DIVISIONAL FOREST OFFICER

BISHWANATH TEA CO. LTD.

May, 5, 1981

[D.A. DESAI AND R.B. MISRA, JJ.]

Constitution of India, 1950, Article 226-Contractual obligations cannot be enforced by the writ jurisdiction-A company, being a juristic Person is not entitled to any of the freedoms guaranteed under Article 19-Assam Land and Revenue Regulation-Settlement Rule 37,-Scope of-Interpretation of clause 2

Part IV of Indenture lease.

Respondent Tea Company took on lease land N.C. Tezalpatty No. 1 from the then Government. The lease was to b~ exploited for cultivation and raising tea garden, and was subject to conditions set out therein and generally to Assam Land and Revenue Regulation and the rules made thereunder. The respondent company sought permission from the appellant to cut 7,000 cubic feet of timber from Grant N.C. Tezalpatty No. 1 for utilising the same for building of staff and labourers' house as per clause 2 of Part IV of the lease dated 27-9-1932 and Rule 37 of the Assam Land and Revenue Regulations. Since the timber was required by the company for use in Partabghur and Dekorai tea estates which were outside Tezalpatty No. 1, the appellant demanded full royalty on timber cut, felled and removed. The company paid an amount of Rs. 7069.37 Paisc under protest and later filed a petition under Article -226 of the Constitution in the Assam High Court, praying for refund of the amount and for a mandamus directing the appellant for issuing permits without insisting on payment of royalty whenever timber was to be cut from the leased area for the purposes connected with the exploitation of the grant.

The preliminary objection raised by the appellant that since the right claimed by the respondent flowed from the contract of lease such contractual right can only be enforced in civil court and .therefore cannot be gone into under Article 226 was rejected by the Assam High Court. On merits, the High Court further held that as the grant of N.C. Tezalpatty No. 1 was in favour of the respondent, the company was entitled to cut, fell and remove timber from that grant area for its use covered either by the same area or in other tea gardens which a re outside the grant. The High Court made the rule nisi absolute and hence the appeal by special leave.

Allowing the appeal, the Court

HELD : 1. The Writ Petition on the allegation of infringement of fundamental right under Article 19(1)(g) of the Constitution, at the instance of respondent company alone was not maintainable for the reasons that : (a) a juristic person such as a corporation is not entitled to any of the freedoms guaranteed by Article 19 and here the respondent is a company incorporated under the Companies Act ; (b) Article 19(l)(g) guaranteed the fundamental freedom to a

DIVISIONAL FOREST OFFICER V. BISHWANATH TEA CO. 663

citizen and the respondent being a company is not a citizen and (c) the shareholders of a company alone can complain of infringement of their fundamental rights. [669 E-H, 670 A-CJ

Tata Engineering and Locomotive Co. v. State of Bihar, [1950] S.C.R. 869 ; State Trading Corporation of India Ltd. v.

The Commercial Tax Officer, Vishakhapatnam, [1964] 4 S.C.R. 99 and Benuott Coleman and Co. and Other

2:1. It is undoubtedly true that the High Court can entertain in its extraordinary jurisdiction a petition to issue any of the prerogative writs for any other purpose. But such writ can be issued where there is executive action unsupported by law or even in respect of a Corporation where there is a denial of equality before law or equal protection of Jaw. The Corporation can also file a writ petition for enforcement of a right under a statute. Here, the relief claimed by the respondent was referable to nothing else but the terms of lease, namely, clause 2 Part IV. The fact that this term is a mere reproduction of proviso to Rule 37 of Assam Land and Revenue Local Rate Regulation but that by itself is not sufficient to contnd that what the respondent was doing was enforcing a statutory provision. The validity of regulations is not challenged. Therefore, the demand for royalty is supported by law. [670 C-F]

2:2. Ordinarily, where a breach of contract is complained of, a party complaining of such breach may sue for specific performance of the contract, if the contract is capable of being specifically performed, or the party may sue for damages. Such a suit would ordinarily be cognizable by the Civil Court. The High Court in its extraordinary jurisdiction would not ordinarily entertain a petition either for specific performance or for recovering damages. A right

to relief flowing from a contract has to be claimed in a civil court where a suit E for specific performance of contract or for damages could be filed. Here, this was a suit for refund of a royalty alleged to be unauthorisedly recovered and that could hardly be entertained in exercise of the writ jurisdiction of the High Court. [670 F-G, 671 A-G, 672 A]

Woodcrafts Assam v. Chief Conservator of Forests, Assam, AIR 1971 Assam p. 92, approved.

3:1. Upon a true construction of clause 2 Part IV of indenture Of lease, ihe respondent company was not entitled to remove timber without payment of royalty. The specific provision is that the grant is for a purpose of cultivation G and raising tea garden and that from the area covered by the grant, if timber is felled for purpose connected with the grant itself, namely, cultivation and raising tea garden in that area, then alone the benefit of removal of timber without payment of royalty can be availed of. [673 G-H., 674 A]

3:2. In order to obtain relief, namely to cut and remove timber from lease H area for purpose connected with exploitation, of .the grant the company must show that the timber is being felled and cut from an area covered by the lease in

which clause 2 finds its place and that such timber is being removed for a purpose connected with the exploitation of grant. To be more specific, following facts will have to be proved for obtaining relief : (i) the area covered by the grant ;

(ii) felling of the trees from the area covered by the grant ; (iii) use to which the felled timber was to be put to; (iv) such use will have to be one connected with the exploitation of the grant and (v) meaning of the exploitation of the grant, when controverted these aspects will have to he proved by relevance. And that was the situation when return was filed by the present appellant in the High Court.

[672 G-H, 673 A-D]

ClvIL APPELLATE JURISDICTION : Civil Appeal No. 218 of 1970.

Appeal by special leave from the judgment and order dated C the 10th September, 1968 of the Assam and Nagaland High Court in Civil Rule No. 56.of 1967.

S.K. Nandy for the Appellant.

S.N. Chowdhary for the Respondent.

The Judgment of the Court was delivered by

DESAI, J.

Thi~ appeal by special leave arises out of a writ petition filed by the respondent Bishwanath Tea Co. Ltd., in the Assam and Nagaland High Court questioning the action of the appellant, the Divisional Forest Officer, Darrang Division, of re covering Rs. 7069.37 p. as royalty for cutting and felling trees from Tezalpatty grant No. I held under lease dated September 27, 1932, and for a mandamus directing the appellant to issue permits without insisting upon payment of royalty for the trees cut and felled from the area under lease.

Respondent Bishwanath Tea Co. Ltd. ('Company' for short), took on lease land admeasuring 1107.26 acres from the Government.

The lease was executed between the Company and the Secretary of the State for India. The lease in the first instance was for a period of 15 years commencing from April I, 1932. The lease was to be exploited for cultivation and raising tea garden.

The lease was subject to conditions set out therein and generally to Assam Land and Revenue Regulation and the rules made thereunder.

On February 15, 1966, manager of the Company approached the appellant seeking permission to cut 7000 cubic feet of timber from Grant N.C. Tezalpatty No. I of Nagshankar Mouza, for utilising the same for building of staff and labourer's houses.

By the reply dated April 4, 1966, the appellant noted that the timber was to be

DIVISIONAL FOREST OFFICER v. BJSHWANATH TEA co. (Desai, J.) 665

cut for constructing houses in Partabghur and Dekorai Tea Estates and that it was necessary to ascertain whether any of the aforementioned two Tea estates was situated within the grant evidenced by lease of N.C. Tezalpatty No. I. It was made clear that if it was not so, full royalty will be payable by the company for cutting, felling and removing timber. The manager by his letter dated April 23, 1966, informed the appellant that as the lessee is Bishwanath Tea Co. Ltd., it can cut and fell timber from any of its leased area to be utilised for its purposes in any other division. Therefore, the manager suggested that the permit must be issued without insisting on payment of royalty. The appellant by his letter dated May 12, 1966, informed the manager that as the timber was required for use in Partabghur and Dekorai tea estates which were not within N.C. Tezalpatty Grant No. 1 of Nagshankar Mouza from which timber was to be felled and cut, full royalty will be payable on timber so cut and removed because it was to be utilised for the purpose un connected with the grant. For this assertion the appellant relied upon a portion of clause (2) of Part IV of the lease deed dated September 27, 1932.

Correspondence further ensued between the parties and ultimately the respondent company paid an amount of Rs. 7069.37; p. as and by way of royalty under protest and then filed a petition under Article 226 of the Constitution in the High Court alleging that upon a true construction of the relevant clause of the grant as also proviso to Rule 37 of the Settlement Rules as the timber was required for the purpose connected with the exploitation of the grant, the company as lessee was entitled to cut and remove timber without payment of royalty and, therefore, the recovery of royalty being unsupported by law, the appellant was liable to refund the same. The company also prayed for a mandamus directing the present appellant who was respondent in the High Court for issuing permits without insisting on payment of royalty whenever timber was to be cut from the leased area for the purposes connected with the exploitation of the grant.

The appellant filed his return to the rule issued by the High Court. A preliminary objection was raised that the right claimed by the respondent flowed from the contract of lease and such contractual rights and obligations can only be enforced in civil court.

It was contended that apart from the fact that interpretation of the contract of lease is generally not undertaken by the High Court in exercise of its extraordinary jurisdiction under Article 226, it was further con tended that even if interpretation of the relevant clause of the lease as alleged on behalf the respondent finds favour with

the court, yet facts will have to be investigated before any refund could be ordered or a blanket injunction could be granted for all times to come against the appellant from performing his duty, namely, of granting permit and recovering royalty.

