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Civil Appeal No.94 of 1949.
107 834 Appeal from a judgment and decree of the High Court of Judi cature at Patna in Appeal from Appellate Decree No. 97 of 1946 (Mannohar Lall and Mukherji JJ.) dated 23rd Decem ber, 1947, confirming the judgment of the District Judge of Purulia in Appeal No. 159 of 1944.
S.P. Sinha (P. K. Bose, with him) for the appel lant.
N.C. Chatterjee and Panchanan Ghosh (Chandra Narayan Naik, with them) for the respondent. 1950.
December 1.
The Judgment of the Court was deliv ered by PATANJALI SASTRI J.
This appeal arises out of a suit brought by the respondent in the court of the Subordinate Judge, Dhanbad, for recovery of arrears of royalty and cess from the appellant and another alleged to be due under a compromise decree passed on the 6th March, 1923, in a previ ous suit between the predecessors in interest of the par ties.
The only plea which is material for the purpose of this appeal is that the compromise decree not having been registered was inadmissible in evidence.
The courts below held that the document did not require registration and gave effect to its terms in decreeing the suit.
The second defendant has preferred this appeal.
The facts are not now in dispute and may be briefly stated.
On 11th March, 1921, one Kumar Krishna Prasad Singh (hereinafter referred to as Kumar) granted a perma nent lease of the right to the underground coal in 5,800 bighas of land belonging to him to Shibsaran Singh and Sitaram Singh (hereinafter referred to as the Singhs) by a registered patta stipulating for a salami of Rs. 8,000 and royalty at the rate of 2a.
per ton of coal raised subject to a minimum of Rs. 8,000 and for certain other cesses and interest.
On 7th June, 1921, Kumar executed another perma nent patta leasing the right to the coal in 500 bighas out of the 5,800 bighas referred to above to one Prayngji Bal lavji Deoshi and his son Harakchand Deoshi (hereinafter referred to as the Deoshis).
By this document.
835 the Deoshis agreed inter alia to pay royalty at the rate of 2a. per ton on all classes of coal raised subject to a minimum of Rs. 750 a year.
The Singhs feeling themselves aggrieved by the latter transaction brought a title suit (No. 1291 of 1921) in the Court of the Subordinate Judge of Dhanbad for a declaration of their title and for possession of the 500 bighas leased to the Deoshis under the aforesaid patta of 7th June, 1921.
To that suit Kumar was made a party as defendant No. 3, the Deoshis being defendants 1 and 2.
The suit was however cornpromised on 6th March, 1923, by all the parties and a decree based on the compromise was also passed on the same day.
The interest of the Singhs was brought to sale in 193S in execution of a decree obtained against them and was purchased by the plaintiff who insti tuted the presnt suit on 3rd October, 1942, claiming the royalty and cesses payable under the compromise decree for the period from Pous 1345 to Asadh 1349 B.S. from defendants 1 and 2 as the representatives of the Deoshis who entered into the compromise of March, 1923.
In order to appreciate the contentions of the parties, it is necessary to set out the relevant terms of the compro mise decree which are as follows : "The plaintiffs (the Singhs) within two months from this date shall pay Rs. 8,000 as salami to defendant No. 3 (Kumar).
Otherwise all the terms of the compromise Will stand cancelled and the plaintiffs shall not be competent to claim any right to or possession over the.land covered by the patta dated 11th March, 1921.
The patta which defend ant No. 3 executed in favour of the plaintiffs in respect of 5,800 bighas of coal land in village Rahraband shall remain in force, and the plaintiffs will get a decree of declara tion of their right and title to the 500 bighas of coal land in dispute but defendants 1 and 2 (the Deoshis) shall hold possession as tenants.
Besides the terms mentioned below, defendants 1 and 2 shall remain bound by all the remaining terms under which they took settlement of the 500 bighas of coal land from defendant No. 3 under 836 patta and Kabuliyat, and both the defendants 1 and 2 shall possess the same under the plaintiffs from generation to generation and all the terms of the said patta and Kabuliyat shall remain effective and in force between them.
Both the defendants 1 and 2 shall remain bound to pay to the plain tiffs commission at the rate of 2a.
per ton on all sorts of coal instead of 2a.
a ton as stated before in the patta of 5,800 bighas of land settled with the plaintiffs.
The plaintiffs shall pay to defendant No. 3 in future the mini mum royalty of Rs. 6,000 instead of Rs. 8,000 as stipulated in the original patta of 11 th March 1921 and commission at the rate of la.
a ton in place of 2a.
a ton as stipulat ed in the patta of March 21 .
Unless the plaintiffs pay to the defendant No. 3 Rs. 8,000 within 2 months from this day they shall not be competent to take out execution of this decree, nor shall they be competent to take posses sion of the land in dispute.
The defendants 1 and 2 within one month from the date of payment of Rs. 8,000 as aforesaid to defendant No. 3 shall execute a new Kabuliyat in favour of the plaintiff in respect of the modified terms stated above, i.e., on the condition to pay commission at the rate of 2a.
per ton.
In the new patta which defendant No. 3 will execute in favour of the plaintiffs he shall embody the condition that the annual minimum royalty will be Rs. 6,000 instead of Rs. 8,000 and commission will be at the rate of la. 9p.
per ton in place of 2a.
per ton as mentioned in the aforesaid patta.
If the defendant No. 3 does not execute the parts on the aforesaid modified terms in favour 'of the plaintiffs within the time aforesaid and both the defendants 1 and 2 also do not execute a kabuliyat on the aforesaid modified terms, then this very rafanama shall be treated as the parts and kabuliyat, and the plaintiffs in accordance with the terms of the rafanama shall pay to defendant No. 3, Rs. 6,000 only as minimum royalty and commission at the rate of la.
per ton with respect to 5,800 bighas and shall continue to realise commission at the rate of 2a. 6p. per ton from defendants 1 and 2 who shall remain bound to pay the same.
" 837 The answer to the question whether this compromise decree requires registration depends on the legal effect of the changes in the status quo ante of the parties brought about by the document.
A careful analysis reveals the following alterations : (1) In the lease to the Singhs, the rate of royalty or commission was reduced from 2a.
per ton of coal raised to la.
per ton and the minimum royalty was reduced from Rs. 8,000 to Rs. 6,000 while the area of coal land in their khas possession was reduced by 500 bighas. (2) In the lease to the Deoshis the rate of royalty or commission was enhanced from 2a.
per ton to 2a.
per ton and tiffs was made payable to the Singhs.
The Singhs and the Deoshis were brought into a new legal relationship, the former accepting the latter as tenants holding the disputed 500 bighas under them in consideration of the latter agreeing to pay the enhanced royalty to the former. (4) The whole arrangement was made conditional on the Singhs paying Rs. 8,000 to Kumar within 2 months from the date of the compromise, it being expressly provided that the Singhs were not to be entitled to execute the decree or to take possession of the disputed area of 503 bighas which evidently had not till then passed into their possession.
Now, sub section (1) of section 17 of the , enumerates five categories of documents of which regis tration is made compulsory which include" (d) leases of immoveable property from year to year, or for any term exceeding one year, or reserving a yearly rent;".
Sub sec tion (2) however provided that "nothing in clauses (b) and (c) of sub section (1)applies to . (vi) any decree or order of court.
" It may be mentioned in passing that this clause was amended with affect from the 1st April, 1930, by the , so as to exclude from the scope of the exception compromise decrees comprising immovable property other than that which is the subject matter of the suit.
But 838 the amendment cannot affect the document here in question which came into existence in 1923.
Before the amendment, the clause was held to cover even compromise decrees comprising immovable property which was not the subject matter of the suit: [Vide Hemanta Kumari Debi vs Midnapur Zamindari Co. ( ')].
That decision applies to the present case and obviates the objection that because the compromise in question covered also the remaining 5,300 bighas which were not the subject matter of the title suit of 1921, it was outside the scope of the exception in sub section (2), clause (vi).
The only question, therefore, is whether the compromise decree is a "lease" [which expression includes "an agreement to lease" by the definition in section 2 (7)] within the meaning of el.
(d) of sub section (1).
It is obvious that if the compromise decree fails within clause (d) of sub section (1) it would not be protected under clause (vi) of sub section (2) which excepts only documents falling under the categories (b) and (c) of sub section (1).
The High Court was of opinion that, on a proper construction of the terms of the compromise, it did not fall under clause (d).
Mano har Lall J., who delivered the leading judgment, observed: "It was a tripartite agreement embodied in the decree of the court and was, therefore, exempt from registration.
It will be oh.served also that so far as the defendants were con cerned, their possession of the 500 bighas was not inter fered with and they still remained in possession as the lessees, but instead of paying the royalty to the plaintiffs it was agreed between all the parties that the defendants would pay the royalty in future to Shibsaran and Sitcram.
If the matter had stood there, the learned Advocate for the appellant could not have seriously contested the position, but he vehemently argued that when the agreement was not to pay the same amount of royalty or commission as previously agreed to but an altered amount of royalty and commission, the document should be held to fall within the mischief of section 17 (1)(d)of the (1) P.C. 839 .
The answer to this contention is, as I have stated just now, to be found in the Full Bench decision of this court :" [see Charu Chandra Mitra 's case ()].
It was there held that a mere alteration of the rent reserved does not make the transaction a new lease so as to bring it within clause (d)of subsection (1).
We are unable to share this view.
It oversimplifies the compromise transaction which, in our opinion, involves much more than a mere alteration of the royalties stipulated for in the previous pattas executed by Kumar.
Nor can we accept the suggestion of Mr. Chatterjee for the respondents theft the compromise operated as an assignment to the Singhs by Kumar of the latter 's reversion under the "lease granted to the Deoshis and all that the latter did was to acknowledge the Singhs as their landlords and attern to them.
On tiffs view it was said that the transaction would not fall under clause (d), although it would fall under clause (b) but then would be saved by the exception in clause (vi) of sub section (2).
The argument, however, overlooks that Kumar had leased the area of 5,800 bighas to the Singhs by his patta dated 11th March, 1921, and the compromise by providing that the Singhs should pay the reduced royalty of 1a.
per ton in respect of the whole area preserved Kumar 's reversion intact.
He could not therefore be deemed to have assigned any part of his inter est in 5,800 bighas as landlord to the Singhs who continue to hold the entire extent as tenants under him.
What the compromise really did was.
as stated already, to bring the Singhs and the Deoshis into a new legal relationship as underlessor and under lessee in respect of 500 bighas which were the subject matter of the title suit; in other words, its legal effect was to create a perpetual underlease be tween the Singhs and the Deoshis which would clearly fall under clause (d) but for the circumstance that it was to take effect only on condition float the Singhs paid Rs. 8,000 to Kumar within 2 months (1) 840 thereafter.
As pointed out by the Judicial Committee in Hemanta Kumar 's case (1) "An agreement for a lease, which a lease is by the statute declared to include, must, in their Lordships ' opinion, be a document which effects an actual demise and operates as a lease .
The phrase which in the context where it occurs and in the statute in which it is found, must in their opinion relate to some document which creates a present and immediate interest in the land.
" The compromise decree expressly provides that unless the sum of Rs. 8,000 was paid within the stipulated time the Singhs were not to execute the decree or to take possession of the disputed property.
Until the payment was made it was impossible to determine whether there would be any under lease or not.
Such a contingent agreement is not within clause (d) and although it is covered by clause (b). is excepted by clause (vi) of sub section ( '2).
We therefore agree with the conclusion of the High Court though on dif ferent grounds and dismiss the appeal with costs.
Appeal dismisseel.
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An agreement for a lease, which a lease is by the Indian declared to include, must be a document which effects an actual demise and operates as a lease.
It must create present and immediate interest in land.
Where a litigation between two persons A and B who claimed to be tenants under C was settled by a compromise decree the effect of which was to create a perpetual underlease between A and B which was to take effect only on condition that A paid Rs. 8,000 to C within a fixed period: Held, that such a contingent agreement was not "a lease" within el.
(a) of section 17 (t) of the Indian , and even though it was covered by cl.
(b) of the said sec tion it was exempt from registration under el.
(vi) of subs.
(2) of section 17.
Hemanta Kumari Debi vs Midnapur Zamindari Co. (I P.C.) relied on.
|
Special Leave Petition (Civil) No. 4221 of 1988.
From the Judgment and Order dated 3.12.1987 of the Delhi High Court in FAO (OS) No. 120 of 1987.
Mukul Rohtagi and Miss Bina Gupta for the petitioner.
Soli J. Sorabji, D.K. Sorab, P. Jain, Sushil Kr.
Jain and Sudhanshu Atreya for the Respondent.
The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.
This is an application for leave to appeal under Article 136 of the Constitution from the order of the Division Bench of the Delhi High Court affirming the order of the learned single Judge of that High Court.
It appears that on 19th March, 1983, there was an agreement for distribution of the film "Savere Wali Gadi" entered into between the parties, the petitioner as the distributor and the respondent as the producer.
The agreement contained an arbitration clause.
It is stated that a sum of Rs.3 lakhs was paid by the petitioner and acknowledged by the respondent earlier to the execution of the said agreement and therefore, the first instalment payable under the agreement to the respondent of Rs.3.40 lakhs was deemed to be adjusted.
Under the aforesaid distribution agreement by 30th August, 1983, the respondent was to hand over the prints of the film by this date which he never did.
In or about 1984 certain other moneys of about Rs.3 lakhs were further advanced to the respondent.
On 11th March, 1985 a further agreement was entered into between the parties whereby the respondent agreed to pay a total amount of Rs.6.50 lakhs to the petitioner and the petitioner to give up his distribution rights in the first agreement of 19th March, 1983.
The first agreement was accordingly irrevocably cancelled and superseded by this subsequent agreement.
On or about 2nd June, 1985 respondent wrote to the Motion Pictures Association, Delhi to de register the film in the name of the petitioner in view of the petitioner having given up the distribution rights by virtue of Annexure P/2 dated 11.3.85 where under the petitioner had agreed to receive Rs.6.50 lakhs and finished the deal within six months of 11.3.85.
It is the case of the petitioner.
530 however, that the sum of Rs.6.50 lakhs was never paid by the respondent to the petitioner.
On 3rd July, 1985 the Motion Picture Association wrote to the respondent acknowledging receipt of respondent 's letter dated 22nd June 1985 whereby he had asked for de registration of the film in view of Annexure P/2.
The Motion Picture Association stated that de registration would be allowed only when the respondent pays Rs.6.50 lakhs to the petitioner or deposits the amount with the Motion Picture Association.
It is stated that between July 1985 and September 1985, the petitioner wrote two letters to the Motion Picture Association stating that the respondent had committed a breach of the subsequent agreement dated 11th March, 1985 executed between the parties whereunder the respondent was to make payment of Rs.6.50 lakhs and it was clear that the respondent had no desire to make payment and the respondent wrongly wanted to deal with the film and sell the distribution rights to somebody else thereby enjoying benefit of the same and also to deprive the petitioner of the amount of Rs.6.50 lakhs.
Civil suit was filed in February, 1986 for recovery of Rs.6.50 lakhs with interest by the petitioner against the respondent.
The written statement was submitted.
An application was made under section 20 in June, 1986.
This application had been made later than the institution of the civil suit in the same High Court.
The learned single Judge directed that the arbitration agreement to be filed and reference was directed according to the agreement.
There was an order passed by the learned single Judge to that effect.
There was an appeal to the Division Bench of the High Court and the Division Bench confirmed the order of the learned single Judge.
Hence this petition.
It appears that there were two agreements one dated 11th March, 1985 and the other dated 19th March, 1983.
The learned Judge found that there could be little doubt that the intention of the parties when agreement dated 11th March, 1985 was entered into was that the earlier contract dated 19th March, 1983 should be superseded.
