April I

SUPREME COURT REPORTS [1964]

K. NARASIMHIAH v.

H. C. SINGRI GOWDA

IK. SuBBA Rl\D, K. C. DAS GUPTA AND RAGHUBAR DAYAL, JJ.]

Municipality-No confidence resolution against President- Enactment providing tl'lree clear days notice jor holding special general meeting-Provision if mandatory-Failure to give such notice-Effect-Validity-Mysore Town Municipalities Act, 1951, ss. 23(9), 24(1) (a). 24(3) and 27(3).

The ap!J€1lant was the elected President of the Municipality.

In a special general meeting of the councillors a resolution expressing no confidence in him as President \Vas moved and passed. In the High Court as well as in this Court, the legality of the proceedings of the meeting and the validity of the resolution was. challenged by the appellant on the grounds, (i) that the requisite three days notice under the Act was not served on all the members and so the meeting was not validly held, (ii) that the meeting was not properly held as the appellant was not allowed to preside and thus s. 24(1) (a) of the Act was contravened and (iii) that the requisition for moving the resolution did not comply with the proviso to s. 23(a) of the Act as fifteen days notice was not given of the intention to move the resolution. The last two contentions were rejected by the High Court. On the main contention it held that as the notices were sent to the councillors on the 10th October 1963, they must be held to have been given on that date even though they were actually served on the 11th, 12th and 13th; but, apart from that it was of opinion that the provisions abOut three days notice was only directory and not mandatory and so the omission to give notice would not affect the validity of the resolution.

Held: (i) The High Court was wrong holding that "sending!! a notice amounts to "giving" the notice. There is no authority or principle for the proposition that as soon as the person in the legal duty to give the notice despatches the notice to the address of the person to whom it has to be given, the giving is complete. Therefore, it must be held that the notice given to some of the councillors was of less than three clear days.

(ii) The provision as regards any motion or proposition of which notice must be given in s. 27 (3) of the Act is only directory and not mandatory. Therefore the fact that some of the councillors received less than three clear days notice of the meeting did not by itself made the proceedings of the meeting or the resolution !>"SSed there invalid. These would be invalid only if the proceedings were prejudicially affected by such irregularity. In the present case, nineteen of the twenty councillors attended the meeting and of these 19, 15 voted in favour of the resolution of no confidence against the appellant. There is thus no reason for holddng that the proceedings of the meeting were prejudicially affected by the "irregularity in the service of notice".

State of U.P. v. Manbodhan Lal Srivastava, (1958) S.C.R. 533, referred to.

(iii) On a consideration of the material on the record. it must be held that it was after the appellant left the meeting that the Vice President took the chair and thereafter the no confidence resolution was moved and passed. There could therefore

be no question of any contravention of the requirement under s.24(1) (a) of the Act that the President shall preside.

llr arasinihiaA

(iv) The proviso to s.23(9) of the Act was not contravened.

All that is required is that before the resolut10n is actually moved, the President has got fifteen days notice. In the present case, the meeting was held on October 14 and the appellant received the notice on the 25th September. There was thus more than 15 days notice given to him.

H. C, Singri Gowda

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 223 of 1964. Appeal by special leave from the Judgment and order dated December 6, 1963 of the Mysore High Court in Writ

Petition No. 2273 of 1963.

S.K. Venkataranga Iyengar and R. Gopalakrislman, for the appellant.

N.S. Krishna Rao and Girish Chandra, for respondents No. I, 2, 4--10, 12-15.

April 1, 1964. The Judgment of the Court was delivered by DAs GUPTA, J.-Is the requirement of three clear days' Das Gupta, J. notice for the holding of a special general meeting as embodied in s. 27(3) of the Mysore Town Municipalities Act 1951, a mandatory provision? That is the main question which arises

for decision in this appeal.

The appellant was elected as the President of Holenarsipur Municipality on September II, 1962. At a special general meeting of the Municipal Council held on October 14, 1963, a resolution was passed in the following terms:-

"This Council has no confidence in the Municipal

President of Holenarsipur Municipality."

On November 2, I 963 Mr. Narasimhiah, the President of the Council applied to the High Court of Mysore under Art. 226 of the Constitution praying for the issue of an appropriate writ quashing the proceedings of the meeting which culminated in the resolution of no confidence against him. Prayers

were made also for some consequential reliefs.

Holenarsipur Municipality has twenty Councillors. Thirteen out of the them sent a request to the President to convene a special general meeting to discuss a resolution expn; ssing no confidence in him as President. This request was handed over to the President on 25th September 1963. As however he did not take any steps for convening the meeting the Vice President acted in the matter-calling a meeting to discuss the resolution to express no confidence in the President.

A notice under the Vice-President's signature stating that it was prgposed to hold a special general body meeting

H.O. Si1t!Jri Gou'tla

of the Municipality on the 14th October 1963 at 10 A.M. in the office premises and asking the members to be present in time was served on the Councillors. One copy of the notice was also posted up at the Municipal Office as required by 27(3) of the Mysore Town Municipalities Act, 1951 (herein- Das Gupta, .1. after referred to as "the Act"). The notice bore the d; tte 10th October 1963. On fifteen of the twenty Councillors the notice was personally served on that very date, i.e., the 10th October.

On three of the Councillors, v_iz., the President Narasimhiah, Mr. Dasappa and Mr. Sanniah, the notice was served on the 13th October. It was served on Councillor Mirza Mohammad Hussain on the 12th October and on the Councillor R. G.

Vaidyanatha on the I Ith October 1963.

When the meeting was held on October I 4, 1963, nineteen of the twenty Councillors were present. The President, Mr. Narasimhiah was among them. He claimed to preside over the meeting. But, ultimately, he appears to have left the meeting. The meeting was then held under the presidentship of the Vice President Mr. Singri Gowda. The no-confidence motion against the President was moved and was passed, fifteen members having voted for it.

In challenging the legality of the proceedings of this meeting of I 4th October and the validity of the resolution of no confidence passed there, the petitioner urged three principal grounds. The first is that the requisite three days' notice was not served on all the members and so the meeting was not validly held. The second ground urged was that the meeting cannot be said to be properly held as be was not allowed to preside and the Vice-President presided, and thus s.24(1)(a) of the Act was contravened. Thirdly, it was urged that the requisition for moving the resolution of no confidence did not comply with the proviso to s.23(9) of the Act as 15 days' notice was not given of the intention to move the resolution.

The High Court held that on the materials before it, it was not possible to pronounce as to the circumstances under which the Vice-President presided at the meeting. So, the High Court rejected the contention that there was any contravention of s.24(l)(a) of the Act. The case made in the pe_tition that 15 days' notice had not been given of the intention to move the resolution does not appear to have been pressed at the bearing; as there is no mention in the judgment of any such argument. On the question regarding the failure. to serve three days' notice of the meeting on all the Councillors, the High Court followed its own decision in another Writ Petition No. 2280 of 1963 and rejected the petitioner's contention. The judgment in Writ Petition No .. 2280 of 1963 which was produced before us shows that the High Court took the view that

as the notices were sent on the 10th October they must he 1964 held to have been given on that date even though they were NarairimhW. actually served on the I Ith, 12th and 13th; but, apart from . v: that the High Court was of opinion that the provision about H.c. 8•119"- three days' notice was only directory and not mandatory and na. lhpta, J. so the omission to give notice would not affect the validity of the resolution.

All the three grounds raised in the petition were urged before us in support of the appeal. As regards the petitioner's contention that the meeting was not held in accordance with law as he was not allowed to preside, we are of opinion, on a consideration of what material there is on the record, that it was after he left the meeting that the Vice President took the chair and thereafter the no confidence resolution was moved and passed. There can therefore be no question of any contravention of the requirement that the President shall preside.

There is, our opinion, no substance also in the contention that the prOIViso to s.23(9) was contravened. The proviso runs thus:-

"Provided that no such resolution shall be moved unless notice of the resolution is signed by not less than one-third of the whole number of the Councillors and at least fifteen days' notice has been given of the intention to move the resolution."

Admittedly, the notice was signed by more than one-third of the whole number of Councillors. It is said, however, that fifteen days' notice of the intention to move the resolution was not given. This argument which Mr. Iyengar addressed to us, but which does not appear to have been urged before the High Court-proceeds on th6 assumption that fifteen days' notice of the intention to move the resolution has to be given not only to the President but also to the other Councillors. We do not think that that assumption is justified. In our opinion, what. is required is that fifteen days' notice of the intention to move the resolution has to be given to the .President. In other words, all that is required is that before the resolution is actually moved the President has got fifteen days' notice. In the present case, the meeting was held on October 14 and the President received the notice on the 25th September. There was thus more than 15 days' notice given to him.

This brings us to the main contention that three days' notice of the special general meeting was not given and so the meeting is invalid. We find it difficult to agree with the High Court that "sending" the notice amounts to 'crivina" the • Q Q notice.

J.l arasimhiah

H.C. Singri Gowda

Da.s Gupta, J.

"Giving" of anything as ordinarily understood in the English language is not complete unless it has reached the hands of the person to whom it has to be given. In the eye of law however giving is complete in many matters where it has been offered to a person but not accepted by him. Tendering of a notice is in law therefore giving of a notice e".en

though the person to whom it is tendered refuses to accept it.

We can find however no authority or principle for the proposition that as soon as the person with a legal duty to give the notice despatches the notice to the address of the person to whom it has to be given, the giving is complete. We are therefore of opinion that the High Court was wrong in' thinking that the notices were given to all the Councillors on the !0th October. In our opinion, the notice given to five of the Councillors was of less than three clear days.

The question then is: Is the provision of three clear days• notice mandatory, ie., does the failure to give such notice make the proceedings of the meeting and the resolution passed there invalid? The use of the word "shall" is not conclusive on the question. As in all other matters of statutory construction the decision of this question depends on the ascertainment of the legislature's intention. Was it the legislature's intention in making the provision that the failure to comply with it shall have the consequence of making what is done invalid in law? That is the question to be answered. To ascer-· tain the intention the Court has to examine carefully the object of the statute, the consequence that may follow from insisting on a strict observance of the particular provision and above all the general scheme of the other provisions of which it forms a part. In the State of U.P. v. Manbodhan Lal Srivastava (') where the question arose whether the provisions of Art. 320(3)(c) of the Constitution are mandatory (which provides that the Union Public Service Commission or the State Public Service Commission shall be consulted on certain disciplinary matters), this Court laid stress on the fact that the proviso to. the Article contemplates that the President or the Governor as the case may be make regulations specifying the matters in which either in general or in any particular class or in any particular circumstances, it shall not be necessary for the Public Service Commission to be consulted: Speaking for the Court Sinha J. observed:-

"If the provisions of Art. 320 were of a mandatory character, the Constitution would not have left it to the discretion of the Head of the Excutive Government to undo those provisions by making regulations to the contrary."

