a particular capital issue.
It was submitted that it is not permissible to deviate from the guidelines.
In this connection, reliance was placed by him as well as by Shri Haksar, appearing for the petitioner in T.C. No. 161/88, upon the observations of this Court in Ramanna Dayaram Shetty vs International Airport Authority, [1979] 3 94 SCR 10 14, where this Court observed that it must be taken to be the law that where the Government is dealing with the public, whether by way of giving jobs or entering into contracts or issuing quotas or licence or granting other forms of largess, the government could not act arbitrarily at its sweet will and, like a private individual, deal with any persons it please, but its action must be in conformity with standard or norm which is not arbitrary, irrational or irrelevant.
We accept the position that the power of discre tion of the government in the matter of grant of largess including award of jobs, contracts, quotas, licences etc.
must be confirmed and structured by rational, relevant and nondiscriminatory standard or norm and if the government departed from such standard or norm in any particular case or cases, the action of the government would be liable to be struck down, unless it could not be shown by the government that the departure was not arbitrary but was based on some valid principle which in itself was not irrational, irrele vant, unreasonable or discriminatory.
Mr. Haksar drew our attention to the observations of this Court in the case of Motilal Padampat Sugar Mills vs Uttar Pradesh, ; , where this Court reiterated that claim of change of policy would not be sufficient to exonerate the government from the liability; the government would have to show what precisely was the changed policy and also its reason and justification so that the Court could judge for itself which way the public interest lay and what the equity of the case demanded.
It was contended by Shri Haksar that there were departures from the guidelines and there was no indication as to why such departures had been made.
We are unable, however, to accept the criticism that there has been derivations from the guidelines which are substantial.
We have referred to the guidelines.
We do not find that there has been any requirement of such guidelines which could be considered to be mandatory which have not been complied with.
We have considered this carefully and found that there have been no deviations from paras 3, 5, 12, 13 and 14 of the guidelines.
Nor has there been, as pointed out by the respondents, any infraction of guidelines nos.
2 and 4.
The fact that debentures of the face value of Rs.200 have been approved as against the normal face value of Rs. 100 envisaged under para 8 or that the requirements of the service of underwriters have been dispensed with in exercise of the discretion conferred by para 11 do not constitute arbitrary, substantial or unjustified deviations from those guidelines.
There has been sufficient compliance with the guidelines on the quantum of issue, debt equity ratio, interest rate and the period of redemption and also guideline No. 10 about the security of the debenture and there was sufficient security for the debentures in the 95 facts and circumstances of this case.
The preference in favour of shareholders of RIL was justified and based on intelligible differentia.
Indeed, if we consider the role of the CCI, it is primarily concerned to ensure a balanced investment policy and not to guarantee the solvency or sufficiency of the security.
In our opinion, most of the criticism directed against deviation from guidelines were misplaced.
It was submitted by Shri Ganesh that there was an obli gation cast on the CCI to ensure that the guideline regard ing security for the debentures was fulfilled.
Shri Ganesh took us through the documents filed before the CCI includ ing, in particular, the draft prospectus which, according to him, clearly showed that there was in reality no security for the debentures.
We are unable to accept this contention.
Perhaps the most important of the arguments addressed on behalf of the petitioners was that the scrutiny by the CCI of the prospectus was so cursory that the most glaring travesty of truth contained therein has passed unnoticed by him.
Sri Ganesh points out that the guidelines were clear that a company can issue only secured debentures and draws attention to the fact that the company proclaimed the issue to be of "fully secured convertible debentures".
Yet, the prospectus, on its very face, disclosed that the debentures were unsecured.
Shri Ganesh urges that, if only the CCI had perused carefully the figures and statements made in the prospectus he could never have accepted, at face value, the assertion of RPL that the debentures were "secured" ones within the meaning of the guidelines or accorded his consent to the issue.
This argument is in three parts and may be dealt with accordingly.
(i) The first criticism of the petitioners is that, in certain brochures and pamphlets issued by RPL, the deben tures are described as "fully secured convertible deben tures" which they are not.
The description but explained that this was due to an oversight; the words "fully secured convertible debentures" were print ed in some brochures instead of the words "secured fully convertible debentures" without meaning or intending any change.
It is submitted that the company 's representation was that the debentures were "secured fully convertible" ones.
This is also what had been set out in the application for consent.
Though the company does claim that the deben tures were also fully secured, it is submitted that the emphasis in the issue was that the debentures were fully convertible and secured.
We think this explanation is plau sible and do not think that any importance or significance need be attached 96 to the different description in some places, particularly, in view of our discussion below as to the extent and nature of the security actually provided for the debentures.
(ii) The second contention is that the security offered, on the face of it, falls far short of the face value of the debentures.
Sri Ganesh analysed before us some statements indicating the inadequacy of the security.
It was submitted by him that as per page 6 of the prospectus issuing the debentures, after implementation of the projects only the following assets would be available with the company: Rs. in Crores Land and site development 11 Buildings 26 Plant and Machinery 305 Total 342 The assets of Rs.51.25 crores, mentioned in the balance sheet as at 31.5.88 as per the Auditor 's report, are also included in the above because the above figures are of the total assets which would come in existence after implementa tion of the project.
This, according to Shri Ganesh, clearly showed the inadequacy of the security.
On behalf of RPL, it is submitted that there is no justification to exclude, from the figures of assets shown on p. 6 of the prospectus, items such as technical know how fees, expatriation fees and engineering fees amounting to Rs.79 crores and preliminary and pre operative expenses amounting to Rs. 138 crores as these are capitalised in the accounts and result in accretion to the value of the compa ny 's capital assets.
The calculation also ignores miscella neous fixed assets of the value of Rs.70 crores shown on the page.
If these are added, the value of the investment in assets would work out to Rs.629 crores which far exceeds the value of the debentures after the first conversion which comes to Rs.563.73 crores.
This figure of Rs.629 crores takes into account only the investment in assets made out of the borrowed funds and not the future profits and assets acquired therefrom.
But, even taking this as the basis, it is clear that, with the escalation in the value of the fixed assets with the passage of time on the one hand and the redemption of a good portion of the debentures by the end of three years on the other, the security provided is complete and, in any event, more than adequate to safeguard the interests of the debenture holders.
There is substance in this contention.
97 (iii) The third loophole, according to the petitioners, is the insecurity created by the terms of clauses 5 and 6 of the prospectus dealing with 'security ' and 'borrowings '.
Sri Ganesh submits that clauses 5 and 6 severely qualify the rights of the debenture holders under the present issue in several respects.
(a) There is, in their favour, only a residual charge on all or any of the assets of the company at Hazira and other places which shall "rank expressly subject to subservient and subordinate" to all existing and future mortgages, charges and securities as may be hereafter created by the company in any manner whatsoever; (b) The company need not obtain the consent or concur rence of the debenture holders for creating any such mort gages etc.
which will have priority over the present deben ture issue or for disposing of any of the assets of the company; (c) Not only is the residential complex of the company excluded from the purview of the security, it is also open to the company and the trustees of the debenture holders to agree to the exclusion of any of the assets of the company from the purview of the security.
(d) The current assets or the bankers ' goods such as stocks, inventories, book debts, receivables, work in progress, finished and semi finished goods etc.
stand ex cluded from the security.
(e) Clause 6 again emphasises that the company shall be at liberty to raise any further loans and secure the same in priority to the present security and/or on such terms as to security, ranking or otherwise as may be mutually acceptable to the. company and the trustees of the debenture holders without being required to obtain any further sanction from the debenture holders.
If these clauses are closely perused, Sri Ganesh urges, it will be seen (a) that the charge in favour of the debenture holders has a very poor priority as it can rank subservient to any securities that may be created by the company in future in respect of further borrowings, (b) that the compa ny and debenture trustees, by mutual agreement, can take any of the assets of the company outside the purview of the present security and (c) that the company can create such future securities as have a priority over the present issue or exclude assets from the purview of the security without the consent or concurrence of the present debenture holders.
98 We think, as has been urged on behalf of the company, that these arguments proceed on a mis apprehension of the true nature and scope of clauses 5 and 6 above as well as of the nature and legal effect of a floating charge what has been described in this prospectus as a 'residual charge ' that is created at the time of issue of such deben tures.
In the first place, these clauses are only enabling in nature so as to permit the company, despite the mortgage in favour of debenture holders, to carry on its business normally.
It will be appreciated that the company 's normal business activities would necessarily involve, inter alia, alienation of some of the assets of the company from time to time (such as, for example, the sale of the goods manufac tured by the company) as well the procurement and discharge of loans and accommodation facilities from banks, financial institutions and others (such as, for example, entering into agreements for hire purchase of plant and machinery and making payments of instalments towards their price).
The entire progress of the company would come to a standstill in the absence of such an enabling provision.
Such a provision is not only usual but also essential because the basic idea is that the finances raised by the debentures should be employed for running the project profitably and thereby generating more and more funds and assets which will also be available to the debenture holders.
Secondly, we think and indeed RPL also conceded both in arguments as well in an affidavit filed on its behalf by Sri Mohan Ramachandran dated th January.
1989 that what the two clauses provide is only that the consent and concurrence of the debenture holders need not be obtained by the company before creating securities that may have priority over the present issue and that, under clauses 5 and 6 read harmoniously together, the trustees for the debenture holders have to concur before the company can raise any future borrowings and create therefor a security which will have priority over the security avail able to the present debenture holders.
The Trustees here are not stooges of the company.
The ICICI is not only a finan cial institution in the public sector but is also one of the institutions financing the project and thus having a stake in the success of the project.
It can be trusted to ade quately look after the interests of the debenture holders.
Thirdly, as has been pointed out by the company, the misap prehensions of the petitioners are more imaginary than real.
The company, in its affidavit, has pointed out that the Debenture Trust Deed dated 7.11.1988, which has since been executed in the present case, contains a provision by which.
at the time of creation of any future charge, the terms and conditions as to ranking have to be agreed upon between the RPL and ICICI.
Also clause 16 of the Debenture Trust Deed authorises the debenture trustees to intervene 99 and crystallise the charge in their favour, inter alia, in the following circumstances: "If the Company sells the Mortgaged Premises or any part thereof not in the ordinary course of business except a sale, transfer or dispo sition allowed under the terms of these presents to be made with the consent of the Trustees." (Sub clause (f)) "If the Company (except as hereinafter ex pressly provided) creates or attempts or purports to create any charge or mortgage of the Mortgaged Premises or any part of parts thereof prejudicial to the interests of the Debentureholders." (Sub Clause (i)) "If, in the opinion of the Trustees, the security of the Debentureholders is in jeop ardy." (Sub clause (k)) Thus if at any time the company proposes to create such higherranking charges, the trustees for debenture holders can stultify the same by taking immediate action.
Fourthly, the impression sought to be created by the petitioners that the company may go on creating encumbrances, left and right, to the detriment and prejudice of the present debenture holders overlooks several restraints imposed on the company in this respect under the , the CCI` Act, the MRTP Act and involving the consent of public financial institutions, commercial banks, the term lenders, the share holders, the MRTP Commission, the Central Government and the CCI before the creation of such securities.
Lastly, the contention of the petitioners completely overlooks the basic principles underlying the commercial law concept of deben tures secured by a floating charge as evolved in British Jurisprudence over the past two hundred years.
Clauses like clauses 5 and 6 are usually inserted in debenture issues and the company has drawn our attention to two like instances in certain issues approved in December 1988 and January, 1989.
It has also been argued for the company that a fully con vertible debenture is not a debenture at all in the true sense of the term and is more akin to an issue of equity and that, therefore, there is no need that it should be covered by adequate security at all.
These aspects of the matter are dealt with by us at some length later; it is sufficient here to say that we are unable to accept the contention that the security in favour of the debenture holders is illu 100 sory and inadequate because of the wide language of clauses (5) and (6) of the prospectus.
Both these clauses have to be read together and so read, we have no doubt, do not permit the creation of any charge ranking in priority to the charge created under these debentures save with the consent of the trustees of debenture holders.
The further argument of Sri Ganesh is that the company law in its application as well as the prospectus, carefully skirted round the issue by merely stating that security will be provided to the satisfaction of the trustees and that this is not very helpful as the debenture holders come into the picture only after the funds have been raised.
This argument is untenable.
We have already pointed out, there was sufficient security as was warranted by the issue.
This was an issue of 12.5% fully secured convertible debentures of Rs.200 each.
We have examined the share capital, the present issue and the scheme of conversion.
In the premises, it is not possible to accept the submission of Shri Ganesh that the Controller satisfied himself (as stated by him in his affidavit) with the bare statement of the applicant company (RPL) that security would be created as per the requirements of the debenture trustees.
There was this statement that the debenture trustees were well known finan cial instutitions and they had been entrusted with this obligation.
Learned Additional Solicitor General drew our attention to similar debentures and submitted and, in our opinion, rightly that this was the usual practice.
It is not possible for the CCI to ensure more than that.
The prospec tus was not misleading to that extent.
It, therefore, cannot be accepted that the CCI failed to apply its mind to the documents before him.
Reliance was placed on the fact that the RIL had proposed the issue of shares for G series for more or less identical project.
It was contended that if capital issues had once been sanctioned for a project and the issue had been converted for that purpose and then a fresh capital issue could not be applied for or granted for the same purpose.
It was urged by Shri Ganesh that the project under those circumstances could not be considered to be a 'new project ' within the meaning oflll para 2(i) of the Guidelines for Issue of Debentures by Public Limited Compa nies.
Secondly, it was urged by Shri Ganesh that the basic object of the was to ensure .sufficient and fruitful utilisation of capital would be completely defeated if more than one capital issue is permitted for the same project.
In this connection, Shri Ganesh referred to the affidavit of the CC1 which, according to him, clearly indicated that CCI was specifically aware of the fact that the scheme of finance for setting up the very same project had been approved in favour of RIL.
Our atten tion was drawn to the affidavit filed on behalf of the CCI, 101 where he had stated at p. 203 of the Paper Book of T.C. No. 164 of 1988, that by a Press Release dated 15th September, 1984, certain guidelines which the said deponent described as "non statutory guidelines" for approval of issue of secured convertible and nonconvertible debentures.
These guidelines had been subsequently amended by a Press Release dated 8th March, 1985 and these were released on 19th Au gust, 1985 for issue of convertible cumulative preference shares and also there are guidelines issued by Press Release dated 1st August, 1985 for employees stock option scheme.
In accordance with .these guidelines, according to the deponent on behalf of the CCI, the consent of the CCI for capital issue for secured fully convertible debentures was issued as the projects originally to be established in RIL were per mitted by the Department of Company Affairs to be trans ferred to RPL and endorsements thereof from RIL to RPL had already been filed including, inter alia, for endorsement of the letter of intent for the MEG Project.
The scheme: of finance for setting up of three projects namely PVC, HDPE and MEG had already been approved by the Department of Economic Affairs in favour of RIL.
In that context, in our opinion, to contend that there was violation of the guide lines because the RPL 's project was not a new project was too narrow and legalistic view.
Shri Ganesh tried to urge that the CCI ought to have been aware of the fact that he had sanctioned a capital issue of Rs.400 crores (subsequent ly enhanced to Rs.500 crores) to RIL for the same project and that the said issue had been implemented and capital of Rs.500 crores had been mopped up from the public by RIL.
The CCI ought to have withheld permission for a fresh capital issue in the name of RPL for the very same project.
However, the CC1 did not appear to have applied his mind, according to Shri Ganesh.
Consent Order, therefore, according to Shri Ganesh, was bad.
We are, however, unable to accept this submission.
The CCI was not performing the role of a social mentor taking into account the purpose of RIL.
If RlL has misutilised any of its funds or the funds had not been utilised for G series, then RIL would be responsible to its shareholders or to authorities in accordance with the rele vant provisions of the .
This aspect does not enter into sanctioning the capital issue for the new project in accordance with the guidelines enumerated herein before.
That apart, even if RIL and RPL have to be treated as one for this purpose and the grant of consent for earlier debenture issues in favour of RIL are to be taken into account in judging the necessity of the issues, there is no illegality or irregularity in the impugned grant of consent to RPL.
As referred to elsewhere, RIL had not been able to utilise any part of the 'G ' series of debentures on the MEG project as there had been a cost overrun in 102 the PTA & LAB projects.
Eventually, for reasons adverted to earlier, it was decided to have the MEG, PVC and HDPE projects undertaken by floating RPL, a wholly owned subsidi ary.
In the result, even if we look at the projects not as new ones but only as those of the RIL to be implemented by RPL, the additional finances were needed for the extention, expansion and diversification of the projects originally envisaged.
This is one of the objects for which a debenture issue is permissible under the guidelines.
Shri Ganesh then submitted that Guideline No. 3 for the Issue of Debentures by Public Limited Companies laid down that the CCI would consider an application for capital issue only after the approval of the financial institutions, banks and Government are received.
The statutory application form prescribed by the Capital Issues (Application for Consent) Rules, 1966 requires, according to Shri Ganesh, that the consent and clearances of the various authorities and insti tutions should be annexed to the application.
Shri Ganesh submitted that in the present case, many of the relevant applications had not even been filed by RIL and RPL as on 4th July, 1988 when the CCI passed the Consent Order.
It was submitted by Shri Ganesh, also by Shri Haksar and especially by Shri Pagaria, that RPL 's application had been processed in unseemly haste and without due and proper application of mind.
It is true that things moved speedily in the case.
This has caused us certain amount of anxiety.
Speed is good; haste is bad, and it is always desirable to bear in mind that one should hasten slowly.
However, whether in a particular case, there was haste or speed depends upon the objective situation or on overall appraisement of the situa tion.
Here, as discussed earlier, the material shows that the details of the proposals have been examined and dis cussed and that an examination of the merits has not been a casualty due to the speed with which the application was processed; and especially in view of the fact that no injury has been caused to the investors and no substantial loss to their securities have been occasioned, we are of the opinion that much cannot be made of this criticism.
Learned Addi tional Solicitor General placed before us other instances where applications had been sanctioned within shorter times.
Shri Ganesh tried to urge that RIL had declared itself as a promoter of RPL and the prospectus stated that no benefit was being provided to RIL as promotor.
But, the entire amount spent by RIL was being reimbursed to it by RPL.
In these circumstances, RIL could not be treated dif ferently from the general public in the matter of 103 allotments of the shares of RPL.
However, the scheme of allotment was such that gross discrimination resulted against the general investing public and in favour of RIL.
The long term implications, it was urged by Shri Ganesh, of the said discrimination were highly anomalous and unjust for the investing public who had subscribed to the debentures of RPL.
However, there had been no application of mind by the CCI, according to Shri Ganesh, to the matter of quantifica tion of the extent of benefits conferred on RIL and consid eration of whether the same are justified or not.
The CCI, however, had merely mentioned in his affidavit that RIL was a promotor and had given an interest free advance of Rs.50 crores to RPL for a period of three years.
In our opinion, these factors were sufficient to justify the treatment of RIL differently from other investing public and thus the treatment does not amount to any discriminatory benefit to RIL in respect of the debentures of RPL.
As a matter of fact, this was a known fact and the shareholders or the subscribing debenture holders would be aware of the same.
Shri Ganesh sought to urge that the CCI had not made any attempt to appreciate or quantify the extent of the said benefits and advantages and go into the question whether the same are fair, reasonable and just.
Consequently, for this reason also, there had not been, according to Shri Ganesh, due application of mind by the CCI before the Consent Order was issued.
We are unable to accept this criticism.
The discrimination alleged is on two grounds.
The first is that RIL is entitled straightaway to the allotment of shares of the face value of Rs.57.50 crores whereas only 5% of the investment by the debenture holders can be converted into shares at par simultaneously with the issue.
The second is that a loan of Rs.50 crores advanced by RIL to RPL will be converted into shares at par at the end of 3 years where as the debenture~holders will have to pay a premium even for converting 20% of their debentures into shares by that time.
These allegations do not bear scrutiny.
So far as the first ground is concerned, there is no justification for a com parison between these two categories of investors.
RIL is the promoter company which has conceived the projects, got them sanctioned, invested huge amounts of time and money and transferred the projects for implementation to RPL.
It is, therefore, in a class by itself and there is nothing wrong if it is allotted certain shares in the company, quite independently of the debenture issue, in lieu of its invest ments.
So far as the second ground is concerned, it over looks certain disadvantages attached to RIL in regard to the loan of Rs.50 crores advanced by RIL as compared with the investor in the debentures.
Firstly, RIL 's advance is inter est free 104 for 3 years whereas the debenture holders get interest at the rate of 12.5% during the period.
Secondly, the debenture loan is secured while the RIL 's are not.
Thus the debenture holders have certain benefits which RIL does not have and, if the debenture holders have the disadvantage of having to pay a premium, that cannot constitute basis for a ground of discrimination.
These considerations apart, we would like to observe that we are unable to appreciate how any question of dis crimination is at all relevant in the present context.
It is a company not the State or a State instrumentality that is issuing the shares and debentures.
It is entirely for the company to issue the shares and debentures on such terms as they may consider practicable from their point of view.
There is no reason why they should not so structure the issue that it confers certain greater advantages and bene fits on the existing shareholders or promoters than on the new subscribers to the debentures.
We do not think that it is permissible for the CCI to withhold consent only for this reason or to stipulate that consent can be given only if the shareholders and promoters as well as prospective debenture holders are all treated alike.
The subscribers to the deben tures are only lenders to the company who have an option to convert their debt into equity on certain terms.
It is perfectly open to the subscribers to balance the pros and cons of the issue anti to desist from taking the debentures if they feel that the dice are loaded unfavourably in favour of the "proprietors" of the company.
Shri Pagaria, who appeared in T.C. No. 162/88 in the matter of Shri Radheyshyam Goyal vs Union of India & Ors., where the petitioner was a Chartered Accountant, prefaced his submission by submitting that ours is a sovereign, social ist, secular democratic republic governed by the Constitu tion of India.
Shri Pagaria drew our attention to Article 19(1)(g) of the Constitution.
He submitted that the is a pre constitutional law and the Act was enacted as being expedient to provide for con trol of issue of capital.
Under Article 14 read with Article 38, it was obligatory to ensure that there was no dispropor tionate wealth.
He drew our attention to MRTP Act and other Acts and also to a large number of decisions to highlight that the directive principles should be imported for ensur ing that the CCI performs his functions for the welfare of the community and to bring about an egalitarian society.
That was his first submission and he further submitted that the petitioner was really in a position to come under the Public Interest Litigation propounding the cause of the public.
Secondly, he submitted that the concept of com 105 pany being the property of the Board of Directors had under gone a radical change.
He submitted that company in a new socio economic set up is a social institution having duties and responsibilities towards community for which it func tions.
According to him, maximisation of social welfare should be the legitimate goal of the companies and the shareholders.
He, therefore, stated that the CCI should take upon himself a social role and ensure that Capital issues are satisfactorily implemented.
One may perhaps concede that, with the vast expansion in recent years of the corporate sector and its constant tend ency to have recourse to public funds for securing finances for its projects (either by way of share capital or borrowed capital), the scope of the responsibilities of the CCI can no longer be as limited as before.
It may no longer be restricted merely to the task of preventing an imbalance of investment in various sectors or the diversion of investment to non essential projects.
The petitioners may perhaps have a point in suggesting that the CCI should be burdened with a duty also to safeguard the interests of the public who are invited to participate in such financing on large scale and at least to satisfy himself that the project for which funds are needed is not in the nature of a "South sea bubble" and that the volume, terms and conditions of the issue proposed by the company are not such as to constitute a fraud on the public.
But we think that the time is not yet ripe for placing on the office of the CCI, as at present constituted, more than a skelital outline of responsibility in this direction; his shoulders are, as yet, not strong enough to bear such burden.
He does not have the time, the staff, the powers of enquiry, the benefit of public hearing, the requi site background, or the economic commercial or financial skill or expertise to so assess the technical, commercial and financial aspects of the projects as to be able to give the public investor a guarantee that he is not being led up the garden path.
All that one can say at present is that th parameters of his action have to be found within the four corners of the Act and the guidelines.
May be, he can legit imately withhold his consent to a project that is ex facie impracticable (for instance, as was put to the parties in the course of hearing, a project to convert base metal into gold) or a project, which in the present state of finances and scientific knowledge and progress of our country, is an impossibility (for example, to have a transport service to the moon).
May be, he also can in a proper case, refuse his consent to a scheme of finance if, ex facie, and without any detailed investigation, he is satisfied, that it is too big for the applicant company to handle, or too risky and oner ous to be permitted in public interest.
But this is a deci sion which he will have to 106 venture upon, on his own responsibility, in patent cases where the nature of the project or the scheme of financing is, on its face, startlingly non feasible, impracticable or risky.
He cannot, however, be compelled to withhold consent.
or found fault with for having granted consent, in a case such as this, where the proposed project is in a core indus trial sector.
where there is considerable scope for foreign currency savings and the scheme of financing proposed has been developed in consultation with and scrutinised and approved by a leading public sector financial institution (which has also agreed to be the trustee for the Debenture holders).
It is too much to suggest that the CCI should be held to have failed in his duty by accepting the opinion of such institutions and not investigating for himself from various angles and in particular, the adequacy of the secu rity offered to the debentureholders under the scheme.
While we do appreciate that in the changed atmosphere, the corporate sector, when seeking to attract public moneys while raising new capital must perform both responsible and responsive roles, it is difficult to enjoin that the CCI while considering the question of consent/sanction of the capital issues can fulfil any role beyond the policies prescribed under which, as noticed before, it was enjoined to function.
There are other various Acts like the Income Tax Act, , MRTP Act to subserve other social objectives which are conducive or ancillary to the directive principles.
Nelson, it is reported to have said before the battle of Waterloo.
that England expected every man to do his duty.
It is well to remember that every authority in a vast developmental society must perform his role keeping in view the part he is expected to play in the background of the whole perspective anti should not encroah upon others taking the onus upon himself to do everything.
That would lead to chaos and confusion.
Shri Pagaria drew our attention to Section 237 of the .
If there was any violation of some of the rights of the parties, they are at liberty to proceed in accordance with law.
It was contended that it was an admit ted position that RPL is a newly established company though initially financed by RIL.
No ceiling had been put on the allotment of the shares to the business associates of Direc tors whereas at item 5 page 2 of the Consent Order dated 4th July, 1988, the limit of the shares for the employees of the RPL had been reduced from 200 to only 50, thereby, according to Shri Pagaria, depriving the employees having large share holding in the company which discriminated them vis a vis the business associates, for whom no such ceiling had been kept.
107 We find the factual position to be this.
The application for consent to the issue had not specifically earmarked any portion of the issue to the employees of RPL and RIL.
In the course of the discussion with the CCI, it was suggested that 12,90,000 debentures should be offered by way of preferen tial allotment to the employees of the RIL and RPL.
Para 5 of the consent order by the CCl conveyed the approval by the Central Government under proviso to rule 19(2)(6) of the Securities Contracts (Regulation) Rules, 1957 "subject to the condition that the allotment to the employees shall not exceed 200 shares per individual".
The Company by its letter of 7th July pointed out that "shares" in the above para was a mistake for "debentures" and also suggested that a maximum of 200 debentures which on first conversion would become 200 shares be allotted to each of the employees of RPL as well as RIL.
The CCI, however, modified Para 5 by his letter of the 19th July, 1988 to say that allotment to the employ ees shall not exceed 50 debentures per individual.
In this context, it does not appear that the restriction of the allotment to the employees was at the instance of the compa ny nor does it seem that any discrimination was intended in respect of the allotments to the employees.
Nor has our attention been invited to any legal requirement or guide lines prescribing any fixed or minimum quota of allotment to the employees of the company.
We are, therefore, unable to see any discrimination.
In any case, the petitioner in this case has no cause for grievance on that score.
It was submitted that the Consent Order suffered from arbitrariness, mala fides, unprecedented hurry and with extraneous considerations.
We are unable to see any such discrimination.
It was submitted that the Consent Order had been passed without, satisfying that the pre requisite condition of the various clearances and no objection certif icates and licences under MRTP Act, FERA Act and Petroleum Act and the Essential Commodities Act, Securities Contract (Regulation) Act, , and other allied laws had been fulfilled.
The CCI has given consent for 12.5% secured redeemable convertible debentures of Rs.200 each for cash at par to the public.
This nomenclautre has not been changed, but in the prospectus, fully convertible debentures have been shown.
According to Shri Pagaria, the most important is the concentration of wealth in the hands of Ambani family and this aspect has not been considered in granting the consent, which according to him, resulted in violation of Article 39(b) & (c) of the Constitution of India and section 22(3) of the MRTP Act.
It was submitted that the consent could not be given in favour of any applicant or company, who had no valid industrial licence nor it pos 108 sessed the letter of intent under the provisions of Indus tries (Development and Regulation) Act, 1951.
It was submit ted that the CCI did not give judicial consideration to the application as in this connection reliance was placed on the decision of the Gujarat High Court in Navjivan Mills Co. Ltd. Kalol, vs In re.
Kohinoor Mills Co. Ltd. Bombay, [1972] 42 Co. Cases 265.
Some passages of Halsbury 's Statutes of England, 4th edn., vol. 8, were referred.
It was submitted that the Directors who had received money without disclosing full facts were bound to refund the same and were construc tive trustees of the company.
This proposition, in our opinion, is irrelevant in the present context.
Shri Pagaria sought to urge that RIL management had passed an ultra vires resolution in transferring the industrial licence and letter of intent to RPL and for that act, the office bearers were personally liable and he referred to certain decisions.
Shri Pagaria also submitted that by advertisement on Television, radio and print media under the caption "Your Family Khaza na", without first creating a solid and viable security for the fully paid convertible debentures under the impugned invalid consent order, the application money had been raised to the tune of more than Rs. 1,200 crores.
According to him, the advertisement given was not only violative of section 58A of the but also contrary to provisions of Security Contract (Regulation) Act, 1956 and Rules made thereunder.
Shri Pagaria then submitted that in view of what he described as improper or insufficient security, no con sent could have been granted and even if the issue was over subscribed, the money was repayable to the persons who had subscribed to the issue on the basis of the promises and they were entitled not only to the refund of the money but to all benefits by way of interest, etc.
He drew our atten tion to certain decisions, which in our opinion, are irrele vant.
He submitted that the people have a right to know and this right had been violated by not telling the people the full facts.
It was submitted that RPL did not place any material before the Central Government to justify the con sent.
We are unable to accept this submission.
It was next submitted that the guidelines were mandatory.
It was next contended by Shri Pagaria that there was nondisclosure of true and correct facts not only in respect of the interest of Directors of RIL in the RPL properties but also the security and with regard to the approval of the financial scheme under MRTP Act, the licence under the Petroleum Act, Explosive Act, etc., Shri Pagaria has referred to the re quirements under a large number of enactments and contended that, until requisite consents, approvals, licences etc.
are obtained under the said enactments, the Company cannot be permitted to raise public finances for the projects on hand.
In this context, he referred, in addition to the provisions of the , the 109 MRTP Act, CCI Act, rules and guidelines, and the Industries (Development & Regulation) Act which have been considered by us, to certain provisions of the (and rules and orders made thereunder); Explosives Act (and rules made thereunder); Essential Commodities Act, Atomic Energy Act; Insecticide Act; Air (Prevention and Control of) Pollu tion Act, 1981; Indian Standards Institution Certification (Marks) Act, 1952 (and rules and regulations thereunder); Foreign Exchange Regulation Act, 1973; ; Securities Regulation Act and .
We have gone through these provisions.
They relate to var ious types of controls and regulations which have to be observed in the actual running of various types of business.
We are satisfied that neither these statutes nor those regulating the grant of consent to the issue of shares and debentures intend that clearances thereunder should all be obtained before filing an application for consent.
In our considered view, such requirement is neither practical nor feasible and is not envisaged by the statutes referred to.
Some of the contentions of Sri Pagaria alleging misleading statements made by the Company to attract investments, such as the one based on the and the de scription of the issue as the "Family Khazana", are far fetched and unrealistic besides being irrelevant to the issue to be considered at the stage of consent for the issue by the CCI.
Sri Pagaria then submitted that the grant of consent was without lawful authority and on extraneous considerations.
He referred to certain decisions in support of that broad proposition.
If the basis of his submission was correct, undoubtedly, the consent was bad but we do not find any merit in the submission.
The next submission by Shri Pagaria was that the issue had been made public subject to the injunctive relief granted by this Court on 19th August, 1988 without entering into the merits of the case and it was submitted that RPL did not possess any industrial licence or letter of indent and whatever licence it had, had expired.
This position is not factually correct as noted before.
It was submitted that there had been violation of several laws.
No particular violation had been indicated.
Furthermore, it was submitted that the Industries (Development & Regulation) Act, 1951, , , MRTP Act, 1969, FERA, 1973 have to be read in conjunction and as such the corporate sector should not be permitted to accumulate wealth on account of favour from the Government.
The factual position being as indicated before, it is not possible to entertain these bald submissions.
On behalf of the CCI, it was submitted that the contention that 110 the CCI had not followed his own guidelines relating to the sanction of the issue is misconceived.
It was further sub mitted that the security for debentures had been properly there.
It was submitted that the following facts would establish that there had been no breach of duty or obliga tion cast on the CCI either under the Act or under the Guidelines or under Capital Issues (Application for Consent) Rules.
The relevant guidelines for consideration of this question are as follows: (a) Guidelines for Issue of Debentures by Public Limited Companies Press Release 1984.
DEBT EQUITY RATIO: The debt equity ratio shall not normally exceed 2:1.
For this purpose 'debt ' will mean all term loans, debentures and bonds with an initial maturity period of five years or more including interest accrued thereon.
It also includes all deferred payment liabilities but it does not include short term bank borrowings and advances, unsecured deposit or loans for the public, share holders and employees, and unsecured loans or deposits from others. 'Equity ' would mean paid up share capital including preference capital and free reserves.
Guideline No. 11 is also instructive.
The Press Release also was referred to.
The trustees to the debenture holders were enjoined to supervise the implementation of the condi tions regarding creation of the security of the debentures.
It was, therefore, submitted that the trustees of the debenture issue who were to supervise the implementation of the conditions regarding the creation of security, were vested with the requisite powers for protecting the interest of debenture holders.
Before formulating the guidelines for protection of the interest of debenture holders considerable deliberations took place between the concerned departments in the Ministry and between the Public financial institu tions, investment institutions, Department of Banking and CCI and Reserve Bank of India as a large quantum of deben tures were coming to the period of maturity in 1989 onwards and redemption and a need was felt to protect the interest of debenture holders so that no defaults endanger their interests.
Consequently,/he question of debenture redemption reserve and the security creation was examined by the finan cial institutions and the scheme with debenture trustees was formulated with sufficient degree of precision and urgency.
The debenture trustees are normally public financial insti tutions and nationalised banks.
Public 111 financial institutions have the necessary expertise and infrastructure to examine the aspects of security creation and the quality of the security offered for protecting the interest of debenture holders.
The original guidelines of 14th January, 1987 were continuously being monitored by the CCI and on 25th June, 1987, a further clarificatory guide line was published on the concept of security to be offered for the debentures.
In the present case, the application dated 4th May, 1988 as filed by the RPL with the CCI cate gorically mentioned that "the security will be in such form and manner as required by the trustees for debenture hold ers".
These requirements are contained in Part V(E): Partic ulars of Issues Particulars of Preference Shares and Deben tures (e) indicate the security to be offered in the case of debentures.
It is in these circumstances that it was not necessary for the CCI to evaluate the security or the ade quacy thereof at the stage of grant of consent.
The CCI did examine the proposal with reference to the debenture residu al value beyond the fifth year of its allotment and in relation to the asset creation and take on record prior to grant of consent the project estimations and cash flows statements of the ICICI for the years 1989 to 1996 which had looked into the projects and also examined the question of creation of security and asset creation for RPL in relation to the issue for three projects.
It was further submitted that as per this statement, the debt service coverage ratio was 1.89 in 1991 and going upto 2.55 in 1995.
It was there fore inaccurate to say that the CCI had not satisfied him self on the matter of security or had failed to apply his mind to documents before him.
It is further stated on behalf of the CCI that the CCI consented to the proposal of RIL for 'G ' series for projects including PTA, LAB, MEG and HDPE and also for working capital requirement in November, 1986 and not merely for MEG and HDPE as alleged by the petitioner.
During the implementation of projects, there was cost over run for PTA and LAB which was taken due note of by ICICI in December, 1987 and CCI was informed of this cost overrun in 1987 itself by ICICI.
Major part of 'G ' Series was utilised for PTA and LAB, CCI was also aware of this cost overrun through the proposal of the company to MRTP Commission much prior to granting consent to RPL as CCI is represented in the process of approval for MRTP.
CCI 's office was in formed by ICICI of likely deployment of 'G ' Series funds for projects other than MEG and HDPE much prior to the grant of consent to RPL.
It was submitted that RIL had received approval to its modified scheme on 17th May, 1988 for its LAB project and on 13th July, 1988 for its PTA Project.
However, these formal communications were preceded by the awareness of the CCI in regard to cost overruns in PTA and LAB projects and consequently the non implementation of MEG and HDPE.
112 Learned Additional Solicitor General, therefore, submitted that it was incorrect to state that the CCI granted consent for issue of debentures for financing the projects of RPL which were already given financing facilities earlier against the 'G ' Series debentures.
It was submitted that since the projects of MEG and HDPE were not implemented in RIL and were now being implemented in RPL for the first time these were 'new projects ' within the meaning of paragraph 2(a) of the guidelines dated 15th September, 1984.
There fore, it is incorrect to say that more than one capital issue was permitted by the CCI to finance the same project.
It is clear, according to learned Additional Solicitor General, that CCI satisfied himself before granting the consent on 4th July, 1988 to RPL, that the capital raised by RIL was not used for HDPE and MEG and the scheme of finance for the G Series of RIL, as modified, and for the present issue of RPL were different.
It was denied that the CCI ought to have withheld permission for a fresh issue of capital in RPL for HDPE and MEG, especially since these two projects were not permitted.
It was submitted on behalf of the CCI that there was no bar for receiving finance for either a cost overrun, or for an unimplemented portion of a project.
It is a fact that the MEG and HDPE projects had not been implemented in RIL and they were now being implemented only in RPL.
It is further submitted on behalf of the CCI that the public financial institution, namely, ICICI looked into the project and reported to the CCI, in their letter dated 15th June.
1988 that the estimated cost of projects for which the consent was being sought was Rs.650 crores.
The consent order of the CCI clearly indicated that the consent conveyed in the letter shall lapse on the expiry of 12 months from the date thereof.
The consent order further categorically stated that the approval was without prejudice to any other approval/permission that might be required to be obtained under any other Acts and laws in force.
It necessarily therefore followed that the obligation to obtain other permissions continued.
There was no legal condition that other approvals should be examined by the CCI before grant of its own consent.
This was submitted on behalf of the CCI and there is substance in the submission.
In the application form prescribed in Schedule A of the Capital Issues (Applications for Consent) Rules, 1956 other than the Bonus shares, the indications are only directory and not mandatory requirements.
The words used are "normally insist ed".
Therefore, it does not preclude the CCI from granting its consent before the grant of other approvals.
Through a chart, it was highlighted before us that there was no undue haste and it is the normal time taken in respect of others also.
It is further stated that the statutory information clearly indicated that no amount had been paid or given to the companies promoters or 113 officers or offered to them.
The prospectus and the terms and conditions were not approved by the CCI at the time of granting of consent.
No discrimination had been practised against the existing shareholders of RIL, while according consent to RPL.
The proposal of the 8th June, 1988, as submitted by RPL to the CCI, sought approval for equity participation to the extent of Rs.50 crores only.
This Rs.50 crores was by way of unsecured interest free deposit to be converted at the end of the 36 months into equity shares at par.
This substantial addition to the promoter 's contribu tion was to ensure an enhanced participation in the project and to ensure its stake.
The Petrochemical Industry has a long gestation period for yielding high profits.
The con vertible debentures have a fixed return as contrasted to equity participation which might earn a flexible dividend.
In the initial period, no dividend , 'night be earned.
The CCI therefore applied its mind while evaluating this aspect since a sum of Rs.50 crores was to be non interest bearing and unsecured whilst computing the position on the debt equity ratio.
The enhanced contribution sought from the promoter was a condition imposed on them.
The long term implications and the balance capital structure of the compa ny were placed for consideration of the CCI through the cash flow analysis of ICICI and the CCI applied its mind to the scheme of financing and correctly granted the consent order on relevant considerations.
So far as the grievance of alleged discrimination is concerned, it arises from the petitioner 's assumption of the possible capital appreciation of equity shares of RIL at the second conversion which might be at a premium, if any, at the time of such conversion.
It was submitted on behalf of the CCI that CCI had imposed a condition that any conversion would be at a premium, if any, as might be decided by the CCI 's office, at the time of such conversion.
It was further submitted that the computation of premium depends on several factors, such as the net worth of the company, the performance of the company, the profit earning capacity value of the company, etc.
Since RPL was in the Petrochemical sector, which had ordinarily the gestation period, at the time of grant of the consent, it was not possible for the CCI to forecast or estimate the rate of conversion on the second and the third stage and advisedly the CCI reserved to itself the right to determine this premium on factual data available at the time of conversion.
Therefore, this cannot be said to be bad.
The convertible debentures would receive interest @ 12.5% on the sum of Rs.190 (31.5% interest would accrue on this amount).
It was, therefore, not necessary for the CCI to quantify the extent of benefits and advantages before grant of consent and had to enter into computation for evaluating this.
Naturally, the RIL, as a promoter, stood on a different footing and there were rational intelligible critera distinguishing general 114 members of the public from a promoter proposing the capital issue and the establishment of new projects.
It was further relevant to notice, it was submitted, that RPL was a 100 per cent subsidiary company of RIL at the time of its conversion and even presently a proposal for a capital issue would have sought that the entire issue of capital be allotted to itself.
The CCI had the option to grant the consent in terms of the application or to impose such conditions as were necessary for the balanced capital structure of the company.
The consent, it was submitted, could not be evaluated in hindsight, after the issue was closed and subscribed.
It was asserted that today RIL is the third largest industrial house in India.
It was stated that the present portfolio of RIL spreads over 2.5 million sharesholders/debenture holders/deposit holders.
Till date, it has made 7 debentures issues besides making three equity share capital issues (rights) and 2 bonus shares issue.
All the debentures issues were at a premium and over subscribed.
E Series partly convertible debentures of Rs.80 crores were issued in 1984 85.
F series non convertible debentures of Rs.270 crores were issued in 1985 86.
G Series fully con vertible debentures for Rs.500 crores were issued in 1986 87.
According to the respondent, the investment in RIL, during this period has proved to be consistently and remark ably profitable to investors.
The RIL commenced business in the year 1966 for the manufacture of synthetic cloth made from synthetic yarn and fibre.
Their factory was commenced and installed in the vicinity of Ahmedabad at Naroda.
In order to manufacture synthetic fabric, the company was importing polyester filament yarn and polyester staple fibre and re exporting fabrics produced from the same.
It was one of the recognised export houses doing business in textiles.
In the year 1977, Reliance Textile Industries merged with a company, Minylon Ltd. and, after the merger, changed its name back to Reliance Textile Industries Ltd. Its tradition al line of business was manufacturing of synthetic fabrics.
However since 1977, through several capital issues, (both of debentures and of equity) it has diversified and backwardin tegrated.
In the first instance, the company decided to install a plant for the manufacture of polyester staple fibre and polyester staple yarn which item it was previously importing for manufacturing synthetic fabrics.
These plants were established at Patalganga in the State of Maharashtra.
Thereafter, the company decided to further backward inte grate and to manufacture PTA (Purified Teriphthalic Acid) which is one of the raw materials used in the manufacture of polyester filament yarn/polyester staple fibre.
Simultane ously, it also diversified horizontally into the manufacture of Linear Aklyl Benzene (LAB) 115 used in the manufacture of detergents, as this product could also be manufactured from the petrochemical downstream products in which the company was engaged.
RIL 's 3rd stage of backward integration involved, it was asserted, in the manufacture of Mono Ethylene Glycol (MEG), used in the manufacture of polyester staple fibre and pol yester staple yarn.
It also decided to diversify into the manufacture of critically scarce plastic raw materials like High Density ' Polyethylene (HDPE), Poly Vinyl Chloride (PVC) and Mono Ethylene Glycol (MEG) a polyester raw material used in the manufacture of polyester fibre, etc.
The company had also applied for Gas Cracker Project, which is said to have been cleared recently, whereby (natural) gas oil would be cracked to produce ethylene and other petrochemicals.
Thus right from the Naphtha stage to the yarn fibre and fabric stage, the company has attempted the complete range of products necessary for the manufacture of fabrics from the raw material namely, natural gas.
Hazira has been selected with special reference to the availability of natural gas oil from South Sea Basin and it is country 's first ethylene handling port and has economies of transportation and terminal facility at Hazira etc.
It is not necessary to set out however how the company developed in different stages.
The application for consent was filed on 4th May, 1988 as mentioned hereinbefore.
The licence and letter of intent were endorsed in favour of the RIL and the scheme for finance in favour of the RPL.
Both Shri Baig and Shri Salve, appearing for the re spondents 3 and 4, gave us the factual background of the business of the RPL.
It is not necessary to set out these in greater detail than what has been mentioned hereinbefore.
It is further submitted by both that the CCI had examined the nature and quantum of security in cases of the debentures.
It was submitted that the submission of Shri Ganesh that the security was inadequate was wrong.
It was submitted that clauses (5) and (6) of the Prospectus read together indicate how the power has been exercised.
These clauses visualise the creation of a residual or floating charge on all or any of the movable or immovable assets and properties of RPL at Hazira and/or at any other location.
These further postulate future charge, superior in priority, might be created by RPL.
Future charges might be created without the consent or concurrence of the debenture holders.
Nor was their consent required for purposes of dealing with the assets and proper ties of the company.
It was submitted that the following properties are excluded from charge, namely, 116 (a) Residential complex at Hazira or at any other location.
(b) Current assets or Banker 's goods.
(c) Any other property that might be spe cifically excluded by agreement with the trustees.
Future charges might be created on such terms regarding ranking, etc.
as might be agreed to by the trustees.
It was submitted that whereas clause (5) essentially visualised creation of a floating charge in favour of debenture holders without any restrictions or limitation, clause (6) incorpo rated a limitation and a safeguard that controls the normal characteristics of floating charge.
It has to be borne in mind that convertible debenture is a new type of instrument introduced in this case and these appear to have caught the imagination of the investors.
It has been asserted before us that subsequent to RPL issue, others have also gone for this type of project.
Our atten tion was drawn to rule 2(b)(x) of the Companies (Acceptance of deposits) Rules, 1975 which provided clearly that a convertible debenture was not to be included in the defini tion of debenture.
it was further asserted that the security visualised in clauses (5) and (6) of the Prospectus was one which was prevalent and customary in corporate practice and was regarded as valid and adequate.
Nothing contrary to this was indicated before us.
Our attention was drawn to Sec.
2(12) of the under which a debenture need not be secured at all.
In that light the guidelines should be interpreted.
Therefore, it was submitted, Guideline 10, reasonably interpreted, means that such security should be provided as is customari ly adopted in corporate practice in the matter of issuing debentures.
It has to be borne in mind that the debentures issued in the present case are compulsorily convertible.
Therefore, no repayment of principal is really involved.
The question of security becomes relevant for the purpose of payment of interest on these debentures and the payment of principal only in the unlikely, event of winding up.
The debentures need not necessarily be secured.
Guidelines do not provide for quantum and nature of the security.
A debenture has been defined to mean essentially as an acknowledgement of debt, with a commitment to repay the principal with interest (Palmer 's Company Law; p. 672; 24th Edition).
Reference, in this connection, may be made to The British India Steam Navigation Co. vs The Commissioner of Inland Revenue. ; at pages 172 117 and 173.
A debenture may contain charge only on a part of the assets of the company Re. Colonial Trusts Corporation, or it may not contain any charge on any of its assets (See Speyer Brothers vs The Commissioner of Inland Revenue, and Lemon vs Austin Friars Investment Trust Ltd., A debenture may, therefore, be secured or unsecured (Palmer 's Company Law; p. 675; 24th Edition).
An ordinary debenture has to be distin guished from a 'mortgage debenture ' which necessarily creates a mortgage on the assets of a company (See Palmer 's Company Law p, 706).
A compulsorily convertible debenture does not postulate any repayment of the principal.
There fore, it does not constitute a 'debenture ' in its classic sense.
Even a debenture, which is only convertible at option has been regarded a 'hybrid ' debenture by Palmer 's Company Law (Para 44.07 at page 676).
In this connection, reference may be made to the guidelines for the '"Protection of Deben ture Holders" issued on the 14th January, 1987 which have recognised the basic distinction between a convertible and a nonconvertible debenture.
It is apparent that these were issued for the purpose of ensuring the serviceability and repayment of debentures on time.
It has been asserted before us that the compulsorily convertible debentures in corporate practice was adopted in India some time after the year 1984.
Wherever the concept of compulsorily convertible debentures is involved, the guidelines treat these as "equity".
This is clear from Guideline IV(i) read with IV (iii) of the Guide lines for Issue of Cumulative Convertible Preference Shares and Guidelines No. 8 and 11 of the Employees Stock Option Guidelines, These two sets of Guidelines clearly indicate that any instrument which is compulsorily convertible into shares, is regarded as an "equity" and not as a loan or debt.
Even a non convertible debenture need not be always secured.
In fact, modern tendency is to raise loan by unse cured stock, which does not create any charge on the assets of the Company (The Encyclopaedia of Forms and Precedents; 4th Edn.
6 para 17 at pages 1094, 1095 and para 22 at pages 1097 98).
Whenever, however, a security is created, it is invariably in the form of a floating charge (See ' The Encyclopaedia of Forms and Precedents, 4th Edn., Vol.
6 Para 25 at page 1099).
It follows, therefore, that the secured debenture almost invariably contains a floating charge.
In addition to the floating charge, debentures are frequently secured by trust deed also as had happened in the present case where specific property, land, etc. has been mortgaged to trustees.
Shri Ganesh made a submission that under clause (5) of the Prospectus, the company could deal with its assets and properties with 118 out the permission of debenture holders or debenture trus tees and that it could create future charges which would rank superior in priority.
The concept of floating charge was, invented by the Victorian Lawyers only because of its special advantages inasmuch as it leaves a company free to deal with its assets in the ordinary course of business and does not require the permission of debenture holders or debenture trustees for dealing with them or creating further charges.
It has been pointed out that the business of a corporation would be paralysed if it could not deal with its assets and create future charges, ranking superior in prior ity, and if it would have to obtain the permission of the debenture holders for doing so.
(See the discussion in Palmer 's Company Law; page 709 and 682) (See also the obser vations in Re. Florence Land & Public Works Co., ; Re. Colonial Trust Corporation, (supra).
In fact, in Re. Florence Land 's case (supra), the Court observed that if the companies were not allowed to resort to floating charge, they would have to call the meeting of existing charge holders/debenture holders each time they intend to create future charge.
The decision in Re. Panama, New Zea land, and Australian Royal Mail Co., as indicated in Palm er 's Company Law at page 708 is a landmark because it estab lished the validity and the utility of a floating charge.
In the instant case, if the permission of the debenture holders were required or is insisted upon to create future security, 2.5 million debenture holders would have to be informed and invited for meeting.
The extravagant effects of this course would be colossal especially when a shareholders ' meeting is also additionally called for the same body of persons.
It is, therefore, incorrect to say that a floating charge creates an illusory charge because future securities can be created ranking in priority over it.
The legal position is that a floating charge creates a present equitable right in favour of the debenture holders/trustees.
It creates a present charge.in the property/undertaking of a company even before the time of payment of the debenture arrives.
The fact is that a company can deal with its property without the permission of debenture holders/trustees, before crys tallisation by resorting to a floating charge on the under taking (See the observations in this connection in Re. Florence Land 's case (supra); Re. Standard Manufacturing Co., ; Re.
Borax Foster vs Borax Co., and Creatnor Maritime Co. Ltd. vs Irish Marine Management Ltd., This however does not mean that the company can keep on creating future charges with superior ranking without any let or hindrance because the debenture holders/trustees can any time move to crystal lise the floating security if they felt that the security is in jeopardy.
119 In the present case, there is no case to suggest or believe that ICICI (which is one of the most important national Government financial institutions), will not act effectively and promptly to ensure that the security in favour of the debenture holders is not rendered illusory.
Even Guidelines dated 14th January, 1987 has cast the re sponsibility of supervising, creating, monitoring and imple mentation of security in favour of debenture trustees.
The company cannot normally create a general floating charge ranking in priority to or pari passu with a prior floating charge unless the prior floating charge itself permits such a course.
In this connection, reference may be made to the observations in The Encyclopaedia of Forms and Precedents, 4th Edn., Vol.
6 para 27 at pages 1102 1103.
It, therefore, follows that: (i) A debenture is usually secured by floating charge only.
(ii) A company which creates floating charge has a right to create future security which may rank superior in ranking.
(iii) However, this right of the compa ny may be restricted by agreement.
(iv) Where no restriction is provided, any future specific charge will rank superior to the earlier floating charge (Section 123 of the ) (v) Again, where no specific provision is made in the earlier floating charge with respect to the ranking of future floating charge then any future floating charge will be inferior to the earlier floating charge.
In this connection, reference may be made to sec.
48 of the Transfer of Property Act.
The risk of floating charges can be controlled by creating legal mortgage in favour of debenture trustees as has been explained in "All About Debentures" by Sen & Chandrashekhar (pp.
66 67).
In the present case, a legal mortgage has been created by RPL in favour of the trustees in respect of its immovable and movable assets, except book debts, in respect of which financial institutions will hold a first charge on account of foreign loan.
In the present case, RPL does not have any existing loans.
Therefore, the charge in favour of the debenture holders is presently the first charge.
No future borrowing is contemplated at this stage except the foreign currency loan to the 120 extent of Rs. 84 crores.
Therefore, the submission that the security is illusory cannot be accepted and the CCI is right that the apprehension is based on factually unsound and unfounded grounds.
Even if the value of the foreign currency which has been sanctioned in principle by the three finan cial institutions, is taken into account, the assets cover age goes down at each stage and does not make any critical difference to the value of the security of the debenture holders under the Trust Deed.
The purposes of borrowings, namely, term loan borrowings, deferred payment credits/guarantees and borrowing for financing new projects do not, on analysis, raise any difficulty.
There are suffi cient in built checks and controls.
The company, being an MRTP company would have to obtain both MRTP permission for creating any security irrespective of its value and fresh CCI consent under the CCI Act.
except in case of exempted securities.
Therefore, in our opinion, this submission is really in the nature of.
red herring.
It was submitted that we should at least direct that the future security should not rank superior to the floating charge in favour of the existing debentures holders.
Having regard to the factors which the investors should have taken into consideration, we are of the opinion that all relevant factors were borne in mind by the CCI.
There is no substance also in the ground of discrimination.
It is reiterated that Article 14 of the Constitution does not forbid reasonable classification.
RIL is a promoter company.
It had conceived the projects, got them sanctioned and invested huge amounts of time and money in the process.
It was open to RIL to undertake these projects on its own and not to make any public issue at all.
The ground that there was non application of mind be.
cause the CCI did not take into consideration the issue of G Series is also without substance.
Under Guideline 2(a) of the Guidelines of 1984, capital could be raised only for setting up of new project.
MEG, it was submitted, was not a new project for capital had been raised for it by RIL under G Series.
It was further submitted that the Controller did not ask RPL to get the bankers prior clearance certificate under Guideline II(v) of the Guidelines of January 14, 1987.
Finally, the CCI did not take note of the fact that the application under Schedule I of Rule III of the Capital Issues (Application for Consent) Rules did not contain the relevant information.
The position of cost over run has been explained.
So there was no sub stance in the submission that it was not a new project.
Secondly, it cannot be accepted that the CCI did not insist the bankers prior clearance certificate.
These guidelines apply to "non convertible debentures" or "partly convertible debentures".
These do not apply to "compulsorily convertible debentures".
121 Even assuming that these are applied to "compulsorily con vertible debentures", there was no need for the CCI to ask for the bankers prior clearance certificate because RPL was not issuing any new set of debentures.
All requisite infor mation had been furnished.
Shri Ganesh as well as Shri Pagaria tried to submit that in order to protect the investors, a function, which they submitted, the CCI, in changed circumstances, should deter mine whether the project is profitable.
Where a project has been appraised by an institution like ICICI, the Controller can safely assume that it is profitable and he need not engage in separate independent exercise of his own in this regard.
The scope and nature of the Controller 's powers and jurisdiction have to be determined in the light of the specific provisions of the CCI Act, its history, the de bates, to which we have referred, the capital structure of the national economy and its over all direction, in higher priorities, are decided by the Government and the Planning Commission by formulating Five Year Plans.
However, the capital structure and the direction of a particular industry is decided in terms of the provisions of IDR Act.
That a particular industrial house may become a monopoly or other wise have a restrictive and detrimental effect on the econo my of the country, is the concern of MRTP Act.
Therefore, the scope of the CCI under the Act is of a limited nature and must be kept in its proper perspective.
It is true that he cannot, as was contended on behalf of the petitioner, be oblivious of the fact that small scale investors are coming into operation and there is a social obligation of the State to provide safe guidelines.
Yet, each authority must circum scribe its.
work in the proper light.
Unless, therefore, CCI acts perversely, irrationally or with procedural improprie ty, his decisions cannot and should not be faulted on the ground that other consequences might follow.
Of course, no other consequences have been indicated before us.
As a matter of fact, there was no allegation that the CCI acted mala fide or on extraneous considerations.
The CCI applied its mind to the facts of this case and the factors in general.
There was no undue haste.
A statement was pro duced indicating that the application for grant of consent had been disposed after some time, but within the time frame in which such applications are normally disposed of.
It may, however, be stated that being not statutory in character, these guidelines are not enforceable.
See the observations of this Court in Fernandez vs State of Mysore, ; Also see R. Abdullah Rowther vs State Transport, etc., AIR 1959 SC 896; Dy.
122 Asst.
Iron & Steel Controller vs Manekchand Proprietor, ; ; Andhra Industrial Work vs CCI & E, ; ; K.M. Shanmugham vs S.R.V.S. Pvt. Ltd., ; A policy is not law.
A statement of policy is not a prescription of binding criterion.
In this connection, reference may be made to the observations of Sagnata invest ments Ltd. vs Norwich Corpn., and p. 626.
Also the observations in British Oxygen Co. vs Board of Trade, 10.
See also Foulkes ' Administrative Law, 6th Ed.
at page 18 1 184.
In exhibit P. Khan, [1981] 1 All E.R. page 40, the court held that a circular or self made rule can become enforceable on the application of persons if it was shown that it had created legitimate expectation in their minds that the authority would abide by such a policy/guideline.
However, the doctrine of legitimate expec tation applies only when a person had been given reason to believe that the State will abide by the certain policy or guideline on the basis of which such applicant might have been led to take certain actions.
This doctrine is akin to the doctrine of promissory estoppel.
See also the observa tions of Lord Wilberforce in IRC vs National Federation, ; However, it has to be borne in mind that the guidelines on which the petitioners have relied are not statutory in character.
These guidelines are not judicially enforceable.
The competent authority might depart from these guidelines where the proper exercise of his discretion so warrants.
In the present case, the statute provided that rules can be made by the Central Government only.
Further more, according to Section 6(2) of the Act, the competent authority has the power and jurisdiction to condone any deviation from even the statutory requirements prescribed under Sections 3 and 4 of the Act.
In Regina vs Preston Supplementary, [1975] 1 WLR p. 624 at p. 631, it had been held that the Act should be administered with as little technicality as possible.
Judicial review of these matters, though can always be made where there was arbitrariness and mala fide and where the purpose of an authority in exercis ing its statutory power and that of legislature in confer ring the powers are demonstrably at variance, should be exercised cautiously and soberly.
We would also like to refer to one more aspect of the enforceability of the guidelines by persons in the position of the petitioners in these cases.
Guidelines are issued by Governments and statutory authorities in various types of situations.
Where such guidelines are intended to clarify or implement the conditions and requirements precedent to the exercise of certain rights conferred in favour of citizens or persons and a deviation therefrom directly affects the rights so vested the persons whose rights are affected have a clear right to 123 approach the court for relief.
Sometimes guidelines control the choice of persons competing with one another for the grant of benefits largesses or favours and, if the guide lines are departed from without rhyme or reason, an arbi trary discrimination may result which may call for judicial review.
In some other instances (as in the Ramanna Shetty, case), the guidelines may prescribe certain standards or norms for the grant of certain benefits and a relaxation of, or departure from, the norms may affect persons, not direct ly but indirectly, in the sense that though they did not seek the benefit or privilege as they were not eligible for it on the basis of the announced norms, they might also have entered the fray had the relaxed guidelines been made known.
In other words, they would have been potential competitors in case any relaxation or departure were to be made.
In a case of the present type, however, the guidelines operate in a totally different field.
The guidelines do not affect or regulate the right of any person other than the company applying for consent.
The manner of application of these guidelines, whether strict or lax, does not either directly or indirectly, affect the rights or potential rights of any others or deprive them, directly or indirectly, of any advantages or benefits to which they were or would have been entitled.
In this context, there is only a very limited scope for judicial review on the ground that the guidelines have not been followed or have been deviated from.
Any member of the public can perhaps claim that such of the guidelines as impose controls intended to safeguard the interests of members of the public investing in such public issues should be strictly enforced and not departed from departure therefrom will take away the protection provided to them.
The scope for such challenge will necessarily be very narrow and restricted and will depend to a considerable extent on the nature and extent of the deviation.
For in stance, if debentures were issued which provide no security at all or if the debt equity ratio is 6000:1 (as alleged) as against the permissible 2:1 (or thereabouts) a Court may be persuaded to interfere.
A Court, however, would be reluctant to interfere simply because one or more of the guidelines have not been adhered to even where there are substantial deviations, unless such deviations are, by nature and extent such as to prejudice the interests of the public which it is their avowed object to protect.
Per contra, the Court would be inclined to perhaps overlook or ignore such deviations, if the object of the statute or public interest warrant, justify or necessitate such deviations in a particular case.
This is because guidelines, by their very nature, do not fall into the category of legislation, direct, subordinate or ancillary.
They have only an advisory role .to play and non adherence to or deviation from them is necessarily and implicitly permissible if the circumstances of any particu lar fact or law 124 situation warrants the same.
Judicial control takes over only where the deviation either involves arbitrariness or discrimination or is so fundamental as to undermine a basic public purpose which the guidelines and the statute under which they are issued are intended to achieve.
But in the instant case, in the view we have taken, it ' is not necessary to base our decision on this aspect.
We find that the CCI has, in fact, acted in substantial compli ance with the principles of these guidelines.
He has acted objectively and bona fide.
He has not acted in undue haste.
No substantial prejudice or injury to the petitioners have been demonstrated.
In the aforesaid view of the matter, we are, therefore, unable to interfere.
In this connection, furthermore, a common sense view has to be adopted See the observations in Council of Civil Service Unions & Others vs Minister for the Civil Service, [1985] AC at 407.
Public interest in this case does not require that we should inter fere.
In this case, there is no illegality in the decision of the Controller of Capital Issues.
He has not exercised a power which he does not possess.
There is also no irration ality.
He has not acted in any manner that no reasonable authority would have acted in the decision.
There is no procedural impropriety in his decision.
He has not failed in his duty to act fairly insofar as fairness was warranted by the justice of the situation.
In the aforesaid view of the matter, we are of the opinion that there was no substance in the writ petitions and also in the civil suits covered by these transfer appli cations.
The main question, as mentioned hereinbefore, canvassed in these transfer petitions is whether the CCI has acted in the manner he should act in the present atmosphere of socio economic development in view of our constitutional commitments.
The purpose of the Act must be found from the language used.
The scheme and the language used, strictly speaking, do not indicate any positive role for the CCI in discharging his functions in respect of grant of sanction.
But it has to be borne in mind that he is a part of a State instrumentalities committed to the endeavours of the consti tutional aspiration to secure justice, inter alia, social and economic, and also under Article 39(b) & (c) of the Constitution to ensure that the ownership and control of the material resources of the community are so distributed as to best subserve the common good and that the operation of the economic system does not result in concentration of wealth and means of production to the common detriment.
Yet, every instrumentality and functionary of the State must fulfil its own role and should not trespass or encroach/ 125 entrench upon the field ' of others.
Progress is ensured and development helped if each performs his role in the common endeavour.
In that light it is true that as was contended by learned counsel appearing 'on behalf of the petitioners that in the changed socioeconomic conditions of the country one who is charged to ensure capital investment has to perform the social role in capital formation and to protect the interest of the capital market, and to oversee the growth of industrialisation and investment in such a manner as to ensure employment and demand in the national economy to prevent wasteful investment and to promote sound methods of corporate finance.
The guidelines are only a guide and nothing more.
The application of mind by the CCI before sanction must be in the perspective for which he is enjoined by the Act.
He must endeavour to secure a balanced invest ment of the country 's resources in industry, agriculture and social services.
The Controller should perform the role of social control and fulfil the social purpose in conjunction with other authorities and functionaries.
It is necessary for him in discharge of his functions to ensure that there is not too much concentration of particular industries in particular areas, and that there is a scientific development and proper investment in key and core projects.
The present petitions have perhaps brought to the fore for the first time a public interest aspect of the issue of shares and debentures.
In the past decades, investors in shares and equities constituted a very limited section of the public and consisted of two extreme types either persons who could shrewdly appraise the merits of each issue and take a considered decision or persons who just wanted to invest and get a return for their moneys but were indiffer ent to the terms and conditions of such investment.
The position has changed in recent years.
There has been a vast increase in the number of members of the public who have surplus money to invest; the size of the issues has assumed macro proportions; and the types of instruments are also becoming more and more sophisticated.
Entrepreneurs, with legal and expert assistance at their command, could easily trap unwary investors and the development of a public inter est lobby that can scrutinise issues carefully and advise prospective investors on their comparative merits and demer its may not be entirely undesirable.
It is also perhaps necessary that the CCI, in considering the grant of consent to such issues, should have these aspects brought to his notice.
We think that it may be too cumbersome to have a provision that the details of every proposed application for consent should be publicised to the maximum extent by the CCI, that objections and comments from the public 126 should be called for, that there should be a public hearing before the CCI before grant of consent and that the CCI should pass a reasoned order granting or withholding con sent.
That would also delay the whole process of approvals which should be as expeditious as possible.
But we have no hesitation in saying that some procedure has to be evolved to ensure that the CCI gets the benefit of the comments, suggestions and objections from the public before arriving at his decision whether to grant consent or not and, if so, on what terms and conditions.
Perhaps, evolution of certain rules in this respect could be examined at this juncture of industrial growth in our country.
But having regard to the facts and the circumstances of the case in view of the various facts mentioned hereinbefore, we are of the opinion that there was no undue haste.
There was proper application of mind that the sanction was for a new project.
Sufficient security for the debentures as was enjoined to be ensured before sanction has been ensured in the facts and the cir cumstances of this case and guidance provided by means of guidelines has been substantially complied with.
There has been no infraction as such of the norms required to be followed in granting the sanction.
The challenge to the sanction, therefore, must fail.
Before we conclude, we must note that good deal of argument was adduced that these applications in different High Courts in civil suits were not genuine and properly motivated, but were mala fide.
Even though these might not have been to feed fat an innocent object, it was apparent that it was to feed fat a grudge in respect of a competitive project by a competitor.
Anyway, in the view we have taken, it is not necessary to decide the bona fides or mala fides of the applicants.
Shri Nariman, when he moved the applica tion initially, had suggested that we should lay down cer tain norms as to how the courts in different parts of the country should grant injunction or entertain applications affecting an all India issue or having remifications all over the country.
Except that before the courts grant any injunction, they should have regard to the principles of comity of courts in a federal structure and have regard to self restraint and circumspection, we do not at this stage lay down any more definite norms.
We may also perhaps add that it may be impossible to lay down hard and fast rules of general application because of the diverse situations which give rise to problems of this nature.
Each case has its own special facts and complications and it will be a disadvan tage, rather than an advantage, to attempt and apply any stereo typed formula to all cases.
Perhaps in this sphere, the High Courts themselves might be able to introduce a certain amount of discipline having regard to the principles of comity of courts 127 administering the same general laws applicable all over the country in respect of granting interim orders which will have repercussion or effect beyond the jurisdiction of the particular courts.
Such an exercise will be useful contribu tion in evolving good conventions in the federal judicial system.
On the 9th September, 1988, when we transferred these matters, we directed respondent No. 3 to deposit a sum of Rs. 1 lac to be held if the petitioners were made to spend unduly.
Having considered the facts and circumstances of the case, we do not think that we would be justified in ordering disbursement of this sum to the petitioners whose cases have been transferred or the plaintiffs whose cases have been transferred.
The sum should, therefore, be refunded to the respondent No. 3.
All the writ petitions and the suit fail, and are dis missed.
In the facts and the circumstances of the case, there will be no order as to costs.
G.N. Petitions dismissed.
| IN-Abs | Reliance Industries Ltd. (RIL) and Reliance Petrochemi cals Industries Ltd. (RPL) are inter connected and repre sented Companies in the large industrial house known as Reliance Group.
RIL had promoted RPL.
RPL was incorporated on 11.1.1988 and has been a cent percent subsidiary of RIL.
It was claimed that RPL would set up the largest petrochemi cal complex in India with foreign collaboration.
RPL pro posed to issue convertible debentures for raising capital for the project.
The Controller of Capital Issues (CCI), who functions under the had, on 15th September, 1984 by way of press release issued certain non statutory guidelines for approval of issue of secured con vertible and non convertible debentures.
These guidelines were subsequently amended on 8.3.1985.
Guidelines were also given by the CCI for issue of convertible cumulative prefer ence shares, and for employees stock option scheme.
RPL had, on 4.5.1988, made an application to CCI for issue of debentures of the face value of Rs.200 crores fully convertible into equity shares on the following terms: A sum of Rs. 10 being 5% of the face value of each deben tures by 44 way of first conversion immediately into one equity share at par on allotment; (ii) A sum of Rs.40 being the 20% of the face value of each debenture by way of second conversion after three years but before four years from the date of allotment at a premi um to be fixed by the Controller of Capital Issues; (iii) The balance of Rs. 150 representing 75% of the face value of each debenture as third conversion after five years but not later than seven years from the date of allot ment at a premium to be fixed by the Controller of Capital Issues.
The CCI accorded his sanction for the issue of deben tures on 4.7.1988.
However, the sanction was amended on 19th July, 1988.
The amendment put a non transferability condi tion on the preferential share holders of RPL.
It was limit ed to the corporate shareholders of RIL and relaxed for individual share holders of RIL.
The amendment also stipu lated that the Company should obtain prior approval of the Reserve Bank of India, Exchange Control Department, for the allotment of debentures to the non residents as required under the Foreign Exchange Regulation Act, 1973.
On 26th July 1988, there was another amendment which restricted the transfer of shares allotted to the employees of RPL and RIL.
The consent orders issued by the CCI were challenged in various High Courts, by way of writ petitions and a suit.
Some High Courts issued injunctions restraining the issue of the debentures.
This Court, on 19th August, 1988, restrained the afore said issuance of injunctions by the High Courts, and issued directions for the issue of debentures.
The cases pending in various High Courts were transferred to this Court.
In these transferred cases the consent orders of the CCI were challenged mainly on the grounds that: Despite the fact that RPL did not fulfil the require ments of a proper application and the necessary consent and approval, RPL 's application was.
entertained and processed by the CCI with undue expedition and without application of mind; The guidelines issued by the CCI himself were deviated from; 45 The CCI had processed the application of RPL in a hurry, within two months; The CCI did not take into account the fact that RIL had earlier issued debentures for manufacture of identical products; The CCI failed to note that RPL did not have the neces sary licences, consents and approvals, from the relevant departments of the Government of India; The CCI failed to consider the financial soundness and feasibility of the project of RPL; The CCI did not take adequate care to examine the terms of the issue and had blindly accepted the terms as proposed by RPL; RPL in its brochures has misled the public by describing the debentures as fully secured convertible debentures; The security for the debentures was inadequate; RPL has been permitted to create securities which would have priority over the securities available to the present debenture holders and without their consent; RPL has misled the public in that in its prospectus it had stated that security would be provided to the satisfac tion of the trustees; The CCI had failed to examine whether RIL had misused the funds raised on its debentures; There has been a discrimination in favour of RIL in that RIL would be entitled to allotment of shares of the face value of Rs.57.50 crores, whereas only 5% of the investment of the debenture holders could be converted; Whereas RIL 's loan of Rs.50 crores would be converted into shares at par, the debenture holders would have to pay premium to be fixed by the CCI at the time of second conver sion of 20% of the debentures; and In the application filed by RPL, no shares were ear marked for the employees of RIL and RPL, but ultimately it was done.
46 On behalf of the petitioners, it was contended inter alia that the issue of the debentures in question was detri mental to public interest, and that public interest had been ignored.
On behalf of Respondents it was argued that the sanction issued by the CCI had been genuine and valid, and that no irregularity had been committed.
It was submitted that it was a misconception that the CCI had not followed his own guidelines relating to sanction of the issue of the deben tures, and it was incorrect to say that there had not been proper security.
Dismissing the writ petitions and the suit, this Court, HELD: 1.1.
The CCI functions under the , an Act to provide for control over the issue of capital.
The purpose of the Act must be found from the language used.
The scheme and the language used, strict ly speaking, do not indicate any positive role for the CCI in discharging his functions in respect of grant of sanc tion.
But it has to be borne in mind that he is a part of State instrumentalities committed to the endeavours of the constitutional aspiration to secure justice social and economic and also under Article 39(b) & {c) of the Consti tution to ensure that the ownership and control of the material resources of the community are so distributed as to best subserve the common good and that the operation of the economic system does not result in concentration of wealth and means of production to the common detriment.
Yet, every instrumentality and functionary of the State must fulfil its own role and should not trespass or encroach/entrench upon the field of others.
Progress is ensured and development helped if each performs his role in the common endeavour.
[90B; 124F H; 125A] 1.2.
In the changed socio economic conditions of the country one who is charged to ensure capital investment has to perform a social role in capital formation and to protect the interest of the capital market, and to oversee the growth of industrialisation and investment in such a manner as to ensure employment and demand in the national economy, to prevent wasteful investment and to promote sound methods of corporate finance.
In recent years, there has been a vast increase in the number of members of public who have surplus money to invest.
The size of the issues has assumed macro proportions and the type of investments are also more so phisticated.
Entrepreneurs with expert legal assistance could easily trap unwary investors and the development of a public interest lobby that can scrutinise issues carefully and advise prospective investors may be desirable.
[125A, B, F, G] 47 1.3.
The guidelines are only a guide and nothing more.
The application of mind by the CCI before sanction must be in the perspective for which he is enjoined by the Act.
He must endeavour to secure a balanced investment of the coun try 's resources in industry, agriculture and social serv ices.
The Controller should perform the role of social control and fulfil the social purpose in conjunction with other authorities and functionaries.
It is necessary for him in the discharge of his functions to ensure that there is not too much concentration of particular industries in particular areas, and that there is a scientific development and proper investment in key and core projects.
[125C D] 1.4.
The duties of the CCI have to be construed in the context of the above, particularly when there is no clear cut delineation of their scope in the enactment.
This is also reinforced by the expanding scope of the guidelines issued under the Act from time to time and the increasing range of financial instruments that enter the market.
The responsilbilities of the CCI in this direction should not be widened beyond the range of expeditious implementation of the scheme of the Act and should, atleast be restricted and limited to ensuring that the issue to which he is granting consent is not, patently and to his knowledge, so manifestly impracticable or financially risky as to amount to a fraud on the public.
While it is true that some procedure may have to be evolved to ensure that the CCI gets the benefit of the comments, suggestions and objections from the public before arriving at his decision whether to grant consent or not, and if so, on what terms and conditions, it will be too cumbersome to have a provision that the details of every proposed application for consent should be publicised to the maximum extent by the CCI, that objections and comments from the public should be called for, that there should be public hearing by the CCI and that he should pass a reasoned order granting or withholding consent.
That would delay the whole process of approvals which should be as expeditious as possible.
[93C E; 125G H; 126A B] 1.5.
The CCI has also a role to play in ensuring that public interest does not suffer as a consequence of the consent granted by him.
To go beyond this and require that the CCI should probe in depth into the technical feasibili ties and financial soundness of the proposed projects or the sufficiency or otherwise of the security offered and such other details may be to burden him with duties for the discharge of which he is as yet ill equipped.
[93D F] 1.6.
Being non statutory in character, the guidelines are not judicially enforceable.
A policy is not law.
A statement of policy is not a 48 prescription of binding criterion.
The competent authority might depart from these guidelines where the proper exercise of his discretion so warrants.
In the instant case, the statute provided that rules can be made by the Central Government only.
And according to section 6(2) of the Act, the competent authority has the power and jurisdiction to con done any deviation from even the statutory requirements prescribed, under sections 3 and 4 of the Act.
The CCI applied his mind to the facts of this case and the factors in general.
The CCI did not act malafide or on extraneous consideration.
[122D F; 124B D] Fernandez vs State of Mysore, ; ; R. Abdullah Rowther vs State of Tansport, etc., AIR 1959 SC 896; Dy.
Iron & Steel Controller vs Manekchand Pro prietor; , ; Andhra Industrial Work vs CCI & E, ; ; K.M. Shanmugham vs S.R.V.S. Pvt. Ltd., ; ; Sagnata Investments Ltd. vs Norwich Corpn., ; British Oxygen Co. vs Board of Trade, ; , relied on.
Ramanna Dayaram Shetty vs International Airport Authori ty; , ; Motilal Padampat Sugar Mills vs Uttar Pradesh, ; ; Ex P. Khan, [1981] 1 All.
E.R. 40; IRC vs National Federation, ; ; Reqina vs Preston Supplementary, ; Council of Civil Service Unions & Others vs Minister for the Civil Service, , referred to.
Foulkes ' Administrative Law, 6th Edn.
pp 181 to 184, re ferred to. 2.
As regards the contention that the sanction of the CCI was accorded with undue haste and favouritism, in the first place, an application of this type is intended to be disposed of with great expedition.
In a project of the type proposed to be launched by the petitioner, passage of time may prejudicially affect the applicant and it is not only desirable but also necessary that the application should be disposed of within as short a time as possible.
It is, therefore, difficult to say that the period of two months taken in granting consent in the present case is so short that an inference of haste must follow.
Secondly, on behalf of the Union of India, a list of various applications re ceived and disposed of by the office of the CCI between September, 1987 and September, 1988 has been produced to show that, generally speaking, these applications are dis posed of within a month or two.
It is true that none of these issues is of the same colossal magnitude as the present issue.
Nevertheless, the CCI could hardly keep the application pending merely because the amount involved is heavy.
It is not possible therefore to say merely from the 49 short span of time that there was a hasty grant of consent in the present case.
[73G H;74A C] 3.1.
The consent of the CCI was not accorded in igno rance of the facts pertaining to the G series of RIL deben tures.
The application for consent makes it clear that the petitioner company is a new company promoted by RIL and that RIL was promoting this company to manufacture High Density Polyethylene (HDPE), Poly Vinyl Chloride PVC and Mono Ethyl ene Glycol (MEG).
The application refers to the fact that the total cost of the project was expected to be Rs.650 crores and that this cost had been approved earlier in 1985.
Considering that RPL had come into existence only on 11.1.1988, this was a clear indication that the projects for which the debenture issue was being proposed were projects which had been mooted even by the RIL as early as 1985.
Again in the detailed application form submitted by the RPL it has been mentioned that the RIL had already obtained approval of the Central Government for implementation of the aforesaid projects under the MRTP Act.
In part C of the application form it has been mentioned that the promoter company had made necessary applications for endorsement in favour of the company of the Letter of Intent/Industrial Licences already issued by the Central Government under the Industries (Development & Regulation) Act, 1951, in the name of the holding company, viz., RIL.
It is, therefore, ex tremely difficult to agree that the fact of issue of the earlier series of debentures by the RIL or the purposes thereof could have escaped the notice of the CCI, particu larly, when it is remembered that the issue of G series of debentures by the RIL was quite recent and had also attract ed a lot of publicity.
[74D H; 75C D] 3.2.
The CCI was not performing the role of a social mentor taking into account the purpose of RIL.
If RIL has misutilised any of its funds or the funds had not been utilised for G series, then RIL would be responsible to its shareholders or to authorities in accordance with the rele vant provisions of the .
This aspect does not enter into sanctioning the capital issue for the new project in accordance with the guidelines.
Even if RIL and RPL have to be treated as one for this purpose and the grant of consent for earlier debenture issues in favour of RIL are to be taken into account in judging the necessity of the issues, there is no illegality or irregularity in the grant of consent to RPL.
RIL had not been able to utilise any part of the 'G ' series of debentures on the MEG project as there had been a cost overrun and it was decided to have a wholly owned subsidiary.
Hence the projects are those of the RIL to be implemented by RPL.
The additional finances were needed for the extension, expansion and diversification of 50 the projects originally envisaged.
This is one of the ob jects for which a debenture issue is permissible under the guidelines.
[101F H; 102A, B] 4.1.
So far as HDPE is concerned, it appears that there was a valid licence; and it may be mentioned that on 24th August, 1985 pursuant to an application made by RIL under section 22(3)(a) of the MRTP Act, the Govt.
granted approval for the establishment of a new undertaking for manufacture of HDPE.
[77F] 4.2.
Regarding foreign collaboration, an application was made by RIL in 1984 for approval of foreign collaboration with M/s Du Pont Inc. Canada, for manufacture of HDPE.
The approval was given and the validity was extended and the foreign collaboration approval was endorsed in favour of RPL on 12th October, 1988.
Similar other consents were there.
Finally, capital goods clearance was endorsed in favour of RPL for the PVC project on 12th August, 1988.
Capital goods clearance was also endorsed in favour of RPL for HDPE project on 23rd August, 1988.
Thus, it will be seen that all the basic groundwork had already been done by the RIL.
[77G, H; 78A] 4.3.
On 16th June, 1987 by a Press Note issued by the Deptt.
of Industrial Development in the Ministry of Industry of the Govt.
of India declared that where a transferee Company is a fully owned subsidiary of the Company holding the Letter of Intent or licence, the change of the Company implementing the project would be approved.
It is in the light of this that the Board of RIL on 30th December, 1987 passed a resolution to incorporate a 100% subsidiary Company whose main objects were to implement the licences/Letters of Intent received by RIL and to carry on the activities relat ing to production and distribution.
The resolution approved the name of the Company as RPL.
On 11th January, 1988 the RPL was incorporated and the Certificate of Incorporation was issued.
Thereafter, on 12th January, 1988 letters were written by RIL for endorsement of licences/Letters of Intent in favour of RPL.
The certificate of commencement of busi ness was thereafter issued.
[78B E] 4.4.
The Press Note is clear that the transfers from one company to an allied company were considered unexceptionable except where trafficking in licences is intended.
In this situation the change of name from RIL to RPL, of the li cences, letter of intent and other approvals was only a matter of course and much importance cannot be attached to the fact that CCI did not insist upon these endorsements being obtained even before the letter of consent is granted.
In any event the letter of 51 consent is very clear.
Clause (h) of the conditions attached to the consent letter makes it clear that the consent should not be construed as exempting the company from the operation of the provisions of the Monopolies & Restrictive Trade Practices Act, 1969, as amended.
Clause (c) makes it clear that it is a condition of this consent that the company will be subject to any measures of control, licensing, or acqui sition that may be brought into operation either by the Central or any State Government or any authority therein.
Under clause (t) the approval granted is without prejudice to any other approval/permission that may be required to be obtained under any other Acts/laws in force.
Having regard to the above and also to the terms and conditions of the consent letter, the grant of consent itself being condi tioned on RPL obtaining the necessary approvals, consents and permissions before embarking on the project, there was no impropriety in the CCI granting the consent without waiting for the formal endorsement of the various licences, letters and approvals in favour of RPL.
Moreover, CCI is aware of the progress of the various applications made by the company.
The Controller is also aware that the ICICI had looked into the financial soundness and feasibility of the project and there is material to show that the comments of the ICICI were made available to him.
When a project is being appraised by the institution like the ICICI and when the CCI is also aware, by reason of the participation of his representatives at the meetings of the Department of Indus try and the Department of Company Affairs about the stage or outcome of the proposals made under the IDR and MRTP Acts, it is clear that the CCI did not overlook any crucial aspect and that his grant of consent in anticipation of the neces sary transfers to the RPL was based on a practical appraisal of the situation and fully in order.
[78F H; 79A, B; 80B D] 5.
There has been sufficient compliance with the guide lines on the quantum of issue, debt equity ratio, interest rate and the period of redemption.
There was sufficient security for the debentures in the facts and circumstances of this case.
The preference in favour of shareholders of RIL was justified and based on intelligible differentia.
Indeed, if one considers the role of the CCI, he is primari ly concerned to ensure a balanced investment policy and not to guarantee the solvency or sufficiency of the security.
Most of the criticisms directed against deviation from guidelines were misplaced.
[94G, H; 95A, B] 6.1.
The discrimination alleged is on two grounds.
The first is that RIL is entitled straightaway to the allotment of shares of the face value of Rs.57.50 crores whereas only 5% of the investment by the debenture holders can be con verted into shares at par simultaneously 52 with the issue.
The second is that a loan of Rs.50 crores advanced by RIL to RPL will be converted into shares at par at the end of 3 years whereas the debenture holders will have to pay a premium even for converting 20% of their debentures into shares by that time.
These allegations do not bear scrutiny.
So far as the first ground is concerned, there is no justification for a comparison between these two categories of investors.
RIL is the promoter company which has conceived the projects, got them sanctioned, invested huge amounts of time and money and transferred the projects for implementation to RPL.
It is, therefore, in a class by itself and there is nothing wrong if it is allotted certain shares in the company, quite independently of the debenture issue, in lieu of its investments.
So far as the second ground is concerned, it overlooks certain disadvantages attached to RIL in regard to the loan of Rs.50 crores ad vanced by RIL as compared with the investor in the deben tures.
Firstly, RIL 's advance is interest free for 3 years whereas the debenture holders got interest at the rate of 12.5% during the period.
Secondly, the debenture loan is secured while the RIL 's are not.
Thus the debenture holders have certain benefits which RIL does not have and, if the debenture holders have the disadvantage of having to pay a premium, that cannot constitute basis for a ground of dis crimination.
[103E H; 104 A, B] 6.2.
RPL is a company not the State or a State instru mentality that is issuing the shares and debentures.
It is entirely for the company to issue the shares and debentures on such terms as they may consider practicable from their point of view.
There is no reason why they should not so structure the issue that it confers certain great advantages and benefits on the existing share holders or promoters than on the new subscribers.
It is not permissible for the CCI to withhold consent only for this reason or to stipulate that consent can be given only if the share holders and promoters as well as prospective debenture holders are all treated alike.
The subscribers to the debenture are only lenders to the company who have an option to convert their debt into equity on certain terms.
It is perfectly open to the sub scribers to balance the pros and cons of the issue and to desist from taking the debentures if they feel that the dice are loaded unfavourably in favour of the "proprietors" of the company.
[104B E] 7.1.
In the present case, a legal mortgage has been created by RPL in favour of the trustees in respect of its immovable and movable assets, except book debts, in respect of which financial institutions will hold a first charge on account of foreign loan.
RPL does not have any existing loans.
Therefore, the charge in favour of the debenture holders 53 iS presently the first charge.
No further borrowing is contemplated at this stage except the foreign currency loan to the extent of Rs.84 crores.
Even if the value of the foreign currency which has been sanctioned in principle by the three financial institutions is taken into account, the assets coverage goes down at each stage and does not make any critical difference to the value of the security of the debenture holders under the Trust Deed.
The purposes of borrowings, namely, term loan borrowings, deferred payment credits/guarantees and borrowing for financing new projects do not, on analysis, raise any difficulty.
There are suffi cient in built checks and controls.
The company, being an MRTP company would have to obtain both MRTP permission for creating any security irrespective of its value and fresh CCI consent under the CCI Act, except in case of exempted securities.
[119G, H; 120A C] 7.2.
With the escalation in the value of the fixed assets due to passage of time on the one hand and the re demption of a good portion of the debentures by the end of three years on the other, the security provided is complete and, in any event, more than adequate to safeguard the interests of the debenture holders.
[96G, H] 8.
Clauses 5 and 6 are only enabling clauses and in the nature of permitting the Company, despite the mortgage in favour of the debenture holders, to carry on his business normally.
