COMMISSIONER OF INCOME-TAX, WEST BENGAL-IT,

CALCUTTA v.

KALYANJI MAVJI & COMPANY

January 14,. 1980

[N. L. UNTWALIA AND R. S. PATHAK, JJ.]

Indian Income 1ax Act 1922 (11 of 1922), Ss. 10(2)(v) & 10(2)(xv)- Assessee d1Jing business in coal-Working various collieries--One colliery requi~ sitioned for n1ilitary use-Later cferequisitioned-Expenditure incurrred far re~ suniing operation of Colliery-Whether capital or revenue expenditur~.

The respondentasses.&ee carried on business in coal as the owner of various collieries. One of the collieries, was' occupied by the niilitary from 1942 until it was derequisitioned in 1955. During that per)od the assessee did not work the said colliery : M.though the business in coal and working of the other collieries were carried on. While the colliery remained under military occupation the assessee incurred expenditure in respect of the colliery on account of payment of surlaco rent, minimum royalty and; sala•ry for the watch and ward staff, which expenditure was claimed and allo\ved as business expenditure\ of the assessee.

After the colliery was handed over to the assessce upon dorequisiticn the assessee incurred an expenditure of about Rs. 1.6 lakhs in renovating the build~ ing, reconditioning tha machinery and. clearing the land of all debris accumulated over a number of years.

In the assessment proceedings for the assessment year 1959-60 th~ a8Se, s.iee claimed deduction of the aforesaid amount under section 10(2) (xv) of the Indian Income Tax Act.

The deduction was disallowed by the Income! Tax Officer on the ground that the expenditure was capital in nature~

The appeals by the assesseei to the Appellate AssistMlt' Comn1issioner and the Income Tax Appellate Tribunal were dismissed.

In the reference to the 1-Iigh Court at the instance of the assessee 'the High Court observed that the business of the assessee had to be considered as a wholei and not on the basis1 of its different sources of supply or units of production, and held thM: on the facts admitted and found it could not be said that any fresh asset had been acquired by the assessee by spending Rs. 1.6 lakhs and that the expenditure: was incurred by the assessee for the purpose of carrying on an existing concern. The expenditure was, therefore, in the nature of a revenue expenditure.

In the appeal by the Revenue to this Court, it wao contended : (a) where repairs are effected to buildings and machinery a deduction under section 10(2) is permissible only in respect of "current rpairsl' and, repairs which are not

' 1current repa-irs" are not intended to be the subject of relief, (b) the repairs made by the assessee cannot be described as "current repairs", and (c) if section 10(2) (v) is the relevant clause, being the specific provision in respect of expendi-

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C.!.T. V. KALYANJI MAVJI 759

ture on "current repairs" to buildings and machinery, there is nu justifiration for relying on section 10(2)(xv) a residuary clause.

Dismisoing the appeal,

HEI.D: I. The High Court Wa.9 right in holding that the expenditure was eot of a carital nature. [764 EJ

2. The expenditure of Rs. 1.6 Jak.hs was expenditure laid out. as part of the B process of profit earning. The nature of tho expenditurr. was clearly revenue in characfer. (764 DJ

3. There can be little doubt that the expenditure incurred was incidental to the business of the assessee. It was involved in renovating the buildings, recondi

tioning the m&.<::hinefy and clearing the debris~ fron1 the land, for the purpose of resuming the operation of the co1liery. The expenditure \Vas laid out wholly for the pUrpQSe of the business. [763 DJ

4. There must be stroug evidence that in, the case of repairs which arc not "current repairs'' the Legisl<c1ture intended a depc:rturc from the principle that an expenditure iaid out or expended wholJy and exclusively for the purposes of the business, and which expenditure is not capital in n<:.•ture, should not be allo'ved in computing the incon1e from business.

There is nothing in the language of section 10(2)(v) \vhich declares or necessarily implies that repairs, other than, "current repairs", will not qualify for the benefit of that principle.

On accepted commercial practice anJ trading principles an item of business expenditure must be deducted in order to arrive at the true figure of profits and gains for tax

purposes. [762 G-763 AJ

C.l.T. v. Chitnis 50 I.A. 292; Mo'tipur Sugar Facto1y Ltd .. v. C./.T. Bihar and Orissa, 28 I.T.R. 120; Devi Fibns Ltd. v. C.l.T. /rrfadras, 75 I.T.R. 301; Badrldas Daga v. C.1.T. 34 I.T.R. 10, 15; Calcutta Co. Ltd. v. C.l.T. rvcsl

Bengal, 37 I.T.R. 1, 9; Ihe Law Shipping Co. Ltd. v. Con1111issioners of Inland Revenue 12 Tax Cases 621, 625 referred to.

The scope of Sectien !0(2)(xv) should be construed liberally. [763 BJ

Jn the instant case even if the expenditure n1ade by the assessee cannot b~

dcribed as "current repairs" he is entitled to invoke' the benefit of s. 10(2) (xv).

[763 CJ

5. \Vhether an expenditure can be described as capital or revenue falls to be decided by several ti?'sts, each one of which approaches the question from oae perspective or another, conditioned by the particular facts of each case.

[763 FJ

Assam Bengal Cement Co. Ltd. v. C.l.T. West Btngal (1955) 27 I.T.R. 34 G referred to.

In the instant case the business of the as.Sessee was coal mining and it was carried on by th~ Operation of a networ~ of collieries. Each colliery was a unit of production. \\'hile the several units of production continued to be employed and the business continued to be carried on, one alone of all the units, was compelled to suspend production. The suspension was due to the property be.ing H requisitioned for military use.

As soon as it was derequisitioncd the a'8CS"See I l-9ISCil80

A took measures to resume production of coal. The buildings were renovated, the machinery reconditioned and the accumulated debris removed from the la.nd No new asct was brought into existence, no advantage for the enduring benefit of the business 'vas acquired. The activity which was continuously in operation but had been te1upora1y suspended was resumed. [763 G-764 CJ

OyIL APPELLATE JURISDICTION : Civil Appeal No. 2098 of 1972

From the Judgment and Order dated 5-8-1971 of the Calcutta High Court in Income Tax Rderence No. 109 /65.

D. V. Patel, ]. Ramamurthy and Miss A Subhashini for the Appellant.

S. R. Banerjee, Mrs. lndu Goswamy and Arvind Minocha for the Respondent.

The Judgment of the Court was delivered by

PATHAK, J. : This appeal by certificate granted by the High Court at Calcutta under s. 66A(2) of the Indian Income-tax Act, 1922 is directed against the judgment dated August 5, 1971 of that High Court disposing of an income-tax reference.

The respondent asscssee is a registered firm and owns several collieries in West Bengal and Bihar. One of the collieries is known as the South Samia Colliery. The South Samia colliery was under military occupation from 1942 and was released in 1955. During the period of military occupation the assessee incurred expenditure on account of minimum royalty payable in respect of the coJ:iery, the sur face rent and salaries for the watch and ward employees.

The expenditure was allowed in income-tax proceedings as a business expenditure. After the colliery was released by the military, the assessee incurred n further expenditure amounting to Rs. 1,61, 7 42 on the colliery with a view to resuming mining OJX'rations.

The expenditure was incurred during the previous year beginning October 24, 1957 and ending November 11, 1958 relevant to the assessment year 1959-60.

In the assessment proceedings for that assessment year the assessee claimed a deduc'ion of the amount of Rs. 1,61,742 under s. 10(2)

(xv) of the Indian Income Tax Act, but the deduction was disal1owed by the Income-tax Officer on the ground that the expenditure was capital in 'nature.

On apJX'al, the Appe:late Assistant Commissioner affirmed that the expenditure was in the nature of capital expenditure.

The assessee proceeded in second appeal, but the Income Tax Appellate Tribunal, without giving any reasons of its own, merely recorded itE agreement with the income-tax authorities. The assessee obtained

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C.I.T. v. KALYANJ! MAVJ! (Pathak, !.) 7 Gi

a reference to the High Court at Calcutta for its opinion ob the follow

ing question :

"Whether on the facts and circumstances of the case, the Income-tax appellate Tribunal was justified in holding that the expenditure claimed on the South Samla Colliery at Rs. 1,61,742 was capital in nature."

Th~ High Court noted the following facts :

The assessee carried on busihess in coal as the owner of various collieries. The South Samia Colliery, which was one of them, was occupied by the military from 1942 until it was derequisitioncd in

1955. During that period the assessee did not, because hei could not, work the colliery.

He continued, however, carrying on hie business in coal and working other collieries during that period. While the South Samia Colliery remained under military occupation the assessee incurred expenditure on payment of surface rent and minimum royalty in respect of that colliery and also on account of salary for the watch and ward staff. The expenditure had been claimed and allowed as business expenditure of the assessee.

After the colliery was handed over to the assessee upon derequisition, the assessee incurred, during the relevant period, an expendi'.ure of Rs. 1,61,742 in renovating the bnil\ling, reconditioning the machinery and clearing the land of debris accumulated over a numrer of years.

The expenditure of Rs. 1,61,742 consisted of Rs. 66,937 spent on the staff and labour force by way of salaries, wages and other benefits and an amount of Rs. 94,805 spent on the purchase of various stores, machinery repairs, dhowrah repairs etc. This expenditure had to be . incurred by the assessee for the purpose of putting the machinery in working order and bringihg the colliery to a state where the mining operations could be resumed.