The High Court overruled the preliminary objection observing that the court was not called upon to decide any complicated question of fact and the question for decision before the Court was whether the company was entitled to enforcement of its legal right under the proviso to rule 37 of Settlement Rules. The Court further observed that even though part of the proviso to rule 37 of the Settlement Rules was incorporated in the lease itself, nonetheless what the Court had to consider was the interpretation of a statutory rule and that is the function of the Court under Article 226. On

merits the High Court held that as the grant N.C. Tezalpatty No. I was in favour of M/s. Bishwanath Tea Co. Ltd., the company was entitled to cut and fell timber from N.C. Tezalpatty grant area for its use in other tea gardens, namely, Partabghur and Dekorai and even if the latter two gardens were outside N.C. Tezalpatty Grant No. I, yet they being under the ownership and magement of the company, felling of trees from the area of one grant for utilisation at other places would fall within the second part of the proviso to rule 37 in that the felling and removal of timber was for use not unconnected with the exploitation of the grant and, therefore, the company was entitled to fell and remove timber in the aforesaid situation without payment of royalty.

In accordance with this finding the High Court made the rule absolute, directed refund of the amount paid under protest and issued a mandamus directing the appellant to issue permits to the respondent company without payment of royalty for removal of timber from Tezalpatty Grant No. 1 for use in tea garden of Dekorai division for exploitation of tea plantation.

Hence this appeal by special leave.

Unquestionably, the rights and obligations between the parties to this appeal are governed by the terms of the lease dated September 27, 1932. Specifically the respondent who was a petitioner in the High Court claimed the right to relief under Clause 2 of Part IV of the indenture of lease which reads as under :

"2. The lessee shall pay to the lessor as provided by rules

for the time being in force under the Assam Land and Revenue Regulation for all timber (if any) on the

demised lands cut down, removed or utilised by the lessee during the period of the lease.

Timber valuation at reduced rates estimated at Rs. 12472.7 (Rupees Twelve thousand four hundred and seventy-two and annas seven only) was credited into the treasury by Challan Nos. 43 dated the 24.2.32 The lessee shall be liable to pay timber valuation at full rates on all timber sold or removed for sale and on all timber removed for use unconnected with exploitation of the grant during the period of his lease or renewed lease."

According to the respondent, it would be entitled to remove timber cut and felled from the leased area without liability to pay royalty for its own use irrespective of the fact whether such timber was to be used outside the leased area, because such use would be in connection with the exploitation of the grant and there is such a reservation in the grant evidenced by the lease. True it is that if the timber is felled and removed for purpose connected with the exploitation of the grant, there would be no liability to pay the royalty. Such a positive right is claimed from a negative covenant in the lease. Clause 2 provides that the lessee had paid timber valuation at the reduced rate at Rs. 12472.7 on 24-2-32 The lessee according to the respondent would be liable to pay timber valuation at full rates on all timber sold or removed for sale on all timber removed for use unconnected with exploitation of the grant during the period of the lease or renewed lease.

The implication of the negative covenant would be that if timber is removed from the leased area connected with the exploitation of grant, there would be no liability to pay royalty on such timber. The respondent claimed to remove timber without the liability to pay royalty in exercise of the right reserved under Cl. 2 thus interpretated. In para 5 of the Writ Petitton filed by by the respondent in the High Court, a reference has been made to the aforementioned term in the lease deed. It was further stated that the respondent paid the royalty under protest which it was not liable to pay as the timber was urgently required for the purpose of the business of the Company in connection with the grant. These averments in the petition would show that the respondent claimed the right to remove timber without the obligation to pay royalty as flowing from the grant evidenced by the lease.

Anticipating a possible contention about the jurisdiction of the High Court to entertain

' H

iIa writ petition for enforcement of contractual obligation, the respondent contended that the levy of royalty had no authority of law and that this was an unreasonable restriction on the fundamental right of the respondent to carry on its trade. This camouflage of contending that the levy of royalty was not supported by law and that this was an unreasonable restriction on the fundamental right to carry on trade successfully persuaded the High Court to entertain the petition.

Shorn of all embellishment the relief claimed by the respondent was referable to nothing else but the term of the lease viz. Cl. 2 Part IV.

Maybe, that this term .is a mere reproduction of proviso to Rule 37 of Assam Land and Revenue and Local Rates Regu lations, but that by itself is not sufficient to contend that what the respondent was doing was enforcing a statutory provision. Proviso to Rule 37 is an enabling provision. The relevant portion of the proviso reads as under :

"Provided that if any person taking up land for special cultivation is unwilling to pay the full royalty valuation of the timber as estimated, he shall have the option of paying a reduced valuation representing only the profit which is likely to derive from the use of the timber for the purposes connected with the exploitation of the grant. If he exercises such option, he shall be liable to pay royalty at full rates on all timber sold, bartered, mortgaged, given or otherwise, transferred or removed for transfer and on all timber removed for use unconnected with the exploitation of the grant during the period of his lease or renewed lease."

A bare perusal of clause 2 of Part IV of the indenture of lease extracted hereinbefore and the proviso to Rule 37 would at a glance show that the proviso enables a grantee to take benefit of it by fulfilling certain conditions namely by paying a reduced valuation representing only the profit which it is likely to derive from the use of timber for purposes connected with the exploitation of the grant.

It is thus an enabling provision and the grantor of the lease may permit this option to be enjoyed by the grantee.

But whether that has been done or not is always a question of fact. If the precondition is satisfied, the benefit can be taken. That again is a matter to be worked out by the parties to the indenture of lease. In fact, clause 2 of the indenture of lease would show that the respondent grantee paid Rs. 124727/- being timber valuation at reduced rates. The respondent having made the payment, whereupon the grantor of the lease agreed that the grantee will have to pay timber valuation at full rates on all timber sold or removed for sale and on all timber removed for use unconnected with exploitation of the grant during the period of his lease or renewed lease but the grantee will not have to pay royalty for timber felled and removed for purpose connected with the grant. It thus can be demonstrably established that the respondent was trying to enforce through the writ petition the right to remove timber without the liability to pay royalty not under the proviso to Rule 37 which was merely an enabling provision, but the specific term of lease agreed to between the parties. Proviso to Rule 37 may not be incorporated in an indenture of lease. If incorporated after fulfilling pre-condition it becomes a term of lease. The High Court, 'in our opinion, therefore, was in error in posing a question to itself as to whether the applicant (respondent herein) was entitled to the enforcement of legal right under the proviso to Rule 37 of the Settlement Rules.

The camouflage successfully worked, but once this cloak is removed, it unmistakably, transpires that the respondent was trying to claim benefit of clause 2 of the lease having fulfilled its pre-condition and obtaining the inclusion of its latter part in the contract of lease. The question, therefore, really is whether such contractual obligation can be enforced by the writ jurisdiction?

How dangerous it is, can be demonstrably established in this case.

But we would first address ourselves to the question of law.

Art. 226 confers extraordinary jurisdiction on the High Court to issue high prerogative writs for enforcement of the fundamental rights or for any other purpose.

Undoubtedly, the respondent contended that its fundamental right under Art. 19(1) (g) to carry on trade has been vi"olated.

The High Court overlookd the well-settled legal position that a juristic person such as a Corporation is not entitled to any of the freedoms guaranteed by Art. 19. The respondent was the sole petitioner in the High Court. It is a company incorporated under the Companies Act.

The fundamental right claimed under Art. 19 (!)

(g) is to practise any profession or carry on any occupation, trade or business. The respondent (company) contended that it had a right to carry on its trade or business of cultivating and raising a tea garden and as part of it to cut timber and remove the same from the leased area without the payment of royalty and that insistence upon payment of royalty unsupported by law is an unreasonable restriction. denying the fundamental right guaranteed. to the respondent.

Art.

19 (1) (g) guarantees the fundamental freedom to a citizen. The respondent not being a citizen was not entitled to complain of breach or violation of fundamental right under Art. 19 (l) (g). [See State Trading Corporation of India Ltd. v.

The Commercial Tax Officer, Vishakhapatnam (1) and Tata Engineering and Locomotive Co. v. State of Bihar (2).] However, the shareholders of a company can complain of infringement of their fundamental rights [See Bennett Coleman & Co. and Others v. Union of India and Others] (3). Such is not the case pleaded. Therefore the writ petition on the allegation of infringement of fundamental right under Art. 19 (I) (g) at the instance of respondent company alone was not maintainable.

It is undoubtedly true that High Court can entertain in its extraordinary jurisdiction a petition to issue any of the prerogative writs for any other purpose.

But such writ can be issued where there is executive action unsupported by law or even in respect of a Corporation where there is a denial of equality before law or equal protection of law. The Corporation can also file a writ petition for enforcement of a right under a statute. As pointed out earlier, the respondent (Company) was merely trying to enforce a contractual obligation. To clear the ground let it be stated that obligation to pay royalty for timber cut and felled and removed is prescribed by the relevant regulations. The validity of regulations is not challenged. Therefore, the demand for royalty is unsupported by law.

What the respondent claims is an exception that in view of a certain term in the indenture of lease, to wit, Clause 2, the appellant is not entitled to demand and collect royalty from the respondent.

This is nothing but enforcement of a term of a contract of lease.

Hence, the question whether such contractual obligation can be enforced by the High Court in its writ jurisdiction.

Ordinarily, where a breach of contract is complained of, a party complaining of such breach may sue for specific performance of the contract, if contract is capable of being specifically performed, or the party may sue for damages. Such a suit would ordinarily be cognizable by the Civil Court. The High Court in its extraordinary jurisdiction would not entertain a petition either for specific performance of contract or for recovering damages. A right to relief flowing from a contract has to be claimed in a .civil court where a suit for specific performance of contract or for damages could be

(I) (1964] 4 S.C R. 99.

(2) [1950l S.C.R. 869.

(3) [1973 2 S.C.R. 757.

filed.

This is so well settled that no authority is needed. However, we may refer to a recent decision bearing on the subject. In Har Shankar and Ors. etc. etc. v. The Deputy Excise and Taxation Commissioner and Ors.(1), the petitioners offered their bids in the auctions held for granting licences for the sale of liquor. Subsequently, the petitioners moved to invalidate the auctions challenging the power of the Financial Commissioner to grant liquor iicence. Rejecting this contention, Chandrachud J., as he than was speaking for the Constitution Bench at page 263 observed as under :

"Those who contract with open eyes must accept the burdens of the contract along with its benefits. The powers of the Financial Commissioner to grant liquor licences by auction and to collect licence fees through the medium of auctions cannot by writ petitions be questioned by those who, had their venture succeeded, would have relied upon those very powers to found a legal claim. Reciprocal rights and obligations arising out of contract do not depend for their enforceability upon whether a contracting party finds it prudent to abide by the terms of the contract. By such a test no contract could ever have a binding force."