(') [1908] S.C.R. 533.

'l S.C.R.

SUPRElIE COURT REPORTS 623

This appears to have been the main reason for the court's 1961 decision that the provisions of Article 320 (3)(c) are not man- Xamimhiah datory. Naturally, strong reliance has been placed on this deci- . v •. sion on behalf of the respondents. It is pointed out that while Il.O. Smgn Gowda

providing that three clear days' notice of special general meet Daa Gupta, J. ing shall be given to the Councillors, the legislature said in the same breath that "in cases of great urgency, notice of such shorter period as is reasonable should be given to the Councillors of a special general meeting." The decision of what should be considered to be a case of "great urgency" was left enlirely to the President or the Vice-President on whom the duty Lo call such a meeting is given under s.27(2). It is urged by the learnecl Counsel that if the intention of the legislature

had been to make the service of three clear days' notice mandatory it would not, have left the discretion of giving notice for a shorter priod for some of the special general meetings in this manner. We see considerable force in this argument.

The very fact that while three clear days' notice is not to be given of all special general meetings and for some such meet

ings notice only of such shorter period as is reasonable has to be given justifies the conclusion that the "three clear days", mentioned in the section was given by the legislature as only a measure of what it considered reasonable.

It is necessary also to remember that the main object of giving the notice is to make it possible for the Councillors to so arrange their other business as to be able to attend the meeting. For an ordinary general meeting the notice provided is of seven clear days. That is expected to give enough time for the purpose. But a lesser period-of three clear days'---is considered sufficient for "special general meetings"' generally.

The obvious reason for providing a shorter period for such meetings is that these are considered more important meetings and Councillors are expected to make it convenient to attend these meetings even at the cost of some inconvenience to themselves. Where the special general meeting is to dispose of some matter of great urgency it is considered that a period of even less than three clear days' notice would be sufficient.

A consideration of the object of these provisions and the manner in which the object is sought to be achieved indicates that while the legislature did intend that crdinarily the notice as mentioned should be given it could not have intended that the fact that the notice is of less than the period men. tioned in the section and thcs the Councillors had less time than is ordinarily considered reasonable to arrange his other business to be free to attend the meeting, should have the serious result of making the proceedings of the meeting invalid.

Narasimhiah

It is important to notice in this connection one of the provisions in s. 36 of the Act. lt is in these words : -

H. 0. Singri Gowda "No resolution of a municipal council or any committee appointed under this Act shall be deemed invalid on account of any irregularity in the service of notice upon any councillor or member provided the proceedings of the municipal council or committee were not prejudicially affected by such irregularity."

Das Gupta, J.

• v It is reasonable to think that the service of notice mentioned in this provision refers to the giving of notice to the Councillors. Quite clearly, any irregularity in the manner of giving the notice would be covered by the words "irregularity in the service of the notice upon any Councillor". lt appears to us however reasonable to think that in making such a provision in s.36 the legislature was not thinking only of irregularity of the mode of service but also of the omission to give notice of the full period as required.

It is interesting to notice in this connection that the . English law as regards meetings of. borough councils and county councils contain a specific provision that want of service of a summons to attend the meeting (which is required to be served on every member of the council) will not affect the validity of the meeting. It may be presumed that the legislature which enacted the Mysore Town Municipalities Act, 1951, was aware of these provisions in English law. It has not gone to the length of saying that the failure to serve the notice will not make the meeting invalid. It has instead said that any irregularity in the service of notice would not make a resolution of the Council invalid provided that the proceedings were not prejudicially affected by such irregularity. The logic of making such a provision in respect of irregularity in the service of notice becomes strong if the fact that the notice given was short of the required period is considered an irregularity

The existence of this provision in s.36 is a further reason for thinking that the provision as regards any motion or proposition of which notice must be given in s.27(3) is only directory and not mandatory.

We are therefore of opinion that the fact that some of the Councillors received less than three clear days' notice of the meeting did not by itself make the proceedings of the meetin!! or the resoluion passed there invalid. These would be invalid only if the proceedings were prejudicially affected by such irregularity. As already stated. nineteen of the twentv Councillors attended the meeting. Of these 19, 15 voted in favour of the resolution of no-confidence against the appellant. There is

thus absolutely no reason for thinking that the proceedings of the meeting were prejudicially affected by the "irregularity in the service of notice."

We have therefore come to the conclusion that the failure

19G4

IJ. C. Singri Gou•d(_.

to give three clear days' notice to some of the Councillors did n,,.., Gup'"• J. not affect the validity of the meeting or the resolution of no confidence passed there against the appellant.

In the result, we dismiss the appeal with costs.

Appeal dismissed.

K. NARASIMHIAH

H. C. SINGRI GOWDA

K. C. DAS GUPTA

RAGHUBAR DAYAL, JJ.

ss. 23(9), 24(1)

s. 24(1)

s. 23(a)

10th October 1963

11th, 12th and 13th;

s. 27

H. C, Singri Gowda

Mysore High Court

S.K. Venkataranga Iyengar

R. Gopalakrislman

N.S. Krishna Rao

Girish Chandra

DAs GUPTA

Das Gupta

s. 27(3)

Mysore Town Municipalities Act 1951

Holenarsipur Municipality

November 2, I 963

Narasimhiah

High Court of Mysore

Art. 226

Holenarsipur Municipality

25th September 1963

Mysore Town Municipalities Act, 1951

Das Gupta

Dasappa

Sanniah

Mirza Mohammad Hussain

R. G.

Vaidyanatha

Narasimhiah

Singri Gowda

lhpta

Iyengar

J.l arasimhiah

H.C. Singri Gowda

Da.s Gupta

Art. 320(3)(c)

Union Public Service Commission

Sinha

Art. 320

s 1961

Article 320

Il.O. Smgn Gowda

Daa Gupta

s. 36

C. Singri


J964

..4.pril 2

SUPREME COURT REPORTS (1964]

BHARAT FIRE AND GENERAL INSURANCE CO. LTD.

NEW DELHI

THE COMMISSIONER OF INCOME TAX, NEW DELHI

[K. SUBBA RAO, J.C. SHAH AND S.M. SIKRI, JJ.J

Inco-rne Tax-Dividend declared out o.f premitl1ns on shares receii; ed hu a company--Amount vJhether receipt o.f dividend- Whether tuxab!e-What is dividend-Effect of s. 78. Companie•

Act, 1956-Indian Income-tax Act. 1922, s. 2(6A).

The Rohtas Industries Ltd. i'5ued in 1945 shares at a premium and the share premiums so received were kept separate under the head Capital Reserve. In the calendar year ending Decemb2r 31, 1953, the company peid a sum of Rs. 50,787/- as dividend to the apn2llant company, For the year 1954-55, th's sum was taxed in the hands of appellant as dividend by the Income-tax Officer. The Appellate Assistant Commissioner set aside the order of the Income-tax Officer, but the same was restored by the Income-tax Appellate Tribunal. The Tribunal referred to the Punjab High Court the question whether on the facts and in the circumstances of the case, the receipt cf Rs. 50,787 /- was a receipt of dividend and was taxable under the Indian Income-tax Act. The High Court answered the question against tho appellant and the latter appealed this Court with special leave. Dismissing the appeal.

Heid: The receipt of Rs. 50,787 /- was a receipt of dividend and "'as taxable under the Indian Income-tax Act, 1922. It was well-established before the Companies Act, 1956, that premiums received on the issue of shares were profits available for distribution and the word "profits" in Regulation 97 of Table A of Companies Act 1913 should be understood to include share premiums also. S. 78 of the Companies Act does not in any way change the taxability of dividends declared out of premiums on shares received by a Company before the Act of 1956 came into force. If it was taxable; apart from s. 78, it remains so taxable.

Re Hoare & Co. Ltd., (1904) 2 Ch. 208; Drown v. Gaumint- British Picture Corporation, (1937) Ch. 402; re Duff's Settlements.

National Provincial Bank Ltd., vs. Gregson, (1961) 1 Ch. 923; Land Revenue Commissioners v. Reids Trustees, (1949) 1 All E.R. 354, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 613 /

1963. Appeal by special leave from the judgment dated December 12. 1960, of the Punjab High Court in Income-tax Reference No. 2 of 1958.

S. K. Kapur, K. K . . Jain, Bishambar Lal Khanna and S. Murthy, for the appellant.

C.K. Daphtary, Attorney-General, R. Ganapathy Iyer and R.N. Sachthey, for the respondent.

April 2, 1964. The Judgment of the Court was delivered 1964

~ ~-~~ General Insurance SIKRJ, J.-The appellant is a Joint Stock Company, hereco. Ltd .• inafter referred to as the assessee, having its registered office in New Del/ii Delhi. It held 11950 'B' Preference shares in another com-The oom~·;.,,; on., pany, called Rohtas Industries Ltd., in the previous year of l; icome Ta•, (calendar year ending December 31, 1953). The latter coml.cu•Ddhi pany paid a sum of Rs. 50,787 /- as dividend on the said Pre- Sikri, J. ference Shares to the assessee, and for the assessment year 1954-55. this sum was taxed in the hands of the <issessee as dividend, within s. 2(6A) of the Indian Income Tax Act, 1922, by the Income Tax Officer. The Appellate Assistant Commissioner, on appeal by the assessee, held it not to be taxable.

The Income Tax Appellate Tribunal, on an appeal by the

Department, however. agreed with the Income Tax Officer and allowed the appeal. On the application of the assessee, the Appellate Tribunal stated a case for the opinion of the Punjab High Court. The High Court upheld the contention of the Department and answered the question referred to it against the assessee. The assessee. after failing to get a certificate under s. 66A(2) of the Income Tax Act. obtained special leave from this Court and now the appeal is before us for dis- posal.

The question referred to the High Court is as follows:-

"Whether on the facts and in the circumstances of the case, the receipt of Rs. 50,787 /- was a receipt of dividend and is taxable under the Indian Income Tax Act." The facts and circumstances referred to in the questicn are as follows. Rohtas Industries Ltd .. hereim1ftr referred to as the declaring company. had in the year 1946 issued shares at a premium and the share premiums so received by it were

kept separate under the head 'Capital Reserve'. The declaring company declared a dividend in the previous year of the a;.

sessee out of the above capita 1 reserve.

