Thakur Amar Singhji v. 'State of Rajasth•n

Venkataram• Ayyar J.

April 20

SUPREME COURT REPORTS [1955]

properties are within the exemption enacted in section 20.

To sum up: The impugned Act is not open to attack either on the ground that the Rajpramukh had no legislative competence to enact it, or that the pr<>- cedure prescribed in article 212-A for enactment of laws had not been followed. The Act is, in substance, one for acquisition of property, and is within the legislatiYc competence of the State, and it is protected by article 31-A.

But the notification is bad as regards properties comprised in Petitions Nos. 392 and 488 of 1954, as izoras are not within the impugned Act.

The properties mentioned in Petition No: 36 of 1955 are declicatcJ for religious services, and are exempt tmdcr section 20 of the Act.

Appropriate writs will issue in these three petitions.

In Petition No. 468 of 1954 the right of the peritioner to c!oim cxem ption under section 20 for the villa!ic of Jorpur:1 on the ground that it is dedicated for worship of the Deity is reserved, and the petition is otiHr\vise dis1nis.sed.

All the other !JCt1t1ons will stand dismissed.

The parties wiil b(ar their own costs m ali the petitions.

C\f. K. RANGANATHAN AND ANOTHER

ti.

GOVERNMENT OF MADRAS AND OTHERS.

[S. R. DAs, RHAC'NATJ and SJNHA JJ.]

Indian Companies Act, (Act VII of 1913), s. 232(1) as amended by Act XXll oj l936-'F/1e iuords "or any sale held without leave of the Court of any of the propc; tit"-s of the Co1npa11y" added in the section-FVhethcr lef!islaturc intended to 1nake alteration £n the !atu as respects sales effected by secured creditor-Secured creditor-TVhcther ouiside the toinding up--Construction_:Presumption against i111plied r1fteratict1 of law.

The secured creditor is outside the winding up and can realise his securir:v \vithout the ieave of the winding up Court, though if he files a suit or takes other legal proceedings for the realisation of his security he is bound under s. 171 of the Indian Companies Act to obtain the leave of the winding up Court before he can do so although such leave \V1uld alinost automatically be granted.

It is a legitimate rule of construction to construe words in an Act oi Parliament with reference to words found in immediate connection with them. It is also a well-recognized rule of construction that the legisbture does not intend to make a substantial alteration in the law beyond what it explicitly declares either in express words or by ckar implication and that the general words of the Act are not to be so construed as to alter the previous policy of the law, unless no sense or meani'1g can be applied to those words consistently with the intention of. p:eserving the existing policy untouched.

Held therefore that having regard to the context in which the words "any sale held without leave of the Court of any of the properties" added in s. 232( 1) bv the amending Act XXII of 1936 have been used in juxtapos; tion witn "any attachment, distress or execution put into force without leave of the Court against the estate or effects" it would be a icgitimate construction to be put upon them that they refer only to sales held through the intervention of the Court and not to sales effected by the secured creditor outside the winding up and without the intervention of the Court, and that the amendment was not intended to bring within the >Weep of the general words saks effected by the secured creditor outside the winding up.

Held accordingly that in the present case the sale effected by respondent No. 2 as the receiwr of the trustees of the debentureholders in July 1954 was valid and binding on all parties concerned and could not be challenged as it was sought to be done by the Official Receiver.

Food Controller v. Cork (1923 A.C. 647), Kayastha Training and Banking Corporation Ltd. v. Sat Narain Singh (f 1921] I.L.R. 43 All. 433), Baldeo Narain Sfrigh

v. The United India Bank Ltd. ([1915] 38 J.C. 91), State of West Rengal v. Subodh Gopal Bose and others ( 1954 S.C.R. 587), Angus Robertson and others v. George Day (L.R. [1879] 5 A. C. 63), Murugian, P. v. fainudeen, C. L. ([1954] 3 W.L.R. 682), National Assistance Board v. Wilkinson ([ 1952] 2 Q.B. 648), Vasudeva Mudaliar and others v. Srinivasa Pillai and another ([1907] l.L.R. 30 Mad. 426) and The Governor-General in Council v.

Shiromani Sugar Mills Ltd. (In Liquidation) (1946 F.C.R. 40), referred to.

CIVIL

APPELLATE

JURISDICTION : No. 20 of 1955.

Civil Appeal

Appeal from the Judgment and Order dated the 29th day of September 1954 of the High Court of Judicature at Madras in Original Side Appeal No. l.13 )f 1954 arising out of the order dated the 9th dav of <\ugust !954 cf t'ie said High Court in its Ordiary Original Civil Jurisdiction in Application No. 3542 of 1954. 48

,\1. K. Ranganath••

and another

Government of Madras and othtrs

M. K. Ranganathan

and anothlr

Governtntnl of Madras and otk1rs.

C. K. Daphtary, Solicitor-General for Umrigar, Mohan Kumaramangalam Narain, with him) for the appellants.

R. H. Dhebar and P. G. Gokhale No. 1.

India (H. /. and Rajinder

for respondent

Samarendra Nath Mukherjee and B. N. Chose for respondent No. 2.

N. P. Engineer, (B. Moropant and V. f. Taraporewala, with him) for respondent No. 3.

1955. April 20.

The Judgment of the Court was delivered by

BHAGWATI J .-This appeal with a certificate under article 133 ( 1) ( c) of the Constitution is directed against the Judgment of the High Court of J udicaturc at Madras dismissing the appeal of the Appellants and refusing to set aside a sale effected by Respondent 2 of certain properties belonging to the Madras' Electric Tramways (1904) Ltd. hereinafter called the Company, above the ground at V epery, Madras and Mylaporc, including the machinery cars, etc. and buildings as scrap to Respondent 3 in his capacity as the Receiver of the trustees of the debenture holders of the Company.

The Appellants are the Secretary and President respectively of the Madras Tramways Workers Association (Registered No. 1_253) a Trade Union registered under the Trade Unions Act. The workmen employed by the Company are entitled under the award of the Special Industrial Tribunal, Madras in I. D. No. 9 of 1953 published in the Fort St. George Gazette, dated the 8th July, 1953 being G. 0. Ms. No. 3024/53 to a payment of nearly Rs. 7,00,000 out of which the workers belonging to the Madras Tramways Workers Association alone would be entitled nearly to a sum of Rs. 4,35,000 and are thus the major creditors of the Company. The Company was incorporated in England with its principal office situated at No. 1, Rundalls Road, Vepery, Madras-7 and was running the Tramway Service in Madras with_ licence issued to it by the Government under the Tramwayi Act. It had issued

1300 First Debentures of £100 each and the debenture-holders had appointed the Beawar Trust Ltd., England as trustees.

By an Indenture made in England on the 13th October 1924 the Company charged by way of first charge in favour of the trustees all its undertaking properties and assets for the time being both present and future including its uncalled capital with the payment of all moneys for the time being owing on the security of the debentures and such charge was to rank as a floating charge. By two subsequent deeds made at Madras dated the 26th March, 1925 and 6th July, 1950 certain immovable properties belonging to the company were mortgaged in favour of the said trustees.

The said Trustees appointed Respondent 2, the Managing Director of the Company and day to day management of the Tramway Service and of the business of the Compay, as their Receiver~ He took possession as such Receiver, from the midnight of 11th April, 1953 of all the assets of the Company including moneys in the bank to the credit of the Company and after that date the Tramways Service was suspended and still remains suspended.

One J. B. Beardsdl, one of the Directors of the Company filed 0. P. No. 419 of 1953 as the duly constituted Attorney of the Company for winding up the Company on the ground that it was unable to pay its debts and that it had ceased to carry on its business ..