The colliery had not started working and mining operations had not been resumed . during the relevant year.

The High Court observed that the assessee was carrying on its business throughout and the circumstance that one of the collieries was not being worked did not affect the carrying on of that business. The business of the assessee, the High Court said, had to be considered as a whole and not on the basis of its different sources of snpr~Y or uuits of production. The High Court held that on the facts admitted and fon:nd it could not be said that any fresh asset had been acquired by the assessee by spending Rs. 1,61,742. The expenditure, it observed, was incurred by the assessee for the purpose of carrying on an existing concern and not for acquiring any concern not in existence. Accordi'ngly, it held that the expenditure was in the n&ture of revenue expenditure and, therefore, answered the question in favour of the assessee.

In this appeal the first con:ention raised by the Revenue is that the High Court had no jurisdiction to re-appraise the facts and therefore its finding on th~ nature of the expenditure is vitiated. The contention is without substance. The facts on which the High Court has relied are admitted between the parties or are facts found by the income-tax authorities.

We have no hesitation in rejecting the first contention.

The second contention is that the claim of the assessee must be considered with reference to s.10(2) (v) and not s.10(2)(xv) of tho Act. It is urged that if s.10(2) (v) is the relevant clause, being the specific provision in respect of expenditure on current repairs to buildings nnd machinery, there is no justification for relying on s.10(2)(xv).

S. 10(2) (xv) is a residuary clause, and deals with expenditure not being an allowance of the 'nature described in any of the preceding clauses of s.10 (2). The submission is that where repairs are effected to buildings and machinery a deduction under s.10(2) is permissible only in respect of curont repairs, and repairs which are not "current repairs" are not intended to be the subject of relief. The Act, it is conte'nded, limits the repairs to "current" repairs.

Th~ repairs made by the assessee, it is said, cannot be described as "current repairs".

Now, this contention rests on the principle; that if a special rrovision covers the case, resort cannot be had to a general provision. It seems to us that if the renovation of the building. the reconditioni'ng of machinery and the removal of debris cannot be described as "current repairs"-and we assume that to be so--the case would be entitled to consideration under s.10(2)(xv). Section 10(2) (v) deals with current repairs only. The subject matter of s.10(2) (v) is "current repairs" a'nd it appears difficult to agree that repairs which are not "current repairs" should not be considered for deduction on general princiQles or under s.10(2) (xv). There must be very strong evidence that in the case of such repairs, the Legislature intended a departure from the principle that an expenditure, laid out or expended wholly and exclusively for the purposes of the business, a'nd which expenditure is not capital in nature, shoud not be allowed in computing the

income from business. There is nothing in the language of s.10(2)

(v) which declares or necessarily implies that repairs, other than, current repairs, will not qualify for the benefit of that principle. We must remember that o'n accepted commercial practice and trading principles an item of business expenditure must be deducted in order

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C.I.T. v. KALYANJI MAVJI (Pathak, J.) 763

to arrive at the true figure of profits and gains for tax purposes. The rule was held by the Privy Council in C.l.T. v. Chitnis(') to be applicable in the case of losses, and it bas been applied by the courts in India to business expenditure incurred by an assessee. Motipur Sugar Factory Ltd. v. C.I.T., Bihar and Orissa(') and Devi Films Ltd . . v.

C.I.T. Madras(').

The principle found favour with this Court in Badridas Daga v. C.I.T.( 4 ) and Calcutta Co. Ltd. v. C.I.T. West Benzal(5). If the contents of that rule be true on general principle, there is good reason why the scope of s.10(2) (xv) should be construed liberally. In our opinion, even if the expenditure made by the asseswe in the present case cannot be described as "current repairs", he is entitled to invoke the benefit of s. 10(2) (xv). We may mention that in The Law Shipping ca. Ltd. v. Commissioners of Inland Revenue(') it has been held that accumulated arrears for repairs are none the less repairs necessary to earn profits, although they have been allowed to accumulate.

The question then is whether s.10(2)(xv) is attracted. There can be little doubt that the expenditure incurred is incidental to the business of the assessee. It was involved in renovating the buildings, reconditioning the machinery and clearing the debris, from the land. All the work done was for the purpose of resuming the operation of the colliery. The expenditure was laid out wholly and exclusively for the purposes of the business. We do not think there can be any dispute as to that.

But the more serious question is whether the expenditure can be regarded as capital in '.nature, for if that be so the benefit of s.10(2) (xv), o.-i its plain ternis, must be denied.

Now, whether an expendi" ture can be described as capital or revenue falls to be decided by several osts, each one of which approaches the queGtion from one perspective or another, conditioned by the particular facts of each case.

We need not refer to all of them. On the facts of the present case, it seems sufficient to mention the tests laid down by this Court in Assam Bengal Cement Co. Ltd. v. C.I.T. West Bengal('). The business of the assessee in the present case was coal-mining, and it was carried on by the operation of a network of collieries.

Each colliery was a unit o~ production.

While the several units of production continued to be

(!) 59 I.A 297.

(2) 28 l.T.R. 120.

(3) 75 l.T.R. 301.

(4) 34 l.T.R. 10, 15.

(5) 37 l.T.R. 1, 9.

<(G) 12 Tax Cases 621, 625 .

17) [1955] 271.T.R. 34.

employed and the business continued to be carried on, one alone of the units, the South Samla Colliery was compelled to suspend production. The suspension was expected to be of temporary duration, b~ cause the property was merely requisitioned for military use, it was not acquired. As soon as the property was de-requisitioned, the assessee took measures to resume production of coal. It was necessary to remove the impediments which had come in the way by reason of the temporary suspension of work. The buildings were renovated, the machinery reconditioned and the accumulated debris removed from the land. The colliery was, in a word, reinstated to the condition necessary for ensuring production.

No new asset was brought into existence; no advantage for the enduring benefit. of the business was acquired. Ail activity which was continuously in operation but had been temporarily suspended was to be resumed. It is imm:rterial that during the year under consideration there was no m!ning activity. That the colliery was regarded as an asset of a continuing business all along, even during the period of military occupation, is evidenced by the fact that expenditure incurred by the assessee during that period in respect of the colliery was allowed as a permissible deduction ih its income tax assessments. The expenditure of Rs. 1,61,742 under consideration in the present case was also expenditure laid out as part of the process of profit earning.

The nature of the expenditure is clearly revenue in character. The High Court is right in holding that the expenditure is not of a capital nature.

The appeal is dismissed with costs.

N.V.K.

Appeal disJ01i.1•rcl .

COMMISSIONER OF INCOME-TAX, WEST BENGAL-II, CALCUTTA

KALYANJI MAVJI & COMPANY

January 14,. 1980

N. L. UNTWALIA

R. S. PATHAK, JJ.

Ss. 10(2)(v) & 10(2)(xv)

section 10(2)

Income Tax Appellate Tribunal

section 10(2)

section 10(2)

section 10(2)(xv)

section 10(2)(v)

s. 10(2)

D. V. Patel

Ramamurthy

A Subhashini

S. R. Banerjee

lndu Goswamy

Arvind Minocha

PATHAK

s. 66A(2)

Indian Income-tax Act, 1922

asscssee

West Bengal

Bihar

November 11, 1958

s. 10(2)

High Court at Calcutta

S. 10(2)

Section 10(2)

India

Devi Films Ltd

s. 10(2)

N.V.K.


GRINDLA YS BANK LIMITED

THE INCOME TAX OFFICER, 'H' WARD COMPANIES,

DISTRICT-IV, CALCUTTA AND ORS.

January 15, 1980

[N. L. UNTWALIA AND R. s. PATHAK, JJ.]

Bar of linlitation under section 153(1)(a)(iii) of the lnco111e Tax Act, 1961··- When the asssment proceeding remained during the entire per!od by successive orders of the Court, the fresh assessn1ent order cannot be faulted 011 grounds of limitation.

Powers of High Court to make the order a ftehll a, sessnient und,::r certiorari ; urisdiction under Art. 226 of the Constitution.

The appellant, a banking compooy incorporated in the United Kingdom, carries on banking business in India and is assessed under the Income Ta-x Art,

1961. The appellant filed a return of it~ income for the assessment year 1972-73.

During the assessment proceedings the1 Income Tax Officer issued a notice under •cction 142 (I) of the Income Ta, x Act requiring the appellant to produce certain account books and documents. The appellant applied against the notice to thei

High Court of Calcutta under Article 226 'of tho Constitution. The High Court construing the notice in specifically limited terms. directed the appellant to comply with it. The appellant preferred an appeal in the High Court. Meanwhile,

pursuant to the direction by the learned single judge~ the Income Tax Officer made an assessment order on March 31, 1977. Thereafter the appeal was allowed by a Division Bench of the High Court by its judgn1ent dated May 8 and 12, 1978, and the impugned notice under section 142(1) aruf the consequent assessment order were quashed. But while' doing so;· 'the Division Bench also directed the Incon1e Tax Officer to make a freshiissessn1ent. 1\ggrieved by that direction, the appellant applied for, and o1:¢ajned special lea\'e to appeal to this Court. ,,,.·

Dismissing the appeal, the Court

HELD : 1. The Hight Court was competent to make the order dircctiilg a\ fresh assessment since the limitation for making the assessment had not expired and no valuable right to be assessed had thereby accrued to the appellant. [769

D-EJ

The facts of the case ma..ke it clear that the assessment proceedings ren1ained pending during the entire period from March 17, 1975 to March 31, 1977 by virtue of successive stay orders of the Court. If regard be had to clause (ii) of Explanation 1 to section 153 which provides that in computing 1he period of limitation for rhe purposes of section 153 the period during which the assessment is st&•yed by an order or injunction of any court shall be excluded, it is abundantly clear that the assessment order dated March 31, 1977 is not

barred by limitation. In computing the period for 111aking the assessn1ent, the Income 1ax Officr would be entitled to exclude the entire period from March 17, 1975, on which date there were fourteen: days still left \Vithin the norm:i, l

operation of the rule of limitation.

