SUPREME COURT REPORTS [rg64)

1964 taxing entries in the legislative Lists I and II of the Seventh R. Abuad., Schedule &re entirely separate from other entries. Entry 26

S I T v. Offi of List II deals with trade and commerce and has nothing a 81 aJ: ca to d h · I' gl _ o wit taxIJJg or recovermg amounts rea 1sed wron y Wanchoo J. as tax.

It is said that s. 11 (2) regulates trade and commerce and the State legislature therefore was competent under Entry 26 of List II to enact it.

We have not been Ahle to understand what such a provision has to do with the regulation of trade and commerce; it can only be justified as a provision ancillary to a taxing statute. If it cannot be so justified-as we hold that it cannot-we are unable to uphold it as regulating trade and commerce under Entry 26 ot List II. There is in our opinion no element of regulation of trade and commerce in a provision like s. 11 (2).

February 24.

We are therefore of opinion that the State legislature was Incompetent to enact a provision likes. 11 (2).

We may also add that the provision contained in s. 20(c), being consequen tial to s. 11 (2) will fall along with it. In consequence it was not open to the Sales Tax Officer to ask the appellant to make ov~ what he had collected from the purchasers wrongly as sales tax. It is not disputed, as appears from the final assessment order of the Sales Tax Officer, that the appellant was not liable to pay the amount as sales tax for the relevant period. We therefore allow the appeal and quash the assessment order dated sptember 27, 1956 insofar as it is based on s. 11 (2).

Th~ appellant will get his costs in this Court as well as in the High Court.

Appeal allowed.

RAF1QUENNESSA

LAL BAHADUR CHETRI (DEAD) THROUGH HTS

REPRESENTATIVES AND OTHERS

(P. B. GAJENDRAGADKAR, C.J., K. N. WANCHOO, J. c.

SHAH, N. RAJAGOPALA AYYANGAR ANDS. M. S!KRI JJ.)

Retroactivity-Enactment of the A.ct pcndinr: apptal-Apptal if governed by the A.ct-Allam NonAgricultural Urhan Arecu Ttnanq Act, 19SS (Assam Act No. 12 of 19SS), •· S.

The appellant sued the lessee, the predecesoor of the respondents. for ojcctment on the latter's failure to deliver possession of a leased land at the expiration of the stipulated period. Under the covenant the lessee was entitled to build a house for residential purposes. The trial Court decreed the appellant's claim whereupon the lessee filed an appeal.

While the appeal was pending the Assam Non-Agricultural Urban Areas Tenancy Act was passed, and thereafter the lessee prayed for permis sion to take an additional ground under •· S of the Act. Before lhat date, the High Court" had taken the view that this provision of the Act was applicable to pending procee'dings. The lower appellate court allow .. ed the lessee's plea and ultimately allowed the appeal and set oside , ho

decree passed by the trial Judge in favour of the appellant, concluding that the two houses had been constructed by the lessee within five years after the taking of the lease and that entitled the lessee to claim the benefit of s. S of the Act. The High Court on appeal. following its earlier decision about the applicability of the provisions of •· 5 to pending proceedings, summarily dismissed the appeal, but granted a certifi~ cate for leave to appeal to this Court.

Held: (i) A statutory provision is retroactive either when it is so declared by express terms. or the intention to make it retroactive clear1y follows from the relevant words and the context in which they O"..cu1.

Re. Athlumney Ex parte Wilson, (1898) 2 Q.B.D. 541, referred to.

(ii) The provisions of the Act clearly indicate that the legislature wanted the beneficient provisions enacted by it to take within their protection not only leases executed after the Act came into iorce, but also leasei executed prior to the operation of the Act.

The plain object of s. 5 is to protect tho tenants who have built a permanent structure either for business oi' for residence, provided it bu been built within S years from the date of contract of tenancy, even though those constructions had been malle before the date of tho AcL

(iii) A suit which was pending when the Act came into force would be governed by s. S(I) (a) and an appeal arising from a suit which had been decided before the Act came into force, would likewise bo governed by s. S(I) (a), provided it is pending after the date when

the Act came into force, for an appeal pending in a continuation of the suit.

CML APPELLATE JURISDICTION: Civil Appeal No. 549 of 1962.

Appeals from the judgment and orders dated August 1, 1958 and March 13, 1959 of the Assam High Court in S.A.

Nos. 86 of 1958 and 14 of 1959 respectively.

N. C. Chatter; ee, K. P. Sen and P. K. Chatterjee, for the appellant (in C.A. No. 549 of 1962).

Rafiquenneua

Lal Bahadur

Gaiendragadkar

C. I.

B. P. Maheshwari, for respondents Nos. l(a) to l(e) (in C.A. No. 549 of 1962).

Behrul Islam and R. Gopalakrishnan, for the appellant (in C.A. No. 569 of 1963).

D. N. Mukherjee, for the respondent (in C.A. No. 569/ 63).

February 24, 1964. The Judgment of the Court was d; iivered by

GAJENDRAGADKAR C.J.-These two appeals which have been brought to this Court with a certificate issued by the Assam High Court, raise a short question about the construction and effect of section 5 of the Assam Non Agricultural Urban Area Tenancy Act, 1955 (No. 12 of

1955) (hereinafter called 'the Act').

The relevant and material facts which have led to the suits from which these two appeals respectively arise, are similar, and so, it would not be necessary to state them in detail in regard to both the matters. We would, therefore, mention the facts broadly in C.A. No. 549/1962, in dealing with the common point raised for our decision. The appellant in this case is Mst. Rafiquennessa who sued the predecessor of the respondents for ejectment. It appears that Lal Bahadur Chetri has executed a registered lease-deed in favour of the aqipellant on the 14th February, 1946. The lease covered an open plot of land and under the covenant the leasee was entitled to build a house for residential purposes.

In the ordinary course, the lease was due to expire on the 12th February, 1952, and the lessee had agreed to deliver vacant possession of the land at the expiration of the stipulated period. Accordingly, a notice to quit was served on him to vacate on the 12th February, 1952. He, however, did not comply with the notice and that led to the present suit by the appellant for eviction (No. 149 of 1952).

In support of her claim, the appellant alleged that the lessee had contravened the terms of the lease inasmuch as he had sublet the premises built by him, and so, that was an addi tional gtound for evicting the lessee.

The sub-lessees were accordingly joined as defendants to the suit.

The lessee Chetri alone resisted the suit The sub-tenants let into possession by him did not join issue with the appellant. The trial Judge decreed the appellant's claim whereupon the lessee Chetri filed an appeal in the Court of the Sub-Judge, Lower Assam District, Gauhati, challenging the validity and the correctness of the decree passed against him (Civil Appeal No. 24/1953).

While the appeal was pending, the Act was passed and was published in the Assam Gazette on the 6th July, 1955.

Thereafter, when the appeal came on for hearing before the lower appellate Court, the tenant filed an application praying that he should be permitted to take an additional ground under s. 5 of the Act.

Before that date, the Assam High Court had taken the view that the said provision of the Act was applicable to the pending proceedings between landlords and tenants for eviction and that was the basis on which the temint Chetri wanted to support his appeal. The lower appellate Court allowed the tenant's plea, framed an 11dditional issue in pursuance of it and sent the matter back to the trial Court for a finding.

On remand, the trial Court took evidence and after local inspection, made a finding that the two houses proved to have been built by the tenant must be regarded as permanent in relation to the locality of the plot. He, however, found that there was no evidence to show when the said houses were constructed. Part of the finding was challenged by the tenant before the lower appellate Court. The lower appellate Court ultimately allowed the appeal and set aside the decree passed by the trial Judge in favour of the appellant.

The conclusion of the lower appellate Court was that the two houses had been constructed by the tenant within five years after the taking of the lease and that entitled the lessee to claim the benefit of s. 5 of the Act

The appellant then preferred a second appeal in the High Court of Assam (No. 86/ 1958).

Following its earlier decision about the applicability of the provisions of s. 5 to pending proceedings, the High Court summarily dismissed the said appeal.

Thereafter, the appellant applied for and obtained a certificate from the High Court and with the said certificate the present appeal has been brought before us.

Pending these proceedings, the tenant Chetri died and his

bcirs and legal representatives Mst Tulsa Devi and othm

Rafill.utv.

Lal Bahotblr

GafendraaadJ; ar-

C. 1.

Raflquennt1m

Lal Baliadur

Ga/endragadkar

c. /.

have been brought on the record and will be described as respondents hereafter. Thus, the only point which arises for our decision is whether the Assam High Court was right in taking the view that the provisions of s. 5 applied to the proceedings between the parties which were pending at the relevant time before the lower appellate Court.

Appeal No. 569 of 1963 arises from a suit filed by the

appellan~ Wahedulla against his tenant, the respondent Abdul Hamid. The relevant facts are similar to those in C.A. No. 549I1962.

In this case also, the Act came into force while the appeal was pending before the lower appellate Court and by the application of s. 5 respondent's claim to continue in possession has been upheld and the appllant's claim for ejecting the respondent has been rejected.

The High Court granted certificate to the appellant when it was toid that the appellant proposed to challenge the correctness of its earlier decision holding that s. 5 of the Act applied to the pending proceedings.

The Act was passed by the Assam Legislature in order to regulate in certain respects the relationship between landlord and tenant in respect of non-agricultural lands in the urban areas of the State of Assa'I!. It contains fourteen sections and the scheme which is evident in the operative provisions of the Act is to afford protection to tbe tenants by regulating in certain respects the relationship between them and their landlords in respect of the lands covered by the Act.

Section 3 (c) defines a 'landlord' as meaning a person immediately under whom a tenant holds but does not include the Government. While s. 3(d) defines a 'permanent structure' in relation to any locality as meaning a structure which is regarded as permanent in that locality, the 'tenant' and 'urban area' are defined by clauses (g) and (h) respectively.