The learned counsel for the assessee contends before us that the sum received by the assessee is not dividend witliin the definition of the word in s. 2(6A) of the Income Tax Act.

H~ 'Says. tht the share premim~ were not profits capable of bemg distributed as profits w1thm Regulation 97 of Table A of Companies Act of 1913 which lays down that "no dividend shall be paid otherwise than out of the profits of the year or any other undistributed profits." He argues further that it was a capi!al gain in the hands of the dcclaing company and capital gams are expressly excluded from the definition of 'dividend' by the explanation to s. 2(6A) which provides that 'the

Bharat Fire and General I nmrance

Co. Ltd., ..1.Yew Delhi v.

The Commi.s.siontr

of lnco11u.Ta'e,

llew Delhi

Sil:ri, J.

expression "accumulated profits" wherever it occurs in this clause shall not include capital gains arising before the l st day of April, 1946\ or after the.31st day of March, 1948'. Lastly, he urges that in any event, s. 78 of the Companies Act, 1956, has placed this sum beyond the reach of the Revenue.

Before adverting to the arguments addressed to us. it is necessary to reproduce the relevant statutory provisions. Section 2(6A) of the Income Tax Act defines 'dividend' as follows:~

"(6A) 'diidend' includesfa) any distrib4tion by a company of accumulated profits, whether capitalised or not. if such distribu tion entails the release by the company to its shareholders of all or any part of the assets of the company;

(b). , ...... ,. """ ..

(c) ....... :: ...... , .. :

Provided that

(d) ................. .

Provided that .......... .

Provided further that the expression "accumulated profits", wherever it occurs in this clause. shall not include capital gains arising before the !st day of April, 1946, or after the 31st day of March, 1948."

Section '78~ of the Companies Act, 1956, reads:-

"78; (I) Where a -company issues shares at a premium, . whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on . those .shares shall be transferred to an account, to be called "the share premium account"; and the provisions of this Act relating to the reduction of the share capital of a company shall, except as provided in this section';°apply as if the share pre mium account were paid-up share capital of the company.

(2) The share premium account may, notwithstandi11g anything in sub-section (!), be applied by the com pany-

(a) in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares; {b) in writing off the preliminary expenses of the com

pany;

(c) in writing off the expenses of, or the commission paid 1lr discount allowed on, any issue of shares or debentures of the company: or

Bharat Fire and General J nsurance

Co. Ltd.,

(d) in providing for the premium payable on the re Xew Del/Ii demption of any redeemable preference shares or The 00,!;.;.,.wner of any debentures of the compJ of Inwm.-Ta , • bT ew lJeT.ki

l) Where a company has, before the commencement of this Act, issued any shares at a premium, this section shall apply as if the shares had been issued after the commencement of this Act: Provided that any part of the premiums which has been so applied that it does not at the commencement of this Act from an identifiable part of the company's reserves within the meaning of Schedule VI, shall be disregarded in determining the sum to be included in the share premium account."

It is evident from the definition of the word 'dividend' that if a distribution of accumulated profits, whether capita lised or not, entails the release by the company to its shareholder of all or any part of its assets, it is dividend. It is not disputed that the distribution of Rs. 50,787 /- entails the release of the assets of the declaring company. But it is contended that there was no distribution of accumulated profits, because by virtue of Regulation 97, Table A of the Companies Act, 1913, no dividend could be paid otherwise than out of the profits of the year or any other undistributed profits. It is said that the premiums received by the declaring company were not profits within Regulation 97. We are unable to accede to this contention. Previous to the enactment of s. 78 of the Companies Act of 1956, and the corresponding section in the English , Companies Act, it was recognised that a company could distribute premiums received on the issue of shares as

dividend~ (vide Palmer's Company Law, Twentieth Edition).

At page 637, it is stated:

"It is evident from the preceding observations that it is legally permissible for the company to distribute dividend out of assets which do not represent profits made as the result of its trading or business.

The connotation of divisible profits, or profits in the legal sense, is much wider than that of profits

in the business sense: the former term includes, e.g., reserves accumulated from past profits, from realised capital profits indeed, before the requirement of a share premium account by the 194 7-48 legislation, from premiums obtained on issue of

Sikri, J.

Bharat Fire and Gene.ral lns?.1rar.:;,,

l'o. Ltd., .Yen' .Delhi

Tlie Gonunissioner

of lru:ome-11a.r,

, Yen' Del/ii

Si!.1i, J.

new shares, whereas none of these items is regarded-and rightly so-by the businessman or accountant as trading profits."

Palmer relies on two cases: Re Hoare & Co. Ltd.,(') and Drown v.

Caumin-Britislz Picture Corporation('). In Re Hoare'.1 (') case the company had created a reserve fund consisting partly of premiums received on the issue of preference shares. It having incurred a loss arising from the depreciation in the value of the public houses below the amount stated in the company's balance sheet, applied for sanction of the Court to a scheme for reduction of capital whereby the company, while retaining a small portion of the reserve, attributed to the reserve more than its rateable proportion and to capital account less than that of its rateable proportion Buckley J. apparently held that these premiums were not 'profits' in the strict sense; and, en appeal, the counsel for the company contended befort' the Court of Appeal that this was wrong.

Romer, L.J., disposed of this contention in the following \.vords";

"The surplus which was carried to the reserve fund represented that which might have been properly applied at the time, if the company had so thought fit, in paying further dividends to shareholders and no person could have complained if they had done so". ·

Thus, Romer, L.J., thought that there was nothing objectionable in utilising premiums received on the issue of shares for the purpose of declaring dividend.

In Drown's case('), a company proposed to pay a dividend on its preference s:iares and utilise in part premiums received by the company on the issue of shares, which had in fact been invested in the assets of the company. The plaintiff asked for an injunction to restrain the company from paying the dividend. Clauson, J., held that part of a reserve fund consisting of moneys paid by way of premiums on shares, unless set aside in some particular fund which has been wholly spent, is available for dividend purposes. We are not concerned with other points that arose in the case and we have only set out the facts and findings relevant to the question before us. We may here set out Article 129 of the Gaumont-British Picture Corporation Ltd. Article 129 reads thus; -

"The Directors may, with the sanction of a general. meeting, from time to time declare dividends or bonuses, but no such dividend shaU (except as by

--------,-----=---::-:~- -- (') [1904] 2 Ch. 208. . (') (1937] Ch. 402.

the statutes expressly authorised) be payable 1964 otherwise than out of the profits of the company m,""" Fi" awl

" •••• , , , , , •• , • • • • • • , ()\nrr11l ft1J>urance Mr. Kapur, learned counsel for the appllant, had cong;•;,, 1flii,; tended that the English Law was different inasmuch as what v. was prohibited in English Law was payment of dividends out

1 '~1 ?:::;,:,~':~:;:-;:' of capital and that it <lid not enjoin directors to pay dividends New Delhi ' out of profits. This case refutes Mr. Kapur's contention. In re Duff's Sett/eme11ts, National Provincial Bank Ltd .. vs. Gregson,(') which is strongly relied on behalf of the appellant, and which we will advert to in detail later, Jenkins, L.J., says at p. 926:---

"The share premiums would have been profits available for distribution (see Druwn v. Gaumo11t-Britislz Picrure Corporation)"(').

It was thus well-established before the Act of 1956 and the corresponding English Act that premiums received on the issue of shares were profits available for distribtion. We are of the opinion that the same connotation should be attached to the word 'profits' in Regulation 97 of Table A. In this view of the matter, it is not necessary to pronounce on the question whether even if these premiums were not profits within Regulation 97, would this necessarily exclude them from coming with the words 'accumulated profits' within s. 2(6A)(a).

This takes up to the next point raised before us: Are the premiums received on the issue of shares capital gains within the explanation to s. 2(6A)? This point was not urged before the High Court or the Appellate Tribunal and we did not allow it to be developed.

The last point may now be dealt with. In this connection it is necessary to appreciate the scheme of s. 78 of the Companies Act, 1956. Sub-section (!) enjoins a company, when it issues shares at a premium, to transfer the premiums to an account called 'the Share Premium Account' and it then applies the provisions of the Act relating to the reduction of the share capital of a company as if the share premium account were paid-up capital of the company. Sub-section (2) then provides how the share premium account may be applied. It I~ said that it impliedly provides that it cannot be used for the purpose of p:.ying dividends. Sub-section (3) then deals with the issue of shares at a premium before the commencement of this Act. It deems them to have been issued after the commencement cf the Act and applies the provisions of s. 78. The effect of this would be that company which has issued shares at a premium before the commencement of the Act would by

(') [1937] Ch. 402. (') [1951] 1 Ch. 923.

1':1ikri, .].

632 SUPREl\IE COURT REPORTS

[1964J

Bharat Fire ancl General lnsurawe

Go. Ltcl..

virtue of s. 78, have to open a share premium account. and transfer to it the premium so received. What is to happen if before the commencement of tire Act the company has already dealt with the premiums in such a way that they had ceased to remain as an identifiable part of the company's reserves? The sub-section says that in that event the premiu.ms so dealt with

New Del/ti

P!tt Com11tissionrr

of Incmne-1'a:v,

New Ddhi shall be disregarded in determining the sum to be included in the share premium account. If such premiums are to be disregarded for the creation of the share premium account, it means that they fall outside the purview of s. 78. It has no ap- plication to them. If this is so, it is difficult to appreciate how the appellant can utilise this section for the purpose of showing that the premiums which have already been distributed became invested with the character of capital in the hands of the distributing company. We do not say that for the purpose of income tax any future application of the share premium account in one of the ways mentioned in sub-section (2) will be treated as distribution of capital. No such question arises for our determination in this case. But we do hold that s. 78 of the Companies Act does not in any way change the taxability of dividends declared out of premiums on shares received by a Company before the Act of 1956 came into force. If it was taxable. apart from s. 78; it remains so taxable.

The case of Duff's Settlements(') referred to above, on which the learned counsel strongly relied, might or might not help him if the declaration of dividend had taken place after the Act of 1956. We are of the opinion that what was decided in this case has no relevance to the facts of this appeal.

Before concluding. we may refer to the decision of the House of Lords in Land Revenue Con11nissio11ers v. Reids Trustees('). relied on by the learned counsel for the respondents. This case would be relevant if we were considering generally whether the receipt of Rs. 50,781 !- was income or capital in the hands of the assessee. The question, however, referred to the High Court is limited. and that is whether the receipt of Rs. 50, 787 /- was a receipt of dividend and taxable.

It is, therefore, unnecessary to say more about this case.