What is referred to therein as residual charge is really a floating charge.
The Company 's normal business activities would necessarily involve alienation of some of its assets from time to time such as goods manufactured by it as well as procurement and discharge of loan and accommo dation facilities from banks, financial institutions and others.
The entire progress of the company would come to a standstill in the absence of such enabling provisions.
They are not only usual but essential because the basic idea is that the finances raised by the debentures should be em ployed for running the project profitably and thereby gener ate more and more funds and assets which will also be avail able to the debentures holders.
Further what the clauses provide is only that the consent and concurrence of the debenture holders need not be obtained by the company before creating securities that may have priority over the present issue of debentures.
But the trustees for the debenture holders have to concur before the company can raise any future borrowings and create, therefor, the security which will have priority over the security available to the present debenture holders.
The ICICI is not only a financial institution in the public sector but also one of the insti tutions financing the project and thus has a stake in its success and so can be trusted to safeguard the interests of the debenture holders.
The debenture trust 54 deed also contains a provision by which at the time of creation of any future charge the terms and ranking have to be agreed upon between RPL and ICICI.
Clause 16 of the trust deed authorises the trustees to intervene and crystallise the charge in certain circumstances and stultify an attempt by the company to create higher ranking charges.
There are also restraints on the company under the and the MRTP Act involving the consent of public financial institutions, Commercial Banks, the term lenders, share holders, the MRTP Commission, the Central Govt.
and the CCI before the creation of such securities.
[98B H; 99A, E, F] 9.
In certain brochures and pamphlets issued by RPL, the debentures were described as "fully secured convertible debentures".
The company admitted that there was such a description but explained that this was due to an oversight; the words "fully secured convertible debentures" were print ed in some brochures instead of the words "secured fully convertible debentures" without meaning or intending any change.
It was stated that the company 's representation was that the debentures were "secured fully convertible" ones.
This is also what had been set out in the application for consent.
Though the company did claim that the debentures were also fully secured, the emphasis in the issue was that the debentures were fully convertible and secured.
This explanation is plausible.
No importance or significance need be attached to the different description in some places.
particularly.
in the context of the nature of security actually provided for the debentures.
[95F H; 96A] 10.
Prospectus issued by RPL is not misleading because it stated that security will be provided to the satisfaction of the trustees and the CCI accepted that statement in the application for consent.
The debenture trustees are well known financial institutions and it is not possible for the CCI to ensure more than the usual practice which was fol lowed in the present case.
[100D, E] 11.
The CCI modified paragraph 5 of the consent by his letter of the 19th July, 1988 to say that allotment to the employees shall not exceed 50 debentures per individual.
It does not appear that the restriction of the allotments to the employees was at the instance of the Company; nor does it seem that any discrimination was intended in respect of the allotments to the employees.
Nor has attention been invited to any legal requirements or guidelines prescribing any fixed or minimum quota of allotment to the employees of the Company.
Under the circumstances, the question of dis crimination does not arise.
[107C, D] 55 12.
The consent order of the CCI clearly indicated that the consent conveyed in the letter shall lapse on the expiry of 12 months from the date thereof.
The consent order cate gorically stated that the approval was without prejudice to any other aPproval/permission that may be required to be obtained under any other Acts and laws in force.
It neces sarily follows that the obligation to obtain other permis sions continued.
There was no legal conditions that other approvals should be examined by the CCI before grant of its own consent.
As defined in the , a debenture need not be secured.
Therefore, guideline 10 means that security should be provided as is customarily adopted in corporate practice.
In the present case, the debentures are compul sorlly convertible and so no repayment is really involved.
The debenture is essentially an acknowledgement of debt with a commitments to repay the principal with interest.
The question of security becomes relevant for the purpose of payment of interest only in the unlikely event of winding up.
The guidelines did not provide for the quantum and the nature of the security.
A debenture may, therefore, be secured or unsecured.
An ordinary debenture has to be dis tinguished from a mortgage debenture which necessarily creates mortgage on the assets of a Company.
A compulsorily convertible debenture does not postulate any repayment of the principal and so does not constitute a debenture in the classic sense.
Even a debenture which is only convertible at option has been recognised as a hybrid debenture.
The guide lines for the protection of debenture holders issued on 14.1.1987 recognise the basic distinction between converti ble and non convertible debenture.
Compulsorily convertible debentures in corporate practice were adopted in India sometime after 1984.
Wherever the concept of compulsorily convertible debenture is involved, various guidelines issued by the Government of India treat them as equity and not as loan or debt.
Even a non convertible debenture need not always be secured.
In fact, modern tendency is to raise loan by unsecured stock which does not create any charge on the assets of a Company.
Whenever a security is created, it is invariably in the form of a floating charge.
In addition they are frequently secured by a trust deed as in the present case where specific property/land etc.
has been mortgaged to the trustees.
In the instant case, if the permission of the debenture holders were required or is insisted upon to create future security, 2.5 million debenture holders have to be informed and invited for the meeting.
The extravagant effects of this course would be collosal especially when a shareholders meeting is also additionally called for the same 56 body of persons.
It is, therefore, incorrect to say that a floating charge creates an illusory charge because future securities can be created ranking in priority over it.
[118D E] The British India Steam Navigation Co: vs The Commis sioner of Inland Revenue, ; Re.
Colonial Dusts Corporation, ; Speyar Brothers vs The Commissioner of Inland Revenue, ; Lemon vs Austin Friars Investment Trust Ltd., ; Flor ence Land & Public Works Co., ; Re.
Panama, New Zealand, and Australian Royal Mail Co., ; Re. Standard Manufacturing Co., ; Re.
Borak Foster vs Borax Co., ; Creatnor Maritime Co. Ltd. vs Irish Marine Management Ltd., referred to.
Palmer 's Company Law, 24th Edn.
672, 675, 676, 706; The Encyclopaedia of Forms and Precedents, 4th Edn., Vol.
6 p. 1094, 1095, 1097, 1098, referred to.
The Court, would be reluctant to interfere simply because one or more of the guidelines have not been adhered to even where there are substantial deviations unless the deviations are by nature and extent such as to prejudice the interests of the public which it is their avowed object to protect.
Per Contra, the Court would be inclined to overlook or ignore such deviations, if the object of the statute and public interest warrant, justify or necessitate such devia tions in a particular case.
Judicial control takes over only where the deviation either involves arbitrariness or dis crimination or is so fundamental as to undermine a basic public purpose which the guidelines and the statute under which they are issued are intended to achieve.
In the in stant case, there is no such infraction of the norms re quired to be followed in granting the sanction.
[123F H; 124A, B] 15.
Before the Courts grant any injunction they should have regard to the principles of comity of courts in a federal structure and have regard to self restraint and circumspection.
It may be impossible to lay down hard and fast rules of general application because of the diverse situations which give rise to problems of this nature.
Each case has its own special facts and complications and it will be a disadvantage, rather than an advantage, to attempt and apply any stereo typed formula to all cases.
Perhaps in this sphere, the High Courts themselves might be able to intro duce a certain amount of discipline having regard to the principles of comity of courts administering the same gener al 57 laws applicable all over the country in respect of granting interim orders which will have repercussion or effect beyond the jurisdiction of the particular courts.
Such an exercise will be a useful contribution in evolving good conventions in the federal judicial system.
[126F, G; 127A] [Having considered the facts and circumstances of the present cases, this Court directed refund of the sum of Rs.one lakh deposited RPL as ordered by the Court on 9.9.1988.
The deposit amount was meant for payment to the petitioners in case they were to spend unduly.]
|
vil Appeal Nos. 1553 to 1556 of 198 1 etc.
From the Judgment and Order dated 20.3.1981 of the Kerala High Court in W.P. Nos. 166, 177,223 and 243 of 1980.
T.S. Krishnamurthy Iyer, G.L. Sanghi M.M. Abdul Khader, M.K. Ramamurthi, G. Vishwanatha Iyer, Ms. Shanta Vasudeavan, A.S. Nambiar, K.M.K. Nair, E.M.S. Anam, V.J. Francis, O.V. Radhakrishnan and N. Sudhakaran, for the appearing parties.
The Judgment of the Court was delivered by PATHAK, CJ.
These appeals by graduate Excise Inspectors are directed against the judgment and order dated 20 March, 1981 of the High Court of Kerala holding that the amendment to Special Rule 2 of the Kerala Excise & Prohibition Subor dinate Service Rules is ultra vires.
The writ petitions were filed by non graduate Excise Inspectors alleging that the amendment to Special Rule 2 of the aforesaid Rules violates Articles 14 and 16 of the Constitution inasmuch as an invidious discrimination has been made between graduates and non graduates by prescribing a ratio between them in the matter of promotion from the post of Excise Preventive Officer to that of Second Grade Excise Inspectors.
As all the cases have proceeded on a common factual basis, we shall take up the appeal arising out of O.P. 3760 of 1978 for the purpose of this judgment.
The petitioner in O.P. 3760 of 1978 joined the post of Excise Guard on 2 April, 1960.
He was promoted on 12 Janu ary, 1966 as Excise Preventive Officer.
In the list of Preventive Officers in the 204 Excise Department as on 1 August, 1970 he was ranked No. 131 while the third respondent was ranked at number 390.
The third respondent was promoted earlier although he was junior to the petitioner.
This was on the ground that he was a graduate and the petitioner was a non graduate.
The peti tioner contended that as graduates and non graduates were both regarded as eligible for promotion to the post of Second Grade Excise Inspectors no differentiation should have been made between them when prescribing a rule of quota for promotion.
The writ petition was heard by a learned Single Judge, who held that the amendment to Special Rule 2 was violative of Articles 14 and 16 of the Constitution.
It may be noted that the original Special Rule 2 of the Special Rules for the Kerala Excise and Prohibition Subordinate Service was amended by G.O.P.No.
79/78/TD dated 23 June, 1978 whereby the ratio 1:3 between graduate and non gradu ates was introduced into the Special Rules in the matter of promotion from the category of Excise Preventive Officers to that of Second Grade Excise Inspectors.
The amendment was deemed to have come into force retrospectively from 9 Sep tember, 1974 when the Special Rules were brought in.
The learned Single Judge directed the respondents in the case to cause the Departmental Promotion Committee to be convened within two months to prepare a select list in order that promotions on a regular basis could be made.
Against the judgment of the learned Single Judge in the different cases, appeals were filed before a Division Bench of the High Court.
Two contentions were raised on behalf of the appellants, who in some of the appeals were the State of Kerala and the Deputy Commissioner of Excise, Board of Revenue, Trivandrum and in other cases were a number of private respondents in the original petitions and who held the post of Excise Inspector.
Two contentions were raised by the appellants before the Division Bench of the High Court.
It was contended that the preference shown to graduates by prescribing under the amended special Rule 2 the ratio 1:3 represents the recogni tion of graduation as a standard of merit and, it was urged, officers with more merit in the post of Excise Inspectors would promote administrative efficiency.
It was also con tended that the amendment to Special Rule 2 is the result of an historical background which justifies preferential treat ment.
It was pointed out that as graduates and non graduates had all along been treated differently in the matter of promotion to the post of Excise Inspector, the classifica tion brought about by amending Special Rule 2 could not be regarded as unreasonable.
205 It will be appropriate to set forth the historical background out of which the present controversy arises.
From the year 1935, in the erstwhile State of Travancore prefer ence was given to graduates in the matter of promotion.
When the State of Kerala was constituted by the merger of the Travancore and Cochin areas with effect from 1 November, 1956 a rule was promulgated in the Excise Department of Kerala prescribing a ratio in the matter of promotion to the post of Excise Inspectors by an order dated 23 August, 1957.
The Rule regulated appointments to posts of Guards, Preven tive Officers and Second Grade Inspectors in the Excise Department.
Clause (d) related to Second Grade Excise In spectors and it provided: "(d) Second Grade Excise Inspectors: A margin of twentyfive per cent of the vacancies in the cadre of Second Grade Excise Inspectors will be left for being filled up by direct recruitment by the Public Service Commission of graduates .
The remaining seventy five per cent will be filled up by promoting L.D. Clerks . . and Preventive Officers on a 50:50 basis observing the ratio.
of 3:1 between graduates and non graduates in either case.
" Clause (d) applied to personnel of the Travancore Cochin area.
The officers allotted from Madras were governed by the Madras Rules pending the issue of common rules applicable to both.
By reason of this Order 25 per cent of the post of Second Grade Excise Inspectors were to be filled up by direct recruitment, 37 1/2 per cent by promoting Lower Division Clerks and 37 1/2 per cent by promoting Preventive Officers.
Within the promotion quota of Preventive Officers promotion was to be effected between graduates and non graduates in the ratio of 3: 1.
This rule applied to Travancore and Cochin personnel appointed prior to 1 November, 1956.
After taking note of the situation in different parts of the State, the Government order dated 19th November, 1957 prescribed the ratio of 1:1 between graduates and non graduates on an interim basis.
It was mentioned there that the ultimate aim was to do away with the distinction between graduates and non graduates in offices other than the Secretariat, the Public Service Commission and the High Court.
Subsequently, however, it was clarified on 8 July, 1966 that the Order was intended to apply to ministerial posts only and not to executive posts such as those of Preventive Officers.
The question of the applicability of the graduate and non graduate ratio was examined by the High Court in Writ Petitions filed 206 in 1972, and the High Court directed the Government to look into the matter and finalise the provisional promotion of Excise Inspectors accordingly.
It was thereafter that Spe cial Rules for the Kerala Excise and Prohibition Subordinate Service dated 9 September, 1974 were published.
They provide for appointment to the posts of Excise Inspectors by direct recruitment, promotion from the category of Excise Preven tive Officers and recruitment by transfer from among Upper Division Clerks employed in the Excise Department.
The Rules did not provide for any graduate non graduate ratio in the matter of promotion, apparently because the ratio had al ready been provided earlier by the Government order dated 23 August, 1957.
But meanwhile the High Court held that the Government order dated 23 August, 1957 could not be applied to those appointed after the formation of the State of Kerala.
To fill up the vacuum in respect of appointments after 1 November, 1956 an order dated 4 October, 1974 was made applicable retrospectively to all appointments on or after 1 November, 1956 till the date of issue of the Special Rules for the Excise Subordinate Service.
It adopted the ratio of 3:1 between graduates and non graduate for promo tion to the post of Second Grade Excise Inspectors for the entire State of Kerala, and it specifically provided that this graduate non graduate ratio 3:1 would apply to the case of persons who had entered the Excise Department on or after 1 November, 1956, and that it would operate until the coming into force of the Kerala Excise and Prohibition Subordinate Service Rules.
This was, however, challenged in the High Court and the High Court held that it was not open to the Government to apply the ratio of 3:1 by an executive order passed in 1974 and made retrospectively from 1 November, 1956 inasmuch as an executive order could not be given retrospective effect.
There was, therefore, no provision in law prescribing a graduate non graduate ratio governing appointments made on and from 1 November.
As has been stated Special Rules for the Excise Subordinate Service dated 9 September, 1974 had been published meanwhile.
Spe cial Rule 2 was amended with effect from 9 September, 1974, the date of commencement of the Special Rules, providing for a ratio of 1:3 between graduates and non graduates as from 9 September, 1974.
In consequence.
while up to 9 September, 1974 there was no valid Rule in force applying a graduate non graduate ratio for promotion, there was a rule intro duced in 1978 by amendment to the Special Rules prescribing a ratio from 9 September, 1974 onwards.
The gap between 1 November, 1956 and 9 September, 1974 was sought to be filled thereafter by an Order dated 6 March, 1981 which provided that the appointment of Excise Inspectors during the period from 1 November, 1956 and ending 8 September, 1974 from 207 among Clerks and Preventive Officers who have entered serv ice on or after 1 November, 1956 would be made in the ratio of 1:1 between Clerks and Preventive Officers.
simultaneous ly observing the ratio 01 ' 3: l was observed between gradu ates non graduates. 'The Rule was deemed to have into force from 1 November, 1956.
It will thus be evident that in the case of Preventive Officers appointed on or after 1 November, 1956, the gradu ate non graduate ratio of 3:1 was observed between 1 Novem ber, 1956 and 8 September, 1974, and it became 1:3 from 9 September, 1974 onwards.
The plea of the non graduate Preventive Officers that there should be no preference in favour of the graduate officers was accepted, as we have seen, by the learned Single Judge and upheld in appeal by the Division Bench of the High Court.
In these appeals by graduate Excise Inspectors, it is contended that there was good and substantial reason for maintaining the ratio between graduate and non graduate Officers, and the history of the evolution of the service supported the maintenance of such ratio, and that the High Court proceeded erroneously in assuming that the observance of the ratio between graduates and non graduates produced an invidious discrimination violative of articles 14 and 16 of the Constitution.
We are referred to Mohammad Shujat Ali & Ors.
vs Union of India & Ors. etc.
; , where this Court upheld the differentiation between graduate supervisors and non graduate supervisors for the purpose of promotion as Assistant Engineers.
But it is clear that this was on the ground that the two categories of supervisors had been kept distinct and apart under the Cadre Rules from the beginning, with different pay scales and different treatment for the purpose of promotion.
Reference was also made of State of Jammu & Kashmir vs Triloki Nath Khosa & Ors., ; , but it was held there that having regard to the object of achieving administrative efficiency in the.
Engineering Service it was a just qualification to maintain a distinction between Assistant Engineers who were degree holders and those who were merely diploma holders.
In S.L. Sachdev & Anr.
vs Union of India & Ors.
, ; again the discrimination between UDCs drawn from Audit Offices and other UDCs in the matter of the eligibility qualification for promotion was justified on the basis that the one enjoyed greater experience and that the distinction based on length of service was directly related to the object of the classification.
In Col. A.S. Iyer and Others vs
V. Balasubramanyam and Others, ; upon which reliance 208 has been placed by the Appellants, the recruits were from two different sources which had not completely fused into one integrated service but were instead allowed to maintain their separate identity, and regard was had to their basic functional character, operational capabilities and 'futuris tic ' uses to support the differential treatment between military engineers and civilian engineers.
H.H. Shri Swamiji of Shri Admar Mutt, etc.
vs The Commissioner, Hindu Reli gious & Charitable Endowments Department & Ors., ; is a case where we find it difficult to see any argument in favour of the appellants, for the passage there in to which our attention has been drawn specifically al ludes to the circumstance that the passing of time results in altering a fact situation which has the consequence of wearing out the basis on which the differentiation is found ed.
So also in Motor General Traders and Anr.
vs State of Andhra Pradesh & Others, ; it was observed by this Court that an exemption provision initially valid could become discriminatory where with the passage of time the nexus with the object did not survive any longer.
We have also heard submissions made by learned counsel for the appellants in Civil Appeals Nos. 1554 and 1556 of 1981, and they have elaborated on the points raised by learned counsel in Civil Appeal No. 1553 of 1981 with some differences of nuance and emphasis.
In essence, the conten tion remains the same.
It seems to us that the history of the evolution of the Kerala Excise and Prohibition Subordinate Service has shown no uniformity either in approach or in object.
The history has varied with the circumstances prevailing before and after the reorganisation of the State on 1 November, 1956.
Originally when more emphasis was laid on the induction of graduate the ratio of graduate to non graduate officers was maintained at 3: 1.
But from 9 September, 1974 the ratio was changed inversely to 1:3.
More non graduates were now in ducted into the Service.
The trend shows, if anything, that it ran in favour of absorbing more non graduates.
The condi tions pertaining to the service, and respecting which the constitution of the service varied from time to time, showed fluctuations.
A consistent or coherent policy in favour of graduates was absent.
This is not a case where the cadre of officers was kept in two separate divisions.
It was a single cadre, and they were all equal members of it.
There is no evidence that graduate Preventive Officers enjoyed higher pay than non graduate Preventive Officers.
The High Court has noted that the nature of the duties of Preventive Offi cers whether graduate or non graduate was identical, and both were put to field work.
Non graduate Preventive 209 Officers were regarded as competent as graduate Preventive Officers.
There is no evidence of any special responsibility being vested in graduate Preventive Officers.
Once they were promoted as Excise Inspectors there was no distinction between graduate and non graduate Excise Inspectors.
In our opinion the learned Single Judge as well as the Division Bench are right in holding that the prescription of a ratio dividing the quota of promotion between graduate Preventive Officers and non graduate Preventive Officers is invalid on the ground that it violates articles 14 and 16 of the Constitution.
The other contention raised before the High Court, namely that the ratio 1:3 between graduates and non gradu ates is supportable on the ground that the recognition of graduation is recognition of merit, and that more merit in the post of Excise Inspectors would be conducive to better administrative efficiency, is shortly disposed of.
Ordinari ly, it is for the Government to decide upon the considera tions which, in its judgment, should underlie a policy to be formulated by it.
But if the considerations are such as prove to be of no relevance to the object of the measure framed by the Government it is always open to the Court to strike down the differentiation as being violative of articles 14 and 16 of the Constitution.
In the present case, we have already commented on the circumstance that the conditions of employment and the incidents of service recognise no dis tinction between graduate and non graduate Officers and that for all material purposes they are effectively treated as equivalent.
Accordingly, this contention must also be rejected.
In the result, the appeals fail and are dismissed but there is no order as to costs.
R.S.S. Appeals failed.
| IN-Abs | The respondents, who were non graduate Excise Preventive Officers in the Excise Department, had challenged in the High Court the amendment made to the original Special Rule 2 of the Special Rules for the Kerala Excise and Prohibition Subordinate Service whereby the ratio of 1:3 between gradu ates and non graduates was introduced in the matter of promotion from the category of Excise Preventive Officers to that of Second Grade Excise Inspectors.
They had contended that as graduates and non graduates were both regarded as eligible for promotion to the post of Second Grade Excise Inspectors.
no differentiation should have been made between them when prescribing a rule of quota for promotion.
The learned Single Judge allowed the writ and held that the amendment to Special Rule 2 was violative of Articles 14 and 16 of the Constitution.
The State of Kerala and the private appellants, who were graduate Excise Preventive Officers and were holding the post of Second Grade Excise Inspectors.
filed appeals.
It was contended by them before the Division Bench that (i) the preference shown to gradu ates in the matter of promotion represented the recognition of graduation as a standard of merit which would promote administrative efficiency, and (ii) the amendment to Special Rule 2 was the result of a historical background which justified preferential treatment.
It was pointed out that as graduates and non graduates had all along been 202 treated differently in the matter of promotion to the post of Excise Inspector, the classification brought about by amending Special Rule 2 could not be regarded as unreasona ble.
The Division Bench held that the amendment to Special Rule 2 of the Kerala Excise & Prohibition Subordinate Serv ice Rules was ultra vires.
Dismissing the appeals, this Court HELD: (1) The history of the evolution of the Kerala Excise and Prohibition Subordinate Service has shown no uniformity either in approach or in object.
The history has varied with the circumstances prevailing before and after the reorganisation of the State.
The conditions pertaining to the service.
and respecting which the constitution of the service varied from time to time, showed fluctuations.
A consistent or coherent policy in favour of graduates was absent.
This is not a case where the cadre of officers was kept in two separate divisions.
It was a single cadre, and they were all equal members of it.
There is no evidence that graduate Preventive Officers enjoyed higher pay than non graduate Preventive Officers.[208E G] Mohammad Shujat All &.
vs Union of India ; and Col. A.S. Iyer vs V. Balasubramanyam, ; , distinguished.
(2) The Conditions of employment and the incidents of serv ice the instant case, recognise no distinction between graduate and non graduate Officers and for all material purposes they are effectively treated as equivalent.
The nature of the duties of Preventive Officers whether graduate or non graduate was identical, and both were put to field work.
Non graduate Preventive Officers were regarded as competent as graduate Preventive Officers.
There is no evidence of any special responsibility being vested in graduate Preventive Officers.
[208H; 209A, E] State of Jammu & Kashmir vs Triloki Nath Khosa, ; ; S.L. Sachdev vs Union of India, [1980] 1 S.C.R. 971, distinguished.
H.H. Shri Swamiji of Shri Admar Mutt vs Commissioner, Hindu Religious & Charitable Endowment Department, ; and Motor General Traders vs State of Andhra Pra desh; , , referred to.
(3) Ordinarily, it is for the Government to decide upon the considerations which, in its judgment, should underlie a policy to be 203 formulated by it.
But if the considerations are such as prove to be of no relevance to the object of the measure framed by the Government.
it is always open to the Court to strike down the differentiation as being violative of Arti cles 14 and 16 of the Constitution.
[209D E] (4) The learned Single Judge as well as the Division Bench were right in holding that the prescription of a ratio dividing the quota of promotion between graduate Preventive Officers and non graduate Preventive Officers is invalid on the ground that it violates Articles 14 and 16 of the Con stitution.
[209B C]
|
ON: Civil Appeal No. 3726 of 1984.
From the Judgment and Order dated 8.8.1981 of the Guja rat High Court in L.P.A. No. 145 of 1978.
B.K. Mehta and M.V. Goswami for the Appellant.
G.A. Shah and M.N. Shroff for the Respondent.
The Judgment of the Court was delivered by RATNAVEL PANDIAN, J.
This is an appeal by special leave from the judgment of the Gujarat High Court dismissing the appeal made in Letters Patent Appeal No. 145 of 1978 arising from the order passed in Special Civil Application No. 268 of 1978 of the said High Court.
As this case has a chequerred history spreading over decades, we feel that the relevant facts that are necessary for the disposal of this appeal are to be stated in brief.
The appellant was born on 15th January, 1909 and he obtained the Degree of Bachelor of Engineering (Civil).
He joined the service of the erstwhile State of Junagadh in Saurashtra region on 1st August, 1934.
While the appellant was in the service of Junagadh State, he was governed by the Junagadh State Pension & Parwashi Allowances Rules of 1932 (hereinaf ter called as "Junagadh Rules) which had been published in the official Gazette of that State and which were subse quently codified and published in the Jugagadh State Account Code.
Rule 241 A of the aforesaid Junagadh Rules provided for pension and Parwashi Allowances.
The State of Junagadh was integrated into the State of Saurashtra on 20th January, 1949.
Thereafter the appellant was absorbed in the service of the State 219 of Saurashtra.
The supplementary Covenant which brought about the integration read with article 16 of the main Covenant expressly protected the conditions of the service of the absorbed servants and the protection was also statutorily recognised by the Saurashtra Ordinance 3 of the 1949 read with Ordinance 1 of 1948.
A proclamation providing a guaran tee that the conditions of service could not be varied to the disadvantage of the Covenanting State servants was also issued in that behalf on 20th January 1949 which was the date of the merger of the State into the State of Saurash tra.
Based on the decision of this Court in Bholanath J. Thakar vs State of Saurashtra, A.I.R. 1954 S.C. 680 wherein it was held that the rules as regards the age of superannua tion which prevailed in the covenanting State which in that case was the State of Wadhwan, continued to cover those Government servants who had come from that State and had been absorbed in the services of the State of Saurashtra.
The State of Saurashtra made the Saurashtra Covenanting State Servants (Superannuation Age) Rules 1955 (hereinafter called as "Saurashtra Rules") in exercise of the powers conferred by article 309 of the Constitution of India.
Rule 3(i) provided: "A Govt.
servant shall, unless for special reasons otherwise directed by Government retire from service on his completing 55 years of age." After the integration of the Saurashtra State into the State of Bombay a resolution was passed by the Government on 7th January 1957 applying the old Bombay Civil Service Rules to Saurashtra area.
On 1st July 1959 the Bombay Civil Serv ices Rules 1959, (hereinafter called the "Bombay Rules") were promulgated under article 309 of the Constitution.
Clause (c)(2)(ii)(1) of Rule 161 is as follows: "Except as otherwise provided in this Sub clause, Government servants in the Bombay Service of Engineers, Class 1, must retire on reaching the age of 55 years, and may be required by the Government to retire on reach ing the age of 50 years, if they have attained to the rank of Superintending Engineer.
" The appellant was compulsorily retired from service under the above rule by an order passed by the State of Gujarat on 12.10.1961 with effect from 12.1.1962 when he had completed the age of 53 years.
This order of retirement was unsuccess fully challenged by the appellant 220 before the Gujarat High Court by a writ petition under article 226 of the Constitution.
Not being satisfied, the appellant took up the matter before this Court which by its judgment dated 9.4.1969 allowed the appeal and declared "that the appellant was entitled to remain in service until he at tained the age of 55 years and that the impugned order directing his retirement was invalid and ineffective." This judgment is reported in , Takhatray Shivdatray Mankad vs State of Gujarat,.
As per this decision, the appellant had the right to continue in service till he attained the age of 55 years.
It may be noted that the appellant had already completed the age of 55 years by the time the judgment was pronounced by the Supreme Court.
In due compliance of the above judgment of this court, the Government of Gujarat by its order dated 4.8.1969 intimated the appellant that he should be deemed to have remained in service upto the date on which he attained the age of 55 years, that its upto 14.1.1964.
In other words, by this order the appellant was retired on his attaining the age of 55 years on 14.1.1964.
Prior to this decision of the Supreme Court, the age of superannuation for Government servants of the Government of Gujarat was raised to 58 years with reservation of power to the State Government to compul sorily retire a Government servant at 55 years by serving a notice.
The appellant in order to avail of this benefit of the changed circumstances filed a Special Civil Application No. 70 of 1970 before the High Court of Gujarat, but became unsuccessful.
Being dissatisfied with that judgment of the High Court, he filed a Special Leave Petition No. 977 of 1975 before this court which by its order dated 21.7.1975 declined to interfere with the decision of the High Court under article 136 of the Constitution of India.
The resultant effect is that the matter came to a finality to the effect that the appellant was not entitled to continue in service beyond the age of 55 years.
Even before he was compulsorily retired by the Govern ment 's Order dated 12.10.1961, a departmental enquiry on the ground of slackness of supervision had been initiated on 6.2.1961.
Thereafter, a second departmental enquiry was ordered against the appellant on charges of over payment to contractors and consequent loss to the Government on 11.4.1963.
A third enquiry was ordered against him on 17.8.1963 on charges Of payment in advance before the re ceipt of goods.
Thus there were three departmental enquiries before his retirement on attaining the age of 55 years, that is on 14.1.1964.
These enquiries were pending against the appellant till 1971.
Be that as it may, the appellant filed a Special Civil Application 221 No. 504 of 197 1 before the High Court of Gujarat seeking issue of a writ of mandamus against the State of Gujarat to direct the State to pay the appellant all the outstanding salary, allowances as well as the revised.
pay and allow ances including increment subsequent to the stage of effi ciency bar falling due from 12.1.1962 to 14.1.1964 together with interest @ 6% per annum from the date of payment with held till the date of actual payment thereof to him.
The State defended this action of withholding the pension on the ground that the departmental enquiries initiated against him were pending.
The appellant, therefore, filed a Civil Appli cation No. 2304 of 1972 in the above said Special Civil Application No. 504 of 1971 for interim relief, which appli cation he withdrew subsequently.
According to the appellant, he withdrew the application on the representation made on behalf of the respondent therein that the departmental enquiries had become infructuous consequent upon the retire ment of the appellant.
In the meanwhile, the State of Gujarat issued a show cause notice dated 17.7.1971 to the appellant informing him that the Government had considered that his service had not been found thoroughly satisfactory on account of the reasons mentioned in the said show cause notice, and therefore, the Government had proposed to make reduction of 50 per cent both in the amount of pension and death cum retirement gratuity admissible to him.
We shall now reproduce the relevant portion of the show cause notice (Annexure 'C '): "Government therefore proposes, in exercise of the powers vested in it under: (i) Para 241(E)(3) and (3) of the Junagadh Account Code or (ii) Rule 76 of the Ex Saurashtra Pension Rules, as contained in Saurashtra Government Resolution, Finance Department No. 121/40 dated 19.10.1949 or (iii) Rule 188 of Bombay Civil Services Rules, as may be applicable to you, to make a reduction of 50% (fifty per cent) both in the amount of pension and Death cum Retirement Gratuity admissible to you.
" The appellant submitted his reply and the proceedings went on before the Government for a considerable length of time.
Ultimately, the final order was passed on 15.11.1977 reducing the pension and gratuity by 50 per cent.
Being aggrieved by the said order, the appellant filed Special Civil Application No. 268 of 1978 before the High Court of Gujarat for quashing the order reducing his pension and gratuity.
The learned single Judge of Gujarat High Court rejected the said civil application in limine by his order dated 8.3.1978 concluding 222 "In the present case the Government recorded reasons why it came to the conclusion that the petitioner 's service were unsatisfactory and, therefore, put a proportionate cut on the petitioner 's right to pension.
No case of discrimination is made out.
" As against this order, the appellant filed the Letters Patent Appeal No. 145 of 1978 before a Division Bench of the High Court contending that he was governed by the Junagadh Rules and he continued to be governed by those rules in spite of the fact that the Bombay Rules were sought to be made applicable to him.
In the alternative it was submitted that even if the Bombay Rules were to be made applicable, so far as the question of payment was concerned, inasmuch as they were not less advantageous on compulsory retirement, proportionate pension was payable to the appellant under the Bombay Rules of 1959.
The Division Bench examined both the alternative contentions with reference to the concerned rules and ultimately concluded thus: "Under either set of rules, therefore, it was open to the State Government to reduce the amount of pension payable to the petitioner since his service had not been found satisfac tory by the State Government under the Juna gadh State Rules or, in the alternative, under the Bombay Civil Services Rules, his service has not been found thoroughly satisfactory.
In view of these conclusions, we agree with the conclusion reached by A.D. Desai, 3.
though he did not examine the alternative case from the point of view of the Bombay Civil Services Rules.
" On the basis of the above findings, the appeal was dismissed.
Hence the present appeal.
Shri B.K. Mehta, learned counsel appearing on behalf of the, appellant assailed the impugned judgment of the Divi sion Bench of the High Court inter alia contending (1) that the High Court had clearly gone wrong in upholding the impugned order of reduction in pension made in the purported exercise of power under Rules 188 and 189 of the Bombay Rules in view of the finding of this Court in C.A. No. 409 of 1966, Takhatray Shivdatray Mankad 's, case (supra), where in it was held that the Bombay Rules could not be made applicable to the appellant; (2) that the appellant is not governed by the Saurashtra Rules because the said rules do not provide for compulsory retirement as pointed out by the Supreme Court in C.A. No. 409 of 1966 and (3) 223 that the State Government has not specifically stated in the show cause notice dated 17.7.1971 (Annexure C) as well as in the impugned order for reducing the pension (Annexure A) as to under what set of rules, namely, whether under the Juna gadh Rules or the Saurashtra Rules or the Bombay Rules they were exercising the power for reducing the pension and gratuity.
It has been further urged that clauses 3, 13 and 15 of Rule 241 A of Junagadh Rules operate in different fields in that while Rule 3 applies to cases of normal superannuation, Rule 13 applies to cases of compulsory retirement and, therefore, the observation of the Division Bench of the High Court in the Letters Patent Appeal approving the view taken by the learned single judge that Rule 3 controls Rule 13, would practically render Rule 13 as ultra vires article 311 of the Constitution of India, since compulsory retirement together with reduction of pension would amount to penalty in the absence of procedural safeguards.
Further it is urged that during the pendency of the appeal (C.A. No. 409/66) before this court, the Bombay Rules were extended to the Saurashtra State Covenanting servants and the superannuation age was raised to 58 years and therefore the appellant in any case was entitled to continue upto 60 years of age under the Junagadh Rules or upto 58 years of age under the Bombay Rules.
When it was so, the retirement of the appellant on attaining the age of 55 years should be construed as a case of compulsory retirement before the normal age of superannu ation which coupled with the order of reduction in pension would amount to penalty which could not have been imposed without following the prescribed procedure under the Con duct.
Discipline and Appeal Rules.
In support of this last submission, reliance was placed on the decision of this Court in Dalip Singh vs State of Punjab, [1961] I SCR 88 and Moti Ram Deka Etc.
vs General Manager, N.E.F. Railways, Maligaon, Pandu, Etc., ; In the alternative, he submitted assuming that the Bombay Rules apply to the case of the appellant, the enquiry as prescribed under Rule 189 of the Bombay Rules was not followed.
further if the case of the appellant is to be governed by the Saurashtra Rules, there was no provision for compulsory retirement as pointed out by the Supreme Court in C.A, No. 409 of 1966.
Finally he submitted that the impugned order for reduction of pension is bad in law and void be cause (1) no enquiry for the reasons as contemplated under Rule 189 of the Bombay Rules had been conducted and (2) admittedly the State had stated before the High Court in the course of hearing of the Civil Application on 24.10.1972 that the departmental enquiry had become 224 infructuous and was dropped as the appellant had already retired.
In any case, no enquiry could be held in pursuance to the show cause notice dated 17.7.1971 after a lapse of 4 years in view of the prohibition under proviso (b)(ii) of Rule 189 A of the Bombay Rules.
Therefore, the reduction of pension and gratuity by 50% is wholly unreasonable, unwar ranted and arbitrary.
Mr. C.A. Shah, learned counsel appearing on behalf of the respondent, stoutly opposed the submissions made on behalf of the appellant stating that the appellant was directed to retire on attaining the age of 55 years as per the judicial pronouncement of this court in C.A. No. 409/66 fixing his age of retirement at 55 years and hence the appellant cannot be permitted to be heard that his retire ment at the age of 55 should be construed as compulsory retirement, in view of the fact that the age of retirement was increased to 60 years under the Junagadh Rules and 58 years under the Bombay Rules.
According to Mr. Shah after the dismissal of the Special Civil Application No. 70 of 1970 by the Gujarat High Court holding that the right of the appellant to continue in service was judicially determined by this court and so it cannot be said that the State Gov ernment had discriminated the appellant, which decision of the High Court was upheld by this court by the order of dismissal of the Special Leave Petition on 21.1.1979.
It is urged by the learned counsel for the respondent that the appellant 's retirement having been a normal one, he was entitled to pension under Rule 241 A of the Junagadh Rules and as such the State Government in exercise of the powers under the said rules had passed the order dated 15.11.1977 reducing the pension and gratuity to 50% after affording an opportunity to him by issuing a show cause notice alleging several acts of misconduct to which notice the appellant did not give any explanation in spite of several opportunities afforded for over 6 years.
Hence the order of the Government reducing the pension and gratuity to 50% on the finding that the allegations of misconduct are proved is justified.
According to him Rules 188 and 189 of the Bombay Rules are inapplicable to the case of the appellant.
Moreover, these rules are in pari materia to Rule 241 A of the Junagadh Rules and therefore as held by the Division Bench of the High Court under either of the Rules, the Government is competent to reduce the pension for misconduct.
Coming to Rule 189 A which was introduced on 29.10.1971 after the issue of show cause notice in this case, it is said that this Rule provides that the proceedings already initiated shall be deemed to be a proceeding under this rule and continued and concluded by the authority.
In the present case, the proceedings were initiated even while the appel lant was in service and they were 225 dropped after his retirement.
Therefore, the appellant is not justified in contending that those proceedings relate to misconduct which had occurred 4 years prior to the institu tion and therefore they are not sustainable as per proviso (b)(ii) of Sec.
189 A of the Bombay Rules.
We shall scrutinize the respective contentions of the learned counsel with reference to the facts of this case and the position of law with reference to the relevant rules and the various judicial pronouncements of this court in a series of decisions dealing with powers vested in the ap pointing authority to reduce the pension and gratuity on proof of allegations of misconduct or negligence committed by the employee or on the proof of inefficiency and unsatis factory service.
The appellant who was retired compulsory on 12.1.1962 in pursuance of the order of the Public Works Department, State of Gujarat dated 12.10.1961 under the Bombay Rules when he had completed the age of 53 years, successfully contested that matter and obtained the order in his favour from this court in C.A. No. 409 of 1966 by the judgment dated 9.4.69 quashing the order of compulsory retirement and declaring "that the appellant was entitled to remain in service until he attained the age of 55 years" In pursuance of the above judgment of this court, the Government passed the following order on 4.8.1969, the relevant portion of which reads as under: "Shri T.S. Mankad should be deemed to have remained in service as Executive Engineer upto the date on which he had attained the age of 55 years i.e. upto 14.1.64 (A.N.) The orders issued in Government Order, Public Works Department No. DPA 1861 E dated 12.10.61 should be treated to have been cancelled.
" The aforesaid order was challenged by the appellant in Special Civil Application No. 70 of 1970 before the Gujarat High Court with a prayer to declare this order dated 4.8.1969 as illegal, void, ultra vires, bad in law and inoperative and the same was not binding on the appellant, besides challenging the constitutional validity of the latter part of the amended Rules 161(ii)(1) of the Bombay Rules.
But this Special Civil Application No. 70 of 1970 was rejected holding that the right of the appellant to continue in service was judicially determined by this court and that judicial determination was given effect to by the State Government by its order dated 4.8.1969.
As against this judg 226 ment, the appellant preferred Special Leave Petition before this court which was dismissed on 21.1.1979.
Thus the con troversy was put to an end and the result was that the appellant was not entitled to continue in service beyond 55 years of age.
Hence the contention of the learned counsel for the appellant that the appellant is entitled to avail the benefit of the increase of age of superannuation fixing it at 60 years under the Junagadh Rules or at 58 years under the Bombay Rules cannot be accepted.
The further submission made on behalf of the appellant that his retirement should be construed only as compulsory retirement coupled with the order of reduction in pension and gratuity amounting to penalty without following the procedures prescribed under the Conduct, Discipline and Appeal Rules, is also equally to be dismissed as devoid of any merit since the appellant was retired only in accordance with the pronouncement of this court.
We have now to examine whether the propositions of law expatiated in the decisions cited by Mr. B.K. Mehta can be made applicable to the facts of this instant case.
In Dalip Singh vs State of Punjab, the appellant therein namely, Dalip Singh was retired from service for 'administrative reasons '.
He brought a suit on a plea that the order of his retirement amounted to removal from service within the meaning of article 311(2) of the Constitution.
The Trial Court decreed the suit in his favour.
On appeal by the State, the High Court dismissed the suit holding that the order of compulsory retirement in that case did not amount to removal from service within the meaning of article 3 11 of the Constitution.
As against this, Dalip Singh approached this court.
This Court held that there were no basis for saying that the order of retirement contained any imputation or charge against the officer and that he had been allowed full pension as provided in Rule 278 of the Patiala State Regulations, on the strength of which Dalip Singh was re tired and that the order of retirement was hardly by way of punishment.
In that view, this court agreed with the view taken by the High Court and dismissed the appeal.
In Moti Ram Deka Etc.
General Manager, N.E.F. Rail ways, Maligaon, Pandu, Etc.
; , the only question for consideration was whether the termination of services of a permanent Railway servant (Civil) under Rule 148(3) and 149(3) of the Indian Railway Establishment Code amounted to removal under article 311(2) of the Constitution of India.
Majority of the seven judges Bench having regard to the facts therein held that the termination of services of a permanent servant otherwise than on ground of superannuation or compulsory retirement, must per se amount to his removed and if by 227 Rule 148(3) or Rule 149(3), such a termination is brought about, the Rule clearly contravenes article 311(2) and so it must be held to be invalid.
On carefully going through both the decisions, we are of the firm view that these two deci sions cannot be of any assistance to the case of the appel lant since in the present case, the appellant 's retirement on attaining the age of 55 years, pursuant to the declara tion of this Court was a normal retirement on reaching the age of superannuation and not a compulsory retirement by way of punishment for misconduct as contended by the appellant.
Next we shall deal with the respective contentions of both the parties with reference to the Junagadh Rules and the Bombay Rules.
It may be mentioned here that the appel lant himself under the ground (h) of his Special Leave Petition had stated that his services were to be governed by the Junagadh Rules.
It was also urged on behalf of the respondent that the appellant 's retirement being a normal one, he is entitled to pension under Junagadh Rules and the State Government in exercise of the power vested in it had passed the order dated 15.11.
1977 reducing the pension and gratuity to 50%.
As pointed out by the Division Bench of the High Court, under the scheme of the Junagadh Rules as per clause 10 of Rule 241~A, the pensions are admissible for superior service of not less than 10 years and they are divided into 4 classes, namely, (1) compensation pension; (2) invalid pension; (3) superannuation pension; and (4) retiring pension.
As we are concerned only with the superan nuation pension in the present ' case, we would refer to the relevant clause which reads as follows: "(13) Superannuation pension is admissi ble only on attaining the age of 60 years, except in cases in which the authorities consider it desirable in the interest of the State an officer should retire on attaining the age of 55 years or at any time thereafter on such superannuation pension as he may have earned at the time of retirement.
" A bare perusal of the above clause shows that superannu ation pension is admissible to the State Government servant on his attaining the age of 60 years, save in cases in which the authorities consider in the interest of the State to retire an officer on attaining the age of 55 years or at any time thereafter on such superannuation pension as he may have earned at the time of his retirement.
Clause 15 of Rule 24 '1 A deals with the proportionate pension.
As clause 3 of Rule 241 A is material for our purpose, that clause is reproduced hereunder: 228 "The full amount of pension or gratuity admissible under the rules will not be granted unless the service is proved from State records on receipt of an application for pension or gratuity from the retired officer in Form No. 53 and will be liable to reduction in the absence of such proof or if the service is not reported by the Head of the Department to have been satisfactory." As per this clause, the Government servant will be entitled to full amount of pension or gratuity only if his service is proved from the records satisfactory lest the pension will be liable to reduction.
A combined reading of clauses 3, 13 and 15 shows that clause 3 is an exception to the general scheme laid down in clauses 13 and 15.
On careful considera tion of this rule, we see no merit in the submissions made by the learned counsel that these clauses operate in differ ent fields and therefore observations of the High Court that Rule 3 controls Rule 13 would render Rule 13 as ultra vires article 311 of the Constitution of India, since compulsory retirement together with reduction of pension would amount to penalty in the absence of the procedural safeguards.
The Government in its detailed order dated 15.11.1977 has set out the reasons for reducing the amount of pension and gratuity.
The relevant portion of the order reads thus: "Government is satisfied that the services of Shri T.S. Mankad, Executive Engineer have not been found to be thoroughly satisfactory.
Accordingly Government hereby orders that the pension and Death cum Retirement Gratuity, which may be accepted by the Accountant Gener al, Ahmedabad as admissible under the rules shall be reduced by the specified extents aS under: (i) Amount of reduction in pension = 50% (Fifty percent) (ii) Amount of reduction in gratuity = 50% (Fifty percent)." According to the respondent, the appellant instead of giving a proper explanation to the show cause notice dated 17.7.1971 entered into long correspondence with respondent raising all sorts of irrelevant questions and seeking sever al adjournments thereby adopting delayed tactics and further the appellant though informed the authorities that he would inspect certain documents in the Department for making his 229 reply, he would not do so and therefore according to the learned counsel it was in those circumstances, the Govern ment was constrained to pass this order dated 15.11.1977 after a lapse of more than 6 years taking into consideration that his service had not been found thoroughly satisfactory for the reasons mentioned in the show cause notice to which he had not given any reply.
We see much force in the above submission, made by Mr. Shah the learned counsel appearing for the respondent.
In view of the above position, we are of the view that the impugned order dated 15.11.1977 cannot ' be said to contravene the Junagadh Rules.
Now we shall pass on to the alternative contention on the assumption that Bombay Rules would apply to the case of the appellant.
The relevant Rules are Rules 188 and 189 which are reproduced below: "188.
Government may make such reduction as it may think fit in the amount of the pension of a Government servant whose service has not been thoroughly satisfactory." "189.
Good conduct is an implied condition of every grant of pension.
Government may with hold or withdraw a pension or any part of it if the pensioner be convicted of serious crime or be found to have been guilty of grave misconduct either during or after the comple tion of his service, provided that before any order to this effect is issued, the procedure referred to in Note 1 to Rule 33 of the Bombay Civil Services Conduct, Discipline and Appeal Rules shall be followed.
" An examination of Rule 188 shows that the Government may reduce the amount of pension of a Government servant as it may think fit if the service of the Government servant has not been thoroughly satisfactory.
As per Rule 189 the Gov ernment may withhold or withdraw a pension or part of it if the petitioner is convicted of severe crime or found to have been guilty of misconduct during or after the completion of service provided that before any order to this effect is issued, the procedure referred to the Bombay Civil Services Conduct, Discipline and Appeal Rules are followed.
These Rules thus, have expressly preserved the State Government 's power to reduce or withhold pen 230 sion by taking proceedings against a Government servant even after his retirement.
The validity of these rules have not been challenged.
These two rules came for interpretation before this court in State of Maharashtra vs M.H. Mazumdar, ; and this Court expressed its view with reference to these rules as follows: "The aforesaid two rules empower Government to reduce or withdraw a pension.
Rule 189 contem plates withholding or withdrawing of a pension or any part of it if the pensioner is found guilty of grave misconduct while he was in service or after the completion of his serv ice.
Grant of pension and its continuance to a Government servant depend upon the good con duct of the Government servant.
Rendering satisfactory service maintaining good conduct is a necessary condition for the grant and continuance of pension.
Rule 189 expressly confers power on the Government to withhold or withdraw any part of the pension payable to a Government servant for misconduct which he may have committed while in service.
This rule further provides that before any order reduc ing or withdrawing any part of the pension is made by the competent authority the pensioner must be given opportunity of defence in ac cordance with the procedure specified in Note I to Rule 33 of the Bombay Civil Services Conduct, Discipline and Appeal Rules.
The State Government 's power to reduce or withhold pension by taking proceedings against a Gov ernment servant even after his retirement is expressly preserved by the aforesaid rules.
The validity of the rules was not challenged either before the High Court or before this Court.
In this view, the Government has power to reduce the amount of pension payable to the respondent.
In M. Narasimhachar vs State of Mysore, [1960] 1 SCR 981: AIR 1960 SC 247 and State of Uttar Pradesh vs Brahm Datt Sharma, [1987] 2 SCC 179 similar rules authorising the Government to withhold or reduce the pension granted to Government servant were interpreted and this Court held that merely because a Gov ernment servant retired from service on at taining the age of superannuation he could not escape the liability for misconduct and negli gence or financial irregularities which he may have committed during the period of his serv ice and the Government was entitled to with hold or reduce the pension granted to a Gov ernment servant.
" 231 In compliance with the principle of natural justice requir ing an opportunity of hearing to be afforded to a Government servant before an order affecting his fight is passed and in accordance with the procedure specified in Note I to Rule 33 of the Bombay Civil Services Conduct, Discipline and Appeal Rules a show cause notice as pointed out earlier had been issued to the appellant on 17.7.197 1 calling upon him to show cause within 30 days from the date of the receipt of the notice as to why the proposed reduction should not be made in the pension and death cum retirement gratuity.
But the appellant failed avail that opportunity to disprove the allegations and satisfy appointing authority that he ren dered satisfactory service throughout.
It was in those circumstances the appointing authority taking into consider ation of the serious allegations levelled against him in the disciplinary proceedings had thought it fit to impose reduc tion in the pension and gratuity in accordance with Rules 188 and 189 of the Bombay Rules on the ground that the appellant had not rendered satisfactory service.
The appel lant is not entitled to take advantage of clause (b)(ii) of the proviso to Section 189 A of the Bombay Rules since the proceedings had been instituted long before his retirement.
Further as per clause (a) of the said proviso, the proceed ings already instituted while the Government servant was in service could be continued and concluded even after his retirement.
Hence for the reasons stated above the impugned order dated 15.11.1977 reducing the pension and gratuity cannot be said to contravene the Bombay Rules.
At the risk of repetition, we may point out that three departmental proceedings containing serious allegations of misconduct were instituted against the appellant of which one was instituted even before he was compulsorily retired on 12.1.1961 and other two proceedings were instituted in the year 1963 that is much earlier the appellant attaining the age of superannuation on 14.1.1964.
These departmental proceedings are stated to have become infructuous consequent upon the retirement of the appellant on attaining the age of superannuation.
To the show cause notice dated 17.7.1971 proposing to inflict reduction in pension and gratuity the appellant, instead of giving a proper reply, disproving the charges and satisfying the appointing authority that he rendered satisfactory service throughout had delayed the matter for over a period of six years.
It was in that situa tion that the impugned order dated 15.11.1977 happened to be passed.
The learned counsel for the appellant strenuously contended that after the disciplinary inquiries had been dropped on the ground that they had become infructuous, the Government was not right and 232 justified in reducing the pension and gratuity on the same charges which were the subject matter of the enquiries.
This argument of the learned counsel, in our opinion, does not merit consideration because the charges against the appel lant were not made use of for awarding any punishment after his retirement from service but only for determining the quantum of the appellant 's pension in accordance with the rules relating to the payment of pension and gratuity.
In this connection it would be apposite to refer the observa tion of the Supreme Court in State of Uttar Pradesh vs Brahm Datt Sharma & Anr., [1987] 2 SCC 179 which we quote below: "If disciplinary proceedings against an em ployee of the Government are initiated in respect of misconduct committed by him and if he retires from service on attaining the age of superannuation, before the completion of the proceedings, it is open to the State Government to direct deduction in his pension on the proof of the allegations made against him.
If the charges are not established during the disciplinary proceedings or if the disci plinary proceedings are quashed it is not permissible to the State Government to direct reduction in the pension on the same allega tions but if the disciplinary proceedings could not be completed and if the charges of serious allegations are established, which may have bearing on the question of rendering efficient and satisfactory service, it would be open to the Government to take proceedings against the Government servant in accordance with rules for the deduction of pension and gratuity.
" The above principle laid down in that case squarely applies to the facts of the present case.
For all the reasons hereinbefore stated we hold that the order of State Government dated 15 11 1977 reducing the amount of pension and the gratuity on the ground that the service of the appellant had not been found thoroughly satisfactory by the appointing authority cannot be assailed.
In that view of the matter we see no reason to interfere with the impugned judgment of the High Court.
In the result, the appeal is dismissed but without any order as to costs.
Y.L. Appeal dis missed.
| IN-Abs | This appeal is directed against the order of the Gujarat High Court upholding the order dated the 15th November, 1977 passed by the State of Gujarat whereby the amounts of gratu ity and pension payable to the appellant on superannuation were reduced by 50 per cent.
The appellant was born on January 15, 1909 and after obtaining a Degree in Bachelor of Engineering (Civil) joined the service in the former State of Junagarh and as such was governed by the Junagadh State Pension and Parwashi Allow ances Rules of 1932 which were duly codified and published in the Junagadh State Account Code, State of Junagadh was integrated into the State of Saurashtra on 20.1.1949 and the services of the appellant were absorbed in the State of Saurashtra.
The conditions of service of the absorbed serv ants were duly protected and a proclamation providing a guarantee that the service conditions of absorbed servants could not be varied to their disadvantage was issued on 20.1.49 that being the date of merger of the State.
The State of Saurashtra made the Saurashtra Covenanting State Servants (Superannuation Age) Rules, 1955.
Rule 3(i) thereof provided that a Government servant shall, unless for special reasons otherwise directed by Government retire from service on his completing 55 years of age.
After the merger of the State of Saurashtra with State of Bombay the old Bombay Civil Service Rules, 1959 were made applicable to Saurashtra area and on 1.7.59 the Bombay Civil Service Rules, 1959 were promulgated.
As per clause (c)(2)(ii)(1) of Rule 161, Government servants in the Bombay Service of Engineers Class I were to retire on reaching the age of 55 years.
215 The appellant was compulsorily retired by the State on 12.10.1961 with effect from 12.1.1962 when he had completed the age of 53 years.
The appellant challenged that order by means of writ before the High Court and having remained unsuccessful he took up the matter before this Court and this Court by its judgment dated 9.4.69 allowed the appeal and declared that the appellant was entitled to remain in service until he attained the age of 55 years and that the impugned order compulsorily retiring him at the age of 53 years was invalid and ineffective.
In order to give effect to this Court 's order mentioned above, the Government of Gujarat on 4.8.69 intimated the appellant that he will be deemed to have remained in service uptil 14.1.64, when he attained the age of 55 years.
as he had attained that age prior to the decision of this Court.
In the meantime the age of superannuation of the employ ees of the State of Gujarat had been raised from 55 years to 58 years.
The appellant in order to take benefit of the change moved a writ petition before the High Court of Guja rat but remained unsuccessful.
Thereupon he filed a special leave petition before this Court.
This Court by its order dated 21.7.1975 declined to interfere.
Thus the appellant was not entitled to continue in service beyond 55 years of age.
It may be mentioned that prior to his compulsory retire ment there were three departmental inquiries pending against the appellant, on grounds of slackness in supervision.
overpayment to contractors and loss to the Government and payment in advance of the receipt of goods.
The first in quiry was initiated on 6.2.61.
second on 11.4.1963 and the third on 17.8.63.
These inquiries remained pending against the appellant till 1971.
The appellant filed yet another Special Civil Applica tion No. 504 of 1971 before the High Court praying for issue of a writ of mandamus directing the State to pay to the appellant all his outstanding salary.
allowances.
including due increments after the efficiency bar from 12.1.
1902 to 14.1.
1964 together with 6% interest.
An application for interim relief was also filed but was withdrawn later on the representation perhaps made by the State that the enquiries had become infructuous consequent to appellant 's retirement.
In the meanwhile the State of Gujarat issued a show cause notice dated 17.7.1971 to the appellant intimating him that the Government 216 considered his service record and did not find the same thoroughly satisfactory for the reasons mentioned in the said notice and accordingly the Government proposed to make 50% reduction both in the payment of Gratuity and Pension admissible to him.
The appellant submitted his reply and these proceedings due to laches on the part of the appellant went on for a considerable time and the Government passed the final order on 15.11.1977 reducing the Pension and Gratuity by 50 per cent.
To challenge this Order the appellant again filed Spe cial Civil Application before the High Court for quashing the order reducing his Pension and gratuity.
The High Court dismissed the application in limine on 8.3.1978 observing that in the present case the Government recorded reasons why it came to the conclusion that the petitioner 's Service was unsatisfactory and therefore, put a proportionate cut in the Pension.
as no case of discrimination was made out.
The appellant, preferred Letters Patent Appeal.
against the order passed by the Single Judge.
His contention before the Division Bench was that he continued to be governed by the Junagadh Rules in spite of the fact that the Bombay Rules were sought to be made applicable to him.
His alternative contention was that even if the Bombay Rules were to be made applicable, so far as the question of payment was concerned, inasmuch as they were not less advantageous on compulsory retirement.
proportionate pension was payable to the appel lant under the Bombay Rules of 1959.
The Division Bench held that under either set of Rules, it was open to the State Government to reduce the amount of pension payable to the petitioner as his service had not been found satisfactory by the State under Junagadh Rules as also under Bombay Civil Service Rules.
The High Court accordingly dismissed the Letter Patent Appeal.
Hence this appeal.
It was contended on behalf of the appellant that the High Court went wrong in upholding the impugned order reduc ing the amounts of pension & gratuity in exercise of its power under Rules 188 and 189 of the Bombay Rules, as it had already been ruled by this Court in its judgment in Civil Appeal No. 409 of 1966, that Bombay Rules could not be made applicable to the appellant.
It was urged that the appellant was not governed by Saurashtra Rules either, and it was asserted that either in the show cause notice or in the impugned order.
it Is nowhere specifically stated as to under what set of Rules, the impugned order Imposing a cut in the Pension or Gratuity has been passed.
A contention was also raised based on clauses 3, 13 & 15 of Rule 241 A of Junagadh Rules stating that they operate in different fields.
It was added that no inquiry as contemplated under Rule 189 had been made and admittedly the State had stated before the High Court that 217 the departmental inquiries had become infructuous consequent upon the retirement of the appellant.
According to the counsel for the State the appellant having been retired in pursuance of a judicial order passed by this Court, he cannot now be heard that his retirement at the age of 55 years should be construed as compulsory re tirement the superannuation age having been increased to 60 years under Junagadh Rules, that the retirement of the appellant is normal one; he was entitled to pension under Rule 241 of the Junagadh Rules and the State has passed the impugned order after complying with the provisions of Rules or gratuity be not reduced.
Dismissing the appeal.
this Court, HELD: Rules 188 and 189 have expressly preserved the State Government 's power to reduce or withhold pension by taking proceedings against a Government Servant even after his retirement.
[229H; 230A] In the instant case, in accordance with the procedure specified in Note I to Rule 33 of the Bombay Civil Services Conduct, Discipline and Appeal Rules a show cause notice had been issued to the appellant on 17.7.71 calling upon him to show cause within 30 days from the date of the receipt of the notice as to why the proposed reduction should not be made in the Pension and death cum retirement gratuity.
The appellant failed to avail that opportunity to disprove the allegations and satisfy his appointing authority that he rendered satisfactory service throughout.
It was in those circumstances the appointing authority thought fit to impose reduction on the Pension and gratuity in accordance with Rules 188 and 189 of the Bombay Rules on the ground that the appellant had not rendered satisfactory service.
The appel lant is not entitled to take advantage of clause (b)(ii) of the proviso to Rule 189 A since the proceedings had been instituted long before his retirement.
Further as per clause (a) of the said proviso the proceedings were already insti tuted long before his retirement.
Further as per clause (a) of the said proviso, the proceedings already instituted while the Government servant was in service could be contin ued and concluded even after his retirement.
Therefore the order dated 15.11.1977 reducing the pension and gratuity cannot be said to contravene the Bombay Rules.
[231A E] A combined reading of clauses 3, 13 and 15 of Rule 241 A of 218 Junagadh Rules shows that clause 3 is an exception to the general scheme laid down in clauses 13 and 15.
[228C] Bholanath J. Thakar vs State of Saurashtra, AIR 1954 SC 680; Dalip Singh vs State of Punjab, ; Moti Ram Deka etc.
vs General Manager NEF Railways, Maligaon, Pandu etc.
; , ; State of Maharashtra vs M.H. Mazumdar; , and M. Narasimhachar vs State of Mysore, [1960] 1 SCR 981, referred to.
State of U.P.v.
Brahm Datt Sharma, [1987] 2 SCC 179, fol lowed.
|
tion (Criminal) No. 395 of 1988.
(Under Article 32 of the Constitution of India).
Miss Kamini Jaiswal and S.C. Patel for the Petitioner.
T.U. Mehta and M.N. Shroff for the Respondents.
The Judgment of the Court was delivered by RATNAVEL PANDIAN, J.
This writ petition under Article 32 of the Constitution of India is filed by the petitioner (the detenu herein) canvassing the correctness of the detention order dated 30.8.88 made by the detaining authority namely Commissioner of Police, Ahmedabad city in exercise of the powers conferred on him under sub Section 1 of Section 3 of the Gujarat Prevention of Anti social Activities Act 1985 (hereinafter referred as the Act) with a view to preventing the detenu from acting in any manner prejudicial to the maintenance of public order in the area of Ahmedabad city.
In pursuance of the above order, the detenu is detained in the Central Jail, ' Sabarmati.
The detenu has been furnished with the copies of the grounds of detention and all other material documents inclusive of the statements of the wit nesses on the basis of which the detaining authority reached his subjective satisfaction for passing this impugned order.
The sum and substance of the alleged activities of the detenu 185 mentioned in grounds of detention are that the detenu was indulging in criminal and anti social activities in the area of Dariyapur Kalupur of Ahmedabad city by illegally storing and selling foreign liquor and beer either personally or through his associates and that in this regard the following four cases were registered under the provisions of the Bombay Prohibition Act of 1949.
We reproduce that relevant portion giving the details of the cases as found in the grounds of detention: Sr.
No. Police CR No. Section Qty Disposals Station Seized 1 Kalupur 130/88 Prov.
66(B) 8 Ltr.
beer Pending in court 2.
Kalupur 152/88 500 ML beer order pending 3.
Kalupur 156/88 268 bottle Pending in foreign and Court 122 bottle box 4.
Dariyapur 80/88 Prov.
66(B) foreign order pending 65(A)81 liquor From the above materials, the detaining authority has concluded that the detenu was a bootlegger within the mean ing of Section 2(b) of the Act.
It is further stated that the detenu besides indulging in the activities of bootlegging, he and his companions were creating terror in that area by beating innocent people in public in Ahmedabad city which in turn affected adversely the maintenance of public order.
Further it is stated that the detenu and his associates always armed with dangerous weapons like bombs, cartridges etc.
were threatening the people in the city of Ahmedabad in respect of which a case has been registered which is re produced as set out in the grounds of detention: section No. Police Station CR No. Section Disposal (1) Kalupur 2/88 IPC 307, 120(B) Under 212, Terrorist inquiry Act, Sec.
3(1)(3) 186 Explosive Sec. 4, 5 Arms Act; 25(1)(A)(c); Bombay Police Act 135(1) In addition to the above it is alleged that the detenu, being the main member of the gang of Abdul Latif Abdul Wahab Shaikh entered into a conspiracy to spread an atmosphere of fear and terror among the residents of that area and also a sense of insecurity among the people.
On the above materials, mentioned in the grounds of detention, the detaining authority has come to the conclu sion that the detenu is a 'dangerous person ' within the meaning of Section 2(c) of the Act.
Thus the detaining authority. has found that the detenu was not only a 'bootlegger ' but also a 'dangerous person ' within the definitions of Section 2(b) and 2(c) of the Act.
For drawing the above conclusion the detaining authority has also relied upon the statements of the witnesses whose names are not disclosed.
Assailing the legality of the impugned order the learned counsel appearing on behalf of the petitioner put forth several contentions one of which being that the conclusions drawn by the detaining authority that the detenu is a 'bootlegger ' as well as a 'dangerous person ' are not sup ported by the materials placed before him and that there is nothing to show that the activities of the detenu either affected or were likely, to affect adversely the maintenance of public order.
We shall now deal with the above contention in the light of the construction of the expressions 'bootlegger ' and 'dangerous person ' read with Section 3(4) of the Act with the explanation annexed thereto.
The expression "bootlegger" and "dangerous person" occurring in Section 2(b) and (c) of the Act read as fol lows: "2(b) "bootlegger" means a person who distills, manufac tures, stores, transports, imports, exports, sells or dis tributes any liquor, intoxicating drug or other intoxicant in contravention of any provision of the Bombay Prohibition Act, 1949 (Bom.
XXV of 1949) and the rules and orders made thereunder, or any other law for the time being in 187 force or who knowingly expends or applies any money or supplies any animal, vehicle, vessel or other conveyance or any receptacle or any other material whatsoever in further ance or support of the doing of any of the things described above by or through any other person, or who abets in any other manner the doing of any such thing; 2(c) "dangerous person" means a person, who either, by himself or as a member of or leader of a gang, habitually commits, or attempts to commit or abets the commission of offences, punishable under Chapter XVI or Chapter XVII or Chapter XXII of the Indian Penal Code, (XLV of 1860), or any of the offences punishable under Chapter V of the (54 of 1959).
" To bring the detenu herein within the definition of Section 2(b) of the Act, four cases are made mention of in the grounds of detention which we have already extracted.
All the four cases were registered in the year 1988.
The trials in respect of two of the four cases were pending before the Court and in respect of the other two, the orders were pending.
Notwithstanding the result of those cases and the quantity of liquor seized from the detenu, we shall examine the legality of the detention order, in the ensuing part of this judgment, even assuming that the detenu is a 'bootlegger ' within the ambit of Section 2(b) of the Act.
For the conclusions drawn by the detaining authority that the detenu was a 'dangerous person ' as defined under Section 2(c) of the Act, the detaining authority has taken into consideration the registration of a case in crime number 2/88 in Kalupur police station.
Added to that, it is generally stated in the grounds of detention that the detenu and his associates were beating the people in public and that the detenu had entered into a conspiracy to spread an atmosphere of fear and terror in the city of Ahmedabad city being the main member of the gang of Abdul Latif Abdul Wahab Shaikh.
But no specific instance is given either in the grounds of detention order or in any of the statements of the witnesses.
To bring a person within the definition of Section 2(c) of the Act it must be shown that the person either by him self or as a member of or a leader of a gang habitually commits or attempts to commit or abets the commission of offences punishable under Chapter XVI or XVII or XXII of the Indian Penal Code or any of the offences punishable under 188 Chapter V of the .
In the case registered in crime No. 2/88 in Kalupur police station, the detenu is said to have committed offences under Sections 307, 120 B, 212 of the Indian Penal Code and Section 25 of the besides under the provisions of various other Acts.
Though Section 307 falls under Chapter XVI, the offences under Sections 120 B and 212 fall under Chapters VI and XI of the Indian Penal Code respectively.
Therefore, these two offences are not covered under Section 2(c).
The offence registered under Section 25 of the falling under Chapter V of the said Act is included within the said definition clause.
But what the section requires is that to bring a person within that definition, it must be shown that he is habitually committing or attempting to commit or abetting the commis sion of offences enumerated therein.
In the instant case, the registration of only one case is mentioned under the provisions of Section 307 of IPC and 25 of the falling within the said definition clause.
Therefore, this solitary incident would hardly be sufficient to conclude that the detenu was habitually committing or attempting to commit or abetting the commission of offences.
The general and vague allegations made in the grounds of detention that the detenu was taking active part in communal riots and entered into conspiracy to spread an atmosphere of terror being a member of the gang of Abdul Latif Abdul Wahab Shaikh in the absence of any specific instance or registration of any case thereof, cannot be construed as offences falling under any of the above three chapters of the IPC or Chapter V of the enumerated under Section 2(c) so as to characterise the detenu as a 'dangerous person '.
Hence we are of the view that the conclusions drawn by the detaining authority that the detenu is a dangerous person is bereft of sufficient material as required under Section 2(c).
Therefore, we hold that the detenu cannot be termed as a 'dangerous person '.
No doubt as per Section 6 of the Act, grounds of deten tion are severable and as such the order of detention should not be deemed to be invalid or inoperative if one or some of the grounds are invalid.
In the present case, the question for consideration is that even if the impugned order cannot be sustained on the ground that the detenu is a 'dangerous person ', can it be sustained on the other ground that the detenu is a 'bootlegger '.
The answer is that the order could be sustained, provided there are materials to show that the bootlegging activities of the detenu affected adversely or were likely to affect the maintenance of public order.
A conjoint reading of Section 2(b) and Section 3(4) with the explanation annexed thereto clearly spells out 189 that in order to clamp an order of detention upon a 'boot legger ' under Section 3 of the Act, the detaining authority must not only be satisfied that the person is a bootlegger within the meaning of Section 2(b) but also that the activi ties of the said bootlegger affect adversely or likely to affect adversely the maintenance of public order.
Reverting to the facts of this case, the vague allegations in the grounds of detention that the detenu is the main member of the gang of Abdul Latif Abdul Wahab Shaikh indulging in bootlegging activities and that the detenu is taking active part in such dangerous activities, are not sufficient for holding that his activities affected adversely or were likely to affect adversely the maintenance of public order in compliance with subSection 4 of Section 3 of the Act that the activities of the detenu have caused harm, danger or alarm or a feeling of insecurity among the general public or any Section thereof or a grave or widespread danger to life, property or public health as per the explanation to Section 3(4).
The offences registered in the above mentioned four cases against the detenu on the ground that he was dealing in liquor have no bearing on the question of maintenance of public order in the absence of any other material that those activities of the detenu have adversely affected the mainte nance of public order.
There is a catena of decisions dealing with the question of 'maintenance of public order '.
But we think that it will be sufficient to make reference to the following two deci sions.
This Court in Ashok Kumar vs Delhi Administration, [1982] SCC 403 has observed: "It is the potentiality of the act to disturb the even tempo of the life of the community which makes it prejudicial to the maintenance of public order." In a recent decision of this Court in Piyush Kantilal Mehta vs The Commissioner of Police, Ahmedabad City and Anr., Judgments Today 1988 (4) 703 a question similar to one before us arose for consideration.
In that case, the allega tions in the grounds of detention were that the detenu was a prohibition bootlegger, that he was indulged into the sale of foreign liquor and that he and his associates indulged in use of force and violence and also beating innocent citizens by which an atmosphere of fear was created.
In that case the detenu was alleged to have been caught red handed possessing English wines with foreign marks and in the second occasion he was caught while shifting 296 190 bottles of foreign liquor in an Ambassador car.
While deal ing with that case, this Court observed as follows: "It is true some incidents of beating by the petitioner had taken place, as alleged by the witnesses.
But, such inci dents, in our view, do not have any bearing on the mainte nance of public order.
The petitioner may be punished for the alleged offences committed by him but, surely, the acts constituting the offences cannot be said to have affected the even tempo of the life of the community.
It may be that the petitioner is a bootlegger within the meaning of Section 2(b) of the Act, but merely because he is a bootlegger he cannot be preventively detained under the provisions of the Act unless, as laid down in sub section (4) of Section 3 of the Act, his activities as a bootlegger affect adversely or are likely to affect adversely the maintenance of public order.
" The above observation, in our view, will be squarely applicable to the facts of this case, in view of the rea sons, we have already adverted to in the earlier portion of this judgment.
Hence for all the reasons aforesaid, we allow the Writ Petition and quash the impugned order of detention and direct the detenu to be set at liberty forthwith.
T.N.A. Petition allowed.
| IN-Abs | The petitioner was detained, under an order passed by the detaining authority under Section 3(1) of the Gujarat Prevention of Anti Social Activities Act, 1985, with a view to preventing him from acting in any manner prejudicial to the maintenance of public order.
The detaining authority reached his subjective satisfaction on the grounds (i) that the detenu was a 'bootlegger ' within the meaning of Section 2(b) of the Act because he was indulging in criminal and anti social activities by illegally storing and selling foreign liquor and beer and that four cases were registered against him under the Bombay Prohibition Act, 1949; (ii) that he was also a 'dangerous person ' within the meaning of section 2(c) of the Act because he, as a member of a partic ular gang, was spreading an atmosphere of fear and terror by beating innocent people in the Ahmedabad city thus affecting the public order adversely and a case was also registered against him under Section 120(B), 212 and 307 of the Indian Penal Code, 1860 and Section 25 of the Arms Act besides under the provisions of various other Acts.
The petitioner filed a writ petition in this Court challenging the validity of the detention order contending that the conclusions drawn by 183 the detaining authority were not supported by materials.
Quashing the detention order and allowing the Writ Petition, HELD: 1. To bring a person within the definition of Section 2(c) of the Act it must be shown that the person either by himself or as a member of or a leader of a gang habitually commits or attempts to commit or abets the com mission of offences punishable under Chapter XVI or XVII or XXII of the Indian Penal Code or any of the offences punish able under Chapter V of the Arms Act.
It must be shown that he is habitually committing or attempting to commit or abetting the commission of offences enumerated therein.
[187 H; 188B] 1.1 In the instant case, the detenu is said to have committed offences under Sections 307, 120 B, 212 of the Indian Penal Code and Section 25 of the Arms Act besides under the provisions of various other Acts.
Only one case registered under the provisions of Section 307 of the Indian Penal Code and Section 25 of the Arms Act fails within the said definition clause.
The other two offences registered under Sections 120 B and 212 are not covered under Section 2(c).
Therefore, this solitary incident would hardly be sufficient to conclude that the detenu was habitually com mitting or attempting to commit or abetting the commission of offences.
The general and vague allegations made in the grounds of detention that the detenu was taking active part in communal riots and entered into conspiracy to spread an atmosphere of terror being a member of a particular gang in the absence of any specific instance or registration of any case thereof, cannot be construed as offences falling under any of the above three chapters of the Indian Penal Code or chapter V of the Arms Act enumerated under Section 2(c) so as to characterise the detenu as a 'dangerous person '.
[188A E] 2.
A conjoint reading of Section 2(b) and Section 3(4) with the explanation annexed thereto clearly spells out that in order to clamp an order of detention upon a 'bootlegger ' under Section 3 of the Act, the detaining authority must not only be satisfied that the person is a 'bootlegger ' within the meaning of section 2(b) but also that the activities of the said bootlegger affect adversely or likely to affect adversely the maintenance of public order.
[188H, 189A] 2.1 In the instant case, the vague allegations in the grounds of detention that the detenu is the main member of a particular gang indulging in bootlegging activities and that he is taking active part in such dangerous activities, are not sufficient for holding that his 184 activities affected adversely or were likely to affect adversely the maintenance of public order in compliance with sub Section 4 of the Section 3 of the Act that the activi ties of the detenu have caused harm, dangeror alarm or a feeling of insecurity among the general public or any Sec tion thereof or a grave or widespread danger to life, property or public health as per the explanation to Section 3(4).
The offences registered in the.
four cases, under the Bombay Prohibition Act, 1949 against the detenu on the ground that he was dealing in liquor have no bearing on the question of maintenance of public order in the absence of any other material that those activities of the detenu have adversely affected the maintenance of public order.
[189A D] Ashok Kumar vs Delhi Administration, and Piyush Kantilal Mehta vs The Commissioner of Police, Ahmedabad City and Anr, Judgments Today, [1988] 4 703, applied.
|
he refund of cess paid by them.
[304D] & CIVIL ORIGINAL JURISDICTION: Writ Petitions Nos.
2687, 5822 of 1983 etc.
(Under Article 32 of the Constitution of India).
Dr. Shankar Ghosh, T.S.K. Iyer, M.L. Lahoty, P.S. Jha, D.D. Gupta, S.K. Jain, D.P. Mukherjee, S.R. Srivastava, P.N. Tewari and Parijat Sinha for the petitioners.
Tapas Ray, Anil B. Dewan, T.C. Roy, G.S. Chatterjee, Dalip Sinha and H.K. Puri for the respondents.
The judgment of the Court was delivered by PATHAK, CJ.
By these writ petitions and transferred cases the petitioners challenge the validity of the levy of cess in respect of tea estates under the West Bengal Rural Employment and Production Act, 1976.
The West Bengal Rural Employment and Production Act, 1976, (shortly referred to as the "West Bengal Act") is intended to provide the additional resources for the promo tion of employment in rural areas and for implementing rural production programmes.
The additional resources are sought to be raised from two sources, a surcharge on land revenue under section 3 of the Act and a rural employment cess under section 4 of the Act.
We are concerned here with the levy of the rural employment cess.
297 Originally section 4 of the West Bengal Act provided as follows: "4.(1) On and from the commencement of this Act, all immovable properties on which road and public work cesses are assessed according to the provisions of the Cess Act, 1880, shall be liable to the payment of rural employment cess: Provided that no raiyat who is exempted from paying revenue in respect of his holding under clause (a) of subsection (1) of section 23B of the West Bengal Land Reforms Act, 1955, shall be liable to pay rural em ployment cess.
(2) The rural employment cess shall be levied annually (a) in respect of lands, at the rate of six paise on each rupee of development value thereof; (b) in respect of coal mines, at the rate of fifty paise on each tonne of coal on the annual dispatches therefrom; (c) in respect of mines other than coal mines and quarries, at the rate of six paise on each rupee of annual net profits thereof.
" The West Bengal Taxation Laws (Amendment) Act, 1982 amended the West Bengal Act and by section 7(b) thereof amend ments were made in section 4(2) of the West Bengal Act with effect from 1 April, 1981.
As a result, as from that date, section 4(2) in so far as it is material read as follows: 4(2).
The rural employment cess shall be levied annually (a) in respect of lands, other than a tea estate, at the rate of six paise on each rupee of development value thereof; (aa) in respect of a tea estate at such rate, not exceeding rupees six on each kilogram of tea on the dispatches from such tea estate of tea grown therein, as the State Government may, by notification in the Offi cial Gazette, fix in this behalf: 298 Provided that in calculating the dispatches of tea for the purpose of levy of rural employment cess, such dispatches for sale made at such tea auction centres as may be recognised by the State Government by notification in the Official Gazette shall be excluded.
Provided further that the State Government may fix different rates on des patches of different classes of tea.
Explanation For the purpose of this section, "tea" means the plant Camellia Sinen sis (L) O. Kuntze as well as all varieties of the product known commercially as tea made from the leaves of the plant Camellia Sinensis (L) O. Kuntze, including green tea and green tea leaves, processed or unprocessed;" Section 4 was also amended further by the insertion of sub section
(4) which provided: "(4) The State Government may, if it considers necessary so to do, by notification in the Official Gazette, exempt such categories of despatches or such percentage of despatches from the liability to pay the whole or any part of the rural employment cess, or reduce the rate of the rural employment cess payable thereon, under clause (aa) of sub section (2), on such terms and conditions as may be speci fied in the notification.
Provided that the State Government may, at any time, add to, amend, vary of rescind any such notification.
" Thereafter the West Bengal Taxation Laws (Amendment) Act, 1982 was enacted with effect from 1 October, 1982.
section 4(2) of the West Bengal Act was amended and under clause (aa) thereof the first proviso was omitted.
Pursuant to the amendments in the West Bengal Act in 1981 and 1982, various notifications were issued by the State Government, which for our purpose broadly cover these different periods: (a) First Period: 1 April, 1981 to 30 Septem ber, 1982 299 Rural employment cess was levied at the rate of Rs.5 per Kg.
on all despatches of tea, but in respect of despatches to two tea auction centres within West Bengal the rate of duty was nil, and in respect of tea sold in West Bengal through registered dealers otherwise than through the two tea auction centres the rate of tax was Rs.2.50 per Kg.
(b) Second Period: 1 October, 1982 to 28 March, 1984 Rural employment cess was levied at the rate of Rs. 1.50 per Kg.
on all despatches of tea except that for despatches to the said two tea auction centres the rate of levy was 30 paise per Kg.
(c) Third Period: 29 March, 1984 onwards Rural employment cess was levied at the rate of Rs.3 per Kg.
on all despatches of tea except that for despatches to the said two tea auction centres in West Bengal the rate of tax was only 30 paise per Kg.
Learned counsel for the petitioners contend that the levy of the cess under section 4(1) read with section 4(2)(aa) of the West Bengal Act as amended in 1981 and 1982 is ultra vires inasmuch as the statutory provisions violate Article 14 and Article 301 of the Constitution and also lie outside the legislative competence of the State Government.
It seems to us that these cases can be disposed of on the short ground based on Article 301 of the Constitution and want of legis lative competence.
There can be no dispute that the rural employment cess is a tax.
cannot also be disputed that if the levy of a tax on goods has the direct and immediate effect of impeding the movement of goods throughout the territory of India, there is a violation of Article 301 of the Constitution.
If, however, the impact of the levy is indirect or remote, no valid complaint can be made in relation to Article 301.
In Atiabari Tea Co., Ltd. vs The State of Assam and Others, ; , Gajendragadkar, J (as he then was) speaking for the majority in that case held that tax laws would effect trade and commerce and could be violative of the freedom guaranteed by Article 30 1, provided they di rectly or immediately affect the freedom of trade and com merce and not indirectly or in a remote manner.
This princi ple was affirmed by this Court in The Automobile Transport (Rajasthan) 300 Ltd. vs The State of Rajasthan and Others, [1963] 1 S.C.R. 491 and again in Firm A.T.B. Mehtab Majid and Company vs State of Madras and Another, [1963] Suppl.
2 S.C.R. 435.
But the declaration in Article 301 that trade, commerce and intercourse throughout the territory of India shall be free is subject to Article 304(b) which provides: "304.
Restrictions on trade, commerce and intercourse among States.
Notwithstanding anything in Article 301 or Article 303, the Legislature of a State may by law ( a ) .
. . (b) impose such reasonable restrictions on the freedom of trade, commerce or inter course with or within that State as may be required in the public interest.
Provided that no Bill or amendment for the purposes of clause (b) shall be intro duced or moved in the Legislature of a State without the previous sanction of the Presi dent.
" Therefore, there is no violation of Article 30 1 if the case falls under Article 304(b) and its proviso.
In Kalyani Stores vs The State of Orissa and Others, [1966] 1 S.C.R. 865 this Court held that a restriction on the freedom of trade and commerce which is guaranteed by Article 301 cannot be justified unless the procedure provided in Article 304 is followed.
That was also the view taken in State of Mysore vs H. Sanjeeviah; , and Andhra Sugars Ltd. & Anr.
vs State of Andhra Pradesh & Ors.
, [1968] 1 S.C.R. 705.
In other words, if the Legislature of a State enacts a law which imposes such reasonable restrictions on the free dom of trade, commerce or intercourse with or within that State as may be required in the public interest and further that the Bill or amendment for the purposes of clause (b) has been introduced or moved in the Legislature of a State with the previous sanction of the President, such enactment will not offend the Article 301.
The question then is whether the impugned levy impedes the free flow of trade and commerce throughout the territory of India, and if it does, whether it fails within the excep tion carved out in Article 304(b).
If the levy imposes a cess in respect of tea estates, it may well De said that even though the free flow of tea is impeded in its movement throughout the territory of India it is in consequence of an indirect or 301 remote effect of the levy and that it cannot be said that Article 301 is contravened.
The contention of the petition ers is, however, that it is ostensibly only in respect of tea estates but in fact it is a levy on despatches of tea.
If that contention is sound, there can be no doubt that it constitutes a violation of Article 301 unless the legisla tion is brought within the scope of Article 304(b).
To determine whether the levy is in respect of tea estates or is a levy on despatches of tea, the substance of the legis lation must be ascertained from the relevant provisions of the statute.
It cannot be disputed that the subject of the levy, the nature of which defines the quality of the levy, must not be confused with the measure of liability, that is to say, the quantum of the tax.
There is a plenitude of case law supporting that principle, among the cases being Union of India and Others vs Bombay Tyre International Ltd. and Others, ; But what is the position here? The statute speaks of a levy "in respect of a tea estate", and it says that the levy will not exceed Rs.6 on each Kilogram of tea on the des patches from such tea estate of tea grown therein.
The statute also provides that in calculating the despatches of tea for the purpose of levy of rural employment cess, the despatches for sale made at such tea auction centres as may be recognised by the State Government shall be excluded.
And there is a proviso which empowers the State Government to fix different rates on despatches of different classes of tea.
There is also section 4(4) which empowers the State Govern ment to exempt such categories of despatches or such per centage of despatches from the liability to pay the whole or any part of the rural employment cess, or to reduce the rate of the rural employment cess payable thereon under clause (aa) of sub section
(2) on such terms and conditions as it may specify by notification.
As from 1 October, 1982 the posi tion remained the same except that the first proviso to section 4(2)(aa) excluding the despatches for sale made at recog nised tea auction centres was deleted.
The remaining provi sions continued as before.
Now, for determining the true nature of the legislation, whether it is a legislation in respect of tea estates.
and therefore of land, or in respect of despatches of tea, we must, as we have said, take all the relevant provisions of the legislation into account and ascertain the essential substance of it.
It seems to us that although the impugned provisions speak of a levy of cess in respect of tea estates, what is really contemplated is a levy on despatches of tea instead.
The entire structure of the levy points to that conclusion.
If the levy is regarded as one in respect of tea estates and the measure of the liability is defined in terms of the weight of tea des patched from the tea estate there must be a nexus between the two indicating a 302 relationship between the levy on the tea estate and the criteria for determining the measure of liability.
If there is no nexus at all it can conceivably be inferred that the levy iS not what it purports to be.
The statutory provisions for measuring the liability on account of the levy throws light on the general character of the tax as observed by the Privy Council in Re: A Reference under the Government of Ireland Act, 1920 and Section 3 of the Finance Act (Northern Ireland), 1934, In R.R. Engineering Co. vs Zila Parishad, Bareilly & Anr., ; , this Court observed that the standard on which the tax is levied was a relevant consideration for determining the nature of the tax, although it could not be regarded as conclusive in the matter.
Again in The Hingir Rampur Coal Co. Ltd. and Others.
vs The State of Orissa and Others, ; , this Court observed that the method of determining the rate of levy would be relevant in consider ing the character of the levy.
All these cases were referred to in Bombay Tyre International Ltd. (supra) where in the discussion on the point at page 367 this Court said: "Any standard which maintains a nexus with the essential character of the levy can be regard ed as a valid basis for assessing the measure of the levy.
" It is apparent that the standards laid down for measur ing the liability under the levy must bear a relationship to the nature of the levy.
In the case before us, however, we find that the nexus with the tea estate is lost altogether in the provisions for exemption or reduction of the levy and that throughout the nexus is confined to despatches of tea rather than related to the tea estate.
There is nothing to suggest that a particular tea estate produces only one class of tea, and when reference is made to a certain class of tea the reference identifies a certain class of tea estates.
We may presume that a tea estate produces different classes of tea and not one class of tea only.
While there must always be a nexus between the subject of the levy and the measure of the levy that nexus extends into different dimensions.
Variations considered appropriate for the purpose of deter mining the measure must correspond to variations in the subject of the levy.
If the measure of levy is to vary with the despatches of different classes of tea there must be something in the class of tea concerned which points to a reason located in the particular tea estate or classes of tea estates which are made the subject of the levy.
So also if the measure varies with the centre of sale of tea, the variation must relate to a reason to be found in the nature of the tea estate or classes of tea estates.