Section 4 imposes an obligation on the tenant to pay rent for his holding at fair and equitable rates, and the proviso prescribes that in case of any dispute as to fair rent between the parties, the rent which was paid by the tenant immediately before the dispute shall be deemed to be fair and equitable unless a competent court decides to the contrary. Section 6 provides for compensation for improvements; s. 7 provides for enhancement of rent by contract; s. 8 deals with enhancement of rent without contract; s. 9

6 S.C.R.

SUPRE:&rtl; COURT REPORTS 881

authorises the Court to make an order as to enhancement of rent; s. IO prohibits illegal realisation beyond the prescribed amount; s. 11 provides for notice for ejectment; s. I 2 prescribes the procedure in which the notice has to be sNved;

and s. 13 confers rule-making power on the State Govern ment. Section 14 repeals the earlier Tenancy Act. --

Having thus broadly considered the scheme of the Act, it 1' necessary to read s. 5, the effect of which is the main point of controversy between the parties before us. Section

5( 11 rends thus:-

"N otwithstanding anything in any contract or in any law for the time being in force-(a) where under the terms of a contract entered into be!ween a landlord and his tenant whether before or <Jter the commencement of this Act, a tenant is entitled to build, and has in pursuance of_ such terms actually built within the period of five years from the date of such contract, a permanent structure on the land of the tenancy for residential or business purposes, or where a tenant not being so entitled to build, has actually built any such structure on the land of the tenancy for any of the purposes aforesaid with the knowledge and acquiescence of the landlord, the tenant shall not be ejected hv the landlord from the tenancy except on the eround of non-payment of rent; (b) where a tenant has effected improvements on the land of the tr.na ncv under the terms whereof he is not entitled to effect such improvements, the tenant shall not he

ejected by the landlord from the land of the tenancy unless compensation for reasonable improvements has been paid to the tenant".

Sub-section (2) prohibits the ejectment of any tenant from the land or the tenancy except in execution of a decree for ejectment passed by a competent civil Court; and sub-section

(3) prohibits the execution of a decree for ejectment on the ground of non-payment of rent within a period of 30 days from the date of the decree, and allows the tenant to pay into the executing Court the entire amount due from him under

134--159 S.C.-56

IllM

RafiquennnM

Lal Bafuuhlr

Gajendragadkar

c. J.

196-f

Rafiqutnnessa

Lal Bahadur

Gaitndragadkar

C. I.

the decree within the said period, whereupon the decree has to be entered as satisfied.

Mr. Chatterjee contends that the Assam High Court v. as in error in coming to the conclusion that the proceedings which were pending between the parties at the appellate stage on 6th July, 1955 when the Act came into force. fell to be governed by the provisions of s. 5.

He argues that at the relevant date when the suit was filed by the appellant, he had acquired a right to eject the tenant under the terms of the tenancy, and he contends that where vested rights are affected by any statutory provision, the said provision shou!rl normally be construed to be prospective in operation and not retrospective, unless the provision in question relates merely to a procedural matter.

It is not disputed by him that the legislature is competent to take away vested rights by means of retrospective legislation. Similarly, the legislature is undoubtedly competent to make laws which over-ride and materially affect the terms of contracts between tk parties; but the argument is that unless a clear and unambiguous intention is indicated by the legislature by adopting suitable express words in that behalf, no provision of a statute should be given retroactive operation if by such operation vested rights are likely to be affected. These principles are unexceptionable and as a matter of law, no objection can be taken to them.

Mr. Chatterjee has relied upon the well known observations made by Wright J. in in re Athlumney Ex parte Wilson('), when the learned Jmle said that it is a general rule that when the Legislature aiters the rights of parties by taking away or conferring any right of action. its enactments, unless in express terms they apply to pending actions, do not affect them.

He added that there was one e1\ception to that rule, namely, that, where nactments merely affect procedure and do not extend to rights of action, they have been held to apply to existing rights.

In order to make the statement of the law relating to the relevant rule of construction which has to be adopted in dealing with the effect of statutory provisions in this connection, we ought to add that retroactive operation of a statutory provision can be inferred even in cases where such retroactive operation appears to be clearly implicit in the

(I) [1898] 2 Q. B. D. 547.

provision construed in the context where it occurs. In other words, a statutory provision is held to be retroactive either when it is so declared by express terms, or the intention to make it retroactive clearly follows from the relevant words and the context in which they occur.

Bearing in mind these principles, let us look at s. 5.

Before doing so, lt is necessary to consider s. 2 which provides that notwithstanding anything contained in al!y contract or in any law for the time being in force, the provisions of this Act shall apply to all non-agricultural tenancies whether created before or after the date on which this Act comes into force. This provision clearly indicates that the legislature wanted the beneficent provisions enacted by it to take Within their protection not only leases executed after the Act came into force, but also leases executed prior to the operation of the Act. In other words, leases which had been created before the Act applied are intended to receive the benefit of the provisions of the Act, and in that sense, the Act clearly affects vested rights of the landlords who had let out their urban properties to the tenants prior to the date of the Act.

That is one important fact which is material in determining the scope and effect of s. 5.

Now, s. 5 itself gives an unmistakable indication of the legislative intention to make its provisions retrospective.

What does s. 5 provide?

It provides protection to the tenants who have actually built within five years from the date of leases executed in their favour, permanent structures on the land let out to them for residential or business purposes, and this protection is available either when the construction of the permanent structure has been made by the tenant in pursuance of the terms of the lease, or even without any term of that kind and the landlord had knowledge of it and had acquiesced in it. Thus, the plain object of s. 5 is to protect the tenants who have built a permanent structure either for business or for residence, provided it has been built within 5 years from the date of contract of tenancy.

Therefore, cases where permanent structures had been built within 5 years of the terms of contract, would fall within s. 5 ( 1 )(a), even though those constructions had been rriade before the date of the Act. Thus, the very scheme of fl 5 ( 1) (a) clearly postulates the extension of its protection to

19M

Rafiquennes5a

Lal Bahadut

Gajendragadkar

c. J.

a.fiquennn•

•• Liii Bahlldar

G•irndraadk11r

c. J.

constructions already made. That is another point which is significant in dealing with the controversy between the

partie~ before us .

There is yet another point which is relevant in this connection. S. 5\l)(a) provides that the tenant shall not be evicted by the landlord from the tenancy except on the ground of non-payment of rent, provided, of course, the conditions prescribed by it are satisfied. If the legislature had . intended that this protection should operate prospectively. it would have been easy to say that the tenant shall not be sued in ejectment; such an expressio11 would have indicated that the protection is afforded to the suits brought after the Act came into force, and that might have introduced the element of prospective operation; instead, what is prohibited by s. 5 (!)(a) is the eviction of the tenant, and so, inevitably, the section must come into play for the protection of the tenant even at the appellate stage when it is clear that by the proceedings pending before the appellate court, the landlord is seeking to evict the tenant, arid that obviously indicates that' the pending proceedings are governed bys. 5(])(a), though they may have been initially instituted before the Act came into force.

Incidentally, an appeal pending before the lower appellate court is a continuation of the suit, and so, there is no difficulty in holding that a suit which was pending when the Act came into force would be governed by s. 5(1)(a) and an appeal arising from a suit which had been decided before the Act came into force, would likewise be governed by s. 5(1)(a), provided it is pending after the date when the Act came into force. Therefore, we are satisfied that the Assam High Court was right in coming to the conclusion that the dispute between the parties in the present case must be governed by the provisions of s. 5(1)(a). It is common ground that if s. 5(])(a) is held to apply, the decrees passed against the appellants in both the appeals cannot be successfully cha.Jlenged.

The result is, the appeals fail and are dismissed with costs. One set of hearing fees.

Appeals dismissed.

s. 11

s. 11

s. 20(c)

s. 11

sptember 27, 1956

s. 11

LAL BAHADUR CHETRI

P. B. GAJENDRAGADKAR

K. N. WANCHOO

N. RAJAGOPALA AYYANGAR

M. S!KRI

s. 5

N. C. Chatter

K. P. Sen

P. K. Chatterjee

Rafiquenneua

B. P. Maheshwari

Behrul Islam

R. Gopalakrishnan

D. N. Mukherjee

GAJENDRAGADKAR

section 5

Rafiquennessa

Lal Bahadur Chetri

14th February, 1946

12th February, 1952

Chetri

6th July, 1955

s. 5

Assam High Court

s. 5

High Court of Assam

s. 5

Lal Bahotblr

Lal Baliadur

s. 5

Abdul Hamid

s. 5

s. 5

Assam Legislature

Section 3

s. 3(d)

Section 4

Section 6

s. 7

s. 8

s. 9

s. 11

s. 13

Section 14

s. 5

Chatterjee

s. 5

Wright

s. 5

s. 2

s. 5

s. 5

s. 5

s. 5

s. 5

Lal Bahadut

Gajendragadkar

S. 5

s. 5

s. 5(1)(a)

s. 5(1)(a)

s. 5(1)(a)

s. 5(])(a)


6 S.C.R.

SUPREME COURT REPORTS 885

TATA ENGINEERING AND LOCOMOTIVE CO. LTD.

.,,

STATE OF BIHAR AND OTHERS

(P. B. GAJENDRAGADKAR, C.J .. K. N. WANCHOO, J. c.

SHAH, N. RAJAGOPALA AYYANGAR ANDS. M. S!KRI JJ.)

Corporation-Position of-Whether citizen-Whether petition under Art. 32 by Corporation claiminR a fundamental right guarante1d under Art. 19 competent-Doctrine of piercing the corporate veil -Exceptions to rule that Corpor.; J,',_-'; i has a separate legal ntity

Levy of Sales Tax challenged-Constitution of India, Arts. 19. 32 and 286(1} (a).

The petitioners were ordered to pay salC!tu. on account of certain transactions made by them in the State of Bihar. Their contention wu that th~ sales in question took place outside the state and hence the1 were entitled to the protection of Art. 286(l)(a). Their plea was rejected by the Sale3-tax authoritie3 and it was held that Art. 286(1 )(a) di'd not apply to them. The peti1ioners challenged the orders of tho sales-tax authorities by writ petitions filed by them under Art. 32 of tho Constitution.

A preliminary objection was taken on behalf of respondents that the petitions were not competent as those were filed by corporations or companies and -the provisions of Art. 19 did not apply to them u corporations were not citizens. Dismissing the writ petitions.