In the result, we agree with the High Court that the answer to question referred to it is in the affirmative. The appeal • fails and is dismissed with cost.

l'l [1951] 1 Ch. 923.

Appeal dismissed ..

(') [1949] 1 All E.R. 354.

K. SUBBA RAO, J

C. SHAH

S.M. SIKRI, JJ

s. 78

Indian Income-tax Act

s. 2(6A)

Rohtas Industries Ltd.

31, 1953

Punjab High Court

Income-tax Act

Indian Income-tax Act, 1922

Table A of Companies Act 1913

S. 78

Companies Act

s. 78

CIVIL APPELLATE JURISDICTION

S. K. Kapur

K. K . . Jain

Bishambar Lal Khanna

S. Murthy

C.K. Daphtary

R. Ganapathy Iyer

R.N. Sachthey

SIKRJ

s. 2(6A)

Indian Income Tax Act, 1922

Income Tax Appellate Tribunal

s. 66A(2)

Rohtas Industries Ltd

s. 2(6A)

Table A of Companies Act

s. 2(6A)

s. 78

Companies Act, 1956

Section 2(6A)

Companies Act, 1956

Schedule VI

Table A of the Companies Act, 1913

s. 78

Companies Act

Companies Act

Palmer

Buckley

Romer

Drown

Clauson

Article 129

Article 129

Kapur

Duff

Jenkins

s. 2(6A)(a)

s. 2(6A)

s. 78

Companies Act, 1956

s. 78

Bharat Fire

s. 78

s. 78

s. 78

Companies Act

s. 78


, J/arch 6

62 SUPRElE COURT REPORTS [196<1]

GIRDHARILAL BANSIDHAR v.

UNION OF INDIA

[P. B. GAJENDRAGADKAR, c. J., K. N. WANCHOO, J. c. SHAH,

N. RAJAGOPALA AYYANGAR AND s. M. SIKRI JJ.J

Sea Customs Act, 1878(8 of 1878)-PTohibition on. import of ceTtain aTticle-Component paTts of that aTtic!e if within

pTohibition-Conc!usitms of Customs authorities based on seveTal items of Hand-book-CoTTectness theTeo.f, whetheT can be consideTed by High Coum-Constitution of India, ATt. 226.

Evidence taken into consideTation though not mentioned in notice to show cause-NatuTal justice, if violated.

The appellant who was granted a license to import "iron and steel bolts, nuts, set screws, machine screws and machine studs, excluding bolts, nuts and screws adopted for use on cycles", imported nuts and bolts which were the components. of "Jackson Type Single bolt oval plate belts fasteners" which . were described in the bill of Entry as "Stove Bolts and Nuts."

The importation of "Jackso!). Type Single bolt oval plate belt fasteners" had been prohibited. When the goods were attempted to be passed through the customs, the collector issued notice to the appellant to show cause why penalties should not be imposed on him(a) for misdescribing the goods and (b) for attempting to import goods without a proper import license.

After receiving his explanation, penalties were imposed on the appellant. One of the facts which the Collector of Customs had taken into consideration in arriving at the conclusion that the nuts and bolts imported were in reality the actual components of the prohibited articles was that washers, the third component of the prohib:ted art'cles were imported by a firm owned 0r controlled by clcse relations of the appellant.

An appeal to the Central Board 'of Revenue from the order o~ the Collector imposing the penalties was dismissed. Thereafter, the appellant filed a writ petition under Art. 226 of the Constitution in the High Court which was dismissed in limine. On appeal by si; ecial leave:

Held: (i) A component part which has no use other than as a component of an article whose importation is prohibited is included in a ban or restriction as regards the importation of that article.

D. P. Anand v. M/s. T. M. ThakoTe and Co .. Appeal No. 4 of 1959 of Bombay High Court referred to.

(ii) There was no force in the content.ion that the decision of the Collector of Custcms was vitiated by a patent error, in that he misconstrued the sccpe of Entry 22 of Part I of the Import Trade Control Hand-book.

A court dealing with a petition under Article 226 is not sitting in appeal over the decision cf the Customs Authorities and therefore the correctness of the conclusion reached by those authorities. on the appreciation of the several items in the Hand-boPk or in the Indian Tariff Act which is referred to in these items, is not a matter which falls w!thin the writ jurisdiction of the High Court.

A. V. Venkateswaran, Collector of Customs, Bombay v.

Ramchand Sobhraj Wadhiwani, [1962] 1 S.C.R. 753, referred to.

(iii) Taking into consideration the importation of washers by another firm was merely evidence to confirm the conclusion reached by the Collector that the nuts and bolts imported were in reality the components of the prohibited article. The charge which the importer was called upon to answer did specify the nature of offence which he was alleged to have committed and lf the evidence which the appellant could have rebutted was brought on record and considered in his presence and that evidence conclusively proved the real nature of the articles imported, there could oe no justifiable complaint of violation of the principles of natural justice.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 318 of 1962.

Appeal by special leave from the judgment and order dated November 27, 1959 of the Punjab High Court <Cir cuit Bench) at Delhi in Civil Writ Petition No. 545-D of 1959.

Purshottam Trikamdas, M. V. Goswami and B. C.

Misra, for the appellant.

W. S. Barlingay and R. H. Dhebar. for the respondent.

March 6, 1964. The Judgment of the Court was delivered

AYYANGAR, J.--There are no merits in this appeal by special leave and it deserves tv be dismissed. The appellant obtained, in November 1951, an import licence from the Joint Chief Controller of Imports at Calcutta, for importing "iron and steel bolts, nuts. set screws, machine screws and machine studs, excluding bolts, nuts and screws adapted for use on cycles". In purported conformity with this licence the appellant imported from Japan through the Bedi port 221 cases of bolts and nuts during the period April 4. 1952 to July 14. 1952. The cases were described in the Bills of Entry which he filed as "Stove Bolts and Nuts,. and he produced the import licence; of November 1951 as his authority to clear the goods. One hundred and ninety-two of these cases were cleared out of the port customs but before the rest of the 89 cases could be cleared, the Customs authorities got suspicious that the goods were 'mis-described and though called 'Stove Bolts and Nuts" in the invoices and relative documents they were really identifiable parts of bolts and nuts of the "Jackson Type sinl!le bolt oval platebelt fasteners" whose importation . had been prohibited by a Noti.fication. <?f the Ministry of Trade issued in January 1952.

Their susp1c10ns got confirmed after examination of the samples of the. nuts and bolts imported and thereafter a notice was issued to the appellant to show cause why he should not be proceeded against (a) for mis-describing the

Girdharilal Bansidltar

Union of lndi<>

Ayyangar, J.

Girdharilal Btln8"lkar

Union of India

.A. yyangar, J_.

64 StJPHE?IIE COURT .REPORTS [1964)

goods as '"stove bolts and nuts" and <2) for importing and attempting to import goods without a proper import licence this being an offence under s. 167(8) of the Sea Customs Act.

The appellant showed cause and in the written flleas which he iiled, he raised two defences; (I) that the description of

the goods as "stove and nuts" was merely a dcscriptian given by the manufacturers in their invoices and he himself not being acquainted with the technical details could not be held responsible for the description given in the invoices which was copied in the Bill of Entry not being precise or exact and (2) that even if the bolts and nuts which he imported were identifiable parts of the "single bolt belt fasteners" whose importation was banned, there had been, on a proper construction of the import licence, read in conjunction with the Import Trade Regulations under which it was issued, no contravention since the ban on importation by the notification was confined to a complete "Jackson type single bolt belt fastener" and did not extend to the importation of the component parts of such a belt fastener.

These two defences were examined by the Collector of Central Excise. As regards the first he found from the correpondence exchanged between the appellant and his foreign suppliers and produced by the appellant himself in his defence at the hearing, that the name ·stove bolts and nuts"

h?.d been decided upon by the appe!lant himself after samples of the nuts and bolts which he desired to import had been received and. examined by him. Practically therefore during the hearing before the Collector the appellant conceded that the name "stove bolts and nuts" was a misdescription of the articles which he actually imported. The next question was whether the appellant was guilty of an offence of the nature described in s. 16718) of the Sea Customs Act.

The Collector recorded a finding that the appellant was guilty of a contravention of this provision which reads:

.. If any goods, the importation or exportation of

which is for the time being prohibited or restricted by or under. Chapter IV of this Act, be imported into or exported from India contrary to such prohibition or restriction; or

if any attempt be made so to import or export any such goods~ ...... ''

In reaching this finding the Collector was satisfied from the samples which were forwarded . to the appellant and which were approved by him before finalising the indent, that the appellant was really ordering and importing nuts

and bolts which were identifiable components of "Single bolt belt fasteners" whose importation was prohibited. He arrived

at this c.onclusion because (I) the bolts and screws imported by the appellant were those specially adapted by reason of their structure and details for use as "single bolt belt fasteners" and (2) these nuts and bolts could not be put to any use other than as components of a belt fastener of the type whose import was prohibited.

In further support of his conclus_ion tbat the appeJJant really intended to evade the prohibition imposed by the Notification of January 1952 by which the importation of "single bolt belt fasteners" was prohibited, the Collector referred to the fact that tbese single bolt belt fasteners were composed of three components (!) a bolt (2) a nut and (3) washers, The washers to fit into the bolts and nuts imported by the appellant were found to have been separately imported by a firm called Nawanagar Industries Ltd. which was owned or controlled by close relations of the appellant.

Having thus received confirmation about the real intention of the appellant to evade the prohibition contained in the Notification and thus contravene the provisions of s. 167(8) of the Sea Customs Act, the Collector imposed the penalty of confiscation of the goods and gave the owner under s. 183 of the Sea Customs Act)he option to pay a fine of Rs. 51.000 to redeem the confiscated goods. He also imposed a personal penalty of Rs. 1.000 on the appellant under s. 167(37)(c) of the Sea Customs Act for misdescribing the goods in the Bills of Entries which he had filed. The appellant filed an appeal to the Central Board of Revenue which was dismissed.

The argument before the appellant authority again was that what was prohibited was an assembled "Jackson Type single belt oval plate belt fasteners" but that this notification could not be read as imposing a ban on the importation of the parts of such a belt fastener though these parts may be identifiable and the parts could have no use other than as components of the article whose importation was prohibited. This submission was rejected, and appeal was dismissed. Thereafter the appellant applied to the High Court of

Punjab for the issue of a writ of certiorari under Art. 226 of the Constitution and this having been dismissed in limine, moved this Court for special leave which was granted. That is how the appeal is before us. .