An order for the winding up of the Company was made bv the Court on the 20th January, 1954 and the Official Receiver, High Court, Madras, was appointed the Official Liquidator. Since all the assets including the moneys of the Company were in possession of Respondent 2, the Official Receiver was unable to take charge of anything except the records of the Company.

Soon after the order for winding up the Respondent 2 advertised in the newspapers on the 23rd January, 1954 for the sale of the properties and assets of the Company. At the end of the conditions of sale he stated in paragraph 7 that "the sales are for the time being subject to the approval of the High Court 6-83 SC India/59

M. K. Ranganathan

anti anotlur

Govemmtnt of MatirOJ and otherl

BhagwatiJ.

M. K. RanganaJ/um

aad anotM

Govemmmt of M adra.s and others - ...

Bhagwati J.-

at Madras and it will be for the undersigned to obtain such approval for accepted offers free of all costs to the purchaser".

At the time of the order of winding up, two suits were pending in the High Court, C.S. No. 191 of 1952 filed by the Company against the State of Madras for Rs. 1,33,204-9-0 and interest thereon being electric charges alleged to have Leen collected by the State of Madras in excess of those payable by the Company and paid by the company under protest and C.S.

No. 368 of 1953 filed by the State of Madras against the Company for the recovery of Rs. 9,26,123-2-3 with interest thereon, being the diflerence alleged to be due in respect of the electric charges under the old rates and the revised rates applicable to the Company.

During the pendency of the said suits Respondent 2 gave an undertaking in Application No. 4533 of 1953 in Civil Suit No. 368 of 1953 that he would not without the orders of the High Court dispose of any of the assets of the Company which were in his possession till the disposal of the suit C.S.

No 368 of 1953.

The two suits aforesaid were tried to gether and were disposed of by a common judgment on the 16th Man:'.h 1954.

On the 16th July 1954 Respondent 2 agreed to sell and Respondent 3 agreed to buy the movable properties of the Company the particulars of which were set out in the agreement entered into on that date, for a price of Rs. 4,01,658 of which half was paid on the s; gning of the agreement and the other half was agreed to be paid out of the proceeds of sale to be made by the purchasers of the assets as scrap.

On he 23rd July 1954 the Official Receiver, High Court, Madras (Respondent 5 herein) filed an application No. 3542 of 1954 for setting aside the said 'sale of the assets of the Company on the grounds, inter alia, that it was prejudicial to the interests of the General body of unsecured creditors, that the same had been concluded with undue haste and without adequate publicity and in violation of Respondent 2' s said undertaking to the Court. It also asked for an injunction restraining the Respondent 2 from

handing over and the Respondent 3 from either taking over or breaking up the assets purchased by him pending the disposal of the said application.

This application was based on a report of the Official Receiver in which after setting out the relevant facts he submitted that even though under section 729 of the Indian Companies Act the Company which was admittedly insolvent was governed by rules prevailing with regard to the respective rights of the secured and unsecured creditors and to debts provable and valuation of annuities governing the administration in insolvency and secured creditors generally stood outside the liquidation and were entitled to have the remedy of realising the security and proving before him for the deficiency, if the properties of the Company could be sold for a price higher than the amount due to the Trustees of the debentureholders there was a possibility of a surplus coming into his hands for the benefit of the unsecured creditors.

If the Respondent 2 proved before him for any deficiency due to the secured creditors, it would certainly affect the rights of unsecured creditors, and moreover though the secured creditors might realise the security, it will be in the interests of the unsecured creditors to see that a fair and proper pncc was obtained. He therefore submitted that in the interests of the unsecured creditors it was just and necessary to have a fair valuation ascertained and an enquiry held to ascertain whether the sale by the Respondent 2 in favour of Respondent 3 was bona fide and for a proper price. Respondent 2 filed an affidaYit in reply in August 1954 contending inter alia, ( 1) that the offer by the Respondent 3 was the highest, that he had received and that this had been accepted bona fide, (2) that in the advertisement the condition as to the previous sanction of the Court was inserted because of the undertaking that he had given to the Court in C.S. No. 368 of 1953 and that this undertaking lapsed with the dismissal of the said suit on the 16th March 1954, (3) that he had been advised by the Solicitors in England for the debenure trustees that it was unnecessary for him to obtain

M. K. RanganaJhan

and another

Govnnmmt of Madras and others

l1hagwati J.

M. K. Ranganathan

and another

Government of Madras and others

 Bhagwati ].

the sanction of the Court and that he had been instructed not to apply for such sanction and ( 4) that the sale was bona fide and he had secured as good a price as could be obtained.

By its judgment and order dated the 9th August 1954 Mr.

Justice Balkrishna Ayyar (in Chambers) dismissed the said application with costs.

The learned Judge held that the question whether Respondent 2 had violated the undertaking given by him was not germane to the application before him, that undoubtedly the Respondent 2 did give wide publicity of his intention to sell the assets of the Company, that it could not be said that the sale was sub rosa on the ground of want of wide publicity to the intended sale of the Company's assets and that the Respondent 3's offer was the best offer received by the Respondent 2 looking both to the abstract of offers appended to the affidavit of the Respondent 2 in the said application, and looking to the other offers pointed out to him by Respondent 5.

The learned Judge further referred to the offer of the Corporation of Madras and said that the said Corporation had not made any firm offer at all and that the offer of one A. Chettiar ot Rs. 4,25,000 made on 5th August 1954 during the hearing of the application was an offer made by a person who did not appear to him to be of a man of sound financial status.

The learned Judge in his judgment also recorded the fact that during the hearing of the application the Respondent 3 offered to sell to the Madras Municipal Corporation the entire assets he had purchased at the same price which he paid for it but the Corporation were not prepared to accept the offer.

The Respondent 5 accepted the said judgment and decision and did not prefer any appeal against the same.

But the Appellants who were not parties to the proceedings applied for and obtained from the High Court leave to appeal from the said decision.

This appeal also was "dismissed by the High Court with wsts. on the 24th September 1954.

The High Court differed. from the finding of the Trial Court and held that due pt1blicity had not . been given to the

intended sale and observed that if the matter rested merely on a decision of that point they would have allowed the appeal and set aside the sale. They however held that in the absence of fraud or want of bonafides on the part of the seller along with that of the buyer the sale in favour. of the Respondent 3 could not be set aside.

The High Court further considered the question whether the said sale was void as being without the leave of the Court in view of section 232 of the Indian Companies Act and answered that question in the negative.

The High Court further held that a secured creditor had a right to realise his security without seeking the assistance of the court and remaining outside the winding up.

Being aggrieved by the said judgment and decree of the High Court the Appellants applied for leave to appeal to this Court and such leave was granted by the High Court on the 24th September 1954.

The bona fides of the Respondent 2 in the matter of the sale were not chal!tnged either in the Courts below or before: us and there were concurrent findings of fact that the price obtained by Respondent 2 was the best price available under the circumstances.

It was however urged by the learned Solicitor-General for the Appellants:-(1) that the High Court, having found that due publicity had not been given to the intended sale, ought not to have allowed the Respondent 3 at that stage to raise the question as to whether the Court had any power or jurisdiction to set aside the sale except on the ground that it was vitiated by fraud or for want of bona fides and (2) that the sale by Respondent 2 being a sale held without leave of the winding up Court was void under section 232(1) of the Indian Companies Act.

The High Court had allowed the Repondent 3 to raise the question even at that late stage inasmuch as it was a pure question of law and the learned Solicitor-General therefore rightly did not press the first contention before us.

The main argument centered round the second contention, viz., whether the sale effected by the Respondent 2 wihout leave of the winding up Court was void and hee liable to be set aside.