But it appears that the agreement fell through because when the agreement of 1985 was entered into, it was the intention of the parties to the earlier agreement would be superseded and a new arrangement was sought to be brought about whereby the rights of the petitioner herein under agreement dated 19th March, 1983 were to be yielded for a sum of Rs.6.50 lakhs.
This amount of Rs.6.50 lakhs was never paid by the respondent.
It was the case of the petitioner herein that thereby the agreement of 11th March, 1985 stood cancelled.
The petitioner who claimed rights under the earlier agreement dated 19th March, 1983 and sought the continuation of his registration of distributorship.
The learned single Judge found that it was at the instance of petitioner 531 herein that respondent No. 2 confirmed vide its letter dated 19th September, 1985 that as the petitioner, before the learned single Judge, had failed to pay Rs.6,50,000 the aforesaid picture stood registered in the name of the petitioner herein.
This registration could continue only by virtue of the earlier agreement dated March 19, 1983.
The learned single Judge further found that the agreement dated 11th March, 1985 had come to an end and the earlier agreement dated 19th March, 1983 had revived.
In this connection reference may be made to the observations of the Patna High Court in Babulal Marwari and others vs Tulsi Singh and others, A.I.R. 1940 Patna 121.
Whether in any particular case there was a complete novation of a contract in the sense that the new contract replaced or substituted the old contract, could depend upon the facts and circumstances of the case.
In that view of the matter, the single Judge of the High Court, in our opinion, rightly directed that the first agreement be filed.
The Division Bench of the High Court pointed out after referring to the letter dated 19/21st September, 1985 the Motion Pictures Association confirmed that in view of the failure of the producer to comply with his earlier letter regarding payment of Rs. 6.50 lakhs plus interest, the picture in question stood registered in the name of M/s. Raja Movies in the Motion Pictures Association.
This position was accepted by Suyog Films in the letter dated 5th November, 1985 and the subsequent letter by them.
The non performance of the terms of the contract dated 11th March, 1985 may not by itself revive the earlier contract of 19th March, 1983, but the petitioner in his letters dated 15th July, 1985 and 19th September, 1985 fell back on the original contract of 19th March, 1983.
This was accepted by M/s. Suyog Films and thus a binding contract came into existence.
In this case the Division Bench came to the conclusion on the construction of the letters and the conduct of the party that the contract dated 19th March, 1983 continued.
The contract dated 19th March, 1983 contained an arbitration clause.
There is no reason why that arbitration agreement should not be filed.
A civil suit had been filed but that by itself unlike under section 34 of the does not preclude filing of proper arbitration agreement between the parties.
There being no impediment in filing the arbitration agreement which indubitably was subsisting at the relevant time when the High Court directed that the arbitration agreement be filed, that discretion should not be interfered with.
Section 20 of the provides as follows: "20.
Application to file in Court arbitration agreement 532 (1) Where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement he filed in Court.
(2) The application shall be in writing and shall be numbered and registered as a suit between one or more of the parties interested or claiming to be interested as plaintiff or plaintiffs and the remainder is defendant or defendants, if the application has been presented by all the parties, or if otherwise, between the applicant as plaintiff and the other parties as defendants.
(3) on such application being made, the Court shall direct notice thereof to be given to all parties to the agreement other than the applicants, requiring them to show cause within the time specified in the notice why the agreement should not be filed.
(4) Where no sufficient cause is shown, the Court shall order the agreement to be filed, and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise, or, where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court.
(5) Thereafter the arbitration shall proceed in accordance with, and shall be governed by, the other provisions of this Act so far as they can be made applicable.
" It is significant to note that the sub section (1) gives an option to the parties by the use of expression 'may ' but the other sub section if the conditions are fulfilled, makes it obligatory for the Court to direct filing of an arbitration agreement.
Indubitably, in this case there was an arbitration clause in the agreement.
The parties have applied for reference.
The Division Bench has reiterated that the original agreement dated 19th March, 1983 which ceased to have effect and came to an end by the agreement dated 11th March, 1985, stood revived by virtue of the two letters dated 15th July, 1985 and 11th September, 533 1985 by the appellant.
The High Court has confirmed that the said two letters were acted upon by the Motion Pictures Association.
By letter dated 19/21 September, 1985 the Motion Pictures Association confirmed that in view of the failure of the producer to comply with his earlier letter regarding payment of Rs.6,50,000 plus interest, the picture "Savere Wali Gadi" stood registered in the name of M/s. Raja Movies in the Motion Pictures Association.
This position was accepted by Suyog Films in letter dated 5th November, 1985 and the subsequent letter by them.
It is clear that the petitioner in his letters dated 15th July, 1985 and 11th September, 1985 fell back on the original contract of 19th March, 1983.
This was accepted by the respondent.
Hence, there was at all relevant times a valid and binding contract between the parties.
That contract contained an arbitration clause.
There was nothing, in view of the reasons indicated above, to disentitle the parties to have their rights adjudicated in terms of an arbitration clause.
In the premises the High Court was right in the view it took.
This petition fails and is accordingly dismissed.
G.N. Petition dismissed.
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An agreement for distribution of the film "Savere Wali Gadi" was entered into on 19th March, 1983 between the petitioner as the distributor and the respondent as the producer.
The agreement contained an arbitration clause.
A sum of Rs.3.40 lakhs paid to the respondent and acknowledged by him earlier to the agreement was deemed to have been adjusted against the first instalment.
In or about 1984 about Rs. 3 lakhs were further advanced to the respondent.
As per the agreement the respondent was to hand over the prints of the film by 10th August, 1983, but it was not done.
On 11th March, 1985 a further agreement was entered into between the parties whereby the respondent agreed to pay a total sum of Rs.6.50 lakhs to the petitioner for giving up his distribution rights in the first agreement.
The first agreement was accordingly irrevocably cancelled and superseded by the subsequent agreement.
The respondent took up the matter with Motion Pictures Association to de register the film in the name of the petitioner.
The Motion Picture Association stated that de registration would be allowed only when the respondent pays Rs.6.50 lakhs to the petitioner or deposits the amount with the Association.
The petitioner 's claim before the Association was that the respondent committed breach of the subsequent agreement.
A civil suit was filed in the High Court for recovery of Rs.6.50 lakhs with interest, by the petitioner against the respondent.
Later, an application under section 20 of the was made.
The Single Judge held that the first agreement had revived and directed the 528 filing of the agreement.
On appeal, the Division Bench confirmed the order.
This special leave petition is against the order of the Division Bench of the High Court.
Dismissing the special leave petition, this Court, ^ HELD: 1.1 Whether in any particular case there was a complete novation of a contract in the sense that the new contract replaced or substituted the old contract, could depend upon the facts and circumstances of the case.
[531B C] 1.2 When the agreement of 1985 was entered into, it was the intention of the parties that the earlier agreement would be superseded and a new arrangement was sought to be brought about whereby the rights of the petitioner under the earlier agreement were to be yielded for a sum of Rs.6.50 lakhs.
This amount of Rs.6.50 lakhs was never paid by the respondent, and it was the case of the petitioner that the earlier agreement stood cancelled.
The petitioner who claimed rights under the earlier agreement, sought the continuation of his registration of distributorship.
This registration could continue only by virtue of the earlier agreement which had revived.
[530G HG; 531B] Babulal Marwari and others vs Tulsi Singh and others, A.I.R. 1940 Patna 121, refered to.
2.1 Sub section (1) of Section 20 of the gives an option to the parties by the use of the expression 'may ', but the other sub sections, if the conditions are fulfilled, make it obligatory for the Court to direct filing of an arbitration agreement.
[532G] 2.2 Indubitably, there was an arbitration clause in the agreement.
The parties have applied for reference.
The Division Bench has reiterated that the original agreement dated 19th March, 1983 which ceased to have effect and came to an end by the agreement dated 11th March, 1985 stood revived by virtue of the two letters dated 15th July, 1985 and 11th September, 1985 by the appellant.
It is clear that the petitioner in the above letters fell back on the original contract of 19th March, 1983.
This was accepted by the respondent.
Hence there was at all relevant times a valid and binding contract between the parties.
That contract contained an arbitration clause.
There was nothing to disentitle the parties to have their rights adjudicated in terms of an arbitration clause.
The civil suit filed does not by itself preclude filing of proper arbitration agreement between the parties.
There being no impediment 529 in filing the arbitration agreement which was subsisting at the relevant time when the High Court directed that the arbitration agreement be filed, that discretion should not be interfered with.
[532G H; 531F G]
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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.
|
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]
|
ON: Criminal Appeal No. 165 of 1957.
Appeal by special leave from the judgment and order dated the 4th August, 1955, of the Patna High Court in Criminal Appeal No. 699 of 1953 with Criminal Revision No. 205 of 1954, arising out of the judgment and order dated the 12th December, 1953, 769 of the Court of the Assistant Sessions Judge, Second Court Chapra in Trial No. 70 of 1953.
G. C. Mathur., for the appellants.
section P. Varma, for the respondent.
October 28.
The following judgment of the Court was delivered by SINHA J.
The only question for determination in this appeal is whether the High Court in its revisional jurisdiction, has the power to enhance the sentence, as it has done in the instant case, beyond the limit of the maximum sentence that could have been imposed by the trial court, on the accused persons.
The appellants, along with others, were placed on their trial before the Assistant Sessions Judge of Chapra in the district of Saran, for the offence of dacoity under section 395, Indian Penal Code.
They, along with two others, were convicted under section 395, Indian Penal Code, and sentenced to rigorous imprisonment for 5 years, by the Assistant Sessions Judge, by his Judgment and order dated December 12, 1953.
The other accused were acquitted.
The convicted persons preferred an appeal to the High Court at Patna.
The High Court, in its revisional jurisdiction, while admitting the appeal, called upon the appellants to show cause why, in the event of their convictions being maintained, their sentence should not be enhanced.
The appeal and the rule for enhancement of sentence were heard together by a Division Bench of that Court.
The High Court, by its judgment and order dated August 4, 1955, allowed the appeal of two of the appellants and acquitted them but maintained the conviction as against the remaining six appellants.
On the question of sentence, the High Court observed that the " offence of dacoity has increased tremendously.
It is a very heinous offence as innocent persons, while sleeping in their houses, are attacked and their belongings are taken by force.
" The High Court, therefore, was of the opinion that a sentence of five years ' rigorous imprisonment was "extremely inadequate".
It, therefore, enhanced the sentence to 10 years ' rigorous imprisonment in each 770 and obtained special leave to appeal limited to the question of sentence only, the question being whether the High Court had the jurisdiction to enhance the sentence beyond the limits of the power of the trial court itself The occurrence of dacoity which is the subjectmatter of the charge against the appellants, along with others, took place on the night between July 1 and 2, 1952, in the house of Ranjit Bahadur, a minor.
After midnight, 16 or 17 dacoits, fully armed with various deadly weapons, broke open the main entrance door of the house with an axe.
After going into the house, they broke open boxes and tampered with the iron safe, and removed articles worth twenty thousand rupees.
The inmates of the house were over powered.
Some of them, slipping out of the house, raised a big fire which is the customary form of alarm raised against the invading crowd of dacoits.
On that alarm, a number of people of the village turned up but had not the courage to face the dacoits for fear of being shot.
They contented themselves with using brickbats against the dacoits who made good their escape with their booty.
It would, thus, appear that it was a serious occurrence involving the lives and fortunes of the inmates of the house, and naturally, the High Court took a very serious view of the offence.
In this Court, the learned counsel for the appellants, who appeared amicus curiae, contended, in the first place, that the High Court had exceeded its powers in enhancing the sentence from 5 to 10 years inasmuch as the trial court itself could not have inflicted a sentence of imprisonment for more that 7 years.
Alternatively, he contended that the High Court had not kept in view the dictum of this Court in the case of Bed Raj vs The State of Uttar Pradesh (1), while enhancing the sentence against the appellants before it.
And lastly, it was contended that in any view of the matter, in the circumstances of this case, the sentence of 10 years rigorous imprisonment is too severe.
In our opinion, there is no substance in any one of these contentions.
(1) ; 771 The main point on which the special leave was granted is the question of the competence of the High: Court to impose a higher sentence than that which could have been imposed by the learned Assistant Sessions Judge under section 31(3) of the Code of Criminal Procedure.
The learned trial judge could not have imposed a term of imprisonment exceeding 7 years.
The argument is that the High Court could enhance the sentence from 5 to 7 years and no more.
This argument is sought to be enforced by the consideration that it must be presumed that the learned Assistant Sessions Judge had been entrusted with the trial of the accused persons with the full knowledge that, on conviction, the accused persons could be punished with a term of imprisonment not exceeding 7 years.
In its revisional jurisdiction, the High Court could exercise its powers only to correct any mistakes made by the learned trial judge.
The High Court could, therefore, at the most, say that the trial judge should have inflicted the highest punishment, it had been empowered by the Code, to impose.
The High Court could not, at the revisional stage, it was further argued, insist upon a higher punishment being awarded by the trial court than 7 years ' rigorous imprisonment.
The power of the High Court to enhance a sentence, is contained in sub section
(1) of section 439 of the Code, which clothes the High Court with the powers of a Court of Appeal under the Code, as also the power to enhance the sentence.
Sub section
(1) itself, does not contain any words of limitation on the power to enhance the sentence.
Hence, the High Court could impose any sentence up to the maximum limit prescribed by the Indian Penal Code, for a particular offence.
In this case, therefore, the High Court could impose the maximum sentence of imprisonment for life under section 395, Indian Penal Code.
Is there anything in the Code of Criminal Procedure, which limits that power ? The fact that the trial of the case was entrusted to a court with a limited jurisdiction in the matter of sentence, could not be used to impose a limit on the power of a High Court to impose a proper and 98 772 adequate sentence.
That the Legislature did not intend to impose a limit on the power of the High Court to inflict an adequate sentence in a trial held by a Court of Session, is made clear by the provisions of sub section
(3) of section 439, Criminal Procedure Code, which is in these terms: " (3) Where the sentence dealt with under this section has been passed by a Magistrate acting otherwise than under section 34, the Court shall not inflict a greater punishment for the offence, which, in the opinion of such Court, the accused has committed, than might have been inflicted for such offence by a Presidency Magistrate or a Magistrate of the first class.
" Section 32 of the Code lays down the sentence which magistrates may, ordinarily, impose, which is a term of imprisonment not exceeding two years, in the case of Presidency Magistrates and Magistrates of the first class (omitting all reference to fine).
But in certain specified areas, section 30 empowers the Government to invest a District Magistrate or a Magistrate, first class, with the power to try, as a magistrate, all offences not punishable with death.
A magistrate so empowered under section 30, may pass a sentence of imprisonment for a term of 7 years or less.
Thus, the powers of an Assistant Sessions Judge, under section 31(3) and of a magistrate specially empowered under section 30 to impose a sentence of imprisonment, are the same, the terms of section 31 (3) and section 34 being almost identical.
From the terms of section 439(3), it is clear that the only limitation on the power of a High Court to impose punishment is in respect of cases tried by magistrates other than those specially empowered under section 30, and thus, vested with higher powers of punishment under section 34.
Sub section (3) aforesaid, does not impose any limits on the powers of the High Court in cases dealt with by a magistrate specially empowered under section 30.
Hence, in such a case, the High Court has the power to impose a sentence higher than that which could have been imposed by such a magistrate.
That sub section has no reference to a trial held by a Court of Session.
If the High Court can enhance the sentence beyond 773 the maximum sentence which could be awarded by a magistrate specially empowered under section 30, and acting under section 34, there is no reason to hold that the High Court 's power in respect of enhancing the sentence in a trial held by an Assistant Sessions Judge, should be limited in the way suggested on behalf of the appellants.