TheJ assessment order wa:! made on the very first day after the period of stay expired; it could not be faulted on the ground of li1nitation. [769 B-D]

2. The character of an assessment proceeding of which the impugned notice a; id the assessment order formed part, being quasi-judicial, the "certiorari'' jurisdiction of the I-Iigh Court under Article 226 was attracted. Ordinarily, where the High Court exercises such jurisdiction it merely quashes the offending order, and the consequential legal effect is that but for the offending order the remaining part of the proceeding stands automatically reviewed before the inferior court or tribunal \vith the need for fresh consideration and disposal by a fresh order.

Ordinarily the High Court does not substitute its own ordr for the order quoohed by it. It is, of course, a different case where' the adjudication by the High Court establfahes a comPiete \Vant of jurisdiction in the inferior court or tribunal to entertain or to take the proceeding a.t all.

Jn that event on the quashing of the proceeding by the High Court there is no revival at all.

But although in the former kind of case the High Court, after quashing tht offending order, does not substitute its own order it has pD\Ver nonetheless to pass such further orders as the ju!:itice of the case requires. [769 F-H, 770 A]

3. When passing such orders the High Court draws on its inherent power to make all such orders as a"rc necessary for doing con1plete justice between the parties. The interests of justice require that any undeserved or unfair advantage gained by a party invoking the jurisdiction of the cou1t, by the mere circumstance that it has initiated a proceeding in the court, must be neutralised.

The simple fact of the institution of litigation by itself should not be permitted to confer an advantage on the party responsible for it. [770 A-C]

In the present case, the appellant would not have enjoyed the advantage of the bar of limitation if, notwithstanding his immediate grievance against the notice under s. 142(1) of the Income-Tax Act, he had pern1itted the assessment proceeding to go on after registering his protest before the Income-Tax Officer, and allowed an assessment order to be made in the normal course. In an application under s. 146 against the assesSment order, it would have been open to him to urge that the notice was un_reasonable and invalid and he was prevented by gufficient cause from complying \.vith it and therefore the assessment order should be cancelled. In that event, the fresh assessment made under s. 146 would not be fettered by the bar of limitation. Section 153(3)(i) removes the bar. But the appellant preferred the constitutional jurisdiction of the High Court under Article 226. If no order was 1nade by the High Court directing a fresh ftSSCiin1ent, he could contend that a fresh assessment proceeding is barred by limitation. That is an advantage which the appellant seeks to derive by the mere circumstamce of his filing a writ petition. It will b'e noted that the defect comp1ained of by the appe1Iant in the notice was a procedural lapse at best and one that could be readily corrected by serving an appropria!e notice. It v,:as not a defect affecting the fundamental jurisdiction of the Income Tax Officer to make the assessment. The Jiigh Court \Vas plainly right' in making the directioa. which it did. [770 CG]

DircllC•r of Inspection of Inco1ne Tax (Investigation) /\lew Delhi and Anr.

v. Poora11 Mall and Sons anJ Anr. (1974) 96 !TR 390@ 395; followed.

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,£_

__.,,;( "--

{ Cachar PlywoCld Ltd. v. Income Tax OfficPr, 'A' Ward, Karin1ganj Dist.

..,,

-Cachar and Anr:, (1978) !14 !TR (Cal.); approved.

Rajindr 1Vath etc. v. The Co1nn1issio11er of Inco1ne Tax, Delhi, [1980]1 SCR 272; distinguished.

Pickles v. Fa/sham, 9 Tax Cases, 261, 288; Anisminic Ltd. v. The Foreign Co1npe1Uation Co1nni~.tion & Anr. [1969] 1 All E.L.R. 208; Bath and West B Countries Property Trust Ltd. v. Thomas (Inspector of Taxes) [1978] All. E.R. 305; distinguished.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2009 of 1978.

Appeal by Special Leave from the Judgment and Order dated 8/12th C May, 1978 of the Calcutta High Court in Appeal from Original Order No. 884/76.

Devi Pal. P. K. Pal, J. B. Dadachanji and K. J.

John for the Appelfant.

S. T. Desai, B. B. Ahuja and Miss A. Subhashini for the Respon- D 4lents 1-2.

The Judgment of theCourt was delivered by

PATHAK, J : This appeal by special leave is directed against the judgment of the High Court at ca:cutta dated May 8 and 12, 1978 in

o far as it direc'.s the Income-tax Officer to make a fresh assessment E i"n respect of the appellant.

The appellant is a banking company incorporated in the United Kingdom with its registered office at London. It carries on banking business in India, and is assessed under the Income-tax Act, 1961.

The appellant filed a return of its income for the assessment year 1972-73.

During the assessme1>; proceeding, the Income-tax Officer issued a 11otice undr s. 142(1) cl the Income-tax Act requiring the "appellant to produce certain account books and documents. The appellant applied against the notice to the High Court at Calcutta under Articles 226 of the Constitution. A learned Single Jud~ of the High Court did not accept the wide construction which the appellant -1; ought to put upon the impugned notice, and construing it in specific 'limited terms he directed the appellant to comply with it. The appellant preferred an appeal in the High Court. Meanwhile, pursuant to the >direction by the learned Single Judge, the Income-tax Officer made an

a:oi; ei; sment order on March 31, 1977.

Thereafter, the appeal was :allowed by a Division Bench of the High Court by its judgment dated May 8 and 12, 1978, and the impugned notice under s. 142(1) and the

A consequent assessment order were quashed. But while doing so, the- Division Bench also directed the Income-tax Officer to make a fresh. assessment.

Aggrieved by that direction, the appellant applied for,. and obtained, special leave to appeal, to this COurt.

The sole question before us is whether the High Court erred in directing a fresh assessment.

The appellant contends that the High Court was In error in making the direction because the assessment had already become barred by limitation and thereby a valuable right not to he assessed had accrued to the appellant, and the High Court was -""" not competent to deprive the appellant of that accrued right. '1

It is necessary first to examine whether the bar of limitation had_ come into play at any time before the High Court passed the impugned order.

The assessment year under consideration is the year 1972-73. By virtue of s.153(1) (a) (iii) of the Income-tax Act, no assessment orderin respect of that assessment year could be made after two years from the end of that assessment year. The end of the assessment year i<l March 31, 1975. However, the appellant filed the writ petition on March 17, 1975, fourteen days before the end of the period for making_ the assessment order. On the same date. March 17, 1975, the learned Single Judge granted an interim injunction restraining the lncomt>-tax Officer from proceeding with the assessment, and on March 25, 1975 the injunction was made operative for the pendency of the writ petition. The writ petition was disposed of by the learned single judge by his judgment dated August 31, 1976. It is apparent that the assessment proceedings remained s'.ayed throughout the period from March 17, 1975 to August 31, 1976 by vi.rtue of the orders of the court. As. has been mentioned, the learned Single Judge disposed of the writ petition on August 31, 1976.

In his judgment, besides directing the appellant to comply with the notice under s. 142(1) as construed by him, he also included a direction to the Income-tax Officer to complete the assessment by March 31, 1977.

Oi1 Seprember 22, 1976, he amended his judgment inasmuch as it now required that "the assess-- men! for the relevant year must be completed on the 31st of March,. 1977 but must not be completed before 31st March 1977." In other words, while the Income-tax Ofticer could continue with the assessment proceedings he was restrained by the Court from making 1he assessment order before, and i'n fact could mak2 it only on, March 31,

1977. Now it is important to note that when the amendment was: made by the learned Single Judge in his judgment, it was an amendment made by him to a judgment disposing of the writ petition and having regard especially to the nature and the terms of the amend--

GRJNDLAYS BANK v. I.T.0. (Pathak, !.) 769

ment, it must be deemed '.o have taken effect as from August 31, 1976, the date of the original judgment. In the appeal filed thereafter by the appeJant, no interim order was made suspending the operation of the direction that the assessment order be made on. March 31, 1977 only.

A stay order was made against the enforcement of the notice of demand alone.

Adhering to the directions of the learned Single Judge, the Income-tax Officer made an assessment order o'n March 31, 1977.

In the result, the assessment proceeding remained pending during the entire period from March 17, 1975 to March 31, 1977 by successive orders of the Court. If regard be had to clause (ii) of Explanation 1 to s. 153, which provides that in computing the period of limitation for the purposes of s. 153, the period during which the assessment is stayed by an order or injunction of any court shall be excluded, it is abundantly clear that the assessment order dared March 31, 1977 is not barred by limitation. In computing the period for making the assessment, the Income-tax Officer would be entitled to exclude the entire period from March 17, 1975, on which date t11ern were fourteen days still left wirhin the normal operation of the rule of limitation. The assessment order was made on the very first day after the _period of stay expired; it could not be faulted on the

ound of limitation. There is, therefore, no force in the submission of the appellant that the limitation for making the assessment had expired and a valuable right not to be assessed had thereby accrued to it, and that consequently the High Court was not competent to make tJ-.e order direc"ing a fresh assessment.