1!155

M. K. Ranganathan

and another

Governintnl of Madras and others

Bhagwati ].

M.K. Ecanganathan

and onotkr

GoDcrnmmt of Madras and others

Bhagwati J.

The decision of this question turns upon the true construction of section 232 of the Indian Companies Act, which runs as under:-

"(l) Where any company is being wound up by or subject to the supervision of the Court, any attachment, distress or execution put in force without leave of the Court against the estate or effects or any rale held without leave of the Court of any of the properties of the company after the commencement of the winding up shall be void. (2) Nothing in this section applies to proceedings by the Government".

It may be noted that the words "or any sale held without leave of the Court of any of the properties" underlined above were inserted by Act XXII of 1936.

Before this amendment section 232 ( 1) was almost in identical terms with section 228(1) of the English Companies Act of 1948.

Two other section~ of the Indian Companies Act may be noted in this context, viz. section 171 :-

"When a winding up order has been made or a provisional liquidator has been appointed no suit or other legal proceeding shall be proceeded with or commenced against the company except by leave of the Court, and subject to such terms as the Court may impose." and Section 229 :-

"In the winding up of an insolvent company the same rules shall prevail and be observed with regard to the respective rights of secured and unsecured creditors and to debts provable and to the. valuation of annuities and future and contingent liabilities as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent; and all persons who in any such case would be entitled to prove for and received dividends out of the assets of the company may come in under the winding up, and make such claims against the company as they respectively are entitled to by virtue of this section;" which correspond respectively to sections 231 and 317 of the English Companies Act of 1948.

The position of a secured creditor m the winding up of a company has been thus stated by Lord Wrenbury in Food Controller v. Cor!\(1):

"The phrase 'outside the winding up' is an intelligible phrase if used, as it often is, with reference to a secured creditor, say a mortgagee. The mortgagee of a company in liquidation is in a position to say "the mortgaged property is to the extent of the mortgage my property.

It is immaterial to me whether my mortgage is in winding up or not.

I remain outside the 'winding up' and shall enforce my rights as mortgagee".

This is to be contrasted with the case in which such a creditor prefers to assert his right, not as a mortgagee, but as a creditor. He may say 'I will prove in respect of my debt'. If so, he comes into the winding up".

It is also summarised in Palmer's Company Precedents Vol. II, page 415:

"Sometimes the mortgagee sells, with or without the concurrence of the liquidator, in exercise of a power of sale vested in him by the mortgage. It is not necessary to obtain liberty to exercise the power of -; ale, although orders giving such liberty have sometimes been made".

The secured creditor is thus outside the winding up and can realise his security without the leave of the winding up Court, though if he files a suit or takes other legal proceedings for the realisation of his security he is bound under section 231 (corresponding with section 171 of the Indian Companies Act) to obtain the leave of the winding up Court before he can do so although such leave would almost automatically be granted.

Section 231 has been read together with section 228(1) and the attachment, sequestration, distress or execution referred to in the latter have reference to proceedings taken through the Court and if the creditor has resort to those proceedings he cannot put them in force against the estate or effects of the Company aL;· the commencement of the winding up without the leave of the winding up Court. The

(1) 1953 Appeal Cases 647.

M.K. Ranganathatr

and another v.

Govemmmt of Madras and others

Bhagwati ].

M.K. RanganatlilJn

and anolher v.

Govtrnmlnl of Madra.s and others

Bhagwati J.

provisions in section 317 are also supplementary to the provisions of section 231 and emphasise the position of the secured creditor as one outside the winding up, the secured creditor being, in regard to the exercise of those rights and privileges, in the same position as he would be under the Bankruptcy Act.

The corresponding provisions of the Indian Companies Act have been almost bodily incorporated from those of the English Companies Act and if there was nothing more, the position of the secured creditor_ here also would be the same as that obtaining in England and he would also be outside the winding up and a sale by him without the intervention of the Court would be valid and could not be challenged as void under section 232(1) of the Indian Companies Act.

It was however urged that the addition of the words "or any sale held without leave of the Court of any of the properties" had changed the position of the secured creditor and even though the secured creditor realised the security without the intervention of the Court such sale, if effected by him without the leave of the winding up Court, was void.

It was pointed out that these words did not find their place in the corresponding section 228(1) of the English Companies Act and therefore even though any attachment, distress or execution put in force without leave of the Court against the estate or effects of the company after the commencement of the winding up was void under the terms of the section 232 ( 1) as it originally stood, the words "or any sale held without leave of the Court of any of the properties" of the company were wide enough to include not only a sale , held through the intervention of the Court but also a sale effected by the secured creditor without the intervention of the Court whether the sale was by private treaty or by public auction.

It was contended on the other hand on behalf of the contesting Respondent, Respondent 3, that the amendment was made in order to get over the decision of the Allahabad High Court in Kayasth~ Trading and Banking Corporation Ltd. v.

Sat Narain Singh(1 ) and that in any event on a true construction of section 232(1} as amended the words "any sale held" had reference in the context . only to. sales held by or effected through the intervention of the Court and not sales effected by the secured creditor without the intervention of the Court.

The decision of the Allahabad High Court ahove referred to ha<l hel<l on a construction of section232(1) as it then stood, that an execution was not put in force merely when the property of the judgment- <lebtor was sold in pursuance thereof, but it was pur in force when the property was attached and hence where the property of an insolvent company was attached prior to the <late of the commencement of the winding up but was actually sold subsequent to such· date, the sale was not voi<l and could be upheld. There was an earlier decision of the Patna High Court in Baldeo Narain Singh v. The United India Bank Ltd. () in which a contrary decision had been reached exactly under simiiar circumstances.

It is well-known that this .conflict was resolved and the decision of the Allahabad High Court was got over by inserting this ' amendment by Act XXII of 1936.

The statement of objects and reasons is certainly not admissible as an aid to the construction of a statute.

But it can be referred to for the limited purpose of ascertaining the conditions prevailing at the time which actuated the sponsor of the Bill to introduce the same and the extent and urgency of the evil which he sought to remedy.

State of West Bengal v.

Subodh Gopal Bose and Others( 3 ) The amendment of section 232( 1) inserted by Act XXII of 1936 was designed to prevent such sales as were upheld by the decision of the Allahabad High Court in Kayastha Trading and Banking Corporation Ltd. v. Sat Narain Singh(1) and it would be permissible to refer to that portion of the statement of objects and reasons for the purpose of ascertaining the extent and urgency of the evil which was sought to be remedied by introducing the amendment. It follows therefore that the

(1) [1921] T.L.R. f3 Allahabad 433.

(2) (1915] 38 Indian Case$ 91.

(3) (1954] S.C.R. 587, 628.

M.K. Ranganathan and another v.

Government of Madras and.others

Bhagwati J.

. \ 1955. amendment could. not have been intended . to .bring M - within the sweep of the-general words"or any sale held

i:::t;!~~~:an without the leave of the Court of any of the properv. ties" sales effected by the secured. creditor outside Government of the Winding up. _ . ' l!Iadrasandothers Even apart from this intendment there are certain canons of construction which also tend to support the Bhagwati J • -· same conchision. Prior to the amendment the law was

. well-settled both in England and in India .that the secured creditor.was outside the .winding up and he could realise his security without the intervention of the. Court by effecting a sale of the mortgaged pre~ . mises by private treaty or by public auction.: It was only when the intervention of the Court was sought either by_ putting in force any attachment, distress or execution within the meaning of section 232(1) as it stood before the amendment or proceeding with or ·, commencing a suit or other legal proceedings_against the company within the meaning of section 171 that leave of the Court was necessary and if no such leave was obtained the remedy could not be availed of by the secured creditor. The sale of the mortgaged premises was also brought by the amendment on .a par with the attachment, distress orexecution putin force at the insfarice of the secured credifoi .. and ha virig regard to the context such sale . could orily be construed to be a sale held through the intervention of the Court and not one effected by. the secured creditor outside the winding up and without the intervention of the Court. ' .. _It is a well-recognised rule . of construction that . "when two or more words which are susceptible of analogous meaning are coupled together. noscunter a sociis, they are understood to be used in their cognate sense. They take, as it were, their colciur from each -- other, that is, the more general is restricted to a sense analogous to the less_. general. (Maxwell ou Interpretation of Statutes, Tenth Edition, p. 332).