In other words, there must be a reason why one class of tea is treated 303 differently from another class of tea when deciding upon the rate to be applied to different classes of tea and that reason must be found in the nature of the tea estate con cerned.
Ultimately the benefit of exemption or reduced levy must be related to the need for exempting the tea estate from that levy or relieving it from part of the normal levy.
When the provisions before us are examined in their totali ty, we find no such relationship or nexus between the tea estate and the varied treatment accorded in respect of despatches of different kinds of tea.
It seems to us that having regard to all the relevant provisions of the statute, including section 4(2)(aa) and section 4(4), in substance the impugned levy is a levy in respect of despatches of tea and not in respect of tea estates.
Treating it as a levy on despatches of tea it is evident that the levy must be regarded as constituting a direct and immediate restriction on the flow of trade and commerce in tea throughout the territory of India, and the levy can avoid the injunction declared in Article 301 only if it satisfies the provisions of Article 304(b) and the proviso thereto.
For bringing the legislation within the saving provisions of Article 304(b) it is necessary that the Bill or amendment should have been introduced or moved in the Legislature of the State with the previous sanction of the President.
It is not disputed that the amendments to the West Bengal Act made in 198 1 and 1982 did not satisfy that requirement.
Indeed, it appears that the West Bengal Govern ment had sent an earlier Bill to the President with the object of levying a tax on the income from tea but the Presidential assent was not granted.
It appears further that the Finance Minister of WeSt Bengal made a statement in the West Bengal Legislature on 27 February, 1981 stating that he would introduce the rural employment cess on despatches of tea.
He referred to a Bill for amending the West Bengal Marketing (Regulation) Act, 1972 having been sent to the President and the President not having signified his consent to the amendment.
In our opinion, the impugned provisions brought into the West Bengal Act by the amendments in 1981 and 1982 so far as they purport to relate to tea estates are unconstitutional and void and cannot be given effect to.
Another aspect of the matter may be considered, and that relates to legislative competence.
If the impugned legisla tion were to be regarded as a levy in respect of tea es tates, it would be referable to Entry 49 in List II of the Seventh Schedule of the Constitution which speaks of "taxes on lands and buildings".
But if the legislation is in sub stance legislation in respect of despatches of tea, legisla tive authority must be 304 found for it with reference to some other Entry.
We have not been shown any Entry in List II or in List III of the Sev enth Schedule which would be pertinent.
It may be noted that Parliament had made a declaration in section 2 of the that it was expedient in the public interest that the Union should take under its control the tea industry.
Under the , Parliament has assumed control of the tea industry including the tea trade and control of tea prices.
Under section 25 of the Act a cess on tea produced in India has also been imposed.
It appears to us that the impugned legis lation is also void for want of legislative competence as it pertains to a covered field.
We do not consider it necessary to express our opinion on the other points raised between the parties in this case.
In the result, the writ petitions filed in this Court and the petitions in the Transferred Cases are allowed, the impugned amendments effected in the West Bengal Rural Em ployment and Production Act, 1976 by the amending Acts of 1981 and 1982 so far as they purport to relate to tea es tates are declared void and the petitioners are held enti tled to the refund of cess paid by them under the impugned statutory provisions.
The petitioners are entitled to their costs.
P.S.S. Petitions allowed.
| IN-Abs | Section 4(1) of the West Bengal Rural Employment.
and Production Act, 1976 provided for levy of rural employment cess on immovable properties.
Clause (aa) of section 4(2) as amended by section 7(b) of the West Bengal Taxation Laws (Amend ment) Act, 1981 provided for levy of rural employment cess in respect of tea estates on the despatches of tea grown therein.
The first proviso thereto provided for exclusion of despatches of tea for sale made at recognised centres.
The second proviso thereto empowered the State Government 10 fix different rates of cess on despatches of different classes of tea.
Sub section (4) of the amended section 4 provided for exemption of certain categories of despatches from the liability to pay the whole or part of the cess or to reduce the rate of the cess payable thereon.
The first proviso to section 4(2)(aa) was.
however, omitted by the West Bengal Taxa tion Laws (Amendment) Act, 1982.
Article 304(b) of the Constitution permits the legislature of a State to impose reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State provided the Bill or amendment for that purpose is introduced with the previous sanction of the President.
It was contended for the petitioners that the levy of the cess under section 4(1) read with section 4(2)(aa) of the Act, as amended in 1981 and 1982.
was violative of the freedom guaranteed by Article 301 of the Constitu 294 tion and also lay outside the legislative competence of the State Government.
Allowing the writ petitions.
HELD: 1.1 If the levy of a tax on goods has direct and immediate effect of impeding the movement of goods through out the territory of India, there is a violation of Article 301 of the Constitution.
If, however, the impact of the levy is indirect or remote, no valid complaint can be made in relation to Article 301.
There is also no violation of Article 301 if the case fails under Article 304(b) and its proviso.
[299F, 300D E] 1.2 Therefore, if the legislature of a State enacts a law which imposes such reasonable restrictions on the free dom of trade, commerce or intercourse with or within that State as may be required in the public interest and further that the Bill or amendment for the purposes of clause (b) has been introduced or moved in the Legislature of a State with the previous sanction of the President, such enactment will not offend Article 301.
The rural employment cess in the instant case was a tax.
[300F, 299F] Ariabari Tea Co., Ltd. vs The State of Assam & Ors. ; ; The Automobile Transport (Rajasthan) Ltd. vs The State of Rajasthan & Ors., [1963] 1 S.C.R. 491; Firm A.T.B. Mehtab Majid and Company vs State of Madras & Anr., [1963] Suppl.
2 S.C.R. 435; Kalyani Stores vs TIre State of Orissa & Ors., ; ; State of Mysore vs Ii.
Sanjeeviah, ; and Andhra Sugars Ltd. & Anr.
vs State of Andhra Pradesh & Ors.
, ; , referred to.
2.1 To determine whether the levy was in respect of tea estates, and, therefore, of land thus making an indirect impact or was a levy on despatches of tea thereby directly impeding movement of goods, the substance of the legislation must be ascertained from the relevant provisions of the statute.
[301B] 2.2 The subject of the levy, the nature of which de fines the quality of the levy, however, must not be confused with the measure of liability, that is to say, the quantum of the tax.
Furthermore, the standards laid down for measur ing the liability under the levy must bear a relationship to the nature of levy.
[301B C, 302D E] 295 Union of India & Ors.
vs Bombay Tyre International Ltd. 2.3 If the levy is regarded as one in respect of tea estates and the measure of the liability is defined in terms of the weight of tea despatched from the tea estate there must be a nexus between the two indicating a relationship between the levy on the tea estate and the criteria for determining the measure of liability.
If there is no nexus at all it can conceivably be inferred that the levy is not what it purports to be.
[301H, 302A] 2.4 In the instant case, the nexus with the tea estate is lost altogether in the provisions for exemption or reduc tion of the levy and throughout the nexus is confined to despatches of tea rather than related to the tea estate.
There is nothing to suggest that a particular tea estate produces only one class of tea, and when reference is made to a certain class of tea the reference identifies a certain class of tea estates.
[302E F] 2.5 While there must always be a nexus between the subject of the levy and the measure of the levy that nexus extends into different dimensions.
Variations considered appropriate for the purpose of determining the measure must correspond to variations in the subject of the levy.
If the measure of levy is to vary with the despatches of different classes of tea, there must be something in the class of tea concerned which points to a reason located in the particular tea estate or classes of tea estates which are made the subject of the levy.
So also, if the measure varies with the centre of sale of tea, the variation must relate to a reason to be found in the nature of the tea estate concerned.
Ultimately, the benefit of exemption or reduced levy must be related to the need for exempting the tea estate from that levy or relieving it from part of the normal levy.
[302F, 303A] 2.6 In the instant case the relevant statutory provi sions, including section 4(2)(aa) and section 4(4), indicate no such relationship or nexus between the tea estate and the varied treatment accorded in respect of the despatch of different kinds of tea.
The levy of rural employment cess was, there fore, a levy in respect of despatches of tea and not in respect of tea estates.
It must, thus, be regarded as con stituting a direct and immediate restriction on the flow of trade and commerce in tea throughout the territory of India.
[303B C] 2.7 Such a levy could avoid the injunction declared in Article 301 296 only if it satisfied the provisions of Article 304(b) and the proviso thereto.
The amendments made to the West Bengal Act in 1981 and 1982 had not been moved in the Legislature of the State with the previous sanction of the President.
The provisions brought into the Act by the said amendments were, therefore, unconstitutional and void and could not be given effect to.
[303C D, F, G] 3.
Under the Parliament had assumed con trol of the tea industry including the tea trade and control of tea prices.
Under section 25 of that Act a cess on tea pro duced in India had also been imposed.
The State legislation imposing a cess on despatches of tea was, therefore, also void for want of legislative competence as it pertained to a covered field.
[304B]
|
ivil Appeal No. 2948 of 1984 275 From the Judgment and Order dated 20.1.1984 of the Delhi High Court in L.P.A. No. 145 of 1982.
G. Ramaswami, Additional Solicitor General, S.C. Dhanda, C.S. Vaidyanathan, P. Chowdhary and S.R. Sethia for the Appellant.
Respondent No. 1 In person, Girish Chandra, Ms. Sushma Relan and P. Chowdhary for Respondents.
The Judgment of the Court was delivered by PATHAK, CJ.
This is an appeal by special leave against a judgment of a Division Bench of the High Court of Delhi in a Letters Patent Appeal upholding the judgment of a Single Judge of the High Court in a writ petition filed by the first respondent for a declaration that he continues to be in the service of the Jawaharlal Nehru University.
The sets forth as the objects of the Jawaharlal Nehru University "to dissemi nate and advance knowledge, wisdom and understanding by teaching and research and by the example and influence of corporate life, and in particular the objects set out in the first Schedule.
" The powers of the University extend to establishing within the Union Territory of Delhi or outside that territory such Special Centres as may be necessary for the furtherance of its objects, to create such teaching, administrative and other posts as the University may deem necessary, and to make arrangements thereto, and to appoint or recognise persons as Professors, Readers or Lecturers or otherwise as teachers of the University.
Section 7(b) of the Act declares that where the University establishes and maintains any institution or body outside the Union Territo ry of Delhi then the powers and jurisdiction of the Univer sity will extend to such institution or body subject to the rules and regulations of the University within whose juris diction the institution or body is situate.
On 21 September, 1970 the Additional Secretary, Ministry of Education and Youth Services wrote to the Vice Chancellor of the University informing him of the intention of the Government of India, to establish a Central University at Shillong to serve the needs of the North Eastern Region of India, and that in August, 1969, the University Grants Commission had approved the proposal of the Manipur Adminis tration to have a Post graduate Centre at Imphal under the auspices of the Gauhati University, and considering the fact that the 276 proposed Central University for the Hill Areas was also intended to cater to the needs of Manipur, it would be appropriate, he said, that the Jawaharlal Nehru University should establish a Centre at Imphal also which could later be made over to the proposed new University to be estab lished by the Centre.
On 3 October, 1970, a resolution was passed by the Executive Council of the Jawaharlal Nehru University agreeing with the proposal of the Ministry of Education to set up an Institute of Post graduate Studies at Imphal.
A committee was set up to study the problems con nected with the setting up of such an Institute and to submit concrete proposals in that regard.
On 12 June, 197 1, the Executive Council of the University recorded their agreement in principle to the proposal of the Ministry of Education to set up an Institute of Post graduate Studies at Imphal and noted that the committee had submitted its re port.
Then on 12 June, 197 1, the Executive Council passed a resolution that a Centre of Post graduate Studies be set up at Imphal under section 5(2) of the .
On 27 January, 197 1, the appellant University informed the respondent that he had been selected for the post of Research Assistant in the Department of South Eastern Stud ies, School of International Studies of the University, that the appointment would be temporary for a period of six months and his services could be terminated on one month 's notice on either side.
On 25 April, 1973, the term of tempo rary appointment as Research Assistant in the School of International Studies was extended by the appellant Univer sity for a further period of six months with effect from 4 June, 1973.
Thereafter, by letter dated 29 November, 1973 the Vice Chancellor of the appellant University offered the respondent the post of Associate Fellow in the Post graduate Studies Centre of the University at Imphal for a period of one year in the first instance, the appointment being made on ad hoc basis, and his regular appointment at the Centre of the Post graduate Studies at Imphal or at the New Delhi campus of the University would be subject to the recommenda tions of the Selection Committee.
It was stated that he was expected to take part in the teaching and research pro grammes of the University.
He was directed, in case he accepted the offer, to join the Post graduate Centre, Imphal (Manipur) as early as possible.
On the same date the re spondent accepted the offer of appointment as "Associate Fellow", Centre of Post graduate Studies, Imphal, under the terms and conditions of the Vice Chancellor 's letter of that date.
On 3 December.
1973 the respondent reiterated his acceptance of the offer of appointment as "Associate Fellow" at the Centre of Post graduate Studies, Imphal, and stated that he was reporting for duty to the Head of the Centre for Political Studies, School 277 of Social Sciences, New Delhi with effect from 3 December, 1973 so that after necessary briefing at the Centre he would proceed to Imphal as early as possible.
Thereafter by Office Order No. 2376 dated 24 August, 1974 the term of appointment of the respondent as "Associate Fellow" at the Centre of Post graduate Studies, Imphal, was extended for a period of one year from 3 December, 1974 to 2 December, 1975.
By Office Order No. 2440 dated 23 September, 1974 the respond ent 's term of appointment in the same capacity at the said Centre was now enlarged from 3 December, 1974 to 2 December, 1976.
His existing scale of Rs.400 40 800 50 950 was revised to Rs.700 40 1100 50 1600 by Office Order No. 295 dated 21 June, 1975 with effect from 1 January, 1973.
It appears that the temporary appointment of Associate Professor in Politi cal Science at the Centre of Post graduate Studies, Imphal, was extended upto 3 August, 1987 or until the post was filled on a regular basis whichever is earlier.
Thereafter on 23 December, 1977 an advertisement was issued by the Jawaharlal Nehru University, Centre of Post graduate Stud ies, Imphal (Manipur) for appointment to, inter alia, the posts of Associate Professor/Fellow and Assistant Professor/Assistant Fellow in the Political Science.
The respondent applied for the post of Associate Professor but the Selection Committee did not find him suitable for that post and recommended him for the lower post of Assistant Professor.
By letter dated 29 April, 1978 the Jawaharlal Nehru University offered him the appointment of Assistant Professor in Political Science on an ad hoc basis in the Centre of Post graduate Studies, Imphal, for a period of one year or until his services were required by the Centre, whichever was earlier.
The respondent, however, wrote back on 2 May, 1978 stating that he had not applied for the post of Assistant Professor in Political Science and that he deserved to be appointed as Associate Professor at the Imphal Centre.
By letter dated 21 March, 1979 the Jawaharlal Nehru University offered the respondent the post of Assist ant Professor in the Political Science Division at the Centre of Post graduate Studies of the University at Imphal for a period of two years.
He was informed that in all matters relating to leave and other conditions of service he would be required to enter into an agreement with the Centre of Post graduate Studies, Imphal.
This agreement was never executed.
On 29 August, 1979 the respondent joined as As sistant Professor in accordance with the terms mentioned in the University 's letter dated 21 March, 1979.
Thereafter the respondent was appointed as Assistant Professor by a Resolu tion of the Jawaharlal Nehru University dated 29 October, 1979 on a regular basis with effect from the date of his initial appointment dated 29 August, 1979 and he was con firmed with effect from that date.
278 In 1980 proceedings were taken to transfer the Imphal Centre from the Jawaharlal Nehru University to the Manipur University.
To effectuate this the Syndicate of the Manipur University passed a Resolution on 19 December, 1980 detail ing the terms for the transfer of the Centre to the Manipur University, and the Manipur University and the Manipur Government requested the Jawaharlal Nehru University for transferring the Centre accordingly.
The Jawaharlal Nehru University by its Resolution dated 3 February, 1981 accepted the proposal and authorised the Vice Chancellor to transfer the Centre to the Manipur University.
The date for transfer was fixed as 1 April, 1981.
Meanwhile, the Manipur Legisla ture passed the Manipur University Act, 1980, which was assented to by the Governor on 28 May, 1980.
Section 1(4) of the Act provided that on and from the date on which the Act came into force in respect of post graduate education and research, the Jawaharlal Nehru University would cease to exercise jurisdiction over the Centre of Post graduate Studies in Imphal, and that the State Government of Manipur may make provision for the transfer of employees from the Jawaharlal Nehru University, Centre of Post graduate Stud ies, Imphal to the Manipur University.
Thereafter an order dated 31 March, 1981 was made by the Governor of Manipur providing that the members of the faculties of the Jawahar lal Nehru University, Centre of Post graduate Studies, Imphal, immediately before its merger into the Manipur University would, on and from the 1 April, 1981, become members of the staff of the Manipur University on the same terms and conditions of service as they were entitled to immediately before that day.
Meanwhile on 3 February, 1981, the Syndicate of the Jawaharlal Nehru University provided for the transfer of the Centre to the Manipur University.
It was resolved that the said Jawaharlal Nehru University for Post graduate Studies would cease to exist as such and the Divisions of the Centre would become the Divisions of the Manipur University and function accordingly.
It was further resolved that the members of the faculty employed by the Jawaharlal Nehru University, Centre of Postgraduate Studies, Imphal, immediately before its merger into the University would on and from that date.
become members of the staff of the Manipur University.
The respondent filed a writ petition in this Court on 27 March, 1981 challenging his transfer from the Jawaharlal Nehru University to the Manipur University, and that peti tion was dismissed as withdrawn on 21 September, 198 1.
Thereafter the respondent filed a writ petition on 22 May, 1982 in the Delhi High Court praying for the quashing of the Resolution of the Jawaharlal Nehru University on 3 February, 198 1 transferring his services to the Manipur University.
The learned 279 Single Judge of the High Court held that the respondent could not be obliged to join the Manipur University, that he was confirmed as Assistant Professor in the employment of the Jawaharlal Nehru University in its Imphal Centre and was entitled to continue in service until he attained the age of 60 years and that the services had not been specifically terminated.
Accordingly, the writ petition was allowed and the respondent was deemed to continue, in the service of the Jawaharlal Nehru University and if no equivalent post was available for him in 1981 in the Jawaharlal Nehru University had he had become surplus, the said University was at liber ty to dispense with his services.
In appeal, the Division Bench of the High Court upheld the view that the services of the respondent could not stand automatically transferred from the Jawaharlal Nehru University to the Manipur Univer sity with effect from 1 April, 1981 by operation of law and that the order dated 31 March, 1981 transferring the employ ees at the Imphal Centre to the Manipur must be considered as implying or assuming that the concerned employee had exercised an option to join the Manipur University.
The learned Judges also rejected the contention of the appellant that there was an automatic termination of the respondent 's service without notice or order or discharge or dismissal.
They held further that the Centre at Imphal was commenced and conducted as part and parcel of the Jawaharlal Nehru University that the respondent must be regarded as an em ployee continuing with the Jawaharlal Nehru University even upon the transfer of the Centre from that University.
They further observed that if, in the result, the strength of the staff should be surplus, the principle of "last come first go" had to be applied, and that the application of the principle was to be effected with reference to the cadre to which the respondent belonged and also to the discipline in which he was competent.
In the event of it being found that he constitutes a class by himself, his services could be absorbed in some suitable post in the Jawaharlal Nehru University.
In this appeal the main contention of the appellant is that the respondent was appointed at the Centre of Post graduate Studies, Imphal, and when the Centre was trans ferred to the Manipur University, his services were automat ically transferred to that University, and consequently he could not claim to be an employee of the appellant Universi ty.
The argument proceeds on the assumption that the Centre of Post graduate Studies at Imphal was an independent entity which existed by itself and was not a department of the appellant University.
The submission proceeds on a fallacy.
The Centre of Postgraduate Studies was set up at Imphal as an activity of the appellant University.
To give expression to that activity the appellant University set up and orga nised the Centre at Imphal and appointed a teaching 280 and administrative staff to man it.
Since the Centre repre sented an activity of the appellant University the teaching and administrative staff must be understood as employees of the appellant University.
In the case of the respondent, there can be no doubt whatever that he was, and continues to be, an employee of the appellant University.
There is also no doubt that his employment could not be transferred by the appellant University to the Manipur University without his consent, notwithstanding any statutory provision to that effect whether in the Manipur University Act or elsewhere.
The contract of service entered into by the respondent was a contract with the appellant University and no law can con vert that contract into a contract between the respondent and the Manipur University without simultaneously making it, either expressly or by necessary implication, subject to the respondent 's consent.
When the Manipur University Act pro vides for the transfer of the services of the staff working at the Centre of Postgraduate Studies, Imphal, to employment in the Manipur University, it must be construed as a provi sion enabling such transfer of employment but only on the assumption that the employee concerned is a consenting party to such transfer.
It makes no difference that the respondent was not shown in the list of Assistant Professors of the appellant University or that the provision was not indicated in its budget; that must be regarded as proceeding from an erroneous conception of the status of the respondent.
The position in law in clear, that no employee can be trans ferred, without his consent, from one employer to another.
The consent may be express or implied.
We do not find it necessary to refer to any case law in support of this con clusion.
Inasmuch as the transfer of the Centre of Post graduate Studies from the appellant University to the Manipur univer sity could not result in a transfer of the employment of the respondent from the one to the other, it must be concluded that the respondent continues in the employment of the appellant University.
The transfer of the Centre of Post graduate Studies to the Manipur University may be regarded as resulting in the abolition of post held by the respondent in the appellant University.
In that event, if the post held by the respondent is regarded as one of a number of posts in a group, the principle "last come, first go" will apply, and someone junior to the respondent must go.
If the post held by him constitutes a class by itself, it is possible to say that he is surplus to the requirements of the appellant University and is liable to be retrenched.
But it appears that the respondent has been adjusted against a suitable post in the appellant University and has been working there without break during the pendency of this 281 litigation, and we cannot, therefore, permit the appellant University to retrench him.
In the result, the appeal fails and is dismissed with costs.
R.S.S. Appeal dis missed.
| IN-Abs | The appellant, Jawaharlal Nehru University, had set up a Centre of Post Graduate Studies at Imphal under section 5(2) of the University Act.
The Respondent while he was working as a temporary research Assistant in the School of International Studies of the University was offered the post of Associate Fellow at the Centre of Post graduate Studies, Imphal, on ad hoc basis which offer was accepted by him on 3 December, 1973.
His term of appointment was extended from time to time.
On 21st March, 1979 the University offered him the post of Assistant Professor in the Political Science Divi sion at the Centre at Imphal for a period of two years.
The respondent joined the post on 29 August, 1979.
Later, he was appointed as such on a regular basis from the date of his initial appointment, and was confirmed with effect from the same date.
The Centre of Post graduate Studies at Imphal was to be merged with the Manipur University as provided in the Mani pur University Act, 1980.
On 3 February, 1981 the Syndicate of the Jawaharlal Nehru University provided for the transfer of the Centre to the Manipur University and resolved that the members of the faculty employed by the Jawaharlal Nehru University Centre of Post graduate Studies, Imphal, immedi ately 'before its merger into the Manipur University would on and from that date become members of the staff of the Manipur University.
The respondent filed a writ petition in the Delhi High Court praying for the quashing of the Resolution of the Jawaharlal Nehru University whereby his services were trans ferred to the Manipur University.
The learned Single Judge allowed the writ petition holding that the respondent could not be obliged to join the Manipur University, and that he was confirmed as Assistant Professor in the employment of the 274 Jawaharlal Nehru University in its Imphal Centre and was entitled to continue in service until he attained the age of 60 years.
In appeal, the Division Bench upheld the view that the services of the respondent could not stand automatically transferred with the transfer of the Centre at Imphal, from the Jawaharlal Nehru University to the Manipur University.
Dismissing the appeal, this Court, HELD: (1) The Centre of Post graduate Studies was set up at Imphal as an activity of the appellant Jawaharlal Nehru University.
To give expression to that activity, the Univer sity set up and organised the Centre at Imphal and appointed teaching and administrative staff to man it.
Since the Centre represented an activity of the University the teach ing and administrative staff must be understood as employees of the University.
[279H; 280A] (2) The contract of service entered into by the respond ent was a contract with the appellant University and no law can convert that contract into a contract between the re spondent and the Manipur University without automatically making it, either expressly or by necessary implication, subject to the respondent 's consent, notwithstanding any statutory provision to that effect whether in the Manipur University Act or otherwise.
The position of law is clear that no employee can be transferred, without his consent, from one employer to another.
The consent may be express or implied.
[280B C, E] (3) The transfer of the Centre of Post graduate Studies to the Manipur University may be regarded as resulting in the abolition of the post held by the respondent in the appellant University.
In that event, if the post held by the respondent is regarded as one of a number of posts in a group, the principle "last come, first go" will apply, and someone junior to the respondent must go.
If the post held by him constitutes a class by itself, it is possible to say that he is surplus to the requirements of the appellant University and is liable to be retrenched.
Since.
however, the respondent has been adjusted against a suitable post in the appellant University during the pendency of the litiga tion, the appellant cannot be permitted to retrench him.
[280F H; 281A]
|
ICTION: Writ Petition (Crl.) No. 86 of 1989.
Criminal Appeal No. 376 of 1989.
(Under Article 32 of the Constitution of India).
R.B. Thakre, Avadhut M. Chimalker, Deepak and M.N. Nargolkar for the Petitioner/Appellant.
T.C. Sharma, Ms. A. Subhashini, A.M. Khanwilkar and A.S. Bhasme for the Respondents.
The Judgment of the Court was delivered by section RATNAVEL PANDIAN, J.
Rule nisi in the writ petition and leave granted in the special leave petition.
Both this writ petition and the criminal appeal are preferred by one Rama Dhondu Borade the detenu herein challenging the legality and validity of the Order of deten tion passed by the Commissioner of Police, Greater Bombay in exercise of the powers conferred by sub section (2) of Section 3 of the (Central Act 56 of 1980) (hereinafter referred as the 'Act ') read with clause 4 of the National Security (Conditions of Detention) (Maharashtra) Order, 1980 with a view to preventing the detenu from indulging .in activities that are prejudicial to the maintenance of public order in Greater Bombay.
In pursuance of the impugned order, the detenu is de tained in the Central Prison, Nasik from 31.8.88.
He has been furnished with the copies of the grounds of detention and other materials on the basis of which the detaining authority drew his subjective satisfaction.
In the grounds of detention the detenu is stated to have been involved in three incidents; they being: (1) On 9.4.1988 at about 11.30 p.m. the detenu and his associate 194 Sunil attacked one Laxman Devsingh Gurkha, during the course of which Sunil slapped on his face while the detenu caused an injury with a sword on the neck of Laxman.
In respect of this incident a case as CR No. 269 of 1988 for offences under Sections 324 and 114 Indian Penal Code has been registered by Dadar Police; (2) On 10.4.1988 the detenu along with his associates went to a pharmaceutical company at Worli and demanded a sum of Rs.3000 at the point of choppers from one Banwarilal Bhagi rath and on subsequent dates from one Babulal Mistry.
Relating to this incident, Babulal lodged before Worli Police Station a complaint which was registered as CR No. 183/88 for offences under Sections 384 and 114 of the Indian Penal Code.
On 14.4.88 the police attempted to arrest the detenu and his associ ates, but they all managed to escape.
However, the police arrested one of his associates Suresh P. Shelar who on search was found to be in possession of a chopper.
Subsequently the detenu was arrested on 9.8.88.
But later on he was released on bail; (3) On 1.8.88 the detenu was arrested near the gate of Century Bazar and on search he was found to be in possession of a Rampuri knife.
In this connection, a case vide LAC No. 2912,88 was registered in Dadar Police Station under the Bombay Police Act, 195 1.
On 2.8.88 the detenu was released on bail.
In view of the above alleged violent activities of the detenu creating a sense of insecurity in Greater Bombay, the detaining authority on being satisfied on the materials placed before him that the activities of the detenu were prejudicial to the maintenance of public order in Greater Bombay, passed the impugned detention order.
Challenging the correctness of this detention order, the detenu filed Writ Petition No. 1044 of 1988 before the High Court of Bombay which for the reasons mentioned in the judgment dismissed the same.
This criminal appeal is preferred against that judgment.
In addition to that, he has filed Writ Petition No. 86 of 1989 before this Court.
The learned counsel appearing on behalf of the appel lant/petitioner raised several contentions assailing the legality of the order one of which being that there is an inordinate and unexplained delay caused by the third re spondent (Union of India) in considering and 195 disposing of the representation of the detenu dated 26.9.88 and as such the continued detention of the appellant is unconstitutional and illegal being violative of the mandato ry provisions of Article 22(5) of the Constitution of India.
As we are inclined to dispose of this appeal and the writ petition on this ground alone we do not propose to traverse on other grounds canvassed before us.
With regard to the right of making the representation the detenu has been informed in the grounds of detention as follows: "You are further informed that you have a right to make a representation to the Central Government, the State Government and the undersigned against the order of detention and that you shall be afforded the earliest oppor tunity to make such a representation.
" It is not in dispute that the detenu made his represen tation both to the State Government as well as the Central Government on 26.9.88.
But the 3rd respondent which has already completed the examination of the report dated 6.9.88 sent by the 2nd respondent (the State Government) under Section 3(5) of the Act even on 13.9.88.
however, felt that certain informations were required from the State Government for its further consideration of the representation and, therefore, the 3rd respondent sent a wireless message on 3.10.
1988 to the State Government asking for further infor mations.
The required information was received by the third respondent only on 17.10.88.
Thereafter the representation was considered and the final decision to reject it was taken on 27.10.88 and the decision of the Central Government rejecting the representation was communicated to the appel lant through crash wireless message on 31.10.88.
In attempting to explain the delay from 17.10.88 to 27.10.88 it is stated in the counter affidavit filed on behalf of the third respondent that 18th, 20th, 22nd and 23rd October 1988 were the closed holidays; but no explana tion is given as to why the representation was not attended to and disposed of on 17th, 19th, 21st, 24th to 26th Octo ber.
In explaining the delay in communicating the decision taken on 27.10.88 it is stated that 29th and 30th October were holidays but the affidavit is silent as to why that decision had not been communicated to the detenu either on 27th or 28th October, 1988.
196 With regard to the delay of 14 days in passing the information required by the 3rd respondent, the 2nd respond ent (the State Government) in its affidavit states that it received the parawise comments of the detaining authority on the representation of the detenu on 12.10.88 and thereafter it forwarded the same to the 3rd respondent.
The 1st re spondent (the detaining authority) has filed a separate affidavit stating that since the officer of the Dadar police station was attending the meeting of the Advisory Board on the 7th and 11th October, 1988, a delay of 7 days had oc curred in forwarding his parawise comments to the 2nd re spondent.
These explanations given by both the Ist and the 2nd respondents are not at all satisfactory and we are left with an impression that the 1st and the 2nd respondents had not diligently collected the informations required by the 3rd respondent and thereby caused a considerable delay which had further delayed the consideration and disposal of the representation of the detenu by the 3rd respondent.
We shall now examine the proposition of law relating to the delayed consideration and disposal of the representation of a detenu with reference to the judicial pronouncements.
There is a line of decisions of this Court dealing with this aspect of law of which we shall make reference to a few.
In Dayanarayan Sukul vs State of West Bengal, ; the following observation has been made: "It is established beyond any measure of doubt that the appropriate authority is bound to consider the representation of the detenu as early as possible.
The appropriate Government itself is bound to consider the representation as expeditiously as possible.
The reason for immediate consideration of the representation is too obvious to be stressed.
The personal liberty of a person is at stake.
Any delay would not only be an irresponsible act on the part of the appropriate authority but also unconstitutional because the Constitution enshrines the fundamental right of a detenu to have his representation considered and it is imperative that when the liberty of a person is in peril immediate action should be taken by the relevant authorities.
" This Court in Niranjan Singh vs State of Madhya Pradesh, ; expressed the view that it is incumbent on the State to 197 explain the inordinate delay in considering and rejecting the representation of the detenu and satisfy the Court that there was justification in that delay.
While dealing with the constitutional requirement of expeditious consideration of the detenu 's representation by the Government as spelt out from Clause 5 of Article 22 of the Constitution this Court, after referring to the deci sions in Abdul Karim and Others vs State of West Bengal, ; and Pankaj Kumar Chakraborty and Others vs State of West Bengal; , has stated in Rashik Sk.
vs State of West Bengal, , as follows: "It is undoubtedly true that neither the Constitution nor the Act expressly provides for consideration of a detenu 's representation by the State Government within any specified period of time.
The constitutional requirement of expeditious consideration of the petition er 's representation by the State Government has, however, been spelt out by this Court from clause (5) of Article 22 of the Constitu tion." XXXXXXX XXXXXXX XXXXXXX "The use of the words "as soon as may be" (occurred in Article 22(5) of the Constitu tion) is important.
It reflects the anxiety on the part of the framers of the Constitution to enable the detenu to know the grounds on which the order of his detention has been made so that he can make an effective representation against it at the earliest.
The ultimate objective of this provision can only be the most speedy consideration of his representa tion by the authorities concerned, for, with out its expeditious consideration with a sense of urgency the basic purpose of affording earliest opportunity of making the representa tion is likely to be defeated.
This right to represent and to have the representation considered at the earliest flows from the constitutional guarantee of the right to personal liberty the right which is highly cherished in our Republic and its protection against arbitrary and unlawful invasion. ' XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX "Now, whether or not the State Government has in a given 198 case considered the representation made by the detenu as soon as possible, in other words, with reasonable dispatch, must necessarily depend on the facts and circumstances of that case, it being neither possible nor advisable to lay down any rigid period of time uniformly applicable to all cases.
The Court has in each case to consider judicially on the available material if the gap between the receipt of the representation and its consideration by the State Government is so unreasonably long and the explanation for the delay offered by the State Government so unsatisfactory as to render the detention order thereafter illegal." Chinnappa Reddy, J. speaking for the bench in Smt.
Shalini Soni and Others vs Union of India & Ors.
, ; has emphasised the constitutional obligation on the part of the authorities concerned in dealing with the repre sentation of a detenu as follows: "Quite obviously, the obligation imposed on the detaining authority, by Article 22(5) of the Constitution, to afford to the detenu the earliest opportunity of making a representa tion, carries with it the imperative implica tion that the representation shall be consid ered at the earliest opportunity.
Since all the constitutional protection that a detenu can claim is the little that is afforded by the procedural safeguards prescribed by Arti cle 22(5) read with Article 19, the Courts have a duty to rigidly insist that preventive detention procedures be fair and strictly observed.
A breach of the procedural impera tive must lead to the release of the detenu.
" See also B. Sundar Rao and Others vs State of Orissa, ; Jnanendra Nath Roy vs The State of West Bengal, ; Frances Coralie Mullin vs W.C. Khambra and Others, ; ; Vijay Kumar vs State of Jammu and Kashmir & Ors., ; ; Raisuddin alias Babu Tamchi vs State of Uttar Pradesh and another; , and Mohinuddin alias Moin Master and Ors.
vs D.M. Beed; , The propositions deducible from the various reported decisions of this Court can be stated thus: The detenu has an independent constitutional right to make his representation under Article 22(5) of the Constitu tion of India.
199 Correspondingly, there is a constitutional mandate command ing the concerned authority to whom the detenu forwards his representation questioning the correctness of the detention order clamped upon him and requesting for his release, to consider the said representation within reasonable dispatch and to dispose the same as expeditiously as possible.
This constitutional requirement must be satisfied with respect but if this constitutional imperative is observed in breach, it would amount to negation of the constitutional obligation rendering the continued detention constitutionally impermis sible and illegal, since such a breach would defeat the very concept of liberty the highly cherished right which is enshrined in Article 21 of the Constitution.
True, there is no prescribed period either under the provisions of the Constitution or under the concerned deten tion law within which the representation should be dealt with.
The use of the word "as soon as may be" occurring in Article 22(5) of the Constitution reflects that the repre sentation should be expeditiously considered and disposed of with due promptitude and diligence and with a sense of urgency and without avoidable delay.
What is reasonable dispatch depends on the facts and circumstances or ' each case and no hard and fast rule can be laid down in that regard.
However, in case the gap between the receipt of the representation and its consideration by the authority is so unreasonably long and the explanation offered by the author ity is so unsatisfactory, such delay could vitiate the order of detention.
Coming to the facts of this case, we shall now examine whether the delay that had occurred in consideration and disposal of the representation of the detenu is so inordi nate and unreasonable vitiating the order of detention or whether that delay is satisfactorily explained by the third respondent.
In the instant case, the gap between the receipt and the disposal of the representation is 28 days but upto the date of service of the order of rejection on the detenu the delay amounts to 32 days.
The only explanation offered by the third respondent is that further information required from the State Government was received by the third respondent on 17.10.88 after a delay of nearly 14 days and then the repre sentation of the detenu was disposed of on 27.10.88 within which period there were certain holidays.
Barring that, there is no other explanation.
This delay when scrutinised in the light of the proposition of law adumberated above, we are of the view, that there is an inordi 200 nate and unreasonable delay and the present explanation given by the third respondent is not satisfactory and ac ceptable.
Hence, for the aforementioned reasons we set aside the impugned order of detention on the ground that there is a breach of constitutional obligation as enshrined under Article 22(5) of the Constitution of India.
In the result the appeal as well as the Writ Petition are allowed.
The detenu is directed to be set at liberty forthwith.
Y.L. Petitions Allowed.
| IN-Abs | With a view to preventing the petitioner detenu from indulging in activities that were prejudicial to the mainte n ance of public Order in Greater Bombay, the Commissioner of Police, Greater Bombay, in exercise of the powers conferred on him by Sub Section (2) of Section 3 of the read with clause 4 of the National Secu rity (Conditions of detention) (Maharashtra) Order 1980 passed on Order of detention, pursuant whereof the Petition er detenu was detained in Central Prison, Nasik.
He was furnished with copies of grounds of detention and other material on the basis of which the detaining authority based his subjective satisfaction.
In order to challenge the legality and validity of the detention Order, the detenu filed a Writ Petition before the Bombay High Court which was dismissed.
Against the Order of the High Court, the detenu petitioner has filed criminal appeal after obtaining special leave.
He has also filed a separate Writ Petition in this Court challenging his deten tion.
Both were heard together by this, Court.
Counsel for the appellant raised several contentions assailing the legality of the detention order, one of which being that there was inordinate and unexplained delay caused by the Union of India in considering and disposing of his representation dated 26 9 88, as such his continued deten tion was unconstitutional and illegal being violative of Article 22(5) of the Constitution.
Allowing the appeal as also the Writ Petition this Court 192 HELD: The detenu has an independent constitutional right to make his representation under Article 22(5) of the Con stitution of India.
Correspondingly there is a Constitution al mandate commanding the concerned authority to whom the detenu forwards his representation questioning the correct ness of the detention Order clamped upon him and requesting for his release, to consider the said representation within reasonable dispatch and to dispose the same as expeditiously as possible.
[198H; 199A B] (Jayanarayan Sukul vs State of West Bengal, ; ; A bdul Karim & Ors.
vs State of West Bengal, ; ; Pankaj Kumar Chakravarty & Ors.
vs State of West Bengal, ; This constitutional requirement must be satisfied with respect but if this constitutional imperative is observed in breach, it would amount to negation of the constitutional obligation rendering the continued detention constitutional ly impermissible and illegal; since such a breach would defeat the very concept of liberty the highly cherished right which is enshrined in Article 21 of the Constitution.
[199B C] The use of the word "as soon as may be" occurring in Article 22(5) of the Constitution reflects that the repre sentation should be expeditiously considered and disposed of with due promptitude and diligence and with a sense of urgency and without avoidable delay.
What is reasonable dispatch depends upon the facts and circumstances of each case and no hard and fast rule can be laid down in that regard.
[199D] Rashik Sk.
vs State of West Bengal, Smt.
Shalini Soni & Ors.
vs Union of India & Ors.
, ; , In the instant case, the gap between the receipt and disposal of the representation is 28 days but upon the date of service of the order of rejection on the detenu the delay amounts to 32 days.
The only explanation offered by the 3rd respondent is that further information required from the State Government was received by the third respondent on 17 10 88 after a delay of nearly 14 days and then the repre sentation of the detenu was disposed of on 27 10 88 within which period there were certain holidays.
There is an inor dinate and unreasonable delay and the explanation given by the third respondent is not satisfactory and acceptable.
Detenu directed to be set at liberty forthwith.
[199F H; 200A, B] 193 B. Sundar Rao & Ors.
vs State of Orissa, ; Jnanendra Nath Roy vs The State of West Bengal, ; Frances Coralie Muffin vs W.C. Khambra and Others, ; ; Vijay Kumar vs State of Jammu and Kashmir State of Uttar Pradesh and another; , and Mohinuddin alias Moin Master and Ors., vs D.M. Beed, ; , referred to.
|
vil Appeal Nos.
23 19 2320 of 1981.
From the Judgment and Order dated 14.3.1980 of the Madras High Court in Writ Petition Nos. 4959 and 4960 of 1975.
236 Soli J, Sorabjee, Harish N. Salve, section Ganesh, Mahapa tra, P.S. Shroff and Mrs. P.S. Shroff for the Appellant.
N.A. Palkhiwala, Gauri Shanker, S.C. Manchanda, J.B. Dadachanji, Mrs. A.K. Verma, D.N. Mishra, M.S. Harau, Ram Chandran, Mrs. J. Ramachandran Ms. A. Subhashini and C.V. Subba Rao for the Respondents.
The Judgment of the Court was delivered by PATHAK, CJ.
These appeals by special leave are directed against the judgment and order of the High Court of Madras dismissing the writ petitions filed by the appellant against the refusal of the first respondent to rectify an assess ment order and pass consequential directions.
Shri Anantharamakrishnan, a reputed industrialist in Tamil Nadu, died in the state in Madras on 18 April, 1964.
He left behind his widow, Valli, his two sons, Sivasailam and Krish namoorthy and two daughters, Kalyani and Seetha.
Some time after his death, Sivasailam, as an accountable person ren dered the estate duty account.
All the heirs, other than Sri Sivasailam, who were also accountable persons wrote to the Assistant Controller of Estate Duty on 15 December, 1964 that as accountable persons they agreed to abide by the accounts , rendered by Sri Sivasailam and any explanation furnished by him with regard to the Estate Duty case would be binding on them.
Messrs. Amalgamations Private Ltd. (shortly referred to as 'Amalgamations ') is a company which holds shares in most of the companies including Simpson and Company Ltd. (shortly referred to as 'Simpson ') of the group.
By letter dated 27 April, 1965 Amalgamations informed the assessing authority that the deceased had transferred property in the form of shares in Simpson to it and that the deceased had controlling interest in that company at the time of his death.
On 13 September, 1965 the assessing authority wrote to Amalgamations that the deceased had transferred 80,377 shares of Simpson, and therefore Amalga mations was a controlled company within the meaning of section 17 of the Estate Duty Act.
By virtue of section 19(1) of the Estate Duty Act the controlled company had to be regarded as one of the persons accountable for the estate of the deceased.
Amalgamations was required to submit an account of the estate.
Amalgamations filed a return before the Assistant Controller.
No objection was raised by the heirs of the deceased or by Amalgama 237 tions to the latter being treated as an accountable person.
After due enquiry the assessment of Estate Duty was completed on 27 January, 1970 and the duty payable by the estate was determined at Rs. 1,67,74,697.58, of which provi sional duty had been paid in the amount of Rs.65,50,452.73 leaving a balance of Rs.1,02,24,244.85.
The assessment order was addressed to Amalgamations as well as Sri Sivasailam as accountable persons.
The Assistant Controller of Estate Duty proceeded on the basis that Amalgamations was a "controlled company" and the deceased had control over its affairs, and therefore valuation of the shares held by the deceased in the company had to be made in the manner laid down in Rule 15 framed by the Board under section 30(1)(e) of the Estate Duty Act.
The principal value of the assets was determined at Rs.2,12,29,998 and the duty was computed at Rs. 1,67,74,697.58.
There was no appeal against the assessment by any of the accountable persons.
Kalyani Sundaram, one of the daughters of the deceased and the appellant before us, became entitled to the death of Anantharamakrishnan to a fifth share in his estate under the Hindu Succession Act.
Her husband, K.S. Sundaram, as her agent constituted by power of attorney, wrote on 11 June, 1974 to the Assistant Controller seeking certain clarifica tions regarding the assessment.
The Assistant Controller replied on 25 June, 1974 referring to the specific agreement of the accountable persons to abide by the accounts rendered by Sri Sivasailam and to be bound by any explanation given by him.
The Assistant Controller referred to the fact that all subsequent proceedings had been completed after discus sion with Sri Sivasailam and Amalgamations and as the as sessment had now become final it was not possible to enter into any discussion concerning it.
On 2 January, 1975 the appellant 's husband as agent filed an application under section 61 of the Estate Duty Act contending that the assessment order was vitiated by several errors inasmuch as Rule 15 prescribed only the method of valuation of the shares and debentures of the controlled company and the Rule was an appendage to sections 36 & 37 of the Act, that unless property was transferred without considera tion by the deceased to Amalgamations and some benefit accrued to the deceased from the company section 17(1) of the Act would not be attracted, that the decision to treat Amalgama tions as an accountable person because of the transfer of shares rested on the transfer of shares made by the de ceased, that on a number of aspects of the case the assess ment order did not show any detail, and therefore a rectifi cation 238 order should be made indicating the exact amount included under section 17(1) of the Act as the property passing on the death of the deceased.
He required this information, he said, to enable him to work out the amount which his princi pal had to pay to Amalgamations by way of reimbursement of the duty.
If the apportionment of the duty had been effected by the order itself, he said, the need for rectification would not have arisen.
Section 61 empowers the Controller "to rectify any mistake apparent from the record" at any time within five years from the date of the order passed by him.
On 25 Janu ary, 1975 the Assistant Controller passed an Order declaring that he was unable to discover any mistake which called for rectification in the assessment order and therefore he declined to act under section 61 of the Act.
This order was challenged by the writ petitions out of which the present appeals arise.
The High Court dismissed the writ petitions.
Sethuraman, J. held that there was no apparent error, and therefore no reason for invoking section 61 of the Act and Balasubramanyan, J. in a concurring judgment, held likewise and also dealt with other aspects of the case.
BOth learned Judges were of the view that the proceeding reflected a private dispute between the appellant and other members of the family, and that the forum and remedy selected by the appellant were not appro priate for that purpose.
The fundamental question in these appeals is whether the appellant is right in invoking section 61 of the Act.
Learned counsel for the appellant contends that the heirs of the deceased on whom the estate devolves are liable to pay estate duty attributable to the property which falls to their respective shares and that if an accountable person pays any part of the estate duty in respect of any property not passing to him he is entitled to reimbursement by the person entitled to such property.
This, says learned coun sel, has no application in respect of the duty payable by virtue of section 17 of the Act, which provides that the slice of the assets of a controlled company shall be deemed to pass on the death of the deceased for the purposes of estate duty and the slice will be included in the property passing on his death if the deceased made a transfer of that property to the controlled company and benefit accrued to the de ceased in the three years ending his death.
The slice of the assets of the controlled company does not come to any heir; therefore no heir is called upon to pay the amount of estate duty attributable to the inclusion of that slice 239 in the chargeable estate.
By section 19 the controlled company itself is liable to pay the corresponding amount of estate duty.
In the present case, however, learned counsel urges, no slice of the assets of Amalgamations has been included in the estate of the deceased by the assessing authority as property deemed to pass on the death of the deceased and therefore the demand issued to the controlled company con stitutes a mistake apparent from the record.
The application of Rule 15 is also contested and this, according to learned counsel, is a clear mistake committed by the Controller.
It is urged that there is a mistake apparent from the record in the directions requiring Amalgamations to pay the entire amount of estate duty.
It seems to us that all the heirs other than Sivasailam had agreed that as accountable persons they would abide by the accounts rendered by Sivasailam, and any information furnished by him with regard to the estate duty matter would be binding on them.
The appellant cannot be heard now to dispute the quantum of liability and the basis on which the liability was computed.
Nor is it open to her to contend that it is not Amalgamations which is liable to pay the duty, but the duty is payable by the heirs of the deceased.
The assessment has become final and no appeal against it has been attempted.
It was for the benefit of the heirs that there was general agreement to have the assessment made on Amalgamations and indeed when the assessment was completed and finalised, no objection was taken.
The appellant acqui esced wholly and completely in the assessment to estate duty being made on Amalgamations.
No separate assessment was made on the appellant nor on the other heirs.
The assessment was completed in 1970 and the entire estate duty has now been paid up.
It was only after the entire estate duty was paid that the appellant filed the application for rectification on 2 January, 1975.
It was contended by learned counsel for the private respondents that the appellant enjoyed no locus standi in order to maintain the application under section 61 and these appeals thereafter, but we do not propose to enter into this question.
Further, it appears that this litigation is woven around a private dispute among the family members.
That is hardly any justification for invoking section 61 of the Act.
We have carefully perused the reasons given individually by the two learned Judges of the High Court and we are in complete agreement with them that there is no mistake appar ent on the record.
240 In support of the contention that there was a mistake apparent on the record, learned counsel has referred us to Hari Vishnu Kamath vs Syed Ahmed Ishaque and Others, ; , 1123; Hind Trading Company vs Union of India & Anr., ; ; M.K. Venkatachalam, Income Tax Officer and Another vs Bombay Dyeing and Manufacturing Co. Ltd.; , , 149 50 and Commissioner of Income Tax, Madras vs Mr. P. Firm, Muar, 15,822 but having regard to the facts of the case before us we do not find anything in those cases which can be of assistance to the appellant.
Learned counsel for the appellant states that having regard to the terms of the order granting special leave to appeal the appellant is justified in requesting the court to consider the issues on the merits.
We are unable to spell out such intent of the Court from the terms of the order granting special leave to appeal.
We do not think that the observations of the Court in Thungabhadra Industries Ltd. vs The Government of Andhra Pradesh; , , 180 affect the position before us.
The real question is whether the assessment was justi fied on Amalgamations or should it have been taken against the heirs of the deceased.
In our opinion, that question stands concluded now and upon all the facts and circum stances of the case we do not think it permissible for the appellant to have recourse to section 61 of the Act in order to re open the case.
The appeals are dismissed, there is no order as to costs.
Y.L. Appeals dis missed.
| IN-Abs | Shri Anantharamakrishnan, a reputed industrialist died in Madras on April 18, 1964 intestate leaving behind his widow, Valli, two sons, Sivasailam and Krishnamoorthy and two daughters, Kalyani and Seetha.
Some time thereafter, his son Sivasailam, being an accountable person rendered the Estate Duty account.
All other heirs i.e. his mother, broth er and sisters, who were also accountable persons, being the heirs of the deceased wrote to the Assistant Controller of Estate Duty that as accountable persons they agreed to abide by the accounts rendered by Sivasailam and whatever explana tion is furnished by him would be binding on them.
M/s. Amalgamations Private Ltd. is a company which held shares in most of the companies including Simpson and Compa ny Ltd. in which company the deceased Anantharamakrishnan too held shares.
By a letter of April 27, 1965, Amalgama tions informed the assessing authority that the deceased had transferred property to it in the form of shares and that at the time of his death, he had controlling interest in the Company.
On September 13, 1965, the Assessing Authority wrote to Amalgamations that the deceased having transferred 80,377 shares of Simpson, as such Amalgamations was a con trolled company within the meaning of section 17 of the Estate Duty Act and thus the said company had to be regarded as one of the accountable persons in respect of the estate of the deceased.
Amalgamations was therefore required to submit an account of the estate.
Accordingly Amalgamations flied a return and no objection thereto was taken by any of the heirs.
Treating Amalgamations as a controlled company and in view of the fact that the deceased had control over its affairs, the assessing authority valued the shares as per the provisions of Rule 15 of the Rule framed by 234 the Board under Section 30(1)(e) of the Act.
The principal value of the shares was determined of Rs.2,12,29,998 and the duty was computed at Rs.1,67,74,697.58, out of which provi sional duty in the sum of Rs.65,50,542.73 had been paid.
The assessment order was addressed both to Amalgamations as also to Shri Sivasailam as accountable persons.
No appeal was preferred against the said assessment by the accountable persons.
K.S. Sundaram husband of the appellant as her agent and constituted power of attorney, on June 11, 1974 wrote to the Assistant Controller seeking certain clarifications.
The Assistant Controller referring to the agreement between the heirs of the deceased Anantharamakrishnan that they were bound by the accounts rendered or explanation given by Sivasailam, replied that, since all subsequent proceedings had been completed after discussion with Sivasailam and Amalgamations, the assessment had become final and that it was not possible to enter into any further discussion.
On 2nd January, 1975, appellant 's husband as agent filed an application under Sec.
61 of the Estate Duty Act, and it was contended by him that the assessment order was vitiated by several errors inasmuch as Rule 15 only prescribed the method of valuation of shares and debentures of the con trolled company and the rule was appendage to Sections 36 & 37 of the Act.
It was urged that the assessment order did not show any details and therefore a rectification order should be made indicating the exact amount included under Section 17(1) of the Act as the property passing on the death of the deceased.
He stated that he required this information to know the precise amount which his principal had to pay to Amalgamations, as the assessment order did not, in terms, indicate apportionment of the duty, for which reason rectification was required.
On January 25, 1975, the Assistant Controller declared by an order that he was unable to find any mistake in the assessment order which called for any rectification and therefore he declined to act under Sec.
61 of the Act.
Order passed by the Assistant Controller was challenged in the High Court by means of Writ Petitions.
The High Court dismissed the Writ Petitions holding that there was no error apparent on the record and therefore there was no reason for invoking Sec.
61 of the Act.
The High Court took the view that proceedings reflected a private dispute between the appellant and other members of the family.
Hence this appeal by the appellant.
235 Dismissing the appeal the Court, HELD: All the heirs other than Sivasailam had agreed that as accountable persons they would abide by the accounts rendered by Sivasailam and any information furnished by him with regard to the estate duty matter would be binding on them.
The appellant cannot be heard now to dispute the quantum of liability and the basis on which the liability was computed.
Nor is it open to her to contend that it is not Amalgamations which is liable to pay the duty, but the duty is payable by the heirs of the deceased.
The assessment had become final and no appeal against it had been attempt ed.
[239C D] The appellant acquiesced wholly and completely in the assessment to estate duty being made on Amalgamations.
[239E] The assessment was completed in 1970 and the entire estate duty has now been paid up.
It was only after the entire estate duty was paid that the appellant filed the application for rectification on January 2, 1975.
[239E F] The question whether the assessment was justified on Amalgamations or should it have been taken against the heirs of the deceased stands concluded now and upon all the facts and circumstances of the case it was not permissible for the appellant to have recourse to Sec.
61 of the Act in order to re open the case, as there was no mistake apparent on the record.
[240D E] That this litigation was woven around a private dispute among the family members.
[239G] Hari Vishnu Kamath vs Syed Ahmed Ishaque and Others, ; , 1123; Hind Trading Company vs Union of India & Anr., ; ; M.K. Venkatachalam, Income tax Officer and Another vs Bombay Dyeing and Manufacturing Co. Ltd., ; , 149 50; Commissioner of Income tax, Madras vs Mr. P. Firm Muar, ; ,822 and Thungabhadra Industries Ltd. vs The Government of Andhra Pradesh, ; , 180, referred to.
|
Appeal No. 255 of 1954.
Appeal by Special Leave from the judgment and decree dated April 29, 1953, of the former Pepsu High Court in R. section A. Nos. 57 and 130 of 1952, arising out of the judgment and decree dated March 8, 1952, of the Court of Addl.
Judge, Faridkot, in Civil Appeal No. 10 of 1952, against the judgment and decree dated December 4, 1951, of the Court of `ubJudge 11 Class, Faridkot, in File No. 13 of 1951.
Jagan Nath Kaushal and K. L. Mehta, for the appellant.
Kapur Chand Puri and Tarachand Brijmohan Lal, for respondents Nos. 1 to 3. 1958.
May 20.
The Judgment of the Court was delivered by SUBBA RAO J.
This appeal by Special Leave against the judgment and decree of the High Court of Patiala and East Punjab States Union raises an interesting question pertaining to the Law of Preemption.
881 The material facts are not in dispute and may be briefly stated: The dispute relates to a land measuring 179 kanals and 2 marlas, situate in village Wanderjatana.
On August 26, 1949, defendants 3 to 7 sold the said land to defendants I and 2 for a consideration of Rs. 37,611.
On August 26, 1950, defendants 8 to 11 instituted a suit, Suit No. 231 of 1950 (Exhibit P. 26/1) in the Court of the Subordinate Judge, 11 Class, Faridkot, to pre empt the said sale on the ground, among others, that they bad a right of preemption.
On January 6, 1951, the vendees, i. e., defendants I and 2, and the plaintiffs therein, i. e., defendants 8 to 11 (appellants in the present appeal), entered into a compromise.
Under the terms of the compromise, the vendees admitted that they had received Rs. 1,700 from defendants 8 to II and that defendants 8 to 1 1 agreed to pay the balance of the consideration, amounting to Rs. 35,911 on the 27th April, 1951,.
It was further agreed that on the payment of the said amount, they should get possession through Court.
As the amount agreed to be paid was in excess of the pecuniary jurisdiction of the Court of the Subordinate Judge, they filed the compromise deed in the Court of the District Judge and on the basis of the said compromise, the District Judge made a decree dated January 23, 1951.
It was provided in the decree that in case defendants 8 to I I failed to pay the balance to the vendees on April 27, 1951, the suit should stand dismissed and that if the said balance was paid on that date, the vendees should deliver possession of the land in dispute to them.
Defendants 8 to 11 deposited the balance of Rs. 35,911 on April 23, 1.951, and got possession of the land on May 17, 1951.
Before the said defendants (8 to 11) deposited the amount in Court under the terms of the compromise decree, the resondents herein, claiming to be owners of land in the same patti, filed Suit No. 13 of 1951 in the Court of the Subordinate Judge, 11 Class, Faridkot, to enforce their right of pre emption.
To that suit the original vendors were impleaded as defendants 3 to 7, the vendees as defendants I and 2 and the plaintiffs in Suit No. 231 of 1950 as defendants 8 to 11.
882 Defendants 8 to 11 contested the suit, inter alia, on the grounds that the plaintiffs had no right of preemption superior to that of theirs, that the suit was barred by limitation and that the whole of the sale consideration had been fixed in good faith and paid.
The learned Subordinate Judge found all the issues in favour of defendants 8 to 11 and dismissed the suit.
On the main issue he found that the said defendants, by obtaining a decree for pre emption before the rival claimants had filed their suit, had become vendees through Court and so the plaintiffs could not succeed unless they had a superior right.
The plaintiffs preferred an appeal to.
the Additionl District Judge, Faridkot, against the said decree.
The District Judge held that the plaintiffs and defendants 8 to 11 had equal rights of pre emption and were entitled to share the sale in the proportion of 3/7 and 4/7 respectively on payment of the proportionate amount of the consideration.
On the main question, he took the view that defendants 8 to 11 did not exercise their right of pre emption when the present suit was instituted for the reason that by the date of the filing of the suit they had not deposited the purchase money in Court.
Both the parties filed Second Appeals against the decision of the District Judge in the High Court of Patiala questioning that part of the decree which went against them.
The High Court upheld that part of the decree of the learned District Judge holding that the plaintiffs were entitled to a share in the suit property but remanded the suit to the District Judge to give his findings on the following two questions: (1) What was the amount paid by defendants 8 to 11 to the original vendees and whether they paid it in good faith; (2) Whether the case would come under section 17C, cl.
(e) of the Punjab Pre emption Act (hereinafter to be referred to as the Act).
As the High Court refused to certify that the case was a fit one for appeal to the Supreme Court, defendants 8 to 11 preferred the above appeal by obtaining special leave of this Court.
The learned Counsel for the appellants raises the following two contentions before us: (1) Section 28 of 883 the Pre emption Act indicates that a property can be divided between equal pre emptors in terms of section 17 of the Pre emption Act only when both the suits are pending before the Court at the time of the passing of the decree ; (2) the appellants exercised their right of pre emption by obtaining a decree or at any rate when they deposited the money payable under the decree and thereby got themselves substituted in place of the original vendees and thereafter, the plaintiff 's can succeed only by proving their superior right to them.
The learned Counsel for the respondents countered the aforesaid argument by stating that the plaintiffs, being pre emptors of equal degree, have got a statutory right under section 17 of the Pre emption Act to share the land with the appellants, and the appellants, having been substituted in place of the original vendees pendente lite, are hit by the doctrine of lis _pendens and therefore, they cannot claim higher rights than those possessed by the original vendees at the time of the filing of the suit.
Before attempting to give a satisfactory answered to the question raised, it would be convenient at the outset to notice and define the material incidents of the right of pre emption.
A concise but lucid statement of the law is given by Plowden J. in Dhani Nath vs Budhu (1) thus: A preferential right to acquire land, belonging to another person upon the occasion of a transfer by the latter, does not appear to me to be either a right to or a right in that land.
It is,jus ad rem aliens acquirendum and not a jus ? 'In re aliena. .
A right to the offer of a thing about to be sold is not identical with a right to the thing itself, and that is the primary right of the pre emptor.
The secondary right is to follow the thing sold, when sold without the proper offer to the pre emptor, and to acquire it, if he thinks fit, in spite of the sale, made in disregard of his preferential right." The aforesaid passage indicates that a pre emptor has two rights: (1) inherent or primary right, i.e., a right (1)136 P. R. 1894 at p. 5ii.
884 to the offer of a thing about to be sold and (2) secondary or remedial right to follow the thing sold.
Mahmood J. in his classic judgment in Gobind Dayal vs Inayatullah (1) explained the scope of the secondary right in the following terms: " It (right of pre emption) is simply a right of sub stitution, entitling the pre emptor, by means of a legal incident to which sale itself was subject, to stand in the shoes of the vendee in respect of all the rights and obligations arising from the sale, under which lie, derived his title.
It is, in effect, as if in a sale deed the vendee 's name were rubbed out and pre emptor 's name inserted in its place".
The doctrine adumbrated by the learned Judge, namely, the secondary right of pre emption is simply a right of substitution in place of the original vendee, has been accepted and followed by subsequent decisions.
The general law of pre emption does not recognize any right to claim a share in the property sold when there are rival claimants.
It is well established that the right of pre emption is a right to acquire the whole of the property sold in preference to other persons (See Mool Chand vs Ganga Jal (2)).
The plaintiff is bound to show not only that his right is as good as that of the vendee but that it is superior to that of the vendee.
Decided cases have recognized that this superior right must subsist at the time the pre emptor exercises his right and that that right is lost if by that time another person with equal or superior right has been substituted in place of the original vendee.
Courts have not looked upon this right with great favour, presumably, for the reason that it operates as a clog on the right of the owner to alienate his property.
The vendor and the vendeeire, therefore, permitted to avoid accrual of the right of pre emption by all lawful means.
The vendee may defeat the right by selling the property to a rival pre emptor with preferential or equal right.
To summarize: (1) The right of pre emption is not a right to the thing sold but a right to the offer of a thing about to be sold.
(i) All. 775, 809.
(2) Lah.
258, 273.
885 This right is called the primary or inherent right.
(2) The pre emptor has a secondary right or a remedial right to follow the thing sold.
(3) It is a right of substitution but not of re purchase, i. e., the pre emptor takes the entire bargain and steps into the shoes of the original vendee.
(4) It is a right to acquire the whole of the property sold and not a share of the property sold.
(5) Preference being the essence of the right, the plaintiff must have a superior right to that of the vendee or the person substituted in his place.
(6) The right being a very weak right, it can be defeated by all legitimate methods, such as the vendee allowing the claimant of a superior or equal right being substituted in his place.
The next question is whether this right is modified or otherwise enlarged by the ' provisions of the Act.
Relevant provisions of the Act, material to the present purpose, read thus: Section 4: " The right of pre emption shall mean the right of a person to acquire agricultural land or village immovable property or urban immovable property in preference to other persons, and it arises in respect of such land only in the case of sales and in respect of such property only in the case of sales or of foreclosures of the right to redeem such property".
Section 13: " Whenever according to the provisions of this Act, a right of pre emption vests in any class or group of persons the right may be exercised by all the members of such class or group joint, and, if not exercised by them all jointly, by any two or more of them jointly, and, if not exercised by any two or more of them jointly, by them severally".
Section 17: " Where several pre emptors are found by the Court to be equally entitled to the right of preemption, the said right shall be exercised, (a)if they claim as co shares, in proportion among themselves to the shares they already hold in the land or property ; (b)if they claim as heirs, whether co sharers or not, in proportion among themselves to the shares in which but for such sale, they would inherit the land or property in the event of the vendor 's decease without other heirs; 886 (c)if they claim as owners of the estate or recognised subdivision thereof, in proportion among themselves to the shares which they would take if the land or property were common land in the estate or the subdivision, as the case may be; (d)if they claim as occupancy tenants, in proportion among themselves to the areas respectively held by them in occupancy right; (e)in any other case, by such pre emptors in equal shares.
" Section 19: " When any person proposes to sell any agricultural land or village immovable property or urban immovable property or to foreclose the right to redeem any village immovable property or urban immovable property, in respect of which any persons have a right of preemption, lie may give notice to all such persons of the price at which he is willing to sell such land or property or of the amount due in respect of the mortgage, as the case may be.
Such notice shall be given through any Court within the local limits of whose jurisdiction such land or property or any part thereof is situate, and shall be deemed sufficiently given if it be stuck up on the chaupal or other public place of the village, town or place in which the land or property is situate.
" Section 20: " The right of pre emption of any person shall be extinguished unless such person shall, within the period of three months from the date on which the notice tinder section 19 is duly given or within such further period not exceeding one year from such date as the court may allow, present to the Court a notice for service on the vendor or mortgagee of his intention to enforce his right of pre emption.
Such notice shall state whether the preemptor accepts the price or amount due on the footing of the mortgage as correct or not, and if not, what sum he is willing to pay." " When the Court is satisfied that tile said notice has been duly served on the vendor or mortgagee the proceedings shall be filed.
" Section 28: " When more suits than one arising out of the same sale or foreclosure are pending the plaintiff 887 in each suit shall be joined as defendant in each of the other suits, and in deciding the suits the court shall in each decree state the order in which each claimant is entitled to exercise his right".
The Act defines the right and provides a procedure for enforcing that right.
It does not enlarge the content of that right or introduce any change in the incidents of that right.
Section 4 embodies the preexisting law by defining the right as a right of a person to acquire land in preference to other persons in respect of ,ales of agricultural lands.
Section 13 cannot be read, as we are asked to do, as a statutory recognition of a right of preemptors of equal degree to exercise their rights piece meal confined to their shares in the land.
Section 13 confers on a group of persons, in whom the right of preemption vests, to exercise that right either jointly or severally, that is to say, either the group of persons or one of them may enforce the right in respect of the entire sale.
Section 17 regulates the distribution of preempted land when the Court finds that several pre emptors are equally entitled to the right of pre emption.
But this Section applies only where (1) the right is yet to be exercised and (2) the pre emptors are found by the Court to be equally entitled to exercise the right.
The section does not confer the right on or against a person, who has already exercised the right and ceased to be a preemptor by his being legitimately substituted in place of the original vendee.
(See Mool Chand vs ganga Jal (1) at p. 274 and Lokha Singh vs Sermukh Singh (2)).
Sections 19 and 20 prescribe the procedure for the exercise of the primary right, while section 28 confers a power on the Court to join together two or more suits arising out of the same sale, so that suitable directions may be given in the decree in regard to the order in which each claimant is entitled to exercise the right.
This section is enacted presumably to avoid conflict of decisions and finally determine the rights of the various claimants.
The aforesaid provisions do not materially affect the characteristics of the right of pre (1) Lah.
113 (2) A.I.R. 1952 Punj.
206, 207.
888 emption as existed before the Act.
They provide a convenient and effective procedure for disposing of together different suits, arising out of the same transaction, to avoid conflict of decisions, to fix the order of priority for the exercise of their rights and also to regulate the distribution of the preempted land between rival pre emptors.
The provisions do not in any way enable the preemptor to exercise his right without establishing his superior right over the vendee or the person substituted in his place or to prevent the vendor or the vendee, by legitimate means, to defeat his right by getting substituted in place of the vendee a pre emptor with a superior right to or an equal right with that of the plaintiff.
Nor can we accept the argument of the learned counsel for the appellants that section 28 precludes the Court from giving a decree for pre emption in a case where the two suits were not joined together but one of the suits was decreed separately.
Section 28 enacts a convenient procedure, but it cannot affect the substantative rights of the parties.
We do not see that, if the plaintiffs were entitled to a right of pre emption, they would have lost it by the appellants obtaining a decree before the plaintiffs instituted the suit, unless it be held that the decree itself had the effect of substituting them in place of the original vendees.
We cannot, therefore, hold that the plaintiffs ' suit is in any way barred under the provisions of the Act.
This leads us to the main question in this case, namely, whether the appellants having obtained a consent decree oil January 23, 1951, in their suit against the vendees and having paid the amount due under the decree and having taken delivery of the property and thus having got themselves substituted in place of the original vendees, can legitimately defeat the rights of the plaintiffs, who, by reason of the aforesaid substitution, were only in the position of pre emptors of equal degree vis a vis the appellants and therefore ceased to have any superior rights.
The learned Counsel for the respondents contends that the appellants are hit by the doctrine of lis pendens and 889 therefore the act of substitution, which was effected on April 23, 1951, could not be in derogation of their right of pre emption, which they have exercised by filing their suit on February 15, 1951.
It is now settled law in the Punjab that the rule of lis pendens is as much applicable to a suit to enforce the right of pre emption as to any other suit.
The principle on which the doctrine rests is explained in the leading case of Bellami vs Sabine (1), where the Lord Chancellor said that pendente lite neither party to the litigation can alienate. . the property so as to affect his opponent.
In other words, the law does not allow litigant parties, pending the litigation, to transfer their rights to the property in dispute so as to prejudice the other party.
As a corollary to this rule it is laid down that this principle will not affect the right existing before the suit.
The rule, with its limitations, was considered by a Full Bench of the Lahore High Court in Mool Chand vs Ganga Jal (2).
In that case, during the pendency of a pre emption suit, the vendee sold the property which was the subject matter of the litigation to a person possessing a right of pre emption equal to that of the pre emptor in recognition of that person 's right of pre emption.
This re sale took place before the expiry of the period of limitation for instituting a pre emption suit with respect to the original sale.
The Full Bench held that the doctrine of lis pendens applied to preemption suits; but in that case, the resale in question did not conflict with the doctrine of lis pendens.
Bhide J. gave the reason for the said conclusion at page 272 thus: " All that the vendee does in such a case is to take the bargain in the assertion of his pre existing pre emptive right, and hence the sale does not offend against the doctrine of lis pendens ".
Another Full Bench of the Lahore High Court accepted and followed the aforesaid doctrine in Mt. Sant Kaur vs Teja Singh (3).
In that case, pending the suit for pre emption, the vendee sold the land purchased (i) ; ; (2) Lah. 258, 273.
(3) I.L.R. [1946] Lah.
467, 890 by him to a person in recognition of a superior right of pre emption.
Thereafter, the second purchaser was brought onrecord and was added as a defendant to the suit.
At the time of the purchase by the person having a superior right of pre emption, his right to enforce it was barred by limitation.
The ]High Court held that that circumstance made a difference in the application of the rule of lis pendens.
The distinction between the two categories of cases was brought out in bold relief at page 145 thus: " Where the subsequent vendee has still the means of coercing, by means of legal action, the original vendee into surrendering the bargain in his favour, a surrender as a result of a private treaty, and out of Court, in recognition of the right to compel such surrender by means of a suit cannot properly be regarded as a voluntary transfer so as to attract the application of the rule of lis pendens.
The correct way to look at the matter, in a case of this kind, is to regard the subsequent transferee as having simply been substituted for the vendee in the original bargain of sale.
He can defend the suit on all the pleas which he could have taken had the sale been initially in his own favour. " " However, where the subsequent transferee has lost the means of making use of the coercive machinery of the law to compel the vendee to surrender the original bargain to him, a re transfer of the property in the former 's favour cannot be looked upon as anything more than a voluntary transfer in the former 's favour of such title as he had himself acquired under the original sale.
Such transfer has not the effect of substituting the subsequent transferee in place of the vendee in the original bargain.
Such a transferee takes the property only subject to the result of the suit.
Even if lie is impleaded as a defendant in such suit, he cannot be regarded as anything more than a representative in interest of the original vendee, having no right to defend the suit except on the pleas that were open to such vendee himself ".
This case, therefore, expressly introduces a new element in the applicability of the doctrine of lis pendens 891 to a suit to enforce the pre emptive right.
If the right of the pre emptor of a superior or equal degree was subsisting and enforceable by coercive process or otherwise, his purchase would be considered to be in exercise of that pre existing right and therefore not hit by the doctrine of lis pendens.
On the other hand, if he purchased the land from the original vendee after his superior or equal right to enforce the right of preemption was barred by Limitation, he would only be in the position of a representative in interest of the vendee, or to put it in other words, if his right is barred by limitation, it would be treated as a non existing right.
Much to the same effect was the decision of another Full Bench of the Lahore High Court in Mohammad Sadiq vs Ghasi Ram (1).
There, before the institution of the suit for pre emption, an agreement to sell the property had been executed by the vendee in favour of another prospective pre emptor with an equal degree of right of pre emption; subsequent to the institution of the suit, in pursuance of the agreement, a sale deed had been executed and registered in the latter 's favour, after the expiry of the limitation for a suit to enforce his own pre emptive right.
The Full Bench held that the doctrine of lis pendens applied to the case.
The principle underlying this decision is the same as that in Mt. Sant Kaur vs Te a Singh (2), where the barred right was treated as a non existent right.
The same view was restated by another Full Bench of the East Punjab High Court in Wazir Ali Khan vs Zahir Ahmad Khan (3).
At p. 195, the learned Judges observed: " It is settled law that unless a transfer pendente lite can be held to be a transfer in recognition of a subsisting pre emptive right, the rule of lis pendens applies and the transferee takes the property subject to the result of the suit during the pendency where of it took place".
The Allahabad High Court has applied the doctrine of lis pendens to a suit for pre emption ignoring the limitation implicit in the doctrine that it cannot affect (i) A.I.R. 1946 Lah.
(2) I.L.R. , (3) A.I.R. [1949 East Punj.
[93. 892 a pre existing right.
(See Kundan Lal vs Amar Singh (1)).
We accept the view expressed by the Lahore High Court and East Punjab High Court in preference to that of the Allahabad High Court.
In view of the aforesaid four Full Bench decisions three of the Lahore High Court and the fourth of the East Punjab High Court a further consideration of the case is unnecessary.
The settled law in the Punjab may be summarized thus: The doctrine of lis pendens applies only to a transfer pendente lite, but it cannot affect a pre existing right.
If the sale is a transfer in recognition of a pre existing and subsisting right, it would not be affected by the doctrine, as the said transfer did not create now right pendente lite ; but if the pre existing right became unenforceable by reason of the fact of limitation or otherwise, the transfer, though ostensibly made in recognition of such a right, in fact created only a new right pendente lite.
Even so, it is contended that the right of the appellants to enforce their right of pre emption was barred by limitation at the time of the transfer in their favour and therefore the transfer would be hit by the doctrine of lis pendens.
This argument ignores the admitted facts of the case.
The material facts may be recapitulated: Defendants 3 to 7 sold the land in dispute to defendants 1 and 2 on August 26, 1949, and the sale deed was registered on February 15, 1950.
The appellants instituted their suit to pre empt the said sale on August 26, 1950, and obtained a compromise decree on January 23, 195 1.
They deposited the balance of the amount payable on April 23, 1951, and took possession of the land on May 17, 1951.
It would be seen from the aforesaid facts that the appellants ' right of pre emption was clearly subsisting at the time when the appellants deposited the amount and took possession of the land, for they not only filed the suit but obtained a decree therein and complied with the terms of the decree within the time prescribed thereunder.
The coercive process was still in operation.
if so, it follows that the appellants are not hit by the (i)A.I.R. 1927 All.
VI 893 doctrine of lis pendens and they acquired an indefeasible right to the suit land, at any rate, when they took possession of the land pursuant to the terms of the decree, after depositing in Court the balance of the amount due to the vendors.
We shall briefly touch upon another argument of the learned Counsel for the appellants, namely, that the compromise decree obtained by them, whereunder their right of pre emption was recognized, clothed them with the title to the property so as to deprive the plaintiffs of the equal right of pre emption.
The right of pre emption can be effectively exercised or enforced only when the pre emptor has been sub stituted by the vendee in the original bargain of sale.
A conditional decree, such as that with which we are concerned, whereunder a pre emptor gets possession only if he pays a specified amount within a prescribed time and which also provides for the dismissal of the suit in case the condition is not complied with, cannot obviously bring about the substitution of the decreeholder in place of the vendee before the condition is complied with.
Such a substitution takes effect only when the decree holder complies with the condition and takes possession of the land.
The decision of the Judicial Committee in Deonandan Prashad Singh vs Ramdhari Chowdhri (1) throws considerable light on the question whether in similar circumstances the pre emptor can be deemed to have been substituted in the place of the original vendee.
There the Subordinate Judge made a pre emption decree under which the pre emptors were in possession from 1900 to 1904, when the decree was reversed by the High Court and the original purchaser regained possession and in 1908, the Privy Council, upon further appeal, declared the pre emptors ' right to purchase, but at a higher price than decreed by the Subordinate Judge.
In 1909 the pre eimptors paid the additional price and thereupon again obtained possession.
The question arose whether the pre emptors were not entitled to mesne profits for the period between 1904 to 1909, i.e., during the period the judg (i)(1916) L. R. 44 1.
A. 80.
894 ment of the first appellate Court was in force.
The Privy Council held that during that period the preemptors were not entitled to mesne profits.
The reason for that conclusion was stated at page 84 thus: " It therefore follows that where a suit is brought it is on payment of the purchase money on the specified date that the plaintiff obtains possession of the property, and until that time the original purchaser retains possession and is entitled to the rents and profits.
This was so held in the case of Deokinandan vs Sri Ram (1) and there Mahmud J. whose authority is well recognized by all, stated that it was only when the terms of the decree were fulfilled and enforced that the persons having the right of pre emption become owners of the property, that such ownership did not vest from the date of sale, notwithstanding success in the suit, and that the actual substitution of the owner of the pre empted property dates with possession under the decree ".
This judgment is, therefore, a, clear authority for the position that the pre emptor is not substituted in the place of the original vendee till conditions laid down in the decree are fulfilled.
We cannot, therefore, agree with the learned Counsel that the compromise decree itself perfected his clients ' right in derogation to that of the plaintiffs.
But as we have held that the appellants complied with the conditions laid down in the compromise decree, they were substituted in the place of the vendee before the present suit was disposed of.
In the aforesaid view, the other questions raised by the appellants do not arise for consideration.
In the result, the appeal is allowed and the suit is dismissed with cost, , throughout.
Appeal allowed.
(1) All.
| IN-Abs | Upon the sale of certain village land the appellants filed a suit for pre emption, and a compromise decree was passed allowing pre emption provided the appellants deposited the purchase amountbvacertaindate.
The appellants Posited the amount and got Possession of the land.
Before the appellants deposited 879 the amount, the respondents who were pre emptors of an equal degree, filed a suit to enforce their right of pre emption.
The appellants contended that the land could be divided between two equal pre emptors only when both the suits were pending before the court at the time of the passing of the decree, and that the appellants having obtained the decree and paid the amount got substituted in place of the vendees and the respondents could succeed only by establishing a superior right of pre emption.
The respondents countered that they had a statutory right under section 17 Of the Punjab Pre emption Act to share the land with the appellants and that the appellants, having been substituted in place of the vendees Pendente lite, were hit by the doctrine of lis pendens and could not claim a higher right than the vendees: Held, that the respondents ' suit could not succeed as they (lid not have a superior right of pre emption over the appellants who had become substituted in place of the vendees upon payment of the purchase money under their decree.
A pre emptor has two rights: (i) inherent or primary right to the offer of a thing about to be sold and (2) a secondary or remedial right to follow the thing sold.
The secondary right is simply a right of substitution in place of the original vendee.
Dhani Nath vs Budhu, 136 P. R. 1894 at P. 511 and Gobind Dayal vs Inayatullah, All. 775, followed.
In a suit for pre emption the plaintiff must show that his right is superior to that of the vendee and that it subsists at the time he exercises his right.
This right is lost if before he exercises it another person with an equal or superior right has been substituted in place of the original vendee.
The Punjab Preemption Act defines the right of pre emption and provides a procedure for enforcing it.
It does not enlarge the content of this right nor does it introduce any change in the incidents of the right.
Section 28 Of the Act does not preclude the Court from giving a decree for pre emption in a case where the suits are not joined together and one of the suits has been decreed separately.
The doctrine of lis pendens applies only to a transfer Pendente lite, but it cannot affect a pre existing right.
If the sale is a transfer in recognition of a preexisting and subsisting right, it would not be affected by the doctrine, as the transfer does not create a new right Pendente lite but if the preexisting right became unenforceable by reason of limitation or otherwise, the transfer, though ostensibly made in recognition of such a right, in fact creates only a new right pendente lite.
The appellants ' right of pre emption was subsisting and was not barred by limitation at the time of the transfer in their favour as they had filed a suit and had obtained a decree and the coercive 112 880 process was still in operation.
Consequently the appellants were not hit by the doctrine of lis pentlens and they acquired an indefeasible right to the land when they took possession of it after depositing the purchase money in court.
Mool Chand vs Ganga jal, Lah.
258, Mt. Sant Kaor vs Teja Singh, I.L.R. , Mohammad Sadhiq vs Ghasi Ram, A.I.R. 1946 Lah.
322 and Wazir Ali Khan vs Zahir Ahmad Khan, A.I.R. 1949 East Punj.
193, approved.
Kundan Lal vs Amar Singh, A.I.R. 1927 All.
664, disapproved.
The right of pre emption is effectively exercised or enforced only when the pre emptor has been substituted for the vendee.
A conditional decree whereunder the pre emptor gets possession only if he pays a specified amount within a prescribed time and which also provides for the dismissal of the suit in case the condition is not fulfilled, cannot bring about the substitution of the decree holder for the vendee before the condition is fulfilled.
Such substitution takes effect only when the decree holder fulfils the condition and takes possession of the land.
Deonandan prashad Singh vs Ramdhari Choudhyi, (1916) L. R. 44 I. A. 80, followed.
|
ON: Civil Appeal No. 1529 of 197 1.
From the Judgment and Order dated 31.7.70 of the Calcut ta High Court in Appeal No. 29 of 1969.
G. Ramaswamy, Additional Solicitor general, A.K. Gan guli, P. Parmeshwaran and A.K. Srivastava for the Appel lants.
D.N. Mukharjee and P.K. Ghosh for the respondents.
The judgment of the Court was delivered by PATHAK, CJ.
This appeal by certificate granted by the High Court of Calcutta is directed against the judgment dated 31 July, 1970 of that High Court partly allowing a writ petition arising out of proceedings under the .
On 5 May, 1966.
noticing an advertisement in a newspaper offering imported manual and electric typewriters, adding and calculating machines, the Customs authorities raided the premises of Messrs. Typewriters and Stationery Operation Private Limited, Calcutta, on the same day and recovered fifteen typewriters, adding and calculating machines.
The machines had been sold to the company by R.N. Bagh, who in turn disclosed that he had purchased them from the crew members of some vessels.
On 7 May, 1966, the Customs Offi cers searched the residence and business premises of Messrs. Central Typewriter Company and recovered several typewriters and calculating and adding machines.
From some documents seized during the raid and statements recorded, it appeared that there was a conspiracy between the respondents and some of the crew members of certain vessels where it was agreed that the respondents would look after and maintain the families of the crew members in India while they were abroad, would advance them money and the crew members would draw their wages abroad in foreign currency and purchase with those moneys second hand typewriters, adding and calcu lating machines and then bring them to India and deliver them to the respondents after clearance under the conces sions provided in the Baggage Rules in order to circumvent the restrictions imposed under the Import Trade Control 286 Regulations.
It appeared that during the period 1961 to 1965 about 200 pieces of typewriters, adding and calculating machines had been acquired by the respondents for a sum of about Rupees one lakh and out of which forty six had been sold.
The goods were seized on 5/7 May, 1966 and notices were due to issue under section 124(a) of the within six months from that date.
Meanwhile, the Subordinate Offi cers, Customs Department, showed cause to the Additional Collector of Customs, Calcutta (who had the same powers under the Act as the Collector) for granting an extension of time for serving the show cause notice.
On 3 November, 1966, the Additional Collector granted an extension of time for a further six months in terms of the proviso to section 110(2) of the .
On 6 December, 1966 the Assistant Collector of Customs issued notice to each of the respondents calling upon him to show cause why the said seized machines should not be con fiscated under section 111(d) and section 111(o) of the read with s.3(2) of the Import and Export Control Act, 1947 and why penal action should not be taken against the respondents under section 112 of the .
On 18 April, 1967, the respondents filed a writ petition in the High Court at Calcutta challenging the proceedings initiated against them by the customs authorities including the seizure of the machines.
On 11 December, 1968 a learned Single Judge of the High Court repelled the contention of the appellants that the proceeding was administrative in nature and held that the order of extension to be made under section 110(2) of the was a quasi judicial order and as the order had been made ex parte and without notice to the owner of the goods it was in breach of the principles of Natural justice and therefore void.
He observed that as the order, moreover, was not communicated to the respondents before the expiry of six months from the date of seizure, the order of extension was invalid and the respondents had become entitled as of right to the return of the goods.
The writ petition was allowed, and the proceedings initiated by the respondents against the appellants were quashed by the learned Single Judge by his judgment and order dated 11 December, 1969.
The appellants appealed to the Appellate Bench and the Appellate Bench of the High Court by judgment dated 31 July, 1970 allowed the appeal in part, quashing the order of extension dated 3 November, 1966 and directing the appel lants to restore the machines and docu 287 ments seized from the respondents.
The Customs authorities were permitted to initiate and complete such other proceed ings against the, respondents as were open to them in law.
The appellants now appeal to this Court in so far as the judgment and order of the Appellate Bench proceeds against them.
Section 110(1) of the provides that if the proper officer has reason to believe that any goods are liable to confiscation under that Act he may seize such goods.
Section 110(2) provides: "Where any goods are seized under sub section (1) and no notice in respect thereof is given under clause (a) of Section 124 within six months of the seizure of the goods, the goods shall be returned to the person from whose possession they were seized: Provided that the aforesaid period of six months may, on sufficient cause being shown, be extended by the Collector of Customs for a period not exceeding six months." Section 124(a), to which reference has been made in section 110(2), provides that no order confiscating any goods or imposing any penalty on any person shall be made under Chapter XIV unless the owner of the goods or such person is given notice in writing informing him of the grounds on which it is proposed to confiscate the goods or to impose a penalty and is given an opportunity of making a representa tion in writing, and is also given a reasonable opportunity of being heard in the matter.
It is apparent that goods liable to confiscation may be seized by virtue of section 110(1) but that those goods cannot be confiscated or penalty imposed without notice, opportunity to represent and to be heard to the owner of the goods or the person on whom penalty is proposed.
This notice must be given within six months of the seizure of the goods, as envisaged by section 110(2) of the Act, and if it is not, the goods must be returned to the person from whom the goods were seized.
The proviso to section 110(2) of the Act allows the period of six months to be extended by the Collector of Customs for a period not exceeding six months on sufficient cause being shown to him in that behalf.
The Appellate Bench of the High Court is of opinion that the 288 decision of the High Court in Assistant Collector of Customs vs Charan Das Malhotra, ; lays down the correct law and applies to the facts of this case, that there is a duty on the part of the Collector of Customs to act judicially in exercising the power conferred under the proviso to section 110(2) of the Act and that, therefore, notice should have gone to the owner of the goods before the exten sion was ordered under the proviso.
It has been held further that the order of extension should have been communicated to the owner and as that was not done the order was ineffec tive.
When this appeal came up for hearing before a Bench of this Court, reliance was placed by learned counsel for the respondents on Charan Das Malhotra, (supra).
That decision was rendered by two learned Judges of this Court.
Reference was also made in M/s Lokenath Tolaram etc.
B.N. Rangwani and Others, ; which was a decision rendered by four learned Judges of this Court, and in which reference was made to Charan Das Malhotra, (supra).