H </J.-The petitions under Art. 32 were incompetent although in each of them one or two Of the share-holders of the petitioning companies or corporations had also joined. Article 19 guarantees ri&hts to citizens as such and associations cannot Jay claim to the fundamental rights guaranteed by that Article solely on the basis of their bein& rm aggregation of citizens. Once a company or a corporation is formed. the business which is carrictl on by the said company or corporation is the business of the company or corporation and is not the busin .. of the citizens who got th: company or corporation formed or incorporated and the rights of the incorporated body must be judged on that footing and cannot be judged on the assumption that they are the right&

attributable to the business of individual citizens. The petitioners cannot be heard to say that their share-holders should be allowed to file tho present petitions on the grountt that in substance. the corporatiom and companies arc nothing more than association of shue-holOen and members thereof.

If their contention is accepted, it would really mean that what the corporations or companies cannot achieve directly, they can achieve indirectly by relying upon the doctrine of lifting the "feil.

If the corporations and companies are not citizens, (t means diat the Constitution intended that they should not aet tho l; cneftt of Art. 1'.

' 1,64

l'druary 2J

Tata Engineering v.

Stace 01 Biha1

The position of a corporation is that it is in law equal to a natural person and has a legal entity of its own.

That entity is entirely separate from that of its shareholders. It bears its own name and has a seal of its own. Its assets are separate and distinct from those of its members. It can sue and be sueCI exclusively for its own purpose.

Its creditors cannot obtain satisfaction from the assets of its members.

The liability of the mmbers or share holders is limited to the capital invested by them. The creditors of the members have no right to tho assets of the corporation. HoWever. there are some exceptions to the rule that the corporation or a company has a juristic or legal entity and the doctrine of lifting the veil of a corporation and examining its faco in substance has been applied in many cases but the same docs not apply in the present case.

State of Trading Corporation of India Ltd. v. The Commercial TaE Officer & Ors. A.l.R. 1963 S.C. 1811, Smt. Ujjam Bui v. Stule of Uttar Pradesh. [1963] I S.C.R. 778, Inda-China Steam Navigation Co. Ltd. v.

Additional Collector of Customr. [1964]

6 S.C.R. 594, Kailash Nath v. State of UP. A.1.R. 1951 S.C. 790, Thakur .Amar .Singhji v.

State of Rajasthan, fl955l 2 S.C.R. 303. Mis. Mohanlal HarROVind v.

State of Madhya Pradesh. [1955] 2 S.C.R. 509. Y. Mahahoob ShuiO v.

S.C.R. 852, Universal Imports Agency v. Chit/ Controller of Imports

v. State of Jt.fysore, 14 S.T.C. 188, Statt Trading Corporation of India Ltd. v. State of Mysore. 14 S .. T.C. 416, Salomon v. Salomon & Co.

[1897] A.C. 22, H.L.

CRIMINAL JURISDICTION: Writ Petitions Nos. 112 and 113 of 1961 etc.

Petition under Art. 32 of the Constitution of India for enforcement of Fundamental rights.

N. A. Palkhiva/a, J. B. Dadachan; i, 0. C. Mathur and Ravinder Narain, for the petitioners (in W.P. Nos. 112 and 113 of 61 and 79 to 80 of 1962).

M. C. Setalvad, D. P. Singh, M. K. Ramamurthi, R. IC.

Garg and S. C. Agarwal, for the respondents (in W.P.

Nos. 112 and 113 of 1961).

~·

S. V. Gupte, Additional Solicitor-General, N. S. Bindra and R. H. Dhebar, for the respondents (in W.P. Nos. 79 and 80 of 62).

G. S. Pathak, B. Dutta, J. B. Dadachanji, 0. C. Mathur and Ravinder Narain, for the petitioners (in W.P. Nos. 202-204/1961).

A. Ranganadham Chetty and T. V. R. Tatachari, for the respondents (in W.P. Nos. 202 and 203 of 1961).

Lal Narain Sinha, M. K. Ramamurthi, R. K. Garg and S. C. Agarwal, for the respondent (in W.P. 204 of 1961).

February 25, 1964.

The Judgment of the Court was delivered by

GAJENDRAGADKAR, CJ .-These writ petitions have been placed for hearing before us in a group, because they raise a common question of Jaw in regard to the validity of the demand for sales tax which has been made against the respective petitioners by the Sales-tax Officers for different areas. The facts in respect of each one of the writ petitions are not the same and the years for which the demand is made are also different; but the pattern of contention is uniform and the arguments urged in each one of them are exactly the same. Broadly stated. the case for the petitioners is that the appropriate authorities purporting to act under the different Sales Tax Acts are attempting to recover from the petitioners sales-tax in respect of transactions to which the petitioners were parties, though the said transactions are not taxable under Art. 286 of the Constitution. Art. 286(1 )(a) provides that no law of a Sales shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place outside the State; and the argument is that the sales in question are all sales which took place outside the State and as such, are entitled to the protection of Art. 286(1 )(a). The authorities under the respective Sales Tax Acts have rejected the petitioners' contention that the transactions in question are inter-State sales and have held that Art. 286(1)(a) is not applicable to them.

A similar finding has been recorded against the petitioners under Art. 286(2). The petitioners' grievallllO

Tata Eng1_,,,,

Stat• t Bl/uir

Gaf•ndragadlar

c. J.

Tata Enginee1; ng

Slilu ~1 Bihar

Gajendragadkar

c. J.

is that by cJming to this erroneous conclusion, a tax is being levied against them in respect of transactions protected by Art. 286(l)(a) and that constitutes a breach of their fundamental rights under Art. 31 ( 1 ) . It is this alleged infringement of their fundamental rights that they seek to bring before this Court under Art. 32 (I).

It has been urged on their behalf that the right to move this Court under Art. 32 ( 1) is itself a fundamental right, and so, under Art. 32(2) an appropriate order should be passed setting aside the directions issued by the Sales-tax Authorities calling upon the petitioners either to pay the sales-tax, or to comply with other directions issued by them in that behalf.

For dealing with the points raised by these writ petitions, 1t is not necessary to set out the facts in respect of each one of them.

For convenience we will refer lo the facts set out by 1the Tata En'gineering & Locomotive Co. Ltd., !he pe\itloner in W1Ps. Nos. 112 and 113 of 1961. The petitioner is a company registered under the Indian Companies Act: 1913 and carries on the business of manufacturing, inter alia, Diesel Truck and Bus chassis and the spare part~ and accessories thereof at Jamshedpur in the State of Bihar.

The company sells these products to dealers, State Transport

Organisations and others doing business in various Stat~ of India.

The registered office of the petitioner is in Bombay. In order to promote its trade throughout the country, the petitioner has entered into Dealership Agreements with different persons.

The modus adopted by the petitioner in carrying on its business in different parts of India is to sell its products to the dealers by virtue of the relevant provisions of the Dealership Agreements. Accordingly, the petitioner distributes and sells its vehicles to dealers, State Transport Organisations and consumers in the manner set out in the petition.

The petitioner contend! that the sales in respect of which the present petitions have been filed were effected in the course of inter-State trade and as such, were not liable to be taxed under the relevant provisions of the Sales Tax Act. The Sales-tax Officer, on the other hand, has held that the sales had taken place within the State of Bihar and were intra-State sales and as 1uch, were liable to assessment under the Bihar Sales Tax

Act.

In accordance with this conclusion, further steps are 1961 threatened against the petitioner in the matter of recovery Tata Engineering of the sales-tax calculated by the appropriate authorities.

Stot• ;; Bilw The petitioner is a company and a majority of its shareholders are Indian citizens, two of whom have joined the Gaiendragadkor

c. /. present petitions.

The petitioners in W.Ps. Nos. 79 and 80/1962 are the Auwmob1Je Products of India Ltd. and Another. The majority of the share-holders of this company are also citizens of lnd; a and one of them has joined the petitions.

Writ petitions Nos. 202-204/1961 have been filed by the State Trading Corporation of India Ltd.

The shareholders of this Corporation arc the President of India, and two Additional Secretaries, . Ministry of Commerce and Industry, Government of India; one of these Secretaries, has joined the petitions.

It may incidentally be stated at this stage that these writ petitions were heard by a Special Bench of this Court on the 26th July, 1963 in order to determine the constitutional question as to whether the State Trading Corporat:on Ltd. can claim to be a citizen within the meaning of Art. 19 of the Constitution. The majority decision rendered in these writ petitions on the preliminary issue referred to the Special Bench was that the rpetitioner as a State Trading Corporation is not a citizen under Art. 19, and so, could not claim the protection of the fundamental rights guaranteed by the said Article [vide State Trading Corporation of llldia Ltd. v. The Commercial Tax Officer and Others( 1 ) ]. That is why this petitioner along with other petitioners have made the petitions in the names of the companies as well as one or two of their shareholders respectively. It is argued on behalf of the petitioners that though the company or the Corporation may not be an Indian citizen under Art. 19, that should not prejudice the petitioners' case, because, in substance, the Corporation is no-more than an instrument or agent appointed by its Indian shareho:ders and as such, it should be open to the petitioners either acting themselves as companies or acting through

(I) A.l.R. 1963 S.C 181 l.

1951 their. shareholders to claim the relief for which the present Tata Engineering petitions have been filed under Art. 32.

Stai. of Bihnr

Gajtndragadkar

c. J.

These petitions are resisted by the respective States on the ground that the petitions are not competent under Art. 32.

The respondents contend that the main attack of the petitioners is against the findings of the Sales-tax Officers in regard to the character of the impugned sale transactions and they urge that even if the said findings are wrong, that cannot attract the provisions of Art. 32.

The validity of the respective Sales-tax Acts is not challenged and if pur porting to exercise their powers under the relevant provisions of the said Acts, the appropriate authorities have, during the course of the assessment proceedings, come to the conclusion that the impugned transactions are intra-State sales and do not fall under Art. 286(1) (a), that is a decision which is quasi-indicial in character and even an erroneous decision rendered in such assessment proceedings cannot be said to contravene the fundamental rights of a citizen which would justify recourse to Art. 32. In other words, the alleged breach of the petitioners' fundamental rights being referable to a quasi-judicial order made by a Tribunal appointed under a valid Sales-tax Act, does not bring the case within Art. 32.