The next point is whether the High court possessed any power to make the m<ler directing a fresh assessment. The principal relief sougl1t in the writ petition was the quashi11g of the notice under s. 142( 1) of the. Income-tax Act, and inasmuch as the assessment order dated March 31, 1977 was made during the pendency of the proceeding consequent upon a purported non-compliance with that notice, it became necessary to obtain the quashing of the assessment order also. The character of an assessment proeeeding, of which the impugned notice and the assessment order formed part, being quasijudicial, the "certiorari" jurisdiction of the High court under Article 226 was attracted. Ordinarily, where the High court exercises such jurisdic'ion it merely quashes the offending order and the consequential legal effect is that hut for the offending order the remainfog part of the proceeding stands automatically revived before the inferior court or tribunal with the need for fresh consideration and disposal by a fresh order. Ordinarily, the High Court does not substitute its own order for the order quashed by it. It is, of course, a different case -where the adjudication by the High Court establishes a: complete want of jurisdic-

7 70 SUPREME COURT ftEPORTS

(1980] 2 S.C.R.

tion in the inferior court or tribunal to entertain or to take the proceeding at all. In that event on the quashing of the proceeding by tho High Court there is no revival at all. But although in the former kind of case the High court, after quashing the offending order, does not substitute its own order it has power nonetheless to pass such further orders as the justice of the case requires. When passing such orders the High court draws on its inherent power to make all such onlers as are necessary for doing complete justice between the parties. The interests of justice require that any undeserved or unfair ad1anbgc ga; ned by a party invoking the jurisdiction of the court, by the mere circumstance that it has initiated a proceeding in the court, must be neutralised. The simple fact of the institution of litigation by itself should n<lt be permitted to confer an advantage on the party responsible for it. The present case goes further. The appellant would not have enjoyed the advantage of the bar of limitation if, notwithstanding his immediate grievance against the notice under s. 142 (1) of the Inco; nc-tax Act, he had permitted the assessment proceeding to go 011 after registering his protest before the Income-tax Officer, and allowed an assessment order to be made in the normal course. In an application under s. 146 against the assessment order, it would have been open to him to urge that the notice was unreasonable and invalid and he was prevented by sufficient cause from complying with it and therefore the assessment order shoulrl be cancelled. In that event, the fresh assessment made under s. 146 would not be fettered by the bar of limitation. Section 153 ( 3) (i) removes the bar. But the appellant preferred the constituti, onal jurisdiction of the High Court under Article 226. If 110 order was made by the High Court directing a fresh assessment, he could contend as is the contention now before us, that a fresh assessment proceeding is barred by limitation. That is an advantage which the appellant seeks to derive by the mere circumstance of his filing a writ petition. It will be noted that the defect complained of by the appellant in the notice was a procedural lapse at best and one that could be readily corrected by serving an appropriate notice. It was not a defect effecting the fnndamen!al jurisdiction of the Income-tax Officer to make the assessment.

In our opinion, the High Court was plainly right in making the dire<:- tion which it did. The observations of this court in Director of Inspection of Income-tax (Investigation), New Delhi and Another v. Pooran Mall & Sons and another(') are relevant. It said :

"The court in exercising its powers under article 226 has io mould the remedy to suit the facts of a case. If in a particular case a court takes the view that the Income-tax

(I) [1974] 96 l.T.R. 390 at 395.

' •

Officer, while passing an order under section 132(5), did not give an adequate opportunity to the party concerned it should not be left with the only option of quashing it and putting the party at an advantage even tl10ugh it may be satisfied that on the material before him the conclusion arrived at by the Income-tax Officer was c<>rrect or dismissing the petition because otherwise the party would get an unfair advantage. The power to quash an order under Article 226 can be exercised not merely wheu lhc order sought to be quasl1ed is one made without jurisdiction in which case there can be no room for the same authority lo be directed to deal with it. But, in the circumstances of a case, the court might take the view that another authority has the jurisdiction to deal with the matter and may direct that authority to deal with it or where the order of the authority which has the jurisdiction fs vitiated by circumstances like failure to observe the principles of natural justice, the court may quash the order and direct the authority to dispose of the matter afresh after giving the aggrieved party a reasonable opportunity of putting forward its case. Otherwise, it would mean that where a court quashes an order because the principles of natural justice have not been complied with, it should not while passing that order permit the tribunal or the authority to deal with it again irrespective of the merits of tl1e case."

The point was considered by the Calcutta High court in Cachar pl)'- wood Ltd. v. Income-Tax Officer, "A" Ward, Karimganj, Dist., Cachar

& Ano!her(') and the High court, after considering the provisions of s. 153 of the fncome-Tax Act, considered it appropriate, while disposing of the writ petition, to issue a direction to the Income-tax Officer to complete the assessment which, but for the direction of the High court, would have been barred by limitation .

..., Our attention I1as been drawn to a recent decision of this Court in

Rajinder Nath etc. v. The Commissioner of lncome-tax, Delhi(') (by a Bench of this Court of which one of us was a member).

In that case, the Court considered the provisions of s. 153(3) (ii) of the Income-tax Act and laid down that the word "direction" in that subsection refers to a direction necessary for the disposal of the case and which the court has power to make while deciding the case. Jn the view taken by us that the order made by the High Court directing a fresh assessment is necessary for properly and completely disposing of

(1) [1978) 114 l.T.R. 379.

(2) [1980) 1 S.C.R. 272.

ll'

IJ;

SUPREME COURT RHORTS

[1980] 2 S.C.R.

--A the writ petition, the appellant can obtain no assistance from Rajinder Nath (supra).

Mr. A. P. Mohanti, who appeared for the intervener, supported the contention that the High Conrt was not entitled to make an order directing a fresh assessment, and has referred us to three cases, Pickles v.

Falsham, C), Anisminic Ltd. v. The Foreign Compensation Commission and Another('), and Bath and West Countries Property Trust Ltd. v. Thomas (Inspector of Taxes)('). We are of the opinion that the cases are distinguishable. In Pickles (supra), Cave L.C. declined to remand the case to the Special Commissioners because. the time for making the requisite assessment had expired. In Anisminic Ltd.

(supra) the decision of the Commissioner considered by the House of Lords was a nullity. The present case is one of a mere procedural lapse, an imperfect notice which is replaceable by a. proper notice. The third case, Bath and West Countries Property Trust Ltd. (supra) was again a case where it was too late for the Inspector to make a fresh assessment. In the case before us a direction by the High court is sufficient to raise the bar of limitation, a power absent in the aforesaid cases.

In our Judgment, the order made by the High Court directing the Income-tax Officer to make a fresh assessment was necessary in order to do complete justice between the parties. The High Court had juris- , E diction to make the order, and it acted in the sound exercise of its judicial discretion in making it.

The appeal is dismissed with cost1.

V.D.K.

11) 9TaxCases261.288 . . 2\ [1969) I All Eng. Law Reports 208

(3) [1978] I All Eng. I.aw Reports 305.

Appeal dismissed.

' ' •

GRINDLA YS BANK LIMITED

THE INCOME TAX OFFICER, H WARD COMPANIES, DISTRICT-IV, CALCUTTA AND ORS

N. L. UNTWALIA

R. s. PATHAK, JJ.

section 153(1)(a)(iii)

Tax Act, 1961

Art. 226

United Kingdom

Article 226

May 8 and 12, 1978

section 142(1)

March 17, 1975

March 31, 1977

section 153

section 153

Article 226

s. 142(1)

Income-Tax Act

s. 146

s. 146

Section 153(3)(i)

Article 226

Devi Pal. P. K. Pal

J. B. Dadachanji

K. J.

John

T. Desai

B. B. Ahuja

A. Subhashini

PATHAK

London

India

Income-tax Act, 1961

s. 142(1)

Income-tax Act

High Court at Calcutta

Articles 226

s. 142(1)

Income-tax Act

March 25, 1975

August 31, 1976

s. 142(1)

31st of March,. 1977

31st March 1977

March 31,

1977

March 17, 1975 to March 31, 1977

s. 153

s. 153

s. 142( 1)

Income-tax Act

Article 226

s. 142

s. 146

s. 146

Section 153

Article 226

article 226

section 132(5)

Article 226

Calcutta High court

s. 153

s. 153(3)

Income-tax Act

[1980) 1 S.C.R. 272

Rajinder Nath

ll'

IJ;

SUPREME COURT RHORTS

[1980] 2 S.C.R.
A the writ petition, the appellant can obtain no assistance from Rajinder Nath (supra).

A. P. Mohanti

Pickles

Cave L.C.

Anisminic Ltd.


I -I

l-1ANAGING DIRECTOR, UTTAR PRADESH WAREHOUSING

CORPORATION & ANR.

l' .

VINAY NARAYAN VAJPAYEE

January 16, 1980

[R. S. SARKARIA AND 0. CHINNAPPA REDDY, JJ.]

LJ1hour dispute-Employer-A Statutory Corporation-Disnzissed an e1npToyee 'lV-ithout giving an c-pporJunity of being_ heard-Validity of.

Statutory bodies-Rights of employees under.

Constitu1ion of India-Article 226-Scope of-High Court issued Writ of -Certiorari qutJshing order of di.unissal and ordered reinstatement of en1ployee

with full back l'l-'oges--Il con1petent to order reinstaten1ent.