Sub section (3) of section 439, thus, makes it clear that there is no limitation on the power of the High Court to enhance a sentence to the maximum prescribed by the Indian Penal Code, except in cases tried by magistrates other than those especially empowered under section 30, Criminal Procedure Code.
The learned counsel for the appellants very properly informed us that there are some reported decisions of some of the High Courts which have gone against his contention, and that there is no decision which has taken a view; in support of his contention.
In our opinion, there is no provision in the Code of Criminal Procedure, which limits the power of the High Court in the way suggested on behalf of the appellants, and there are no reasons which militate against the decision of the High Courts taking that view.
The case relied upon on behalf of the appellants in support of their second contention (Bed Raj vs The State of Uttar Pradesh (1)), also seems to point to the same conclusion as will appear from the following observations at p. 584: " Now, though no limitation has been, placed on the High Court 's power to enhance it is nevertheless a judicial act and, like all judicial acts involving an exercise of discretion, must be exercised along wellknown judicial lines.
" On the second contention, there is no doubt that the question of sentence is a matter of discretion which has to be exercised in a judicial way, that is to say, the sentence imposed by the trial court should not be lightly interfered with and should not be enhanced.
unless the appellate court comes to the conclusion, on a consideration of the entire circumstances disclosed in the evidence, that the sentence imposed is inadequate.
In the instant case, the High Court has (1) ; 774 pointed out that the incidence of the offence of dacoity has gone up to such an extent that in proved cases of serious dacoity, like the one in hand, deterrent punishment is called for.
The High Court was, therefore, justified in imposing the sentence of 10 years ' rigorous imprisonment.
In view of the circumstances disclosed in the case, as indicated above, it cannot be asserted that the sentence as enhanced by the High Court is excessive.
The appeal is, accordingly, dismissed.
Appeal dismissed.
|
The appellants were tried before an Assistant Sessions judge for the offence of dacoity under section 395 Indian Penal Code.
Under 3.
31(3) Code of Criminal Procedure, (as it then stood) the Assistant Sessions judge could award a maximum sentence of seven years rigorous imprisonment.
He convicted the appellants and sentenced them to five years rigorous imprisonment each.
The appellants appealed to the High Court, and the High Court, in its revisional jurisdiction, issued a notice to the appellants for enhancement of sentence.
The High Court dismissed the appeal and enhanced the sentence to ten years rigorous imprisonment.
Held, that the High Court had, in its revisional jurisdiction under section 439 Code of Criminal Procedure, the power to enhance the sentence beyond the limit of the maximum sentence that could have been imposed by the trial Court.
Bed Raj vs The State of Uttar Pradesh, ; , referred to.
|
ivil Appeal No. 103 of 1975.
From the Judgment and Order dated 19.4.1974 of the Patna High Court in Taxation Case No. 21 of 1970.
S.K. Dhingra and K.B. Rohtagi for the Appellants.
D .N. Goburdhan and D. Goburdhan for the Respondents.
The Judgment of the Court was delivered by RANGANATH MISRA, J.
This appeal is by special leave.
Challenge herein is to the decision of the Patna High Court rendered on a reference under Section 33(1) of the Bihar Sales Tax Act, 1959.
The following question was referred to the High Court for its opinion, by the Commercial Taxes Tribunal of Bihar: 1049 "Whether in the facts and circumstances of the case, the direction of the Tribunal to ascer tain the price of the containers (gunny bags) of wheat products sold for an all inclusive price under the provisions of the Roller Mills Wheat Products (Price Control) Order, 1964, for taxing the same at a higher rate of 4 1/2 % is legally valid? For the year 1964 65, the assessee, a registered dealer, under the Bihar Sales Tax Act returned a gross turnover of Rs.53,39,981 which was accepted by the assessing officer.
He determined the taxable turnover at Rs.52,79,962 representing sale of wheat products taxable at 2 per cent.
He found that the dealer had sold gunny bags in which wheat products had been packed and determined its turnover at Rs. 1,37,150 and assessed the same at 4 1/2 %.
The First Appellate Authority on assessee 's appeal held: "The learned Assessing Officer was not justi fied in adding back the price of container in the gross turnover.
What he should have done is to tax a portion of the taxable turnover at a different rate or in other words out of the turnover taxable under the Bihar Sales Tax Act, the price of bags calculated @ Rs.
O.70 paise per hundred kilogram should have been deducted and taxed @ 1/2%.
The remaining was to be taxed @2% The dealer filed a Revision before the Tribunal and contended that the demand of sales tax payable at different rates on the calculated turnover of gunny bags was not at all warranted as no price had been charged for the contain ers.
The Tribunal found: "(1) The dealer transferred the property in the gunny bags, the packing material, to the purchasers f:or price.
(2) The price of the gunny bags was included in the consolidated rates of price charged by the dealer.
(3) There was an implied agreement for the sale of gunny bags between the dealer and the different purchasers to whom the wheat products were supplied.
(4) The transfer of gunny bags was impliedly covered by the contract of sale with regard to the wheat products.
1050 On these findings the Tribunal held: "We hold that the learned lower courts were justified in levying tax at a different rate on the turnover on account of sale of gunny bags in which the wheat products were sold.
" It further found: "The learned Deputy Commissioner has given a direction for determination of the turnover on account of sale of gunny bags.
On being asked the applicant accepted that the accounts maintained by him would reveal the exact number of gunny bags used in the trans action of sale under consideration as also the price of the same.
Hence we direct in modifi cation of the orders passed by the learned Deputy Commissioner in this behalf that the learned Assessing Officer should ascertain from the accounts, the turnover on account of sale of gunny bags as container of wheat products during the period under consideration and assess tax thereon at the prescribed rate of 4 1/2 %.
The balance turnover shall be assessed at 2%" Reliance was placed on the provisions of clause (3) of the Roller Mills Wheat Products (Price Control) Order, 1964.
That clause provides: "3.
Maximum ex mill prices of wheat products.
"No owner or other person in charge of a roller mill shall sell, or offer for sale, ex mill any of the wheat products specified in column 1 of the Schedule II to this Order ( a ) . . . . . . . . . (b) In the State of Maharashtra (excluding Greater Bombay) and in any other State (not being a State specified sub clause (a), to which this Order applies, at a price exceeding the price specified against the clause 3 thereof.
Explanation : The prices referred to in this clause are: (i) Exclusive of: 1051 ( a ) . . . . . . . . . ( b ) . . . . . . . . . (ii) for net weight (inclusive of the cost of the bag), but where wheat products are sold in cloth bags in quantities of 40 kgs.
net, 20 kgs.
net and 10 kgs.
net, a sum of 70 np.
37 np.
and 19 np.
respectively, towards the cost of the cloth bag may be charged in addition to the said prices.
" In our view, the Tribunal rightly came to the conclusion that there was implied agreement of sale of the gunny bags.
Admittedly gunny bags are a different commodity and sale thereof is assessable to tax at 4 1/2 %.
It is not disputed that 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 includ ed in the price to be charged by the dealer.
Under the explanation 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.
This Court in Commissioner of Taxes vs Prabhat Marketing Company Ltd., 19 STC 84 has held: "In Hyderabad Deccan Cigarette Factor) ' vs The State of Andhra Pradesh, (17 STC 624) it was held by this Court that in a case of this description what the Sales tax Authorities had to do was to ask and answer the question whether the parties, having regard to the circumstances of the case, intended to sell or buy the packing materials or whether the subject matter of the contracts of sale was only an exempted article (here exigible to tax at redical rate), and packing materials did not form part of the bargain at all, but were used by the sellers as a convenient and cheap vehicle of transport.
" In that decision it was further pointed out that the ques tion as to whether there was an agreement to sell packing material was a pure question of fact depending upon the circumstances found in each case.
The Tribunal and the High Court have recorded a clear finding that there was an im plied contract for sale of the gunny bags along with the products contained therein.
1052 In this Court, the assessee filed an affidavit and produced a communication purporting to be of the Regional Director (Food), Eastern Region, Government of India, dated July 23, 1957.
This not being the part of the record and the affidavit having been filed at a belated stage has got to be rejected.
There is no scope to dispute the assessability of sales tax on the turnover of gunny bags.
This appeal fails and is dismissed.
Parties are directed to bear their own costs.
A.P.J. Appeal dismissed.
|
For the year 1964 65, the assessee, a registered dealer, under the Bihar Sales Tax Act, 1959 returned a gross turn over of Rs.53,39,981 which was accepted by the Assessing Officer.
He determined the taxable turnover at Rs.52,79,962 representing the sale of wheat products taxable at 2%.
He found that the dealer has sold gunny bags in which wheat products had been packed and determined its turnover at Rs.1,37,150 and assessed the same at 4 1/2%.
The First Appellate Authority on assessee 's appeal held that the Assessing Officer was not justified in adding back the price of container in the gross turnover.
What he should have done is to tax a portion of the taxable turnover at a different rate or out of the turnover taxable, the price of bags calculated at the rate of 70 paise per 100 kilogram should have been deducted and taxed at the rate of 4 1/2%.
The remaining was to be taxed at the rate of 2%.
In the revision before the Tribunal the assessee con tended that the demand of sales tax payable at different rates on the calculated turnover of gunny bags was not at all warranted as no price had been charged for the contain ers.
The Tribunal held that the lower Courts were justified in levying tax at a different rate on the turnover on ac count of sale of gunny bags in which the wheat products were sold and directed that the Assessing Officer should ascer tain from the accounts, the turnover on account of sale of gunny bags as container of wheat products during the period under consideration and assess tax thereon at the prescribed rate of 4 1/2%.
The balance turnover shall be assessed at 2%.
In the reference the High Court affirmed this view.
Dismissing the appeal, 1048 HELD: 1.
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 explanation when packing is done in clothbags, a higher rate is admissi ble.
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.
[1051C D] Commissioner of Taxes vs Prabhat Marketing Company Ltd., 19 STC 84, referred to. 2.
The Tribunal rightly came to the conclusion that there was implied agreement of sale of the gunny bags.
Admittedly, gunny bags are a different commodity and sale thereof is assessable to tax at 4V1%.
It is not disputed that appellant bought gunny bags for packing wheat products for the purpose of sale.
[1051C] 3.
The question as to whether there was an agreement to sell packing material is a pure question of fact depending upon the circumstances found in each case.
[1051G H] 4.
The Tribunal and the High Court in the instant case, have recorded a clear finding that there was an implied contract for sale of the gunny bags with the products con tained therein.
[1051H]
|
Petition Nos.
1483, 1494 and 1544 of 1986 etc.
Under Article 32 of the Constitution of India.
Dr: Y.S. Chitale, Satish Chandra, P.K. Banerjee, S.N. Kacker, K.C. Agarawal, S.S. Rathore, L.K. Garg, M.K.D. Namboodiary, P.M. Amin, Ashok Grover, Bulchandani, M.N. Shroff, P.H. Parekh and Sohail Dutt for the Petitioners.
K. Parasaran, Attorney Genera1, G. Ramaswamy Additional Solicitor General, G. Subramaniam, A.S. Rao, Ms. Relan and P.P. Parmeshwaran for the Respondents.
R.S. Nariman, (Indo Afghan Chamber of Commerce).
Kapil Sibal, (M/s Raj Prakash Chemicals) and Rajiv Dutta for the Interveners.
The Judgment of the Court Was delivered by SABYASACHI MUKHARJI, J.
Writ Petition No. 1483 Of 1986 is directed.
against 'the Show Cause Notices dated 21st August, 1986, 11th September, 1986 and 26th September, 1986 issued to the petitioners Messrs.D. Navinchandra & Company, a partnership firm and Dilip Kumar Dalpatlal Mehta, a part ner 'of the said firm.
In order to 'appreCiate this chal lenge;, it is necessary to refer to certain facts.
This petition raises the question of the rights of the petition ers and 993 other diamond exporters who were entitled to export house certificates and additional licences under import policy of 1978 79 and who were granted the same pursuant to the judg ment and 'order of this Court dated 18th April,1985.
As we shall explain later, there is no conflict With this decision of a Bench which consisted of a bench of three judges and the subsequent decisions of this Court which We.
Shall presently refer.
It is necessary also that in order to make out.
a case, the petitioners have sought to emphasise on the point that the decision dated 18th April, 1985 was a deci sion of three learned Judges, in Order to spin out a case of some sort of conflict with this decision and certain subse quent decisions of this Court consisting of benches of two ' learned judges.
It appears that the import policy issued by the Government of India for the year 1978 79 by paragraph 176 provided for, additional licences.
On 29th April, 1979, the first petitioner, a diamond exporters, was refused Export House Certificate.
The said.
petitioner filed a writ petition before the High Court of Bombay.
being Misc.
peti tion No. 1293/1979.
By his order and judgment, Pendse , J. made the rule absolute holding that canalised items were not banned items, and there was no reason why the first peti tioner should not be compel " led to approach the canalising agency for import of the same.
On 7th April, 1983, the Delhi High Court delivered a judgment in Civil writ Petition No. 1501 of 1981 (which for the sake of convenience, the party has chosen to describe as Rajnikant Bros. & Ors.
case allow ing the diamond exporters the same and holding that merely Canalising an item could not be regarded as import of that item being absolutely banned.
Against` these judgments special leave petitions were filed in this Court, Appeal was also filed on 27th March.
1984 by the Import Control Authorities and Union of India against the judgment dated 11th November, 1983 mentioned hereinbefore passed by Pendse, J. and the said appeal as dismissed on that date.
Against the ' same, the, Export Control authorities and Union of India filed special leave petition No. 7190 Of 1984 in this Court.
Similar special leave petitions were filed in this Court against similar judgments of the Bombay High Court.
On 18th April, 1985, by a common judgment, the special leave.
petitions were disposed of.
As much has been made out 'of this judgment and order, it is necessary to refer to the same.
The matter was disposed of by the order in Civil Appeal No, 1423 of 1984 ' by a bench consisting Fazal Ali, J., Varadarajan, J. and one of us (Sabyasachi Mukharji, J.).
It was held by the said order that there was no requirement of diversification of exports as a condition for the grant of Export 994 House Certificate in the Import Policy for 1978 79.
There fore, while confirming the High Court 's judgment, quashing the order impugned in the writ petitions in the High Court, this Court directed the appellants namely Union of India and Import Control authorities to issue necessary Export House Certificates for the year 1978 79.
It was further directed that Export House Certificates should be granted within three months from that date.
The order stated that 'save and except items which are specifically banned under the preva lent import policy at the time of import, the respondents shall be entitled to import all other items whether cana lised or otherwise in accordance with the relevant rules '.
The appeals were disposed of accordingly with no order as to costs.
Pursuant to the aforesaid order, on 29th July, 1985, import licence was issued, it is claimed, to the first petitioner.
of the c.i.f. value of Rs.71,15,900.
Pursuant to the said import licence, the first petitioner imported several consignments of items failing either under Appendix 3 (List of Limited Permissible Items), Appendix 2B (List of Restricted Items) or Appendix 5 (Canalised Items).
According to the petitioner, in the matter of clearance of such con signments different standards were applied by the Custom authorities.
On 18th October, 1985, in special leave petition No. 11843 of 1985 In the case of Raj Prakash Chemicals Ltd. vs Union of India this Court directed that Acrylic Ester Mono mors would not be permitted to be cleared until further orders unless they had already been cleared.
Similarly, on 31st January, 1986, interim order was passed in the case of M/s Indo Afghan Chambers of Commerce vs Union of India (Writ Petition No. 199 of 1986) directing that Dry Fruits in respect of which Custom clearance had been obtained till 30th January, 1986 would be allowed to be cleared and no clearance of Dry fruits from 31st January, 1986 onwards would be made by the Custom authorities until further or ders.