That is the first preliminary ground on which the competence of the writ petitions is challenged.

In support of this plea, reliance is placed by the respondents on a recent decision of a Special Bench of this Court in Smt. Ujjam Bai v. State of Uttar Pradesh('>.

There is another preliminary objection raised by the respondents against the competence of the writ petitions, and that is based upon the decision' of this Court in the case of the State Trading Corporation of India Ltd.( 2 ). It is urged that the decision of this Court that the State Trading Corporation is not a citizen, necessarily means that the fundamental rights guaranteed by Art. 19 which can be claimed only by citizens cannot be claimed by such a Corporation, and so, there can be no scope for looking at the substance of the matter and giving to the shareholders

indirectly the right which the Corporation as a sep'l!ate

(I) [1963] 1 S.r..R. 778.

(2) A.l.R. 1963 S.C. 1811.

legal entity is not directly entitled to claim.

The respond-

1~ (:nts have urged that in dealing with the plea of the peti- Tata Engineering tioners that the veil worn by the Corporation as a separate legal entity should be lifted and the substantial character of

the Corporation should be determined without reference to the technical position that the Corporation is a separae entity, we ought to bear in mind the decision of this Court in the case of the State Trading Corporation of India Ltd.(').

Basing themselves on this contention, the respondents have also argued that if the f11nda111ental rights guaranteed by Art. 19 are no: available to the tJet!tioners, then their plea that the sales-tax is being collected from them contrary to Art. 31 (I) must fail and in support of this contention reliance is placed upon a recent decision of this Court in the case of Inda-China Steam Navigation Co. Ltd. v. The Additional Collector of Customs and Others(').

Logically, the second preliminary objection would come first, because if the petitioners cannot claim the status of citizens and are not, therefore, entitled to base their petitions en the allegation that their fundamental rights under Art. 19 have been contravened, that would be the end of the petitions. It has been conceded before us by all the learned counsel appearing for the petitioners that it is only if both the preliminary objections raised by the respondents are over-ruled that the hearing of the writ petitions would reach the stage of considering the merits of their pleas that the sales which are sought to be taxed fall under Art. 28611 )(a) of the Constitution.

If the respondents succeed in either of the two preliminary objections raised by them, the writ petitions would fail and there would be no occasion to consider the merits of the pleas raised by them. Since we have come to the conclusion that the second preliminary objection raised by the respondents must be upheld, we do not propose to pronounce any decision on the first preliminary objection. However, as the point covered by the said objection has been elaborately argued before us, we would prefer to indicate briefly the broad arguments urged by both the parties in that behalf.

(I) A.l.R. 1963 S.C. 1811.

(2) [19641 6 s.c.R. 594.

State of Bihar

Gajendragadkar

C. I.

196f

T41a Bngin~ring

Statt of Bihar

Gajendrogadkar

C. I.

The controversy between the parties as to the scope and effect of the provision> contained in Art. 32 on which the va, idity of the first preliminary objection rests, substantially centres round the question as to what is the e!Iect of the decision of this Court in Smt. Ujjam Bai's case(1).

The petitioners argue that though the majo ity view in that case was that the writ petition filed by Ujjam Bai was incompetent, it would appear that the reasons given in most of the judgments support the petitioners' case that where the fundament3l rights of a citizen are contravened, may be by a quasi-judicial order, in pursuance of wh'ch a tax is attempted to be recovered from a citizen, the erroneous conclusion in regard to the 11ature of the transaction must be held to contravene the fundamental right of the citizen, and as such, would justify the petitioners in moving thi'l Court under Art. 32.

On the other hand, the respondents urge that the effect of the decision in Ujjam Rai's cae plainly tends to show

that if a quasi-judicial dcision has determined a matter in regard to the taxability of a given transaction, there can be no question about the breach of fundamental rights which would .iustify an application under Art. 32.

The argument is that th~ intervention of a quasi-judicial order chanes the complexion of the dispute between the parties, and in cases of that character, the only remedy available to an a.ggrieved citizen is to take recourse to the appeals and other , proceedings prescribed by the taxing statute in question.

Art. 32 is not intended to confer appellate jurisdiction on this Court so as to review or examine the propriety of quasi-iudicial orders passed by appropriate authorities purpoi:ting to exercise their powers and iuriscjictions under the several taxing statutes. It mav be that after exhausting the remedies by way of appeals and revisions prescribed by the statute, the party may come to this Court under Art. 136. but Art. 32 is inapplicable in such cases.

In Ujjam Bai's case('), the first issue which was referred to the Special Bench was whether an or<ler of

assessment made by an authoritv under a taxing statute which is intra vires is open to challenge as repugnant to

(II [1963] I S.C.R. 778.

Art. 19(l)(g), on the sole ground that it was based on a m ; sconstruction of a provision of the Act or of a notification

iil.ued thereunder; and the second question was, can the validity of such an order be questioned in a petition under Att. 32 of the Constitution? The majority view expressed in this case was against the petitioner.

S. K. Das J. who delivered the main judgment on behalf of the majority view observed that where a quasi-judicial authority makes an order in the undoubted exercise of its jurisdiction in pur- 1u ance of a provision of law which is intra vi res, an error of law or fact committed by that authority cannot be impeached otherwise than on appeal, unless the erroneous determination relates to a matter on which the jurisdiction of that body depends; and so, he held that if the impugned order of assessment is made by an authority under a valid taxing statute in the undoubted exercise of its jurisdiction, it cannot be challenged under Art. 32 on the sole ground I.hat it is passed on a misconstruction of a provision of the

.ct or of a notification issued thereunder.

Subba Rao J., on the other hand, took the view that Art. 32 confers wide jurisdiction on this Court to enforce the fundamental rights, and he held that it is the duty of this Court to entertain a writ petition wherever a fundamental right of a citizen is alleged to have been contravened, Irrespective of whether the question raised involves a question of jurisdiction, law, or fact; this is the minority view pronounced in Ujjam Bai's case.

Hidayatullah J., who agreed broadly with the majority view, expressed the opinion that if a quasi-judicial tribunal embarks upon an action wholly outside the pale of the law he is enforcing, a question of jurisdiction would be involved and that would justify an application under Art. 32.

Ayyangar J. held that if it appeared that the impugned order of assessment was based upon a plain and patent misconstruction of the provisions of the taxing statute, that itself would give rise to a plea that the auth0rity was acting beyond its jurisdiction and in such a case, a petition under Art. 32 may be justified.

Proceeding on this view, the learned Jud<re held that the construction placed by the taxing authority was not shown to be patently erroneous.

T al• Bng1n,~1in1 ..

St"'4 of Bilw

Gajendroradkar

C. I.

Tata Engi11eering

State of Bil1ar

an~ so, he. was not prepared to grant any relief to Ujjam Bai: . That 1s how the learned Judge agreed with the majority dec1s10n.

Gaiendragadkar Mudholkar J., who also agreed with the majority

c. J. decision, was disposed to make an exception in cases where an erroneous construction of the Jaw would lead to the recovery of a tax which is beyond the competence of the legislature, or is violative of the provisions of Part III or of any other provisions of the Constitution.

It would, thus, be seen that though the majority decision was that Ujjam Bai's petition should be dismissed, tbe reasons given in the judgments pronounced by the learned Judges who agreed with the majority decision are not all uniform and do not disclose an identity of approach or of reasons, and that naturally has given rise to. the arguments in the present writ petitions, both parties suggesting that the majority decision in the case of Ujjam Bai supports the rival views for which they contend.

Mr. Setalvad has strongly urged that if a misconstruction of the notification on which Ujjam Bai rested her case. was not held to justify a petition under Art. 32, that would necessarily mean that the misconstruction of the nature of the transaction would be no heller, even though in this latter case, the wrong dec:sion on the question as to the character of the sale transaction may involve taxing a transaction which is protected by Art. 286(1 )(a). One can understand the argument, said Mr. Setalvad, that a breach of the fundamental rights, however it is caused would justify recourse to Art. 32; that would be consistent and logical; but once it is held that a breach of the fundamental rihts

alleged to have been caused by a misconstruction of a notification or a statute placed by an anpropriate authority acting under the provisions of a valid taxing law does not attract Art. 32, it is not logically possible to urge that another kind of breach alleged to have been caused by a

misappreciation of the nature of the transaction and an erroneous conclusion as to its taxable character would make any difference. In the first case, the erroneous construction of the, notification violates the provisions of Art. 265 of the Constitution and therebv brings in the breach of Art.

31 ( 1 ) ; in the other case, the misconstruction as to the taxable character of the transaction violates Art. 28 6 ( l ) (a) and thereby brings in Art. 31 ( l). Therefore, it is urged that ; he necessary consequence of the decision in Ujjam Bai is that even if the Sales-tax Officer has held wrongly that the impugned transactions are not inter-State transactions, the remedy of petition under Art. 32 is not open to the agi; rieved citizen.

On the other hand, Mr. Palkhivala has strenuously urged that the decision in Ujjam Bai rested on the basis that the misinterpretation of the notification did not involve the violation of any constitutional limitations or prohibitions and he has referred us to some passages in the judgments of Das, Kapur and Mudholkar JJ.

In support of his argument that where an erroneous decision of a salestax officer results in the violation of a constitutional prohibition or limitation, different considerations would arise and 11n aggrie¥ed citizen would be entitled to move this Court under Art. 32, Mr. Palkhivala has emphasised the fact that whereas Das J. expressly held that the view taken in Kai/ash Nath v. State of U.P. (1) was not right, he approved of the other decisions which were cited at the Bar and exhaustively discussed on the ground that those decisions "fall under the category in which an executive authority acts without authority of law, or a quasi-judicial authority acts in transgression of a constitutional prohibition and "''ithout jurisdiction"('). These decisions are: Thakur Amar Singhji v. State of Rajasthan(3); M/s. Mohan/al Hargnvind Dass v. The State of Madhya Pradesh('); Y. Mahaboob Sheriff v. Mysore State Transport Authority('); J. V. Gokar & Cn. (Private) Ltd. v. The Assistant Collector of Sales-tax (Inspection)('); and Universal Imports Agency v. Chief 1<:ontrol/er of Imports and Exports('). To the same effect is the observation made by Kapur J. when the learned Judge fttated that in the case of M Is. Mohan/al Hargovind Dass(')

~.he dispute did not turn upon a misconstruction of any

tatute by any quasi-judicial authority, but that was a case ----------

(1) A.l.R. 1957 S.C. 790.