The learned Judges hearing this appeal were of the opinion that the view taken in the two cases required reconsideration, and therefore this appeal was referred to a larger Bench for a decision on the question whether the Collector is bound to issue notice to the persons from whose possession the goods are seized and to give him an opportunity to make his representation on the point whether the time for issuing notice under section 124(a) of the Act should be extended beyond six months.
That is how the appeal has come before us.
In Charan Das Malhotra, (supra) the Court referred to the consideration that seizure was authorised under section 110(1) on the mere "reasonable belief" of the concerned officer, that it was an extraordinary power and that there fore Parliament had envisaged a period of six months from the date of seizure for completing an enquiry on whether the goods should be confiscated and that if the enquiry was not completed within that period the goods must be returned.
In some cases it is possible that the enquiry requires longer than six months, and accordingly power was conferred on the Collector, an officer superior in rank and also an Appellate Authority under section 128, to extend the time subject to two conditions, that it did not exceed one year, and that suffi cient cause must be shown for such extension.
The Court observed that the Collector was not expected to propose the extension mechanically or as a matter of routine but only on being satisfied that facts exist which indicate that the investigation could not be completed for bona fide reasons within the time provided in section 110(2), and that therefore extension of the period has become neces 289 sary.
The Collector, the Court emphasized cannot extend the time unless he is satisfied on facts placed before him that there is sufficient cause necessitating extension, in which case the burden of proof would clearly lie on the Customs authorities applying for extension to show that such exten sion was necessary.
Taking these consideration into record the Court held that the words "sufficient cause being shown" required an objective examination of the matter by the Collector.
It was pointed out that ordinarily on the expiry of the period of six months from the date of seizure the owner of the goods would be entitled as of right to restora tion of the seized goods, and that right could not be de feated without notice to him that an extension was proposed.
The Court rejected the contention that the continuing inves tigation would be jeopardised if such notice was given.
The Court held that the power under the proviso to section 110(2) was quasi judicial, at any rate one requiring a judicial ap proach, and consequently the person from whom the goods were seized was entitled to notice before the period of six months envisaged by section 110(2) was extended.
The point was considered again in M/s. Lokenath Tolaram etc.
B.N. Rang wani and Others, (supra) by a Bench of four Judges of this Court and the Court referred to the view taken in Charan Das Malhotra, (supra) but it declined to interfere because the appellants in that case had themselves waived notice con cerning extension of the time.
The Court did not specifical ly give the stamp of approval to the law laid down in Charan Das Malhotra, (supra).
There is no doubt that the words "on sufficient cause being shown" in the proviso to section 110(2) of the Act indi cates that the Collector of Customs must apply his mind to the point whether a case for extending the period of six months is made out.
What is envisaged is an objective con sideration of the case and a decision to be rendered after considering the material placed before him to justify the request for extension.
The Customs Officer concerned who seeks the extension must show good reason for seeking the extension, and in this behalf he would probably want to establish that the investigation is not complete and it cannot yet be said whether a final order confiscating the goods should be made or not.
As more time is required for investigation, he applies for extension of time.
The Collec tor must be satisfied that the investigation is being pur sued seriously and that there is need for more time for taking it to its conclusion.
The question is whether the person claiming restoration of goods is entitled to notice before time is extended.
The right to notice flows not from the mere circumstance that there is a proceeding of a judi cial nature, but indeed it goes beyond to the basic reason which gives to the proceeding its character, and that 290 reason is that a right of a person may be effected and there may.
be prejudice to that right if he is not accorded an opportunity to put forward his case in the proceeding.
In the other words, the issue is whether there is a right in a person from whose possession goods are seized and which right may be prejudiced or placed in jeopardy unless he is heard in the matter.
It cannot be disputed that section 110 sub section (2) contemplates either notice (within six months from the date of seizure) to the person from whose possession the goods have been seized in order to determine whether the goods should be confiscated or the restoration of the goods to such person on the expiry of that period.
If the notice is not issued in the confiscation proceedings within six months from the date of seizure the person from whose pos session the goods have been seized becomes immediately entitled to the return of the goods.
It is that right to the immediate restoration of the goods upon the expiry of six months from the date of seizure that is defeated by the extension of time under the proviso to section 110(2).
When we speak of the right of the person being prejudiced or placed in jeopardy we necessarily envisage some damage or injury or hardship to that right and it becomes necessary to inquire into the nature of such damage or injury or hardship for any case to be set up by such person must indicate the damage or injury or hardship apprehended by such person.
In the present case, one possibility is that the person from whose possession the goods have been seized may want to establish the need for immediate possession, having regard to the nature of the goods and the critical conditions then pre vailing in the market or that the goods are such as are required urgently to meet an emergency in relation to a vocational or private need, and that any delay in restora tion would cause material damage or injury or hardship either by reason of some circumstance special to the person or of market conditions or of any particular quality of requirement for the preservation of the goods.
But it will not be open to him to question whether the stage of the investigation, and the need for further investigation, call for an extension of time.
It is impossible to conceive that a person from whose possession the goods have been seized with a view to confiscation should be entitled to know and to monitor, how the investigation against him is proceeding, the material collected against him at that stage, and what is the utility of pursuing the investigation further.
These are matters of a confidential nature, knowledge of which such person is entitled to only upon the investigation being completed and a decision being taken to issue notice to show cause why the goods should not be confiscated.
There can be no right in any person to be informed midway, during an investigation, of the material collected in the case against him.
Consequently, while notice may be necessary to such person to show why 291 time should not be extended he is not entitled to informa tion as to the investigation which is in process.
In such circumstances, the right of a person, from whose possession the goods have been seized, to notice of the proposed exten sion must be conceded, but the opportunity open to him on such notice cannot extend to information concerning the nature and course of the investigation.
In that sense, the opportunity which the law can contemplate upon notice to him of the application for extension must be limited by the pragmatic necessities of the case.
If these considerations are kept in mind, we have no doubt that notice must issue to the person from whose possession the goods have been seized of the proposal to extend the period of six months.
In the normal course, notice must go to such person before the expiry of the original period of six months.
It is true that the further period of six months contemplated as the maximum period of extension is a short period, but Parliament has contemplated an original period of six months only and when it has fixed upon such period it must be assumed to have taken into consideration that the further detention of the goods can produce damage or injury or hardship to the person from whose possession the goods are seized.
We have said that notice must go to the person, from whose possession the goods have been seized, before the expiry of the original period of six months.
It is possible that while notice is issued before the expiry of that peri od, service of such notice may not be effected on the person concerned in sufficient time to enable the Collector to make the order of extension before that period expires.
Service of the notice may be postponed or delayed or rendered inef fective by reason of the person sought to be served attempt ing to avoid service of notice or for any other reason beyond the control of the Customs authorities.
In that event, it would be open to the Collector, if he finds that sufficient cause has been made out before him in that behalf to extend the time beyond the original period of six months, and thereafter, after notice has been served on the person concerned, to afford a postdecisional hearing to him in order to determine whether the order of extension should be cancelled or not.
Having regard to the seriousness and the magnitude of injury to the public interest in the case of the illicit importation of goods, and having regard to considerations of the damage to economic policy underlying the formulation of import and export planning, it seems necessary to reconcile the need to afford an opportunity to the person effected with the larger considerations of public interest.
Our attention has been drawn to Ganeshmul Channilal Gandhi 292 and another vs Collector of Central Excise and Asstt.
Col lector, Bangalore, A.I.R. where the High Court of Mysore has held that no notice is necessary to the person from whose possession the goods are seized when the Collector proceeds to consider whether the original period of six months should be extended.
Reliance has also been placed on Sheikh Mohammed Sayeed vs Assistant Collector of Customs for Preventive and others, A.I.R. 1970 Calcutta 134 which proceeds on the view that the Collector has to satisfy himself only subjectively on the point whether extension is called for.
In Karsandas Pepatlal Dhineja & Others vs Union of India and Another, the High Court de fined the implications of the use of the words "on suffi cient cause being shown" in a statutory proceeding.
None of these cases convince us that the person from whose posses sion the goods have been seized is not entitled to notice of the proposal to extend the period.
In our opinion, the person from whose possession the goods have been seized is entitled to notice of the proposal before the Collector of Customs for the extension of the original period of six months mentioned in section 110(2) of the , and he is entitled to be heard upon such pro posal but subject to the restrictions referred to earlier in regard to the need for maintaining confidentiality of the investigation proceedings.
The appeal is allowed accordingly and to the extent set forth in our judgment the orders of the High Court are modified, but there is no order as to costs.
Y. Lal Appeal al lowed.
| IN-Abs | Acting on the basis of the information contained in an advertisement in a newspapers offering the sale of imported manual and electric typewriters, adding and calculating machines, the customs authorities raided the premises of M/s Typewriters and Stationary Operation Private Ltd., Calcutta on 5th May, 1966 and recovered fifteen typewriters, adding & calculating machines.
On inquiry it was learnt that the said machines had been sold to the Company by R.N. Bagh, who in turn disclosed that the machines in question had been pur chased from crew members of the vessels.
On 7.5.66 the customs authorities searched the business premises of the Company and found several machines from the documents seized during the search it came to light that there was a conspir acy between the Respondents and some of the crew members of certain vessels whereunder it had been agreed that the Respondents would look after the families of the crew mem bers in India and the crew personnel would draw their wages abroad in foreign currency and after purchasing the said machines.
would supply to the Respondents after clearance under the concessions provided under the Baggage Rules.
The goods in question were seized on 5/7th May, 1966 and as required by Rule 124(a) of the Customs Act, notices as to why the goods should not be confiscated were due to issue within six months thereof.
Section 110(2) of the Customs Act provided that if a notice as contemplated by Section 124(a) is not issued within a period of six months as provided thereunder, the goods shall have to be returned to the person from whose possession, they were seized.
However a proviso to Sec.
110(2) makes a provision that the period of six months can be extended, 283 on sufficient cause being shown, by the Collector for a period not exceeding six months.
The officers of the Customs Department showed cause to the Additional Collector of Customs, Calcutta for extension of time to serve a show cause notice on Respondents and extension of six months was granted for the purpose under the proviso to Section 110(2) of the Customs Act.
No notice of the proceedings relating to the said extension was given to the persons from whose custody the goods were seized.
On 6th December 1966, the Assistant Collector of Customs issued a notice to each of the Respondents calling upon them to show cause why the goods should not be confiscated.
On April 18, 1967, the Respondents filed a Writ Petition in the High Court at Calcutta challenging the proceedings initiated against them by Customs Authorities.
The learned Single Judge of the High Court who heard the Writ Petition held that the Order of extension to be made under Section 110(2) of the Customs Act is not an administrative order but a quasi judicial order and as the order has been passed ex parte without notice to the owner of the goods, it was in breach of principle of Natural Justice.
The order of exten sion was accordingly quashed and it was held that the owner was entitled to the return of his goods.
The appellants appealed to the Appellate Bench.
The appellate Bench allowed the appeal in part, quashed the order of extension dated 3rd November, 1966 directed the appellants to restore the machines and documents seized from the Respondents.
However the Customs Authorities were per mitted to initiate and complete such other proceedings against the Respondents as were open to them in law.
The appellate Bench was of the opinion that the decision in Assistant Collector of Customs vs Charan Das, ; lays down the correct law and notice of extension should have been given to the owner of the goods before the Order of extension had been passed.
Hence this appeal by the Customs Department.
At the hearing of the appeal Respondents placed reliance upon Charan Das Malhotra, (supra).
Reference was also made to the decision in M/s Lokenath Tolaram etc.
B.N. Rangwani appeal were of the opinion that the view taken in the said two cases required reconsideration and the 284 appeal has been referred to a larger Bench for a decision on the question whether the Collector is bound to issue notice to the persons from whose possession the goods were seized and to give him an opportunity to make his representation on the point whether the time for issuing notice under Section 124(a) of the Act should be extended beyond six months.
Partly allowing the appeal this Court, HELD: The words "on sufficient cause being shown" in the proviso to Section 110(2) of the Customs Act indicates that the Collector of Customs must apply his mind to the point whether a case for extending the period of six months is made out.
[289E F] The right to notice flows not from the mere circumstance that there is a proceeding of a judicial nature, but indeed it goes beyond to the basic reason which gives to the pro ceeding its character, and that reason is that a right of a person may be affected and there may be prejudice to that right if he is not afforded an opportunity to put forward his case in the proceeding.
If the notice is not issued in the confiscation proceedings within six months from the date of the seizure the person from whose possession the goods have been seized becomes immediately entitled to the return of goods.
It is that right to the immediate restoration of goods upon the expiry of six months from the date of the seizure that is defeated by the extension of time under the provio to Section 110(2).
[289H; 290B C] There can be no right in any person to be informed midway, during an investigation, of the material collected in the case against him.
While notice may be necessary to such person to show why time should not be extended, he is not entitled to information as to the investigation which is in process.
[290H; 291A] The person from whose possession the goods have been seized is, therefore, entitled to notice of the proposal before the Collector of Customs for the extension of the original period of six months mentioned in Section 110(2) of the Customs Act and he is entitled to be heard upon such proposal but subject to the restrictions in regard to the need for maintaining confidentiality of the investigation proceedings.
[292D E] Ganeshmul Channilal Gandhi & Anr., vs Collector of Central Excise and Asstt.
Collector, Bangalore, A.I.R. , Sheikh 285 Mohammed Sayeed vs Assistant Collector of Customs for Pre ventive & Others, A.I.R. 1970 Calcutta 134 and Karsandas Pepatlal Dhineja & Ors., vs Union of India & Anr., not applicable.
|
t Petition Nos. 751, 794 and 798 of 1986.
(Under Article 32 of the Constitution of India.) Dr. Y.S. Chitale, Soli J. Sorabiee, A.B. Diwan, B.V. Desai, Ms. Madavi Gupta, Bharat Sangal, Harish N. Salve, T.V.S.N. Chari, Ms. Sunita Modigunda, Ms. Vrinda Grover and S.K. Bhattacharya for the Petitioners.
G. Ramaswamy, Additional Solicitor General Anil Dev Singh, P.S. Shroff, S.S. Shroff, R. Karanjawala, Mrs. M. Karanjawala, Ejaz Maqbool, Mrs. Shobha Dikshit, E.C. Aggar wal, B.V. Desai, Ms. Madhavi Gupta, C.S. Vaidyanathan and S.V. Deshpande for the Respondents.
The Judgment of the Court was delivered by RANGANATH MISRA, J.
These are three petitions under article 32 of the Constitution by three different groups of peti tioners.
In each of these writ petitions petitioner No. 1 is a private limited company and the second petitioner is a shareholder thereof.
The petitionercompany in each of these cases obtained the right to collect oleo resin 260 gum or to process the same for industrial purposes from the State of Jammu & Kashmir and each of them seeks to challenge the vires of the provisions of the Jammu & Kashmir Extrac tion of Resin Act (7 of 1986) (hereinafter referred to as the 'Act ').
Though there are some variations of facts relevant to each of the writ petitions, the allegations are more or less similar in regard to the relevant contentions both factual and legal.
When rule was issued the respondent State came with almost the same plea, traversing common grounds and revealing a common stand in its returns to the Court.
These three writ petitions were heard at a time and are now being disposed of by a common judgment.
Resin is the secretion extracted by tapping or otherwise from chir, chil and kail trees wildly growing in the forests of Jammu & Kashmir.
It is an exudate and when subjected to chemical treatment and distillation with the aid of steam yields 70% resin, 15% turpentine and the remaining 15% of waste material.
The down stream products which are manufac tured from this raw material are varnish, camphor, paints and turpene chemicals.
The petitioner company in writ petition No. 751/86 obtained under Government order dated 27.4.1979 allotment of 10 to 12 lacs of blazes annually for extraction of resin from the inaccessible forests in Poonch, Reasi and Ramban Divisions of the State for a period of 10 years on terms and conditions set out in the said Government order.
Government order had also been made granting rights in favour of the petitioner company in writ petition No. 794/86.
The petitio nercompany in writ petition No. 798/86 was a processor only and had not undertaken to work as a tapper.
Applications under article 32 of the Constitution were filed in this Court at that point of time on the ground that the Government orders and/or contracts were hit by articles 14 and 19 of the Constitution and the grant of forest rights in favour of the present petitioners was arbitrary, mala fide and not in public interest.
It was further contended that State lar gesse had been conferred on the petitioners at the cost of the State exchequer.
The petitioners therein also pleaded that a monopoly had been created in favour of the private grantees and was not protected under article 19(1)(g) of the Constitution.
According to Kasturilal, the petitioner before this Court then, the benefits should have been thrown open and opportunity should have been provided to all interested persons to compete for the obtaining of the contract.
A three Judge Bench consisting one of us (the learned Chief Justice) dealt with the matter at length and ulti 261 mately dismissed the petition holding that there was no substance in any of the contentions advanced on behalf of Kasturilal.
(Kasturi Lal Lakshmi Reddy vs State of Jammu & Kashmir & Anr., The order made in favour of the petitioner company in writ petition No. 794/86 and incorporated in the agreement dated 6.11.
1978 had also been challenged in a separate writ petition before this Court and the reasoned order for rejection of the writ petition is found in Brij Bhushan & Ors.
vs State of Jammu & Kashmir & Ors.
, While the petitioner company in writ petition No. 751/86 had agreed to work as tapper and processor on the stipula tion that 25% of the annual collection of gum subject to minimum of 1500 metric tonnes would be made over to the Government company (J & K Industries Limited) and out of the rest not exceeding the limit of 3500 metric tonnes would be used by them, the petitioner company in writ petition No. 794/86 who had been operating from before as tappers only entered into a formal agreement with the State claiming to process and manufacture down stream goods.
The writ peti tioner company in writ petition No. 798/86 had agreed to work as processor only.
In the seventies, the State of Jammu & Kashmir decided to industrialise the hitherto under developed State and with that end in view came forward with scheme and threw open invitation to outsiders to set up industries at convenient places within the State.
As stimulus Government offered land and other facilities.
The petitioners in these three writ petitions and another who has since withdrawn the writ petition, went into the State of Jammu & Kashmir in response and negotiated the arrangements we have already adverted to.
While the petitioners were carrying on their business activities, Governor 's Act 7 of 1986, the provisions whereof are impugned in these petitions by which all their existing rights came to terminate, came into force with effect from 23.4.1986.
The Act sought to create a monopoly with refer ence to resin in favour of J & K Industries Limited, which is a respondent to these petitions.
The Act has seven sections in all.
Section 1 gives the short title, extent and the date of commencement while section 2 defines four terms, namely, 'prescribed ', 'resin ', 'resin depot ' and 'resin products '.
Section 3 bans extraction and other dealings of resin by private persons while s, 4 makes provision for disposal of resin.
Section 5 provides the manner of fixation of price.
Section 6 provides for penalty for offences 262 and section 7 clothes the State Government with power to make rules for carrying out the purposes of the Act.
Challenge in the writ petitions has been to the provisions contained in sections 3, 4 and 5 of the Act.
We propose to excerpt these provisions for convenience: "3. Ban on extraction by private persons Notwithstanding anything to the contrary contained in any law, rule, order, instrument, agreement or contract or in any judgment, decree or order of any Court or Authority, no person, other than the Government shall as from the commencement of this Act , (a) extract resin by tapping or otherwise from Chit/ Chil or Kail trees in the State whether such trees belong to the State or not; (b) transport resin from one place to other in the State except under and in accord ance with the permit granted under this Act; (c) acquire, possess, store, dispose of or otherwise deal with any resin extracted and manufactured in the State.
Disposal of resin (1) All resin extracted under section 3 shall be stored at resin depots and thereaf ter shall be sold by the Government to the Jammu & Kashmir Industries Limited for proc essing.
(2) After processing it by the Jammu & Kashmir Industries Limited, the resin products, if any surplus, shall be sold by it to the small scale units and medium scale units in the State in such manner as may be provided for, and at such price as may be fixed by the Jammu & Kashmir Industries Limit ed in consultation with the Government.
Fixation of price (1) The Government shall, having due regard to the following facts, fix the price at which resin shall be sold by it during a year, namely 263 (a) the sale price of resin, if any, fixed under this Act during the preceding three years; (b) the cost of transport; (c) the cost of extraction of resin; (d) the cost of packing of resin including the cost of container in which resin is delivered; (e) the prevalent sale price at which resin is being sold in other resin producing States; (f) any other factor which the Gov ernment considers relevant.
(2) The price so fixed shall be published in the Official Gazette and shall not be altered during the year to which it relates.
" In exercise of the rule making power, the State Government has brought into force a set of rules known as the Jammu & Kashmir Extraction of Resin Rules, 1986 with effect from 27.9.1986.
It is not in dispute that by the provisions of this Act all the existing contracts between parties and the State and existing grants in respect of collection, transport, storage and otherwise dealing with resin have come to forthwith terminate and a monopoly situation has been created qua these operations in resin in favour of the Government compa ny.
The Act does not provide for any compensation and the petitioners maintain that the existing rights in their favour amounted to 'property ' and could not have been expro priated in contravention of the guarantee in Part III of the Constitution.
It is the stand of the State that the benefits and privileges conferred on the three petitioners either under contract or under Government orders did not constitute property and by the provisions of the Act no transfer of such property has taken place.
It is relevant to point out at this stage that sub clause (f) was deleted from article 19(1) of the Constitution by the Forty fourth Amendment with effect from 20th of June, 1979 and acquisition, holding and/or disposal of property ceased to be a fundamental right.
The same constitutional amendment deleted article 31 but so far as the State 264 of Jammu & Kashmir is concerned the Forty fourth Amendment did not bring about any change and right to property, there fore, continues to be fundamental and law enunciated by this Court treating property be one of the fundamental rights still applies to Jammu & Kashmir.
That is why, sumptuous reference has been made by counsel for the petitioners to a catena of precedents touching upon right to property as a fundamental one.
The petitioners maintained that the Government orders and contracts under which they have got the right to exploit or utilise the particular forest product does amount to 'property ' and the petitioners were entitled to protection thereof against expropriation and in case no compensation was provided the relevant provisions of the Act became exposed to challenge.
They have similarly contended that the impugned provisions of section 3 are hit for contravening the fundamental right guaranteed by article 19(1)(g) which confers upon them the right to carry on any occupation, trade or business.
The Government orders made in 1979 did confer the right to exploit the forest and appropriate a part of the collec tion of the gums for purposes of business.
The concept of 'property ' known to jurisprudence has expanded through several pronouncements of this Court.
Ramana Dayaram Shetty vs The International Airport Authority of India & Ors.
, ; , to which one of us (the learned Chief Justice) was party held: "Today the Government in a welfare State is the regulator and dispenser of special serv ices and provider of a large number of bene fits, including jobs, contracts, licences, quotas, mineral rights etc.
The Government pours forth wealth, money, benefits, services, contracts, quotas and licences.
The valuables dispensed by Government take many forms, but they all share one characteristic.
They are steadily taking the place of traditional forms of wealth.
These valuables which derive from relationships to Government are of many kinds.
They comprise social security benefits, cash grants for political sufferers and the whole scheme of State and the local welfare.
Then again, thousands of people are employed in the State and the Central Governments and local authorities.
Licences are required before one can engage in many kinds of business or work.
The power of giving licences means power to withhold them and this gives control to the Government or to 265 the agents of Government on the lives of many people . .
It is virtually impossible to lose money on them and many enterprises are set up primarily to do business with Govern ment.
Government owns and controls hundreds of acres of public land valuable for mining and other purposes.
These resources are available for utilisation by private corporations and individuals by way of lease or licence.
All these mean growth in the Government largess and with the increasing magnitude and range of governmental functions as we move closer to a welfare State, more and more of our wealth consists of these new forms.
Some of these forms of wealth may be in the nature of legal rights but the large majority of them are in the nature of privileges.
But on that account, can it be said that they do not enjoy any legal protection? Can they be regarded as gratuity furnished by the State so that the State may withhold grant or revoke it at its pleasure . .
The law has not been slow to recognise the importance of this new kind of wealth and the need to protect individual interest in it and with that end in view, it has developed new forms of protection.
Some interests in Government largess, formerly regarded as privileges, have been recognised as rights while others have been given legal protection not only by forging procedural safeguards but also by confining/structuring and checking Government discretion in the matter of grant of such largers . .
It is insisted, as pointed out or ' Prof. Reich in an especially stimulating article on The New Property ' in , 'that Government action be based on standards that are not arbitrary or unauthorised.
" In Kasturi Lal Lakshmi Reddy vs State of Jammu & Kashmir & Anr., (supra), the interest created in favour of the petitioners in the forest assets of the State (which has now been fatally hit by section 3) was considered to be proper ty.
At page 1354 of the Reports this Court stated: "It was pointed out by this Court in Ramana Dayaram Shetty vs The International Airport Authority of India & Ors., (supra) that with the growth of the welfare state, new forms of property in the shape of Government largess are developing, since the Government is in creasingly assuming the role of regulator and dispenser of social services and provider of a large number of benefits including jobs, con 266 tracts, licences, quotas, minerals rights etc.
" In Subodh Gopal Bose 's case ; , this Court had pointed out: "The word 'property ' in the context of Article 31 (the same should be the meaning under Article 19(1)(f) which is designed to protect private property in all its forms, must be understood both in a corporeal sense as having reference to all those specific things that are susceptible of private appropriation and enjoyment as well as in its juridical or legal sense of a bundle of rights which the owner can exercise under the municipal law with respect to the user and enjoyment of those things to the exclusion of all others." Again, in Dwarkadas Shrinivas of Bombay vs The Sholapur Spinning & Weaving Co. Ltd. & Ors., ; , this Court held: "A contract or agreement which a person may have with the company and which may be can celled by the Directors in exercise of powers under ordinance will undoubtedly be property within the meaning of the two articles.
" In R.C. Cooper vs Union of India, ; an eleven Judge Bench at page 567 of the Reports, stated: "By Entry 42 in the Concurrent List power was conferred upon the Parliament and the State Legislatures to legislate with respect to 'Principles on which compensation for property acquired or requisitioned for the purpose of the Union or for any other public purpose is to be determined, and the form in which such compensation is to be given '.
Power to legis late for acquisition of property is exercisa ble only under Entry 42 of List III, and not as an incident of the power to legislate in respect of a specific head of legislation in any of the three lists.
Under that Entry property can be compulsorily acquired.
In its normal connotation property means the 'highest right a man can to anything, being that right which one has to lands or tene ments, goods or chatties which does not depend on another 's courtesy; it includes ownership, estates 267 and interests in corporeal things, and also rights such as trade marks, copyrights, pat ents and even rights in personam capable of transfer or transmission, such as debts; and signifies a beneficial right to or a thing considered as having a money value, especially with reference to transfer or succession, and to their capacity of being injured." In Madan Mohan Pathak vs Union of India & Ors., ; this Court was examining the validity of the Life Insurance Corporation (Modification of Settlement) Act of 1976.
The settlement had created a right to bonus in favour of the Class 111 and Class IV employees of the Corporation and the Act adversely interfered with that settlement.
The question for consideration of the seven Judge Bench was whether bonus payable under the settlement was 'property ' within the meaning of article 31(2) and whether stopping pay ment of bonus amounted to compulsory acquisition of property without payment of compensation.
The Court ultimately held that bonus was property and the legislation was bad.
At p. 358 of the Reports, this Court said: "It is clear from ' the scheme of fundamental rights embodied in Part III of the Constitu tion that the guarantee of the right to property is contained in Article 19(1)(f) and clauses (1) and (2) of Article 31.
It stands to reason that 'property ' cannot have one meaning in Article 19(1)(f), another in Arti cle 31 clause (1) and still another in Article 31, clause (2).
'Property ' must have the same connotation in all the three Articles and since these are constitutional provisions intended to secure a fundamental right, they must receive the widest interpretation and must be held to refer to property of every kind." At p. 360 of the Reports, the Court again stated that every form of property, tangible or intangible, including debts and choses in action constituted property, In this group of cases before us the executive grant or the contract created interest in the petitioners and there is no room to doubt that by such process in favour of the petitioners property right had been created.
Learned Additional Solicitor General appearing for the State had contended that the contractual interest or the interest in terms of the Government order did not constitute property and relied upon certain precedents of this Court.
The Coal Nationalisation case on which reliance was mainly placed is clearly distinguishable on facts.
268 We do not think it necessary to refer to other authorities as the ones referred to above are binding precedents and unequivocally indicate that the interests which are in dispute before us do constitute property entitled to protec tion under article 19(1)(f) and are covered by article 31(2) of the Constitution.
Reliance has been placed by learned Additional Solicitor General on the restrictive provision contained in sub article
(5) whereby reasonable restrictions in public interest could be imposed on the exercise of right to property.
There are situations, the learned counsel has argued, where the re strictions could go to the point of almost wiping out the right.
He relied upon some precedents in support of this proposition.
Section 3 is a total annihilation of existing rights and nothing of the interest created either under the executive orders or contract is allowed to survive.
We do not think there is room within the legal frame to sustain such a situation under sub article
Sub article
(6), like sub article
(5), protects restrictive law in public interest.
What we have said in regard to sub article (5) perhaps equally applies to sub article
Article 31(2) provided: "No property shall be compulsorily acquired or requisitioned save for a public purpose and save by authority of a law which provides for acquisition or requisitioning of the property for an amount which may be fixed by such law or which may be determined in accordance with such principles and given in such manner as may be specified in such law; and no such law shall be called in question in any court on the ground that the amount so fixed or deter mined is not adequate or that the whole or any part of such amount is to be given otherwise than in cash:" It has already been stated that the Act does not provide for any compensation.
Section 3 has an overriding applica tion.
It provides that it shall not only apply to the clas sified trees belonging to the State but it shall also apply to such trees belonging to private persons and rights of such private owners to carry on the various operations described in section 3 are completely taken away without provi sion of any compensation.
It cannot be contended in view of what we have stated above that the right of beneficial enjoyment of the trees by carrying out the processes named in section 3 do not constitute 'property '.
Unless the position is 269 covered by clause (2A) of article 31, in view of our conclusion that the interest created under the contract, Government order or the right of beneficial enjoyment vested in the private owner of the trees amount to 'property ', the Act would be hit by article 31(2).
Sub article
(2A) provides: "Where a law does not provide for the transfer of the ownership or right to possession of any property to the State or to a corporation owned or controlled by the State, it shall not be deemed to provide for the compulsory acqui sition or requisitioning of property, notwith standing that it deprives any person of his property." Learned Additional Solicitor General 's contention has been that under the provisions of section 3 of the Act the rights that vested in the petitioners stand wiped out or extin guished but those rights have not been vested in either the State or the Government company.
This contention overlooks the resultant outcome of the provisions of the Act.
Section 3 which takes away private fights and authorises Government alone to extract, transport it and acquire, possess or dispose of or otherwise deal with the resin extracted and manufactured within the State and section 4 authorises Government to sell the same to the Government company for processing.
What is taken away under section 3 from the hands of private parties is undoubtedly given by the same provision to Gov ernment.
In Madan Mohan Pathak 's case (supra), this Court had pointed out: "The verbal veil constructed by employing the device of extinguishment of debt cannot be permitted to conceal or hide the real nature of the transaction.
It is necessary to remem ber that we are dealing here with a case where a constitutionally guaranteed right is sought to be enforced and the protection of such right should not be allowed to be defeated or rendered illusory by legislative stratagems.
The courts should be ready to rip open such stratagems and devices and find out whether in effect and substance the legislation trenches upon any fundamental rights.
The encroachments on fundamental rights are often subtle and sophisticated and they are disguised in lan guage which apparently seems to steer clear of the constitutional inhibitions.
" It is not necessary to multiply precedents, As we have already pointed 270 out, section 3 of the Act extinguishes private rights and confers the right to deal with the subject matter of such rights on the State.
An attempt was made to distinguish the rule in Pathak 's case by relying upon the decision in Tara Prasad Singh vs Union of India & Ors., ; That seven Judge Bench was dealing with the Coal Mines Nationalisation (Amendment) Act of 1976.
The Court referred to the two previous decisions in Ajit Singh vs State of Punjab, ; and Madan Mohan Pathak vs Union of India, (supra), and observed: "These decisions have no application to the instant case because the interest of the lessees and sub lessees which was brought to termination by section 3(3)(b) of the Nation alisation Amendment Act does not come to be vested in the State.
The Act provides that excepting a certain class of leases and sub leases, all other leases and subleases shall stand terminated in so far as they relate to the winning or mining of coal.
There is no provision in the Act by which the interest so terminated is vested in the State; Nor does such vesting flow as a necessary consequence of any of the provisions of the Act.
Sub section (4) of section 4 of the Act provides that where a mining lease stands terminated under sub section (3), it shall be lawful for the Central Government or a Government Company or a corporation owned or controlled by the Central Government to obtain a prospecting licence or a mining lease in respect of the whole or part of the land covered by the mining lease which stands so terminated.
The plain intendment of the Act, which, may it be reiterated, is neither a pretense nor a fa cade, is that once the outstanding leases and sub leases are terminated, the Central Govern ment and the other authorities will be free to apply for a mining lease.
Any lease hold interest which the Central Government, for example, may thus obtain does not directly or immediately flow from the termination brought about by section 3(3)(b).
Another event has to intervene between the termination of existing leases and the creation of new interests.
The Central Government, etc.
have to take a posi tive step for obtaining a prospecting licence or a mining lease.
Without it, the Act would be ineffective to create of its own force any right or interest in favour of the Central Government, a Government Company or a Corpora tion 271 owned, managed or controlled by the Central Government.
" The statutory scheme of the Act which we are considering is to extinguish private rights both in respect of Govern ment owned trees as also trees in private ownership and to vest those rights in the State Government or the Government company.
The facts in this group of cases, therefore, clear ly indicate that there is a direct relationship between nullification of the private rights and vesting of those in the State or the Government company.
In other words, where the contract was given by the Government in respect of the trees belonging to the State, the nullification of the contract would result in the automatic transfer by reversion of the property in the contract to the Government.
Similar ly, where the ownership vested in the private persons by operation of section 3 of the Act, the right to appropriate the usufruct of the trees is taken away from the private owner and is vested in the State.
The rule in Pathak 's case, therefore, is applicable.
Sub article
(2A) of article 31, there fore, does not apply to the facts of the present case.
Consequently, sub article
(2) applies and compensation, there fore, was payable before the property could be taken over by the State.
Petitioners in writ petition No. 794/86 had claimed that pursuant to the arrangement entered into between them and the State following the invitation by the State they had invested Rs. 1.68 crores in shape of plant and machinery and 63 lacs of rupees by way of land and buildings.
The peti tioner in the other two cases stated that investments had been made by them as well.
The petitioners were invited to set up industries by assuring them supply of the raw materi al.
They changed their position on the basis of representa tions made by the State and when the factories were ready and they were in a position to utilise the raw material, the impugned Act came into force to obliterate their rights and enabled the State to get out of the commitments.
We are inclined to agree with the submissions made on behalf of the petitioners that the circumstances gave rise to a fact situation of estoppel.
It is true that there is no estoppel against the legislature and the vires of the Act cannot be tested by invoking the plea but so far as the State Govern ment is concerned the rule of estoppel does apply and the precedents of this Court are clear.
It is unnecessary to go into that aspect of the matter as in our considered opinion the impugned Act suffers from the vice of taking away rights to property without providing for compensation at all and is hit by article 31(2) of the Constitution.
Connected proceedings had been taken for interim arrangement 272 regarding provision of raw material to the petitioners and certain other parties.
We do not propose to deal with those aspects in this judgment but liberty is given to parties to apply for such directions as they consider appropriate and such applications, when filed, will be dealt with separate ly.
In the result, each of the writ petitions succeeds.
We declare the provisions of sections 3 and 4 of the Act to be ultra vires the Constitution and since these provisions contain the soul of the Act and without them, the Act cannot oper ate, the entire Act has to suffer.
The petitioners shall have their costs to these proceedings.
Hearing fee of Rs.3,000 is awarded in each of the petitions.
Y.L. Petition allowed.
| IN-Abs | These three Writ Petitions have been filed by three different Private Limited Companies and their share holders challenging the vires of the Jammu & Kashmir Extraction of Resin Act (7 of 1986).
The circumstances that led to the filing of these Writ Petitions may be stated thus: The State of Jammu & Kashmir with a view to industria lise the under developed State formulated schemes and invit ed outsiders to set up industries in the State and as a stimulus the Government offered land and other facilities.
The Petitioner Companies, in response to the said invitation went to the State of Jammu & Kashmir and negotiated the arrangements, as a result of which each Company had obtained a right to collect resin gum to process the same for indus trial purposes.
The Petitioner Company in Writ Petition No. 751 of 1986 had obtained under Government order dated 27.4.79 allotment of 10 to 12 lacs of blazes annually for extraction of resin from the forests in Poonch and Rambam Divisions for a period of 10 years.
Government order granting rights had been made in favour of the Petitioner Company in W.P. No. 794 of 1986.
The Petitioner Company in W.P. No. 798 of 1986 was a proces sor only and had undertaken to work as a tapper.
The orders passed in favour of these Companies referred to above were challenged before this Court as being violative of articles 14 and 19 of the Constitution on the ground that grant of forest rights to the Petitioners were arbitrary, mala fide and not in public interest.
It was contended that State largesse had been created in favour of the Petitioners at the cost of State Exchequer and the grant created monopoly.
This Court dismissed the Writ Petitions holding that there was no substance 258 in any of the contentions advanced by the Petitioners.
Kasturi Lal Lakshmi Reddy vs State of Jammu & Kashmir & Anr.
, The order made in favour of the Petitioner in W.P. No. 794 of 1986 and incorporated in the agreement dated 6.11.1978 was also challenged but this Court rejected the Petition.
Brij Bhushan & Ors.
vs State of Jammu & Kashmir & Ors.
, While the Petitioners were carrying on with the business contracted for, Governor 's Act of 1986 came into force.
The provisions of the said Act particularly sections 3, 4 and 5 have been impugned in these Petitions.
It is contended on behalf of the Petitioners that Gov ernment orders and contracts under which they have got the right to exploit or utilize the particular forest product amounts to "property" and they are entitled to protection thereof against expropriation and in case no compensation was provided, the provisions of the Act are hit for contra vening the fundamental right guaranteed by article 19(1)(g) which confers upon them the right to carry on any occupa tion, trade or business.
On the other hand the case put forward by the State is that the benefits and privileges conferred on the three Petitioners either under contract or under Government orders did not constitute property and by the provisions of the Act no transfer of such property has taken place.
Allowing the Writ Petition, this Court, HELD: The statutory scheme of Jammu & Kashmir Extraction of Resin Act, 1986 is to extinguish private rights both in respect of Government owned trees as also trees in private ownership and to vest those1 rights in the State Government or the Government Company.
[271A B] The Executive grant or the contract created interest in the Petitioners and there is no room to doubt that by such process in favour of the Petitioners property right had been created.
The interests which are in dispute before this Court do constitute property entitled to protection under article 19(1)(1) and are covered by article 31(2).
[267G; 268A B] 259 Ramana Dayaram Shetty vs The International Airport Authority of India & Ors., ; and Kasturi Lal Lakshmi Reddy vs State of Jammu & Kashmir & Anr., ; The ownership vested in the private persons, by opera tion of section 3 of the Act, the right to appropriate the usu fruct of the trees is taken away from the private owner and is vested in the State.
Sub article
(2A) of article 31, therefore, does not apply.
Consequently, sub article
(2) applies and compensation, therefore, was payable before the property could be taken over by the State.
Provisions of sections 3 and 4 of the Act are ultra vires of the Constitution and since these provisions contain the soul of the Act, without them the Act cannot operate, the entire Act has to suffer.
[271C D; 272B C] Subodh Gopal Bose 's case ; ; Dwarkadas Shrinivas of Bombay vs The Sholapur Spinning & Weaving Co. Ltd. & Ors., ; ; R.C. Cooper vs Union of India, ; ; Madan Mohan Pathak vs Union of India & Ors., ; and Tara Prasad Singh vs Union of India & Ors., ; , referred to.
|
(Civil) No. 1247 of 1986.
244 (Under Article 32 of the Constitution of India).
Ranji Thomas and T. Sridharan for the Petitioners.
B.P. Beri, B.R. Agarwala, Miss Sushma Manchanda, Miss A. Subhashini, B.D. Sharma, R.S. Yadav, Yogeshwar Prasad, Mrs. section Dikshit, H.K. Puri and P. Paremeshwaran for the Respond ents.
The following Order of the Court was delivered: ORDER The facts of this case are indeed, distressing.
The Lions Club, Pottery Town at Khurja in Uttar Pradesh arranged and conducted, as part of its social service programme, an "Eye Camp" intended to extend facilities of expert Ophthal mic surgical services to the residents of the town.
The Club invited Dr. R.M. Sahay of the Sahay Hospital, Jaipur and his team of doctors to offer the surgical services.
The Camp was arranged in 'Aggarwal Dharamshala ' at Novelty Road, Khurja.
Dr. R.M. Sahay and his team of doctors and para medical staff, who arrived in Khurja on 21st April, 1986, examined about 122 patients.
One hundred and eight patients were operated upon, 88 of them for Cataract which, with the modern advances in Ophthalmic Surgery, is considered a relatively minor and low risk surgery.
Dr. Sahay left Khurja that evening for Moradabad where he was scheduled to conduct similar operations at another "Eye Camp.
" But the whole programme at Khurja, however laudable the intentions with which it might have been launched, proved a disastrous medical misadventure for the patients.
The oper ated eyes of the patients were irreversibly damaged, owing to a post operative infection of the Intra Ocular Cavities of the operated eyes.
The doctors present at the Camp got in touch with Dr. Sahay at Moradabad and administered anti biotic medication, both oral and local, for the infection.
Dr. Sahay returned on the 24th April and undertook himself some ameliorative treatment.
But the operated eyes had been damaged completely.
Similar mishap, but on lesser scale affecting some 15 patients, repeated itself at Moradabad.
Some of the victims were later sent to and treated at Dr. Sahay 's Hospital at Jaipur.
But their condition did not improve.
It is now undisputed that this terrible medical mishap was due to common contaminating source.
The suggestion in the Report of the 245 enquiries that ensued is that, in all probability, the source of the infection, referred to as E coli infection of the intra ocular cavity, was the "normal saline" used on the eyes at the time of surgery.
Dr. Sahay who had himself brought all medicines and surgical instruments for use at the Camp claims to have purchased the Saline from a certain M/s. Mehtaad Company, Jaipur on 22.3.1986 under Invoice No. 1533.
The matter was brought before this Court in the form of a Public Interest Litigation under Article 32 by two social activists, Shri A.S. Mittal and Shri Om Prakash Tapas, acting on behalf of an organisation called 'Union for Welfare and Human Rights '.
Originally, the four respondents were the State of U.P., Dr. R.M. Sahay, the Chief Medical Officer, Buland Sahar District (U.P.) and the Lions Club of Pottery Town, Khurja.
However, this Court by its order dated 26.9.1986 directed the Indian Medical Council and the Union of India to be impleaded as parties to the proceedings.
All the respondents have filed their respective counter affida vits.
In the Writ Petition, the petitioners have made serious allegations about the very bona fides of, and the intention behind, the sponsoring of the iII fated 'eye camp ' and have alleged that motives of monetary gains by way of State and International subsidies.
But no material is placed before the Court to substantiate this allegation.
The prayers in the writ petition are that: the victims of this medical mishap be given expert rehabilitatory treatment and appro priate compensation; that Government do conduct a thorough investigation as to the conditions which rendered a medical misadventure of such a scale possible and evolve proper guide lines which will prevent recurrence of such tragedies; and that appropriate legal action be instituted against Dr. R.M. Sahay and his team and also against officers of the Government who, according to allegations, committed serious breaches of duty in sanctioning permission for the conduct of the 'eye camp ' without ensuring a strict compliance with the conditions prescribed in the Guidelines prescribed by the Government in that behalf and in not effectively dis charging the duties enjoined upon them to over see the satisfactory and safe functioning of the camp.
At the directions of the Government of Uttar Pradesh, the Deputy Director (Eye Treatment).
conducted an inquiry into the happenings and his report and recommendations submitted to the Government are produced in the proceedings.
Similarly, the inquiry report dated 8.6.1986 conducted by Shri Shatrughan Singh, Sub Divisional Magistrate, Khurja as to the incident, are also before the Court.
We 246 have perused these reports and the counter affidavits and heard learned counsel.
So far as the grievance in the Writ Petition of prosecutorial inaction on the part of the Government and the need to direct Government to initiate appropriate action against those responsible for the tragedy is concerned, it was submitted before us that persuant to the results of the inquiries conducted by the Deputy Director (Eye Treatment) and the Sub Divisional Magistrate, appropriate follow up action is contemplated by the Government against persons concerned and that, indeed, a criminal case has been regis tered against Dr. R.M. Sahay under Section 338 of the Indian Penal Code.
It was, however, submitted on behalf of Dr. R.M. Sahay, Respondent No. 2, that we should abstain from saying any thing which might tend to pre judge merits of the prosecu tion.
In his counteraffadivit, Dr. Sahay says: "The police has registered a case u/s 338 of the Indian Penal Code, against the Answering Respondent, and he has been admitted to bail.
Any process by which the answering respondent would be compelled to disclose, in advance, his defence at the criminal trial by replying to specific allegations in the Writ Petition would be violative of article 20(3) of the Con stitution of India, in so far as it concerns the Answering Respondent.
" Referring to the limited scope of the present proceed ings, Dr. Sahay expresses the confidence: " . that in view of the noble objective of this kind litigation, it will not in any manner be prejudicial to the answering re spondent.
" We think we should accept the submission of the doctor and should abstain from pronouncing on the question of culpable rashness or negligence on the part of the doctors or others against whom separate action is either pending or contemplated.
But there are some assumptions and Statements in counteraffidavit of Dr. Sahay that cannot be allowed to pass without comment.
It is undisputed that out of those operated at Khurja, at least 84 persons suffered permanent damage of the operated eyes.
It is said 247 that about 15 similar cases occurred at the Moradabad 'Eye Camp '.
Indeed, in the course of his counter affidavit, Dr. Sahay admitted the unfortunate event which he called a "Mishap": "The medical mishap at the Khurja Camp is the only one he has encountered in his entire extensive experience." "Despite all possible care MISHAPS cannot always be avoided in human errors because the error of one link in the entire chain may sometime result in a total failure.
" But the doctor 's description of what happened to the victims is somewhat of an over simplification.
As to the. devastation the almost universal post operative infection left behind in its trial, the doctor says: "It is unfortunate that despite every care taken by the Answering Respondent and his associates and assistants a large number of patients could not regain their vision in the Khurja Camp." "It is extremely unfortunate that some 84 patients ' vision could not be restored despite every care bestowed by the answering respond ent and his associates and assistants." "The number of patients operated upon at Moradabad Camp for cataract were about 380 and the vision of about 10 of them could not be restored.
A small percentage of failures is considered normal . . " (Emphasis supplied) We are afraid, the doctor may not be justified in this description of the large scale and calamitous effects the operation had on the hapless victims.
It is, perhaps, a euphemism to call the incident as one where "some 84 pa tients ' vision could not be restored.
" These are not mere cases of eye sight of the patients not having been restored in the sense that the surgical operations conducted on them did not yield the desired result; or that no positive bene fit was derived by them from the surgery.
But the picture is entirely different.
It is not merely that the unfortunate patients did not derive any benefit from the surgery but were greatly worse of than they were before the surgery, owing to the post operative intra ocular infection that damaged the operated eyes beyond redemption.
Even according to Dr. Sahay the modern techni 248 ques in opthalmic surgery render cataract a minor operation.
A cataract affected eye when properly operated is expected to become normal.
The operation is meant to remove an ob struction to vision and restoration of normal eye sight.
This implies that the eyes of patients selected for opera tion had the potential for restoration of sight.
In the present cases, they have become totally blind in the operat ed eyes.
Apart altogether from the causal connection between the widespread infection and medication or surgical procedures, as the case may be, applied or employed, it is really undis puted that such a general and widespread post operative infection did occur.
Referring to the medical management of the emerging crisis, Dr. Sahay himself says: "It may be mentioned that on the morning of 22nd April, 1986, Dr. R. Sekhri opened the bandage and suspected intra ocular infection and therefore commenced antibiotic treatment both local and oral.
On the 22nd April, Dr. Sekhri reached Moradabad for consultations.
The Answering Respondent approved of the antibiotic medicines and sent Dr. M. Punjabi with additional supplies of medicines of Khurja.
On 23.4.1986 both Dr. Sekhri and Dr. M. Punjabi gave anterior chamber wash and antibiotic medicines.
At about midnight the answering respondent rushed by road to Khurja without any consideration for his personal comfort and commenced attending the patients.
He washed anterior chambers performed vitrec tomy (removing the infected part) and adminis tered pain relieving medicines.
The petition ers have inexactly described the doings as operation, sedation and removal of Cornea.
All this was done in the same room in which the earlier operations were performed.
One of the points brought out in the petition is that the propaganda literature published by the Lions Club in relation to the camp was that allurements, prohibited by medical ethics, were held out to the patients with attrac tive slogans such as 'Get Operated and go home ', 'No re striction of food ', 'No bed rest ', and 'No stitches to be removed ' etc., etc.
It was alleged that the guidelines required a minimal institutional post operative care for few days under constant competent medical supervision and that in the present case the patients were allowed to go back immediately after the operations.
Dr. Sahay 's affidavit, in a way, does not deny this kind of propaganda or lack of 249 institutional post operation care.
Indeed, some justifica tion is pleaded.
Dr. Sahay says in his counter affidavit: "It is true that in the modern technique a cataract operation by Crye Micro Surgery System does not require 10 days immobility or liquid diet and the like, because the modern sutures securely seal the operation incision and make it water tight.
The sutures are seldom removed and the patient is, in normal cases fit enough to move about within few hours of the operation.
The Khurja Camp opera tions were conducted between the hours of about 11 A.M. to 6 P.M. with half an hour 's break.
The 9 operation tables for three sur geons gave ample room and time for pre opera tion steps and post operative procedures.
" How far the lack of intensive post operative institu tional care contributed to the infection or the aggravation of its effects is a matter which cannot be decided in these proceedings.
These are technical matters for professional medical assessments.
But the guidelines prescribed by Gov ernment do not prima facie, seem to encourage such compla cence in regard to the imperatives of post operative care.
The problems of the Ophthalmic Health Status of the Indian citizen are of a dimension causing an under standable concern.
The very large number of cases of impairment of visual acuity in the country needs the purposeful involve ment of voluntary social organisations so as to provide an augmented, broad based, participatory medi care for the general improvement of the tone of ophthalmic health in the country.
Government of India, evolved a comprehensive policy and programme for control of blindness, which, amongst other things, envisaged a programme for the promotion of eye care through 'eye camps ' organised by social and voluntary organ isations and to provide financial assistance to them.
Our attention was drawn to the circular No. T. 12011/4/82/ OPTH dated 13.10.1982 issued by the Ministry of Health and Family Welfare to all the States and Union Terri tories, laying down certain norms and guidelines for the conduct of such 'eye camps '.
A copy of that circular is annexure 'R 1 ' to the counter affidavit dated 10.1.1987 filed on behalf of the State of U.P. Pursuant thereto, on 18.4.1984 State Government issued appropriate directions to its officers and authorities for strict compliance with the guidelines issued by the Central Government.
It is on the basis of these guidelines that permis 250 sion was accorded to the Lions Club to conduct the eye camp.
The permission granted by Chief Medical Officer, Buland Shahar on 21.4.
1986 says: "The Lions Club, Pottery Town, Institute/organisation is permitted to hold free eye camps applied with the specific condition that the camps will be organised in rural areas and supervised by Senior Ophthal mic Surgeon & the operation will be performed by the qualified Ophtalmic surgeon and staff and that competent ophthalmic Surgeon(s) would remain at the camp site throughout the duration of the camp till the last patient is discharged." 8.
Though the events ,at the eye camp raise several questions of interest on the law as to professional negli gence, we do not want to be understood as intending to record any findings on the conduct of Dr. R.M. Sahay and his team or the officers of U.P. Government who granted permis sion for the eye camp and who, allegedly, did not discharge their duties implicit in the guidelines issued by Govern ment.
A mistake by a medical practitioner which no reasona bly competent and a careful practitioner would have commit ted is a negligent one.
One of the questions that might arise in the appropriate forum is whether the doctors, judged by the circumstances in which they were working, made a mistake and if so whether such a mistake was negligent.
A vast amount of legal literature concerns the concept of 'reasonable man ' in the Law of Torts.
To some, like Sir Allen Herbert, he is "never a woman"; to some others 'an odious and insufferable creature who never makes a mistake '; and according to Lord Radcliff the parties would become disembodied spirits in whose place arises the idea of a reasonable man as the "anthropomorphic conception of jus tice.
But the law recognises the dangers which are inherent in surgical operations.
Mistakes will occur on occasions despite the exercise of reasonable skill and care.
Jackson and Powell on 'Professional Negligence ', (1982 Edn.) say: " . .
In White vs Board of Governors of Westminister Hospital, a surgeon accidentally cut the retina during an operation on the plaintiff 's right eye.
As a result the eye became useless and had to be removed.
Thompson J acquitted the surgeon of any negligence.
He was working 251 within a very few millimeters and exercised due skill, care and judgment . " (Page 232) But, in a case where the plaintiff developed meningitis as a result of some infection in the apparatus used in the operation it was held that there must have been some negli gence by the hospital staff for which the hospital authority was responsible.
(ibid para 6.53) But where the operation is a race against time, the Court will make greater allowance for mistake on the part of the surgeon or his assistants, taking into account the 'Risk benefit ' test.
In Dr. Laxman Balakrishna Joshi vs Trimback Bapu Godbola, A.I.R. 1969 S.C. 128, Para 11, this Court held: .lm "The duties which a doctor owes to his patient are clear.
A person who holds himself out ready to give medical advice and treatment impliedly undertakes that he is possessed of skill and knowledge for the purpose.
Such a person when consulted by a patient owes him certain duties, viz., a duty of care in deciding whether to undertake the case, a duty of care in deciding what treatment to give or a duty of care in the administration of that treatment.
A breach of any of those duties gives a right of action for negligence to the patient.
The practitioner must bring to his task a reasona ble degree of skill and knowledge and must exercise a rea sonable degree of care.
Neither the very highest nor a very low degree of care and competence judged in the light of the particular circumstances of each case is what the law re quires: The doctor no doubt has a discretion in choosing treatment which he proposes to give to the patient and such discretion is relatively ampler in case of emergency . " Street on Torts (1983) (7th edn.) suggests that doctrine of Res Ipso Loquitur is attracted: " . . where an unexplained accident occurs from a thing under the control of the defend ant, and medical or other experts evidence shows that such accidents would not happen if proper care were used, there is at least evidence of negligence for a jury." (P. 126) Charlsworth & Percy on 'Negligence ' refer to a case where a 252 woman was placed in the same ward with another suspected of, and later found to be suffering from, puerperaI fever and as a result she got puerperal fever herself.
The doctor was held negligent in not isolating her when the other case was suspected and in not taking steps to prevent her from being infected.
(See P. 546).
The explanation of the doctors appears to be that the infection occurred despite all precaution.
Though it is not said so in so many words, the drift of the explanation is that the saline, used to irrigate the eyes during surgery to maintain turgidity of the operational surface, which was purchased from a reputed manufacturer might be the source of the contamination.
If that be so, the question of the li ability of the manufacturer for what is called "product liability" and the further question whether in such cases of mass use, a pre test for safety and purity of the article was necessary and whether failure to do so would be action able.
These questions are necessarily to be answered on evidence.
In these proceedings neither do we have full evidence nor does the scope of the proceedings permit such findings to be recorded conclusively.
The aspects to which the present proceed ings are confined are: (a) Whether the Guidelines prescribing norms and conditions for the conduct of 'eye camps ' are sufficiently comprehensive to ensure the protection of the patients who are generally drawn from the poorer and less affluent sec tion of society or whether any further guide lines would require to be evolved? (b) What relief, monitary or otherwise, should be afforded to those who have suffered? Re: Point (a): 11.
After the institution of these proceedings Central Government, in the wake of reports of mishaps in 'Eye Camps ', constituted a Committee under the Chairmanship of the Union Health Minister with six State Health Ministers and four experts as members to re examine and update the existing guidelines or evolve fresh ones.
As a result of the deliberations of the said Committee and pursuant to its recommendations, the guidelines for conduct of eye camps earlier issued have been updated and revised.
A copy of the Revised Guidelines issued on 253 9.2.
1988 by the Ministry of Health & Family Welfare vide their No. T. 12019/41/86 OPTH (Pt II) dated 9.2.
1988, is filed before the Court.
We have perused these guidelines which are sent to all the States for implementation.
The Indian Medical Council, after its impleadment in these proceedings also constituted a sub committee with Dr. P. Shiva Reddy and other members.
The Committee deliberated on the issue and its recommendations in regard to the norms for the conduct and management of eye camps have been filed before this Court.
We place record our appreciation of the assistance rendered by the Council.
We have examined the revised guidelines issued on 9.2.
1988 by the Union Government and the recommendation of the subcommittee of the Indian Medical Council.
The two sets of norms though evolved independently, substantially cover all the important areas.
We think that the Revised norms issued by the Union Government on 9.2.1988 arrived at after a careful study of all aspects of the problem are quite comprehensive.
However, we venture to suggest that some points made in the Report and Recommendation of the expert sub committee of the Indian Medical Council may be consid ered by the Union Government for incorporation in their Revised Guidelines dated 9.2.1988.
The prescriptions re ferred to by the said sub committee of the Indian Medical Council at pages 4,5 and 10 respectively, of the report are these: "Staff: The operations in the camp should only be performed by qualified, experienced Oph thalmic Surgeons registered with Medical Council of India or any State Medical Council.
The camp should not be used as a training ground for post graduate students, and opera tive work should not be entrusted to post graduate students.
" "There should be a pathologist to examine Urine, blood, sugar etc.
It is preferable to have a Dentist to check the teeth for sepsis and a Physician for general medical check up." "Midication: (a) All medicines to be used should be of standard quality duly verified by the doctor in charge of the camp.
" 254 These aspects are generally covered in the Government 's Revised Guidelines dated 9.2.1988.
But, for the sake of special emphasis keeping their importance in view the above aspects stressed in the Report of the Sub committee of the Indian Medical Council may be considered for incorporation in the Revised Guidelines of 9th February, 1988.
We direct accordingly. '13.
The necessity of maintenance of the highest stand ards of a septic and sterile conditions at places where Ophthalmic surgery or any surgery is conducted cannot be over emphasised.
It is not merely on the formulation of the theoretical standards but really on the professional commit ment with which the prescriptions are implemented that the ultimate result rests.
Government, States and Union, incur enormous expenditure of public money on health care, But, the standards of cleanliness and hygiene in public hospitals unfortunately, leave greatly to be desired.
The maintenance of steriles, aseptic conditions in hospitals to prevent cross infections should be ordinary, routine and minimal incidents of maintenance of hospitals.
Purity of the drugs and medicines intended for man use would have to be ensued by prior tests and inspection.
But, owing to a general air of cynical irreverence towards values that has, unfortunate ly, developed and to the mood of complacence with the con tinuing deterioration of standards, the very concept of standards and the imperatives of their observance tend to be impaired.
This is a disturbing feature.
The remedy lies in a ruthless adherence to the virtue of method and laying down practical procedures in the minutes of detail and by exact ing not merely expecting strict adherence to these proce dures.
On point (a), we think that the Revised guidelines dated 9.2.1988, with the suggested modifications, can be held to be satisfactory.
Re: Point (b): Pursuant to earlier orders of this Court, each of the victims had been paid a sum of Rs.5,000.00 by the State Government by way of interim relief.
Shri Ranji Thomas, learned Counsel for the petitioners, submitted that this was a wholly avoidable mishap and is entirely the result of the composite negligence on the part of the surgical team and the authorities of the U.P. Government, who failed to ensure obedience to the norms.
Learned counsel also sought to rest the right of the victims for damages on the footing that the persons who organised the 'eye camp ' were acting pursuant to and under the 255 authority of Government and that on the doctrine of the State action the activity must be reckoned as that of the State itself which must, accordingly be held vicariously liable.
In regard to the quantum of relief, learned counsel submitted that the unfortunate victims had suffered irre versible damage of the eyes which has rendered them wholly incapacitated.
We are afraid in the circumstances of this case, the factual foundations laid before the Court and the limited scope of the proceedings no appeal could be made to the doctrine of State action.
Shri Yogeshwar Prasad, learned Senior Counsel appearing for the State of Uttar Pradesh, submitted that the State would approach the matter not with the spirit of a litigant in any adversy action but would look upon the proceedings as a participatory exploration for relief to the victims.
He further submitted that the State would indeed, be willing to render help to the victims within the constraints of its resources.
Indeed, the factual foundations requisite for establish ing the proximate causal connection for the injury has yet to be established conclusively.
These matters would have to be gone into in the criminal and other proceedings that may be pending or in the contemplation of the Government.
However, we think that on humanitarian consideration, the victims should be afforded some monitary relief by the State Government.
We direct that in addition to the sum of Rs.5,000, already paid by way of interim relief, the State Government shall pay a further sum of Rs. 12,500 to each to the victims.
The victims entitled to receive the additional payment shall be the same as those who had the benefit of the interim relief of Rs.5,000.
The amount shall be deposit ed, as was done in the matter of distribution of interim relief, with the District Judge who shall arrange to dis tribute the same in accordance with the procedure adopted at the time of administration of the interim relief.
The depos it shall be made within two months from today and the Dis trict Judge shall ensure distribution within the next two months.
We further direct that, additionally, if any of the Victims are, otherwise, eligible for any benefit of pension under any of the existing schemes now in force in the State, their cases shall be considered for such benefit.
The Legal Aid and Advice Board of U.P. State shall take up this issue and process the claims of the victims for such other bene fits under any of the existing Government schemes providing for aid to the aged, the disabled, and the destitute, sub ject to the condi 256 tion that the victims otherwise satisfy the conditions of those schemes.
We place on record the services rendered by the petitioners in espousing the cause of these unfortunate victims and prosecuting it with diligence.
We direct the State of U.P. to pay their costs which is quantified at Rs.5,000.
The Writ Petition is disposed of accordingly.
Y.L. Petition disposed of.
| IN-Abs | Lions Club.
Pottery Town, Khurja (U.P.) actuated by the desire to provide relief and facilities of opthalmic surgi cal services particularly to the persons residing in rural areas, suffering from eye troubles, arranged and opened an "Eye Camp" at Khurja after obtaining necessary permission from the Chief Medical Officer, Buland Sahar.
In this con nection, the Club invited Dr. R.M. Sahay of the Sahay Hospi tal at Jaipur and team of Doctors to do the surgical job.
The Club published propaganda literature with attractive slogans, e.g., 'Get operated and go home ', 'No restriction on food '. 'No bed rest ' and 'No stitches to be removed '.
In response thereto substantial number of patients visited the Camp.
Dr. Sahay arrived in Khurja on 21.4.1986 and examined about 122 patients.
One hundred and eight patients were operated upon, 88 of them for cataracts.
Dr. Sahay left Khurja that evening for Moradabad where he was schedule to conduct another similar Eye Camp.
It is unfortunate that the project which was opened for the good of the suffering people, proved a disastrous medi cal mis adventure, as the operated eyes of the patients were irreversibly damaged, owing to a post operative infection of the intra Ocular Cavities of the operated eyes.
and the eyes were completely damaged.
Similar mishap happened at Morada bad also though on a lesser scale, the number of affected persons being 15 only.
To remove the infection that caused this damage.
Doctors gave the necessary treatment but to no avail.
242 In order to find out the causes of this mishap, i.e. the source of infection.
the Government appointed Inquiry Committee.
reports whereof were placed before the Court for favour of perusal.
Two social activists, Shri A.S. Mittal and Shri Om Prakash Tapas have filed these Writ Petition in the form of a Public Interest Litigation.
The Petitioners have made serious allegations about the very bona fides behind the sponsoring of iII fated 'eye camp ' and have alleged monetary gains on the part of the sponsors but the Court did not find any material to substan tiate the said allegation.
The petitioners prayed that (i) the victims of this medical mishap be given expert rehabili tatory treatment and appropriate compensation, (ii) that the Government do conduct a thorough investigation as to the conditions which rendered a medical misadventure of such a scale possible and evolve proper guidelines which will prevent recurrence of such tragedies and.
(iii) that appro priate legal action be instituted against Dr. Sahay and his team and other Government officials concerned.
Pursuant to the reports of the Inquiries conducted into the causes of mishap.
penal action had been initiated against Dr. Sahay & others.
The Court considered the following aspects of these proceed ings; (a) Whether the Guidelines prescribing norms and condi tions for the conduct of "Eye Camps" are sufflciently com prehensive to ensure the protection of the patients who are generally drawn from the poor and less affluent section of the society or whether any further guidelines are required to be evolved.
(b) What relief, monetary or otherwise should be afford ed to those who have suffered? Disposing of the Writ Petition, this Court, HELD: Modern techniques in opthalmic surgery render cataract a minor operation.
A cataract affected eye when properly operated Is expected to become normal.
The opera tion Is meant to remove an obstruction to vision and resto ration of normal eyesight, This Implies that the eyes of patients selected for operation has the potential for resto ration of sight.
In the Instant case, they have become totally blind In the operated eyes, [247H; 248A B] 243 A mistake by a medical practitioner which no reasonably competent and careful practitioner would have committed is a negligent one.
[250D] One of the questions that might arise in the appropriate forum is whether the Doctors judged by the circumstances in which they were working made a mistake and if so whether such a mistake was negligent.
[250D E] Law recognises the dangers which are inherent in surgi cal operation.
Mistakes will occur on occasions despite the exercise of reasonable skill and care.
[250G] Jackson and Powell on Professional Negligence, 1982 Edn.
The necessity of the highest standards of aseptic ster ile conditions at places where opthalmic surgery or any surgery is conducted cannot be over emphasised.
It is not merely on the formulation.
of the theoretical standards but really on the professional commitments with which the pre scriptions are implemented that the ultimate result rests.
[254B C] The factual foundations requisite for establishing the proximate causal connection for the injury has yet to be established conclusively.
On humanitarian consideration, the victims should be afforded some monetary relief by the State Government.
In addition to the sum of Rs.5,000 already paid by way of interim relief, the State Government shall pay a further sum of Rs. 12,500 to each of the victims.
The vic tims entitled to receive the additional payment shall be the same as those who had the benefit of the interim relief of Rs.5,000.
[255D F] That the Revised Guidelines dated 9.2.1988 with the suggested modifications can be held to be satisfactory.
[254F] The Court abstained from pronouncing on the question of culpable rashness or negligence on the part of the Doctors or others against whom separate action is either pending or contemplated.
[246G] Dr. Laxman Balakrishna Joshi vs Trimbak Bapu Godbols, ; , Para 11 and Street on Torts, [1983] (7th Edn.), referred to
|
vil Appeal Nos.
3490 91 of 1987.
From the Judgment and Order dated 5.3.
1986 and 1.4.1986 of the Andhra Pradesh Administrative Tribunal, Hyderabad in R.P. Nos.
1595 of 1983 and 788 of 1984.
P.A. Choudhary, T.V.S.N. Chari, Ch.
Badrinath and Mrs. Sumitha Rao for the Appellants.
C. Seetharammayya, B. Parthasarthi and A. Subba Rao for the Respondents.
The Judgment of the Court was delivered by NATARAJAN, J.
These appeals by the State of Andhra Pradesh are directed against the judgments of the Andhra Pradesh Administrative Tribunal, Hyderabad, in R.P. Nos. 1595 and 788 of 1984.
Originally, the Government of Andhra Pradesh, in purported exercise of its powers under Clause 5 of Article 371 D of the Constitution passed an order G.O. Ms. No. 215 dated 14.7.1986 to annul the two judgments of the Tribunal.
On 20.12.1986, this Court negatived the powers of annulment assumed by the State Government by striking down Clause 5 of Article 371 D and the proviso thereto as being opposed to the basic structure of the Constitution.
Thereafter, the State has.preferred these appeals by special leave against the judgments of the Administrative Tribunal.
What falls for consideration in these appeals is whether amended Rule 3 of the Andhra Pradesh Treasury and Accounts Subordinate Service Rules 1963 (hereinafter referred to as the Rules) is violative of the Andhra Pradesh Public Employ ment (Organisation of Local Cadres and Regulation of Direct Recruitment) Order, 1975 (hereinafter referred to as the Presidential Order) issued on 18.10.1975 by the President of India under clauses 1 and 2 of Article 371 D of the Consti tution.
The validity of the amended Rule was questioned in the context of certain Assistant Section Officers in the Finance Department of the Government of Andhra Pradesh (hereinafter referred to as the 346 Secretariat Officers) borne on zone VII being appointed to the post of Sub Treasury Officers borne on the Subordinate Offices under the Directorate of Treasuries and Accounts (hereinafter referred to as the Local Cadre) borne on zones I to IV.
For a proper appreciation of the matter, it is necessary that Rule 3 before and after amendment and the Presidential Order are set out.
Under Rule 3 of the Rules, the posts of Head Accountants and Sub Treasury Officers could be filled up by any of the following methods: (i) By direct recruitment; (ii) By promotion from category 3, 4 or 5 of Branch II or from category 3 of Branch I, III, IV, VI or category 2 of Branch VIi; and (iii) By transfer from among the U.D. Clerks (now called Assistant Section Officers) in the Finance Department of the Secretariat.
Rule 3 thus made provision for the posts of Head Accountants and Sub Treasury Officers being filled inter alia by: Promotion of Upper Division Clerks of the Directorate of Treasuries and Accounts & Transfer from among the Assistant Section Officers in the Finance Department of the Secretari at.
However as per other Rules, only 4 Assistant Section Offi cers, at any given time were eligible for being recruited as Sub Treasury Officers.
On 18.10.1975, the Presidential Order came to be passed.
Para 3 of the Order which enjoins the State Government to organise the posts under the State into different local cadres reads as follows: "3.
Organisation of Local Cadres (1) The State Government shall, within a period of twelve months from the commence ment of this Order, organise classes of posts in the civil services of, and classes of civil posts under the State into different local cadres for different parts of the state to the extent, and in the manner, hereinafter provided." 347 Para 5 which deals with local cadres and transfers of per sons consists of 2 sub paras.
The para reads as follows: "5.
Local Cadres and transfers of persons (1) Each part of the State for which a local cadre has been organised in respect of any category of posts, shall be a separate unit for purposes of recruitment, appointment, discharge, seniority, promotion and transfer, and such other matters as may be specified by the State Government, in respect of that category of post.
(2) Nothing in this Order shall prevent the State Government from making provision for (a) the transfer of a person from any local cadre to any Office or Establishment to which this Order does not apply, or vice versa; (b) the transfer of a person from a local cadre comprising posts in any Office or Establishment exercising territorial jurisdiction over a part of the State to any other local cadre comprising posts in such part, or vice versa; and (c) the transfer of a person from one local cadre to another local cadre where no qualified or suitable person is avail able in the latter cadre or where such transfer is otherwise considered necessary on the public interest.
A fourth clause was subsequently inserted as per G.O. Ms. No. 34 G.A.D. (S.P.F.) dated 24.1.81 and it reads as follows: (d) the transfer of a person from one local cadre to another local as reciprocal condition subject to the condition that the persons so transferred shall be assigned seniority in the latter cadre with reference to the date of his transfer to that cadre.
" Thereafter, the Government of Andhra Pradesh by G.O.P. No. 728 General Administration S.P.W.A. Department dated 1.11.1975 issued various instructions in relation to the aforesaid Presidential Order including para 5 regarding inter cadre transfers.
348 Seven persons belonging to category 5 of Branch II of the A.P. Treasury and Accounts Subordinate Service presented a representation petition No. 706 of 78 before the A.P. Administrative Tribunal for declaring Rule 3 of the Rules ultra vires, in so far as it made provision for promotion of Clerks of the Directorate of Treasuries and Accounts and Assistants of the Finance Department of the Secretariat to the posts of Head Accountants and Sub Treasury Officers, in violation of para 5(1) of the Presidential Order.
It was urged by them that with the promulgation of the Presidential Order, the posts of Head Accountants and Sub Treasury Offi cers had become zonal posts and as such the zone will be the unit for recruitment, appointment, discharge, seniority, promotion and transfer to such a zonal post under paragraph 5(1) of the Presidential Order.
They claimed that the Serv ice rules issued under Article 309 of the Constitution, as they existed at the time of the Presidential Order did not conform to the local cadres created under the Presidential Order and hence the State Government had issued G.O. No. 728 for suitable amendments being made to the Service Rules in each service.
They further claimed that only the U .D.
Accountants of the Feeder Sources of the zone alone are eligible for consideration in that particular zone for promotion to the rank of Head Accountant and Sub Treasury Officer and not the personnel from other zones including U.D. Accountants of the Directorate of Treasuries and Ac counts and Assistants of the Finance Department of the Secretariat.
In reply the State of A.P. while admitting that under the Presidential Order, the posts of Head Accountant/Sub Treasury Officers were organised into zonal posts nevertheless contended that the personnel from differ ent categories mentioned under the Rules are entitled for being considered for promotion to the rank of Head Account ants/Sub Treasuries Officers by reason of para 5(2)(a) of the Presidential Order and the detailed instructions con tained in para 10(a) of G.O.P. No. 728 dated 1.11.1975.
The relevant portion in G.O.P. No. 728 dated 1.11.1975 reads as follows: "Though posts may be organised into separate local cadres, para 5(2) of the Presidential Order provides that the State Government may make a provision for transfer of persons from, and to, local cadres under certain circumstances.
These are elucidated below: (a) Transfer of a person from any local cadre to any office or establishment to which the order does not apply, or vice versa.
349 This enables a provision being made for drawing persons on tenure basis from different local cadres to fill equivalent posts in Major Development Projects, Special Offices or Establishments etc.
There are also cases where provision exists for appointment of persons in mofussil offices by transfer to the offices of Heads of Departments.
For in stance, a certain proportion of ministerial posts in the offices of Heads of Departments is to be filled by transfer from ministerial categories in the subordinate offices in the districts.
A provision of this kind is protected under the Presidential Order.
" The full bench of the Tribunal considered the rival conten tions of the parties and came to the view that para 5(1) of the Presidential Order made it clear that for the purpose of promotion, zonal cadre has to be treated as a separate unit and consequently the posts of Head Accountants/Sub Treasury Officers, which have been declared as zonal posts could be filled up by promotion only on zonal basis and consequently Rule 3 of the Rules which specified various categories of posts without reference to zone as feeder posts for the purpose of promotion to the posts in question are inconsist ent with para 5(1) of the Presidential Order.
The Full Bench therefore held that "after the promulgation of Presidential Order the provisions of Rule 3 referred to above would have to be reviewed so as to make them consistent with the provi sions of the Presidential Order.
" The Full Bench also con sidered the scope and effect of G.O. No. 728 dated 1.11.75 and held as follows: "In our opinion, once this point is conceded, the contents of paragraph 10 of G.O. (P) No. 728 dated 1.11.1975 cited by the respondents in this respect would be properly understood.
What that paragraph clearly suggests is that under paragraph 5(2) of the Presidential Order it is open to the State Government to authorise transfer of a person from any local cadre to any office or establishment to which the order does not apply or vice versa.
It is in this context that the particular paragraph clarifies the types of trans fers which the Government would authorise.
The sentence "a provision of this kind is protected under the Presidential Order" occurring in that paragraph has, therefore, to be read as conveying that a provision of this kind could be made by the State Government under paragraph 5(2) of the Presidential Order.
Apparently the respondents have mis 350 interpreted this sentence to understand that the provision of Rule 3 of A.P. Treasuries and Accounts Subordinate Serv ice Rules in question continues to be operative without any specified provision being made in the rules in pursuance of the authority given to the State Government under paragraph 5(2) of the Presidential Order.
This clearly cannot be the correct interpretation as discussed above." (Emphasis supplied) Thus it came about that the Full Bench declared that the various categories of feeder posts including Assistants, (now named Assistant Section Officers of the Secretariat) from which promotion to the posts of Head Accountants/Sub Treasury Officers can be made, cannot be made operative after the promulgation of the Presidential Order.
After the Full Bench of the Tribunal rendered its judg ment holding that Rule 3 ceased to have operative force after the Presidential Order was made, the State Government amended Rule 3 and gave retrospective effect to the amended Rule with effect from 18.10.1975.
The amendment to the Rule was made in the following terms: "The amendment hereby made shall be deemed to have come into force on the 18th October, 1975.
AMENDMENT In the said rules, in the Table under Rule 3, in column (3) against category (2) Head Accountants and Sub Treasury Officers of Branch II for items (ii) and (iii), the follow ing items shall be substituted, namely: (ii) By promotion from category 3, 4 or 5 of Branch II; (iii) By transfer from among the category of Upper Division Accountants (Senior Accountants) of Branch I, Branch III or Branch VI or Upper Division Accountants (Senior Accountants) of Branch VII); (iv) By transfer from among the category of Assistants (Assistant Section Officers) of Finance and Planning (Fi nance Wing) Department of the Secretariat.
" Challenging the validity of the amended rule two representa tion 351 petitions viz. R.P. No. 1595 of 83 and R.P. No. 788 of 84 came to be filed before the A.P. Administrative Tribunal.
Once again, a plea was raised that amended Rule 3 was also violative of the Presidential Order.
The State contended that the amended Rule had been issued by the Governor in exercise of the powers conferred on him by the proviso to Article 309 of the Constitution and hence the validity of the Rule cannot be questioned by the petitioners.
It was secondly contended that the earlier G.O. was not violative of the Presidential Order or the provisions of Article 371 D, but even so as it was considered by the Tribunal to be inoperative because the special provisions did not explicity state that they had been made in exercise of the authority vested in the State Government under para 5(2) of the Presi dential Order, the Government had set right the lacuna pointed out by the Tribunal by framing the amended rule specifically in exercise of the powers conferred on Govern ment under para 5(2) of the Presidential Order.
The Tribunal held that what was challenged by the peti tioners was not the powers of the Governor to issue the statutory rule but the Government 's power to fill a zonal post by the method of transfer by a person who did not belong to the zone in which the vacancy had arisen by refer ring to para 5(2) of the Presidential Order in the Preamble of the Notification making the amendment.
Dealing with this question the Tribunal referred extensively to the judgment rendered by the Full Bench of the Tribunal in the earlier case R.P. No. 708 of 78 and held that the judgment of the Full Bench did not afford scope to the State Government to pass a G.O. in conflict with para 5(1) of the Presidential Order and furthermore the impugned G.O. Ms. No. 196 did not set out under which sub para viz. sub para a, b or c in para 5(2) of the Presidential Order the G.O. was issued and therefore the amended G.O. cannot be upheld.
It was also held by the Tribunal that there was no justification for transferring a person who does not belong to concerned zone to be inducted into that zone merely because such a practice had existed in the past and moreover the underlying purpose of the Presidential Order would be destroyed if the State Government is allowed to fill up vacancies in zonal posts by a person not belonging to that zone.
It is the correctness of the view taken by the Tribunal that is challenged in these appeals.
Mr. T.V.S.N. Chari, learned counsel for the State and Mr. Seetaramiah, learned counsel for the respondents ad vanced arguments in support of their respective contentions in the appeals.
352 Before we examine the correctness of the view taken by the Tribunal striking down the amended Rule 3 as being violative of the Presidential Order, we may usefully recall the relevant provisions of the Presidential Order which have to be borne in mind.
As already stated para 3(1) enjoins the State Government to organise various classes of posts in the civil services and classes of civil posts under the State into different local cadres for different parts of the State in accordance with the further provisions contained in para 3.
For our purposes it is unnecessary to refer to the other provisions of para 3 except to point out that the direction contained in para 3(1) is not an inexhorable one.
Sub para 8 of para 3 makes provision for the Central Government, if it is not practicable or expedient to organise local cadres under the paragraph in respect of any non gazetted category of posts in any department, to make a declaration to that effect, and it is further provided that on such declaration being made, the provisions of the para shall not apply to such category of posts.
It is, however, common ground that the posts of Head Accountants and Sub Treasury Officers have been constituted into Zones I to IV and the U.D. Assistants and Assistant Section Officers in the Finance Department of the Secretariat have been organised for the city of Hydera bad into a separate category falling under Zone VII.
The question for consideration is whether the U.D. Clerks of the Directorate and Assistant Section Officers in the Secretari at falling under Zone VII can be transferred by promotion to the local cadre posts in zones I to IV.
The Tribunal has held that such transfers cannot be effected for the follow ing reasons: 1.
The reasons which weighed with the full Bench for strik ing down the unamended Rule 3 will hold good for striking down of the amended Rule 3 also.
The amendment to the Rule cannot be deemed to have been regularly effected by the Government because the Rule does not set out under which relevant clause viz. clause (a), (b) or (c) of sub para 2 of para 5 of the Presidential Order the Government has exercised its powers to amend the Rule.
The amendment sought to be effected by the Govt.
would have the effect of destroying the scheme of constituting separate local cadres and separate zones contained in para 5(1) of the Presidential Order.
There is no convincing reason as to why persons in the Directorate who do not belong to Zones I to IV should be in 353 ducted into those zones and the system cannot be allowed to be continued merely because such a practice was in vogue prior to the issue of the Presidential Order.
Since the amended Rule is virtually a repetition of the old Rule, it cannot be legitimised merely because Government claims to have amended the Rule in purported exercise of its powers under para 5(2) of the Presidential Order.
On a consideration of the matter, we find that the Tribunal has clearly erred in everyone of the reasons given by it for striking down the amended Rule 3.
In the first place, we must point out that the Tribunal has failed to construe para 5(2) of the Presidential Order in its proper perspective and give full effect to the powers conferred thereunder on the State Government to make provi sions contrary to the scheme of local cadres prescribed under Para 5(1).
The words of sub para (2) of Para 5 viz. "nothing in this order shall prevent the State Government from making provision for" sets out the over riding powers given to the State Government under the sub para.
Such over riding powers have been given to the State Government in express terms in recognition of the principle that public interest and administrative exigencies have precedence over the promotional interests of the members belonging to local cadres and zones.
Since Para 5(2) also forms a part of the Presidential Order, it forms part of the scheme envisaged for creating local cadres and zones.
The Tribunal was, therefore, in error in taking the view that if the State Government was to exercise its powers under Para 5(2) and make provision for promotion of UD Assistants in the Direc torate and Assistant Section Officers in the Secretariat to be transferred to posts in Zones I to IV, it will be the very negation of the creation of cadres and zones under Para 5(1) and it will be destructive of the scheme underlying the Presidential Order.
In fact the Tribunal has realised the operative force of Para 5(2) to some extent but it has failed to give full effect to its realisation of the scope of Section5(2).
In Para 12 of its judgment in RP No. 1595 of 1983 the Tribunal has stated that since the amended rule refers to Para 5(2) of the Presidential Order "it will no longer be open to the petitioners to attack the amendment as was done in respect of the earlier amendment in the previous RP".
The Tribunal has thus noticed that the amended Rule has been brought about by the Government in exercise of its powers under Para 5(2) but it has failed to draw the logical inference following therefrom.
354 As regards the view taken by the Tribunal that the reasons which weighed with the Full Bench for holding that the unamended Rule ceased to have operative force after the Presidential Order was made would have relevance even with reference to the amended Rule, the Tribunal cannot be said to have acted correctly.
The Full Bench was concerned with the amended Rule 3 which was framed long before the Presi dential Order was passed.
In order to make the provisions of the old Rule to have currency even after the Presidential Order was passed, the Government issued G.O. Ms. No. 728 on 1 11 75.
However, the Full Bench was of the view that the G.O. did not conform to the requirements of para 5(2) of the Presidential Order and therefore the Full Bench held the old Rule cannot have operative force "without any specific provision being made in the Rules in pursuance of the au thority given to the State Government under para 5(2) of the Presidential Order.
" It was in acceptance of this position the Government had issued G.O. Ms. No. 196 dated 17.6.83 for amending Rule 3 so as to make the Rule conform to the re quirements of para 5(2) of the Presidential Order.
The Tribunal has failed to realise this position and has there fore committed the error of holding that the view taken by the Full Bench with reference to the old Rule will continue to hold good even with reference to the amended Rule.
Anoth er patent error which the Tribunal has committed is in holding that G.O. Ms. No. 196 is not valid because it does not set out the relevant clause under which the Government was exercising its powers under the Presidential Order.
The Tribunal 's observation is worded as under: "In the impugned G.O. Ms. No. 196 supra, no particular sub paragraph has been invoked.
The situation under which each sub sub para will be applicable has been stated.
Clearly provisions contained in sub sub para (b) and (c) are not attracted; much less sub sub para (a).
We are, therefore, not convinced that recruitment by the method of transfer could come under any one of the aforesaid provisions.
" The observations of the Tribunal is manifestly wrong because G.O. Ms. No. 196 clearly sets out that the Notification was being issued by the Government in exercise of its powers under Section 3 of the Andhra Pradesh Ordinance 5 of 83 read with para 5(2)(a) of the Presidential Order.
The Tribunal has completely lost sight of the relevant portion of the G.O.
We are now only left with the reasoning of the Tribunal that there is no justification for the continuance of the old Rule and for 355 personnel belonging to other zones being transferred on promotion to offices in other zones.
In drawing such conclu sions, the Tribunal has travelled beyond the limits of its jurisdiction.
We need only point out that the mode of re cruitment and the category from which the recruitment to a service should be made are all matters which are exclusively within the domain of the Executive.
It is not for judicial bodies to sit in judgment over the wisdom of the Executive in choosing the mode of recruitment or the categories from which the recruitment should be made as they are matters of policy decision falling exclusively within the purview of the Executive.
As already stated, the question of filling up of posts by persons belonging to other local categories or zones is a matter of administrative necessity and exigency.
When the Rules provide for such transfers being effected and when the transfers are not assailed on the ground of arbi trariness or discrimination, the policy of transfer adopted by the Government cannot be struck down by Tribunals or Court of law.
In the light of our discussion, we find that the griev ance expressed by the State over the judgment of the Tribu nal is well founded.
In so far as Civil Appeal No. 3491 of 87 is concerned, though there was no direct challenge there in to the validity of the amended Rule 3, the Tribunal has allowed the Representation Petition filed by the petitioners because of the view taken by it in R.P. No. 1595 of 1983.
Hence the judgment of the Tribunal in that case also has to be set aside.
In the result, we set aside the judgments of the Tribu nal, and allow both the appeals and declare Rule 3 of the amended Rule to be intra vires of the Presidential Order.
There will be no order as to costs.
Y. Lal Appeals allowed.
| IN-Abs | In these two appeals filed by the State of Andhra Pra desh against the orders of the Andhra Pradesh Administrative Tribunal, the question that arises for consideration is whether amended Rule 3 of the Andhra Pradesh Treasury and Accounts Subordinate Service Rules 1963 Is violative of the Andhra Pradesh Public Employment (Organisation of Local Cadres and Regulation of Direct Recruitment) Order 1975.
The circumstances under which this question has arisen are stated hereinbelow.
Prior to the filing of Representative Petitions Nos.
1595 and 788 of 1984 by the Respondents in the Tribunal out of which these appeals have arisen, seven persons belonging to category 5 of Branch II of the Andhra Pradesh Treasury and Accounts Subordinate Service had presented a Petition before the Andhra Pradesh Administrative Tribunal challeng ing the vires of Rule 3 of the Andhra Pradesh Treasury and Accounts Subordinate Service Rules 1963, being violative of para 5(1) of Andhra Pradesh Public Employment Order, issued by the President of India under clauses (1) & (2) of Article 371 D of the Constitution, inter alia on the ground that it made provision for promotion of clerks of the Directorate of Treasuries and Accounts and Assistants of the Finance De partment of the Secretariat to the post of Head Accountants and Sub Treasury Officer which posts had become Zonal posts after the promulgation of Presidential order.
According to them only the U.D. Accountants of the feeder sources of the Zone were eligible for consi 343 deration in that particular Zone for promotion to the rank of Head Accountant and Sub Treasury Officer and not the personnel from the other Zones, including U.D. Accountants of the Directorate.
The Tribunal held that by virtue of para 5(1) of the Presidential order, for purposes of promotion, Zonal Cadre had to be treated as a separate unit and consequently the posts of Head Accountants/SubTreasury Officers, could be filled up by promotion only on Zonal basis and as such Rule 3 which specified various categories of posts without refer ence to Zone as feeder posts for the purpose of promotion to the posts in question were inconsistent with para 5(1) of the Presidential order.