On 5th March, 1986, judgment was delivered in the case of Raj Prakash Chemicals Ltd. and Another vs Union of India and Others, by a bench consisting of three learned Judges Tulzapurkar, J. and two of us (R.S. Pathak, J. as the Chief Justice then was, and Sabyasachi Mukharji, J.).
This Court held that additional licence holders were entitled to import items permissible to Export Houses under Import Policy 1978 79 excluding those items which fell in Appendix 3 (List of Banned Items) of the Import Policy 1985 88.
This Court observed that diamond exporters who were granted Addi 995 tional Licences had formed a bona fide belief that they could import all the items accessible to them under Open General Licence under the Import Policy of 1978 79 except those placed in Appendix 2 Part A of the Banned List under the Import Policy 1985 88.
This belief was formed on the basis of consistent orders of the High Courts and consistent manner in which Import Control authorities construed those orders.
In view of such a belief, it was further held by this Court, in the interest of broad principles of justice, equity and fair play and to avoid undeserved hardship, without going to the legal technicalities that those diamond exporters who were granted Additional Licences under the Import Policy 1978 79 and had opened and established irrevo cable letters of credit before 18th October, 1985 i.e. the date on which the interim order was passed by this Court in Raj Prakash 's case as mentioned hereinbefore, should be permitted, notwithstanding the construction placed by this Court on the order dated 18th April, 1985 of this Court, to clear the goods imported, or to be imported by them pursuant to such irrevocable letters of credit.
In other words, all imports effected pursuant to such letters of credit should be deemed to have been legally and properly made, and should entail no adverse consequences whatsoever.
This Court fur ther reiterated that the Court must be presumed to have given effect to law That presumption can be rebutted only upon evidence showing a clear intention to the contrary, either expressly or by necessary implication.
This Court noted that the order dated 18th April, 1985 which we have set out hereinbefore used the expression "specifically banned" and the controversy before this Court in Raj Pra kash 's case was on the meaning of the expression 'specifi cally banned ' and the controversy between the parties cen tered round the meaning of the words 'specifically banned '.
It was mentioned that Appendix 3 is the list of items which could not be imported by an Export House on additional licence, it was a ban with reference to the category of importers.
Appendix 4 is the list of items which could not be imported by anyone whosoever.
This Court, therefore, was of the view that when regard is had to the Import Policy 1984 85, reference must necessarily be made to the corre sponding Appendix 3, formerly described as the List of Banned Items and now described as the List of Limited Per missible Items, and Appendix 2 Part A which is now the list of Banned Items replacing Appendix 4 (List of Absolutely Banned Items).
In other words, said the Court, the Addition al Licences to be issued to diamond exporters entitled them to import items permissible to Export Houses under such licence under the Import Policy 1978 79 excluding those items which fell within Appendices 3 and 4 of the Import Policy 1978 79 and also excluding items which fell in Appen dix 3 and Appendix 2 Part A of the Import This Court was of the view that this is the meaning which must be given to the terms of the order dated 18th April, 1985.
This Court noted that when this Court made the previous order on 18th April, 1985 when the Import Policy of 1985 88 was in force.
there were only two items which were absolutely banned.
and these were animal tallow and animal cannot.
That was also Substantially the position under the Import Policy 1984 85.
This Court was of the view that in the Import Policies of 1984 85 and 1985 88 the items open to import under Open General Licence were then set forth, when Raj Prakash 's judgment was delivered i.e. in Appendix 6.
A perusal of Part I1 of List 8 in Appendix 6 indicated that it enumerated in fairly long detail the items allowed to be imported by the Export Houses holding Additional Licences for sale of those items to eligible Actual Users (Industrial) subject to Actual User conditions.
That was the entitlement of the holder of an Additional Licence under paragraph 265(4) of the Import Policy 1985 88.
It is necessary to set out in detail the aforesaid judgment and also to refer to the order of 18th April.
1985 to emphasise that whether non canalised items could be imported directly.
and not through canalised agency, was not in issue in either of these two cases.
nor decided or adju dicated upon.
In the judgment in Raj Prakash 's case (supra), it was held that Additional Licence holders were entitled to import items permissible to Export Houses under the Import Policy 1978 79 excluding those items which fell in Appendix 3 (list of banned items) of the Import Policy 1985 88.
On 17th March, 1986, letter was written by the Joint Chief Controller of Imports to Messrs. B. Vijay Kumar and Co. stating that against Additional Licences issued in terms of this Court 's Order dated 18th April, 1985, import of items permissible against Additional Licences in terms of Policy for 1978 79 would be allowed even if such items were in the list of canalised items in Policy for 1978 79.
On 3rd April, 1986, there was a meeting with Member of C.B.E.C. and Principal Collector where the minutes recorded that items which were under O.G.L. during 1978 79 and subse quently canalised in Policy for 1985 88 would be allowed to be imported.
On 23rd April, 1986, a circular was issued from the Under Secretary to the Government of India to port authorities stating that canalised items 997 were not covered within the purview of this Court 's decision in Raj Prakash 's case and Additional Licence holders would be allowed to import canalised item.
By a letter on 14/15th May, 1986 from Principal Collector to Chairman, Western Region, Federation of Indian Export Organisation, the matter had been clarified and clearance of canalised items against Additional Licences was unconditionally allowed.
This Court again dealt with the question in the case of M/s Indo Afghan Chambers of Commerce and Another etc.
vs Union of India and Other etc., [1986] 3 SCC 352.
In that decision two of us (R.S. Pathak, J. as the learned Chief Justice then was and Sabyasachi Mukharji, J.) were parties.
It was held that under the import policy of 1978 79 dry fruits (exclud ing cashewnuts) could be imported by all persons under the Open General Licence.
There was no need to obtain any Addi tional Licence for importing items in the year 1978 79 and therefore, the wrongful denial of Additional Licences to diamond exporters in the year 1978 79, could not justify any restitution subsequently in regard to the import of dry fruits (other than cashewnuts).
It was further observed that under the Import Policy 1985 88, dry fruits (excluding cashewnuts and dates) were no longer open to import under the Open General Licence.
The sanction for importing them must be found under some other provision of the Import Policy.
The diamond exporters, it was held, ' could not be regarded as dealers engaged in the trade of stocking and selling dry fruits (excluding cashewnuts and dates).
They were, therefore, not entitled to the advantage of paragraph 181 (3) of the Import Policy 1985 88.
Dry fruits, it was further held, must be regarded as consumer goods of agricul tural origin.
The words "agricultural origin" in Item 121 of Appendix 2 Part B are used in the broadest sense.
The words 'consumer goods ' in item 121 referred to dry fruits imported for supply to Actual Users (Industrial).
It was further held that dry fruits do not appear in Appendix 3 Part A and 5 nor can be imported under the Open General Licence under the Import Policy 1985 88, Inasmuch as they fail within Item 121 of Appendix 2 part B they are excluded from the scope of Item 1 of Appendix 6, and cannot be imported as raw materi als and consumables for sale to Actual Users (Industrial).
Appendix 2 Part B (List of Restricted Items) was also suc cessor of Appendix 4 (List of Absolutely Banned Items) under the Import Policy 1978 79.
This Court reiterated, and it was important to emphasise, that On the reasoning which found favour with this Court in Raj Prakash 's case, it must be held that diamond exporters holding Additional Licences were not entitled to import goods enumerated in Appendix 2 Part B of the Import Policy 1985 88.
As held in that case, holders of Additional Licences were 998 entitled to import only those goods which were included in Appendix 6 Part 2 List 8 of the Import Policy 1985 88.
Dry fruits were not included in that list and therefore they could not be imported under Additional Licences.
It is stated that on 20th May, 1986, there was an order of adjudication in respect of one consignment of the first petitioner in this case i.e. Messrs. D. Navinchandra & Co. of items falling in Appendix 2B (List of Restricted Items) ( 10 Bills of Entry) imposing fine aggregating to Rs.45,000.
Then on 21st August, 1986, a show cause notice was issued to the first petitioner in this petition in respect of consign ment falling in Appendix 5 (Canalised Items) of the Policy for 1985 88.
Reply was duly given on 9th September, 1986 and a show cause notice was issued on 11th September, 1986 to the first petitioner in respect of one consignment falling in Appendix 2B (List of Restricted Items) of Policy for 1985 88.
In the meantime, this Court had occasion to examine some passage of this decision.
This question was examined and it is necessary to refer to the said two subsequent decisions of this Court.
The first one is the decision in Union of India vs Godrej Soaps Pvt. Ltd. and Another, ; and the second one is the decision in M/s Star Diamond Co. India vs Union of India and Others, ; It is neces sary first to refer to Godrej Soaps ' case.
It was held that a diamond exporter could import the items he was entitled to import under the Import Policy 1978 79 provided they were importable also under the Import Policy ruling at the time of import.
These are items which are open to import by an Export House holding an Additional Licence for sale to eligible Actual Users (Industrial).
These are items which could be directly imported, for example, the items enumerat ed in Part 2 of List 8 of Appendix VI of the Import Policy 1985 88.
These are items which are not 'canalised '. 'Cana lised ' items are those items which are ordinarily open to import only through a public sector agency.
There is, howev er, nothing to prevent an Import Policy from providing in the future that an Export House holding an Additional Li cence can directly import certain canalised items also.
In that event, an Export House holding an Additional Licence would be entitled to import items "whether canalised or otherwise", meaning thereby items open ordinarily to direct import (non canalised items) as well as items directly importable although on the canalised list.
It is in that sense that the Court had intended to define the entitlement of a diamond exporter by using the words "whether canalised or otherwise" in its order dated 18th April, 1985.
999 In that case this Court found that in respect of Palm Kernel Fatty Acid which was a canalised item listed as Item 9(v) in Appendix V Part B of the Import Policy 1985 88, there is no provision in that policy which permitted the import of such item by an Export House holding an Additional Licence.
Therefore, both on grounds of equity and construc tion the claim of the diamond exporters, or, as in that case, a purchaser from the diamond exporter, was held to be not maintainable.
As importation of canalised items, this Court reiterated, directly by holders of additional licences was banned, it should not be construed to have been permit ted by virtue of the order of this Court and the items sought to be imported do not come within List 8 of Part 2 of Appendix 6 of the Import Policy of 1985 88 against addition al licences.
It was found that the goods were purchased by the respondents in that case after they were aware of the position of law as enunciated in Raj Prakash 's case as well as Indo Afghan Chambers of Commerce 's case.
No question of any restitution of rights, therefore, arose.
Goods in ques tion being specially banned goods, these could not be im ported under Item I of Appendix 6 (Import of items under Open General Licence) of Import Policy, 1985 88, more so the import being not by the Actual User (Industrial) but by somebody else from whom the respondent purchased the goods.
This position was reiterated in the case of M/s Star Diamond Co. India vs Union of India and others (supra).
This Court further reiterated that a decision of this Court is binding on all.
To complete the narration of events, reply was given by the first petitioner to the show cause notice dated 11th September, 1986 on 18th September, 1986.
On 26th September, 1986, another show cause notice was issued to the Petitioner in respect of another consignment falling in Appendix 2B (List of Restricted Items) of Policy for 1985 88.
Personal hearing was given to the first peti tioner thereafter.
The petitioner moved this Court under Article 32 of the Constitution, for quashing the show cause notices dated 21st August, 1986, 11th September, 1986 and 26th September, 1986 and the order of adjudication dated 20th May, 1986 and for consequential relief.
We are, however, unable to find any merit in this appli cation either in law or in equity.
1000 One of the points on which an argument was sought to be built up was that the Bench of two judges of this Court in the subsequent decisions had cut down the effect of the decision of this Court dated 18th April, 1985 in the case of Union of India vs Rajnikant Bros.
It has been stated that in subsequent decisions referred to hereinbefore, this Court had deviated and indeed differed from the view expressed in that case.
It was urged that in Rajnikant Bros. case a bench of three judges categorically stated that the respondents would be entitled "to import all other items whether cana lised or otherwise" except those which were specifically banned under the prevalent import policy at the time of import, with the relevant rules.
In our opinion, the subse quent decisions referred to hereinbefore do not take any different or contrary view.
Indeed it gives effect to the letter and spirit of the said decision.
It has to be borne in mind, that the basic background under which the Rajni kant 's decision was rendered, the Export Houses had been refused Export House Certificates because it was insisted that they should have diversified their export and that was a condition for the grant or entitlement of an export house certificate.
It was found and it is common ground now that that was wrong.
Therefore, the wrong was undone.
Those who had been denied Export House Certificates on that wrong ground were put back to the position as far as it could be if that wrong had not been done.
To do so, the Custom au thorities and Govt.
authorities were directed to issue necessary Export House certificates for the year 1978 79 though the order was passed in April, 1985.
This was a measure of restitution, but tile Court, while doing so, ensured that nothing illegal was done.
It is a presumption of law that the courts act lawfully and will not ask any authority to do anything which is illegal.
Therefore, the court directed that except those which were specifically banned under the prevalent import policy at the time of import, the respondents shall be entitled to import all other items whether canalised or not canalised in accordance with the relevant rules.
Analysing the said order, it is apparent, (1) that the importation that was permissible was of goods which were not specifically banned, (2) such ban ning must be under the prevalent import policy at the time of import, and (3) whether items which were canalised or un canalised would be imported in accordance _with the relevant rules.
These conditions had to be fulfilled.
The court never did and could not have said that canalised items could be imported in any manner not permitted nor it could have given a go bye to canalisation policy.
It must be emphasised that in the case of Raj Prakash (supra), this position has been explained by saying that only such items could 1001 be imported by diamond exporters under the Additional Li cences granted to them as could have been imported under the Import Policy of 1978 79.
the period during which the dia mond exporters had applied for Export House Certificates and had been wrongly refused and were also importable under the import policy prevailing at the time of import which in the present case would be during the import policy of 1985 88.
These were the items which had not been 'specifically banned ' under the prevalent import policy.
The items had to pass to two tests.
firstly, they should have been importable under the import policy 1978 79 and secondly they should also have been importable under the import policy 1985 88 in terms of the Order dated 18th April.
1985 and if one may add.
in such terms in accordance with the import rules ' whether canalised or not canalised.
It must be emphasised that in this case also.
the CoUrt had no occasion to consid er the significance of the words 'whether canalised or otherwise ' mentioned in the Order dated 18th April.
1985 because that point did not arise in the case before it.
What did the court then intend by these words used by the court? We have seen that diamond exporters could import the items which they were entitled to import under the Import Policy 1978 79 provided they were importable also under the import policy ruling at the time of import.
These are items which were open to import by Export Houses holding Additional Licences for sale to the Actual Users (Industrial).
These are items which were directly imported, for example, items in Part 2 List 8 of Appendix 6 of Import Policy 1985 88.
These are items which are not canalised.
Canalised items are those items which are ordinarily open to import only through a public sector agency.
Although generally these are import able through public sector agencies, it is permissible for any import policy to provide an exception to the rule and to declare that an importer might import a canalised item directly.
It is in that sense and that sense only that the Court could have intended to define the entitlement of diamond exporters.
They would be entitled to import items which were canalised or not if the import policy prevailing at the time of import permitted them to import items falling under such category.
This was also viewed in that light in the case of Indo Afghan Chambers of Commerce (supra).
It must be emphasised that in the Order dated 18th April, 1985, this Court did not do away with canalisation.
That was not the issue before this Court.
The expression 'whether canalised or not canalised ' was to include both.
This Court did not say that canalised items could be import ed directly by the importers ignoring the canalisation process.
We are of the opinion that this Court did not say that canalisation 1002 could be ignored.
That was not the issue.
High public poli cy, it must be emphasised, is involved in the scheme of canalisation.
This purpose of canalisation was examined by this Court in Daruka & Co. vs Union of India & Ors., ; where the Constitution Bench of this Court ob served that the policies of imports or exports were fash ioned not only with reference to internal or international trade, but also on monetary policy, the development of agriculture and industries and even on the political poli cies of the country and rival theories and views may be held on such policies.