(4; [19551 2 S.C.R. 509.

(7) [1961] I S.C.R. 305.

Tata Eng1neerl•t

State of Bihar

Gajendragadkfll'

c. J.

JIM

7ata Enginering •.

Stlll• of Bilw

in which the very transaction was outside the taxing powers of the State and any action taken by the taxing authorities was one without authority of law .

Gai•ndragadkar In support of the same argument, both Mr. Pathak and

c. J.

Mr. Palkhivaia strongly relied upon the two subsequent

decisions of this Court where writ petitions filed under Art. 32 were entertained on grounds 1omrwh8t <imibr to those on which the present writ petitions are founded, The State Trading Corporation of India Ltd. and Another

v. The State of Mysore and Another(') and The Srare Trading Corporation of India Ltd. and Others v. The State of Mysore and Another(').

Basing himself on these decisions, Mr. Pathak has argued that the question as to whether a particular transaction of sale attracts the protection of Art. 286(1) (a) is a collateral fact the decision of which confers jurisdiction on the Sa!es-tax Officer; and he contends that the decision of the Sales-tax Officer, who is a Tribunal of limited jurisdiction, on a collateral jurisdictional point can always be challe"nged under Art. 32 of the Constitution if the said decision impinges upon the citizen's right protected by Art. 286(1) (a).

Mr. Palkhivala urged the argument of jurisdiction in a slightly different way.

He contended that the concept of jurisdiction on which he relied was not based on the view that jurisdiction means authority to decide.

According to him, the concept of jurisdiction was of a different category and was of a vital character when constitutional limitations or prohibitions were involved in the decision of any case brought before a Sales-tax Officer.

On the other hand, Mr. Setalvad has urged that the Sales-tax Officer is not a Tribunal of limited jurisdiction and the charging sections in the respective Sales-tax Acts leave it to the Sales-tax Officer and the heirarchy of officers contemplated by them to decide the question about the tirxability of any given transaction and impose a tax on it in accordance with the provisions of the Acts.

Where a tribunal is entitled to deal with transactions which fall

(1) 14 S.T.C. 188.

(2) 14 S.T.C. 416.

under the charging sections of the statute, it would be erroneous to contend that the decision of the Tribunal on the said question about the taxability of the transaction is the decision on a collateral jurisdictional fact. If the said argument is accepted, logically, it may mean that all questions the decision of which inevitably precedes the imposition of the tax, would be collateral jurisdictional fact; and that clearly cannot be the effect of the charging sections of the different Acts.

In regard to the point of constitutional limitations and prohibitions raised by Mr. Palkhivala, Mr. Setalvad contends that if the provisions of Art. 286(1)(a) makes the decision of the Sales-tax Officer on the character of the sale transaction one of jurisdiction, then it is difficult to see why his decision on other points should also not partake of the same character. In that connection, he emphasised the fact that the provisions of Art. 286(l)(a) cannot be distinguished from the provisions of Art. 265.

As we have already indicated, having regard to the fact that we have come to the conclusion that the other preliminary objection urged by the respondents must be upheld, we do not propose to express any opinion on this part of the controversy between the parties.

That takes us to the question as to whether the petitioners, some of whom are companies registered under the Indian Companies Act and one of whom is the State Trading Corporation, can claim to file the present writ petitions under Art. 3 2 having regard to the decision of this Court In the case of the State Tradlng Corporatlon of India Ltd. (1).

The petitioners argue that the said decision merely held that the State Trading Corporation of India Ltd. was not a citizen. The quetion as to whether the veil of the Corporation can be lifted and the rights of the shareholders of the said Corporation could be recognised under Art. 19 or not, was not decided. and it is on this aspect of the question that arguments have been urged before us in the present writ petitions.

The true legal position in regard to the character of a corporation or a company which owes its incorporation to

(1) A.l.R. 1%3 S.C. 1g11.

134-159 S.C.-57

Tata Engineerillr

Slall of BU.

Gajendra,,,, a,, r

C.J.

. 1961 a statutory authority, is not in doubt or dispute. The T• B; ii"nurlng corporation in law is equal to a natural person and has a

"*' f Blhar legal entity of its own.

The entity of the corporation is

• 0

ntirely separate from that of its shareholders; it bears its <h/lndragadkar own name and has a seal of its own; its assets are separate

c. I. and distinct from those of its members; it can sue and be sued exclusively for its own purpose; its creditors cannot obtain satisfaction from the assets of its members; the liability of the members or shareholders is limited to the capital invested by them; similarly, the creditors of the members have no right to the assets of the corporation.

This position has been well-established ever since the decision in the case of Salomon v. Salomon & Co. (1 ) was pronounced in 1897; and indeed, it has always been the wellrecognied principle of common law. However, in the course of time, the doctrine .that the corporation or a company has a legal and separate entity of its own has been subjected to certain txceptions by the application of the fiction that the veil of the corporation can be lifted and its face examined in substance. The doctrine of the lifting of the veil thus marks a change in the attitude that law had originally adopted towards the concept of the separate entity or personality of the corporation. As a result of the impact of the complexity of economic factors, juidical deci sions have sometimes recognised exceptions to the rule about the juristic personality of the corporation.

It may - be that in course of time these exceptions may grow in number and to meet the requirements of different economic problems, the theory about the personality of the corporation may be confined more and more.

But the question which we have to consider is whether in the circumstances of the present petitions, we would be justified in acceding to the argument that the veil of the petitioning corporations should be lifted and it should be held that their shareholders who are Indian citizens should be permitted to invoke the protection of Art. 19, and on that basis, move this Court under Art. 32 to challenge tbe validity of the orders passed by the Sales-tax Officers in respect of transactions which, it is alleged, are not taxable. ,

(I) [1897] A. C. 22. H.T.

Mr. Palkhivala has very strongly urged before us that having regard to the fact that the controversy between the parties relates to the fundamental rights of citizens, we should not hesitate to look at the substance of the matter and disregard the doctrinaire approach which recognises the existence of companies as separate juristic or legal persons. If all the shareholders of the petitioning companies are Indian citizens, why should not the Court look at the substance of the matter and give the shareholders the right to challenge that the contravention of their fundamental rights should be prevented.

He does not dispute that the shareholders cannot claim that the property of the companies is their own and cannot plead that the business of the companies is their business in the strict legal sense. The doctrine of lifting of the veil postulates the existence of dualism between the corporation or company on the one hand and its members or shareholders on the other.

So, it is no good emphasising that technical aspect of the matter in dealing with the question as to whether the veil should be lifted or not. In support of his plea, he has invited our attention to the decision of the . Privy Council in The English and Scottish Joint Co-operative Wholesale Society Ltd. v.

Commissioner of Agricultural Income-tax, Assam (1), as

well as the decision of the House of Lords in Daimler Company Lrd. v. Continental Tyre and Rubber Company

(Great Britain) Ltd.(').

It is unnecessary to refer to the facts in these two case& and the principles enunciated by them, because it is not disputed by the respondents that some exceptions have been recognised to the rule that a C011pofation or a company has a juristic or legal separate entity. The doctrine of the lifting of the veil has bee.n applied in the words of Palmer in five categories of cases : where companies are in the relationship of holding and subsidiary (or sub-subsidiary) companies; where a shareholder has lost the privilege of limited liability and has become directly liable to certain creditors of the company on the ground that, with his

knowledge, the company continued to carry on business six months after the number of its members was reduced

(I) [1948] l.T.R. 270.

(2) [1916] A.C. 307.

J!IM

Tata Eniinurina ...

Stai. of Bllw

Gajtndragadkar

C. I.

1961 below the legal minimum; in certain matters pertaining to :rw ..-;;;;.., Ing the law of taxes, death duties and stamps, particularly where

,_ :; B,.. the question of the "controlling interest" is in issue; in the \. ' ' law relating to exchange control; and in the law relating ""1-iragadkar to trading with the enemy where the test of control is

c. J. adopted ( 1). In some of these cases, judicial decisions have no doubt lifted the veil and considered the substance of the matter.

Gower has similarly summarised this position with the observation that in a number of important respects, the legislature has rent the veil woven by the Salomon case.

Particularly is this so, says Gower, in the sphere of tJxati 'n and in the steps which have been taken towards the recognition of enterprise-entity rather than corporate-entity.

It is, significant, however, that according to Gower, the courts have only construed statutes as "cracking open the corporate shell" when compelled to do so by the clear words of the statute; indeed they have gone out of their way to avoid this construction whenever possible. Thus, at rpresent, the judicial approach in cracking open the corporate shell is somewhat cautious and circumspect.

It is only where the legislative provision justifies the adoption of such a course that the veil has been lifted.

In exceptional cases where courts have felt "themselves able to ignore the corporate entity and to treat the individual shareholders as liable for its acts",( 2 ) the same course has been adopted.

Summarising his conclusions, Gower has classified seven categories of cases where the veil of a corporate body has been lifted. But it would not be possible to evolve a rational, consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should be lifted or not. Broadly stated. where fraud is intended to be prevented, or trading with an enemy is sought to be defeated. the veil of a corporation is lift 0 d by judicial decisions and the shareholders are held to be the persons who actually work for the corporation.

That being the position with regard to the doctrine of the veil of a corporation and the principle that the said

(1) Palmer's Company Law 20th Ed. p. 136.

(2) Gower, Modtrn Company Law, 2nd Ed. pp. 193 & 195.

, '

.. '

' •

veil can be lifted in some cases, the question which arise& for our decision is; can we lift the veil of the petitioners and say that it is the sareholders who are really moving the Court under Art. 32, and so, the existence of the legal and juristic separate entity of the petitioners as a corporation or as a company should not make the petitions filed by them under Art. 32 incompetent? We do not think we can answer this question in the affirmative.