Again at page 265 there is a pertinent observation which may be extracted.

"Analysing the situation here, a concluded contract must be held to have come into existence between the parties. The appellants have displayed ingenuity in their search for invalidating circumstances but a writ petition is not an appropriate remedy for impeaching contractual obligations."

This apart, it also appears that in a later decision, the Assam High Court itself took an exactly opposite view in almost idential circum stances.

In Woodcrafts Assam v. Chief Conservator of Forests, Assam,(2) a writ petition was filed challenging the revision of rates of royalty for two different periods.

Rejecting this petition as not maintainable, a Division Bench of the High Court held that the complaint of the petitioner is that there is violation of his rights under the contract and that such violation of contractual obligation cannot be remedied by a writ petition.

That exactly is the position in the case before us.. Therefore, the High :court was in error in entertaining the writ petition and it should have berm dismissed at the threshold.

(1) (1975] 3 S.C.R. 254.

(2) A.LR. 1971 Assam 92.

In substance, this was a suit for refund of a royalty alleged to be unathorisedly recovered and that could hardly be entertained in exercise of the writ jurisdiction of the High Court.

As the High Court has also disposed of the case on merits after overruling the preliminary objection, it is but meet that we may examine the case on merits and that itself would demonstrably show the dangerous course adopted by the High Court in examining rights and obligations claimed under the contract without proper or adequate material or evidence to reach a conclusion, more so when the petition raised disputed questions of facts which needed investigation.

Respondent No. 1 had entered into a lease dated September 27, 1932 with the Secretary of State for India. Part Ir of the lease describes the land leased to the respondent.

The description is as under;

N. C. Tengalbasti Village in Sootea Mauza in the Tezpur Sadar Sub-Division of Darrang District.

Block No. 1 Field No. 2-1804 B. 4 K-12L, Block No. 2 Field No. 3-1544 B. 2 K-13L.

Total-] I 07.26 Acres on 3349 B. 2K-5L

This land was taken on lease for cultivation and raising tea garden.

Under the relevant Clause 2 above, the lessee was to pay timber valuation on full rate for all timber sold or removed for sale and on all timber removed for use unconnected with exploitation of the grant during the period of lease or renewed lease. From this negative covenant in the indenture of lease, the respondent says that where timber is cut and felled and removed for a purpose or use connected with the exploitation of grant during the period of lease or renewed lease, royalty shall not be payable.

Assuming the respondent is right in its construction of Clause 2 of the indenture of lease, in order to obtain relief, namely, to cut and remove timber from the leased area for purpose connected with the exploitation of the grant, it must show that the timber is being felled and cut from an area covered by the lease in which Clause 2 finds its place and that such timber is being removed for a purpose connected with the exploitation of the grant. To be more specific, following facts will have to proved for obtaining relief :

(i) The area covered by the grant.

(ii) Felling of the trees from the area covered by the A grant.

(iii) Use to which the felled timber was to be put to •.

(iv) Such use will have to be one connected with the exploitation of the grant.

{v) What is meant by the exploitation of the grant?

Could these facts be assumed without evidence? Was the High Court justified in observing that it was called upon to decide complicated questions of facts ? Some averments in the petition were disputed. The appellant contended that Clause 2 of 1he indenture of lease only means that if there is some use of timber which is being felled and removed from the area covered by the grant for the purpose connected with the exploitation of that very grant, then and only then the relief can be claimed und-::r Clause 2.

The High Court found as a fact that the timber was sought to be removed for the purpose of constructing quarters for the workmen employed in Partabghur Garden situated in Dekorai Division.

Admittedly, this Partabghur Garden is not situated in Tezalpatty Village.

At any rate, Partabghur Garden where the houses for the workmen were to be constructed was situated outside the area covered by the grant, as also outside the Revenue Division in which the leased area is located. The High Court got over this difficulty by observing that the grant being in favour of an incorporated company, it can cut and remove timber from leased area for use at any place which is owned, managed or controlled by the company and it is immaterial whether one is directly connected with the other or not. If the timber is being felled from the area of one grant to be used at some other place where the Company is carrying on its operation, the benefit of the remJval of timber without payment of royalty would be available to the Company anywhere in the world. To stretch this logic a little further, it would mean that if the respondent (Company) is to set up a tea garden outside India, it can as well cut and remove timber from N.C. Tezalpatty, Grant No. 1 in Assam to the place outside India without the obligation to pay royalty. The fallacy underlying the approach of the High Court becomes selfevident. It is immaterial that the grantee was the Company. The

specific provision is that the grant is for a purpose of cultivation and raising tea garden and that from the area covered by the grant, if timber is felled for purpose connected with the grant itself, namely, cultivation and raising tea garden in that area then alone benefit of removal of timber without payment of royalty can be

availed of. It is admitted that Partabghur Tea Garden is outside the area covered by the grant, in fact in an altogether different division. In such a situation upon a true construction of Clause 2, Part IV of indenture of lease, the respondent Company was not entitled to remove timber without payment of royalty. Therefore, even on merits, the High Court was in error in granting relief.

Accordingly, this appeal is allowed and the judgment of the High Court is quashed and set aside and the writ petition filed by the respondent in the High Court is dismissed with costs throughout.

S.R.

Appeal allowed. '

DIVISIONAL FOREST OFFICER

BISHWANATH TEA CO. LTD

May, 5, 1981

D.A. DESAI

R.B. MISRA, JJ.

Constitution of India

Article 226

Article 19

clause 2

Assam Land and Revenue Regulation

clause 2

Partabghur

Tezalpatty

Assam High Court

Article 226

N.C. Tezalpatty

Article 19(1)(g)

Article 19

Companies Act

Article 19(l)(g)

[1964] 4 S.C.R. 99

clause 2

clause 2

clause 2

S.K. Nandy

S.N. Chowdhary

DESAI

Assam and Nagaland High Court

Bishwanath Tea Co. Ltd.

India

February 15, 1966

April 4, 1966

April 23, 1966

Bishwanath Tea Co. Ltd.

May 12, 1966

Dekorai tea estates

N.C. Tezalpatty Grant No. 1

September 27, 1932

Article 226

Article 226

Article 226

Dekorai

Clause 2

Clause 2

Cl. 2

Cl. 2

clause 2

clause 2

clause 2

Art. 226

Art. 19(1)

Art. 19

Companies Act

Art. 19

Art.

19

Art. 19

Art. 19

Clause 2

(1964] 4 S.C R. 99

[1973 2 S.C.R. 757

Chandrachud

Constitution Bench

(1975] 3 S.C.R. 254

Sootea Mauza

Tezpur Sadar

Darrang District

Clause 2

Clause 2

Clause 2

Clause 2

Clause 2

Dekorai Division

Tezalpatty Village

Partabghur Garden

Assam

Clause 2


STATE OF MAHARASHTRA

v •

. WASUDEO RAMCHANDRA KAIDALWAR

May 6, 1981

[0. CHINNAPPA REDDY, A.P. SEN AND BAHARUL ISLAM, JJ.]

Prevention of Corruption Act, 1947-Section 5(2) read with section 5(1}(e)- Scope of.

Jnterpretation-"assets disproportionate to the known sources of income" meaning of.

Evidence-Burden of proof under section 5(2) read with section 5(l}(e)-On whom lies.

The respondent was a Range Forest Officer on a monthly salary of Rs. 515.

In a search conducted by an officer of the Anti-Corruption Bureau, Rs. 26 thousand-odd in cash, savings bank accounts in the names of himself, his wife and children, national savings certificates, postal saving certificates, gold and silver oranments, sale deeds of certain properties in the name of his wife, sister-inlaw and brother-in-law aggregating in all to over Rs. 79 thousand were discovered from his house. On the allegation that he was found in possession of assets disproportionate to his known sources of income he was charged with offence punishable under section 5(2) read with section 5(J)(e) of the Prevention of Corrouption Act, 1947.

The respondent pleaded that he led a frugal life and that secondly much of the property found in his house belonged to his father-in-law. He added that his father-in-Jaw was a pairokar of a Zamindar in the area, that two sisters of his father-in-Jaw were the kept mistresses of the Zamindar, and the Zamindar gave large amounts of cash and presents most of which were passed on to his fatherin-Jaw. At the time of his death, his father-in-law entrusted his minor daughter and son to his care and instructed that his property should be divided among his three children equally and that therefore he was holding the property merely as a custodian.

Rejecting the plea of the respondent a Special Judge convicted and sentenced him under section 5(2) read with section 5(I)(e) of the Act.

On appeal a single Judge of the High Court acquitted him holding that the prosecution had failed to discharge the burden of disproving all possible sources of the respondent's income, that it was not possible to exclude the probability that the property found in his possession could be the property left by his fatherin-law, and that mere possession of assets disproportionate to his known sources

of income would not be sufficient to bring home the guilt under section 5(1)(e) H unless the prosecution further excluded all possible sources of income. The High Court was also of the view that the changes brought a bout by the Anti-

Corruption Laws (Amen.!ment) Act, 1964 had the effect ofJimiting the presumption of guilt arising under section 4(1) of the Act to an offence of criminal misconduct speified i~ _section S(J)(a) and (b) and not to that in section 5(1){e).

HELD: , The COnstrution , placed by the High Court on sectiori S(l)(e) was wrong in that it overlooked the fact that, by the use of the words "for which the public servant cannot satisfactorily acquit", a burden is cast on the accused. '

[680 BJ -- '. ,·,.

Section 5(3) which now stood deleted, did not create an offence separate from the one created by /section 5(1) bu( only raised a presumptioii of criminal mis conduct if he or any person on his behalf was in possession of pecuniary resources or property disproportionate to his known sources of income which he cou1d not siitisfactoriJy accoUnt. OnCe the prosecution proves this fact the burden shifts on to the accused to prove the source of acquisition of such assets. [681 F-G]

• ,.