If the Government decided an economic policy that import or export should be by a selected channel or through selected agencies the court would proceed on the assumption that the decision was in the interest of the general public unless the contrary was shown.
Therefore it could not be collaterally altered in the manner suggested.
The policy of canalisation which is a matter of policy of the Government was not given a go bye by the observations referred to in the Order of 18th April, 1985.
Indeed it is possible to read the Order in a manner consistent with canalisation scheme in the way we have indicated.
If that is so, then it should be so read.
When this Court observed that the fact whether items were sought to be imported by diamond merchants were canalised, would not be an impediment to the import directly by them, the Court meant to say that this could be imported directly by them through the canalisation organisation.
The need for canalisation stands on public policy and that need cannot be lightly or inferencially given a go bye.
It should not be presumed that collaterally the court had done away with the system of canalisation based, on sound public policy.
We have found nothing in the different authorities on this subject, which militate against the above views.
Therefore, the action taken by the Custom authorities in issuing adjudication notice and pro ceeding in the manner they did, we are of the opinion that they have not acted illegally or without jurisdiction.
This must proceed in accordance with law as laid down by this Court which, in our opinion, is clear enough.
The fact that in subsequent decision, the petitioner is not a party is not relevant.
Generally legal positions laid down by the court would be binding on all concerned even though Some of them have not been made parties nor were served nor any notice of such proceedings given.
As held in Star Diamond 's case (supra), the meaning of the expression "whether canalised or otherwise" used by this Court in Rajnikant Bros ' case as explained in Godrej Soaps Pvt. Ltd. case and reiterated and followed in the present case is applicable to the present petitioner.
1003 We see no substance in the submission made in the peti tion and reiterated before us in this Court for a reconsid eration of this question by a larger Bench.
In the aforesaid view of the matter, we are unable to sustain the grounds urged in support of this petition.
We are, therefore, of the opinion that proceedings must go in accordance with law.
The government 's understanding of the matter at one point of time is irrelevant.
There are several applications for impleadment.
These are allowed, and they are impleaded.
Their statements are taken on record.
Before parting with this case, certain factors must be noted.
The diamond exporters and dry fruit exporters have their full round in this Court.
Speaking entirely for my self, my conscience protests to me that when thousands remediless wrongs await in the queue for this Court 's inter vention and solution for justice, the petitions at the behest of diamond exporters and dry fruit exporters where large sums are involved should be admitted and disposed of by this Court at such a quick speed.
Neither justice nor equity nor good conscience deserves these applications to be filed or entertained.
There is no equity of restitution against the law declared categorically and repeatedly by this Court and no principle of estoppel involved in these applications.
The Writ petition is dismissed and in the facts and circumstances of this case, we direct that the petitioner must pay cost of this application.
It has been prayed that clear cut date must be fixed where contracts had been entered into and in which letters of credit prior to 15th April, 1986 have been entered into, there should be no prosecution.
It has been further prayed that where however contracts have been entered into but no letters of credit have been opened, such parties should not be penalised in the facts and circumstances of the case.
No direction is necessary by this Court on this aspect.
The authorities concerned will decide the same in taking into consideration all the facts and circumstances and taking into consideration the case of the petitioners and the alleged claim of bona fide on their part.
A submission was made on the principle of promissory estoppel and reliance was placed on the several observations of several cases including the case in Union of India and Others etc.
vs Godfrey Philips India Ltd. etc.
; , It is true that the doctrine of 1004 promissory estoppel is applicable against the Government in the exercise of its government, public or executive func tions and the doctrine of executive necessity or freedom of future executive action cannot be invoked to defeat the applicability of the doctrine of promissory estoppel.
But in this case no such case of promissory estoppel has been made out.
The intervention applications filed in this connection are allowed and the submissions contrary to what we had stated hereinbefore are rejected.
As the points involved in Writ Petition No. 1494 of 1986 are same, this is also dismissed with costs.
Interim orders, if any, are vacated forthwith.
The proceedings will proceed as expeditiously as possible in accordance with law.
For the same reasons, Writ Petition No. 1544 of 1986 is also dis missed with costs with the same observations.
H.L.C. Petition dis missed.
|
By a common order dated April 18, 1985 in C.A. No. 1423 of 1984, etc., Union of India vs Rajnikant Bros. the Court had directed issue of Export House Certificates and Addi tional Licences to the petitioners and other diamond export ers under the Import Policy 1978 79 stating: "Save and except items which are specifically banned under the preva lent Import Policy at the time of import, the respondents shall be entitled to import all other items whether cana lised or otherwise in accordance with the relevant rules".
The petitioners, who were issued Additional Licences pursu ant to this order, imported several consignments of items falling under Appendices 2B, 3 and 5 of Import Policy, 1985 88, and, while clearing them, the Customs Authorities imposed a fine of Rs.45,000 in respect of certain items failing in Appendix 2B and issued show cause notices in respect of certain other items failing in Appendices 2B and 5.
The petitioners challenge was directed not only against these orders, but extended to certain subsequent decisions of the Court which, according to them, had cut down the effect of the Court 's earlier order dated April 18, 1985 in Union of India vs Rajnikant Bros. Dismissing the petitions, HELD: The decisions rendered subsequent to the decision dated April 18, 1985 in Union of India vs Rajnikant Bros. do not take any different or contrary view.
Indeed, they give effect to the letter and spirit of that decision.
The basic background in which the decision in Union of India vs Rajni kant Bros. was rendered was that Export Houses had been refused Export House Certificates on the ground that they had not diversified their exports.
It was found that was wrong.
The wrong was undone by directing issue of Export House Certificates for 990 the year 1978 79 though the order was passed in April, 1985.
That was a measure of restitution, but the Court, while doing so, ensured that nothing illegal was done.
It is a presumption of law that the courts act lawfully and will not ask any authority to do anything which is illegal.
It was directed that except those items which were specifically banned under the prevalent import policy at the time of import, the respondents therein were entitled to import all other items whether canalised or not canalised in accordance with the relevant rules.
Analysing the said order, it is apparent: (1) that the importation that was permissible was of goods which were not specifically banned, (2) that such banning must be under the prevalent import policy at the time of import.
and (3) whether items which were canalised or uncanalised would be imported in accordance with the relevant rules.
These conditions had to be fulfilled.
The court never did and could not have said that canalised items could be imported in any manner not permitted nor it could have given a go bye to the canalisation policy.
[1000C H] (ii).
In Raj Prakash Chemicals vs Union of India,, it was explained that only such items could be imported by diamond exporters under the Additional Licences granted to them as could have been imported under the Import Policy 1978 79 and were also importable under the Import Policy prevailing at the time of import.
These were the items which had not been 'specifically banned ' under the prevalent Import Policy.
The items had to pass through two tests, firstly, they should have been importable under the Import Policy 1978 79 and, secondly, they should also have been importable under the Import Policy, 1985 88 in terms of the Order dated 18th April, 1985 and if one may add, in such terms 'in accordance with the import rules ' whether cana lised or not canalised.
The Court had no occasion to consid er in that case the significance of the words 'whether canalised or otherwise ' mentioned in the Order dated 18th April, 1985 in Union of India vs Rajnikant Bros., because that point did not arise there.
[1000H; 1001A D] (iii) What did the court then intend by the words 'whet her canalised or otherwise ' used in the order dated 18th April, 1985 in Union of India vs Rajnikant Bros? The diamond exporters could import the items which they were entitled to import under the Import Policy 1978 79 provided they were importable also under the Import Policy ruling at the time of import.
These are items which were open to import by Export Houses holding Additional Licences for Sale to the Actual Users (Industrial).
These are items which were di rectly imported, for example, items in Part II List 8 of Appendix 6 of Import Policy 1985 88.
These are items which are not canalised.
Canalised items are those 991 items which are ordinarily open to import only through a public sector agency.
Although generally these are import able through public sector agencies, it is permissible for any Import Policy to provide an exception to the rule and to declare that an importer might import a canalised item directly.
It is in that sense and that sense only that the Court could have intended to define the entitlement of diamond exporters.
They would be entitled to import items which were canalised or not if the Import Policy prevailing at the time of import permitted them to import items failing under such category.
[1001D G] (iv) In the Order dated 18th April, 1985 in Union of India vs Rajnikant Bros., this Court did not do away with canalisation.
That was not the issue before this Court.
This expression 'whether canalised or not canalised ' was to include both.
This Court did not say that canalised items could be imported directly by the importers ignoring the canalisation process.
High public policy, it must be empha sised, is involved in the scheme of canalisation.
This purpose of canalisation was examined by.this Court in Daruka of this Court observed that the policies of imports or exports were fashioned not only with reference to internal or international trade, but also on monetary policy, the development of agriculture and industries and even on the political policies of the country and rival theories and views may be held on such policies.
If the Government decid ed an economic policy that import or export should be by a selected channel or through selected agencies, the court would proceed on the assumption that the decision was in the interest of the general public unless the contrary was shown.
Therefore, it could not be collaterally altered in the manner suggested.
The policy of canalisation which is a matter of policy of the Government was not given a go bye by the observations referred to in the Order of 18th April, 1985.
Indeed, it is possible to read the Order in a manner consistent with canalisation scheme in the way we have indicated.
If that is so, then it should be so read.
When this Court observed that the fact whether items were sought to be imported by diamond merchants were canalised, would not be an impediment to the import directly by them, the Court meant to say that this could be imported directly by them through the canalisation organisation.
The need for canalisation stands on public policy and that need cannot be lightly or inferentially given a go bye.
It should not be presumed that collaterally the court had done away with the system of canalisation based on sound public policy.
We have found nothing in the different authorities on this subject, which militate against the above views.
Therefore, the action taken by the Customs Authorities in issuing adjudica tion notice and proceeding in 992 the manner they did we are of the opinion that they have not acted illegally or without jurisdiction.
This must proceed in accordance with law as laid down by this Court which, in.
our opinion is clear enough.
The fact that in subsequent decision, the petitioner is not a party is not relevant.
Generally legal positions laid down by the court would be binding on all concerned even though some of them have not been made parties nor were served nor any notice of such proceedings given.
[1001H; 1002A G] Union of India vs Rajnikant Bros., C.A. No. 1423 of 1984 decided on April 18, 1985; Raj Prakash Chemicals Ltd. & Anr.
vs Union of India & Ors.
, ; M/s. Indo Afghan Chambers of Commerce &Anr., etc.
vs Union of India & Ors., etc., [1986] 3 S.C.C. 352; Union of India vs Godrej Soaps Pvt. Ltd. &Anr., ; ; and M/s. Star Diamond Co. India vs Union of India & Ors., [1986] 4 S.C.C. 246, discussed, explained and reiterated.
Daruka & Co. vs Union of India & Ors., ; , referred to.
|
ivil Appeal No. 2027 of 1974.
From the Judgment and Order dated 8.10.1973 of the Gujarat High Court in Gift Tax Reference No. 3 of 1971.
Wazir Singh, K.C. Dua and Ms. A. Subhashini for the Appellants.
The Judgment of the Court was delivered by RANGANATH MISRA, J.
This appeal is by certificate under a Deed of Partnership dated 12.11.1958, a Firm by name M/s Chhotalal Vedilal came into existence with three partners, Chhotalal Mohanlal 1044 (the assessee).
Gunvantilal Chhotalal and Pravinchandra Vedilal.
These three partners had 7 annas, 4 annas and 5 annas share respectively in the firm.
This position contin ued until on 9.11.
1961 relevant to assessment year 1963 64 with which this appeal is concerned, a change took place in the constitution of the firm.
Under the new deed, Pravin chandra Vedilal retired; no change took place in respect of Gunvantilal Chhotalal; one Ramniklal Chhotalal became a partner with 4 annas share.
The share of the assessee Chhotalal Mohanlal was reduced to 4 annas; for the remaining 4 annas two minor sons of Chhotalal being Kiritkumar and Deepak Kumar were admitted to the benefits only of the firm Kiritkumar having 12 percent and Deepak Kumar having 13 per cent.
No alteration was, however, made regarding the share capital standing in the name of the assessee.
The Gift Tax Officer came to the conclusion that the assessee had deprived himself of 19 per cent share in the profits and had gifted away 19 per cent share in the good will of the firm in favour of his two minor sons.
He valued the goodwill and treated 19 per cent thereof as taxable gift.
The Appellate Assistant Commissioner before whom the assessee appealed adopted a different stand.
According to him, the gift was not of a share of the goodwill but in respect of the right to receive future profits.
He valued that right and since the amount Was higher than what the Income tax Officer had estimated, following the requirements of law he enhanced the quantum.
In further appeal by the assessee the Tribunal held that in the circumstances of the case there could be no gift of goodwill.
As appears from the statement of the case, the Revenue did not seek to support the order of the Incometax Officer but pleaded for sustain ing the order of the Appellate Assistant Commissioner.
The Tribunal further found that the right to receive future profits could not be subject matter of a gift as the trans fer did not relate to existing property.
According to it, the situation did not give rise to any gift which could be made liable to tax under the Act.
The following question relevant for the purpose of the appeal was referred to the High Court for its opinion at the instance of the Revenue: "Whether on the facts and in the circumstances of the case, the benefit of partnership given to minors Kirit Kumar Chhotalal and Deepak Kumar Chhotalal was a gift under the Gift Tax Act, 1958?" The High Court answered the question against the Revenue and up 1045 held the view of the Tribunal.
This appeal has, therefore, been carried by the Revenue.
In spite of service of notice of appeal the respondent has not appeared.
Counsel appearing in support of the appeal has contended that the order of the Gift Tax Officer was right and the Appellate Assistant Commissioner, the Tribunal and the High Court had gone wrong in holding that the ar rangement under the deed of 9.11.1961 did not give rise to a taxable event under the Act, so far as the assessee was concerned.
"Gift" is defined in section 2(xii) of the Act: " 'Gift ' means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consid eration in money or money 's worth, and in cludes the transfer of any property deemed to be a gift under section 4.
" In support of the appeal, learned counsel further relies upon decisions of different High Courts to which we shall presently refer.
Before doing so it would be appropriate to indicate that in Khushal Khemgar Shah & Ors.
vs Khorsheed Banu Dadiba Boatwalla & Anr., ; this Court has held that goodwill of a firm is an asset, In Commission er of Gift Tax vs Nani Gopal Mondal, after referring to a number of authorities of this Court and different High Courts a Division Bench of the Calcutta High Court concluded thus: "From the cases cited above, it appears that goodwill of a partnership business is a property of the firm in which a partner is entitled to a share.
Although the above cases are under the Estate Duty Act, yet the princi ple laid down in the said cases regarding the nature of goodwill of a firm and the right of a partner in respect thereof is applicable to the instant case.
In this connection, it may be mentioned that according to section 14 of the Indian Partnership Act, property of a firm includes goodwill of the business.
Further, according to section 29(2), if a partner transfers his interest and the transferring partner ceases to be a partner, the transferee is entitled as against the remaining partners to receive the share of the assets of the firm to which the transferring partner is entitled to.
It further appears that under proviso to section 53 of the Indian Partnership Act, 1046 in case of dissolution, a partner or his representative may buy the goodwill of the firm and under section 55(1) of the Act, in settling the accounts of a firm after dissolu tion, the goodwill shall, subject to contract between the parties, be included in the assets and it may be sold either separately or along with other properties of the firm .
Upon transfer, the share or interest in the property of the firm of the transferring partner including the goodwill becomes the share or interest of the transferee.
In the instant case, Nani Gopal Mondal by the deed of gift transferred his share or interest in the firm which included his share of goodwill also.