Two points were urged by Mr. Purshottam on behalf of the appellant. The first was that the appellant having been granted a licence to import "nuts and bolts" falling under item 22 of Part I of the Import Trade Control Hand-book for the relevant year, the appellant was entitled to import iron and steel bolts and nuts, whatever be the purpose they

L'P(D)ISCI-~

Girdlsarilol Ban.Miia•

Union of India

.Ayyangar, J.

01rdharilal

Ba""idhar

Union of Indio

A.yyoo.gar, J •

served. The only limitation imposed upon the appellant by the import licence which was granted to him and which reproduced the terms of Entry 22 in the Hand-book was that he could not import bolts and nuts adapted for use on cycles.

The limitation thus imposed, it was urged, also indicated that if the nuts and bolts were adapted for use on articles other than on cycles they could still import them unless the importation not merely of the other article but its components was also prohibited or restricted. In this connection our attention was drawn to item 28 of Part II in the same Hand-book reading 'Belting for machinery, all sorts, including belt laces and belt fasteners'. The Notification dated January 12, 1952 was a clarification issued in respect of licensing policy for January-June, 1952. Dealing with serial No. 28 of Part II which we have extracted just now, the notification stated: "Jackson type. oval plate belt fasteners (other than single bolt). General licences will be granted freely subject to the provisions of Public Notice No. 189-ITC(PN)/51, dated the 28th December, 1951.

Jackson type oval plate sing!~ bolt belt fasteners. No imports will be granted from any source." It was not disputed that having regard to the terms of the import licence issued to the appellant the Notification as regards the prohibition against the importation of "Jackson Oval Plate Single Bolt belt fasteners" would apply to the appellant's licence and these belt fasteners could not be imported after January. 1952.

For the import licence specifically stated:

"This licence is granted under Government of India, Ministry of Commerce, Notification No. 23-ITC I 43, dated the 1st July, 1943, and is without prejudice to the application of any other prohibition or regulation affecting the importation of the goods which may be in force at the time of their

arrival."

The point, however, sought to be made was that the components of such a belt fastener could. still be imported because it was said that the scheme of the Import Trade Control Hand-book was to specify wherever it was so intended "component parts" along with the articles of which they formed components, when a restriction or prohibition was intended to be imposed upon them also. It is, no doubt, true that in some cases component parts are specifically included in some of the items in the Hand-book. It might very well be that this feature might be explained on the ground

'. '-,'

' . \ ·..

- -

7 S.C.R.

SUPRE~IE COURT REPORTS'--. ·---~· 67 -

of the specification being by. way of , abundant caution, or possibly because in them the coniponenf parts might have . an independent use other .than as components. of the articles specified. It a.EJlears to us that it does not stand to reason that• a component part which has no use other than as a component of an article whose importation is prohibited is not included in a ban or restriction as regards the importation of that article. Expressed in other terms, we cannot accede to the position tha.t it is the intention of the rule that importers are permitted to do indirectly what they are forbidden to do directly, and that it permits the importation separately of components which have no use other than as components of an article whose importation is prohibited, and that an importer is thereby enabled to assemble them here as a complete article though if. they were assembled beyond the Customs Frontiers the importation of the assembled article into India is prohibited. Learned Counsel, however, relied upon an unreported judgment of the Bombay High Court delivered by Mr. Justice Mudholkar when a judge of that Court, in Appeal No. 4 of 1959 (D. P: Anand v. M fs. T. M.

Thakore & Co.) in support of his submission that a ban on a completed article, having regard to the phraseology employed in the Hand-book cannot be, read as a restriction or prohibition of the separate importation . of the component parts which when assembled result in. the article whose import is prohibited. We do not read the judgment in the manner suggested by learned Counsel. The learned Judge in the judgment recorded an admission that the articles imported which were components of _a motor-bicycle, .would not .when assembled form a complete cycle which was the article whose importation was . restricted, because of the lack: of certain essential parts which were admittedly not available in India and could not be imported.

The next submission of the learned Counsel was that the decision of the Customs Collector was vitiated by a patent error, in that he misoonstrued the scope of Entry 22 of Part I of the Import Trade Control Hand-book. In support of this submission the learned Counsel invited our attention to the decision of this Court in A. V. Venkateswaran Collector of Customs. Bombay v. Ramchand Sobhraj Wadhwani and A nr.('). We see no force in this argument. The decision of this Court referred to proceeded on the basis set out on page 757 of the Report where this Court said:·

"The learned Solicitor-General appearing for the

 appellant argued the appeal on the basis that the view of the learned Judges of the Bombay

(') (1962] 1 S.C.R. 753.

L, IP(D)-?(a)

, '

Girdliarilal Bamidlia,.

UniQ71. of India

!"'J-

- Ayyanga,., J.

,-\

' ' "· r ., . ' .\

Ginllwrilal

Ba'Midhar

Unio-n Of India

.Ayyangar, J.

High Court that on any reasonable interpreta- . tion of the items in the Schedule to the Tariff Act the consignment imported by the respondent could have been foible only to a duty of 30 per cent under item 45(3) was correct." •

Learned Counsel cannot therefore derive any support from this decision. Besides, what we have said earlier should suffice to show that the conclusion reached by. the authority that the offence under s. 167(8) has been made out, is not incorrect. This apart, we must emphasise that a court dealing with petition under Art. 226 is not sitting in appeal over the decision of the Customs authorities and therefore the correctness of. the conclusion .reached. by those authorities on the appreciation of the several items_ in the Hand-book or in the Indian Tariff Act which is referred to in these items, is not a matter which falls within the writ jurisdiction of the High Court. There is, here, no complaint of any procedural irregularity of the kind which would invalidate the

order, for the order of the Collector shows by its contents that there has been an elaborate investigation and personal hearing accorded before the order now impugned was passed.

Learned Counsel next submitted that the Collector of Customs had taken into consideration the importation of the washers by the Nawanagar Industries Ltd. in arriving at the conclusion that the appellant had violated s. 167(8) of the Sea Customs Act and that as in the notice that was serv.

ed upon him to show cause this was not adverted to, the order adjudging confiscation was illegal and void for the reason that there had been a violation of the principles of natural . justice and procedural irregularity in the hearing.

We are not impressed by this argument. This submission proceeds upon a total misapprehension of the significance of the separate import of the washers by the sister concern. That import was not and could not be the subject of any charge against the appellants, and the appellants were not punished for that importation. It was merely evidence to confirm the conclusion reached by the Collector that the nuts and bolts imported were in reality the actual components of the Jackson type belt fastener whose importation was prohibited.

The charge which the appellant was called on to answer did specify the nature of the offence which he was alleged to have contravened, and if evidence which the appellant could have rebutted .was brought on record and considered in his presence and that evidence conclusively proved the real nature of the articles imported, there could certainly be no justifiable complaint of violation of the principles of natural justice. The misdescription of the article imported in the Bill of Entry having. practically been admitted and there being

not much dispute that the . goods imported were really components of the Jackson type single belt fasteners, nothing more was needed to establish a contravention of s. 167(8).

The reference therefore to the Nawanagar Industries Ltd. which imported the washers merely confirmed the finding.

In these circumstances we do not consider that there is any substance in this objection.

The result is that this appeal fails and is dismissed with costs.

Appeal dismissed.

Git'tlllarilal Bansidlw

Un.ion of Ind.ia

A11!1"ngor, J.

GIRDHARILAL BANSIDHAR

UNION OF INDIA

P. B. GAJENDRAGADKAR

K. N. WANCHOO, J.

c. SHAH

N. RAJAGOPALA AYYANGAR

s. M. SIKRI JJ

Sea Customs Act, 1878

Constitution of India

Art. 226

Article 226

A. V. Venkateswaran

[1962] 1 S.C.R. 753

Purshottam Trikamdas

M. V. Goswami

B. C.

Misra

W. S. Barlingay

R. H. Dhebar

March 6, 1964

AYYANGAR

Calcutta

Japan

April 4. 1952

July 14. 1952

Girdharilal Bansidltar

Ayyangar

Girdharilal Btln8"lkar

.A. yyangar

s. 167(8)

Customs Act

s. 16718

Customs Act

Chapter IV of this Act

India

Nawanagar Industries Ltd.

s. 167(8)

Customs Act

s. 183

Customs Act

s. 167(37)(c)

Customs Act

Central Board of Revenue

High Court of

Punjab

Art. 226

Purshottam

.Ayyangar

A.yyoo.gar,

January 12, 1952

28th December, 1951

Government of India

1st July, 1943

Bombay High Court

Mudholkar

(1962] 1 S.C.R. 753

Ayyanga

s. 167(8)

Art. 226

s. 167(8)

Customs Act

s. 167(8)

Git'tlllarilal Bansidlw


7 S.C.R.

SUPRElVIE COURT REPORTS 633

BASMATI DEVI v,

CHAMROO SAO AND ORS. lK. SUBBA RAO, K. C. DAS GUPTA AND RAGHUBAR DAYAL, JJ J

Mortgage-Execution of mortgage bonds--Liabi!ity to pay rent to both mortgagor and mortgagees-Mortgaged !ands sold for default of payment of rent-Purchase by mortgagees-If the .-right to redeem exists-If the principle of s. 90 Trusts Act applies -Trusts Act, s. 90.

The plaintiff brought a suit for redemption of a large number of usufntctuary mortgages in favour of the defendants. The Case of the plaintiff was•that under the terms of the mortgage bonds the mortgagees were liable to pay rent to the land lord.

The mortgagees, however, defaulted in the payment of rent for .some years. A suit for arrears of rent was brought by the land lord and a decree obtained. In execution of the decree the lands were sold. According to the plaintiff, the purchasers of the mortgaged lands were only benamidars of defendants 1 and 2 and other mortgagees. The plaintiff claimed that the right of re- demption was not afl'ected by the Court sale because the purchase was for the benefit of the plaintiff. The suit was contested by defendants 1 and 2 only. Their case was that the right of re- -demption had been extinguished by the court sale; that the purchasers were not the benamidars of the defendants. The Trial Court dismissed the suit. On appeal, the Additional District Judge set aside the judgment of the Trial Court and passed a preliminary decree for redemption.

Against this decree the two defendants appealed to the High Court. The appeal was heard by the Division Bench.

Tne High Court held that in the present case s. 90 of the Trusts Act did not apply because the court sale took place due to the default oftte mortgagor as well as the mortgagees. In this view the High Court set aside the decree of the first Appellate Court and restored the decree of the trial court.