The Judicial Committee of the Privy Council also · expressed itself in similar terms in Angus Robertson & Others v. George Day(1):-

(1) [1879) L, R. 5 A.O. 63, 69.

"It is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them".

Having regard therefore to the context in which these words "any sale held without leave of the Court of any of the properties" have been used in juxtaposition with "any attachment, distress or execution put into force without leave of the Court against the

etate or effects" it would be a legitimate construction to be put upon them that they refer only to sales held through the intervention of the Court and not

10 sales effected by the secured creditor outside the winding up and without the intervention of the Court.

There is also a presumption against implicit alteration of law and that is enunciated by Maxwell on Interpretation of Statutes, 10th Edition, at page 81 in the following terms:-

"One of these presumptions is that the legislature does not intend to make any substantial alteration in the law beyond what it explicitly declares, either in express terms or by clear implication, or, in other words, beyond the immediate scope and object of the statute.

In all general matters outside those limits the law remains undisturbed.

It is in the last degree improbable that the legislature would overthrow fundamental principles, infringe rights, or depart from the general system of law, without expressing its intention with irresistrble clearness ................ " This passage from Maxwell was approved of by Their Lordships of the Privy Council in Murugian, P. v.

Jainudeen; C. L. (1) and Their Lordships agreed that the law. was correctly stated in the passage just cited. To the same effect are also the observations of the Court of Appeal in National Assistance Board v. Wilkinson (2) where it was held that the Statute is not to be taken as affecting a fundamental alteration in the general law unless it uses words pointing u11mistakably to that conclusion.

In that case at page 658 Lord Goddard, C. J. observed :-

\ l) [1954] 3 Weekly Law Reports 682, 687.

(2) [1952] 2 Q. B. 648.

M. K. Ranganathan

and anothn

Govmimmt of Madras and other.r

Bhagwati J.

Al. K. J?anganathafi

and another ·

Govtrnmtnl of Madras and other$

Bhagu; ali 'J~

.• ,. "But it 1nar be presumed that the legislature does not' intebd to make a substantial alteration m the law beyond what it expressly declares.

In Mi11et V. Leman('), Sir John Romilly, M. R. stated as a principle ' ofrc-0ristruction which could not be disputed that 'thergeneral' words of the Act are not to be so construed as.·· to alter the previous policy of the law, unless n-o sense• or meaning can be applied to those words consistently: with the "intention of preserving the: existing policy ·untouched' ". ' '· 'IC the construction sought to be put upon the words "or'' any"s:fre held without ieave of the Court of any of the 'properties" by the Appellants were accepted it would effect a fundamental alteration in t!l'e law as it stoodbefore the amendment was inserted in section 232(1)' by Act XXII of 1936: Whereas before the' amendment the secured creditor stood outside the winding up and could if the mortgage deed so' provided, realiSe his security without the intervention ofthe Court by effecting a sale either by private treaty" or by public auction, rio such sale could be effected 1by him after the amendment and that was certainly a fondament:il alteration in the law which could not be effected unless one found words used which pointed unmistakably to that conclusion or unless such intention was expressed with irresistible clearness.

Havirig regard to the circumstances under which the amendment was inserted in section 232(1) by Act XXII of 1936 and also having regard to the context we are not''prepared to hold that the Legislature in inserting that amendment intended to effect a fundamental alteration in law with irresistible clearness. -Such -agreat and sudden change of policy could not •be attributed to the Legislature and i'. wou !d 'he legitimate therefore to adopt the narrower interpretation of those words of the amendment rathfr than an interpretation -which would have the - contrary effect. (Vide the observations of the Privy Council "iii Vasude11a Mudaliar & Others v. Srinivasa Pillai & another(').

(I) [1855] 20 Beav. 269. .• ' - ,

(2) \l 907) L L. R. 30 Madras 426, 433. '

It may be observed in this connection that section 171 enacts a general provision with regard to suits or other legal procee<lings to be proceeded with or commenced against the company after a winding up order has been made and lays down that no suit or other legal proceedings shall be proceeded with or commenced against the company excern by leave of the Court and subject to such terms as the Court may impose.

This general provision is supplemented by the

1 supplemental provisions to be found respectively in sections 229 and 232(1) of the Act.

Section 229 speaks of the application of insolvency rules in winding up of insolvent companies and . section 232(1) speaks of the avoidance of certain attachments, executions, etc., put into force without the leave of the Court against the estate and effects of the . company and also of any sale . held without the leave of the Cour.t of any of t!1e properties of the company after the '.commencement of the winding up.

Section 229 recognises the position of the secured creditor generally, as outside the winding up but enables him in the event of his desiring to take the benefit of the winding up proceedings to prove his debt, to value the 'same and share in the distribution pro rata of the assets of thf' company just in the same way as he would be able to do in the case of insolvency under the Presidency Towns Insolvency Act or the Provincial Insolvency Act. Section 232(1) also has reference to legal proceedings in much the same way as legal proceedings envisaged by section 171 of the Act and the attachment, distress or execution put in force or the sale held are all of them legal proceedings which can only be resorted to through .the intervention of the Court.

The word "held". in connection with the sales contemplated within the terms of the amended section also lends support to this conclusion and this conclusion is further fortified by the terms of section 232(2) which says that nothing in this section . applies to proceedings by the Government, thus in effect indicating that wbat are referred to in section 232(1) are proceedings within the meaning of that term as. 11seJ in section 171 of the Act.

M. K. Ranganatho11

and another

Governmtn/ nf Madras ani otki•s

•· Bhagwati ].

"1955

M. K. Rangaruzt/u111

and another

•• Governmmt of Madras and others

BhagwaJi J.

The Federal Court also put a similar construction on the provisions of section 171 read with section 232(') of the Act in The Governor-General in Council

v. Shiromani Sugar Mills Ltd. (In Liquidation)('):

"Section 171 must, in our judgment, . be construed with reference to other sections of the Act and the general scheme of administration of the assets of a company in liquidation laid down by the Act. In particular, we would refer to section 232. Section 232 appears to us to be supplementary to section 171 by providing that any creditor (other than Government) who goes ahead, notwithstanding a winding-up order or in ignorance of it, with any attachment, distress, execution or sale, without the previous leave of the Court, will find that such steps are void. The reference to "distress" indicates that leave of the Court is required for more than the initiation of original proceedings in the nature of a suit in an ordinary Court of law.

Moreover, the scheme of the application of the company's property in the pari passu satisfaction of its liabilities, envisaged in section 211 and other sections of the Act, cannot be made to work in co-ordination, unless all creditors (except such secured creditors as are "outside the winding-up" in the sense indicated bv Lord W renbury in his speech in Food .Controller v. Cork( ) at page 671) are subjected as to their actions against the property of the company to the control of the Court.

Accordingly, in our judgment, no narrow construction should be placed upon the words "or other legal proceedings" in section 171.