The respondent was an employee of o statutory body. On allegations of theft, misappropriation of stocks and certain other irregularities a preliminary Cnquiry was conducted by the I\fanaging Director (the appellant) and charge~ were framed against the employee. In the explanation submitted by him he expressly demanded that he wished to cross-examine certain witnesses whose names were given by him, and wanted to examine certain other persons a! witnesses. A few months thereafter, the appellant passed the impugned order of dismissal and required him to pay Rs. 549 jon account of certain com modities allegedly misappropriated by him.

The employee's petition under Article 226 for tQa issue of a writ of certiorari was rejected by a single Judge. The Division Bench allowed the writ on the ground that the Corporation which was required to act in a quasi-judicial manner failed to give an opportunity of being heard to the dismissed employee and that therefore the order of dismissal was bad.

On appeal, the appellant contended that Regulation 16 providing for an enquiry and giving an opportunity to an employee against whom an enquiry ·"'tls to be held for misconduct had not come into force when the respondent was dismissed and, therefore, he had no statutory status and no locus-standi to maintain the writ which in substance was for specific performance of a ..contract of service.

Dsmissing the appeal,

HEID : (Per Sarkaria, J.)

1. The impugned order of dismissal was bad in law and had been rightly l!et aside by the High Court [781 F]

(a) Regulations defining duties, conduct and conditions of its employees framed by statutory bodies have the force of law.

The form and content of contract with a particular employee being preScriptive and statutory, the statutory bodies have no free hand in framing the terms and conditions of tervice to their employees, but are bound to apply them as laid down in the

regulations.

The regulations give the employees a statutory stntus oind impose obligations on the statutory authorities, and that they cannot deviate frorn the conditions of service laid down therein.

There is no personal element in public employment and service.

Whenever employees rights are affected by a decision taken under statutory powers the court would presume the existence of a duty to observe the rules of natural justice and compliance by the statutory body with rules and regulations in1posed by the statute. [779 EG}

Sukhdev Singh v. Bhagat Rani [1975] 3 SCR 619 referred to

In the instant C•Jse the appellant v,.ns a statutory body and, therefore, even if at the time of dismissal the statutory regulations had not been framed or had not come into force, employment being public employment, the employer could not terminate the employee's services without due enquiry in accordance with the regulations in force or in the absence of any regulations, in accordance with the rules of natural justice.

Such on enquiry into the conduct of a public employee is of a quasi-judicial character. The respondent was employed by the Corporation in exercise of the powers conferred on it by the statute and, threfore, the Corporation's pO\Ver to dismiss the respondent from service was derived from this statute.

The court would presume the existence of a duty on the part of the dismissing authority to observe rules of natural justice and to act in accordance with the spirit of the regulation which was: then on the anvil and came into force shortly' after the dismissal.

Secondly, in the instant case no regular departmental enquiry \Vas hekl.

The order of dismissal was passed summarily after perusing the employee's explanation. The rules of natural justice require that the dismissed e1nployee shoulJ be given a reasonable opportunity to deny his guilt, to defend himself and to est"'blish his innocence which means an opportunity to cross-examine the witnesses relied upon by the Corporation and an opportunity to lead evidence in defence of the charge as also the show-cause notice for the proposed punishment. Such an opportunity w:\s der.itd to the respondent. [780 G-H; 781 A-D]

Executive Con1n1itee of U.P. State Warehousing Corporation Ltd. v.

Chandra Kiran Tyagi [1970] 2 S.C.R. 250; Ra111ana Dayara111 Shetty v. The International Airport Authority of India & Ors. A.I.R. 1979 S.C. 1628 referred to.

2. The High Court \Vas in error in directing payment of full back wages to the dismissed 'employee. [783 EJ

3(a) In exercise of its certiorari jurisdiction under Article 226 of the Constitution, the High Court acts only in. a supervisory capacity and not as an. appellate tribunal.

It does not review the evidence upon which the inferior Tribunal proposed to base its conclusion; it simply demolishes the order which it considers to be without jurisdiction or n1anifestly erroneou<; but does not substitute its own view for the vievv of the inferior tribunal.

Tn m•Jtters of employment while exercising its supervisory jurisdiction under Article 226 of the Constitution over the orders and quasi-judicial proceedings of an admini~ trative authority culminating in dismissal of an employee, the High Court should ordinarily, in the event of the dismissal being found illegal, imply quash the same and should not further give a positive direction for payment to the employees full back wages (although as a consequence of the annulment of the dimissal the position as it obtained imn1ediatdy before the dismisl!al is restored). [782 F-H]

• •

(b) Whether an employee of a statutory authority should be reinstated in A public employment with or without full back wages, is a question of fact depending on evidence to be produced before the triburial.

One of the important factors to be considered in determining whether reinstatement should be with full back wages and with continuity of employment is to see if after the termination of his employment the employee was gainfully employed elsewhere. [783 D-EJ

In the instant case the employee did not raise an industrial dispute nor did he invoke the jurisdiction of the Labour Court or Industrial Tribunal but moved the High Court under Article 226 primarily on the ground of violation of the principles of natural justice'.

[783B-C]

Chinnapp~ Reddy, J. (concurring).

There is hardly any distinction, on principle, between a person directly C under the employment of the Government and a person under the employment of an agency or instrumentality of the Governn1ent or a corporation set up under a statute or incorporated but wholly owned by the Government.

The desire to achieve the objectives enumerated in the preamble to the Constitution has resulted in intense governmental activity in iuanifol& v,:ays.

Today, the Government either directly or through corporations set up by it or O\\Tied by it, owns or manages a large number of industries and institutions. These D agencies and instrumentalities, corporations or companies have become the biggest employers in the country. There is no good reason why if the Government is bound to observe the equality ck1uses of the Constitution in the matter of employment and in its dealing vtith its employees, the Corporations set up or owned by the Government should not be equally bound and why instead, such Corporations shouldbecome citadels of patronage and arbitrary .action. To confine the applicability of the equality clauses, in relation to E matters of employment, strictly to direct employment under the Governments, in a country like ours is perhaps to mock at the Constitution and the people.

Some element of public employment is all that is necessary to take the employee beyond the reach of the rule which denies him access to a court so as to enforce a contract of employment and denies him the protection of ) Articles 14 and 16. Employees in public sector often discharge the onerous duties as civil servants and participate in activities vital to the country's F economy.

Many enactments have declared persons in the ervice of local authorities, government companies 0.nd statutory corporations, as public servants and extended to them the protection which is extended to civil servants from suits and prosecutions. It is, therefore, but right that the independence and integrity of those employed in the public sector should be secured as much as the independence and integrity of civil servants. (784 D- 785 G

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 274 of 1970.

Appeal by Special Leave from the Judgment and Order dated e 6-8-1969 of the Allahabad High Court in Special Appeal No. 4/67.

M _ N. Phadke and Naunit Lal for the appellants.

12-91SCI/80

A. K. Sen, E. C. Agarwala, R. Sathish and V. K. Pandita for the Respondent.

The following Judgments were delivered by

SARKARIA, J.-Uttar Pradesh State Warehousing Corporation (for short, the Corporation), has preferred this appeal by special/ leavei

against an appellate judgment, dated August 6, 1969, of a Division Bench of the High Court of Allahabad.

It arises out of these facts :

V. N. Vajpayee, respondent herein, was employed as a Warehouseman with the Corporation and at the relevant time was posted at the Kanpur Warehouse.

There was a complaint of theft, misappro- C priation of stocks and various other irregularities against the respondent.

A preliminary inquiry was held by the Managing Director of the Corporation and charges were framed against him and served upan him on November 28, 1960, requiring him to submit his explanation and to indicate the evidence, if any. On receiving the charge-sheet, the respondent addressed a communication, requesting the Managing Director D to furnish him with certain papers, which were accordingly furnished.

Thereafter, the respondent submitted his explanation on January 19,

1961. In this explanation, he specifically demanded that he v.anted to cross-examine certain witnesses, the particulars of which were mentioned by him. He further gave the names and particulars of certain E other witnesses, stating that he wanted to examine them, in defence.

Nothing happened thereafter till April 18, 1961, on which date the Managing Director passed an order dismissing the respondent from service with effect from the date of his suspension.

Later on, a demand was made from the respondent, requiring him to remit a sum of (Rs. 549 .61 due to the Corporation on account of certain commodities F said to have been misappropriated by the respondent on account of short realisation of storage charges by him.

The respondent then filed a Writ Petition (No. 87 of 1962) under Article 226 of the Constitution, in the High Court praying for a writ of certiorari to quash the order of his dismissal on the ground that it was violative of the principles of natural justice, inasmuch as he had G not been given an opportnnity to cross-examine the witnesses and to establish his innocence. He further prayed for a direction that the Corporation be restrained from recovering the sum of Rs. 549.61 from him.

In the counter-affidavit, the appellants stated that the respondent H had also cross-examined the witnesses.

It was further urged that there had also cross-examined the witnesses. It was further urged that there was no regulation provided for conducting an inquiry in a particular

\ "I

. ,,., .,. .

manner, and, therefore, the remedy of the respondent was by way of a suit aud he had no locus standi to invoke the extra-ordinary jurisdiction of the Court under Article 226 of the Constitution. It was further pleaded that the writ petition was delayed and should have been thrown out on that score, also.