Held: The fact that the mortgagor had made a default, does not alter the position that the mortgagee had also defaulted in paying the rent he was liable to pay. By his default he has contributed to the position that a suit had to be brought for arrears of rent, and ultimately to the position that the property was put to sale in execution of the decree obtained in the suit. This contribution to the bringing about of the sale was a direct result of his position as a mortgagee. When therefore he purchased the property himself at the sale in execution of the rrnt decree he clearly gained an advantage by availing himself of his position as a mortgagee. This is the position of law even if the mortgagee's liability was to pay less than the major portion of the rent of the holdings. In this view s. 90 of the Trusts Act applies to the facts of this case.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 241 of '196L Appeal from the judgment and decree dated March 4, 1958, of the Patna High Court in Appeal from Appellate Decree No. 1335 of 1952.

April 3

SUPREME COURT REPORTS [19641

1964 R.S. Sinha and R.C. Prasad, for the appellants.

Basmati Dni Sarjoo Prasad and B. P. ]ha, for the respondents nos. I. v. and 2. Okamroo Bmi a 11d

Others , April 3. 1964. The judgment of the Court was delivered Das Uupta, J. by

DAS GUPTA, J.-This appeal arises out of a suit for re demption of a large number of usufructuary mortgages in. favour of the defendants. The plaintitf who owned 1.67 acres. of lands which were recorded in Khata 56 and J0.56 acres in Khata 57 in village Sarifabad gave 1.27 acres out of Khata 56 and 8.24 acres out of Khata 57 lands in mortgage to the several defendants by separate mortgage bonds. Part of the remaining land was sold by him and the rest settled by him with the first defendant on Batai terms.

The plaintiff's case is that under the terms of the mortgage bonds the mortgagees were liable to pay rent to the landlord.

The mortgagees however defaulted in the payment of rent for some years. A suit for the arrears of rent was brought by the landlord and a decree obtained. In execution of the decree the lands were sold. The purchasers were one Besolal and Mst.

Kirti Kuer, who according to the plaintiff. were only benami- <- dars of defendants I and 2 and other mortg:igees: It is his case

that this purchase enured for the benefit of the mortgagor. that is. the plaintiff. and so the right of redemption of the mortga gees has not been affected. The prayers were for a declaration that the purchase was for the benefit of the plaintiff and for redemption of the mortgagees.

The suit was contested by defendants 1 and 2 only. O! these defendants, Chamroo Sao is the purchaser, and Besolal, defendant 2 is t.he son of the other purchaser Mst. Kirti Kuer.

They denied the allegation that Besolal and Mst. Kirti Kuer were their benamidars and contended that the right of redemption has been extinguished by the court sale.

The Trial Court held that the plaintiff had failed to show that the auction purchasers were benamidars of the mortga gees and in that view dismissed the suit.

On appeal, the Additional District Judge, Patna. came to a contrary conclusion. He held that the purchase. though in the name of Besolal and Mst. Kirti Kuer was really by the first and the second defendants. He also accepted the plaintiff's case that under the terms of the mortgage bonds the mort· gagees were liable to pay the rent and the rent sale having been brought about due to the default of the mortgagor and the mortgagee they could not be allowed to take advantage of the sale. So, according to the learned Judge, the equity of

7 S.C.R.

\ /

SUPRK\IE COURT REPOHTS 635

redemption in favour of the plaintiff still subsisted and that he was entitled to redeem the mortgaged property, Accordingly, he set aside the judgment of the Trial Court and passed a _preliminary decree for redemption.

Against this decree the two defendants appealed to the High Court of Patna. The appeal came up for hearing in the first instance before a Single Judge (Mr. Justice Sahai). On a consideration of the evidence, he was of opinion that the liabi- 1ity of rent of 2.67 acres was upon defendant I and that payment of rent of .87 acres which was purchased and 1.76 acres which was taken in ijra, the total being 2.43 acres, was upon defendant 2, that for payment of rent of 3.83 acres was upon the other defendants, and the plaintiff was liable to pay the rent of only about 3.39 acres out of the entire area of 1.67 acres of Khata no. 56 and 10.65 acres of Khata no. 57. The , question which therefore arose was whether s. 90 of the Trusts Act would operate to keep the equity of redemption alive in cases where the sale took place due to the default of the mortgagor as well as the mortgagees, the default on the part of the mortgagees, who purchased the properties at the sale being also substantial, The learned Judge referred this point for decision to a Division Bench.

The Division Bencl:i of the High Court held that s. 90 of the Trusts Act did not apply to these circumstances, In this view the High Court allowed the appeal, set aside the decree of the first appellate court and restored the decree of the Trial Court.

The present appeal by Mst. Basmati Devi, who is the legal representative of the original plaintiff who was substitut- -ed in his place, is against !he High Court's decision dismissing the suit.

In coming to a conclusion that s, 90 of the Trusts Act did not apply to cases where the sale took place due to the default of the mortgagor as well as the mortgagee, the High Court appears to have followed a number of previous decisions of the same High Court.

In support of the appeal it is urged that the view taken by the High Court in the present case as well as the previous decisions of the Patna High Court is incorrect and defeats the very object of s, 90 of the Indian Trusts Act. Section 90 of the Indian Trusts Act is in these words:-

"'Where a tenant for life, co-owner, mortgagee or other qualified owner of any property, by availing himself of his position as such, gains an advantage in

Basrnati Devi

'" Chaniroo Sao and

Others

Das Gupta, J.

Basmati Dem

SUPREl\IE COURT REFORTS [19641.

derogation of the rights of the other persons interest-·

ed in the property, or where any such owner, as re-

Ghamroo Sao and

her

presenting all persons interested in such property,. gaips any advantage, he must hold, for the benefit of alt persons so interested, the advantage so gained

Das Gupta, J. but subject to repayment by such persons of their due share of the expenses properly incurred, and to an indemnity by the same persons against liabilities properly contracted, in gaining such. advantage."

The question for consideration is whether in circumstances like the present where the decree and the sale in execution of it are brought about by the default of both the mortgagor and the mortgagee, the mortgagee can be said to have taken advantage of his positjon by purchasing the property at the sale. The High Court appears to think that unless the sale was brought about by the default of the mortgagee alone the mortgagee cannot be said to have taken advantage of his pgsition in making the purchases. What seems to have weighed with the learned Judges is that even if the mortgagee had done his duty by paying the rent he was liable to pay, the sale would stilt have taken place as the mortgagor did not pay that portion of the rent which he was liable to pay. So, they thought that the mortgagees, though they took advantage of the fact that the property had been brought to sale, could not be said to have taken advantage of their position as mortgagees.

With this view we are unable to agree. Jn our opinion, the fact that the mortgagor had made a default, does not alter the position that the mortgagee had also defaulted in paying the rent he was liable to pay. By his default he has contributed to the position that a suit had to be brought for arrears of rent and ultimately to the position that the property was put to sale in execution of the decree obtained in the suit. This contribution to the bringing about of the sale was a, direct result of his position as a mortgagee. When therefore he purchased the property himself at the sale in execution of the rent decree he clearly gained an advantage by availing himself of his position as a mortgagee. ·

This, in our opinion, is the position in law even if the mortgagee's liability was to pay less than the major portion of the rent of the holdings. Whether this would be true even where the portion which the mortgagee is liable to pay is so very small that the property is not ordinarily likely to be brought to sale for that amount, it is unnecessary for us to decide in the present case.

Tn the present case, the finding is that the liability of the defendants I and 2 was to pay a substantial portion of the rent. To say in such circumstances that they did not take

7 S.C.R.

SUPREME COURT HF.PORTS 637

advantage of their position as mortgagees is entirely unrealistic

Such a construction would put a premium on dishonesty on the part of mortgagees whenever the entire burden of payment of rent was not left .squarely on the mortgagee as under the provision of s. 76 of the Transfer of Property Act.

Mr. Sarjoo Prasad, who appeared before us on behalf of the respondents, tried to persuade us that in any case the plaintiff's suit should fail as regards the lands recorded in Khata No. 57. As, according to him, these mortgagees were not at all liable to pay any portion of the rent of this holding. He drew our attention in this connection to Ex. 2, the mortgage bond executed in favour of Chamroo Sao, and to the statement made therein: "Annual rent payable to the zamindar is the concern of me, the executant". This argument proceeds on the basis that the holding recorded in Khata No. 57 continued to. be separate and distinct from the Khata No. 56. It is thus in direct conflict with the plea of these very defendants in their written statement that the two holdings had been consoiidated into one holding with one rental. As the oral and documentary evidence on the Paper Book prepared in the appeal did not clearly show whether or not these two holdins had become one, we called for one of the documents,

E~. B which seemed likely to throw some light on the

matter. The document has now been received. It is the copy of a judgment of a suit bet\veen these parties in which this very question, viz., whether the two holdings had been consolidated into one or not, was raised. It was decided that such consolidation had taken place. It is clear that it was after such consolidation that the second rent suit was brought in respect of that consolidated holding and it was that consolidated holding which was sold in execution of the decree. It is clear therefore that the mortgage bond Ex.2 in which the mortgagor accepted liability to pay rent to the zamindar in respect of the mortgaged land in Kha ta No. 57 does not affect the correctness of the High Court's finding that the liability to pay rent of the holding that was sold was partly of the mortgagor and partly of the mortgagees ar.d that it was the. default of both the mortgagor and the mortgagees that brought about the sale.

Accordingly, we allow the appeal, set aside the judgment and decree of the High Court and restore the decree made by the Additional District Judge, Patna. A Pleader Commissioner shall be appointed by the trial court on a deposit of Rs. 50 /- as his fees by the present appellant within two months from this date for taking accounts as to the amount due to the defendants on the date of th_e decree. A preliminary decree for redemption shall be passed in the usual terms.

As the suit as also the appeal before the District Judge had been brought in forma pauperis the High Court made an order

1[H]4

v, Cltamnm ~'i'ao ancf

Vthfrs

na~ Gn11to, J.

638 SUPREl\IE COURT REPORTS [1964]

1904 directing the plaintiff to pay the court-fee on the plaint as well Ba"""'' Devi as on the memorandum of appeal. That order is set aside. In-

~ v. stead, we order the first and the second defendants in the suit hamroo Sao awl h f bl h 1 1 h Other• to pay t e courtee pa ya eon t e p amt as a so on t e memorandum of appeal. The present appeal to this Court has also Da• Gup'a, J. been brought by the appellant as a pauper. As she has succeeded in the appeal, we ortler the contesting respondents, i.e., the first and the second defendants, to pay the court fee payable on the memorandum of appeal to this court. The appellant will get her costs from the first and the second defendants throughout.