In our judgment, the words can and should be held to cover distress and execution proceedings in the ordinary Courts. In our view, such proceedings are other legal proceedings against the company, as contrasted with ordinary suits against the company".

We are therefore of the opinion that the sale effected by Respondent 2 "' the Receiver of the Trustees of the debenture-holders on the 16th July 1954 was valid and binding on all parties concerned and could not be challenged as it was sought to be done by the •

(I) [1946] F. C. R. 40, 55.

(2) 1923 A.G. 647.

Official Receiver.

The position was rightly summed up by the High Court as under:-

"W e thus reach the position that no leave of Court was needed before the Receiver appointed by the mortgagee debenture-holders exercised the power of sale and that as there is no allegation of want of bona ft.des or recklessness or fraud against the Receiver in exercising such a power, it would follow that the sale held by the Receiver is valid and effectual to convey title to the purchaser and that such a sale cannot be avoided on the ground either of want of due notice given by the Receiver before effecting the sale or on the ground of undervalue".

The result therefore is that the appeal fails and must be dismissed with costs of the contesting Respondent 3.

The other Respondents who have appeared before us will bear and pay their own costs of the appeal.

OM PRAKASH GUPTA

ti.

THE ST ATE OF UTT AR PRADESH.

[VIVIAN BosE, BHAGWATI, JAGANNADHADAS, VENKATARAMA AYYAR, S1NHA and IMAM, JJ.]

Government servant-Order of dismissal-Suit fOt" declaration that order dismissing the appellant from service was. illegal-Court

fee paid on an alte.-native claim fol" damages which was subsequently given up-Refund of-Whether could be granted-Arrears of pay-- Claim for-LApse of suspension order after order of dismissal.

The appellant, a member of the United Provinces Civil (Executive) Service, was suspended from service with effect from the 24th August, 1944, pending aP enquiry into his conduct.

As a result of enquiry and report by the Commissioner, the Government passed an order on the 25th November, 1944, dismissing the appellant from service, which order was served on the appellant on the !st December, 1944.

The appellant instituted a suit for a declaration that the order of dismissal passed against him was wrongful, illegal and inoperative, and that he continued to be in service and was entitled to a decree for recovery of arrears of his sal:rry. The plaint included an alternative prayer for a declaration that the order of dismissal was

M. K. RangQll/Jthan ""' ,,,,,,, Mr ....

G~•f Madns ad oth6rs

i].

4jlril :u

~·. l ., ..

. .

section 20

article 212

article 31

section 20

section 20

K. RANGANATHAN AND ANOTHER

GOVERNMENT OF MADRAS AND OTHERS

S. R. DAs

Indian Companies Act

s. 232(1)

s. 171

Companies Act

Parliament

s. 232( 1)

(1946 F.C.R. 40

K. Ranganath••

M. K. Ranganathan

C. K. Daphtary

Mohan Kumaramangalam Narain

R. H. Dhebar

P. G. Gokhale

Samarendra Nath Mukherjee

B. N. Chose

N. P. Engineer

B. Moropant

V. f. Taraporewala

BHAGWATI

article 133

High Court of J udicaturc at Madras

Madras' Electric Tramways (1904) Ltd.

Mylaporc

Madras Tramways Workers Association

Special Industrial Tribunal, Madras

8th July, 1953

England

Vepery

1, Rundalls Road, Vepery, Madras-7 and was running the Tramway Service in Madras with licence issued to it by the Government under the Tramwayi Act.

Beawar Trust Ltd.

13th October 1924

26th March, 1925

6th July, 1950

11th April, 1953

J. B. Beardsdl

20th January, 1954

High Court, Madras

23rd January, 1954

M. K. Ranganathan

Bhagwati

M. K. RanganaJ

State of Madras

16th July 1954

23rd July 1954

section 729

Companies Act

M. K. RanganaJhan

9th August 1954

Balkrishna Ayyar

Corporation of Madras

A. Chettiar

5th August 1954

Madras Municipal Corporation

24th September 1954

section 232

Companies Act

section 232(1)

Companies Act

Governintnl of Madras

M.K. Ecanganathan

section 232

Companies Act

section 232

section 228(1)

Companies Act

Companies Act

section 171

Section 229

sections 231 and 317

Companies Act

Wrenbury

Palmer

section 231

section 171

Companies Act

Section 231

section 228(1)

M.K. Ranganathatr

Govemmmt of Madras

M.K. RanganatlilJn

section 317

section 231

Companies Act

Companies Act

section 232(1)

Companies Act

section 228(1)

Companies Act

section 232

Allahabad High Court

Patna High Court

section 232( 1)

M.K. Ranganathan

Government of Madras

India

section 232(1)

section 171

Maxwell

Goddard

John Romilly

section 232(1)

section 232(1)

section 171

sections 229 and 232(1)

Section 229

section 232(1)

Section 229

Section 232(1)

section 171

section 232(2)

section 232(1)

section 171

M. K. Ranganatho11

M. K. Rangaruzt

BhagwaJi

section 171

section 232(')

Section 171

section 232

Section 232

section 171

section 211

W renbury

section 171

[1946] F. C. R. 40

VIVIAN BosE

JAGANNADHADAS

VENKATARAMA AYYAR

IMAM

25th November, 1944

M. K. RangQll


2 S.C.R.

SUPREME COURT REPORTS 391

Official Receiver.

The position was rightly summed up by the High Court as under:-

"W e thus reach the position that no leave of Court was needed before the Receiver appointed by the mortgagee debenture-holders exercised the power of sale and that as there is no allegation of want of bona ft.des or recklessness or fraud against the Receiver in exercising such a power, it would follow that the sale held by the Receiver is valid and effectual to convey title to the purchaser and that such a sale cannot be avoided on the ground either of want of due notice given by the Receiver before effecting the sale or on the ground of undervalue".

The result therefore is that the appeal fails and must be dismissed with costs of the contesting Respondent 3.

The other Respondents who have appeared before us will bear and pay their own costs of the appeal.

OM PRAKASH GUPTA

ti.

THE ST ATE OF UTT AR PRADESH.

[VIVIAN BosE, BHAGWATI, JAGANNADHADAS, VENKATARAMA AYYAR, S1NHA and IMAM, JJ.]

Government servant-Order of dismissal-Suit fOt" declaration that order dismissing the appellant from service was. illegal-Court

fee paid on an alte.-native claim fol" damages which was subsequently given up-Refund of-Whether could be granted-Arrears of pay-- Claim for-LApse of suspension order after order of dismissal.

The appellant, a member of the United Provinces Civil (Executive) Service, was suspended from service with effect from the 24th August, 1944, pending aP enquiry into his conduct.

As a result of enquiry and report by the Commissioner, the Government passed an order on the 25th November, 1944, dismissing the appellant from service, which order was served on the appellant on the !st December, 1944.

The appellant instituted a suit for a declaration that the order of dismissal passed against him was wrongful, illegal and inoperative, and that he continued to be in service and was entitled to a decree for recovery of arrears of his sal:rry. The plaint included an alternative prayer for a declaration that the order of dismissal was

M. K. RangQll/Jthan ""' ,,,,,,, Mr ....

G~•f Madns ad oth6rs

i].

4jlril :u

~·. l ., ..

. .

' 1955

Om Prakash Gupta

wrongful 'and. for a decree for Rs. 1,20,000/- by way of damages being passed in his favour. .The requisite. court-fee on the valuation of Rs. ),20,000 /- .. was paid. The claim for damages was later on

al>andon~<:f iii' view of "the decision of the Privy Council in High Commissionir for India and High Commissioner for Pakistan v. /. M •

Tiu Staie of Uttar . Prsh ·.,

Li/{1 ) and:'fonsequentlal amendments were made in the plaint. The Civil J udgc granted a declaration that the order of dismissal was illegal and that the appellant continued to be in service in spite of th:µ: order. . But he declined to grant a decree for arrears of salary on the groui:id that a suit therefore was not maintainable. A prayer .for the refund of 'the additional court-fee paid in respect of the claim for damages was 'also refused.