The writ petition was heard by a learned Single Judge of the High Court, who dismissed it, holding that t.he Corporation was not required to act in a quasi-judicial manner and that the provisions of Article 311 of the Constitution were not applicable to the facts of the case .

Aggrieved, the respondent carried a special appeal to a Division Bench of the High Court, which has reversed the judgment of the learned Single Judge, and has held that the Corporation was required to act in a quasi-judicial manner and, therefore, the writ petition was maintainable.

The Division Bench remanded the case for a decision on merits.

After the remand, the lea!"Ded Single Judge by his judgment, dated December 7, 1966, allowed the writ petition, holding that the principles of natural justice had been violated.

He, therefore, quashed the order of the respondent's dismissal, but refused to grant an injunction restraining the appellant for realising Rs. 549.61 from the respondent.

The Corporation again preferred a Special Appeal No. 4 of 1967 to a Division Bench of the High Court, which dismissed that appeal by a judgment, dated August 6, 1969.

Hence this appeal by the Corporation.

The main contention of th~. learned counsel for the appellants is that at the relevant time, Regulation I 6 providing for an enquiry and, giving an opportunity to the employee had not come into force; consequently, the respondent had no statutory status and had. theretorn no

lor:us standi to maintain the writ petition.

It is submitted that the only remedy of the respondent was to file a suit for damages on account of his alleged wrongful dismissal.

Support for this contention has been sought from a decision of this Court in Executive Committee of U.P.

State Warehousing Corporation Ltd. v.

Chandra Kiran Tyagi(').

Reference has also been made to Sirsi Municipality v.

Cecelia Kam Francis Tellis.(')

On the other hand, Shri A. K. Sen, appearing for the respondent, submits that since the decision of this Court in U.P. State Ware/wusing Corporation (ibid), the laW' has undergone a change. It is pointe<J out that the appellant is a Corporation constituted under a statute and is owned and controlled by the State Government and its employees.

L B

therefore, have a statutory status. It is argued that even in the absence of Regulation 16 providing for a departmental enquiry, the appellant was bound to hold an enquiry and to give, in compliance with the rules of natural justice, lull :ind fair opportunity to the respondent to defend himself and repel the charges levelled against him. It is maintained that such an opportunity was denied to him because he was not al!cwed to examine witnesses cited by him in defence. Reference in cMnection with the proposition propounded has been made to SukiLiev Singh & Ors. v. Bhagatram Sardar Singh Raghuvanshi & Anr.(')

We will first notice Chandra Kiran Tyagi's case, which is the sheetar, chor of the appellants' arguments.

The facts of that case were somewhat similar.

Tyagi was a Warehouseman in the employment of the U.P. State Warehousing Corporation Limited.

After recei\ing Tyagi's explanation, the Enquiry Officer did not take any evidence in respect of any charge. Instead, he met various persons and collected information, and gave his findings on the various charges on the basis of the enquiries made by him and the records.

Even the information so collected was not put to Tyagi.

On the basis of those findings of the Enquiry Officer, Tyagi was dismissed from service.

Tyagi filed a suit challenging his dismissal.

He prayed for a declaration for rninstatement on the ground that the relationship was one of personal service.

Speaking through Vaidialingam, J. this Court held that a declaration to enforce a contract of personal service will not normally be granted. It was noted that there are three exceptions to this ruk :

(i) appropriate cases of public srvants who have been dismissed from service in contravention of Article 311, (ii) dismissed workers under industrial and labour law; and (iii) when a statutory body has acted in breach of a mandatory obligation imposed by a statute. It was fur. ther held that though the impugned order was made in breach of the regulation contrary to the terms and conditions of the relationship between the appellant (employer) and the respondent (employee), but, it would not be in breach of any statutory obligation, because, the Act does not guarantee any statutory status to the respondent; nor does it impose any obligation on the appellant in such matters.

Therefore, the violation of regulation 16(3) as alleged and established in that case, could only result in the order of dismissal being held to be wrongful, and in consequence, making the appellant liable for damages, but could not have the effect of treating the respondent as still in service or entitling him to reinstatement.

H The authority of the rule in Tyagi's case, to the effect, that an employee of such a statutory body even if it be owned and managed by

r. )

the Government does not enjoy a statutory status, appears to have been eroded by the later decisions of this Court, particularly the proncuncement in Sukhdev Singh's case (ibid). The statutory bodies in that case were : Oil and Natural Gas Commission, Industrial Finance Corporation and Life Insurance Corporation. All the three bodies wer,(' created under separate stututes enacted by the Central Legislature. It was clear from the Oil and Natural Gas Commission Act, 1954, that the Commission created by it, acts as an agency of the Central Government.

Similarly, by virtue of the Industrial Finance Corporation Act, 1948, the Finance Corporation is under the control a.nd management of the Central Government.

The Life Insurance Corporation is similarly owned and managed by the. Government and call be dissolved only by the Government in view of the provisi011s of the Life Insurance Act, 1956. All the three statutes constituting the three statutory corporations enabled them to make regulations which provide, inter alia, for the terms and conditions of employment and services of their employees.

Questions arose : (i) whether the regulations have the force of law, and (ii) whether the statutory corporations are 'State' within the meaning of Article 12 of the Constitution.

Ray, C.J., speaking for himself and Chandrachud and Gupta JJ., held that the regulations framed by these stututory bodies for the purpose of defining the duties, conduct and conditions of its employees have the force of Jaw.

The form and content of the contract with a particular employee is prescriptive and statutory.

The notable feature is that these statutory bodies have no free hand in framing the conditions and terms of service of their employees.

They are bound to apply the terms and conditions as laid down in the regulations.

These regula-- tio•s are not only binding on the authority but also on the public.

They give the employees a statutory status and impose obligations on the statutory authorities, who cannot deviate from the conditions of • serlice.

-\ ; It was further made clear that an ordinary individual, in the case of master and servant contractual relationship, enforces breach of con-

' tract, the remedy being damages because personal service is not G capable of enforcement.

In the case of statutory bodies, huwever, there is no personal element whatsoever because of the impersonal character of the bodies.

In their case, the element of public employment and service and the support of statute require observance of rules and regulations.

At page 634 of the Report, the learned Chief Justice significantly reiterated that "whenever a man's rights are affected H by decision taken under stututory powers, the Court would presume

>, the existence of a duty to observe the rules of natural justice and com-

A pliance with rules and regulations imposed by statute...

The Court then referred to U.P. Warehousing Corporation and Indian Airlines Corporation cases and held that these decisions were rn direct conflict with an earlie.r decision of this Court in Naraindas Barot v. Divisional Controller, S.T.C.,(') and were wrongly decided.

The Court followed the decision in Sirsi Municipality (ibid).

Mathew J. in his separate but concurring judgmnt, pointed out how the concept of the State has undergone draetic changes in recent years.

A State is an abstract entity and can act oniy through the instrumentality or agency of natural or juridical persons.

With the advent of a welfare State the framework of civil service administration becarne increasingly insufficient for handling the new tasks which were often of a specialised and highly technical character For this reason, a policy of public administration through separate Corporations which would operate largely according to business principles and be separately accountable, was evolved.

Such public corporations constituted under enactments, became a third arm of the Government.

The employees of public corporation are not civil servants. In so far as public corporations fulfil public tasks on behalf of the Government, they are public authorities and, as such, subiect to control by Government.

The public corporation being a creation of the State is subject to the constitutional limitation as the State itself.

The Court thus with a majority of 4-1 held tilat the statutory bouies then under consideration were 'authonties' within tr' meaning of Article 12 of the Constitution and though their empl"yees were not sen ants of the Union or of a State, yet they had a statutory status.

The appellant is a Corporation constituted under the Uttar Pradesh State Warehousing Corporation (Act 28) of 1956, which was subsequently replaced by the Central Act 58 of 1962. It is a statutory body wholly controlled and managed by the Government.

Its status 1s analogous to that of the Corporalions which were under consideration in Sukhdev Singh's case (ibid).

The ratio of Sukhdev Singh's case, therefore, squarely applies to the present case.

Even if at the time of the dismissal, the statutory regulations had not been framed or had not come into force, then also the employment of the respondent was public employment and the statutory body, the employer, could not terminate the services of its employee without due enquiry in accordance with the statutory Regulations, if any in force, or in tl1c absence of such Regulations, ir. <teccrdoucc with the rules of natural

justice.

Such an nquiry into ti1e c<.)T]duct o[ a public employee is of

' .

a quasi-judicial character.

The respondent wa; employed by the appellant-Corporation in exercise o! tile powers conferred . on it by the statute which created it. The appellants' power to dismiss the respondent from service was also derived from the statute. The Court would therefore, presume the existence of a duty on the part of the dismissing authority to observe the rules of natural justice, and to act in accordance with the spirit of Regulation 16, which was then on the anvil and came into force shortly after the impugned dismissal.

The rules of natural justice in the circumstances of the case, required that the respondent should be given a reasonable opportunity to deny his guilt, to defend himself and to establish his innocence which means and includes an opportunity to cros~-cJcamiee the witnesses relied upon by the appellant-Corporation and an opportunity to lead evidence in defence of the charge as also a show-cause notice for the proposed punishment.

Such an opportunity was denied to the respondent in the instant case.

Admittedly, the respondent was not allowed to kad evidence in defence.