Th~ Cxpr~Ssi-on "knowil sourCes Or inome" in the context of the section means "sources known to the prosecution''.

Secondly~ the onus placed on the accused under the section was not to prove his innocence beyond reasonable d_oubt bUt orily· to establish a preponderarice of probability: To eradicate th_e widespread corruption fn ·-public serviceS the legislature:· dispeD.sed with. the Tule of evidence under section 5(3) and made possession b:Y a public sCrvaflt of assets disproportionaie to his income as one of the si>ecies of offences cif criminal misconduct by iriserting Clause (e) in section 5(1). [682 A-C] r.-.·-· - -· ;· .. . .''

- , ' . ·,_ -- . . . . . , -

- The meaning.to be assi£:ned. to the expression ~'known sources of income~' 1 occurring in section 5(t)(e) must be the sam~ as was given to that expression ia, - Section 5(3) before its repeal, that is,· "sources known to the prosecution"." So -also the same meaning must be given to the words "for which a public servant) is unable to satisfactorily account 0 occurring in section 5(l)(e).' When clause (e)

.- uses the words ."if the public servant is unable to. satisfactorily account'~-- it is

iIDPlied thai the hui-den fs ori sUch public servant io -account for the soU_fceS for. the .aCqulsition Of asSetS disproportionate to his iOcoine. :The lligh Court Wa:s;~ thefefore; ill error in h0Iding that a_ public servant Charge'd for 1'3.ving . iQ. his-; ppSsessioii.assets dispropcir1ionate tO his income for which he cannot satisfactorily

..,.., _ acC:cuni cOuld not be convicted or ail offence under scction_5(2) read with :section

5(l)e) Utlless the p_ros~ution disioeS all possible sources of income.' [682 D-F]_;-

.Sajjan Singh vc State of Punjab [1964] 4 S.C.R. 630 and V.D. Jhagan v. State of U.P. [1966] 3 S.C.R. 736, referred to.

/ .

The expression "burden of proof" has two distinct meanings: (I) the legal burden, that is, the burden of establishing the guilt and (2) the evidential burden, that is~ the burden of leading evidence. Notwithstanding the general rule that the burden of proof lies exclusively upon the prosecution, in the case of certain Offeiices. the burden of proving a particular fact in issue rriay be laid bY law upon: the accused. This burden is not so onerous as that which lies ori the prosecution aDct is discharged by proof of a balanceof probabilities. To substantiate the charge of CriIDioal misconduct under section 5(2) read with sectiOn 5(1)(e) the

prosecution must' prove (1) that the accused was a public st!rVant; (2) thC-· nature -and extent of the pecuniary resources or property in r1is possession,

(3) his kno\vn sources of income, i.e. known to the prOs-ecution.; (4) "that such

-- ------ - --------------------------....,

MAHARASHTRA v. w. R. KAIDALWAR (Sen, J.) 677

sources or property were disproportionate to his known sources of income.~ .. Once

.'A thes.:: are established, the offence of, criminal misconduct under .. section 5(1) (e) would be cOniPlete. The burden then shifts to the accuSed to substantially acCOunt for possession by.'birll of assets disproportionate to his income. :_The exiCilt 3:nd nature of burden of proof resting-upon the public sefvant canno{-be higher thin

establishing his case by a preponderance of probability. [683 A-E] . • . ' . - - .-:; . ' ~· .

In the inst.int case' ihe High Couft. has placd i~ inipossible . burdn. On ·:the prosecutioti tb.disprove au possible sources of incOme Which-were -withilt thesPCcial knowledge of-thC accus::d. The prosecution cannot in the nature of things. be expected to know the affairs Of a public servant found in possession of resources er property disp_fopOrtiOnate.to his krlowil. sources._of income that is his sal.iry, because these are matters specially within his knowledge. within 'the meaning or , section 106 oftheEidence Act. -· ' ·

-The phrase "burden of proof" in section 106 of Evidence Act is clearly used in th_e secondary sense, namely the duty of introducing evidence. The nature and.extent of the burden" cast On th'e.accused is well settled. The accused is not bourid to prove his innocence beyond all reasonable doubt. AU that he need d.o is t~ bring out a preponderance of probability.· [684 B] ··/

• ; ;.-, • ; •. ' ... \. . !. • ~

B --:;:

o~ the proved circumstances ther~ W3.s-a'preponderance of probability 'that _D the property found in the respondent's house could be the property left by' his ;_! • . fath~_r-in-Iaw. ere is overwhe; Iming evidencre on. recod' that, the 'respondent's father-in-law was a man.of affiuent circumstances, being a paiorkar of a Zamindar and that lie hid 3.mas:Sed considerable wealth~ more so because his two sisters were the kept mistresses of the Zamiridaf .. On the death of the Zamindar his f<ithei-- inlaw stayed with the ri:sp-Ondent. Also, 'the respondent"s father had a Jiquof shOp besides forest contr3.cts. The f'°vidence led in the case was sufficieilt to create '.£. _ a doubt Whether :the respondent was in possession :of assets disproportionate to his known sOur<; eS of income. On the other hand there is preponderance of probabilit:Y that-the-prperty in his possession belonged not to him, but io his father-in law. [684 D-H]

',,, CRIMINAL-APPELLATB JURISDICTION: Criminal Appeal No: zi1 of-1976.

Appeal by special leave from the judgment and order dated the 9th April, 1975 of the Bombay High Court (Nagpur Bench), Nagpur in Criminal Appeal No. 134of ,1971.

M.C. Bhandare and R.N. Poddar for the Appellant. •

P. Govindan Nair, K. Ramavtar. and K.R. Choudhury for the Respondent. ·,

The J udgmeni of!he Court was delivered by . . '. -.' ' ' . ' . ' .•. , . ,)

. SEN~ J.' this appear,

Tj:ie State Gcive; nment of Maharashtra has preferred by special . leave, against the . judgment of th~

Bombay High Court, reversing the judgment and sentence of the Special Judge, Chandrapur and acquitting the respondent of an offence under s. 5(2) read with s. 5(I)(e) of the Prevention of Corruption Act, 1947 (hereinafter called 'the Act').

The respondent, Wasudeo Ramchandra Kaidalwar, was a Range Forest Officer, drawing a salary of Rs. 515 per month. On September 21, 1969, PW 71, Patwardhan, Inspector, Anti-Corruption Bureau under authorisation from the Director, Anti-Corruption Bureau, Bombay, carried out search and seizure at the residential house of the respondent. The Inspector made a recovery of Rs. 26,870 in cash from an almirah, savings bank accounts in the names of the respondent, his wife and children totalling to Rs. 12,588.35, national savings certificates worth Rs. 510, postal savings certificates worth Rs. 184.25 in the name of his daughter, Nandini, savings bank deposits with the State Bank of India and the postal savings certicates in the name of his brother-in-law, Narayan, amounting to Rs. 2,279.05, gold and silver ornaments, household effects etc. of the value of Rs. 8,602.50, two sale-deeds in respect of two plots bearing Khasra Nos. 28/lK and 28/!Dh in Chandrapur purchased (I) in the name of his wife, Smt. Sushila for Rs. 5,250 and (2) in the joint names of his wife, Smt. Sushila and his brother-in-law, Narayan for an amount of Rs. 21,210, papers relating to the building of a house at village Gondpipri built in the year 1965 at a cost of Rs. 10,000.

The petitioner was accordingly put on trial for having committed an offence punishable under s. 5(2) read with s. 5(l)(e) of the Act, being found in possession of assets disproportionate to his income.

The respondent abjured his guilt and denied the commission of the offence.

He pleaded that he was leading frugal life and all the property found during the search of his residential house belonged to his father-in-law, Hanumanthu, pairokar of Raja Dharmarao, Zamindar of Aheri Estate.

He alleged that two of the sisters of his father-in-law were the kept mistresses of Raja Dharmarao and enjoyed special favours from the late Zamindar who bestowed on them large amounts of cash, ornaments etc. They used to visit the house of his father-in-Jaw, Hanumanthu, once or twice a month, and used to keep all their cash, gold and silver ornaments. Hanumanthu owned a grocery shop. He and his father had a liquor shop besides forest contracts.

Hanumanthu used to deal in moneylending business. The respondent alleged that his father-in-law deposited an amount of Rs. 30,000 in April 1957, Rs. 10,000/- in August 1957 and Rs. 35,000 in cash and Rs. 1,000 in coins and also 23 tolas of gold in September, 1957 with his wife, Smt. Sushila.

MAHARASHTRA v. w. R. KAIDALWAR (Sen, J.) 679

He pleaded that his father-in-law died on . March 10, 1958 at his A house leaving behind his son, Narayan and two daughters. Smt.

Shakuntala, who on her marriage with the respondent was re-named as Smt. Sushila, and Smt.Sushila, his sister-in-iaw, minor at that time.

He instructed him to divide the property into three equal shares among his three children. The respondent maintained that he was holding the property merely as a custodian and was not the owner B thereof. .

The Special Judge, Chandrapur, by his judgment dated 7.6.1971, convicted the respondent for having committed an offience punishable under s.5(2) read with s.(5) ( l )(e) of the Act inasmuch as he was found in possession of property worth Rs. 79,574.70 asagainst his only C known source of income, namely, his total salary in government service amounting to Rs. 44,00J. He held that the respondent had failed to_ account for cash of Rs. 26,870, sale-deeds of the two plots purchased for Rs. 5,250 and Rs. 21,210 in the name of his wife Smt. Sushila and the other jointly in the name of his wife and brother-in-law, Narayan and for the house built at village Gondpipri D at a cost of Rs. 10,000 He held that the acquisition of these immoveable properties was not reasonably attributable to the property left by his father-in-law, Hanumanthu. He also rejected the respon

dent's plea that he was leading a frugal life and, therefore, was able to make a saving of Rs. 15,000 out of his salary income.

He acoordinly sentenced him to undergo rigorous imprisonment for two years and E to pay a fine of Rs. 26,870. He further directed that the two plots at Chandrapur and the house at village Gondpipri be sold and the sale proceeds be forfeited.