No doubt, the complaint made by the petitioners is that their fundamental rights are

infringed and it is a truism to say that this Court as the guardian of the fundamental rights of the citizens will always attCIIl!l>t to safeguard the said fundamental rights; but having regard to the decision of this Court in State Trading Corporation of India Ltd.(') we do not see how we can legitimately entertain the petitioners' plea in the present petitions, because if their plea was upheld, it would really mean that what the corporations or the companies cannot achieve directly, can be achieved by them indirectly by relying upon the doctrine of lifting the veil. If the corporations and companies are not citizens, it means that the Constitution intended that they should not get the benefit of Art. 19. It is no doubt suggested by the petitioners that though Art. 19 is confined to citizens, the Constitution-makers may have thought that in dealing with the claims of corporations to invoke the provisions of Art. 19, courts would act upon the doctrine of lifting the veil and would not treat the attempts of the corporations in that behalf as falling outside Art. 19.

We do not think this argument is well-founded. The effect of confining Art. 19 to citizens as distinguished from persons to whom other Articles like 14 apply, clearly must be that it is only citizens to whom the rights under Art. 19 are guaranteed. If the legislature intends that the benefit of Art. 19 should be made available to the corporations, it would not be difficult for it to adopt a proper me"asure in that behalf by enlarging the definition of 'citizen' prescribed by the Citizenship Act passed by the Parliament by virtue of the powers conferred on it by Articles 10 and 11. On the other hand, the_fact

that the Parliament has not chosen to make any such provision indicates that it was not the intention of the (') A.l.R. 1963 S.C. 1811.

JP6'

Tale ..........

y, St.i. al ....

Gaj1n""'-4Ur

c. 1. ..

~ Parliament to treat corporations as citizens.

Therefore, it Tm BrlfiMlrinl seems to us that in view of the decision of this Court m a- :; Bilrar the case of the State Trading Corporation of India Ltd. (1) - the petitioners cannot be heard to say that their shareholders

Gtil~"'f,'1kar should be allowed to file the present petitions on the ground

 that, in substance, the corporations and companies are nothing more than associations of shareholders and members thereof. In our opinion, therefore, the argument that in the present petitions we would be justified in lifting the veil cannot be sustained.

Mr. Palkhivala sought to draw a distinction between the right of a citizen to carry on trade or business which is contemplated by Art. 19(l)(g) from his right to form associations or unions contemplated by Art. 19 (1 )( c). He argued that Art. 19 (1 )( c) enables the citizens to choose their instruments Qr agents for carrying on the business which it is their fundamental right to carry on. If citizens decide to set up a corporation or a company as their agent for the ipurpose of carrying on trade or business, that is a right which is guaranteed to them under Art. 19 ( 1 ) ( c) .

Basing himself on this distinction between the two rights guaranteed by Art. 19 ( 1 ) ( g) and ( c) respectively, Mr. Palkhivala somewhat ingeniously contended that we should not hesitate to lift the veil, because by looking at the substance of the matter, we would really be giving effect to the two fundamental rights guaranteed by Art. 19 ( 1).

We. are not impressed by this argument either. The fundamental right to form an association cannot in this manner be coupled with the fundamental right to carry on any trade or business. As has been held by this Court in All India Bank EmplO}ees' Association v. National Industrial Tribunal and Others( 2 ), the argument which is thus attractively presented before us overlooks the fact that Art. 19, as contrasted with certain other articles like Arts. 26, 29 and 30, guarantees rights to the citizens as such, and associations cannot lay claim to the fundamental rights guaranteed by that Article solely on the basis of their being an aggregation of citizens, that is to say, the right of the citizens composing the body. Th\l respective rights guaranteed by Art. 19 (1)

(I) A.I.R. 1963 S.C. 1811. <•> £19621 3 s.c.R. 269.

cannot be combined as suggested by Mr. Palkhivala, but must be asserted each in its own way and within its own limits; the sweep of the several rights is no doubt wide, but the combination of any of those two rights would not justify a claim such as is made by Mr. Palkhivala in the present petitions.

As soon as citizens form a company, the right guaranteed to them by Art. 19 ( 1 )( c) has been exercised and no restraint has been placed on that right and no infringement of that right is made.

Once a company or a corporation is formed, the business which is carried on by the said company or corporation is the business of the company or corporation and is not the business of the citizens who get the company or corporation formed or incorporated, and the rights of the incorporated body must be judged on that footing and cannot be judged on the assumption that they are the rights attributable to the business of individual citizens.

Therefore, we are satisfied that the argument based on the distinction between the two rights guaranteed by Art. 19(1) (c) and (g) and the effect of their combination cannot take the petitioners' case very far when they seek to invoke the doctrine that the veil of the corporation should be lifted. That is why we have come to the conclusion that the petitions filed by the petitioners are incompetent under Art. 32, even though in each of these petitions one or two of the shareholders of the petitioning companies or corporation have joined.

The result is, the second preliminary objection raised by the respondents is upheld and the writ petitions are dismissed as being incompetent under Art. 32 of the Constitution. There would be no order as to costs.

Petitions dismissed.

STATE OF RAJASTHAN v.

MUKANCHAND AND OTHERS (P. B. GAJENDRAGADKAR, C.J., K. N. WANCHOO, J. c. SHAH,

N. RAIAGOPALA AYYANGAR AND S. M. SJKRI JJ.)

/agirdar's Debt Reduction Act (Rajasthan Act 9 of 1931)-Mortgagtl

decree against tllagirdar-Whether <Jecutable-u. 2(e) and 7(2)

Validity of--Conttitutlon of India, Art. t•.

Tat.~

Stat• D/ B!Mr

Ga/endrogadkar

c. 1.

February 26

STATE OF BIHAR AND OTHERS

P. B. GAJENDRAGADKAR, C.J

K. N. WANCHOO, J.

SHAH

N. RAJAGOPALA AYYANGAR

Art. 32

Art. 19

Constitution of India

Arts. 19

Bihar

Art. 286(l)(a)

Art. 286(1 )(a)

Art. 32

Art. 19

Art. 32

Article 19

Art. 1

[1964]

6 S.C.R. 594

[1955] 2 S.C.R. 509

Art. 32

Constitution of India

N. A. Palkhiva

B. Dadachan

C. Mathur

Ravinder Narain

M. C. Setalvad

D. P. Singh

M. K. Ramamurthi

S. C. Agarwal

S. V. Gupte

N. S. Bindra

R. H. Dhebar

G. S. Pathak

B. Dutta

J. B. Dadachanji

0. C. Mathur

A. Ranganadham Chetty

T. V. R. Tatachari

Lal Narain Sinha

M. K. Ramamurthi

R. K. Garg

S. C. Agarwal

GAJENDRAGADKAR

Sales Tax Act

Art. 286

Art. 286(1 )(a)

Art. 286(1 )(a)

Art. 286(1)(a)

Art. 286(2)

Art. 286(l)(a)

Art. 31

Art. 32

Art. 32

Art. 32(2)

Tata En'gineering & Locomotive Co. Ltd.

Companies Act

Jamshedpur

India

Bombay

Tata Engineering

Auwmob1Je Products of India Ltd.

State Trading Corporation of India Ltd.

26th July, 1963

State Trading Corporat:on Ltd.

Art. 19

Art. 19

Art. 19

Art. 32

Art. 32

Art. 32

Art. 286(1)

Art. 32

Art. 32

Art. 19

Trading Corporation of India Ltd.

Art. 19

Art. 31

Art. 19

Art. 28611

State of Bihar

Art. 32

Ujjam Bai

Art. 32

Ujjam Rai

Art. 32

Art. 32

Art. 136

Art. 32

Art. 19(l)(g)

S. K. Das

Art. 32

Subba Rao

Art. 32

Hidayatullah

Art. 32

Ayyangar

Art. 32

State of Bil1ar

Gaiendragadkar Mudholkar

Setalvad

Art. 32

Art. 286(1 )(a)

Art. 32

Art. 32

Art. 265

Art.

31

Art. 28

Art. 31

Art. 32

Palkhivala

Das

Kapur

Mudholkar

Art. 32

Tata Eng1neerl•t

State

7ata Enginering

Pathak

Palkhivaia

Art. 32

Pathak

Art. 286(1)

Art. 32

Art. 286(1)

Art. 286(1)(a)

Art. 286(l)(a)

Art. 265

Companies Act

Art. 3

State Tradlng Corporatlon of India Ltd.

Art. 19

Tata Engineerillr

Art. 19

Art. 32

Palmer

Tata Eniinurina

Gower

Gower

Art. 32

Art. 32

Art. 19

Art. 19

Art. 19

Art. 19

Art. 19

Art. 19

Art. 19

Citizenship Act

Parliament

Articles 10 and 11

Parliament

Art. 19(l)(g)

Art. 19

Art. 19

Art. 19

Art. 19

Art. 19

Art. 19

Arts. 26, 29 and 30

Art. 19

Art. 19

Art. 19(1)

Art. 32

Art. 32

c. SHAH

N. RAIAGOPALA AYYANGAR

S. M. SJKRI

Debt Reduction Act


6 S.C.R.

SUPREME COURT REPORTS

cannot be combined as suggested by Mr. Palkhivala, but must be asserted each in its own way and within its own limits; the sweep of the several rights is no doubt wide, but the combination of any of those two rights would not justify a claim such as is made by Mr. Palkhivala in the present petitions.

As soon as citizens form a company, the right guaranteed to them by Art. 19 ( 1 )( c) has been exercised and no restraint has been placed on that right and no infringement of that right is made.

Once a company or a corporation is formed, the business which is carried on by the said company or corporation is the business of the company or corporation and is not the business of the citizens who get the company or corporation formed or incorporated, and the rights of the incorporated body must be judged on that footing and cannot be judged on the assumption that they are the rights attributable to the business of individual citizens.

Therefore, we are satisfied that the argument based on the distinction between the two rights guaranteed by Art. 19(1) (c) and (g) and the effect of their combination cannot take the petitioners' case very far when they seek to invoke the doctrine that the veil of the corporation should be lifted. That is why we have come to the conclusion that the petitions filed by the petitioners are incompetent under Art. 32, even though in each of these petitions one or two of the shareholders of the petitioning companies or corporation have joined.