Further, he was not allowed to crossexamine certain persons whose statements were not recorded by the Enquiry Officer (Opposite Party No. 1) in the pre>ence of the resndent. There was controversy on this point. But it was clear to the High Court from the report of enquiry by the Opposite Party No. 1 that he relied upon the reports of some persons and the statements of some other persons who were not examined by him.

A regular departmental enquiry takes place only after the charge-sheet is drawn np and served upon the delinquent and the latter's explanation is obtained.

In the present case, no such enquiry was held and the order of dismissal was passed summarily after perusing the respondent's explanation.

The rules of natural justice in this case, were honoured in total breach.

The impugned order of dismissal was thus bad in law and had been rightly set aside by the High Court.

Before passing on to the next question we may in fairness mention, that Mr. Asok Sen had cited two more decisions, also.

The first was a recent judgment of the House of Lords in Melloch.v. Aberdeen Corporation('), wherein Lord Wilberforce in his speech (at pages 1595- 1596 of the Report) observed that in cases in which there is an element of public employment or service, or support by statute or something in the nature of an office or a status, which is capable of protection, then irrespective of the terminology used, and even though in some inter parties aspects the relationship may be called that of master and servant, there may be essential procedural requirement to be observed on grounds of natural justice.

The second decision is Ramana

(l) [1971] I W.L.R.1578.

Dayaram Shetty v. The International Airport Authority of India & Ors.(')

In Ramana Dayaram Shelly's case (ibid) Bhagwati, J. after making an exhaustive survey of t, he decisions of this Court and of American Courts, summarised some of the factors which are considered to determine whether a Corporation is an agency or instrumentality of Government.

We do not think it necessary to burden this judgment by a detailed discussion of these cases because in the instant case, -all the material factors exist which show beyond doubt that the Uttar Pradesh State Warehousing Corporation constituted under the Central Act 28 of 1956, is an agency or instrumentality of the Government, and the relationship between the Corporation and its employees is not purely that of m-aster and servant, founded only on contract.

Indeed, it was not seriously disputed that the respondent was in public employment, and the Corporation is an authority within the meaning of Article 12 of the Constitution.

Further contention of the learned counsel for the appellants is that even if the dismissal of the respondent was wrongful, the High Court could only quash the same, bnt it could not in the exercise of its certiorari jurisdiction under Article 226 of the Constitution give the further direction that the employee should be reinstated in service with full back wages.

It is maintained that in giving this further direction, the High Court had overleaped the bounds of its jurisdiction.

There appears to be force in this contention. It must be remembered that in the exercise of its certiorari jurisdiction under Article 226 of the Constitution, the High Court acts only in a supervisorY capacity and not as an appellate tribunal.

It does not review the evidence upon which the inferior tribunal proposed to base its conclusion; it simply demolishes the order which it considers to be without jurisdiction or manifestly erroneous, but does not, as a rule, substitute its own view for those of the inferior tribunal.

In other words, the offending order or the impugned illegal proceeding is quashed and put out of the way as one which should not be used to the detriment of the writ petitioner.

Thus in matters of employment, while exercising its supervisory jurisdiction under Article 226 of the Constitution, over the order and quasi-judicial proceeding of an administrative authority-not being a proceeding under the industrial law /labour law before an industrial/labour tribunal--<:ulminating in dismissal of the employee, the High Court should ordinarilv. in

11) A.I.R. 1979 S.C. 1628.

U. P. WAREHOUSING CORPN. V. V. N. VAJPAYEE 783 (Chinnappa Reddy,!.) the event of the dismissal being found illegal, simply qnash the same and should not further give a positive direction for payment to the employee full back wages (although as a consequence of the annulment of the dismissal, the position as it obtained immediately before the dismissal is restored), such peculiar powers can pr6£erly be exercised in a case where the impugned adjudication or award has been given by an Industrial Tribunal or Labour Court.

The instant case is not one under Industrial/Labour Law.

The respondentemployee never raised any industrial dispute, nor invoked the jurisdictiop. of the Labour Court or the Industrial Tribunal. He directly moved the High Court for the exercise of its special jtJlisdiction under Article 226 of the Constitution for challenging the order of dismissal primarily on the ground that it was violative of the principles of natural justice which required that his public employment should not be terminated without giving him a due opportunity to defend himself and to rebut the charges against him.

Furthermore, whether a worm_an or employee of a statutorY authority should be reinstated in public employment with or without full back wages, is a question of fact depending on evidence to be produced before the !ribunal. If after the termination of his employment the workman/ employee was gainfully employed elsewhere, thl)J is one of the important factors to be considered in determining whether or not the reinstatement should be with full back wages and with contiuity of employment.

For these two fold reasons, we are of opinion that the High Court was in error in directing payment to the employee full back WG)?fS.

For the foregoing reasons wh\le upholding the judgment of the High Court with regard to the quashing of the order of dismiss~! of the respondent on the ground of its being invalid, we delete the direction for payment to the respondent full back wages. Excepting this modification, the appeal is dismissed.

However. in the circumstan-

Ce!', the appellant-Corporation shall pay the costs of the responden4

in this Court.

CHINNAPPA REDDY, J.-The respondent-employee was dismissed from service.

The employer dismissed him, without observing the principles of natural justice. This has been found by the High Court who quashed the order of dismissal in a proceeding under Art. 226 of the Constitution.

The employer has appealed.

The employer claims that a declaration to enforce a contract of personal service cannot be granted by the Court.

The only remedy of the employee, he pleads, is to file a suit for damages for wrongful dis'missal.

The answer of the employee is that the employer is a statutory Corporation whose employees have statutory status, and that the employer is bound by the regulations made under the statute as also to observe the principles of natural justice.

Breach of the regulations or failure to observe the principles of natural justice entitles the employee to invoke the jurisdiction of the High Court under Article 226 of the Constitution.

The question whether breach of statutory regulations or failures to observe the principles of natural justice by a statutory Corporation w:ll entitle an employee of such Corporation to claim a declaration of continuance in service and the question whether the employee is entitled to the protection of Arts. 14 and 16 against the Corporation were considered at great length in Sukhdev Singh & Ors. v. Bhagatram Sardar Singh Raghuvanslzi & Anr.(1) The question as to who may be considered to be agencies or instrumentalities of the Government was also considered, again at some length, by this Court in Ramana Dayaram Shelly v.

The International Airport Authority of India & Ors.(')

I find it very hard indeed to discover any distinction, on principle, between a person directly under the employment of the Goverrnnent and a person under the employment of an agency or instrumentality of the Government or a Corporation, set up under a statqte or incorporated but wholly owned by the Government.

It is self evident and trite to say that the function of the State has long since ceased to be confined to 'the preservation of the public peace. the exaction of taxes and the defence of its frontiers.

It is now the function of the State to secure 'social, economic and political justice. to preserve 'liberty of thought, expression, belief, faith and worship', and to ensure 'equality of status and of opportunity'. That is the proclamation of the people in the preamble to the Constitution.

The desire to attain these objectives has necessarily resulted in intense Governmental activity in manifold ways.

Legislative and executive activity have reached very far and have touched very many aspects of a Gitizen's life.

The Government, directly or through the Corporations, set up by it or owned by it, now owns or manages, a large number of industries and institutions. It is the biggest builder in the country.

Mammoth and minor irrigation projects, heavy and light engineering projects, projects of various kinds are undertaken by the Government.

The Government is also the biggest trader in the country. The State and the multitudinous agencies and Corporations set up by it are the principal purchasers of the produce and

(2) A.I.R. 1979 S.C. 1628.

...

_,/''"

U. P. WAREHOUSING CORPN. V. V. N. VAJPAYEE 785 (Channappa Reddy, !.) the products of our country and they control a vast and complex machinery of distril; JUtion.

The Government, its agencies and instrumentalities, Corporations set up by the Government under statutes and Corporations incorporated under the Companies Act but owned by the Government have thus become the biggest employers in the country. There is no good reason why, if Government is bound to observe the equality clauses of the c0nstitution in the matter of employment and in its dealings with the employees, the Corparations set up or owned by the Government should not be equally bound and why, instead, such Corporations could become citadels of patronage and arbitrary action.

In a country like ours which teems with population, where the State, its agencies, its instrumentalities and its Corporations are the biggest employers and where millions seek employment and security, to confirm the applicability of the equality clauses of the constitution, in relation to matters of employment, strictly to direct employment under the Government is perhaps to mock at the Constitution and th~ people.

Some element of public, employment is all that is necessary to take the employee beyond the reach of the rule which denies him access to a Court so enforce a contract of employment and denies him the protection o1' Arts. 14 and 16 of the Constitution.

After all employment in the public; sector has grown to vast dimensions and employees in the public sector often discharge as onerous duties as civil servants and participate in activities vital to our country's economy.

In growing realization of the importance of employment in the public sector, Parliament and the Legislatures of the States have declared persons in the

service of local authoritie8, Government companies and statutory corporations as public servants and, extended to them by express enactment the protection usually extended to civil servants from suits and prosecution.

It is, therefore, but right that the independence and integrity of those employed in the public sector should be secured as much as the independence and integrity of civil servants.

I agree with what has been said by my brother Sarkaria .r.

I have added a few lines to emphasise some aspects of the problem.

PB.R.

Appeal dismissed.