Appeal allowed_

633

BASMATI DEVI

CHAMROO SAO AND ORS

K. C. DAS GUPTA

RAGHUBAR DAYAL, JJ

s. 90

Trusts Act applies -Trusts Act

s. 90

s. 90

s. 90

March 4, 1958

Patna High Court

R.S. Sinha

R.C. Prasad

Basmati Dni Sarjoo Prasad

B. P. ]

Okamroo Bmi

Das Uupta

DAS GUPTA

Sarifabad

Besolal

Kirti Kuer

Chamroo Sao

Besolal

Additional District Judge, Patna

High Court of Patna

Sahai

s. 90

s. 90

Basmati Devi

Indian Trusts Act

Section 90

Indian Trusts Act

Basrnati Devi

Das Gupta

Basmati Dem

s. 76

Transfer of Property Act

Sarjoo Prasad

Gup'a


7 S.C.R.

SUPREME COURT REPORTS 639

THE MOTOR TRANSPORT CONTROLLER. MAHA-

RASHTRA STATE, BOMBAY AND OTHERS

I'.

PROVINCIAL RASHTRIY A MOTOR KAMGAR UNION,

NAGPUR AND ORS IP. B. GAJENDRAGADKAR, c. J., K. N. WANCHOO AND K. c. DAS

GUPTA, JJ.]

Industrial Dispute-Termination of Service-Validity of nof.ice--AboMion ot al! posts of an establishment-If amounts to reduction of posts-Road Transport Corporations Act 1950(64 of 1950), as amended by Act 87 of 1956, s. 47-A-Central Provinc.s and Berar Industrial Disputes Settlement Act, 1947 (C.P. & l:lerar 23 of 1947), s. 31 Sch. II, Item 1.

As a result of the passing of the States Reorganisation Act. 1956, Vidharbha area which was in the State of Madhya Pradesh became part of the State of Bombay and when the State of Bo:nba.v was divided under the Bombay Reorganisation Act, 1950, the said area remained in the State of Maharashtra. Before 1956. the Bombay State Road Transport Corporation and Provincial Services established under the Road Transport Corporations Act. 1950, \\'ere operating in the States of Bombay and Madhya Pradesh respectively. To meet the situation arising from these territorial changes, Parliament made amendments to the Road Transport Corporations Act, 1950, by which, inter alia s. 47-A i,.vas introduced providing for the reconstitution, reorganisation and dissolution of the corporations established under the Act.

On May, 27, 1961, the Central Government made an Order under s. 47-i\ of the Act, inter alia, approving a scheme for the reorganisation of the Bombay State Road Transport Corporation and

nnalgamating with it the Provincial Transport Services v:hich had, under the Reorganisation Act, 1956, become a. commercial undertaking of the State of Bombay and which had been operating in the Vidharba area. Clause 9(1) of this provided for the abolition of all the posts in the Provincial Transport Services and for discharge of all persons. holding such posts for service but giving such people an option of continuing in the service of the Maharashtra State Road Transport Corporation. Notice ter-

1ninating the services of the persons einployed by the Provincial Trnnsport Services (operating in Vidharba) were issued. Thereupon. t\vo former employees of the Provincial Transport Services and the Union of the workmen of that concern made an application before the High Court of Bombay under Arts. 226 and 227 of the Constitution of India. challenging the validity, inter alia, of the notices of termination of service served on the employees on the ground that the action taken by the Government in abolish- _. ing the posts and issuing notices of termination ofservices of the employees was bad as it contravened, inter alia, the pro-- visions of s. 31 of the Central Provinces and Berar Industrial Di~

putes Settlement Act. 1947.

Held: Abolition of all posts of an establishment did not amount to reduction of posts within the meaning of Item 1 of the Schedule II of the Central Provinces and Berar Industrial Disputes Settlement Act._ 1947; and the Government order aboiishing the posts and terminating the services of the employees

19GI

April S

J96l

The Motor

Transport

640 SUPREl\IE COURT Rl~PORTS

[1964 J

did not aiinount to a change within the meaning of s. 31 of the Act. The Government was, therefore, not required to follow the procedure• mentioned in s. 31.

_lfali:r~:;~~~",; tate CIVIL APPELLATE JURISDICTION: Civil Appeal No. 742 of Bomh"" a .. d Ot1"r; 1963. Appeal from the judgment and order dated July 4. 5,

' 1961 of the Bombay High Court (Nagpur Bench) at Nagpur in Prnl.'inrial - Ra.hlriya Jfotor Special Civil Application No. 150 of 1961.

Kan11.J<Lr Unicm, Jfagpur and Otlura

Das Gupta, J,

S. v: G11pte, Additional Solicitor-General, G. B. Pai, and R. H. Dliebar, for the appellants.

The respondent did not appear.

April 3, 1964. The Judgment of the Court was delivered by

DAs. GUPTA, J.-A short point arises for consideration in this appeal. But to understand how the point arises it is necessary to embark on a somewhat lengthy statement of facts.

Three Road Transport Corporations established under the Road T(ansport Corporation Act, 1950 were operating in the States of Bombay, Madhya Pradesh and Hyderabad in J 956 when the States E.eorganisation Act, 1956 was enacted. These three cdrporations were known as the Bombay State Road

fransport Corporation, the Provincial Transport Service and the State Transport Marathewada respectively. As a result of the reorganisation of the States under the States Reorganisation Ac,, 1956 the former State of Bombay Jost certain of its territories to the newly formed State of Mysore and some areas to, the State of Rajasthan. On the other hand, the State oi Bombay gained the Marathewada from the State of Hyderabad and the Vidharbha area from the State of Madhva Pradesh and certain other areas from the then existing State of Saurashlra and the State of Kutch.· To meet the situation ;; rising from these territorial changes, Parliament passed the Road Transport Corporation Amendment Act, 1956, thus amending the Road Transport Corporation Act, 1950. Section 47; A which was introduced by the amending Act provides fqr the reconstitution, reorganisation and dissolution of the Corporations established under s. 3 of the Act. On December 3 L l 956 an order was made by the Central Government under (he provisions of this section approving a scheme for reorganisation submitted by the Government of Bombay.

By thi~ scheme those areas in which the Bombay State Road transport Corporation had been operating but were transferred under the State Reorganisation Act to the States .of Mysore and Rajasthan were excluded from the area of the operation of the Bombay State Road Transport

Corpoation. This came into force from the !st January, 1957.

Another consequence of the States Reorganisation Act was that the two commercial undertakings which were known as

' '

':..-~J;-'._.;.--;-··": ;\

.- . ' "-'" - ' . ~- . / \ /

7 S.C.R.· . SUPREThIB. COURT :REPORTS 641 ,,

the Provincial Transport Services. and . the State Transport, 1961 Marathewada •. became the commercial iindertakings of the Tho J!otor State of Bombay. Further, territorial changes occurred in the Tra.,, por1 State of Bombay in the year 1960. By the Bombay Reorgani- Controller, sation Act, No. 11 of 1960, the State of Bombay was again f{.':!b;;~'!~;; g~;. divided; part of what was in the former State, was formed v. into a new State by the name of the State of Gujarat, while Pnnincial the remaining area. was named, the State of Maharashtra. In :~~~::cl,{~":" consequence of this scme: other. areas were excluded by an Nagpur and Otn.ra order under s. 47-A of the Act from the area of operation of the Bombay State Road Transport CorjJoiation. The' situa- Da• Gupta, J, tion then was the State Transport, Marathewada, . was operating in the Maharashtra area, the Provincial Transport Service was operating in the Vidharbha area while in the rest of the Maharashtra State the Bombay ·State Transport Corporation was operating. It was when things stood like this that the Central Government made an order on the.27th May; 1961 under s. 47-A of the Amending Act. By this. orde~ it approved a scheme for the ree1rganisation of the Bombay State Road Transport COrporation and amalgamation with' itof the two other transport undertakings of the State Government, viz .. the Provincial Transport Services, and the State Trans; port, Mara.thewada. After the reorganisation the Corporation was to be known as. the Maharashtra State Road Transport Corporation. Clause 9(1) of this Order provided' for the abolition of all the posts in the two undertakings, the Provincial Transport Services. and. the : State Transport Marathewada; and for discharge of all persons holding such postsfrom service. There was a provision, however. , giving such people option either of taking terminal benefits .such as compensation. pension, or gratuity to which they may. be entitled under the rules applicable to them or of continuing as from the !st July 1961 in the service of the Maharashtra State Road Transport Corporation. Sub-clause 2 of cl. 9 provided that every person who as a result of the exercise of such option is continued in the service of the Maharashtra State Transport Corporation shall be entitled to be employed by that Corporation on the same terms and conditions, including pay. as were applicable to him immediately before the appointed day and to count his service under the previous . corporations, for ... a!L purposes .. Sub. clause 3 'of cl. 9 was in these words:.:... . . . . . . . "Nothing '.in; , sub-paragraph (2) shall be deemed to

. affect the right of the Maharashtra State Road -. Transport. Corporation, subject to the provisions . of s. 77 of the Bombay Reorganisation Act, 1960

(11 of. 1960) to determine or vary after the appointed day, the conditions of service of any person who is continued.in the service of the CofPO' _ration". i_:_, . - I.II' Jl)!SCI-21 ._ ,

The .. lfolvr TraiMporl Controller. }.!alwrashtra State.

Bombay a11tl Of/1Pf.>J

Proviiicirrl Rashtriya Jlotor

Kamgar 'fJnion, ),? agpur and Others

Das G1lpta, .J.

SUPREME COURT HEPORTS [1964]

"Provided that the conditions of service ap plicable immediately before the aJtlointed day. to anv such person shall not be varied to his disadvantage. except with the previous approval of the Central Government".

Notices terminatiqg the services of the employees employed by the Provincial Transport Services (operating in Vidharbha) were issued.

On 12th June 1961 an applica lion was made under Art. 226 and Art. 227 of the Constitu

tion by two former employees of the Provincial Transport Services and the Union cf the workmen of that concern -::hal

!enging the validitv of the order of reorganisation made on -the 27th Mav. 1961 and the notices of ter'illination of ser vice served on the employees. The following reliefs were prayed for: (a) that the notices of termination be quashed; ib) that the amalgamation of the Provincial Transport Services with the Bombay State Road Transport Corporation as directed under s. 47-A be not carried out, and {c) that "a writ of mandamus be also issued to respondents 1 to 3 directing them to carry out the obligations under s.25-F and other provisions of retrenchment of the Industrial Disputes Act, 1947, and other provisions of law before taking any action as required by law . and also by paragraph 9 of the order even assuming that the amalgamation order is legal and proper."