The Tribunal therefore declared that after the promulgation of Presidential order, the provisions of Rule 3 would have to be reviewed so as to make them consistent with the provisions of the Presidential order.
The Tribunal further declared that various categories of feeder posts including the posts of Assistant Section Offi cers of the Secretariat from which promotion to the posts of Head Accountants/Sub Treasury Officer could be made, Could not be made operative after the promulgation of the Presi dential order.
After the aforesaid decision of the Tribunal, the State Government amended Rule 3 and gave it a retrospec tive operation w.e.f. 18.10.1975.
The validity of the amended Rule was questioned by the Respondents in the context of certain Assistant Section Officers in the Finance Department (Secretariat Service) borne on Zone VII being appointed to the post of Sub Treas ury Officers borne on the Subordinate Offices under the Directorate of Treasuries and Accounts borne on Zones I to IV, by filing the said Representation Petitions before the Andhra Pradesh Administrative Tribunal.
It was again con tended before the Tribunal that the amended Rule 3 was violative of the Presidential order.
According to the State the amended Rule had been issued by the Governor in exercise of the power conferred on him by the Proviso to Article 309 of the Constitution and hence the validity of the Rule could not be questioned by the Petitioners.
It was further con tended by the State that the earlier G.O. was not violative of the Presidential order of the provisions of Article 371 D, but even so, as it was considered by the Tribunal to be inoperative because the special provision did not explicitly state that they had been made in exercise of the authority vested in the State Government under para 5(2) of the Presi dential order, the Government had set right the lacuna by framing the amended Rule specifically in exercise of the powers conferred on Government under para 5(2) of the Presi dential order.
344 The Tribunal held that the impugned G.O. 196 did not set out under which sub para viz., sub para (a), (b) or (c) in para 5(2) of the Presidential order, the G.O. was issued and therefore the amended G.O. could not be upheld.
The Tribunal also declared that there was no justification for transfer ring a person who did not belong to concerned Zone to be inducted into that Zone, as that would defeat the underlying purpose of the Presidential order.
The State has, therefore, preferred these appeals.
Allowing the appeals this Court, HELD: That the Tribunal has failed to construe para 5(2) of the Presidential order in its proper perspective and give full effect to the powers conferred thereunder on the State Government to make provisions contrary to the scheme of local cadres prescribed under para 5(1).
The words in para 5(2) viz., "nothing in this order shall prevent the State Government from making provision for" sets out the over riding powers given to the State Government under the sub para.
Such overriding powers have been given to the State Government in express terms in recognition of the principle that public interest and administrative exigencies have precedence over the promotional interests of the members belonging to local cadres and zones.
[353C E] In order to make the provisions of old rule to have currency even after the Presidential order was passed, the Government issued G.O. Ms. No. 728 on 1.11.75.
The Govern ment has issued G.O. Ms. No. 196 dated 17.6.83 for amending Rule 3 so as to make the Rule conform to the requirements of para 5(2) of the Presidential order.
[354B, C D] The mode of recruitment and the category from which the recruitment for a service should be made are all matters which are exclusively within the domain of the Executive.
It is not for judicial bodies to sit in judgment over the wisdom of the Executive in choosing the mode of recruitment or the categories from which the recruitment should be made as they are matters of policy decision failing exclusively within the purview of the Executive.
[355B] The question of filling up of posts by persons belong ing to other local categories or zones is a matter of admin istrative necessity or exigency.
When the rules provide for such transfers being effected and when the transfers are not assailed on the ground of arbitrariness or discrimination the policy of transfer adopted by the Government cannot be struck down by Tribunals or Court of Law.
[355C] 345 Rule 3 of the amended Rule declared to be intra vires of the Presidential Order.
[355E F]
|
vil Appeal NO. 186875 of 1986.
From the Judgment and Order dated 28.2.1986 of the Andhra Pradesh High Court in W.P. Nos.
10181 of 1983, 11830, 4677, 4763, 4778 of 1985, 4926, 4935 and 4948 of 1986.
308 A.K. Ganguli, A.K. Sen, Shanti Bhushan, Harish N. Salve, section Krishnan, J.B. Dada Chanji, Mrs. A.K. Verma, Joel Pares, R. Dave, A. Subba Rao, Sunil Kumar Jain, Vijay Hansaria, K. Srinivasa Mufti, Kailash Vasudev, Nauni Lal, A.T.M. Sampath, R. Karanjawala, Mrs. M. Karanjawala and H.S. Anand for the Appellants.
M.K. Banerjee, Solicitor General, B. Datta, Additional Solicitor General, T.V.S.N. Chari, Ms. Sunita and Ms. Vrinda Grover for the Respondents.
The Judgment of the Court was delivered by PATHAK, CJ.
These appeals are directed against the judgment of the High Court of Andhra Pradesh dismissing several writ petitions filed by the appellants challenging assessments made under the Andhra Pradesh General Sales Tax Act 1957 on the value of packing material at the rate ap plicable to goods packed therein.
The appellants in some of the appeals are manufacturers of or dealers in beer, the appellants in the other appeals are manufacturers of or dealers in cement.
The beer is sold in bottles packed in cartons.
The cement is sold in gunnies.
Section 5 of the Andhra Pradesh General Sales Tax Act (hereinafter referred to as 'the Act ') provides for the levy of sales tax on the turnover of goods at the rates specified in that provision.
In the case of goods mentioned in the First Schedule to the Act tax is leviable at the rates, and at the point of sale, specified therein.
In the case of goods mentioned in the Sixth Schedule, likewise tax is leviable at the rates and at the points specified therein.
Item 19 of the First Schedule speaks of 'Containers other than gunnies and bottles '.
These goods are subject to tax at the rate of 5 paise in the rupee at the point of first sale in the State.
Item 123 of the First Schedule enumerates 'glass and glassware ', which is subject to sales tax at 9 paise in the rupee at the point of first sale in the State.
In respect of cement tax is leviable by reference to item 18 of the First Schedule at the rate of 10 paise in the rupee at the point of first sale in the State, while gunnies, formerly mentioned under item 67 of the First Schedule, and now included in item 157 of that Schedule, are subject to tax at the point of first sale in the State.
And beer is covered by item 1 of the Sixth Schedule under the category 'Country Liquor ' taxable at the rate of 10 paise in the rupee at every point of sale other than at the point of last sale, at which point the rate is 5 paise per rupee.
309 Clause (s) of Section 2 of the Act defines 'turnover ' to mean the total amount set out in the bill of sale (or if there is no bill of sale, the total amount charged) as the consideration for the sale or purchase of goods (whether such consideration be cash, deferred payment or any other thing of value) including any sums charged by the dealer for anything done in respect of goods sold at the time of or before the delivery of the goods and any other sums charged by the dealer, whatever be the description, name or object thereof; or the aggregate of amounts charged under section 5 C. With effect from 8 July, 1983, section 6 C was inserted in the Act by Andhra Pradesh Act No. 11 of 1984, and it provides: 'Notwithstanding anything in sections 5 and 6 A, where goods packed in any materials are sold or purchased, the materials i,n which the goods are so packed shall be deemed to have been sold or purchased along with the goods and the tax shall be leviable on such sale or purchase of the materials at the rate of tax, if any, as applicable to the sale, or, as the case may be, purchase of goods themselves. ' The net turnover of a dealer assessable to tax is deter mined under rule 6 of the Andhra Pradesh General Sales Tax Rules, after deducting the amount specified in clauses (a) to (1) of that rule from the total turnover.
Of these clauses, clause (g) speaks of: 'Amounts relating to charges for services rendered in connection with the packing of goods when specified and charged for by the dealer separately, without including them in the price of goods sold. ' The appellants filed the writ petitions, out of which the present appeals arise, in the High Court at Hyderabad challenging the assessments to sales tax made on the turn over of packing material employed either by way of bottles for containing beer or by way of gunny bags for packing cement.
The appellants challenged the application of such rate in assessments made in relation to the period before 8 July, 1983.
The appellants also challenged the application of that rate proposed pursuant to section 6C in show cause no tices issued by the concerned authority.
While dismissing the writ petitions, the High Court has proceeded on the basis that having regard to the nature of the goods and to the trade practice in respect of beer and cement the con tainers were necessary concomitants in the transactions, and the transfer of 310 property in the containers was incidental or unavoidable, that the sale transactions had to be regarded as composite and integrated sales of the containers and their contents and what was really sold was the bottled beer or the cement packed in gunny bags.
The learned Judges observed further that even where money was paid to the dealer as security deposit refundable on the return of the bottles the sale of the bottle could not be treated as an independent transac tion different and distinct from the transaction of sale of the beer.
So also was the case in the sale of cement con tained in gunnies.
The learned Judges expressed the view that the consideration paid by the purchaser to the dealer consists not only of the price of the contents, namely, beer or cement, but also includes the price of the containers, that is the bottles and the cartons in the case of beer and gunnies in the case of cement.
It is commonly accepted that a transaction of sale may consist of a sale of the product and a separate sale of the container housing the product with respective sale consider ations for the product and the container separately; or it may consist of a sale of the product and a sale of the container but both sales being conceived of as integrated components of a single sale transaction; so.
, what may yet be a third case, it may consist of a sale of the product with the transfer of the container without any sale consid eration therefore.
The question in every case will be a question of fact as to what are '.
the nature and ingredients of the sale.
It is not right in law to pick on one ingredi ent only to the exclusion of the others and deduce from it the character of the transaction.
For example, the circum stance that the price of the product and the price of the container are shown separately may be evidence that two separate transactions are envisaged, but that circumstance alone cannot be conclusive of the true character of the transaction.
It is not unknown that traders may, for the advantage of their trade, show what is essentially a single sale transaction of product and container, or a transaction of a sale of the product only with no consideration for the transfer of the container, as divisible into two separate transactions, one of sale of the product, and the other a sale of the container, with a distinct price shown against each.
Similarly where a deposit is made by the purchaser with the dealer, the deposit may be pursuant to a transac tion where there is no sale of the container and its return is contemplated, and in the event of its not being returned the security is liable to forfeiture.
Alternatively, it may be a case where the Container is sold and the deposit repre sents the consideration for the sale, and in the event of the container being returned to the dealer the deposit is returned by way of consideration for the re sale.
In every case, the assessing authority is obliged to ascertain the 311 true nature and character of the transaction upon a consid eration of all the facts and circumstances pertaining to the transaction.
That the problem almost always requires factual investigation into the nature and ingredients of the trans action has been repeatedly emphasised by this Court.
In Hyderabad Deccan Cigarette Factory vs The State of Andhra Pradesh, [1966] 17 STC 624 this Court said: "It is not possible to state as a proposition of law that whenever particular goods were sold in a container the parties did not intend to sell and buy the container also.
Many cases may be visualized where the container is comparatively of high value and sometimes even higher than that contained in it.
Scent or whisky may be sold in costly containers.
Even cigarettes may be sold in silver or gold caskets.
It may be that in such cases the agreement to pay an extra price for the con tainer may be more readily implied.
In the present case, if we may say so with respect, all the authorities, including the High Court, dealt with the question as a question of law without considering the relevant factors which would sustain or negative any such agreement . .
A perusal of the orders of the various author ities and the High Court shows that a simple question of fact has been sidetracked by copious citations.
Whether there was an agree ment to sell the packing materials is a pure question of fact and that question cannot be decided on fictions or surmises.
That is what has happened in this case.
The Commercial Tax Officer invoked a fiction; the, Assistant Com missioner of Commercial Taxes relied upon the doctrine of "finished product"; the Appellate Tribunal relied upon surmises; and the High Court, on the principle of implied agreement.
But none has tackled the real question.
The burden lies upon the Commercial Tax Officer to prove that a turnover is liable to tax.
No doubt he can ask the assessee to produce the relevant material; and if he does not produce the same, he may draw an adverse inference against him.
But, he must decide the crucial question whether the packing materials were subject of the agreement of sale, express or implied.
To ascertain the said fact he can rely upon oral statements, accounts and other documents, personal enquiry and other relevant circumstances such as the nature and the purpose of the packing materials used.
" 312 Again, in Commissioner of Taxes, Assam vs Prabhat Marketing Co., Ltd., [1967] 19 STC 84 this Court accepted as well founded submission that the parties may have intended in the circumstances to sell hydrogenated oil apart from the con tainers, and the mere fact that the price of the containers was not separately fixed would make no difference in the assessment of sales tax, and went on to observe: "It is well established that in order to constitute a sale it is necessary that there should be an agreement between the parties for the purpose of transferring title to goodS, the agreement must be supported by money consideration, and that as a result of the transaction the property should actually pass in the goods.
Unless all the ingredients are present in the transaction there could be no sale of goods and sales tax cannot be imposed State of Madras vs Gannon Dunkerley and Co. (Madras) Ltd.; , . . . . . . . . . . .
The question as to whether there is an agree ment to sell packing material is a pure ques tion of fact depending upon the circumstances found in each case.
" There can be as many different kinds of transactions as the circumstances of the case may require either by reason of prevailing trade practice or market conditions or person al convenience, and as human ingenuity may devise for bona fide reducing the burden of tax.
In The State of Karnataka vs Shaw Wallace and Company Ltd., [1981] 48 STC 169 the High Court of Karnataka pointed out that there was an agreement to sell the bottles and crates in which the liquor was conveyed and there was also an agreement in regard to the price of those containers, and therefore the turnover in regard to those items had to be determined and the appropri ate rate of sales tax had to be charged as provided in the Karnataka Sales Tax Act.
Reference was made to the require ment in the Karnataka Excise Act, 1966 that the liquor had to be sold in sealed containers but that, the High Court said, did not automatically lead to the conclusion that the same rate of sales tax was applicable to containers also.
It was observed that such a presumption could not be made, specially when separate rates were specified in the Sales Tax Act in regard to the containers and the contents.
In Arlem Breweries Ltd. vs The Assistant Commissioner of Sales Tax, Panaji, [1983] 53 STC 172 the Panaji Bench of the High Court of Bombay noted that item 22 of the First Schedule to the Goa, Daman and Diu Sales Tax Act, 1964, which spoke of the item "foreign liquor and 313 India made foreign liquor" indicated that the tax was levied only on the liquor and not against the bottle and liquor or bottled liquor.
The sale was of beer and the bottles were treated separately.
It was also pointed out that the agree ment by the assessee with the wholesaler did not create any obligation on the purchasers to return the bottles nor did it fix any time for their return.
The payment of an amount for the bottles in advance as a term of the sale was re ferred to as cost of the bottles and this, the High Court said, constituted the sale price of the bottles although described as a deposit.
In M/s Jamana Flour & Oil Mill (P) Ltd. vs State of Bihar, ; this Court affirmed the finding that there was an implied agreement of the sale of gunny bags.
It said: "Admittedly gunny bags are a different commod ity and sale thereof is assessable to tax at 4 1/2 %.
It is not disputed that the appellant bought gunny bags for packing wheat products for the purpose of sale.
The control order contemplates a net weight which means that the weight of the bag is included in the price to be charged by the dealer.
Under the Explana tion when packing is done in cloth bags, a higher rate is admissible.
The scheme clearly suggests that the price of gunny bags is inclusive and where cloth bag is used, a higher price over and above what has been provided for ordinary containers is permitted.
" It is, therefore, perfectly plain that the issue as to whether the packing material has been sold or merely trans ferred without consideration depends on the contract between the parties.
The fact that the packing is of insignificant value in relation to the value of the contents may imply that there was no intention to sell the packing, but where any packing material is of significant value it may imply an intention to sell the packing material.
In a case where the packing material is an independent commodity and the packing material as well as the contents are sold independently, the packing material is liable to tax on its own footing.
Wheth er a transaction for sale of packing material is an inde pendent transaction will depend upon several factors, some of them being: 1.
The packing material is a commodity having its own identity and is separately classified in the Schedule; 2.
There is no change, chemical or physical, in the packing either at the time of packing or at the time of using the content; 314 3.
The packing is capable of being reused after the con tents have been consumed; 4.
The packing is used for convenience of transport and the quantity of the goods as such is not dependent on pack ing; 5.
The mere fact that the consideration for the packing is merged with the consideration for the product would not make the sale of packing an integrated part of the sale of the product.
In one case, Punjab Distilling Industries Ltd. vs The Com missioner of Income Tax, Simla, [1959] Supp. 1 SCR 683 where the bottles were sold by the assessee under a buy back scheme, the security deposit for the return of the bottles was held to be merely in the nature of an incentive to the buyer to return the bottles.
Turning to section 6C of the Act, it seems to envisage a case where it is the goods which are sold and there is no actual sale of the packing material.
The section provides by legal fiction that the packing material shall be deemed to have been sold along with the goods.
In other words, although there is no sale of the packing material, it will be deemed that there is such a sale.
In that event, the section de clares, the tax will be leviable on such deemed sale of the packing material at the rate of tax applicable to the sale of the goods themselves.
It is difficult to comprehend the need for such a provision.
It can at best be regarded as a provision by way of clarification of an existing legal situation.
If the transaction is one of sale of the goods only, clearly all that can be taxed in fact is the sale of the goods, and the rate to be applied must be read in the case of such goods.
It may be that the price of the goods is determined upon a consideration of several components, including the value of the packing material, but nonetheless the price is the price of the goods.
It is not open to anyone to say that the value of the different components which have entered into a determination of the price of the goods should be analysed and separated, in order that dif ferent rates of tax should be applied according to the character of the component (for example, packing material).
What section 6C intends to lay down is that even upon such analy sis the rate of tax to be applied to the component will be the rate applied to the goods themselves.
And that is for the simple reason that it is the price of the goods alone which constitutes the transaction between the dealer and the purchaser.
No matter what may be the component which enters into such price, the parties understand between them that the purchaser is paying the price of the goods.
Section 6C merely clarifies and explains that 315 the components which have entered into determining the price of the goods cannot be treated separately from the goods themselves, and that no account was in fact taken of the packing material when the transaction took place, and that if such account must be taken then the same rate must be applied to the packing material as is applicable to the goods themselves.
We find it difficult to accept the conten tion of the appellants that a rate applicable to the packing material in the Schedule should be applied to the sale of such packing material in a case under section 6C, when in fact there was no such sale of packing material and it is only by legal fiction, and for a limited purpose, that such sale can be contemplated.
In the circumstances, no question arises of section 6C being constitutionally discriminatory, and therefore invalid.
In the appeals before us, we find that the High Court has proceeded on the assumption that the transactions are covered by trade practice and having regard to the nature of the goods it has inferred that what is charged is the price of the bottled beer or of cement packed in gunny bags, and reference has also been made to the Excise Law and the Cement Control Order requiring that the liquor or the ce ment, as the case may be, must be sold in bottles or in gunny bags respectively.
We are constrained to observe that no attempt has been made by the tax authorities to ascertain the facts of each case and to determine what were the actual ingredients of the contract and the intention of the par ties.
Assumptions have been made when what was required was a detailed investigation into the facts.
We have indicated earlier the several possibilities which are open in cases of this kind, and how the ultimate conclusion can be vitally affected by the tests to be applied.
Because of the lack of adequate and clear factual material, the High Court also was compelled to proceed on the basis of generalised statements and broad assumptions.
We are unable, in the circumstances, to hold that the cases can be regarded as disposed of final ly.
It is regrettable but the cases must go back for proper findings on facts to be ascertained on fuller investigation.
In the circumstances, the appeals are allowed, the impugned judgment and order of the High Court in the several cases are set aside and the cases are remanded to the High Court for further consideration and disposal in the light of the observations made by us.
In the case of the writ peti tions before us, the assessing authority will allow the dealer to show cause and thereafter upon evidence led before it determine the matter.
There is no order as to costs.
R.S.S. Appeals allowed.
| IN-Abs | The appellants in some of the appeals are manufactur ers of or dealers in beer, the appellants in the other appeals are manufacturers of or dealers in cement.
The appellants filed writ petitions in the Andhra Pradesh High Court challenging the assessment made under the Andhra Pradesh General Sales Tax Act, 1957 on the turnover of packing material employed either by way of bottles for containing beer or by way of gunny bags for packing cement.
The appellants challenged the application of such rate in assessments made in relation to the period before 8 July, 1983.
The appellants also challenged the application of that rate proposed pursuant to section 6C in show cause notices issued by the concerned authority.
Section 6C was inserted in the Act with effect from 8 July, 1983.
The High Court while dismissing the writ petitions, proceeded on the basis that, having regard to the nature of the goods and to the trade practice in respect of beer and cement, the containers were necessary concomitants in the transactions, and the transfer of property in the containers was incidental or unavoidable, that the sale transactions had to be regarded as composite and integrated sales of the containers and their contents and what was really sold was the bottled beer or the cement packed in gunny bags.
The learned Judges expressed the view that the consideration paid by the purchaser to the dealer consisted not only of the price of the contents, namely, beer or cement, but also included the price of the containers, that is, the bottles and the cartons in the case of beer and gunnies in the case of cement.
While allowing the appeals and remanding the cases to the High 306 Court, and in the case of the writ petitions, while direct ing the assessing authority to determine the matters after allowing the dealers to show cause, this Court, HELD: (1) A transaction of sale may consist of a sale of the product and a separate sale of the container housing the product with respective sale considerations for the product and the container separately; or it may consist of a sale of the product and a sale of the container but both sales being conceived of as integrated components of a single sale transaction; or what may yet be of a third case, it may consist of a sale of the product with the transfer of the container without any sale consideration therefore.
The question in every case will be a question of fact as to the nature and ingredients of the sale.
It is not right in law to pick on one ingredient only to the exclusion of the others and deduce from it the character of the transaction.
In every case, the assessing authority is obliged to ascer tain the true nature and character of the transaction upon a consideration of all the facts and circumstances pertaining to the transaction.
[310C E; H; 311A] Hyderabad Deccan Cigarette Factory vs The State of A. P., [1966] 17 STC 624, referred to.
(2) There can be as many different kinds of transactions as the circumstances of the case may require either by reason of prevailing trade practice or market conditions or personal convenience, and as human ingenuity may devise for bonafide reducing the burden of tax.
Whether a transaction for sale of packing material is an independent transaction will depend upon several factors.
[312E] (3) The issue as to whether the packing material has been sold or merely transferred without consideration de pends on the contract between the parties.
The fact that the packing is of insignificant value in relation to the value of the contents may imply that there was no intention to sell the packing, but where any packing material is of significant value it may imply an intention to sell the packing material.
In a case where the packing material is an independent commodity and the packing material as well as the contents are sold independently.
The sale of the packing material is liable to tax independently.
[313E G] Commissioner of Taxes, Assam vs Prabhat Marketing Co. Ltd., [1967] 19 STC 84; The State of Karnataka vs Shaw Wel lace & Company Ltd., [1981] 48 STC 169; Arlem Breweries Ltd. vs The Assistant Commissioner of Sales Tax, Panaji, [1983] 53 STC 172; M/s. Jamana Flour 307 Mill (P) Ltd. vs State of Bihar, ; and Punjab Distilling Industries Ltd. vs The Commissioner of Income Tax, Simla, [1959] Supp. 1 SCR 683, referred to.
Section 6C seems to envisage a case where it is the goods which are sold there is no actual sale of the packing material.
The section provides by legal fiction that the packing material Shall be deemed to have been sold alongwith the goods.
In that event, the tax will be leviable on such deemed sale of the packing material at the rate of tax applicable to the sale of the goods themselves.
It is diffi cult to comprehend the need for such a provision.
It can at best be regarded as a provision by way of clarification of an existing legal situation, which merely explains that the components which have entered into determining the price of the goods cannot be treated separately from the goods them selves, and that no account was in fact taken of the packing material when the transaction took place, and that if such account must be taken then the Same rate must be applied to the packing material as is applicable to the goods them selves.
[314D E; 315A B] (5) It is difficult to accept the contention of the appellants that a rate applicable to the packing material in the Schedule should be applied to the sale of such packing material in a case under section 6C, when in fact there was no such sale of packing material and it is only by legal fic tion, and for a limited purpose, that such sale can be contemplated.
In the circumstances, no question arises of section 6C being constitutionally discriminatory, and therefore invalid.
[315B C] (6) The High Court has proceeded on the assumption that what is charged is the price of the bottled beer or of cement packed in gunny bags.
No attempt was made by the tax authorities to ascertain the facts of each case and to determine what were the actual ingredients of the contract and the intention of the parties.
Assumptions had been made when what was required was a detailed investigation into the facts.
Because of the lack of adequate and clear factual material, the High Court also was compelled to proceed on the basis of generalised statements and broad assumptions.
[315C E]
|
vil Appeal Nos.
2839 40 of 1989 etc.
From the Judgment and Order dated 6.12.
1984 of the Delhi High Court in R.F.A. Nos. 113 and 114 of 1968.
K. Parasaran, Attorney General, T.S. Krishnamurthy Iyer, B.R.L. Iyengar, M.S. Gujaral, F.S. Nariman, A.K. Ganguli, K. Swamy, C.V. Subba Rao, R.D. Agrawala, P. Parmeshwaran, O.P. Sharma, R.C. Gubrele, K.R. Gupta, R.K. Sharma, K.L. Rathee, Chandulal Verma, Subhash Mittal, section Balakrishnan, N.B. Sinha, K.K. Gupta, Sanjiv B. Sinha, M.M. Kashyap, P.C. Khunger, Swaraj 321 Kaushal, Pankaj Kalra, S.K. Bagga, Ravinder Narain, Sumeet Kachwala, section Sukumaran, K.R. Nagaraja, S.S. Javali, Ms. Lira Goswami, D.K. Das, B.P. Singh, Ranjit Kumar, Santosh Hegde, M.N. Shroff, P.N. Misra, D.C. Taneja, P.K. Jena, A.K. Sanghi and M. Veerappa for the appearing parties.
The Judgment of the Court was delivered by PATHAK, CJ.
The question of law referred to us for decision in these cases is: "Whether under the Land Acquisition Act, 1894 as amended by the Land Acquisition (Amendment) Act, 1984 the claimants are entitled to sola tium at 30 per cent of the market value irre spective of the dates on which the acquisition proceedings were initiated or the dates on which the award had been passed"? It would suffice if we briefly refer to the facts in the Civil Appeals arising out of Special Leave Petitions Nos.
8194 8195 of 1985: Union of India & Another vs Raghubir Singh.
The land belonging to the respondents in village Dhaka was taken by compulsory acquisition initiated by a notifica tion under section 4 of the Land Acquisition Act, 1894 issued on 13 November, 1959.
The award with regard to compensation was made by the Collector on 30 March, 1963.
A reference under section 18 of the Act was disposed of by the Additional District Judge on 10 June, 1968.
He enhanced the compensation.
The respondents preferred an appeal to the High Court claiming further compensation.
During the pendency of the appeal the Land Acquisition (Amendment) Bill 1982 was introduced in Parliament on 30 April, 1982, and became law as the Land Acquisition (Amendment) Act, 1984 when it received the assent of the President on 24 September, 1984.
The High Court disposed of the appeal by its Judgment and Order dated 6 December, 1984.
While it raised the rate of compensation, it also raised the rate of interest payable on the compensa tion, and taking into account the change in the law effected by the Land Acquisition (Amendment) Act, 1984 (referred to hereinafter as "the Amendment Act") it awarded solatium at 30 per cent of the market value.
The Judgment and Order of the High Court is the subject of these appeals.
When these cases came up before a Bench of two learned Judges 322 (E.S. Venkataramiah and R.B. Misra, JJ.) on 23 September, 1985, they referred to two earlier decisions of this Court and expressed the view that the question set forth above required re examination by a larger Bench of five Judges.
It was further directed that the other questions involved in the petitions would be considered after the aforesaid ques tion had been resolved by the larger Bench.
The two deci sions referred to in the Order of the learned Judges are K. Kamalajammanniavaru (dead) by Lrs.
vs Special Land Acquisi tion Officer, decided by O. Chinnappa Reddy and Sabyasachi Mukharji, JJ.
on 14 February, 1985 and Bhag Singh and Ors.
vs Union Territory of Chandigarh, ; decided by P.N. Bhagwati, C.J., A.N. Sen and D.P. Madon, JJ.
on 14 August, 1985.
Solatium is awarded under sub section
(2) of section 23 of the Land Acquisition Act.
Before the Amendment Act was enacted the sub section provided for solatium at 15 per cent of the market value.
By the change introduced by the Amendment Act the amount has been raised to 30 per cent of the market value.
Sub section
(2) of section 30 of the Amendment Act specifies the category of cases to which the amended rate of solatium is attracted.
In K. Kamalajammanniavaru, (supra), the two learned Judges held that sub section
(2) of section 30 referred to orders made by the High Court or the Supreme Court in ap peals against an award made between 30 April, 1982 and 22 September, 1984, and that therefore solatium at 30 per cent alone pursuant to sub section
(2) of section 30 had to be awarded in such cases only.
In Bhag Singh (supra), however, the three learned Judges held that sub section
(2) of section 30 referred to proceedings relating to compensation pending on 30 April, 1982 or filed subsequent to that date, whether before the Collector or before the Court or the High Court or the Supreme Court, even if they had finally terminated before the enactment of the Amending Act.
In taking that view they overruled K. Kamalajammanniavaru, (supra) and approved of the opinion expressed in another case, State of Punjab vs Mohinder Singh and another, decided by section Murtaza Fazal Ali, A. Varadarajan and Ranganath Misra, JJ.
on 1 May, 1985.
At the outset, a preliminary objection has been raised by Shri B.R.L. Iyengar to the validity of the reference of these cases to a larger Bench.
He contends that the mere circumstance that a Bench of two learned Judges finds itself in doubt about the correctness of the view taken by a Bench of three learned Judges should not provide reason for refer ring the matter to a larger Bench.
The preliminary objection raised by Shri Iyengar has been vigorously resisted by the 323 appellants.
Having regard to the submissions made before us, we think it necessary to lay down the law on the point.
India is governed by a judicial system identified by a hierarchy of courts, where the doctrine of binding precedent is a cardinal feature of its jurisprudence.
It used to be disputed that Judges make law.
Today, it is no longer a matter of doubt that a substantial volume of the law govern ing the lives of citizens and regulating the functions of the State flows from the decisions of the superior courts.
"There was a time: ' observed Lord Reid, "when it was thought almost indecent to suggest that Judges make law They only declare it . .
But we do not believe in fairy tales any more "The Judge as law Maker" p. 22.
" In countries such as the United Kingdom, where Parliament as the legislative organ is supreme and stands at the apex of the constitution al structure of the State, the role played by judicial law making is limited.
In the first place the function of the courts is restricted to the interpretation of laws made by Parliament, and the courts have no power to question the validity of Parliamentary statutes, the Diceyan dictum holding true that the British Parliament is paramount and all powerful.
In the second place, the law enunciated in every decision of the courts in England can be superseded by an Act of Parliament.
As Cockburn CJ.
observed in Exp.
Canon Selwyn, "There is no judicial body in the country by which the validity of an Act of Parliament could be questioned.
An act of the Legislature is superior in authority to any Court of Law".
And Ungoed Thomas J., in Cheney vs Conn, referred to a Parliamentary statute as "the highest form of law . .which prevails over every other form, of law.
" The position is substantially different under a written Consti tution such as the one which governs us.
The Constitution of India, which represents the Supreme Law of the land, envis ages three distinct organs of the State, each with its own distinctive functions, each a pillar of the State.
Broadly, while Parliament and the State Legislature in India enact the law and the Executive government implements it, the judiciary sits in judgment not only on the implementation of the law by the Executive but also on the validity of the Legislation sought to be implemented.
One of the functions of the superior judiciary in India is to examine the compe tence and validity of legislation, both in point of legisla tive competence as well as its consistency with the Funda mental Rights.
In this regard, the courts in India possess a power not known to the English 324 Courts.
Where a statute is declared invalid in India it cannot be reinstated unless constitutional sanction is obtained therefore by a constitutional amendment or an appropriately modified version of the statute is enacted which accords with constitutional prescription.
The range of judicial review recognised in the superior judiciary of India is perhaps the widest and the most extensive known to the world of law.
The power extends to examining the validi ty of even an amendment to the Constitution, for now it has been repeatedly held that no constitutional amendment can be sustained which violates the basic structure of the Consti tution.
(See His Holiness Kesavananda Bharati Sripadagalava ru vs State of Kerala, ; Smt.
Indira Nehru Gandhi vs Shri Raj Narain, ; Minerva Mills Ltd. and others vs Union of India and others, [1980] 2 SCC 591 and recently in S.P. Sampath Kumar etc.
vs Union of India and Ors.
, ; With this impressive expanse of judicial power, it is only right that the superi or courts in India should be conscious of the enormous responsibility which rests on them.
This is specially true of the Supreme Court, for as the highest Court in the entire judicial system the law declared it is, by Article 141 of the Constitution, binding on all courts within the territory of India.
Taking note of the hierarchical character of the judi cial system in India, it is of paramount importance that the law declared by this Court should be certain, clear and consistent.
It is commonly known that most decisions of the courts are of significance not merely because they consti tute an adjudication on the rights of the parties and re solve the dispute between them, but also because in doing so they embody a declaration of law operating as a binding principle in future cases.
In this latter aspect lies their particular value in developing the jurisprudence of the law.
The doctrine of binding precedent has the merit of promoting a certainty and consistency in judicial decisions, and enables an organic development of the law, besides providing assurance to the individual as to the consequence of transaction forming part of his daily affairs.
And, therefore, the need for a clear and consistent enunciation of legal principle in the decisions of a Court.
But like all principles evolved by man for the regula tion of the social order, the doctrine of binding precedent is circumscribed in its governance by perceptible limita tions, limitations arising by reference to the need for re adjustment in a changing society, a re adjustment of legal norms demanded by a changed social context.
This need for 325 adapting the law to new urges in society brings home the truth of the Holmesian aphorism that "the life of the law has not been logic it has been experience".
Oliver Wendell Holmes, "The Common Law" p. 5 and again when he declared in another study that Oliver Wendell Holmes, "Common Carriers and the Common Law", (1943) 9 Curr.
L.T. 387, 388 "the law is forever adopting new principles from life at one end," and "sloughing off" old ones at the other.
Explaining the conceptual import of what Holmes had said, Julius Stone elaborated that it is by the introduction of new extra legal propositions emerging from experience to serve as premises, or by experience guided choice between competing legal propositions, rather than by the operation of logic upon existing legal propositions, that the growth of law tends to be determined.
Julius Stone, "Legal Systems & Lawyers Rea soning", pp.
58 59.
Legal compulsions cannot be limited by existing legal propositions, because there will always be, beyond the frontiers of the existing law, new areas inviting judicial scrutiny and judicial choice making which could well affect the validity of existing legal dogma.
The search for solu tions responsive to a changed social era involves a search not only among competing propositions of law, or competing versions of a legal proposition, or the modalities of an indeterminacy such as "fairness" or "reasonableness", but also among propositions from outside the ruling law, corre sponding to the empirical knowledge or accepted values of present time and place, relevant to the dispensing of jus tice within the new parameters.
The universe of problems presented for judicial choice making at the growing points of the law is an expanding universe.
The areas brought under control by accumulation of past judicial choice may be large.
Yet the areas newly presented for still further choice, because of changing social, economic and technological conditions are far from inconsiderable.
It has also to be remembered, that many occasions for new options arise by the mere fact that no generation looks out on the world from quite the same van tage point as its predecessor, nor for the matter with the same perception.
A different vantage point or a different quality of perception often reveals the need for choice making where formerly no alternatives, and no problems at all, were Perceived.
The extensiveness of the areas for judicial choice at a particular time is a function not only of the accumulation of past decisions, not only of changes in the environment, but also of new insights and perspec tives both on old problems and on the new problems thrown up by changes entering the cultural and social heritage.
326 Not infrequently, in the nature of things there is a gravity heavy inclination to follow the groove set by prece dential law.
Yet a sensitive judicial conscience often persuades the mind to search for a different set of norms more responsive to the changed social context.
The dilemma before the Judge poses the task of finding a new equilibri um, prompted not seldom by the desire to reconcile opposing mobilities.
The competing goals, according to Dean Roscoe Pound, invest the Judge with the responsibility "of proving to mankind that the law was something fixed and settled, whose authority was beyond question, while at the same time enabling it to make constant readjustments and occasional radical changes under the pressure of infinite and variable human desires." Roscoe Pound, "an Introduction to the Phi losophy of Law" p. 19.
The reconciliation suggested by Lord Reid in "The Judges as Law Maker" pp. 25 6 lies in keeping both objectives in view, "that the law shall be certain, and that it shall be just move with the times.
" An elaboration of his opinion is contained in Myers vs Director of Public Prosecutions, , where he expressed the need for change in the law by the court and the limits within which such change could be brought about.
He said: ibid at p. 1021.
"I have never taken a narrow view of the functions of this House as an appellate tribu nal.
The common law must be developed to meet changing economic conditions and habits of thought, and I would not be deterred by ex pressions of opinion in this House in old cases.
But there are limits to what we can or should do.
If we are to extend the law it must be by the development and application of fundamental principles.
We cannot introduce arbitrary conditions or limitations: that must be left to legislation.
And if we do in effect change the law, we ought in my opinion only to do that in cases where our decision will produce some finality or certainty.
" Whatever the degree of success in resolving the dilemma, the Court would do well to ensure that although the new legal norm chosen in response to the changed social climate repre sents a departure from the previously ruling norm, it must, nevertheless.
carry within it the same principle of certain ty, clarity and stability.
The profound responsibility which is.borne by this Court in its choice between earlier established standards and the formulation of a new code of norms is all the more sensitive and significant because the 327 response lies in relation to a rapidly changing social and economic society.
In a developing society such as India the law does not assume its true function when it follows a groove chased amidst a context which has long since crum bled.
There will be found among some of the areas of the law norms selected by a judicial choice educated in the experi ence and values of a world which passed away 40 years ago.
The social forces which demand attention in the cauldron of change from which a new society is emerging appear to call for new perceptions and new perspectives.
The recognition that the times are changing and that there is occasion for a new jurisprudence to take birth is evidenced by what this Court said in The Bengal Immunity Company Limited vs The State of Bihar and Others, , when it ob served that it was not bound by its earlier judgments and possessed the freedom to overrule its judgments when it thought fit to do so to keep pace with the needs of changing times.
The acceptance of this principle ensured the preser vation and legitimation provided to the doctrine of binding precedent, and therefore, certainty and finality in the law, while permitting necessary scope for judicial creativity and adaptability of the law to the changing demands of society.
The question then is not whether the Supreme Court is bound by its own previous decisions.
It is not.
The question is under what circumstances and within what limits and in what manner should the highest Court over turn its own pronouncements.
In the examination of this question it would perhaps be appropriate to refer to the response of other jurisdictions, specially those with which the judicial system in India has borne an historical relationship.
The House of Lords in England provides the extreme example of a judicial body which until recently disclaimed the power to overrule it self.
It used to be said that the House of Lords did never overrule itself but only distinguished its earlier deci sions.
An erroneous decision of the House of Lords could be set right only by an Act of Parliament.
(See Street Tramways vs London County Council, ; and Radcliffe vs Ribble Motor Services Ltd., ,245. ) Apparent ly bowing to the pressure of a reality forced upon it by reason of a rapidly gathering change in the prevailing socio economic structure, on 26 July, 1966, Lord Gardiner, L.C., made the following statement on behalf of himself and the Lords of Appeal in Ordinary: "Their lordship regard the use of precedent as an indispensable foundation upon which to decide what is the law and its application to individual cases.
It provides at least 328 some degree of certainty upon which individu als can rely in the conduct of their affairs, as well as a basis for orderly development of legal rules.
Their lordships nevertheless recog nise that too rigid adherence to precedent may lead to injustice in a particular case and also unduly restrict the proper development of the law.
They propose therefore to modify their present practice and, while treating former decisions of this House as normally binding, to depart from a previous decision when it appears right to do so.
In this connection they will bear in mind the danger of disturbing retrospectively the basis on which contracts, settlements of property and fiscal arrangements have been entered into and also the especial need for certainty as to the criminal Law.
" Since then the House of Lords has framed guidelines in a series of cases decided upto to 1975 and the guidelines have been summarised in Dr. Alan Paterson 's "Law Lords" 1982: pp.
156 157.
He refers to several criteria articulated by Lord Reid in those cases.
The freedom granted by the 1966 Practice Statement ought to be exercised sparingly (the 'use sparingly ' crite rion) (Jones vs Secretary of State for Social Services, [1972] A.C. at 966.
A decision ought not to be overruled if to do so would upset the legitimate expectations of people who have entered into contracts or settlements or otherwise regulated their affairs in reliance on the validity of that decision (the 'legitimate expectations ' criterion) (Ross Smith vs Ross Smith, , 303 and Indyka vs Indyka, [1969] I A.C. 33, 69.) 3.
A decision concerning questions of construction of statute or other documents ought not to be overruled except in rare and exceptional cases (the 'Construction ' criterion) Jones, at 966.
4(a) A decision ought not to be overruled if it would be impracticable for the Lords to foresee the consequences of departing from it (the 'unforseeable consequences ' crite rion) (Steadman vs Steadman, ,542.
(b) A decision ought not to be overruled if to do so would involve a change that ought to be part of a 329 comprehensive reform of the law.
Such changes are best done 'by legislation following on a wide survey of the whole field ' (the 'need for comprehensive reform ' criterion) (DPP vs Myers, , 1022; Cassell vs Broome, ; , 11086 and Haughton vs Smith, [1975] A.C. 476,500).
In the interest of certainty, a decision ought not to be overruled merely because the Law Lords consider that it was wrongly decided.
There must be some additional reasons to justify such a step (the 'precedent merely wrong ' crite rion) Knuller vs DPP, [1973] A .C. 435,455; 6.
A decision ought to be overruled if it causes such great uncertainty in practice that the Parties ' advisers are unable to give any clear indication as to what the courts will hold the law to be (the 'rectification of uncertainty ' criterion) Jones, at 966; Oldendroll & Co. vs Tradex Export, S.A. 1974 479,533,535. 7.
A decision ought to be overruled if .in relation to some broad issue or principle it is not considered just or in keeping with contemporary social conditions or modern conceptions of public policy (the 'unjust or outmoded ' criterion) ibid Conway vs Rimmer, ; ,938.
Dr. Paterson noted that between the years 1966 and 1988 there were twenty nine cases in which the House of Lords was invited to overrule one of its own precedents, that the House of Lords did so in eight of them, while in a further ten cases at least one of the Law Lords was willing to overrule the previous House of Lords precedent.
In a consid erable number of other cases, however, the Law Lords seemed to prefer to distinguish the earlier decisions rather than overrule them.
The High Court of Australia, the highest Court in the Commonwealth, has reserved to itself the power to reconsider its own decision, but has laid down that the power should not be exercised upon a mere suggestion that some or all the member of the later Court would arrive at a different con clusion if the matter were res integra.
In the Tramways case; , , Griffith, C.J., while doing so administered the following caution: "In my opinion, it is impossible to maintain as an abstract proposition that Court is either legally or technically bound by previ ous decisions.
Indeed, it may, in a proper case, be 330 its duty to disregard them.
But the rule should be applied with great caution, and only when the previous decision is manifestly wrong, as, for instance, if it proceeded upon the mistaken assumption of the continuance of a repealed or expired Statute, or is contrary to a decision of another Court which this Court is bound to follow; not, I think, upon a mere suggestion, that some or all of the members of the later Court might arrive at a different conclusion if the matter was res integra.
Otherwise there would be grate danger of want of continuity in the interpretation of law.
" In the same case, Barton, J. observed at p. 69: " . .
I would say that I never thought that it was not open to this Court to review its previous decisions upon good cause.
The question is not whether the Court can do so, but whether it will, having due regard to the need for continuity and consistency in the judicial decision.
Changes in the number of appointed Justices can, I take it, never of themselves furnish a reason for review . .
But the Court can always listen to argument as to whether it ought to review a particular decision, and the strongest reason for an overruling is that a decision is manifestly wrong and its continuance is injurious to the public interest".
In the United States of America the Supreme Court has explicitly overruled its prior decision in a number of cases and reference will be found to them in the judgment of Brandeis, J. in State of Washington vs Dawson & Co., ; where he said: "The doctrine of Stare decisis should not deter us from overruling that case and those which follow it.
The decisions are recent ones.
They have not been acquiesced in.
They have not created a rule of property around which vested interests have clustered.
They affect solely matters of a transitory nature.
On the other hand, they affect seriously the lives of men, women and children, and the general welfare.
Stare decisis is ordinarily, a wise rule of action.
But it is not a univer sal, inexorable command.
The instances in which the Courts have disregarded its admonition a re many.
" 331 Elaborating his point in his dissenting judgment in David Burnel vs Coronado Oil & Gas Company, ; ; 76 L.Ed. 815, Brandeis, J. observed: "Stare decisis usually the wise policy, because in most matters it is more important that the applicable rule of law be settled right.
Compare National Bank vs Whitney, 103 U.S. 99; 26 L.Ed.
443 444.
This is commonly true even where the error is a matter of serious concern, provided correction can be had by legislation.
But in cases involving the Feder al Constitution, where correction through legislative action is practically impossible, this Court has often overruled its earlier decisions.
The Court bows to the lessons of experience and the force of better reasoning recognising that the process of trial and error, so fruitful in the physical sciences, is appropriate also in the judicial function.
" The Judicial.
Committee of the Privy Council also took the view that it was not bound in law by its earlier deci sions, but in In re Compensation to Civil Servants, L.R. ; A.I.R. 1929 P.C. 84, 87 it declared that it "would hesitate long before disturbing a solemn decision by a previous Board, which raised an identical or even a simi lar issue for determination" and reiterated that reservation in the Attorney General of Ontario vs The Canada Temperance Federation, L.R. 76 Q.A. 10 and Phanindra Chandra Neogy vs The King; , These cases from England, Australia and the United States were considered by this Court in The Bengal Immunity Company Limited vs The State of Bihar and others, (supra), perhaps the first recorded instance of the Supreme Court in this country being called upon to consider whether it could overrule an earlier decision rendered by it.
A Bench of seven Judges assembled to consider whether the majority decision of a Constitution Bench of five Judges in State of Bombay vs The United Motors (India) Ltd., ; should be reconsidered.
Four Judges of the Bench of seven said it should and voted to overrule the majority decision in the United Motors, (supra).
The remaining three voted to the contrary.
Das, Acting C.J., speaking for himself and on behalf of Bose, Bhagwati and Jafar Imam, JJ, preferred the approach adopted by the United States Supreme Court since, in the view of that learned Judge, the position in India approximated more closely to that obtaining in the United states rather than to the position in England, where Parlia ment could rectify the situation by a simple majority, and to that in Australia, where the mistake could be 332 corrected in appeal to the Privy Council.
The learned Judge observed: "There is nothing in our Constitution which pre vents us from departing from a previous decision if we are convinced of its error and its baneful effect on the general interests of the public." And reference was made to the circumstance that Article 141 of the Constitution made the law declared by this Court binding on all Courts in India.
Speaking with reference to the specific case before the Court, the learned Judge referred to the far reaching effect of the earlier decision in the United Motors (supra) on the general body of the consuming public, and that the error committed in the earlier decision would result in perpetuat ing a tax burden erroneously imposed on the people, giving rise to a consequence "manifestly and wholly unauthorised." The learned Judge observed: "It is not an ordinary pronouncement declaring the rights of two private individuals inter se.
It involves an adjudication on the taxing power of the States as against the consuming public generally.
If the decision is errone ous, as indeed we conceive it to be, we owe it to the public to protect them against the illegal tax burdens which the States are seeking to impose on the strength of that errone ous recentdecision".
Cautioned that the Court should not differ merely because a contrary view appeared preferable, the learned Judge affirmed that "we should not lightly dissent from a previous pronouncement of this Court.
" But if the previous decision was plainly erroneous, he pointed out, there was a duty on the Court to say so and not perpetuate the mistake.
The appeal to the principle of stare decisis was rejected on the ground that (a) the decision intended to be overruled was a very recent decision and it did not involve overruling a series of decisions, and (b) the doc trine of stare decisis was not an inflexible rule, and must, in any event, yield where following it would result in perpetuating an error to the detriment of the general wel fare of the public or a considerable section thereof.
Since then the question as to when should the Supreme Court overrule its own decision has been considered in several cases.
Relying on the Bengal Immunity case, Khanna, J. remarked that certainly in the law, which was an essen tial ingredient of the Rule of Law, would be considerably eroded if the highest court of the land lightly overruled the view expressed by it in earlier cases.
One instance where such overruling could be permissible was a situation where contextual values giving birth to the earlier view had altered substantially since.
333 In Maganlal Chhagganlal (P) Ltd. vs Municipal Corporation of Greater Bombay & Ors.
, ; he explained: "Some new aspects may come to light and it may become essen tial to cover fresh grounds to meet the new situations or to overcome difficulties which did not manifest themselves or were not taken into account when the earlier view was pro pounded.
Precedents have a value and the ratio decidendi of a case can no doubt be of assistance in the decision of future cases.
At the same time we have to, as observed by Cardozo, guard against the notion that because a principle has been formulated as the ratio decidendi of a given prob lem, it is therefore to be applied as a solvent of other problems, regardless of consequences, regardless of deflect ing factors, inflexibly.
and automatically, in all its pristine generality (see Selected Writings, p. 31).
As in life so in law things are not static.
" In Lt. Col. Khajoor Singh vs The Union of India & Anoth er; , the majority of this court emphasised that the court, should not depart from an interpretation given in an earlier judgment of the court unless there was a fair amount of unanimity that the earlier decision was manifestly wrong.
In Keshav Mills Company vs Commissioner of Income Tax, ; ,921 this court observed that a revision of its earlier decision would be justified if there were compelling and substantial reasons to do so.
In Sajjan Singh vs State of Rajasthan, ; ,947 948 the court laid down the test: 'Is it absolutely necessary and essential that the question already decided should be reo pened? ', and went on to observe: 'the answer to this ques tion would depend on the nature of the infirmity alleged in the earlier decision, its impact on public good and the validity and compelling character of the considerations urged in support of the contrary view. ' There can be no doubt, as was observed in Girdhari Lal Gupta vs D.H. Mill, ; that where an earlier relevant statutory provision has not been brought to the notice of the court, the decision may be reviewed, or as in Pillani Investment Corporation Ltd. vs I.T.O. 'A ' Ward, Calcutta & Anr., ; , if a vital point was not considered.
A more compendious examination of the problem was undertaken in Keshav Mills Company vs Commissioner of Income Tax, (supra) where the Court pointed out: "It is not possible or desirable, and in any case it would be inexpedient to lay down any principles which should 334 govern the approach of the Court in dealing with the ques tion of reviewing and revising its earlier decisions.
It would always depend upon several relevant considerations: What is the nature of the infirmity or error on which a plea for a review and revision of the earlier view is based? On the earlier occasion, did some patent aspects of the question remain unnoticed, or was the attention of the Court not drawn to any relevant and materi al statutory provision, or was any previous decision of this Court bearing on the point not noticed? Is the court hearing such plea fairly unanimous that there is such an error in the earlier view? What would be the impact of the error on the general administration of law or on public good? Has the earlier decision been followed on subsequent occasions either by this Court or by the High Courts? And, would the reversal of the earlier decision lead to public inconven ience, hardship or mischief? These and other relevant con siderations must be carefully borne in mind whenever this Court is called upon to exercise its jurisdiction to review and revise its earlier decisions.
These considerations become still more significant when the earlier decision happens to be a unanimous decision of the Bench of five learned Judges of this Court.
" Much importance has been laid on observing the finality of decisions rendered by the Constitution Bench of this Court, and in Ganga Sugar Company vs State of Uttar Pradesh, ; , 782 the Court held against the finality only where the subject was 'of such fundamental importance to national life or the reasoning is so plainly erroneous in the light of later thought that it is wiser to be ultimately right rather than to be consistently wrong '.
It is not necessary to refer to all the cases on the point.
The broad guidelines are easily deducible from what has gone before.
The possibility of further defining these guiding principles can be envisaged with further juridical experience, and when common jurisprudential values linking different national systems of law may make a consensual pattern possible.
But that lies in the future.
There was some debate on the question whether a Division Bench of Judges is obliged to follow the law laid down by a Division Bench of a larger number of Judges.
Doubt has arisen on the point because of certain observations made by O. Chinnappa Reddy, J. in 335 Javed Ahmed Abdul Hamid Pawala vs State of Maharashtra, AIR 1985 SC 23 1.
Earlier, a Division Bench of two Judges, of whom he was one, had expressed the view in T.V. Vatheeswaran vs The State of Tamil Nadu, that delay exceeding two years in the execution of a sentence of death should be considered sufficient to entitle a person under sentence of death to invoke Article 21 of the Constitution and demand the quashing of the sentence of death.
This would be so, he observed, even if the delay in the execution was occasioned by the time necessary for filing an appeal or for considering the reprieve of the accused or some other cause for which the accused himself may be responsible.
This view was found unacceptable by a Bench of three Judges in Sher Singh & Ors.
vs State of Punjab, ; where the learned Judges observed that no hard and fast rule could be laid down in the matter.
In direct disagreement with the view in T.V. Vatheeswaran, (supra), the learned Judges said that account had to be taken of the time occupied by pro ceedings in the High Court and in the Supreme Court and before the executive authorities, and it was relevant to consider whether the delay was attributable to the conduct of the accused.
As a member of another Bench of two Judges, in Javed Ahmed Abdul Hamid Pawala, (supra) O. Chinnappa Reddy, J. questioned the validity of the observations made in Sher Singh, (supra) and went on to note, without express ing any concluded opinion on the point, that it was a seri ous question "whether a Division Bench of three Judges could purport to overrule the judgment of a Division Bench of two Judges merely because there is larger than two.
The Court sits in Divisions of two and three Judges for the sake of convenience and it may be inappropriate for a Division Bench of three Judges to purport to overrule the decision of a Division Bench of two Judges.
Vide Young vs Bristol Aero plane Co. Ltd., It may be otherwise where a Full Bench or a Constitution Bench does so.
" It is pertinent to record here that because of the doubt cast on the validity of the opinion in Sher Singh, (supra), the question of the effect of delay on the execution of a death sentence was referred to a Division Bench of five Judges, and in Triveniben vs State of Gujarat, AIR 1989 SC 142 the Constitution Bench overruled T.V. Vatheeswaran, (supra).
What then should be the position in regard to the effect of the law pronounced by a Division Bench in relation to a case raising the same point subsequently before a Division Bench of a smaller number of Judges? There is no constitu tional or statutory prescription in the matter, and the point is governed entirely by the practice in India of the Courts sanctified by repeated affirmation over a century of time.
It cannot be doubted that in order to promote consist ency and certainty 336 in the law laid down by a superior Court, the ideal condi tion would be that the entire Court should sit in all cases to decide questions of law, and for that reason the Supreme Court of the United States does so.
But having regard to the volume of work demanding the attention of the Court, it has been found necessary in India as a general rule of practice and convenience that the Court should sit in Divisions, each Division being constituted of Judges whose number may be determined by the exigencies of judicial need, by the nature of the case including any statutory mandate relative there to, and by such other considerations which the Chief Jus tice, in whom such authority devolves by convention, may find most appropriate.
It is in order to guard against the possibility of inconsistent decisions on points of law by different Division Benches that the rule has been evolved, in order to promote consistency and certainty in the devel opment of the law and its contemporary status, that the statement of the law by a Division Bench is considered binding on a Division Bench of the same or lesser number of Judges.
This principle has been followed in India by several generations of Judges.
We may refer to a few of the recent cases on the point.
In John Martin vs The State of West Bengal, ; a Division Bench of three Judges found it right to follow the law declared in Haradhan Saha vs State of West Bengal, ; decided by a Division Bench of five Judges, in preference to Bhut Nath Mate vs State of West Bengal, ; decided by a Division Bench of two Judges.
Again in Smt.
India Nehru Gandhi vs Shri Raj Narain, Beg, J. held that the Constitution Bench of five Judges was bound by the Constitution Bench 01 ' thirteen Judges in His Holiness Kesavananda Bharati Sripadagalavaru vs State of Kerala, [1973] Suppl.
1 SCR.
In Ganapati Sitaram Balvalkar & Anr.
vs Waman Shripad Mage (Since Dead) Through Lrs., this Court expressly stated that the view taken on a point of law by a Division Bench of four Judges of this Court was binding on a Division Bench of three Judges of the Court.
And in Mattulal vs Radhe Lal, ; this Court specifically observed that where the view expressed by two different Division Benches of this Court could not be reconciled, the pronouncement of a Division Bench of a larger number of Judges had to be, preferred over the deci sion of a Division Bench of a smaller number of Judges.
This Court also laid down in Acharaya Maharajshri Narandrapra sadji AnandprasadjiMaharaj etc.
vs The State of Gujarat & Ors., ; that even where the strength of two differing Division Benches consisted of the same number of Judges, it was not open to one Division Bench to decide the correctness or other wise of the views of the other.
The principle was reaffirmed in Union of India & Ors.
vs Godfrey Philips India Ltd., [1985] 4 337 SCC 369 which noted that a Division Bench of two Judges of this Court in Jit Ram vs State of Haryana, ; had differed from the view taken by an earlier Division Bench of two Judges in Motilal Padampat Sugar Mills vs State of U.P., ; on the point whether the doctrine of promissory estoppel could be defeated by invoking the defence of executive necessity, and holding that to do so was wholly unacceptable reference was made to the well accepted and desirable practice of the later Bench referring the case to a larger Bench when the learned Judges found that the situation called for such reference.
We are of opinion that a pronouncement of law by a Division Bench of this Court is binding on a Division Bench of the same or a smaller number of Judges, and in order that such decision be binding, it is not necessary that it should be a decision rendered by the Full Court or a Constitution Bench of the Court.
We would, however, like to think that for the purpose of imparting certainty and endowing due authority decisions of this Court in the future should be rendered by Division Benches of at least three Judges un less, for compelling reasons that is not conveniently possi ble.
Upon the aforesaid considerations, and in view of the nature and potential of the questions raised in these cases we are of the view that there was sufficient justification for the order dated 23 September, 1985 made by the Bench of two learned judges referring these cases to a larger Bench for reconsideration of the question decided in K. Kamalajam mannivaru (dead) by Lrs., (supra) and Bhag Singh and Ors., (supra).
The preliminary objection raised by learned counsel for the respondents to the validity of the reference is overrruled.
We now come to the merits of the reference.
The refer ence is limited to the interpretation of section 30(2) of the Land Acquisition (Amendment) Act of 1984.
Before the enact ment of the Amendment Act, solatium was provided under section 23(2) of the Land Acquisition Act (shortly, "the parent Act") at 15% on the market value of the Land computed in accordance with section 23(1) of the Act, the solatium being provided in consideration of the compulsory nature of the acquisition.
The Land Acquisition Amendment Bill, 1982 was introduced in the House of the People on 30 April, 1982 and upon enactment the Land Acquisition Amendment Act 1984 commenced operation with effect from 24 September, 1984.
section 15 of the Amendment Act amended section 23(2) of the parent Act and substituted the words '30 per centum ' in place of the words '15 per centum '.
Parliament intended that the be 338 nefit of the enhanced solatium should be made available albeit to a limited degree, even in respect of acquisition proceedings taken before that date.
It sought to effectuate that intention by enacting section 30(2) in the Amendment Act, section 30(2) of the Amendment Act provides: "(2) the provisions of sub section
(2) of section 23 . of the principal Act, as amended by clause (b) of section 15 . . of this Act . . shall apply and shall be deemed to have applied, also to, and in relation to, any award made by the Collector or Court or to any order passed by the High Court or Supreme Court in appeal against any such award under the provisions of the principal Act after the 30th day of April, 1982 [the date of introduction of the Land Acquisition (Amendment) Bill, 1982, in the House of the People] and before the commencement of this Act." In construing section 30(2), it is just as well to be clear that the award made by the Collector referred to here is the award made by the Collector under section 11 of the parent Act, and the award made by the Court is the award made by the Principal Civil Court of Original Jurisdiction under section 23 of the parent Act on a reference made to it by the Collector under section 19 of the parent Act.
There can be no doubt that the benefit of the enhanced solatium is intended by section 30(2) in respect of an award made by the Collector between 30 April 1982 and 24 September, 1984.
Likewise the benefit of the enhanced solatium is extended by section 30(2) to the case of an award made by the Court between 30 April 1982 and .24 September 1984, even though it be upon reference from an award made before 30 April, 1982.
The question is: what is the meaning of the words "or to any order passed by the High Court or Supreme Court on appeal against any such award?" Are they limited, as con tended by the appellants, to appeals against an award of the Collector or the Court made between 30 April 1982 and 24 September 1984, or do they include also, as contended by the respondents, appeals disposed of between 30 April, 1982 and 24 September 1984 even though arising out of awards of the Collector or the Court made before 30 April, 1982.
We are of opinion that the interpretation placed by the appellants should be preferred over that suggested by the respondents.
Parliament has identified the appeal before the High Court and the appeal before the Supreme Court by describing it as an appeal against 'any such award '.
The submission on behalf of the respondents is that the words 'any such award ' mean the award made by the Collector or Court, and carry no 339 greater limiting sense; and that in this context, upon the language of section 30(2), the order in appeal is an appellate order made between 30 April 1982 and 24 September 1984 in which case the related award of the Collector or of the Court may have been made before 30 April 1982.
To our mind, the words 'any such award ' cannot bear the broad meaning suggested by learned counsel for the respondents.
No such words of description by way of identifying the appellate order of the High Court or of the Supreme Court were neces sary.
Plainly, having regard to the existing hierarchical structure of for a contemplated in the parent Act those appellate orders could only be orders arising in appeal against the award of the Collector or of the Court.
The words 'any such award ' are intended to have deeper signifi cance, and in the context in which those words appear in section 30(2) it is clear that they are intended to refer to awards made by the Collector or Court between 30 April, 1982 and 24 September, 1984.
In other words section 30(2) of the Amendment Act extends the benefit of the enhanced solatium to cases where the award by the Collector or by the Court is made between 30 April, 1982 and 24 September, 1984 or to appeals against such awards decided by the High Court and the Su preme Court whether the decisions of the High Court or the Supreme Court are rendered before 24 September, 1984 or after that date.
All that is material is that the award by the Collector or by the Court should have been made between 30 April, 1982 and 24 September, 1984.
We find ourselves in agreement with the conclusion reached by this Court in K. Kamalajammanniavaru (dead) by Lrs.
vs Special Land Acquisi tion Officer, (supra), and find ourselves unable to agree with the view taken in Bhag Singh and Others vs Union Terri tory of Chandigarh, (supra).
The expanded meaning given to section 30(2) in the latter case does not, in our opinion, flow reasonably from the language of that sub section.
It seems to us that the learned judges in that case missed the sig nificance of the word 'such ' in the collocation 'any such award ' in section 30(2).
Due significance must be attached to that word, and to our mind it must necessarily intend that the appeal to the High Court or the Supreme Court, in which the benefit of the enhanced solatium is to be given, must be confined to an appeal against an award of the Collector or of the Court rendered between 30 April, 1982 and 24 Septem ber, 1984.
We find substance in the contention of the learned Attorney General that if Parliament had intended that the benefit of enhanced solatium should be extended to all pending proceedings it would have said so in clear language.
On the contrary, as he says, the terms in which section 30(2) is couched indicate a limited extension of the benefit.
The Amendment Act has not been made generally retrospective with 340 effect from any particular date, and such retrospectivity as appears is restricted to certain areas covered by the parent Act and must be discovered from the specific terms of the provision concerned.
Since it is necessary to spell out the degree of retrospectivity from the language of the relevant provision itself, close attention must be paid to the provi sions of section 30(2) for determining the scope of retrospective relief intended by Parliament in the matter of enhanced solatium.
The learned Attorney General is also right when he points out that it was never intended to define the scope of the enhanced solatium on the mere accident of the disposal of a case in appeal on a certain date.
Delays in the superi or Courts extend now to limits which were never anticipated when the right to approach them for relief was granted by statute.
If it was intended that section 30(2) should refer to appeals pending before the High Court or the Supreme Court between 30 April, 1982 and 24 September, 1984, they could well refer to proceedings in which an award had been made by the Collector from anything between 10 to 20 years before.
It could never have been intended that rates of compensation and solatium applicable to acquisition proceedings initiated so long ago should now enjoy the benefit of statutory en hancement.
It must be remembered that the value of the land is taken under section 11(1) and section 23(1) with reference to the date of publication of the notification under s.4(1), and it is that date which is usually material for the purpose of determining the quantum of compensation and solatium.
Both section 11(1) and section 23(1) speak of compensation being determined on the basis, inter alia, of the market value of the land on that date, and solatium by section 23(2), is computed as a per centage on such market value.
Our attention was drawn to the order made in State of Punjab vs Mohinder Singh, (supra), but in the absence of a statement of the reasons which persuaded the learned Judges to take the view they did we find it difficult to endorse that decision.
It received the approval of the learned Judges who decided Bhag Singh (supra), but the judgment in Bhag Singh, (supra) as we have said earlier, has omitted to give due significance to all the material provisions of section 30(2), and consequently we find ourselves at variance with it.
The learned Judges proceeded to apply the principle that an appeal is a continuation of the proceeding initiated before the Court by way of reference under section
18 but, in our opinion, the application of a general principle must yield to the limiting terms of the statutory provision itself.
Learned counsel for the respondents has strenuously relied on the general principle that the appeal is a re hearing of the original matter, but we are not satisfied that he is on good ground in invoking that principle.
Learned counsel 341 for the respondents points out that the word 'or ' has been used in section 30(2), as a disjunctive between the reference to the award made by the Collector or the Court and an order passed by the High Court or the Supreme Court in appeal and, he says, properly understood it must mean that the period 30 April, 1982 to 24 September, 1984 is as much applicable to the appellate order of the High Court or of the Supreme Court as it is to the award made by the Collector or the Court.
We think that what Parliament intends to say is that the benefit of section 30(2) will be available to an award by the Collector or the Court made between the aforesaid two dates or to an appellate order of the High Court or of the Supreme Court which arises out of an award of the Collector or the Court made between the said two dates.
The word 'or ' is used with reference to the stage at which the proceeding rests at the time when the benefit under section
30(2) is sought to be extended.
If the proceeding has terminated with the award of the Collector or of the Court made between the aforesaid two dates, the benefit of section 30(2) will be applied to such award made between the aforesaid two dates.
If the proceeding has passed to the stage of appeal before the High Court or the Supreme Court, it is at that stage when the benefit of section 30(2) will be applied.
But in every case, the award of the Collector or of the Court must have been made between 30 April, 1982 and 24 September, 1984.
In the result we overrule the statement of the law laid down in Mohinder Singh, (supra) and in Bhag Singh and Anoth er, (supra) and prefer instead the interpretation of section 30(2) of the Amendment Act rendered in K. Kamalajammanniava ru (dead) by Lrs.
(supra).
The cases will now be listed before a Division Bench of three learned Judges for hearing on the merits of the other points raised in the cases.
| IN-Abs | A common question of law having arisen in this group of cases for determination by this Court, they were heard together.
Lands of Respondents in Civil Appeal Nos.
2839 40 of 1989 were acquired under the Land Acquisition Act.
The Collector made the award for compensation on March 30, 1963 and on a reference, being made under Section 18 of the Act, the Additional District Judge enhanced the compensation by his order dated June 10, 1968.
The Respondents appealed to the High Court seeking further enhancement.
During the pendency of the appeal, Land Acquisition (Amendment) Bill 1982 was introduced on April 30, 1982 and became an Act on Sept. 24, 1984.
The High Court disposed of the appeal on Dec. 4, 1984 and apart from raising the quantum of compensa tion, also awarded a solatium at 30 per cent in terms of the Amendment Act 1984.
The State appealed to this Court.
The matter initially came up before a Division Bench on September 23, 1985.
The Bench had before it two decisions of this Court wherein divergent views were expressed.
The two decisions were: In K. Kamalajammanniavaru 's (dead) by Lrs.
vs Special Land 317 Acquisition Officer,, This Court (composed of.two Judges) took the view that award of 30 per cent solatium under the amended Section 23(2) by the High Court or the Supreme Court were applicable only where the award appealed against was made by the Col lector or the Court between April 30, 1982 and Sept. 24, 1984.
In the second decision, Bhag Singh & Ors. vs Union Territory of Chandigarh, ; , this Court (comprised of three Judges) took a contrary view and ruled that even if an award was made by the Collector or the Court on or before April 1982 and an appeal against such award was pending before the High Court or this Court on 30.4.1982 or was filed subsequent to that date, the provisions of amended Section 23(2) and 28 of the Land Acquisition Act would be applicable as the appeal was a continuation of the reference made under Section 18 and as such the appellate Court must apply the amended provision on the date of the decision of the appeal.
In this way the decision in Kamalajammanniava ru 's case was overruled by this Court in Bhag Singh 's case and the Court approved another decision of Division Bench comprised of three Judges in Mohinder Singh 's case which merely directed payment of enhanced solatium and interest without giving any reasons.
In view of the conflicting decisions on the point of two Judges Bench before, whom these cases come up for considera tion, referred to this Larger Bench the question: whether under the Amended Section 23(2), the claimants were entitled to solatium at 30 per cent of the market value irrespective of the dates on which the land acquisition proceedings were initiated or on the dates on which the award had been passed.
Overruling the preliminary objection as to the maintain ability of the reference of matters to a larger Bench, this Court disposing of the reference and directing that the appeals be now listed for hearing on merits, HELD: Solatium is awarded under sub section (2) of Section 23 of the Land Acquisition Act.
Before the Amendment Act was enacted, the Sub section provided for solatium at 15 per cent of the market value.
By the change introduced by the Amendment Act the amount has been raised to 30 per cent of the market value.
Sub section (2) of Section 30 of the Amendment Act specifies the category of cases to which the amended rate of solatium is attracted.
[322D] 318 What Parliament intends to say is that the benefit of Section 30(2) will be available to an award by the Collector or the Court made between 30th April 1982 and 24th September 1984 or to an appellate order of the High Court or of the Supreme Court which arises out of an award of the Collector or the Court made between the two said dates.
The word 'or ', is used with reference to the stage at which the proceeding rests at the time when the benefit under Section 30(2) is sought to be extended.
If the proceeding has terminated with the award of the Collector or of the Court made between the aforesaid two dates, the benefit of Section 30(2) will be applied to such award made between the aforesaid two dates.
If the proceeding has passed to the stage of appeal before the High Court or the Supreme Court, it is at that stage when the benefit of Section 30(2) will be applied.
But in every case the award of the Collector or of the Court must have been made between April 30, 1982 and September 24, 1984.
[339D G] A pronouncement of law by a Division Bench of this Court is binding on a Division Bench of the same or a smaller number of Judges, and in order that such decision be bind ing, it is not necessary that it should be a decision ren dered by the full Court or a Constitution Bench of the Court.
For the purpose of imparting certainty and endowing due authority, decisions of this Court in the future should be rendered by Division Benches of at least three Judges unless, for compelling reasons that is not conveniently possible.
[337C D] The Land Acquisition Bill 1982, was introduced in the House of the People on 30th April, 1982 and upon enactment the Land Acquisition Act, 1984, commenced operation with effect from 24th Sept. 1984.
Section 15 of the Amendment Act amended Section 23(2) of the parent Act and substituted the words "30 per cent" in place of the words "15 per cent".
Parliament intended that the benefit of the enhanced solati um should be made available albeit to a limited degree even in respect of acquisition proceedings taken before the date.
It sought to effectuate that intention by enacting Section 30(2) in the Amendment Act.
[337G H; 338A] There can be no doubt that the benefit of the enhanced solatium is intended by Section 30(2) in respect of an award made by the Collector between 30th April 1982 and 24th September 1984.
Likewise the benefit of the enhanced solati um is extended by Section 30(2) to the case of an award made by the Court between April 30, 1982 and September 24, 1984, even though it be upon reference from an award made before April 30, 1982.
[338E] 319 One of the functions of the Superior Judiciary in India is to examine the competence and validity of legislation both in point of legislative competence as well as its consistency with the Fundamental Rights.
In this regard the Courts in India possess a power not known to the English Courts.
[323G H] Exp.
Canon Selwyn, and Cheney vs Conn, , referred to.
The range of judicial review recognised in the Superior Judiciary of India is perhaps the widest and the most exten sive known to the world of law.
The power extends to examin ing the validity of even an amendment to the Constitution for now it has been repeatedly held that no Constitutional amendment can be sustained which violates the basic struc ture of the Constitution.
[324B] His Holiness Kesavananda Bharti Sripadagalavaru vs State of Kerala, ; Smt.
Indira Nehru Gandhi vs Shri Raj Narain, ; Minerva Mills Ltd. and others vs Union of India and others, [1980] 2 SCC 591; S.P. Sampath Kumar etc.
vs Union of India and Ors.
, ; The Court overruled the statement of the law laid down in the cases of State of Punjab vs Mohinder Singh & Anr.
and Bhag Singh and Others vs Union Territory of Chandigarh and preferred the interpretation of Section 30(2) of the Amend ment Act rendered in K. Kamalajammanniavaru (dead) by Lrs.
vs Special Land Acquisition Officer.
Oliver Wendell Holmes, "The Common Law", p. 5; Oliver Wendell Homes, "Common Carriers and the Common Law", [1943] 9 Curr.
L.T. 387, 388; Julius Stone, "Legal Systems & Law yers Reasoning", p. 58 59; Roscoe Pound, "An Introduction to the Philosophy of Law", p. 19; "The Judge as Law Maker", pp.
Myers vs Director of Public Prosecutions, L.R. 1965 A.C. 1001 & 1021; The Bengal Immunity Company Limited vs The State of Bihar and Others, ; Street Tramways vs London County Council, ; ; Radcliffe vs Ribble Motor Services Ltd., ; 245; Dr. Alan Paterson 's "Law Lords", [1982] pp.
156 157; Jones vs Secretary of State for Social Services, [1972] A.C. at 966; Ross Smith vs Ross Smith, , 303; Indyka vs Indyka, [1969] I A.C. 33, 69; Construction by Jones, at 966; Steadman vs Steadman, , 542; DPP vs Myers, [1965] A.C. 1001, 320 1022; Cassell vs Broome,/1972] A.C. 1027, 1086; Haughton vs Smith, [1975] A.C. 476,500; Knullerv.
DPP, [1973] A.C. 435,455; Conway vs Rimmer, ; , 938; Tramways case; , ; State of Washington vs Dawson & Co., , ; David Burnel vs Coronado Oil & Gas Company, ; , ; Compare National Bank vs Whitney, ; , 26 L.Ed.
443 444; Compensation to Civil Servants, , A.I.R. , 87; Attorney General of Ontario vs The Canada Temperance Federation, L.R. 78 I.A. 10; Phanindra Chandra Neogy vs The King, ; ; State of Bombay vs The United Motors (India) Ltd.; , ; Maganlal Chhagganlal (P) Ltd. vs Municipal Corporation of Greater Bombay & Ors., ; ; Lt.
Col. Khajoor Singh vs The Union of India & Anr., ; ; Keshav Mills Compa ny vs Commissioner of Income Tax; , , 921; Sajjan Singh vs State of Rajasthan, ; , 947948; Girdhari Lal Gupta vs
D.H. Mill; , ; Pillani Investment Corporation Ltd. vs
I.T.O. 'A ' Ward, Calcutta & Ant., ; ; Ganga Sugar Company vs State of Uttar Pradesh; , , 782; Javed Ahmed Abdul Hamid Pawala vs State of Maharashtra, ; T.V. Vatheeswaran vs The State of Tamii Nadu, ; Sher Singh & Ors.
vs State of Punjab, ; ; Triveniben vs State of Gujarat, AIR 1989 SC 142; John Martin vs The State of West Bengal, ; ; Haradhan Saha vs State of West Bengal, ; ; Bhut Nath Mate vs State of West Bengal; , ; Mattulal vs Radhe Lal, ; ; Acharaya Maharajshri Narandraprasadji Anandprasadji Maharaj etc.
vs The State of Gujarat & Ors., ; ; Union of India & Ors.
vs Godfrey Philips India Ltd., ; ; Jit Ram vs State of Haryana, ; ; Motilal.
Padampat Sugar Mills vs State of U. P.; ,
|
vil Appeal Nos.
1924 27 of 1980 etc.
From the Judgment and Order dated 14.11.1979 of the Delhi High Court in Civil Writ No. 1517 of 1979.
359 Soli J. Sorabjee, S.K. Mehta, H.N. Salve, A.N. Banatwa la, Rajiv Datta, R. Ravindran, K.K. Patel, Ujwal Rana, M.K. Dua, S.M. Sarin, Aman Vachher, E.M.S. Anam, P.G. Gokhale, P.B. Agarwala, R.B. Hathikhanawala, Ms. section Manchanda, K.K. Mohan, P.K. Chakravarty, section Srinivasan, K.C. Agarwal, Madan Lokur, A. Minocha, R.B. Datar, K.M.K. Nair, S.K. Gambhir, Sanjay Sarin, Vivek Gambhir, M. Veerappa, Ms. Kamini Jais wal, M.K.D. Namboodiry, D.D. Gupta, E.C. Agrawala, V.K. Pandita, Ms. Purnima Bhatt, Atul sharma, V.N. Ganpule, C.K. Ratnaparkhi, M.M.L. Srivastava, M.C. Dhingra, V. Maya Krish nan, D.N. Misra, K.K. Gupta and Anis Ahmed Khan, for the Appellants.
K. Parasaran, Attorney General, B. Datta, Additional Solicitor General, and Kuldip Singh, Additional Solicitor General, K.N. Bhatt, C.V. Subba Rao, Ms. A. Subhashini, Mrs. Sushma Suri, A. Subba Rao, A.K. Srivastava, P.P. Singh, R.K. Joshi and H.K. Gangwani for the Respondents.
The Judgment of the Court was delivered by PATHAK, CJ.
These appeals by special leave are directed against the judgment and order of the High Court of Delhi dismissing writ petitions complaining of discriminatory treatment between the appellants and the State Trading Corporation in regard to the rate of customs duty levied on the import of edible oils.
A number of writ petitions have also been filed directly in this Court by other private importers based on the same complaint.
They pray for relief in terms of the same rate of customs duty as has been ap plied to the import of edible oils effected by the State Trading Corporation.
As common questions of law arise in these appeals and writ petitions and the facts are substantially similar, we proposed to treat Writ Petition No. 3800 of 1980, M/s Liber ty Oil Mills vs Union of India & Others, as the leading case.
On 17 January, 1977 the Government of India issued a Public Notice permitting private parties to import edible oils for direct human consumption.
It was not permissible to use such imported oils for the manufacture of Vanaspati or for any industrial purpose.
Under the Import Policy of 1978 79, the Government canalised the import of edible oils so that the State Trading Corporation alone was permitted to import edible oils.
Some of the private importers who had entered into firm commitments with foreign suppliers, and were now being denied permission to import the edible oils filed writ petitions in vari 360 ous High Courts, and these writ petitions were allowed and they were granted licences to import the edible oils.
Prior to 1 March, 1979 the import of edible oils was exempt from customs duty, but with effect from that date the exemption was partially withdrawn and certain specified oils were made liable to import duty at 12 1/2 per cent.
Exemp tion was granted from additional duty chargeable under section 3 of the .
Auxiliary duty chargeable under the Finance Act was, however, payable.
On 17 March, 1979 the Government passed an order of exemption in favour of the State Trading Corporation under section 25(2) of the whereby the imports of the specified oils by the State Trading Corporation were made liable to customs duty at 5 per cent only, and there was a total exemption from auxiliary and additional duty.
The imports of the same specified oils by private importers were made liable to customs duty at 12.5 per cent ad valorem.
The concessional rate of customs duty in favour of the State Trading Corpora tion was restricted to imports aggregating 3 lakh tonnes initially.
That quantity was enlarged to 6 lakh tonnes on 26 June, 1979.
On 31 October, 1979, a further order of exemp tion was made in favour of the State Trading Corporation granting it exemption for imports of five lakh tonnes of the specified oils, and this was followed on 31 March, 1981 by another order of exemption in respect of an aggregate quan tity of 5 lakh tonnes of oil.
It may be mentioned that on 12 May, 1981 the import of edible oil was exempted from the levy of auxiliary duty.
On 18 July, 1981, the Government reduced the exemption granted to the import of the specified oils by private operators by raising the customs duty to 42 1/2 per cent.
The exemption in favour of the State Trading Corporation continued without change.
Thereafter on 26 July, 1981, by Ordinance No. 9 of 1981 the Government raised the tariff rate of customs duty to 200 per cent ad valorem by amending the .
At the same time exemption was granted insofar that the effective rate of duty on the import of the specified edible oils, except Rape Seed oil and Soybean oil, was fixed at 125 per cent.
The exemption from auxiliary duty was withdrawn.
In the result a private importer had to pay a basic duty of 125 per cent and auxil iary duty of 25 per cent on the import of edible oils.
The oil seeds imported by the State Trading Corporation contin ued to attract customs duty at 5 per cent.
Writ Petitions were filed in the High Court of Delhi by private importers complaining of the differential treatment accorded between 361 the private importers and the State Trading Corporation, but these writ petitions were dismissed by the High Court, and the appeals by special leave have now been placed before us.
As has been mentioned earlier, writ petitions have also been filed directly.
At the outset learned counsel for the private importers states that no objection is being taken to canalisation in favour of the State Trading Corporation.
Nor is there any objection to the permission granted to the State Trading Corporation to import 17 lakh tonnes of edible oils.
The complaint is directed against the differential treatment meted out to the private importers in the rate of customs duty.
The contention of the petitioners is that the discrimi natory treatment has no real or substantial nexus with the proposed object of the exemption orders, having regard to the terms of section 25(2) under which the exemption orders in favour of the State Trading Corporation have been made and, therefore, there is a violation of article 14 of the Constitu tion.
S 25(2) provides: "(2) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by special order in each case, exempt from the payment of duty, under circum stances of an exceptional nature to be stated in such order, any goods on which duty is leviable.
" It is apparent that the power conferred on the Central Government under section 25(2) of the Act is to be exercised by it in its subjective satisfaction.
It must be satisfied that it is necessary in the public interest to pass a special exemption order.
The exercise of the power is controlled by the requirement in the sub section that the exemption order must contain a statement stating the circumstances of an exceptional nature under which the special exemption order has been considered necessary.
The requirement is intended by the statute to ensure that the satisfaction of the Cen tral Government concerning the necessity of the order is not reached arbitrarily but flows from material relevant to the object for which the power has been conferred.
The circum stances recited in the exemption orders are: " . .
In view of high international prices of vegetable oils and in order to keep the domestic prices of vanaspati at reasonable levels, it has been felt that certain speci fied vegetable non essential oils imported by the S.T.C. would need to be exempted from part of the customs duty." 362 The reasons set forth in this statement have been analy sed by learned counsel for the private importers and an attempt has been made to establish that there is no justifi cation for relying on the international prices of vegetable oils nor the stated desirability of keeping the domestic prices of vanaspati at reasonable levels as grounds for making the impugned exemption orders in favour of the State Trading Corporation.
In detailed argument, learned counsel for the private importers urges that the public interest which could be contemplated under section 25(2) must be the reduction of the landed cost in order to reduce the domestic prices of the oils.
That object, it is said, is not served by conferring an advantage upon a particular importer even if it be the State Trading Corporation, who is engaged in the same activity in respect of the same goods.
It is point ed out that the concession must relate to the goods and not to the personality of the importer.
Further, it is argued, the allegation that the international prices of edible oils were high is inconsistent with the reality of the situation; on the contrary, it is pointed out, there had been a fall in the international prices of various oils.
In support of the latter submission, reference has been made before us to the pleadings of the parties and a P.A.C. report.
Elaborating his submission in regard to the stated need for maintaining the domestic prices of vanaspati at reasonable levels, learned counsel for the private importers urges that the oils which were being imported by private importers were intended for direct human consumption and could not have been supplied to the vanaspati industry.
Reference is made to the affidavits of the parties to show that the oils imported by the petitioners could not be utilised in the manufacture of vanaspati as permission to do so had not been granted.
Accordingly, the private importers say, there is no basis for the differential duty set out in the exemption orders and no real or substantial nexus between the differ entiation made and the object of section 25(2).
Then, it is also urged, there is no real or substantial distinction between the private importers and the State Trading Corporation having regard to the object of the statute, the nature of customs duty, the rationale of section 25 and the professed object of the exemption orders under section 25(2).
The State Trading Corporation, it is contended, cannot be equated with the Central Government, and we are referred to S.T.C.v.
Commercial Tax Officer, Vishakapatnam, t19641 4 SCR 99.
It is a private limited company registered under the and liable to be wound up under that Act, and that although it functions under the supervision of the Govern ment of India and its Directors, it is not concerned with the performance of any governmental functions, its functions being entirely commercial and in the nature of a trading activity.
Reliance is also placed on Heavy Engineering Mazdoor Union 363 vs State of Bihar, ; Andhra Pradesh State Road Transport Corporation vs Income Tax Officer, ; and Vidarbha Housing Board vs Income Tax Officer, City and Refund Circle, Nagpur & Others, Assum ing, the private importers contend that the State Trading Corporation can be equated with the Central Government or that it is acting on behalf of the Central Government, once the Government ventures into the commercial field it dons the robes of a trader, and it cannot thereafter claim any special attribute or preference for differentiation from other traders.
Learned counsel has placed before us the observations of this Court in L.I.C. vs Escorts Ltd., ; ,344.
There is no rational basis, it is urged, for making a distinction in the imposition of customs duty in respect of the goods imported by the private importers and the State Trading Corporation as both purchased the same commodity in the open market for direct consumption, that the sales effected by them are on a commercial basis, and there is nothing to show that the State Trading Corporation sold these oils at a price lower than the market price or at subsidised prices.
It is asserted that the Central Govern ment, like any other importer, is liable to customs duty, and we are referred to section 12 of the .
It is also complained that the differential proceeds on excessive classification, and that results in violating the doctrine of equality enshrined in article 14 of the Constitution.
Reli ance is placed on State of J & K vs T.N. Khosa,, ; , 792; Mohammad Shujat Ali vs Union of India, ; , 470 and In Re The Special Courts Bill, 1978, , 561 2.
And, finally, the private importers claim that inasmuch as approximately 17 lakh tonnes of oil were imported by the State Trading Corporation as against a mere 1 lakh tonnes of oil imported by all the private im porters together, and the exemption from duty has been granted in the public interest, namely, to control or reduce the price of edible oils, the relief which should be granted is to include the imports made by the private importers within the particular customs duty rate of five per cent already extended to the oils imported by the State Trading Corporation.
In some cases, it is alleged that if the im ports effected by the private importers has to bear the duty levied upon them, the impact of the total duty would be so impossible that it would cripple the business of those private importers.
In reply, the learned Attorney General has laid great stress on the submission that the State Trading Corporation, in undertaking the imports, acts solely as an agent or nominee of the Government of India and all the profits and losses are on account of the Government of India, the State Trading Corporation being entitled to service charges 364 only at one per cent irrespective of loss or profit.
It is submitted that the Central Government is not liable to customs duty and we are referred to various considerations in support of that claim.
It seems to us unnecessary to enter into that question because we have before us a situa tion where customs duty has in fact been imposed, even though at the rate of five per cent only.
In accepting the imposition of customs duty, albeit at five per cent, neither the State Trading Corporation nor the Central Government rest their case on any claim to immunity of the Central Government from the levy of customs duty.
It is not neces sary, therefore, to construe the amendment made in section 12 of the Customs Duty Act, 1962, to which both learned counsel have made reference.
The limited question before us is whether there is justification for the differential treatment accorded be tween the State Trading Corporation and the private import ers.
Now it is significant to note that the import of the specified oils had been entrusted exclusively to the State ' Trading Corporation with effect from 2 December, 1978, and because the private importers had already, prior to that date, entered into contracts for purchase of the edible oils with foreign sellers, they were permitted to make the im ports in question in order to honour their commitment.
In other words, contracts by private importers concluded before 2 December, 1978 were allowed to be worked out after that date without affecting the principle that as from 2 Decem ber, 1978, the business of importing such oils belonged exclusively to the State Trading Corporation.
This is the background in which the questions raised before us need to be considered.
First, as to the contention that both the reasons set forth: in the exemption notifications under section 25(2) of the Act are without foundation.
It seems to us that the two reasons set forth in the exemption notifications can consti tute a reasonable basis for those notifications.
It does appear from the material before us that international prices were fluctuating, the although they may have shown a percep tible fall there was the apprehension that because of the history of fluctuation there was a possibility of their rising in the future.