The respondent did not appeal against the decision that the order of dismiisal was illegal. But the appellant took the matter in appeal to the High Court which, affirming the decision of the Civil Judge, negatived his claim for arrears of salary and also r_cfused refund of Court-fee.

Leave was, however, granted to dppeal to thi:: Supreme Court.

"-·" "l

- :.:'' ' lf.,1. .d ' ' .. dn view of the decision of the Supreme Court in the case of The Siate of Bihar v., Abdu/'Majid('), the respondent did not dispute the right of-'ilic 'appellant to recover arrears of pay. But he sought to support the decision on the ground that the order of dismissal dated the 25th November, 1944, having been declared to be illegal and void, the order of suspension dated the 24th August, 1944, became revived and that would bar the claim for arrears of salary.

Held that the order of suspension made against the appellant being one pending an enquiry, it lapsed with the order of dismissal and the subsequent declaration by the Civil Court that the order of dismissal Was illegal. could not revive an order_ which. had ceased to exist. ·. i. ·

- ·· ·

t'~·l:.. Theque"tioil whether the order of suspension dated the 24th August, 1944, . was valid . and whether it was passed after due en- . quiry; woold be material only with reference to the claim for salary .for the period between the 24th August, 1944 and the. !st December, 1944, arid as the appellant did not press the claim for that period there was no need to direct an enquiry on that point, . . "") . ·• Heid ·£U, ther 'tliat the claim for refund of extra court-fee could . not be. gianted illasmuch as the decision of. the Privy Council dari- . lying the. pi>si\ion eould not be a ground for the refund of xcess rou_rtf": -whCQ at the time it was _paid it was in accordance with. the :}i_w. as i~, thcii ~~ The State of Bihar v. Abdul Majid ([1954) S.C.R. 786), Sh""um

v. ,.Smith.([188~] .A.C. 229), R. Venkata Rao v. Secretary of State for 'Jnilia. 'in CounCii (r.;.R. 64 I.A. 55), M. Gopal Krishna Naid,. v. s- ; f, fMadhf.a:Pr1idesh (A.I.R. 1952 Nag. 17), Provincial Government, "i::'1itrti1 Pt/vi."cei , and Berar through Collector, Amraoti v. Shams/Jiil

;!fps~'4n Sirifi H.uss'ain (I.LR. [1948] Nag. 576), referred ID.

(I) [1948] L.R. 75 I.A. 225.

(2) [1954] S.C.R. 786.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 85 .of 1954. ,,

i Appeal under Article 133( 1) ( c) of the Constitution from the Judgment and Decree dated the 6th November, 1950, of the High Court of Judicature at Allahabad in F. A. No. 141 of 1949.

S. Ramaswamy Iyer (K. R. Clioudhry, with him) for th~ appellant.

M. C. Setalvad, Attorney-General for India ( C. P.

Lal, with him) for the respondent.

1955.

April 21.

The Judgment of the Court was delivered by

IMAM J.-This is an appeal against the decision of the Allahabad High Court affirming the decision of the Civil Judge of Allahabad.

The appellant was appointed to the United Pri>- vinces Civil (Executive) Service in 1940 and in due course was confirmed.

He was posted to various stations and in 1944 he was posted to Lakhimpur Kheri, where he joined n July,

1944. On the 23rd August, 1944, the Deputy Commissioner of Lakhimpur Kheri received a telegram from Government informing him that the appellant was suspended forthwith pending inquiry into his conduct and that a copy of the telegram was forwarded to the appellant for information.

On the 26th August, 1944, the Deputy Commissioner wrote to the appellant that he was required to appear before the Commissioner of the Lucknow Division on the 28th August, 1944. to answer the charges, a copy of which would be forwarded to him. He further informed the appellant that he could treat his case under rule 55 of the Civil Services {Classification Control and Appeal) Rules of 1930, published in the United Provinces Gazette of June 28, 1930.

The appellant was further informed that in view of his suspension his leave application was cancelled.

On the 28th August, 1944, the appellant appeared before the Commissioner at Lucknow and protested against the pri>- cedure adopted by him for the inquiry. The Commis- " 7-83 S. C. India/59.

Om Prakash Gupta

The State of Ullar

Prat/uh

Om FTakash G•Pta

v, The State of Uttar

Pradesh

Imam J,

sioner having completed the inquiry on the 1st September, 1944, submitted his report to Government.

The Commissioner, however, recommenced the inquiry on September 11, 1944, and after completing the inquiry submitted the papers to Government on the 30th September, 1944.

The Government of the United Provinces by an order dated the 25th November, 1944, dismissed the appellant from the United Provinces Civil (Executive) Service.

This order was served on the appellant on the 1st December, 1944, and he submitted a memorial to the Governor on August 7, 1945, which was rejected on the 28th May, 1947.

During the period of suspension the appellant was paid subsistence allowance at the rate of one-fourth of his salary which was then Rs. 310 per month.

The appellant gave notice under section 80 of the Code of Civil Procedure of h.is intention to bring a suit and on the 2nd Januay, 1948, he filed his suit.

He asked for a declaration that the order of dismissal was wrongful, illegal, void and inoperative nd that he still continued to be a member of the Civil Service ontitled to full pay with all increments as they fell due.

He prayed for a decree for , recovery of arrears of salary amounting to Rs. 16,810-8-0 less subsistence allowance already drawn from August 24, 1944, to December 31, 1947.

In the alternative he prayed for a declaration that the order of dismissal was wrongful and that a decree to the extent of Rs. 1,20,000 with interest by way of damages may be passed in his favour.

He paid the requisite court fee on the valuation of Rs. 1,20,000.

This alternative claim was deleted from the plaint as a result of an amendment, having regard to a rnbsequent decision of the Privy Council* which held that a person illegally dismissed from Government service could only get a declaration that the order was inoperative and that he still continued to be a member of the Service.

The appellant asked for refund of the extra court fee paid which was rejected by the Civil Judge by a separate order.

The Civil Judge, however, decreed

*High CommiJJiorttr for India and H;, gh Commissioner for PakistaN Y.

J. ,\f. Lal-. [1948] L.R. 75 I.A .. ~~·"·

ts.c.R.

SUPREME COURT REPORTS

the appellant's suit in part declaring that the order dismissing him from service was illegal and that he still continued to be a member of the United Provinces Civil (Executive) Service.

The Civil Judge, however, declined to pass a decree for arrears of salary.

Against the decision of the Civil Judge the appellant appealed to the High Court and his appeal was dismissed.

The respondent did not appeal against the decision of the Civil Judge or file a cross-objection.

The appeal in the High Court proceeded on the basis that the order of dismissal made against the appellant was illegal and that it was rightly declared that he continued to be a member of the service of the United Provinces Civil (Executive) Service. The only two questions which were considered and decided by the High Court were as to whether the appellant was entitled to a decree for arrears of salary and a refund of the excess court fee paid by him.

Both these questions were decided against the appellant by the High Court which subsequently gave him a certificate for leave to appeal to this court.

It may be stated at once that in view of the dedsion of this court in The State of Bihar v. Abdul Majid(1) there can be no question now that the appellant had the right to institute a suit for recovery of arrears of salary as he was dismissed illegally.· It is unnecessary, therefore, to refer to the elaborate discussion of the law in this respect to be found in the judgment of the learned Judges of the High Court.