On appeal, a learned Single Judge of the High Court set aside the judgment and sentence passed by the learned Special Judge and F acquitted the respondent. The order of acquittal was based principally. on two grounds : (1) The prosecution having failed to discharge the burden of disproving all possible sources of income i.e. failed to account for the properties left by the respondent's father-in-law, Haumanthu, he could not be convicted under s. 5(2) read with s. 5 (l)(e) of the Act, and (2) it was not possible to exclude the probability G that the property found in the respondent's house could be the property left by his father-in-law, Hanumanthu.

In coming to the conclusion that it did, the High Court was of the view that the changes brought about by theJAnti-Corruption Laws H (Amendment) Act, 1964 had the effect of limiting the presumption of guilt arising under s.4(1) of the Act to offences of criminal misconduct

specified in ss.5(l}(a) and (b) and not to that in s.S(l)(e). It therefore held that mere possession of disproportionate assets by a public servant to his known sources of income for which he has failed to .account would not be sufficient to bring home the guilt under s.5 (I) (e), unless the prosecution further excludes all possible sources of incow, e. The construction placed by the High Court on the provisions contained in s.5(l)(e) of the Act is obviously wrong. It completely overlooks the fact that the burden is cast on the accused by the use of the words "for which the public servant cannot satisfactorily account". It is also wrong in distorting the meaning of the expression "known sources of income" occurring in s. 5(1)(e), which has a definite legal connotation and which, in the context, must mean "sources known to the prosecution".

It is distressing to find that the High Court has involved itself into a pfocess of evolution of a new theory of law, instead of confining itself to a re-appraisal of the evidence on record which it was entitled to do sitting as a court of appeal against the judgment of conviction. The ort:ler of acquittal recorded by the High Court could still be maintained on a proper evaluation of the facts, as, on the proved circumstances, there was a preponderance of probability that the property . found in the respondent's house could be the property left by his father-in-law, Hanumanthu.

The legislature deleted s.5(3) of Act which embodied a rule of evidence by s.6 of the Anti-Corruption Laws (Amendment) Act, 1964 and instead, inserted s.5(1)(e) making, possession of disproportionate assets by a public servant, a substantive offence. Section 5(1)(e) of the Act reads :

5.(1) A public servant is said to commit the offence of criminal misconduct-

(e) if be or any person on his behalf is in possession or has, at any time during the period of his office, been in possession, for which the public servant cannot satisfactorily account, of pecuniary resources or property disproportionate to his known sources of income.

Old s.5(3) of the Act was in these terms :

5.(3) In any trial of an offence punishable under subsection(2) the fact that the accused person or any other person on his behalf is in possession, for which the accused

~ '

"MAHARASHTRA v. w. R. KAIDl\LWAR (Sen, J.) 681

person cannot satisfactorily account, of pecuciary resources or property disproportoionate to his known sources of income may be proved, and on such proof the Court shall presume, unless the contrary is proved, that the acused person if guilty of criminal misconduct in the discharge of his official duty and his conviction therefor shall not be invalid by reason only that it is -based solely on such presumption.

Three questions arise for our consideration in this appeal, namely : (1) Whether a public servant charged with having dispropor• tionate assets in his possession, for which he cannot satisfactorily account, cannot be convicted of an offence under s. 5(2) read with s.5(l)(e) of the Act unless the prosecution disproves all possible sources of his income (2) If the prosecution establishes that a public servant is in possession of pecuniary resources . or property disproportionate to his known sources of income, whether the

burden to disprove the charge shifts to the accused to satisfactorily account for the source of acqusition of s11ch resources or property. and if so, the nature and extent of such burden on the accused.

(3) Whether, on the facts and circumstances of the present case, having regard to the fact that the respondent's father-in-law, Hanumanthu was pairokar of Raja Dharmarao, Zamindar of Aheri Estate and left substantial properties, it was not improbable that the properties found in possession of the respondent belonged to his father-intaw.

It is clear both on authority and principle that s.5(3) which now stands deleted did not create an offence separate from the one created by s.5(1), but intended only to lay down a rule of evidence to raise a presumption of guilt in certain circumstances.

Section 5(1) defines different species of criminal misconduct which can be committed by a public servant and s.5(2) provides that any public servant who commits criminal misconduct shall be punishable with imprisonment for a term which shall not be less than one year, but which may extend to seven years and also shall be liable to fine.

Under the old s.5(3), a presumption of criminal misconduct could be drawn if such a public servant or any person on his behalf was found to be in possession of pecuniary resources or property disproportionate to his known sources of income for which the public servant could not satisfactorily account, Once the prosecution proved that the accused person was possessed of disproportionate assets, the burden was shifted to the accused to prove the source of acquisition of such assets. '

The provisions of s.5(3) have been subject of judicial interpretation.

First the expression "known sources of income" in the context of s.5(3) meant "sources known to the prosecution". The other principle is equally well-settled.

The onus placed on the accused under s.5(3) was however, not to prove his innocence beyond reasonable doubt, but only to establish a preponderance of probability. These are well->ettled principles : C.S.D. Swamy v. The State(1) Sajjan Singh v. State of Punjab(2) and V.D. Jhagan v. State of U.P.(3).

The legislature thought it fit to dispense with the rule of evidence under s. 5(3) and make the possession of disproportionate assets by a public servant as one of the species of the offence of criminal misconduct by inserting s. 5{l)(e) due to widespread corruption in public services.

The terms and expressions appearing in s. 5(l)(e) of the Act are the same as those used in the old Section 5(3).

Although the two provisions openite in two different fields, the meaning to be assigned to them must be the same. The expression "known sources of income" means "sources known to the prosecution".

So also the same meaning must be given to the words "for which the public servant is unable to satisfactorily account" occurring in s. 5(!)(e).

No doubt, s. 4(1) provides for presumption of guilt in cases falling under ss. '(!){a) and (b), but there was, in our opinion, no need to mention s. 5(1)(a) therein.

For, the reason is obvious. The provision contained in s.5(1)(e) of the Act is a self-contained provision.

The first part of the Section casts a burden on the prosection and the second on the accused.

When s. 5(1)(e) uses the words "for which the public servant is unable to satisfactorily account", it is implied that the burden is on such public servant to account for the sources for the acquisition of disproportionate assets.

The High Court, therefore, was in error in holding that a public servant charged for having disproportionate assets in his possession for which he cannot satisfactorily account, cannot be convict(!d of an offence under s. 5(2) read with s.5(1 )(e) of the Act unless the prosecution disproves all possible sources of income.

That takes us to the difficult question as to the nature and extent of the burden of proof under s. 5 (I) (e) of the the Act. The expression 'burden of proof' bas two distinct meanings (I) the legal burden. i.e. the burden of establishing the guilt, and (2) the

(1) [1960] l S.C.R. 461.

MAHARASHTRA v. w. R. KAJDALWAR (Sen, J.) 683

evidential burden, i.e. the burden of leading evidence. In a criminal J:rial, the burden of proving everything essential to establish the charge against the accused lies upon the prosecution, and that burden never shifts.

Notwithstanding the general rule that the burden of proof lies exclusively upon the prosecution, in the case of certain offences, the burden of proving a particular fact in issue may be laid by law upon the accused.

The burden resting on the accused in such cases is, however, not so onerous as that which lies on the prosecution and is discharged by proof of a balance of probabilities. The ingredients of the offence of criminal misconduct under s. 5(2) read with s.5(I)(e) are the possession of pecuniary resources or property disproportionate to the known sources of income for which the public servant cannot satisfactorily account.

To substantiate the charge, the prosecution must prove the following facts before it can bring a case under s. S(l)(e), namely, (!) it must establish that the accused is a public servant, (2) the nature and extent of the pecuniary resources or property which were found in his possession, (3) it must be proved as to what were his known sources of income i.e. known to the prosecution, and (4) it must prove quite objectively, that such rosources or property found in possession of the accused were disproportionate to his known sources of income. Once these four ingredients are established, the offence of criminal misconduct under s. S(l)(e) is, complete, unless the accused is able to account for such resources or property.

The burden then shifts to the accussed to satisfactorily account for his possession of disproportionate assets. The extent and nature of burden of proof resting upon the public servant to be found in possession of disproportionate assets under s. 5( I)( e) cannot be higher than the test laid by the Court in Jahgan's case (supra), i.e. to establish his case by a preponderance of probability. That test was laid down by the court following the dictum of Viscount Sankey, L.C. in Wooimington v. Director of Public Prosecutions(1). The High Court has placed an impossible burden on the prosecution to disprove all possible sources of income which were within the special knowledge of the accused. As laid down in Swamy's case (supra), the prosecution cannot, in the very nature of things, be expected to know the affairs of a public servant found in possession of resources or property disproportionate to his known sources of income i.e. his salary. Those will be matters specially within the knowledge of the public servant within the meaning of s.106 of the Evidence Act, 1872.

Section 106 reads :

(I) [1935] A.C. 462.

s. 106. when any fact is especially within the knowledge of any person, the burden of proving that fact is upon him.

In this connection, the phrase the burden of proof is clearly used in the secondary sense namely, the duty of introducing evidence. The nature and extent of the burden cast on the accused is well settled.

The accused is not bound to prove his innocence beyond all reasonable doubt. All that he need do is to bring out a preponderence of probability.

Such being the law, the question whether or not the respondent had established a preponderance of probability is a matter relating to appreciation of evidence. 0 n a consideration of the evidence adduced by the respondent, the High Court has taken the view that it is not possible to exclude the possibility that the property found in possession of the respondent belonged to his father-in-law, Hanumanthu.

We have been taken through the evidence and we cannot say that the finding reached by the High Court is either mainfestly wrong or perverse.

Maybe, this Court, on a reappraisal of the evidence, could have come to a contrary conclusion. That, however, is hardly a ground for interference with an order of acquittal. There are no compelling reasons to interfere with the order of acquittal, particularly when there is overwhelming evidence Jed by the respondent showing that his father-in-law, Hanumanthu, was a man of affiuent circumstances.

There is no denying fact that Hanumanthu was the pairokar of Raja Dharmarao Zamindar of Aheri Estate and by his close association with the Zamindar, had amassed considerable wealth.