The result is, the second preliminary objection raised by the respondents is upheld and the writ petitions are dismissed as being incompetent under Art. 32 of the Constitution. There would be no order as to costs.

Petitions dismissed.

STATE OF RAJASTHAN v.

MUKANCHAND AND OTHERS (P. B. GAJENDRAGADKAR, C.J., K. N. WANCHOO, J. c. SHAH,

N. RAIAGOPALA AYYANGAR AND S. M. SJKRI JJ.)

/agirdar's Debt Reduction Act (Rajasthan Act 9 of 1931)-Mortgagtl

decree against tllagirdar-Whether <Jecutable-u. 2(e) and 7(2)

Validity of--Conttitutlon of India, Art. t•.

Tat.~

Stat• D/ B!Mr

Ga/endrogadkar

c. 1.

February 26

JHI R .. polldcnt No. I obtained a mortiioge dccrcc for Rs. 1,14.581/14/6 ,...., 6f Rttlast/um asaint one Rao Raja ID<ler Singh (the jndi!Dent debtor). The mo~

v. money was advanced under three mortgages, and the mortgaaed properties llabndi.,1d coruistcd of Jagjrs an<! some non-Jagir immovable property. The latter property ,..... sold in exe<:ution and Rs. 33,75-0/- paid to the dee,.. holder i1l pertial satisr.ction of the decree.

Then the decree bolder filed an execution petition in the Court of the District Judge for the balance amount i.e. Rs. 99,965/3/6, prayiog for attachment of the amount of compensation and rehabilitation grant which would be paid to the jutlgmcnt debtor on account of resumption of his Jagir. The jadJ!llllmcnt debtor 1ubmittcd two applicationa in which be claimed relief

under '"· 5 and 7 of the Rajasthan Jagjrdan' Debt Reduction Act. The decree holder, in bis reply. to thOBC petitions urged that the provisions relied in were ultra vires the Constitution of India, being in contravention of Arts. 14, 19 and 31 of the Constitution. Thereafter the decree holder movecf a petition undeT Art. 228 of the Constitution before the Hi1rh Court, praying that the execution cue pending in the Court of the District Judge, be withdrawn from that court to the High Court. The Hisb

Court transferred the case to its file.

By its judgment the High Court could held that apart from the later part of s. 2(e) excluding certain debts and s. 7(2) of the Act, the rest of the Act was valid. The High Cottrt granted a certificate under Art. 13 3 (I )( c) of the Constitution to

the Slate of Rajasthan to file an appeal to this Court. Hence the appeal:-

Held:-(i) That the' impugned part of s. 2(e) infringes Art. 14 of the Constitution for the reason that no reasonable classification is disclosed for the pnrpooe at sustaining the impugned part of s. 2(e). It is now well-settled that in order to pass the test of permissible classification, two conditions must be fulfilled, namely, (I) that the classification must be founded on an intelligible differentiation which distinguishes persons or things that are to be put together from others left out of the group. and (2) that the dilferential must have a rational relationship to the object sought to be achieved by the statute in question. The said condition No. 2 above has clearly not been satisfied in this case. The object sought to be achieved by the, Impugned Act was to reduce the debts secured on the Jagir lands which had been resumea under the provisions of the Rajasthan Land Reforms and Resumption of Jagirs Act. The fact that the debts are owed to a Government or local autho rity or other bodies mentioned in the impugned part of s. (2}(e) has no rational relationship with the object sought to be achieved by the Act.

Further, no intelligible principle underlies the exempted categories ol debts. The reason why a debt advancetl on behalf of a person by the Court of Wards is clubbed with a debt due to a State or a scheduled bank and why a debt due to a non-scheduled bank is not excluded from the purview of the Act is not discernible.

Manna Lal v. Collector of Iha/war. [1961] 2 $.C.R. 962, Nand Ram ChhoteY Lal v. Kishore Raman Singh, A.l.R.

(1962) All 521 and

Jam11t1lal Ram/al Kimt<e v. Kish<ndas and State of Hyd<rabad,

A.LR.

(1955) Hyd. 194, distinguished.

Stat1 of IIJJJlulM

(ii) Section 7(2) is valid as it impooes reasonable restrictions, in Muk;.h•llll the interests of general public. on the rishts of a secured creditor. This subsection has been designed with the object of rehabilitating a Jagirdar whose Jagir prop<rties have been taken onr by the State for a public purpose at a low valuation. H this provision was not e, the Jogir~ dar would fiDI it dilfcult to start life afresh became his future income and acquired properties would be liable to auachment and sale for lbe purpose of satisfying the demands of such creditors.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 507 of 1961.

Appeal from the judgment and order dated February 18, 1959 of the Rajasthan High Court in Civil Misc. Case No. 10 of 1959.

S. K. Kapur and B. R. G. K. Achar, for the appellant.

The respondent did not appear.

February 26, 1964.

The Judgment of the Court was delivered by

SIKRI J .-This is an appeal directed against the judgment of the Rajasthan High Court, which granted a certificate under Art. 133(l)(c).

One Mukanchand, respondent No. 1 in this appeal (hereinaner referred to as the decree-holder) obtained a mortgage decree on February 12, 1954, for Rs. 1,14,581-14.6, with future interest at 6 per cent per annum, against one Rao Raja Inder Singh (hereinafter referred to as the judgment-debtor).

The mortgage money was advanced under three mortgages, and the mortgaged properties consisted of 2 J agirs and some nonrjagir immovable property. The latter property was sold in execution and Rs. 33,750 /- paid to the decree-holder in partial satisfaction of the decree. On December 14, 1956, the decree-holder filed an execution petition in the Court of the District Judge, Jodhpur, for Rs. 99,965·3-6, praying for attachment of the amount of compensation and rehabilitation grant which would be paid to the judgment debtor on account of resumption of his jagir. This case was registered

Sikri I

1961 as Execution Case No. 12/57. On July 29; 1957, the judg ,..,.. of EIJl/111tha11 ment-debtor made an application before the District Judge,

M,,,;;."411d Jodhpur, to the effect that the decretal amount should be reduced in accordance with s. 5 of the Rajas than J agirdars' Debt Reduction Act (Rajasthan Act IX of 1957). On Jaly

31. 1957, the judgment-debtor submitted another application claiming that only half of his total jagir compensation and rehabilitation grant money was liable to attachment under s. 7 of the said Act. The decree-holder, in his reply to those petitions, urged that the provisions relied on were ultra vires the Constitution of India, being in contravention of Arts. 14, 19 and 31 of the Constitution.

~II.

On December 3, 1957, the decree-holder filed a petition under Art. 228 of the Constitution, praying that the execution case No. 12 of 1957, pending in the Court of the District Judge, Jodhpur, be withdrawn from that Court to the Rajasthan High Court The High Court transferred the case to its file, and thereafter issued notice to the State of Rajasthan, a5 the constitutionality of the said Act had been challenged.

By its judgment, the High Court held that apart from the latter part of s. 2(e) excluding certain debts-hereinafter referred to as the impugned part and s. 7(2) of the Act, the rest of the Act was valid. The State applied for leave to appeal to the Supreme Court, and so did the decree-holder.

On the certificates being granted, two appeals were filed in this Court.

The appeal of Mukhanchand (Civil Appeal No. 508/61) was, by order dated April 23, 1962, of this Court, held to have abated. Therefore, we are not concerned with the validity of the other provisions of the Act

Although the validity of the other provisions is not now in question, it is necessary to set out the relevant provisions of the Act, because they have a bearing on the question of the validity of the impugned part of s. 2(e) ands. 7(2) of the .Act; and these are reproduced below:

"Preamble-To provide for the scaling down of debts of jagirdars whose jagir lands have been resumed under the provisions of the Rajasthan Land Reforms and Resumption of Jagirs Act, 1952 .....

S. 2(e)-"debt" means an advance in cash or in kind 1961 and includes any transaction which is in substau of ,, • ..._ stance a debt but does not include an advance as Y. aforesaid made on or after the first day of Mukalle,,_ January, 1949 or a debt due to:- Slbl I.

(ii the Central Government or Government of any State;

(ii) a local authority;

(iii) a scheduled bank;

(iv) a co-operative society; and

(v) a waqf, trust or endowment for a charitable or religious purpose only; or

(vi) a person, where the debt was advanced on hi&

behalf by the Court of Wards ...

S. 3. Reduction of secured debt at the time of passing of decree.-(1) Nothwithstanding anything in any law, agreement or document, in any suit to which this Act applies relating to a secured debt, the court shall, after the amount due has been ascertained, but before passing a decree, proceed as hereinafter stated.

(2)(a) Where the mortgaged property consists exclu

sively of jagir lands and such lands have been resumed under the provisions of the Act, the court shall first ascertain whether the mortgagor had the right, under the jagir law in force at the time the mortgage-deed was executed, to mortgage the jagir lands, or failing that, whether specific permission for effecting the mortgage was obtained from the competent authority, and whether the mortgage was validly subsisting on the date of resumption of the jagir iands.

(b) if the mortgage was legally and properly made and was validly subsisting on the aforesaid date, the court shall reduce the amount due in accordance with the fonnula given in Schedule I.

1961 ..., of Rfl/01ll111n

"· Jl..t.ndialll/

lljft '

(3) Where the mortgaged property consists partly of jagir lands as aforesaid and partly of property other than such lands, the court shall after taking action in accordance with the provisions of subclause (a) of sub-section (2), proceed to distribute the amount due on the two properties separately in accordance with the principles contained in section 82 of the Transfer of Property Act, 1882 (IV of 1882) as if they had been properties belonging separately to two persons with separate and distinct rights of ownership; and after the amount due has been so distributed, reduce the amount due on the jagir lands in accordance with the formula given in Schedule I.

S. 4-Powers to reduce secured debt after passing of decree.-

(1) Nothwithstanding anything in the Code of Civil Procedure, 1908 (V of 1908) or any other Jaw, the court which passed a decree to which this Act applies relating to a secured debt shall, on the application either of the decree-holder or judgment-debtor, proceed as hereinafter stated.