When this appeal came on for hearing before this court and the appellant had been heard, the Attorney- General in the course of his argument had contended that the order of suspension of August 1944 subsisted although the order of dismissal had been declared illegal by the Civil Judge and all that the appellant was entitled to was subsistence allowance and not salary so long as the order of suspension remained effective.

This plea was not taken in the written statement filed in the trial court, nor was there any issue framed in this respect.

The Attorney-General

(ll [1954] S.C.R. 786.

Om Prakash Gupla

TM State of Utlar

Pradesh

Imam].

!955

Om Prakash Gupta

Thi SlaU of Uttar

Prad<sh

Imam J.

asked for time to file an additional written statement on behalf of.' the respondent. This court allowed time for the respondent to <lo So and the appellant was also given time to reply to . any additional written statement filed 'on behalf of the respondent. The respondent filed the additional written statement and the appellant filed his reply to it. Thereafter the appeal came on for hearing again and the learned Advocate for the appellant made his submissions on the addi- 0tional written statement and the Attorney-General replied to the same.

So far as the . payment of excess court fee is concerned, the learned. Advocate for the appellant did riot urge this point in his opening argument but urged it in reply after the Attorney-General had concluded his argument.

Apart from the question as to whether the Advocate can be allowed to urge a point like this in reply when no submission had been made by him in his opening, it seems there is no merit in the submission made by the Advocate.

The court fee had been paid on Rs. 1,20,000 which was claimed as damages. At the time the suit was instituted" the law as then understood permitted such .a claim to be made.

The decision of the Privy Council, however, made it clear that no such claim could be made and all that a Government servant could ask for was a declaration that the order of dismissal was illegal and that he still continued to he a member of • the Civil Service.

The decision of the Privy Council clarifying the position could not be a ground for re- . fund of court fee when at the time it was paid it was in accordance .with the law as then understood. Indeed the appellant did .. not appeal or file an application 'against the order of the Civil Judge refusing to pass Lan order.of 'refund. In the' High Court he did not i ask 1•foi this relief on 'the basis of any statutory provision.

; lHe invoked ·. the inherent powers of the High Court. bThe: .. Court Fees. Act contains,, certain provisions for

irefund of court fee paid by a party but admittedly the present case is not covered by any of those provi-

1 sions. It seems, therefore, that the High Court in the circumstances of the present case rightly refused

to order a refund of the excess court fee paid by the appellant. .Jt also does not appear that the Civil_ Judge acted illegally in refusing to order a refund.

On the additional written statement filed in this Court by the respondent a question has arisen whether the order of suspension was valid and during the period it was in force the appellant could recover arrears of salary.

The learned Advocate for the appellant contended that an order of suspension is a penalty under rule 49 of the Classification Rules and it was against all sense of natural justice to impose a penalty upon a Government servant pending an inquiry against him under rule 55 of the said rules.

An order imposing the penalty of suspension was an appealable order under rule 56 of the Classification Rules and under rule 59 of the said rules, an appellate authority was bound to consider whether the facts on which the penalty was imposed had been established and whether those facts disclosed sufficient grounds for imposing such a penalty.

Rule 54 of the Fundamental Rules authorises a rev1smg or an appellate authority, when it finds that the penalty of suspension was unjustified or not wholly justified, to make an order granting to the Government servant his full pay and any allowance to which he was entitled if he was honourably acquitted and in other cases such proportion of pay and allowances as it may prescribe. The penalty of suspension, it was urged involved serious loss in the matter of salary and allowances and to impose this penalty pending an inquiry was to prejudge the case against a Governme9-t servant and in effect to make his right of appeal a meaningless remedy.

It was pointed out that in some of the rules framed by a Government or quasi- Government authority the penalty of suspension pending an inquiry was specifically provided for, such as rule 95 of the Bihar and Orissa Service Code referred to in Abdul Majid's case and rule 1711 of the Indian Railway Establishment Code.

On behalf of the appellant reference was also made to certain decisions to the effect that as between master and servant, the master had no power of suspension unless

Om Prakash Gupta

Till State of Uttar

Praduh

Imam].

!955

Om PrakashGupaJ .v.

The Stat, of UUar

had<sh

lmam J.

398 SUPREME COURT REPo; R.TS 119.55]

there was an e; rrpress term to that effect in the contract between them.

The Attorney-General conceded that apart from the Classification Rules and the Fundamental Rules he was not aware of any other rules under which the penalty of suspension could be imposed upon a Government servant.

He also conceded that under the Classification Rules an order of suspension was a penalty.

He further conceded that as between master and servant the former had no power of suspension unless the terms of the contract between them permitted it or a statute or a rule provided for it but his principle, he said, did not apply to a person in the service of the Crown in India. He, however, contended that under rule 49 of the Classification Rules a penalty of suspension could be imposed pending an inquiry.

There was nothing in the rule itself which enjoined that a penalty could only be imposed at the conclusion of an inquiry.

The penalty could be imposed for good and sufficient reasons which may be based on materials already existing pending an inquiry.

After the inquiry there may be the imposition of a severer penalty or a definite period of suspension may be fixed or there may be cancellation of the order of suspension.

No doubt there was a right of appeal against an order imposing a penalty of smpension pending an inquiry but the provisions of rule ~4 of the Fundamental Rules did not necessarily lead to the conclusion that the penalty of suspension could only be imposed after an inquiry.

Clause (a) of the said rule might contemplate a case where the penalty had been impo".rl after an inquiry but clause (b) could cover a case where the penalty had been imposed pending an inquiry.

In the present case, he said, the1e was no contravention of any principle of natural jnstice as the appellant had an opportunity of explaining the accusation marle against him. The letter of the Commissioner of Lucknow Division with its annexure, marked Exhibit A in the trial court, clearly showed that the Deputy Commissioner, Lakhimpur Kheri had recorded statements of persons with reference to three cases and the appellant saw him in

connection therewith.

He admitted the facts but tried to explain them. He, however, declined to give his tatement in writing.

The order of suspension made against him was based on materials of which he was fully aware.

In the alternative the Attorney-General urged that in the year 1944 the appellant was a member of the

Civil Service of the Crown in India holding office during the pleasure of the Crown. There was, therefore, inherent power in the Crown and its representative to pass an order of suspension against the appellant pending an inquiry.

The Classification Rules and Fundam_s:ntal Rules were merely directions for general guidance and they did not constitute a contract between the Crown and its servants. For this propositi_on he referred to the observations of Lord Hobhouse in the case of Shenton v. Smith( 1 ).

He also relied upon the following observations of Lord Roche in the case of R. Venkata Rao v. Secretary of State for India in Council('). "Section 96-B in express terms states that office is held during pleasure.

There is, therefore, no need for the implication of this i:erm and no room for its exclusion.

The argument for a limited and special kind of employment . during pleasure but with an added contractual term that the rules are to be observed is at once too artificial and too far-reaching to commend itself for acceptance.

The rules are manifold in number and most minute in particularity, and are all capable of change .................. Inconvenience is not a final consid4'.ration in a matter of construction, but it is at least worthy of consideration, and it can hardly be doubted that the suggested. procedure of control by the Courts over Government in the most detailed work of managing its services would cause not merely inconvenience but confusion".

In the courts below the principal question for consideration was whether the appellant could recover arrears of salary having been illegally dismissed.

It was not pleaded that the order of suspension V.'as

(1) (18951 A.C. 22~.

('' J •. R. li4 I .A. 55

Om Prakash Guf11a

The State of Uttar

Pradesh

Imam].