Three contentions were raised in support of these prayers. lt was first urged that the order made on the 27th May violated the provisions of s.47-A of the Act and was therefore bad in law, The second contention was thnt the proviso to subcl.3 of cl.9 of the order contravenes the provisions of s.77 of the Bombay Reorganisation Act. Lastly, it was contended that the a.ction taken by the Government in abolishing the posts and issuing notices of termination of services of the employees was bad-firstly because it contravened s.25F (b) and le) of the Industrial Disputes Act and secondly, because it contravened the provisions of s.31 of the C.P. and Berar Industrial Disputes Settlement Act, 1947.

The High Court rejected the first contention that the Government Order violated s.47-A of the Act. It also rejected \he petitioner's contention that the action taken by the Government was bad because of contravention of s.25F (b) and

(c) of the Industrial Disputes Act. The High Court was however of opinion that the proviso to sub-cl. 3 of cl. 9 of the order was bad in law, being in conflict with s.77 of the Bombay Reorganisation Act, but it held that the proviso was severable and its illegality did not affect the working of the ; cheme. The Hi?h Court also accepted the petitioner's contention that the action taken by the Government in issuing notices of termination of services on abolition of posts did not comply with the provision> of s.3 l of the C.P. and Berar Industrial Disputes

Settlement Act and was accordingly invalid. In the result, the 196# High Court quashed the Government resolution for abolition 1'1'e fo10, of posts and the notices of termination that were issued in J'ran.<pc.it consequence thereof. It also ordered the issue of a directi0n, ,1 f 0"''; llcr,, . .

T C . .:1 a11oras11lra ._.., fate dtrectmg the Maharashtra State Road ransport orporahon Homb"'' '""' un,,.~ 'not to take any action under the proviso to sub-paragraph ':· . (3l of paragraph 9 of the Order relating to varying the condi- 1, P, r, 0 ~·· 11", 0 1

1 • • . ,.aeu1 riya J' u vr lions of services to the disadvantage of any of the employees Xnmyar L"nion, who were employees of the first respondent immediately be- Xaypnr and 011, era fore the appointed day, i.e., Ist July 1961." Against these

1,,,, G,,-;,11, J. orders of the High Court, the State of Mahrashtra, the Maharashtra State Road Transport Corporation and the Moter Transport Controller, Maharashtra, have appealed. At the hearing of the appeal nobody appeared before us on behalf of the petitioners in the High Court. The correctness of the High Court's decision that the order of the 27th May, 19"1il did not violate s. 47-A of the Act was not challenged before us.· Nor was the High Court's decision that the Government's action in abolishing posts and terminating services of employees was not bad because of contravention of s. 25F(b) and (c) of the Industrial Disputes Act, que'- tioned before us. We have, therefore, not examined the correctness or otherwise of these conclusions and shall dispose of the appeal on the basis that the decision on these points are correct.

The first contention urged in support of the appeal is that the High Court was wrong in thinking that in ordering the abolition of posts and terminating the services of employees in those posts the Government had contravened the provisions of s. 31 of the C. P. and Berar Industrial Disputes Settlement Act. That section is in these words:-

"31. (I) If an employer intends to effect a change in any standing orders settled under s. 30 or in respect of any industrial matter mentioned in Schedule II, he shall give fourteen days' notice of such intention in the prescribed form to the representative of employees.

(2) The employer shall send a copy of the notice to the Labour Commissioner, Labour Officer and to such other person as may be prescribed and shall a !so affix a. copy of the notice at a conspicuous place on the premises where the employees affected by the proposed change are employed and at such other places as may be specially directed by the Labour Commissioner in any case.

(3) On receipt of such notice the representative of employees concerned shall negotiate with the employers".

L'PiD)IKCT-l(a)

1964 Schedule II of this Act mentions a number of matters, Tht.'llotor the first of which is "Reduction intended to be of permanent Transport or semi-permanent character in the number of persons employ-

Ma/j,~':,':e;~'state, ed or tho be emJ? 1lol?I nhot dHll:ehtoCforce majeuhre". bTh 1 _e. arguf- Bomliay and Others ment t at preva1 eu m t e 1g ourt was t at a o 1tton o all posts amounted to permanent reduction within the meanv.

Provin<ial ing of this Item in Schedule II. If that be correct it would Raihtriya Motor, necessarily follow that the Government had to observe the

N~;::;:;,, p0f::, procedure prescribed in s. 31. Admittedly, that was not done.

The short question, therefore, is whether the abolition of all Dal Gupta, J. posts of an establishment amount to reduction of posts. In our opinion. the word reduction can only be used when something is left after reduction. To speak of abolition as a reduction of the whole thing does not sound sensible or reasonable. We are unable to agree with the High Court that the term "reduction in the number cf persons employed or to be employed" as mentioned in Item l of Schedule II covers abolition of all posts. In our opinion, the Government Order in abolishing the posts and terminating the services of the employees did not amount to a change within the meaning of s~ 31 of the C. P. and Berar Industrial Disputes Settlement Act. The Government was, therefore, not required to follow the procedure mentioned in s. 31.

This brings us to the que~, tion about the validity of the proviso to sub-cl. 3 of cl. 9 of the Order. As already indicated

thf' workmen's contention was that the proviso contravened the provisions of s. 77 of the Bombay Reorganisation Act.

That section contained a prcJvision . that on transfer or reemployment of any workman in consequence of reconstitution, reorganisation, amalgamation or dissolution by any body rnrporate, cooperative society or any commercial undertaking or industrial undertaking the terms and conditions of service applicable to the workman after such transfer or reemployment shall not be less favourable to the workman than those applicable to him immediately before the transfer of reemployment.. It was apparently apprehended by the workmen that though sub-cl. 3 of cl. 9 of the Order did state definitely that the right of the Maharashtra State Road Transport Corporation to determine or vary the conditions of service of any person who is continued in the service of the corporation was subject to the provisions of s. 77 of the Bombay Reorganisation Act, advantage might be taken of the proviso to the sub-clause, which seems at least at first sight to suggest that with the approval of the Central Govern .. ment thtconditions of service of a workman might be varied to his disadvantage notwithstanding the provisions of s. 77 of the Bombay Reorganisation Act. We are informed, however. that there has been no such variation. The petition itself did not contain any specific assertion that there had been any -

7 S.C.R.

SUPRE:~IE COURT REPORTS 645

variation to the disadvantage of any workman. Only an ap- 1vu1 prehension that there might be a change in future was expressn, Mo'"' ed. In the counter-affidavit the Government stated that •he

T"""P'"' Order passed in the notices issued clearly gave a guarantee that a,,,,,.o/hr. the conditions of service will not be changed. If there was any 1!"""'."""',.,, """' • • • iJ111n9a11 rtnrl Otlu, rs reason to thmk that there had been any change m any cond1- v. tions of service or that in the immediate future there was any p,."';,.d,, l l.k l"h d f I 1 . b . d h h f n,,4, i,; ya Motw i e .1 oo o any sc l. c 1ange erng ma e on t e strengt o 1.:_,1111y,1r t.:, iinn, the impugned proviso 1t would have been necessary for us to Sagpw and Ulh•r.• examine the question about the validity of this proviso. As h h b d d . d iJa.\' Ou1Jfrt, .J. owever, no change appears to ave een ma e an 1t oes not appear that there was any apprehension of any change being made in the immediate future, we have thought it desirable to leave this question open-particularly in view of the fact that the workmen were not represented before us in this appeal. We have, therefore, not heard full arguments on this question from the learned Counsel for the appellant.

The decision of the High Court that the proviso is bad is therefore, set aside and the question is left open for decision if and when it becomes really necessary to do so. In view of our decision that the High Court erred in thinking that s. 31 of the C P. and Berar Industrial Disputes Settlement Act had to be applied the High Court's order quashing the abolition of posts and the notices of termination cannot be sustained.

We accordingly allow the appeal, set aside the order of the High Court quashing the Government resolution of the 29th May, 1961 directing the abolition of posts and also its order quashing the notices of termination. As we have set aside the High Court's decision as regards the validity of the proviso to sub-cl. 3 of cl. 9 of the Order and left the matter open, the High Court's direction that no action should be taken under the proviso is also set aside. There will be no order as to costs. ·

Appeal allowed .

THE MOTOR TRANSPORT CONTROLLER. MAHA RASHTRA STATE, BOMBAY AND OTHERS

PROVINCIAL RASHTRIYA MOTOR KAMGAR UNION, NAGPUR AND ORS

K. N. WANCHOO

GUPTA, JJ.

s. 47

s. 31

States Reorganisation Act

Vidharbha

Bombay Reorganisation Act, 1950

Maharashtra

Bombay State Road Transport Corporation

Road Transport Corporations Act

Bombay

Madhya Pradesh

s. 47

May, 27, 1961

Central Government

s. 47

Reorganisation Act, 1956

State of Bombay

Vidharba

Clause 9(1)

High Court of Bombay

Arts. 226 and 227

Constitution of India

s. 31

Schedule II

s. 31

s. 31

Das Gupta

G. B. Pai

R. H. Dliebar

DAs. GUPTA

Corporation Act, 1950

Hyderabad

Mysore

State of Rajasthan

State oi Bombay

Madhva Pradesh

Saurashlra

State of Kutch

Road Transport Corporation Act, 1950

Section 47

s. 3

December 3 L l 956

Government of Bombay

Bombay State Road transport Corporation

Rajasthan

st January, 1957

s. 47

State Transport, Marathewada

Bombay ·State Transport Corporation

the.27th May; 1961

s. 47

Clause 9(1)

clause 2

cl. 9

Maharashtra State Transport Corporation

clause 3

cl. 9

s. 77

Bombay Reorganisation Act, 1960

Das G1lpta

12th June 1961

Art. 226

Art. 227

s. 47

Industrial Disputes Act, 1947

Bombay Reorganisation Act

Industrial Disputes Act

Industrial Disputes Act

cl. 3

cl. 9

Bombay Reorganisation Act

Settlement Act

State of Mahrashtra

27th May, 19"1il

s. 47

s. 25F(b)

Industrial Disputes Act

s. 31

s. 30

Schedule II

Schedule II of this Act

Schedule II

s. 31

Dal Gupta

Schedule II

s. 31

cl. 3

cl. 9

s. 77

Bombay Reorganisation Act

cl. 3

cl. 9

s. 77

Bombay Reorganisation Act

s. 77

Bombay Reorganisation Act

s. 31

29th May, 1961

cl. 3

cl. 9