<2) Where the mortgaged property charged under the decree consists exclusively of jagir lands and such lands have been resumed under the provisions of the Act, the court shall reduce the amount due in accordance with the formula given in Schedule I.

13) Where the mortgaged property charged under the decree consists partly of jagir lands and partly of property other than jagir lands, the court shall determine the amount due on the first day of January, 1949, and distribute the same on the two properties separately in accordance with the principles contained in section 82 of the Transfer of Property Act, 1882 (IV of 1882), as if they had been properties belonging to two persons with separate and distinct rights of ownership and after tbe

amount due as respect the jagir lands has been Jffi so calculated, reduce it in accordance with the Stat• 0'jR; j.,,,,_ formula given in Schedule I.

Mulc;,;., ltlllltl

S. 6-Satisfaction of the decree-after the amount due has been reduced under and in accordance with the provisions of section 4, the decree shall, to the extent of the reduction so effected, be deemed, for all purposes and on all occasions, to have been duly satisfied.

S. 7(2)-Notwithstanding anything in any law, the reduced amount found in the case of a mortgagor or judgment-debtor as the case may be, under section 3 or section 4 as respects mortgaged jagir lands shall not be legally recoverable otherwise than out of the compensation and rehabilitation grant payable to such mortgagor or judgment debtor in respect of such jagir lands."

We may mention that respondent No. I has not entered appearance in this Court. The learned counsel for the State, Mr. S. K. Kapur, has urged that the High Court erred in holding that these two provisions, i.e. impugned part of s. 2( e) and s. 7(2), were void.

Regarding the impugned part of s. 2(e), he contended that the debts mentioned in sub-els. (i) to (vi) of s. 2(e) have been placed on a different footing from debts due to other creditors, because the bodies and the authorities mentioned therein serve a public purpose or a public cause. He urged that this provided a reasonable basis for differentiating between private creditors and creditors mentioned in els. (i) to (vi) above. Regarding s. 7(2), he urged that it imposed reasonable restrictions. in the interest of general public, on the creditors.

Before examining the validity of the impugned provisions, it is necessary to examine the scheme of the Act.

As the preamble states in plain terms, the object of the Act is to scale down debts of Jagirdars whose ; agir lands have been resumed under the provisions of the Rajasthan Land Reforms and Resumption of Jagirs Act. Clause (e) of s. 2 defines 'debt' to mean an advance in cash or in kind. The definition does not embrace dues of Government or a local authority

Sikrl I.

l!W in respect of taxes, land revenue, etc. The definition then St•i. of Rajasthan excludes from the purview of the Act debts due fo Central

Jlhand Government and other authorities and bodies mentioned in the clause. We shall advert to them later when discmsing Slkri I. the validity of this exclusion.

Section 3 provides for reduction of secured debts in accordance with the formula given in Schedule I at the time of passing a decree, and their apportionment where necessary, between ; agir and non-; agir property. Section 4 provides for reductjon of secured debts after a decree has been passed.

Section 5 directs a court to pass a fresh decree after reduction of the secured debts.

Section 6 provides that after reduction of the secured debt in accordance with the provisions of s. 4, the decree shall, to the extent of the reduction so effected, be deemed for all purposes and on all occasions to have been duly satisfied. Clause (!) of s. 7 provides for the execution of the decree against the compensation and rehabilitation grant payable in respect of the ; agir lands of the judgment-debtor.

Clause (2) of s. 7, which has been struck riown by the High Court, prohibits the recovery of the reduced amount with respect to jagir property from any pr~ perty other than the compensation and rehabilitation grant payable to a ; agirdar. The effect of this provision is that the other properties of the jagirdar, existing or which he may acquire hereafter, are immune from being proceeded against in execution or otherwise.

We think that the High Court was right in holding that the impugned part of s. 2(e) infringes Art. 14 of the Constitution. It is now well-settled that in order to pass the test of permissible classification, two c0nditions must be fulfilled, namely, (1) that the classification must be founded on an intelligible differentiation which distinguishes persons or things that are to be put together from others left out of the group, and (2) that the differentia must have a rational relationship to the object sought to be achieved by the statuto in question. In our opinion, condition No. 2 above has clearly not been satisfied in this case. The object sought to be achieved by the impugned Act was to reduce the debts secured on ; agir lands which had been resumed under the prcmsions of the Ra jasthan Land Reforms and Resumptioa of •

6 S.C.R.

SUPREM.2 COURT REPORTS

9II

Jagirs Act. The Jagirdar's capacity to pay debts had been

19M reduced by the resumption of his lands and the object of the State of Rll/llllllM Act was to ameliorate his condition. The fact that the debts M k "c1wtt1 are owed to a government or local authority or other bodies " an mentioned in the impugned part of s. 2(e) has no rational Slkrl I. relationship with the object sought to be achieved by the Act. Further, no intelligible principle underlies the exempted categories of debts. The reason why a debt advanced on behalf of a person by the Court of Wards is clubbed with a debt due to a State or a scheduled bank and why a debt due to a non-scheduled bank is not excluded from the purview of the Act is not discernible.

In this connection, Mr. Kapur has relied on the decision of this Court in Manna Lal vs. Collector of lhalwar ('). This case is clearly distinguishable because there a law giving special facility for the recovery of dues to a bank owned by the Government was held not to offend Art. 14 of the Constitution. It is clear that the government can be legitimately put in a separate category for the purpose of laying down the procedure for the recovery of its dues. Mr. Kapur further relied on Nand Ram Chhotey Lal vs.

Kishore Raman Singh (2). The judgment of the High Court undoubtedly supports him, but, with respect, we are unable to agree with the ratio of the case. The High Court was concerned with the U.P, Zamindars Debt Reduction Act (U.P. Act XV of 1953), which is substantially similar to the impugned Act.

The ratio of the High Court is: "It appears to us that the legislature had to make a distinction between debts due from the ex-zamindars to private individuals and the debts due to scheduled banks or to Government or semi-Government authorities.

The obvious reason appears to be that the private money-lenders were considered to be a bane to rural economy and perpetrating agricultural indebtedness.

It was to save the cultivators from such unscrupulous moneylenders that such laws had to be enacted, the last in series beirig the Zamindars Debt Reduction Act." We consider there is no force in these observations. No such reason is apparent from the tenhs of the Act. Non-scheduled banks ·-.--------

(l) [1961) 2 S.C."R. 962. <') AIR (1962) All. 521.

19M and all other private creditors cannot be said to be a bane Stat• of Raiaotharz to rural economy.

Mukaclumd The third case relied on by Mr. Kapur-Jamnalal

$ikri I.

Ramlal Kimtee v. Kishendas and State of Hyderabad(') d~ not contain any discussion.

The High Court supported the exclusion on the ground that "exclusion of certain class of debts under s. 3 of the impugned Act also is not without substantial justification for public demands do not stand in the same position as ordinary demands." Apart from the fact that all the exempted categories are not public demands, the High Court does not seem to have considered whether the differentia had any rational relationship sought to be achieved by the Act.

In conclusion, agreeing with the High Court, we hold that no reasonable classification is disclosed for the purpose of sustaining the impugned part of s. 2(e).

Now, coming to the question of the validity of s. 7(2). we consider that this sub-section is valid as it imposes reasonable restrictions, in the interest of general public, on the rights of a secured creditor. A secured creditor, when he advanced money on the security of jagir property, primarily looked to that property for the realisation of his dues. Further, this sub-section has been designed with the object of rehabilitating a jagirdar whose jagir properties have been taken over by the State for a public purpose at a low valuation.

If this provision was not made, the jagirdar would find it difficult to start life afresh and look to other avocations, for not only his existing non-jagir property but his future income and acquired properties would be liable to attachment and sale for the P\ITPOSe of satisfying the demands of such secured creditors.

Accordingly, we hold that s. 7(2) imposes reasonable restrictions in the interest of general public.

The appeal is accordingly partly accepted, the decision of the High Court in regard to s. 2(e) is confirmed and that in regard to s. 7(2) is reversed. As the respondent was not represented and that appeal has only partly succeeded, we -0rder the parties to bear theit own costs in this Court.

Appeal partly allowed.

Palkhivala

Art. 19

Art. 19(1)

Art. 32

Art. 32

STATE OF RAJASTHAN

MUKANCHAND AND OTHERS

P. B. GAJENDRAGADKAR

K. N. WANCHOO

N. RAIAGOPALA AYYANGAR

S. M. SJKRI

Debt Reduction Act

tllagirdar

Debt Reduction Act

Constitution of India

Arts. 14, 19 and 31

Art. 228

s. 2(e)

s. 7(2)

Art. 13

s. 2(e)

Art. 14

s. 2(e)

Section 7(2)

February 18, 1959

Rajasthan High Court

S. K. Kapur

B. R. G. K. Achar

SIKRI

Art. 133(l)(c)

Mukanchand

February 12, 1954

Rao Raja Inder Singh

December 14, 1956

Court of the District Judge, Jodhpur

July 29; 1957

District Judge,

M,,,;;."411d Jodhpur

s. 5

Debt Reduction Act

Rajasthan Act IX of 1957

Jaly

31. 1957

s. 7

Constitution of India

Arts. 14, 19 and 31

December 3, 1957

Art. 228

State of Rajasthan

s. 2(e)

s. 7(2)

Supreme Court

Mukhanchand

April 23, 1962

s. 2(e)

S. 2(e)

S. 3

Schedule I

section 82

Transfer of Property Act, 1882

Schedule I

S. 4

Code of Civil Procedure, 1908

Schedule I

day of January, 1949

section 82

Transfer of Property Act, 1882

Schedule I

S. 6

section 4

S. 7(2)

section 3

section 4

s. 2( e)

s. 7(2)

s. 2(e)

s. 2(e)

s. 7(2)

s. 2

Central

Jlhand Government

Section 3

Schedule I

Section 4

Section 5

Section 6

s. 4

s. 7

s. 7

s. 2(e)

Art. 14

Jagirs Act

s. 2(e)

Kapur

Art. 14

Zamindars Debt Reduction Act

Raiaotharz

Kapur-Jamnalal

s. 3

s. 2(e)

s. 7(2)

s. 7(2)

s. 2(e)

s. 7(2)