More so, because two of his sisters were the kept mistresses of the Zamindar and amply provided for.

It appears that after the death of Raja Dharmarao, Hanumanthu took up his residence with his elder daughter, Smt. Sushila, who was married to the respondent. To substantiate his plea in defence, the respondent examined as many as 12 witnesses including himself as AW 12, his sister-in-law, Smt. Sushila (AW 11), Dr. Chandrasekhar Merekar (AW 6), Shri V.N. Swamy, Advocate, Chandrapur (AW 8).

We cannot brush aside the unimeachable testimony of Shri V.N.

Swamy, AW 8, who was a leading advocate of Chandrapur and Member of Lok Sabha, and Dr. Chandrasekhar Merekar, AW 6, Medical Practitioner of Chandrapur, who attended on Hanumanthu at the time of his death. Both these witnesses have unequivocally stated that when Hanumanthu died at the respondents leaving his two minor children, Smt. Sushila and Narayan to the care of the respondent and his wife, Smt.Sushila; he told them that he

MAHARASHTRA JI. W.R. KAILALWAR (Sen, J.) 685

was leaving properties worth Rs. 70 to 80 thousand comprising cash ornaments, jewellery etc., and expressed a desire that the same be divided equally among, his three children, the two daughters and son.

Shri Swamy testified to the fact that he was handling all the litigation of Raja Dharamrao, Zamindar of Aheri Estate who had an yearly income of Rs. 6 to 8 lakhs because the Zamindar had rich forests.

He tells us that he knew Hanumanthu well because he was the pairoku of Raja Dharmarao, that Hanumanthu enjoyed great confidence of the Zamindar and had free access to him because his two sisters were the kept mistresses of the Zamindar. His evidence shows that the ladies were well provided for and whenever they visited Hanumanthu they used to hand over their cash, ornaments and jewellery to him for safe custody.

His evidence also shows that Hanumanthu was a man of affluence and that Ii.e and his father had a liquor shop besides forest constracts.

Hanumanthu also used to deal in money-lending business. The respondent has also placed on record dccuments showing that Hanumanthu was a man of substantial means. To add to the difficulty of the prosecution, Smt. Sushila; AW l l, sister-in-law of the respondent has come and deposed that all the property belonged to her father.

All this evidence is sufficient to create a doubt as to whether the respondent was in possession of disproportionate assets.

There

is certainly a preponderance of probability that the property found E in the possession of the respondent did not belong to him but belonged to his father-in-law, Hanumanthu.

The result, therefore, is that the appeal must fail and is accordingly dismissed.

P.B.R.

Appeal dismissed.

STATE OF MAHARASHTRA

WASUDEO RAMCHANDRA KAIDALWAR

May 6, 1981

0. CHINNAPPA REDDY

A.P. SEN

BAHARUL ISLAM, JJ.

Prevention of Corruption Act, 1947

Section 5(2)

section 5(1}(e)

section 5(2)

section 5(l}(e)

section 5(2)

section 5(J)(e)

Prevention of Corrouption Act, 1947

section 5(2)

section 5(I)(e)

section 5(1)(e)

section 4(1)

section 5(1)

Section 5(3)

section 5(1)

section 5(3)

section 5(1)

section 5(t)(e)

Section 5(3)

section 5(l)(e)

section

5(l)

[1964] 4 S.C.R. 630

[1966] 3 S.C.R. 736

section 5(2)

section 5(1)

section 106

section 106

M.C. Bhandare

R.N. Poddar

P. Govindan Nair

K. Ramavtar

K.R. Choudhury

Bombay High Court

s. 5(2)

s. 5(I)(e)

Prevention of Corruption Act, 1947

Wasudeo Ramchandra Kaidalwar

September 21, 1969

Patwardhan

Nandini

State Bank of India

Narayan

Chandrapur

Sushila

Gondpipri

s. 5(2)

s. 5(l)(e)

Raja Dharmarao

Zamindar

Hanumanthu

Hanumanthu

Hanumanthu

Shakuntala

Special Judge, Chandrapur

Gondpipri D

s. 5(2)

s. 5

s. 5(1)(e)

Section 5(1)(e)

s. 5(2)

Section 5(1)

s. 5(3)

s. 5

s. 5(l)(e)

Section 5(3)

s. 5(!)(e)

s. 4(1)

s. 5(1)(a)

s. 5(1)(e)

s. 5(2)

s.5(1 )(e)

s. 5

s. 5(2)

s. 5( I)( e)

Jahgan

Viscount Sankey

Swamy

Evidence Act, 1872

Section 106

s. 106

Hanumanthu

Raja Dharmarao Zamindar

Sushila

Chandrasekhar Merekar

V.N. Swamy

V.N.

Swamy

Chandrapur

W.R. KAILALWAR

Raja Dharamrao


STATE OF PUNJAB AND ORS.

AJUDHIA NATH AND ANR.

May 7, 1981

[ D.A. DESAI A.D. KOSHAL AND R.B. MISRA, JJ. ]

Punjab Excise Act and Rules made thereunder-Principle of natural justice of giving opportunity to be heard does not come into play when the demand is merely for payment of a sum becoming d11e under the conditions of the licence.

Constitution of India, 1950, Entry 51 of List IT of Schedule VII read with section 31 of the Punjab Excise Act-Still-head duty is neither a duty of excise nor can be regarded as a tax of any kind whatsoever.

Condition 8 of the licence to run liquor vends in various parts of Punjab during the financial year 1965-66 laid down: (i) the licencee shall lift each month D the proportionate qtiota for the month fixed for his vends or deposit still-head duty realisable thereof (ii) Any deficiency in the amount of still-head duty realisable from the lifting of the full proportionate quota due to the short lifting of the quota by the licencee or non-deposit of the still-head duty may be realised from the amount of security deposited by the licencee at the time of grant of licence; (iii) the resultant deficiency in the amount of security shall be made good by the licencee within seven days of such adjustment and (iv) if there is short lift- E ing of proportionate quota or short deposit of still-head duty continues for two consecutive months or the licencee fails to make up the deficiency in the amount of security within the prescribed period of seven days. his licence may be cancelled in addition to the recovery of still-head duty.

Respondent Ajudhia Nath who was granted the necessary licences under the relevant provisions of the Punjab Excise Act and the Rules framed thereunder, was unable to lift the minimum quota of country liquor and also failed to deposit the still-head duty which became payable by him under condition No. 8.

On an application made by him claiming relief in the matter of payment of sums which bad fallen due, such relief wae granted to him in part by the Excise and Taxation Commissioner, Punjab, on the ground that the liquor trade was badly affected by reason of the movement of population in the border area of Punjab on account of the hostilities which broke out between India and Pakistan in the month of September 1965. Not satisfied with the relief so granted Ajudhia Nath filed two petitions under Article 226 of the Constitution before the High Court of Punjab and Haryana claiming, inter alia, that still-head duty was an excise duty which could be levied only on manufacture of goods and which he was not liable to pay by reason of the admitted fact he was not a manufacturer of Liquor and that he was not given the opportunity of being heard in the matter covered by the applications claiming relief. The petitions were allowed and the Letters Patent Appeals preferred by the State wore dismissed. Hence the appeals by special leave.

PUNJAB V. AJUDHIANATH 687

Allowing the appeals, the Court

HELD : 1. The demand for the short-fall in still-head duty was based on the terms of a binding contract and it sought to enforce the liabilities arising out of mutually agreed conditions of auction. Such a demand could not be equated with a notice requiring the liquor vendor to show cause why his licence should not be cancelled. Although an opportunity of being heard has to be given to a liquor vendor when his licence is sought to be cancelled, the same principle of natural justice does not come into play when the demand is merely for payment of a sum becoming due under the conditions subject to which the licence was granted. (691 G-H, 692A, E-F]

Har Shankar and others v. The Dy. Excise & Taxation Commissioner and others [1973] 3 SCR 254; Shyam Lal v. State of Punjab, AIR 1976 SC 2045; State of Punjab v. Mu/kh Raj and Co., AIR 1977 SC 1550 and The State of Punjab v.

Balbir Singh and others, AIR 1977 SC 1717, followed.

2 : 1. A combined reading of Entry 51 of List II of Schedule VII to the

Constitution of India and section 31 of the Punjab Excise Act no doubt makes

it clear that a duty of excise on alcohalic liquors meant for human consumption D cannot be recovered from a person unless any one of the three clauses of section 31 covers his business activities. (693 C-D, 694A]

2 : 2. Still-head duty is not a duty of excise in view of the dicta laid down by the Supreme Court to the effect that the short fall in still-head duty represents nothing but sums recoverable from the licencees under a contract which was entered into by them with their eyes open and that they cannot be 'E allowed to have the best of both the worids by exploiting the contract so long as it suits them and by repudiating it if and when it does not work to their advantage. [694 B-C]

Har Shankar and others v. The Dy. Excise & Taxation Commissioner and others, [1973] 3 SCR 254; State of Punjab v. Balbir Singh and others, AIR 1977 SC 1717, applied. .F

2 : 3. Condition No. 8 of the licence does not involve the imposition of a duty of excise but makes provision only for recovery of sums becoming due under a contract. The licencees are not connc.cted in any manner whatsoever with the manufacture of alcohdic liquor and there was, therefore, no question at all of levying a duty of excise on their operations which were confined merely to the sale of liquor manufacturd by others and which, therefore, commenced only G ajler the process of manufacture was completely over. [696 E-G]

M/s. Bhajan Lal Saran Singh & Co. v. State of Punjab and others, 1967 Current Law.Journal (Punjab and Haryana) 450; State of M.P. v. Firm Goppu/al, [1976] 2 SCR 1041; Excise Commissioner, U.P., Allahabad and othe-s v. Ram Kumar and others, (1976] 3 sec 540, distinguished.