The need to protect the domestic market is always present, and therefore encouragement had to be given to the imports effected by the State Trading Corpo ration by reducing the rate of customs duty levied on them.
This involved a long term perspective, since the exclusive monopoly to import these edible oils was now entrusted to the State Trading Corporation.
What appears to have dominat ed the policy of the Government in issuing the exemption notifications was the consideration that the domestic prices 365 of vanaspati should be maintained at reasonable levels.
It cannot be doubted that the entire edible oil market is an integrated one, and that it is not reasonable to treat anyone of the edible oils or vanaspati in isolation.
It is well accepted fact that vanaspati manufacturers constitute a powerful organised sector in the edible oil market, and a high vanaspati price would encourage an unauthorised diver sion of the edible oils to vanaspati manufacturing units, resulting in a scarcity in the edible oil market, giving rise to erratic prices and depriving consumers of access to edible oils.
The need for preventing vanaspati prices ruling high was also to prevent people normally using vanaspati from switching over to other edible oils, thus leading to an imbalance in the oil market.
An overall view made it neces sary to ensure that domestic prices of vanaspati remained at reasonable levels.
To all these considerations the learned Attorney General has drawn our attention, and we cannot say that they are not reasonably related to the policy underly ing the exemption orders.
So that the Government would have sufficient supplies of edible oil at hand in order to feed the market, the learned Attorney General says, it was con sidered desirable and in the public interest to reduce the rate of customs duty to five per cent on the imports made by the State Trading Corporation.
Now it is the Central Govern ment which has to be satisfied, as the authority appointed by Parliament under section 25(2), that it is necessary in the public interest to make the special orders of exemption.
It has set out the reasons which prompted it to pass the or ders.
In our opinion, the circumstances mentioned in those notifications cannot be said to be irrelevant or unreasona ble.
It is not for this Court to sit in judgment on the sufficiency of those reasons.
The limitations on the juris diction of the Court in cases where the satisfaction has been entrusted to executive authority to judge the necessity for passing orders is well defined and has been long accept ed.
It is true that the State dons the robes of a trader when it enters the field of commercial activity, and ordi narily it can claim no favoured treatment.
But there may be clear and good reason for making a departure.
Viewed in the background of the reasons for granting a monopoly to the State Trading Corporation, acting as an agent or nominee of the Central Government in importing the specified oils, it will be evident that policy considerations rendered it necessary to make consummation of that policy effective by imposing a concessional levy on the imports.
No such conces sion is called for in the case of the private importers who, in any event, are merely working out contracts entered into by them with foreign sellers before 2 December, 1978.
366 We are also not satisfied that any of the private im porters have made out that their business will be crippled or ruined in view of the rate of customs duty visited on their imports.
The material before us is not sufficient to warrant any conclusion in their favour.
As, in our opinion, the private importers are not enti tled to relief, no question arises of considering whether the exemption orders should be struck down or their benefit extended in favour of the private importers also.
The appeals and Petitions for Special leave to appeal as well as the writ petitions before us are dismissed, but there is no order as to costs.
R.S.S. Appeals and Petitions are dismissed.
| IN-Abs | The appellants/writ petitioners are private importers of edible oils.
Under the Import Policy of 1978 79, the Govern ment canalised the import of edible oils through the State Trading Corporation.
Some of the private importers who had entered into firm commitments with foreign suppliers, and were now being denied permission to import the edible oils, filed writ petitions in various High Courts.
These writ petitions were allowed and they were granted licences to import the edible oils, in order to honour their commit ments.
From March 17, 1979 the import of edible oils was sub jected to differential rates of customs duty at the hands of private importers and the State Trading Corporation, inas much as c oncessional rate of customs duty was levied on the imports by the State Trading Corporation under the order of exemp tion issued under section 25(2) of the .
The order stated that in view of high international prices of vegetable oils and in order to keep the domestic prices at reasonable levels it was considered necessary to exempt the State Trading Corporation from part of the Customs duty.
The appellants filed writ petitions in the High Court of Delhi complaining of the differential treatment accorded between the private importers and the State Trading Corpora tion.
Similar writ petitions were filed in this Court di rectly.
The High Court dismissed the writ petitions.
Before this Court it was contended on behalf of the private importers that (i) there was no basis for the dif ferential duty set out in the exemption orders and no real or substantial nexus between the 357 differentiation made and the object of section 25(2); (ii) there was no real or substantial distinction between the private importers and the State Trading Corporation having regard to the object of the statute, the nature of customs duty, the rationale of section 25 and the professed object of the exemption orders under section 25(2); (iii) the State Trading Corporation could not be equated with the Central Government; (iv) assuming that the State Trading Corporation could be equated with the Central Government or that it was acting on behalf of the Central Government, once the Government ventured into the commercial field it donned the robes of a trader, and it could not therefore claim any special attribute or prefer ence for differentiation; (v) the differentiation proceeded on excessive classification, and that resulted in violation of the doctrine of equality enshrined in article 14 of the Constitution; (vi) the concession must relate to the goods and not to the personality of the importer; and (vii) the allegation that the international prices of edible oils were high was inconsistent with the reality of the situation.
Dismissing the appeals.
special leave petitions and the writ petitions, this Court.
HELD: (1) The power conferred on the Central Government under section 25(2) of the Act is to be exercised by it in its subjective satisfaction.
The exercise of the power is con trolled by the requirement in the sub section that the exemption order must contain a statement stating the circum stances of an exceptional nature under which the special exemption order has been considered necessary.
The require ment is intended by the statute to ensure that the satisfac tion of the Central Government concerning the necessity of the order is not reached arbitrarily but flows from material relevant to the object for which the power has been con ferred.
[361E G] (2) The limitations on the jurisdiction of the Court in cases where the satisfaction has been entrusted to executive authority to judge the necessity for passing orders is well defined and has been long accepted.
[365E F] (3) Contracts by private importers concluded before 2 December, 1978 were allowed to be worked out after that date without affecting the principle that as from December, 1978, the business of importing such oils belonged exclusively to the State Trading Corporation.
This is the background in which the questions raised before the Court need to be considered.
[364E] 358 (4) It is the Central Government which has to be satis fied, as the authority appointed by Parliament under section 25(2), that it is necessary in the public interest to make the special order of exemption.
It has set out the reasons which prompted it to pass the orders.
It is not for this Court to sit in judgment on the sufficiency of those rea sons.
[365D E] (5) The reasons set forth in the exemption notifications can constitute a reasonable basis for those notifications.
International prices were fluctuating, and although they may have shown a perceptible fall there was the apprehension that because of the history of fluctuations there was a possibility of their rising in future.
The need to protect the domestic market is always present, and therefore encour agement had to be given to the imports effected by the State Trading Corporation by reducing the rate of customs duty levied on them.
[364F G] (6) It is true that the State dons the robes of a trader when it enters the field of commercial activity, and ordi narily it can claim no favoured treatment.
But there may be clear and good reason for making a departure.
Viewed in the background of the reasons for granting a monopoly to the State Trading Corporation, acting as an agent or nominee of the Central Government in importing the specified oils, it will be evident that policy considerations rendered it necessary to make consummation of that policy effective by imposing a concessional levy on the imports.
No such conces sion is called for in the case of private importers who, in any event, are merely working out contracts entered into by them with foreign sellers before 2 December, 1978.
[365F H] S.T.C.v.
Commercial Tax Officer, Vishakapatnam, [1964] 4 SCR 99; Heavy Engineering Mazdoor Union vs State of Bihar, ; Andhra Pradesh State Road Transport Corpo ration vs Income Tax Officer; , ; Vidarbha Housing Board vs Income Tax Officer City & Refund Circle, Nagpur, ; L. 1.
Escorts Ltd.; , , 344; State of J & K vs
T.N. Khosa; , ,792; Mohammad Shujat Ali vs Union of India, ; , 470 and In Re The Special Courts Bill, 1978, , 561 2, referred to.
|
No. 3130 of 1981.
(Under Article 32 of the Constitution of India).
Soli J. Sorabjee, Harish N. Salve, K.K. Patel, Ujwal Rana, Rajiv Dutta and K.K. Mohan for the Petitioners.
369 K. Parasaran, Attorney General, B. Datta, Additional Solicitor General, Kuldip Singh, Additional Solicitor Gener al, Ms. A. Subhashini, C.V. Subba Rao, Mrs. Sushma Suri, A. Subba Rao, A.K. Srivastava and P.P. Singh for the Respond ents.
The Judgment of the Court was delivered by PATHAK, CJ.
By this writ petition under article 32 of the Constitution the petitioners seek relief against the imposi tion of customs duty at 150 per cent on their import of edible oils into India.
The petitioners entered into a contract with foreign sellers for the supply of edible oils.
The consignment of edible oils was sent by the ocean going vessel M.V. Kotta Ratu.
The vessel approached Bombay and made its "prior entry" on 4 July, 1981.
It actually arrived and registered in the Port of Bombay on 11 July, 1981.
The petitioners say that the Port authorities at Bombay were unable to allot a berth to the vessel, and as she was under heavy pressure from the parties whose goods she was carrying she left Bombay for Karachi for unloading other cargo intended for that port.
It is alleged that the vessel set out on its return journey from Karachi and arrived in the Port of Bombay on 23 July, 1981 and waited for a berth.
On 4 August, 1981 she was allowed to berth in Princess Docks 'C ' Shed and the Customs Authorities made the "final entry" on that date.
The petitioners point out that when the vessel made its original journey to Bombay and was waiting in the waters of the Port the petitioners presented the Bill of Entry to the Customs authorities on 9 July, 1981, that the Bill of Entry was accepted by the Import Department and an order was passed by the Customs Officer on the Bill of Entry on 18 July, 1981 directing the examination of the consignment.
It is stated that the Customs authorities have imposed customs duty on the import of the edible oils effected by the petitioners at the rate of 150 per cent on the footing that the import was made on 31 July, 1981, the date of "Inward Entry".
The case of the petitioners is that the rate of duty leviable on the import should be that ruling on 11 July, 198 1, when the vessel actually arrived and registered in the Port of Bombay, and that but for the fact that a berth was not available the vessel would have discharged its cargo at Bombay, and would not have left that Port and proceeded to Karachi to return to Bombay towards the end of July, 1981.
Alternatively, the case of the petitioners is that if it be found that the rate of customs duty attracted by the import effected by the petitioners is 150 per cent the levy is unconstitutional 370 and void as a violation of article 14 of the Constitution inasmuch as customs duty at 5 per cent only was levied on the State Trading Corporation on similar Imports of edible oils made by it as an importer.
The petitioners have also challenged the validity of section 15 of the Customs Act, 1961 under which the rate of duty and tariff valuation is deter mined.
To resolve the issue between the parties it is necessary to ascertain the effective date with reference to which customs duty becomes payable on imports into India.
Section 15(1) of the provides: "(1) The rate of duty and tariff valuation, if any, applicable to any imported goods, shall be the rate and valuation in force , (a) in the case of goods entered for home consumption under section 46, on the date on which a bill of entry in respect of such goods is presented under that section; (b) in the case of goods cleared from a warehouse under section 68, on the date on which the goods are actually removed from the warehouse; (c) in the case of any other goods, on the date of payment of duty: Provided that if a bill of entry has been presented before the date of entry in wards of the vessel by which the goods are imported, the bill of entry shall be deemed to have been presented on the date of such entry inwards.
" The rate of duty and tariff valuation applicable to the imported goods is governed by cl.
(a) of section 15(1).
In the case of goods entered for home consumption under section 46, it is the date on which the Bill of Entry in respect of such goods is presented under that section.
section 46 provides that the importer of any goods shall make entry thereof by pre senting to the proper officer a Bill of Entry for home consumption in the prescribed form, and it is further pro vided that a Bill of Entry may be presented at any time after delivery of the Import Manifest or an Import report.
The Bill of Entry may be presented even before the delivery of such Manifest if the vessel by which the goods have been 371 shipped for importation into India is expected to arrive within a week from the date of such presentation.
Section 47 empowers the proper officer, on being satisfied that the goods entered for home consumption are not prohibited goods and that the importers had paid the import duty assessed thereon as well as charges in respect of the same, to make an order permitting clearance of the goods for home consump tion.
According to the petitioners, the cargo of edible oil could not be unloaded in Bombay during the original entry of the ship into the Port for want of an available berth, and it is for no fault of the petitioners that the vessel had to proceed to Karachi for unloading other cargo.
Section 15, the petitioners contend, is arbitrary and vague and there fore unconstitutional because it provides no definite stand ard or norm for determining the rate of duty and tariff valuation and does not take into account situation which are uncertain and beyond the control of an importer.
The peti tioners contend that the rate of customs duty chargeable on the import of goods in India is the rate in force on the date when the vessel carrying the goods enters the territo rial waters of India.
The petitioners point out that section 12(1) declares that customs .duty will be levied at the rates in force on goods imported into India, and the expres sion 'India ', they urge, is defined by section 2(27) as including the 'territorial waters of India '.
In other words, the petitioners contend that when the vessel entered the terri torial waters on 11 July, 1981 the rate of customs duty at 12.5 per cent ruling on that date was the rate which was attracted to the import.
In any event, the petitioners contend, the rate should not have been more than 42.5 per cent because that was the rate of customs duty ruling on 23 July, 1981 when the vessel entered the port of Bombay.
To preserve the validity of section 15 the petitioners urge, we must read the expression "the date of entry inwards" in the proviso to section 15(1) as the date on which the vessel enters the territorial waters of India.
Learned counsel for the petitioners says that if this interpretation cannot reasona bly be given to the provisions of section 15(1) then it becomes necessary to question the constitutional validity of section 15 on the ground that the terms of that section are vague and arbitrary, and therefore no recourse can be had to section 15(1).
Considerable reliance has been placed by the peti tioner on Shawney vs M/s. Sylvania and Laxman Ltd., 77 Bom.
L.R. 380 in support of the submission that the taxable event occurs when the vessel enters the territorial waters of India and it is that date which should determine the rate at which import duty can be levied.
It is desirable, 372 we think, to appreciate what was said in that case.
The Bombay High Court held there that the date on which the vessel enters the territorial waters is the relevant date for determining whether the import of goods carried by it falls within the scope of the .
If the import of the goods is exempt from the operation of the Act on that date, the learned Judges said, the provisions of section 15 of the Act will not come into play, and therefore the import will be free from duty.
A distinction was made between a case where the import of goods stands exempted on the date when the vessel enters the territorial waters of India and a case where the import falls within the operation of the Act on that date but the duty is rated at nil or at a certain figure.
The distinction was discussed by a Full Bench of the Bombay High Court in Apar Private Ltd. and Others vs Union of India and others, where Madhava Reddy, C.J., speaking for the Court, observed: "If the goods were wholly exempt from basic customs duty leviable under the , when they entered the territorial waters of India, no basic duty of customs would be leviable thereon even if such exemption were withdrawn under Section 25(1) of the before the goods are releasedfor home c o n s u m p t i o n . . . . . .
. . . . . . . . .Only if the goods were chargeable to some basic customs duty under the , when they entered the territorial waters of India, than the rates in force at the time when the bill of entry is presented or at the time when the goods are sought to be cleared for home con sumption, as the case may be, would be ap plicable and the basic duty would be quanti fied and demanded at those rates." And in Jain Shudh Vanaspati Limited vs S.R. Patankar, Asstt.
Collector of Customs, Bombay and Others, the Bombay High Court proceeded on the basis that where the imported goods were totally exempt from payment of customs duty on the date when the vessel entered the terri torial waters of India, the taxable event was not postponed to the date when the goods were cleared for human consump tion.
In the present case.
there is no dispute that on the date when the vessel first entered the territorial waters of India by July, 198 1 the rate of customs duty was 12.5% on the import of the goods in question and thereafter when the vessel returned from Karachi and entered the 373 territorial waters of India the rate of duty was 42.5%.
We express no opinion on the soundness of the view taken by the Bombay High Court in the cases mentioned above; it is sufficient to point out that on the facts they afford no assistance to the petitioners.
The rate of duty and tariff valuation has to be deter mined in accordance with section 15(1) of the .
Under section 15(1)(a), the rate and valuation is the rate and valua tion in force on the date on which the Bill of Entry is presented under section 46.
According to the proviso, however, if the Bill of Entry has been presented before the entry in wards of the vessel by which the goods are imported, the Bill of Entry shall be deemed to have been presented on the date of such entry inwards.
In the present case the Bill of Entry was presented on 9 July, 1981.
What is "the date of entry inwards" of the vessel? We may refer to the detailed procedure in this matter set forth in the counteraffidavit of Shri R.S. Siddhu, then under Secretary to the Government of India.
Before the arrival of the vessel the Master of the vessel or his Agent informs the Port authorities and the Customs authorities of the probable date of arrival of the vessel.
This information is technically known as presenta tion of the Import General Manifest.
In this Manifest the Master intimates the details with regard to the cargo car ried by the vessel.
In the instant case the Manifest was conveyed by the Steamer Agent on 6 July, 1981 by his letter No. IM/394/81/1116.
Admittedly this intimation or presenta tion of the Manifest on 6 July, 1981 was prior to the arriv al of the vessel.
The presentation of the Manifest can be effected either before the arrival of the vessel or after its arrival in the usual course.
In the forwarding letter dated 6 July, 1981 mentioned above, the Shipping Agent informed the authorities that the ship would be arriving at Bombay 12 July, 1981.
According to the normal procedure, if the intimation or presentation of the Manifest is made on the arrival of the vessel it is accompanied by an applica tion for Entry Inward within 24 hours of arrival.
In the instant case since the vessel was to arrive later there was no application accompanying the letter dated 6 July, 1981.
The vessel arrived on 11 July, 1981.
On receipt of the Manifest a "prior entry" is made in the Register, which is called the Register of Inward/Outward Entry of vessels.
Upon the recording of the "prior entry" a rotation number is given and conveyed to the Shipping Agent or the Master of the vessel.
In the instant case the "prior entry" or rota tion number allotted was 743/PE.
The Customs authorities display daily, on receipt of the Import General 374 Manifests, the details of the vessels on a notice board for the information of importers.
On noticing the arrival or expected arrival of the vessel from the Import General Manifest the importer or his clearing agent files his Bill of Entry.
In this case the Bill of Entry was filed on 9 July, 1981.
An entry with regard to presentation of the Bill of Entry is made in the Import General Manifest against the entry with regard to the consignment belonging to the im porter.
The procedure thereafter is as follows.
A vessel on arrival in the territorial waters has to await the allotment of a berth by the Port Trust.
The Port Trust authorities, on receipt of information about the arrival of a ship, allot a berth, if it is available, for the discharge of the cargo.
In the instant case, since no berth was available, the vessel left for Karachi to dis charge the cargo meant for that Port.
The vessel arrived at Bombay on 23 July, 1981.
Before its arrival, the Steamer Agent had presented a supplementary Manifest on 18 July, 1981 under cover of his letter No. IM/394/81/ 1223.
The "prior entry" made earlier in the Register of Inward Entry remained the same and the rotation number also continued to remain the same.
Against the rotation No. 743 in column No. 3 of the Register of Inward Entry the date of the arrival of the vessel was indicated as 23 July, 1981, and in column No. 2 the date of Inward Entry was mentioned as 31 July, 1981.
On 30 July, 1981 the Master of the vessel had made a decla ration certifying that the vessel could discharge its cargo on 31 July, 1981, and it is on this basis that the Customs authorities granted the Entry Inward to the vessel for the purposes of discharging its cargo.
It is urged on behalf of the petitioners that the import of the goods must be deemed to have taken place on '11 July, 1981, when the ship originally arrived in Bombay Port and registered itself.
The rate of customs duty prevailing on that date was 12.5 per cent, and that, learned counsel contends, should be the rate applicable to the edible oil consignment under section 15 of the Act.
The circumstance that the vessel was unable to secure a berth in the Port of Bombay compelled it to proceed to Karachi to discharge the cargo pertaining to that Port, and but for the non avail ability of the berth she would not have undertaken that voyage but would have continued in Bombay and discharged the edible oil consignment there.
The customs duty which could have been levied then would have been 12.5 per cent.
It is pointed out that the vessel was unable to do so for no fault of the petitioners and a reasonable construction must be given to section 15 taking 375 into account the particular circumstances of the case, so that the vessel must be deemed to have made the "Entry Inwards" on 11 July, 1981.
We do not find it possible to accept this submission.
The provisions of section 15 are clear in themselves.
The date on which a Bill of Entry is presented under section 46 is, in the case of goods entered for home con sumption, the date relevant for determining the rate of duty and tariff valuation.
Where the Bill of Entry is presented before the date of Entry Inwards of the vessel, the Bill of Entry is deemed to have been presented on the date of such Entry Inwards.
In M/s. Omega Insulated Cable Co., (India) Limited vs The Collector of Customs, Madras, Writ Appeal No. 537 of 1969 decided by the Hon 'ble Kailasam and Paul, JJ.
on 9 July, 1975 the Madras High Court addressed itself to the question whether the words in section 15(1)(a) of the Act, viz. "date of entry inwards of the vessel by which the goods are imported" mean "the actual entry of the vessel inwards or the date of entry in the register kept by the department permitting the entry inwards of the vessel." The learned Judges examined the corresponding provisions of the earlier statute and after comparing the provisions of section 15 with those of section 16 of the , and the amendments made from time to time, held that the date of entry inward for the purpose of section 15(1)(a) and the proviso thereto is the date when the entry is made in the Customs register.
We have considered the matter carefully and given due heed to the submissions of learned counsel for the petition ers rounded, inter alia, on the provisions of the Sea Cus toms Act and the amendment made in section 16 of the and we are of opinion that the view taken by the Madras High Court in M/s. Omega Insulated Cable Co. Ltd., (supra) repre sents the correct view.
The amendment made in section 16 of the Act appears to have been made by way of clarification and, in our opinion, does not detract from the conclusion that "the date of entry inwards of the vessel" is the date re corded as such in the Customs register.
In the present case, "the date of inwards entry" is mentioned as 31 July, 1981.1n the absence of anything else, we may take it that the entry was recorded on the date itself.
Accordingly, the rate of import duty and the tariff valuation shall be that in force on 31 July, 1981.
The contention of the petitioners that the rate of import duty and tariff valuation will be that ruling on 11 July, 1981 cannot be sustained and is rejected.
As to the question whether section 15 of the is ultra vires on the ground that arbitrary discretion has been conferred on the 376 customs authorities in the matter of determining the date of inward entry, it seems to us that having regard to the procedure detailed above there is no scope for the submis sion that the provision is invalid.
An entire series of consecutive acts makes up the procedure, and it is reasona ble to presume that each step in the series is completed on time.
In that view of the matter, the challenge to the validity of section 15 must fail.
It is true that an amendment has been made in section 16 in the case of the export of goods, and the rate of duty and tariff valuation applicable to export goods are now specifically referable to "the date on which the proper officer makes an order permitting clearance and loading of the goods for exportation", and it is appar ent that no such amendment has been made in the provisions of section 15.
The omission, it seems to us, is of no consequence when the procedure outlined above is being followed regular ly and consistently.
There is nothing before us to show that in following the procedure the Customs authorities act arbitrarily.
Accordingly, we are of opinion that the claim made by the petitioners must be rejected.
Finally, there remains the contention of the petitioners that the differential treatment meted out to the petitioners by the imposition of a rate of 150 per cent constitutes a violation of Article 14 of the Constitution on the ground that the rate applied to corresponding imports by the State Trading Corporation is 5 per cent only.
This point has already been considered by us, and the contention has been rejected, in our judgment in M. Jhangir Bhatusha etc.
vs Union of India & Ors. etc.
; , pronounced today.
The Writ Petition is dismissed with costs.
R.N.J. Petition dismissed.
| IN-Abs | By way of writ petition under Article 32 of the Consti tution the petitioners sought relief against the imposition of customs duty at 150 per cent on their import of edible oils into India.
Pursuant to the contract entered into by the petitioners with foreign sellers for the supply of edible oils the consignment of edible oils was sent by the ocean going vessel M.V. Kotta Ratu.
The vessel approached Bombay and made its "prior entry" on 4 July, 1981.
It actu ally arrived and registered on 11 July, 1981.
As the port authorities at Bombay were unable to allot a berth to the vessel, the vessel left for Karachi for unloading other cargo intended for that port.
The vessel returned on 23 July 1981 and waited for berth.
On August 4, 1981 she was allowed to berth in Princess Docks 'C ' shed and the Customs authori ties made the "final entry" on that date.
Customs authorities are stated to have imposed duty on the import of edible oil at the rate of 150 per cent on the footing that the import was made on 31 July, 1981, the date of "Inward Entry".
The case of the petitioners was that the rate of duty leviable on the imports should be that ruling on 11 July, 1981, when the vessel actually arrived and registered in the Port Bombay and that but for the fact that berth was not available the vessel would have discharged its cargo at Bombay and would have been liable to pay customs duty at the rate of 12.5% which was the ruling rate on that date i.e., 11 July, 1981.
The petitioners contended that the rate should not have been more than 42.5% because that was the rate of customs duty ruling on 23 July, 1981 when the vessel entered the port of Bombay.
The Court rejecting the claim of petitioners, 368 HELD: The rate of duty and tariff valuation has to be determined in accordance with section 15(1) of the Customs Act.
Under section 15(1)(a), the rate and valuation is the rate and valuation in force on the date on which the Bill of Entry is presented u/s 46.
According to the proviso, however, if the Bill of Entry has been presented before the entry inwards of the vessel by which the goods are imported, the Bill of Entry shall be deemed to have been presented on the date of such entry inwards.
[373B C] The date on which a Bill Entry is presented under section 46 is, in the case of goods entered for home consumption, the date relevant for determining the rate of duty and tariff valuation.
Where the Bill of Entry is presented before the date of Entry Inwards of the Vessel, the Bill of Entry is deemed to have been presented on the date of such Entry Inwards.
[375B] The amendment made in section 16 of the Act appears to have been made by way of clarification and does not detract from the conclusion that "the date of entry inwards of the ves sel" is the date recorded as such in the Customs register.
[375F] In the present case, "the date of inwards entry" is mentioned as 31st July, 1981.
In the absence of anything else, it may be taken that the entry was recorded on that date itself.
Accordingly, the rate of import duty and the tariff valuation shall be that in force on 31st July 1981.
The contention of the petitioners that the rate of import duty and tariff valuation will be that ruling on July 11, 1981 cannot be sustained and is rejected.
[375G] (1)Shawney vs M/s. Sylvania & Laxman Ltd., 77 Bom.
L.R. 380; (2) Apar Private Ltd. & Ors.
vs Union of India & Ors., 185 ; (3) Jain Shudh Vanaspati Ltd. vs S.R. Patankar, Asstt.
Collector of Customs, Bombay & Ors., ; (4) M/s.
Omega Insulated Cable Co., (India) Ltd. vs The Collector of Customs, Madras, approved.
Writ Appeal No. 537 of 1969 decided by the Hon 'ble Kailasam and Paul, JJ.
on 9 July, 1975, referred to.
|
Criminal Appeal No. 75 of 1979.
From the Judgment and Order dated 6.2.
1976 of the Bombay High Court in Criminal Appeal No. 636 of 1973.
Raghunath Singh (Amicus Curiae) for the Appellant.
A.S. Bhasme and A.M. Khanwilkar for the Respondents.
The Judgment of the Court was delivered by KULDIP SINGH, J.
The appellant, Shivaji Patil was ac quitted by the Additional Sessions Judge, Kolhapur of the charge under Section 302, Indian Penal Code for committing murder of one Tulashiram Sutar, but on appeal the High Court by its judgment dated February 6, 1976 set aside the order of acquittal and convicted him under section 302 of the Indian Penal Code and sentenced him to imprisonment for life.
The house of deceased Tulashiram in Village Rashivade adjoins the temple of Shri Ambabai and in front of the temple, there is open place.
The deceased along with his wife Parvatibai, two children and parents was living in the house.
Cousin brothers of the deceased and their mother were living in the adjoining house.
Vyanku Sutar belonging to the brother hood of deceased was also living in the same village.
The deceased had illic it relation with Vyanku 's wife Akkatai.
Parvatibai claimed to have caught them in the sex act in sugarcane fields.
The accused Shivaji and Vyanku were friends.
On January 30,1972 at about 7 or 7.30 P.M. Tulashiram returned to the house after performing his role described as "Sasankathi" in the festival of "Mahi Poornima".
In the house Parvatibai, her mother in law Tanubai, her husband 's sister Malutai, 402 and her husband 's cousin brother 's wife Shalubai, were present.
The male members, namely, deceased 's father Pandu rang Sutar, his brother Soundappa and servant named Shama had gone to another village called Kote.
Tulashiram asked his mother Tanubai to prepare tea and thereafter he went out and sat on the foot steps of the temple at a distance of about 15 to 20 feet from the house.
What followed can best be reproduced in words of Parvat ibai as P.W. 3 at the trial: "After the tea was ready, I started going out of the house to call for my husband, when I went to the front door of my house, I saw the accused Shivaji hitting my husband with a stick on his head and running away.
I saw him running in the direction of the by lane.
I saw my husband failing down from the steps and lying on the ground near the "Deepmal".
I saw him rubbing his feet on the ground in agony and blood was coming from the injury on his head.
I could see this in the light of the tube light.
I went near my husband and started calling him.
He could not speak.
Hence, I raise a hue and cry and my mother in law and sister in law Malubai and Shalibai and Vishnu Patil came there.
I did not see anybody else nearby then as I was busy attending to my husband.
My husband had become unconscious due to the head injuries and froth had come out of his mouth.
Myself, Vishnu Patil and sister in law bodily lifted my husband and took him to the house . .
Somebody went and brought a local doctor named Jayant Patil.
The doctor came there, examined and treated my husband and advised him to be removed to his dispen sary.
My husband was accordingly taken there, but I did not go, as my small children were crying and I was prevented from going there.
My children had frightened.
In the morning next day, I came to know that my husband was removed to C.P.R. Hospital at Kolhapur.
Hence in the morning, myself my mother in law and others went to Kolhapur by Yelavade Kolhapur Bus reaching there at about 8.30 A.M.
When we reached the C.P.R. Hospital my brother in law came there crying saying that my husband had overnight succumbed to his injuries.
Hence myself and my mother in law started crying and shouting.
Hence some villagers brought a taxi, we were 403 asked to sit in the taxi and we were taken to Rashivade even without showing the dead body to us.
We reached Rashivade at about 11 A.M.
After reaching home, we were crying in agony and our house became full with females and I did not notice who others had come there." Vishnu Patil deposed that he was returning from his sugarcane crushing site and while passing by the temple he found deceased Tulashiram lying injured in front of the steps of the temple and his wife was crying nearby.
At a distance of about 5 or 6 feet from there, he saw Nana Patil and asked him what was the matter.
Nana Patil replied that he did not know anything.
Vishnu Patil asked Nana Patil to call the doctor.
Jaywant Patil a private practitioner reached the house of the deceased and on his advice the deceased was removed to the dispensary.
When for two hours, Tulashiram did not regain consciousness, Dr.
Patil at about 11/12 P.M. took him to the hospital at Kolhapur in his own car.
Patil at the trial stated that Tanubai said to him and also gave in writing (exhibit 26) to the effect that she had no complaint against anybody.
The prosecution produced P.W. 3 Parvatibai, P.W. 9 Krishan Wadkar, P.W. 10 Shankar Patil, P.W. 11 Krishna Sadashiv Patil and P.W. 12 Nanu Patil, all eye witnesses.
Except P.W. 3 Parvatibai all other eye witnesses were de clared hostile.
The prosecution case, thus, hinges on the sole testimony of Parvatibai.
Parvatibai has deposed that she saw on the evening of January 30, 1972, Shivaji Patil hitting her husband with a stick.
Admittedly her mother in law, her two sisters in law and Shivaji Patil came present on the spot immediately thereafter.
Parvatibai did not disclose the name of the assailant to them or to anybody else.
Rather Dr. Patil who came to the house little later was told by Tanubai that the family did not suspect anybody.
Vishnu Patil stated at the trial that nobody informed him about the accused or any other person who gave injuries to the deceased.
The Police Patil in his report dated 31.1.1972 stated that at 10.30 A.M. on that day he went to the house of deceased.
The father of the deceased, an uncle and a distant relation were present in the house.
The Police Patil asked them about the incident.
They replied that they had no knowledge about the incident as they were not present in the house at the time of occurrence.
The Police Patil further says that while he was present in the house a taxi came from Kolhapur and the 404 mother and wife of Tulashiram deceased got down from the taxi.
The Police Patil questioned the ladies as to how Tulashiram was injured.
The ladies were not prepared to talk and no information regarding the alleged occurrence was given to him.
He made further enquiries from other people but nobody gave him any information regarding the assail ants.
On the basis of the Police Patil 's report a case was registered at police station Rachanagari wherein it was mentioned that the cause of death of Tulashiram was not known.
Head constable B.S. Patharvat sent a complaint on 1st of February, 1972 wherein he stated that he came to know about the incident on the morning of 31st of January, 1972 and he went to the house of Tulashiram at about 10/11 A.M. and asked the in mates about the occurrence but nobody gave him any information.
He again went to the house of Tulashiram deceased on 1st of February, 1972 and recorded the statement of Parvatibai.
She stated that when she came to the front door she saw Shivaji Patil running with a stick from near about her husband.
She said that the relations between her husband and Vyanku were not good and Shivaji Patil and Nana Patil were friends of Vyanku Sutar.
She further stated that Vyanku Sutar, Shivaji Patil and Nana Patil made company and assaulted her husband.
On the basis of the statement of Parvatibai the head constable sent the complaint for regis tering the case against Vyanku Sutar, Shivaji Patil and Nana Patil under sections 302/34, IPC, though ultimately charge was filed by police only against Shivaji Patil.
The question for consideration is as to why was Parvati bai mum from 30.1.1972 to 1.2.
1972? The High Court felt satisfied by saying that she was in a dazed mood.
We do not agree with the High Court.
Parvatibai 's conduct was highly unnatural.
A wife, who has seen an assailant giving fatal blows with a stick to her husband, would name the assailant to all present and to the police at an earliest opportunity.
There is nothing in the evidence to justify this highly unnatural and improbable conduct of Parvatibai.
Even on 1.2.
1972 the statement of Parvatibai recorded by police head constable is entirely different than what she stated at the trial.
The prosecution has, thus, not been able to prove its case against the appellant beyond reasonable doubt.
We, therefore, give benefit of doubt to the appellant and accept the appeal.
The judgment of the High Court is set aside and the appellant is acquitted of the charge under section 302, IPC.
The appellant is on bail and as such his bail bond is cancelled.
N.P.V. Appeal allowed.
| IN-Abs | The appellant was charged under Section 302 I.P.C. for committing the murder of the deceased.
At the trial, prose cution produced P.W.3, wife of the deceased, and P.Ws.10, 11 and 12, all eye witnesses.
Except for P.W.3, all other eye witnesses were declared hostile.
Thus, the prosecution depended on the sole testimony of P.W.3. P.W.3 deposed that she saw the appellant hitting her husband with a stick.
But admittedly, she did not disclose the name of the appellant to anybody including the Police.
The doctor, who came to the house of the deceased little later, examined and treated the deceased and removed him to the hospital deposed that he was told by the mother of the deceased that the family did not suspect anybody.
Another witness who was passing by the scene of occurrence also testified that nobody informed him about the appellant or any other person, who injured the deceased.
The Additional Sessions Judge acquitted the appellant.
But, on appeal, the High Court, set aside the acquittal order, and convicted and sentenced the appellant to impris onment for life.
Hence, the appeal by the accused.
Allowing the appeal, this Court, HELD: The conduct of the deceased 's wife was highly unnatural.
A wife, who has seen an assailant giving fatal blows with a stick to her husband, would name the assailant to all present and to the police at an earliest opportunity.
There is nothing in the evidence to justify this highly unnatural and improbable conduct of the deceased 's wife.
Even her statement recorded by police head constable, is entirely different than what she stated at the trial.
The prosecution has, thus, not 401 been able to prove its case against the appellant beyond reasonable doubt.
[404F G] Therefore, the appellant is given benefit of doubt, the judgment of the High Court is set aside, and the appellant is acquitted of the charge under section 302, IPC.
[404H]
|
vil Appeal No. 601213 of 1983.
From the Judgment and Order dated 31.1.1983 of the Punjab & Haryana High Court in C.R.S.A. No. 1871 of 1975 and R.S.A. No. 16 11 of 1980.
Shiv Dayal Srivastava, S.K. Bagga and Mrs. Bagga for the Appellant.
Kapil Sibal, section Markandeya, Mrs. C. Markandeya, O.P. Ahluwalia, G. Seshagiri Rao and Km.
U. Saraswat for the Respondents.
The Judgment of the Court was delivered by OZA, J.
This appeal arises out of a judgment of the Punjab & Haryana High Court delivered in Civil Regular Second Appeal No. 187 1 of 1975 dated 31.12.1983.
This second appeal before the High Court of Punjab & Haryana was taken against the judgment of Additional Dis trict Judge, Patiala 386 who affirming the judgment of the trial Court i.e., sub Judge 1st class, Rajpura, maintained the dismissal of the suit filed by the plaintiffpresent appellant.
The suit was filed for a declaration that the appellant plaintiff is the owner in possession of agricultural lands measuring 100 Bighas 10 Biswas comprising Khasra Nos.
54 1 2 3 8/3 9 11 19/2, 55 3 4 5 67 15, 55/16, 20 situated in village Urdan, Tehsil Rajpura with the consequential relief of permanent injunction restraining the defendant from interfering with the possession of the plaintiff and dispossession thereof in any manner.
The appellant Pujari Bai, it is alleged, migrated from Pakistan in 1947 after the partition of the country and she left behind in Pakistan a large areas of agricultural land.
In 1949 Government in order to settle such refugees adopted certain measures and gave land to the displaced persons for the purpose of cultivation.
The displaced persons claims were examined by the claims organisation set up by the East Punjab Government at some places and the lands were given individually to those who had left behind agricultural lands in the West Punjab which become Pakistan after 1947.
As Smt.
Pujari Bai, was one of such claimants, she was allotted certain lands in village Urdan.
On 29.12.1962 allotment made was quasi permanent in character, but on 29.4.1963 the lands were transferred to her permanently.
The transfer was right, title and interest in ownership by a Sanad issued in the name of the President (the Central Government) under Rule 69 of the Displaced Persons (Compensation & Rehabilitation) Rules, 1954.
This was the basis of her claim.
It appears that the defendant respondent had also migrated from Pakistan like the appellant and on 29.12.1959 some lands were also allotted to him but no entry could be made in the revenue record and it was not certain whether possession was taken by the respondent.
On 29.6.1960 during the consolidation proceedings, no tuk was however, made for the respondent.
He filed objections and to these objections Pujari Bai was not a party.
The objections were rejected.
It appears that against this order he appealed to the Appellate Authority The Settlement Officer (Appeals) and this appeal also was dismissed.
He took up the matter in second appeal to the Assistant Director Consolidation of Holdings who remanded the matter to the Special Settlement Officer with certain observations.
He observed "that there have been over allotment and authorities will see that first allottee is given land first".
He also observed that it all happened 387 because of the mistake of the Consolidation authorities.
This order was passed on 2.12.1963.
In spite of this remand order made by the Assistant Director Consolidation, nothing happened for about three years.
In 1966 the respondent filed a writ petition before the High Court of Punjab & Haryana.
Even to this writ peti tion the present appellant Pujari Bai was not a party.
In this writ petition a direction was sought to implement the aforesaid order of the Assistant Director Consolidation.
The High Court by the order dated 25.11.1966 directed that the observations contained in the order passed by the Assistant Director should be complied with.
After the direction of the High Court the Consolidation Officer became active.
He started enforcing the observations contained in the remand order of the Assistant Director and in so doing, he found that the land allotted to various persons in the village was more than the land available for allotment.
In order to resolve this difficulty he evolved a via media.
He deprived some of the allottees of the part of land allotted to them, and the appellant was one such casu alty.
He allotted all such lands to the respondent and it is this which was the starting point of the trouble.
It is, however, significant to note that before this order was passed by the Consolidation Officer so far as the appellant is concerned she had already obtained a permanent Sanad in respect of her lands from the Government of India.
Against the order of the Consolidation Officer, the appellant preferred an appeal before the Assistant Director, Punjab & Haryana, Chandigarh.
The appeal was dismissed with an observation that he was bound by the remand order and the right acquired by the appellant by the Sanad should have been brought to the notice when matter was disposed of earlier by the Assistant Director, Patiala.
Against this order of the Assistant Director, the appellant preferred a writ petition which was rejected by the High Court in limine with one word 'dismissed ' by order dated 14.4.1969.
After the rejection of the writ petition, the appellant had no other alternative and therefore instituted the suit out of which this appeal arises.
Her case in the suit was that it was impermissible for the Consolidation Officer to adjust the lands or take away any part of it which became her absolute property by virtue of the Sanad granted on 29.4.1963.
However, she became unsuccessful in all Courts.
On 5.9.1975, the trial Court dismissed the suit.
The Addi tional District 388 Judge confirmed that judgment.
The High Court of Punjab & Haryana dismissed the Second Appeal by the judgment dated 31.1.1983 which is now under appeal before us.
Learned counsel for the appellant contended that after the Sanad was granted to the appellant on 29.4.1963 she became the absolute owner of the land.
The land was given to her in lieu of settlement of her claim of compensation and the Sanad specifically provided that all rights and interest in the property were transferred to the appellant under the authority of the President.
It was, therefore, not open to any consolidation authority to cancel this Sanad.
It was also contended that the Consolidation authorities and the civil courts did not examine the legal consequences of the Sanad and the scope of Section 10, and without taking that into consideration the allotment made was illegal and could not be sustained.
The other limb of the argument of learned counsel re lates to the question of res judicata on which ground also the appellant was nonsuited.
It may be recalled the appel lant being aggrieved by the order of the Consolidation Officer which was confirmed by the Assistant Director Con solidation approached the High Court in a writ petition.
That writ petition was rejected in limine and therefore the courts below held that the question of res judicata operates and there was no scope for the civil court to go into the question once again.
It was argued that the High Court committed an error since apparently the writ petition filed by the appellant was dismissed in limine and it could not operate as res judicata since it was not a decision on merits deciding anyone of the issues arising in the litiga tion.
Learned counsel for the respondent, on the other hand contended that the allotment made in favour of the respond ent was very much before the allotment made in favour of the appellant.
The allotment to the respondent was on 29.12.1959 and whereas the allotment to the appellant was on 29.12.1962.
But unfortunately as there was no entry made in the revenue record about the allotment tO the respondent.
No land was earmarked in the consolidation proceedings which ultimately had to be brought to the notice of Assistant Director.
The later remanded the matter with a direction to the consolidation officer "to see that the first allottee is accommodated first and the later allottees who have been accommodated before the respondent shall not be given their allotment.
" Learned counsel contended that when this order of the Assistant Director was not complied with, the re spondent had no option but to approach the High Court for a direction for 389 enforcement of the said order.
But learned counsel had to concede that even before the order of the Assistant Director by which he remanded the matter, the allotment in favour of the appellant had been converted into a permanent transfer by a Sanad granted by the President.
The main argument of the learned counsel for the re spondent was that in view of the fact that the respondent was allotted earlier in 1959 whereas the allotment in favour of the appellant being in December 1962 and if there was no adequate land available for allotment to the appellant, the authorities should find an alternative land somewhere else but the respondent could not be deprived of the land which was allotted to him He, however, frankly conceded that there is nothing on record to indicate that the same land which was allotted to the respondent was allotted to the appellant.
He, however, said that it was a case of over allotment and the authorities were justified in taking the land proportionately from all allottees and adjusting all the allottees with the available lands.
From all the facts and documents, one thing appears to be clear that although certain allotment was made in favour of the respondent in 2959, he was not put in possession of the allotted lands.
It is also clear that the survey Nos. of lands allotted in 1959 to the respondent are not the same survey Nos.
allotted to the appellant in December, 1962.
It is further clear that the appellant was given possession of those properties allotted to her and even permanent Sanad was granted to her.
The main question that arises for consideration there fore, is whether the lands given to the appellants by perma nent Sanad could be deprived of in the consolidation pro ceedings without giving them adequate alternate lands.
Section 10 of the Displaced Persons (Compensation & Rehabil itation) Act of 1954 provides: "10.
Where any immovable property has been leased or allotted to a displaced person by the Custodian under the conditions prescribed: (a) by the notification of the Government of Punjab in the Department of Rehabilitation No. 4891 S or 4892 S, dated the 8th July, 1949; or (b) by the notification of the Government of Patiala and 390 East Punjab States Union in the Department of Rehabilitation No. 8R or 9R, dated the 23rd July, 1949, and published in the Official Gazette of that State, dated the 7th August, 1949.
and such property is acquired under the provi sions of this Act and forms part of the com pensation pool, the displaced person shall, so long as the property remains vested in the Central Government continue in possession of such property on the same conditions on which he held the property immediately before the date of the acquisition, and the Central Government may, for the purpose of payment of compensation to such displaced person, trans fer to him such property on such terms and conditions as may be prescribed.
" From this provisions, it will be clear that the parties who were put in possession under initial allotment would continue to remain in possession even after its acquisition by the Central Government.
But it is open to the Central Government for the purposes of payment of compensation to such displaced persons transfer to him such property on such terms and conditions as may be prescribed.
Apparently this refers to a permanent transfer in lieu of compensation.
It is not in dispute that the appellants were the only allot tees in whose favour permanent transfer was made on 29.4.1963 and 15.6.1964 respectively.
A perusal of the terms of Sanad clearly indicate that it conveys absolute title and it could be cancelled only by the authority which granted the Sanad.
Sanad (exhibit p 2) granted to the appellant on 29.4.1963 reads: "The President is hereby pleased to transfer the right, title and interest acquired by the Central Government in the said property to Pujari Bai wife of Bihari Lal (hereinafter referred to as the transferee) subject to the following terms and conditions.
" It was perhaps for this reason, as contended for the appellant that after the Sanad was granted in favour of the appellant, the respondent went on with the proceedings before the consolidation authorities and also before the authorities under the Displaced Persons (Compensation & Rehabilitation) Act, 1964, but did not implead the appellant and only impleaded the other allottees who were not granted Sanad till 391 then.
Quite naturally, the authorities had no opportunity to examine the effects of the Sanad granted to the appellant.
Learned counsel for the respondent next contended that the consolidation proceedings had started when the Sanad was granted to the appellant on 29.4.1963 and Section 30 of the East Punjab Holdings (Consolidation and Prevention of Frag mentation) Act, 1948 prohibits a transfer during the consol idation proceedings.
We do not think that Section 30 has any application to the facts of the case.
Section 30 of the East Punjab Holdings (Consolidation and Prevention of Fragmentation) Act, 1948, provides: "Sec. 30.
Transfer of Property during consoli dation proceedings After a notification under sub section (1) of Section 14 has issued and during the pendency of the consolidation proceedings no land owner or tenant having a fight of occupancy upon whom the scheme will be binding shall have power without the sanc tion of the Consolidation Officer to transfer or otherwise deal with any portion of his original holding or other tenancy so as to affect the rights of any other landowner or tenant having a right of occupancy therein under the scheme of consolidation.
" Transfer of property referred to in this Section is either by a landowner or by a tenant, and it has no refer ence and indeed cannot have a reference to transfer of Sanad under Section 10 of the Displaced Persons (Compensation & Rehabilitation) Act of 1954.
The conferment of fights in lieu of compensation under Section 10 stands on a different footing which could not be contemplated within the language of Section 30 of the aforesaid Act.
This contention advanced by learned counsel for the respondent is, therefore, reject ed.
This takes us to the question of res judicata.
The question is whether the suit of the appellant was barred by res judicata in view of the summary dismissal of her writ petition earlier.
It is not disputed that the writ petition filed by the appellant against the order of the Assistant Consolidation Officer was dismissed in limine.
This order dated 14.4.1969 was passed by the Division Bench of Punjab & Haryana High Court.
It was a one word order.
The question or res 392 judicata apparently arises when a controversy or an issue between the parties has been heard and decided.
This Court in Workmen of Cochin Port Trust vs Board of Trustees of the Cochin Port Trust & Another, 1 considered this principle and observed (at 977): "But the technical rule of res judicata al though a wholesome rule based upon public policy, cannot be stretched too far to bar the trial of identical issues in a separate pro ceedings merely on an uncertain assumption that the issues must have been decided.
It is not safe to extend the principle of res judi cata to such an extent so as to found it on mere guess work.
To illustrate our view point, we may take an example.
Suppose a writ peti tion is filed in a High Court for grant of a writ of Certiorari to challenge some order or decision on several grounds.
If the Writ Petition is dismissed after contest by a speaking order obviously it will operate as res judicata in any other proceeding, such as, of suit, Article 32 of Article 136 directed from the same order or decision.
If the Writ Petition is dismissed by a speaking order either at the threshold or after contest, say, only on the ground of laches or the availabil ity of an alternative remedy, then another remedy open in law either by way of suit or any other proceeding obviously will not be barred on the principle of res judicata.
" It thus becomes clear that when a writ petition after contest is disposed of an merits by a speaking order, the question decided ,in that petition would operate as res judicata, but not a dismissal in limine or dismissal on the ground of laches or availability of alternative remedy.
The High Court and the courts below, therefore, were not right in throwing out the suit of the appellant on the ground of res judicata.
It is, therefore, plain that all the three courts have omitted to consider the material question, that is, the impact of the grant of Sanad under Section 10 and its effect on the jurisdiction of the authorities under the Consolida tion Act.
The authorities under Consolidation Act have no jurisdiction or power to modify or cancel the grant of proprietary rights granted in the Sanad under Section 10.
In the connected Civil Appeal No. 6013 of 1983 the Sanad was also granted on 15.6.1964 in accordance with Section 10 and, therefore, the same principle applies to that case also.
393 The appeals are therefore allowed.
The judgment and decree passed by all the three courts below are set aside and the suit filed in each case is decreed with costs.
The appellant shall be entitled to costs in this Court.
Costs quantified at Rs.5,000 in each of the two appeals.
N.V.K. Appeals allowed.
| IN-Abs | The appellant who migrated from Pakistan in 1947 was allotted certain lands.
On 29.12.1962 allotment was made quasi permanent in character, but on 29.4.1963, the lands were transferred to her permanently, by a Sanad issued under Rule 68 of the Displaced Persons (Compensation & Rehabilita tion) Rules, 1954.
The respondent like the appellant had also migrated from Pakistan and on 29.12.1959 lands were also allotted to him but no entry could be made in the revenue record.
On 29.6.1960 during consolidation proceedings no tuk was however made for the respondent.
He filed objections which were rejected.
He unsuccessfully appealed to the Appellate Authority The Settlement Officer (Appeals).
In the second appeal, the Assistant Director Consolidation of Holdings remanded the matter to the Special Settlement Officer with the observation that because of the mistake of the Consoli dation authorities there had been over allotment, and the authorities 384 will see that the first allottee is given the land first.
As nothing happened for about three years, the respond ent filed a writ petition in 1966 and the High Court direct ed implementation of the order of the Assistant Director Consolidation.
The appellant was not a party to either of these proceedings.
Pursuant to the order of the High Court the Consolida tion Officer started enforcing the observations of the Assistant Director, found that the land allotted to various persons was more than the land available for allotment, and in order to resolve this difficulty evolved a via media procedure.
lie deprived some of the allottees of the land allotted to them, and the appellant was one such person.
He allotted all such lands to the respondent.
This was the commencement of the instant litigation.
Against the aforesaid order of the Consolidation Officer the appellant preferred an appeal before the Assistant Director which was dismissed and the writ petition against the said order was rejected by the High Court in limine with only one word, namely, 'dismissed '.
The appellant having no other alternative instituted a suit contending that it was impermissible for the Consolida tion Officer to adjust the lands, or take away any part of it which became her absolute property by virtue of the Sanad granted on 29.4.1963.
The trial Court dismissed the suit.
The Additional District Judge confirmed that judgment, and the second appeal to the High Court was also dismissed.
In the appeal to this Court on the question; whether the lands given to the appellants by permanent Sanad could be deprived of in consolidation proceedings without giving them adequate alternate lauds.
Allowing the appeal, HELD: 1.
The authorities under the Consolidation Act have no jurisdiction or power to modify or cancel the grante of proprietary rights granted in the Sanad under section 10.
[392G] 2.
From section 10 of the Displaced Persons (Compensation & Rehabilitation) Act 1954, it is clear that the parties who were put in possession under initial allotment would contin ue to remain in possession even after its acquisition by the Central Government.
But it is open to the Central Government for the purposes of payment of compensation to 385 such displaced person, transfer to him such property on such terms and conditions as may be prescribed.
Apparently this refers to a permanent transfer in lieu of compensation.
[390D E] 3.
Transfer of property referred to in section 30 of the East Punjab Holdings (Consolidation and Prevention of Fragmenta tion) Act, 1948 is either by a landowner or by a tenant, and it has no reference, and indeed cannot have a reference to transfer of Sanad under section 10 of the Displaced Persons (Compensation & Rehabilitation) Act of 1954.
The conferment of rights in lieu of compensation under section 10 stands on a different footing which could not be contemplated within the language of section 30 of the Consolidation Act.
[391F] 4.
When a writ petition after contest is disposed of on merits by a speaking order, the question decided in that petition would operate as res judicata, but not a dismissal in limine or dismissal on the ground of laches, or avail ability of alternative remedy.
[392E F] Workmen of Cochin Port Trust vs Board of Trustees of the Cochin Port Trust & Another, ; , referred to.
|
N: Criminal Appeal No. 30 of 1951.
Appeal from the Judgment and Order of the High Court of Calcutta (HARRIES C.J. and LAHIRI J.) dated 15th June, 1950, in Criminal Appeal No. 71 of 1950 and Revision No. 295 of 1950.
S.N. Mukherjee, for the appellant.
B. Sen, for the respondent.
December 14.
The Judgment of the Court was deliv ered by FAZL ALI J.
This is an appeal against the judgment of the High Court at Calcutta upholding the order of the Ses sions Judge of Midnapore convicting the appellant under section 326 of the Indian Penal Code and sentencing him to 3 years ' rigorous imprisonment.
The prosecution case against the appellant may be short ly stated as follows: The appellant and the injured person, Kurnad Patra, are first cousins, and they live in a village called Andaria, their houses being only 3 or 4 cubits apart from each other.
They had a dispute about a pathway adjoin ing their houses, which led to a tank, and they quarrelled about it on the 11th July, 1949.
Two days later, on the lath July, when Kumad Patra was washing his hands at the brink of the village tank, the appellant came from behind and inflicted on him 17 injuries.
with the result that two of his fingers had to be amputated and a piece of bone had to be extracted from his left thumb.
The police being informed, started investigation and submitted a charge sheet against the appellant who was finally committed to the Court of Sessions and tried by the Sessions Judge and a jury.
He was charged under section 307 of the Indian Penal Code, but the jury returned a verdict of guilty against him under section 326 of the Penal Code, and the learned Sessions Judge accepting the verdict convicted him under that section as aforesaid.
When the matter came up in appeal to the High Court, a rule was issued on the appellant calling upon him to show cause why his sentence 204 should not be enhanced, but, at the final hearing, the rule was discharged, his appeal was dismissed, and his conviction and the original sentence were upheld.
The first point urged on behalf of the appellant before us is that, inasmuch as there was no charge under section 326 of the Penal Code and the offence under that section was not a minor offence with reference to an offence under section 307 of the Code, he could not have been convicted under the former section.
This argument however overlooks the provisions of section 237 of the Criminal Procedure Code.
That section, after referring to section 236 which provides that alternative charges may be drawn up against an accused person where it is doubtful which of several of fences the facts which can be proved will constitute, states as follows : "If . . the accused is charged with one offence, and it appears in evidence that he committed a different offence for which he might have been charged under the provisions of that section, he may be convicted of the offence which he is shown to have committed, although he was not charged with it.
" There can be no doubt that on the facts of this case, it was open to the Sessions Judge to charge the appellant alternatively under sections 307 and 326 of the Penal Code.
The case therefore clearly falls under section 237 of the Criminal Procedure Code and the appellant 's conviction under section 326 of the Penal Code was proper even in the absence of a charge.
In Begu vs The King Emperor (1) the Privy Council had to deal with a case where certain persons were charged under section 302 of the Penal Code, but were convicted under section 201 for causing the disappearance of evidence.
Their Lordships upheld the conviction, and while referring to section 237 of the Criminal Procedure Code, they ob served: "A man may be convicted of an offence, although there has been no charge in respect of it, if the evidence is such as to establish a charge that might have (1) (1925) 52 I.A. 191, 205 been made .
Their Lordships entertain no doubt that the procedure was a proper procedure and one warranted by the Code of Criminal Procedure.
" The second point urged on behalf of the appellant is that the High Court having issued a rule for the enhancement of the sentence, he should have been allowed to argue the merits of the case which he was not allowed to do.
The learned counsel for the appellant was not, however, able to show that even if it was open to him to argue on the merits of the case the decision would have been otherwise.
Only three contentions were put forward by him, these being : (1) that several material witnesses were not examined; (2.) that the appellant 's case was not placed before the jury in a fair manner; and (3) that there was no proper examination of the appel lant under section 342 of the Criminal Procedure Code.
We have examined these contentions and find that they are entirely without merit.
In urging his first contention, the learned counsel stated that though it was admitted that several persons have got houses to the east, north and north west of the tank where the occurrence is alleged to have taken place, they have not been examined by the prose cution.
He further argued that one Sarat Chandra Ghose, who was present at the house of the accused when it was searched, has also not been examined.
These arguments however have very little force, since there is no evidence to show that those persons had seen the occurrence, an d they also do not take note of the fact that such evidence as has been adduced by the prosecution, if believed, was suffi cient to support the conviction of the appellant.
The Ses sions Judge in his charge to the jury referred specifically to the very argument urged before us, and he told 'the jurors that if they thought it fit it was open to them to draw an inference against the prosecution.
There can be no doubt that the jurors were 27 206 properly directed on the point and they evidently thought that the evidence before them was sufficient for convicting the appellant.
The second contention urged on behalf of the appellant relates to his defence, which, briefly stated, was that Kumad Patra, the injured man, entered his house during his temporary absence, went to the bedroom of his wife, who was a young lady, and committed indecent assault on her and was assaulted in these circumstances.
This story was not sup ported by any evidence but was merely suggested in cross examination, and the Sessions Judge while referring to it in his charge to the jury, observed: ' 'If I were left alone, I would not have believed the defence version.
But you are not bound to accept my opin ion, nor you should be influenced by it It is for you to decide whether you will accept the defence suggestion in favour of which there is no such positive evidence.
" The Sessions Judge undoubtedly expressed himself some what strongly with regard to the defence suggestion, but he coupled his observations, which we think he was entitled to make, with an adequate warning to the jurors that they were not bound to accept his opinion and should not be influenced by it.
The defence version was rejected by the jury, and there can be no doubt that on the materials on the record it would have been rejected by any court of fact.
The last contention put forward by the learned counsel for the appellant was that he was not examined as required by law under section 342 of the Criminal Procedure Code.
It appears that three questions ware put to the appellant by the Sessions Judge after the conclusion of the prosecution evidence.
In the first question, the Sessions Judge asked the appellant what his defence was as to the evidence ad duced, against him; in the second question, the Judge re ferred to the dispute about the pathway and asked the appel lant whether he had inflicted injuries on Kumad Patra; and in the third question, the appellant was asked.
207 whether he would adduce any evidence.
The facts of the case being free from any complications and the points in issue being simple, we find it difficult to hold that the examina tion of the appellant in this particular case was not ade quate.
To sustain such an argument as has been put forward, it is not sufficient for the accused merely to show that he has not been fully examined as required by section 342 of the Criminal Procedure Code, but he must also show that such examination has materially prejudiced him.
In the present case, it appears that the point urged here was not raised in the grounds of appeal to the High Court, nor does it find a place in the grounds of appeal or in the statement of case filed in this court.
It has nowhere been stated that the accused was in any way prejudiced, and there are no materi als before us to hold that he was or might have been preju diced.
We have read the Sessions Judge 's charge to the jury, which is a very fair and full charge, and nothing has been shown to us to justify the conclusion that the verdict of the jury should not have been accepted.
The appeal accordingly fails and is dismissed.
Appeal dismissed.
| IN-Abs | The appellant who inflicted serious injuries on another was charged under section 307 of the Indian Penal Code but the jury returned a verdict of guilty against him under section 326 of the Penal Code, and the Sessions Judge, accepting the verdict, convicted him under section 326.
It was contended that the conviction was illegal inasmuch as the offence under section 326 was not a minor offence with reference to the offence under section 307.
Held, that as it was open to the Sessions Judge, on the facts of the case, to charge the appellant alternatively under sections 307 and 326 of the Code the case was covered by section 237 of the Criminal Procedure Code, and the conviction under section 328 of the Penal Code was proper, even though there was no charge under the section.
Begu vs King Emperor (52 I.A. 191) applied.
In order that a conviction may be set aside for non compliance with the provisions of section 342 of the Criminal Procedure Code, it is not sufficient for the accused merely to show that he was not fully examined as required by the section, but he must also show that such examination has materially prejudiced him.
|
Appeal No. 256 of 1954.
Appeal from the judgment and decree dated July 3, 1953, of the Calcutta High Court in Appeal from Original Order No. 7 of 1953, arising out of the judgment and decree dated August 5, 1952, of the said High Court in Matter No. 84 of 1952.
823 N. C. Chatterjee, section K. Kapur and I. N. Shroff, for the appellant.
C. K. Daphtary Solicitor General of India, H. J. Umrigar and R. H. Dhebar, for respondents Nos. 1 to 3.
B. Sen, section N. Mukherjee, and B. N. Ghosh, for respondent No. 4.
Veda Vyasa and B. P. Maheshwari, for respondent No. 5. 1958.
May 9.
The Judgment of the Court was delivered by section K. DAS J.
This appeal has come to us on a certificate granted by the High Court of Judicature at Calcutta that the case is a fit one for appeal to this Court.
The appellant is Shewpujanrai lndrasanrai Ltd., a private limited company incorporated under the Indian Companies Act, 1913 and carrying on business at 69, Manohar Das Street, Calcutta.
Respondents I and 3 are the Customs authorities concerned; respondent 2 is the Union of India, and respondents 4 and 5 are two banks, called respectively Nationale Handels Bank N. V., a foreign company carrying On business at 1, Royal Exchange Place, Calcutta, and Bharat Bank Ltd., a company incorporated under the Indian Companies Act, 1913, and having its registered office at 143, Cotton Street, Calcutta.
The material facts are these.
The appellant Company carries on business as a bullion merchant and in that capacity used to buy gold and silver in the Calcutta and Bombay markets and sell the same either direct or through bankers at the aforesaid two places.
It is stated that between November 14,1950, and November 20, 1950, the appellant Company, ill the usual course of its business, purchased about 9,478 tolas of gold, and in respect of the said purchases, borrowed money from respondents 4 and 5.
The gold so purchased was deposited with the respondent banks as security for the loans taken, 7,044 tolas being deposited with respondent 4 and about 2,437 tolas 105 824 with respondent 5.
With the consent of the appellant Company, the two Banks respondents 4 and 5, sent the gold to the Calcutta Min for the purpose of assaying.
On November 20, 1950, the Collector of Customs, Calcutta, asked the Mint authorities not to part with the gold, and on November 21, 1950, the gold was seized at the instance of the Customs authorities, Calcutta, in pursuance of a search warrant issued by the Chief Presidency Magistrate, Calcutta.
On the same day, certain books of account of the appellant company were.
also seized from its place of business at 69, Manohar Das Street.
Oil November 22, 1950, the appellant Company received a letter signed by one Jasjit Singh of the Customs Department, requesting the presence of the appellant at the Customs House on November 27, 1950, for opening and checking the bags of bullion which had been seized from the Mint.
Thereafter followed some correspondence, details whereof are not necessary for our purpose, between the Customs authorities and Messrs. Sawday & Co., acting on behalf of the appellant Company.
On December 19, 1950, the appellant Company made an application in the High Court of Calcutta under article 226 of the Constitution in which it asked for the issue of appropriate writs or orders quashing the orders of seizure and detention of its gold and books of account, and for a further direction that the Customs authorities be prohibited from giving effect to the said orders of detention and seizure or from taking any steps in connection with the gold or the books of account seized.
This writ application was heard and disposed of by an order made by Bose J. of the Calcutta High Court on April 23, 1951, the result of which was that the rule was made absolute to this extent only that the seizure of the books of account was declared to be illegal and a direction was made that the books be returned forthwith to the appellant Company.
No order was made about the gold seized and detained.
On June 20, 1951, the Customs authorities sent a notice to the appellant Company which was in these terms: 825 Subject : Seizure of 9,478 19 tolas of gold at the Government of India Mint, Strand Road, Calcutta.
I have been directed by the Collector of Customs to inform you that the above case has been placed before him for adjudication by the Superintendent, Preventive Service.
A copy of the note submitted by the latter together with copies of the assay reports therein referred to are enclosed herewith.
You are requested to show cause in writing within fourteen days from date hereof why penal action should not be taken against you and the 9,478.19 tolas of gold in question under the provisions of sections 167 clause 8 and 168 of the , for alleged violation of section 19 of the same Act read with section 8 of the Foreign Exchange Regulation Act, 1947.
You are also requested to send copies of all documentary evidence including all books of account, vouchers etc., along with your explanation.
On receipt of your explanation, the Collector has directed me to further inform you that in this case a date and time will be fixed for hearing at which you will be required to produce all oral evidence in support of your explanation and also to make your submissions.
" This notice was issued on the strength of an information contained in a note which the Superintendent, Preventive Service of the Customs authorities, submitted and which said that the gold in question had been smuggled into India in violation of the provisions of the (hereinafter referred to as the ) and the Foreign Exchange Regulation Act, 1947 (hereinafter referred to as the Foreign Exchange Act) and that the gold had been sent to the Mint for processing; that is, for melting and casting the same into bars, weighing and stamping the same with the Mint Marks, and also assaying small portions thereof.
On July 3, 1951, the appellant Company submitted its explanation in answer to the aforesaid notice.
The parties were then heard by the then Collector of Customs, Sri Raja Ram Rao; but before the hearing could conclude, Sri Raja Ram.
826 Rao was transferred.
His successor, Mr. J. W. Orr, heard the parties on some days; but on October 11, 1951, Mr. Orr was succeeded by Sri A. N. Puri.
This latter officer heard the parties afresh and concluded the hearing on February 8, 1952.
On May 14, 1952, Sri A. N. Puri passed the order impugned in this case, in which he came to the conclusion that the gold in question (9,478.19 tolas) was smuggled gold and that there was a contravention of the provisions of section 19 of the read with section 8 of the Foreign Exchange Act.
The final order which he made was in these terms : " I accordingly order that the entire quantity of the gold seized on the 21st November, 1950, amounting to 9,478.19 tolas be confiscated under section 167(8) of the .
In lieu of confiscation, however, I give the owner of the said gold an option under section 183 ibid to pay a fine of Rs. 10,00,000 (Rupees ten lakhs only) in addition to the proper customs duty and other charge leviable thereon within four months from the date of the despatch of this order.
The release of the gold will be further subject to the production of a permit from Reserve Bank of India within the aforesaid period.
" On June 19, 1952, the appellant Company filed a second writ petition in the High Court of Calcutta in which it asked that (a) a writ of certiorari do issue against respondents I to 3 calling upon them to produce the record of the proceeding resulting in the impugned order of May 14,1952, and for quashing the same; (b) a writ of mandamus do issue requiring respondents 1 to 3 to forbear from giving effect to the orders of seizure, detention and confiscation of the appellant 's gold and further requiring the said respondents to return the gold to the appellant; and (e) a writ of prohibition do issue restraining the said respondents from taking any further steps in pursuance of the order of confiscation etc.
This second writ application was dealt with and disposed of by Bose J. by his order dated August 5, 1952.
Broadly speaking, the two main grounds on which he held the impugned order to be bad ",ere these.
The learned Judge held 827 that by purporting to proceed under 182 of the in the present case, the Customs authorities had acted in prejudice to the provisions of section 23 of the Foreign Exchange Act and this was in violation of section 8(3) of the Foreign Exchange Act as it stood at the relevant time.
He said: " If the petitioners had not been implicated in the charge it might have been open to the Customs authorities to proceed under section 182 if steps were intended to be taken only against the offending goods but the notice to show cause makes it clear that that is not the case.
Although I am not prepared to go to the length of holding that section 23 of the Foreign Exchange Regulation Act altogether excludes the operation of section 182 of the and although I have no doubt, that in appropriate cases where section 23 is not attracted, recourse can be had to section 182 of the , the present case is one in which adoption of the procedure under section 182 of the has prejudiced section 23 of the Foreign Exchange Regulation Act.
The entire proceedings before the Customs authorities must therefore be held to be without jurisdiction.
" Secondly, he held that the conditions which the Collector of Customs had imposed in the impugned order for release of the confiscated gold were not warranted by the statute, and as the impugned order was one composite order, different parts whereof could not be severed one from the other, the entire order must be held to have been made without jurisdiction.
On these findings, the rule was made absolute, the impugned order was quashed and respondents I to 3 were directed to forbear from giving effect to the order.
Then there was an appeal which was heard by a Division Bench consisting of Das and Mookerjee JJ.
That Bench held that the proceeding under the was in the nature of a proceeding in rem and an order of confiscation or penalty passed in such a proceeding was not a quasi judicial act, but an administrative or executive act, in respect of which no application for the issue of a writ of certiorari under 828 article 226 of the Constitution lay.
On a construction of section 8(3) of the Foreign Exchange Act, as it stood at the relevant time, it held that the restrictions mentioned therein had a double effect and the remedies available under section 167(8) of the and under section 23 of the Foreign Exchange Act were cumulative in nature.
It said: " The former remedy (meaning the remedy under the ) is intended to levy the customs duties and is mainly directed against the goods; the latter is penal, intended to punish the person concerned in the act of smuggling.
There is thus no question of the former proceeding prejudicing the latter proceeding. " Accordingly the Division Bench held that the first ground on which Bose J. had held the impugned order to be bad was not sustainable.
With regard to the conditions imposed in the impugned order for the release of the confiscated gold, it held that the invalidity, if any, of the imposition of such conditions did not affect the main order of confiscation.
It said Section 183 casts an imerative duty on the officer adjudging confiscation to give the owner of the goods an option to party such a fine as the officer thinks fit in lieu of confiscation.
The duty so cast is an exercise of jurisdiction by the officer concerned quite separate from the exercise of his jurisdiction under section 167(8) imposing confiscation and penalty.
If any illegality has attached in the matter of exercise of his jurisdiction under section 183, the illegal condition may be set aside.
" In the result, it accepted the appeal and set aside the judgment and order of Bose J.
The present appeal is from the aforesaid judgment and order of the Division Bench dated July 3, 1953.
There are two preliminary points which we may conveniently dispose of here, before we go on to the main contentions urged on behalf of the appellant Company.
In giving a certificate in this case the learned Chief Justice, with whom Das Gupta J. agreed, expressed the view that the question whether the proceeding in which the order appealed from was 829 made was of a civil or crinlinal nature, or was, in the language of article 132 of the Constitution, other proceeding ' was not free from difficulty; he added that, in any event, article 135 of the Constitution applied in the present case, because it was not disputed that certain questions of interpretation of the Constitution were involved and, therefore, the case was clearly one where an appeal would lie to the Federal Court immediately before the commencement of the Constitution.
The learned Solicitoreneral, who has appeared before us on behalf ' of respondents I to 3, has not accepted as correct the view that article 135 justified the grant of a certificate in this case.
He has not, however, pressed us to decide in this case the question of the competency of the certificate given by the High Court, and has raised no objection to a decision of the appeal on merits.
The question whether a proceeding on a writ application is of a civil or criminal nature within the meaning of those expressions in articles 133 and 134 of the Constitution has led to some divergence of opinion in the High Courts, and we understand that it is one of the questions for decision in some cases which we have recently admitted.
In the view which we have taken of the present case on merits and the further eircumstance that it is open to us to give special leave to the appellant under Art,. 136 of the Constitution, we do not think that it is necessary in the present case to decide the question mooted by the learned Chief Justice in his order dated December 1, 1953, and we prefer not to express any opinion thereon.
The other point relates to the view expressed by the High Court in the order under appeal that an order of confiscation or penalty under the is a mere administrative or executive act, in respect of whic` no application for a writ of certiorari lies.
It is necessary to state that the point is now concluded by two recent decisions of this Court.
In F. N. Roy vs Collector Of Customs, Calcutta (1), this Court held that the imposition of a fine under section 167(8) of the was really a quasi judicial act and in the (1) ; 830 later decision of Leo Roy Frey vs The Superintendent, District Jail, Amritsar and another (1), it has been held that in imposing confiscation and penalties under the , the Collector acts judicially.
Therefore, the view that an order of confiscation or penalty under the is a mere administrative or executive act is no longer tenable.
Now, we proceed to a consideration of the two main points urged on behalf of the appellant Company.
It has been argued before us that on a proper construction of section 8 (3) of the Foreign Exchange Act (as it stood at the relevant time) read with section 19 of the , it was not legally open to the customs authorities in the present case to take any action against the appellant Company under the , as such action prejudiced the provisions of section 23 of the Foreign Exchange Act.
To appreciate this point it is necessary to read some of the relevant sections of the Foreign Exchange Act and the .
Sub sections (1) and (2) of section 8 of the Foreign Exchange Act impose restrictions on import and export of currency and bullion.
Sub section (1) states, inter alia, that the Central Government may, by notification in the official gazette, order that, subject to such exemption, if any, as may be contained in the notification, no person shall, except with the general or special permission of the Reserve Bank, bring or send into the States any gold or silver.
Such a notification was published on August 25, 1948, which said in substance that except with the permission of the Reserve Bank, no person shall bring into the States from any place outside India.
any gold, bullion, etc, sub section (3) was at the relevant time in these terms 8 (3) The restrictions imposed by subsections (1) and (2) shall be deemed to have been imposed under section 19 of the , without prejudice to the provisions of section 23 of this Act, and all the provisions of that Act shall have effect accordingly.
" The aforesaid sub section was later deleted by Act (i) ; 831 VIII of 1952, and a new section, namely, section 23A,was introduced which provided inter alia that the restrictions imposed by sub sections
(1) and (2) of section 8 shall be deemed to have been imposed under section 19 of the and all the provisions of that Act shall have effect accordingly except that section 183 thereof shall have effect as if for the word " shall " therein, the word " may " were substituted.
At the time relevant for the purpose of the present case, sub section
(3) of section 8 was in full force and effect and the question under our consideration has to be decided with reference to that sub section.
We then come to section 23 of the Foreign Exchange Act which at the relevant time was in these terms: " 23.
Penalty and Procedure. (1) Whoever contravenes any of the provisions of this Act or of any rule, direction or order made thereunder shall be punishable with imprisonment for a term which may extend to two years or with fine or with both, and any Court trying any such contravention may, if it thinks fit and in addition to any sentence which it may impose for such contravention, direct that any currency, security, gold or silver, or goods or other property in respect of which the contravention has taken place shall be confiscated.
(2). . . . . . . . . . (3) No Court shall take cognisaince of any offence punishable under this section. except upon a complaint in writing made by a person authorised in this behalf by the Central Government or the Reserve Bank by a general or special order: Provided that where any such offence is the contravention of any of the provisions of this Act or any rule, direction or order made thereunder which prohibits the doing of an act without permission, no such complaint shall be made unless the person accused of the offence has been given an opportunity of showing that he had such permission.
(4) If the person committing an offence punishable under this section is a company or other body corporate, every director, manager, secretary, or other 106 832 officer thereof shall, unless he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent its commission, be deemed to be guilty of such offence.
" Turning now to the , we start with section 19 which is in Chapter IV.
It says " 19.
The Central Government may, from time to time, by notification in the Official Gazette, prohibit or restrict the bringing or taking by sea or by land goods of any specified description into or out of India across any customs frontier as defined by the Central Government.
" Section 167 occurs in Chapter XVI of the and in so far as it is relevant for our purpose, it states " 167.
The offences mentioned in the first column of the following schedule shall be punishable to the extent mentioned in the third column of the same with reference to such offences respectively: Section of Offences.
this Act to Penalties.
which offence has reference.
If any goods the Such goods shall be importation or liable to confiscation exportation of and any person concerned which is for the in any such offence shall time being prohibited be liable to a penalty or restricted by or 18 $ 19 not exceeding three times under Chapter IV of this the value of the goods, Act, be imported into or not exceeding one or exported from India thousand rupees contrary to such prohibition or restriction; Section 182 of the deals with adjudication of confiscation and penalties referred to in section 167 aforesaid.
It states 833 " 182.
In every case, except the cases mentioned in section 167, Nos 26, 72 and 74 to 76, both inclusive, in which, under this Act, anything is liable to confiscation or to increased rates of duty; or any person is liable to a penalty, such confiscation, increased rate of duty or penalty may be adjudged (a) without limit, by a Deputy Commissioner Deputy Collector of Customs, or a Customs collector; (b) up to confiscation of goods not exceeding two hundred and fifty rupees in value, and imposition of penalty or increased duty, not exceeding one hundred rupees, by an Assistant Commissioner or Assistant Collector of Customs; (c) up to confiscation of goods not exceeding fifty rupees in value, and imposition of penalty or increased duty not exceeding ten rupees, by such other subordinate officers of Customs as the Chief Customs authority may, from time to time, empower in that behalf in virtue of their office: Provided that the Chief Customs authority may, in the case of any officer performing the duties of a Customs collector, limit his powers to those indicated in clause (b) or in clause (c) of this section, and may confer on any officer, by name or in virtue of his office, the powers indicated in clauses (a), (b) or (c) of this section.
" Section 183 has an important bearing on one of the questions urged before us and is in these terms: " 183.
Whenever confiscation is authorised by this Act, the officer adjudging it shall give the owner of the goods an option to pay in lieu of confiscation such fine as the officer thinks fit.
" Section 184 of the states that whenever anything is confiscated under section 182, such thing shall thereupon vest in Government, and the officer adjudging confiscation shall take and hold possession of the thing confiscated and every officer of police, on the requisition of such officer, shall assist in taking and holding such possession.
Section 186 of the states, inter alia, that the award of any confiscation, penalty or increased rate of duty under the Act by an officer of Customs shall not prevent the 834 infliction of any punishment to which the person affected thereby is liable under any other law.
Now, the argument urged on behalf of the appellant arising as it does out of section 8(3) of the Foreign Exchange Act and section 19 of the is this.
Under sub section
(3) of section 8 a restriction imposed by a notification made under sub section
(1) of the section shall be deemed to have been imposed under section 19 of the and all the provisions of the shall have effect accordingly; but the argument is that this deeming provision is subject to an important qualification contained in the words without prejudice to the provisions of section 23 of this Act ', meaning thereby the Foreign Exchange Act.
The contention is that though the restriction imposed under sub section
(1) of section 8 is to be deemed to have been imposed under section 19 of the , such deeming is to be without prejudice to, that is, subject to the provisions of section 23 of the Foreign Exchange Act; therefore, where a contravention of any of the provisions of the Foreign Exchange Act has taken place such as is punishable under section 23 thereof, the only remedy available in such a case is the one under section 23 and it is not open to the Customs authorities to take action against the offender under sections 167 (8), 182 and 183 of the .
It is contended that this is the true scope and effect of sub section
(3) of section 8 of the Foreign Exchange Act, if due regard is paid to the clause 'without prejudice to the provisions of section 23 of this Act occurring therein.
It is further pointed out that there is power under section 23 itself to confiscate the goods in respect of which the contravention has taken place.
On behalf of respondents I to 3, however, it is contended that the clause " without prejudice to the provisions of section 23 " does not mean "subject to the provisions of section 23 " and its true effect is merely this: when there is contravention of the restrictions imposed by sub section
(1) and (2) of section 8, which restrictions are deemed to have been imposed under section 19 of the , the contravention may have a double effect; it involves a violation of the provisions of the and may at the same time involve 835 a violation of the provisions of the ForeignExchange Act and, if the offender is known, two remedies may be available to the authoritiesconcerned; one remedy is to proceed under the relevant provisions of the and the other under the relevant provisions of the Foreign Exchange Act.
These two are concurrent remedies, which are not mutually exclusive, though in the matter of punishment the question may arise whether a person can be punished twice for the same act or offence.
On a careful consideration of these rival contentions we have come to the conclusion that it is not necessary on the facts of the present case to decide the larger question as to whether two remedies are available to the authorities concerned in respect of a contravention which comes both under the and the Foreign Exchange Act and if so, to what extent the two remedies are concurrent, cumulative or otherwise.
Let us confine ourselves to the application of sub section
(3) of section 8 of the Foreign Exchange Act to the facts of this case.
That sub section states firstly, that the restrictions imposed by sub sections
(1) and (2) shall be deemed to have been imposed under section 19 of the ; secondly, it states that the aforesaid deeming provision shall be without prejudice to the provisions of section 23 of the Foreign Exchange Act; and thirdly, it states that all the provisions of the shall have effect accordingly.
The construction put forward on behalf of the appellant Company is that where section 23 of the Foreign Exchange Act is applicable, any other remedy under the is barred; because that is the effect of the second part of the sub section which says that the deeming provision shall be without prejudice to the provisions of section 23 and the concluding part of the sub section which says that all the provisions of the shall have effect accordingly is controlled by the second part, as is indicated by the use of the word ' accordingly therein.
The learned Solicitor General has put forward a different construction.
According to him, the second part of the sub section when it says without prejudice to the provisions of section 23 ' merely 836 means that the remedy under section 23 is also available in an appropriate case, but it does not bar the remedy available under the ; otherwise, the third and concluding part of the sub section is renderedotiose.
He has further suported his contention by a reference to section 23A, inserted in 1952, which repeats the phraseology of deleted sub section
(3) of section 8 but makes it sufficiently clear what the meaning of the clause I without prejudice to the provisions of section 23 is.
We do not so decide, but let us assume that the construction put forward on behalf of the appellant is the one that should be accepted in this case.
The question then is does section 23 of the Foreign Exchange Act apply to the facts of this case and could the appellant Company be proceeded against under that section ? A distinction must at once be drawn between an action in rem and a proceeding in personal.
Section 23 of the Foreign Exchange Act is a proceeding against the offender, and is applicable to the person who contravenes any of the provisions of that Act, even though on a conviction for such contravention, the Court may, if it thinks fit and in addition to any sentence which it may impose for such contravention, direct that the goods in respect of which the contravention has taken place be confiscated.
In substance it is a proceeding against a person for the purpose of penalising him for a contravention of the provisions of the Foreign Exchange Act, and such a proceeding is available when the offender is known.
Take, however, a case where the offender (the smuggler, for example) is not known, but the goods in respect of which the contravention has taken place are known and have been seized.
Section 167(8) of the contemplates a case of this nature, when it describes the offence in col. 1 in the following words ,, If any goods, the importation or exportation of which is. . prohibited or restricted be imported into or exported from India contrary to such prohibition or restriction.
" The penalty provided is that the goods shall be liable to confiscation.
There is a further provision in the penalty column that any person concerned in any such 837 offence shall be liable to a penalty not exceeding three times the value of the goods etc.
The point to note is that so far as the confiscation of the goods is concerned, it is a proceeding in and the penalty is enforced against the goods whether the offender is known or not known; the order of confiscation under section 182, , operates directly upon the status of the property, and under section 184 transfers an absolute title to Government.
Therefore, in a case where the Customs authorities can proceed only against the goods, there can be no question of applying section 23 of the Foreign Exchange Act and even on the construction put forward on behalf of the appellant Company as respects section 8(3), the remedy under the against the smuggled goods cannot be barred; when on the facts of the case section 23 can have no application, no question of prejudicing its provisions by the adoption of the procedure under the can at all arise.
Bose J. was fully aware of this distinction between section 23 of the Foreign Exchange Act and section 167(8) of the .
Indeed, he expressly said that he had no doubt that in appropriate cases where section 23 is not attracted, recourse can be had to section 182 of the ; but lie thought that the notice which was issued to the appellant Company in this case on June 20, 1951, showed that the intention was to proceed against the offender also, and this, according to him, made a difference and brought in section 23.
We are unable to agree.
We have quoted.
the notice in an earlier part of this judgment.
The notice asked the appellant to show cause why penal action should not be taken against it and the gold under the provisions of section 167(8) for alleged violation of section 19, , and section 8, Foreign Exchange Act.
Neither the notice, nor the note of the Superintendent, Preventive Service (enclosed with the notice) suggested that the appellant was the smuggler and, therefore, liable to penalty under section 23 of the Foreign Exchange Act.
Section 167(8) of the provides for two kinds of penalties when contraband goods are imported into or exported from India; one is confiscation of the 838 goods which is an order in rem and the other is a penalty on the person concerned in any such offence; that is, the offence described in column I of item (8).
Taking the view most favourable to the appellant, it may be said that the notice contemplated both kinds of proceedings namely one in rem and the other in personam and asked the appellant to show cause against the imposition of both penalties mentioned in the third column of section 167(8); but the notice did not show any intention, nor did it suggest even a pos sibility, of proceeding against the appellant under section 23 of the Foreign Exchange Act.
There is, we think, an appreciable difference between the expression any person concerned in any such offence ' occurring in the third column of section 167(8) of the and the expression whoever contravenes any of the provisions of this Act occurring in section 23 of the Foreign Exchange Act.
A person may be concerned in the importation of smuggled gold, without being a smuggler himself or without himself contravening any of the provisions of the Foreign Exchange Act.
In this sense, the scope of section 167(8), , is different from that of section 23 of the Foreign Exchange Act.
Moreover, in the case under our consideration, the only penalty imposed under section 167(8) was the confiscation of the gold which indicates that the authorities proceeded with the proceeding in rem and dropped the proceeding in personam; therefore, no question of prejudicing the provisions of section 23, Foreign Exchange Act, arose in this case.
We think that Bose J. was in error in thinking that the adoption of the procedure under the prejudiced in any way the provisions of section 23, Foreign Exchange Act, in the present case.
On this finding, it is unnecessary to go into any of the larger questions which were canvassed before us in the course of arguments.
We were addressed at some length on (1) what would happen to the smuggled goods if the offender died in the course of a trial tinder section 23 and the provisions of the were not available; (ii) what would be the position if two contradictory findings were given with regard to the 839 goods one by the Customs authorities under the and the other by the Court tinder section 23, Foreign Exchange Act in case two concurrent remedies were open; and (iii) what would happen to the safeguards given to an accused person under section 23, if it were open to the Customs authorities to by pass section 23,and proceed under the .
These are interesting and, may be, important questions; and we have no doubt that they will be decided when they really fall for decision in an appropriate case.
In the case under present consideration, it is sufficient to state that on the facts found, no prejudice was caused to the provisions of section 23 by adopting the procedure resulting in the impugned order of confiscation, and the contention of the appellant that the Customs authorities had no jurisdiction to adopt the procedure under the cannot be accepted as correct.
This brings us to the second main contention urged on behalf of the appellant.
By the impugned order the Collector of Customs confiscated the gold, and in lieu thereof gave the appellant an option to pay a fine of Rs 10,00,000 (Rupees ten lakhs).
It is not disputed that the impugned order up to the extent stated above was within his jurisdiction to make.
The Collector, however, imposed two other conditions for the release of the confiscated gold; one was the production of a permit from the Reserve Bank of India in respect of the gold within four months from the date of despatch of the impugned order and the other was the payment of proper customs duties and other charges leviable in respect of the gold within the same period of four months.
The High Court held, rightly in our opinion that the Collector had no jurisdictin to imposposed the aforesaid two conditions.
It has been fairly concened by the learned Solicitor General that there is no provision in the Foreign Exchange Act or the under which the Reserve Bank could give permission in respect of smuggled gold with retrospective effect; if it could, there would be no offence under section 167(8) and the order of confiscation itself would be 107 840 bad.
As to the second condition of payment of customs duty etc., the learned Solicitor General referred us to a decision of the Bombay High Court in Keki Hormasji Elavia vs The Union of India (Civil Application No. 1296 of 1953 decided on August 18, 1953) referred to in a Compilation of.
Judgments in Customs Cases, published by the Central Board of Revenue, and submitted that customs duty was payable under section 88 of the , as in the Bombay case.
The facts of the Bombay case were entirely different; it was found there that the goods, which were toilet and perfumery goods, had been smuggled through the port of Kantiajal near Surat without payment of any duty and in those circumstances, it was held that section 88 applied.