Hence, for the purpose of payment of gift tax, the value of one third share of the assessee in the goodwill shall also be taken in account." In M.K. Kuppuraj vs Commissioner of Gift Tax, the Madras High Court was called upon to deal with a case of this type where minors were admitted to the benefits of partnership firm and the assessee 's interest in the firm suffered the detriment by relinquishment of a portion of his interest.
The High Court found that relinquishment of 8 per cent profit was in favour of the minors who were admitted without any consideration.
It held that the transaction constituted a gift by the assessee in favour of the minors.
The ratio in Sirehmal Nawalkha vs Commissioner of Income Tax, as also in Commissioner of Gift Tax, Bombay vs Premji Trikamji Jobanputra, ' 17 support the stand of the Revenue that the transaction constitutes a 'gift '.
Once goodwill is taken to be property and with the admission of the two minors to the benefits of partnership in respect of a fixed share, the right to the money value of the goodwill stands transferred, the transaction does con stitute a gift under the Act.
Since there has been no dis pute about valuation of the goodwill as made by the Gift Tax Officer, with the conclusion that there has been a gift in respect of a part of the goodwill, the answer to the ques tion referred has to be in the affirmative, that is, it constitutes a gift under the Act.
The appeal is allowed and the conclusion of the High Court is reversed.
Since the respondent has not appeared, there will be no order for costs.
A.P.J. Appeal allowed.
|
Under a deed of partnership dated 12.11.1958, a firm by the name M/s. Chhotalal Vedilal came into existence with Chhotalal Mohanlal (the assessee), Gunvantilal Chhotalal and Pravinchandra Vedilal, as partners, each having 7 annas, 4 annas and 5 annas share respectively in the firm.
This position continued until on 9.11.1961 when a change took place in the constitution of the firm.
Under the new deed, Pravinchandra Vedilal retired.
One Ramniklal Chhotalal became a partner with 4 annas share.
The share of the asses see, Chhotalal Mohanlal was reduced.
For the remaining 4 annas, two minor sons of the assessee were admitted to the benefits only of the firm.
In the assessment year 1963 64, the Gift Tax Officer concluded that the assessee had deprived himself of 19% share In the profits and had gifted away 19% share in the goodwill of the firm in favour of his two minor sons.
He valued the .goodwill and treated 19% thereof as taxable gift.
In the appeal before the Appellate Assistant Commission er the assessee took the stand that the gift was not of a share of the goodwill but in respect of the right to receive future profits.
He valued that right and since the amount was higher than what the Income Tax Officer has estimated, he enhanced the quantum.
In further appeal by the assessee the Tribunal held that in the circumstances of the case there could be no gift of goodwill and found that the right to receive future profits could not be subject matter of a gift as the transfer did not relate to existing property and the situation did not give rise to any gift which could be made liable to tax under the Act.
In the Reference the High Court upheld the view of the Tribunal.
1043 In the appeal to this Court on behalf of the Revenue, it was contended that the order of the Gift Tax Officer was right and the Appellate Assistant Commissioner, the Tribunal and the High Court had gone wrong in holding that the ar rangement under the deed of 9.11.1961 did not give rise to a taxable event under the Act.
Allowing the appeal, HELD: 1.
Goodwill of a firm is an asset.
[1045E] Khushal Khemgar Shah & Ors.
vs Khorshed Banu Dadiba Boatwalla & Anr., ; , followed.
Once goodwill is taken to be property and with the admission of the two minors to the benefits of partnership in respect of a fixed share, the right to the money value of the goodwill stands transferred, the transaction does con stitute a gift under the Gift Tax Act, 1958.
[1046F] 3.
Since there has been no dispute about valuation of the goodwill as made by the Gift Tax Officer, with the conclusion that there has been a gift in respect of a part of the goodwill the transfer of the benefit of the partner ship constitutes a gift under the Act.
[1046F G] Commissioner of Gift Tax vs Nani Gopal Mondal, ; M.K. Kuppuraj vs Commissioner of Gift Tax, ; Sirehmal Nawalkha vs Commissioner of Income Tax, and Commissioner of Gift Tax, Bombay vs Premji Trikamji Jobanputra, , approved.
|
ON: Civil Appeal No. 1777 of 1973.
From the Judgment and Decree dated 25.6.1973 of the Karnataka High Court in Regular First Appeal No. 56 of 1968.
K.N. Bhatt, V.K. Verma and Ms Madhu Moolchandani for the Appellants.
S.S. Javali and B .R.
Agarwala for the Respondents.
The Judgment of the Court was delivered by 1142 KHALID, J.
This is an appeal by certificate.
against the Judgment dated 25th June, 1972, passed by a Division Bench of the Karnataka High Court.
The 1st defendant Bank is the appellant.
Original Suit No. 72 of 1962 was filed in the Court of Civil Judge.
Mangalore, by the Canara Sales Corporation, Ltd. through its Managing Director, V.S. Kudva.
He died during the pendency of the suit and the suit was continued by the succeeding Managing Director of the Corporation.
The suit was against two defendants: the appellant Bank was the first defendant and the second defendant was one Y.V, Bhat who was the Chief Accounts Officer of the plaintiff, till 1961.
He died during the pendency of the appeal before the High Court and his legal representatives were brought on record.
When the suit was filed, the appellant Bank was called the Canara Bank Ltd.
After the nationalisation of banks it became the Canara Bank which is the appellant before us.
The suit was instituted for recovery of a sum of Rs.3,26,047.92.
with the following allegations: The plain tiff is a private Limited Company with its head office at Mangalore.
It had a current account with the appellant Bank in its Mangalore Bunder branch.
The Managing Director of the company and the General Manager of a sister concern of the company had been authorised to operate the said current account of the plaintiff with the Bank.
The second defendant was attending to the maintenance of accounts of the plain tiff and was also in charge and custody of the cheque books issued by the Bank to the plaintiff.
In March, 1961, the second defendant was absent from duty for some time.
During that period one A. Shenoy, who was the Assistant of the second defendant was directed to bring the accounts upto date.
During this process, he noticed certain irregularities in the account and brought this to the notice of the plain tiff.
On verification, it was found that cheques purporting to bear the signature of Shri V.S. Kudva were encashed though they did not bear his signature.
In other words the signatures were forged.
On 25 3 196 1, a complaint was made by the plaintiff with the Superintendent of Police.
The plaintiff appointed a firm of Chartered Accountants to conduct special audit of the company 's accounts, for the years 1957:58 to 1960 61.
This special audit disclosed that the second defendant had withdrawn, in all, a sum of Rs.3,26,047.92 under 42 cheques.
The suit was filed for recovery of the amount on the plea that the amounts as per the forged cheques were not utilized for the purpose of the plaintiff, that they were not authorised ones, that there was no acquiescence or ratification open or tacit on the part of the plaintiff, that the plaintiff was unaware of the 1143 fraud till the new accountant discovered it.
The appellant Bank resisted the suit on the following grounds in their written statement: (i) That the cheques were not forged ones.
(ii) Even if they were forged ones the plaintiff was not entitled to recover the amount on account of its own negli gence.
(iii) There was settlement of accounts between the parties from time to time and as such the plaintiff was not entitled to reopen the same and claim the sums paid under the cheques in question.
(iv) The suit was barred by limitation.
The second defendant pleaded that the cheques were not forged ones and the amounts recovered by the cheques were utilized for the purpose of the plaintiff.
The Trial Court negatived the contentions of the first defendant Bank and passed a decree for the sum claimed, with interest at 6% from the date of the suit till recovery of the amount.
In appeal before the Division Bench, the judg ment of the Trial Court was confirmed.
The High Court certified that the case involved substan tial questions of law of general public importance and granted certificate to file the appeal.
It is thus that this appeal has come before us.
Venkataramiah, J. as he then was, who spoke for the Bench, has in his detailed Judgment considered all the aspects of the case both on facts and on law and agreed with the Trial Court that the suit had to be decreed, repelling the contentions raised by the first defendant.
The courts have concurrently found that the cheques were forged and that the second defendant was responsible for it.
We do not propose to consider the question of facts in this Judgment.
The learned counsel for the appellant, Shri Bhat argued the case at length and took us through various authorities, bearing on the question, most of which fell for considera tion at the hands of the High Court also.
In the instant case.
42 cheques with forged signature were presented on various dates between the year 1957 and 1961.
During the said period the appellant Bank used to send to the plaintiff respondent 1144 pass sheets containing the debit and credit entries in the current account of the plaintiff with the Bank every month and at the end of every half year ending 30th June and 31st December, a letter used to be sent asking the respondent to confirm that the balance in his account with the Bank was as mentioned in the letter.
Till March.
1961 the correctness of the entries in the pass sheets and half yearly statements was not questioned by the plaintiff.
The accounts of the plaintiff company were being audited as required by the Companies Act by Chartered Accountants.
The Bank contended that if there was mis appropriation of an amount of nearly Rs.3 lacs by forged cheques by the second defendant this would have been detected by the Chartered Accountants and would have come to the notice of the plaintiff company.
The several entries in the books of account maintained by the plaintiff company show that all the amounts covered by the cheques in dispute had been credited in the books.
The Managing Director of the plaintiff company himself admitted that he had received the periodical statements and that he did not at any time intimate the Bank about the incorrect ness either in the pass sheets or in the letters.
The inac tion on the part of the plaintiff company and its Managing Director in not informing the Bank of the irregularities in the account and deliberately withholding such information from the Bank, according to the Bank.
constituted negli gence.
disentitling the plaintiff from claiming any amount from the Bank in respect of forged cheques.
Alternatively it was contended that the principle of estoppel operated against the plaintiff from claiming the amount, on the ground of adoption or acquiescence.
The case of the appellant can be summarised as follows: After reasonable opportunities are given to the customer to examine the Bank statements.
its debit entries should be deemed to be final and will not be open for reconstruction to the detriment of the bank.
Of course.
what is a reasona ble opportunity will depend on the facts of each case.
In law, there can always be a settled or stated account between the banker and the customer.
The question to be decided here is whether acceptance by the customer without protest of a balance struck in the pass book or statement of account constitutes a settled account.
It is submitted that this aspect of the Banking law has not yet been authorita tively decided by this Court and invited us to pronounce upon it.
On the question of estoppel it was contended that a repre senta 1145 tion may be made either by statement or by conduct: and conduct included negligence, silence, acquiescence or en couragement.
If a customer of a bank, by his negligence to give timely information of forged cheques, allows amount to be drawn on such cheques.
the debit will stand for the whole amount and the customer will be estopped from claiming the amount.
If timely information was given, the Bank could have acted to ward off the mischief.
It was further contended that inaction for a long period would amount to such negligence, as would persuade a Court to impute to the customer, with knowledge or at any rate constructive knowledge, to decline him, relief in an action for recovery of amounts, which would be to the detriment of an innocent party, namely the Bank.
For this purpose.
dictionary meanings of the word 'know ledge was brought to our notice.
"Knowledge may include not only actual knowledge, i.e. actual awareness of the facts relevant.
but constructive knowledge.
i.e. knowledge at tributed by law to the party in the circumstances, whether he actually had the knowledge or not, and knowledge may be attributed to a person who has sought to avoid finding out, or has shut his eyes to obvious means of knowledge.
e.g. the man who is offered valuables cheaply in circumstances which suggest that they may well have been stolen.
but who refrains from enquiry".
Black 's Law Dictionary Fifth Edn. defines.
"Constructive knowledge" as "If one by exercise of reasonable care would have known a fact.
he is deemed to have had costructive knowledge of such fact, e.g., matters of public record".
"Notice" means "bringing it to a person 's knowledge".
Then he referred us to the Transfer of Property Act.
Trusts Act, Law of Agency.
etc. to contend that a person is said to have noticed of a fact when but for wilful absten tion from an enquiry.
he would have known it and that in equity a man who ought to have known a fact should be treat ed as if he actually does know it.
He then developed his submission as follows: It is accepted to be a duty of customer who knows that his cheques are being forged, to inform the bank.
If he fails to give such an information, he is estopped from claiming that the cheques were forged.
In law.
there should be no differ 1146 ence in the consequence between a person having constructive knowledge and a person having actual knowledge.
Thus a person having constructive knowledge of a matter.
cannot be allowed to take advantage of his own negli gence.
According to him the terms of contract between a banker and its customer can never be complete unless there is an implied condition that the customer was under a duty to examine the statement to account, particularly when the bank issues a notice that if no errors are pointed out within a specified time.
the bank will proceed to believe that there are no errors.
Such a notice imposes on a customer a duty to react and failure to react would amount to negligence, leading to estoppel.
The company 's Balance Sheet for four years clearly show that the auditors have examined the books and vouchers.
It is in evidence (spoken to by PW 8) that the balance sheets were adopted by the general bodies for four successive years.
This shows that the statements of account.
given by the Bank was accepted as such.
There is a duty on the part of the Company 's directors to present a correct Balance Sheet.
Negligence to verify the obvious things.
like examining the counterfoil of cheques amounts not only to estoppel but to adoption and ratifica tion.
for, no one can take shelter under one 's own failure to examine the obvious.
Further, the annual reports are to be treated as public documents and public are likely to rely upon its representation and defendant bank is, at any rate, a member of the public.
We have set out above, the contentions of the appellant, in detail, so as to bring into focus, the questions of law to be decided in the appeal.
Now we propose to consider the submissions made by the appellant to test their validity qua the Banking Law, ap plicable to India.
It is true that there is no direct au thority of this Court on this Branch of the Law.
It is.
therefore, necessary to briefly outline the confines of this Branch of law.
The relationship between the customer of a bank and the bank is that of a creditor and debtor.
When a cheque which presented for encashment contains a forged signature the bank has no authority to make payment against such a cheque.
The bank would be acting 1147 against law in debiting the customer with the amounts cov ered by such cheques.
When a customer demands payment for the amount covered by such cheques.
the bank would be liable to pay the amount to the customer.
The bank can succeed in denying payment only when it establishes that the customer is disentitled to make a claim either on account of adop tion.
estoppel or ratification.
The principle of law regard ing this aspect is as follows: When a cheque duly signed by a customer is presented before a bank with whom he has an account there is a mandate on the bank to pay the amount covered by.
the cheque.
However.
if the signature on the cheque is not genuine.
there is no mandate on the bank to pay.
The bank, when it makes payment on such a cheque, cannot resist the claim of the customer with the defence of negligence on his part such as leaving the cheque book carelessly so that third parties would easily get hold of it.
This is because a document in cheque form, on which the customer 's name as drawer is forged, is a mere nullity.
The bank can succeed only when it establishes adoption or estoppel.
The relationship between a bank and its customers indi rectly arose before this Court in Bihta Co operative Devel opment Cane Marketing Union Ltd. & Anr.
vs The Bank of Bihar & Ors., ; In that case a suit was filed by a Society registered under the Bihar and Orissa Co operative Societies Act, 1935, and its Secretary.
This Society had an account with the first defendant Bank.
The and 7th defend ants were respectively its Joint Secretary and Treasurer.
A sum of Rs.11,000 was withdrawn from the account by means of a cheque, not from the cheque book of the Society, but from a loose cheque leaf surrendered by an ex constitutent of the bank.
It bore the signature of the 7th defendant but the forged signature of the 6th defendant.
The suit against the bank, its manager and other employees was decreed by the Trial Court and confirmed by the High Court on the question relevant for our purpose but dismissed on the ground juris diction.
The question before us in this appeal was consid ered by this Court with reference to a Judgment of the House of Lords in London Joint Stock Bank Ltd. vs Macmillan, It was argued before this Court that the decree against the bank could not be sustained since even though there was negligence on the part of the bank and its employees, the plaintiffs ' Society was not altogether free from blame or negligence in that but for the part played by at least one 1148 of its employees in the matter of encashment of the cheque for Rs.11,000 the fraud could not have been perpetrated.