3 : I. On the facts of this case still-head duty cannot be regarded as a tax of some other kind nor can the question whether it does amount to such a tax

(for levying which the State. lacks authority) be allowed to be raised since it was never raised at any earlier stage and its con, ideration is b.ound to work prejudice to the cause of the appellants. Further there is no impediment in the way of the demand being regarded as the enforcement of an obligation arising under the contracts which the Jicencees had entered into and exploited so long as the same worked to their advantage and which were fully permissible under subsection (3) of section 34 of the Punjab Excise Act. [696 H, 697 A-Bl

3: 2. Clause (b) of sub-section (3) of section 34 of the Punjab Excise Act allows impositions of conditions on grant of the licences in addition to the pay-. ment of the licence fees which is a matter covered by clause (a). Condition No. 8 is, therefore, fully enforceable and there is no reason why still-head duty l. should be regarded as a tax of any kind whatsoever. [697 D-E]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1665 and 1666 of 1970.

From the order dated the 25th July, 1968 of the Punjab and Haryana High Court in LP A Nos. 230 & 240 of 1968.

M.S. Dhillon for the Appellant in both the appeals.

Tirath Singh Munjraf, G.K. Arora, S.S. Munjra! and Gautam Bannerjee for the Respondents in both the appeals.

The Judgment of the Court was delivered by E KosHAL J. By this judgmentwe shall dispose of Civil Appeals.

Nos. 1665 and 1C66 of 1970 in which common questions of law have arisen for determination by this Court.

The facts leading to the two appeals are un-disputed and may be briefly stated thus. Licences to run liquor vends in various parts of Punjab during the financial year 1965-66 were sold by public auction shortly before the 1st April, 1965.

Auctions were held at numerous places subject to identical conditions which were supplied to the bidders in writing.

Condition No. 8 which i~ material for our purposes is reproduced below:

"That the licencee shall lift each month the proportionate quota for the month fixed for his vend (s) or deposit still-head duty realisable thereon. In the event of any deficiency in the amount of still-head duty realisable from the lifting of the full proportionate quota due to the short lifting of the quota by the Iicencee or non-deposit of the amount of the still-head duty, the saicl deficiency may be realised from the amount of security deposited by

PUNJAB v. AJUDH!ANATH (Kasha!, J.) 689

him at the time of grant of licence. The resulting defi- A ciency in the amount of security shal(be made good by)he licencee within 7 days of such adjustment. In case the short lifting of proportionate qu')ta or short deposit of still-head duty continues for two consecutive months or the licencee fails to make up the deficiency in the amount of security within the prescribed period of 7 days, his licence may be B cancelled in addition to the recovery of deficiency in stillhead duty."

Ajudhia Nath who figures as respondent No. 1 in each of the two appeals and who carries on business of selling country liquor either in his own name or in the name and style of M/s.

C Ajudhia Nath Bal Mukand (a business concern arrayed as respondent No. 2 in Civil Appeal No. 1665 of 1970) was the highest bidder for the auctions pertaining to 5 villages situated in the district of Amritsar and a cou pie of villages in Ferozepur district. Accordingly the auctions were sancti0ned in his favour D and he was granted the necessary licences under the relevant provisions of the Punjab Excise Act (hereinafter referred to as the Act) and the rules framed thereunder.

The licencee started his liquour selling business in the said seven villages on the !st April, 1965. By the close of the financial year 1965-66, however, he was unable to lift the minimum quota of country liquor and also failed to deposit the still-head duty which became payable by him under condition No. 8 above extracted.

He made applications claiming relief in the matter of payment of sums which had fallen due and such relief was granted to him in part by the Excise & Taxation Commissioner, Punjab,, on the ground that sales of country liquor had been adversely affected by reason of the movement of population in the border areas of Punjab on account of the hostilities which broke out between India and Pakistan in the month of September 1965. Not satisfied with the relief so granted Ajudhia, nath filed two petitions under article 226 of the Constitution of India before the High Court of Punjab and Haryana claiming, inter alia, that still-head duty was an excise duty which could be levied only on manufacture of goods and which he was not liable to pay by reason of the admitted fact that he was not a manufacturer of liquor. A grouse was also made by him of the fact that the applications claiming relief had been decided without affording to him an opportunity of being heard. One of those petitions (Civil Writ Petition No. 2034 of 1966) related to

vends functioning in the two villages of Ferozepur District, while the other (Civil 'writ Petition Nos 2035 of 1966) covered the 5 vends located in the 5 villages of Amritsar District. The petitions were allowed by a single order dated the 9th May, 1967 passed by D.K. Mahajan, J., on the sole ground that a similar petition (Civil Writ Petition

No. 2021 of 1966) had been allowed by Gurdev Singh, J., on the 27th March, 1966. The proceedings for the recovery of the shortfall in the deposit of still-head duty by Ajudhia Nath which had been initiated by the State of Punjab and its concerned officers (appellants Nos. I to 4 in each of the appeals before us) were quashed and the Excise and Taxation Commissioner, Punjab (appellant No. 2 in both the appeals) was directed to dispose of the "cases"

of the respondents "in accordance with law after hearing the petitioners". D.K. Mahajan, J., adopted all the reasons on which Gurdev

Singh, J., had based his order above mentioned.

Letters Patent Appeals preferred by the 4 appellants to the Division Bench of the High Court were summarily dismissed by Mehar Singh and Tuli, JJ., for the reason that a Letters Patent Appeal against the judgment of Gurdev Singh, J., above mentioned had met the same fate.

It is against the judgment of 'the Division Bench (which is dated the 29th August, 1969) that each of the appeals before us has been filed.

Mr. Dhillon, learned counsel for the appellants had drawn our attention to The State of Punjab v. Balbir Singh and Others,(1) which reversed the judgment of Gurdev Singh, J., mentioned above and has contended that the very basis of the impugned judgment has consequently fallen to the ground. The contention is correct.

As pointed out in Balbir Singh' s case (supra) the judgment of Gurdev Singh, J., in Civil Writ Petition No. 2021 of 1966 had proceeded merely on the ground that the petitioner-firm therein had not beeen given an opportunity of being heard in relation to the demand notice issued to it for payment of the still-head duty on the entire minimum quantity. of liquor which that firm was requrred to lift under the licence.

In differing with the view

(I) A.LR. 1977 SC 1717.

PUNJAB v. AJUDHIANATH (Kasha/, J.) 691

expressed by Gurdev Singh, J., this Court made a reference to the A following observations of Chandrachud, J., (as he then was) in Har Shanker and Others v. The Dy. Excise & Taxation Commissioner and Others(1) which was followed in Shyam Lal v. Stare of Punjab(2)

"The announcement of conditions governing the auc tions was in the nature of an invitation to an offer to those who were interested in the sale of country liquor. The bids given in the auctions were offers made by prospective vendors to the Government.

The Government's acceptance of those bids was the acceptance of willing offers made to it.

On such acceptance, the contract between the bidders and the Government became concluded and a binding agreement came into existence between them.

The successful bidders were then granted licences evidencing the terms of contract between them and the Government, under which they became entitled to sell liquor. The licencees exploited the respective licences for a portion of the period of their currency, presumably in expectation of a profit.

Commercial considerations may have revealed an error of judgment in the initial assessment of profitability of the adventure but that is a normal incident of the trading transactions.

Those who contract with open eyes must accept the burde11s of the contract along with its benefits.

The powers of the Financial Commissioner to grant liquor licences by auction and to collect licence fees through the medium of auctions cannot by writ petitions be questioned by those who, had their venture succeeded, would have relied upon those very powers to found a legal claim.

Reciprocal rights and obligations arising out of contract do not depend for their enforceability upon whether a contracting party finds it prudent to abide by the terms of the contract. By such a test no contract could ever have a binding force."

and concluded that the demand for the short-fall in still-head duty was based on the term of a binding contract and that it sought to enforce the liabilities arising out of mutually agreed conditions of auction.

Such a demand, in the opinion of this

(I) (1973] 3 SCR 254.

(2) A.LR. (1976] SC 2045.

Court, could not be equated with a notice requiring the liquor vendor to show cause why his licence should not be cancelled. In making this distinction this Court further relied upon State of

Punjab v. Mulkh Raj and Co.(1) wherein it was observed:-

"It was also held there that a cancellation of the licence under section 36 of the Punjab Excise Act, 1914, had to take place quasi-judicially after due service of the notice on the Iicencee to show cause why it should not be cancelled.

Although, the merits of the last mentioned proposition need not be examined by us as it rests on a sound footing, yet, we find it difficult to uphold the order that the demand for a sum of Rs. 36,636 . On account of short-fall should also be quashed on account of non-compliance with rules of natural justice in cancelling the licence in proceedings under section 36 of the Act.

We think that the two liabilities were erroneously considered by the High Court to be inextricably linked up .............................................. .

We do not think that, even if the respondent ought to have been given a hearing before cancelling the licence, this would dispense with his liability to deposit the amount of balance of the licence fee or invalidate the notice of demand for it."

Thus, the proposition is by now well-settled that although an opportunity of being heard has to be given to a liquor vendor when his licence is sought to be cancelled, the same principle of natural justice does not come into play when the demand is merely for payment of a sum becoming due under the conditions subject to which the licence was granted, and this proposition fully covers these appeals. The demands for payment of the amount of the still head duty which had become due under the contracts accepted by the respondents and had remained unpaid were demands arising under condition No. 8 above extracted and had, therefore, resulted from the terms of those contracts. No question of elfording to the respondents any opportunity of being heard thus arises and the impugned judgment, is, therefore, liable to be reversed.

(I) A.LR. 1977 SC 1550.

PUNJAB v. AJUDHIANATH (Koshal, J.) 693

Faced with the above situation, Shri Munjral, learned A eounsel for the respondents, raised the following two contentions:

(a) Still-head duty is a duty of excise which could only be levied on a manufacturer and not on a mere vendor of goods manufactured by others.

(b) If the still-head duty mentioned in condition No. 8 above extracted cannot be regarded as a duty of excise, it nevertheless amoants to a tax of some other kind for levying which the State lacks authority.

Reliance in connection with contention (a) is placed on Entry 51 of List II forming part of Schedule VII to the Constitu~ tion of India and on section 31 of the Punjab Excise Act.

The relevant portions of these provisions state :

Entry 51

"Duties of Excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India :-

(a) alcoholic liquors for human consumption; ........ .