Om Prakash Gupta

Tk Stal• of Uttar

Praduh•

Imam f

valid and during the period it was in force the appellant could not recover arrears of salary and no specific issue was framed in this respect. '- If the decision of this court in Abdttl Majid's case had been available to the courts below, they would have held that the appellant was entitled to recover arrears of salary when he had been illegally dismissed and they would have had further to decide whether the order of suspension was valid and during 'the period it was in force the appellant could recover arrears of salary. On the additional written statement filed , by the respondent in this court, the submissions of the Advocate for the appellant _ and. the Attorney General would require examination and_ it might have been necessary to consider whether the case should 'not be remanded to the court of trial. It is unnecessary, however,. to record a decision on.these' submissions having regard to the atti- ' . . . . tude adopted by the Advocate for the appellant.

He objected to the case being ' remanded as such a course would involve the appellant in heavy expenditure. and harassment.

The appellant preferred to give up his claim for arrears of salary less subsistence allowance paid to him from the date of the order of suspension until the date of the order of dismissal.

He, however, contended that the '. order of, suspension continued to be in force only until the 25th November, 1944, the date of the order of dismissal. On that date the order of suspension ceased . to exist and the appellant was entitled to recover arrears of salary from the 25th November, 1944, to -the 31st December, 1947, inclusive.

The Attorney-General strongly contended that _it continued to be in force and that it was not at all affected by the declaration of the- Civil Judge that the order of dismissal was illegal.

In view of that decision the order of dismissal must. be regarded as a nullity and non-existent in the eye of law. The inquiry, the outcome of which was ·-the order of dismissal, had not therfore ended.

It could only end with a valid order which wouldreplace the order of suspension.

Until that happened the accusation against the appellant remained and the inquiry had not ended.

He referred to the case of M. Copa! Krishna' Naid11 v.

.2 .S.C.R.

SUPREME COURT REPdRTS 401

State of Madhya Pradesh(1). On behalf of the appellant reliance was placed on the case of Provincial Government, Central Provinces and Berar through Collector, Amraoti v. Shamshul Hussain Sirai Hussain(2). The order of suspension made against the appellant was clearly one made pending an inquiry.

It certainly was not a penalty imposed after an enquiry.

As the result of the inquiry an order of dismissal by way of penalty had been passed against the appellant. With that order, the order of suspension lapsed.

The order of dismissal replaced the order of suspensio-9which then ceased to exist. That clearly was the position between the Government of the United Provinces and the appellant. The subsequent declaration by a Civil Court that the order of dismissal was illegal could not revive an order of suspension which did not exist.

The case referred to by the Attorney-General is not directly in point and that decision does not conflict with the case relied upon by the appellant.

The appellant is, therefore, entiled to recover arrears of salary from the 25th of November, 1944, to 31st J)ecember, 1947.

The appeal is accordingly allowed in palt with costs throughout and th~ decree of the courts below is set aside. The , plaintiff's suit is decreed for arrears of salary from the 25th of November, 1944, to the 31st of J)ecember, 1947, inclusive.

The appellant had claimed Rs. 16,810-8-0 less subsistence allowance already drawn as arrears of pay from the 24th of August, 1944, to the 31st J)ecember, 1947.

As his claim for arrears of salary from the 24th of August 1944, to the 25th of November, 1944, is given up, the total salary payable to him during thi$ period less subsistence allowance already drawn, must be deducted from the sum of Rs. 16,810-8-0.

The judgment of the High Court as well as the additional written statement filed by the respondent in this court show that subsequent to the decree passed by the Civil Judge the appellant was treated as under suspension until he was dismissed by a fresh order of

( 1) A.I.R. 1952 Nag. 170.

(1) I.L.R.1948 Nag. 576; A.I.R. (36) 194r1 :Sag. 118.

Om Prakash Gupta

The State of Utlar

Pradtsh

Imam].

Om Prakash Gu1ta

Tlie Stale of Ufla,

Prtkhsh

Imam].

April 21

SUPREME OOURT REPORTS [1955)

dismissal and that he has been paid subsistence allowance for the entire period. Such . subsistence allowance as has been paid to the appellant from the 25th of November, 1944, to the 31st December, 1947, inclusive, must, thertfore, be credited to the respondent and the same must be adjusted against the salary claimed by the appellant.

A decree will accordingly be prepared stating the amount recoverable by the appellant.

The appellant was permitted to appeal in forma pauperis.

As he has succeeded in the appeal, the Registrar shall calculate the amount of court fee which would have been paid by the appellant ; f he had not been allowed to appeal as a pauper and incorporate it in the decree.

The court fee shall be paid by the appellant and the same will be recoverable by the Government of India from him and shall be the first charge on the amount decreed to him.

Under Rule 7 of Order XIV of the Rules of this Court, the appellant will be allowed the fees paid by him to his Advocates, in the taxation of costs.

THE DELHI CLOTH AND GENERAL MILLS

CO., LTD.

ti.

HARNAM SINGH AND OTHERS.

(VMAN BosE, JAGANNADHADAS and BHUVANESHWAR

PRASAD SINHA, JJ.)

Priv11te International Law-Law applic11ble to contractual obligations-English and Continental schools of thought-Lex situs and uProper I.Au/' of contract-Partition of India-Post partition debt -Action for recovery where lies-Analogy of banking transactions and insurance claims-Place of primary obligatio11-Debt, whether property-Sections 3 and 130 of Transfer of Property Act-Evacuee property laws-Pakistan (Protection of Evacuee Property) Ordinance, 1948 (XV/ll of 1948)-Pakistan (Administration of Evacuee Pro

perty) Ordinance (XV) 1949-Whether confiscatory in nature

During the years in question cloth was rationed at Lyallpur, then a part of the Punjab in undivided T ndia, and sales could only be made to government nominees and other authorised persons. The plaintiffs rcsii!cnt in Lyallpur, were the government nominees. The

OM PRAKASH GUPTA

THE ST ATE OF UTT AR PRADESH

VIVIAN BosE

BHAGWATI

JAGANNADHADAS

IMAM, JJ.

25th November, 1944

st December, 1944

M. K. RangQll

Om Prakash Gupta

' 1955

Om Prakash Gupta

wrongful 'and.

High Commissionir for India

Supreme Court

24th August, 1944

Provincial Government

L.R. 75 I.A. 225

Article 133( 1)

High Court of Judicature at Allahabad

S. Ramaswamy Iyer

K. R. Clioudhry

M. C. Setalvad

C. P.

Lal

Allahabad High Court

Lakhimpur Kheri

26th August, 1944

Lucknow

28th August, 1944

June 28, 1930

Om Prakash Gupta

State of Ullar

Imam J

Government of the United Provinces

1st December, 1944

August 7, 1945

28th May, 1947

section 80

the Code of Civil Procedure

2nd Januay, 1948

August 24, 1944

December 31, 1947

High CommiJJiorttr for India

The Civil Judge, however, decreed
High CommiJJiorttr for India and H;, gh Commissioner for PakistaN Y.

J. ,\f.

Om Prakash Gupla

Imam

Abdul Majid

Om PrakashGupaJ

India

Hobhouse

For this proposition he referred to the observations of Lord Hobhouse in the case of Shenton v. Smith( 1 ).

Roche

Section 96

State of Uttar

Pradesh

Abdttl Majid

31st December, 1947

State of Madhya Pradesh(1

31st of J)ecember, 1947

State of Utlar

Om Prakash Gu1ta

Government of India

Order XIV of the Rules

DELHI CLOTH AND GENERAL MILLS

CO., LTD

HARNAM SINGH

VMAN BosE

BHUVANESHWAR

PRASAD SINHA

Sections 3 and 130

Transfer of Property Act

Lyallpur

Punjab