MANAGING DIRECTOR, UTTAR PRADESH WAREHOUSING CORPORATION & ANR

VINAY NARAYAN VAJPAYEE

R. S. SARKARIA

0. CHINNAPPA REDDY, JJ.

Article 226

Article 226

Per Sarkaria

[1975] 3 SCR 619

[1970] 2 S.C.R. 250

Article 226

Article 226

Article 226

Chinnapp~ Reddy

Articles 14 and 16

N. Phadke

Naunit Lal

A. K. Sen

E. C. Agarwala

R. Sathish

V. K. Pandita

SARKARIA

High Court of Allahabad

V. N. Vajpayee

November 28, 1960

January 19,

1961

Article 226

Article 226

Article 311

December 7, 1966

August 6, 1969

U.P. State Ware/wusing Corporation

Chandra Kiran Tyagi

Tyagi

Tyagi

Vaidialingam

Article 311

Sukhdev Singh's

Oil and Natural Gas Commission

Industrial Finance Corporation

Central Government

Life Insurance Corporation

Life Insurance Act, 1956

Article 12

Ray

Chandrachud

Gupta

U.P. Warehousing Corporation

At page 634 of the Report, the learned Chief Justice significantly reiterated that "whenever a man's rights are affected H by decision taken under stututory powers, the Court would presume
, the existence of a duty to observe the rules of natural justice and com-

A pliance with rules and regulations imposed by statute...

The Court then referred to U.P. Warehousing Corporation and Indian Airlines Corporation cases and held that these decisions were rn direct conflict with an earlie.r decision of this Court in Naraindas Barot v. Divisional Controller, S.T.C.,(') and were wrongly decided.

Indian Airlines Corporation

Sirsi Municipality

Mathew

Article 12

Sukhdev Singh

Asok Sen

Wilberforce

Ramana Dayaram Shelly

Bhagwati

Article 12

Article 226

Article 226

Article 226

Chinnappa Reddy

Article 226

CHINNAPPA REDDY

Art. 226

Article 226

Arts. 14 and 16

Channappa Reddy

Companies Act

Arts. 14 and 16

Parliament

Sarkaria


ST A TE OF MADHYA PRADESH

SHANKER LAL & ORS.

January 16, 1980

[N. L. UNTWALIA AND 0. CHJN,; APPA REDDY, JJ.]

}., fadhya Pradesh .Municipalities Act, 1961, Section 94(7)-Scope of-State Governrnent transferred teachers en1ployed by Municipal Coucils-Competency of.

The respondents were employed as lecturers and teachers in the various C Municipal Higher Secondary Schools run and managed by a Municipal Council in the State.

The State Government transferred certain lecturers and teachers serving under a particular Municipal Council to the Schools run and managed by another Municipal Council.

The respondents writ petition challenging the order of their transfers was allowed by the High Court on the ground that no officer other than those mentioned in s. 94(7) namely Revenue Officer,.

Accounts Officer etc. could be transferred.

In the State's appeal the respondents contended that they were employees of schools run and managed by Municipal Councils but not of the Councils.

HELD : I. The High Court was not right in putting a retricted interpretation on s. 94(7) of the Act. The other officers and servants who can be appointed by the Municipal Councils under sub-section (1) or sub-section (2) of Section 97 ar'e also officers and servants mentioned in these sub-sections for the purposes of sub-section (7). Theoretically, therefore, the power does exist in the State Government to transfer them. [788 B-C]

2. The argument that the respondents arc the employees of schools run and managed by the Municipal Councils but not of the councils themselves has no substance.

Education department is one of the departments of a

funicipal Council.

Section 124 envisages the establishment and running of Higher Secondary Schools by Municipal Councils and therefore the lecturers and teachers appointed in the various <>chools are officers and servants of the Municipal Councils. [788 G-H, 789 A]

3. In case of employees getting small emoluments the power to transfer should be sparingly exercised under some compelling exigencies of a particular situation and not as a matter of routine. [788 C-D]

Clv1r. APPELLATE JuR1smcnoN : Civil Appeal Nos. 537-539 of

./ r

1970. ;_..-

Appeals by Special Leave from the Judgment and Order dated 20-8-1968 of the Madhya Pradesh High Court in Misc, Petition Nos. 282, 283 and 293 of J 968.

S K. Gambhir for the Appellant.

S. S. Khanduja for the Respondents.

.,,.

M. P. STATE y. SHANKER LAL ( Ulltwalia, !. )

The Judgment of the Court was delivered by

UNTWALIA, J.-These three appeals by special leave are from the common judgment of the Madh\"l Pradesh High Court allowing the Writ Petitions filed by the six respondents and quashing the orders of their transfer made by the State Government in exercise of their power under s. 94(7) of the Madhya Pradesh Municipalities Act, 1\161, hereinafter called the Act.

The respondents were employees of the Municipal Council, Sagar.

They were employed as lecturers and teachers in the various Municipal Higher Secondary Schools run and managed by the said Municipal Council.

Three orders were issued by the State Government on various dates in June, 1968 transferring certain lecturers and teachers serving under a particular Municipal Council tci the schools run and managed by another Municipal Council.

The six respondents were transferred by the said orders to various places. They challenged the order of transfer in the High Court on the ground that the State Government had no power to transfer them under s. 94(7) of the Act. The High Court has c cepted their contention and hence these appeals.

We shall quote the relevant provisions of s. 94 of the Act as they stood at the relevant time from the judgment of the High Court. There have been some amendments in the year 1973 with which we are not concerned.

They read as follows :-

"94. Appointment of staff :-

( 1) Every Council having an annual income of five lakhs of rupees or more shall, subject to rules framed under section 95, appoint a Revenue Officer and an Accounts Officer and may appoint such other officers and servants as may be necessary and proper for the efficient discharge of its duties.

(2) Every Council not falling under sub-section (1) shall, subject to rules framed under section 95, appoint a Sanitary Inspector, an Overseer, a Revenue ·

Inspector, and an Accountant and may appoint such other officers and servants as may be necessary and proper for the efficient dis"charge of its duties : .......................................

(7) The State Government may transfer any officer or

servant of a council mentioned in sub-sections (1) & ff

(2) and in receipt of total emoluments exceeding one hundred rupees to any other Council."

788 SUPRE~1E COURT l{El'ORTS

[1980] 2 S.C.R.

A The High Court has taken the view that the words "any officer or servant of a Council mentioned in sub-sections (1) and (2)" occurring in sub-s. (7) mean "any officer or servant as enumerated or specified in s\ib-ss. (1) and (2); that is to say, the officers who can be transferred under sub-s. (7) are only Revenue Officer, Accounts Officer, Sanitary lnspector and an Overseer, a. Revenue Inspector or an Acconntant.

No other officer or servant can be transferred. We do not think that the High Court is right in putting this restricted interpretation to sub-s. (7) of s. 94.

Other officers and servants who can be appointed by jhe Municipal Councils either under sub-s. (1) or under sub-s. (2) are also the officers and servants mentioned in these sub-sections for the purposes of sub-s. (7). Theoretically, therefore, the power does exist in the State Government to transfer them.

We must, however. hasten to add that in case of employees getting small emoluments the power seems to be meant to be sparing .. ly exercised under some compelling exigencies of a particular situation and not as a matter of routine. If it were to be liberally exercised, it will create tremendous problems and difficulties in the way of Municipal employees getting small salaries.

There may be hardly :in employee serving under any Municipal Council who cannot be theoretically and literally covered by sub-ss. (1) and (2) and subjected to the exercise of power of transfer under sub-s. (7).

E The High Court in support of its view has referred to snb-s. ( 4) of s. 94 wherein only the officers enumerated in sub-ss. (1) and (2) are specified. Obviously the said sub-section does not cover the cases of other officers and servants as mentioned in sub-ss. (I) and (2). The language of sub-sec. (7) is in contrast to that of sub-s. (4) and, instead of lending support to the view of the High Court, goes against it.

It was argued for the respondents that they are employees of the Schools run and managed by the Municipal Councils but not of the Councils themselves. We do not think that this argument has got G any snbstance.

Education department is one of the departments ef a Municipal Council.

Duties of the Conncil are enumerated in subs. (1) of s. 123, clause (v) which provides for "establishing and maintaining primary schools". Under s. 124 "a Council may, at its discretion, provide, either wholly or partly out of the Municipal property and fund, for all or any of the following matters, namely ( c) H furthering educational objects." Thus establishment and running of Higher Secondary Schools by Municipal Councils are envisaged under the Act and the lecturers and teachers appointed in the various schools

M. P. STATE v. SHANKERLAL (Untwalia, J.) 789

are undoubtedly the officers and servants of the Municipal Coun- A '! ells.

For the reasons stated above we hold that the State Government had the power to transfer the respondents. But it is not clear why the power was exercised in the case of the respondents.

In any event, learned counsel for the appellant assured ns that the State is more anxious for the correct interpretation of the law engrafted in section 94(7) of the Act than to enforce the order of transfer against the respondents.

In the result while clarifying the position of law, we dismiss the appeals but make no order as to costs.

N.K.A.

Appeals dismissed.

A TE OF MADHYA PRADESH

SHANKER

January 16, 1980

January 16, 1980

[N. L. UNTWALIA AND 0.

N. L. UNTWALIA

APPA REDDY, JJ.

Municipalities Act, 1961

Section 94(7)

s. 94(7)

s. 94(7)

Section 97

Section 124

S K. Gambhir

S. S. Khanduja

M. P. STATE

UNTWALIA

s. 94(7)

s. 94(7)

s. 94

section 95

section 95

s. 94

s. 94

s. 123

s. 124

section 94(7)