Section 31

"An excise duty or a countervailing duty, as the case may be, at such rate or rates as the State Government shall direct, may be imposed, either generally or for any specified local area, on any exci>able article-

(a) imported, exported or transported in accordance with the provisions of section 16 ; or

(b) manufactured or cultivated under any licence granted under section 20 ; or

(c) manufactured in any distillery established, or any distillery or brewery licenced under section 21 ; ...

These provisions leave no room for doubt that a duty of excise on alcoholic liquors meant for human consumption cannot be recovered from the respondents because none of the 3 clauses of section 31 covers their business activities.

But then the first part of contention (a) that still-head duty is a duty of excise cannot be accepted in view of the dicta in Har Shankar and others v. The Dy.

Excise & Taxation Commissioner and others (supra) and The State of Punjab v. Balbir Singh and others (supra) to the effect that the shortfall in still-head duty represents nothing but sums recoverable by the appe!lants under the terms of a contract which was entered into by the respondents with their eyes open and that the latter cannot be allowed to have the best of both the worlds by exploiting the contract so long as it suits them and by repudiating it if and when it does not work to their advantage.

Shri M unjral has vehemently contended that still-head duty is only another name for excise duty inasmuch as it is nothing more or less than a duty leviable on the manufacture of alcoholic liquor. For this proposition he places reliance on a Division Bench judgment of the High Court of Punjab & Haryana in M/s. Ehajan Lal Saran Singh & Co. v. The State of Punjab and others (1) the approval of that judgment by this Court in Civil Appeals Nos. 1042 and 1043 of 1968 decided on 21st August, 1972, State of Madhya Pradesh v. Firm Gappulal etc. (') and Excise Commissioner, U.P.,

Allahabad and others v. Ram Kumar and others (3). These authorities, however, are of no help to him because, in every one of them, the still-head duty which was mentioned in the condition corresponding to condition No. 8 in the present case was either expressly stated to be an excise duty or was assumed to be a duty of that character.

In faCt, in the case of M/s. Bhajan Lal Saran Singh it was conceded on behalf of the State before the High Court that still-head duty was an excise duty and that is why the nature of the charge as excise duty was taken for granted before the High Court as well as in this Court.

No question was either raised or decided as to whether it could at all be regarded ':ls an excise duty. However, in later cases, namely, Har Shankar and others v. The Dy. Excise & Taxation Commissioner and others, (supra) and The State of Punjab

v. Balbir Singh and others (supra) the demand for still-head duty recoverable under condition No. 8 above extracted was specifically.

H (I) 1967 Current Law Journal (Pb of Haryana) 460.

(2) [1976] 2S.C.R. 1041. (3) [t976J 3 sec 540.

...

PUNJAB v. AJUDHIANATH (Koshal, J.) 695

held to be a demand for money which had become due under an obligation created by terms of the contract. It is too late in the day, therefore, for Shri Munjral to contend that such a demand should be considered as one covering excise duty.

He, however, relies on the following passage in Har Shankar and others v. The Dy. Excise & Taxation Commissioner and others (supra) :

"The second decision on which the appellants laid stress was rendered by the High Court of Punjab and Haryana in Jage Ram v. State of Haryana (C.W. No. 1376 of 1961 decided on March 12, 1968). The argument is that this decision is based on the earlier decision.of the High Court in Bhajan Lal v. State of Punjab (C.W. No. 538 of 1966 decided on February 6, 1967), that the decision in Bhajan Lal's case was confirmed in appeal by this Court (C.A. Nos. 1042 and 1043 of 1968 decided on August 21, 1972), that there is no material difference between the rules and the procedure adopted in the instantcases and those which were struck down in Bhajan Lal's case and therefore, the rules and the procedure followed herein must also be struck down for the same reasons.

This argument overlooks the significant difference between the rules struck down in Bhajan Lal' s case and in Jagc Ram's case and the amended Rules now in force. Under the old Rule 36 (23-A) still-head duty which was admittedly in the nature of excise duty was payable by the licencee even on quota not lifted by him. The Rule and Condition No. 8 founded on it were therofore struck down in Bhajan Lal's. case as being beyond the scope of entry 51 of List II, the taxable event under the impugned Rule being the sale and not the manufacturer of liquor. Rule 36 was amended on March 31, 1967 in order to meet the Judgment in Bhajan Lal's case but the High Court found in Jage Ram's case that even under the amended Rule, still-head duty which was in the nature of excise duty was payable on unlifted quota of liquor.

The position obtaining under the Rules as amended on March 22, 1968 which are relevant for our purposes is in principle different as the still-head duty is now only 0. 64 paise as against Rs. 17.60 per litre which was in force under the old Rules and excise duty as such is no longer payable on unlijted quota.

The principle governing the decisions in Bhajan Lal' s

SUPREME COURT REPORTS

(1981] 3 S.C.IL

case and loge Ram's case cannot, therefore, opp!)' any longer".

(Emphasis supplied)

Special stress has been laid by Shri M unjral on the underlined portion of the passage above extracted and it is contended by him that the judgments in the cases of Jage Ram and Bhajcn Lc.I wern neither disapproved nor dissented from but were merely distinguished in Hor Shankar's case, that while pointing out the distinction this Court took it for granted that in those earlier cases the charge of stillhead dutyamounted to an excise duty and that condition No. 8 as obtaining in the present case being identical with the corresponding condition in those cases, it must be held that Har Shankar' s case is an authority for the proposition that the said condition No. 8 seeks to levy nothing lbut excise duty in the form of still-head duty.

A careful'perusal of the passage cited (which appears at first sight to lend colour to the c; ontention) leaves no room for doubt, however, that in deciding Har Shankar's case this Court was not called upon to adjudicate on the .Constitutional propriety of condition No. 8 above extracted, nor with the question as to the nature of the levy covered by that condition.

All that the Court said was that the corresponding condition in Har Shankar's case was a very different condition which could in no manner be construed to levy an excise duty. Besides, it was pointed out in the passage above quoted that the still-head duty mentioned in the relevant condition in the earlier cases (which was indentical with condition No. 8) was admittedly a duty of excise--a fact to which we have already adverted while holding that condition No. 8 does not involve the imposition of a duty of exercise but makes provision only for recovery of sums becoming due under a contract.

We may also point out that the respondents are not connected in any manner whatsoever with the manufacture of alcoholic liquor and there was, therefore, no question at all of levying a duty of excise on their operations which were confined merely to the sale of liquor manufactured by others and which, therefore, commenced only after the process of manufacture was completely over.

For all these reasons, we repel the contention under examination.

Contention (b) is also without substance and need not detain us long.

For one thing, it was never raised at any earlier stage and its consideration is bound to work prejudice to the cause of the appellants.

Secondly, as already pointed out above, there

PUNJAB v. AJUDHIANATH (Kasha!, J.) 697

is no impediment in the way of the demand being regarded as the A enforcement of an obligation arising under the contracts which the respondents had entered into and exploited so long as the same worked to their advantage and which were fully permissible under sub-section (3) of section 34 of the Punjab Excise Act. That subsection states :-

"(3) Every licence, permit or pass granted under this Act shall be granted-

(a) on payment of such fees, if any,

(b) subject to such restrictions and on such conditions,

(c) in such form and containing such particulars,

(d) for such period,

as the Financial Commissioner may direct".

According to Shri Munjral the payment of licence fees is D provided for in the conditions of auction apart from condition No. 8 and, therefore, the latter cannot be regarded as providing for any

thing but the levy of a duty of excise or of some other kind. The argument is fallacious in view of the language of clause (b) of the sub-section just above reproduced. That clause allows the imposition of conditions on the grant of a licence, in addition to the payment E of the licence fees which is a matter covered by clause (a). Condition No. 8 is, therefore, fully enforceable and there is no reason why still-head duty should be regarded as a tax of any kind whatsoever.

For the reasons stated, both the appeals are accepted and the impugned judgment. which cannot be sustained, is reversed so.

that both the petitions under article 226 of the Constitution of India filed by the respondents before the High Court and accepted by it are dismissed.

However, we leave the parties to bear their own costs.

V.D.K.

Appeals allowed.

STATE OF PUNJAB AND ORS

AJUDHIA NATH AND ANR

May 7, 1981

D.A. DESAI A.D. KOSHAL

R.B. MISRA, JJ.

Punjab Excise Act and Rules

Constitution of India

Schedule VII

section 31

Punjab

India

Pakistan

Ajudhia Nath

Article 226

High Court of Punjab and Haryana

PUNJAB V. AJUDHIANATH

[1973] 3 SCR 254

AIR 1976 SC 2045

AIR 1977 SC 1550

AIR 1977 SC 1717

Schedule VII

Constitution of India

section 31

section 31

Supreme Court

[1973] 3 SCR 254

AIR 1977 SC 1717

[1976] 2 SCR 1041

sec 540

section 34

section 34

Punjab and Haryana High Court

M.S. Dhillon

Tirath Singh Munjraf

G.K. Arora

S.S. Munjra

Gautam Bannerjee

E KosHAL

1st April, 1965

Ajudhia Nath Bal Mukand

Amritsar

Ferozepur district

st April, 1965

Ajudhia

article 226

Constitution of India

Ferozepur District

Amritsar District

9th May, 1967

D.K. Mahajan

Gurdev Singh

27th March, 1966

State of Punjab

Gurdev

Singh

Mehar Singh

Tuli

Dhillon

Balbir Singh

Chandrachud

(1973] 3 SCR 254

section 36

Punjab Excise Act, 1914

section 36

Munjral

Schedule VII

section 31

Section 31

section 16

section 20

section 21

section 31

M unjral

High Court of Punjab & Haryana

21st August, 1972

Bhajan Lal Saran Singh

sec 540

March 12, 1968

February 6, 1967

Bhajan Lal

August 21, 1972

Jagc Ram

March 31, 1967

Jage Ram

SUPREME COURT REPORTS

(1981] 3 S.C.IL

Ram

Bhajcn Lc

Hor Shankar

Har Shankar

section 34

article 226

Constitution of India

V.D.K.