In the case before us there is no finding by what means the gold was smuggled by sea or landand it is difficult to see how section 88, which relates to goods not cleared or warehoused within four months after entry of vessel, can be of any help in the present Case.
We are, therefore, of the view that the Collector of Customs had no jurisdiction to impose any of the two conditions mentioned above .
What then is the result? On behalf of the appellant it has been argued that the order being a composite and integrated order, it is not severable; and secondly, it is contended that on an application for a writ of certiorari, the superior Court must quash the whole order when it is found to be bad and in excess of jurisdiction even as to a part thereof The question of severability does not present any great difficulty.
It has been the subject of consideration in more than one decision of this Court, and in the recent decision in R. M. D. Chamarbaugwalla vs Union of India (1) the principles governing it have been summarised.
Applying those principles we find no difficulty in holding that the invalid conditions imposed by the Collector are not so inextricably mixed up that they cannot be separated from the valid order of confiscation and fine in lieu thereof; there is also no doubt that the Collector would have passed the order of confiscation and fine in lieu thereof on his finding (1)[1957] S.C.R. 930.
841 that the gold was smuggled gold, even if he realised that the conditions he was imposing were invalid; it is also clear that the conditions do not form part of a single scheme which can be operative only as a whole.
Learned counsel for the appellant has referred us to the sixth rule enunciated in Chamarbaugwalla 's decision (supra) and has contended that if the invalid conditions are expunged, what remains of the impugned order cannot be enforced without making an alteration or modification as to the time limit fixed, and therefore the whole order must be struck down as void.
We are unable to agree.
The sixth rule aforesaid is based on the ground that the Court cannot make alterations or modifications in order to enforce what remains of a statute after expunging the invalid portions thereof ; otherwise it will amount to judicial legislation.
No such consideration arises in the case before us.
There is no legal difficulty in enforcing the rest of the impugned order after separating the invalid conditions therefrom; on the passing of the order of confiscation, the gold vests in Government and section 183 does not make it obligatory on the Collector to fix a time limit for payment of the fine in lieu of confiscation.
It is really for the benefit of the owner that a time is fixed for payment of the fine.
Even if the time limit is altered, by no stretch of imagination can it be said that such alteration amounts to judicial legisla tion.
For these reasons we agree with the Division Bench of the High Court that the invalid conditions imposed by the Collector in this case are severable from the rest of the impugned order.
Learned counsel has relied on the decision in The King vs Willesden Justices, Ex parte Utley(1) for his contention that the High Court has no power, on certiorari, to amend the impugned order by striking out the invalid conditions; nor has this Court, on an appeal from an order on an application for the issue of a writ of certiorari, any power higher than that of the High Court.
He has contended that the essence of the remedy of certiorari is that it necessarily involves revising the decision of the inferior court to which it is (1)[1948] 1 K. B. 397. 842 directed in one of three ways: (a) by quashing it ; (b) by removing the case and trying it in a court of competent jurisdiction ; or (c) by causing it to be reheard.
According to English precedents, so argues learned counsel, certiorari involves an examination of a decision of the Court to which it is addressed to see " What of right and according to the law and custom of England we shall see fit to be done " (see Short and Mellor 's Practice of the Crown Office, 2nd Edn.
504 505).
We do not think that we are called upon in this case to go into the early history of the prerogative writ of certiorari in England or even to decide.
what is the extent of the power of the High Court, on a prayer for the issue of a writ in the nature of a, writ of certiorari, under article 226 of the Constitution.
Broadly speaking, it is true that an essential feature of a writ of certiorari is that the control which is exercised through it over judicial or quasi judicial tribunals or bodies is not in an appellate but supervisory capacity.
This Court observed in T. C. Basappa vs T. Nagappa and Another (1), at p. 257 " In granting a writ of certiorari the superior Court does not exercise the powers of an appellate Tribunal.
It does not review or reweigh the evidence upon which the determination of the inferior Tribunal purports to be based.
It demolishes the order which it considers to be without jurisdiction or palpably erroneous but does not substitute its own views for those of the inferior Tribunal.
The offending order or proceeding so to say is put out of the way as one which should not be used to the detriment of any person.
" In the same decision, it was also observed: " In view of the express provisions in our Constitution we need not now look back to the early history or the procedural technicalities of these writs in English law, nor feel oppressed by any difference or change of opinion expressed in particular cases by English Judges.
We can make an order or issue a writ in the nature of certiorari in all appropriate cases and in appropriate manner, so long as we keep (1)[1955] 1 S.C.R 250.
843 to the broad and fundamental principles that regulate the exercise of jurisdiction in the matter of granting such writs in English law.
" In King vs Willesden Justices (supra) the applicant was convicted and fined pound 15 for failure to stop his vehicle on being so required by a police constable in uniform, contrary to the Road Traffic Act, 1930, section 20, sub section 3.
The ground for the application was that the maximum penalty prescribed by section 20, subsection 3, for the offence in question was a fine of pound 5 and that therefore the penalty of pound 15 imposed by the justices was bad in law and in excess of their jurisdiction.
Lord Goddard C. J. said: " Our attention has been called to several cases, including Reg.
vs Stade, , Reg.
vs Kay, (1873) L. R. 8 Q. B. 324, and Reg.
vs Cridland, (1857) 7 E. & B. 853, but having considered them all, my opinion remains as it was at the outset, that if a sentence be imposed which is not authorised by law for the offence for which the defendant is convicted, that makes the conviction bad on its face and being a bad conviction, it can be brought up here to be quashed, and when so brought up, must be quashed, for this court has no power, and never has had any power, on certiorari, to amend the conviction.
" It is worthy of note that the decision proceeded on the footing that the man had a penalty imposed upon him which the law did not permit him to suffer and that made the conviction bad; and the conviction being bad, the applicant was entitled to his order of certiorari.
But we think that there is a more convincing answer to the contention urged on behalf of the appellant.
In an earlier part of this judgment.
we have quoted in extenso the prayers which the appellant had made in its petition in the High Court.
The appellant did not confine itself to asking for a writ of certiorari only, but asked for a mandamus requiring respondents I to 3 to forbear from giving effect to the orders of seizure, detention and confiscation of the gold and further requiring them to return the gold, and also asked for a writ of prohibition restraining respondents 844 1 to 3 from taking further steps in pursuance of the order of confiscation.
These prayers were neither unnecessary nor a inere surplusage; they were appropriate for the purpose of avoiding the conditions which the Collector had imposed for release of the gold.
It is well settled that where proceedings in an inferior court or tribunal are partly within and partly without its jurisdiction, prohibition will lie against doing what is in excess of jurisdiction.
(see Halsbury 's Laws of England, 3rd Edn.
11, para.
216, p. 116).
In the recent decision in Dalmia 's case, Shri Ram Krishna Dalmia V. Shri Justice section R. Tendolkar and others(1), this Court held a part of a notification made under section 3 of the Commission of Enquiry Act (LX of 1952) to be bad, and holding that it was severable from the rest of the notification, deleted it and held that rest of the notification to be good.
Therefore, we do not see any insuperable difficulty in the present case in prohibiting respondents I to 3 from enforcing the two invalid conditions which the Collector of Customs had imposed for release of the gold on payment of the fine in lieu of confiscation, and the time limit of four months fixed by the Collector must accordingly run from the date of this order.
The only other points that require consideration are the points urged on behalf of the two banks, respondents 4 and 5.
These respondents say that though the general property in the goods pledged remained with the pledgor, a special property passed to the pledgee in order that he might be able to sell the pledge if and when his right to sell arose.
They complain that they have been deprived of this special property by reason of the proceeding resulting in the impugned order, adopted under the by the Collector of Customs; they contend that their right is guaranteed under article 19(1)(f) of the Constitution, and the provisions of the in so far as they take away the pledgee 's right without providing for a notice to the pledgee or an option to pay the fine in lieu of confiscation are not reasonable restrictions in the interests of the general (1)[1959] S.C.R. 279.
845 public within the meaning of el.
(5) of the said Article.
Our attention has been drawn to section 19A of the which enables the Central Government to make regulations, either general or special, respecting the detention and confiscation of goods the importation of which is prohibited, and the conditions, if any, to be fulfilled before such detention and confiscation, and also to subsection (1) thereof under which the Chief Customs Officer may require the regulations to be complied with and may satisfy himself in accordance with those regulations that the goods are such as are prohibited to be imported.
It is pointed out that no regulations have yet been made, and in the absence of any regulations the Customs officers have an uncontrolled and unguided power in the matter of detention and confiscation of goods.
So far as the Nationale Handels Bank N. V., respondent 4, is concerned, it has no right under article 19.
Assuming that a company can be a citizen as defined in the Constitution, respondent 4 admittedly is a foreign Company possessing no rights of a citizen of this country.
On the same assumption the Bharat Bank Ltd., respondent 5, being an Indian Company may have the rights of a citizen under article 19; but in the circumstances which we shall presently state, we do not think that its complaint as to the infraction of a fundamental right can be raised at this stage.
Apart altogether from the considerations which the learned Solicitor General has pressed (as to which it is un necessary for us to express any final opinion), namely, (1) that a pledgee cannot have a right higher than that of the pleader, (ii) that the pledgor does not cease to be the owner by reason of the pledge, and (iii) that in an action in rem the order operators directly upon the status of the property and, as in this case, vests the property absolutely in Government, there are certain other circumstances which militate against the claim now put forward by respondent 5.
The order of the Collector shows that all throughout the adjudication proceedings respondent 5 was represented by counsel before the Collector.
The Collector passed his order oil May 14, 1952, and a copy was forwarded 846 to respondent 5.
The respondent took no steps against the order, but was content with its position as respondent to the application which the present appellant filed in the High Court.
It is also to be noticed that the Collector 's order shows that he was not fully satisfied with the story of the appellant that the gold had been pledged with the Banks in the manner suggested.
So far as the transactions with the Bharat Bank are concerned, he said: " The Majud Bahi (stock book) of the firm showed a closing balance of gold weighing tolas 2,457 6 0 as lying with the Bharat Bank Ltd., on 17th November, 1950, whereas the closing balance on that date according to the Bank 's statement was tolas 4,651 14 0.
The firm 's representative gave reasons for this difference which was mainly that instructions were given to the Bharat Bank on the 17th November, 1950 to send gold weighing tolas 2,236 7 0 to Sewadin Bansilal of Bombay but the actual delivery of this gold to this person at Bombay did not take place until the 22nd November 1950.
The Auditors, however, observed that they had not seen any correspondence with the Bank in support of the above information which they received verbally.
" In the High Court when the case was before Bose J. respondent 5 challenged the order of the Collector on several points including the alleged infraction of his fundamental right.
This objection was not, however, accepted, and Bose J. allowed the writ application on two other grounds which we have mentioned earlier.
In the appeal before the Division Bench, respondent 5 again relied on article 19 (1) (f ), and the Division Bench affirmed the finding of Bose J. that as the did not directly legislate in respect of the freedom guaranteed by article 19 (1) (f ), that Article had no application.
Again, respondent No. 5 took no steps against the judgment and order of the Division Bench dated July 3, 1953 a judgment and order which it now challenges as incorrect.
All along the line, it preferred to sail with the appellant but figuring as a respondent only; it was the appellant who moved the High Court for a certificate, obtained such 847 certificate and brought this appeal to this Court.
Respondent 5 took no action against the judgment and order of which it now complains.
In these circumstances, we do not think that respondent 5 can now be allowed to complain of a violation of its fundamental right, apart from and independently of the appellant.
The result, therefore, is as follows.
The impugned order is good as to the confiscation of the gold and the payment of fine in lieu thereof.
The Collector of Customs had jurisdiction to make that order on his finding that the gold was smuggled gold.
He, however, had no jurisdiction to impose the other two conditions which he imposed for the release of the gold.
Though the High Court held on appeal that the invalid conditions were severable from the rest of the order, it did not give any appropriate direction regard ing those conditions as it should have done, but allowed the appeal and dismissed the writ application in too.
We think that the appropriate order to pass in this case is to dismiss the writ application in so far as it seeks to quash the impugned order of confiscation of the gold and the payment of fine in lieu thereof, and to allow it in so far as it wants a direction restraining respondents 1 to 3 from enforcing the two invalid conditions imposed by the Collector of Customs, which the Collector had no jurisdiction to impose.
The time limit of four months given by the Collector will accordingly run from the date of this order.
The appeal is accordingly allowed to the very limited extent indicated above but dismissed as to the rest, and in the circumstances of this case, particularly in view of the invalid conditions imposed by the Collector, we direct that the parties must bear their own costs of the hearing in this Court.
Appeal allowed in part.
| IN-Abs | The appellant company was carrying on business as a bullion merchant and in that capacity purchased about 9478 tolas of gold.
On information that the gold in question was smuggled, the customs authorities issued a notice to the appellant to the effect that the case had been placed before the Collector of Customs for adjudication by the Superintendent, Preventive Service, The notice stated inter alia : " You are requested to show cause . why penal action should not be taken against you and the 9478,19 tolas of gold in question under the provisions of sections 167(8) and 168 of the , for alleged violation of section 19 of the same Act read with section 8 of the Foreign Exchange Regulation Act, 1947 ".
The Collector of Customs, after hearing the parties, came to the conclusion that the gold in question was smuggled gold and that there was a contravention of the provisions of section 19 of the read with section 8 of the Foreign Exchange Regulation Act, and made an order in these terms: " I accordingly order that the entire quantity of the gold seized on the 21st November, 1950, amounting to 9478.19 tolas be confiscated under section 167(8) of the .
In lieu of confiscation, however, I give the owner of the said gold an option, under section 183 ibid to pay a fine of Rs. 10,00,000 (Rupees ten lakhs only) in addition to the proper customs duty and other charge leviable thereon within four months from the date of the despatch of this order.
The release of the gold will be further subject to the production of a permit from the Reserve Bank of India within the aforesaid period ".
The appellant challenged the validity of the order and contended (i) that on a proper construction of section 8(3) of the Foreign Exchange Regulation Act read with section 19 of the , it was not legally open to the customs authorities to take any action against it under the , as such action would prejudice the provisions of section 23 of the Foreign Exchange Regulation Act, and (2) that, in any case, the conditions which the Collector of Customs had imposed in the impugned order for release of the confiscated gold were not warranted by the statute, 822 and that as the order was a composite and integrated one it was not severable and, therefore, should be quashed : Held, (1) that the scope of section 167(8) of the , is different from that of section 23 Of the Foreign Exchange Regulation Act, 1947.
Whereas under section 23 Of the Foreign Exchange Regulation Act proceedings are taken in Personam against the offender for the purpose of penalising him for the contravention of the provisions of the Act, an order for confiscation of the smuggled goods under section 167(8) Of the is one in rem.
There is a difference between the expression " any person concerned in any such offence " occurring in the third column of section 167(8) of the and the expression "whoever contravenes any of the provisions of this Act " occurring in section 23 of the Foreign Exchange Regulation Act.
A person may be concerned in the importation of smuggled goods, without being a smuggler himself or without himself contravening any of the provisions of the Foreign Exchange Regulation Act.
In this case, the only penalty imposed under section 167(8) Of the was confiscation of the gold, which indicated that the customs authorities had dropped the proceedings in personam; consequently, the adoption of the procedure under the did not prejudice in any manner the provisions Of. section 23 Of the Foreign Exchange Regulation Act.
The question whether two remedies are available to the authorities concerned in respect of a contravention which comes both under the and the Foreign Exchange Act was left open.
(2) The Collector of Customs had no jurisdiction to impose the two conditions for the release of the confiscated gold ; but, as the aforesaid conditions are severable from the rest of the impugned order, the latter is valid as to the confiscation of the gold and the payment of fine in lieu thereof.
R. M. D. Chamarbaugwalla vs Union of India, [1957] S.C.R. 930 and Shri Ram Krishna.
Dalmia vs Shri justice section R. Tendolkar and others; , , applied.
The relevant sections of the , and the Foreign Exchange Regulation Act, 1947, are set out in the judgment.
|
vil Appeal Nos. 3187 and 3188 of 1988.
From the Judgment and Order dated 4.4.1988 of the Madhya Pradesh High Court in CR No. 26 of 1988.
Anil B. Dewan, J.B. Dadachanji, Mrs. A.K. Verma for the appellant.
K. Parasaran, A. Mariarputham, Miss A. Subhashini and C.L. Sahu for the Respondents.
131 The following Order of the Court was delivered: ORDER The Bhopal Gas Leak tragedy that occurred at midnight on 2nd December, 1984, by the escape of deadly chemical fumes from the appellant 's pesticide factory was a horrendous industrial mass disaster, unparalleled in its magnitude and devastation and remains a ghastly monument to the de huma nising influence of inherently dangerous technologies.
The tragedy took an immediate toll of 2,660 innocent human lives and left tens of thousands of innocent citizens of Bhopal physically impaired or affected in various degrees.
What added grim poignance to the tragedy was that the industrial enterprise was using Methyl Iso cyanate, a lethal toxic poison, whose potentiality for destruction of life and biotic communities was, apparently, matched only by the lack of a pre package of relief procedures for management of any accident based on adequate scientific knowledge as to the ameliorative medical procedures for immediate neutralisation of its effects.
It is unnecessary for the present purpose to refer, in any detail, to the somewhat meandering course of the legal proceedings for the recovery of compensation initiated against the multi national company initially in the Courts in the United States of America and later in the District Court at Bhopal in Suit No. 113 of 1986.
It would suffice to refer to the order dated 4 April, 1988 of the High Court of Madhya Pradesh which, in modification of the interlocutory order dated 17 December, 1987 made by the learned District Judge, granted an interim compensation of Rs.250 crores.
Both the Union of India and the Union Carbide Corporation appealed against that order.
This Court by its order dated 14 February, 1989 made in those appeals directed that there be an overall settlement of the claims in the suit, for 470 million US dollars and termination of all civil and criminal proceedings.
The opening words of the order said: "Having given our careful considera tion for these several days to the facts and circumstances of the case placed before us by the parties in these proceedings, including the pleadings of the parties, the mass of data placed before us, the material relating to the proceedings in the Courts in the United States of America, the offers and counter offers made between the parties at different stages 132 during the various proceedings, as well as the complex issues of law and fact raised before us and the submission made thereon, and in particular the enormity of human suffering occasioned by the Bhopal Gas disaster and the pressing urgency to provide immediate and substantial relief to victims of the disaster, we are of opinion that the case is pre emi nently fit for an overall settlement between the parties covering all litigations, claims, rights and liabilities related to and arising out of the disaster . . " (Emphasis Supplied) It appears to us that the reasons that persuaded this Court to make the order for settlement should be set out, so that those who have sought a review might be able effec tively to assist the Court in satisfactorily dealing with the prayer for a review.
The statement of the reasons is not made with any sense of finality as to the infallibility of the decision; but with an open mind to be able to appreciate any tenable and compelling legal or factual infirmities that may be brought out, calling for remedy in Review under Arti cle 137 of the Constitution.
The points on which we propose to set out brief reasons are the following: (a) How did this Court arrive at the sum of 470 million US dollars for an over all settle ment? (b) Why did the Court consider this sum of 470 million US dollars as 'just, equitable and reasonable '? (c) Why did the Court not pronounce on certain important legal questions of far reaching importance said to arise in the appeals as to the principles of liability of monolithic, economically entrenched multi national compa nies operating with inherently dangerous technologies in the developing countries of the third world questions said to be of great contemporary relevance to the democracies of the third world? There is yet another aspect of the Review pertaining to the part of the settlement which terminated the criminal proceedings.
The questions raised on the point in the Re view petitions, prima facie, merit consideration and we should, therefore, abstain from saying anything which might tend to pre judge this issue one way or the other.
133 The basic consideration motivating the conclusion of the settlement was the compelling need for urgent relief.
The suffering of the victims has been intense and unrelieved.
Thousands of persons who pursued their own occupations for an humble and honest living have been rendered destitute by this ghastly disaster.
Even after four years of litigation, basic questions of the fundamentals of the law as to liabil ity of the Union Carbide Corporation and the quantum of damages are yet being debated.
These, of course, are impor tant issues which need to be decided.
But, when thousands of innocent citizens were in near destitute conditions, without adequate subsistential needs of food and medicine and with every coming morrow haunted by the spectre of death and continued agony, it would be heartless abstention, if the possibilities of immediate sources of relief were not ex plored.
Considerations of excellence and niceties of legal principles were greatly over shadowed by the pressing prob lems of very survival for a large number of victims.
The Law 's delays are, indeed, proverbial.
It has been the unfortunate bane of the judicial process that even ordinary cases, where evidence consists of a few documents and the oral testimony of a few witnesses, require some years to realise the fruits of litigation.
This is so even in cases of great and unquestionable urgency such as fatal accident actions brought by the dependents.
These are hard realities.
The present case is one where damages are sought on behalf of the victims of a mass disaster and, having regard to the complexities and the legal questions involved, any person with an unbiased vision would not miss the time consuming prospect for the course of the litigation in its sojourn through the various courts, both in India and later in United States.
It is indeed a matter for national introspection that public response to this great tragedy which affected a large number of poor and helpless persons limited itself to the expression of understandable anger against the industrial enterprise but did not channel itself in any effort to put together a public supported relief fund so that the victims were not left in distress, till the final decision in the litigation.
It is well known that during the recent drought in Gujarat, the devoted efforts of public spirited persons mitigated, in great measure, the loss of cattle wealth in the near famine conditions that prevailed.
This Court, considered it a compelling duty, both judi cial and humane, to secure immediate relief to the victims.
In doing so, the Court did not enter upon any forbidden ground.
Indeed, efforts had 134 earlier been made in this direction by Judge Keenan in the United States and by the learned District Judge at Bhopal.
What this Court did was in continuation of what had already been initiated.
Even at the opening of the arguments in the appeals, the Court had suggested to learned counsel on both sides to reach a just and fair settlement.
Again, when counsel met for re scheduling of the hearings the suggestion was reiterated.
The response of learned counsel on both sides was positive in attempting a settlement, but they expressed a certain degree of uneasiness and scepticism at the prospects of success in view of their past experience of such negotiations when, as they stated, there had been uninformed and even irresponsible criticism of the attempts at settlement.
The learned Attorney General submitted that even the most bona fide, sincere and devoted efforts at settlement were likely to come in for motivated criticism.
The Court asked learned counsel to make available the particulars of offers and counter offers made on previous occasions for a mutual settlement.
Learned counsel for both parties furnished particulars of the earlier offers made for an overall settlement and what had been considered as a reasonable basis in that behalf.
The progress made by previ ous negotiations was graphically indicated and these docu ments form part of the record.
Shri Nariman stated that his client would stand by its earlier offer of Three Hundred and Fifty Million US dollars and also submitted that his client had also offered to add appropriate interest, at the rates prevailing in the U.S.A., to the sum of 350 million US dollars which raised the figure to 426 million US dollars.
Shri Nariman stated that his client was of the view that amount was the highest it could go upto.
In regard to this offer of 426 million US dollars the learned Attorney General submitted that he could not accept this offer.
He submitted that any sum less than 500 million US dollars would not be reasonable.
Learned counsel for both parties stated that they would leave it to the Court to decide what should be the figure of compensation.
The range of choice for the Court in regard to the figure was, therefore, between the maximum of 426 million US dollars offered by Shri Nariman and the minimum of 500 million US dollars suggested by the learned Attorney General.
In these circumstances, the Court examined the prima facie material as to the basis of quantification of a sum which, having regard to all the circumstances including the prospect of delays inherent in the judicial process in India and thereafter in the matter of domestication of the decree in the United States for the purpose of execution and di rected that 470 million US dollars, which upon immediate payment 135 and with interest over a reasonable period, pending actual distribution amongst the claimants, would aggregate very nearly to 500 million US dollars or its rupee equivalent of approximately Rs.750 crores which the learned Attorney General had suggested, be made the basis of the settlement.
Both the parties accepted this direction.
The settlement proposals were considered on the premise that Government had the exclusive statutory authority to represent and act on behalf of the victims and neither counsel had any reservation as to this.
The order was also made on the premise that the Bhopal Gas Leak Disaster (Registration and Processing of Claims) Act, 1985 was a valid law.
In the event the Act is declared void in the pending proceedings challenging its validity, the order dated 14, February, 1989 would require to be examined in the light of that decision.
We should make it clear that if any material is placed before this Court from which a reasonable inference is possible that the Union Carbide Corporation had, at any time earlier, offered to pay any sum higher than an out right down payment of US 470 million dollars, this Court would straightaway initiate suo motu action requiring the con cerned parties to show cause why the order dated 14 Febru ary, 1989 should not be set aside and the parties relegated to their respective original positions.
The next question is as to the basis on which this Court considered this sum to be a reasonable one.
This is not independent of its quantification, the idea of reasonable ness for the present purpose is necessarily a broad and general estimate in the context of a settlement of the dispute and not on the basis of an accurate assessment by adjudication.
The question is how good or reasonable it is as a settlement, which would avoid delays, uncertainties and assure immediate payment.
The estimate, in the very nature of things, cannot share the accuracy of an adjudication.
Here again one of the important considerations was the range disclosed by the offers and counter offers which was between 426 million US dollars and 500 million US dollars.
The Court also examined certain materials available on record includ ing the figures mentioned in the pleadings, the estimate made by the High Court and also certain figures referred to in the course of the arguments.
There are a large number of claims under the Act.
In the very nature of the situation, doubts that a sizeable number of them are either without any just basis or were otherwise exaggerated could not 136 be ruled out.
It was, therefore, thought not unreasonable to proceed on some prima facie undisputed figures of cases of death and of substantially compensatable personal injuries.
The particulars of the number of persons treated at the hospitals was an important indicator in that behalf.
This Court had no reason to doubt the bona fides of the figures furnished by the plaintiff itself in the pleadings as to the number of persons suffering serious injuries.
From the order of the High Court and the admitted posi tion on the plaintiff 's own side, a reasonable, prima facie, estimate of the number of fatal cases and serious personal injury cases, was possible to be made.
The High Court said: " . .
In the circumstances, leaving a small margin for the possibility of some of the claims relating to death and personal injuries made by the multitude of claims before the Director of Claims of the State Government being spurious, there is no reason to doubt that the figure furnished by the plaintiff Union of India in its amended plaint can be safely accepted for the purpose of granting the relief ' of interim payment of damages.
It has been stated by the plaintiff Union of India that a total number of 2660 persons suffered agonising and excruciating deaths and between 30,000 to 40,000 sustained serious injuries as a result of the disas ter . . " (Emphasis supplied) There is no scope for any doubt that the cases referred to as those of 'Serious injuries ' include both types of cases of permanent total and partial disabilities of various degrees as also cases of temporary total or partial disabil ities of different degrees.
The High Court relied upon the averments and claims in the amended pleadings of the plain tiff, the Union of India, to reach this prima facie finding.
Then, in assessing the quantum of interim compensation the High Court did not adopt the standards of compensation usually awarded in fatal accidents actions or personal injury actions arising under the Motor Vehicles Act.
It is well known that in fatal accidentactions where children are concerned, the compensation awardable is in conventional sums ranging from Rs.15,000 to Rs.30,000 in each case.
In the present case a large number of deaths was of children of very young age.
Even in the case of adults, according to the general run of damages in comparable cases, the damages assessed on the 137 usual multiplier method in the case of income groups com parable to those of the deceased persons, would be anywhere between Rs.80,000 and Rs. 1,00,000.
But the High Court discarded, and rightly, these ordi nary standards which, if applied, would have limited the aggregate of compensation payable in fatal cases to a sum less than Rs.20 crores in all.
The High Court thought it should adopt the broader principle in M.C. Mehta vs Union of India, AIR 1987 SC 1086.
Stressing the need to apply such a higher standard, the High Court said: "As mentioned earlier, the measure of damages payable by the alleged tort teaser as per the nature of tort involved in the suit has to be correlated to the magnitude and the capacity of the enterprises because such compensation must have a deterrent effect . . (Emphasis supplied) Applying these higher standards of compensa tion, the High Court proceeded to assess damage in the following manner: "Bearing in mind, the above factors, in the opinion of this Court, it would not be unrea sonable to assume that if the suit proceeded to trial the plaintiff Union of India would obtain judgment in respect of the claims relating to deaths and personal injuries at least in the following amounts: (a) Rs.2 lakhs in each case of death: (b) Rs.2 lakhs in each case of total permanent disability; (c) Rs.1 lakh in each case of permanent partial disa blement and (d) Rs.50,000 in each case of temporary partial disablement." (Emphasis supplied) Half of these amounts were awarded as interim compensation.
An amount of Rs.250 crores was awarded.
The figures adopted by the High Court in regard to the number of fatal cases and cases of serious personal injuries do not appear to have been disputed by anybody before the High Court.
These data and estimates of the High Court had a particular significance in the settlement.
Then again, it was not disputed before us that the total number of fatal cases was about 3000 and of grievous and serious personal injuries, as verifiable from the records of the hospitals of cases treated 138 at Bhopal, was in the neighbourhood of 30,000.
It would not be unreasonable to expect that persons suffering serious and substantially compensable injuries would have gone to hospi tals for treatment.
It would also appear that within about 8 months of the occurrence, a survey had been conducted for purposes of identification of cases of death and grievous and serious injuries for purposes of distribution of certain ex gratia payments sanctioned by Government.
These figures were, it would appear, less than ten thousand.
In these circumstances, as a rough and ready estimate, this Court took into consideration the prima facie findings of the High Court and estimated the number of fatal cases at 3000 where compensation could range from Rs.l lakh to Rs.3 lakhs.
This would account for Rs.70 crores, nearly 3 times higher than what would, otherwise, be awarded in comparable casses in motor vehicles accident claims.
Death has an inexorable finality about it.
Human lives that have been lost were precious and in that sense price less and invaluable.
But the law can compensate the estate of a person whose life is lost by the wrongful act of anoth er only in the way of the law is equipped to compensate i.e. by monetary compensations calculated on certain well recog nised principles.
"Loss to the estate" which is the entitle ment of the estate and the 'loss of dependancy ' estimated on the basis of capitalised present value awardable to the heirs and dependants, are the main components in the compu tation of compensation in fatal accident actions.
But, the High Court in estimating the value of compensation had adopted a higher basis.
So far as personal injury cases are concerned, about 30,000 was estimated as cases of permanent total or partial disability.
Compensation ranging from Rs.2 lakhs to Rs.50,000 per individual according as the disability is total or partial and degrees of the latter was envisaged.
This alone would account for Rs.250 crores.
In another 20,000 cases of temporary total or partial disability com pensation ranging from Rs. 1 lakh down to Rs.25,000 depend ing on the nature and extent of the injuries and extent and degree of the temporary incapacitation accounting for a further allocation of Rs. 100 crores, was envisaged.
Again, there might be possibility of injuries of utmost severity in which case even Rs.4 lakhs per individual might have to be considered.
Rs.80 crores, additionally for about 2000 of such cases were envisaged.
A sum of Rs.500 crores approxi mately was thought of as allocable to the fatal cases and 42,000 cases of such serious personal injuries leaving behind in their trail total or partial incapacitation either of permanent or temporary character.
139 It was considered that some outlays would have to be made for specialised institutional medical treatment for cases requiring such expert medical attention and for reha bilitation and after care.
Rs.25 crores for the creation of such facilities was envisaged.
That would leave another Rs.225 crores.
It is true that in assessing the interim compensation the High Court had taken into account only the cases of injuries resulting in permanent or temporary disabilities total or partial and had not adverted to the large number of other claims, said to run into lakhs, filed by other claimants.
Such cases of claims do not, apparently, pertain to serious cases of permanent or temporary disabilities but are cases of a less serious nature, comprising claims for minor injuries, loss of personal belongings, loss of live stock etc.
for which there was a general allocation of Rs.225 crores.
If in respect of these claims allocations are made at Rs.20,000, Rs. 15,000 and Rs. 10,000 for about 50,000 person or claims in each category accounting for about one and half lakhs more claims the sums required would be met by Rs.225 crores.
Looked at from another angle, if the corpus of Rs.750 crores along with the current market rates of interest on corporate borrowings, of say 14% or 14 1/2 % is spent over a period of eight years it would make available Rs. 150 crores each year; or even if interest alone is taken, about Rs. 105 to 110 crores per year could be spent, year afteryear, perpetually towards compensation and relief to the victims.
The court also took into consideration the general run of damages in comparable accident claim cases and in cases under workmens compensation laws.
The broad allocations made are higher than those awarded or awardable in such claims.
These apportionments are merely broad considerations gener ally guiding the idea of reasonableness of the overall basis of settlement.
This exercise is not a predetermination of the quantum of compensation amongst the claimants either individually or category wise.
No individual claimant shall be entitled to claim a particular quantum of compensation even if his case is found to fall within any of the broad categories indicated above.
The determination of the actual quantum of compensation payable to the claimants has to be done by the authorities under the Act, on the basis of the facts of each case and without reference to the hypothetical quantifications made only for purposes of an overall view of the adequacy of the amount.
140 These are the broad and general assumptions underlying the concept of 'justness ' of the determination of the quan tum.
If the total number of cases of death or of permanent, total or partial, disabilities or of what may be called 'catastrophic ' injuries is shown to be so large that the basic assumptions underlying the settlement become wholly unrelated to the realities, the element of 'justness ' of the determination and of the 'truth ' of its factual foundation would seriously be impaired.
The 'justness ' of the settle ment is based on these assumptions of truth.
Indeed, there might be different opinions on the interpretation of laws or on questions of policy or even on what may be considered wise or unwise; but when one speaks of justice and truth, these words mean the same thing to all men whose judgment is uncommitted.
Of Truth and Justice, Anatole France said: "Truth passes within herself a penetrating force unknown alike to error and falsehood.
I say truth and you must understand my meaning.
For the beautiful words Truth and Justice need not be defined in order to be understood in their true sense.
They bear within them a shining beauty and a heavenly light.
I firmly believe in the triumph of truth and justice.
That is what upholds me in times of trial . " As to the remaining question, it has been said that many vital juristic principles of great contemporary relevance to the Third World generally, and to India in particular, touching problems emerging from the pursuit of such danger ous technologies for economic gains by multi nationals arose in this case.
It is said that this is an instance of lost opportunity to this apex Court to give the law the new direction on vital issues emerging from the increasing dimensions of the economic exploitation of developing coun tries by economic forces of the rich ones.
This case also, it is said, concerns the legal limits to be envisaged, in the vital interests of the protection of the constitutional rights of the citizenry, and of the environment, on the permissibility of such ultra hazardous technologies and to prescribe absolute and deterrent standards of liability if harm is caused by such enterprises.
The prospect of exploi tation of cheap labour and of captive markets, it is said, induces multi nationals to enter into the developing coun tries for such economic exploitation and that this was eminently an appropriate case for a careful assessment of the legal and Constitutional safeguards stemming from these vital issues of great contemporary relevance.
These issues and certain cognate areas of even wider signif icance 141 and the limits of the adjudicative disposition of some of their aspects are indeed questions of seminal importance.
The culture of modern industrial technologies, which is sustained on processes of such pernicious potentialities, in the ultimate analysis, has thrown open vital and fundamental issues of technology options.
Associated problems of the adequacy of legal protection against such exploitative and hazardous industrial adventurism, and whether the citizens of the country are assured the protection of a legal system which could be said to be adequate in a comprehensive sense in such contexts arise.
These, indeed, are issues of vital importance and this tragedy, and the conditions that enabled it happen, are of particular concern.
The chemical pesticide industry is a concomitant, and indeed, an integral part, of the Technology of Chemical Farming.
Some experts think that it is time to return from the high risk, resource intensive, high input, anti ecologi cal, monopolistic 'hard ' technology which feeds, and is fed on, its self assertive attribute, to a more human and hu mane, flexible, eco conformable, "soft" technology with its systemic wisdom and opportunities for human creativity and initiative.
"Wisdom demands" says Schumacher" a new orienta tion of science and technology towards the organic, the gentle, the non violent, the elegant and beautiful".
The other view stressing the spectacular success of agricultural production in the new era of chemical farming, with high yielding strains, points to the break through achieved by the Green Revolution with its effective response to, and successful management of, the great challenges of feeding the millions.
This technology in agriculture has given a big impetus to enterprises of chemical fertilizers and pesti cides.
This, say its critics, has brought in its trail its own serious problems.
The technology options before scien tists and planners have been difficult.
Indeed, there is also need to evolve a national policy to protect national interests from such ultra hazardous pursuits of economic gains.
Jurists, technologists and other experts in Economics, environmentology, futurology, sociolo gy and public health etc.
should identify areas of common concern and help in evolving proper criteria which may receive judicial recognition and legal sanction.
One aspect of this matter was dealt with by this Court in M.C. Mehta vs Union of India, (supra) which marked a significant stage in the development of the law.
But, at the hearing there was more than a mere hint in the submissions of the Union Carbide that in this case the law was altered with only the Union Carbide Corporation in mind, and 142 was altered to its disadvantage even before the case had reached this Court.
The criticism of the Mehta principle, perhaps, ignores the emerging postulates of tortious liabil ity whose principal focus is the social limits on economic adventurism.
There are certain things that a civilised society simply cannot permit to be done to its members, even if they are compensated for their resulting losses.
We may note a passage in "Theories of Compensation," R.E. Goodin: Oxford Journal of Legal Studies, "It would, however, be wrong to presume that we as a society can do anything we like to people, just so long as we compensate them for their losses.
Such a proposition would mistake part of the policy universe for the whole.
The set of policies to which it points policies that are 'permissible ' but only with compensa tion ' is bounded on the one side by a set of policies that are 'permissible, even without compensation ' and on the other side by a set of policies that are 'impermissible, even with compensation '.
" But, in the present case, the compulsions of the need for immediate relief to tens of thousands of suffering victims could not, in our opinion, wait till these ques tions, vital though they be, are resolved in the due course of judicial proceedings.
The tremendous suffering of thou sands of persons compelled us to move into the direction of immediate relief which, we thought, should not be subordi nated to the uncertain promises of the law, and when the assessment of fairness of the amount was based on certain factors and assumptions not disputed even by the plaintiff.
A few words in conclusion.
A settlement has been record ed upon material and in circumstances which persuaded the Court that it was a just settlement.
This is not to say that this Court will shut out any important material and compel ling circumstances which might impose the duty on it to exercise the powers of review.
Like all other human institu tions, this court is human and fallible.
What appears to the court to be just and reasonable in that particular context and setting, need not necessarily appear to others in the same way.
Which view is right,in the ultimate analysis, is to be judged by what it does to relieve the undeserved suffering of thousands of innocent citizens of this country.
As a learned author said: Wallace Mendelson: Supreme Court Statecraft The Rule of Law and Men. "In this imperfect legal setting we expect judges to clear 143 their endless dockets, uphold the Rule of Law, 'and yet not utterly disregard our need for the discretionary justice of Plato 's philoso pher king.
Judges must be sometimes cautious and sometimes bold.
Judges must respect both the traditions of the past and the convenience of the present. . " But the course of the decisions of courts cannot be reached or altered or determined by agitational pressures.
If a decision is wrong, the process of correction must be in a manner recognised by law.
Here, many persons and social action groups claim to speak for the victims, quite a few in different voices.
The factual allegations on which they rest their approach are conflicting in some areas and it becomes difficult to distinguish truth from false hood and half truth, and to distinguish as to who speaks for whom.
However, all of those who invoke the corrective process es in accordance with law shall be heard and the court will do what the law and the course of justice requires.
The matter concerns the interests of a large number of victims of a mass disaster.
The Court directed the settlement with the earnest hope that it would do them good and bring them immediate relief, for, tomorrow might be too late for many of them.
But the case equally concerns the credibility of, and the public confidence in, the judicial process.
If, owing to the pre settlement procedures being limited to the main contestants in the appeal, the benefit of some contrary or supplemental information or material, having a crucial bearing on the fundamental assumptions basic to the settle ment, have been denied to the Court and that, as a result, serious miscarriage of justice, violating the constitutional and legal rights of the persons affected, has been occa sioned, it will be the endeavour of this Court to undo any such injustice.
But that, we reiterate, must be by proce dures recognised by law.
Those who trust this Court will not have cause for despair.
| IN-Abs | The Bhopal Gas Leak Tragedy that occurred at midnight of 2nd December, 1984, by the escape of deadly chemical fumes from the appellant 's factory was a great industrial disaster and it took an immediate toil of 2600 human lives and left tens of thousands of innocent citizens of Bhopal physically affected in various ways.
As per the figures furnished by the Union of India in its amended plaint a total number of 2,660 persons suffered agonising and excruciating deaths between 30,000 to 40,000 persons sustained serious injuries as a result of the said disaster.
Legal proceedings for the recovery of compensation for the victims were initiated against the multi national compa ny first in the U.S. Courts and later in Distt.
Court at Bhopal in Suit No. 113 of 1986.
The present appeals concern with the order dated 4th April, 1988 passed by the Madhya Pradesh High Court whereby it modified the interlocutory order dated 17.12.1987 made by the Distt.
Judge and granted interim compensation of Rs.250 crores.
Both the Union of India and the Union Carbide Corporation have appealed to this Court against that order.
The Court by its order dated the 14th February, 1989 made in these appeals directed that there shall be an over all settlement of the claims in the suit for 470 million U.S. Dollars and termination of all civil and criminal proceedings.
On May 4, 1989 the Court pronounced its reasons for its aforesaid order dated 14.2.89thus: The Statement of the reasons is not made with any sense of finality as to the infallibility of the decision; but with an open mind to be able to appreciate any tenable and compelling legal or factual infirmities that may be brought out, calling for remedy in review under Article 137 of the Constitution.
[132C D] 129 The basic consideration motivating the conclusion of the settlement was the compelling need for urgent relief.
Con siderations of excellence and niceties of legal principles were greatly over shadowed by the pressing problems of very survival for a large number of victims.
[133A, C] The instant case is one where damages are sought on behalf of the victims of a mass disaster, and having regard to the complexities and the legal question involved, any person with an unbiased vision would not miss the time consuming prospect for the course of the litigation in its sojourn through the various courts, both in India and later in United States.
This Court considered it a compelling duty.
both judicial and humane, to secure immediate relief to the victims.
In doing so, the Court did not enter upon any forbidden ground.
What this Court did was in continua tion of what had already been initiated.
[133E F, H; 134A] The range of choice for the Court in regard to the figures was, therefore, between the maximum of 426 million U.S. Dollars offered by Shri Nariman and the minimum of 500 million U.S. Dollars suggested by the Attorney General.
[134F G] Having regard to all the circumstances including the prospect of delays inherent in the judicial process in India and thereafter in the matter of domestication of the decree in the United States for the purpose of execution, the Court directed that 470 million U.S. Dollars which upon immediate payment and with interest over a reasonable period, pending actual distribution amongst the claimants, would aggregate very nearly to 500 million U.S. Dollars or its rupee equiva lent of approximately Rs.750 crores which the Attorney General had suggested.
be made the basis of the Settlement.
[134G H; 135A B] The Settlement proposals were considered on the premises that the Government had the exclusive statutory authority to represent and act on behalf of the victims and neither counsel had any reservation as to this.
The order was also made on the premises that the Bhopal Gas Leak Disaster (Registration and Processing of Claims) Act 1985 was a valid law.
[135B C] There might be different opinions on the interpretation of laws or on questions of policy or even on what may be considered wise or unwise; but when one speaks of justice and truth, these words mean the same thing to all men whose judgment is uncommitted.
[140B C] The compulsions of the need for immediate relief to tens of 130 thousands of suffering victims could not wait till these questions, vital though they be, are resolved in due course of judicial proceedings.
[142D E] A settlement has been recorded upon material and in circumstances which persuaded the Court that it was a just settlement.
This is not to say that this Court will shut out any important material and any compelling circumstances which might impose a duty on it to exercise the powers of review.
Like all other human institutions, this Court is human and fallible.
What appears to the Court to be just and reasonable in that particular context and setting, need not necessarily appear to others in the same day.
Which view is right, in the ultimate analysis, is to be judged by what it does to relieve the undeserved suffering of thousands of innocent citizens of this country.
[142F G] Decisions of courts cannot be reacted or altered or determined by agitational pressures.
If a decision is wrong, the process of correction must be in a manner recognised by law.
All of those who invoke the corrective processes in accordance with law shall be heard and the court will do what the law and the course of justice requires.
The matter concerns the interests of a large number of victims of a mass disaster.
The Court directed the settlement with the earnest hope that it would do hem good and bring them imme diate relief, for, tomorrow might be too ate for many of them.
But the case equally concerns the credibility of, and the public confidence in, the judicial process.
[143B, D E] Those who trust this Court will not have cause for despair.
[143F] M.C. Mehta vs Union of India, AIR 1987 SC 1(186; Theo ries of Compensation, R.E. Goodin: Oxford journal of Legal Studies, 1989 p.57 and Wallace Mendelson.
Supreme Court Statecraft The Rule of Law and men, referred to.
|
: Petitions for Special Leave to Appeal (Criminal) Nos. 1090 91 of 1989.
From the Judgment and Order dated 8.5.1989 of the Delhi High Court in Misc.
Appln.
No. 106/89 & 107/1989.
U.R. Lalit, Tushar Shah and B .V.
Desai for the Petitioners.
J.S. Arora and Satish Agarwala for the Respondent.
After filing of the charge sheet the High Court ordered their re arrest by cancelling the bail.
The order of 379 the High Court is now under challenge.
I do not find any merit in these petitions.
But before dismissing, I wish, however, to draw attention to some aspects of the question raised.
The facts: On 23 March, 1988 the petitioners were arrested in Bombay by officers of the Narcotic Control Bureau.
They were ordered to be produced before the competent Magistrate at New Delhi.
They were accordingly produced before the Addi tional Chief Metropolitan Magistrate, New Delhi.
On 29 March, 1988 they were remanded to jail custody till 12 April, 1988.
The remand order was subsequently renewed from time to time.
On 10 May, 1988 the petitioners moved the Chief Metropolitan Magistrate for bail.
When that petition was pending consideration, the prosecution submitted charge sheet.
The charge sheet was filed on 23 June, 1988 for offences under Sections 21, 23 and 29 of the .
On July 22, 1988 the petitioners filed an application for bail under Section 167(2) Cr.
P.C. on the ground that the charge sheet was filed after the expiry of 90 days of their arrest.
On 29 July, 1988 learned Magistrate enlarged them on bail on their furnishing self bonds in the sum of Rupees two lakhs each with two surety bonds in the sum of Rs. 1 lakh each.
The efforts of the prosecution to have the bail can celled could not succeed before learned Magistrate.
So they moved the Delhi High Court under Section 439(2) read with section 482 of the Cr.
In that application, the nature of the offence committed, the part played by the accused, the gravity of the offence etc., were all set out.
1t was also stated that since two of the accused were earlier absconding, the investigation in the case could not be completed within the time frame.
The High Court by following the decision of this Court in Raghubir Singh vs State of Bihar, ; and after considering the material on record cancelled the bail order.
The High Court said: "In the present cases, no doubt an order was passed granting bail because the charge sheet was not filed within the statutory period of 90 days but it was filed on 92 days.
380 There is no doubt that the charge against the respondents is very serious in nature because they are alleged to have entered into a con spiracy to export heroin out of India.
The minimum punishment prescribed in such offence is a sentence of 10 years rigorous imprison ment, and a fine of Rupees one lakh.
I am, therefore, of the view that the authority re ferred above is fully applicable to the facts of the present case.
Respondents are further alleged to have procured services of one H.S. Gala and a lady carrier Manjula Ben who car ried 3 Kg.
heroin from India to USA in Novem ber 1987.
Therefore it was on the basis of the statements made by those persons in USA that the respondents were arrested in India.
I am, therefore, of the view that it is a fit case where order of bail should be cancelled.
" The question is whether the discretion exercised by the High Court is legally sustainable? Whether the accused have a special right to remain on bail merely because they have been enlarged under proviso (a) to Section 167(2) of the Code? It is not disputed and indeed cannot be disputed that when an accused is granted bail, whether under proviso (a) to Section 167(2) or under the general provisions of Chapter XXXIII, the only method by which the bail may be cancelled is to proceed under Section 437(5) or Section 439(2).
That is because the person released on bail under the proviso to Section 167(2) shall be deemed to be so released under the provisions of Chapter XXXIII of the Code.
Sub section (5) of Section 437 provides: "Any Court which has released a person on bail under sub section (1) or sub section (2) may, if it considers it necessary so to do, direct that such person be arrested and commit him to custody." Sub section (2) of Section 439 provides: "A High Court or Court of Session may direct that any person who has been released on bail under this Chapter be arrested and commit him to custody." 381 Under sub section (5) of Section 437, the Court if it considers it necessary, direct that the person on bail be arrested and committed to custody.
The bail may be cancelled by the Court if it comes to the conclusion that there are sufficient grounds that the accused has committed a non bailable offence and that it is necessary that he should be arrested and committed to custody.
This is what this Court observed in Raghubir Singh vs State of Bihar, ; It was said (at 826): "Where bail has been granted under the proviso to section 167(2) for the default of the prosecution in not completing the investiga tion in sixty days, after the defect is cured by the filing of a charge sheet, the prosecu tion may seek to have the bail cancelled on the ground that the accused has committed a non bailable offence and that it is necessary to arrest him and commit him to custody.
In the last mentioned case, one would expect very strong grounds indeed." And said: "The order for release on bail was not an order on merits but was what one may call an order on default, and order that could be rectified for special reasons after the defect was cured.
" An order for release on bail under proviso (a) to Sec tion 167(2) may appropriately be termed as an order on default.
Indeed, it is a release on bail on the default of the prosecution in filing charge sheet within the prescribed period.
The right to bail under Section 167(2) proviso (a) thereto is absolute.
It is a legislative command and not Court 's discretion.
If the investigating agency fails to file charge sheet before the expiry of 90/60 days, as the case may be, the accused in custody should he released on bail.
But at that stage, merits of the case are not to be examined.
Not at all.
In fact, the Magistrate has no power to remand a person beyond the stipulated period of 90/60 days.
He must pass an order of bail and communicate the same to the accused to furnish the requisite bail bonds.
The accused cannot, therefore, claim any special right to remain on bail.
If the investigation reveals that the accused has committed a serious offence and charge sheet is filed, the bail granted under proviso (a) to Section 167(2) could be cancelled.
382 I examined the material on record.
The offences alleged are of serious nature.
I am of the opinion that the discre tion exercised by the High Court does not call for any interference.
The Petitions, are, therefore, rejected.
N.P.V. Petitions dis missed.
| IN-Abs | The petitioners were arrested on March 23, 1988 and produced before the Chief Metropolitan Magistrate, who remanded them to jail custody.
During the pendency of peti tioner 's application for bail, the prosecution filed charge sheet on June 23, 1988 for offences under Section 21, 23 and 29 of the .
Thereafter, on the petitioners ' application for bail under Section 167(2) Cr.
P.C. on the ground that the charge sheet was filed after the expiry of ninety days of their arrest, the Magistrate enlarged them on bail.
On an application, under sec.
439(2) read with Section 482 of the Cr.
P.C., filed by the prosecution for cancella tion of the bail, stating that since two of the accused were earlier absconding, the investigation in the case could not be completed within the time frame, the High court cancelled the bail order.
Hence, the special leave applications by the petitioners.
On the question: whether the discretion exercised by the High Court was legally sustainable and whether the accused had a special right to remain on bail merely because they had been enlarged under Proviso (a) to Section 167(2) of the Code, 378 Dismissing the Special Leave Petitions, HELD: An order for release on bail under proviso (a) to Section 167(2) of the Code of Civil Procedure may appropri ately be termed as on order on default.
Indeed, it is a release on bail on the default of the prosecution in filing charge sheet within the prescribed period.
The right to bail under the provision is absolute.
It is a legislative command and not Court 's discretion.
If the investing agency fails to file chargesheet before the expiry of 90/60 days, as the case may be, the accused in custody should be released on bail.
At that stage, merits of the case are not to be exam ined.
In fact, the Magistrate has no power to remand a person beyond the stipulated period of 90/60 days.
He must pass an order of bail and communicate the same to the ac cused to furnish the requisite bail bonds.
[381E G] The accused cannot claim any special right to remain on bail.
If the investigation reveals that the accused has committed a serious offence and charge sheet is filed, the bail granted under proviso (a) to Section 167(2) could be cancelled under Sections 437(5) or 439(2) of the Code.
[381H] In the instant case, the offences alleged are of serious nature and the discretion exercised by the High Court does not call for any interference.
[382A] Raghubir Singh vs State of Bihar, ; , referred to.
|
ivil Appeal No. 2942 of 1989.
From the Judgment and Order dated 30.11.
1987 of the Calcutta Central Administrative Tribunal Court in T.A. No. 452 of 1987/C.O. 6078 W. of 1985.
398 G. Ramaswamy, Additional Solicitor General, T.C. Sharma and C.V. Subba Rao for the Appellants.
Girish Chandra for the Respondents.
The following Order of the Court was delivered: ORDER Leave granted.
This appeal is directed against the order of the Central Administrative Tribunal, Calcutta, dated November 30, 1987.
The respondent was posted as Public Relations Officer in the Regional Passport Office, Calcutta.
He was transferred from Calcutta to Jaipur under the order dated 14.3.1985, and he was relieved of his duty from Regional Passport Office, Calcutta w.e.f. 15.3.1985 with the direction to report for duty at Jaipur.
The respondent instead of joining at Jaipur filed a writ petition before the Calcutta High Court and obtained interim injunction.
Later on contempt proceedings were initiated by the respondent against the appellants and the High Court passed an order dated 11.10.1985 directing the appellants to allow the respondent to join at Calcutta office and to pay all arrears of salary to him.
A number of orders were passed by the High Court in respondent 's favour but all those orders have been set aside by this Court in Civil Appeals arising out of Special Leave Petitions Nos.
6835 to 6837 of 1986.
The respondent 's writ petition pending before the Calcutta High Court was subsequently transferred to the Central Administrative Tribunal, Calcutta Bench.
The Tribunal by its order dated November 30, 1987 disposed of the writ petition.
The Tribunal held that the order of transfer was not mala fide or unfair, and there was no ground for interfering with the transfer order.
After re cording that finding the Tribunal directed the appellants to pay all arrears of salary with allowances to the respondent with a further direction that no release order should be issued to the respondent unless all his emoluments are paid to him.
After hearing learned counsel for the parties we find that the Tribunal acted in excess of its jurisdiction in issuing impugned direction.
The Tribunal recorded positive findings that the transfer order was legal and valid and it was not vitiated by any unfairness, or mala fide, thereupon it should have dismissed the writ petition.
It had no 399 jurisdiction to issue further directions regarding the release order and the payment of emoluments.
The Tribunal lost sight of the fact that the respondent had already been released from the Calcutta office w.e.f. 15.3.
198S, there fore, there was no question of issuing any fresh release order.
We accordingly allow the appeal and set aside the impugned directions of the Tribunal.
There will be no order as to costs.
P.S.S. Appeal allowed.
| IN-Abs | The respondent, a Central Government officer was trans ferred from Calcutta to Jaipur by an order dated 14th March, 1985 and relieved of his duty the next day.
He, however, filed a writ petition before the High Court and obtained an interim injunction.
The writ petition was subsequently transferred to the Central Administrative Tribunal, which held that the order of transfer was not mala fide or unfair, and there was no ground for interfering with it.
It, however, directed the appellants to pay all arrears of salary with allowances to the respondent and not to issue the release order unless all his emoluments were paid.
Allowing the appeal, HELD: The Tribunal having recorded positive findings that the transfer order was legal and valid and it was not vitiated by any unfairness or mala fide, should have dis missed the writ petition.
It had no jurisdiction to issue further directions regarding the release order and the payment of emoluments.
[398H] The respondent had already been relieved from the Cal cutta office with effect from 15th March, 1985.
Therefore, there was no question of issuing any fresh release order.
[399A]
|
ivil Appeal No. 2873 of 1987.
From the Judgment and Order dated 5.8.1987 of the Punjab & Haryana High Court in Civil Revision No. 2209 of 1979.
Harbans Lal, S.K. Mehta, Dhruv Mehta and Aman Vachher for the Appellant.
Rajinder Sachhar, K.C. Dua and Ms. Manju Chopra for the Respondent.
N.S. Das Behl, (Not present) The Judgment of the Court was delivered by 425 RANGANATH MISRA, J.
This is a tenant 's appeal by special leave challenging his eviction from a business premises located at Jallandhar.
Under a rent note (Exh.
A I), the appellant had taken the premises on rent from the respondent landlord.
The use to which the premises was intended to be put was running of a cycle and rickshaw repairing shop.
As far as relevant, on the allegation that the tenant had put the premises to different use, an application for his eviction was made under section 13(2)(ii)(b) of the East Punjab Urban Rent Restric tion Act, 1949.
The Controller found that the appellant had continued the business of repairing of cycles and rickshaws but side by side had for a period of about seven months been selling televisions in the premises but he stopped the same as it was not viable.
According to the Controller, this did not constitute user for a purpose other than that for which the premises was leased and he accordingly rejected the peti tion.
The appellate authority at the landlord 's instance held that the statutory condition was satisfied and granted eviction.
The High Court when moved by the tenant declined to interfere.
The short question that arises for consideration is whether there has been a violation of the terms of tenancy by using the premises for a purpose other than that for which the premises had been leased.
The tenant did not dispute that he had taken the premises for running a repair shop of cycles and rickshaws.
In his statement he said that he had commenced the business of selling the televisions side by side in view of the slump in the cycle and rickshaw repairing business.
He also accepted the position that he had not obtained the consent of the landlord when he started the TV business.
The landlord has accepted the position that in the rent note it was not written that the respondent would not do any business in the shop in dispute except the cycle or rickshaw repairs.
On these facts it has now to be decided as to whether the premises has been used for a purpose other than that for which it had been leased.
Reliance was placed on the Full Bench decision of the Punjab High court in Des Raj vs Sham Lal, AIR 1980 P & H 229 where the question for consideration was as to whether when the lease was for the purpose of a shop without anything more specific, user thereof as a godown amounted to change of user.
The High Court in course of the discussion in the judgment rightly drew the distinction between resi 426 dential and non residential premises and also classified non residential buildings into known categories like shop, godown, restaurant, cinema, hotel etc.
In course of the discussion the Full Bench referred to the decision of this Court in Moti Ram vs State of Madhya Pradesh, ; and came to the conclusion that when the letting out purpose was location of a shop and it .was exclusively used as a godown, it amounted to a change of user.
Not much of support is directly available for the resolution of the present dispute from that judgment.
Reliance was also placed on a decision of this Court in the case of Mohan Lal vs Jai Bhagwan, ; where the very provision of the East Punjab Act was considered in a case of eviction.
The decision of this Court in the case of Maharaj Kishan Kesar vs Milkha Singh, (C.A. No. 1086/64 decided on November 10, 1965) was referred to therein.
That again was a decision under the very Act and the dispute related to the allegation of change of user when petrol was sold as an allied business of the avowed purpose of locating the workshop.
The Court found.
that location of a petrol pump could not be regarded as not being a part of motor workshop business.
Rightly, our learned brother Mukharji, J. indicated that the ratio in Maharaj Kishan Kesar 's case did not provide any guideline of general nature.
What was said in pars 9 of his judgment is perhaps useful.
Our learned Brother quoted the observations of Lord Diplock, J. in Duport Steels Ltd. vs Sirs, and said: "While respectfully agreeing with the said observations of Lord Diplock, that the; Par liament Legislates to remedy and the judiciary interprets them, it has to be borne in mind that the meaning of the expression must be found in the felt necessities of the time.
In the background of the purpose of rent legisla tion and inasmuch as in the instant case the change of the user would not cause any mis chief or detriment or impairment of the shop in question and in one sense could be called an allied business in the expanding concept of departmental stores, in our opinion, in this case there was no change of user which at tracted the mischief of section 13(2)(ii)(b).
" On that conclusion, the order of eviction was reversed.
Letting of a premises can broadly be for residential or commercial purpose.
The restriction which is statutorily.
provided in section 13(2)(ii)(b) of the Act is obviously one to protect the interests of the landlord .and is intended to restrict the use of the landlord 's premises 427 taken by the tenant under lease.
It is akin to the provision contained in section 108(0) of the dealing with the obligations of a lessee.
That clause pro vides: 'The lessee may use the property and its products, if.
any, as a person of ordinary prudence would use then if they were of his own; but be must not use or permit another to use the property for a purpose other than that for which it was leased . ' A house let for residential purpose would not be available for being used as a shop even without structural alteration.
The concept of injury to the premises which forms the foundation of cl.
(o) is the main basis for providing cl.(b) in section 13(2)(ii) of the Act as a ground for the tenant 's eviction.
The Privy Council in U Po Naing vs Burma Oil Co., AIR 1929 PC 108 adopted the same considera tion.
The Kerala High Court has held that premises let out for conducting trade in gold if also used for a wine store would not amount to an act destructive of or permanently injurious to the leased property Simi larly, the Bombay High Court has held that when the lease deed provided for user of the premises for business of fret work and the lessee used the premises for business in plas tic goods, change in the nature of business did not bring about change of user as contemplated in section 108(o) of the The landlord parts with possession of the premises by giving a lease of the property to the tenant for a consider ation.
Ordinarily, as long as the interest of the landlord is not prejudiced, a small change in the user would not be actionable.
In this case, the premises was let out for running of a repair shop.
Along with the repair business, sale of televi sions was temporarily .carried on.
We do not think this constituted a change of user within the meaning of section 13(2)(ii)(b) of the Act so as to give a cause of action to the landlord to seek eviction of the tenant.
The appeal is allowed and the order of eviction passed by the appellate authority and affirmed by the High Court is vacated and the order of the Controller is restored.
Parties are directed to bear their own costs throughout.
T.N.A. Appeal allowed.
| IN-Abs | The appellant had taken the premises on rent from the respondent landlord for running a cycle and rickshaw repair ing shop.
In the rent note there was no stipulation that the appellant would not do any business in the shop except the cycle or rickshaw repairs.
Along with the repair business the appellant temporarily carried on sale of televisions also in the premises.
The landlord filed an application for eviction under section 13(2)(ii)(b) of the East Punjab Urban Rent Restriction Act, 1949 alleging that the tenant had put the premises to different use.
The Rent Controller rejected the application by holding that the temporary sale of televisions did not constitute user for a purpose other than that for which the premises was leased.
On an appeal filed by the landlord the appellate authority granted eviction by holding that the statutory condition was satisfied.
The appeal filed by the tenant against the decision of the appellate authority was dis missed by the High Court.
Hence this appeal by the tenant.
Allowing the appeal and setting aside the order of eviction, HELD: Letting of a premises can broadly be for residen tial or commercial purpose.
The restriction which is statu torily provided in section 13(2)(ii)(b) of the Act is obvi ously one to protect the interests of the landlord and is intended to restrict the use of landlord 's premises taken by the tenant under lease.
It is akin to the provision con tained in section 108(o) of the dealing with the obliga 424 tions of a lessee.
A house let for residential purpose would not be available for being used as a shop even without structural alteration.
The concept of injury to the premises which forms the foundation of clause (o) is the main basis for providing clause (b) in section 13(2)(ii) of the Act as a ground for the tenant 's eviction.
[426H, 427A B] The landlord parts with possession of the premises by giving a lease of the property to the tenant for a consider ation.
Ordinarily, as long as the interest of the landlord is not prejudiced, a small change in the user would not be actionable.
In the instant case, the premises was let out for running of a repair shop.
Along with the repair busi ness, sale of televisions was temporarily carried on.
This did not constitute a change of user within the meaning of section 13(2)(ii)(b) of the Act so as to give a cause of action to the landlord to seek eviction of the tenant.
[427E, F] Mohan Lal vs Jai Bhagwan, ; , applied.
Des Raj vs Sham Lal, A.I.R. 1980 P & H 229, held inapplica ble.
Moti Ram vs State of Mahdya Pradesh, A.I.R. 1978 S.C. 1594; Maharaj Krishan Kesar vs Milkha Singh, Civil Appeal No. 1086 of 1964 decided on November 10, 1965 (S.C.); Dup port Steel Ltd. vs Sirs, ; U.P. Naing vs Burma Oil Co., A.I.R. 1929 P.C. 108; Raghavan Pillai vs Sainaba Beevi, [1977] Kerala L.T. 417 and Dattatraya vs Gulab Rao, , referred to.
|
vil Appeal Nos.
1930 33 of 1989.
From the Judgment and Order dated 24.9.87 of the Patna High Court in C.W.C. Nos. 489,501,502 and 1173 of 1982 (R).
G. Ramaswamy, Additional Solicitor General, Girish Chandra and C.V.S. Rao for the Appellants.
M.C. Bhandare, R.S. Meratia, S.S. Johar and A. Mariarpu tham for the Respondents.
The Judgment of the Court was delivered by KULDIP SINGH, J.
The coal resources in the country have been brought under State ownership and control by The Cook ing Coal Mines (Nationalisation) Act, 1972 (hereinafter called 'the Cooking Act ') and the Coal Mines (Nationalisa tion) Act, 1973 (hereinafter called 'the Coal Act ').
These Acts completely divest the ownership rights in the mines from the owners to the Central Government.
The Acts provide for payment of specified amount to each of the owners in lieu of 458 take over.
Out of the said amount the claims of the credi tors of the owner and other liabilities against him are to be satisfied and the balance, if any, is to be paid to the owner.
The Acts further provide for accrual of interest on the payable amount for the procedural period.
Section 18(5) of the Coal Act and Section 21(5) of the Cooking Act provide that the interest accruing on the amount shall enure to the benefit of the owners of coal mines.
The short question for consideration in these appeals is whether the amount of interest which accrues under the Act is to be paid in its entirety to the owner or the same is also available along with the principal amount for disburse ment to the claimants of the owner.
The provisions of the Cooking Act and the Coal Act are identical.
Both the Acts were enacted with the same object and purport, one relating to the Cooking Coal mines and the other to the coal mines.
The Learned Counsel at the hearing referred to the Coal Act.
We may briefly notice the scheme of the said Act.
Section 2 gives definitions.
Section 3 transfers the rights, title and interest of owners in relation to the coal mines and vests tile same in the Central Government.
Section 5 empowers the Central Government to direct vesting of such rights in a Government company.
Section 6 makes the vesting of all properties in the Central Government free from mort gage, charge, lien or any other incumbrance.
Section 7 provides that the Central Government or Government company shall not be liable for liabilities incurred by the owners prior to the take over.
Under Section 8 the owner of every coal mine shall be given by the Central Government in cash and in the manner specified under the Act the amount men tioned in the Schedule to the Act.
Section 9(2) provides for payment of simple interest at the rate of 4% from the date on which the Coal Act received the assent of the President upto the date when the amount is paid by the Central Govern ment to the Commissioner.
Section 17 provides for appoint ment of Commissioner of payments by the Central Government for the purpose of disbursing the amounts payable to the owner of each coal mine.
Section 18(1) lays down that the Central Government shall within 30 days from the specified date pay in cash to the Commissioner for payment to the owner of a coal mine, an amount specified in the Schedule and also other amount payable to the owner under Section 9.
Section 18(2) provides further amount due to the owner in lieu of management of the coal mine by the Central Govern ment and simple interest at the rate of 4% on such amount.
Under Section 18(3) a deposit account is to be opened by the Central Govern 459 ment in favour of the Commissioner in the Public Account of India and every amount paid under the Act to the Commission er has to be deposited by him to the credit of the said deposit account which is to be operated by the Commissioner.
Section 18(4) directs the Commissioner to maintain separate records in respect of each coal mine in relation to which payments have been made to him under the Act.
Section 18(5) provides that interest accruing on the amounts standing to the credit of the deposit account shall enure to the benefit of the owners of coal mines and shall also be payable to the Commissioner in addition to the sum referred to in sub section (1).
Under Section 20 every person having a claim against the owner of a coal mine has to prefer such claim before the Commissioner within thirty days from the speci fied date.
Sections 21 and 22 give first priority to the claims to arrears of wages, provident fund, pension fund, gratuity fund or any other fund established for the welfare of the persons employed by the owner of a coal mine.
Next come the secured creditors of the owners.
Under Section 23 the Commissioner adjudicates the claims and can accept or reject the same.
Section 24A provides that where any amount is payable in respect of a claim admitted under the Act, the interest payable on such amount for any period shall be at such rate not exceeding the rate of interest accruing on any amount deposited by the Commissioner under Section 18.
Finally under Section 26 if out of the moneys paid to the Commissioner in relation to a coal mine, there is a balance left after .meeting the liabilities of all the secured and unsecured creditors, he shall disburse such balance to the owner of such coal mine.
Relevant provisions of the Coal Act are reproduced hereinaf ter. "Section 3 Acquisition of rights of owners in respect of coal mines (1) On the appointed day, the right, title and interest of the owners in relation to the coal mines specified in the Schedule shall stand transferred to, and shall vest absolutely in, the Central Government free from all incumbrances.
" "Section 8 Payment of amount to owners of coal mines(1) The owner of every coal mine or group of coal mines specified in the second column of the Schedule, shall be given by the Central Government, in cash and in the manner specified in Chapter VI, for the vesting in it, under Section 3, of the right, title and interest of the amount specified against it in the corresponding entry in the fifth 460 column of the Schedule." "Section 17 Commissioner of Payments to be appointed (1) For the purpose of disbursing the amount payable to the owner of each coal mine or group of coal mines, the Central Government shall appoint such person as it may think fit to be the Commissioner of Payments." "Section 18 Payment by the Central Government to the Commissioner. (1) The Central Govern ment shall, within thirty days from the speci fied date, pay, in cash, to the Commissioner for payment to the owner of a coal mine, an amount equal to the amount specified against the coal mine in the Schedule and shall also pay to the Commissioner such sums as may be due to the owner of a coal mine under Section 9.
(2) In addition to the sum referred to in sub section (1), the Central Government shall pay, in cash, to the Commissioner, such amount as may become due to the owner of a coal mine in relation to the period during which the management of the coal mine remains vested in the Central Government, and simple interest at the rate of four per cent per annum on such amount for the period commencing on the 1st day of July, 1975 and ending on the date of payment of such amount to the Commis sioner.
(3) A deposit account shall be opened by the Central Government, in favour of the Commissioner, in the Public Account of India, and every amount paid under this Act to the Commissioner shall be deposited by him to the credit of the said deposit account in the Public Account of India, and thereafter the said deposit account shall be operated by the Commissioner.
(4) Separate records shall be main tained by the Commissioner in respect of each coal mine in relation to which payments have been made to him under this Act.
Amended (5) Interest accruing on the amounts standing to the credit of the deposit account referred to in sub section (3) shall enure to the benefit of the owners of coal mines and shall also be payable to the Commissioner in addition 461 to the sum referred to in sub section (1).
Unamended (5) Interest accruing on the amounts standing to the credit of the deposit account referred to in subsection (3) shall enure to the benefit of the owners of the coal mines.
(6) Reference in this section to the owner of a coal mine shall, in relation to a group of coal mines specified in the Schedule, be construed as references to the owner of that group of coal mines.
" "Section 24 Disbursement of money by the Commissioner to claimants Where, after meet ing the claims admitted by him, of secured creditors, and unsecured creditors having priority under sub section (2) of Section 22, the total amount of claims of other unsecured creditors admitted by the Commissioner, does not exceed the total amount of the money cred ited to the account of a coal mine, every such admitted claim shall be paid in full and the balance, if any, shall be paid to the owner, but where such amount is insufficient to meet in full the total amount of the admitted claims, all such claims shall abate in equal proportions and be paid accordingly ." "Section 24A Interest on admitted claims Notwithstanding any award, decree or order of any court, tribunal or other authori ty, passed before the appointed day, in rela tion to any coal mine, where any amount is payable in respect of a claim admitted under this Act, the interest payable on such amount for any period after the appointed day shall be at such rate not exceeding the rate of interest accruing on any amount deposited by the Commissioner under Section 18." "Section 26 Disbursement of amounts to the owners of coal mines (1) If out of the moneys paid to him in relation to a coal mine or group of coal mines specified in the second column of the Schedule, there is a balance left after meeting the liabilities of all the secured and unsecured creditors, the Commis sioner shall disburse such balance to the owner of such coal mine or group of coal mines.
" 462 The scheme of the Coal Act and the bare reading of its provisions make it clear that the Commissioner has to adju dicate the claims of creditors of the mine owners in accord ance with the priorities.
The claims accepted by the Commis sioner, are to be satisfied out of the amount payable to the mine owners and the balance left after meeting the claims of all the secured and unsecured creditors, is to be paid to the owners of the coal mines.
The High Court has accepted the contention of the mine owners and has held that the interest accrued under the Coal Act cannot be made available to the Commissioner for meeting the claims of the creditors of the mine owner or to satisfy their other liabilities.
According to the High Court whole of the interest amount is to be exclusively given to the mine owners and the claims and liabilities are to be satis fied only out of the principal amount payable to the mine owners under the Coal Act.
To support these conclusions the High Court has given three reasons which we may presently examine.
The High Court 's conclusions are primarily based on the interpretation of Section 18(5) of the Coal Act.
The High Court has quoted the meaning of words "enure" and "benefit" from various dictionaries.
No dictionary or any out side assistance is needed to understand the meaning of these simple words in the context and scheme of the Coal Act.
The interest has to enure to the benefit of the owners of the coal mines.
The claims before the Commissioner under the Coal Act are from the creditors of the owners and the li abilities sought to be discharged are also of the owners of the coal mines.
When the debts are paid and the liabilities discharged, it is only the owners of coal mines who are benefited.
Taking away the interest amount by the owners without discharging their debts and liabilities would be unreasonable.
They have only to adopt delaying tactics to postpone the disbursement of claims and consequently earn more interest.
Due to such delay the owner would get huge amount of interest though ultimately he may not get a penny out of principal amount on the final settlement of claims.
It would amount to conferring unjust benefit on the owners which can never be the intention of the Parliament.
We do not agree with the interpretation given by the High Court and hold that the interest accruing under the Coal Act is the money paid to the Commissioner in relation to the coal mine and the same has to be utilised by the Commissioner in meeting the claims of the creditors and discharging other liabilities in accordance with the provisions of the Coal Act.
The High Court noticed that apart from providing priorities for 463 claims the Parliament has also indicated the accounts from which such claims are to be satisfied.
According to the High Court since no mention has been made therein with regard to the recovery of any amount of claim out of the interest the same cannot be used for that purpose and has to be exclu sively paid to the owners.
We do not agree with the reason ing.
Under Section 18(5) of the Coal Act the interest accru ing on the amount standing to the credit of the deposit account shall also be payable to the Commissioner in addi tion to the sum referred to in sub section (1) of Section 18.
Section 26 further provides that out of the moneys paid to the Commissioner in relation to the coal mine if there is a balance left after meeting the liabilities of all the secured and unsecured creditors, such balance shall be disbursed to the owner of the coal mine.
It cannot be dis puted that the interest paid to the Commissioner under Section 18(5) is money paid to him in relation to a coal mine and as such it has to be utilised in meeting the claims of the creditors of the mine owners and their other liabili ties.
Even otherwise interest amount in the present context has no separate entity.
As the lamb belongs to the owner of the sheep, the interest goes with the principal.
The inter est accrued under the Coal Act is thus, part of the kitty out of which the claims and liabilities are to be met.
The High Court has further held that under Section 26 of the Coal Act moneys paid to the Commissioner in relation to a coal mine do not include the money accrued by way of interest.
There is no basis for this interpretation.
The plain reading of Section 26 read with Section 18(5) of the Coal Act makes it clear that moneys paid to the Commissioner in relation to a coal mine are to be used for satisfying the debts and liabilities.
Interest amount accrued under the Coal Act is undoubtedly money in relation to coal mine and as such it squarely comes within the ambit of Section 26 of the Coal Act.
The amended Section 18(5) of the Coal Act which escaped the notice of the High Court provides that the amount of interest accruing on the amounts standing to the credit of the deposit account is also payable to the Commissioner.
Section 22(3) of the Coal Act makes the assets, in the hands of Commissioner, available for satisfying the debts in order of priorities.
The assets of the erstwhile owner lying in the hands of the Commissioner of payment would include the interest which has been paid to the Commissioner under Section 18(5).
Similarly Section 24 of the Coal Act says that unsecured creditors will be paid out of the money credited to the account of coal mine.
Moneys credited to the account of coal mine also include interest.
It is thus clear from the scheme and plain reading of various provisions of the 464 Coal Act that the interest amount has to be made available to the Commissioner to meet the debts and liabilities.
We may refer to Section 24A of the Coal Act which fixes the maximum interest payable to the successful claimants.
It is provided that interest shall be paid at such rate not exceeding the rate of interest accruing on any amount depos ited by the Commissioner under Section 18.
Had the Parlia ment intended to give interest to the owners, there would have no necessity for fixing the maximum limit of interest payable to the claimant with reference to the rate of inter est accruing to the scheduled amount.
The two acts being identical whatever we have said about the Coal Act is equally applicable to the Cooking Act.
We, therefore, see no legal or equitable grounds to sustain the judgment of the High Court.
The appeals are accepted, judgment of the High Court is set aside and the writ petitions of the respondents filed in the High Court are dismissed.
There shall be no order as to costs.
G.N. Appeals allowed.
| IN-Abs | The (Coke Act) and the (Coal Act) divested the ownership rights in the mines from the owners to the Central Government.
The Acts provided for payment in lieu of take over.
The payment was to be made to the respective owners after discharging their liabilities.
The Acts also provided for accrual of interest on the amount payable, for the procedural period.
Some of the owners filed writ petitions before the High Court claiming that the interest accrued exclusively be longed to owners and the same was not available for dis bursement to the claimants of the owners.
The High Court allowed the writ petitions, and held that the interest accrued under the Coal Act Cannot be made available to the Commissioner for meeting the claims of the creditors of the mine owners and it is to be exclusively given to the mine owners.
The present appeals, by special leave, challenge the said decision of the High Court.
Allowing the appeals, HELD: 1.
It is clear from the scheme and plain reading of the various provisions of the Coal Act that the interest amount has to be made available to the Commissioner to meet the debts and liabilities.
The Commissioner has to adjudi cate the claims of creditors of the mine owners in accord ance with the priorities.
The claim, accepted by the Commis sioner, are to be satisfied out of the amount payable to the mine owners and the balance left after meeting the claims of all the 456 secured and unsecured creditors, is to be paid to the owners of the coal mines.
[462A, B] 2.1.
The High Court 's conclusions are primarily based on the interpretation of Section 18(5) of the Coal Act.
The High Court has quoted the meaning of the words "enure" and "benefit" from various dictionaries.
No dictionary or any outside assistance is needed to understand the meaning of these simple words in the context and scheme of the Coal Act.
The interest has to enure to the benefit of the owners of the coal mines.
The claims before the Commissioner under the Coal Act are from the creditors of the owners and the liabilities sought to be discharged are also of the owners of the coal mines.
When the debts are paid and the liabili ties discharged, it is only the owners of coal mines who are benefited.
Taking away the interest amount by the owners without discharging their debts and liabilities would be unreasonable.
They have only to adopt delaying tactics to postpone the disbursement of claims and consequently earn more interest.
Due to such delay the owner would get huge amount of interest though ultimately he may not get a penny out of principal amount on the final settlement of claims.
It would amount to conferring unjust benefit on the owners which can never be the intention of the Parliament.
[462D, E, F] 2.2.
Section 24A of the Coal Act provided that interest shall be paid at such rate not exceeding the rate of inter est accruing on any amount deposited by the Commissioner under Section 18.
Had the Parliament intended to give inter est to the owners, there would have been no necessity for fixing the maximum limit of interest payable to the claimant with reference to the rate of interest accruing to the scheduled amount.
1464B] 3.1.
A plain reading of Section 26 read with Section 18(5) of the Coal Act makes it clear that moneys paid to the Commissioner in relation to a coal mine are to be used for satisfying the debts and liabilities.
Interest amount ac crued under the Coal Act is undoubtedly money in relation to coal mine and as such it squarely comes within the ambit of Section 26 of the Coal Act.
[463E] 3.2.
The amended Section 18(5) of the Coal Act which escaped the notice of the High Court provides that the amount of interest accruing on the amounts standing to the credit of the deposit account is also payable to the Commis sioner.
Section 22(3) of the Coal Act makes the assets, in the hands of Commissioner available for satisfying the debts in order of priorities.
The assets of the erstwhile owner lying in the 457 hands of the Commissioner of payment would include the interest which has been paid to the Commissioner under Section 18(5).Similarly Section 24 of the Coal ,Act says that unsecured creditors will be paid out of the money credited to the account of coal mine.
Moneys credited to the account of coal mine also include interest.
[463F, G] 3.3.
Under Section 18(5) of the Coal Act the interest accruing on the amount standing .to the credit of the depos it account shall also be payable to the Commissioner in addition to the sum referred to in sub section (1) of Sec tion 18.
It cannot be disputed that the interest paid to the Commissioner under Section 18(5) is money paid to him in relation to a coal mine and as such it has to be utilised in meeting the claims of the creditors of the mine owners and their other liabilities.
Even otherwise interest amount in the present context has no separate entity.
As the lamb belongs to the owner of the sheep, the interest goes with the principal.
The interest accrued under the Coal Act, is, thus, part of the kitty out of which the claims and liabili ties are to be met.
[463A D] 4.
The Coal Act and the Coke Act being identical, this decision in the Coal Act is equally applicable to the Coking Act.
[464C]
|
ivil Appeal No. 5736 of 1985 & C.A. No. 508/1986.
From the Judgment and Order dated 14.8.1985 of the Bombay High Court in Civil Writ Petition No. 3420 of 1983.
N.N. Keswani and R.N. Keswani for the Appellants.
G. Ramaswamy Additional Solicitor General, S.K. Dhola kia, Shishir Sharma, P.H. Parekh, A.S. Bhasme and V.B. Joshi for the Respondents.
The Judgment of the Court was delivered by K. JAGANNATHA SHETTY, J.
The case involved in these two appeals, with leave, seems indeed straight forward enough, but the High Court of Bombay made it, as we venture to think, unsatisfactory and in a sense against judicial pro priety and decorum.
The facts which are of central importance may be stated as follows.
On June 19, 1982, the Government of Maharashtra issued a draft notification under sec.
3(3) of the Bombay Provincial Municipal Corporation Act, 1949 (the "Act").
The draft notification proposed the formation of what is termed as "Kalyan Corporation" (the "Corporation").
It suggested the merging of Municipal areas of Kalyan, Ambarnath, Domoivali and Ulhasnagar.
Against this proposal, there were many objections and representations from persons, companies and the authorities.
Ambarnath and Ulhasnagar Municipal bodies and also some of the residents therein submitted their represen 409 tations.
They objected to the merger of their municipal areas into the Corporation.
It is said that in Ulhasnagar Municipal area, Sindhies are predominant.
In 1947, they were the victims of partition of the country.
Being uprooted from their home land, they have since settled down at Ulhasnagar.
They have formed union or federation called the All India Sindhi Panchayat Federation.
It is interested in having a separate identity for Ulhasnagar.
The Federation challenged the said draft notification by a writ petition before the Bombay High Court.
The writ petition was not disposed of on merits.
It was permitted to be withdrawn on an assurance given by the Government.
The Government gave the assurance that the representatives of the Federation would be given an opportunity of being heard before taking a final decision.
As per the assurance, they were given personal hearing on their representations.
The others who have filed similar representations were not heard.
But their objections or representations were duly considered.
Thereupon, the Govern ment decided to exclude Ulhasnagar from the proposed Corpo ration.
Accordingly, a notification under sec.
3(2) of the Act was issued.
The Corporation was thus constituted without Ulhasnagar.
That was the only alteration made in the propos al earlier notified.
All other areas indicated in the draft notification were merged in the Corporation.
The residents of Ambarnath Municipal areas were not satisfied.
They were, perhaps, more worried by the exclusion of Ulhasnagar than the inclusion of their own area.
They moved the High Court under Article 226 of the Constitution challenging the notification issued under sec.
3(2) of the Act.
They inter alia, contended that the action of the Government affording an opportunity of being heard only to the Federation and not to other objectors was contrary to Article 14.
It was a hostile discrimination to hear only one of the objectors.
They asserted that the establishment of the Corporation without Ulhasnagar Municipal area, having regard to the geographical contiguity was unintelligible and incomprehensible.
It was arbitrary and opposed to the object of the Act.
They also contended that there ought to have been a fresh draft notification after taking a decision to exclude Ulhasnagar from the proposal.
With similar conten tions and for the same relief, there was another writ peti tion before the High Court.
It was filed by the National Rayon Corporation Limited which is a company located within the Municipal limits of Ambarnath.
The Sindhi Panchayat Federation was not a party to the writ petitions.
It was, however, allowed as an intervener.
Some other persons who were interested in the outcome of the writ petitions were 410 also permitted to intervene in the proceedings.
They sup ported the stand taken by the Government which was the main respondent in the writ petitions.
The State in its counter affidavit resisted the peti tioners ' claim raising several grounds.
The first point to be noted in this context is this: "That the formation of Municipal Corporation under sec.
3 of the Act is an extension of the legislative process and, therefore, sec.
3 is nothing but a piece of conditional legisla tion.
The principles of natural justice will not apply to such legislative function nor it could be imparted into it even by necessary implication.
The petitioners have not chal lenged the validity of the sub section (2) of sec.
8 of the Act and even otherwise the said validity has been upheld by a Division Bench of this Court (Shah and Deshpande, J J) in writ petition No. 706 A of 1982 (The Village Panchayat Chikalthane and Anr.
vs The State of Maharashtra and Anr.
decided on 23/24 Decem ber, 1982.
Therefore, it cannot be said that the notification issued in exercise of the said legislative power is vitiated by non complaince with the principles of natural justice.
The conditions laid down by sec.
3 are fully complied with; a preliminary notifi cation was issued as contemplated by sub section (4) of sec.
3 of the Act; the objec tions and suggestions made by the various citizens and persons were duly considered by the State Government and thereafter the final notification was issued.
In the very nature of things there is bound to be difference and variance between the preliminary notification and the final notification.
Only because the Ulhasnagar Municipal Council is excluded from the final notification, it cannot be said that there was any major departure from the prelim inary notification or it was necessary to issue a preliminary notification over again before the final notification was issued in that behalf.
" The second factual point to be noted is this: "Due to partition of India in 1947, the Sindhi people have been uprooted from their homeland and with hard labour they have settled them selves in different parts of the country.
One can appreciate their feelings about their anxi 411 ety to maintain their separate entity.
If such a large part is forcibly included in the Corporation ignoring their sentiments and wishes, it may not result in smooth working of the proposed Corporation which is necessary for proper development.
It is, therefore, desirable to constitute the new Kalyan Corpo ration without including Ulhasnagar for the time being." The High Court was not impressed with the above reason ings.
The High Court said that the decision to exclude Ulhasnagar was taken by the Government abruptly and in an irrational manner.
The decision was arbitrary and against the purpose of the Act.
On the legality of the procedure followed by the Government, the High Court said: "Once that decision was taken, it was obliga tory on the part of the Government to recon sider the proposal as a whole so far as the rest of the areas are concerned." Reference was also made to the report of the "Sathe Commission" to fortify the conclusion that Ulhasnagar could not have been isolated.
The "Sathe Commission" was a one man Commission appointed by the State Government to enquire and report on the establishment of new Municipal Corporations.
The Commission in its report among others, seems to have indicated that Kalyan, Ulhasnagar and Ambarnath are one contiguous stretch of territory with a length of about 8 kms.
from North West to South East.
The High Court then made some general observations as to the purpose for which Municipal Corporations should be constituted went on: "It was the avowed policy after independence to change the socio economic map of the vil lage and town.
A corporate life can only be ensured if there is a corporate conscience and an attitude to live together.
City is an epitome of the social world where all belts of civilization interest along its avenues.
A Municipal Corporation is . . in nature, where people belonging to different castes, creeds, religious and language want to live with each other.
Town planning cannot be denominational or fractional.
It is not a museum of human beings otherwise Harijan Bastis, Mominpures and such other Mohallas will have to be preserved to maintain its separate identity and the socio 412 economic map of the village or city will never change.
It cannot be forgotten that we are heading towards a global village.
By saying this, we do not want to belittle the achieve ments of sacrifice of the Sindhi Community.
However, that is not very relevant for decid ing the question of the establishment of a Municipal Corporation.
Its main object is to ensure better municipal government of the city.
It appears that Government was also aware of this and this seems to be the reason why the decision "for the time being is perti nent and clearly indicates that the Government wanted to reconsider the issue at a later stage.