It was also argued that if both the parties were negligent or blameworthy.
the plaintiffs claim ought not to succeed.
It was, in this connection that Macmillan 's case fell for reference.
Being a landmark case, we would set out the facts of that case in brief: The plaintiffs, Macmillan etc.
brought a suit against the London Stock Bank for a declaration that the bank was not entitled to debit the plaintiffs with a cheque for pound 120.
The plaintiffs had in their employment a confidential clerk who made out cheques and got the signature of part ners.
On a certain day.
the clerk made out a cheque for pound 2 and asked one of the partners to sign it, which the partner did.
The next day the clerk did not turn up.
The partners became suspicious and went to the bank.
when they discovered that the cheque for pound.
2 was distorted by using the space on either side of the figure '2 ' by the clerk by insertion of additional figures 1 & 0 and thus he pocketed pound.
The question before the House of Lords was whether the plaintiffs had been so negligent with regard to the cheque that their action against the bank should fail.
The Trial Judge found that the plaintiffs were not guilty of negligence in the mode of signing the cheque and decreed the suit.
The Court of Appeal upheld this decision.
The House of Lords reversed the judgment.
We may usefully quote the following passages from the Judgment.
Lord Finlay observed: "As the customer and the banker are under a contractual relation in this matter.
it ap pears obvious that in drawing a cheque the customer is bound to take usual and reasonable precautions to prevent forgery.
Crime, is indeed, a very serious matter, but every one knows that crime is not uncommon.
If the cheque is drawn in such a way as to facilitate or almost invite an increase in the amount by forgery if the cheque should get into the hands of a dishonest person, forgery is not a remote but a very natural consequence of negligence of this description.
" The learned Lord Chancellor further observed: Of course the negligence must be in the trans action itself, that is, in the manner in which the cheque is drawn.
It would be no defence to the banker, if the forgery had been that of a clerk of a customer, that the latter had taken the clerk into his service without sufficient inquiry as to his 1149 character.
Attempts have often been made to extend the principle of Young vs Grote, ; beyond the case of negligence in the immediate transaction, but they have always failed.
According to the learned Lord Chancellor, leaving blank spaces on either side of the figure '2 ' in the cheque amounted to a clear breach of duty which the customer owed to the banker.
The learned Lord Chancellor said: "If the customer chooses to dispense with ordinary precautions because he has complete faith in his clerk 's honesty, he cannot claim to throw upon the banker the loss which re sults.
No one can be certain of preventing forgery, but it is a very simple thing in drawing a cheque to take reasonable and ordi nary precautions against forgery.
If owing to the neglect of such precautions it is put into the power of any 'dishonest person to increase the amount by forgery, the customer must bear the loss as between himself and the banker.
" The principles so settled by the House of Lords was pressed into service before this Court in the above case.
This Court held that the principle settled by the House of Lords could not help the bank.
The accepted principle that if the signatures on the cheque is genuine, there is a mandate by the customer to the bank to pay was reiterated.
It was also held that if an unauthorised person got hold of such a cheque and encashed it, the bank might have had a good defence hut, however, if the signatures on the cheque or at least one of the signatures are or is not genuine , ' there is no mandate on the bank to pay and the question of any negligence on the part of the customer, such as leaving the cheque book carelessly so that a third party could easily get hold of it would afford no defence to the bank.
This Court distinguished Macmillan 's case, observing that if any of the signatures was forged the question of negligence of the customer in between the signature and the presenta tion of the cheque never arose.
The suit was, however, dismissed on another point and that of jurisdiction.
That takes us to the question as to whether there is a duty on the part of the customer to examine the pass book and inner part of cheques and to communicate to the banker within a reasonable time of the debits which he does not admit.
1150 The kindered question connected with this is whether a customer is estopped from disputing the debits shown in the pass book when the pass book is returned without any comment and whether such a conduct would constitute a "stated and settled account." To answer this it is necessary to examine the question whether the customer owes a duty to the bank to inform it about the correctness or mis statements in the entries in the pass book within a reasonable time and wheth er failure to do so would amount to such negligence as to non suit him in a suit for recovery of the amount paid on a forged cheque.
When does negligence constitute estoppel ? For negligence to constitute an estoppel it is necessary to imply the existence of some duty which the patty against whom estoppel is alleged owes to the other party.
There is a duty of sorts on the part of the customer to inform the bank of the irregularities when he comes to know of it.
But by mere negligence One cannot presume that there has been a breach of duty by the customer to the bank.
The customer should not by his conduct facilitate payment .of money on forged cheques.
In the absence of such circumstances, mere negligence will not prevent a customer from successfully suing the bank for recovery of the amount.
A case of acquiescence also cannot be flourished against the plaintiff.
In order to sustain a plea of acquiescence, it is necessary to prove that the party against whom the said plea is raised, had remained silent about the matter regarding which the plea of acquiescence is raised, even after knowing the truth of the matter.
As indicated above, the plaintiff did not, during the relevant period, when these 42 cheques were encashed, know anything about the sinister design of the second defendant.
If the bank had proved to the satisfaction of the Court that the plaintiff had with full knowledge acknowledged the correctness of the accounts for the relevant period, a case of acquiescence against the plaintiff would be available to the bank.
That is not the case here.
In this judgment under appeal, the High Court has elabo rately considered the law obtaining in the United States of America on this aspect.
We need not exercise ourselves with the American Law since the American Law is different from the law that we follow.
On the questions involved in this appeal, it is the .law that obtains in England which had been followed by this Court and High Courts in the country.
The authorities in England have more or less consistently held that there is no duty on the part of the customer to intimate the banker about any error that may be seen in the pass book and that he will be entitled to claim any amount paid on a forged cheque though there may be some negligence or in action on his part in not being careful to 1151 discover the errors in the pass book or other documents.
In the instant ease, there is no evidence to show that anyone other than the second defendant knew that the forged cheques had been encashed.
After the matter was discovered, immedi ate action was taken.
Therefore, in the absence of any evidence of the plaintiff 's involvement, the plaintiff cannot be nonsuited on the ground of negligence or in ac tion.
Venkatramiah, J when he rendered the Judgment, under appeal, laid down the law correctly, with the aid of author ities then available and on his own reasons.
Now we are in a more advantageous position.
We have an authority, more or less identical on facts, rendered by the Privy Council in the decision in Tai Hing Cotton Ltd. vs Liu Chong Bank, [1985] 2 All England Reports 947.
The facts of this case are similar to the case on hand; if anything, more to the disadvantage to the bank in terms of money involved than the instant case.
The appellant before the Privy Council was a company, a textile manufac turer carrying on business in Hong Kong.
The company was a customer of the three respondent banks and maintained with each of them a current account.
The banks were authorised to pay cheques on behalf of the company if signed by its Manag ing Director or two authorised signatories.
The banks agreed to send the appellant periodic statements which were deemed to be confirmed unless the customer notified the bank of any error therein by a specified time.
Between 1972 and 1978 the accounts clerk employed by the company forged the signature of the Managing Director on 300 cheques purported to be drawn by the company for a total sum of $HK.5.5 million.
The banks paid the cheques on presentation by the clerk and debited the company 's current account accordingly.
The clerk was able to manipulate the accounts without any obstruction or discovery because he was in almost sole control of the receipts and payments made through the accounts.
As in this case, the fraud was uncovered in May, 1978, when a newly appointed accountant commenced reconciling the bank state ments with the company 's books.
This was an exercise which had not been followed previously.
The new accountant found at once that something was seriously wrong.
He reported the matter to the Managing Director.
The errant accountant was interrogated and he admitted the frauds.
The company took action against the banks, the accountant and his wife.
The Trial Judge basing his decision on the fundamental premise that a forged cheque is no mandate to pay held that unless the bank established affirmatively that they were entitled to debit the customers current account with the amounts of the forged cheques, the customer was entitled to the relief 1152 of the loss arising from the bank 's payment on the forged cheques.
A case was put forward before the Trial Judge that the Company was vicariously liable for the fraud played by its accountant.
This was negatived and was not pursued.
The Trial Judge also rejected the submission of the banks that their terms of business which was contractual called the banking contract, should be construed as ousting the common law rule.
The defence included one of estoppel raised by each of the banks.
The plea of estoppel was put forward in two ways; first, that the company was estopped by its negli gence in the management of its bank accounts from asserting that the accounts had been wrongly debited, and second, that the company was estopped by a representation to be implied from the course of conduct that the periodic bank statements were correct.
The Trial Judge rejected the plea of estoppel by negligence but held: " . .
In the case of each bank the company by failing to .
challenge the debits shown on the bank statements, had represented to each bank that the debits had been correctly made.
He held that Tokyo and Chekiang had acted in reliance on the representations so made by their willingness to continue operating their respective accounts and to expose themselves to the risk of paying out on forged cheques.
He did not find the same prejudice had been suffered by Liu Chong Hing as it only became exposed to the fraud in November 1977, the first representation to it not being made until the company 's failure.
to query the December 1977 statement of account.
The Judge found that the chance of recovery from Leung had not been substantially diminished during the period (December 1977 to May 1978) during which it could be said that the estoppel was operative.
" On this finding the Judge gave the company Judgment against one bank, but dismissed its claims against the other two banks.
The company appealed and the defeated banks cross appealed.
The Court of appeal differed from the Trial Judge on the general question.
The Court of appeal evolved a theory that the banker/customer relationship is such as to give rise to a general duty of care in the operation of its banking account and on this basis held that the company was in breach of the duty which they held, it owed to the banks and must bear the loss.
According to the Court of appeal this duty arose in tort as well as in contract.
There was difference of opinion among the Judges as to whether the in action on the part of the customer in not objecting 1153 to the statement sent by the bank within the time specified would constitute conclusive evidence of the correctness of the debits recorded therein or whether the banking contracts could be construed as including a term requiring the monthly statements to be treated after a period of time as conclu sive evidence of the state of the account.
But all of them were agreed that estoppel operated against the company by its own negligence from challenging the correctness of the banks statements.
The banks thus succeeded in the Court of appeal.
The defeated company moved the Judicial Committee of the Privy Council by filing appeals.
This was how the matter reached the Privy Council.
The Privy Council had to decide the case in the light of the law settled by the House of Lords in the Macmillan 's case and in Greenwood vs Martins Bank Ltd.; = 1932 All England Reports 3 18.
The Privy Council posed two questions before it, first, whether English law recognises any duty of care owed by the customer to his bank in the operation of a current account beyond, first, a duty to refrain from drawing a cheque in such a manner as may facil itate fraud or forgery and, second, a duty to inform the bank of any forgery of cheque purportedly drawn on the account as soon as he, the customer, becomes aware of it.
The respondent banks while recognising the existence of both the duties indicated above contended that the law had evolved in England after 19 18 and 1933 in recognising an altogether wider duty of care.
This duty, according to them, required the customer to take reasonable precautions in the management of his business with the bank to prevent forged cheques being presented to it for payment.
Additionally, it was contended.
that even if this wider duty did not exist.
at any rate the customer owed a duty to take such steps to check the periodic bank statements sent to him as a reasona ble person in his pOsition would take to enable him to notify the bank of any debit items in the account which he had not authorised, When it is accepted that the bank sent periodic statements to the customer, the bank contended that the duty and responsibility to look into such statements and to notify to the bank were necessary incidents of the con tractual relationship between the customer and the bank.
The source of this obligation according to the banks is to be found both in the contract law as an implied term of the banking contract and in the tort law as a civil obligation arising from the relationship of banker and customer.
Then the Privy Council proceeded to consider the weightier sub 1154 missions advanced by the bank (1) a wider duty on the part of the customer to act with diligence which must be implied into the contract and alternatively that such a duty arises in tort from the relationship between banker and customer.
The Privy Council parted company with the observation by the Court of Appeal here and repelled the plea that it was necessary to imply into a contract between a banker and the customer a wider duty and that it was not a necessary inci dent of banker customer relationship that the customer should owe his banker a wider duty of care.
This duty is in the form of an undertaking by the customer to exercise reasonable care in executing his written orders so as not to mis lead the bank or to facilitate forgery.
The Privy Coun cil accepted that an obligation should be read into the contract as the nature of this contract implicity requires.
In other words 'the term sought to be implied must be one without which the whole 'transaction would become futile and inefficacious. ' After referring to some earlier decisions, the Privy Council rejected the implied term 'submission ' and set out the limits of the care of the customer and the functions of the banks in the following words: " .
One can fully understand the com ment of Cons JA that the banks must today look for protection.
So be it.
They can increase the severity of their terms of business and they can use their influence as they have in the past, to seek to persuade the legislature that they should be granted by statute 'fur ther protection.
But it does not follow that because they may need protection as their business expands the necessary incidents of their relationship with their customer must also change.
The business of banking is the business not of the customer but of the bank.
They offer a service, which is to honour their customer 's cheques when drawn on an account in credit or within an agreed overdraft limit.
If they pay out on cheques which are not his, they are acting outside their mandate and cannot plead his authority in justification of their debit to his account.
This is a risk of the service which it is their business to offer.
The limits set to the risk in the Macmillan and Greenwood cases can be seen to be plainly necessary incidents of the relationshi p. Offered such a service, a customer must obviously take care in the way he draws his cheque, and must obviously warn his bank as soon as he knows that a forger is operating the account . . " The limits of the duty and the confines of contractual obligation cannot be expressed better.
1155 On the question of tort also the bank could not satisfy the Privy Council as is seen from the following observation: "Their Lordships do not believe that there is anything to the advantage of the law 's development in searching for a liability in tort where the parties are in a contractual relationship.
This is particularly so in a commercial rela tionship.
Though it is possible as a matter of legal seman tics to conduct an analysis of the rights and duties inher ent in some contractual relationships including that of a banker and customer either as a matter of contract law when the question will be what.
if any.
terms are to be implied or as a matter of tort law when the task will be to identify a duty arising from the proximity and character of the relationship between the parties.
their Lordships believe it to be correct in principle and necessary for the avoidance of confusion in the law to adhere to the contractual analy sis on principle because it is a relationship in which the parties have.
subject to a few exceptions, the right to determine their obligations to each other.
and for the avoidance of confusion because different consequences do follow according to whether liability arises from contract or tort, e.g. in the limitation of action . " Their Lordships of the Privy Council sumed up the Law, as followers: 'Their Lordships do not, therefore, embark on an investiga tion whether in the relationship of banker and customer it is possible to identify tort as well as contract as a source of the obligations owed by the one to the other.
Their Lordships do not, however, accept that the parties ' mutual obligations in tort can be any greater than those to be found expressly or by necessary implication in their con tract.
If, therefore, as their Lordships have concluded, no duty wider than that recognised in Macmillan and Greenwood can be implied into the banking contract in the absence of express terms to that effect, the respondent banks cannot rely on the law of tort to provide them with greater protec tion than that for which they have contracted.
Having rejected the plea of implied terms, indirectly con structive 1156 notice and estoppel by negligence, it was held that the company was not under any breach of duty owed by it to the banks and as such mere silence, omission or failure to act is not a sufficient ground to establish a case in favour of the bank to non suit its customer.
We adopt the reasoning indicated above with great re spect.
Unless the bank is able to satisfy the Court of either an express condition in the contract with its custom er or an unequivocal ratification it will not be possible to save the bank from its liability.
The banks do business for their benefit.
Customers also get some benefit.
If banks are to insist upon extreme care by the customers in minutely looking into the pass book and the statements sent by them, no bank perhaps can do profitable business.
It is common knowledge that the entries in the pass books and the state ments of account sent by the bank are either not readable, decipherable or legible.
There is always an element of trust between the bank and its customer.
The bank 's business depends upon this trust.
Whenever a cheque purporting to be by a customer is presented before a bank it carries a man date to the bank to pay.
If a cheque is forged there is no such mandate.