However, unfortunately till today Government has not taken any decision in that behalf.
" The High Court, however, felt that it was not necessary to quash the notification establishing the Corporation.
This is how the conclusion was reached: "It will not be fair to quash the notification as a whole and unsettle the Municipal Adminis tration.
In our view, that is also not neces sary since from the affidavit of the Govern ment, it is clear that the decision taken in that behalf was tentative, i.e., for the time being and it is not all time permanent deci sion.
Under sub section (3) of sec.
3 of the act, the State Government has power to exclude or include any area specified in the notifica tion issued so far as Ambarnath Town is con cerned, reconsideration of the present case of the whole matter was absolutely necessary when the decision to exclude the Ulhasnagar Munici pal Council from the proposed Municipal Corpo ration, ,though tentative in nature, was taken.
" Finally, the operative portion of the Order was put in the following terms: "Therefore, without setting aside the final notification, we direct the State Government to reconsider the proposal under sub sec.
(3) of sec.
3 of the Bombay Provincial Municipal Corporations Act either to exclude or include any area, within a period of six months from today.
The writ of mandamus to be issued accordingly.
It is needless to say that after the necessary steps are taken under sec.
3(3) of the Act, the State Government shall make the necessary 413 amends in the notification issued.
XXX XXX XXX XXX XXX XXX XXX XXX "In the result, therefore, the rule is made partly absolute and the State Government is directed to exercise its power under sec.
3 sub sec.
(3) of the Act in accordance with law within a period of six months.
It is needless to say that the petitioners will be entitled to raise objections and make their suggestions in that behalf after a notification under sub sec (3) read with sub sec (4) of sec.
3 of the Act is issued.
Since the popular local self Government is not in existence in any of the Municipal Councils or even in the newly established municipal corporation and having regard to the peculiar facts and circumstances of the case, in our view, this is a fit case where the petitioners of these two petitions and All India Sindhi Panchayat Federation should be given a reasonable opportunity of being heard before any final decision in the matter is taken.
" Against the judgment of the High Court, the State Gov ernment has not preferred any appeal.
The Kalyan City Corpo ration though vitally concerned with the matter, has also not appealed to this Court.
The present appeals are only by those who were impleaded as interveners in the writ peti tions.
We have heard counsel for all parties and gave our best attention to the questions raised by the appellants.
Counsel for the appellants reiterated the stand taken by the Govern ment before the High Court.
He urged that the State has a wide discretion in the selection of areas for constituting the Corporation and the Court cannot interfere with such discretion.
The Court has no jurisdiction to examine the validity of the reason that goes into the decision of the Government.
The power to constitute Municipal Corporations under sec.
3 of the Act is legislative in character.
It is an extension of legislative process for which rules of natural justice have no application.
He said that the Gov ernment in the instant case has complied with the statutory requirements and it was not expected to do anything more in the premises.
And, at any rate, it is wholly unnecessary according to the counsel to go through that exercise again as the High Court has suggested.
414 The other limb of the argument of counsel for the appel lants relates to the manner in which the High Court disposed of the matter.
it was said that a decision of this Court has been disregarded and a binding decision of a co ordinate Bench of the same Court has been ignored.
The grievance of the appellants ' counsel, in our opin ion, is not wholly unjustified.
At the beginning of the judgment, we have said that the High Court rendered the judgment in a sense against the judicial propriety and decorum.
We were not happy to make that observation, but constrained to say so in the premise and background of the case.
It may be noted that the result of the writ petitions before the High Court turns on the nature and scope of the power conferred on the Government under sec.
3 of the Act.
A Division Bench of the High Court has taken the view that that power is in the nature of legislative process.
That judgment was rendered on 23/24 December, 1982, by a Bench consisting of Shah and Deshpande, JJ.
It was in writ peti tion No. 706 A of 1982 The Village Panchayat Chikalthana and Another vs The State of Maharashtra and Another, In that case, the challenge was to the validity of sec.
3(2) of the Act on the ground that it suffers from the vice of excessive delegation for want of guidelines for the exercise of power.
Repelling the contention, it was held that sec.
3 is in the nature of a conditional legislation and, therefore, laying down the policy or guidelines to exercise the power was unnecessary.
It was emphasized that the exercise of power under sec.
3(2) is conditioned by only two requirements, viz., (1) previous publication as contemplated by sub sec.
(4) of sec.
3 of the Act, (2) issuance of a notification by the Government after such previous publication.
Once the Government publishes such a notification, the legislation becomes complete and the other provisions of the Act are ipso facto attracted to the Corporation so constituted.
This was the view taken by the High Court in Chikalthane case.
To reach that conclusion, the learned judges relied upon the decision of this Court in Tulsipur Sugar Company, case ; The attention of the High Court in the present case was drawn to the decision in Chikalthane, case.
Counsel for the State and interveners seemed to have argued that the present case really fell fairly and squarely within what was said there.
They were indeed on terra firma since the decision in Chikalthane case was a clear authority against every conten tion raised by the petitioners.
Faced with this predicament, counsel for the petitioners urged before the High Court that their case should be referred to a larger Bench to reconsid er the deci 415 sion m Chikalthane, case.
But learned Judges, (Dharmadhikari and Kantharia, J J) did not heed to that submission.
They neither referred the case to a larger Bench nor followed the view taken in the Chikalthane, case.
It was not as if they did not comprehend the issue to be determined and the prin ciple to be applied.
They were very much aware of it when they remarked: "In our opinion, once it is accepted that this is a piece of conditional legislation, then it will have to be held that the principle of natural justice would not apply to such a case as held by the Division Bench of this Court in village Panchayat Chikalthane 's case nor it could be said that because under a mistaken notice the Federation was heard, the denial of such a right to the petitioners will amount to hostile discrimination within the contempla tion of Article 14 of the Constitution of India.
" After referring to these simple legal principles, it is unfortunate that the issue at stake was little explored.
The key question raised in the case was side tracked and a new strategy to interfere with the decision of the Government was devised.
The learned Judges directed the Government to publish again a draft notification for reconsideration of the matter.
They gave liberty to the writ petitioners and the interveners to submit their representations.
They ob served that "this is a fit case where the parties should be given a reasonable opportunity of being heard.
" They did not quash the impugned notification, but told the Government to make necessary changes in the light of fresh consideration.
All these directions were issued after recording a positive finding that the exclusion of Ulhasnagar from the Corpora tion was arbitrary and irrational.
The net result of it is that there is now no discretion with the Government to keep Ulhasnagar away from the Corporation.
It would be difficult for us to appreciate the judgment of the High Court.
One must remember that pursuit of the law, however glamorous it is, has its own limitation on the Bench.
In a multi judge court, the Judges are bound by precedents and procedure.
They could use their discretion only when there is no declared principle to be found, no rule and no authority.
The judicial decorum and legal pro priety demand that where a learned single judge or a Divi sion Bench does not agree with the decision of a Bench of co ordinate jurisdiction, the matter shall be referred to a larger Bench.
It is a subversion of judicial process not to follow this procedure.
416 Deprecating this kind of tendency of some judges, Das Gupta, J., in Mahadeolal Kanodia vs The Administrator Gener al of West Bengal, AIR 1960 SC 926 said (at 941): "We have noticed with some regret that when the earlier decision of two Judges of the same High Court in Deorajin 's case, 1954 Cal 119) was cited before the learned Judges who heard the present appeal they took on themselves to say that the previ ous decision was wrong, instead of following the usual procedure in case of difference of opinion with an earlier decision, of referring no less than legal propriety form the basis of judicial procedure.
If one thing is more necessary in law than any other thing, it is the quality of certainty.
That quality would totally disappear if Judges of co ordinate jurisdiction in a High Court start overruling one another 's decision.
" The attitude of Chief Justice, Gajendragadkar, in Lala Shri Bhagwan and Anr.
vs Ram Chand and Anr.
, ; was not quite different (at 1773): "It is hardly necessary to emphasize that considerations of judicial propriety and decorum require that if a learned single judge hearing a matter is inclined to take the view that the earlier decisions of the High Court, whether of a Division Bench or of a single, Judge, need to be reconsidered, he should not embark upon that enquiry sitting as a single judge, but should refer the matter to a Divi sion Bench or, in a proper case, place the relevant papers before the Chief Justice to enable him to constitute a larger Bench to examine the question.
That is the proper and traditional way to deal with such matters and it is rounded on healthy principles of judi cial decorum and propriety.
It is to be re gretted that the learned Judges departed from this traditional way in the present case and choose to examine the question himself.
" The Chief Justice Pathak, in a recent decision stressed the need for a clear and consistent enunciation of legal principle in the decisions of a Court.
Speaking for the Constitution Bench Union of India vs Raghubir Singh, ; learned Chief Justice said (at 766): "The doctrine of binding precedent has the merit of pro 417 moting a certainty and consistency in judicial decisions, and enables an organic development of the law, besides providing assurance to the individual as to the consequence of transac tions forming part of his daily affairs.
And, therefore, the need for a clear and consistent enunciation of legal principle in the deci sions of a Court.
" Cardozo propounded a similar thought with more emphasis: "1 am not to mar the symmetry of the legal structure by the introduction of inconsisten cies and irrelevancies and artifical excep tions unless for some sufficient reason, which will commonly by some consideration of history or custom or .policy or justice.
Lacking such a reason, I must be logical just as I must be impartial, and upon like grounds.
It will not do to decide the same question one way between one set of litigants and the opposite way between another" (The Nature of the Judicial Process by Benjamin N. Cardozo p.33) In our system of judicial review which is a part of our Constitutional scheme, we hold it to be the duty of judges of superior courts and tribunals to make the law more pre dictable.
The question of law directly arising in the case should not be dealt with apologetic approaches.
The law must be made more effective as a guide to behaviour.
It must be determined with reasons which carry convictions within the Courts, profession and public.
Otherwise, the lawyers would be in a predicament and would not know how to advise their clients.
Subordinate courts would find themselves in an embarrassing position to choose between the conflicting opinions.
The general public would be in dilemma to obey or not to obey such law and it ultimately falls into disrepute.
Judge learned Hand has referred to the tendency of some judges "who win the game by sweeping all the chessmen off the table".
(The Spirit of Liberty by Alfred A. Knopf, New York (1953) p. 131).
This is indeed to be deprecated.
It is needless to state that the judgment of superior courts and Tribunals must be written only after deep travail and posi tive vein.
One should never let a decision go until he is absolutely sure it is right.
The law must be made clear, certain and consistent.
But certitude is not the test of certainty and consistency does not mean that there should be no word of new content.
The principle of law may develop side by side with new content but not 418 with inconsistencies.
There could be waxing and wanning the principle depending upon the pragmatic needs and moral yearnings.
Such development of law particularly, is inevita ble in our developing country.
In Raghubir Singh, case, learned Chief Justice Pathak had this to say ; at 767: "Legal compulsions cannot be limited by exist ing legal propositions, because, there will always be, beyond the frontiers of the exist ing law, new areas inviting judicial scrutiny and judicial choice making which could well affect the validity of existing legal dogma.
The search for solutions responsive to a changed social era involves a search not only among competing propositions of law, or competing versions of a legal proposition, or the modalities of an indeterminacy such as "fairness" or "reasonableness" but also among propositions from outside the ruling law, corresponding to the empirical knowledge or accepted values of present time and place, relevant to the dispensing of justice within the new parameters.
And he continued: The universe of problems presented for judi cial choicemaking at the growing points of the law is an expanding universe.
The areas brought under control by the accumulation of past judicial choice may be large.
Yet the areas newly presented for still further choice, because of changing social, economic and technological conditions are far from inconsiderable.
It has also to be remembered, that many occasions for new options arise by the mere fact that no generation looks out on the world from quite the same vantage point as its predecessor, nor for that matter with the same perception.
A different vantage point or a different quality of perception often re veals the need for choicemaking where formerly no alternatives, and no problems at all, were perceived.
" Holmes tells us: "The truth is, that the law is always ap proaching, and never reaching, consistency.
It is forever adopting new principles from life at the end, and it always retains old ones from history at the other, which have not yet been absorbed or 419 sloughed off.
It will become entirely consist ent only when it ceases to grow." (Holmes the Common Law, p. 36 (1881).
Apart from that the judges with profound responsibility could iII afford to take stolid satisfaction of a single postulate past or present in any case.
We think, it was Cicero who said about someone "He saw life clearly and he saw it whole"; The judges have to have a little bit of that in every case while construing and applying the law.
Reverting to the case, we find that the conclusion of the High Court as to the need to reconsider the proposal to form the Corporation has neither the attraction of logic nor the support of law.
It must be noted that the function of the Government in establishing a Corporation under the Act is neither executive nor administrative.
Counsel for the appellants was right in his submission that it is legisla tive process indeed.
No judicial duty is laid on the Govern ment in discharge of the statutory duties.
The only question to be examined is whether the statutory provisions have been complied with.
If they are complied with,, then, the Court could say no more.
In the present case the Government did publish the proposal by a draft notification and also con sidered the representations received.
It was only thereaf ter, a decision was taken to exclude Ulhasnagar for the time being.
That decision became final when it was notified under Section 3(2).
The Court cannot sit in judgment over such decision.
It cannot lay down norms for the exercise of that power.
It cannot substitute even "its juster will for theirs.
" Equally, the rule issued by the High Court to hear the parties is untenable.
The Government in the exercise of its powers under Section 3 is not subject to the rules of natu ral justice any more than is legislature itself.
The rules of natural justice are not applicable to legislative action plenary or subordinate.
The procedural requirement of hear ing is not implied in the exercise of legislative powers unless hearing was expressly prescribed.
The High Court, therefore, was in error in directing the Government to hear the parties who are not entitled to be heard under law.
Megarry, J., in Bates vs Lord Hailsham of St. Marylebone and Ors., while dealing with the legisla tive process under Section 56 of the Solicitors Act, 1957 said (at 1378): "In the present case, the committee in ques tion has an entirely different function: it is legislative rather than 420 administrative or executive.
The function of the committee is to make or refuse to make a legislative instrument under delegated powers.
The order, when made, will lay down the remu neration for solicitors generally and the terms of the order will have to be considered and construed and applied in numberless cases in the future.
Let me accept that in the sphere of the so called quasi judicial the rules of natural justice run, and that in the administrative or executive field there is a general duty of fairness.
Nevertheless, these considerations do not seem to me to affect the process of legislation, whether primary or delegated.
Many of those affected delegated legislation, and affected very substantially, are never consulted in the process of enacting that legislation; and yet they have no remedy.
Of course, the informal consultation of repre sentative bodies by the legislative authority is a commonplace; but although a few statutes have specifically provided for a general process of publishing draft delegated legisla tion and considering objections (see, for example, the Factories Act 1961 Schedule 4), I do not know of any implied right to be con sulted or make objections, or any principle upon which the courts may enjoin the legisla tive process at the suit of those who contend that insufficient time for consultation and consideration has been given.
I accept that the fact that the order will take the form of a statutory instrument does not per se make it immune from attack, whether by injunction or otherwise; but what is important is not its form but its nature, which is plainly legisla tive.
" There are equally clear authorities on this point from this Court.
The case in Tvlsipur Sugar Co. Ltd. vs The Notified Area Committee, Tulsipur, ; was indeed a hard case.
But then, this Court did not make a bad law.
There a notification dated August 22, 1955 was issued under Section 3 of the U.P. Town Area covering the petition er 's factory.
Consequently, the octroi was levied on goods brought by the factory management into the limits of Town Area Committee.
The Company questioned the validity of that notification.
The case pleaded was that the company had no opportunity to make representation regarding the advisabili ty of extending the limits of the Town Area Committee.
Venkataramiah, J., as the present learned Chief Justice then was, while rejecting the contention observed (111920): 421 "The power of the State Government to make a declaration under Section 3 of the Act is legislative in character because the applica tion of the rest of provisions of the Act to the geographical area which is declared as a town area is dependent upon such declaration.
Section 3 of the Act is in the nature of a conditional legislation.
Dealing with the nature of functions of a non judicial authori ty, Prof. S.A. De Smith in Judicial Review of Administrative Action (third edition) observes at page 163: "However, the analytical classi fication of a function may be a conclusive factor in excluding the operation of the audi alteram partem rule.
It is generally assumed that in English law the making of a subordi nate legislative instrument need not be pre ceded by notice or hearing unless the parent Act so provides." In Baldev Singh vs State of Himachal Pradesh, a similar question arose for consideration.
An attempt was made to constitute a notified area as provided under Section 256 of the Himachal Pradesh Municipal Act, 1968, by including portions of the four villages for such purposes.
The residents of the villages who were mostly agriculturists challenged the validity of the notification before the High Court on the ground that they had no oppor tunity to have their say against that notification.
The High Court summarily dismissed the writ petition.
In the appeal before this Court, it was argued that the extension of notified area over the Gram Panchayat limits would involve civil consequences and therefore, it was necessary that persons who would be affected thereby ought to be given an opportunity of being heard.
Ranganath Misra, J., did not accept that contention, but clarified (at 515): "We accept the submission on behalf of the appellants that before the notified area was constituted in terms of Section 256 of the Act, the people of the locality should have been afforded an opportunity of being heard and the administrative decision by the State Government should have been taken after con sidering the view of the residents.
Denial of such opportunity is not in consonance with the scheme of the rule of law governing our socie ty.
We must clarify that the hearing contem plated is not required to be oral and can be by inviting objections and disposing them of in a fair way.
" The principles and precedents thus enjoin us not to support the 422 view taken by the High Court.
We may only observe that the Government is expected to act and must act in a way which would make it consistent with the good administration.
It is they, and no one else who must pass judgment on this mat ter.
We must, therefore, leave it to the Government.
In the result and for the reasons stated, we allow the appeals and set aside the judgment of the High Court.
In the circumstances of the case, we make no order as to costs.
Y. Lal Appeals allowed.
| IN-Abs | On June 19, 1962, the Government of Maharashtra issued a draft notification under Section 3(3) of the Bombay Provin cial Municipal Corporation Act, 1949 and thereby proposed the formation of "Kalyan Corporation", by merging of munici pal areas of Kalyan, Ambarnath, Domoivali and Ulhasnagar.
The proposal was resented to by the residents of the said areas and many objections and representations by persons, companies and authorities including the municipal bodies of Ambarnath, and Ulhasnagar were made.
So far as Ulhasnagar was concerned it was stated that Sindhi Community after partition has settled at Ulhasnagar and to keep the identity of Sindhies distinct, they had formed All India Sindhi Panchayat Federation.
The said Federation challenged the draft notification by a Writ Petition before the High Court.
On an assurance being given by the Government before the High Court that the representation made by the Federation would be duly considered, the Writ Petition was allowed to be withdrawn.
As per the assurance, the Federation was given personal hearing on their representation.
Only the Federa tion was heard, none of the other representationists was afforded any hearing though their objections were duly considered.
After considering the matter in the manner aforesaid, the Government decided to exclude Ulhasnagar from the proposed Corporation and accordingly a notification under section 3(2) of the Act was issued.
The Corporation was thus Constituted excluding Ulhasnagar.
Save as aforesaid no other alteration was made in the notification.
406 The Residents of Ambarnath municipal area were not satisfied.
They moved the High Court challenging the validi ty of the notification issued under section 3(2) of the Act.
Their main contention was that there has been hostile dis crimination in the matter as only the Federation was heard and none else.
They also asserted that the establishment of a Corporation without Ulhasnagar, keeping in view the geo graphical contiguity was unintelligibe and incomprehensible.
According to them it was arbitrary and opposed to the object of the Act.
Federation and others interested in the proceedings were allowed to intervene and they supported the stand taken by the Government which was the main respondent.
The State pleaded that the formation of Corporation was an extension of the legislative process and as such section 3 was a piece of conditional legislation, and the notifica tion issued in exercise of that power cannot be said to have been vitiated by non compliance with the principles of natural justice.
According to the State it was not obligato ry for the State to issue a preliminary notification over again before the final notification excluding Ulhasnagar was issued.
The High Court took the view that the decision to ex clude Ulhasnagar was taken by the State abruptly and in an irrational manner and that the decision was against the object of the Act.
On the legality of the procedure followed by the Government, the High Court held that once a decision was taken, it was obligatory on the part of the Government to reconsider the proposal as a whole so for as the rest of the areas were concerned.
The High Court without quashing the impugned notifica tion directed the State Government to reconsider the propos al under subsection (3) of the Act either to exclude or include any area and accordingly make amends in the notifi cation.
It was also directed that the Petitioners and the Federation be given a reasonable opportunity of being heard before any final decision in the matter is taken.
Against the aforesaid decision of the High Court only interveners have preferred these appeals.
The State and Kelyan City Corporation have not appealed.
Counsel for the appellants reiterated the stand taken by the Government before the High Court and urged that the State had a wide discretion in the selection of areas for constituting the Corporation and the Court cannot interfere with such discretion.
State 's power to consti 407 tute a corporation is legislative in character and rules of natural justice have no application.
It was urged that the state had complied with all the statutory requirements and it was not necessary for the state to go through that exer cise again.
It was further urged that the decision of this Court has been disregarded and a binding decision of a co ordinate bench of the same Court in Village Panchayat Chi kalthane & Anr.
vs State of Maharashtra has been ignored.
Allowing the appeals, this Court, HELD: In our system of judicial review which is a part of our constitutional scheme, this Court holds it to be the duty of Judges of superior Courts and tribunals to make the law more predictable.
The question of law directly arising in the case should not be dealt with apologetic approaches.
The law must be made more effective as a guide to behaviour.
It must be determined with reasons which carry convictions within the Courts, professions and public otherwise the lawyers would be in a predicament and would not know how to advise their clients.
Subordinate Courts would find them selves in an embarrassing position to choose between the conflicting opinions.
The general public will be in a dilem ma to obey or not to obey such law and it ultimately fails into disrepute.
[417D F] It is needless to state that the judgment of superior Courts and Tribunals must be written only after deep travail and positive vein.
One should never let a decision go unless he is absolutely sure it is right.
The law must be made clear, certain and consistent.
But ceritude is not the test of certainty and consistency does not mean that there should be no word of new content.
The principle of law may develop side by side with new content but not in consistencies.
There could be waxing and waning the principle depending upon the pragmatic needs and moral yearings.
Such develop ment of law particularly is inevitable in our developing country.
[417G H; 418A B] The rules of natural justice are not applicable to legislative activity plenary or subordinate.
The procedural requirement of hearing is not implied in the exercise of legislative powers unless hearing was expressly prescribed.
[419F] The High Court, therefore, was in error in directing the Government to hear the parties who are not entitled to be heard in law; section 3 of the Bombay Provincial Municipal Corporation Act 1949.
[419F G] The Government in the exercise of its powers under section 3 is 408 not subject to the Rules of natural justice any more than is legislature itself.
[419F] Mahadeolal Kanodia vs The Administrator General of West Bengal, A.I.R. (1960) S.C.p. 926; Sri Bhagwan and Anr.
vs Ram Chand and Anr.
, ; at 1773; Union of India vs Raghbir Singh, ; ; The Nature of Judicial Process by Benjamin N. Cardozo; Bates vs Lord Heilsham of St. Marylebone and Others, 1, W.L.R. 1373; Tulsipur Sugar Co. Ltd. vs The Notified Area Committee, Tulsipur, ; and Baldev Singh vs State of Himachal Pradesh, , referred to.
|
vil Appeal Nos. 1403 to 1406 of 1974.
From the Judgment and Order dated 23.12.
1971 of the Madras High Court in W.P. Nos.
1053 54, 4679 & 4715 of 1968.
Anil Dev Singh, Ms. Indu Malhotra and C.V. Subba Rao for the Appellant.
467 R.P. Bhat, G.L. Sanghi, M.N. Krishnamani, Vineet Kumar, R. Mohan, K.C. Dua and R.A. Perumal for the Respondents.
The Judgment of the Court was delivered by SINGH, J.
These appeals are directed against the judg ment and order of a Division Bench of the High Court of Madras dated 2.8. 1974, quashing the notices issued by the Deputy Commercial Tax Officer, Madras.
The respondents manufacture various medicinal prepara tions and in that process they use tincture containing alcohol.
On the enforcement of the (hereinafter referred to as 'the Act ') the respondents became liable to pay duty.in accordance with Section 3 of the Act read with Schedule to the Act.
They 'further became liable to obtain licence, but they neither paid duty nor obtained licence.
The Commercial Tax Officer issued notices to the respondents in exercise of his powers under Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules 1956 directing them to pay duty on all medicinal preparations manufactured by them after 1.6.1961.
The notices were in the shape of notice of demand requiring the respondents to pay the duty which they had failed to pay in accordance with the Act and the Rules on the use of tincture in manufacturing medicinal preparations.
The respondents filed writ petitions under Article 226 of the Constitution of India before the High Court of Madras challenging the notices and the proceedings initiated in pursuance thereof for the recovery of duty from them.
A Division Bench of the High Court allowed the writ petitions on the sole ground that Rule 12 under which the impugned notices were issued was ultra vires the Act, conse quently, proceedings initiated in pursuance thereof, were without jurisdiction.
On these findings the writ petitions were allowed and the notices as well as the proceedings were quashed.
The sole question which arises for consideration in these appeals relates to the validity of Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules 1956.
The High Court has declared the Rule ultra vires on the ground that the Act was silent on the question of levy of duty on escaped turn over and hence Rule 12 which pro vides for the recovery of escaped duty was outside the purview and scope of the Act.
The Act was enacted to provide for the levy and collection of 468 duty of excise on medicinal and toilet preparations contain ing alcohol, opium, Indian hemp or other narcotic drugs as the preamble states.
Section 3 provides for levy and collec tion of duties.
It reads as under: "3(1).
There shall be levied duties of excise, at the rates specified in the Schedule, on all dutiable goods manufactured in India.
(2) The duties aforesaid shall be leviable (a) where the dutiable goods are manufactured in bond, in the State in which such goods are released from a bonded warehouse for home consumption, whether such State is the ,State of manufacture or not; (b) where the dutiable goods are not manufac tured in bond, in the State in which such goods are manufactured.
(3) Subject to the other provisions contained in this Act, the duties aforesaid shall be collected in such manner as may be prescribed.
" Excise duty is imposed by Section 3 on the manufacture of dutiable goods at the rates specified in the Schedule.
Sub section (2) indicates the stage at which the duty is to be levied.
Section 3(3) provides for collection of duty, lays down that it shall be collected in such manner as may be prescribed by Rules made under the Act.
Section 3, there fore, imposes duty on the manufacture of medicinal prepara tions and it lays down the rates and it also indicates the stage at which the duty is to be levied.
So far as collec tion of duty is concerned the Act leaves the same to the rule making authority.
Section 19 confers power on the Central Government to make rules to carry out the purposes of the Act.
The relevant provision of Section 19 is as under: "19(1).
The Central Government may, by notifi cation in the Official Gazette, make rules to carry out the purposes of this Act.
(2) In particulars, and without prejudice to the generality of the foregoing power, such rules may (i) provide for the assessment and collection of duties levied under this Act, the authori ties by whom functions 469 under this Act are to be discharged, the issue of notices requiring payment, the manner in which the duties shall be payable and the recovery of duty not paid.
" Section 19(1) read with Section 3(3) confer wide powers on the Central Government to make rules which may be necessary for carrying out the purpose of the Act.
Such rules may provide for the assessment and collection of duties, and, the manner in which the duty is to be paid as well as for the recovery of duty not paid at all.
The Central Government in exercise of its power under Section 19 of the Act has framed the Medicinal and Toilet Preparations (Excise Duties) Rules 1956 which were enforced on 9th March 1957.
Chapter III of the Rules provide for levy and refund of, and, exemp tion from duty.
Rules 6 to 17 relate to recovery, exemption and refund of duty.
Rule 6 requires every person who manu factures any dutiable goods, or who stores such goods in a warehouse to pay the duty on such goods, at such time and place as may be designated.
Rule 9 prescribes time and manner of payment of duty.
According to this Rule no dutia ble goods shall be removed from any place where they are manufactured either for consumption or for export, outside such place until the excise duty leviable thereon is paid at such place and in such manner as prescribed in the Rules or as the Excise Commissioner may require.
Rule 11 provides for recovery of duty or charges which may have been shortlevied through inadvertence, error, collusion, or mis construction on the part of an Excise Officer and through mis statement on the part of the owner and it also provides for recovery of any refund erroneously made to the manufacturer, owner of the goods on written demand made within six months from the date of payment of duty.
Rule 12 confers residuary power for the recovery of sums due to the Government.
Rule 12 reads as under: "12.
Residuary powers for recovery of sums due to Government Where these rules do not make any specific provision for the duty has for any reason been short levied, or of any other sum of any kind payable to the collecting Government under the Act or these rules, such duty, deficiency in duty or sum shall, on written demand made by the proper officer, be paid to such person and at such time and place, as the proper officer may specify.
" 470 As already noted Rules contained in Chapter III of the Rules particularly Rules 6, 9, 10 and 11 provide for payment and recovery of duty and also the time and manner of its payment.
Rule 12 is designed to confer residuary power for recovery of duty if unpaid on account of short levy or deficiency or for any reason it remains unpaid.
If recovery of duty or any amount of sum payable to the Government under the Act is not covered by any specific Rule, additional supplementing provision is made for its recovery by Rule 12.
Rule 12 provides for recovery of duty, as well as any other sum payable to the collecting Government under the Act if the same is not paid on account of short levy or deficiency or for any reason.
In substance Rule 12 contains additional safeguard for recovery of duty, it does not create any additional charge or liability on the manufacturer for the payment of the duty.
The liability to pay tax is created by the charging Section 3 and Rule 12 confers, on the autho rised officer to recover duty if the same has not been paid on account of any short levy or deficiency or any other reason.
Rule 12 is referable to section 19(2)(i) of the Act.
The Rule carries out the purposes of the Act as it seeks to provide for recovery of duty as contemplated by Section 3(3) of the Act.
The High Court committed error in holding that the Rule provides for recovery of escaped duty although the Act is silent on the question of escaped assessment and therefore Rule 12 is ultra vires the Act.
Learned counsel appearing for the respondents urged that Rule 12 is unreasonable and violative of Article 14 of the Constitution, as it does not provide for any period of limitation for the recovery of duty.
He urged that in the absence of any prescribed period for recovery of the duty as contemplated by Rule 12, the officer may act arbitrarily in recovering the amount after lapse of long period of time.
we find no substance in the submission.
While it is true that Rule 12 does not prescribe any period within which recovery of any duty as contemplated by the Rule is to be made, but that by itself does not render the Rule unreasonable or violative of Article 14 of the Constitution.
In the absence of any period of limitation it is settled that every author ity is to exercise the power within a reasonable period.
What would be reasonable period, would depend upon the facts of each case.
Whenever a question regarding the inordinate delay in issuance of notice of demand is raised, it would be open to the assessee to contend that it is bad on the ground of delay and it will be for the relevant officer to consider the question whether in the facts and circumstances of the case notice or demand for recovery was made within reasona ble 471 period.
No hard and fast rules can be laid down in this regard as the determination of the question will depend upon the facts of each case.
In view of the above discussion, we allow the appeals and set aside the judgment and order of the High Court of Madras dated 2.8.
There will be no order as to costs.
T.N.A. Appeals allowed.
| IN-Abs | The respondents were manufacturing various medicinal preparations and in that process were using tincture con taining alcohol.
On the enforcement of the they became liable to pay duty and also to obtain licence but they continued their manufacture without doing so.
The Commercial Tax Officer issued demand notices under Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956 requiring payment of the duty which the respondents had failed to pay.
The respondents filed writ petitions in the High Court challenging the aforesaid notices, and the proceedings for recovery of duty.
Allowing the writ petitions the Division Bench quashed the notices as well as the proceedings for recovery on the ground that the Act was silent on the ques tion of levy of duty on escaped turnover, and hence Rule 12 which provides for recovery of escaped duty was outside the purview and scope of the Act and, therefore, ultra vires.
In these appeals it was contended that Rule 12 was invalid and 466 unreasonable and violative of Article 14 of the Constitution because it does not provide for any period of limitation for the recovery of duty.
Allowing the appeals and setting aside the judgment of the High Court, this Court, HELD: 1.
The liability to pay tax is created by the charging section 3 and Rule 12 confers, power on the autho rised officer to recover duty if the same has not been paid on account of any short levy or deficiency or any other reason.
Rule 12 is referable to section 19(2)(i) of the Act and carries out the purposes of the Act as it seeks to provide for recovery of duty as contemplated by section 3(3) of the Act.
It is designed to confer residuary power for recovery of duty if unpaid on account of short levy or deficiency or for any reason it remains unpaid.
If recovery of duty or any amount of sum payable to the Government under the Act is not covered by any specific Rule, additional supplementing provision is made for its recovery by this Rule.
This Rule does not create any additional charge or liability on the manufacturer for the payment of the duty.
The High Court Committed error in holding that the Rule is ultra vires the Act.
[470C D, 470A B] 2.
Rule 12 does not prescribe any period within which recovery of any duty as contemplated by the Rule is to be made, but that by itself does not render the Rule unreasona ble or violative of Article 14 of the Constitution.
In the absence of any period of limitation it is settled that every authority is to exercise the power within a reasonable period.
What would be reasonable period, would depend upon the facts of each case.
Whenever a question regarding the inordinate delay in issuance of notice of demand is raised, it would be open to the assessee to contend that it is bad on the ground of delay and it will be for the relevant officer to consider the question whether in the facts and circumstances of the case notice or demand for recovery was made within reasonable period.
No hard and fast rules can be laid down in this regard as the determination of the ques tion will depend upon the facts of each case.
[470F, G, H, 471A]
|
ivil Appeal No. 1548 of 1974.
From the Judgment and Order dated 12.12.
1972 of the Bombay High Court in F.A. No. 152 of 1972.
V.A. Bobde, B.R. Agarwala and R.B. Hathikhanwala for the Appellants.
M.S. Gupta for the Respondents.
The Judgment of the Court was delivered by KANIA, J.
This is an appeal by special leave granted under Article 136 of the Constitution of India against the judgment of a Division Bench of the Bombay High Court (Nagpur Bench) in First Appeal No. 152 of 1972, the judgment having been delivered on December 12, 1972.
The appellants are a firm registered under the Partner ship Act, 1932 and inter alia carry on the business of hire purchase of automobile vehicles.
The appellants were the owners of a diesel truck complete with tools and other accessories.
On January 24, 1962 respondent No. 1 hired the said truck from the appellants under a Hire Purchase Agree ment in writing of the same date.
Under the said agreement, respondent No. 1 agreed to pay to the appellants a sum of Rs. 10,000 as initial hire charges and certain monthly hire charges.
It was provided under the said agreement that on the payment of all the monthly hire charges and other amounts payable under the agreement 486 on the respective due dates and fulfilment of the other terms and conditions of the agreement, respondent No. 1 would have the option to purchase the said truck.
However, if any of the monthly hire charges were not paid or there was a breach of any of the terms and conditions of the agreement, the appellants were entitled to take possession of the truck.
Until respondent No. 1 validly exercised the option to purchase the said truck, the said truck was to remain the property of the appellants.
Respondent No. 2 is the guarantor.
Respondent No. 1 failed to pay the monthly hire charges to the appellants as provided under the agree ment.
In fact, he paid only the initial hire of Rs. 10,000 and hire charges for one month only.
Giving up certain claims for damages and other items the appellants filed a suit in the Court of Civil Judge (Senior Division) at Nagpur for recovery of a sum of Rs. 13,422.23 p against the re spondents.
Several issues were framed by the learned Trial Judge and they were all decided in favour of the appellants.
However, the learned Trial Judge dismissed the suit on the ground that it was not maintainable in view of the provi sions of section 69(2) of the Partnership Act, 1932.
The appellants preferred an appeal against this decision to the Bombay High Court (Nagpur Bench).
The said appeal was, however, dismissed by the High Court upholding the view of the learned Trial Judge regarding the non maintainability of the suit.
It is against this decision, that the present appeal is directed.
In order to appreciate the controversy before us, it is necessary to take note of a few further facts none of which is disputed.
The appellant firm was registered under the Partnership Act, 1932 on November 2, 1960.
There was a change in the consti tution of the firm on July 1, 1962 but we are not concerned with that change.
What is material is that, on July 1, 1967, there was another change in the constitution of the firm whereby two of the then partners retired and one new part ner, namely, Smt.
Sarita Agrawal joined as a partner of the said firm; and two minors, namely, Ashish Kumar and Rohit Kumar were admitted to the benefits of the said partnership firm.
On the said date, namely, July 1, 1967 two of the then partners, namely, Smt.
Sheela R. Agrawal and Shri Ramkishan retired as aforestated from the said partnership firm.
The suit was instituted on July 22, 1968.
The notice regarding the change in the constitution of the said firm as aforesaid was given to the Registrar of Firms on August 28, 1968 and a note was taken of the said change in the Register of Firms subsequently.
Thus, as pointed out by the learned Trial Judge, on the date when the suit was filed, two partners shown as partners in the appellant firm in the relevant entries in the Register of Firms had 487 already retired, one new partner had joined the said firm and two minors had been admitted to the benefit of the said partnership firm and no notice had been given to the Regis trar of Firms in respect of these changes.
The notice re garding these changes was given to the Registrar of Firms subsequently and noted on November 19, 1968.
Section 69 of the said Partnership Act deals with the effect of non registration of firms.
Sub section (2) of the said section, which is material for the purposes of this appeal, runs as thus: "(2).
No suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm.
" In the present case the suit filed by the appellants is clearly hit by the provisions of sub section (2) of section 69 of the said Partnership Act, as on the date when the suit was filed, two of the partners shown as partners as per the relevant entries in the Register of Firms were not, in fact, partners, one new partner had come in and two minors had been admitted to the benefit of the partnership firm regard ing which no notice was given to the Registrar of Firms.
Thus, the persons suing, namely, the current partners as on the date of the suit were not shown as partners in the Register of Firms.
The result is that the suit was not maintainable in view of the provisions of sub section (2) of section 69 of the said Partnership Act and the view taken by the Trial Court and confirmed by the High Court in this connection is correct.
Although the plaint was amended on a later date that cannot save the suit.
Reference has been made to some decisions in the judgment of the Trial Court; however, we do not find it necessary to refer to any of them as the position in law, in our opinion, is clear on a plain reading of sub section (2) of section 69 of the said Part nership Act.
In the result, the appeal fails and is dismissed with costs.
N.P.V. Appeal dismissed.
| IN-Abs | Under a Hire Purchase agreement entered into with the appellant, a firm registered under the Partnership Act, 1932, carrying on the business of hire purchase of automo bile vehicles, Respondent No. 1 hired the truck owned by the appellant, under the agreement Respondent No. 1 agreed to pay initial hire charge of Rs. I0,000 and certain monthly hire charges on due dates.
On the failure of Respondent No. 1 to pay the monthly hire charges, after paying the initial hire charges and charges for one month, the appellant filed a suit against Respondent No. 1 and his guarantor on July 22, 1968, for the recovery of a sum of Rs. 13,422.23 for breach of terms and conditions of the agreement.
There was a change in the constitution of the firm on July 1, 1967 with the retirement of two of the then part ners, and addition of one new partner as also admission of two minors to the benefits of the Partnership.
This change was notified to the Registrar of Firms on August 28, 1968 and was duly taken note of in the Register of Firms subse quently.
Thus, no notice of the change had been given to the Registrar of firms.
The Trial Judge dismissed the suit as not maintainable in view of Section 69(2) of the Partnership Act, 1932.
Upholding this decision, the High Court dismissed the appeal of the firm.
Hence, the appeal, by special leave, by the appellant firm.
Dismissing the appeal, the Court.
HELD: Sub section (2) of Section 69 of the Partnership Act lays down that no suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing were or had been shown in the Register of Firms as partners in the firm.
[487C] In the present case, the suit tided by the appellant firm is clearly 485 hit by the provisions of sub section (2) of Section 69 of the said Partnership Act, as on the date when the suit was filed, two of the partners shown as partners as per the relevant entries in the Register of Firms were not, in fact, partners, one new partner had come in and two minors had been admitted to the benefit of the partnership firm regard ing which change no notice was given to the Registrar of Firms.
Thus, the persons suing, namely, the current partners as on the date of the suit were not shown as partners in the Register of Firms.
Therefore, the suit was not maintainable in view of the provisions of sub section (2) of section 69 of the Partnership Act, 1932.
[487D E] Although the plaint was amended on a later date, that cannot save the suit.
|
ivil Appeal No. 3 1543 155 of 1985.
From the Judgment and Order dated 26.3.
1985 of the Jammu & Kashmir High Court in L.P.A. (W) No. 59 of 1984.
For the Appellant In Person in Civil Appeal No. 3 154/85 M.N. Tiku, Rakesh Tiku and Pandey Associates for the Respondents.
431 M.N. Tiku, Rakesh Tiku and Pandey Associates for the Appellants.
For the Respondent In Person in Civil Appeal No. 3155/85.
The Judgment of the Court was delivered by KULDIP SINGH, J.
Jammu & Kashmir Industries Limited (hereinafter called 'company ') is a company registered under the Indian and is wholly owned and managed by the State of Jammu & Kashmir.
Pyare Lal Sharma was employed by the company as Chemical Engineer.
His serv ices were terminated by the Managing Director of the company on June 14, 1983.
Sharma 's writ petition was allowed by a learned Single Judge of the Jammu & Kashmir High Court.
On appeal by the company the Letters Patent Bench upheld the judgment but denied back wages to Sharma.
This is how these two appeals, one by the.company and the other by Sharma, are before us.
We may briefly notice the necessary facts.
Pyare Lal Sharma joined the company as Assistant Chemical Engineer on July 12, 1972.
In 1974 he was sent to England as management trainee but he returned back without completing the train ing.
Sharma 's conflict with the company started in 1976 when he filed a suit against the company in Jammu & Kashmir High Court with various reliefs including a direction that he be again sent to England on company 's expense.
The suit was dismissed and further appeal to the Division Bench was also dismissed.
He then filed another suit in the Delhi High Court claiming Rs.50 lakhs as damages from the company but the same did not proceed on technical grounds.
Thereafter, it seems, Sharma started suspecting mala fide in every action of the company and resorted to court proceedings even on slight pretext.
He challenged the order of transfer from Baramulla to the headquarters by way of suit in the Jammu & Kashmir High Court.
Interim stay, initially granted, was vacated by the High Court.
In December, 1979 he applied for leave on medical grounds without disclosing the ailment.
He remained absent from December 7, 1979 to March 7, 1980 without any sanctioned leave.
Disciplinary proceedings were initiated against him on the charge of unauthorised absence and he was placed under suspension on March 8, 1980.
He filed Writ Petition No. 58/80 in the Jammu & Kashmir High Court against suspension.
Ultimately Sharma expressed re grets and he was reinstated into service by an order dated May 15, 1980.
In April, 1981 he was transferred from head quarters to one of 432 the units.
He again filed a writ petition in the Jammu & Kashmir High Court challenging the order of transfer but the same was dismissed.
Thereafter he filed Writ Petition No. 4086 of 1982 in this Court which was heard by Chinnappa Reddy, J. (Vacation Judge) on 1st of June, 1982.
The learned Judge passed the following order: "Issue notice returnable on June 15, 1982.
Notice be also served on the counsel for the State of Jammu & Kashmir Mr. Altar Ahmad.
Mr. Altar Ahmad will take instructions from his clients and assist this Court to know the precise facts of the case which it is impossi ble to find from the petitioner.
1 have sug gested to the petitioner that he may engage a counsel but he does not appear to be inclined to do so.
Nor is he willing to be assisted by the counsel engaged by the court.
" The writ petition was, however, dismissed as withdrawn on June 15, 1982.
Sharma filed two more writ petitions being 293 of 1982 and 410 of 1982 in the Jammu & Kashmir High Court challenging the promotions of some other officers.
Sharma absented from duty on September 8, 1982.
He was asked to explain his absence.
A para out of his reply is as under: "I have been submitting charge sheet against you since last one year to authorities about your corrupt practices, communal character, and illegal financial advancement you have made but no action has been taken against you since you utilise political pressure and bribed the chairman.
" Sharma was served with a charge sheet dated September 24, 1982 and he was placed under suspension.
Use of deroga tory language in various communications was one of the charges against him.
He submitted his reply to the charge sheet on October 7, 1982.
Part of the opening paragraph is as under: "You have become frustrated, lost balance of mind and to cover the various irregularities committed by you for example . .
You will be prosecuted for levelling false charge sheet and false charges against me.
Coming to the charge sheet with above reverence I have to say as under." On October 22, 1982 an enquiry officer was appointed to enquire 433 into the charges against Sharma.
He challenged the order of suspension by way of Civil Writ Petition 661 of 1982 in the Jammu & Kashmir High Court.
The High Court stayed the sus pension by its order dated December 20, 1982.
The order of suspension having been stayed by the High Court it was incumbent on Sharma to have joined duty.
But inspite of company 's letters asking him to do so he remained absent.
Sharma filed Writ Petition 471/82, Writ Petition 129/83 and Letters Patent Appeal 24/83 for payment of his salary and allowances for various periods which were granted by the High Court.
It is also on record that while in service Sharma unsuc cessfully fought assembly elections on two occasions.
He filed his nomination papers for contesting elections to the Lok Sabha from Baramulla constituency.
But the nomination papers were rejected.
Regulation 16.14 of Jammu & Kashmir Industries Employees Service Rules and Regulations before amendment was as under: "The service of the permanent employee shall be terminated by the company, if (a) his post is abolished or (b) he is declared on medical grounds to be unfit for further service after giving three months ' notice or pay in lieu thereof.
For similar reasons the service of a temporary employee also be dispensed with after giving him one month 's notice or pay in lieu thereof.
" The above quoted regulation 16.14 was amended on April 20, 1983.
Amended regulation is as under: "16.14.
the services of an employee shall be terminated by the Company if: (a) his post is abolished, or (b) he is declared on medical grounds to be unfit for further service, or (c) if he remains on un authorised absence, or(d) if he takes part in active politics.
In the case of (a) and (b) above the services shall be terminated after giving three months notice to a permanent 434 employee and one month 's notice to a temporary employee or pay in lieu thereof.
In the case of (c) and (d) above the services of an employee shall be terminated if he fails to explain his conduct satisfactorily within 15 days from the date of issue of notice.
The management shall be empowered to take a decision without resorting to further enquiries.
By order of the Board of Directors.
" The company issued a show cause notice dated April 21, 1983 in terms of clause (c) of amended regulation 16.
The notice was in the following terms: "In compliance to the orders of the Hon 'ble High Court Your suspension was stayed till further orders vide Order No. JKI/319/82 dated 21.12.82 issued vide endorsement No. Adm.(P) 80 65/4866 dated 21.12.82.
From that date also you have continuously remained absent unautho risedly from your duties.
You are, therefore, served this notice to show cause within a period of 15 days as to why your services should not be terminated under rules of the Corporation." No reply to the show cause notice was submitted by Sharma.
By an order dated June 14, 1983 the Managing Direc tor of the company terminated his service,.
The termination order is reproduced as under: "Shri Pyare Lal Sharma Chemical Engineer, Jammu and Kashmir Industries Limited has remained on unauthorised absence continuously from 21.12.82 (since the date of his suspen sion was stayed as per orders from the Hon 'ble High Court).
Shri Sharma was served with a notice under Jammu & Kashmir Industries Limit ed Employees Service Rules to show cause within a period of 15 days as to why his services should not be terminated.
This notice was served to him under registered post but the same was received back in this office and later on delivered to him in person on 7.5.83 as per his request.
Shri Sharma has failed to explain his position.
It has now also been established that Shri Sharma was 435 taking part in active politics during the period of his un authorised absence and has filed nomination papers for contesting elec tion from 1 Baramulla Parliamentary Con stituency.
Now that his unauthorised absence as well as his taking part in the active politics has been established, and in exercise of the powers vested in the management under Jammu & Kashmir Industries Employees Services Regulations the services of said Shri Pyare Lal Sharma Chemical Engineer J & K Industries Limited are hereby terminated.
" Sharma challenged the order of termination by way of Writ Petition No. 70 of 1984 before the Jammu & Kashmir High Court.
Learned Single Judge by his judgment dated October 16, 1984 allowed the writ petition on three grounds.
The learned Judge found the impugned order violative of Rules of Natural Justice as no opportunity to show cause was afforded to Sharma in respect of the ground of taking part in active politics.
It was also held that the Board of Directors having appointed Sharma, The Managing Director who is subordinate authority could not terminate his services.
Finally, the learned Judge held regulation 16.14 to be arbitrary and as such violative of Article 14 of the Consti tution of India.
The Letters Patent Bench of the High Court dismissed the appeal of the company but denied back wages to Sharma.
The Bench held that Sharma 's services could not be terminated by an authority subordinate to the authority which appointed him.
The Bench also found that either three months notice or salary in lieu thereof under regulation 16.14 was mandatory.
The Division Bench did not agree with the other reasons given by the learned Single Judge in support of his judg ment.
Mr. Pyare Lal Sharma appeared in person and argued his case.
He has been of no assistant to us.
During the course of arguments we suggested to Mr. Sharma to engage a counsel which de declined.
We also repeatedly offered to him to have the services of a counsel engaged by the Court but he did not agree and insisted on arguing the case himself.
From the pleadings of the parties, documents on the record, the judgment of the learned Single Judge and of the Letters Patent Bench 436 and from Sharma 's arguments the following points arise for our consideration: 1.
Whether Regulation 16.14 is arbitrary and as such ultra vires Article 14 of the Constitution of India.
Whether three months ' notice or pay in lieu of the notice period was required to be given under Regulation 16.14.
The termination order having been passed by the Managing Director who was an authority subordinate to the Board of Direc tors which appointed Sharma, the order was bad on that ground.
Whether the impugned order is viola tive of rules of natural justice so much so that the ground of taking part in active politics was not mentioned in the show cause notice whereas it was relied upon in the termination order.
Whether the period of absence, which was prior to the date of coming into force of the amended Regulation 16.14, could be taken into consideration for invoking ground (c) of the Regulation.
We see no arbitrariness in Regulation 16.14.
The Regula tion has been framed to meet four different eventualities which may arise during the service of a company employee.
Under this regulation services of an employee may be termi nated (a) if his post is abolished or (b) if he is declared on medical grounds to be unfit for further service or (c) he remains on unauthorised absence or (d) if he takes part in active politics.
In the case of (a) and (b) three months notice to a permanent employee and one month notice to temporary employee or pay in lieu thereof is to be given.
In case of (c) and (d) a show cause notice, to explain his conduct satisfactorily, is to be given.
So far as grounds (a) and (b) are concerned there cannot be any objection.
When a post is abolished or an employee is declared medical ly unfit for further service the termination is the obvious consequence.
In the case of abolition of post the employee may be adjusted in some other post if legally permitted.
Ground (c) has also a specific purpose.
"Remains on un authorised absence" means an employee who has no respect for discipline and absents himself repeatedly and without any justification 437 or the one who remains absents for a sufficiently long period.
The object and purport of the regulation is to maintain efficiency in the service of the company.
The provision of show cause notice is a sufficient safe guard against arbitrary action.
Regarding ground (d) "acting politics" means almost whole time in politics.
Company job and active politics cannot go together.
The position of the civil servants who are governed by Article 311 is entirely different but a provision like grounds (c) and (d) in Regu lation 16.14 concerning the employees of companies/corpora tions/public undertakings is within the competence of the management.
We do not agree with the Division Bench of the High Court that three months ' notice or pay in lieu thereof was to be given to Sharma under Regulation 16.14.
It is clear from the plain language of the regulation that three months notice or pay in lieu, is only required when termination is under ground (a) or (b).
Regarding (c) and (d), the regula tion provides for a 15 days notice to explain the conduct satisfactorily and there is no requirement of any other notice or pay in lieu thereof.
We may now take up the third point.
Sharma was appointed as Chemical Engineer by the Board of Directors.
The powers of the Board of Directors to appoint officers of Sharma 's category were delegated to the Managing Director on Septem ber 12, 1974 and as such from that date the Managing Direc tor or became the appointing authority.
Needless to say that employees of the company are not civil servants and as such they can neither claim the protection of Article 311(1) of the Constitution of India nor the extension of that guaran tee on parity.
There is no provision in the Articles of Association or the regulations of the company giving same protection to the employees of the company as is given to the civil servants under Article 311(1) of the Constitution of India.
An employee of the company cannot, therefore, claim that he cannot be dismissed or removed by an authority subordinate to that by which he was appointed.
Since on the date of termination of Sharma 's services the Managing Direc tor had the powers of appointing authority, he was legally competent to terminate Sharma 's services.
The learned Single Judge allowed the writ Petition on the fourth point though the same did not find favour with the Division Bench.
Grounds (c) and (d) in regulation 16.14, exclusively and individually, are sufficient to terminate the services of an employee.
Once it is established to the satisfaction of the authority that an employee 438 remains on unauthorised absence from duty, the only action which can be taken is the termination of his services.
Similar is the case when an employee takes part in active politics.
The finding in the termination order regarding taking part in active politics cannot be sustained because no notice in this respect was given to Sharma but the order of termination can be supported on the ground of remaining unauthorised absence from duty.
This Court in State of Orissa vs Vidyabhushan Mohapatra, [1963] 1 Supp.
SCR 648 and Railway Board vs Niranjan Singh, has held that if the order can be supported on one ground for which the punishment can lawfully be imposed it is not for the courts to consider whether that ground alone would have weighed with the authority punishing the public servant.
Thus there is no force in this argument.
This takes us to the last point which we have discovered from the facts.
Regulation 16.14 before amendment consisted of only clauses (a) and (b) relating to abolition of post and unfitness on medical ground.
The company had no authori ty to terminate the services of an employee on the ground of unauthorised absence without holding disciplinary proceed ings against him.
The regulation was amended on April 20, 1983 and grounds (c) and (d) were added.
Amended regulation could not operate retrospectively but only from the date of amendment.
Ground (c) under which action was taken came into existence only on April 20, 1983 and as such the period of unauthorised absence which could come within the mischief of ground (c) has to be the period posterior to April 20, 1983 and not anterior to that date.
The show cause notice was issued to Sharma on April 21, 1983.
The period of absence indicated in the show cause notice is obviously prior to April 20, 1983.
The period of absence prior to the date of amendment cannot be taken into consideration.
When prior to April 20, 1983 the services of person could not be terminat ed on the ground of unauthorised absence from duty under Regulation 16.14 then it is wholly illegal to make the absence during that period as a ground for terminating the services of Sharma.
It is basic principle of natural justice that no one can be penalised on the ground of a conduct which was not penal on the day it was committed.
The date of show cause notice being April 21, 1983 the unauthorised absence from duty which has been taken into consideration is from December 20, 1982 to April 20, 1983.
Whole of this period being prior to the date of amendment of regulation 16.14 the same could not be made as a ground for proceeding under ground (c) of Regulation 16.14.
The notice served on the appellant was thus illegal and as a consequence the order of termination cannot be sustained and has to be set aside.
439 When the termination order is set aside by the courts normally the servant becomes entitled to back wages and other consequential benefits.
This case has a chequered history.
From 1976 onwards there has been continuous litiga tion and mistrust between the parties.
The facts which we have narrated above go to show that Sharma has equally contributed to this unfortunate situation.
In view of the facts and circumstances of this case we order that sixty per cent of the back wages be paid to Sharma.
Money already received by Sharma under orders of this Court or the High Court shall be adjusted and the balance paid to him.
If the money already paid to Sharma is more than what we have ordered then there shall be no recovery from him.
Civil Appeal 3154/85 is allowed to the extent indicated above, Civil Appeal 3155/85 filed by the company is dis missed.
C.M.P. 1213/ 88 is dismissed as infructuous.
There shall be no order as to costs.
| IN-Abs | According to the Regulation 16.14 of the Jammu & Kashmir Industries Employees Service Rules & Regulations the serv ices of the permanent employee could be terminated if the post is abolished or he is declared medically unfit after giving three month 's notice or pay in lieu thereof and in case of temporary employee one month 's notice or pay in 429 lieu thereof.
This regulation was amended on April 20, 1983 by adding two more grounds namely, if the employee remains on an unauthorised absence or if he takes part in active politics, in such cases the services shall be terminated if he fails to explain his conduct satisfactorily within 15 days from the date of issue of notice and the management shall be empowered to take a decision without resorting to further enquiries.
Pyare Lal Sharma was employed as a Chemical Engineer by the Jammu & Kashmir Industries Ltd. hereinafter called 'Company '.
The Company issued a show cause notice on 21.4.83 in terms of the added clauses for his unauthorised absence from duty.
As no reply was submitted, the M.D. terminated his services by an order dated 14.6.1983.
Sharma challenged the order of termination by way of a writ petition before the J & K High Court.
Learned Single Judge allowed the Writ Petition on three grounds namely, violation of Rules of Natural Justice, that the Board of Directors having appoint ed Sharma, the M.D. who is subordinate authority could not terminate his services and that the regulation 16.14 was arbitrary and violative of article 14 of the Constitution of India.
The Letters Patent Bench of the High Court dismissed the appeal of the Company but denied backwages to Sharma.
Aggrieved by that order both the Company as well as Sharma came up in appeals before this court.
While allowing the appeal of Sharma partially and dismissing the appeal of the Company, this Court, HELD: That Regulation 16.14 was not arbitrary.
The provision of show cause notice is a sufficient safeguard against arbitrary action.
Under grounds (a) & (b) of the Regulations three months notice or pay in lieu thereof is required.
Regarding grounds (c) & (d) the regulations pro vide for 15 days notice to explain the conduct satisfactori ly and there is no requirement of any other notice or pay in lieu thereof.
[437C D] There is no provision in the Articles of Association or the regulations of the company giving same protection to the employees of the company as is given to the civil servants under article 311(1) of the Constitution of India.
An employee of the Company cannot, therefore, claim that he cannot be dismissed or removed by an authority subordinate to that by which he was appointed.
Since on the date of termination of Sharma 's services the M.D. had the powers of the appointing authority he was legally competent to terminate Sharma 's services.
[437F G] 430 Grounds (c) & (d) in regulation 16.14 exclusively and individually are sufficient to terminate the services of an employee.
Once it is established that an employee remains on an unauthorised absence from duty the only action which can be taken is termination of his services.
Similar is the case when an employee takes part in active politics.
The finding in the termination order cannot be sustained because no notice in this respect was given to Sharma but the order of termination can be supported on the ground of his remaining on unauthorised absence from duty.
[437H; 438A B] State of Orissa vs Vidyabhushan Mohapatra, [1963] 1 Supp.
SCR 648 and Railway Board vs Niranjan Singh, , relied upon.
It is a basic principle of natural justice that no one can be penalised on the ground of a conduct which was not penal on the day it was committed.
The date of show cause notice being April 21, 1983 the unauthorised absence from duty which has been taken into consideration is from Decem ber 20, 1982 to April 20, 1983.
Whole of this period being prior to the date of amendment of regulation 16.14, the same could not be made as a ground for proceeding under ground (c) of Regulation 16.14.
The Notice served on the appellant was thus illegal and as a consequence the order of termina tion can not be sustained and has to be set aside.
[438F G] When the termination order is set aside by the courts normally the employee becomes entitled to backwages and all other consequential benefits.
In view of the facts and circumstances of this case the court ordered that only sixty percent of the backwages be paid to Sharma.
Moneys already received by Sharma under orders of either this Court or High Court shall be adjusted and the balance paid to him.
If the money already paid to Sharma is more than what has been ordered to be paid now then there shall be no recovery from him.
[439A C]
|
ivil Appeal No. 2098 of 1980.
From the Judgment and Order dated 20.6.1980 of the Andhra Pradesh High Court in Civil,Revision Petition No. 736 of 1980.
K. Madhava Reddy, A.D.N. Rao, and A.Subba Rao for the Appellant.
U.R. Lalit, C.P. Sarthy and A.T.M. Sampath for the Respondent.
The Judgment of the Court was delivered by K. JAGANNATHA SHETTY, J.
This appeal with leave arising out of a judgment of the High Court of Andhra Pradesh illus trates how the "land reform" and the progressive policy of "land to the tiller" could be defeated by vested interests and lukewarm attitude of statutory authorities.
The relevant facts.
The appellants were in possession of certain agricultur al lands as tenants.
After coming into force of the A.P. (T.A.) Tenancy & Agricultural Lands Act, 1950 ("The Act"), they were recognised as protected tenants.
A "protected tenant" means that he is protected from 474 eviction.
If he is dispossessed, the Tehsildar suo motu or on application shall put him in possession.
Rev. Rutar Ford Padri and Vundru Padri were admittedly their landlords.
The appellants had no problem with them.
It seems that they had left the country long ago.
The first respondent claims to be the Property Association of the Baptists Churches (Pvt.) Ltd. ("The Association") The Association does not dispute that the lands were originally purchased by Rev. Rutar Ford Padri and Vandru Padri but it says that they purchased for the benefit of American Baptish Formation Society.
The lands stood transferred to the Association as per order made by the Madras High Court in company petition Nos. 109 and 110 of 1973.
The Association thus claims to be the owner and also says that it is in defacto possession of the lands.
In 1976, the Association issued notice under sec.
19(2) of the Act terminating the appellants ' tenancy.
In the notice, it was alleged that the appellants were self styled tenants.
They have not paid the rents for more than three decades.
They were working off and on as casual labourers.
They were being paid for their services.
There was no other relationship between them and the Association.
It was fur ther alleged that the appellants sub divided the lands and alienated bit by bit to third parties and thereby denied title of the landholder.
They have been, therefore, treated as trespassers.
On May 31, 1976, the appellants received the said notice but did not send any reply.
Thereafter the Association moved the Tehsildar Jangaon under secs.
19(2) read with 28(1) of the Act seeking symbolic possession of the lands from the appellants.
It is interesting to note some of the averments made in that application: "Neither of the above persons had possession during the statutory period under sec.
34 of the Tenancy Act to claim protected tenancy over the said lands.
The said persons by taking undue advantage of the similarity of the names appearing in the Tenancy Registers with respect to the said lands are asserting fictitious and imaginary rights of Protected Tenancy in the above lands.
It is submitted that without any basis or foundation and are made without any notice to the then landlords and even if it is to assume that the said persons are the protected tenants with respect to the above lands, their so called rights have been duly and legally terminated under sec.
19 of the Tenancy Act by giving them notices for the Statutory period of six months 475 which they have received on 31.5.1976 but failed to give reply to it.
The termination of the Protected Tenancy Rights is irrevocable and after the expiry of the statutory period from the said date of receipt of the notice, they are not entitled to claim any rights whatsoever much less Protected Tenancy Rights on the above lands.
" XX XX XX XX XX XX "In all the above lands the appellant is having his own cultivation for the benefit of the said schools and hostels.
Some lands are cultivated by the students themselves under the "Cow Boy" System.
All the above lands are in physical possession of the applicant here in.
But to overcome the legal implications, the applicants are claiming symbolic posses sion pursuant to termination notice.
" Before the Tehsildar, the appellants denied all the above allegations.
They did not recognise the Association as their landlord.
They asserted that they were protected tenants entitled to remain in possession of the lands.
On November 28, 1977, the Tehsildar made an order ac cepting the contentions of the Association.
The Association was held to be the owner of the lands.
The appellants were held to have no right since their tenancy was duly terminat ed.
The appellants appeared to the Joint Collector, Warran gal, who dismissed the appeal with the following observa tions: "It is evident from records that the appellants are not in possession of the suit lands whereas the respondent Association is possessing and enjoying it.
The suit land is covered by structures like Mission School, residential quarters, hostels for students, etc.
and the rest of the land is in possession and occupation of respondent Association and some third persons.
Since the appellants are adversely out of possession, their rights also stands extinguished under sec.
27 of the Limitation Act . .
Since the facts of non payment of rents, assignment of interest in the land personally which constitute the grounds for respondent Association to termi nate the tenancy under sec. 19 of the Act are proved before the lower court and 476 neither rebutted in this appeal nor the find ings of the lower court on these points are challenged, the appeal does not merit any consideration.
" The appellants then approached the High Court with revision petition under sec.
91 of the Act.
The High Court did not do anything better except blessing the observations made by the Collector.
The High Court observed that the appellants were not cultivating the lands personally.
They did not dispute non payment of rent.
Nor denied assignment of interest in the land to third parties.
So Stating, the revision was dismissed.
The contentions.
Counsel for the appellants argued that Rutar Ford Padri and Vundru Padri were the landholders under whom the appel lants were protected tenants.
That has been so recorded in the final record of Agricultural tenancy.
The appellants were not parties to the company petition Nos. 109 and 110 of 1973 in the High Court of Madras.
Nor they had any notice of that proceedings.
Since they were protected tenants, the landholders had no right to transfer the lands to the Asso ciation without first offering the same to them.
It is a mandatory requirement under the Act.
The alienation to the Association even if true, was in contravention of the stat ute and therefore, invalid and unenforceable.
The appellants could not pay the rent to Rutar Ford Padri and Vundru Padri because their whereabouts were not known.
The Association has adopted illegitimate means to dispossess the appellants by setting students against them.
The action of the Associa tion was illegal and an offence punishable under the Act.
With these and other contentions, it was urged that the possession of lands should be restored to the appellants.
Counsel for the Association on the other hand sought to justify the orders under appeal.
We heard counsel for both the parties.
We have carefully perused the material on record.
The relevant statutory provisions: Section 5 of the Act reads: 477 "5.
Persons deemed to be tenants: A person lawfully cultivating any land belonging to another person shall be deemed to be a tenant if such land is not cultivated person ally by the landholder and if such person is not (a) a member of the landholder 's family; or (b) a servant on wages payable in cash or kind, but not in crop share or a hired labourer cultivating the land under the per sonnel supervision of the landholder or any member of the landholder 's family; or (c) a mortgagee in possession.
Provided that if upon an application made by the landholder within one year from the commencement of this Act to the Tehsildar within whose jurisdiction the land is situat ed (a) The Tehsildar declares that such person is not a tenant and his decision is not reversed on appeal or revision, or (b) The Tehsildar refuses to make such declaration but his decision is reverted on appeal or revision such person, shall not be a tenant.
" Section 19 provides for termination of tenancy and so far as material it is as follows: "19.
Termination of tenancy; 19(1) xxxxxxxxxxxx 19(2) The landholder may terminate a tenancy on the grounds that the tenant (a)(i) has failed to pay in any year, within fifteen days from the day fixed under the Andhra Pradesh (Telengana Area) Land Revenue Act 13 17 F) for the payment of the last instalment of land revenue due for the land concerned in that year, the rent of such land for the year; or 478 (ii) xxx xxx xxx xxx (iii) xxx xxx xxx xxx (b) has done any act which is de structive or permanently injurious to the land; or (c) has sub divided the land; or (d) has sub let the land or failed to culti vate the land; (e) personally, or has assigned any interest therein; or (f) has used such land for a purpose other than agriculture; Provided that no tenancy of any land by a tenant shall be terminated on any of the grounds mentioned in this sub section unless the landholder gives six months ' notice in writing intimating his decision to terminate the tenancy and the grounds for such termina tion.
" Section 28 provides relief against termi nation of tenancy for nonpayment of rent.
Section 32 provides for taxing possession of tenanted lands: "32.
Procedure of taking possession: (1) A tenant of an agricultural labourer or artisan entitled to possession of any land or dwelling house under any of the provisions of this Act may apply to the Teh sildar in writing in the prescribed form for such possession.
(2) No landholder shall obtain possession of any land or dwelling house held by a tenant except under an order of the Tehsildar, for which he shall apply in the prescribed form.
(3) On receipt of an application under sub sec.
(1) of sub section (2), the Tehsildar shall, after holding an enquiry pass such order thereon as he deems fit.
479 (4) Any person taking possession of any land or dwelling house otherwise than in accordance with the provisions of sub section (1) or sub section (2) as the case may be, shall, without prejudice to his liability to the penalty provided in sec.
96, he liable to forfeiture of the crops, if any, grown on the land to the payment of such costs as may be awarded by the Tehsildar or by the Collector on appeal from the Tehsildar.
" It will be convenient at this stage to read four other sections, namely, sees.
34, 37, 38(D) and 38(E).
They are as follows: Sec. 34, omitting immaterial words provides: "Protected tenants: (1) A person shall, subject to the provisions of sub sees.
(2) and (3) be deemed to be a Protected Tenant in respect of land, if he (a) has held such land as a tenant continuous ly (i) for a period of not less than six years, being a period wholly included in the Fasli years 1342 to 1352 (both years inclusive) or (ii) for a period of not less than six years immediately preceding the 1st day of January, 1948 or (iii) for a period of not less than six years commencing not earlier than the 1st day of Fasli year 1353 (6th October, 1943) and completed before the commencement of this Act, and (b) has cultivated such land person ally during such period.
" Section 37 is in these terms: "37.
Persons not entitled under sec.
34 deemed in certain circumstances to be protected tenants: (1) Every person who at the com mencement of this Act holds as tenant any land in respect of which no person is deemed to be a protected tenant under sec.
34, shall, on 480 the expiration of one year from such commence ment or, the final rejection of all claims by any other person to be deemed under sec. 34 to be a protected tenant in respect of such land, whichever is later, be deemed to be a protected tenant in respect of such land unless the landholder has before such expiration or final rejection as aforesaid made an application in the pescribed form to the Tehsildar for a declaration that such person is not a protected tenant." (Emphasis Supplied) Section 38(D) reads: "Procedure when landholder intends to sell land to a protected tenant: (1) If the landholder at any time intends to sell the land held by the protected tenant, he shall give a notice in writing of his intention to such protected tenant and offer to sell the land to him.
In case the protected tenant intends to purchase the land, he shall intimate in writing his readiness to do so within six months, from the date of the receipt of such notice.
If there is any dis pute about the reasonable price payable by the protected tenant for the land, the provisions of sub section (3) to (8) of sec.
38 shall apply mutatis mutandis.
(2) If the protected tenant does not exercise the right of purchase in response to the notice given to him by the landholder under sub sec.
(1) such protected tenant shall forfeit his right of purchase of the same and the landholder shall be entitled to sell such land to any other person.
On such a purchase by any other person, the protected tenant shall forfeit all his rights in the land save those provided for in sec.
" Section 38(E) provides: "Ownership of lands held by protected tenants to stand transferred to them from a notified date: (1) Notwithstanding anything in this Chapter or any law for the time being in force or any custom, usage, judgment, decree, con tract or grant to the contrary, the 481 Government may, by notification in the Andhra Pradesh Gazette, declare in respect of any area and from such date as may be specified therein, that ownership of all lands held by protected tenants which they are entitled to purchase from their landholder in such area under any provision of this chapter shall, subject to the condition laid down in sub section (7) of sec.
38, stand transferred to and vest in the protected tenants holding them and from such date the protected tenants shall be deemed to be the full owners of such lands; Provided that where in respect of any such land any proceeding under sec.
19 or sec.
32 or sec.
44 is pending on the date so noti fied, the transfer of ownership of such land shall take effect on the date, on which such proceeding is finally decided, and when the tenant retains possession of the land in accordance with the decision in such proceed ing.
Explanation: If a protected tenant, on account of his being dispossessed otherwise than in the manner and by order of the Tehsil dar as provided in sec.
32, is not in posses sion of the land on the date of the notifica tion issued hereunder, then for the purpose of the sub section, such protected tenant shall, notwithstanding any judgment, decree or order of any Court, or the order of the Board of Revenue or Tribunal or other authority, be deemed to have been holding the land on the date of the notification; and accordingly, the Tehsildar shall notwithstanding anything contained in the said section 32, either suo motu or on the application of the protected tenant hold a summary enquiry, and direct that such land in possession of the landholder or any person claiming through or under him in that area, shall be taken from the possession of the landholder or such person, as the case may be, and shall be restored to the protected tenant and the provisions of this section shall apply thereto in every respect as if the protected tenant has held the land on the date of such notification.
" This then is the main structure of the Act.
In sum . . 482 (i) The protected tenant has a right to become full owner of the lands in his possession.
He becomes the owner when the Government issues a notification under section 38(E).
We are told that the Government had issued such a notification on October 1, 1973, relating to the District where the lands in question are situated.
It was about three years earlier to termination of the appellants ' tenancy by the Association.
If the appellants had a right to become owners of the tenanted lands, the question of terminating their tenancy would not arise.
(ii) The protected tenant cannot be dispossessed ille gally by the landlord or anybody else.
If so dispossessed, the Tahsildar either suo motu or on application must hold a summary inquiry, and direct that the land be restored to the protected tenant.
That is the mandate of section 38(E) and the Explanation thereof.
(iii) The landholder by himself cannot dispossess the protected tenant even if the tenancy is terminated in ac cordance with the law.
The landholder will have to take recourse to sec.
He must approach the Tahsildar to hold an enquiry and pass such order as he deems fit.
(iv) Section 38(D) prohibits the landholder from alien ating the tenanted land to third parties.
If the landholder intends to sell the land, he must give notice in writing of his intention to the protected tenant.
The first offer must be given to the protected tenant.
It is only when the pro tected tenant does not exercise the right to purchase, the landholder could sell the land to this parties.
The aliena tion made in contravention of these provisions has no legal effect.
So return to the case.
The contention of the Association that it is in defacto possession and entitled to symbolic possession is unavailable and indeed, unnacceptable.
First ly, there cannot be any dispute in this case about the protected tenancy rights of the appellants.
The revenue documents like Pananipatrika and final record of agricultur al tenancy clearly establish that the appellants were recog nised as protected tenants.
Secondly, it was not the case of the Association that Rev. Rutar Ford Padri and Vundru Padri first offered the land to the appellants before they trans ferred the same to the Association.
Therefore, in the light of the statutory provisions to which we have called atten tion, the appellants title cannot be said to be legitimate.
Counsel for the Association also appeared to have antic ipated this inevitable result.
He made an impassioned appeal for leave to 483 withdraw the original petition filed before the Tehsildar.
He perhaps wanted to give quietus to these proceedings, leaving the appellants free to agitate their rights else where.
But we cannot agree with him.
We cannot also accede to his request.
The Association cannot be permitted to take advantage of its high handedness.
It is an exploitation of the exploited.
It is an oppression of the oppressed.
The Court cannot contenance it.
In the result, we allow the appeals.
In reversal of the impugned orders, we direct the Tehsildar to put the appel lants in possession of the agricultural lands in question within one month.
The appellants however, are not interested in taking possession of their lands covered with buildings of the Association.
They want to be fair in spite of their tribulation.
The lands covered with the buildings may, therefore, be excluded.
The Association must pay the costs of the appellants which we quantify of Rs.20,000.
The Collector is directed to ensure that this order is faithfully complied with by the concerned.
R.N.J. Appeal allowed.
| IN-Abs | The appellants were in possession of certain agricultur al lands as tenants.
Rev. Rutar Ford Padri and Vandru Padri were their landlords who had left the country long ago.
But it was alleged that the land was purchased for the benefit of American Baptist Formation Society and the respondents claim to be the Property Association of the Baptist Churches (Pvt.) Ltd. ( "The Association").
The land stood transferred to the Association as per order made by the Madras High Court in company petition.
The Association thus claimed to be the owner and also in defacto possession of the lands.
In 1975 the Association issued notice u,s 19(2) of the Act terminating the appellant 's tenancy on May 31, 1975.
The appellants received the said notice but did not send any reply.
Thereafter the Association moved the Tehsildar u/ss 19(2) read with 28(1) of the Act for the symbolic possession of the lands from the appellants.
Before the Tehsildar, appellants denied all the allegations and asserted that they were protected tenants.
On Nov., 1977 Tehsildar made an order accepting the contentions of the Association holding that the appellants had no right since their tenancy stood terminated.
Appellants appeal was also dismissed by the Joint Collector, Warrangal.
The appellants then approached the High Court by way of revision petition u/s 91 of the Act.
The High Court dismissed the revision.
Thereafter appellants came up before the Supreme Court by way of Spe cial Leave to appeal.
Accepting the appeal, this Court, HELD: That the contentions of the Association that it is in 473 defacto possession and entitled to symbolic possession is unavailable and indeed unacceptable.
Firstly, there can not be any dispute in this case about the protected tenancy rights of the appellants.
The revenue documents like Panani patrika and final record of Agricultural tenancy clearly establish that the appellants were recognised as protected tenants.
Secondly, it was not the case of the Association that Rev. Rutar Ford Padri and Vandru Padri first offered the land to the appellants before they transferred the same to the Association.
The Court also observed that the Associ ation cannot be permitted to take advantage of its high handedness.
It is an exploitation of the exploited.
It is an oppression of the oppressed.
The Court cannot countenance it.
[482F G; 483B] Reversing the impugned orders the Court directed the Tehsildar to put the appellants in possession of the agri cultural land in question within one month and ordered that the Association must pay the costs of the appellants quanti fied at Rs.20,000.
[483C D]
|
minal Appeal No. 183 of 1957.
862 Appeal by special leave from the judgment and order dated January 21, 1957, of the Patna High Court in Criminal Appeal No. 34 of 1956, arising out of the judgment and order dated January 23, 1956, of the Court of the 2nd Assistant Sessions Judge at Darbhanga in Sessions Trial No. 52 of 1955.
P. K. Chatterjee, for the appellant.
D. P. Singh, for the respondent.
May 20.
This appeal by special leave is limited to a particular question only, namely, correctness of the conviction of the appellant Galfu Sah for an offence under section 436 read with section 109, Indian Penal Code, and the propriety of the sentence passed thereunder.
The short facts are these.
Some 22 accused persons, of whom the appellant was one, were tried by the learned Assistant Sessions Judge of Darbhanga for various offences under the Indian Penal Code alleged to have been committed by them.
The prosecution case was that on May 16, 1954, in village Dharhara in the district of Darbbanga a, mob of about 40 50 persons, including the accused persons, formed an unlawful assembly, the common objects of which were (1) to dismantle the hut of one Mst.
Rasmani, (2) to set fire to it and (3) to commit assault, if resisted.
One Tetar Mian, who was the chaukidar of village Dharhara, had come to the village at about 10 a.m. to ascertain births and deaths for the purpose of supplying the said information to the officer in charge of the police station for registration.
When this chaukidar reached near the hut of Mst.
Rasmani, who was the widow of one Ganpat, he found the mob engaged in dismantling the hut.
The chaukidar protested.
On this, it was alleged, the appellant hit him with a lathi on the left high.
The chaukidar then raised an alarm and several other persons came there including Ramji, Nebi and Munga Lal.
Thereafter, it was alleged, the appellant ordered another member of the unlawful assembly named Budi to set fire to the hut of Mst.
Rasmani and he further ordered an assault 863 on Ramji and Nebi.
Budi, it was alleged, set fire to the hut and the hut was burnt.
Some members of the mob chased Ramji and Nebi and assaulted them.
The learned Sessions Judge found that all the accused persons before him did form an unlawful assembly and came to the hut of Mst.
Rasmani on the date and at the time alleged, armed with weapons, with the common object of dismantling the hut and of committing an assault on remonstrance.
He held that in prosecution of the aforesaid common objects the offences of rioting and hurt etc., were committed.
So far as the charge of arson was concerned, he held that the act of incendiarism was an isolated act of some members of the unlawful assembly, there being no common object of the entire unlawful assembly to set fire to the hut of Mst.
Rasmani.
He accepted the evidence given before him to the effect that the present appellant had given the order to Budi to set fire to the hut and that Budi had set fire to it in consequence of the abetment.
Accordingly, he convicted the accused persons of various offences under sections 147, 148 and 323 etc.
of the Indian Penal Code.
Budi was further convicted under section 436, Indian Penal Code, and the present appellant under section 436 read with section 109, Indian Penal Code.
There was then an appeal to the High Court of Patna and the learned Judge who heard it found that the evidence against Budi in respect of the allegation that he had set fire to the hut of Mst.
Rasmani was not very satisfactory and he acquitted Budi of the charge under section 436, Indian Penal Code.
So far as the appellant Gallu Sah was concerned, he held that the evidence satisfactorily established that Gallu Sah had given the order to set fire to the hut and the hut was actually set on fire by one member or another of the unlawful assembly.
On this finding, he affirmed the conviction and sentence of the appellant under section 436 read with section 109, Indian Penal Code, the sentence being one of four years ' rigorous imprisonment.
The conviction and sentence of the appellant for the offences under sections 147 and 323, Indian Penal Code, were also affirmed, but the conviction and sentence 110 864 under section 324 read with section 149, Indian Penal Code, were set aside.
We are, however, not concerned with those convictions and sentences and nothing more need be said about them.
We now come to the particular question to which this appeal is limited, namely, propriety of the conviction and sentence passed on the appellant for the offence under section 436 read with section 149, Indian Penal Code.
Mr. P. K. Chatterjee has appeared on behalf of the appellant and has contested the correctness of the conviction on two grounds: firstly, he has submitted that the evidence on which the conviction was based is the same evidence which was given against Budi Sah, and if that evidence was disbelieved with regard to Budi Sah, it should not have been believed against the appellant; secondly, he has submitted that though he does not wish to contend that in every case where the principal offender has been acquitted of the offence, a person said to have abetted the commission of the offence must also be acquitted, there is no evidence in this particular case that whoever set fire to the hut of Mst.
Rasmani did so in consequence of the order of the appellant, assuming that the appellant gave an order to set fire to the hut, and therefore, the conviction of the appellant for abetment is bad in law.
As to the first point, the learned Judge has in his judgment given good reasons why the evidence of the witnesses with regard to Budi Sah was not accepted and why the testimony of the same witnesses was accepted with regard to the appellant.
The witnesses on this point were four persons, namely, Tetar, Ramji, Nebi and Munga Lal.
Tetar, it appears, did not mention in his first information that Budi had set fire to the hut, but he did mention that the appellant had given the order to set fire to the hut A similar infirmity was found in the evidence of Ramji who also failed to tell the sub inspector of police that Budi had set fire to the hut.
Nebi, it appears, could not be cross examined as he died before the trial began in the Court of Session.
So far as Munga Lal was concerned, it was elicited in cross examination that he did not speak at the spot, or subsequently, to any of his co. 865 villagers that Budi had set fire to the hut.
On these grounds the learned Judge did not accept the testimony of the aforesaid four witnesses so far as the allegation against Budi was concerned.
The infirmity which was found in the evidence of the aforesaid four witnesses with regard to Budi Sah was not, however, present so far as the allegation against the present appellant was concerned, and the learned Judge expressly said that the evidence of the aforesaid four witnesses was consistent against the appellant.
We see no violation of any rule of law nor even of prudence in the learned Judge accepting the testimony of some of the witnesses against the appellant, though he did not accept that testimony against Budi Sah.
We now turn to the second point urged on behalf of the appellant.
It must be emphasised here that the learned Judge was satisfied that (1) the appellant gave the order to set fire to the hut and (2) tha the hut was actually set fire to by one member or another of the unlawful assembly, even though the unlawful assembly as a whole did not have any common object of setting fire to the hut of Mst.
Rasmani.
The point taken by learned counsel for the appellant is that when the learned Judge did not accept the evidence of the witnesses that Budi set fire to the hut, there was really no evidence to show that the person who set fire to the hut of Mst.
Rasmani did so in consequence of the order given by Gallu Sah.
The learned Advocate points out that one of the essential ingredients of the offence is that the act abetted must be committed in consequence of the abetment.
It is necessary to read at this stage some of the sections of the Indian Penal Code with regard to the offence of abetment.
Section 107 defines what abetment is.
It says " section 107.
A person abets the doing of a thing, who First.
Instigates any person to do that thing; or Secondly.
Engages with one or more other person or persons in any conspiracy for the doing of that thing, if an act or illegal omission takes place in pursuance of that conspiracy, and in order to the doing of that thing; or 866 Thirdly.
Intentionally aids, by any act or illegal omission, the doing of that thing.
" Section 108 is in two parts and explains who is an abettor in two circumstances (1) when the offence abetted is committed and (2) when an act is committed which would be an offence if committed by a person capable by law of committing an offence with the same intention or knowledge as that of the abettor.
We are not concerned with the second circumstance in the present case.
We are concerned with a person who abets the commission of an offence.
Then comes section 109 which is in these terms: " section 109.
Whoever abets any offence shall, if the act abetted is committed in consequence of the abetment, and no express provision is made by this Code for the punishment of such abetment, be punished with the punishment provided for the offence.
Explanation.
An act or offence is said to be committed in consequence of abetment, when it is committed in consequence of the instigation, or in pursuance of the conspiracy, or with the aid which constitutes the abetment.
" It seems to us, on the findings given in the case, that the person who set fire to the hut of Mst.
Rasmani must be one of the persons who were members of the unlawful assembly and he must have done so in consequence of the order of the present appellant.
It is, we think, too unreal to hold that the person who set fire to the hut of Mst.
Rasmani did so irrespective, or independently, of the order given by the present appellant.
Such a finding, in our opinion, would be unreal and completely divorced from the facts of the case and it is necessary to add that no such finding was given either by the learned Assistant Sessions Judge who tried the appellant or the learned Judge of the High Court.
As we read the findings of the learned Judge, it seems clear to us that he found that the person who set fire to the hut of Mst.
Rasmani did so in consequence of the abetment, namely, the instigation of the appellant.
It is necessary to refer to two decisions to which our attention has been drawn by the learned Advocate.
867 The decision in Raja Khan vs Emperor (1) related to a case where one Torap Ali was held to be guilty of cheating by personating one Sabdar Faraji and using his name on a surety bond.
The charge against Torap Ali was that he was the principal in the case and the charge against Raja Khan and Cherak Ali Akon, the two appellants in that case, was that they abetted by being present at the personation which was alleged to have been committed by Torap Ali.
Torap Ali was acquitted by the jury.
The learned Judge who presided at the jury trial did not, however, tell the jury what would be the effect of the acquittal of Torap Ali on the charge of abetment against Raja Khan and Cherak Ali.
It was because of this omission that the conviction of Raja Khan and Cherak Ali was set aside.
The head note of the report, however, said in general terms that where a person is charged with having committed an offence and another is charged with having abetted him in the commission thereof, and the prosecution fails to substantiate the commission of the principal offence, there can be no conviction for abetment.
This general statement was considered in a later decision in Umadasi Dasi vs Emperor (2), and it was pointed out that in the majority of cases the aforesaid general statement might bold good; but there are exceptions to the general rule, particularly when there is evidence which satisfactorily establishes that the offence abetted is committed and is committed in consequence of the abetment.
We accordingly hold that the conviction of the appellant for the offence under section 436 read with section 109, Indian Penal Code, is not bad in law.
As to the sentence it does not appear to us that it errs oil the side of severity.
It has been stated that the appellant was released on bail on serving out the sentence passed against him for the offences under sections 147 and 323, Indian Penal Code.
In our opinion, the appeal has no merit and must be dismissed.
The appellant must now surrender himself to serve out the remainder of his sentence.
(1)A.I.R. Appeal dismissed.
| IN-Abs | The prosecution case was that a mob Of 40 50 persons including the appellant, formed an unlawful assembly with the common objects of dismantling the hut of R, of setting fire to it and committing assault, if resisted; they assaulted some persons, and the appellant ordered one Budi to set fire to the hut and Budi set fire to it with the result that it was burnt down, Twenty two persons including the appellant and Budi, were sent up for trial.
The Sessions judge found that all of them formed an unlawful assembly with the common objects of dismantling the hut and committing assault on remonstrance, but that there was no common object to set fire to the hut and the act of incendiarism was an isolated act of some members of the unlawful assembly.
He found that the appellant had given the order to Budi to set fire to the hut and Budi had set fire to it in consequence of the abetment.
The Sessions judge convicted the accused persons under sections 147, 148 and 323 of the Indian Penal Code.
Budi was further convicted under section 436 and the appellant under section 436 read with section 109 of the Indian Penal Code.
On appeal the High Court set aside the conviction of Budi under section 436 holding it not proved that he had set fire to the hut.
The High Court upheld the conviction of the appellant under section 436 read with section :cog holding that he had given the order to set fire to the hut and that it was actually set on fire by one of the members of the unlawful assembly.
The appellant challenged his conviction under section 436 read with section 109 on the ground that it was not established that the person who set fire to the hut had done so in consequence of the order of the appellant Held, that the appellant was rightly convicted under section 436 read with section 109 of the Indian Penal Code.
On the findings given in the case it must be held that the person who set fire to the hut was one of the members of the unlawful assembly and that he did so in consequence of the order of the appellant.
Raja Khan vs Emperor, A.I.R. 1920 Cal. 834 and Umadasi Dasi vs Emperor Cal. 112, referred to.
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