The bank can escape liability only if it can establish knowledge to the customer of the forgery in the cheques.
In action for continuously long period cannot by itself afford a satisfactory ground for the bank to escape the liability.
The plaintiff in this case swung into action immediately on the discovery of the fraud committed by its accountant as in the case before the Privy Council.
We may, in passing.
refer to a decision of this court on the question of negligence under circumstances not strictly akin to the case on hand reported in the New Marine Coal Co. (Bengal) Pvt. Ltd. vs Union of India, ; There the suit was for recovery of certain amount represent ing the price of coal supplied to the respondent.
Inter alia the respondent pleaded in defence of the suit that the respondent had issued and sent bills to cover the amount and the intimation cards in accordance with the usual practice in the ordinary course of dealings.
The respondents it was alleged paid the amount by cheque to a person authorised by the appellant and on presentation of proper receipts.
It was pleaded that the appellant 's claim having been satisfied he had no cause of action.
It was established in the course of the trial that the appellant had not in fact authorised any person to issue the receipts but a certain person not con nected with the appellant firm without the consent or knowl edge of the appellant got hold of the intimation cards and bills addressed to the appellant.
forged the documents and fraudulently received the cheque from the respondent and 1157 appropriated the amount for himself.
We may usefully read the following passage relating to negligence in the context of a plea based on estoppel: ". .
Apart from, this aspect of the matter, there is another serious objection which has been taken by Mr. Setalved against the view which prevailed with Mukharji J. He argues that when a plea of estoppel on the ground of negligence is raised, negligence to which reference is made in support of such a plea is not the negligence as is understood in popu lar language or in common sense; it has a technical denota tion.
In support of a plea of estoppel on the ground of negligence.
it must be shown that the party against whom the plea is raised owed a duty to the party who raises the plea.
Just as estoppel can be pleaded on the ground of misrepre sentation or act or omission.
so can estoppel be pleaded on the ground of negligence; but before such a plea can suc ceed, negligence must be established in this technical sense.
As Halsbury has observed: 'before anyone can be estopped by a representation inferred from negligent con duct.
there must be a duty to use due care towards the party misled, or towards the general public of which he is one. ' There is another requirement which has to be proved before a plea of estoppel on the ground of negligence can be upheld and that requirement is that 'the negligence on which it is based should not be indirectly or remotely connected with the misleading effect assigned to it, but must be the proxi mate or real cause of that result. ' Negligence.
according to Halsbury, which can sustain a plea of estoppel must be in the transaction itself and it should be so connected with the result to which it led that it is impossible to treat the two separately.
This aspect of the matter has not been duly examined by Mukharji.
J. when he made his finding against the appellant.
" This is how this Court understood how a plea of estoppel based on negligence can be successfully put forward.
We have seen that there is no duty for a customer to inform the bank of fraud committed on him.
of which he was unaware.
Nor can in action for a reasonably long time in not discovering fraud or irregularity be made a defence to defeat a customer in an action for loss.
Thus the contentions put for 1158 ward by the bank cannot be accepted to defeat the plaintiff.
The various submissions made by the counsel for the bank based on constructive notice in the general law and on other branches of law cannot be extended to relationship between a bank and its customers.
On a careful analysis of the questions of law, we hold that the judgment of the High Court and that of the Trial Judge have to be upheld.
We do so.
We accordingly dismiss the appeal with costs of the 1st respondent.
N.P.V. Appeal dis missed.
|
The respondent company had a current account with the lant bank in its Mangalore Builder Branch.
The Manag ing Director of the company and the General Manager of a sister concern of the company had been authorised to operate the said current account.
The second defendant was attending to the maintenance of accounts of the respondent company and was also in charge and had the custody of the cheque book issued by the Bank to the respondent company.
During the process of bringing the accounts upto date certain irregu larities were noticed in the account and on verification it was found that cheques purporting to bear the signature of the Managing Director were encashed, though they did not bear 'his signature.
A complaint was lodged by the respond ent Company with the police and a special audit of the company 's accounts for the years 1957 58 to 1960 61 by a firm of Chartered Accountants disclosed that the second defendant had withdrawn a sum of Rs.3,26.047.92 under 42 cheques.
A suit was filed for the recovery of the said amount on the plea that the amounts as per the forged cheques were not utilised for the purpose of the respondent company.
that they were not authorised ones.
that there was no acquiescence or ratification open or tacit on the part of the respondent company and that the respondent was unaware of the fraud till the new accountant discovered it.
The appellant bank resisted the suit on the grounds (1) that the cheques were not forged ones; (2) that even if they were forged ones.
the company was not entitled to recover the amount on account of its own 1139 negligence; (3) that there was settlement of accounts be tween the parties from time to time and as such.
the company was not entitled to reopen the same and claim the sums paid under the cheques; and (4) that the suit was barred by limitation.
The second defendant pleaded that the cheques were utilised for the purpose of the company.
The trial Court negatived the contentions of the bank and passed a decree for the sum claimed with interest at 6%.
In appeal the Division Bench confirmed the judgment of the trial court but as the case involved substantial ques tions of law of general public importance it granted a certificate to file the appeal.
In the appeal before this Court it was contended on behalf of the appellant that: (1) after reasonable opportu nities are given to the customer to examine the bank state ments, its debit entries should be deemed to be final and will not be open for reconstruction to the detriment of the bank; (2) a representation may be made either by statement or by conduct, and conduct included negligence, silence, acquiescence or encouragement, and if a customer of a bank, by his negligence, to give timely information of forged cheques, allows amount to be drawn on such cheques.
the debit will stand for the whole amount and the consumer will be estopped from claiming the amount; and (3) in action for a long period would amount to such negligence as would persuade a court to impute to the customer with knowledge or at any rate constructive knowledge,_to decline him relief in an action for recovery of amounts which would be to the detriment of an innocent party, namely, the bank.
Dismissing the appeal.
HELD: 1.
When a cheque duly signed by a customer is presented before a bank with whom he has an account there is a mandate on the bank to pay the amount covered by the cheque.
However.
if the signature on the cheque is not genuine.
there is no mandate on the bank to pay.
The bank.
when it makes payment on such a cheque, cannot resist the claim of the customer with the defence of negligence on his part such as leaving the cheque book carelessly so that third parties would easily get hold of it.
This is because a document in cheque form.
on which the customer 's name as drawer is forged.
is a mere nullity.
[1147B D] 2.
The relationship between the customer of a bank and the bank is that of a creditor and debtor.
When a cheque presented for encashment contains a forged signature the bank has no authority to make payment against such a cheque.
The bank would be acting against law 1140 in debiting the customer with the amounts covered by such cheques.
When a customer demands payment for the amount covered by such cheques, the bank would be liable to pay the payment to the customer.
The bank can succeed in denying payment only when it establishes that the customer is disen titled to make a claim either on account of adoption, estop pel or ratification.
[1146G H; 1147A B] For negligence to constitute an estoppel.
it is neces sary to imply the existence of some duty which the party against whom estoppel is alleged owes to the other party.
There is a duty of sorts on the part of the customer to inform the bank of the irregularities when he comes to know of it.
But by mere negligence.
one cannot presume that there has been a breach of duty by the customer to the bank.
The customer should not by his conduct facilitate payment of money on forged cheques.
In the absence of such circum stances.
mere negligence will not prevent a customer from successfully suing the bank for recovery of the amount.
[1150B D] 4.
In order to sustain a plea of acquiescence, it is necessary to prove that the party against whom the said plea is raised.
had remained silent about the matter regarding which the plea of acquiescence is raised.
even after knowing the truth of the matter.
[1150D E] 5.
There is no duty for a customer to inform the bank of a fraud committed on him, of which he was unaware.
Nor can in action for a reasonably long time in not discovering fraud or irregularity be made a defence to defeat a customer in an action for loss.
[1157G H] 6.
There is no duty on the part of the customer to intimate the banker about any error that may be seen in the pass book and he will be entitled to claim any amount paid on a forged cheque though there may be some negligence or in action on his part in not being careful to discover the errors in the pass book or other documents.
Banks do business for their benefit.
Customers also get some benefit.
If banks are to insist upon extreme care by the customers in minutely looking into the pass book and the statements sent by them, no bank perhaps can do profita ble business.
It is common knowledge that the entries in the pass books and the statements of account sent by the bank are either not readable.
decipherable or legible.
There is always an element of trust between the bank and its custom er.
The bank 's business depends upon this trust.
[1156B D] 1141 8.
Whenever a cheque purporting to be by a customer is presented before a bank it carries a mandate to the bank to pay.
If a cheque is forged there is no such mandate.
The bank can escape liability only if it can establish knowledge to the customer of the forgery in the cheques.
In action for continuously long period cannot by itself afford a satisfac tory ground for the bank to escape the liability.
[1156D E] 9.
In the present case.
during the relevant period when 42 cheques were encashed, the company did not know anything about the sinister design of the second defendant.
Since the bank had not proved to the satisfaction of the court that the company had with full knowledge acknowledged the cor rectness of the accounts for the relevant period the case of acquiescence cannot be flourished against the company.
There is no evidence to show that any one other than the second defendant knew that the forged cheques had been encashed.
After the matter was discovered immediate action was taken.
Therefore, in the absence of any evidence of the respondent company 's involvement.
it cannot be non suited on the ground of negligence or in action.
Unless the bank is able to satisfy the court of either an express condition in the contract with its customer or an unequivocal ratifica tion it will not be possible to save the bank from its liability.
[1150E F; 1151A B; 1156B] Bihta Co operative Development Cane Marketing Union Ltd. Joint Stock Bank Ltd. vs Macmillan, ; Tai Hing Cotton Ltd. vs Liu Chong Bank, [1985] 2 All England Reports 947; Greenwood vs Martins Bank Ltd., = [1932] All England Reports 318; and New Marine Coal Co. (Bengal) Pvt. Ltd. vs Union of India, ; , referred to.
|
ivil Appeal No. 544 of 1975.
From the Judgment and Order dated 20.8.
1973 of the Gujarat High Court in Special Civil Application No. 631 of 1970.
C.M. Lodha and Miss Subhashini for the Appellant.
The Judgment of the Court was delivered by RANGANATH MISRA, J.
This is an appeal by the Revenue by special leave and is directed against the judgment of the Gujarat High Court dated August 20, 1973 in a writ petition.
The High Court quashed the notice for reassessment issued under section 147(b) of the Income tax Act, 1961 (hereinaf ter referred to as 'the Act ') for the assessment year 1965 66.
Inspite of service of notice, the assessee respondent has not appeared.
The High Court has quashed the notice by accepting the assessee 's contention that the action of the Income tax Officer was barred by limitation prescribed by the Act.
There is no dispute that the notice in this case under section 147(b) of the Act was issued by registered post on March 31, 1970, and was received by the assessee on April 3, 1970.
To the facts of the case, section 147(b) of the Act applies.
The two relevant provisions are in sections 148 and 149 of the Act which provide: "148(1) Before making the assessment, reas sessment or recomputation under section 147, the Income tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub section (2) of section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub section.
44 (2). . . . . . . "149(1) No notice under section 148 shall be issued, (a). . . . . . . (b) In cases falling under clause (b) of section 147, at any time after the expiry of four years from the end of the relevant as sessment year.
(2) The provisions of sub section (1) as to the issue of notice shall be subject to the provisions of section 151." The High Court relied upon the decision of this Court in the case of Banarsi Debi & Anr.
T. 0., District IV, Cal cutta & Ors., where the validity of a notice under section 34(1) of the Incometax, Act, 1922 and the scope of section 4 of the Income tax (Amendment) Act of 1959 by which sub section (4) was introduced into section 34 were considered.
This Court indicated, keeping the provisions of section 34 in view, that there was really no distinction between "issue" and "service of notice".
Section 34, sub section (1) as far as relevant provided thus: "34(1) If (a). . . . . . . (b) . . he may in cases falling under clause (a) at any time within 8 years and in cases falling under clause (b) at any time within four years at the end of that year, serve on the assessee, . . and may proceed to assess or reassess such income . . ." Section 34, conferred jurisdiction on the Income tax Officer to reopen an assessment subject to service of notice within the prescribed period.
Therefore, service of notice within limitation was the foundation of jurisdiction.
The same view has been taken by this Court in Janni vs Indu Prasad Bhat, as also in C.I.T. vs Robert, The High Court in our opinion went wrong in relying upon the ratio of in disposing of the case in hand.
The scheme of the 1961 Act so far as notice for reassessment is concerned is quite different.
What used to be contained in section 34 of the 1922 Act has been spread out into three sections, being sections 147, 148 and 149 in the 45 1961 Act.
A clear distinction has been made out between 'issue of notice ' and 'service of notice ' under the 1961 Act.
Section 149 prescribe the period of limitation.
It categorically prescribes that no notice under section 149 shall be issued after the prescribed limitation has lapsed.
Section 148(1) provides for service of notice as a condition precedent to making the order of assessment.
Once a notice is issued within the period of limitations, jurisdiction becomes vested in the Income tax Officer to proceed to reassess.
The mandate of section 148(1) is that reassessment shall not be made until there has been service.
The require ment of issue of notice is satisfied when a notice is actu ally issued.
In this case, admittedly, the notice was issued within the prescribed period of limitation as March 31, 1970, was the last day of that period.
Service under the new Act is not a condition precedent to conferment of jurisdic tion in the Income tax Officer to deal with the matter but it is a condition precedent to making of the order of as sessment.
The High Court in our opinion lost sight of the distinction and under a wrong basis felt bound by the judg ment in As the Income tax Officer had issued notice within limitations, the appeal is allowed and the order of the High Court is vacated.
The Income tax Officer shall now proceed to complete the assessment after complying with the requirements of law.
Since there has been no ap pearance on behalf of the respondents, we make no orders for costs.
A.P.J. Appeal allowed.
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The respondent challenged the notice for reasessment issued under section 147(b) of the Income Tax Act, 1961 for the assessment year 1965 66.
The High Court quashed the notice holding that the action of the Income Tax Officer was barred by limitation prescribed by the Act.
Allowing the appeal of the Revenue, HELD: 1.
The scheme of the 1961 Act so tar as notice for reassessment is concerned is quite different.
What used to be contained in section 34 of the 1922 Act has been spread out into three sections, being sections 147.
148 and 149 of the 1961 Act.
A clear distinction has been made out between "issue of notice" and "service of notice" under the 1961 Act.
Section 149 prescribes the period of limitation.
It categor ically prescribes that no notice under section 148 shall be issued after the prescribed limitation has lapsed.
Section 148(1) provides for service of notice as a condition prece dent to making the order of assessment.
Once a notice is issued within the period of limitations, jurisdiction be comes vested in the Income Tax Officer to proceed to reas sess.
The mandate of section 148(1) is that reassessment shall not be made until there has been service.
The requirement of issue of notice is satisfied when a notice is actually issued.
Banarsi Debi & Anr.
vs L T.O. District IV, Calcutta & Ors., ; Janni vs Indu Prasad Bhat, and C.I.T. vs Robert, , distinguished.
In the instant case, notice was issued within the prescribed period 43 of limitation as March 31, 1970 was the last day of that period.
Service under the new Act is not a condition prece dent to conferment of jurisdiction in the Income Tax Officer to deal with the matter but it is a condition precedent to making of the order of assessment.
The High Court lost sight of the distinction and under a wrong basis felt bound by the judgment in Banarsi Debi & Anr.
T. 0., District IV, Calcutta & Ors., ( As the Income Tax Officer had issued notice within limitation the order of the High Court is vacated.
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"Appeal No. 25 of 1961.\nAppeal by special leave from the judgment and decree dated November 26, 195(...TRUNCATED)
| "The respondent, who owned agricultural properties in the different districts of Uttar Pradesh, was (...TRUNCATED)
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